Managerial Midterm

Gyro Gear Company produces a single product, a special gear used in automatictransmissions. Each gear sells for $28, and the company sells 500,000 gears each year.Unit cost data are presented below:The unit product cost of gears under variable costing is:

A) $13

A company produces a single product. Variable production costs are $12 per unit and variable selling and administrative expenses are $3 per unit. Fixed manufacturing overhead totals $36,000 and fixed selling and administration expenses total $40,000.Assuming a beginning inventory of zero, production of 4,000 units and sales of 3,600 units, the dollar value of the ending inventory under variable costing would be:

A) $4,800

King Company produces a single product. During March, the company had net operating income under absorption costing that was $3,500 lower than under variable costing. The company sold 7,000 units in March, and its variable costs were $7 per unit, of which $3 was variable selling expense. If fixed manufacturing overhead was $2 per unit under absorption costing, then how many units did the company produce during March?

A) 5,250 units

Assembling a product is an example of a

A) Unit-level activity

The labor time required to assemble a product is an example of a:

A) Unit-level activity.

Under absorption costing, fixed manufacturing overhead costs:

A) are deferred in inventory when production exceeds sales

If a cost object such as a product or customer has a positive yellow margin, then:

A) its green margin will be positive

Which of the following statements about activity-based costing (ABC) is false?

A.ABC cannot be used by service businesses.

A manufacturing company that produces a single product has provided the followingdata concerning its most recent month of operations What is the unit product cost for the month under variable costing?

B) $53

Olympia Company produces a single product. Last year, the company had a net operating income of $92,000 using absorption costing and a net operating income of $98,600 using variable costing. If the fixed manufacturing overhead cost was $3.00 per unit for the last two years, and if production was 18,000 units, then sales in unitslast year were:

B) 20,200

Johnson Company produces a single product. Last year, the company had 25,000 units in its ending inventory. Johnson's variable production costs were $10 per unit and fixed manufacturing overhead costs were $5 per unit. The company's net operating income last year was $10,000 higher under variable costing than it was under absorption costing. Given these facts, the number of units of product in beginning inventory last year must have been:

B) 27,000 units

Production order processing is an example of a:

B) Batch-level activity.

Setting up a machine to change from producing one product to another is an example of a:

B) Batch-level activity.

Which of the following costs at a manufacturing company would be treated as a product cost under both absorption costing and variable costing?

B) Yes No

In an income statement prepared using the variable costing method, fixed selling and administrative expenses would:

B) be used in the computation of net operating income but not in the computation of the contribution margin.

In an income statement prepared as an internal report using variable costing, variable selling and administrative expenses would:

B) be used in the computation of the contribution margin

When sales exceed production, the net operating income reported under variable costing generally will be:

B) greater than net operating income reported under absorption costing

When production exceeds sales, the net operating income reported under absorption costing generally will be:

B) greater than net operating income reported under variable costing.

Under variable costing:

B) inventory costs will be lower than under absorption costing.

If a cost object such as a product or customer has a negative red margin, then

B) its green margin may be positive, negative, or zero.

The type of costing that provides the best information for breakeven analysis is:

B) variable costing.

If substantial batch-level or product-level costs exist, then overhead allocation based on a measure of volume such as direct labor-hours alone:

B) will systematically overcost high-volume products and undercost low-volume products.

If sales were to increase by 200 units, what would be the effect on net income?

B. $200 increase

Which of the following is the proper sequence of events in an activity-based costing system?

B.Identification of cost pools, identification of cost drivers, calculation of cost application rates,assignment of cost to products.

Rose Corporation produces a single product. Last year, the company had net operating income of $50,000 using variable costing. Beginning and ending inventories were 13,000 units and 18,000 units, respectively. If the fixed manufacturing overhead costwas $2.00 per unit, what would have been the net operating income using absorption costing?

