Gleim for Cost
M&P Tool has three service departments that support the production area. Outlined below is the estimated overhead by department for the upcoming year: Estimated Number of Service Departments Overhead Employees Receiving $25,000 2 Repair 35,000 2 Tool 10,000 1 Production Departments Assembly 25 Bolting 12 The Repair Department supports the greatest number of departments, followed by the Tool Department. Overhead cost is allocated to departments based upon the number of employees. If M&P uses the direct method of allocation, how much of the Repair Department's overhead will be allocated to the Tool Department?
$0
Paradise Company budgets on an annual basis for its fiscal year. The following beginning and ending inventory levels (in units) are planned for the fiscal year of July 1 through June 30: July 1 June 30 Direct material* 40,000 50,000 Work-in-process 10,000 20,000 Finished goods 80,000 50,000 * Two units of direct material are needed to produce each unit of finished product. If 500,000 complete units were to be manufactured during the fiscal year by Paradise Company, the number of units of raw materials to be purchased is
1,010,000 units.
An enterprise sells three chemicals: petrol, septine, and tridol. Petrol is the company's most profitable product; tridol is the least profitable. Which one of the following events will definitely decrease the firm's overall breakeven point for the upcoming accounting period?
An increase in anticipated sales of petrol relative to sales of septine and tridol.
A corporation is considering three new product lines but can only invest in one of the three. The expected annual revenue and costs for each product line are shown below. All three product lines are assumed to operate for the same length of time. A B C Units 10,000 12,000 15,000 Price/unit $10 $10 $8 Variable cost/unit $4 $5 $6 Fixed costs $25,000 $22,000 $15,000 Recommend which product line the corporation should select to implement.
B only.
Traditional budgeting methods look at historical data and current resources and then project forward. Activity-based budgeting is different in that It looks at desired outcomes and works back from there to determine resources needed. It uses current levels of activity to determine future levels without regard to resources currently available. Being under budget in one year would not necessarily indicate that an operating unit would have its budget cut the following year. The focus is on planning department by department based on resources available.
I and III only.
The allocation of general overhead costs to operating departments can be least justified in determining
The allocation of general overhead costs to operating departments can be least justified in determining
The term "prime costs" refers to
The sum of raw material costs and direct labor costs.
A company has found that its total electricity cost has both a fixed component and a variable component within the relevant range. The variable component seems to vary directly with the number of units produced. Which one of the following statements concerning electricity cost is incorrect?
The total electricity cost per unit of production will increase as production volume increases.
The most important criterion in accurate cost allocations is
Using homogeneous cost pools.
An entity provides the following summary of its total budgeted production costs at three production levels: Volume in Units 1,000 1,500 2,000 Cost A $1,420 $2,130 $2,840 Cost B 1,550 2,200 2,900 Cost C 1,000 1,000 1,000 Cost D 1,630 2,445 3,260 The cost behavior of each of the Costs A through D, respectively, is
Variable, semivariable, fixed, and variable.
Multiple or departmental overhead rates are considered preferable to a single or plantwide overhead rate when
Various products are manufactured that do not pass through the same departments or use the same manufacturing techniques.
A company's breakeven point in sales dollars may be affected by equal percentage increases in both selling price and variable cost per unit (assume all other factors are constant within the relevant range). The equal percentage changes in selling price and variable cost per unit will cause the breakeven point in sales dollars to
remain unchanged
A joint process is a manufacturing operation yielding two or more identifiable products from the resources employed in the process. The two characteristics that identify a product generated from this type of process as a joint product are that it
Is identifiable as an individual product only upon reaching the split-off point, and it has relatively significant sales value when compared with the other products.
A specialty instrument manufacturer is in the process of establishing a cost system. The company produces machines that are unique and distinctive. These machines are produced when purchase requests are received from customers. Although some common parts and sub-assemblies are to be held in inventory, no finished goods inventory is maintained since each purchase request is for a customized specialty instrument. The type of cost accumulation system that would be best suited for this type of environment would be
Job-order costing.
Which one of the following alternatives correctly classifies the business application to the appropriate costing system?
Print shop / Beverage drink manufacturer
A standard-cost system may be used in
Process costing Job-Order costing Activity-Based costing
A continuous (rolling) budget
Is a plan that is revised monthly or quarterly, dropping one period and adding another.
A continuous profit plan
Is a plan that is revised monthly or quarterly.
