cost acct
In the cost equation TC = F + VX, which term refers to the volume of activity? Y F V X Cannot be determined from the information given.
"TC" refers to total costs, "F" refers to fixed costs that do not vary with activity levels, "V" refers to variable costs per unit of activity, and "X" refers to the volume of the activity.
Which of the following terms is used to describe a cost that changes in response to alternative courses of action? Relevant cost Differential cost Target cost Sunk cost None of these.
A differential cost is a cost that changes in response to alternative courses of action.
Which of the following terms is used to describe a cost that has been incurred that cannot be changed by present or future decisions? Differential cost Opportunity cost Marginal cost Sunk cost None of these.
A sunk cost is a cost that has been incurred and cannot be changed by present or future decisions.
Which of the following statements regarding costs and expenses is not correct? An expense is a cost charged against revenue in an accounting period. We incur a cost whenever we give up (sacrifice) resources, regardless of whether we account for it as an asset or an expense. If the cost is recorded as an asset, it becomes an expense when the asset has been consumed. Accounting systems typically capture and record both outlay costs and opportunity costs. All of these are correct statements.
Accounting systems typically record outlay costs but not opportunity costs.
After-tax target profit equals the before-tax operating profit:rev: 09_15_2016_QC_CS-61360 plus income taxes. multiplied by (1 + tax rate). multiplied by (1 - tax rate). divided by (1 - tax rate). None of these.
After-tax target profit equals the before-tax operating profit multiplied by (1 - tax rate).
The engineering method of estimating costs: does not require data from prior activities in the organization. can detail each step required to perform an operation. can be quite expensive to use. is often based on optimal conditions. All of these are correct statements.
All of these are correct statements.
Which of the following statement(s) relating to CVP analysis with spreadsheets is (are) correct? Once the data are entered, an analysis tool such as Goal Seek can be used to find the volume associated with a given desired profit level. A Microsoft Excel worksheet is ideally suited to doing CVP. An extremely simple Microsoft Excel spreadsheet can easily be edited to analyze alternative scenarios (also called "what-if" analyses). Only the second and third statements above are correct. All of these statements are correct.
All of these are correct statements.
Which of the following statements regarding budgets is not correct? Budgets help managers decide whether their goals can be achieved and, if not, what modifications are necessary. As part of the planning and control process, managers prepare budgets containing expectations about revenues and costs for the coming period. Budgeting is very important to the financial success of individuals and organizations. A budget is the financial plan of the revenues and resources needed to carry out activities and meet financial goals. All of these are correct statements.
All of these are correct statements.
Which is of the following statements regarding cost accounting information is not correct? Cost accounting information is designed for managers. Cost accounting information is commonly used in developing financial accounting information. The primary purpose of cost accounting information is to provide information to management Cost accounting information is governed by generally accepted accounting principles (GAAP) in the United States and international financial reporting standards (IFRS) in many other countries. All of these are correct statements.
Although cost accounting information is commonly used in financial accounting information, it is primarily designed for managers to make decisions. Only the financial data prepared for financial reporting purposes is governed by generally accepted accounting principles (GAAP) in the United States and international financial reporting standards (IFRS) in many other countries. In contrast to cost data for financial reporting to shareholders, cost data for managerial use (that is, within the organization) does not need to comply with GAAP or IFRS. Instead, management is free to set its own definitions for cost information.
Which of the following describes an important qualitative factor to consider regarding a special order? The variable costs associated with the special order. The effect of the sale of special-order units will have on the sale of regularly priced units. The incremental revenue that will be generated by the special order. The avoidable fixed costs associated with the special order. The unavoidable fixed costs associated with the special order.
An important factor that must be considered prior to accepting a special order is whether the special order would impact the pricing of products sold within the company's regular distribution channels. All of the other choices provided above are quantitative in nature. ２
Which of the following statements regarding the advantages and disadvantages of alternative cost estimation methods is not correct? To simplify analysis, most cost estimation methods assume that the cost behavior depends on just one cost driver. To simplify analysis, most cost estimation methods assume that the cost behavior patterns are linear within the relevant range. Analysts must be careful when predicting future costs from historical data because technological innovation, increased use of automation, more mechanized processes, and similar changes have made the past cost-activity relations inappropriate for prediction purposes in many organizations. Companies using precious metals or relying on labor in developing countries have found that past cost data are very helpful in predicting future costs. Collecting appropriate data is complicated because the time period for the dependent and independent variables may not match.
