Module 5 Questions

The two amounts are considered combined as the goods are transferred.

FIFO requires separate costing of goods started last period and finished this period and goods started and completed this period. The weighted-average method does not. Which is the true statement about the cost of completed goods transferred under FIFO to the next production department or to finished goods inventory?

$2.40

Factory Company makes two products, X and Z. X is being introduced this period, and Z has been in production for 2 years. For the period about to begin, 1,000 units of each product are to be manufactured. Assume that the only relevant overhead item is the cost of engineering change orders; that X and Z are expected to require eight and two change orders, respectively; that X and Z are expected to require 2 and 3 machine hours, respectively; and that the cost of a change order is $600. If Factory applies engineering change order costs on the basis of machine hours, the cross-subsidy per unit arising from this peanut-butter costing approach is

All ending inventory balances are zero

A company is beginning operations and is considering three alternative ways in which to allocate manufacturing overhead to individual units produced. The company can use a plantwide rate, departmental rates, or activity-based costing. The company will produce many types of products in its single plant, and not all products will be processed through all departments. In which one of the following independent situations would reported net income for the first year be the same regardless of which overhead allocation method had been selected?

Would normally gain added insights into causes of cost.

A company is considering the implementation of an activity-based costing and management program. The company

Added to the cost of good units produced

A company manufactures a single product. During the manufacturing process, a small number of units do not pass final inspection and are destroyed. What is the appropriate accounting treatment for the cost of these units? The cost should be

Provide more accurate reporting of each product's cost so that management can make more informed pricing decisions.

A company manufactures an increasing variety of consumer communications devices. The company has always used a traditional cost allocation system, but now the accounting staff has proposed a change to an activity-based costing system. The vice president of operations argues, "Costs are costs, rearranging them won't save any money and those systems are complicated and expensive." The most logical response to this argument is that activity-based costing systems

$7.70

A company manufactures diamond earrings and pendants. The company uses activity-based budgeting and has established diamond inspection as one of its cost pools with number of diamonds used as its cost driver. Inspection supplies for each diamond inspected are $0.35. For the upcoming year, the company originally believed it would produce and sell 10,000 pendants containing one diamond and 5,000 sets of earrings containing two diamonds, resulting in the following inspection cost per diamond. If the company now believes it will only be able to produce and sell 8,000 pendants (in addition to the earrings), the inspection cost per set of earrings would be

Normal spoilage costs would be allocated between the cost of good units completed during the period and the ending work-in-process inventory. In contrast, abnormal spoilage costs would be written off as a loss.

A company that uses a process costing system inspects its goods at the 60% stage of completion. If the firm's ending work-in-process inventory is 80% complete, how would the firm account for its normal and abnormal spoilage?

Change to two departmental overhead rates because of the significant (more than 10%) difference between methods for the second job.

A company uses a job order cost system and applies overhead using a plant-wide rate of $5.75 per direct labor hour. The company is considering changing to two departmental overhead rates with annual information shown below. The company tested its new system by comparing the plant-wide and departmental overhead assigned to two different jobs. The first job's allocated overhead using the plant-wide rate totaled $23,000 and was $23,750 using the two departmental rates. The second job took 5,000 machine hours in the Machining Department and a total of 3,000 labor hours, 1,700 of which were used in the Assembly Department. The company should

Increase net income from the sale of the abnormal spoilage and increase net income from the sale of the normal spoilage.

A company uses a process cost system in accounting for its single product. The cost of units failing final inspection, termed normal spoilage, is added to the inventory cost of the good units produced. Units spoiled during production are termed abnormal spoilage, and their cost is immediately written off to cost of goods sold. During the previous month, the entire inventory of spoiled units (both normal and abnormal spoilage) was sold at a price lower than it had cost to produce them. How would this sale affect the reported net income of the company?

