WileyPlus Chapter 16-19 (test 2)

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Which of the following is true about the journal entry to assign indirect costs to products?

It will have a debit to two or more work in process accounts.

Which of the following statements is not correct?

Manufacturing costs are assigned the same way in a job order and in a process cost system.

Which statement is true about activity-based costing (ABC)?

It focuses on activities performed to produce a product.

Which one of the following is correct concerning contribution margin?

It is helpful in determining the effect of changes in sales on net income. In this capacity, it is used extensively in CVP analysis.

Which statement is true about the margin of safety ratio?

It is higher for a company with lower operating leverage.

Which of the following is false concerning contribution margin?

It is selling price less cost of goods sold. Gross margin, not contribution margin, is selling price less cost of goods sold.

Which statement describes contribution margin?

It is the amount available to cover fixed costs and contribute to income for the company. Contribution margin is the amount of revenue remaining after deducting variable costs.

Which one of the following describes the break-even point?

It is the point where total sales equals total variable costs plus total fixed costs.

Which statement is not true about the degree of operating leverage?

It is the same for companies that have the same net income. Companies with different proportions of fixed and variable costs have different degrees of operating leverage even when net income is the same.

Which of the following is not an advantage of variable costing?

It makes it difficult to evaluate the impact of fixed costs on a company's results.

Which statement is true concerning a production cost report?

It shows equivalent units of production and physical units. A production shows both equivalent and physical units.

Which of the following is a value-added activity for a bank?

Processing checks issued by customers

What is contribution margin?

The amount available to cover fixed costs and contribute to profits Contribution margin is revenue less variable costs. It can also be described as the amount available to cover fixed costs and to contribute to profits.

WebFlix rents DVDs that are mailed out to customers upon demand. WebFlix has identified three activities involved in getting the videos to its customers. Information on those activities for the month of June follows: Cost Pools Cost Drivers Estimated Overhead Cost Expected Use of Cost Drivers Order taking costs Number of orders $21,600 144,000 orders Technology support Number of minutes 9,000 180,000 minutes Picking and shipping costs Number of DVDs 30,480 254,000 DVDs During June, the Mulaney family placed 26 orders consisting of 42 DVDs. Mulaney required 14 minutes of tech support. Customers pay $9.00 per month to rent unlimited DVDs. Using ABC, how much overhead is applied to the Mulaney family account for technology support costs?

$0.70 The rate per activity is calculated for technology support, and then multiplied by the actual number of minutes of support required by Mulaney. Technology support: $9,000/180,000 minutes = $0.05 per minute Applied to Mulaney: $0.05 × 14 = $0.70

Kendra Corporation's total utility costs during the past year were $1,200 during its highest month and $600 during its lowest month. These costs corresponded with 1,000 units of production during the high month and 200 units during the low month. How much are the fixed and variable components of its utility costs using the high-low method?

$0.75 variable and $450 fixed The variable component is computed by dividing the change in cost by the change in activity at the two activity levels. The variable cost per unit is plugged into the cost equation using the cost and units at either data point to determine the total fixed cost. Variable = ($1,200 - $600)/(1,000 - 200) = $0.75 per unit $1,200 = ($0.75)(1,000) + FC Fixed costs = $450

Masters Inc. provided 700 massages during May. The contribution margin per massage is $22 and the contribution margin ratio is 41%. If sales increases by 50 massages during June, by how much will profit increase?

$1,100 The contribution margin per unit indicates the increase in profit if one more massage is sold: $22 × 50 = $1,100

Towson Company has total fixed costs of $300,000 and a contribution margin ratio of 40%. Towson's target net income is $240,000. How much is sales in dollars to meet the target net income?

$1,350,000 Sales in dollars to meet target net income is determined by dividing total fixed costs plus target income by the contribution margin ratio. Sales in dollars to meet the $240,000 target net income: ($300,000 + $240,000)/40% = $1,350,000.

Smith Company produces desk lamps. The information for June indicated that the selling price was $25 per unit, variable costs were $15 per unit, and fixed costs totaled $6,000. Smith currently sells 1,100 lamps and earns $5,000 of profit. How much is Smith's margin of safety in dollars?

$12,500 First, determine the sales dollars needed to break even: $6,000 / ($25 - $15) = 600 units, 600 units × $25 selling price per unit = $15,000 sales revenue Then compare the sales at breakeven with the current sales to determine margin of safety: Sales at $5,000 profit = 1,100 units × $25 = $27,500. Margin of safety = $27,500 - $15,000 = $12,500

Warren Company manufactures two products, Allegro and Forte. Warren's overhead costs consist of setting up machines, $80,000; machining, $150,000; and inspecting, $50,000. Information on the two products is: Allegro Forte Direct labor hours 30,000 50,000 Machine setups 1,200 800 Machine hours 48,000 52,000 Inspections 1,600 1,400 If Warren uses ABC, how much overhead will be applied to Forte?

$133,333 Using activity-based costing, overhead is applied using the related cost driver - machine step-ups, machine hours, and inspections, for each of the three cost pools. The rate is multiplied by the actual activity for each cost object. Setups: ($80,000 × 800/(1,800 + 200) = $32,000 Machining: ($150,000 × 52,000/(48,000 + 52,000) = $78,000 Inspecting: ($50,000 X 1,400/(1,600 + 1,400)] = $23,333 Total = $32,000 + $78,000 + $23,333 = $133,333

Gossen Company is planning to sell 200,000 pliers for $4 per unit. The contribution margin ratio is 25%. If Gossen will break even at this level of sales, how much are the fixed costs?

$200,000 At the breakeven point, total contribution margin will equal total fixed costs. Total contribution margin is $4 × 25% × 200,000 = $200,000. Since total contribution margin is $200,000, fixed costs are also $200,000 at breakeven.

A company has required sales of $1,700,000 to meet its target net income. It has fixed costs of $300,000 and the contribution margin ratio is 30%. How much is the company's target net income?

$210,000 Target net income is equal to contribution margin less fixed costs. Contribution margin is determined by multiplying the contribution margin ratio times sales revenue. Target net income = ($1,700,000 x .30) - $300,000 = $210,000

Moss, Inc. has total fixed costs of $56,000 and a contribution margin ratio of 40%. Moss wants to generate income totaling $35,000. What amount of sales revenue must be generated for Moss to reach its targeted net income?

$227,500 To determine sales revenue at targeted net income, total fixed costs plus desired net income is divided by the contribution margin per unit. ($56,000 + $35,000)/40% = $227,500

Panera Bread sells a box of bagels for $6 with a contribution margin of 62.5%. Its fixed costs are $150,000 per year. How much sales in dollars does Panera Bread need to break even per year if bagels are its only product?

$240,000 The breakeven point in sales dollars is solved by using the contribution margin. $150,000 / 62.5% = $240,000

CFO Services provides finance and accounting consulting services to clients. CFO Services incurred 220 hours for Max Printing at a cost of $82 per hour, and billed Max Printing $160 per hour. Overhead is applied at 55% of professional labor cost. How much is the cost of the Max Printing client using traditional costing?

$27,962 The cost of the client includes both professional labor and overhead: Professional labor: 220 hours × $82 = $18,040 Overhead: $18,040 × 55% = $9,922 Total cost = $18,040 + $9,922 = $27,962

A characteristic of products that are mass-produced in a continuous fashion is that (not--they are grouped in batches.)

???

$3.90 The rate per activity is calculated for order taking, and then multiplied by the actual number of orders incurred by Mulaney. Order taking: $21,600/144,000 orders = $0.15 per order Applied to Mulaney: $0.15 × 26 = $3.90

McCauley Maids cleans hotel rooms at resorts in the Florida Keys. McCauley has identified three activities involved in cleaning. Information on those activities for the month of May follow: Cost Pools Cost Drivers Estimated Overhead Cost Expected Use of Cost Drivers Changing bed linens Number of beds $36,000 24,000 beds Cleaning bath rooms Number of bath rooms 40,000 16,000 bath rooms Other cleaning Number of hotel rooms and public spaces 14,400 18,000 spaces At the Front Street Resort, the company cleaned 1,200 rooms during May, 150 public spaces, changed 1,600 beds, and cleaned 1,250 bath rooms. Using ABC, how much overhead is applied to each hotel room cleaned?

$6,605 The rate per activity is calculated for each activity, setups, machining, and shipping, and each rate is multiplied by the actual activity. Changing bed linens: $36,000/24,000 beds = $1.50 per bed Cleaning bath rooms: $40,000/16,000 bath rooms = $2.50 per bath room Other cleaning: $14.400/18,000 spaces = $0.80 per space Allocated cost: ($1.50 × 1,600) + ($2.50 × 1,250) + ($0.80 × (1,200 + 150)) = $6,605

Cornet Company sells 100,000 wrenches for $12 a unit. Fixed costs are $300,000, and net income is $200,000. What amount will appear as variable costs in the CVP income statement?

