Managerial Accounting Study Guide

If Cookie Company uses machine hours as the allocation base, what is the predetermined overhead rate? The company's estimated total manufacturing overhead cost is $50,000, the estimated total machine hours are 5,600, the actual hours used were 5,400, and the actual manufacturing overhead cost was $49,800. A. $8.93 per machine hour B. $8.89 per machine hour C. $9.22 per machine hour D. $9.26 per machine hour

A. $8.93 per machine hour

What is the definition of differential cost? A. A future cost that differs between any two alternatives. B. An increase in the cost between two alternatives. C. Future revenue that differs between any two alternatives. D. A cost that can be eliminated by choosing one alternative over another.

A. A future cost that differs between any two alternatives.

The formula for manufacturing overhead applied is actual direct labor-hours multiplied by the predetermined overhead rate, assuming DL hours is the allocation method. A. True B. False

A. True

Norse products distributes a single product, a decorative t-shirt whose selling price is $10 and whose variable cost per unit is $6 per unit. The company's monthly fixed expense is $7,500. Calculate the company's break-even point in unit sales.

Answer: Profit= Unit CM x Q - Fixed expenses $0=(10-6) x Q - $7,500 $4 x Q = 7,500 Q = 7,500/4 = 1,875 shirts

What is the materials quantity variance? Cake Company produced 5,000 units. The standard price per pound is $16 and the company actually paid $16.30 per pound. The standard quantity per unit is 2 pounds. The company purchased 12,000 pounds but only used 11,000. A. 16,000 F B. 16,000 U C. 3,600 U D. 32,000 U

B. 16,000 U

What is an indirect cost? A. A cost that is incurred to support a number of cost objects but cannot be traced to them individually B. A cost that cannot be easily and conveniently traced to a specified cost object C. A cost that can be easily and conveniently traced to a specified cost object D. A cost that you did not mean to incur

B. A cost that cannot be easily and conveniently traced to a specified cost object

Total variable costs and variable costs per unit both change with increased levels of activity. A. True B. False

B. False

In the manufacturing overhead T-account, a $30,000 larger amount on the right side indicates that the manufacturing overhead has been underapplied. A. True B. False

B. False Explanation: An amount on the right side that is $30,000 greater than the left indicates that manufacturing overhead has been overapplied. Manufacturing overhead must be Debited by $30,000 and cost of goods sold credited for the same amount.

The payback method of evaluating capital budgeting decisions is the best because it indicates the amount of time it will take to earn the initial investment back and takes into consideration the time value of money. A. True B. False

B. False Explanation: The payback method does not take into consideration the time value of money and recognizes a cash inflow to be received in several years as the same as a cash inflow received right now.

If the sales were $90,000 and the variable expenses were $35,000, what would the total contribution margin be? A) $65,000 B) $35,000 C) $55,000 D) $45,000

C) $55,000

19. The total estimated manufacturing overhead cost is $500,000 with the estimated total allocation base being 25,000 direct labor hours. The job order cost sheet shows that 30 direct labor hours was charged to the job. How much overhead is applied to the job? (Chapter 2) A. $ 20 C. $ 600 B. $ 500 D. $ 800

C. $ 600 Explanation: The predetermined overhead rate is $500,000/25,000= $20. $20*30= $600 applied to the job.

Sales: 32,600,000 Net Operating Income: 6,250,000 Average Operating Assets: 20,000,000 Calculate ROI (round to 2 decimal places, do not round intermediate calculations): A. 48.96% B. 25.51% C. 31.25% D. 13.37%

C. 31.25% (6,250,000/32,600,000) * (32,600,000/20,000,000)

In the standard cost formula Y=a+bX, what does the "b" stand for? A. Level of activity B. Total fixed cost C. Variable cost per unit D. Total cost

C. Variable cost per unit

How many dollar sales are needed to achieve a target profit of $75,000? The fixed expenses are $36,000, the selling price for each unit is $8.50, and variable expenses per unit are $2.30. A. $ 13,059 B. $ 17,903 C. $ 102,823 D. $ 152,177

D. $ 152,177

What is the residual income? The minimum required rate of return is 11%, average operating assets are $15,000 and net operating income is $5,000. A. $ 550 B. $ 10,000 C. $ 14,450 D. $3,350

D. $3,350

Payback Period is calculated with: A. Cost of new equipment / Annual Net Income B. Cost of new equipment / Annual Net Cash Inflow C. Required Investment / Annual Net Income D. Required Investment / Annual Net Cash Inflow

D. Required Investment / Annual Net Cash Inflow

If the applied cost was $85,000 and the actual cost was $90,000, the overhead would be overapplied. True False

False

True or False: when making a Make/Buy decision, Sunk Costs are considered.

