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acct 2123 course

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Test 2- Chapter 10 Study Guide- Acct 2123- Carol Knapp
Direct Materiais Variance ChartAQxAP
SPxSQ
I Materials Price
SQxSP
Materials Quanti_
Direct Labor _/_ionce ChartARxAH
SRxAH
Rate
SRxSQ
Efficiency
Variable Manufacturing
ARxAH
overhead
Variance Chart:.
SRxAH
Spending
SRxSH
Efficiency
When quantity purchased
actually used:
in materials
differs from quantity
*When there is a discrepancy between the amount purchased and
the amount
upon
the materials
PRICE variance
based
the _ol;aiamount-PURCHASED.'
*Calculate
_C
used, calculate
amount'used
the materialsqUANTiTY
in production.
varianc_
based
upon
the
Exam 2- Chapter 9- Managerial Accounting- Carol Knapp
*Budgets are used for 2 primary purposes:
•
•
Planning- developing goals and preparing various budgets to achieve
these goals
ConlTol- involves the steps taken by mgmt to increase lhe likelihood that
ALL parts of the organization are working together to achieve the goals
set down at the planning stage.
**Must have both to be an effective budgeting system•*
• Budgets are helpful because...
•
•
•
•
They coordinate the activities of the entire organization by
integrating the plans of its various parts. Budgeting helps to ensure
that everyone in the organization is pulling in the same direction.
Budgets provide benchmarks for evaluating subsequent
performance
Good communication tool
Forces managers to FOCUSON T_HE
FuTuRE(too easy to focus on'
NOW instead of having a plan for the future) _
Means of allocating resources- How can we BEST
allocate the
resources that we have most efficiently and effectively_
*Responsibility Accounting- The idea that a manager should be held responsible
for those items- and only those items- that he manager can actually control to a
significant extent. People are evaluated based on the budget, and it isn't fair for
the production manager to be held responsible for the sales dept., etc.
•
The point is NOT to penalize individuals for missingtargets, but to make
sure nothing "falls through the cracks" and that the organization reacts
QUICKLYand APPROPRIATELY
to deviations from its plans
The most successful budget systems are those where the managers ACTIVELY
participate in preparing their own budgets rather than having them imposed
from above.
Participative budflet- Budget that is prepared with the FULLcooperation
participation of managers at ALL levels.
•
•
•
and
Each person with responsibility for cost control will prepare his or her own
budget estimates and submit them to the next higher level of mgmt.
These estimates are reviewed and consolidated as they move upward in
the organization. Basically, goes up from supervisors.
People feel valued at all levels of the organization, as they are recognized
as members of the team whose views and judgments are valued by top
mgmt
Higher motivation when individuals participate
Self-imposed budgets create commitment.
in setting their own goals.
Human Factors in Bud.qetin.q•
•
•
Behavior affected by rewards and punishment. You must be aware of
how people behave with regards to a budgel. If they are going to be
rewarded, they act a certain way.
Budgets SHOULD NOT be used as a weapon, but as a positive instrument
to assist in establishing goals, measuring operating results, and isolating
areas that need attention.
Want to be careful not to use budget to "blame" employees.
The Master Budget: An Overview
I _tstep: Creating a Sales Budget
•
•
•
MUSTbe accurate- key to entire budgeting process
Detailed schedule showing the expected sales for the budget period
Helps to determine how many units need to be produced, which lead into
the...
Production Budget
•
Used to determine the budgets for manufacturing costs including DM
budget, DL budget, and the MO budget. These budgets are then
combined with data from the sales budget and selling and administrative
expense budget to determine the CASH BUDGET.
Cash Budget
•
•
Detailed plan showing how cash resources will be acquired and used.
All the operating budgets have an impact on the cash budget. After the
cash budget is prepared, the budgeted income statement and then the
budgeted balance sheet can be prepared.
Sales Budget > Schedule of Cash Collections >
Sq!es Budgeti
Budgeted Sales in Units
x Sale Price per Unit
Total Sales
Production Budget •
•
Notice that the production
level of ending inventory.
requirements are influenced by the desired
Budgeted Sales in units (comes from sales budget)
_-Desired Ending Inventory
Total Needed
i-Beg_Invento_
Production Needs- Required Production
•Note: In the last column, offen the quarter end or year column, you carry
over the desired ending inventory amount from the last column, and you take
the beginning inventory amount in the very t'irstcolumn as the beginning
inventory amount.
Direct Materials Budqet:
•
usually accompanied with a Cash Disbursements for Mater/als Budget
X Material per unlt
"ProductionNeecl_
!+ Desired Ending inventory
Total Needed
Beginning Inventory
C:0sIof Material to-be Purchased
Direct Labor Buclgeti
Required Productlon in Un_ (Tqke_ h_om.bgttom-of-Prgducti0nBudget)
f
x DLHper unit of production
T_Ota_l
La-_barN_eed_
X DL C:ostper ho_ur::(-wage rate)
Total DL Cost
F
*Note: Sometimes a company has a policy so that workers must be paid for
minimum amount of work each quarter, ff this is the case, you compare this
minimum amount to the total labor needs amount, and whichever one is
HIGHER,you go by. You then multiply this number by the wage rate to get the
total DL Cost.
Manufacturing Overhead Bud.qeti
-Listsall costs of production other than DM and DL
Depending on what overhead isbased off of, you begin withthese amounts.
Example: If your overhead rate is based upon DLH,you would use your Direct
Labor Hours Needed as the starting point. If it were based on units produced,
you would begin with the unit production amount.
Production in units
X Variable_mfg. OH rate:
i
_/arlable mfg. OH total c_osts
Fix?d mfg, OH cos_
_otql rnfg. QH co_sts
_dd up the-totql c_all the-periods/months
rOVERHEADAMOUNT.
and ibis is the TOTALMANUFACTUR_INGI
___S'I'J'IIJT_I_FSgBTo
get the POHR,divide this amount
by the total amount of whatever the activity rate is. You will need this amount to
calculate finished goods inventory.
Endin.qFinishedGoods inventory:
Computation is Important because...
I.
Helps to determine
2.
COGS
To know what amount to put on the balance
inventory account f4_:_ei_l_:=m'dts
Production Cost per Case:
DM: Quantity x Unit Cost
+DL: Quantity x Unit Cost
+MO: Quantity x POHR
Unit product cost
{Cont. on next page)
Budgeted finished Roods inventory:
Ending FG Inventory (Take from last colurnn of Production Budget)
+ Unit product cost (fr0m just above-
sum)
Selling and Administrative Expense Budget:.
-Liststhe budgeted
expenses for areas other than manufacturing
-Also divided into Variable and Fixed Costs
'Budgeted Sales
(From sales budge!) _
x Vadab!e Selling and _a=dmln;[ate
r
....
.
_Variab!e
Expense
r
.....
+ Fixed Selllng and Admln.
:FixedExpenses
=0eprecia.en)
,
Costs
that are not Cash Ouffl0ws of th? current month (i.e.:
sheet
_r
_(3"/
Total Selling and Admin. Expenses
_:_h -B-ud.qet
Beg!nning Cash Balance
Cash _Coileclio_n_
I
_otal Cash Avallqbl_
l-Dlsbursements_
r.....
- __....
......
__ .........
_
_ $elllng and Adminlsffaflv_
1
Equipment Purchase
_Dividends.
F..........
i .....
II
Total Disbursements_
Excess(deficiency)of cash available over disbursements
"
F,in- n ci q.q
BorrowlnR
'RepaymentL_
i
'Budgeted Income Statement:
Sales
r-coGs
Gross Margin
r
_
-
-
:-Selling and Admln. Expenses
Net Operahng Income
,-E......
Interest Expense_
Net Incom_
Budgeted Balance Sheet_
_ u_tYA_
Cash
Accounts Receivable
Raw materials inventory
FinishedGoods inventory
Total Current Assets
Pr0perty a_
Equipmen_
Land
Equipment
Total Property and Equipment
Total Asset_
Accounts Payable
Common Stock
Ending Retained Earnin.qs**
• t al Liabilitiesand Equities(Thisnumber
___
_To
SHOULDequal TotalAsse_-Number)
**To get retained earnings, remember to...
take-fhe-L)eg_Amount
......
1
earmngs__balanc_
F-----.
as-given+ hle_come--Div_ends
= Endingretainecl
Exam 2- Managerial
Acct-
Chapter
8- Carol Knapp
ABC Costing
-Cost objects
cause
generate
costs. Activity
relationships
activities that consume
Based Costing attempts
to identify HOW products
resources
which
to tTace these
and customers
affect
costs.
-Primarily for internal purposes
-Overhead costs are trac?_ to_qctiv__es,th?q cgsts are
-Nonmanufacturing
products
-Some manufacturing
AS WELLAS manufacturing
aced_to p r_ductsi
costs may be assigned to
costs may be excluded from product costs
-NUMEROUSoverhead cost pools are used, each of which isallocated to
products and other cost objects usingits own unique measure of activity
-Products are only charged for the costs of the capacity that they use- not for
the costs of capacity that they DON'T use. Thisprovides more stable unit
product costs and is consistent with the goal of assigning to products only the
costs of the resources they use.
Why use it?
-To get a better understanding of your product and its costs (especially in terms
of overhead)
-Generally for LARGE companies with a high volume Iof Overhead costs and
MANY different products are sold.
-()verhead costs are the ONLY-part of costs a ca_mpany doesn't understancl-_
_e_y venture into an ABC system to gain an understanding Of these costs. So_
i
_when a large volume of costs are OH and there_'sconsiderable diversity, y9u,
_vgnt to use ABC.!
-The product margin for a product in an ABC system is the difference between
sale price to customer- total cost to company
-As time evolved and conditions began to change, less and lesswork was being
performed by direct laborers. _ogs ope/ce_qtgge_olf to_talc_ost,__)L
began.'
cleclining and overheadbegan increasing. Many taskspreviously done by DL
were being performed by automated equipment- a component of overhead.
So continuing to rely exclusively on a limited number of overhead cost pools and
traditional allocation bases posed the riskthat reported unit product costs would
be distorted and therefore misleading when used for decision-making purposes.