$700,000 Contribution margin is equal to fixed costs plus net income. Variable costs are the difference between total sales and contribution margin. Contribution margin = $300,000 + $200,000 = $500,000 Variable expenses = (12 × 100,000) - $500,000 = $700,000

Bug Rid Pest Control's Controller is evaluating the President's request for financial analysis. The President has asked how much in sales dollars will be needed to achieve a $100,000 quarterly net income for the next quarter. Currently, each quarter's fixed cost is $40,000 and contribution margin percentage is 20%. If the average pest control visit is $120, how much in sales is needed?

$700,000 Fixed costs plus target net income should be divided by the contribution margin ratio to determine the required sales dollars. ($40,000 + $100,000)/.20 = $700,000.

Cruz Company's breakeven level is 500,000 units at a selling price of $6 per unit. The contribution margin ratio is 30%. How much are fixed costs?

$900,000 The break-even point in sales is 500,000 × $6, or $3,000,000. Contribution margin is 30% of sales, or $900,000. At breakeven, profit is $0, so contribution margin less fixed costs must equal zero: $900,000 - Fixed costs = 0 Fixed costs = $900,000

Melba Co. started and completed 2,000 units for the month. Beginning inventory was 500 units that were 30% complete and ending inventory was 300 units at 20% complete. Using the FIFO method, compute the equivalent units of conversion costs.

(500 × 70%) + (2,000 × 100%) + (300 × 20%) = 2,410.

If a company makes two products, R1 and R2, what is the formula for the weighted-average unit contribution margin?

(Unit Contribution Margin of R1 × Sales Mix Percentage of R1) + (Unit Contribution Margin of R2 × Sales Mix Percentage of R2) The formula for weighted-average unit contribution margin is based on how much each unit of product contributes to covering fixed costs and profit and the number of units to be sold of each product. In this case, the formula is (Unit Contribution Margin of R1 × Sales Mix Percentage of R1) + (Unit Contribution Margin of R2 × Sales Mix Percentage of R2).

Which of the following items are viewed as product costs under absorption costing?

(a) Fixed manufacturing overhead (b) Variable manufacturing overhead

Jensen's Pressure Washing Company's owner is attempting to determine its breakeven point for May. Sales are $125,000 at $50 per customer. Jensen's contribution margin percentage is 40% with fixed costs of $25,000. How many pressure washing jobs must be done to break even for May?

1,250 First, calculate the breakeven point in sales dollars. Then determine the number of units sold at breakeven given total sales revenue and the selling price per unit. Breakeven point in sales dollars: $25,000/40% = $62,500 Breakeven point in units = $62,500/$50 = 1,250 units

Warren Company manufactures two products, Allegro and Forte. Warren has estimated overhead costs consist of setting up machines, $80,000; machining, $150,000; and inspecting, $50,000. Information on the two products follows: Allegro Forte Direct labor hours 30,000 50,000 Machine setups 1,200 800 Machine hours 48,000 52,000 Inspections 1,600 1,400 Overhead is applied to Allegro using direct labor hours. How much overhead is applied using traditional costing?

105,000 The overhead rate is calculated by dividing estimated overhead divided by estimated direct labor hours. Then, the rate is multiplied by the actual activity. Rate = [($80,000 + $150,000 + $50,000) / 80,000] = $3.50 per direct labor hour Applied = $3.50 × 30,000 = $105,000

Which one of the following activities for a carpet cleaning service is a value-added activity?

Cleaning carpeted stairways for a customer

Milton Company had actual sales $1,000,000 and its break-even sales were $800,000. How much is Milton's margin of safety ratio?

20% The amount by which sales can decline before the company incurs a loss is measured by the margin of safety. Margin of safety in dollars divided by actual sales is the margin of safety ratio. ($1,000,000 - $800,000) / $1,000,000 = 20%

Which of the following is an important element in successfully operating a just-in-time approach to production? A.A multi-skilled workforce B.Completing products in the quickest manner without regard for quality C.Utilizing the lowest cost suppliers D.All of the above are important elements

A.A multi-skilled workforce

Mora Company has 2,000 units in beginning work in process, 50% complete as to conversion costs, 23,000 units transferred out to finished goods, and 3,000 units in ending work in process that are 33 1/3% complete as to conversion costs. The beginning and ending inventories are fully complete as to materials costs. How much are equivalent units for materials and conversion costs, respectively, using weighted average?

26,000, 26,000 The material units to be accounted for are 23,000 units transferred out plus 3,000 in ending work in process. The conversion cost units to be accounted for are 23,000 transferred out plus 1/3 of the ending work in process inventory.

Marshall Company had actual sales of $600,000 when break-even sales were $420,000. What is the margin of safety ratio?

30% The amount by which sales can decline before the company incurs a loss is measured by the margin of safety. The margin of safety ratio is computed by dividing the total margin of safety by actual sales. Margin of safety = ($600,000 - $420,000)/$600,000. Margin of safety ratio = $180,000/$600,000 = 30%

How many steps are involved in activity-based costing?

The Molding Department's output during the period consists of 40,000 units completed and transferred out, and 2,000 units in ending work in process that were 30% complete as to conversion costs. Beginning inventory is 3,000 units, 40% complete as to conversion costs. How much are the equivalent units of production using the weighted average method?

40,600 The equivalent units of production are the sum of units completed and transferred out and the equivalent units of ending work in process inventory: (2,000 × 30%) + (40,000 × 100%) = 40,600 units

Smith Company produces desk lamps. The information for June indicates that the selling price was $25 per unit, variable costs were $15 per unit, fixed costs totaled $6,000. Smith currently sells 1,100 lamps and earns $5,000 of profit. How much is Smith's margin of safety ratio?

45.5% First, calculate the breakeven point in sales dollars: Breakeven point in units = $6,000/($25 - $15) = 600 units Breakeven point in sales dollars = 600 × $25 = $15,000 Then calculate the margin of safety: Margin of safety ($) = Current sales less breakeven sales = [($25 × 1,100) - $15,000] = $12,500 The margin of safety ratio is then calculated by dividing the margin of safety in dollars by actual sales: $12,500 / $27,500 = 45.5%

Werth Company produces tie racks. Its estimated fixed costs for the year are $288,000, and the estimated variable costs per unit are $14. Werth expects to produce and sell 60,000 racks at a price of $20 per unit. How many tie racks will be sold at breakeven?

48,000 The breakeven point in units is total fixed costs divided by the contribution margin per unit: $288,000/($20 - $14) = 48,000 units

Palms, Inc. wants to sell enough palm trees to earn a profit of $20,000. If the unit sales price is $40, unit variable cost is $22, and total fixed costs are $120,400, how many trees must be sold to earn income of $20,000?

7,800 To determine the number of trees needed to earn a targeted net income, divide the total of fixed costs plus net income by the contribution margin per unit: ($120,400 + $20,000) / ($40 - $22) = 7,800

Paul's Printers Co. manufactures two printers, LoSpeed and HiSpeed. Total overhead of $126,000 is incurred by three departments: Setups $8,000; Machining $88,000; and Shipping $30,000. The company also incurs $40,000 of direct labor. Information concerning the two product lines is shown below: LoSpeed HiSpeed Machine setups 15 15 Machine hours 750 3,000 Orders shipped 150 250 Direct labor costs $10,000 $30,000 Using activity-based costing, how much overhead is assigned to HiSpeed?

93,150 The rate per activity is calculated for each activity, setups, machining, and shipping, and each rate is multiplied by the actual activity: [(15 / 30) × $8,000] + [(3,000 / 3,750) × $88,000] + [(250 / 400) × $30,000] = $93,150

Materials requisitions are: (not--generally used more frequently in process costing than job order costing.)

Which of these best reflects a distinguishing factor between a job order cost system and a process cost system? (not--The detail at which costs are calculated.)

Which of the following is used to eliminate inventories?

A pull approach This is the approach used in just-in-time systems.

Fortner Company has no beginning work in process; 9,000 units are transferred out and 3,000 units in ending work in process are one-third finished as to conversion costs and fully complete as to materials cost. If total materials cost is $60,000, the unit materials cost is: A.$5.00. B.$5.45 rounded. C.$6.00. D.No correct answer is given.

A. $5.00 $60,000/ (9,000+3,000)

KLM Company uses the FIFO method to compute equivalent units. It has no beginning work in process; 9,000 units are started and completed and 3,000 units in ending work in process are one-third completed. All material is added at the beginning of the process. If total materials cost is $60,000, the unit materials cost is: A.$5.00. B.$6.00. C.$6.67 (rounded). D.No correct answer given.

A. 5,000 60,000/(9,000+3,000)

In RYZ Company, there are zero units in beginning work in process, 7,000 units started into production, and 500 units in ending work in process 20% completed. The physical units to be accounted for are: A.7,000. B.7,360. C.7,500. D.7,340.

