pt 2

A company that uses a just-in-time inventory system:

may find that having less inventory actually leads to increased customer satisfaction.

A cost that contains both fixed and variable elements is referred to as a:

mixed cost

Budgeting that involves the development of a master budget to direct the firm's activities over the short term is referred to as:

operations budgeting.

Budgeted sales commissions would appear on the:

selling, general, and administrative budget and pro forma income statement

Tisdale Company started the year with the following beginning account balances: Raw Materials Inventory, $42,000; Work in Process Inventory, $90,000; and Finished Goods Inventory, $20,000. During the year, the company purchased $60,000 of raw materials and ended the year with $16,000 of raw materials. Direct labor costs for the year were $120,000 and a total of $36,000 of manufacturing overhead costs were incurred. Ending work in process was $82,000 and ending finished goods was $35,000. Goods were sold to customers during the year for $360,000. How much gross margin would be reported for the year?

$125,000 Direct raw materials used = Beginning raw materials inventory + Purchases − Ending raw materials inventory Direct raw materials used = $42,000 + $60,000 − $16,000 = $86,000 Total manufacturing costs = Direct materials used + Direct labor + Actual overhead costs Total manufacturing costs = $86,000 + $120,000 + $36,000 = $242,000 Cost of goods manufactured = Beginning work in process + Total manufacturing costs − Ending work in process Cost of goods manufactured = $90,000 + $242,000 − $82,000 = $250,000 Cost of goods sold = Beginning finished goods + Cost of goods manufactured − Ending finished goods Cost of goods sold = $20,000 + $250,000 − $35,000 = $235,000 Gross margin = Sales − Cost of goods sold Gross margin = $360,000 − $235,000 = $125,000

Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: Dec. Year 1Jan. Year 2Feb. Year 2Mar. Year 2 (Actual)(Budgeted)(Budgeted)(Budgeted)Cost of goods sold$80,000 $140,000 $180,000 $120,000 Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February Year 2 would be:

$165,000.

Scranton Company expects to begin operating on July 1, Year 1. The company's master budget contained the following operating expense budget: JulyAugustSeptemberSalary expense$36,000 $36,000 $36,000 Sales commissions, 5% of sales 30,000 32,000 24,000 Utilities 2,800 2,800 2,800 Depreciation on store equipment 1,000 1,000 1,000 Rent 7,200 7,200 7,200 Miscellaneous 1,800 1,800 1,800 Total operating expenses$78,800 $80,800 $72,800 Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of commissions payable that would appear on the company's pro forma balance sheet as of September 30, Year 1 is:

$24,000.

bantam Industries has budgeted the following information for March: Cash receipts$271,000 Beginning cash balance 5,000 Cash payments 280,000 Desired ending cash balance 25,000 If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments, and interest is paid monthly at 1% on the first day of the following month. The company had no debt before March 1. How much cash will the company need to borrow in March?

$29,000

The magnitude of operating leverage for Forbes Corporation is 3.3 when sales are $250,000 and net income is $29,000. If sales increase by 5%, what is net income expected to be?

$33,785 Expected net income = Net income + (Net income × (Percentage increase in sales × Magnitude of operating leverage))Expected net income = $29,000 + ($29,000 × 0.05 × 3.3) = $33,785

Breezy Company is disposing of equipment that was originally purchased for $600,000 and has $240,000 of accumulated depreciation to date. The same equipment would cost $800,000 to replace. What is the total amount of sunk cost in this decision?

$360,00

Tucker Company's work in process account decreased by $1,000, while its Finished Goods Inventory account increased by $500. Assuming total manufacturing costs were $5,000, what was the company's cost of goods sold amount?

$5,500 If the inventory balances increased, the ending balances are more than the beginning balances and vice versa. Cost of goods manufactured = Beginning work in process + Total manufacturing costs − Ending work in process Cost of goods manufactured = Beginning work in process + $5,000 − (Ending work in process − $1,000) Cost of goods manufactured = $5,000 + $1,000 = $6,000 Cost of goods sold = Beginning finished goods + Cost of goods manufactured − Ending finished goods Cost of goods sold = Beginning finished goods + $6,000 − (Beginning finished goods + $500) Cost of goods sold = $6,000 − $500 = $5,500

Pickard Company pays its sales staff a base salary of $4,600 a month plus a $3.60 commission for each product sold. If a salesperson sells 660 units of product in January, the employee would be paid:

$6,976. Total cost = Fixed cost + Variable costTotal cost = $4,600 + (660 units × $3.60 per unit) = $6,976

Selection of a cost driver depends on:

-The availability of information for both the cost and the potential cost driver. -A cause-and-effect relationship between the cost driver and the cost. -Judgment of management.