A manufacturer uses a weighted-average process costing system and has the following costs and activity during October: Materials $40,000 Conversion cost 32,500 Total beginning work-in-process inventory $72,500 Materials $ 700,000 Conversion cost 617,500 Total production costs -- October $1,317,500 Production completed 60,000 units Work-in-process, October 31 20,000 units All materials are introduced at the start of the manufacturing process, and conversion cost is incurred uniformly throughout production. Conversations with plant personnel reveal that, on average, month-end in-process inventory is 25% complete. Assuming no spoilage, how should October manufacturing cost be assigned?
$1,155,000 to completed production; $235,000 to work-in-process.
A review of the year-end accounting records of a company discloses the following information: Raw materials $ 80,000 Work-in-process 128,000 Finished goods 272,000 Cost of goods sold 1,120,000 The company's underapplied overhead equals $133,000. On the basis of this information, cost of goods sold is most appropriately reported as
$1,218,000
A master budget was prepared based on the following projections: Sales $2,400,000 Decrease in inventories 60,000 Decrease in accounts payable 100,000 Gross margin 40% Estimated cash disbursements for inventories are
$1,480,000
If the Shanghai plant uses departmental allocation based on machine hours for the Machining Department and direct labor hours for the Assembly Department, what would the rates be when allocating overhead to the individual products?
$100/hr. $10/hr.
A.P. Hill Corporation uses a process-costing system. Products are manufactured in a series of three departments. The following data relate to Department Two for the month of February: Assume that the company uses the first-in, first-out (FIFO) method of inventory valuation. Under FIFO, how much materials cost did A.P. Hill transfer out of Department Two during February?
$112,500
A company has the following budget formula for annual electricity expense in its shop: Expense = $7,200 + (Units produced × $0.60) If management expects to produce 20,000 units during February, for the purpose of performance evaluation, what amount of expenses should the company expect to incur in February?
$12,600
A conglomerate outsources the cleaning of its theaters. The cleaning vendor's charges are based upon the total hours needed to clean the facilities, and more cleaning time is needed as more people attend the theater. The conglomerate has accumulated the following historical data. Month Cleaning Cost Number of Theater Tickets Sold April $11,000 19,700 May 9,000 17,000 June 15,600 28,000 July 15,000 29,000 The conglomerate anticipates selling 25,000 theater tickets in August. If the conglomerate uses the high-low method of separating costs into their fixed and variable components, the conglomerate's budget for August cleaning costs would be
$13,000
A corporation expects to incur $70,000 of factory overhead and $60,000 of general and administrative costs next year. Direct labor costs at $5 per hour are expected to total $50,000. If factory overhead is to be applied per direct labor hour, how much overhead will be applied to a job incurring 20 hours of direct labor?
$140
An entity estimates its total materials handling costs at two production levels as follows: Cost Gallons $160,000 80,000 $132,000 60,000 What is the estimated total cost for handling 75,000 gallons?
$153,000
A company sells products on account and experiences the following collection schedule: In the month of sale 10% In the month after sale 60% In the second month after sale 30% At December 31, the company reports accounts receivable of $211,500. Of that amount, $162,000 is due from December sales and $49,500 from November sales. The company is budgeting $170,000 of sales for January. If so, what amount of cash should be collected in January?
$174,500
A corporation's current year-end sales totaled $240 million, and its ending cash balance was $20 million. The corporation anticipates its sales for the upcoming year will be $260 million. On average, 10% of a year's sales will be collected during the following year. Assume the corporation has no uncollectible accounts. The corporation also anticipates cash expenses of $240 million and depreciation of $5 million. During the next year, the corporation intends to spend $30 million cash for capital improvements. If the corporation's policy is to have a minimum of $10 million cash available at the beginning of each year, its budgeted cash flow projections indicate that it will need outside financing of
$2 million
Albany Mining Corporation uses a process costing system for its ore extraction operations. The following information pertains to work-in-process inventories and operations for the month of May: Completion % Units Materials Conversion BWIP on May 1 32,000 60% 20% Started in production 200,000 Completed production (184,000) EWIP on May 31 48,000 90% 40% Costs for the month were as follows: BWIP Incurred in May Direct materials $54,560 $ 468,000 Direct labor 20,320 182,880 Factory overhead 15,240 391,160 $90,120 $1,042,040 Using the weighted-average method, Albany Mining's equivalent unit cost of materials for May is
$2.30
A plant has two departments, Machining and Assembly. This year's budget for the plant contained the following information. Machining Assembly Manufacturing overhead $4,000,000 $2,000,000 Direct labor hours 100,000 200,000 Machine hours 410,000 40,000 If the plant uses a plantwide overhead rate based on direct labor hours, what would the rate be?