A. 7,000 (7,000+0)

If Valdez Company produces 100,000 units and sells 95,000 units, which costing method will produce a higher net income for the year?

Absorption costing When units produced are greater than units sold, net income will be higher under absorption costing since more fixed costs will remain in inventory.

Which of the following is a limitation of activity-based costing?

Activity-based costing can be expensive to use.

Company A has a higher proportion of fixed costs relative to variable costs than Company B. Which statement is true?

Company A has a higher break-even point than Company B. A company must sell more units to breakeven when its contribution margin per unit is smaller.

Which of the following is a limitation of activity-based costing?

Arbitrary allocations of overhead costs may continue.

Dartmouth Company has two process departments that produce products: machining and assembly. At what point can the company add manufacturing overhead costs to the products?

As the production takes place in each of the two process departments

Which of the following is the proper classification of the two activities listed? Value-Added Activity Non-Value-Added Activity Packaging Storing Testing Storage Receiving Machining Assembly Inspection

Assembly Inspection

Ford Company has two process departments that produce products: cutting and shaping. Which answer indicated the possible points that direct materials can be added to product costs?

At the point the materials are used in production during either the cutting or shaping departments

Largo Company has unit costs of $10 for materials and $30 for conversion costs. If there are 2,500 units in ending work in process, 40% complete as to conversion costs, and fully complete as to materials cost, the total cost assignable to the ending work in process inventory is: A.$45,000. B.$55,000. C.$75,000. D.$100,000.

B. $55,000 [(10 X 2,500)+(30 X 2,500 X 40%)]

Hollins Company uses the FIFO method to compute equivalent units. It has 2,000 units in beginning work in process, 20% complete as to conversion costs, 25,000 units started and completed, and 3,000 units in ending work in process, 30% complete as to conversion costs. All units are 100% complete as to materials. Equivalent units for materials and conversion costs are, respectively: A.28,000 and 26,600. B.28,000 and 27,500. C.27,000 and 26,200. D.27,000 and 29,600.

B. 28,000 and 27,500 [25,000 + (3,000 X 100%)] ; [(2,000 X 80%) + 25,000 + (3,000 X 30 %)]

Toney Company uses the FIFO method to compute equivalent units. It has unit costs of $10 for materials and $30 for conversion costs. If there are 2,500 units in ending work in process, 100% complete as to materials and 40% complete as to conversion costs, the total cost assignable to the ending work in process inventory is: A.$45,000. B.$55,000. C.$75,000. D.$100,000.

B. 55,000 [( 10 X 2,500) + ( 30 X 2,500 X 40% )]

Which of the following would be the best cost driver for the assembling cost pool? A. Number of product lines. B. Number of parts. C. Number of orders. D. Amount of square footage.

B. Number of parts.

The primary objective of just-in-time processing is to: A. accumulate overhead in activity cost pools. B. eliminate or reduce all manufacturing inventories. C. identify relevant activity cost drivers. D. identify value-added activities.

B. eliminate or reduce all manufacturing inventories.

Which of the following statements is false concerning the use of ABC in service industries? A.In most service industries, a large portion of overhead costs are company-wide costs. B.When using ABC for service industries, special methods must be used to identify cost pools and cost drivers due to the unique nature of the services offered. C.The notion regarding eliminating as many non-value-added activities as possible applies equally to manufacturers and service providers. D.All of the statements are true concerning the use of ABC in service industries.

B.When using ABC for service industries, special methods must be used to identify cost pools and cost drivers due to the unique nature of the services offered.

A production cost report: A.is an external report. B.shows both the production quantity and cost data related to a department. C.shows equivalent units of production but not physical units. D.contains six sections.

B.shows both the production quantity and cost data related to a department.

Machine setup

Batch-level

How are equipment setups classified?

Batch-level activity

Which one of the following is not an assumption of cost-volume-profit analysis?

Changes in activity and sales mix are the only factors that affect costs. This statement is not an assumption. Changes in activity are the only factors that affect costs. Sales mix must stay the same.

Mora Company has 2,000 units in beginning work in process, 20% complete as to conversion costs, 23,000 units transferred out to finished goods, and 3,000 units in ending work in process 33% complete as to conversion costs. The beginning and ending inventory is fully complete as to materials costs. Equivalent units for materials and conversion costs are, respectively: A.22,000, 24,000. B.24,000, 26,000. C.26,000, 24,000. D.26,000, 26,000.

C. 26,000, 24,000 (23,000+3,000; 23,000(3,000 X 331/ 3%)

What is the primary barrier to using activity-based costing in a service company? A. A large number of cost pools B. A shortage of potential cost drivers C. A large portion of overhead costs are company-wide costs D. A limited number of arbitrary allocation decisions

C. A large portion of overhead costs are company-wide costs

Any activity that causes resources to be consumed is called a: A.just-in-time activity. B.facility-level activity. C.cost driver. D.non-value-added activity.

C. Cost driver

Which of the following is not a reason in support of using activity-based costing? A.Activity-based costing leads to more cost pools. B. Activity-based costing leads to enhanced control over overhead costs. C. Employee turnover will decrease as a result of using activity-based costing. D. Activity-based costing leads to better management decisions.

C. Employee turnover will decrease as a result of using activity-based costing.

The following activity is value-added: A. Storage of raw materials. B. Moving parts from machine to machine. C. Shaping a piece of metal on a lathe. D. All of the above.

C. Shaping a piece of metal on a lathe.

A relevant facility-level cost driver for heating costs is: A. machine hours. B. direct material. C. floor space. D. direct labor cost.

C. floor space.

Marten Corp. has a limited number of machine hours available to produce its three products A11, B22, and C33. Determine the order that these products should be produced given the following data: A11; B22; C33 Unit sales price $14; $36; $10 Unit variable costs 6; 32; 3 Machine hours per unit 5; 4; 2

C33, A11, B22 The product with the highest contribution margin per limited resource should be produced first, followed by the next highest, and then the lowest. A11 = ($14 - $6)/5 MH = $1.60 per machine hour B22 = ($36 - $32)/4 MH = $1.00 per machine hour C33 = ($10 - $3)/2 MH) = $3.50 per machine hour The proper order of production is C33, A11, B22.

Which of the following companies would most likely use process costing given the product it produces?

Campbell's - chicken noodle soup

Darden Enterprises determined that materials costs totaling $158,400 and conversion costs totaling $130,200 were charged to a processing department in the month of July. Materials are added at the beginning of the process, while conversion costs are incurred uniformly throughout the process. There were 4,000 units in beginning work in process, 62,000 units were started into production in July, and 2,000 units were ending work in process that were 55% complete as to conversion costs at the end of July. What total amount of manufacturing costs will be assigned to the units that were completed and transferred out of the process in July if the weighted average method is used?

Completed and transferred out: ($2.40 + $2.00) × 64,000 = $281,600

Which of the following is the third step in applying an activity-based costing system?

Compute the overhead rate for each cost driver.

Of the four steps in preparing a production cost report, which step occurs first?

Compute the physical unit flow.

______ is the amount of revenue that remains after deducting variable costs in a CVP income statement

Contribution margin

Which of the following occurs at the break-even point?

Contribution margin equals total fixed costs Contribution margin equals total fixed costs at the break-even point.

The following information is available for Jimmy's Tax Service: Sales $450,000 Cost of goods sold 110,000 Total fixed expenses 80,000 Total variable expenses 120,000 Which amount would you find on Jimmy's CVP income statement?

Contribution margin is computed as sales less total variable expenses. The CVP income statement will show Sales $450,000 - Total variable expenses $120,000 = Contribution margin of $330,000

The following information is available for Chap Company: Sales $350,000 Cost of goods sold 120,000 Total fixed expenses 60,000 Total variable expenses 100,000 Which amount would you find on Chap's CVP income statement?

Contribution margin is computed as sales less total variable expenses. The CVP income statement would show Sales $350,000 - Total variable expenses $100,000 = Contribution margin of $250,000.

If the contribution per unit is $15 and it takes 3.0 machine hours to produce the unit, how much is the contribution margin per unit of limited resource?

Contribution margin per unit of limited resource is contribution margin per unit divided by units of limited resource needed for the product. So, the answer is $15/3.0 = $5 per machine hour.

Which one of the following is an example of a mixed cost?

Copy machine costs Copy machines generally have a fixed cost plus a cost per copy.

Which one of the following is an example of a mixed cost?

Copy machine costs Correct! Copy machines generally have a fixed cost plus a cost per copy.

Why is determination of a relevant range important?

Cost behavior outside the relevant range may be distorted. At this level, costs may not behave the same as they do within the relevant range.

Which of the following should not be included as part of the cost pool of machine setups?

Cost of accounts payable supervisor's salary

Which of the following would not appear as a debit in the Work in Process account of a second department in a two stage production process?

