REVIEW FOR FINAL EXAM WITH ANSWERS 1 Chapter 10 1. Which of the following statements is true of managerial accounting? a. Reporting under managerial accounting is constrained by rules such as generally accepted accounting principles. b. Managerial accounting is required to be reported annually, also may be reported monthly or quarterly. c. Managerial accounting provides information to the external stakeholders of the company. d. Managerial accounting is primarily concerned with generating information for use by managers. 2 1. Which of the following statements is true of managerial accounting? a. Reporting under managerial accounting is constrained by rules such as generally accepted accounting principles. b. Managerial accounting is required to be reported annually, also may be reported monthly or quarterly. c. Managerial accounting provides information to the external stakeholders of the company. d. Managerial accounting is primarily concerned with generating information for use by managers. 3 2. Which of the following best explains a job order cost system? a. It provides product costs for each manufacturing department or process. b. It is often used by companies that manufacture custom products for customers or batches of similar products. c. It is often used by companies that manufacture units of a product that are indistinguishable from each other. d. It is used by companies that manufacture units of a product using a continuous production process. 4 2. Which of the following best explains a job order cost system? a. It provides product costs for each manufacturing department or process. b. It is often used by companies that manufacture custom products for customers or batches of similar products. c. It is often used by companies that manufacture units of a product that are indistinguishable from each other. d. It is used by companies that manufacture units of a product using a continuous production process. 5 3. The recording of the jobs completed would increase: a. b. c. d. Factory Overhead. Finished Goods. Work-in-Process. Cost of Goods Sold. 6 3. The recording of the jobs completed would increase: a. b. c. d. Factory Overhead. Finished Goods. Work-in-Process. Cost of Goods Sold. 7 4. The cost of wages paid to employees directly involved in the manufacturing process of converting materials into finished product is classified as: a. b. c. d. factory overhead cost. direct labor cost. wages expense. direct materials cost. 8 4. The cost of wages paid to employees directly involved in the manufacturing process of converting materials into finished product is classified as: a. b. c. d. factory overhead cost. direct labor cost. wages expense. direct materials cost. 9 5. If the cost of direct materials is not a significant portion of the total product cost, it may be classified as: a. b. c. d. direct labor costs. selling and administrative costs. miscellaneous costs. factory overhead costs. 10 5. If the cost of direct materials is not a significant portion of the total product cost, it may be classified as: a. b. c. d. direct labor costs. selling and administrative costs. miscellaneous costs. factory overhead costs. 11 6. Which of the following manufacturing costs is an indirect cost of producing a product? a. b. c. d. Oil lubricants used for factory machinery Commissions for sales personnel Hourly wages of an assembly worker Memory chips for a microcomputer manufacturer 12 6. Which of the following manufacturing costs is an indirect cost of producing a product? a. b. c. d. Oil lubricants used for factory machinery Commissions for sales personnel Hourly wages of an assembly worker Memory chips for a microcomputer manufacturer 13 7. Which of the following is most likely a period cost? a. b. c. d. Depreciation on factory lunchroom furniture Salary of telephone receptionist in the sales office Salary of a security guard for the factory parking lot Computer chips used by a computer manufacturer 14 7. Which of the following is most likely a period cost? a. b. c. d. Depreciation on factory lunchroom furniture Salary of telephone receptionist in the sales office Salary of a security guard for the factory parking lot Computer chips used by a computer manufacturer 15 8. Loise Inc., a manufacturing company, forecasts that total overhead for the current year will be $19,250,000, and total machine hours will be 350,000 hours. However, the actual overhead is $6,095,000, and the actual machine hours are 142,000 hours. If the company uses a predetermined overhead rate based on machine hours for applying overhead, what is the predetermined overhead rate? a. b. c. d. $23 per machine hour $192 per machine hour $55 per machine hour $43 per machine hour 16 8. Loise Inc., a manufacturing company, forecasts that total overhead for the current year will be $19,250,000, and total machine hours will be 350,000 hours. However, the actual overhead is $6,095,000, and the actual machine hours are 142,000 hours. If the company uses a predetermined overhead rate based on machine hours for applying overhead, what is the predetermined overhead rate? a. b. c. d. $23 per machine hour $192 per machine hour $55 per machine hour $43 per machine hour Predetermined overhead rate = 19,250,000 / 350,000 = $55 per machine hour How is it Applied to overhead: If Job used 100 machine hours = $55 x 100 machine hours = $5,500 17 CHAPTER 11 9. Which of the following statements is true regarding fixed and variable costs? a. b. c. d. Both costs are constant when considered on a per-unit basis. Both costs are constant when considered on a total basis. Fixed costs are fixed in total, and variable costs are fixed per unit. Variable costs are fixed in total, and fixed costs vary in total. 