Because of the high variation in costs, companies using precious metals or relying on labor in developing countries have found that past cost data are not very helpful in predicting future costs.
Jordan Inc. manufactures water polo balls, which sell for $50. The company expects to incur the following costs during the coming year: variable manufacturing cost, $15 per unit; variable selling and administrative cost, $5 per unit; fixed manufacturing cost, $35,000; and fixed selling and administrative cost, $25,000. What is the break-even volume in sales dollars? $50,000 $65,000 $75,000 $100,000 None of these.
Break-even volume in sales dollars = Fixed costs ÷ Contribution margin ratio (must be calculated). Contribution margin ratio = Unit contribution margin of $30 (or selling price of $50 - Variable manufacturing cost of $15 per unit - Variable selling and administrative cost of $5 per unit) ÷ Selling price of $50 = 60%. Break-even volume in units = Fixed costs of $60,000 (or Fixed manufacturing cost of $35,000 + Fixed selling and administrative cost of $25,000) ÷ Contribution margin ratio of 60% = $100,000.
Key West Inc. manufactures inflatable kayaks. Each kayak sells for $350. At a production level of 10,000 units, the total variable manufacturing cost is $1,200,000 and the fixed manufacturing cost in total is $420,000. At this level of activity, the company will incur variable selling and administrative costs of $900,000 and fixed selling and administrative costs of $770,000. How many units have to be sold to break even? 5,100 6,700 8,500 10,000 None of these.
Break-even volume in units = Fixed costs (must be calculated) ÷ Unit contribution margin (must be calculated). Total fixed costs = Fixed manufacturing cost of $420,000 + Fixed selling and administrative costs of $770,000 = $1,190,000. Unit contribution margin = Selling price - Total variable costs per unit (must be calculated). Variable cost per unit = Variable costs of $2,100,000 (or the total variable manufacturing cost of $1,200,000 + Variable selling and administrative costs of $900,000) ÷ Production level of 10,000 units = $210 per unit. Unit contribution margin = Selling price of $350 - Total variable costs per unit of $210 = $140 per unit. Break-even volume in units = Fixed costs of $1,190,000 ÷ Unit contribution margin of $140 = 8,500 units.
If a company decides to increase its selling price by $4 per unit because of an increase in its variable labor cost of $4 per unit, what impact will these two changes have on the break-even volume in units? It will decrease. It will increase. It will not be impacted. It will change, but the direction of the change cannot be determined using the information provided. None of these.
Break-even volume in units = Fixed costs ÷ Unit contribution margin. If both the selling price and the variable cost increase by the same amount, the unit contribution margin will not be affected. Since fixed costs and the unit contribution margin are not affected by these two changes, the break-even volume in units will not change.
Summit Company manufactures and sells three products; X, Y, and Z. Last year sales of these products were 20,000 units of X, 30,000 units of Y and 50,000 units of Z. The unit contribution margins are $5 for X, $4 for Y, and $3 for Z. Assuming the product mix remains the same and that fixed costs are $222,000, how many units of X must Summit sell to break even? 10,000 12,000 22,200 44,400 None of these.
Break-even volume in units = Fixed costs ÷ Weighted-average unit contribution margin (must be calculated). The three products sell in a fixed product mix ratio of 20,000:30,000:50,000 or 2:3:5. A package is defined as two units of X + three units of Y + five units of Z. The weighted-average unit contribution margin of a package = (Unit contribution margin × The product mix ratio for product X) + (Unit contribution margin × The product mix ratio for product Y) + (Unit contribution margin × The product mix ratio for product Z) = ($5 × 2) + ($4 × 3) + ($3 × 5) = $37 per package. Break-even number of packages = Fixed costs of $222,000 ÷ Weighted-average unit contribution margin of $37 = 6,000 packages. Since there 2 units of X per package, 12,000 (or 6,000 × 2) units of X must be sold to break even.