Overhead
Allocation:
Levels of Complexity:
1. One Predetermined Overhead Rate
2. Departmental Overhead Rate
3. ABC Costing
Unit-Level Activity:
•
Effects/happens
•
Performed
to EVERYSINGLE UNITH
EVERY time a unit is produced
• Should be proportional
•
Examples:
equipment,
a product
Providing
to the number
power required
assembly activities,
of units produced
to run production
labor time required
to assemble
Batch-Level Activity:
•
Performed
each time a batch
is handled
•
regardless of how many units are ordered
Incurred once for each batch- each production
•
Materials
•
Costs depend
on the number of batches
Purchase order processing,
arranging
batch
run
Handling
on the number of units produced,
other measures of volume
•
or processed,
processed
rather than
the number of units sold, or
setting up equipment,
and
for shipments to customers, setting up a machine
processing
Product-Level Activity:
for
•
•
Relates to specific products
If ABC is used, modifications
•
engineering
Must be carried
out regardless
of how many batches
units of product
are produced
or sold
to the product
•
Any cost you incur to sustain a specific
•
Designing a product, advertising
product manager and staff
design made
product
a product,
by
are run or
line
and maintaining
a
Customer-Level Activity:
•
Relates to specific customers
•
Sales calls, catalog mailings, general technical support that
isn't tied to any specific product, entertaining expenses
•
Any cost incurred to sustain business with customers
customer-level activity
is a
Or.qanlzation Sustalnlna Activltv:
•
•
Carried out regardless
products produced,
are made
how many batches
run, or how many units
Heating
cleaning
offices, providing
the factory,
computer
•
of which customers are served, which
network, arranging
reports to shareholders
Plant managementanything
executive
for loans, preparing
a
annual
having to do with it
STEPS:
I.
Identify and Define Activities and Activity Cost Pools (Interview
different
department
appropriate
levels)
workers- group tasks together
at
2. Whenever possible, directly trace overhead
and cost objects (Stage I allocation)
costs to activities
3. Assign costs to Activity Cost Pools
4. Calculate
Rate)
Activity Rates (Total Cost/Total Activity = Activity
5. Assign costs to cost objects (Stage 2 allocation)
6. Prepare mgmt reports
Managerial
Accounting
Exam 2 Study Guide
CHAPTER 6: COST-VOLUME-PROFIT
**Likely Test Question: A unit contribution margin is found by
subtracting sales per unit by BOTH variable manufacturing expenses
AND variable selling and admin, expenses outi
To calculate
a change in net operating income, multiply conldbution
margin % by increase in total sales.
Example: Sales increased by 1000, and contribution margin is 20%. Calculate
change in net operating income.
the
1000 x .20= $200; So net operating income will increase by 200 dollars.
To calculate
if an increase in VC will be worth it if it increases sales
by a certain %, you figure out the change in the contribution margin
and multiply that by the estimated Increase in sales.
Example: Sales are projected to increase by 18%if higher quality products are used
that would increase MC by 3.2 per unit. Would it be worth it to use the higher quality
products?
Per unit:
Sales=S79.00
VC= $46.61
CM=$32.39
*Beg Sales: 4600 units a month
*New Projected Sales: 4600(.18)= 828; 4600+ 828 = 5,428 units a month
5428 x $29.19 per unit (Change in contribution margin) = $158,443.32= NETOPERATING
INCOME
*Original:
4600 x $32.39 = $148,994 = ORIGINAL NETOPERATINGINCOME
So,since 158,443.32> 148,994, il WOULDbe worth it
Calculating a change in contribution margin if sales are altered:
Example:
*Say for every $1 in sales, total contribution margin isincreased by $.40
*If salesincrease by $50,000,what will be the increase in total contribution margin?
$50,000x .40 = $20,000
Break Even Point:
When revenues = Expenses
Profit = 0
I. Equation Method:
Sales= VC+FC+Profff
-Can plug in numbers to either get the number of unitsneeding to be sold, or
also the dollar amount needing to be sold.
UnitsNeeded:
Dollars Needed (Use % of sales):
300X= 120X+ 10,000 . 0
X= .6X + 10,000 + 0
LWh-en-clealing-wffha MULT/-I_RODU_company,you
_'alues.Youmustusethe CMrafio_
CM ratio: CM total/Salestotal
BEPoint:.Fixed Cost/CM
ratio
2. Contribution Margin Method:
Breakeven
point
in salesdollars=
C:ANN_ U_
PERUNif
Fixed Cost/CM %
example: $80,000/.40
Break even point in units sold=
Total Fixed Cost/Unit CM
Cost-Volume-Profit
example: $80,000/$200
Equation:
Sales = VC+FC+Profit
*Can plug in unit dollar amounts and desired profit to see how many units
you must sell to achieve that profit.
Example: How many bikes need to be sold to achieve a profit of
$100,000?
$200 a bike
$100 in VC
$12,000 in FC
200Q= 100Q+ 12,000+ 100,000
Answer= 1!20 bikes
OR... we could use the contribution margin approach:
Fixed Cost + Desired Profit/Unit cM
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Mar.qin of Safety:
Sales.BE:Sales
mOn exam, we will probably have to solve for BESalesm
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III
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mmm
_
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Levera_qe:
MULTIPLYOPER.LEVERAGEBY% INC IN SALESTO
GETTHE% INCREASEIN NETOPERATINGINCOME!!
CM/NOi
Thismeasures how sensitive net operating income Isto percentage change in
sales. With high operating leverage, the VC are low and FCare high. With low
operating leverage, the VC are high and the FC are low.
*A high operating leverage has significant power in that a small increase in sales
can produce a much larger percentage increase in net operating income.
To find how a percent increase in sales affects the percent increase in protits
using a specific degree of operating leverage:
Sales Increase
10%
Degree of Operating Leverage 5
10% x 5 = 50% increase in protits--WOWlil
_**Operating ieverage isthe relativemix -of-FiXEDA-NDy,_,-R/AB
LEC:OSTS.**_
*It is HIGHESTwhen sales/profit is at or around break-even point, and decreases
as sales/profits rise above BEpoint
*If two companies have the same revenue and same total expense but different
cost structures, then the company with the HIGHERproportion of FIXEDCOSTSin
itscost structure will have higher operating leverage.
# 6 on Practice Exam Fall 2007- Every single COSTon an income stmt is either
FIXEDor VARIABLE,and when working problems like this one, you want to use all
of them in your computations.
*If substantial batch-level or product-level costs exist, then overhead allocation
based on a measure of volume such as direct labor-hours alone will
systematically overcost high-volume products and under-cost low-volume
products.
_ost S-tructure_
Refers to the relative
proportion
affixed
and variable
costs in an organization.
High/Low Variable and Fixed Costs:
•
High FC Low VC:
-Sales are expected
to exceed
100,000 In the future (Larger
Contribution Margin)
-Wider swings In net operating Income as sales fluctuate, with
greater profit in good years and greater losses in bad years.
•
High VC Low FC:
-Less vulnerable to dawnturns (CM ratio lower, margin of safety
greater)
"
-Less volatile profit (which means not as high profit as high fc/low vc
is in good times)
/
.+
Name:
Section_
SeatNumber:_
or
4:30
circle
one
_-_
ACCOUNTING
EXAMINATION
2123
1
\
KNAPP, FALL 2007
VERSION 5
Exam 1 Fall 07
_=:_--0"-_-_..,.
Version #5
There are 30 multiple choice questions in total. In all cases, select the BEST answer.
Whichofthefollowing
isNOTaperiodcost?-4_S¢\\_
'_
K. Insurance on a company showroom, where current and potential customers can view new products.
_Q)_. Cost of a seminar concerning tax law updates that was attended by the company's controller.
_.. Salary of a billing clerk.
D. Monthly depreciation of the equipment in a fitness room used by factory workers.
._
C
cos -
2. qgheSarbanes-Oxley Act of 2002 contains all of the following provisions EXCEPT:
",_: A co_mpany'sannual report must contain an internal control report.
_. The audit committee of the board of directors of a company must hire, compensate, and terminate the public
.accounting firm that audits the company's financial reports.
C. Financial statements must be audited once every three years by the Government Accounting Office.
•_. 'Both the CEO and CFO must certify in writing that their company's financial statements and accompanying
• "disclosures fairly represent the results of operations.
o -
.
3. Job 910 was recently completed. The following data have been recorded on its job cost sheet:
Direct
..............................
Direct materials
labor-hours
...........................
@irect labor wage rate ................ ....
Machine-hours ...............................
$3,193
21 labor-hours
.I;12per labor-hour
166 machine-hours
_,,_ ,_, \ .._b
_'_
_-k-_--
The company applies manufacturing overhead on the basis of machine-hours, The predetermined overhead rate
is $15 per machine-hour. The total cost that would be recorded on the job cost sheet for Job 910 would be:
_.,
A.. $3,760
e_._,,V,y_.._£._Ol_ (:)"_q'It,,,tm
C. $3,445
055,935
D. $3,220
_)_'3[_"
_
. _f'_(V'_'_
,I
\4q,"\bbv,
aqb
All of the following are characteristics of a pull production system EXCEPT:
)Raw materials are released to production far in advance of being needed to ensure no interruptions in work
)ws due to shortages of raw materials.
B. Inventories are reduced to a minimum by purchasing raw materials and producing units only as needed to
_)_. meet
consumer
C. Products
are demand•
completed just in time to be shipped to customers.
D. Manufactured parts are completed just in time to be assembled into products.
5. The information below relates to Derby Manufacturing Company's operations for a recent month. (Assume
that all raw materials are direct materials.):
_.,_sc_ or._o_;,:
..-_._i-i_:_
........................
_91,-_,m- %_%e%
,-1;tir-eet-labvr-costT_.
..................................
.:: "$-1"227000"
Administrative
costs....................................
(total) ........................
Selling costs (total)
--Mm'ru f-act-uring-o
ve rhead-c, bocginni:zg
s ts-('totrat)...........
........
--
$56,000
$42,000
$-34137000---"
_-e-2-2;000--
)f_
-
Cage%
-'
qu ovs_
cAcq/w _ +%0 o0o
- gc-
d
.._ _,3_Q)
.,B_.S545,000
/---\'?'O,Ok_
--
3f "_) L.
at was Derby's cost of goods manufactured for the month?
_')')$560,000
"D'.S56S,000
h'Ok\ I Ok]_
_
• tZini_hed-geods-m-venR>r-yr-beginnirtg
.........
$42,_0--_i'a_g
...............
$_,7_"
-W-or4_n-pre ee_z-m _z n tor4g-eaadmg ............
$35,090
" -t:in3gh_d-ff_dg-i?/v-entory,-e
naing :.,._=-.,-_---$.1.5,.0.0.0_
_4_$587,000
99 ,o _o
af. _9_j_(_
..._ %_N/_ ¢_
'_
_/'_O_gl_)f-
-
-"] ,OOQ)
Jr"/
_._
k._L._
"_ ")'O_ _ I0_
1_)
_ {_'_) _
._vO\X° _e._
_ 9"1 _0_3_
_
OO_L]L]
_ _,)_¢_
0
---"_'L_ 1''_
at journal entry is made in a job-order costing system when $8,000 of materials are requisitioned for
1factory use instead of for use in a particular job?
_")Work
in Process
Manufacturing
$8,000
Overhead
$8,000
B)
WorkRawinProcess
Materials
$8,000
(2/
Manufacturing
Overhead
Work in Process
$8,000
Manufacturing
$8,000
,
Overhead
Raw Materials
$8,000
tO,) _:)
.
""i_
"K ;/-
_
_ _
$8,000
$8,000
Item D
Item B
7. The annual insurance premium for the factory building would be a:
._vflaxed cost, product cost, and direct cost with regard to units of product.
xed cost, product cost, indirect cost with regard to units of product.
ariable cost, product cost, direct cost with regard to units of product.
