ACCT 3310
All other things the same, which of the following would increase residual income?
Decrease in average operating income
When the volume or level of production decreases, variable costs will
Decrease in total
An increase in units while all other cost behavior patterns remain unchanged will:
Decrease total cost per unit
(True or False). The following journal entry would be made to apply overhead cost to jobs in a job-order costing system: Debit MOH, Credit WIP
False
(True or False). The materials price variance is computed by multiplying the difference between the actual price and the standard price by the actual quantity of materials used in production.
False
(True or False). The production budget is typically prepared prior to the sales budget.
False
(True or False). The unit product cost under absorption costing does not include fixed manufacturing overhead cost.
False
(True or False). Under the weighted-average method, the cost of materials in the beginning work in process inventory is not used in the computation of the cost per equivalent unit for materials.
False
(True or False). Under variable costing, all variables costs are treated as product costs.
False
(True or False). When using Process Costing, the weighted-average method is generally considered to be more accurate.
False
True or False). A debit balance in the Manufacturing Overhead account at the end of the year means that manufacturing overhead is overapplied.
False
True or False). Contribution margin equals sales revenue minus all variable cost of goods sold
False
True or False). Costs of idle capacity are treated as a product cost under Activity-Based Costing.
False
True or False). Variable manufacturing overhead costs are treated as period costs under both absorption and variable costing.
False
The least-squares regression method:
Fits a line to data by minimizing the sum of the squared errors from the line
The opportunity cost of making a component part in a factory with no excess capacity is the:
Net benefit foregone from the best alternative use of the capacity required.
The salary paid to the production manager in a factory is:
Part of conversion cost
Peluso Company, a manufacturer of snowmobiles, is operating at 70% of plant capacity. Peluso's plant manager is considering making the headlights now being purchased from an outside supplier for $11 each. The Peluso plant has idle equipment that could be used to manufacture the headlights. The design engineer estimates that each headlight requires $4 of direct materials, $3 of direct labor, and $6.00 of manufacturing overhead. Forty percent of the manufacturing overhead is a fixed cost that would be unaffected by this decision. A decision by Peluso Company to manufacture the headlights should result in a net gain (loss) for each headlight of:
$0.40
Fussner Medical Clinic measures its activity in terms of patient-visits. Last month, the budgeted level of activity was 1,610 patient-visits and the actual level of activity was 1,670 patient-visits. The cost formula for administrative expenses is $3.30 per patient-visit plus $17,900 per month. The actual administrative expense was $24,600. In the clinic's flexible budget performance report for last month, the spending variance for administrative expenses was:
$1,189
Daguio Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the total estimated manufacturing overhead was $224,580. At the end of the year, actual direct labor-hours for the year were 18,200 hours, manufacturing overhead for the year was underapplied by $12,100, and the actual manufacturing overhead was $219,580. The predetermined overhead rate for the year must have been closest to:
$11.40 per machine-hour
Avril Company makes collections on sales according to the following schedule:30% in the month of sale60% in the month following sale8% in the second month following sale. Cash collections in March should be budgeted to be:
$113,000
Petitte Corporation has provided the following data from its activity-based costing system:Data concerning the company's product K54A appear below:According to the activity-based costing system, the average cost of product K54A is closest to:
$116.98 per unit
Bakker Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product.The best estimate of the total variable manufacturing cost per unit is:
$131.80
Budgeted sales in Allen Company over the next four months are given below:Twenty-five percent of the company's sales are for cash and 75% are on account. Collections for sales on account follow a stable pattern as follows: 50% of a month's credit sales are collected in the month of sale, 30% are collected in the month following sale, and 15% are collected in the second month following sale. The remainder are uncollectible. Given these data, cash collections for December should be:
$133,500
Stampka Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 4,200 units of component JJF. Each unit of JJF requires 6 units of material O38 and 9 units of material P56. Data concerning these two materials follow:Material O38 is in use in many of the company's products and is routinely replenished. Material P56 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up.What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product JJF?
