ACCT-1B Chapters 3 and 4

he manufacturing cost of Calico Industries for three months of the year are provided below: Total Cost Production (units) April $120,000 280,000 May 74,000 165,000 June 90,900 230,000 Using the high-low method, the variable cost per unit and the total fixed costs are

$0.40 per unit and $8,000

Timmer Corporation just started business in January. There were no beginning inventories. During the year, it manufactured 12,000 units of product, and sold 10,000 units. The selling price of each unit was $20. Variable manufacturing costs were $4 per unit, and variable selling and administrative costs were $2 per unit. Fixed manufacturing costs were $24,000, and fixed selling and administrative costs were $6,000. What would Timmer's net income be for the year using absorption costing?

$114,000

Department F had 4,000 units in Work in Process that were 40% completed at the beginning of the period at a cost of $12,500. Of the $12,500, $8,000 was for material and $4,500 was for conversion costs. 14,000 units of direct materials were added during the period at a cost of $28,700. 15,000 units were completed during the period, and 3,000 units were 75% completed at the end of the period. All materials are added at the beginning of the process. Direct labor was $32,450 and factory overhead was $18,710. If the average cost method is used, the materials cost per unit (to the nearest cent) would be

$2.04

The method of inventory costing based on the assumption that the costs of merchandise sold should be charged against revenue in the order in which the costs were incurred.

first-in, first-out (FIFO) inventory cost flow method

Costs that tend to remain the same in amount, regardless of variations in the level of activity

fixed costs

A technique that uses the highest and lowest total costs as a basis for estimating the variable cost per unit and the fixed cost component of a mixed cost

high-low method

A manufacturing enterprise that uses lean principles

lean manufacturing

A grouping process where employees are cross-trained to perform more than one function

manufacturing cells

Indicates the possible decrease in sales that may occur before an operating loss results

margin of safety

Costs with both variable and fixed characteristics, sometimes called semivariable or semi-fixed costs

mixed costs

A measure of the relative mix of a business's variable costs and fixed costs, computed as contribution margin divided by operating income

operating leverage

A manufacturer that uses large machines to process a continuous flow of raw materials through various stages of completion into a finished state

process manufacturer

A chart used to assist management in understanding the relationship between profit and volume

profit-volume chart

The range of activity over which changes in cost are of interest to management

relevant range

The relative distribution of sales among the various products available for sale

sales mix

The relative distribution of sales among the various products sold by a business is the

sales mix

As production increases, variable costs per unit

stay the same

All of the following are characteristics of a process cost system except

the system accumulates costs per job

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

the system measures costs for each completed job

A mixed cost has characteristics of both a variable and a fixed cost.

true

A production supervisor's salary that does not vary with the number of units produced is an example of a fixed cost.

true

Assuming no other changes, operating income will be the same under both the variable and absorption costing methods when the number of units manufactured equals the number of units sold.

true

Companies with large amounts of fixed costs will generally have a high operating leverage.

true

Even if a business sells six products, it is possible to estimate the break-even point.

true

If yearly insurance premiums are increased, this change in fixed costs will result in an increase in the break-even point.

true

Industries that typically use process cost systems include chemicals, oil, metals, food, paper, and pharmaceuticals.

true

Process manufacturers typically use large machines to process a continuous flow of raw materials into a finished state.

true

The adoption of variable costing for managerial decision making is based on the premise that fixed factory overhead costs are related to productive capacity of the manufacturing plant and are normally not affected by the number of units produced.

true

The closer a company moves towards just-in-time processing, the differences in unit costs between average costing and FIFO will be reduced.

true

The cost of production report reports the cost charged to production and the costs allocated to finished goods and work in process.

true

The fixed cost per unit varies with changes in the level of activity.

true

Variable costs are costs that remain constant on a per-unit basis as the level of activity changes.

true

The dollar available from each unit of sales to cover fixed costs and provide operating profits

unit contribution margin

Which of the following conditions would cause the break-even point to decrease?

unit variable cost decreases

The concept that considers that cost of products manufactured to be composed only of this manufacturing costs that increase or decrease as the volume of production rises or falls (direct materials, direct labor, and variable factory overhead)

variable costing

Costs that vary in total dollar amount as the level of activity changes

variable costs

The number of units in production during a period, whether completed or not

whole units

The last step in the preparation of a cost of production report is the calculation of equivalent units of production.

false

The rate used to allocate costs between completed and partially completed production

cost per equivalent unit

The systematic examination of the relationships among selling prices, volume of sales and production, costs, expenses, and profits

cost-volume-profit analysis

If fixed costs are $400,000 and the unit contribution margin is $20, what amount of units must be sold in order to have a zero profit?