Cost of products transferred out.

Which one of the following occurs in a process cost system?

Costs are accumulated in a production cost report.

Under just-in-time processing: A. raw materials are received just in time for use in production. B. subassembly parts are completed just in time for use in assembling finished goods. C. finished goods are completed just in time to be sold. D. All of the above.

D. All of the above.

An activity that adds costs to the product but does not increase its market value is a: A. value-added activity. B. cost driver. C. cost-benefit activity. D. non-value-added activity.

D. non-value-added activity.

Variable costs are costs that

D.Both (vary in total directly and proportionately with changes in the activity level) and (remain the same per unit at every activity level) Variable costs vary in total directly and proportionately with changes in the activity level and remain the same per unit at every activity level.

In a production cost report, units to be accounted for are calculated as: A.Units started into production + Units in ending work in process. B.Units started into production − Units in beginning work in process. C.Units transferred out + Units in beginning work in process. D.Units started into production + Units in beginning work in process.

D.Units started into production + Units in beginning work in process.

Under just-in-time processing A.raw materials are received just in time for use in production. B.subassembly parts are completed just in time for use in assembling finished goods. C.finished goods are completed just in time to be sold. D.all of the above.

D.all of the above

(SO 3) In a process cost system, the flow of costs is: A.work in process, cost of goods sold, finished goods. B.finished goods, work in process, cost of goods sold. C.finished goods, cost of goods sold, work in process. D.work in process, finished goods, cost of goods sold.

D.work in process, finished goods, cost of goods sold.

Which of the following would not be an overhead activity cost pool?

DIRECT LABOR

Which of the following service companies will benefit the most from using a process costing system?

DVD rentals at Netflix Each rental will require similar amounts of resources, which makes process costing an appropriate method.

Everest Spas has a master masseuse on staff. His schedule is such that he only works 4 hours per day. Each 45-minute stone massage generates $90 of revenue and each deep tissue massage generates $65 of revenue. Deep tissue massages take 30 minutes. Variable costs are $30 for a stone massage and $20 for a deep tissue massage. Which massage should be 'pushed' to customers given the limited labor hours of the masseuse and how much?

Deep tissue massage, because it contributes $90 per labor hour towards profit The product with the higher contribution margin per limited resource should be emphasized to maximize profit: Stone massage: ($90 - $30)/0.75 hours = $80 per labor hour Deep tissue massage: ($65 - $20)/0.50 hours = $90 per labor hour Deep tissue massages should be emphasized since they produce the higher contribution margin of $90 per labor hour.

Which of the following is a variable cost for a cruise ship?

Diesel fuel to power the ship Variable costs vary in total directly and proportionately with changes in the activity level, so diesel fuel for the ship is a good example of a variable cost.

Which of the following manufacturing cost elements occurs in a process cost system?

Direct materials, Direct labor, and Manufacturing overhead

The activity-based overhead rate is computed by dividing

Estimated overhead per activity by expected use of cost drivers per activity

A company that produces motion pictures would likely use a process cost system.

False

At the break-even point, contribution margin equals total variable costs.

False At the break-even point, contribution margin equals total fixed costs.

Mixed costs change proportionately with changes in the activity level.

False Mixed costs change in total, but not proportionately, with changes in the activity level.

The contribution margin ratio is computed by dividing total contribution margin by the unit selling price.

False The contribution margin ratio is computed by dividing contribution margin per unit by unit selling price.

Which is the correct flow of costs in a process costing system?

Finished goods flows into cost of goods sold

Linburgh Inc manufactures model airplanes and repair kits. The model planes account for 80% of the sales mix, and the kits the remainder. The variable cost ratio for the model planes is 85% and 70% for the kits. Fixed costs are $99,000. Compute the breakeven point in sales dollars.

First the contribution margins for each product are calculated using the variable cost ratio: 1.00 - 0.85 = 0.15; 1.00 - 0.70 = 0.30. The weighted-average contribution margin is determined by multiplying the contribution margin ratio by the respective proportion of the total units sold for each specific product: [(0.80 × 0.15) + (0.20 × 0.30)] = 0.18. To determine the breakeven point, divide the weighted-average contribution ratio into total fixed costs: ($99,000 ÷ .18) = $550,000

Donovan Company had sales of $50,000, fixed costs of $30,000 and a variable cost ratio of 25%. If sales increase by 6% next year, by how much will net income increase?

First, determine the degree of operating leverage by dividing contribution margin by net income. Contribution margin = ${50,000 × (1 - 0.25)} = $37,500 Net income = ($37,500 - $30,000) = $7,500 Degree of operating leverage = 37,500 ÷ $7,500 = 5.0 The percentage increase in profits is the degree of operating leverage multiplied by the 6% change in sales. Percentage increase in profits = 5.0 × 0.06 = 30% The increase in profit is the percentage increase in profits multiplied by the current net income. Increase in profits = $7,500 × .30 = $2,250

Yi Ling Company has two repair Divisions: Computers and Appliances. Given the following data, what is the break-even point in dollars for Yi Ling? Total fixed costs $500,000 Sales-mix percentages 0.40 for Computers and 0.60 for Appliances Contribution margin ratio 0.45 for Computers and 0.35 for Appliances

First, multiply the contribution margin ratio times the sales mix percentage for each product. Second, total fixed costs are divided by the total of the weighted-average contribution margins of all products to arrive at the breakeven point. ($500,000/[(0.45 × 0.40) + (0.35 × 0.60)] = $1,282,051

What type of cost has a unit cost that declines as activity increases?

Fixed costs A fixed cost per unit declines per unit as activity declines. Total fixed costs remain the same in total at every level of activity.

How is the break-even point in dollars computed?

Fixed costs divided by contribution margin ratio Fixed costs divided by contribution margin ratio yields the break-even point in dollars.

Gabriel Corporation has fixed costs of $180,000 and variable costs of $8.50 per unit. It has a target income $268,000. How many units must Gabriel sell at $12 per unit to achieve its target income?

Fixed costs plus target income are added together and divided by the contribution margin per unit. Required sales in units = ($180,000 + $268,000)/($12 - $8.50) = 128,000 units

Which of the following is treated as a period cost under variable costing?

Fixed overhead Fixed overhead is treated as a period cost under variable costing.

Which of the following is a relevant facility-level cost driver for heating costs in a dentist office?

Floor space Floor space is a relevant facility-level cost driver for heating costs since there will be a high correlation between the amount of floor space and the amount of heating costs.

Which of the following companies would most likely use process costing for the product or service it produces?

Friskies Cat Food - cans of tuna-flavored food

Which of the following is not one of the four steps involved in calculating unit costs under activity-based costing?

Identify the cost driver that has a minor correlation to the costs accumulated in the activity cost pool.

Croc Catcher calculates its contribution margin to be less than zero. Which statement is true?

Its selling price is less than its variable costs. If contribution margin is less than zero, selling price is less than variable costs.

Which of the following is not one of the classification levels of activity-based costing activities?

Macro-level activities This is not one of the four levels in the activity-based costing activity hierarchy. The missing activity is unit-level activities.

A company has three processing departments and uses a process costing system. The company assigned manufacturing overhead costs to production. What account was affected and how?

Manufacturing Overhead was credited.

Which of the following statements is correct?

Manufacturing costs are assigned differently in a job order and in a process cost system.

Which of the following will determine how much sales can decline before the company incurs a loss?

Margin of safety in dollars divided by actual sales The amount by which sales can decline before the company incurs a loss is measured by the margin of safety. Margin of safety in dollars divided by actual sales is the margin of safety ratio.

In Lopez Company, total material costs are $35,900, and total conversion costs are $56,160. Equivalent units of production are materials 10,000 and conversion costs 12,000. Compute the unit costs for materials, conversion costs, and total manufacturing costs.

Materials cost per unit $3.59(35,900/10,000) Conversion cost per unit $4.68(56,160/12,000) Total manufacturing cost per unit $8.68

Delivery costs at Hernandez, Inc. appear below for specific months of operations: Month Amount Units Produced March $20,000 16,000 April $18,000 12,000 Which type of cost are delivery costs at Hernandez?

Mixed Fixed costs have the same total costs at all activity levels, so this rules out fixed costs. Variable costs have the same cost per unit no matter how many units. The cost per unit at each activity level is: $20,000 / 16,000 = $1.25 and $18,000 / 12,000 = $1.50. Since the cost per unit differs at the two activity levels, it cannot be variable, so it must be mixed.

Delivery costs at Walco, Inc. appear below for specific months of operations: Month Amount Units Produced June $9,680 11,000 July $10,260 10,800 Which type of costs are delivery costs at Walco?

Mixed Fixed costs have the same total costs at all activity levels, so this rules out fixed costs. Variable costs have the same cost per unit no matter how many units. The cost per unit at each activity level is: $9,680/11,000 = $0.88 and $10,260/10,800 = $0.95 Since the cost per unit differs at the two activity levels, this cannot be variable, so it must be mixed.