$155,610
Severn Company uses the FIFO method in its process costing system. The following data were taken from the accounting records of the company for last month: The cost of the units in the ending Work in Process inventory is:
$20,000
The variable overhead rate variance is:
$220
Deschambault Inc. is working on its cash budget for December. The budgeted beginning cash balance is $14,000. Budgeted cash receipts total $127,000 and budgeted cash disbursements total $126,000. The desired ending cash balance is $40,000. To attain its desired ending cash balance for December, the company needs to borrow:
$25,000
Under Lamprey Company's job-order costing system, manufacturing overhead is applied to Work in Process inventory using a predetermined overhead rate. During January, Lamprey's transactions included the following:Lamprey Company had no beginning or ending inventories. What was the cost of goods manufactured for January?
$310,000
Last month 75,000 pounds of direct material were purchased and 71,000 pounds were used. If the actual purchase price per pound was $0.50 more than the standard purchase price per pound, then the materials price variance was:
$37,500
When computing standard cost variances, the difference between actual and standard price multiplied by actual quantity yields a(n):
Price variance
For a retail company, what is the equivalent of the Cost of Goods Manufactured that a manufacturing company has?
Purchases of inventory
Turnover is computed by dividing average operating assets into:
Sales
For a manufacturing firm, the first budget to prepare is the ____________.
Sales Budget
In computing the margin in a ROI analysis, which of the following is used?
Sales in the Denominator
Which of the following represents the correct order in which the indicated budget documents for a manufacturing company would be prepared?
Selling and administrative expense budget, cash budget, budgeted income statement, budgeted balance sheet
Spendlove Corporation has provided the following data from its activity-based costing system:The company makes 430 units of product S78N a year, requiring a total of 1,120 machine-hours, 40 orders, and 30 inspection-hours per year. The product's direct materials cost is $49.81 per unit and its direct labor cost is $12.34 per unit. The product sells for $129.90 per unit.According to the activity-based costing system, the product margin for product S78N is:
$4,116.50
Schemm Inc. regularly uses material F04E and currently has in stock 460 liters of the material for which it paid $2,622 several weeks ago. If this were to be sold as is on the open market as surplus material, it would fetch $5.25 per liter. New stocks of the material can be purchased on the open market for $5.85 per liter, but it must be purchased in lots of 1,000 liters. You have been asked to determine the relevant cost of 800 liters of the material to be used in a job for a customer. The relevant cost of the 800 liters of material F04E is:
$4,680
Butteco Corporation has provided the following cost data for last year when 100,000 units were produced and sold:All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative expense. There are no beginning or ending inventories. If the selling price is $10 per unit, the net operating income from producing and selling 110,000 units would be:
$405,000
The labor rate variance is:
$440
Hardouin Company uses the weighted-average method in its process costing system. The first processing department, the Welding Department, started the month with 22,000 units in its beginning work in process inventory that were 20% complete with respect to conversion costs. The conversion cost in this beginning work in process inventory was $23,320. An additional 97,000 units were started into production during the month and 101,000 units were completed in the Welding Department and transferred to the next processing department. There were 18,000 units in the ending work in process inventory of the Welding Department that were 40% complete with respect to conversion costs. A total of $529,380 in conversion costs were incurred in the department during the month.What would be the cost per equivalent unit for conversion costs for the month? (Round off to three decimal places.)
$5.108
The variable overhead efficiency variance is:
$500
Reed Company's sales last year totaled $150,000 and its return on investment (ROI) was 12%. If the company's turnover was 3, then its net operating income for the year must have been:
$6,000
The materials price variance is:
$600
Sproles Inc. manufactures a variety of products. Variable costing net operating income was $90,500 last year and its inventory decreased by 3,500 units. Fixed manufacturing overhead cost was $6 per unit. What was the absorption costing net operating income last year?
$69,500
The labor efficiency variance is:
$800
The materials quantity variance is:
$800
Stock Manufacturing Corporation has prepared the following overhead budget for next month.The company's variable overhead costs are driven by machine-hours.What would be the total budgeted overhead cost for next month if the activity level is 6,600 machine-hours rather than 6,900 machine-hours?
