Quiz 1
In a small manufacturing facility, one welder is needed for every 200 hours of machine-hours or fewer in a month. The welder is paid a monthly salary of $2,500. If the total monthly requirement is 1,300 machine-hours, the total salaried employee expense is ________.
17,500 The company would need 7 welders (7 × $2,500 = $17,500) to complete the work. The relevant range here is 1,201 to 1,400 machine-hours.
Audio Corporation purchased $20,000 of DVDs during the current year. The company had DVD inventory of $15,000 at the beginning of the year. An end of the year audit revealed that the company had DVD inventory of $10,000. The amount that would be reported as cost of goods sold in the income statement for the current year is ________.
25,000 Cost of goods sold = Beginning merchandise inventory + Purchases - Ending merchandise inventoryCost of goods sold = $15,000 + $20,000 - $10,000 = $25,000
Davidson Company has sales of $100,000, variable cost of goods sold of $40,000, variable selling expenses of $15,000, variable administrative expenses of $5,000, fixed selling expenses of $7,000, and fixed administrative expenses of $9,000. What is Davidson's contribution margin?
40,000 Contribution margin = Sales revenues - All variable expensesContribution margin = $100,000 - ($40,000 + $15,000 + $5,000)) = $100,000 - $60,000 = $40,000
Cyber Devices manufactures PCTV products that enable people to watch television content on their computers. It sells its product to retailers for $50. A tuner component that goes into each of these devices costs $5 to acquire. The total variable cost at an activity level of 1,000 units equals ________.
5000 total variable cost= 5x1000
Manufacturing costs include all of the following categories except ________.
Administrative costs
A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $3,120 and is paid at the beginning of the first year. Ninety percent of the premium applies to manufacturing operations and ten percent applies to selling and administrative activities. What amounts should be considered product and period costs respectively for the first year of coverage? ProductPeriodA)$3,120$0B)$2,808$312C)$1,872$208D)$936$104
Annual insurance expense = $3,120 ÷ 3 = $1,040 Portion applicable to product cost = 0.90 × $1,040 = $936 Portion applicable to period cost = 0.10 × $1,040 = $104
The following cost data pertain to the operations of Quinonez Department Stores, Inc., for the month of September. Corporate headquarters building lease$78,000Cosmetics Department sales commissions--Northridge Store$5,270Corporate legal office salaries$66,500Store manager's salary-Northridge Store$12,200Heating-Northridge Store$20,400Cosmetics Department cost of sales--Northridge Store$39,100Central warehouse lease cost$9,800Store security-Northridge Store$16,200Cosmetics Department manager's salary--Northridge Store$4,310 The Northridge Store is just one of many stores owned and operated by the company. The Cosmetics Department is one of many departments at the Northridge Store. The central warehouse serves all of the company's stores. What is the total amount of the costs listed above that are NOT direct costs of the Northridge Store?
Costs that are not direct costs of the Northridge Store = Corporate headquarters building lease + Corporate legal office salaries + Central warehouse lease cost = $78,000 + $66,500 + $9,800 = $154,300
Corporate headquarters building lease$84,600Cosmetics Department sales commissions--Northridge Store$5,740Corporate legal office salaries$59,900Store manager's salary-Northridge Store$11,700Heating-Northridge Store$16,800Cosmetics Department cost of sales--Northridge Store$33,300Central warehouse lease cost$6,500Store security-Northridge Store$15,800Cosmetics Department manager's salary--Northridge Store$4,870
Direct costs of the Cosmetics Department = Cosmetics Department sales commissions + Cosmetics Department cost of sales + Cosmetics Department manager's salary = $5,740 + $33,300 + $4,870 = $43,910
In May direct labor was 40% of conversion cost. If the manufacturing overhead for the month was $75,000 and the direct materials cost was $27,200, the direct labor cost was:
Direct labor = 0.40 × Conversion cost Manufacturing overhead = $75,000 Conversion cost = Direct labor + Manufacturing overhead Conversion cost = Direct labor + $75,000 Conversion cost = (0.40 × Conversion cost) + $75,000 0.60 × Conversion cost = $75,000 Conversion cost = $75,000 ÷ 0.60 Conversion cost = $125,000 Direct labor = 0.40 × Conversion cost = 0.40 × $125,000 = $50,000
During the month of May, direct labor cost totaled $11,600 and direct labor cost was 40% of prime cost. If total manufacturing costs during May were $79,000, the manufacturing overhead was:
Direct labor cost = $11,600 Direct labor cost = 0.40 × Prime cost Total manufacturing cost = $79,000 Direct labor cost = 0.40 × Prime cost Prime cost = Direct labor cost ÷ 0.40 Prime cost = $11,600 ÷ 0.40 = $29,000 Total manufacturing cost = Prime cost + Manufacturing overhead cost $79,000 = $29,000 + Manufacturing overhead cost Manufacturing overhead cost = $50,000
TB MC Qu. 1-141 Paolucci Corporation's relevant ... Paolucci Corporation's relevant range of activity is 7,800 units to 16,000 units. When it produces and sells 11,900 units, its average costs per unit are as follows: AverageCost per UnitDirect materials$7.00 Direct labor$3.90 Variable manufacturing overhead$1.90 Fixed manufacturing overhead$3.20 Fixed selling expense$1.20 Fixed administrative expense$0.90 Sales commissions$1.15 Variable administrative expense$0.80 If 10,900 units are sold, the variable cost per unit sold is closest to: Multiple Choice
Direct materials$7.00 Direct labor 3.90 Variable manufacturing overhead 1.90 Sales commissions 1.15 Variable administrative expense 0.80 Variable cost per unit sold$14.75
The management of Blue Ocean Company estimates that 50,000 machine-hours will be required to support the production planned for the year. It also estimates $300,000 of total fixed manufacturing overhead cost for the coming year and $4 of variable manufacturing overhead cost per machine-hour. What is the predetermined overhead rate?