_. fixed cost, period cost, and indirect cost with regard to units of product.
o
°
8. Which of the following would usually be considered a CFlscretionaryfi_ed cost for a soft drink bottling
company?
lA)the cost of advertising its products
_.the
cost of fire insurance on its factory building
_depreciation
on its manufacturing equipment
_. both a and b above
I
,
Supply costs at Coulthard Corporation's chain of gyms are listed below:
Client-Visits
., March .....................
Supply Cost
]2,855,
$23,598
13,104
1-2,850
$23,742")
July .........................
12,493
$23,415
August ....................
September ..............
October ..................
November ..............
12,794
12,686
12,765
13,018
$23,562
$23,496
$23,541
$23,687
.......
:.........12,283
k__May
...................
June ...................
G
.
_CoSh"
-
_'79,'_H9.
-'_O3_)-"'1
q_
ty-a-
$23,607
":
(_)_1 \
Management believes that supply cost is a mixed cost that depends on client-visits. Using the high-low method
to estimate the variable and fixed components of this cost, those estimates would be closest to:
A. $1.77 per client-visit; $557 per month
I_. $1.85 per client-visit; $23,547 per month
1
_.
0.57 per client-visit; $ 6,273 per month
D. $0.55 per client-visit; $16,579 per month
__during
March, Zea Inc. transferred $50,000 from Work in Process to Finished Goods and recorded a Cost of
Goo s Sold of $56,000. The journal entries to record these transactions would include a:
iC i(_credit
to Cost of Goods Sold of $56,000
i x.J B. credit to Finished Goods of $50,000
QOc_
_ {,.9_ t,-_k--_k--_
c. credit to Work in Process of $50,000
"k_ _9
_
I_'k'_
D. debit to Finished Goods of $56,000
11. The following inventory balances have been provided for the most recent year:
Raw-rnatg-fia_-._l_
..... i.. LL.-.:_$2I.000--
W_rk_in-l_r dce's s .................
Finished goods
'
-$-1-5;000
$q8;600--$29.000
$57,000
$33,000
The cost of goods manufactured was $714,000. What was the cost of goods sold?
A. $714,000
B. $733,000
C. $693,000
O ,oooV)
_- (-./6 _ irk
-...------,5"OOM"V_'A__
,..,.,- _ -
--1 \ t_, O'-_
___,_,
_'_f_/i"_
1'5('_
12. Shown below are a number of costs incurred last year at Mecca Publishing Co., a manufacturer of
elementary school textbooks:
Solvents
and cleaners
usedby
the custodians
to clean the
textbook printing presses .................. .............................
Depreciation
on the automobiles
used by sales
representatives
..............................................................
Fire insurance on factory building ..................... _..............
Shipping
"_What
costs on textbooks
sold .......................
is the total of the manufacturing
$500-_Q)
$4,200
$2,000
-.............. _
s _
- t-_ (3
_e.\\_%
overhead costs above?
_,.)[email protected](_. 6,700
500
2,500
$6,200
13. Reamer Company uses apredetermined overhead rate based on machine-hours to apply manufacturing
overhead to jobs. The company has provided the Iollowmg estimated costs for next year:
Direct
materials
$1,000
..........................................
__'1_
D
ectlabor
.........................................
:......-$4,808 -'%c\_'-_" .
Sales commissions
.....................................
Salary ofproduction
supervisor .................
Indirect materials .......................................
$2.000"
f'_'O "-]
'
$400 '- p,.o I...(/.At_ 01_
Advertising
expense ...................................
Rent on factory equipment .........................
_
$1,000
.c_fv_Jd,
_ v_,--
_2...----'---
_,._f___l_A
_gk(..."_"_'_ ' -_
D -J
-" _t_
Reamer estimates that 500 direct labor-hours and 1,000 machine-hours will be worked during the year. The
predetermined
.._$6.00
i() "B_$3.4 0
_,_ C. $3.00
D. $6.80
overhead rate per hour will be:
i'-'-
OO_ _i__
_
14. The plans of management are often expressed formally in:
A. financial statements.
nce
repots.
_-
"
_.._.______._
_ O( _ k._
I
5. Consider the following costs incurred in a recent period:
Depreciation on factory equipment ...........
Factory janitor s salary ..............................
Direct labor ............
:....................
Utilities for factory
......
Selling expenses ..... :::::::::::::::::::::::::::::::::::
Production
supervisors
salary ...................
Administrative
_
expenses
...........................
$12,000 _" 9_k_l_ O_ 1_"['_'_'r''r
$23 000 _ _t._Ok.k3Q._
.
_\
$281000 --_¢_
_. _OC._" {._2_\
_gef)
_9 000 _.t_',,0t_..I
_'_"
$34.000
_
r .-. _ --__ . ¢,
--'.
-- V_._0kk)C'r| ,, t-'_0k\_0_
J
)__
_-e,._Y %_ t_
What was the total amount of the period costs listed above for the period?
A. $46,000
_.
_'I/_O00
J
Q...Q_37,000
D. $71,000
.rA staffposition:
elates directly to the carrying out of the basic objectives of the organization.
][email protected] in nature, providing service and assistance to other parts of the organization.
s superior in authority to a line position.
'
..
one of these.
7. Which of the following would usually be found on a job cost sheet under a normal cost system?
Actual direct material cost
Actual manufacturing
overhead cost
A)
_
Yes
_
Yes
B)
Yes
No
C)
No
Yes
D)
_.
B.
No
Item B
C. ltem
Item C
A
Oem
D
No
0¢'_J_¢_
¢__'x_
•
,
"
18. Avery Co. uses a predetermined overhead rate based on direct labor-hours to apply manufacturin
For the month of October, Avery's estimated manufacturing overhead cost was $300,000 based on an
estimated activity level of 100,000 direct labor-hours. Actual overhead amounted to $325,000 with actual direct
labor-hours totaling 110,000 for the month. How much was the qver_tpplied or underapplied overhead?
I(_ $5,000 overapplied
_. $5,000 underapplied
• "C.$25,000overapplied
D. $25,000 under_.pl_d
,--_'-')
. .'.,_. k__k-3_
_),a_
(_'
F( 0k'
._
"-_ "'_' _'
.._
_)_-"
"_ k,._'_
_"_
"_ '._
10()ll._(.)_
al entry to record the accrual of these wages would include a:
ebit to Manufacturing Overhead of $6,000
debit to Work in Process of $79,000
credit to Manufacturing Overhead of $6,000
n October,
Raddatz
Inc. incurred
credit
to Work
in Process
of $79,000$73,000 of direct labor costs and $6,000 of indirect labor costs. The
C..,,
20. Manufacturing overhead includes:
__all
direct material, direct labor and administrative costs.
all manufacturing costs except direct labor and direct materials.
all selling and administrative costs.
all manufac.turing costs except direct labor.
'_,
21. In the standard cost formula Y -- a + bX, what does the "X" represent?
A. variable cost per unit
B. total fixed cost
_.
tonits of activity
tal cost
C.
22. Shipping cost at Junk Food Imports is a mixed cost with variable and fixed components. Past records
indicate total shipping cost was $18,000 for 16,000 pounds shipped and $22,500 for 22,000 pounds shipped.
Assuming that this activity is within the relevant range, if the company plans to ship 18,000 pounds next month,
the expected shipping cost is:
A. $20,400
B. $24,000
,¢C_18,500
t"D_19,500
\
\_
_,_),'_e_
_
'_
{_<_?
_°°_t'3_
Which of the following is NOT one of the three major customer value propositions discussed in the text?
discount pricing
3perational excellence
C. customer intimacy
\_D.
product leadership
24. Elliott Comi_any uses a predetermined overhead rate based on machine-hours to apply manufacturing
overhead to jobs. The company manufactures tools to customer specifications. The following data pertain to Job
1501:
Direct materials used .......................................................
Direct
labor-hours worked ...............................................
Direct laborrate per hour .................................................
Machine-hours used .........................................................
Predetermined
overhead
rate per machine-hour
...... "........
$4.200
300
$8.00
_t,J,
ft. _,,g_._
q'OO_O
.-"
_k
What is the total manufacturing cost recorded on Job 1501?
/.,__Ok,._
_t. I
at- "_3
200
$15.00
k
_/_
q
0-o
(_. $_8,800
9,600
10,300
D. $11,100
_)
m
Comparative income statements for Boggs Sports Equipment Company for the last two months are presented
below:
Sales in units ....................................................
Sales .................................................................
Cost of goods sold ...........................................
Gross margin ..................................................
Selling
and administrative
:.
July
11 000
£165,000
72 600
August
10 000
$150,000
66,000
92 400
84 000
expenses:
ent
.......................................
.ooo i2,0£'yqC-Sales
commissions ........................................
13,200
12,000 -
Maintenance
expenses
..................................
13,500
Clerical expense ............................................
Total selling and administrative
expenses .......
lXIet operating income .......................................
16,000
54,700
_ 37.700
13,000-
_"
15 000-52 000
_"
All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed). Assume that the
relevant range includes all of the activity levels mentioned in this problem.
o
A,_Which
of the selling and administrative
/ _ A. Sales Commissions
expenses of the company is
variable?
@B.
Clerical Expense
_Rent
D. Maintenance Expense
,U
[N_. An example of a fixed cost that would be considered a direct cost is:
| _ASthe rental cost of a warehouse to store finished goods when the cost object i_ the Purchasing Department.
"_-. a cost accountant's salary when the cost object is a unit of product. -- IN0k0"_I',
Board of Directors' fees when the cost object is the Marketing Department. o _\\_¢_O,_
_Q_a
..\r,
ox ,ee.rj
production supervisor's salary when the cost objective is the Production
DepartL_nt.
%The
cost of the cushions that are used to manufacture sofas is best described as a:
"a'A'_eriod cost.
___.,:?anufacturing
overhead cost.
onversion cost.
_variable cost.
,'
8. Stuart Company is a merchandising company. During the next month, the company expects to sell 450
units. The company has the following revenue and cost structure:
"Selling price per unit ..........
Cost per unit .......................
Sales commission ...............
$230 I¢V t_'_\
$120 .l_k'_-_t
12% of sales
-- /O'za51"_X:)
_ _"o_ b_
")
L I q _(b[]3
_ _ "_ t._ _)- 0
/Advertising
Administrative
expense ...........
expense .....
$18,000
$32,500
per month
per month
(.9\
C_ _ (__
- %950O
What is the expected contribution margin next month?
A. $53,000
566,420
D. $37,080
$50,500
C,\K._ .._
...._)
29. Salaries of accounts receivable clerks when one clerical worker is needed for every 750 accounts receivable
is an example of a:
_)step-variable
cost
_
C.
B. curvilinear
fixed cost cost
D. mixed cost
cl l a
Koczela Inc. has provided the following data for the month of May:
D _/_
_"0"]
II_t"__)
5q 000
oO 0
Inventories
Beginning
Ending
Work in process .................