$84,860.00
Soderquist Corporation uses residual income to evaluate the performance of its divisions. The company's minimum required rate of return is 11%. In April, the Commercial Products Division had average operating assets of $100,000 and net operating income of $9,400. What was the Commercial Products Division's residual income in April?
-$1,600
In August, the Universal Solutions Division of Jugan Corporation had average operating assets of $670,000 and net operating income of $77,500. The company uses residual income, with a minimum required rate of return of 12%, to evaluate the performance of its divisions. What was the Universal Solutions Division's residual income in August?
-$2,900
Patterson Company's variable expenses are 55% of sales. At a $400,000 sales level, the degree of operating leverage is 5. If sales increase by $30,000, the new degree of operating leverage will be (rounded):
3.91
Berol Company plans to sell 200,000 units of finished product in July and anticipates a growth rate in sales of 5% per month. The desired monthly ending inventory in units of finished product is 80% of the next month's estimated sales. There are 150,000 finished units in inventory on June 30. Berol Company's production requirement in units of finished product for the three-month period ending September 30 is:
665,720 units
Hansen Company produces a single product. During the last year, Hansen had net operating income under absorption costing that was $5,500 lower than its income under variable costing. The company sold 9,000 units during the year, and its variable costs were $10 per unit, of which $6 was variable selling expense. If fixed production cost is $5 per unit under absorption costing every year, then how many units did the company produce during the year?
7,900 units
Sales and average operating assets for Company P and Company Q are given below: What is the margin that each company will have to earn in order to generate a return on investment of 20%?
8% and 4%
In a job-order costing system, the use of direct materials that have been previously purchased is recorded as a debit to:
WIP
The Aggie Company uses a process costing system. The following data are available for one department for October:Percent CompletedUnitsMaterialsConversionWork in Process, October 1 50,000 90%60%Work in Process, October 31 30,000 70%50%The department started 390,000 units into production during the month and transferred 410,000 completed units to the next department. Assuming the company uses the weighted-average method of accounting for process costing, what is the equivalent units of production for October:
b. Materials: 431,000; Conversion: 425,000
Bennett Company uses the FIFO method in its process costing system. During April the equivalent units of production with respect to conversion costs totaled 24,600 units. Work in process inventory on April 1 consisted of 8,000 units, 40% complete with respect to conversion costs. A total of 25,000 units were started into production during the month and 20,000 units were transferred to finished goods. Based on this information, Bennett Company's work in process inventory on April 30 consisted of:
c. 13,000 units, 60% complete with respect to conversion costs
Assuming the company uses the FIFO method of accounting for process costing, what is the equivalent units of production for October:
c. Materials: 386,000; Conversion: 395,000
During February, Degan Inc. transferred $60,000 from Work in Process to Finished Goods and recorded a Cost of Goods Sold of $65,000. The journal entries to record these transactions would include a:
credit to Work in Process of $60,000
(True or False). If fixed expenses increase by $10,000 per year, then the level of sales needed to break even will also increase by $10,000.
False
(True or False). In a process costing system, overhead costs are traced to units of product as they are incurred.
False
In the cost formula Y = a + bX, which of the following statements is correct?
"a" is the fixed component
(True or False). In process costing, costs are accumulated by job.
False
(True or False). Indirect costs, such as manufacturing overhead, are always fixed costs
False
A portion of the total fixed manufacturing overhead cost incurred during a period may:
Be excluded from cost of goods sold and booked as part of inventory under absorption costing
Routsong Company had the following sales and production data for the past four years:Selling price per unit, variable cost per unit, and total fixed cost are the same in each year. Which of the following statements is not correct?
Because of the changes in production levels, under variable costing the unit product cost will change each year.
(True or False). The cost per equivalent unit for conversion costs will always be the same under both the FIFO and the weighted-average methods if there is no ending work in process inventory.
False
East Company manufactures and sells a single product with a positive contribution margin. If the selling price and the variable expense per unit both increase 5% and fixed expenses do not change, what is the effect on the contribution margin per unit and the contribution margin ratio?