C) $60,000

Guerra Electronics manufactures a variety of electronic gadgets for use in the home. Which of the following would probably be the most accurate measure of activity touse for allocating the costs of inspecting the finished products at Guerra?

C) Inspection time

Which of the following would probably be the most accurate measure of activity touse for allocating the costs associated with a factory's purchasing department?

C) Number of orders processed

Which of the following is true of a company that uses absorption costing?

C) Unit product costs can change as a result of changes in the number of units manufactured.

In an income statement prepared using the variable costing method, fixed manufacturing overhead would:

C) be used in the computation of net operating income but not in the computation of the contribution margin

A company that produces a single product had a net operating income of $85,500 using variable costing and a net operating income of $90,000 using absorption costing. Total fixed manufacturing overhead was $150,000, and production was 100,000 units. Between the beginning and the end of the year, the inventory level:

C) increased by 3,000 units

If a cost object such as a product or customer has a negative yellow margin, then:

C) its red margin will be negative

Consider the following statements regarding product-sustaining activities: I.They must be done for each batch of product that is made. II.They must be done for each unit of product that is made. III.They are needed to support an entire product line.Which of the above statements is (are) true?

C.III only

Which of the following is least likely to be classified as a facility-level activity in an activity- based costing system?

C.Machine processing cost.

Which of the following tasks is not normally associated with an activity-based costing system?

C.Preparation of allocation matrices.

Many traditional costing systems:

C.combine widely varying elements of overhead into a single cost pool.

The division of activities into unit-level, batch-level, product-sustaining level, and facility-level categories is commonly known as a cost:

C.hierarchy

The process of assigning costs to two or more cost objects requires a. cost tracing b. cost allocation c. cost/benefit analysis d. all of the above

D

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: What is the unit product cost for the month under variable costing?

D) $77

Which of the following costs should not be included in product costs for internal management reports that are used for decision-making?

D) Costs of organization-sustaining activities

Which of the following are included in product costs under variable costing?

D) I

The plant manager's salary is an example of a:

D) Organization-sustaining activity.

Advocates of variable costing argue that:

D) fixed production costs should be charged to the period in which they are incurred.

Under variable costing, fixed manufacturing overhead is

D) immediately expensed as a period cost

Alamo's customer service department follows up on customer complaints by telephone inquiry.During a recent period, the department initiated 7,000 calls and incurred costs of $203,000. If 2,940 of these calls were for the company's wholesale operation (the remainder were for the retaildivision), costs allocated to the retail division should amount to:

D.$117,740

The salaries of a manufacturing plant's management are said to arise from

D.facility-level activities.

Under a traditional costing system, which of the following costs would likely be classified as indirect with respect to the various products manufactured?

E.All of the above would be considered indirect costs

Which of the following is not a broad, cost classification category typically used in activity-basedcosting?

E.Management-level.

A hospital administrator is in the process of implementing an activity-based-costing system. Which of the following tasks would not be part of this process?

E.None of the above, as all these tasks would be part of the process

Which of the following generally fails to signal the need for a new product-costing system?

E.Product-line profit margins are easy to explain

Williams Corporation is changing from a traditional costing system to an activity-based system. As a result of this action, which of the following costs would likely change from indirect to direct?

E.Production setup, finished-goods inspection, and product shipping.

Successful adoptions of activity-based costing typically occur when companies rely heavily on

E.multidisciplinary project teams.

Of the following organizations, activity-based costing cannot be used by:

E.none of the above, as all are able to use this costing system

Saylind Molding paid $280,000 in rent for the year. The company's three departments are headrests, armrests, and air ducts. The departments occupy 5,000, 6,300, and 2,700 square feet, respectively. How much of the rent cost should be allocated to the products made in the air ducts department?

a. $ 54,000

Pacific Northwest Ski Company makes both traditional skis and new parabola-shaped skis that are less stable but turn more easily. During 2009, the company produced 12,000 pairs of traditional skis and 8,000 pairs of the new skis. Materials handling costs to transfer material to different workstations amounted to $20,000. The traditional skis used 150 hours of materials handling time and the new skis used 250 hours. Both types of skis required 3 hours of direct labor per pair of skis. Assuming that all overhead cost is allocated using an activity-based cost system, the amount of materials handling overhead cost assigned to the new skis would be

a. $12,500.