Materials: 100,000 Conversion Cost: 82,000

A company uses a weighted-average process costing system. All materials are introduced at the start of manufacturing, and conversion cost is incurred evenly throughout production. The company started 70,000 units during May and had the following work-in-process inventories at the beginning and end of the month: Assuming no spoilage or defective units, the total equivalent units used to assign costs for May are

$13.20

A company will introduce a new product in Year 1 that is expected to have a 3-year life. The company expects to sell 100,000 units each year. Estimated costs are shown below. If the company uses life-cycle costing to price its new product and desires a 10% mark-up over cost, the selling price for Year 3 would be

$45

A company's product has an expected 4-year life cycle from research, development, and design through its withdrawal from the market. Budgeted costs are Upstream costs (R&D, design) $2,000,000 Manufacturing costs 3,000,000 Downstream costs (marketing, distribution, customer service) 1,200,000 After-purchase costs 1,000,000 The company plans to produce 200,000 units and price the product at 125% of the whole-life unit cost. Thus, the budgeted unit selling price is

$404 higher than using the traditional system

A corporation has used a traditional cost accounting system to apply quality control costs uniformly to all products at a rate of 15% of direct labor cost. Monthly direct labor cost for its main product is $30,000. In an attempt to distribute quality control costs more equitably, the corporation is considering activity-based costing (ABC). The monthly data shown below have been gathered for the main product. The three activities are (1) incoming materials inspection, (2) in-process inspection, and (3) product certification. Costs are to be allocated to each activity on the basis of cost drivers. The monthly quality control cost assigned to the main product using ABC is

$14.25

A corporation manufactures a specialty line of dresses using a job-order costing system. During January, the following costs were incurred in completing job J-1: Direct materials $27,400 Direct labor 9,600 Administrative costs 2,800 Selling costs 11,200 Factory overhead was applied at the rate of $50 per direct labor hour, and job J-1 required 400 direct labor hours. If job J-1 resulted in 4,000 good dresses, the cost of goods sold per unit is

The muffins are $1,925 more profitable

A firm that specializes in chocolate baked goods has long assessed the profitability of a product line by comparing revenues to the cost of goods sold. However, the firm's new accountant wants to use an activity-based costing system that takes into consideration the cost of the delivery person. Listed below are activity and cost information relating to two of the firm's major products. Using activity-based costing, which one of the following statements is correct?

Units Transferred: 16,000 Cost: $154,850

A firm uses a process-costing system and inspects its goods at the end of manufacturing. The inspection as of June 30 revealed the following information for the month of June: Good units completed 16,000 Normal spoilage (units) 300 Abnormal spoilage (units) 100 Unit costs were: materials, $3.50 and conversion costs, $6.00. The number of units that the firm would transfer to its finished goods inventory and the related cost of these units are

$4.00

A firm uses a weighted-average process costing system. Direct materials and conversion costs are incurred evenly during the production process. During the month of October, the following costs were incurred: Direct materials $39,700 Conversion costs 70,000 The work-in-process inventory as of October 1 consisted of 5,000 units, valued at $4,300, that were 20% complete. During October, 27,000 units were transferred out. Inventory as of October 31 consisted of 3,000 units that were 50% complete. The weighted-average inventory cost per unit completed in October was

8,800

A firm uses a weighted-average process-costing system. Material B is added at two different points in the production of shirms, 40% is added when the units are 20% completed, and the remaining 60% of Material B is added when the units are 80% completed. At the end of the quarter, there are 22,000 shirms in process, all of which are 50% completed. With respect to Material B, the ending shirms in process represent how many equivalent units?

65,000 units.

A first-in, first-out (FIFO) process cost system is used to account for the cost of producing a chemical compound. As part of production, Material B is added when the goods are 80% complete. Beginning work-in-process inventory for the current month was 20,000 units, 90% complete. During the month, 70,000 units were started in process, and 65,000 of these units were completed. There were no lost or spoiled units. If the ending inventory was 60% complete, the total equivalent units for Material B for the month was

That current-period cost per unit is highlighted under the FIFO method

A major advantage of the first-in, first-out (FIFO) process-costing method over the weighted-average process-costing method is

$264

A manufacturer manufactures two types of engineering diagnostic equipment used in construction. The two products are based on different technologies, x-ray and ultrasound, but are manufactured in the same factory. The manufacturer has computed the manufacturing cost of the x-ray and ultrasound products by adding together direct materials, direct labor, and overhead cost applied based on the number of direct labor hours. The factory has three overhead departments that support the single production line that makes both products. Budgeted overhead spending for the departments is as follows: The budgeted cost to manufacture one ultrasound machine using the activity-based costing method is

$79,700

A manufacturer produces unique tapestries and bedding for hotel chains and uses a job order costing system. During the current month, the manufacturer purchased $50,000 of direct materials and incurred $22,000 in direct labor. Overhead is applied on the basis of direct labor hours at a rate of 60%. Overapplied or underapplied overhead is closed to cost of goods sold at the end of the period. The actual overhead incurred this month was $10,000. Balances in the manufacturer's inventory accounts are presented below. What is the cost of goods manufactured this month?

