MGMT 201 Exam 1

The cost of electricity for running production equipment is classified as:

Conversion costs: yes Period Cost: no

Manufacturing overhead includes:

all manufacturing costs except direct labor and direct materials

Product Costs that have become expenses can be found in:

Cost of goods sold

differential costs can

be either fixed or variable

Wessner Corporation has provided the following information: Cost per UnitCost per PeriodDirect materials$ 6.20 Direct labor$ 2.80 Variable manufacturing overhead$ 1.45 Fixed manufacturing overhead $ 12,000Sales commissions$ 1.00 Variable administrative expense$ 0.55 Fixed selling and administrative expense $ 4,000 If 5,000 units are produced, the total amount of manufacturing overhead cost is closest to:

$19,250

Direct Costs:

can be easily traced to a particular cost object

The relative proportion of variable, fixed, and mixed costs in a company is known as the company's:

cost structure

Ouelette Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 5,000 units, its average costs per unit are as follows: Average Cost per UnitDirect materials$5.25Direct labor$4.05Variable manufacturing overhead$1.30Fixed manufacturing overhead$3.00Fixed selling expense$0.70Fixed administrative expense$0.40Sales commissions$0.50Variable administrative expense$0.45 If 6,000 units are produced, the total amount of indirect manufacturing cost incurred is closest to:

$22,800

Given the cost formula, Y = $16,000 + $3.40X, total cost for an activity level of 4,000 units would be:

$29,600

A partial listing of costs incurred at Archut Corporation during September appears below: Direct materials$ 113,000Utilities, factory$ 5,000Administrative salaries$ 81,000Indirect labor$ 25,000Sales commissions$ 48,000Depreciation of production equipment$ 20,000Depreciation of administrative equipment$ 30,000Direct labor$ 129,000Advertising$ 135,000 The total of the product costs listed above for September is:

$292,000

The University Store, Incorporated is the major bookseller for four nearby colleges. An income statement for the first quarter of the year is presented below: University Store, IncorporatedIncome StatementFor the Quarter Ended March 31Sales $ 800,000Cost of goods sold 560,000Gross margin 240,000Selling and administrative expenses Selling$ 100,000 Administrative110,000210,000Net operating income $ 30,000 On average, a book sells for $40.00. Variable selling expenses are $3.00 per book; the remaining selling expenses are fixed. The variable administrative expenses are 5% of sales; the remainder of the administrative expenses are fixed. The net operating income computed using the contribution approach for the first quarter is:

$30,000

Management of Mcgibboney Corporation has asked your help as an intern in preparing some key reports for November. Direct materials cost was $42,000, direct labor cost was $25,000, and manufacturing overhead was $62,000. Selling expense was $21,000 and administrative expense was $38,000. The conversion cost for November was:

$87,000

Which of the following is an example of a period cost in a company that makes clothing

advertising cost for a new line of clothing

Dake Corporation's relevant range of activity is 2,000 units to 6,000 units. When it produces and sells 4,000 units, its average costs per unit are as follows: Average Cost per UnitDirect materials$ 6.55Direct labor$ 3.50Variable manufacturing overhead$ 1.40Fixed manufacturing overhead$ 2.60Fixed selling expense$ 0.70Fixed administrative expense$ 0.40Sales commissions$ 1.50Variable administrative expense$ 0.45 For financial reporting purposes, the total amount of product costs incurred to make 4,000 units is closest to:

56,200

Wages paid to the supervisor of the warehouse where raw materials and parts are temporarily stored before being used in production is considered an example of:

Direct Labor: no Period Cost: no

The fixed portion of the cost of electricity for a manufacturing facility is classified as a:

Period: no Product: yes

fixed costs expressed on a per unit basis:

decrease with increases in activity

As the level of activity increases, how will a mixed cost in total and per unit behave?

in total: increase per unit: decrease

The cost of direct materials is classified as a

no: conversion cost yes: prime cost

Property taxes on a company's factory building would be classified as

product cost

Gabel Incorporated is a merchandising company. Last month the company's merchandise purchases totaled $63,000. The company's beginning merchandise inventory was $13,000 and its ending merchandise inventory was $15,000. What was the company's cost of goods sold for the month?

$61,000

Paolucci Corporation's relevant range of activity is 4,000 units to 8,000 units. When it produces and sells 6,000 units, its average costs per unit are as follows: Average Cost per UnitDirect materials$ 6.45Direct labor$ 3.30Variable manufacturing overhead$ 1.25Fixed manufacturing overhead$ 3.00Fixed selling expense$ 1.05Fixed administrative expense$ 0.60Sales commissions$ 1.00Variable administrative expense$ 0.50 If 5,000 units are sold, the variable cost per unit sold is closest to:

12.50

Which of the following costs could contain both variable and fixed cost elements with respect to the total output of the company?

manufacturing overhead

materials used in a factory that are not an integral part of the final product, such as cleaning supplies, should be classified as:

manufacturing overhead

Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $360,000 or a new model 220 machine costing $340,000 to replace a machine that was purchased 7 years ago for $348,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L. Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $340,000 in the new machine, the money could be invested in a project that would return a total of $411,000. In making the decision to invest in the model 220 machine, the opportunity cost was:

411,000

Schwiesow Corporation has provided the following information: Cost per UnitCost per PeriodDirect materials$ 7.05 Direct labor$ 3.50 Variable manufacturing overhead$ 1.65 Fixed manufacturing overhead $ 11,000Sales commissions$ 1.00 Variable administrative expense$ 0.40 Fixed selling and administrative expense $ 5,500 If 6,000 units are produced, the total amount of direct manufacturing cost incurred is closest to:

63,300

The cost of direct materials is classified as a

Conversion Cost: no Prime Cost: yes

Direct labor cost is classified as:

Conversion Cost: yes Prime cost: yes

The costs of direct materials are classified as:

Conversion cost: no Manufacturing cost: yes Prime cost: yes

Wages paid to the supervisor of the warehouse where raw materials and parts are temporarily stored before being used in production is considered an example of:

Direct labor: no Period Cost: no

Which of the following statements is true when referring to fixed costs?

