Midterm 2

B

A reason why absorption costing income statements are sometimes difficult to interpret is that: A.) They ignore inventory levels in determining cost of goods sold. B.) They shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories. C.) They include all fixed manufacturing overhead on the income statement each year as a period cost. D.) They omit variable expenses entirely in computing net operating income.

b

Explanation Derst Inc. sells a particular textbook for $31. Variable expenses are $22 per book. At the current volume of 45,000 books sold per year the company is just breaking even. Given these data, the annual fixed expenses associated with the textbook total: a.) $990,000 b.) $405,000 c.) $1,395,000 d.) $1,800,000

b

Helmers Corporation manufactures a single product. Variable costing net operating income last year was $103,000 and this year was $123,500. Last year, $38,400 in fixed manufacturing overhead costs were released from inventory under absorption costing. This year, $14,500 in fixed manufacturing overhead costs were deferred in inventory under absorption costing. What was the absorption costing net operating income last year? a.) $141,400 b.) $64,600 c.) $109,000 d.) $103,000

c

If variable manufacturing overhead is applied on the basis of direct labor-hours and the variable overhead rate variance is favorable, then: a.) the standard direct labor-hours allowed for the actual output exceeded the actual hours. b.) the actual direct labor-hours exceeded the standard direct labor-hours allowed for the actual output. c.) the standard variable overhead rate exceeded the actual rate. d.) the actual variable overhead rate exceeded the standard rate.

False

In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure.

a

Sabv Corporation's break-even-point in sales is $990,000, and its variable expenses are 75% of sales. If the company lost $49,000 last year, sales must have amounted to: a.) $794,000 b.) $892,000 c.) $941,000 d.) $693,500

True

The basic idea underlying responsibility accounting is that a manager should be held responsible for those items—and only those items—that the manager can actually control to a significant extent.

False

The disbursements section of a cash budget consists of all cash payments for the period except cash payments for dividends.

a

The manufacturing overhead budget at Franklyn Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 2,300 direct labor-hours will be required in January. The variable overhead rate is $6 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $43,070 per month, which includes depreciation of $3,690. All other fixed manufacturing overhead costs represent current cash flows. The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: a.) $53,180 b.) $56,870 c.) $39,380 d.) $13,800

b

The total gross margin for the month under the absorption costing approach is: a.) $69,890 b.) $86,760 c.) $132,550 d.) $56,000

True

True or False: If a cost must be arbitrarily allocated in order to be assigned to a particular segment, then that cost should be considered a common cost.

True

True or False: Material price variances are often isolated at the time materials are purchased, rather than when they are placed into production, to facilitate earlier recognition of variances.

True

True or False: Under the absorption costing method, a company can increase profits simply by increasing the number of units produced.

True

True or False: When the activity measure is the number of units sold, the revenue variance is favorable if the average actual selling price is greater than expected.

False

Two companies with the same margin of safety in dollars will also have the same total contribution margin.

a

a.) $180,900 b.) $150,750 c.) $52,500 d.) $35,000

d

a.) $2,000,000 b.) $1,810,000 c.) $1,080,000 d.) $730,000

a

a.) $210,000 b.) $300,000 c.) $182,000 d.) $260,000

c

a.) $261,000 b.) $100,000 c.) $186,000 d.) $237,000

c

a.) $31,630 b.) $30,700 c.) $34,300 d.) $40,700

c

a.) $8.00 per pound b.) $7.88 per pound c.) $8.10 per pound d.) $8.12 per pound

a

a.) $84,350 b.) $83,650 c.) $83,475 d.) $85,860

c

a.) $9,900 U b.) $9,900 FI c.) $10,400 F d.) $10,400 U

b

a.) 7,550 units b.) 7,334 units c.) 7,717 units d.) 8,089 units