Bent Tree incurred the following unit costs during the year: variable manufacturing cost, $27; fixed manufacturing cost, $10; variable marketing and administrative cost, $8; and fixed marketing and administrative cost, $6. During the year, Bent Tree produced 30,000 units and sold 25,000 units of product. The selling price was $67 per unit. What was Bent Tree's total contribution margin? $400,000 $750,000 $800,000 $1,000,000 None of these.
Contribution margin per unit = Revenue - Variable costs. On a per unit basis, Total variable costs = Variable manufacturing cost of $27 + Variable marketing and administrative cost of $8 = $35 per unit. Then, on a per unit basis, Contribution margin = Selling price of $67 - Variable cost per unit of $35 per unit = $32 per unit. The total contribution margin = 25,000 units × $32 per unit = $800,000.
Abbott Company incurred the following costs during the year: utilities (60% factory), $5,000; insurance (75% factory), $4,000; direct materials, $20,000; indirect materials, $3,000; direct labor, $30,000; and indirect labor, $5,000. What is the amount of conversion costs incurred during the year? $36,000 $44,000 $77,000 $94,000 None of these.
Conversion costs = Direct labor + Manufacturing overhead (must be calculated). Manufacturing overhead = Factory utilities of $3,000 (or $5,000 × 60%) + Factory insurance of $3,000 (or $4,000 × 75%) + Indirect materials of $3,000 + Indirect labor of $5,000 = $14,000. Conversion costs incurred = Direct labor of $30,000 + Manufacturing overhead of $14,000 = $44,000.
5.Expense
Cost charged against revenue in a particular accounting period.
Summit Manufacturing had $10,000 of direct materials on hand at the beginning of the year and $9,000 on hand at the end of the year. During the year, the company purchased $42,000 of direct materials, and incurred $22,000 of direct labor and $17,000 of manufacturing overhead. The company had $26,000 of inventory in Work-in-Process Inventory at the beginning of the year and $12,000 at the end of the year. What is the cost of goods manufactured for the year? $68,000 $82,000 $94,000 $96,000 None of these.
Cost of goods manufactured = Beginning Work-in-Process Inventory + Total manufacturing costs incurred (must be calculated) - Ending Work-in-Process Inventory. Total manufacturing costs incurred = Direct materials used (must be calculated) + Direct labor + Manufacturing overhead. The direct materials used during the year = Beginning direct materials inventory of $10,000 + Purchases of $42,000 - Ending direct materials inventory of $9,000 = $43,000. Total manufacturing costs incurred = Direct materials used of $43,000 + Direct labor of $22,000 + Manufacturing overhead of $17,000 = $82,000. Cost of goods manufactured = Beginning Work-in-Process Inventory of $26,000 + Total manufacturing costs incurred of $82,000 - Ending Work-in-Process Inventory of $12,000 = $96,000.
Soapy's Suds makes and sells root beer. Its beginning Work-in-Process Inventory was $12,000 and the ending Work-in-Process Inventory was $10,000. During the year, Soapy used $45,000 of direct materials and incurred $30,000 of direct labor in production. Its cost of goods manufactured for the period was $97,000. How much manufacturing overhead did Soapy incur during the period? $20,000 $22,000 $24,000 $26,000 None of these.
Cost of goods manufactured of $97,000 = Beginning Work-in-Process Inventory of $12,000 + Total manufacturing costs incurred (must be calculated) - Ending Work-in-Process Inventory of $10,000; as such, total manufacturing costs incurred = $95,000. Total manufacturing costs incurred of $95,000 = Direct materials used of $45,000 + Direct labor of $30,000 + Manufacturing overhead costs incurred; solving for manufacturing overhead costs incurred: $95,000 - $45,000 - $30,000 = $20,000.
Sipco, Inc., a wholesaler, purchased $175,000 of inventory during the year, incurred transportation-in costs of $21,000, and shipping costs of $14,000. The company had $10,000 of inventory on hand at the beginning of the year and $7,000 on hand at the end of the year. What is the cost of goods for the year? $178,000 $193,000 $199,000 $213,000 None of these.