The following income statement is provided for Grant, Inc. Sales revenue (3,100 @ $14.40 per unit)$44,640 Variable costs (3,100 @ $6.40 per unit) 19,840 Fixed costs 9,400 Net income$15,400 What is this company's magnitude of operating leverage?

1.61 Magnitude of operating leverage = Contribution margin ÷ Net incomeMagnitude of operating leverage = ($44,640 − $19,840) ÷ $15,400 = 1.61

Outdoor Living Company has just received a special order for 500 hammocks. Outdoor Living has sufficient idle capacity to accept the order. Accepting the order will increase Outdoor Living's variable manufacturing costs. Variable selling and administrative costs would be unaffected. What is the minimum price that Outdoor Living should accept for the special order?

A price equivalent to the hammock's variable manufacturing cost per unit

Rachel is deciding whether to remain in the home she has lived in for the past ten years, which is located very near her work, or to move into a newer home that is located in the suburbs farther from her job. The old house was purchased for $160,000 and has a market value of $220,000. The new home can be purchased for $285,000. Which of the following is not relevant to Rachel's decision?

Cost of the old house

Which of the following costs is not considered a period cost?

Freight paid on a purchase of raw materials Period costs are associated with the general, selling, and administrative functions of the business. Product costs are all costs incurred to obtain a product or provide a service. Freight paid on a purchase of raw materials is considered a product cost.

Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. The company expects to make 2,000 comforters during the current year. With respect to the comforters, how would the supervisory salaries be classified?

Indirect and fixed

Which of the following statements is true?

Outsourcing decreases the extent of a company's vertical integration and the reputation of the supplier is a critical issue in an outsourcing decision.

Which of the following is not classified as manufacturing overhead?

Product delivery costs

A chair manufacturer makes custom chairs using hand tools, wood, glue, and varnish. Which of the following statements is true?

Wood would be accounted for as a direct cost, and glue and varnish as indirect costs.

Allocation of costs to various cost objects may:

affect managers' performance evaluation and the apparent profitability of the various products a company makes.

The benefits of a just-in-time system would include all of the following except:

increased warehousing costs.

Which of the following is a benefit of participative budgeting?

Employees tend to be more motivated to achieve the budget.

Which of the following items will not appear on a cash budget?

Expected credit sales

Which of the following items is not needed to prepare a sales budget by product line?

Expected purchase price of each product.

Benitez Company currently outsources a relay switch that is a component in one of its products. The switches cost $20 each. The company is considering making the switches internally at the following projected annual production costs: Unit-level material cost$3 Unit-level labor cost$2 Unit-level overhead$1 Batch-level set-up cost (5,000 units per batch)$25,000 Product-level supervisory salaries$37,500 Allocated facility-level costs$20,000 The company expects an annual need for 5,000 switches. If the company makes the product, it will have to utilize factory space currently being leased to another company for $1,500 a month. If the company decides to make the parts, total costs will be:

$10,500 more than if the switches are purchased. Correct

At its $40 selling price, Atlantic Company has sales of $20,000, variable manufacturing costs of $5,000, fixed manufacturing costs of $2,000, variable selling and administrative costs of $4,000 and fixed selling and administrative costs of $2,000. What is the company's contribution margin per unit?