What is the primary benefit of activity-based costing?

More accurate product costing

Valerio Company sells Mountain Bikes and Racing Bikes. The Mountain Bikes sell for $300 and have variable costs of $125. The Racing Bikes sell for $450 and have variable costs of $275. Valerio Company has limited machine hours for production. If Mountain Bikes take 2 machine hours and racing bikes take 2.5 machine hours which product should be emphasized if capacity (machine hours) is increased and sufficient demand exists for each product?

Mountain Bikes The product with the higher contribution margin per limited resource should be emphasized to maximize profit. Racing Bikes produce a contribution margin of only $70 per machine hour [($450-$275)/2.5]. Mountain bikes should be emphasized since they produce the higher contribution margin of $87.50 per machine hour [($300 - $125)/2].

Which of the following is not an important element of just-in-time processing?

Multiple product lines This is not an element of just-in-time processing.

For which of the following activities will direct labor hours and direct labor cost be an appropriate cost driver?

Painting

In RYZ Company, there are 100 units in beginning work in process, 6,900 units started into production, and 500 units in ending work in process that are 20% completed. How much are the physical units completed and transferred out if the weighted average method is used?

Physical units do not consider the percentage complete. There are 6,500 units that will either be complete at the end of the period or still in work in process. To be accounted for = 100 + 6,900 = 7,000 units Units accounted for = 6,500 + 500 = 7,000 units

The overhead rate for machine setups is $100 per setup. A total of 140 setups are estimated for the period. At year-end it was determined that Products A and B have 80 and 60 setups, respectively. How much is the overhead cost assigned to each product?

Product A 8,000; Product B 6,000 The overhead cost assigned to each product is the rate times the number of setups. The overhead assigned to product A is $100 x 80 setups, or $8,000 and the overhead assigned to product B is $100 x 60 setups, or $6,000.

Which one of the following is not an interrelationship used in CVP analysis?

Profit for the period Profit is a not basic component that underlies CVP analysis.

Which of the following is likely to contain a linear relationship between costs and activities?

Relevant range Outside of the relevant range, costs do not always behave in a linear fashion.

What is the mathematical equation for computing required sales to obtain target net income?

Required sales = Variable costs + Fixed costs + Target net income

What is the mathematical equation for computing required sales to obtain target net income?

Required sales = Variable costs + Fixed costs + Target net income This is the correct equation for computing required sales to obtain target net income.

Starwise Company had the following amounts from its income statement: Sales revenue $100,000 Cost of goods sold-fixed 32,000 Cost of goods sold-variable 25,000 Selling expenses-fixed 9,000 Selling expenses-variable 11,000 Administrative expenses-fixed 12,000 Administrative expenses-variable 8,000 How much is Starwise's contribution margin?

Sales less variable costs equals contribution margin: $100,000 - $25,000 - $11,000 - $8,000 = $56,000

In the month of April, Carly's Carwash provided 3,000 car washes at an average price of $25. Fixed costs are $9,300 and variable costs are 85% of sales. How much is the contribution margin and the contribution margin ratio, respectively?

Sales less variable costs equals contribution margin: Sales = 3,000 × $25 = $75,000 Contribution margin = ${75,000 × (1 - .85)} = $11,250 The contribution margin ratio is sales less variable costs divided by sales: Contribution margin ratio = $11,250/$75,000 = 15%

Deighan Company had the following amounts from its income statement: Sales revenue (800 units) $80,000 Cost of goods sold-fixed 20,000 Cost of goods sold-variable 18,500 Selling expenses-fixed 7,000 Selling expenses-variable 6,000 Administrative expenses-fixed 5,000 Administrative expenses-variable 7,500 How much is Deighan's contribution margin?

Sales less variable costs equals contribution margin: $80,000 - $18,500 - $6,000 - $7,500 = $48,000

Which of the following is an overhead activity cost pool?

Setting up machines

Which of the following activities adds value to a product or service?

Shaping a piece of metal on a lathe

Which one of the following is not an assumption of cost-volume-profit analysis?

The behavior of costs is curvilinear throughout the relevant range. Cost-volume-profit analysis assumes the behavior of costs is linear, not curvilinear, throughout the relevant range

If Morton Company expects to sell blu-ray players at $100 a unit with variable costs of $60 per unit and DVR's at $200 per unit with variable costs of $120 per unit, what is the weighted average contribution margin if the sales mix is 4 DVR's for 1 blu-ray player?

The contribution margin for one unit of each product is multiplied by the proportion of the total units sold for the specific product: [($200 - $120) × (4/5)] + [($100 - $60) × (1/5)] = $72

Given the following information, what is the contribution margin ratio? Sales $900,000 Variable expenses 400,000 Fixed expenses 300,000 Net income 200,000

The contribution margin ratio is contribution margin divided by sales revenue. This ratio indicates the amount from each sales dollar available to cover fixed costs and to contribute to profit: ($900,000 - $400,000)/ $900,000 = 55.6%.

The total costs accounted for in a production cost report should be equal to what amount?

The cost of units completed and transferred out plus the cost of ending work in process

Martin Company has 1,000 units in beginning work in process inventory that are 20% complete as to conversion costs, 26,000 units transferred out to finished goods, and 2,000 units in ending work in process that are one-fourth complete as to conversion costs. Materials are added at the beginning of the process. The beginning and ending work in process inventory is fully complete as to materials cost. How much are equivalent units for materials and conversion units are, respectively, under the weighted average method?

The equivalent units of production equal the sum of units completed and transferred out plus the equivalent units of ending work in process inventory. Work in process, beginning; 1,000 Started in production; 27,000 Units to be accounted for; 28,000 Units transferred out ; 26,000 Work in process, ending; 2,000 Units accounted for; 28,000 Equivalent Units Materials Conversion Costs Units transferred out; 26,000; 26,000 Work in process, April 30 2,000 × 100%= 2,000 2,000 × 25% =500 Total units ; 28,000; 26,500

Walker Company has 1,000 units in beginning work in process, 7,000 units started into production, and 500 units in ending work in process that are 20% completed as to materials and 40% complete as to conversion costs. How much are equivalent units for conversion costs using the weighted average method?

The equivalent units of production equal the sum of units completed and transferred out plus the equivalent units of ending work in process inventory. Units to be accounted for = 1,000 + 7,000 = 8,000 Units accounted for = 7,500 + 500 = 8,000 Equivalent units completed and transferred out = 7,500 × 100% = 7,500 Equivalent units in work in process = 500 × 40% = 200 Total equivalent units = 7,700

Which of the following statements is false regarding a company's relevant range of activity?

The relevant range assumes curvilinear cost activity. The relevant range assumes that costs are linear within a normal activity range for a company.

Garrison Company uses the FIFO method to compute equivalent units. It has 5,000 units in beginning work in process, 20% complete as to conversion costs, 82,000 units started and completed, and 3,000 units in ending working in process, 30% complete as to conversion costs. All units are 100% complete as to materials. How much are equivalent units for conversion costs?

King Company uses the FIFO method to compute equivalent units. It has 1,000 units in beginning work in process that are 20% complete; 42,000 units are started and completed and 4,000 units in ending work in process inventory are 60% complete as to conversion costs. All materials are added at the beginning of the process. If total conversion costs are $1,017,000, how much is the unit conversion cost?

The equivalent units of production equal the sum of units completed and transferred out, the effort to complete the beginning work in process units, and the portion complete of the ending work in process inventory. The total conversion costs are then divided by the equivalent units to get the cost per unit of conversion costs. Equivalent units = 42,000 + (1,000 × (1 - 20%)) + (4,000 × 60%) = 45,200 Cost per unit = $1,017,000/45,200 = $22.50

The Mixing Department's output during the period consists of 20,000 units completed and transferred out, and 5,000 units in ending work in process 60% complete as to materials and conversion costs. Beginning inventory is 1,000 units, 40% complete as to materials and conversion costs. How much are the equivalent units of production?

The equivalent units of production is the sum of units completed and transferred out and the equivalent units of ending work in process inventory (5,000 units X 60%) or 20,000 + 3,000 = 23,000 units.

If a traditional costing system allocates too much overhead to one product, the firm is likely to experience which of the following problems?

The firm may lose market share to competitors

Which one of the following is considered a basic similarity between job order cost and process cost systems?

The flow of costs through the accounts

Which one of the following items is a characteristic of a process cost system?

The focus is on continually producing homogeneous products.

The format of a CVP income statement is Sales - Cost of goods sold - Operating expenses = Net Income.

The format of a CVP income statement is Sales - Variable costs - Fixed costs = Net income.

Which one of the following is the format of a CVP income statement?

The format of a CVP income statement is Sales - Variable costs - Fixed costs = Net income.