18 9. Which of the following statements is true regarding fixed and variable costs? a. b. c. unit. d. Both costs are constant when considered on a per-unit basis. Both costs are constant when considered on a total basis. Fixed costs are fixed in total, and variable costs are fixed per Variable costs are fixed in total, and fixed costs vary in total. 19 10. The following information is given for the maintenance department of Goldenrod Co. Calculate the variable costs per unit using the high-low method. Cost Production in units July $2,100 14,000 August 1,000 9,000 September 1,800 10,000 October 4,000 21,000 a. b. c. d. $0.17 $0.11 $0.25 $4.00 20 10. The following information is given for the maintenance department of Goldenrod Co. Calculate the variable costs per unit using the high-low method. Cost Production in units July $2,100 14,000 August 1,000 9,000 September 1,800 10,000 October 4,000 21,000 a. $0.17 b. $0.11 c. $0.25 d. $4.00 HIGH-LOW Method Variable Cost per Unit = High Cost 4.000 Low Cost 1,000 Difference, Cost 3,000 Difference in Total Cost Difference in Production = 3,000 12,000 High Production 21,000 Low Production 9,000 Difference, Production 12,000 = $0.25 21 11. Sales amount to $774,000, variable costs are 59% of sales, and fixed cost is $120,000. What is the contribution margin ratio? a. b. c. d. 37.0% 25.5% 39.0% 41.0% 22 11. Sales amount to $774,000, variable costs are 59% of sales, and fixed cost is $120,000. What is the contribution margin ratio? a. 37.0% b. 25.5% c. 39.0% d. 41.0% Contribution Margin = = Sales – Variable Costs 774,000 – (774,000 x 0.59) = 774,000 – 456,660 = 317,340 Contribution Margin Ratio = Contribution Margin Sales = 317,340 = 41% 774,000 23 12.Variable costs as a percentage of sales for Protoveo Inc. are 65%, sales are $500,000, and fixed costs are $125,000. How much would operating income change if sales decrease by $10,000? a. b. c. d. $3,500 increase $3,500 decrease $3,250 decrease $1,000 decrease 24 12. Variable costs as a percentage of sales for Protoveo Inc. are 65%, sales are $500,000, and fixed costs are $125,000. How much would operating income change if sales decrease by $10,000? a. b. c. d. $3,500 increase $3,500 decrease $3,250 decrease $1,000 decrease Change in Operating Income = Change in Sales Dollars x Contribution Margin Ratio Contribution Margin Ratio = Contribution Margin Sales Contribution Margin = = Sales – Variable Costs $500,000 - (500,000 x .65) = 500,000 – 325,000 = $175,000 Contribution Margin Ratio = $175,000 / $500,000 = 35% Change in Operating Income = -10,000 x 35% = - $3,500 25 13. A company operated at 82% of its capacity for the past year. Fixed costs during this time were $152,000, variable costs were 60% of sales, and sales were $790,000. Calculate the company's operating profit. a. b. c. d. $97,000 $185,000 $56,000 $164,000 26 13. A company operated at 82% of its capacity for the past year. Fixed costs during this time were $152,000, variable costs were 60% of sales, and sales were $790,000. Calculate the company's operating profit. a. b. c. d. $97,000 $185,000 $56,000 $164,000 Operating Income = = = = Sales – Variable costs – $790,000 - (790,000 x 0.60) $790,000 - 474,000 - 152,000 $164,000 Fixed Costs 152,000 27 14.If variable costs per unit decreased because of a decrease in utility rates, the break-even point would: a. decrease. b. increase. c. remain the same. d. increase or decrease, depending upon the percentage increase in utility rates. 28 14.If variable costs per unit decreased because of a decrease in utility rates, the break-even point would: a. decrease. b. increase. c. remain the same. d. increase or decrease, depending upon the percentage increase in utility rates. 