Cost of goods sold = Beginning inventory + Cost of goods purchased (must be calculated) less Ending inventory. The cost of goods purchased = Merchandise cost of $175,000 + Transportation-in costs of $21,000 = $196,000. The cost of goods sold = Beginning inventory of $10,000 + Cost of goods purchased of $196,000 - Ending inventory of $7,000 = $199,000.
6.Direct cost
Cost that can be directly related to a cost object.
9.Period cost
Cost that can more easily be attributed to time intervals.
2.Indirect cost
Cost that cannot be directly related to a cost object.
10.Fixed cost
Cost that does not vary with the volume of activity.
11.Product cost
Cost that is part of inventory.
3.Variable cost
Cost that varies with the volume of activity.
4.Full absorption cost
Cost used to compute inventory value according to GAAP.
In the standard regression equation y = a + bx, the letter y is best described as the:
Dependent variable.
Which of the following is an information technology that links the various processes of an enterprise into a single comprehensive system? Activity-based costing Enterprise resource planning Just-in-time Six Sigma None of these.
Enterprise resource planning (ERP) is an information technology that links the various processes of the enterprise into a single comprehensive information system.
Bent Tree incurred the following unit costs during the year: variable manufacturing cost, $27; fixed manufacturing cost, $10; variable marketing and administrative cost, $8; and fixed marketing and administrative cost, $6. During the year, Bent Tree produced 30,000 units and sold 25,000 units of product. The selling price was $67 per unit. What was Bent Tree's total gross margin? $400,000 $750,000 $800,000 $1,000,000 None of these.
Gross margin = Revenue - Cost of goods sold as reported on the income statement. On a per unit basis, Cost of goods sold = Variable manufacturing cost of $27 + Fixed manufacturing cost of $10 = $37 per unit. Then, on a per unit basis, Gross margin = Selling price of $67 - Cost of goods sold of $37 per unit = $30 per unit. The total gross margin = 25,000 × $30 per unit = $750,000.
Which of the following statements regarding assumptions and limitations of CVP analysis is not correct? CVP analysis relies on certain assumptions and these assumptions might limit the applicability of the results for decision making. The limitations are due to the assumptions that the cost analyst makes; that is, they are not inherent limitations to the method of CVP analysis itself. The assumptions of constant unit variable cost and constant unit prices for all levels of volume as important limitations of CVP analysis. If unit prices change (for example, if the unit prices are lower for higher volumes), CVP analysis cannot be used. CVP analysis is a tool that the manager can use to help with decisions.
If unit prices change (for example, if the unit prices are lower for higher volumes), we can still use CVP analysis. If we know that unit prices are lower for higher volumes, we can incorporate that relation into the CVP analysis.
In the standard regression equation y = a + bx, the letter x is best described as the
Independent variable
8.Opportunity cost
Lost benefit from the best forgone alternative.
Hale & Hearty Inc. currently sells 10,000 treadmills for $520 each. Variable costs relating to this product are $320 per unit and fixed costs total $1,200,000. What is the company's margin of safety? 2,000 units 4,000 units 6,000 units 8,000 units None of these.
Margin of safety = Sales volume - Break-even volume in units (must be calculated). Break-even volume in units = Fixed costs of $1,200,000 ÷ Unit contribution margin of $200 (or Selling price of $520 - Variable cost per unit of $320) = 6,000 units. Margin of safety = Sales volume of 10,000 units - Break-even volume in units of 6,000 units = 4,000 units.
Operating leverage refers to the extent to which an organization's cost structure is made up of: variable costs. manufacturing costs. operating costs. fixed costs. product costs.
Operating leverage refers to the extent to which an organization's cost structure is made up of fixed costs.
Carrie Corporation makes three products: a standard model, a deluxe model, and a luxury model. The financial statements of the products are as follows: Standard ModelDeluxe Model Luxury ModelTotalSales revenue$90,000 $70,000 $50,000 $210,000 Variable costs 30,000 35,000 25,000 90,000 Contribution margin 60,000 35,000 25,000 120,000 Less fixed costs: Salaries 12,000 20,000 4,000 36,000 Rent 10,000 10,000 10,000 30,000 Administrative 20,000 10,000 8,000 38,000 Operating profit (loss)$18,000 $(5,000) $3,000 $16,000 If the deluxe model product line was discontinued, all variable costs for that line could be avoided and $10,000 of the salaries associated with that model could be avoided. The other fixed costs are unavoidable. If the deluxe model product line is dropped, how will the company's operating profit be impacted? $5,000 increase $10,000 increase $15,000 decrease $25,000 decrease None of these.