Finished goods ...................
$17,000
$46,000
$12,000
$50,000
Jf _/_{_
_
Additional information:
Direct materials .....................................................................
overhead
cost applied
to Work
in Process
U _-I---_
(._
_)
$57,0
Dh-ect labor cost ....................................................................
Manufacturing
overhead cost incurred .................................
Manufacturing
g_-_
\"_
$87,000
$63,000
...
----
V"_
_t/'
0
0_
$61,000
9 i>o0%
0<%©
'_he
cost of goods manufactured for May is:
A. $205,000
B. $207,000
Exam 1 Fall 07
There are 30 multiple choice questions in total. In all cases, select the BEST answer.
1. The plans of management are often expressed formally in:
p_ A.
financial statements.
B. budgets.
D.
performance reports.
C. ledgers.
2. A staff position:
A. relates directly to the carrying out of the basic objectives of the organization.
is supportive
superior in in
authority
a line position.
_Q, C.
B. is
nature, to
providing
service and assistance to other parts of the organization.
D. none of these.
3. Which of the following is NOT one of the three major customer value propositions discussed in the text?
_. customer intimacy
•_
Bzoperational excellence
/IZ. product leadership
D. discount pricing
4. All of the following are characteristics of a pull production system EXCEPT:
A. Products are completed just in time to be shipped to customers.
flows due to shortages of raw materials.
B.
materials parts
are released
to production
of beinginto
needed
to ensure no interruptions in work
C. Raw
Manufactured
are completed
just in far
timein toadvance
be assembled
products.
D. Inventories are reduced to a minimum by purchasing raw materials and producing units only as needed to
meet consumer demand.
5. The Sarbanes-Oxley Act of 2002 contains all of the following provisions EXCEPT:
A. Both the CEO and CFO must certify in writing that their company's financial statements and accompanying
disclosures fairly represent the results of operations.
C.
audit committee
of thebeboard
of directors
of athree
company
compensate,
and terminate
B. The
Financial
statements must
audited
once every
years must
by thehire,
Government
Accounting
Office.the public
accounting firm that audits the company's financial reports.
D. A company's annual report must contain an internal control report.
-11
1
6. The cost of the cushions that are used to manufacture sofas is best described as a:
A. variable cost.
(_B. conversion cost.
] \ C. period cost.
D. manufacturing overhead cost.
7. Manufacturing
B.
A.
C.
D.
all
all
all
all
overhead includes:
direct material, direct labor and administrative costs.
manufacturing
costs exceptcosts.
direct labor and direct materials.
selling and administrative
manufacturing costs except direct labor.
8. Which of the following is _/OT a period cost? _-)o_
B. Cost
tax law updates that was attended by the company's controller.
_____,A.
Salaryof ofa seminar
a billing concerning
clerk._
D.
Insurance depreciation
on a companyof the
showroom,
and potential
can view'v/ new products.._/
C. Monthly
equipmentwhere
in a current
fitness room
used by customers
factory workers.
9r_The annual insurance premium for the factory building would be a:
fixed cost, product cost, and direct cost with regard to units of product.
\/') B. fixed cost, product cost, indirect cost with regard to units of product.
/_ variable cost, product cost, direct cost with regard to units of product.
V _'-'-_xed cost, period cost, and indirect cost with regard to units of product.
10. An example of a fixed cost that would be considered a direct cost is:
A. Board of Directors' fees when the cost object is the Marketing Department.
C: a cost accountant's salary when the cost object is a unit of product.
B. a production supervisor's salary when the cost objective is the Production Department.
_. the rental cost of a warehouse to store finished goods when the cost object is the Purchasing Department.
below are a number of costs incurred last year at Mecca Publishing Co., a manufacturer of
; school textbooks:
Solvents and cleaners usedby the custodians to clean the
textbook printing presses ..............................................
Depreciation
on the automobiles
used by sales
representatives
..............................................................
Fire insurance on factory building ...................................
$4,200"/_
$2,000 V/
Shipping
$3,700"/x
costs on textbooks
sold .....................................
$500
x/
What is the total of the manufacturing overhead costs above?
A. $6,700
B. $500
C. $6,200
)D. $2,500
12. The information below relates to Derby Manufacturing Company's operations for a recent month. (Assume
that all raw materials are direct materials.):
P
chases
ofrawmaterials
........................
$91,000Direct labor cost .........................................
$122,000 Selling
costs(total)
....................................
$42,000
-I" _CY_
-_v"
Administrative
costs
(total)
........................
$36,000 "-_0AI
Manufacturing overhead costs(total)
........
$340,000 Raw materialsinventory,
beginning..........
$22,000Work in process inventory, beginning .......
$27,000
- _k/_ C_C_
Finished goods inventory, beginning .........
:Raw materials inventory, ending ...............
$42,000 _
$7,000 -
spc._ _"3 I-
Work in process
ending ............
$35,000
_" I'Jk_)
ending ..............
$15,000
Finished
inventory,
goods inventory,
-
-h _IY__6_
What was Derby's cost of goods manufactured for the month?
A. $568,000
B. $545,000
c.
$587,000
D. $560,000
C..,I _/_k/_
, "
13. Consider the following costs incurred in a recent period:
Direct materials
..........................................
$33,000X
Depreciation
on factory equipment ...........
Factory janitor's
salary ..............................
Direct labor ................................................
$12,000
$23,000_
$28,000
Utilities for factory ....................................
Selling expenses .........................................
$9,000
$16,000
7x
"v"
Production supervisor's
Administrative
expenses
$34,000
$21,000
_/
salary ...................
............................
What was the total amount of the period costs listed above for the period?
A. $71,000
_
C.
$46,000
B.$37,000
D. $78,000
14. The following inventory balances have been provided for the most recent year:
....................
Be_nning
$21,000
Ending
$15,000
Work in process .................
Finished goods ...................
$18,000
$57,000
$29,000
$33,000
P.aw materials
The cost of goods manufactured was $714,000. What was the cost of goods sold?
A. $714,000
B. $733,000
"C..- C.
D. $738,000
$693,000
of the following would usually be found on a job cost sheet under a normal cost system?
A)
B)
C)
D)
Actual direct material cost
Yes
Yes
No
No
Actual manufacturing
Yes
No
Yes
No
overhead cost
_A.
Item B
_" B. ItemA
\r) C. Item D
*'1 D. Item C
16. What journal entry is made in a job-order costing system when $8,000 of materials are requisitioned for
general factory use instead of for use in a particular job?
• A)
B)
C)
D)
_,_
Work inProcess
Manufacturing Overhead
Work inProcess
Raw Materials
Manufacturing Overhead
Work in Process
Manufacturing Overhead
Raw Materials
A. Item D
B.
B
mC
mA
J
$8,000
$8,000
$8,000
$8,000
$8,000
$8,000
$8,000
$8,000
17. Elliott Company uses a predetermined overhead rate based on machine-hours to apply manufactu,ring
overhead to jobs. The company manufactures tools to customer specifications. The following data pertain to Jc
1501:
Direct
Direct
materials used .......................................................
labor-hours
worked ...............................................
$4,200
300
Direct labor rate per hour .................................................
Machine-hours
used .........................................................
$8.00
200
Predetermined
overhead
What is the total manufacturing
A. $8,800
B. $10,300
rate per machine-hour
..............
$15.00
cost recorded on Job 1501 ?
C.
D. $9,600
$11,100
18. Avery Co. uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead
to jobs. For the month of October, Avery's estimated manufacturing overhead cost was $300,000 based on ah
estimated activity level of 100,000 direct labor-hours. Actual overhead amounted to $325,000 with actual direct
labor-hours totaling 110,000 for the month. How much was the overapplied or underapplied overhead?
A. $5,000 underapplied
D_.
$ 5,000 overapplied
,000 overapplied
5,000 underapplied
19. Job 910 was recently completed. The following data have been recorded on its job cost sheet:
Direct
Direct
materials ..............................
labor-hours ..........................
Direct labor wage rate ....................
Machine-hours
...............................
$3,193
21 labor-hours
$12 per labor-hour
166 machine-hours
The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate
is $15 per machine-hour. The total cost that would be recorded on the job cost sheet for Job 910 would be:
_i
• $3,445
$5,935
• $3,760
D. $3,220
pany uses a predetermined overhead rate based on machine-hours to apply manufacturing
•jobs. The company has provided the following estimated costs for next year:
Direct
materials
..........................................
$1,000
Direct labor ................................................
Sales commissions
.....................................
Salary of production
supervisor .................
Indirect materials .......................................
$3,000
$4,000
$2,000
$400
Advertising
expense ...................................
Rent on factory equipment .........................
$800
$1,000
Reamer estimates that 500 direct labor-hours and 1,000 machine-hours will be worked during the year. The
predetermined overhead rate per hour will be:
A. $6.00
B. $6.80
D.
$3.00
C. $3.40
b
21. In October, Raddatz Inc. incurred $73,000 of direct labor costs and $6,000 of indirect labor costs_ The
journal entry to record the accrual of these wages would include a:
A. credit
debit to
in Process Overhead
of $79,000of $6,000
B.
to Work
Manufacturing
_/C.
debit to Manufacturing Overhead of $6,000
D. credit to Work in Process of $79,000
22. During March, Zea Inc. transferred $50,000 from Work in Process to Finished Goods and recorded a Cost of
fi/Goods Sold of $56,000. The journal entries to record these transactions would include a:
_/-'_A. credit to Work in Process of $50,000
"/ B. credit to Finished Goods of $50,000
C. debit to Finished Goods of $56,000
D. credit to Cost of Goods Sold of $56,000
Koczela Inc. has provided the following data for the month of May:
Inventories
Work in proce,s .................
Finished goods ...................
Additional
Direct
Direct
Beginning
$17,000
$46,000
-q
Ending
$12,000
$50,000
information:
materials .....................................................................
labor cost ....................................................................
Manufacturing
overhead
cost incurred
Manufacturing
overhead
cost applied to Work
23. The costofgoods
A.$212,000
B.$210,000
C.$205,000
D. $207,000
.................................
in Process...
$57,000
$87,000
$63,000
$61,000--..,
manufactured forMayis:
24. In the standard cost formula Y = a + bX, what does the "X" represent?
A. total cost
13. units of activity
C. total fixed cost
D. variable cost per unit
25. Which of the following would usually be considered a discretionary fixed cost for a soft drink bottling
company?
A. the cost of advertising its products
B. the cost of fire insurance on its factory building
C. depreciation on its manufacturing equipment
D. both a and b above
tpping cost'at Junk Food Imports is a mixed cost with variable and fixed components. Past records
totfil shipping cost was $18,000 for 16,000 pounds shipped and $22,500 for 22,000 pounds shipped.
Assuming that this activity is within the relevant range, if the company plans to ship 18,000 pounds next month,
the expected shipping cost is:
A. $24,000
B. $20,400
C. $18,500
D. $19,500
27. Supply costs at Coulthard Corporation's chain of gyms are listed below:
Client-Visits
March .....................