Contribution margin will increase, CM ratio will have no change
(True or False). The cost of a completed job in a job-order costing system typically consists of the actual direct materials cost of the job, the actual direct labor cost of the job, and the actual manufacturing overhead cost of the job.
False
If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit, and F is the fixed expense, then the break-even point in units is:
F ÷ (P-V)
(True or False) Generally, a product line should be dropped when the fixed costs that can be avoided by dropping the product line are less than the contribution margin that will be lost.
False
(True or False) Residual income measures the return of an investment in dollars.
False
(True or False) Sunk costs are considered to be avoidable costs.
False
(True or False). Depreciation is always considered a product cost for external financial reporting purposes in a manufacturing firm.
False
Which of the following statements concerning ideal standards is incorrect?
Ideal standards are better suited for cash budgeting than practical standards.
National Telephone company has been forced by competition to put much more emphasis on planning and controlling its costs. Accordingly, the company's controller has suggested initiating a formal budgeting process. Which of the following steps will NOT help the company gain maximum acceptance by employees of the proposed budgeting system?
Implementing the change quickly.
If variable expenses per unit decrease and all other factors remain the same, the contribution margin ratio will ____________.
Increase
A continuous (or perpetual) budget:
Is a plan that is updated monthly or quarterly, dropping one period and adding another.
Todco planned to produce 3,000 units of its single product, Teragram, during November. The standard specifications for one unit of Teragram include six pounds of material at $0.30 per pound. Actual production in November was 3,100 units of Teragram. The accountant computed a favorable materials purchase price variance of $380 and an unfavorable materials quantity variance of $120. Based on these variances, one could conclude that:
The actual cost of materials was less than the standard cost.
Which of the following statements is not correct?
The cash budget must be prepared prior to the sales budget because managers want to know the expected cash collections on sales made to customers in prior periods before projecting sales for the current period.
The difference between total sales in dollars and total variable expenses is called:
The contribution margin
Over an extended period of time in which the final ending inventories are zero, the accumulated net operating income figures reported under absorption costing will be:
The same as those reported under variable costing.
Which of the following costing methods provides visibility into capacity utilization and the cost of unused capacity:
Time-Driven Activity-Based Costing
(True or False) Residual income is superior to return on investment as a means of measuring performance because it encourages managers to make investment decisions that are more consistent with the interests of the company as a whole.
True
(True or False) The cost of a resource that has no alternative use in a make or buy decision problem has an opportunity cost of zero.
True
(True or False) When a company has a production constraint, the product with the highest contribution margin per unit of the constrained resource should be given highest priority.
True
(True or False). A flexible budget performance report contains both activity variances and revenue and spending variances.
True
(True or False). A mixed cost is partially variable and partially fixed.
True
(True or False). A spending variance is the difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost for the period.
True
(True or False). If two companies have the same total sales and total expenses and make the same product, the volatility of net operating income with changes in sales will tend to be greater in the company with a higher proportion of fixed expenses in its cost structure.
True
(True or False). In activity-based costing, there are a number of activity cost pools, each of which is allocated to products and other costing objects using its own unique measure of activity.
True
(True or False). Under Activity-Based Costing, nonmanufacturing as well as manufacturing costs may be assigned to products.
True
(True or False). Under the FIFO method, the equivalent units of production relate only to work done during the current period.
True
(True or False). When production is less than sales for the period, absorption costing net operating income will generally be less than variable costing net operating income.
True
(True or False).An activity variance is due solely to the difference between the level of activity assumed in the planning budget and the actual level of activity used in the flexible budget.
True
True or False) The use of return on investment as a performance measure may lead managers to make decisions that are not in the best interests of the company as a whole.
True
True or False). A flexible budget can be used to determine what costs should have been at a given level of activity
True
True or False). Fixed costs remain constant in total, but vary with changes in activity levels when expressed on a per unit basis.
True
True or False). When using Time-Driven Activity-Based Costing, managers directly estimate the resource demands imposed by activities.
True