$22 First, determine the number of units sold:Number of units sold = Sales ÷ Selling price per unitNumber of units sold = $20,000 ÷ $40 per unit = 500 unitsThen, determine the variable cost per unit:Variable cost per unit = (Variable manufacturing costs of $5,000 + Variable selling and administrative costs of $4,000) ÷ 500 units = $18 per unitFinally, determine the contribution margin per unit:Contribution margin per unit = Selling price per unit − Variable costs per unitContribution margin per unit = $40 per unit − $18 per unit = $22 per unit

Markham Company has completed its sales budget for the first quarter of Year 2. Projected credit sales for the first four months of the year are shown below: January$30,000 February$36,000 March$45,000 April$48,000 The company's past records show collection of credit sales as follows: 40% in the month of sale and the balance in the following month. The total cash collection from receivables in March is expected to be:

$39,600. March collections = (February sales × Percent collected in month following month of sale) + (March sales × Percent collected in month of sale) March collections = ($36,000 × 60%) + ($45,000 × 40%) = $21,600 + $18,000 = $39,600

Select the term from the list provided that best matches the following descriptions. Activity base

A factor that causes (or drives) changes in costs

Phan Company has not reported a profit in five years. This year the company would like to narrow its loss to $12,000. Assuming its selling price is $40.50 per unit and its variable costs per unit are $28, how many units must be sold to achieve its target given that total fixed costs are $60,000? (Do not round intermediate calculations.)

3,840 Sales volume in units = (Fixed costs + Desired profit) ÷ Contribution margin per unitSales volume in units = [$60,000 + ($12,000)] ÷ ($40.50 per unit − $28 per unit) = $48,000 ÷ $12.50 per unit = 3,840 units

Which of the following statements is incorrect?

A predetermined overhead rate is calculated using actual cost and volume data.

Which of the following correctly computes cost of goods manufactured?

Beginning work in process + Direct materials used + Direct labor + Overhead − Ending work in process

select the incorrect statement regarding the human factor in the budgeting process.

Budgets force employees to follow the organization's plan.

Asset replacement decisions involve:

Choices between continuing to operate existing equipment or replacing it with new equipment.

companies A and B are in the same industry and are identical except for cost structure. At a volume of 50,000 units, the companies have equal net incomes. When sales at both companies increase to 60,000 units, Company A's net income would be substantially higher than B's. Based on this information,

Company A's cost structure has higher fixed costs than B's.

Select the incorrect statement regarding costs and expenses.

Manufacturing-related costs are initially recorded as expenses. Product costs (i.e. manufacturing costs) are all costs incurred to obtain or manufacture a product or provide a service. These costs are treated as assets, recorded in inventory, and expensed when the associated products are sold. Period costs (i.e. non-manufacturing costs) are all costs not associated with a product. They are associated with the general, selling, and administrative functions of the business and most are expensed in the period in which the associated economic sacrifice is made.

Which of the following items would be least useful in preparing a schedule of cash receipts?

Number of units expected to be purchased.

Outdoor Living Company has just received a special order for 500 hammocks. Outdoor Living has sufficient idle capacity to accept the order. Accepting the order will increase Outdoor Living's total variable manufacturing costs. Which type of cost is considered relevant to Outdoor Living's decision whether to accept or reject the special order?

Raw materials to make the 500 hammocks

The inventory purchases budget is based on which budget?

Sales budget

All of the following are variables that could be considered in a decision to outsource a component that is currently being produced in-house. Which of the following is not likely to be relevant?

The book value of equipment used in making the component

Chesterfield Corporation has been operating well above its break-even point. What will happen to Chesterfield's margin of safety if the variable cost per unit increases?

The break-even point would increase, and the margin of safety would decrease.

Clean, Inc. cleans and waxes floors for commercial customers. The company is presently operating at less than capacity, with equipment and employees idle at times. The company recently received an order from a potential customer outside the company's normal geographic service region for a price of $4,500. The size of the proposed job is 11,000 square feet. The company's normal service costs are as follows: Unit-level materials$0.18per square footUnit-level labor$0.25per square footUnit-level variable overhead$0.08per square footFacility-level overheadAllocated at $0.10 per square foot If the company accepts the special offer:

The company will lose $1,110 on the job.

Select the incorrect statement regarding service companies.

The primary difference between manufacturing entities and service companies is that the finished products provided by service companies are consumed immediately.

Which of the following is not a step in allocating indirect costs to cost objects?

Trace direct costs to individual cost pools.

The Page Turner Publishing Company is trying to decide whether to accept a special order for its latest blockbuster. In making this decision, which level of costs will most likely be relevant to the decision?

Unit-level costs.

Craft, Inc. normally produces between 120,000 and 150,000 units each year. Producing more than 150,000 units alters the company's cost structure. For example, fixed costs increase because more space must be rented, and additional supervisors must be hired. The production range between 120,000 and 150,000 is called the:

relevant range.