In the month of April, Carly's Carwash provided 3,000 car washes at an average price of $25. Fixed costs are $9,300 and variable costs are 85% of sales. How much is the margin of safety ratio?

The margin of safety is the difference between the current level of sales and breakeven sales. The margin of safety ratio is the margin of safety in dollars divided by current sales dollars. April sales = 3,000 × $25 = $75,000 Breakeven sales = ${9,300 ÷ (1 - .85)} = $62,000 Margin of safety = ($75,000 - $62,000) = $13,000 Margin of safety ratio = ($13,000 ÷ $75,000) = 17.33%

In a process cost system, in what order do costs flow through the accounts?

work in process, finished goods, cost of goods sold

Cross Advisors is a financial advising firm. The service provided to clients includes a financial advising session that is 1 hour in length and the client is charged $200 for this session. If the firm's fixed costs equal $15,000 per month, how much should the CFO of the firm estimate for the number of sessions to breakeven if the contribution margin ratio is 25%?

The method to compute break even in units is to divide the fixed costs by the contribution margin ratio. This results in the breakeven sales and dividing this by the price per session yields the breakeven in units: Breakeven sales = $15,000/.25 = $60,000 Breakeven units = $60,000/$200 = 300 units

Toney Company uses the FIFO method to compute equivalent units. It has unit costs of $10 for materials and $30 for conversion costs. There are 400 units in beginning inventory in work in process. There are 700 units in ending work in process that are 100% complete as to materials and 40% complete as to conversion costs. How much is the total cost assignable to the ending work in process inventory?

The number of physical units is multiplied by the percentage complete, separately for materials and conversion costs, to get equivalent units of production. Then the unit material costs of $10 are multiplied by the equivalent units for materials, and the unit conversion costs are multiplied by the equivalent units for conversion costs. The costs for materials and conversion costs are added together. Equivalent units of materials = 700 × 100% = 700 Equivalent units of conversion costs = 700 × 40% = 280 Total material cost = 700 × $10 = $7,000 Total conversion cost = 280× $30 = $8,400 Total cost = $15,400

Largo Company has unit costs of $10 for materials and $30 for conversion costs. There are 2,500 units in ending work in process that are 40% complete as to conversion costs and fully complete as to materials cost. How much is the total cost assignable to the ending work in process inventory using the weighted average method?

The number of physical units is multiplied by the percentage complete, separately for materials and conversion costs, to get equivalent units of production. Then the unit material costs of $10 are multiplied by the equivalent units for materials, and the unit conversion costs are multiplied by the equivalent units for conversion costs. The costs for materials and conversion costs are added together: (2,500 units × 100% materials × $10) + (2,500 units × 40% conversion costs × $30) = $55,000.

Carleton Company uses the FIFO method to compute equivalent units. It has unit costs of $8 for materials and $24 for conversion costs. There are 7,000 units in ending work in process that are 100% complete as to materials and 30% complete as to conversion costs. There are no units in beginning work in process. How much is the total cost assignable to the ending work in process inventory?

The number of physical units is multiplied by the percentage complete, separately for materials and conversion costs, to get equivalent units of production. Then the unit material costs of $8 are multiplied by the equivalent units for materials, and the unit conversion costs of $24 are multiplied by the equivalent units for conversion costs. The costs for materials and conversion costs are added together. Equivalent units of materials = 7,000 × 100% = 7,000 Equivalent units of conversion costs = 7,000 × 30% = 2,100 Total material cost = 7,000 × $8 = $56,000 Total conversion cost = 2,100 × $24 = $50,400 Total cost = $106,400

Which one of the following would be the best cost driver for the activity of purchasing?

The number of purchase orders issued

Hollins Company uses the FIFO method to compute equivalent units. It had 2,000 units in beginning work in process that were 20% complete as to conversion costs. There were 25,000 units started and completed and 3,000 units in ending working in process that were 30% complete as to conversion costs. All units are 100% complete as to materials. How much are equivalent units for materials and conversion costs, respectively?

The physical units for materials are multiplied by the percentage of materials that has been added, and the physical units for conversion costs are multiplied by the percentage of conversion costs that has been added. Materials = (2,000 × 100%) + (25,000 × 100%) + (3,000 × 100%) = 30,000 Conversion costs = (2,000 × (1 - 20%)) + (25,000 × 100%) + (3,000 × 30%) = 27,500

Which of the following items is not a characteristic of a process cost system?

The products produced are heterogeneous in nature.

Ralph's Rent-a-Center offers two products for construction firms, bulldozers and backhoes. The contribution margin ratio for each bulldozer per hour is 25% of sales and 45% of sales for each backhoe. Ralph sells 3 backhoes to every 1 bulldozer sold to customers. What is the weighted average contribution margin rate per hour for Ralph's two products?

The sales mix is 3/(1 + 3), or 0.75 for backhoes, and 1/(1 + 3) or 0.25 for bulldozers. The weighted-average contribution margin is determined by multiplying the contribution margin ratio by the respective proportion of the total units sold for each specific product: [(0.75 × 0.45) + (0.25 × 0.25)] = 0.40 = 40%

In general, which products should a company sell more units?

Those with a higher contribution margin Products with higher contribution margins contribute more to covering fixed costs and to profit, resulting in higher net income.

For what purpose is a production cost report used?

To determine both the production quantity and cost data related to a department

KLM Company uses the FIFO method to compute equivalent units. It has no beginning work in process. There were 9,000 units are started and completed and 3,000 units in ending work in process at one third complete as to conversion costs. All materials are added at the beginning of the process. If total conversion cost is $80,000, how much is the unit conversion cost?

Total equivalent units consist of conversion cost put into completing the beginning inventory, 100% of the cost for started and completed units, and the one-third completion put into the ending work in process. This total is divided into total conversion costs. $80,000 / (9,000 + (3,000 × 1/3)) = $8.00 per unit

Fabulous Footwear Company has 400 units in beginning work in process; 8,000 units are transferred out and 2,000 units in ending work in process are 80% finished as to conversion costs and 90% complete as to materials cost. Using the weighted-average method, if total materials costs are $181,300, how much is the unit materials cost?

Total materials cost divided by equivalent units equals the unit materials cost. Equivalent units = (2,000 × 90%) + (8,000 × 100%) = 9,800 units Unit materials cost = $181,300/9,800 = $18.50 per unit

When is it appropriate to use direct labor as a basis for assigning overhead costs to products?

When direct labor constitutes a significant part of total product costs

Lamar Company has unit costs of $7 for materials and $12 for conversion costs. If there are 7,500 units in ending work in process, 30% complete as to conversion costs, and fully complete as to materials cost, how much is the total cost assignable to the ending work in process inventory using weighted average?

Total materials cost divided by materials equivalent units equals the unit materials cost. Total conversion costs cost divided by conversion cost equivalent units equals the unit conversion cost. The respective cost per unit is multiplied times the equivalent units for materials and conversion costs. Materials equivalent units in work in process = 7,500 × 100% = 7,500 Total materials costs for ending work in process = 7,500 × $7 = $52,500 Conversion cost equivalent units in work in process = 7,500 × 30% = 2,250 Total conversion costs for ending work in process = 2,250 × $12 = $27,000 Total ending work in process cost = $52,500 + $27,000 = $79,500

Which one of the following is not involved in CVP analysis?

Total variable costs Unit variable costs, not total variable costs, are involved in CVP analysis.

Cost-volume-profit analysis assumes that changes in activity are the only factors that affect costs.

True

Margin of safety is the difference between actual sales and sales at the break-even point.

True

Target net income is an income objective set by management.

True

The amount of income or loss at each level of sales can be derived from the total sales and total cost lines in a CVP graph

True

The range over which a company expects to operate during a period is called the relevant range.

True

Which of the following is the proper classification of activities according to activity level for a computer manufacturing company? Assembly Maintenance Unit Facility Product Unit Product Facility Batch Product

Unit Facility

Fortner Company has no beginning work in process. There were 9,000 units transferred out and 3,000 units in ending work in process that are one-third finished as to conversion costs and fully complete as to materials costs. If total materials cost is $60,000, how much are the unit materials cost using weighted average?

Unit material costs are determined by dividing total materials costs by equivalent units. $60,000 / (9,000 + 3,000) units = $5.00 per unit

Under what circumstances will net income under variable costing be higher than net income under absorption costing?

Units produced are less than units sold. Whenever units produced are less than units sold, variable costing net income will be higher than absorption costing net income because only the current period's fixed overhead is expensed.

Sales mix is important for companies that sell only one product.

false Sales mix is the proportion of each product sold, which is important for companies that sell multiple products.

LT Leather had the following data for its leather cleaning department: Work in process, physical units, August 1; 50 Unit started in production; 1,600 Work in process, physical units, August 31 ; 100 Materials are added at the beginning of the process. Conversion costs are added evenly throughout the process. The incomplete units are 40% completed as to conversion costs. What is the total number of equivalent units for conversion costs during August using the weighted-average method?