Logan Corporation has 30 employees, 10 in Department A and 20 in Department B. Logan incurred $180,000 in fringe benefits costs last year. How much in fringe benefit costs should be allocated to Department A?

a. 60000

JKL Manufacturing Company uses a cost plus pricing strategy. JKL uses a predetermined overhead rate to allocate fixed manufacturing overhead cost to production on a monthly basis. At the end of the accounting period, it was determined that actual overhead cost was less than the estimated overhead cost; however, the actual volume of production was exactly as expected. Based on this information alone

a. products were overpriced (assigned too much cost) during the accounting period.

Which of the following costs is the result of a facility-level activity?

a. the cost of operating the accounting department

Employees of DTI, Inc. worked 1,600 direct labor hours in January and 1,000 direct labor hours in February. DTI expects to use 18,000 direct labor hours during the year and expects to incur $22,500 of Worker's Compensation insurance cost for the year. The cash payment for this cost will be paid in April. How much insurance premium should be allocated to products made in January and February?

b. $2,000; $1,250

Assuming that Baywatch produced 10,000 life jackets and priced them at production cost plus 40%, the selling price of the product was

b. $22.40.

Coed Novelties manufactures key chains for college bookstores. During 2003, the company had the following costs: 5,000 units produced were in 2003. What is the product cost per unit?

b. 1.80

Avery Industries makes four different products that consume unequal amounts of overhead because of different demands placed on equipment, numbers of setups, and time spent on ordering and handling parts. The amount of labor and materials used for each product does not differ significantly. How should Avery determine the allocation base (or bases) to determine the cost of each product?

b. a number of different activity bases dependent on the cost being allocated

The process of dividing a total cost into parts and assigning the parts among relevant cost objects is called

b. allocation

Dayton Company manufactures four products. It is considering eliminating one of these products because of reported losses. Which of the following costs should not be considered in making this decision?

b. depreciation on the factory building where the four products are made

Setup costs for Banff Company's two products amounted to $2,000. Both products required the same number of setups. The company used 1,200 direct labor hours to produce product A and 2,000 direct labor hours to produce product B. Banff uses a company-wide overhead rate to allocate overhead based on direct labor hours. Based on this information

c. Product B is overcosted by $250.

The Canada Furniture Company manufactures kitchen cabinets. The company has always used direct labor cost to allocate overhead to its two cabinet lines, Heritage and Contemporary. The manufacture of both lines has been labor intensive. Recently, the company automated production of its Contemporary line of cabinets. It continues to use labor dollars as the overhead allocation base for both lines. This practice will likely result in which of the following?

c. Too little overhead cost will be allocated to the Contemporary line.

Which of the following is the most logical cost driver for allocating a business's telephone bill among its four departments?

c. number of telephones

Which of the following would be classified as an indirect cost in a department store? Assume the cost object is the children's department.

c. utilities costs

time value of money focuses on

cash flow

Of the following statements, which is NOT true concerning indirect costs?

d. An indirect cost may be fixed but cannot be variable.

Turo Company's newest product is losing money because of low sales volume. Market surveys suggest that the product is priced higher than its competition. However, the company uses an activity-based costing system and believes the product is priced fairly in relation to its cost. What is the most logical strategy for Turo to pursue?

d. Employ a target pricing system.

The salary of the president of a company should be classified as a

d. facility-level cost.

Which of the following would be considered a batch-level cost?

d. inspection costs for a production run of a product

Costs that cannot be traced to objects in a cost-effective manner are called

indirect costs