Managerial Accounting Exam 2 Practice Exam

Damon purchased a $140 ticket to a December game of the Jacksonville Jaguars in July. Parking for the game was expected to cost approximately $21, and Damon would probably spend another $11 for food. Is it now December, the Jaguars have had a miserable season, and the weather for the game looks terrible. Damon is thinking of skipping the game and going out to eat with friends. Damon expects the dinner to cost $100. The amount of sunk cost that should influence Damon's decision to hang out with f

$140

The controller for Knights Co. estimates that the company's fixed overhead is $160,000 per year. They have also determined that the variable overhead is approximately $0.25 per unit. Since the company has s single product, overhead is applied on the basis of output units. What is the predetermined overhead per unit if the estimated output is 80,000 units? $2.25 $2.75 $2.00 $0.50

$2.25

ABC Co. makes batches of custom novelty items or other companies to give away at career fairs. Job A11 consists of 2,000 pens that light up inside the pen base when used. In addition, a specialized logo is printed on the pens. Direct materials for these pens amount to $1,400; direct labor is $2,200; and manufacturing overhead is $1,800. Based on this information, what is the cost per pen for Job A11? $2.95 $2.60 $2.80 $2.70

$2.70

ABC Company estimates its overhead to be $250,000. It expects to have 100,000 direct labor hours costing $2,500,000 in labor and utilizing 12,500 machine hours. Calculate the predetermined overhead rate using direct labor dollars.

.10

ABC Enterprises has been approached about providing a new service to its clients. The company will bill clients $185 per hour; the related hourly variable costs are $72, and the related fixed operating costs are $10. If all employees are currently working at full capacity on other client matters, the per-hour opportunity cost of being unable to provide this new service is:

113 (margin of error +/- 10%)

ABC Company estimates its overhead to be $250,000. It expects to have 100,000 direct labor hours costing $2,500,000 in labor and utilizing 12,500 machine hours. Calculate the predetermined overhead rate using machine hours.

20

Seashore Furniture has selected direct labor hours as its allocation base. The budgeted manufacturing overhead costs are $321,788 for products that are expected to use a total of 5,794 direct labor hours. What is the predetermined overhead rate? When entering your answer, round to the nearest dollar. Do not include commas or a $ sign (i.e., 24).

56 (margin of error +/- 10%)

Seashore Furniture has selected direct labor hours as its allocation base. The budgeted manufacturing overhead costs are $337,450 for products that are expected to use a total of 5,849 direct labor hours. What is the predetermined overhead rate?

58 (margin of error +/- 10%)

ABC Co., currently makes 10,000 units of a product that has created a number of manufacturing problems. ABC's costs are as follows: Manufacturing Costs: Variable $540,000 Fixed 180,000 Allocated corporate administrative costs 60,000 If ABC were to discontinue production, fixed manufacturing costs would be reduced by 55%. The relevant cost of deciding whether the division should purchase the product from an outside supplier is:

639,000 (margin of error +/- 1%)

ABC Co., currently makes 10,000 units of a product that has created a number of manufacturing problems. ABC's costs are as follows: Manufacturing Costs: Variable $540,000 Fixed 180,000 Allocated corporate administrative costs 60,000 If ABC were to discontinue production, fixed manufacturing costs would be reduced by 61%. The relevant cost of deciding whether the division should purchase the product from an outside supplier is:

649,800 (margin of error +/- 1%)

ABC Co., currently makes 10,000 units of a product that has created a number of manufacturing problems. ABC's costs are as follows: Manufacturing Costs: Variable $540,000 Fixed 162,742 Allocated corporate administrative costs 60,000 If ABC were to discontinue production, fixed manufacturing costs would be reduced by 70%. The relevant cost of deciding whether the division should purchase the product from an outside supplier is:

653,919 (margin of error +/- 1%)

A company calculated the predetermined overhead based on an estimated overhead of $70,000, and the activity for the cost driver was estimated as 2,500 hours. If product A utilized 1,304 hours and product B utilized 1,067 hours, what was the total amount of overhead assigned to the products?

66,388

ABC Co., currently makes 10,000 units of a product that has created a number of manufacturing problems. ABC's costs are as follows: Manufacturing Costs: Variable $540,000 Fixed 175,755 Allocated corporate administrative costs 60,000. If ABC were to discontinue production, fixed manufacturing costs would be reduced by 70%. The relevant cost of deciding whether the division should purchase the product from an outside supplier is:

663,029 (margin of error +/- 1%)

ABC Co., currently makes 10,000 units of a product that has created a number of manufacturing problems. ABC's costs are as follows: Manufacturing Costs: Variable $540,000 Fixed 180,000 Allocated corporate administrative costs 60,000 If ABC were to discontinue production, fixed manufacturing costs would be reduced by 76%. The relevant cost of deciding whether the division should purchase the product from an outside supplier is:

676,800 (margin of error +/- 1%)

Which statement is correct? - Activity-based cost systems are easier to implement than traditional cost systems. - Activity-based cost systems are more accurate than traditional cost systems. - Activity-based cost systems provide the same data as traditional cost systems. - Activity-based cost systems are less costly than traditional cost systems.