Estimated total overhead cost = $300,000 + ($4 per MH × 50,000 MHs) = $500,000 Predetermined overhead rate = Estimated total overhead cost of $500,000 ÷ 50,000 MHs = $10 per MH
Schonhardt Corporation's relevant range of activity is 4,000 units to 7,500 units. When it produces and sells 5,750 units, its average costs per unit are as follows: AverageCost per UnitDirect materials$7.80 Direct labor$3.30 Variable manufacturing overhead$1.85 Fixed manufacturing overhead$3.60 Fixed selling expense$1.15 Fixed administrative expense$0.85 Sales commissions$0.95 Variable administrative expense$0.85 If 6,500 units are produced, the total amount of fixed manufacturing cost incurred is closest to:
Fixed manufacturing overhead per unit$3.60Number of units produced* 5,750Total fixed manufacturing overhead cost$20,700 *The average fixed manufacturing overhead cost per unit was determined by dividing the total fixed manufacturing overhead cost by 5,750 units.
Spartan Corporation estimates that it will incur $200,000 of total manufacturing overhead cost at an estimated activity level of 10,000 direct labor-hours. What is the amount of manufacturing overhead that would be applied to a job that required 200 direct labor-hours?
Predetermined overhead rate = $200,000 ÷ 10,000 DLHs = $20 per DLH For 200 DLHs, the manufacturing overhead that would be applied is = $20 per DLH × 200 DLHs = $4,000
The following costs were incurred in May: Direct materials$39,300 Direct labor$23,600 Manufacturing overhead$22,200 Selling expenses$14,000 Administrative expenses$30,800 Prime costs during the month totaled:
Prime cost = Direct materials + Direct labor = $39,300 + $23,600 = $62,900
Tirri Corporation has provided the following information: Cost per UnitCost per PeriodDirect materials$7.20 Direct labor$4.50 Variable manufacturing overhead$1.25 Fixed manufacturing overhead $23,800 Sales commissions$1.30 Variable administrative expense$0.55 Fixed selling and administrative expense $8,200 If the selling price is $27.50 per unit, the contribution margin per unit sold is closest to:
Selling price per unit $27.50 Direct materials$7.20 Direct labor 4.50 Variable manufacturing overhead 1.25 Sales commissions 1.30 Variable administrative expense 0.55 Variable cost per unit sold 14.80 Contribution margin per unit $12.70
In the cost formula (Y = a + bX) that is used to estimate the total manufacturing overhead cost for a given period, the letter "a" refers to the estimated ________.
The cost formula used to estimate the total manufacturing overhead cost for a given period is: Y = a + bX where, Y = the estimated total manufacturing overhead cost, a = the estimated total fixed manufacturing cost, b = the estimated variable manufacturing overhead cost per unit of the allocation base, and X = the estimated total amount of the allocation base.
The direct materials required to manufacture each unit of product are listed on a ________.
The direct materials required to manufacture each unit of product are listed on a bill of materials. A materials requisition form identifies the materials drawn from the storeroom that must then be charged to each job. Each employee who works on the job uses a time ticket to record the time spent. A job cost sheet is used to keep track of the materials, labor, and manufacturing overhead costs charged to each job.