$20 per hour.
Kelly Company is a retail sporting goods store that uses accrual accounting for its records. Facts regarding Kelly's operations are as follows: Sales are budgeted at $220,000 for December Year 1 and $200,000 for January Year 2. Collections are expected to be 60% in the month of sale and 38% in the month following the sale. Gross margin is 25% of sales. A total of 80% of the merchandise held for resale is purchased in the month prior to the month of sale and 20% is purchased in the month of sale. Payment for merchandise is made in the month following the purchase. Other expected monthly expenses to be paid in cash are $22,600. Annual depreciation is $216,000. Below is Kelly Company's statement of financial position at November 30, Year 1. Assets Cash $ 22,000 Accounts receivable (net of $4,000 allowance for uncollectible accounts) 76,000 Inventory 132,000 Property, plant, and equipment (net of $680,000 accumulated depreciation) 870,000 Total assets $1,100,000 Liabilities and Stockholders' Equity Accounts payable $ 162,000 Common stock 800,000 Retained earnings 138,000 Total liabilities and stockholders' equity $1,100,000
$208,000
Fixed manufacturing overhead costs totaled $150,000 and variable selling costs totaled $75,000. How should these costs be classified under variable costing?
$225,000 period costs; $0 product costs.
Production costs for July are Direct materials $120,000 Direct labor 108,000 Factory overhead 6,000 What is the amount of costs traceable to specific products?
$228,000
A company uses a job costing system and applies overhead to products on the basis of direct labor cost. Job No. 75, the only job in process on January 1, had the following costs assigned as of that date: direct materials, $40,000; direct labor, $80,000; and factory overhead, $120,000. The following selected costs were incurred during the year: The company's profit plan for the year included budgeted direct labor of $320,000 and overhead of $448,000. Assuming no work-in-process on December 31, the company's overhead for the year was
$24,000 overapplied.
A corporation anticipates the following sales during the last 6 months of the year: July $460,000 August 500,000 September 525,000 October 500,000 November 480,000 December 450,000 20% of the corporation's sales are for cash. The balance is subject to the collection pattern shown below. Percentage of balance collected in the month of sale 40% Percentage of balance collected in the month following sale 30% Percentage of balance collected in the second month following sale 25% Percentage of balance uncollectible 5% What is the planned net accounts receivable balance as of December 31?
$294,000.
A company produces one product and budgeted 220,000 units for the month of August with the following budgeted manufacturing costs: Total Costs Cost Per Unit Variable costs $1,408,000 $ 6.40 Batch set-up cost 880,000 4.00 Fixed costs 1,210,000 5.50 Total $3,498,000 $15.90 The variable cost per unit and the total fixed costs are unchanged within a production range of 200,000 to 300,000 units per month. The total for the batch set-up cost in any month depends on the number of production batches that is run. A normal batch consists of 50,000 units unless production requires less volume. In the prior year, the company experienced a mixture of monthly batch sizes of 42,000 units, 45,000 units, and 50,000 units. The company consistently plans production each month in order to minimize the number of batches. For the month of September, the company plans to manufacture 260,000 units. What will be the company's total budgeted production costs for September?
$3,930,000
Atmel, Inc. manufactures and sells two products. Data with regard to these products are given below.
$3.75
A company has sales of one of its products of $400,000 per year and a contribution margin ratio of 20%. Its margin of safety is $40,000. What is the company's breakeven point?
$360,000
Kimbeth Manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining industry. The following information pertains to operations for the month of May. Units Beginning work-in-process inventory, May 1 16,000 Started in production during May 100,000 Completed production during May 92,000 Ending work-in-process inventory, May 31 24,000 The beginning inventory was 60% complete for materials and 20% complete for conversion costs. The ending inventory was 90% complete for materials and 40% complete for conversion costs. Costs pertaining to the month of May are as follows: • Beginning inventory costs are materials, $54,560; direct labor, $20,320; and overhead, $15,240. • Costs incurred during May are materials used, $468,000; direct labor, $182,880; and overhead, $391,160.
$4.50
A gift shop maintains a 35% gross profit percentage on sales and carries an ending inventory balance each month sufficient to support 30% of the next month's expected sales. Anticipated sales for the fourth quarter are as follows: October $42,000 November 58,000 December 74,000 What amount of goods should the gift shop plan to purchase during the month of November?