Production Competed: $1,155,000 WIP: $235,000

A manufacturer uses a weighted-average process costing system and has the following costs and activity during October: All materials are introduced at the start of the manufacturing process, and conversion cost is incurred uniformly throughout production. Conversations with plant personnel reveal that, on average, month-end in-process inventory is 25% complete. Assuming no spoilage, how should October manufacturing cost be assigned?

For materiality reasons, no entry is made until the scrap metal is sold. At that time, debit cash and credit factory overhead control for the quantity sold at the current market price.

A metal fabricating company uses a job-order cost system. The company expects to have small residual pieces of metal cuttings and shavings from all of its jobs. Although the metal pieces and shavings cannot be reused, they can be sold for scrap. The scrap metal is sold when a ton of scrap has been accumulated. During the current month, 100,000 pounds of aluminum was requisitioned at $1.50 per pound. Aluminum scrap recovery totaled 800 pounds. This amount of scrap is within normal allowances for the company's operations. The market price for scrap aluminum fluctuates greatly and has ranged from $.25 to $.40 per pound during the last 12 months. The accumulated scrap aluminum was sold last month for $.35 per pound. The appropriate accounting treatment for the scrap aluminum recovered during the current month is to

Machining: $100/hr. Assembly: $50/hr.

A plant has two departments, Machining and Assembly. This year's budget for the plant contained the following information. If the plant allocates manufacturing overhead based on machine hours, which of the following represents the allocation rates?

$20 per hour

A plant has two departments, Machining and Assembly. This year's budget for the plant contained the following information. If the plant uses a plantwide overhead rate based on direct labor hours, what would the rate be?

Reduces product undercosting or overcosting.

A primary reason for a company to change from traditional costing to activity-based costing (ABC) is that ABC

Greater Number of Allocation Bases: ABC More Accurate Costing Results: ABC

A profitable company with five departments uses plantwide overhead rates for its highly diversified operation. The firm is studying a change to either allocating overhead by using departmental rates or using activity-based costing (ABC). Which one of these two methods will likely result in the use of a greater number of cost allocation bases and more accurate costing results?

Job-order costing.

A specialty instrument manufacturer is in the process of establishing a cost system. The company produces machines that are unique and distinctive. These machines are produced when purchase requests are received from customers. Although some common parts and sub-assemblies are to be held in inventory, no finished goods inventory is maintained since each purchase request is for a customized specialty instrument. The type of cost accumulation system that would be best suited for this type of environment would be

$111,350

A.P. Hill Corporation uses a process-costing system. Products are manufactured in a series of three departments. The following data relate to Department Two for the month of February: Under the weighted-average method, how much materials cost did A.P. Hill transfer out of Department Two during February?

196,800 units

Albany Mining Corporation uses a process costing system for its ore extraction operations. The following information pertains to work-in-process inventories and operations for the month of May: Under the FIFO method, Albany Mining's equivalent units of conversion cost are

208,000 units

Albany Mining Corporation uses a process costing system for its ore extraction operations. The following information pertains to work-in-process inventories and operations for the month of May: Under the FIFO method, Albany Mining's equivalent units of materials are

$2.92

Albany Mining Corporation uses a process costing system for its ore extraction operations. The following information pertains to work-in-process inventories and operations for the month of May: Using the FIFO method, Albany Mining's equivalent unit conversion cost for May is

$182.50 for occupants in the low-usage category.

An assisted-living facility provides services in the form of residential space, meals, and other occupant assistance (OOA) to its occupants. The facility currently uses a traditional cost accounting system that charges each occupant a daily rate equal to the facility's annual cost of providing residential space, meals, and OOA divided by total occupant days. However, an activity-based costing (ABC) analysis has revealed that occupants' use of OOA varies substantially. This analysis determined that occupants could be grouped into three categories (low, moderate, and high usage of OOA) and that the activity driver of OOA should be nursing hours. The driver of the residential space and meals is occupant days. The following quantitative information was also provided: The total annual cost of OOA was $7.5 million, and the total annual cost of providing residential space and meals was $7.2 million. Accordingly, the ABC analysis indicates that the daily costing rate for providing residential space, meals, and OOA should be

$5,500

Assuming the company uses the FIFO method of inventory valuation, what amount of materials cost is included in A.P. Hill's ending work-in-process inventory?