Discretionary fixed costs can often be reduced to zero for short periods of time without seriously impairing to long-run goals of the company

Which of the following production costs, if expressed on a per unit basis, would be most likely to change significantly as the production level varies?

Fixed manufacturing overhead

Which of the following statements is correct in describing manufacturing overhead?

Manufacturing overhead consists of all manufacturing cost except for prime cost.

Which of the following statements about product costs is true?

Product costs associated with unsold finished goods and work in process appear on the balance sheet as assets

Which of the following is unlikely to be classified as a fixed cost with respect to the number of units produced and sold

Production Supplies

Comparative income statements for Boggs Sports Equipment Company for the last two months are presented below: JulyAugustSales in units11,00010,000Sales$ 165,000$ 150,000Cost of goods sold72,60066,000Gross margin92,40084,000Selling and administrative expenses: Rent$ 12,000$ 12,000Sales commissions$ 13,200$ 12,000Maintenance expenses$ 13,500$ 13,000Clerical expense$ 16,000$ 15,000Total selling and administrative expenses$ 54,700$ 52,000Net operating income$ 37,700$ 32,000 All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed). Assume that the relevant range includes all of the activity levels mentioned in this problem. Which of the selling and administrative expenses of the company is variable?

Sales Commissions

Which of the following would most likely NOT be included as manufacturing overhead in a furniture factory?

The amount paid to the individual who stains a chair

Which of the following is correct concerning reactions to INCREASES in activity?

Total Variable Cost: increase Variable Cost Per Unit: Constant

Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device. Rent on the administrative office space is:

a period cost

Depreciation on a personal computer used in the marketing department of a manufacturing company would be classified as:

a period cost that is fixed with respect to the company's output

The salary paid to the president of a company would be classified on the income statement as an:

administrate expense

which costs will change with a decrease in activity within the relevant range

Unit fixed costs and total variable cost

The following data have been collected for four different cost items. Cost Item Cost at 100 units Cost at 140 units W$8,000 $10,560 X$5,000$ 5,000 Y$6,500$ 9,100 Z$6,700$ 8,580 Which of the following classifications of these cost items by cost behavior is correct

W: Mixed X: Fixed Y: variable Z: mixed

Which of the following statements concerning direct and indirect costs is NOT true

Whether a particular cost is classified as direct or indirect does

The University Store, Incorporated is the major bookseller for four nearby colleges. An income statement for the first quarter of the year is presented below: University Store, IncorporatedIncome StatementFor the Quarter Ended March 31Sales $ 800,000Cost of goods sold 560,000Gross margin 240,000Selling and administrative expenses Selling$ 100,000 Administrative110,000210,000Net operating income $ 30,000 On average, a book sells for $40.00. Variable selling expenses are $3.00 per book; the remaining selling expenses are fixed. The variable administrative expenses are 5% of sales; the remainder of the administrative expenses are fixed. The cost formula for selling and administrative expenses with "X" equal to the number of books sold is:

Y = $110,000 + $5X

An example of a committed fixed cost is:

a long-term equipment lease

Which of the following is NOT a period cost?

depreciation of factory maintenance equipment

All of the following are examples of product cost except:

depreciation on the company's retail outlets

Rotonga Manufacturing Company leases a vehicle to deliver its finished products to customers. Which of the following terms correctly describes the monthly lease payments made on the delivery vehicle?

direct cost: no Fixed cost: no

Which of the following costs is classified as both a prime cost and a conversion cost?

direct labor

Prime Cost consist of:

direct materials and direct labor

For the past 8 months, Jinan Corporation has experienced a steady increase in its cost per unit even though total costs have remained stable. This cost per unit increase may be due to _____________ costs if the level of activity at Jinan is _______________.

fixed, decreasing

When the level of activity decreases within a relevant range, the fixed cost per unit will:

increase

A factory supervisor's wages are classified as

indirect labor: yes fixed manufacturing overhead: yes

the cost of lubricants used to grease a production machine in a manufacturing company is an example of an:

indirect material cost

Dizzy Amusement Park is open from 8:00 am till midnight every day of the year. Dizzy charges its patrons a daily entrance fee of $30 per person which gives them unlimited access to all of the park's 35 rides. For liability insurance, Dizzy pays a set monthly fee plus a small additional amount for every patron entering the park. The cost of liability insurance would best be described as a:

mixed cost

Factory overhead is typically a

mixed cost

contribution margin is:

sales less variable production, variable selling, and variable and administrative expenses

One full-time clerical worker is needed for every 750 accounts receivable. The total wages of the accounts receivable clerks is an example of a:

step-variable cost

A cost incurred in the past that is not relevant to any current decision is classified as a(n):

sunk cost

The term that refers to costs incurred in the past that are not relevant to decision is:

sunk cost

All of the following can be differential costs except:

sunk costs

An example of a committed fixed cost would be:

taxes on real estate

In the standard cost formula Y=a+bX what does the "X" represent?

the level of activity

In the standard cost formula Y=a+bX what does the "Y" represent?

total cost

A merchandising company typically will have a high proportion of which type of cost in its cost structure

variable

For an automobile manufacturer, the cost of a driver's side air bag purchased from a supplier and installed in every automobile would best be described as a:

variable cost

Within the relevant range, a difference between variable costs and fixed costs is:

variable costs per unit are constant and fixed costs per unit flutuate

Within the relevant range, variable costs can be expected to:

vary in total in direct proportion to changes in the activity level