$40,820
Polk Retailers is developing cash and other budget information for July, August, and September. At June 30, Polk had cash of $6,600, accounts receivable of $524,000, inventories of $371,280, and accounts payable of $159,666. The budget is to be based on the following assumptions: Sales Each month's sales are billed on the last day of the month. Customers are allowed a 2% discount if payment is made within 10 days after the billing date. Receivables are booked gross. 65% of the billings are collected within the discount period, 20% are collected by the end of the month, 10% are collected by the end of the second month, and 5% prove uncollectible. Purchases 60% of all purchases of materials and selling, general, and administrative expenses are paid in the month purchased and the remainder in the following month. Each month's ending inventory in units is equal to 120% of the next month's units of sales. The cost of each unit of inventory is $25. Selling, general, and administrative expenses, of which $3,000 is depreciation, are equal to 20% of the current month's sales. Actual and projected sales are as follows: Dollars Units May $424,000 10,600 June 436,000 10,900 July 428,000 10,700 August 408,000 10,200 September 432,000 10,800 October 440,000 11,000
$407,332
A company has developed the following sales projections for the calendar year. May $100,000 June 120,000 July 140,000 August 160,000 September 150,000 October 130,000 Normal cash collection experience has been that 50% of sales are collected during the month of sale and 45% in the month following sale. The remaining 5% of sales is never collected. The company's budgeted cash collections for the third calendar quarter are
$414,000
The managers of Rochester Manufacturing are discussing ways to allocate the cost of service departments, such as Quality Control and Maintenance, to the production departments. To aid them in this discussion, the controller has provided the following information: Quality Control Maintenance Machining Assembly Total Budgeted overhead costs before allocation $350,000 $200,000 $400,000 $300,000 $1,250,000 Budgeted machine hours -- -- 50,000 -- 50,000 Budgeted direct labor hours -- -- -- 25,000 25,000 Budgeted hours of service: Quality Control -- 7,000 21,000 7,000 35,000 Maintenance 10,000 -- 18,000 12,000 40,000 If Rochester uses the reciprocal method of allocating service costs, the total amount of quality control costs (rounded to the nearest dollar) to be allocated to the other departments would be
$421,053
Kim is thinking of organizing a fundraiser to support a local charity. She has planned to rent a banquet hall and provide the guests with food, entertainment, and various party favors. She has decided to charge $500 a person. After researching around town, Kim has discovered the following costs: Fixed Costs Rental fee of banquet hall $150,000 Advertising 50,000 Entertainment 4,000 Variable Costs Per Guest Food $12 Other miscellaneous costs 8 What is Kim's contribution margin?
$480
Total production costs of prior periods for a company are listed as follows. Assume that the same cost behavior patterns can be extended linearly over the range of 3,000 to 35,000 units and that the cost driver for each cost is the number of units produced. Production in Units per Month 3,000 9,000 16,000 35,000 Cost X $23,700 $ 52,680 $ 86,490 $178,260 Cost Y 47,280 141,840 252,160 551,600 What is the average cost per unit at a production level of 8,000 units for cost X?
$5.98
A cosmetics manufacturer has used a traditional cost accounting system to apply quality control costs uniformly to all products at a rate of 14.5% of direct labor cost. Monthly direct labor cost for makeup is $27,500. In an attempt to distribute quality control costs more equitably, the manufacturer is considering activity-based costing. The monthly data shown in the chart below have been gathered for makeup. Quantity of Activity Cost Driver Cost Rates Makeup Incoming material inspection Type of material $11.50 per type 12 types In-process inspection Number of units $0.14 per unit 17,500 units Product certification Per order $77 per order 25 orders The monthly quality control cost assigned to makeup using activity-based costing (ABC) is
$525.50 higher than the cost using the traditional system.
The following direct labor information relates to the manufacture of televisions. Number of workers 60 Number of product hours per week, per worker 40 Hours required to make 1 unit 3 Weekly wages per worker $600 Employee benefits treated as direct labor costs 20% of wages What is the standard direct labor cost per unit?