Supply Cost
12,855
April
.......................
$23,59g
May ........................
June ........................
13,104
12,850
$23,7£2_g
$23,607
July .........................
August ....................
September ..............
12,493
12,794
12,6{36
$23,415
$23,562
$23,496
October
12,7 65
$23,54q----.
..................
_
_'"_C.,_
I_llli_
/
x
November
Management believes that supply cost is a mixed cost that depends on client-visits. Using the high-low method
to estimate the variable and fixed components of this cost, those estimates would be closest to:
"_-'-A-7._0.57 per client-visit; $16,273 per month
$0.55 per client-visit; $16,579 per month
C. $1.85 per client-visit; $23,547 per month
D. $1.77 per client-visit; $557 per month
_
28. Stuart Company is a merchandising company. During the next month, the company expects to sell 45,
units. The company has the following revenue and cost structure:
Selling
uoit
..........
$230
Cost perprice
unit per
.......................
$120
Sales commission
...............
Advertising
expense
...........
12% of sales
$18,000
per month
Administrative
$32,500
expense
.....
per month
What is the expected contribution margin next month?
A. $66,420
,J
\ ,I-3"_D
.-
_--Jltgt,.l
0_._D
_"-
L_ q_(DD
C.
B. $50,500
$37,080
D. $53,000
Comparative
below:
income statements for Boggs Sports Equipment Company for the last two months are presented
July
Sales in units ....................................................
Sales .................................................................
Cost of goods sold ...........................................
Gross margin ....................................................
Selling and administrative
expenses:
Rent ...............................................................
Sales commissions
........................................
Maintenance
expenses ..................................
Clerical expense ............................................
Total selling and administrative
expenses .......
Net operating income .......................................
August
11 000
$165,000
10 000
$150,000
72,600
92 400
66,000
84 000
12,000
13,200
13,500
12,000
12,000
13,000
16 000
54 700
$37.700
15 000
52 000
$32.000
All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed). Assume that the
relevant range includes all of the activity levels mentioned in this problem.
of the selling and administrative expenses of the company is variable?
B. Sales Commissions
(r), C. Clerical Expense
_._D. Rent
30. Salaries of accounts receivable clerks when one clerical worker is needed for every 750 accounts receivable
is an example of a:
,__._.curvilinear cost
(_ep-variable
lk._ _2. mixed cost
Y
D. fixed cost
cost
Exam 1 Fall 07 Key
1. B
2. B
3. D
4. B
5. B
6. A
7. A
8. C
9. B
10. B
II.D
12. D
13. B
14. C
15. A
16. B
17. C
18. C
19. A
20. C
21.C
22. A
23. B
24. B
25. A
26. D
27. A
28. B
29. B
30. B
EXAM 1 TERMS
-CAPITAL:
-human made aids to production (goods used ot produce other goods)
-ex: plants, equipment, tools
-significant because choices about capital goods lead to economic growth;
-the greater the capital goods, higher the rate of future economic growth
-ENTREPRENEURSHIP:
a human resource which:
-brings together other resources
-motivated by self-interest or profit motive
-bears risk
-has an idea about how to make profits
-significant because it is an economic resource;
-PRICE ELASTICITY
OF DEMAND:
therefore
it is scarce;
-how responsive buyers are to changes in price
-significant because maybe determine how Price affects TR; also determines
who really pays the tax, where the tax burden falls
A,
(opposite):
responsive
I °['___[
•]._
_
-Ed >1:-percentage
elastic: if Price
change TR
in Qfalls
is greater than percentage change in P
-Ed<l: inelastic: if Price ^, TR also ^ (same) : unresponsive
-percentage change in Q is less than percentage change in P
-Ed=l: unitarily elastic
-LEGAL PRICE CEILING:
-legally imposed fixed level at which price cannot go above it; set below the
equilibrium price
-significant because creates shortages or excess demands ; no automatic
mechanism to restore equilibrium;
can't be fixed till ceiling is abolished
-ECONOMIC
COSTS:
-explicit/implicit
-opportunities/alternatives
-occur at every decision
-COMPETITIVE
MARKET:
given up when any choice is made
ever made; helps define value of option you choose
-large number of buyers and sellers; no ONE can affectively
market and therefore areprice takers
-EXPLICIT:
influence
the
-out of pocket cost; part of an economic cost: ex: tuition for college education
-significant because occurs at every choice ever made
• f
Exam 1 Sample Questions
1. Suppose that the economy produces two types of goods: consumer goods (C) and capital
goods (K). Use production possibilities curve (PPC) diagrams and brief verbal explanations
to explain the following situations:
q/a. The economy is operating at full-employment producing a lot of capital goods when a
legal price ceiling is imposed on capital goods.
"_. The economy is operating at full-employment both before and after a major technological
improvement in the production of consurner goods. After the technological improvement,
however, the economy is actually producing fewer consumer goods than before.
,//2. Use competitive market supply/demand diagrams of the camera market and the film
market to illustrate how camera sellers' expectations of lower future camera prices can lead
to higher current film prices.
v_3. Use a competitive market supply/demand diagram and brief verbal descriptions to
how [email protected]
inci_d_e_nce
of a per-unit excise tax may fall.oh gasoline
,_._. e_rs_ven though, the tax is legally.._imp°sed__
exclusively.__ongasoline___
sellers.
Briefly explain the determinants of price elasticity of demand (Ea). Why is price elasticity
of demand an important concept?
4_. Consider the following: "The sharp rise in gasoline prices in the mid 1970's lead to a
sharp decline in the demand for 'gas guzzling' cars and large unsold inventories
(surpluses) when many dealers refused to cut their sticker prices." Use a supply/demand
diagram of the 'fuel inefficient' or 'gas guzzling' car market and brief verbal descriptions
to explain this quotation
"7 5. In 1990, Congress passejd a-per_x
on yachts. The tax was legally
" imposed on th_b__uyers_ihe_
luxu_ds.
Within a year, a number of New England
yacht building-firm_'_.iled and their unemployed workers protested vigorously.
Interestingly, yacht buyers_ittlec'on'_'about
the tax Use a supply/demand
diagram of the yacht market and your knowledge about the legal and economic incidence
of a per-unit excise tax to explain this episode.
_. Suppose there is a technological advance in the production of hydrogen bombs. Use a
supply/demand diagram of the hydrogen bomb market and a production possibilities
curve (PPC) diagram showing 'military' and 'civilian' goods to illustrate this
technological change. Carefully explain the connection between your diagrams.
/7 Recently,
the Clinton administration proposed_$_!.00-p_r-unit (pack),_excj_ tax on
cigarettes (which would be imposed legally or statutorily on cigare_Some
news reports have suggested that the proposed tax would increase cigarette prices by
$1.00 per pack and
by smokers(c_arette-b-_yers).
Using a competitive
• be paid entirely
.
_:
.3
supply/demand diagram of the cigarette market, carefully show and explain the
circumstances under which these new reports would be true.
there so many different nominal interest rates? Explain carefully.
_.. Consider an economy that produces consumer goods and capital goods• Suppose the
economy is operating at full-employment and all consumer goods are subject to legal
price ceilings set below equilibrium prices• Use a production possibilities curve (PPC)
diagram and brief verbal descriptions to compare this economy's production combination
in the absence of price controls (15 points)• In this case, would the price controls result
in higher or lower rates of future economic growth? Why?
_0. Consider the following: "Under the Five Year Plans, the Soviet leadership mandated
a production mix heavily weighted toward_oods.
As a consequence, the Soviets
enjoyed some years of significant economic growth. Coupled with pr,ice_ols
on
c%nsumer_goods,.however, the Plans also meant that Soviet cmzens_a- vd_(e_ few
consu-met_
satisfy their collective wants•" Use a production possibilities curve
(PPC) diagram and brief verbal descriptions' to explain the Soviets' economic growth.
Use another PPC diagram and brief verbal description to explain the small number of
Soviet consumer goods•
_1. Suppose the out-of-pocket price for driving on a freeway is zero. Now, use a
competitive supply/demand diagram of the "freeway space" market to explain traffic
jams at 8:00 am, but no jams at l 1:00 pm. Also, use your diagram to explain the toll
price that would eliminate the morning traffic jams.
_. 12. Suppose the State legislature passes a $10.00 per credit hour tuition subsidy legally
payable to OU, stu_de-fits.Use a supply/demand diagram of the OU ed_rvices
market to explain
under which
"_'-_ the condmons
"'
" [email protected]
benefit of the subsidy
would flow to the Um'versity (not the_students).
,/_3. Suppose that movies and popcorn are complimentary goods. Further suppose that
_/ _t_
-I13
screenwriters_,wages (a major cost of producingmo, ies)increase sharply due to a new
union contract_.--Uging separate coml_etl_-_'tlve_s_p_ly-'/ae'--mand
diagrams of the movie and
popcorn markets, illustrate and briefly explain the probable effects of the screenwriters'
wage increase on: Equilibrium prices, equilibr_ities,
m_popcom
markets.
andtotal_i3n,
the
14. In 1992, Congress passed a per-unit excise tax on yachts. Although legally the tax
was to be collected from yacht suppliers, the law was intended to make the rich yacht
buyers pay more of the tax burden. The tax was repealed in 1993 in response to the
vigorous protests of yacht manufacturers and their workers. Use a competitive
supply/demand diagram of the yacht market and your knowledge of economic tax
incidence to these events.
v_5. Consider the following: "At the beginning of 1940, the United States economy was
characterized by substantial unemployment. The Soviet economy at that time, however,
was operating at full-employment. By the end of the year, the U.S. economy had moved
to full-employment, increasing its output of both civilian and military goods. The Soviet
economy was still at full-employment at year's end, but producing many fewer civilian
goods and many more military goods than at the beginning of the year." Use production
possibilities curve (PPC) diagrams of the U.S. and Soviet economies to illustrate and
explain these historical events.
/116. Suppose there are two types of OU football tickets: (1) good tickets and (2) bad
tickets. Further suppose that the bad ticket market is in equilibrium at $35/ticket, but the
good ticket market is not in equilibrium at that price. Draw separate competitive
supply/demand diagrams of the good and bad ticket markets to explain this situation.
Specifically, what disequilibrium situation do you expect in the good ticket market?
Why?
/17. Recently, Congressional Republicans wanted to repeal a 4.3 per-gallonexcise tax on
gasoline (which is statutorily or legally imposed on gasoline sellers). They claimed
removing the tax would lower gasoline prices (paid by buyers) by the full 4.3 cents.
Using competitive supply/demand diagrams of the gasoline market and brief verbal
descriptions, carefully explain tw.___o.o
different market conditions under which this claim
would be true.
"_18. Suppose the economy produces two types of goods: consumer goods (c) and capital
goods (K). Use production possibilities curve (PPC) diagrams and brief verbal
descriptions to explain the following situations:
a. The economy is operating at full employment producing a lot of consumer goods
when a legal price ceiling is imposed on consumer goods.
b. The economy is operating at full-employment both before and after a major
technological improvement in the production of capital goods. Afier the technological
improvement, however, the economy is actually producing fewer capital goods than
before.
