Accounting Exam 2

Dollar sales for the company to break even =

(Traceable fixed expenses + Common fixed expenses) ÷ CM ratio

Which of the following will usually be found on an income statement prepared using absorption costing?

Contribution Margin - no Gross Margin - yes

Overall CM ratio =

Contribution margin ÷ Sales

How would the following costs be classified (product or period) under variable costing at a retail clothing store?

Cost of purchasing clothing: Product Sales Commissions: Period

When combining activities in an activity-based costing system, batch-level activities should be combined with unit-level activities whenever possible.

FALSE

In activity-based costing, all manufacturing costs must be included in product costs.

FALSE most, but not all

Calculate net operating income (loss) under variable costing for Year 1.

First calculate variable costing unit product cost: Direct materials + Direct labor + Variable Manufacturing overhead = Variable costing unit product cost ($21 per unit) Second, form the variable costing income statement: Sales = (10,000 units sold × $59 per unit) = $590,000 Variable COGS = (10,000 units sold × $21 per unit) = 210,000 Variable selling + admin expense = (10,000 units sold × $4 per unit) = $40,000 Contribution Margin = (590,000 - 210,000 - 40,000) = $340,000 Fixed manufacturing overhead (given) = $88,000 Fixed selling and admin expense (given) = $80,000 Net operating income (loss) = (340,000 - 88,000 - 80,000) = $172,000

Dobles Corporation has provided the following data from its activity-based costing system: The company makes 420 units of product D28K a year, requiring a total of 460 machine-hours, 80 orders, and 10 inspection-hours per year. The product's direct materials cost is $48.96 per unit and its direct labor cost is $25.36 per unit. According to the activity-based costing system, the average cost of product D28K is closest to:

First, compute the activity rates for each activity cost pool: (total cost/total activity = activity rate) Second, compute the overhead cost charged to Product D28K: (Activity rate x Activity = ABC Cost) Add up for total overhead. Third, add up the totals for direct labor (units produced x direct labor cost per unit), direct materials (units produced x direct material cost per unit), and total overhead to get total cost. Finally, total cost per unit = total cost/units produced

Annika Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 4,000 units and of Product B is 1,000 units. There are three activity cost pools, with total cost and activity as follows: The activity-based costing cost per unit of Product A is closest to:

First, compute total activity rates (total cost/total activity) Second, multiply activity rates by activity A. Third, divide by 4,000.

Fixed manufacturing overhead =

Fixed manufacturing overhead per year/units produced

If the company operates at exactly the break-even sales of multiple divisions, what would be the company's overall net operating income?

If a company operates at the break-evens of its segments, the sales will cover variable costs and traceable fixed costs, but not common fixed expenses. (Therefore, net income would = common fixed expenses)

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 to use for allocating the costs of inspecting the finished products at Guerra?

Inspection time

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

direct material cost

When you are calculating absorption costing and there is an existing inventory

you have to multiply COGS by each years respective Unit Product Costs and then add the total together!!!

Which of the following would be classified as a product-level activity?

Advertising a product.

Production order processing is an example of a:

Batch-level activity.

How can we compare ending inventories between variable costing and absorption costing?

Calculate Units in ending inventory (units produced - units sold) Absorption costing unit product cost = (variable cost + fixed)/units produced Variable costing unit product cost = (variable cost)/units produced Absorption costing ending inventory = Absorption costing unit product cost x units in ending inventory Variable costing ending inventory = Variable costing unit product cost x units in ending inventory The difference between the two is how we compare.

A company's plant-wide overhead rate is computed by:

Machining $285,000 Machine setups 180,000 Product design 64,000 Order size 350,000 Total estimated overhead cost (a) $879,000 Total expected direct labor-hours (b) 10,000DLHs Predetermined overhead rate (a) ÷ (b) $87.90per DLH

Using the plantwide overhead rate, the percentage of the total overhead cost allocated to Product E05G is computed by:

Manufacturing overhead cost assigned to Product E05G (a) $263,700 Total manufacturing overhead cost (b) $879,000 Percentage of total manufacturing overhead cost assigned to Product E05G (a) ÷ (b) 30.00%

Which of the following would be an acceptable measure of activity for a material handling activity cost pool?