$54
Believing that its traditional cost system may be providing misleading information, Farragut Manufacturing is considering an activity-based costing (ABC) approach. It now employs a traditional cost system and has been applying its manufacturing overhead on the basis of machine hours. Farragut plans on using 50,000 direct labor hours and 30,000 machine hours in the coming year. The following data show the manufacturing overhead that is budgeted. Budgeted Budgeted Activity Cost Driver Activity Cost Material handling No. of parts handled 6,000,000 $ 720,000 Setup costs No. of setups 750 315,000 Machining costs Machine hours 30,000 540,000 Quality control No. of batches 500 225,000 Total manufacturing overhead cost: $1,800,000 Cost, sales, and production data for one of Farragut's products for the coming year are as follows: Prime costs: Direct material cost per unit $4.40 Direct labor cost per unit .05 DLH @ $15.00/DLH .75 Total prime cost $5.15 Sales and production data: Expected sales 20,000 units Batch size 5,000 units Setups 2 per batch Total parts per finished unit 5 parts Machine hours required 80 MH per batch If Farragut employs an activity-based costing system, the cost per unit for the product described for the coming year would be
$6.30
A company breaks even at an annual sales volume of 75,000 units. Actual annual sales volume was 100,000 units, and the company reported operating income of $200,000. The annual fixed costs are
$600,000
The data below are available for Xerbert Co.: Xerbert Co. Budget and Actual Income Statements For the Year Ending December 31 (000s omitted) Budget Actual Xenox Xeon Total Xenox Xeon Total Unit sales 150 100 250 130 130 260 Net dollar sales $900 $1,000 $1,900 $780 $1,235 $2,015 Variable expenses (450) (750) (1,200) (390) (975) (1,365) Contribution margin $450 $ 250 $ 700 $390 $ 260 $ 650 Fixed expenses: Manufacturing $ 153 $ 140 Marketing 95 90 Other fixed expenses 200 190 Total fixed expenses $ 448 $ 420 Income before taxes $ 252 $ 230 The variance of actual contribution margin from budgeted contribution margin attributable to sales price is
$65,000 unfavorable.
Goggle-Eyed Old Snapping Turtle, a sporting goods manufacturer, buys wood as a direct material for baseball bats. The Forming Department processes the baseball bats, and the bats are then transferred to the Finishing Department where a sealant is applied. The Forming Department began manufacturing 10,000 "Casey Sluggers" during the month of May. There was no beginning inventory. Costs for the Forming Department for the month of May were as follows: Direct materials $33,000 Conversion costs 17,000 Total $50,000 A total of 8,000 bats were completed and transferred to the Finishing Department; the remaining 2,000 bats were still in the forming process at the end of the month. All of the Forming Department's direct materials were placed in process, but, on average, only 25% of the conversion cost was applied to the ending work-in-process inventory.
$7,600
A manufacturer produces unique tapestries and bedding for hotel chains and uses a job order costing system. During the current month, the manufacturer purchased $50,000 of direct materials and incurred $22,000 in direct labor. Overhead is applied on the basis of direct labor hours at a rate of 60%. Overapplied or underapplied overhead is closed to cost of goods sold at the end of the period. The actual overhead incurred this month was $10,000. Balances in the manufacturer's inventory accounts are presented below. Beginning of month End of month Direct materials BM$2,000 EM$3,500 Work-in-process BM5,000 EM9,000 Finished goods BM2,500 EM1,700 What is the cost of goods manufactured this month?
$79,700
For the month of June, a company expects to sell 12,500 cases of small cherries at $25 per case and 33,000 cases of large cherries at $32 per case. Sales personnel receive a 6% commission on each case of small cherries and an 8% commission on each case of large cherries. To receive a commission on a product, the sales personnel team must meet the individual product revenue quota. The sales quotas for small cherries and large cherries are $500,000 and $1 million, respectively. What are the sales commissions budgeted for June?
$84,480
A company uses a normal costing system and a predetermined overhead rate to allocate its overhead costs. The manufacturing process requires the use of machining equipment, which is a primary driver of overhead. The actual factory overhead amount is $450 for Department A, Job 120 as of the end of the year. Production costs are shown below. Estimated annual overhead for all departments $220,000 Expected annual machine hours for all departments 20,000 Actual machine hours for Department A, Job 120 32 Actual labor hours for Department A, Job 120 21 The overhead cost for Department A, Job 120 is
$98 underapplied.
A firm uses a process-costing system and inspects its goods at the end of manufacturing. The inspection as of June 30 revealed the following information for the month of June: Good units completed 16,000 Normal spoilage (units) 300 Abnormal spoilage (units) 100 Unit costs were: materials, $3.50 and conversion costs, $6.00. The number of units that the firm would transfer to its finished goods inventory and the related cost of these units are
16,000 units transferred at a cost of $154,850.