False

Poor supervision is one possible cause of an unfavorable labor efficiency variance. True/False

True

Residual income= Net operating income- (Average operating assets* Minimum rate of return) True False

True

The actual net operating income that an investment center earns above the minimum required return on its average operating assets is residual income. True/False

True

True/False: The break even point is when net income is equal to zero.

True

The Labor rate variance reflects the difference between a) the actual hours worked at standard price and the actual hours worked at actual price b) the actual hours worked at standard price and the standard hours worked at actual price c) the standard hours worked at actual price and the standard hours worked at standard price d) the standard hours works at standard price and the actual hours worked at actual price

a) the actual hours worked at standard price and the actual hours worked at actual price

If the beginning cash balance is $15,000, the required ending cash balance is $12,000, cash disbursements are $125,000, and cash collections from customers are $90,000, the company must borrow: a. $32,000 b. $20,000 c. $38,000 d. $8,000

a. $32,000

Differential cost are always releveant cost? T/F a. True b. False

a. True

The formula for Internal Rate of Return Factor is Investment Required/Annual Net Cash Flows. a. True b. False

a. True

The flow of product's cost through inventory when being manufactures go from.... a. Direct materials, work-in-progress, finish product b. Raw materials, work-in-progress, finish goods c. Work-in-progress, cost of goods sold, finish goods d. Costs of goods sold, raw materials, finish product

b. Raw materials, work-in-progress, finish goods

Costs of partially completed unites are accounted for in? a. Finished goods b. Work in process c. Raw materials d. Cost of goods manufactured

b. Work in process

35. Given a sales price of $100, variable costs of $70 and a break-even point of 500 units net operating for sale of 501 will be $_____ a. $5 b. $7.14 c. $30 ($100-$70) d. $50000

c. $30 ($100-$70)

A restaurant has a cost with the following cost formula: $1,000 + $5q, where q represents the number of meals served. The restaurant's planning budget is based on 1,000 meals. Its actual level of activity was 900 meals and the actual amount of the cost at that level of activity was $5,575. What is the amount of the cost on the planning budget? a. $5,580 b. $5,500 c. $6,000 d. $5,575

c. $6,000

The formula for a predetermined overhead rate is: a. Actual manufacturing overhead by actual allocation base b. Estimated allocation base divided by estimating manufacturing overhead cost c. Estimated manufacturing overhead cost divided by estimated allocation base d. Actual allocation base divided by actual manufacturing overhead.

c. Estimated manufacturing overhead cost divided by estimated allocation base

An estimate of what revenue and cost should have been, based on the actual level of activity is shown on a a. Fixed budget b. Actual budget c. Flexible budget d. Planning budget

c. Flexible budget

An increase in cost between two alternatives is a(n) (blank) cost. a. Differential b. Sunk c. Incremental d. Avoidable

c. Incremental

Direct Materials and Direct labor are both (Blank) cost. a. Selling and administrative b. Period c. Manufacturing d. Non-manufacturing

c. Manufacturing

Indirect materials and indirect labor are classified as what? a. Period costs b. Product costs c. Manufacturing overhead d. Opportunity cost

c. Manufacturing overhead

To determine ROI, what equation is needed? a. Net operating sales/sales b. Sales/average operating sales c. Margin X Turnover d. Net operating income X Sales

c. Margin X Turnover

Net operating income/average operating assets= a. Turnover b. Residual income c. Return on investment d. Margin

c. Return on investment

Which of the following should not be included in the analysis when making a decision? a.Avoidable cost b.Opportunity cost c.Sunk cost d.None of the above

c.Sunk cost

26. Idlebrook company computes its predetermined overhead rate on the bases of direct labor hours. The company estimates 55,000 direct labor hours, $440,000 of fixed overhead cost and $0.50 variable overhead per direct labor hour. Calculate the predetermined overhead rate. a. 6 b. 9.75 c. 5 d. 8.5

d. 8.5

The total cost of a job is calculated by adding the total of direct labor cost, direct materials cost and: a. Actual manufacturing overhead cost, and applied nonmanufacturing cost b. Applied manufacturing overhead cost and sunk cost c. Actual manufacturing overhead cost d. Applied manufacturing overhead cost

d. Applied manufacturing overhead cost

Contribution margin: a. Is first used to cover variable expenses b. Is not affected by changes in activity c. Equals sales minus fixed expenses d. Becomes profit after fixed expenses are covered

d. Becomes profit after fixed expenses are covered

Poor supervision is one possible cause of an unfavorable (blank) variance a. Material price b. Labor rate c. Fixed overhead budget d. Labor efficiency

d. Labor efficiency

Manufacturing overhead is applied with a debit to: a. Cost of goods sold b. Manufacturing overhead c. Accounts payable d. Work in progress

d. Work in progress

Given annual cash flows of $15,000, what is the payback period of a new $90,000 machine (assuming no salvage values for all equipment)? a.17 years b.4 years c.7.5 years d.6 years

d.6 years