Operating profit will be impacted as follows: Status Quo (Keep Deluxe) Alternative (Drop Deluxe) DifferenceSales revenue$210,000 $140,000 $70,000 decreaseVariable costs 90,000 55,000 35,000 decreaseContribution margin 120,000 85,000 35,000 decreaseLess fixed costs: Salaries 36,000 26,000 10,000 decreaseRent 30,000 30,000 -0- Administrative 38,000 38,000 -0- Operating profit (loss)$16,000 $(9,000) $(25,000)decrease
7.Outlay cost
Past, present, or near-future cash flow.
Which of the following statements is not correct? Dumping is the practice of setting the selling price of a product at a low price with the intent of driving competitors out of the market or creating a barrier to entry for new competitors. Price discrimination is the practice of selling identical goods or services to different customers at different prices. Peak-load pricing is the practice of setting prices highest when the quantity demanded for the product approaches the physical capacity to produce it. Price fixing is a particular legal and ethical problem because it is not universally illegal. Throughput contribution equals sales dollars minus direct materials costs and other variable costs such as energy and piecework labor.
Predatory pricing is the practice of setting the selling price of a product at a low price with the intent of driving competitors out of the market or creating a barrier to entry for new competitors. Dumping occurs when a company exports its product to consumers in another country at an export price that is below the domestic price.
The contribution margin per unit is $10 for product X and $15 for product Y. It takes 2.5 hours to produce each unit of product X and 3 hours to produce each unit of product Y. Fargo has a maximum production capacity of 25,000 machine hours and the demand for products X and Y is a maximum of 5,000 units each. How many units of product X and units of product Y should be produced? 5,000 of product X and 5,000 of product Y 1,000 of product X and 5,000 of product Y 2,000 of product X and 5,000 of product Y 4,000 of product X and 5,000 of product Y None of these.
Product X contributes $4 per machine hour (or contribution margin of $10 per unit ÷ 2.5 hours). Product Y contributes $5 per machine hour (or contribution margin of $15 per unit ÷ 3 hours). Since it has a higher contribution margin per machine hour, operating profit will be maximized by producing all of the units of product Y that can be sold. Recall that the maximum demand for product Y is 5,000 units. Producing 5,000 units of Product Y requires 15,000 machine hours (or 5,000 units × 3 hours per unit). That leaves 10,000 machine hours (or the total of 25,000 - those required to produce product Y of 15,000), which can be used to produce 4,000 units of product X (or 10,000 machine hours ÷ 2.5 machine hours per unit).
The percent of the total variance (rounded) that can be explained by the regression is
R square
Axel Corporation obtained the following simple regression results. Dependent variable - Machine maintenance costIndependent variable - Machine hoursComputed values Intercept$3,500 Coefficient on independent variable$3.50 Coefficient of correlation 0.856 R2 0.733 What percentage of the changes in machine maintenance cost is explained by the independent variable? 85.6% 92.5 % 47.3% 73.3% None of these.
R2, or the coefficient of determination, is interpreted as the variation in the dependent variable (Y) explained by the independent variable (X). As such, 0.733 or 73.33% (rounded to 73.3%) of the variation in maintenance costs is explained by the independent variable, which, in this situation, is machine hours.
James Company had the following costs at a production level of 30,000 units of product: direct materials, $45,000; direct labor, $60,000; variable manufacturing overhead, $15,000 and fixed manufacturing overhead, $30,000. If the same cost pattern persists, what would be the total cost of production at a level of 50,000 units? $170,000 $210,000 $230,000 $250,000 None of these.
Recall that variable costs are costs that change in direct proportion with a change in volume within the relevant range of activity while fixed costs are costs that are unchanged as volume changes within the relevant range of activity. Total variable costs = Direct materials of $45,000 + Direct labor of $60,000 + Variable manufacturing overhead of $15,000 = $120,000. The variable cost per unit = $120,000 ÷ 30,000 units = $4 per unit. The total cost of production at a level of 50,000 units = Variable cost of $200,000 (or 50,000 × $4 per unit) + Fixed costs (comprised of fixed manufacturing overhead) of $30,000 = $230,000.