Wilson Products uses a plantwide predetermined overhead rate of $10 per direct labor-hour. Direct material and direct labor associated with Job X23 are $4,000 and $1,200, respectively. If Job X23 used 100 direct labor-hours, what is the total cost assigned to this job?
Total cost associated with the job = Direct material + Direct labor + Manufacturing overhead applied Total cost associated with the job = $4,000 + $1,200 + ($10 × 100 DLHs) = $6,200
Wilson Products uses a plantwide predetermined overhead rate of $10 per direct labor-hour. Direct material and direct labor associated with Job X23 are $4,000 and $1,200, respectively. If Job X23 used 100 direct labor-hours to produce 50 audio controllers, what is this job's unit product cost (per audio controller)?
Total cost associated with the job = Direct material + Direct labor + Manufacturing overhead appliedTotal cost associated with the job = $4,000 + $1,200 + ($10 × 100 DLHs) = $6,200 Unit product cost = Total cost associated with the job ÷ Number of units Unit product cost = $6,200 ÷ 50 Units = $124
Perteet Corporation's relevant range of activity is 6,900 units to 13,500 units. When it produces and sells 10,200 units, its average costs per unit are as follows: AverageCost per UnitDirect materials$7.40 Direct labor$3.75 Variable manufacturing overhead$1.90 Fixed manufacturing overhead$3.30 Fixed selling expense$0.75 Fixed administrative expense$0.45 Sales commissions$0.55 Variable administrative expense$0.60 If 7,600 units are produced, the total amount of manufacturing overhead cost is closest to:
Total variable manufacturing overhead cost ($1.90 per unit × 7,600 units)$14,440Total fixed manufacturing overhead cost ($3.30 per unit × 10,200 units*) 33,660Total manufacturing overhead cost (a)$48,100 *The average fixed manufacturing overhead cost per unit was determined by dividing the total fixed manufacturing overhead cost by 10,200 units.
A normal cost system applies overhead to jobs ________.
by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job Note that the amount of overhead applied to a particular job is not the actual amount of overhead caused by the job. Actual overhead costs are not assigned to jobs—if that could be done, the costs would be direct costs, not overhead. Instead, a normal cost system applies overhead costs to jobs by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the jobs.
The traditional income statement uses which of the following cost categories?
cost of goods sold and administrative expenses The traditional format income statement organizes costs into two categories: cost of goods sold and selling and administrative expenses.
The adjustment for overapplied overhead ________.
decreases cost of goods sold and increases net operating income. When a company applies more overhead to production than it actually incurs, it results in overapplied overhead. In other words, too much overhead has been applied to production. The adjustment for overapplied overhead decreases cost of goods sold (since it has too much overhead in it). A decrease to cost of goods sold increases net operating income.
________ is sometimes called "touch labor."
direct labor
Which of the following is common to both prime cost and conversion cost?
direct labor Direct labor is common to both prime cost and conversion cost. Prime cost is the sum of direct materials cost and direct labor cost. Conversion cost is the sum of direct labor cost and manufacturing overhead cost.
Materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product are called ________.
direct materials
Which of the following is true of the contribution approach?
it separates costs into fixed and variable categories The contribution approach separates costs into fixed and variable categories, first deducting variable expenses from sales to obtain the contribution margin.
In the equation, Y = a + bX, X represents ________.
level of activity
Knowledge Check 01 Items such as indirect materials, indirect labor, maintenance and repairs on production equipment, depreciation, and insurance on manufacturing facilities are included in ________.
manufacturing overhead costs
The ________ requires that the costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized.
matching principle The matching principle is based on the accrual concept that costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized.
Property taxes associated with a company's administrative facility are considered ________.
nonmanufacturing costs
How should the wages of a sheet metal worker in a fabrication plant be classified?
product cost Product costs include all costs involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. Direct labor consists of labor costs that can be easily traced to individual units of product, such as the wages of a sheet metal worker in a fabrication plant.
A fixed cost is a cost which ________.
remains constant in total regardless of changes in the level of activity A fixed cost is a cost that remains constant, in total, regardless of changes in the level of activity.
If a firm increases its activity level, ________.
some costs change, some stay the same If the activity level increases, total variable costs will increase while total fixed costs will remain constant.
When all of a company's job cost sheets are viewed collectively they form what is known as a ________.
subsidiary ledger A job cost sheet accumulates the total direct materials, direct labor, and manufacturing overhead costs assigned to a job. When all of a company's job cost sheets are viewed collectively they form what is known as a subsidiary ledger.
What is the term used when a company applies less overhead to production than it actually incurs?
underapplied