_
"9. 19. Consider the following: "I don't care what the tax law says about collecting that [per
unit] excise tax on tires from auto service shops [suppliers], everyone knows that we
drivers [buyers] will end up paying the whole tax." Using competitive supply/demand
diagrams and brief verbal descriptions of the tire market, illustrate and carefully explain
two scenarios consistent with this opinion.
5t_-__c-
20. Suppose Congress, in an effort to control rising health care costs, imposes legal price
ceilings in the market for healthvare _e_-_ice-_s.
At the same time, the Department of
Health and Human Services (HHS) releases a study suggesting that clinical examinations
every 90 significantly increase the risk of infection and disease. Using a competitive
supply/demand diagram of the health services market and brief verbal descriptions,
explain the effects of the actions of Congress and HHS.
_ly
discuss three economic effects of inflation.
_2. Define price elasticity of demand (Ed). What are major determinants Of Ed? Why is
price elasticity of demand such an important concept?
v/223. Suppose the equilibrium price for a life saving surgical procedure is initially
$10,000. Now suppose that a law is passed which requires hospitals (the suppliers of the
surgical procedure) to pay a $1,000 per-unit excise tax on each procedure performed.
Using a competitive supply/demand diagram of the 'life saving surgical procedure'
market and brief verbal descriptions, explain the legal and economic incidence of this
per-unit excise tax.
j
24. Use a production possibilities curve (PPC) diagram and brief verbal descriptions to
explain the process of economic growth.
25"_. Would the price elasticity of demand (Ed) for Pepsi be higher or lower than the price
elasticity of demand for soft drinks in general? _l ooq-eaf
_26. Use competitive supply/demand diagrams of the milk market and brief verbal
descriptions to explain the effects of the following changes on: (a) supply or demand and
(b) total revenues (TR).
i. a drought causes higher feed prices for dairy cows
ii. scientist find that drinking milk increases the risk of heart disease
_27. Use the production possibilities curve (PPC) diagram showing 'civilian goods' and
'military goods' and brief verbal descriptions to explain the following: "From 1939 to
1941, the U.S. economy moved from a position of substantial unemployment to a
position of full-employment. Over this time period, both civilian and military goods
production increased, but military production increased more rapidly."
28. Use competitive market/supply demand diagrams and brief verbal descriptions to
analyze the following:
a. "Many investors consider stocks (shares of corporate ownership) and bonds (IOUs) as
substitutes• Consequently, when stocl_ prices go down, bond.16rices usually too. (HINT:
Use a bond market diagram to answ"_his
question)•
,_'_'_
b. Consider the following: "In 1973 several major oil producing countries formed a
//
sharply The
cartel.
as did
cartel
the effectively
total expenditures
decrea_6d_he-_u_l_
on gasohne. of
Use
crude
a supply/demand
oil. Gasoline diagram
pricesxoseof the I/_.)t
/
gasoline mark_d
y_6_-kn6_l_dge-of the price elasticity of demand (Ed) to illustrate
f[_
and explain this quotation.
_'_ <1 _-,w.._0_j_'
29. Use competitive supply/demand diagrams of the powdered milk (an inferior good)
market and brief verbal descriptions to explain effects of the following changes on: (a)
supply (b) demand (c) equih'bri_un price (d) equilibrium quantity and (e) total
a. Incomes rise and powdered milk producti
t
revenues.
_
_
_°t_nn e_y
improves
b. The price of whole milk drops .._
/2.30. Use a production possibilities curve (PPC) diagram and brief verbal descriptions to
explain the economic effects of a growing labor force.
31. Consider the following: "The Japanese economy has been growing faster than the _}
American economy. This faster growth is largely due to the fact that the Japanese devotemore of their resources to capital goods while the Americans de ote more of their 1_._
(
resources to consumer goods." Use production possibilities curve diagrams for the _
Japanese and American economies and brief verbal descriptions to illustrate and explain
Ifthis observation.
v
32. Consider the following: "In 1973 several major oil producing countries formed a
cartel. The cartel effectively decreased-thes--_d_ly of crude oil. Gasoline price rose
sharply as did the total revenues>_owiiag-to_e" oil producing countries." Use a
supply/demand diagram of the gasoline market and your knowledge of the price elasticity
of demand (Ed) to illustrate and explain this quotation.
33. Consider two "goods": (1) new cars and (2) borrowed money. Suppose these goods
are complements. Now, suppose the "price" of borrowed money (usually called the
interest rate) goes down. Use a competitive supply/demand diagram of the new car
market and brief descriptions to explain the effects of the lower interest rates on: new car
prices; quantity of new cars sold; and total revenues of new car sellers.
I,
34. Suppose the economy produces only two goods: consumers goods (C) and capital
goods (K). Also suppose the economy is operating at full employment. Finally, suppose
consumer goods are subject to legal price controls ("price ceilings"). Use a production
possibilities curve (PPC) to show the economy's output combination of C and K goods
with price controls versus the economy's output combination without price controls.
Explain your reasoning.
35. Suppose the Drug Enforcement Agency (DEA) manages to reduce the supply of
illegal drugs flowing into the U.S. What effect, ceteris paribus, would this supply
reduction have on total expenditures made on illegal drugs? Why?
Identify and explain the significance/of:_v_u _gJom-3- Oqzo_4-e-_5
d_;_
wTL't)f
c_,__---_'GJ
Ll_:;mt_, _-o_.._a_..
36. Minimum wage laws -F
-/-Ivm_b'_
t_f _-,_
_A_ ,_e_c-O l _b 'v
37. Parity price ratio
,-
_J_e_
38. Capital/CJw_)_
_-g--._
{+_
t._eP_TJt-)
._.
j (._u_i-cef (lo_
b, 2_X_'_xo_k
_ k
qu. vrlceerastlcityoIuemanu
41. Legal price ceilings-- (¢J_
_
Ok._Cre>' ":._._ v_d_""-42.
;-,s"
_c)-_
_,
<a
_x
bt_
-
;k
q,_,,jT_Ccr_f,4--O---_'_v,t_,)
Lntrepreneursnlp
"7...,S
,,,4"!,,.*-,-_-,.-¢..$,.,>-,c,.-y-,
. _'v0 : I _
_/_._
I
of demand
19
45. Explicit and implicit economic costs
+DO (.Ji_o,F_.
-I/,,ja.s.,_/,..
_
v
Competitive
market------
"
_k.._kex_n_v_._._'
vo.a.,o
7"or '
_l,a_Q_t_)o
¢_0_
Economiccosts --_)tidt-/,Wb(c4c_
--d_ls_elasticity
_91m°"ut_
to_._po
_ ¢"
-'c_,x_t_l'_
"_
_tl_..f"_
<_^.,,:o ,.< _
'o
<<.,-"
-
_.s,/t.>lxa,l--,
o,.,'r
<
5 ?o<..l_,.,os-I-
r_,4-.)L_d-'c_
d,.x.,,t.ov.,<no_4a,&-._
_
7 46. Law of diminishing marginal utility
_al
unemployment
|
t/l? i ffl.0t- _A- 06 _OC_
1
_\\ 2.oO-2
Name:
-_._---,
Section_r
---_,
_v '_j''_'-"_l
4:30
ACCOUNTING
2123
EXAMINATION
2
FALL 200% KNAPF
VERSION
4
Exam 2, F07
Version #4
1. Leaper Corporation uses an activity-based costing system with the following three activity cost pools:
Activity Cost Pool
Fabrication .........................
Total Activity
40,000 machine-hours
Order processing
...............
Other ..................................
200 orders
Not applicable
The Other activity cost pool is used to accumulate
costs of idle capacity
organization-sustaining
co sts.
The company
has provided the following data concerning
its costs:
Wages
and salaries
......
Depreciation
................
Occupancy ...................
Total ............................
The distribution
of resource
$360,000
140,000
160 000
consumption
across
activity
Activity
Wages
and salaries
......
Fabrication
350/0
costpools is given below:
Cost Pools
_roce_;_n.g_
Other
250/0
Occupancy
...................
30°A
................
5%
_
Depreciation
_.
order
"<'- Processing activity cost pool is closest to:
$ 1,465
activityperrate
for the Order
1,540 per order
C. $1,320
D. $1,485 per order
and
Total
100%
_t_t-k_-_-_O
2Xo i
100%
"q'20
(D!,_
40°/0
"_"k
_.__
o
"_o
_(_
O
2. A basic idea underlying
is that a manager should be held responsible only for those
items that the manager can actually control to a significant extent.
A. planning and control
B. the master budget
(_earticipative
budgeting
sponsibility accounting
3. Francis Manufacturing Company is currently preparing its cash budget for next month and has gathered the
following information:
Expected cash receipts ...............................
L-_ l_ t_
Q_t,__
$39,400
e.oa disbursemen,s:
.
Direct materials
......
Direst labor ..................
$12,000
$9,000
Manufacturing ore rhead .........................
$11,500
Selling and administrative expenses .......
$22,000
- O qooLO
6_11_._
)f (/_.-.,
EA.){_)_t_
__ I(_6 >
@ I_-_O k'_
The beginning cash balance will be $6,000 and the company requires a minimum cash balance at the end of the
month of $5,000. How much will Francis Manufacturing need to borrow to meet its cash needs for the month?
A. None of the above.
B. $20,100
C. $9,100
D. $14,100
4. Which terms would make the following sentence true? Manufacturing companies that benefit the most from
activity-based costing are those where overhead costs are a
percentage of total product cost and
where there is
diversity among the various products that they produce.
-,_. low, little
_.
liw, considerable
gh, considerable
igh, little
5. Warmuth Corporation has provided the following data concerning its direct labor costs for September':
Standard
Standard
wage rate .............
hours ...................
$12.00
8.8
per DLH
DLHs per unit
rate ................
$12.50
per DLH
hours .......................
output .....................
68,120
6,600
DLHs
units
Actualwage
Actual
Actual
/
L
The Labor Efficiency Variance for September would be recorded as a:
_,_O
A. credit of $120,480.
B. credit of $125,500.
_l_
"""--_
C. debit of $120,480.
D. debit of $125,500.
_ D
1_ 0_
_
105o
Abel Company uses activity-based costing. The company has two products: A and B. The annual production
and sales of Product A is 200 units and of Product B is 400 units. There are three activity cost pools, with
estimated costs and expected activity as follows:
Expected
Activity
Estimated
Activity Cost Pool
Activity 1 ...............
Cost
$1B,6_(_
.Actlvlty. 2 ...............
Activity
3 ...............
Product A
600
ProductB
100
Total
7.0.0
1,100_
-"-$9,731
6. The
$24.91B.
A.
to:$16.77
activity rate for Activity 2 is closest
60
_qx_
160
__
- _20-
<(_3
__.,__--_ "_
I_)qsO
L
7. Woulcl factory security and assembly activities be best classified at an appliance manufacturing plant as unitlevel, batch-level, product-level, or organization-sustaining?