1.Cost
Sacrifice of resources.
Which of the following is an example of a nonvalue-added activity? Research and development (R&D) Purchasing Reworking defective units Distribution All of these are examples of value-added activities.
Since it does not add value to the good or service from the customer's perspective, the reworking of defective units is a common example of a nonvalue-added activity.
Which of the following statements regarding the common problems with the use of regression estimates is not correct? While advances in easy-to-use computer software have greatly simplified regression analysis and made it available to more people, regression methods are often misused. Some of the more common problems with using regression estimates include failing to include outliers. The linear cost estimate understates the slope of the cost line in the ranges close to capacity. When an extreme outlier appears in the data set, scrutiny of the output from the regression analysis will rarely identify it. All of these are correct statements.
Some of the more common problems with using regression estimates include: (1) attempting to fit a linear equation to nonlinear data, (2) failing to exclude nonrepresentative observations (called "outliers"), (3) including predictors with apparent, but spurious, relations to the dependent variable, and (4) using data that do not fit the assumptions of regression analysis.
Voyager Corporation has developed the following cost formula for its maintenance cost: Y = $300 + $2X, where X = the number of direct labor hours incurred. Assuming that the company expects 1,350 direct labor hours to be incurred during July, what maintenance cost would it expect? $5,700 $2,950 $3,000 $3,100 None of these.
Substitute 1,350 direct labor hours for X in the equation. The expected maintenance cost = Y = $300 + ($2 × 1,350 direct labor hours) = $3,000.
Which of the following statements regarding target costing and pricing is not correct? The target price is the price based on customers' perceived value for the product and the price that competitors charge. Target cost equals the target price plus the desired profit margin. Target costing is the concept of "price-based costing" instead of "cost-based pricing." Target costing is widely used by companies in the automobile, electronics, and the personal computer industries. All of these are correct statements.
Target cost equals the target price minus the desired profit margin.
A retailer called Little Big Brother sells video games. The games sell for $40 each. The variable costs consist of the purchase price of $20 per video game. The store's annual fixed costs are $250,000 and the company's income tax rate is 40%. What is the volume of sales dollars required to earn an after-tax target profit of $120,000? $500,000 $740,000 $900,000 $1,100,000 None of these.
Target volume of sales dollars = [Fixed costs + (Target profit ÷ (1 - Tax rate))] ÷ Unit contribution ratio (must be calculated). Contribution margin ratio = (Selling price of $40 - Total variable costs per unit of $20) ÷ Selling price of $40 per unit = 50%. After-tax target volume of sales dollars = [Fixed costs of $250,000 + Before-tax target profit of $200,000 (or After-tax target profit of $120,000 ÷ (1 - Tax rate of 40%))] ÷ Contribution margin ratio of 50% = $900,000. Proof: Sales (22,500 units)$900,000 Variable costs (450,000)Contribution margin$450,000 Fixed costs (250,000)Before-tax operating profit$200,000 Income tax expense ($200.000 × 0.4) (80,000)After-tax target profit$120,000
Assume that you are a cost accountant who is a member of the Institute of Management Accountants (IMA). If you are faced with an ethical conflict, what should you do? Resign from the company. Follow the established policies that deal with them and, if the policies do not resolve the conflict, you should consider discussing the matter with superiors. Go directly to the audit committee with the information. All of these. None of these.
The IMA Code of Conduct recommends that accountants faced with ethical conflicts follow the established policies that deal with them. If the policies do not resolve the conflict, accountants should consider discussing the matter with superiors, potentially (but not necessarily) as high as the audit committee of the board of directors. Only in extreme cases would the accountant have no alternative but to resign.
What does the Sarbanes-Oxley Act of 2002 require the CEO and CFO to do? Take responsibility for signing financial statements. Stipulate that the financial statements do not omit material information. Disclose that they have evaluated the company's internal controls. Disclose that they have notified the company's auditors and the audit committee of the board of any fraud that involves management. All of these are requirements of the Sarbanes-Oxley Act of 2002.