Rokat Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other institutions. The table tops are manufactured by Rokat, but the table legs are purchased from an outside supplier. The Assembly Department takes a manufactured table top and attaches the four purchased table legs. It takes 20 minutes of labor to assemble a table. The company follows a policy of producing enough tables to ensure that 40% of next month's sales are in the finished goods inventory. Rokat also purchases sufficient direct materials inventory to ensure that direct materials inventory is 60% of the following month's scheduled production. Rokat's sales budget in units for the next quarter is as follows: July 2,300 August 2,500 September 2,100 Rokat's ending inventories in units for June 30 are Finished goods 1,900 Direct materials (legs) 4,000
2,340 tables
Mason Enterprises has prepared the following budget for the month of July: Selling Price Variable Cost Unit Per Unit Per Unit Sales Product A $10.00 $4.00 15,000 Product B 15.00 8.00 20,000 Product C 18.00 9.00 5,000 Assuming that total fixed costs will be $150,000 and the mix remains constant, the breakeven point (rounded to the next higher whole unit) will be
21,819 units.
A manufacturer is considering dropping a product line. It currently produces a multi-purpose woodworking clamp in a simple manufacturing process that uses special equipment. Variable costs amount to $6.00 per unit. Fixed overhead costs, exclusive of depreciation, have been allocated to this product at a rate of $3.50 a unit and will continue whether or not production ceases. Depreciation on the special equipment amounts to $20,000 a year. Fixed costs are $18,000. The clamp has a selling price of $10 a unit. Ignoring tax effects, the minimum number of units that would have to be sold in the current year to break even on a cash flow basis is
4,500
Superflite expects April sales of its deluxe model airplane, the C-14, to be 402,000 units at $11 each. Each C-14 requires three purchased components shown below. Number Needed Purchase Cost for Each C-14 Unit A-9 $0.50 1 B-6 0.25 2 D-28 1.00 3 Manufacturing direct labor and variable overhead per unit of C-14 totals $3.00. Fixed manufacturing overhead is $1.00 per unit at a production level of 500,000 units. Superflite plans the following beginning and ending inventories for the month of April and uses standard absorption costing for valuing inventory. Part No. Units at April 1 Units at April 30 C-14 12,000 10,000 A-9 21,000 9,000 B-6 32,000 10,000 D-28 14,000 6,000 Superflite's C-14 production budget for April should be based on the manufacture of
400,000 units.
Levittown Company employs a process cost system for its manufacturing operations. All direct materials are added at the beginning of the process and conversion costs are added proportionately. Levittown's production quantity schedule for November is reproduced in the next column. Work-in-process November 1 (60% complete as to conversion costs) 1,000 Units started during November 5,000 Total units to account for 6,000 Units completed and transferred out from beginning inventory 1,000 Units started and completed during November 3,000 Work-in-process on November 30 (20% complete as to conversion costs) 2,000 Total units accounted for 6,000
5000 units
A firm uses a weighted-average process-costing system. Material B is added at two different points in the production of shirms, 40% is added when the units are 20% completed, and the remaining 60% of Material B is added when the units are 80% completed. At the end of the quarter, there are 22,000 shirms in process, all of which are 50% completed. With respect to Material B, the ending shirms in process represent how many equivalent units?
8,800
A sales budget shows quarterly sales for the next year as follows: Quarter Units 1 10,000 2 8,000 3 12,000 4 14,000 Company policy is to have a finished goods inventory at the end of each quarter equal to 20% of the next quarter's sales. Budgeted production for the second quarter of the next year would be
8,800 units.
The budget data for the Bidwell Company appear below. Sales (100,000 units) $1,000,000 Costs: Fixed Variable Direct materials $ 0 $300,000 Direct labor 0 200,000 Manufacturing overhead 100,000 150,000 Selling and administrative costs 110,000 50,000 Total costs $210,000 $700,000 910,000 Budgeted operating income $ 90,000 If fixed costs increased $31,500 with no other cost or revenue factors changing, the breakeven sales in units is
80,500 units.
A firm manufactures only one product and is preparing its budget for next year based on the following information: Selling price per unit $ 100 Variable costs per unit 75 Fixed costs 250,000 Effective tax rate 35% If the firm wants to achieve a net income of $1.3 million next year, its sales must be
90,000 units.