Number of material moved - yes Weight of material moved - yes

Designing a new backpack at an outdoor sports equipment company is an example of a:

Product-level activity.

Testing a prototype of a new product is an example of a:

Product-level activity.

Contribution margin =

Sales - variable expenses

Dollar sales for a segment to break even

Segment traceable fixed expenses ÷ Segment CM ratio

Activity-based costing is a costing method that is designed to provide managers with product cost information for internal decision-making.

TRUE

When a company shifts from a traditional cost system in which manufacturing overhead is applied based on direct labor-hours to an activity-based costing system with batch-level and product-level costs, the unit product costs of high volume products typically decrease whereas the unit product costs of low volume products typically increase.

TRUE

Silver Corporation produces a single product. Last year, the company's variable production costs totaled $7,500 and its fixed manufacturing overhead costs totaled $4,500. The company produced 3,000 units during the year and sold 2,400 units. There were no units in the beginning inventory. Which of the following statements is true?

The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing.

Using the plant-wide overhead rate, the manufacturing overhead cost that would be allocated to a Specific Product is computed as by:

Total direct labor hours (a) 3,000 Plantwide overhead rate per DLH (b) $87.90 Manufacturing overhead assigned (a) × (b) $263,700

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

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

Units in ending inventory =

Units in beginning inventory + Units produced − Units sold

Value of ending inventory under variable costing =

Units in ending inventory × Variable production cost

We can reconcile the difference between the absorption and variable income as follows:

Variable costing net operating income Add (or subtract) fixed manufacturing overhead cost deferred in inventory (units left in inventory x fixed manufacturing overhead cost per unit) Total = Absorption costing net operating income

Mullee Corporation produces a single product and has the following cost structure: Number of units produced each year 7,000 Variable costs per unit: Direct materials $51 Direct labor $12 Variable manufacturing overhead $2 Variable selling and administrative expense $5 Fixed costs per year: Fixed manufacturing overhead $441,000 Fixed selling and administrative expense $112,000 The absorption costing unit product cost is:

absorption cost: ($51) ($12) ($2) $441,000/7,000 = 63 = $128

Generally speaking, net operating income under variable and absorption costing will:

be equal only when production and sales are equal.

When sales exceed production and the company uses the LIFO inventory flow assumption, the net operating income reported under variable costing generally will be:

greater than net operating income reported under absorption costing.

Allocating common fixed expenses to business segments:

may cause managers to erroneously discontinue business segments. *WE DO NOT ALLOCATE COMMON COSTS TO SEGMENTS*

Departmental overhead rates may not correctly assign overhead costs due to:

over-reliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production.

When unit sales are constant, but the number of units produced fluctuates and everything else remains the same, net operating income under variable costing will:

remain constant

Higado Confectionery Corporation has a number of store locations throughout North America. In income statements segmented by store, which of the following would be considered a common fixed cost with respect to the stores?

the cost of corporate advertising aired during the Super Bowl

Hayworth Corporation has just segmented last year's income statement into its ten product lines. The chief executive officer (CEO) is curious as to what effect dropping one of the product lines at the beginning of last year would have had on overall company profit. What is the best number for the CEO to look at to determine the effect of this elimination on the net operating income of the company as a whole?

the product line's segment margin

A reason why absorption costing income statements are sometimes difficult to interpret is that:

they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories.

An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because:

under activity-based costing some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining costs) will not be assigned to products

Stoneberger Corporation produces a single product and has the following cost structure: Number of units produced each year 4,000 Variable costs per unit: Direct materials $50 Direct labor $72 Variable manufacturing overhead $6 Variable selling and administrative expense $3 Fixed costs per year: Fixed manufacturing overhead $296,000 Fixed selling and administrative expense $76,000 The variable costing unit product cost is:

variable cost: ($50) ($72) ($6) = $128

The costing method that treats all fixed costs as period costs is:

variable costing