29 15.Calculate break-even sales (in units) when fixed cost is $216,000, unit selling price is $120, and unit variable cost is $60. a. b. c. d. 4,100 units 1,800 units 3,400 units 3,600 units 30 15. Calculate break-even sales (in units) when fixed cost is $216,000, unit selling price is $120, and unit variable cost is $60. a. 4,100 units b. 1,800 units c. 3,400 units d. 3,600 units Break-Even Sales (units) = Fixed Costs Unit Contribution Margin Unit Contribution Margin = = Sales Price per Unit – Variable Cost per Unit $120 - 60 = $60 Break-Even Sales (units) = $216,000 $60 = 3,600 Units 31 16.Snower Corporation sells product G for $150 per unit, the variable cost per unit is $105, and the fixed costs are $720,000. What is the sales (in dollars) required to realize operating income of $40,000? a. b. c. d. $2,533,333 $1,773,333 $2,400,000 $1,680,000 32 16. Snower Corporation sells product G for $150 per unit, the variable cost per unit is $105, and the fixed costs are $720,000. What is the sales (in dollars) required to realize operating income of $40,000? a. $2,533,333 b. $1,773,333 c. $2,400,000 d. $1,680,000 To Obtain a Target Profit ($$$$) = Fixed Costs + Target Profit Contribution Margin Ratio Contribution Margin Ratio = Unit Contribution Margin Unit Selling Price Unit Contribution Margin = = = Sales Price per Unit – Variable Cost per Unit $150 105 $45 Contribution Margin Ratio = $45 / $150 To Obtain a Target Profit ($$$$) = $720,000 + $40,000 0.30 = 30% = 760,000 = 0.30 $2,533,333 33 17. Clinton Co. has an operating leverage of 4. Sales are expected to increase by 8% next year. Operating income is: a. b. c. d. unaffected. expected to increase by 2%. expected to increase by 32%. expected to increase by 4 times. 34 17. Clinton Co. has an operating leverage of 4. Sales are expected to increase by 8% next year. Operating income is: a. b. c. d. unaffected. expected to increase by 2%. expected to increase by 32%. expected to increase by 4 times. Percent Change in Operating Income = Percent Change in Sales x Operating Leverage = 8% X 4 = 32% How to calculate Operating Leverage??? Operating Leverage = Contribution Margin Operating Income 35 CHAPTER 12 18.Differential analysis focuses on: a. setting the selling price according to the demand for the product. b. reducing the influence of constraints on production processes. c. setting the selling price according to the price offered by competitors. d. the effect of alternative courses of action on revenues and costs. 36 18.Differential analysis focuses on: a. setting the selling price according to the demand for the product. b. reducing the influence of constraints on production processes. c. setting the selling price according to the price offered by competitors. d. the effect of alternative courses of action on revenues and costs. 37 19. Max, Inc. can sell a large piece of machinery for $90,000. The machinery originally cost $240,000 and has accumulated depreciation of $130,000. Max will have to pay a 5% sales commission on the sale. Rather than sell, Max is considering leasing the machine. It can be leased for 4 years for $24,000 per year. Max has estimated future operating expenses to be $3,000 per year, and Max will be responsible for those expenses. Which of the following options most accurately describes the analysis and decision for Max? a. Lease - because differential revenues are $6,000 if Max leases rather than sells b. Lease - because Max will lose $20,000 if it sells the equipment for less than its $110,000 book value c. Sell - because differential income of selling rather than leasing is $6,000 d. Sell - because differential loss is $1,500 if Max leases rather than sells 38 19. Max, Inc. can sell a large piece of machinery for $90,000. The machinery originally cost $240,000 and has accumulated depreciation of $130,000. Max will have to pay a 5% sales commission on the sale. Rather than sell, Max is considering leasing the machine. It can be leased for 4 years for $24,000 per year. Max has estimated future operating expenses to be $3,000 per year, and Max will be responsible for those expenses. Which of the following options most accurately describes the analysis and decision for Max? a. Lease - because differential revenues are $6,000 if Max leases rather than sells b. Lease - because Max will lose $20,000 if it sells the equipment for less than its $110,000 book value c. Sell - because differential income of selling rather than leasing is $6,000 d. Sell - because differential loss is $1,500 if Max leases rather than sells Differential Revenue from alternatives: Revenue from lease $96,000 Revenue from sale 90,000 Differential Revenue from lease $6,000 Differential cost of alternatives: Future op exp from lease 12,000 Commission exp on sale (90,000x5%) 4,500 Differential Cost of lease: - 7,500 Net Differential Income(Loss) from the lease alternative - 1,500 39 20. The condensed income statement for a business for the past year is as follows: Product A B Sales $800,000 $550,000 Less variable costs 720,000 430,000 Contribution margin $ 80,000 $120,000 Less fixed costs 125,000 45,000 Income(Loss) from operations $(45,000) $ 75,000 Management is considering the discontinuance of the manufacture and sale of Product A at the beginning of the current year. The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Product B. What is the amount of change in net income for the current year that will result from the discontinuance of Product A? a. b. c. d. $80,000 increase $45,000 increase $45,000 decrease $80,000 decrease 40 20. The condensed income statement for a business for the past year is as follows: Product A B Sales $800,000 $550,000 Less variable costs 720,000 430,000 Contribution