The Sarbanes-Oxley Act of 2002 requires the CEO and CFO to take all of the actions described above.
The coefficient of determination or R-squared (R2) is interpreted as: the minimum distance between the regression line and a single data point. the measure of the linear relationship between two or more variables. a determination of whether the data point is considered to be an "outlier." the proportion of the variation in the dependent variable explained by the independent variable. None of these.
The correlation coefficient is the measure of the linear relation between two or more variables, such as cost and some measure of activity. The coefficient of determination is the square of the correlation coefficient, interpreted as the proportion of the variation in the dependent variable explained by the independent variable(s). The coefficient of determination or R-squared (R2) is interpreted as the proportion of the variation in Y explained by the right-hand side of the regression equation, that is, by the X predictors.
Cuddly Toys makes a large teddy bear that currently sells for $62 per bear. At a production level of 20,000 bears per year, the bears have a total unit cost of $50 per bear. The total unit cost is comprised of variable costs of $45 per bear and fixed costs of $5 per bear (or total fixed costs of $100,000 ÷ 20,000 bears). Cuddly Toys has excess capacity to manufacture 15,000 more bears. The company has been approached by a new customer, who wants to buy 5,000 large bears for $47 apiece. What is the effect on operating profit if the special order is accepted? $10,000 increase to operating profit $10,000 decrease to operating profit $15,000 increase to operating profit $15,000 decrease to operating profit None of these.
The fixed manufacturing overhead costs are allocated to units, most likely to value inventory for external financial reporting and tax purposes. Included in the resulting $50 unit cost is a variable manufacturing cost of $45 per unit. It is important to note that $100,000 per year fixed cost would not be affected by the decision to accept the special order. As such, operating profit would be affected as follows. Revenue from the special order of $235,000 (or 5,000 × $47) - Variable costs of making the special order of $225,000 (or 5,000 × $45) = $10,000 increase in operating profit.
Consider the following information: Costs Activity (hours)$51,000 40,000$50,000 41,000$58,000 42,000$56,000 43,000 What cost and activity would be used as the high data point in high-low cost estimation? $58,000 and 42,000 hours $58,000 and 43,000 hours $56,000 and 43,000 hours $56,000 and 42,000 hours None of these.
The high-low cost estimation method estimates costs based on two cost observations, usually at the highest and lowest activity levels. The highest activity level is 43,000 hours and the cost associated with that activity level is $56,000.
Which of the following statements regarding the implementation of regression analysis is not correct? It is sometimes tempting to include many variables in the regression and let the program "find" relations among the variables. When an extreme outlier appears in the data set, scrutiny of the output from the regression analysis will rarely identify it. A regression estimate may be little better than an informal estimate based on plotted data. Regression is objective, provides a number of statistics not available from other methods, and could be the only feasible method when more than one predictor is used. The learning phenomenon means that variable costs tend to increase per unit as the volume of activity increases.
The learning phenomenon means that variable costs tend to decrease per unit as the volume of activity increases.
Which of the following is not an overarching ethical principle of the IMA Statement of Ethical Professional Practice? Discipline Fairness Honesty Objectivity All of these are the overarching ethical principles.
The overarching ethical principles of the IMA Statement of Ethical Professional Practice include: honesty, fairness, objectivity, and responsibility.
Which of the following statements regarding life-cycle product costing and pricing is not correct? The product life-cycle covers the time from initial research and development to the time at which the product is first sold to customers. Life-cycle costing tracks costs attributable to each product from start to finish. A product life-cycle budget highlights for managers the importance of setting prices that will cover costs in all value-chain categories. Life-cycle costing is becoming increasingly important in light of Take-Back Laws in Europe, which make the costs of recycling and disposal of products the responsibility of the manufacturer. Life-cycle costs provide important information for pricing.
The product life cycle covers the time from initial research and development to the time at which support to the customer is withdrawn.
Charleston Inc. manufactures 40,000 components per year. The manufacturing cost of the components total $190,000 and are comprised of direct materials, $90,000; direct labor, $50,000; variable manufacturing overhead, $20,000; and fixed manufacturing overhead, $30,000. If Charleston purchases the component from an outside supplier for $4.25 per unit, how will the company's operating profit be impacted? $30,000 decrease $30,000 increase $10,000 decrease $10,000 increase None of these.