Activity-based cost systems are more accurate than traditional cost systems.

ABC Company is trying to decide whether to replace an old machine with a new one. The following data were analyzed. Cost savings per year on new machine $100,000 New machine cost $150,000 Revenue from sale of old machine $10,000 Book value of old machine $25,000 The purchase of a new machine would have what effect on net income? Net decrease of $15,000 Net increase of $40,000 Net increase of $15,000 Net decrease of $40,000

Net decrease of $40,000

Which of the following cost drivers would best be associated with the activity of a physician time in a medical clinic? Number of continuing patient visits Number of new patient visits Physician minutes with a patient Number of items on the clinic's bill

Number of new patient visits

ABC Co.,is analyzing whether to expand operations by adding a new product line. Which of the following choices correctly identifies the costs that should be considered in this decision? Opportunity cost only Sunk cost only No costs noted Opportunity and sunk costs

Opportunity cost only

ABC Production manufactures products X and Y and has been applying overhead on the basis of direct labor hours. Product X is a high-volume product and relatively simplistic in nature. Product Y is a low-volume product that requires a variety of complex manufacturing procedures. What would an activity-based costing system likely disclose about products X and Y? Product X was overcosted and product Y was undercosted Product X was undercosted and product Y was overrcosted Products X and Y were bo

Product X was overcosted and product Y was undercosted

Which of the following would activity-based costing most likely lead to? Raising the sale price of low-volume products Expanding low-volume products that appear to be profitable Raising the sale price of high-volume products. Cutting back on high-volume products that appear to be unprofitable

Raising the sale price of low-volume products

Which of the following product situations is better suited to job order costing than to process costing? The costs are easily traced to a specific product. Each product batch is exactly the same as the prior batch. The value of work in process is based on assigning standard costs. Costs are accumulated by department.

The costs are easily traced to a specific product.

Which of the following is a reason a company would implement activity-based costing? The additional data obtained through traditional allocation are not worth the cost. A company only has one cost driver The cost of record keeping is high. They want to improve the data on which decisions are made.

They want to improve the data on which decisions are made.

The Shoe Department at the Knights Department Store is being considered for closure. The following information related to shoe department activity: Sales revenue $352,000 Variable costs: Cost of goods sold 282,000 Sales commissions 32,000 Fixed operating costs 92,000. If 80% of the fixed operating costs are avoidable, should the shoe department be closed? No, Knights would be worse off by $19,600 Yes, Knights would be better off by $35,600 No, Knights would be worse off by 38,000

Yes, Knights would be better off by $35,600

predetermined overhead rate

computes the overhead applied to each job

Activity-based costing systems: - frequently increase the overhead allocation to at least one product while decreasing the overhead allocation to at least one other product - always result in an increase of at least one product's selling price - use a single predetermined overhead rate based on machine hours instead of on direct labor - limit the number of cost pools

frequently increase the overhead allocation to at least one product while decreasing the overhead allocation to at least one other product

Manufacturing overhead: -includes direct materials, indirect materials, indirect labor, and factory depreciation -is a pool of indirect production costs that must somehow be attached to each unit manufactured -is easily traced to jobs -should not be assigned to individual jobs because it bears no obvious relationship to them -includes selling costs

is a pool of indirect production costs that must somehow be attached to each unit manufactured

Activity-based costing systems: - assign overhead to products based on the products' relative usage of labor hours - have a tendency to distort product costs - typically have fewer cost drivers than more traditional costing systems - often reveal products that were under- or over-costed by traditional costing systems - use a single volume-based cost driver

often reveal products that were under- or over-costed by traditional costing systems

Factors in a decision problem that cannot be expressed in numerical terms are: predictive in nature sensitive in nature quantitative in nature qualitative in nature uncertain in nature

qualitative in nature

The cost of inventory owned by a company is considered a: economic cost sunk cost relevant cost decision cost opportunity cost

sunk cost

Which of the following types of companies would most likely use process costing? textile manufacturers aircraft manufacturers textbook publishers custom-machining firms

textile manufacturers

job order costing

the cost accounting system used by law firms

process costing

the cost accounting system used by pet food manufacturers

Which of the following costs are relevant to a decision making situation? -the cost of special electrical wiring in an equipment acquisition decision -the cost of special electrical wiring in an equipment acquisition decision and the salary of a supervisor who will be transferred elsewhere in the organization in a department closure decision -the salary of a supervisor who will be transferred elsewhere in the organization in a department closure decision -the cost of existing inventory in a kee

the cost of special electrical wiring in an equipment acquisition decision

overapplied overhead

the result when the actual overhead is less than the amount assigned to each specific job

underapplied overhead

the result when the actual overhead is more than the amount assigned to each specific job