,4.)
Security
Product
Assembly
Unit
B)
Batch
Batch
C) Organization
Unit
-D)--Organtzat
_err--_Pr_.luc_
A. Item D
B. Item B
(CPA, adapted) The Maxwell Company manufactures and sells a single product. Budgeted data follow:
Forecasted annual _ales volume .................
Gelling price per unit ..................................
Variable expenses per unit:
Raw materials .........................................
Direct labor .............................................
120,000
units
$2§.00
k'_'_
$11.00
5.00
Manufacturing
overhead .........................
Selling expenses ......................................
Total variable expenses per unit ................
Annual fixed expenses:
Manufacturing
overhead .........................
$192,000
Selling and administrative
......................
Total fixed expenses ..................................
276 000
$468.000
090'0008"
Maxwell's break-even point in units is:
B. 76,667
C. 130,000
D. 72,000
__ _9___
2.50
1.30
_
6,2X--tq
9O,OOb
_.. _'--__/_\'_
9. Feldpausch Corporation has provided the following data from its activity-based costing system:
Activity .....................
Cost Pool
Assembly
Total
Cost
$1,137,360
Activity
84,000Totalmachine-hours
_ C.'_\
Processing
orders .........
$28.479
1,100
orders
Inspection
............. ,.......
$97,155
1,270
inspection-hours
_-'_
(,0.(0._
C_g'_,0.A.Z)
The company makes 470 units of product W26B a year, requiring a total of 660 machine-hours, 50 orders, and
40 inspection-hours per year. The product's direct materials cost is $40.30 per unit and its direct labor cost is
$42.22 per unit. The product sells for $118.00 per unit. According to the activity-based costing system, the
Dao_ductmargin for product W26B is:
"A. $6,444.70 per unit
B. $3,384.70 per unit
C. $16,675.60 per unit
D. $4,679.20 per unit
Next year, Mudd Face Cosmetics, a single product company, expects to sell 9,000 jars of miracle glaze. Mudd
Face is budgeting the following operating results for next year:
e-W-_
S_es
...................................
$450,000
Variable expenses ...... ._.\._.
135 000
Contribution
margin ...........
Fixed expenses ...................
315,000
252 000
--
......
t4-19,_-_r.bo
g_r-a1,
O-)'&;v_,-I_)_
_¢'-'_)
OO_
1
""
--
ope ati,,g
incomo
.........
*63.O0O 1%,q60
10. What would Mudd Face's total sales dollars have to be next year in order to increase its projected net
operating income by 25%?
A. $562,500
B.
C. $499,500
$465,750
/ t _L_
_
d
._-"c_, _"_2
/ __0
_$472,500
",
-
/"lq _/
] q
Iqi
q%_ _--r'O
11. Mazzucco Corporation has provided the following data concerning its direct labor costs for September:
Standard
Standard
wage rate .............
hours ...................
Actual
rate ................
Actual wage
hours .......................
Actual
output .....................
$13.30
5.5
per DLI-I
DLHs per unit
$13.20
45,880
perDLH
DLHs
8,400
units
_)_5_
/'_"_, I _x
/
/
J
The Labor Rate Variance for September would be recorded as a:
A. credit of $4,588.
B. debit of $4,620.
C. debit of $4,588.
b
%1"_ 0_'_ •
X I_
%'_"
/I
D. credit of $4,620.
_
[(._.._
_1
12. Garry Manufacturing Corporation's most recent production budget indicates the following required
production:
0 tclq(00
1
Required
production
(units) ..........
October
210,000
November
175,000
December
110,000
_C
1_'\'\
_ _'fl_'_-_
Each unit of finished product requires 5ou_fraw
materials. The company maintains raw materials
inventory equal to 25% of the next month's expected production needs. How many pounds of raw material
should Garry plan_-ffffpu_'cchasingfor the month of November?
I '_ "] ,_-'!_{_
D. 893,500
.---------
13. During a recent lengthy strike at Morell Manufacturing Company, management replaced striking assembly
line workers with office workers. The assembly line workers were being paid $18 per hour while the office
workers are only paid $10 per hour. What is the most likely effect on the labor variances in the first month of
this strike?
_(_
A)
B)
Unfavorable
No effect
No effect
Unfavorable
C)
Unfavorable
Favorable
D) '
C. Item C
D. Item A
Favorable
Unfavorable
_1_'/_?
_]_
Ot.)_,_
_
_ l(:Z::)
-poOL?
_
_ _' %
"z Ob
14. All of Gaylord Company's sales are on account. Thirty-five percent of the credit sales are collected ix]the
month of sale, 45% in the month following sale, and the rest are collected in the second month following sale.
Bad debts are negligible and should be ignored. The following are budgeted sales data for the company:
January
$50,000
Total sales ..............
February
$60,000
March
$40,000
April
$30,000
What is the amount of cash that should be collected i_
..$39,000
B. $37,000
qO. O0
\oOOO
¥,5O-T6--'dg---LBC Corporation makes and sells a product called Product WZ. Each unit of Product WZ requires 3.5 hours of
direct labor at the rate of $14.50 per direct labor-hour. Management would like you to prepare a Direct Labor
Budget for June.
15. The company plans to sell 39,000 units of Product WZ in June. The finished goods inventories on June 1
and June 30 are budgeted to be 200 and 100 units, respectively. Budgeted direct labor costs for June would be:
A_$1 974 175
C. $1,984,325
D. $564,050
-" -
"_,
.......
. The variance that is most useful in assessing the performance of the purchasing department manag_er is.k
the materials quantity variance.
_f_
_"0_(
...,,Ce_helabor efficiency variance.
variance.
_'the the materials
labor rate price
variance.
_
_
17. A company makes a single product that it sells for $16 per unit. Fixed costs are $76,800 per month and the
product has a contribution margin ratio of 40%. If the company's actual sales are $224,000, its margin of safety
is:
A. $96,000
D. $192,000
_'l ',_[
!
Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow:
- Sales are budgeted at $290,000 for November, $310,000 for December, and $210,000 for January.
- Collections are expected to be 65% in the month of sale and 35% in the month following the sale.
- The cost of goods sold is 80% of sales.
- The company purchases 70% of its merchandise in the month prior to the month of sale and 30% in the month
of sale. Payment for merchandise is made in the month following the purchase.
- Other monthly expenses to be paid in cash are $21,100.
- Monthly depreciation is $21,000.
- Ignore taxes.
Statement
of Financial
October 31
Position
Assets:
Cash
..............................................................................................
receivable
-_ 25.000 5_ 030_
Accounts
(net of allowance for uncollectible
accounts) ............................
Inventory .......................................................................................
Property, plant and equipment
77,000
162,400
(net of $624,000 accumulated
depreciation)
.............................
Total assets .....................................................................................
Liabilities
Accounts
and Stockholders'
payable
1,026,000
$1,290,400
Equity:
...........................................................................
$ 239,000
Common stock ...............................................................................
Retained earnings ...........................................................................
740,000
311,400
Total liabilities
._._.-.Retahaed_amings
D. $347,200
and stockholders'
equity .......................................
at the end of November would be:
$1.290,400,
-1tl iOk3_ __._
_
_ ,_
\°o5
A qo0
Providing the power required to run production equipment is an example of a:
ganization-sustaining activity.
B. Batch-level activity.
C. Unit-level activity.
D. Product-level activity.
q s-f-ctO5
Bois Corporation has provided its contribution format income statement for January.
-- _5 5--vw t _-q_5
Sales ...................................
Variable expenses ..............
$426,400
260 000
O_ L_
-"
_0
_t_to'a'-"
Con
i .,io.
margin
...........12066,
Fixed expenses
...................
900 00
Net operating
--
f"
_"'-_l
9 0o
income .........
20. If the company's sales increase by 7%, its net operating income should increase by about:
A. 66%
B. 11%
D. 26%
21. Borich Corporation produces and sells a single product. Data concerning that product appear below:
Selling price per unit .....................
$150.00
Variable expense per unit ..............
Fixed expense per month ...............
$73.50
$308,295
The break-even in monthly unit sales is closest to:
D. 3,426
]_
_0,_
Q
--q")
_1-_
__. /O,,ol,._
-"5 3{_)
_-- 3Q)_7_-
I'_ C'7_'_
22. Thefollowing
Standard
Standard
materials standards have been established for a particular product:
quantity per unit of output ..........
price ............................................
The following
data pertain
to operations
2.6 meters
$10.55 per meter
concerning
Actual materials purchased ........................
Actual cost of materials purchased ............
Actual materials used in production
..........
Actual output .............................................
the product
for the last month:
6,000 meters
$59,400
5,600 meters
2,200 units
What is the materials quantity variance for the month?
_
C. $3,960 U
D. $4,220 U
,1
--'-_
@ 0_
5q,qOo
10,5T
23. If both the fixed and variable expenses associated with a product decrease, wristw"-ff/l]'be"U'fhe
effect on the
contribution margin ratio and the break-even point, respectively?
Contribution
margin ratio
Decrease
_erease
Increase
Decrease
Break-evenpoint
_,/_
crease
Decrease
_,_
-- N.e_
In_<
Increase
Decrease
4
c.
temD
D. I
Item
A
g G I- '_
bid
Qs'SO
&O
24. The following materials standards have been established for a particular product:
Standard
Standard
quantity per unit of output ..........
price ............................................
The following
Actual
Actual
Actual
data pertain
to operations
2.8 grams
$12.50 per gram
concerning
materials purchased .......... :.............
cost of materials purchased ............
materials used in production
..........
the product
for the last month:
6,200 grams
$81,530
5,700 grams
-}
_
What is the materials price variance for the month?
Actual out'put .............................................
1,800 units
__
A. $6,250 U
_
B. $8,679 U
D. $6,575 U
1
__
1
(,0a{_x/_ \9
_-
' _'_ _j
$fO%
25. Gould Corporation uses the following activity rates from its activity-based costing to assign overhead costs
to products:
Activity Cost Pools
Setting up batches ..........................
Processing
customer orders ...........
Assembling
products .....................
Data concerning
two products
Activity Rate
$59.06
per batch
$72.66
per customer
$3.75
per assembly
order
hour
appear below:
Number
Number
of batches ........................
of customer orders ...........
P_
Number
o£ assembly
\
hours ............
50
Product 43F650
4_.._
890
How much overhead cost would be assigned to Product K91B using the activity-based costing system?
A. $135.47
B. $4,961.04
26. Per_echino Corporation is developing standards for its products. One product requires an input that is
purchased for $82.00 per kilogram from the supplier. By paying cash, the company gets a discount of 2% off
this purchase price. Shipping costs from the supplier's warehouse amount to $6.55 per kilogram. Receiving
costs are $0.47 per kilogram. The standard price per kilogram of this input should be:
A. $76.62
B. $90.66
(_#_
(,,._
(0,5-5-.tA-q
27. At the break-even point:
_. sSaleswould
ontribution
ales would
D. contribution
-------.-'-
be equal to fixed expenses.
margin would be equal to fixed expenses.
be equal to contribution margin.
margin would be equal to net operating income.