$20,000 units

Manley Co. manufactures office furniture. During the most productive month of the year, 4,500 desks were manufactured at a total cost of $86,625. In its slowest month, the company made 1,800 desks at a cost of $49,500. Using the high-low method of cost estimation, total fixed costs are

$24,750

Department J had no work in process at the beginning of the period; 18,000 units were completed during the period; and 2,000 units were 30% completed at the end of the period. The following manufacturing costs were debited to the departmental work in process account during the period (Assume the company uses FIFO and rounds cost per unit to two decimal places): Direct materials (20,000 at $5) $100,000 Direct labor 142,300 Factory overhead 57,200 ​Assuming that all direct materials are placed in process at the beginning of production, what is the total cost of the 18,000 units completed during the period?

$283,140

Carmelita Inc., has the following information available: Costs from Beginning Inventory Costs from current Period Direct materials 2,000 $ 22,252 Conversion costs 6,200 150,536 ​ At the beginning of the period, there were 500 units in process that were 60% complete as to conversion costs and 100% complete as to direct materials costs. During the period, 4,500 units were started and completed. Ending inventory contained 340 units that were 30% complete as to conversion costs and 100% complete as to materials costs. The company uses the FIFO process cost method. ​ The cost of completing a unit during the current period was

$35.95

A chart used to assist management in understanding the relationships among costs, expenses, sales, and operating profit or loss

cost-volume-profit chart

If the contribution margin ratio for France Company is 45%, sales were $425,000, and fixed costs were $100,000, what was the income from operations?

$91,250

The Rocky Company reports the following data: ​ Sales $800,000 Variable costs 300,000 Fixed costs 120,000 ​ Rocky Company's operating leverage is

1.3 800,000 - 300,000 = 500,000 800,000 - 300,000 - 120,000 = 380,000 500,000 / 380,000 = 1.3

Department B had 3,000 units in Work in Process that were 25% completed at the beginning of the period at a cost of $12,500. 13,700 units of direct materials were added during the period at a cost of $28,700. 15,000 units were completed during the period, and 1,700 units were 95% completed at the end of the period. All materials are added at the beginning of the process. Direct labor was $32,450 and factory overhead was $18,710. The number of equivalent units of production for the period for conversion if the first-in, first-out method is used to cost inventories was

15,865

O'Boyle Co.'s fixed costs are $256,000, the unit selling price is $36, and the unit variable costs are $20, what is the break-even sales (units)?

16,000 units

Department K had 3,000 units 45% completed in process at the beginning of the period; 17,000 units completed during the period; and 1,200 units 40% completed at the end of the period. What was the number of equivalent units of production for the period for conversion if the first-in, first-out method is used to cost inventories? Assume the completion percentage applies to both direct materials and conversion cost.

16,130

f fixed costs are $600,000 and the unit contribution margin is $40, what is the break-even point if fixed costs are increased by $90,000?

17,250

The cost of production report reports the cost of the goods sold.

false

The four steps necessary to complete a cost of production report in a process cost system are ​ 1. allocate costs to transferred and partially completed units 2. determine the units to be assigned costs 3. determine the cost per equivalent unit 4. calculate equivalent units of production ​ The correct ordering of the steps is

2, 4, 3, 1

When Isaiah Company has fixed costs of $120,000 and the contribution margin is $30, the break-even point is

2.0

If fixed costs are $500,000 and the unit contribution margin is $20, what is the break-even point in units if fixed costs are reduced by $80,000?

21,000

Reynold's Grocery has fixed costs of $350,000, the unit selling price is $29, and the unit variable costs are $20. What is the break-even sales (units) if the variable costs are decreased by $4?