An advantage of incremental budgeting when compared with zero-based budgeting is that incremental budgeting
Accepts the existing base as being satisfactory.
Which of the following statements about activity-based costing (ABC) is false?
Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.
Historically, Pine Hill Wood Products has had no significant bad debt experience with its customers. Cash sales have accounted for 10% of total sales, and payments for credit sales have been received as follows: 40% of credit sales in the month of the sale 30% of credit sales in the first subsequent month 25% of credit sales in the second subsequent month 5% of credit sales in the third subsequent month The forecast for both cash and credit sales is as follows: Month Sales January $95,000 February 65,000 March 70,000 April 80,000 May 85,000 Due to deteriorating economic conditions, Pine Hill Wood Products has now decided that its cash forecast should include a bad debt adjustment of 2% of credit sales, beginning with sales for the month of April. The 5% collection in the fourth month should be reduced to reflect the bad debt. Because of this policy change, the total expected cash inflow in April related to sales made in April will
Be unchanged.
All of the following would appear on a projected schedule of cost of goods manufactured except for
Beginning finished goods inventory.
Which one of the following best describes direct labor?
Both a product cost and a prime cost.
The master budget
Contains the operating budget.
A firm has prepared budgets for the next 5 months: May, June, July, August, and September. As soon as May results are reported, the firm will add October to their budget plans. What type of budget system is the firm using?
Continuous budgeting.
Due to a change in market conditions, a company finds that it can sell as many of each of its three main products as it can produce. Which one of the following is most important in determining which of the three products to produce and market?
Contribution margin per hour of production time available.
When allocating costs from one department to another, a dual-rate cost-allocation method may be used. The dual-rate cost-allocation method is most useful when
Costs are separated into variable-cost and fixed-cost subpools.
Conversion cost pricing
Could be used when the customer furnishes the material used in manufacturing a product.
In developing the budget for the next year, which one of the following approaches would produce the greatest amount of positive motivation and goal congruence?
Have the divisional and senior management jointly develop goals and the divisional manager develop the
In developing a comprehensive budget for a manufacturing company, which one of the following items should be done first
Development of a sales plan.
Assuming two overhead accounts are used, what is the entry to close them and to charge underapplied overhead to cost of goods sold?
Factory O/H applied XX Cost of goods sold XX Factory O/H control XX
A manufacturing process normally produces defective units equal to 1% of production. Defective units are subsequently reworked and sold. The cost of reworking these defective units should be charged to
Factory overhead control.
The difference between the $99.98 suggested selling price for Huron's video disc cleaning unit and its total unit cost of $88.00 represents the unit's
Gross profit.
Normal costing systems are said to offer a user several distinct benefits when compared with actual costing systems. Which one of the following is not a benefit associated with normal costing systems?
Improved accuracy of job and product costing.
The controller of a store has asked a staff accountant to prepare detailed reports that summarize the firm's cash flows for the upcoming accounting period and cash position at the end of the period. Accordingly, the controller has requested preparation of a cash budget, a pro forma statement of cash flows, a detailed listing of cash collections from customers, and a detailed listing of cash payments for merchandise purchases. Which one of the following correctly identifies the first and last document to be prepared by the accountant?
Listing of cash collections Pro forma statement of cash flows
A capital-intensive manufacturer of large construction equipment has a manufacturing process that relies heavily on specialized machinery. This machinery is run by a relatively small number of highly skilled laborers. In determining its predetermined overhead rate, what allocation base should the company use?
Machine hours.
The two most appropriate factors for budgeting manufacturing overhead expenses would be
Management judgment and production volume.
Costs are allocated to cost objects in many ways and for many reasons. Which one of the following is a purpose of cost allocation?
Measuring income and assets for external reporting.
A company wants to determine its marketing costs for budgeting purposes. Activity measures and costs incurred for 4 months of the current year are presented in the table below. Advertising is considered to be a discretionary cost. Salespersons are paid monthly salaries plus commissions. The sales force was increased from 20 to 21 individuals during the month of May.
Mixed cost $16,000 per month plus $1.40 per unit sold
A company budgeted $148,000 sales on account for June, $120,000 for July, $211,000 for August, $198,000 for September, and $164,000 for October. Collection experience indicates that 60% of the budgeted sales will be collected the month after the sale, 36% will be collected the second month, and 4% will be uncollectible. Which month should have the largest amount of cash receipts from accounts receivable budgeted?
October.