_)3
,"_%
Harden, Inc., has budgeted sales in units for the next five months as follows:
June ........................
7,000 units
July .........................
August ....................
September ..............
October ..................
5,300
7,100
6,800
4,900
units
units
units
units
Past experience has shown that the epding inventory_ .for each month should be equal to 15% of the next month's
sales in units. The inventory on Ma-"y3-1contained 1,050 units.-The company needs to prepare a production
budget for the next five months.
28. The total number of units produced in July should be:
A. 5,300-units_
D. 5,570 units
550o
29. The following data are available for the Phelps Company for a recent month:
Sales ..................................
Variable expenses ..............
Contribution margin ..........
Fixed expenses ..................
Net operating income ........
[Product A
$150,000
91 000
$59.000
[Product B
$130,000
104 000
$26.000
The break-even sales forthemonthforthecompany
A.$203,000
B.$91,667
C.$148,000
D. $137,500
[Product C
$90,000
27 000
$63.000
Total
$370,000
222 000
148,000
55 000
$93.000
are:
30. Eccles Corporation uses an activity-based costing system with three activity cost pools. The company has
provided the following data concerning its costs and its activity based costing system:
Costs:
Wages and salaries ............
Depreciation ......................
Utilities ..............................
Total ..................................
Distribution
$340,000
180,000
200 000
of resource consumption:
Wages and salaries ......
20%
ActivityUpCost Pools
\. Setting
Other
_/
60%
20%
Depreciation
15%
J
................
Utilities ........................
5°/_/
Total
100%
35%
50%
100%
55%
40%
100%
How much cost, in total, would be allocated in the first-stage allocation to the Assembly activity cost pool?
A. $144,000
B. $36,000
9qO00
iObOO
31. Poo_'ly trained workers could have an unfavorable effect on which of the following variances?
A)
Labor Rate Variance
Yes
D)
C. Item A
D. Item D
Materials
Quantity
Yes
No
Yes
Yes
No
No
No
Variance
1.The capital budgeting method that divides a project's annual incremental net income by
the initial investment is the:
A) the net present value method.
B) internal rate of return method.
(_the
payback method.
the simple ( or accounting) rate of return method.
2. The Wyeth Company produces three products, A, B, and C, from a single raw
material input. Product A can be sold at the split-off point for $40,000, or it can
be processed further at a total cost of $15,000 and then sold for $58,000. Joint
_)
processed further and then sold.
product costs
processed
further
total only
$60,000
if its annually.
share of the
Product
total joint
A should
product
be: costs is less than the
incremental revenues from further processing.
C) discontinued since revenues after further processing are less than total joint
product costs.
D) sold at the split-off point.
3. Gata Co. plans to discontinue a department that has a $48,000 contribution margin
and $96,000 of fixed costs. Of these fixed costs, $42,000 cannot be avoided. What
would be the effect of this discontinuance on Gata's overall net operating income?
ecrease of $48,000
crease of $6,000
C) Decrease of $6,000
D) Increase of $48,000
4. (Ignore income taxes in this problem.) How is depreciation handled by the
following capital budgeting techniques?
Internal
Rate of Return
A)
Included
(_
Simple
Rate of Return
Included
Pavback
Excluded
Included
Excluded
Excluded
Included
Excluded
Excluded
Included
5. (Ignore income taxes in this problem.) The following information concems a
proposed investment:
Investment required
Annual savings
Life of the project
$14,150
$2,500
12 years
/_---\_
_
/ _'//@_f_--_
t
I
The internal rate of return is (do not interpolate):
_)
.D)
510%"
14%.
%.
12%.
6. The net present value method of capital budgeting assumes that cash flows are
the discount rate used in the analysis.
areinvested
zero rate at:
of return.
q
C) the rate of return on the company's debt.
D) the internal rate of return on the project.
7. The evaluation of an investment having uneven cash flows using the payback
method:
A) cannot be done.
nearbedone only by matching cash inflows and investment outflows on a year-bybasis.
C) requires the use of a sophisticated calculator or computer software.
D) will product essentially the same results as those obtained through the use of
discounted cash flow techniques.
8. (Ignore income taxes in this problem.) The Baker Company purchased a piece of
equipment with the following expected results:
Yearly
Useful net
life cash inflow
Salvage
value.
Internal rate
of return.
Discount rate..
$50,000
7years _,
-0- I/I I_q\
20%
16% _L0_-
/'_T
_
1_"/
B_he
.
initial cost of the equipment was:
180,250
) $300,100.
C) Cannot be determined from the information given.
D) $190,600.
9. (Ignore income taxes in this problem.) Denny Corporation is considering
replacing a technologically obsolete machine with a new state-of-the-art
numerically controlled machine. The new machine would cost $450,000 and
would have a ten-year useful life. Unfortunately, the new machine would have no
qa
_
7
va,
uee e ac in' w ',0,000
ooyea,
ttoo erate
maintain, but would save $100,000 per year in labor and other costs. The old
machine can be sold now for scrap for $50,000. The simple rate of return on the
new machine is closest to:
Y4_'-q
rT-O_
22.220/0.
_ .
...-r..r-F
-c) 20.00%.
__Oh_,.A
D) 7.78%.
_00_"
_'OtST_
10. (Ignore income taxes in this problem.) A piece of equipment has a cost of
$20,000. The equipment will provide cost savings of $3,500 each year for ten
years, after which time it will have a salvage value of $2,500. If the company's
discount rate is 12%, the equipment's net present value is:
A) $2,275.
,tm,-_$225). Oc_m_
_o,,:._
c_tS_580,z,_r--,O \ _._
D) $17,500.
,7-_._?_t_
_0
gr-\,o
6.t_
/'_<.,..o_O°4"_.
I_ _q_
,3_9
I I. Relay Corporation manufactures batons. Relay can manufacture 300,000 batons a
year at a variable cost of $750,000 and a fixed cost of $450,000. Based on Relay's
predictions for next year, 240,000 batons will be sold at the regular price of $5.00
each. In addition, a special order was placed for 60,000 batons to be sold at a 40%
discount off the regular price. Total fixed costs would be unaffected by this order.
By what amount would the company's net operating income be increased or
decreased as a result of the special order?
A) $36,000 increase.
_/_ _)._I
B) $180,000 increase.
$60,000 decrease.
_$30,000
increase.
12. Cardinal Company needs 20,000 units of a certain part to use in one of its
products. The following information is available:
Cost to Cardinal to make the part:
Direct materials
Direct labor
Variable manufacturing overhead.
Fixed manufacturing overhead
$4
16
8
. J_-_(
$38
aaa
Cost to buy the part from
the Oriole Company
$36
Oriole Company has offered to sell this part to Cardinal company for $36 each. If
Cardinal buys the part from Oriole instead of making it, Cardinal would not have
any use for the released capacity. In addition, 60% of the fixed manufacturing
overhead costs will continue regardless of what decision is made. Assume that
direct labor is an avoidable cost in this decision. In deciding whether to make or
buy the part, the total relevant costs to make the part are:
A) $760,000.
B) $560,000.
(_
$720,000.
$640,000.
13. (Ignore income taxes in this problem.) Jarvey Company is studying a project that
would have a ten-year life and would require a $450,000 investment in equipment
that has no salvage value. The project would provide net income each year as
follows for the life of the project:
Sales
Less cash variable expenses
Contribution margin
Less fixed expenses:
Fixed cash expenses
Depreciation expenses
Net income
$500,000
200 000
300,000
$150,000
45,000
195 000
$105,000
aaaaaaa
The company's required rate of return is 12%. What is the payback period for this
project?
A) 9 years
B) 4.28 years
3 years
D) 2 years
14. (Ignore income taxes in this problem.) Horn Corporation is considering inx_esting
in a four-year project. Cash inflows from the project are expected to be as
follows: Year 1, $2,000; Year 2, $2,200; Year 3, $2,400; Year 4, $2,600. If using
a discount rate of 8%, the project has a positive net present value of $500, what
(_vas
the amount of the original investment?
7,054.
B) $2,411.
C) $8,054.
D) $1,411.
Use the following to answer question 15:
Hadley, Inc. makes a line of bathroom accessories. Because of a decline in sales, the
company has 10,000 machine hours of idle capacity available each year. This idle
capacity could be used by the company to make, rather than buy, one of the components
used in its production process. Hadley needs 5,000 units of this component each year. At
present, the component is being purchased from an outside supplier at $7.50 per unit.
Variable production cost for the component would be $4.10 per unit, and additional
supervisory costs would be $18,000 per year. Already existing fixed costs that would be
allocated to this part amount to $300,000 per year.
15. The change in the company's overall armual net operating income that would
result from making the component, rather than buying it, would be:
A) $14,000 decrease.
B) $5,000 increase.
C) $1,000 decrease.
D) $17,000 increase.
Use the following to answer question 16:
Brown Company makes four products in a single facility. These products have the
following unit product costs:
.Product
A
B
C
Direct materials
$15.60
$19.50
$12.50
Direct labor
17.60
21.00
15.40
Variable manufacturing overhead 4.40
5.60
8.10
Fixed manufacturing overhead 27.50
14.40
14.50
Unit product cost
$65.10
$60.50
$50.50
aaaaa
aaaaa
aaaaa
Additional data concerning these products are listed below.
A
Grinding minutes per unit
Selling price per unit
Variable selling cost per unit
Monthly demand in units
2.00
$78.70
$2.60
3,000
B
1.10
$71.10
$3.10
2,000
Product
C
0.70
$67.90
$2.80
2,000
D
$15.20
9.40
5.10
16.50
$46.20
aaaaa
D
0.30
$62.60
$3.50
4,000
The grinding machines are potentially the constraint in the production facility. A total of
10,500 minutes are available per month on these machines.
Direct labor is a variable cost in this company.
16.
A)
B)
_ C)
D)
Which product makes the LEAST profitable use of the grinding machines?
Product D
Product C
Product A
Product B
17. (Ignore income taxes in this problem.) A planned factory expansion project has an
estimated initial cost of $800,000. Using a discount rate of 20%, the present value
of future cost savings from the expansion is $843,000. To yield exactly a 20%
internal rate of return, the actual investment cost cannot exceed the $800,000
estimate by more than:
A) $160,000.
B) $1,075.
C) $43,000.
D) $20,000.
18. Which of the following is not an effective way of dealing with a production
constraint (i.e., bottleneck)?
A) Subcontract work that would otherwise required use of the bottleneck.
B) Pay overtime to workers assigned to work stations located after the bottleneck in
the production process.
C) Reduce the number of defective units produced at the bottleneck.
D) Pay overtime to workers assigned to the bottleneck.
Answer Key -- sample fin04
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
D
A
B
C
B
A
B
A
B
C
D
D
C
A
C
C
C
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