Expensive sales promotion

At the introduction stage of an innovative product, the profit growth is normally slow due to

$15.00

Atmel, Inc. manufactures and sells two products. Data with regard to these products are given below. Atmel's cost driver for engineering costs is the number of production orders per product line. Using activity-based costing, the engineering cost per unit for Product B is

$3.75

Atmel, Inc. manufactures and sells two products. Data with regard to these products are given below. Using activity-based costing, Atmel's per unit overhead cost allocation of receiving costs for Product A is

$6.30

Believing that its traditional cost system may be providing misleading information, Farragut Manufacturing is considering an activity-based costing (ABC) approach. It now employs a traditional cost system and has been applying its manufacturing overhead on the basis of machine hours. Farragut plans on using 50,000 direct labor hours and 30,000 machine hours in the coming year. The following data show the manufacturing overhead that is budgeted. If Farragut employs an activity-based costing system, the cost per unit for the product described for the coming year would be

$26,100,000

Dixon Porter Co., which uses life cycle costing, is considering the manufacture of a product with a 5-year life cycle that will require spending $1,000,000 for R&D and $2,000,000 for design and testing. Annual fixed and unit variable costs for the product and projected average annual unit sales at three selling prices are given below: At a unit price of $900, Dixon Porter's life cycle costs are

$1,600

During December, Krause Chemical Company had the following selected data concerning the manufacture of Xyzine, an industrial cleaner: Under the weighted-average method, Krause's total conversion cost assigned to units transferred to the next department in December was

92 units

During December, Krause Chemical Company had the following selected data concerning the manufacture of Xyzine, an industrial cleaner: Under the first-in, first-out (FIFO) method, Krause's equivalent units of production used to calculate conversion costs for December was

$60

During December, Krause Chemical Company had the following selected data concerning the manufacture of Xyzine, an industrial cleaner: Under the weighted-average method, Krause's total raw material costs in the ending work-in-process inventory for December is

Written off as a loss.

During the production of its single product, a company discovers that an unusual overnight power failure ruined an entire day's in-process production. How should the cost of these spoiled units be charged?

The market price of the product is taken as a given.

In target costing,

$4.50

Kimbeth Manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining industry. The following information pertains to operations for the month of May. Using the FIFO method, Kimbeth's equivalent unit cost of materials for May is

42,000 units

Marlan Manufacturing produces a product that passes through two departments. The units from the molding department are completed in the assembly department. The units are completed in assembly by adding the remaining direct materials when the units are 60% complete with respect to conversion costs. Conversion costs are added proportionately in assembly. The production activity in the assembly department for the current month is presented as follows. Marlan uses the FIFO (first-in, first-out) inventory method in its process cost system. The equivalent units transferred from Marlan's molding department to the assembly department for the current month

195,000 units

Ramseur Company employs a process costing system for its two-department manufacturing operation using the first-in, first-out (FIFO) inventory method. When units are completed in Department 1, they are transferred to Department 2 for completion. Inspection takes place in Department 2 immediately before the direct materials are added, when the process is 70% complete with respect to conversion. The specific identification method is used to account for lost units. Ramseur's equivalent units for direct materials for the current month would be

Normal Scrap

Ramseur Company employs a process costing system for its two-department manufacturing operation using the first-in, first-out (FIFO) inventory method. When units are completed in Department 1, they are transferred to Department 2 for completion. Inspection takes place in Department 2 immediately before the direct materials are added, when the process is 70% complete with respect to conversion. The specific identification method is used to account for lost units. The units that failed inspection during the current month would be classified by Ramseur as

746 units

The fabrication process includes three steps: cutting, bending, and assembly. Cutting and bending processes are completed together, and then units are sent to the assembly department for completion. Direct materials and conversion costs are added proportionately throughout the process. Units are 50% complete for both direct materials and conversion costs when the units are transferred from the cutting and bending process to assembly. The fabricator uses the FIFO (first in, first out) inventory method. The activity report for the assembly department for the current month is shown below. What is the assembly department's equivalent units produced for the current month?

Robotics painting

When using activity-based costing techniques, which one of the following departmental activities would be expected to use machine hours as a cost driver to allocate overhead costs to production?

Improving the value the customer receives

Which one of the following is not a benefit of activity-based management?