Units transferred out plus ending work in process must always equal the total units started plus those started in production. Work in process, August 1; 50 Started in production ; 1,600 Total units ; 1,650 Units transferred out ; 1,550 Work in process, August 31 ; 100 Total units ; 1,650 Units transferred out ; 1,550 100 × 40% =40 Total equivalent units ; 1,590

Harry Carey Hats had the following department data: Work in process, physical units, April 1 7,000 Completed and transferred out physical units 72,000 Work in process, physical units, April 30 8,000 Materials are added at the beginning of the process. Conversion costs are added evenly throughout the process. The incomplete units are 30% completed as to conversion costs. What is the total number of equivalent units for conversion costs during April using the weighted-average method?

Units transferred out plus ending work in process must always equal the units in beginning work in process plus those started in production. Work in process, April 1 7,000 Started in production 73,000 Total units 80,000 Units transferred out 72,000 Work in process, April 30 8,000 Total units 80,000 Equivalent Units Materials Conversion Costs Units transferred out 72,000 ;72,000 Work in process, April 30 8,000 × 100%=8,000 8,000 × 30%=2,400 Total units 80,000 ; 74,400

Which of the following is a cost that remains the same per unit at every level of activity?

Variable cost A variable cost remains the same per unit at every level of activity.

Absorption costing net income is $50,000 for Wilkes Lumber. Its beginning inventory is zero and the ending inventory consists of 1,000 units, the variable overhead rate is $10 per unit, and the fixed overhead rate is $15 per unit. How much is net income under variable costing?

Variable costing net income differs from absorption net income because fixed overhead is expensed when incurred for variable costing and capitalized on units not sold under absorption costing: $50,000 - ($15 × 1,000) = $35,000

If a company has limited resources,

When a company has limited resources, the sales mix is determined by computing the contribution margin per unit of limited resource for each product.

Genesis Company manufactures digital televisions and computer monitors. The limiting resource for the company is 7,200 hours per month. Televisions have a contribution margin per unit of $400 and computer monitors have a contribution margin per unit of $100. Machine hours per unit for televisions and monitors are 0.80 and 0.25, respectively. If Genesis is able to increase machine capacity to 7,500 hours and increase the production of only one of these products, what amount of contribution margin is available under Digital TVs versus computer monitors separately, for the additional 300 hours?

When a company has limited resources, the sales mix is determined by computing the contribution margin per unit of limited resource for each product. Contribution margin per unit of limited resource for TVs = $400 ÷ 0.80 = $500 Contribution margin for TVs: $500 x 300 additional hours = $150,000 Contribution margin per unit of limited resource for Monitors = $100 ÷ 0.25 = $400 Contribution margin for TVs: $400 x 300 additional hours = $120,000

Which statement describes a fixed cost?

When activity declines, its cost per unit increases. Total fixed costs stay the same, but as fewer units of activity occur, the cost per unit becomes larger.

Widgets $480,000, Gadgets $360,000, Targets $1,080,000 The activity-based overhead rate is $12 per inspection ($1,920,000/160,000 inspections) and the overhead assigned to each product is computed by multiplying this rate times the number of inspections per product. The result is overhead assigned to Widgets of $12 × 40,000 inspections, or $480,000; overhead assigned to Gadgets of $12 × 30,000 inspections or $360,000; and overhead assigned to Targets of $12 × 90,000 inspections or $1,080,000.

Marco Company has two processing departments and uses a process costing system. The company assigned direct labor costs to production. What account was affected?

Work in Process was debited.

Darden Enterprises determined that materials costs totaling $158,400 and conversion costs totaling $130,200 were charged to a processing department in the month of July. Materials are added at the beginning of the process, while conversion costs are incurred uniformly throughout the process. There were 4,000 units in beginning work in process, 62,000 units were started into production in July, and 2,000 units were ending work in process that were 55% complete as to conversion costs at the end of July. What total amount of manufacturing costs will be assigned to the units in work in process at the end of July if the weighted average method is used?

Work in process; 4,000 Started in production; 62,000 Total units; 66,000 Units transferred out; 64,000 Work in process; 2,000 Total units; 66,000 Equivalent Units Materials; Conversion Costs Units transferred out 64,000; 64,000 Work in process 2,000 × 100%= 2,000 2,000 × 55%= 1,100 Total units; 66,000; 65,100 Costs: Materials; Conversion Costs Costs in July $158,400; $130,200 Equivalent units ÷ 66,000 ; ÷ 65,100 Unit costs $2.40; $2.00 Work in process: Materials: $2.40 × 2,000 = $4,800 Conversion costs: $2.00 × 1,100 = $2,200 Total: $7,000

Which selection provides the greatest impact on contribution margin of a police department through its salaried officers?

Writing tickets Writing tickets contributes additional revenue with limited increases in variable costs for printing tickets, gasoline for the police vehicle, etc. Total fixed costs remain the same.

Blake Co. has a beginning inventory of 700 units that are 30% complete as to conversion costs. During the period Blake completed and transferred out 2,000 units. At the end of the period, there are 400 units that are 25% complete. What were the equivalent units for conversion costs, assuming the FIFO method was used?

[700 units × (100% - 30%)] + [(2,000 - 700) × 100%] + (400 × 25%) = 1,890.

Sales mix is

a measure of the relative percentage in which a company's products are sold. Sales mix is the relative percentage in which a company sells its multiple products.

The first step in the development of an activity-based costing system is: A. identify and classify activities and allocate overhead to cost pools. B. assign overhead costs to products. C. identify cost drivers. compute overhead rates. D. Compute overhead rate.

a.identify and classify activities and allocate overhead to cost pools.

b. 23,000. 20,000+(5,000X 60%)

Which of the following items is not characteristic of a process cost system? A.Once production begins, it continues until the finished product emerges. B.The products produced are heterogeneous in nature. C.The focus is on continually producing homogeneous products. D.When the finished product emerges, all units have precisely the same amount of materials, labor, and overhead.

b. The products produced are heterogeneous in nature.

Conversion costs are the sum of: A.fixed and variable overhead costs. B.labor costs and overhead costs. C.direct material costs and overhead costs. D.direct labor and indirect labor costs.

b. labor costs and overhead costs.

A frequently cited limitation of activity-based costing is: A. ABC results in more cost pools being used to assign overhead costs to products. B. Certain overhead costs remain to be allocated by means of some arbitrary volume-based cost driver such as labor or machine hours. C. ABC leads to poorer management decisions. D. ABC results in less control over overhead costs.

b. Certain overhead costs remain to be allocated by means of some arbitrary volume-based cost driver such as labor or machine hours.

The overhead rate for Machine Setups is $100 per setup. Products A and B have 80 and 60 setups, respectively. The overhead assigned to each product is: A.Product A $8,000, Product B $8,000. B. Product A $8,000, Product B $6,000. C. Product A $6,000, Product B $6,000. D. Product A $6,000, Product B $8,000.

b. Product A $8,000, Product B $6,000. (100 X 80); (100 X 60)

In making journal entries to assign raw materials costs, a company using process costing: A.debits Finished Goods Inventory. B.often debits two or more work in process accounts. C.generally credits two or more work in process accounts. D.credits Finished Goods Inventory.

b. often debits two or more work in process accounts.

purchasing raw materials

batch-level

In a process cost system, manufacturing overhead: A.is assigned to finished goods at the end of each accounting period. B.is assigned to a work in process account for each job as the job is completed. C.is assigned to a work in process account for each production department on the basis of a predetermined overhead rate. D.is assigned to a work in process account for each production department as overhead costs are incurred.

c. is assigned to a work in process account for each production department on the basis of a predetermined overhead rate.

Variable costing treats fixed manufacturing overhead as product costs.

false Under variable costing, only direct materials, direct labor, and variable manufacturing overhead costs are considered product costs.

Activity-based costing (ABC): A.can be used only in a process cost system. B.focuses on units of production. C.focuses on activities performed to produce a product. D.uses only a single basis of allocation.

c.focuses on activities performed to produce a product.

Activity-based costing: A.is the initial phase of converting to a just-in-time operating environment. B.can be used only in a job order costing system. C.is a two-stage overhead cost allocation system that identifies activity cost pools and cost drivers. D.uses direct labor as its primary cost driver.

c.is a two-stage overhead cost allocation system that identifies activity cost pools and cost drivers.

The break-even point can be

computed from a mathematical equation. computed by using contribution margin. derived from a cost-volume-profit graph.

The degree of operating leverage is computed by dividing

contribution margin by net income. Contribution margin divided by net income yields the degree of operating leverage.

The degree of operating leverage can be computed as

contribution margin divided by net income.