Siberian Ski Company recently expanded its manufacturing capacity to allow it to produce up to 15,000 pairs of cross-country skis of the mountaineering model or the touring model. The sales department assures management that it can sell between 9,000 pairs and 13,000 pairs (units) of either product this year. Because the models are very similar, Siberian Ski will produce only one of the two models. The information below was compiled by the accounting department. Model Mountaineering Touring Selling price per unit $88.00 $80.00 Variable costs per unit 52.80 52.80 Fixed costs will total $369,600 if the mountaineering model is produced but will be only $316,800 if the touring model is produced. Siberian Ski is subject to a 40% income tax rate. If the Siberian Ski Company Sales Department could guarantee the annual sale of 12,000 pairs of either model, Siberian Ski would
Produce 12,000 pairs of mountaineering skis because they are more profitable.
A primary reason for a company to change from traditional costing to activity-based costing (ABC) is that ABC
Reduces product undercosting or overcosting.
A furniture company manufactures several steel products. It has three production departments: Fabricating, Assembly, and Finishing. The service departments include Maintenance, Material Handling, and Designing. Currently, the company does not allocate service department costs to the production departments. The new cost accountant believes that service department rates should be developed and charged to the production departments for services requested. If the company adopts this new policy, the production department managers would be least likely to
Request an excessive amount of service.
A company is determining the cost behavior of several items in order to budget for the upcoming year. Past trends have indicated the following dollars were spent at three different levels of output: Unit Levels 10,000 12,000 15,000 Cost A $25,000 $29,000 $35,000 Cost B 10,000 15,000 15,000 Cost C 15,000 18,000 22,500 In establishing a budget for 14,000 units, the company should treat Costs A, B, and C, respectively, as
Semivariable, fixed, and variable.
There are several methods for allocating service department costs to the production departments. The method that recognizes service provided by one service department to another but does not recognize reciprocal interdepartmental service is the
Step-down method.
A company has a beginning cash balance of $10,000 and expects $40,000 in cash receipts for each of the next 2 months. Typically, disbursements total about $20,000 per month. The company's payables policy has been to pay the bills upon receipt to maintain good vendor relationships and take advantage of any discounts. In month 1, the company also expects a one-time $40,000 bill for a patent application. Based on this information, select the statement below that reflects the most appropriate action that the company should take relative to the company's cash position during the 2-month period.
The company should arrange a short-term line of credit large enough to cover the projected $10,000 shortfall during the first month.
A company has discovered that the cost of processing customer invoices is strictly variable within the relevant range. Which one of the following statements concerning the cost of processing customer invoices is incorrect?
The cost per unit for processing customer invoices will decline as the volume of customer invoices increases.
Generally, individual departmental rates rather than a plantwide rate for applying manufacturing overhead are used if
The manufactured products differ in the resources consumed from the individual departments in the plant.
An assembly plant accumulates its variable and fixed manufacturing overhead costs in a single cost pool, which is then applied to work in process using a single application base. The assembly plant management wants to estimate the magnitude of the total manufacturing overhead costs for different volume levels of the application activity base using a flexible budget formula. If there is an increase in the application activity base that is within the relevant range of activity for the assembly plant, which one of the following relationships regarding variable and fixed costs is true?
The variable cost per unit and the total fixed costs remain constant
The allocation of costs to particular cost objects allows a firm to analyze all of the following except
Why the sales of a particular product have increased.
During the production of its single product, a company discovers that an unusual overnight power failure ruined an entire day's in-process production. How should the cost of these spoiled units be charged?
Written off as a loss
A home building company offers its customers the choice of 1 of 12 home designs on lots located in several developing areas. During its 15-year existence, the company created its annual budget by adjusting the prior year's actual results for changes in inflation as well as in projected volume. During this time, the company's profit margins have been among the lowest of all of the local home builders. Ownership of the company recently changed. New management believes there has been significant unnecessary spending in many areas of the company, although they do not know exactly where or to what extent overspending occurred. To improve profitability, the type of budgeting system the company's new management should implement is
Zero-based budgeting.
The board of directors is concerned that the budget committee has fallen into the practice of applying a flat 3% growth to the prior year performance, placing too much emphasis on the past and not focusing on the future opportunities and related activities required to achieve them. The board would like the committee to take a different approach: Evaluate the activities needed to meet the strategic goals of the company and allocate resources accordingly, requiring management to justify each function and associated costs. Which budget methodology is the board recommending?
Zero-based budgeting.