26,923 units

Department R had 5,000 units in work in process that were 75% completed as to labor and overhead at the beginning of the period; 30,000 units of direct materials were added during the period; 32,000 units were completed during the period; and 3,000 units were 40% completed as to labor and overhead at the end of the period. All materials are added at the beginning of the process. The first-in, first-out method is used to cost inventories. The number of equivalent units of production for conversion costs for the period was

29,450

Department R had 5,000 units in work in process that were 75% completed as to labor and overhead at the beginning of the period; 30,000 units of direct materials were added during the period; 32,000 units were completed during the period; and 3,000 units were 40% completed as to labor and overhead at the end of the period. All materials are added at the beginning of the process. The first-in, first-out method is used to cost inventories. The number of equivalent units of production for conversion costs for the period was

29,450 Work in process (5,000 * 75%) 3750 (labor) Completed units 32000 3000 units completed @40% (3,000 * 80%) 1200 labor and overhead Material + Overhead - Labor Number of equivalent units (32000+2400-4950) = 29,450

If a company uses a process costing system to account for the costs in its five production departments, how many work in process accounts will it use?

5

Department S had 500 units 60% completed in process at the beginning of the period; 9,000 units completed during the period; and 600 units 30% completed at the end of the period. What was the number of equivalent units of production for the period for conversion if the first-in, first-out method is used to cost inventories? Assume the completion percentage applies to both direct materials and conversion cost.

8,880

Cost-volume-profit analysis cannot be used if which of the following occurs?

Costs cannot be properly classified into fixed and variable costs.

The data required for determining the break-even point for a business are the total estimated fixed costs for a period, stated as a percentage of net sales.

false

Mocha Company manufactures a single product by a continuous process, involving three production departments. The records indicate that direct materials, direct labor, and applied factory overhead for Department 1 were $100,000, $125,000, and $150,000, respectively. The records further indicate that direct materials, direct labor, and applied factory overhead for Department 2 were $55,000, $65,000, and $80,000, respectively. In addition, work in process at the beginning of the period for Department 1 totaled $75,000, and work in process at the end of the period totaled $60,000.

The journal entry to record the flow of costs into Department 1 for direct labor is Selected Answer: Work in Process—Department 1 125,000 Wages Payable 125,000

All costs of the processes in a process costing system ultimately pass through the Cost of Goods Sold account.

True

The relevant activity base for a cost depends upon which base is most closely associated with the cost and the decision-making needs of management.

True

Mocha Company manufactures a single product by a continuous process, involving three production departments. The records indicate that direct materials, direct labor, and applied factory overhead for Department 1 were $100,000, $125,000, and $150,000, respectively. The records further indicate that direct materials, direct labor, and applied factory overhead for Department 2 were $55,000, $65,000, and $80,000, respectively. In addition, work in process at the beginning of the period for Department 1 totaled $75,000, and work in process at the end of the period totaled $60,000. The journal entry to record the flow of costs into Department 1 for direct labor is

Work in Process—Department 1 125,000 Wages Payable 125,000

A measure of materials usage efficiency

Yield

The reporting of the costs of manufacturing products, normally direct materials, direct labor and factory overhead, as product costs.

absorption costing

A measure of activity that is related to changes in cost. Used in analyzing and classifying cost behavior. Activity bases are also used in the denominator in calculating the predetermined factory overhead rate to assign overhead costs to cost objects.

activity base (driver)

The level of business operations at which revenues and expired costs are equal

break-even point

If fixed costs increased and variable costs per unit decreased, the break-even point would

cannot be determined from the data provided

Sales less variable costs and variable selling and administrative expenses

contribution margin

The percentage of each sales dollar that is available to cover the fixed costs and provide an operating income

contribution margin ratio

The manner in which a cost changes in relation to its activity base (driver)

cost behavior

A report prepared periodically by a processing department, summarizing (1) the units for which the department is accountable and the disposition of those units and (2) the cost incurred by the department and the allocation of those costs between completed and incomplete production.

cost of production report

If variable costs per unit decreased because of a decrease in utility rates, the break-even point would

decrease

Which of the following describes the behavior of the fixed cost per unit?

decreases with increasing production

The number of production units that could have been completed within a given accounting period, given the resources consumed.

equivalent units of production

Equivalent units of production are always the same as the total number of physical units finished during the period.

false

If direct materials cost per unit increases, the break-even point will decrease.

false

If fixed costs are $500,000 and variable costs are 60% of break-even sales, profit is zero when sales revenue is $930,000.

false

If the costs for direct materials, direct labor, and factory overhead were $277,300, $52,600, and $61,000, respectively, for 14,000 equivalent units of production, the total conversion cost was $390,900.

false

If the unit selling price is $40, the volume of sales is $3,000,000, sales at the break-even point amount to $2,500,000, and the maximum possible sales are $3,300,000, the margin of safety is 14,500 units.

false