Any activity that causes resources to be consumed is called a

cost driver

Indicate which of the following statements is not correct. A.Both a job order and a process cost system track the same three manufacturing cost elements—direct materials, direct labor, and manufacturing overhead. B.A job order cost system uses only one work in process account, whereas a process cost system uses multiple work in process accounts. C.Manufacturing costs are accumulated the same way in a job order and in a process cost system. D.Manufacturing costs are assigned the same way in a job order and in a process cost system.

d. work in process, finished goods, cost of goods sold.

Donna Crawford Co. has identified an activity cost pool to which it has allocated estimated overhead of $1,920,000. It has determined the expected use of cost drivers for that activity to be 160,000 inspections. Widgets require 40,000 inspections, Gadgets 30,000 inspections, and Targets 90,000 inspections. The overhead assigned to each product is: A. Widgets $40,000, Gadgets $30,000, Targets $90,000. B. Widgets $640,000, Gadgets $640,000, Targets $640,000. C. Widgets $360,000, Gadgets $480,000, Targets $1,080,000. D. Widgets $480,000, Gadgets $360,000, Targets $1,080,000.

d. Widgets $480,000, Gadgets $360,000, Targets $1,080,000 [(1,920,000/160,000) x 40,000]; [(1920,000/ 160,000) x 30,000]; [(1,920,000/ 160,000) x 90,000]

A company should consider using ABC if: A. overhead costs constitute a small portion of total product costs. B. it has only a few product lines that require similar degrees of support services. C. direct labor constitutes a significant part of the total product cost and a high correlation exists between direct labor and changes in overhead costs. D. its product lines differ greatly in volume and manufacturing complexity.

d. its product lines differ greatly in volume and manufacturing complexity.

In general, a company should try to sell more low contribution margin products.

false Net income will be greater if a company sells more products with higher contribution margin.

Activity-based costing is most appropriate to use when labor costs are a ___________ proportion of total product costs and the manufacturing process is __________.

decreasing, complex.

When a company sells multiple products, the breakeven point in sales dollars is computed by

dividing the total fixed costs by the weighted average contribution margin ratio. The breakeven point in sales dollars for multiple products is total fixed costs divided by the weighted average contribution margin ratio.

The primary objective of just-in-time processing is to

eliminate or reduce all manufacturing inventories.

A high degree of operating leverage

exposes a company to greater earnings volatility risk. A high degree of operating leverage exposes a company to greater earnings volatility risk.

plant maintenance

facility-level

property taxes

faility-level

A manufacturer of computer flash drives would use a job order cost system.

false

A process cost system keeps track of costs on job cost sheets.

false

Activity-based costing is an approach for allocating direct labor to products.

false

An accounting firm is likely to use process costing for the income tax work of major corporate clients.

false

An advantage of ABC is that it is inexpensive to implement.

false

Beginning work in process consists of 100,000 units, ending work in process has 200,000 units, and units transferred out are 700,000 units. Under the weighted average method, there were 900,000 units started into production.

false

Equivalent units of production measure the amount of work that should be completed during a period.

false

In today's increasingly automated environment, direct labor is never an appropriate basis for allocating costs to products.

false

Many hospitals use job order costing for small, routine medical procedures

false

Process cost systems contain a single work-in-process account.

false

The most difficult part of computing accurate unit costs is determining the proper amount of direct material cost to assign to each product.

false

The physical units in a department are another name for the equivalent units of production.

false

Traditional costing systems group costs according to activity cost pools.

false

Two benefits of ABC are that it leads to better management decisions and arbitrary allocations are completely eliminated.

false

Beginning work-in-process consists of 900 units that are 80% complete. Equivalent units of production for the beginning inventory under the weighted-average method totals 180 units.

false Beginning work in process is not a separate part of the equivalent units of production calculation. These units are assumed to be 100% completed during the current period.

Conversion costs are the sum of direct materials, direct labor, and manufacturing overhead costs.

false Conversion costs are the sum of direct labor and manufacturing overhead costs.

When companies use a cost system that is a combination of a process costing and job order costing, it is called hybrid costing.

false Cost systems that combine process costing and job order costing are operations costing systems.

Determining the sales mix with limited resources requires selecting the products with the highest contribution margin.

false Determining the sales mix with limited resources requires selecting the products with the highest contribution margin per unit of limited resource.

Fixed costs are costs that remain the same per unit regardless of changes in the activity level.

false Fixed costs are costs that remain the same in total regardless of changes in the activity level.

Product design is a unit-level activity.

false product design is a product-level activity.

Required sales in dollars to meet a target net income is computed by dividing

fixed costs plus target net income by contribution margin ratio. Fixed costs plus target net income divided by contribution margin ratio yields required sales to meet a target net income.

Net income will be

greater if more higher-contribution margin units are sold than lower-contribution margin units.

A company with high operating leverage

has a greater proportion of fixed costs to variable costs.

In order to achieve the most accurate costing, the cost driver chosen for a given activity must show a ___________ between the cost driver and the actual consumption of overhead costs.

high degree of correlation. The most accurate costing will be achieved when there is a high degree of correlation between the cost driver and the actual consumption of overhead costs

Net income computed under absorption costing will be

higher than net income under variable costing when units produced are greater than units sold.

As the complexity of a product's manufacturing operation increases, the number of activities and cost drivers used in an activity-based cost system will likely

increase

Activity-based costing is?

is the initial phase of converting to a just-in-time operating environment.

Variable costing

is useful for internal reporting purposes.

To reduce product cost distortions, many companies now use ____________ as the basis on which to allocate overhead in an automated manufacturing process.

machine hours

An activity that adds costs to the product but does not increase its market value is a

non-value-added activity.

In making the journal entry to assign raw materials costs in a process costing system, a company

often debits two or more work in process accounts. v

Fixed manufacturing overhead costs are recognized as

product costs under absorption costing.

product design

product-level

In order to maximize profits when limited resources are available, a company should concentrate on the producing products with

the highest contribution margin per unit of limited resource. Profits will be maximized when a company produces those products with the highest contribution margin per unit of limited resource.

To assign overhead costs to an individual product, the activity-based overhead rate is multiplied by

the number of cost drivers used per product.

The relevant range is

the range over which the company expects to operate during a year. The relevant range is the range over which the company expects to operate during a year.

A cost driver is a factor or activity that has a direct cause-effect relationship with the resources consumed.

true

A cost driver is any factor or activity that has a direct cause-effect relationship with resources consumed

true

A detailed CVP income statement provides detail about cost behavior rather than cost function.

true

A process cost system uses multiple work in process accounts.

true

Activity-based costing segregates overhead into various cost pools in an effort to provide more accurate cost information.

true

Activity-based costing systems rely on multiple bases for overhead cost allocation.

true

Activity-based management leads to the identification of value-added and non-value-added activities.

true

Cost structure refers to the relative proportion of fixed versus variable costs that a company incurs.

true

Equivalent units of production measure the work done during a period, expressed in fully completed units.

true

In a process cost system, labor costs incurred maybe captured on time tickets.

true

JIT is based on a pull-approach.

true

Margin of safety measures how far sales can drop before a company will be operating at a loss.

true

Most companies use machine hours to allocate manufacturing overhead costs in a process cost system.

true

Operating leverage refers to the extent to which a company's net income reacts to a given change in sales.

true

Preparation of a production cost report requires four steps. The four steps of a product report are (1) Compute the physical unit flow, (2) Compute equivalent units of production, (3) Compute unit production costs, and (4) Preparation of a cost reconciliation schedule.

true

Process cost systems are used to apply costs to similar products that are mass-produced in a continuous fashion.

true

Process costs systems require fewer materials requisitions than job order cost systems.

true

Separate work in process accounts are maintained for each production department or manufacturing process in a process cost system.

true

The formula for computing the break-even point in sales dollars for a company with multiple products or multiple divisions is fixed costs divided by the weighted average contribution margin ratio.

true

The reasoning behind ABC cost allocation is that products consume activities and activities consume resources.

true

Activity-based costing is used in service industries as well as manufacturing.

true Service industries need accurate cost information so they can more effectively price products.

The contribution margin ratio is calculated as contribution margin divided by sales.

true This ratio indicates the amount of each sales dollar that is available to cover fixed costs and to contribute to profit.

If beginning work-in-process consists of 600 units that are 80% complete, equivalent units of production under the FIFO method for beginning inventory are 120 units.

true Under the FIFO method, equivalent units are the sum of work performed to complete the beginning work in process, complete the units started, complete units started during the period, and partially complete the ending work in process. 600 × (100% - 80%) = 120

Assembly parts

unit-level

Machining parts

unit-level

painting

unit-level

Mixed costs consist of a

variable cost element and a fixed cost element. Mixed costs consist of a variable cost element and a fixed cost element.

Management may be tempted to overproduce in a given period

when using absorption costing, in order to increase net income. When production exceeds sales, some of the fixed overhead is deferred in ending inventory, thereby increasing net income under absorption costing.

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