The relevant cost of manufacturing the 40,000 components equals $160,000 (or Direct materials of $90,000 + Direct labor of $50,000 + Variable overhead of $20,000). The fixed manufacturing overhead cost is not relevant to this decision since it cannot be avoided. The cost of purchasing the 40,000 components equals $170,000 (or 40,000 units × Purchase price of $4.25 per unit). If the components are purchased from the outside supplier, operating profit will decrease by $10,000 (or Relevant manufacturing cost of $160,000 - Cost of purchasing of $170,000).
Houghton Corporation had the following results in its first four months of operations. Machine HoursMaintenance CostsJuly1,200$2,700 August1,400$3,100 September1,300$3,200 October1,250$2,800 What is the relevant range of activity? 1,200 - 1,300 machine labor hours $2,700 - $3,200 1,200 - 1,400 machine labor hours $2,800 - $3,100 Cannot be determined from the information given.
The relevant range of activity is determined by the lower and upper limits of past activity. Here, the relevant range is from 1,200 to 1,400 machine hours. The relevant range includes the limits within which a cost estimate may be valid. Note that a cost estimate based on activity that is outside of the relevant range may be highly inaccurate.
Perennial Company, a manufacturer of decorative pots, expects sales of 500,000 pots at $10 each during the coming year. Variable manufacturing costs are $4 per unit and fixed manufacturing costs are $2.50 per unit. The company received a special order from an overseas customer to purchase 50,000 pots at $6 each. The company has sufficient plant capacity to manufacture this order. However, additional overtime labor costs of $1.00 per pot would be required to produce the pots. No other costs would be incurred as a result of accepting the order. If the special order is accepted, how will operating profit be impacted? $50,000 increase $75,000 decrease $100,000 increase $175,000 decrease None of these.
The special order should be accepted if the sales revenue exceeds the incremental costs. The costs to produce the units would be $250,000 [or 50,000 units × ($4 per unit for variable manufacturing costs + $1 per unit for additional overtime costs)]. Operating profit would increase by $50,000 [or Additional sales revenue of $300,000 (or 50,000 units × Special order price of $6 per unit) - Additional production costs of $250,000].
Which of the following describes the set of activities that transforms raw resources into the goods and services end users (households, for example) purchase and consume and also includes the treatment or disposal of any waste generated by the end users? Supply chain Cost driver Value chain Balanced scorecard None of these.
The value chain is the set of activities that transforms raw resources into the goods and services end users (households, for example) purchase and consume. It also includes the treatment or disposal of any waste generated by the end users.
Aspen Corporation has two divisions, East and West. Its corporate office is separate from these divisions and incurred $190,000 in administrative costs during the year. These costs are allocated to the divisions based on their individual revenues. During the year, the East and West divisions had revenues of $1,800,000 and $2,200,000, respectively. How much of the administrative cost should be assigned to the East division based on the cost allocation rule described? $76,000 $85,500 $95,000 $104,000 None of these.
Total revenues = $1,800,000 + $2,200,000 = $4,000,000. The percentage of revenues earned by the East division = $1,800,000 ÷ $4,000,000 = 45%. As such, the administrative cost that should be assigned to the East division = Total administrative costs of $190,000 × The percentage of revenue earned by the East division of 45% = $85,500.
Which of the following is a value-added activity? Product design Production Marketing Customer service All of these are examples of value-added activities.
Value-added activities are those activities that customers perceive as adding utility to the goods or services they purchase. The value chain comprises activities from research and development through the production process to customer service. All of the activities listed are value-added activities.
In the standard regression equation y = a + bx, the letter b is best described as the:
Variable cost coefficient
If a company produces or purchases units just in time for use, thereby keeping inventories at a minimum, which of the following methods is it using? Activity-based costing Enterprise resource planning Just-in-time Lean accounting None of these.
When the just-in-time (JIT) method is used in production or purchasing, each unit is purchased or produced just in time for its use.
The correlation coefficient (rounded) for the regression equation for administrative costs is
multiple R