margin $ 80,000 $120,000 Less fixed costs 125,000 45,000 Income(Loss) from operations $(45,000) $ 75,000 Management is considering the discontinuance of the manufacture and sale of Product A at the beginning of the current year. The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Product B. What is the amount of change in net income for the current year that will result from the discontinuance of Product A? a. $80,000 increase b. $45,000 increase c. $45,000 decrease d. $80,000 decrease Discontinuing a Product, eliminates the product’s variable cost. It does not eliminate fixed cost. Sales $800,000 – Variable Costs 720,000 = $80,000 decrease 41 21. Frank Co. is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for $25 unit. The unit cost for Frank Co. to make the part is $30, which includes $3 of fixed costs. If 20,000 units of the part are normally purchased each year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease for making the part rather than purchasing it? a. b. c. d. $60,000 decrease $40,000 decrease $40,000 increase $60,000 increase 42 21. Frank Co. is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for $25 unit. The unit cost for Frank Co. to make the part is $30, which includes $3 of fixed costs. If 20,000 units of the part are normally purchased each year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease for making the part rather than purchasing it? a. $60,000 decrease b. $40,000 decrease c. $40,000 increase d. $60,000 increase Purchase Price Differential cost to manufacture $30 - 3 fixed cost Additional cost to Manufacture $25.00 27.00 - 2.00 x 20,000 = $40,000 increase 43 22. The revenue that is forgone from an alternative use of an asset is called a(n): a. b. c. d. opportunity cost. differential revenue. sunk cost. differential income. 44 22. The revenue that is forgone from an alternative use of an asset is called a(n): a. b. c. d. opportunity cost. differential revenue. sunk cost. differential income. 45 23. Granger Co. can further process Product B to produce Product C. Product B is currently selling for $55 per pound and costs $42 per pound to produce. Product C would sell for $82 per pound and would require an additional cost of $13 per pound to produce. What is the differential revenue of producing and selling Product C? a. b. c. d. $14 per pound $42 per pound $45 per pound $27 per pound 46 23. Granger Co. can further process Product B to produce Product C. Product B is currently selling for $55 per pound and costs $42 per pound to produce. Product C would sell for $82 per pound and would require an additional cost of $13 per pound to produce. What is the differential revenue of producing and selling Product C? a. $14 per pound b. $42 per pound c. $45 per pound d. $27 per pound Differential Revenue of Further Processing Product C Revenue $82 – Product B Revenue $55 = $27/pound 47 24. Yellco Inc., a toy manufacturer, provided the following information: Domestic unit sales price $70 Unit manufacturing costs: Variable 10 Fixed 8 The company has received an offer from an exporter for 9,000 units of toys at $60 per unit. The additional business is not expected to affect the normal production or domestic sales prices of Yellco Inc. What is the amount of gain or loss from acceptance of the offer? a. b. c. d. $450,000 $162,000 $378,000 $162,000 gain loss gain gain 48 24. Yellco Inc., a toy manufacturer, provided the following information: Domestic unit sales price $70 Unit manufacturing costs: Variable 10 Fixed 8 The company has received an offer from an exporter for 9,000 units of toys at $60 per unit. The additional business is not expected to affect the normal production or domestic sales prices of Yellco Inc. What is the amount of gain or loss from acceptance of the offer? a. $450,000 gain b. $162,000 loss c. $378,000 gain d. $162,000 gain Differential Revenue Differential Cost, Variable Differential Income $60 x 9,000 = $540,000 $10 x 9,000 = 90,000 $450,000 49 25. Blue Lights Co. uses the total cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 5,000 units are as follows: Fixed factory overhead cost $60,000 Fixed selling and administrative costs 120,000 Variable direct materials cost per unit 80 Variable direct labor cost per unit 150 Variable factory overhead cost per unit 50 Variable selling and administrative cost per unit 30 If the total cost markup percentage per unit is 5.5%, determine the selling price per unit of the company's product (rounded to 0 decimal point). a. b. c. d. $346 $730 $365 $327 50 25. Blue Lights Co. uses the total cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 5,000 units are as follows: Fixed factory overhead cost $60,000 Fixed selling and administrative costs 120,000 Variable direct materials cost per unit 80 Variable direct labor cost per unit 150 Variable factory overhead cost per unit 50 Variable selling and administrative cost per unit 30 If the total cost markup percentage per unit is 5.5%, determine the selling price per unit of the company's product (rounded to 0 decimal point). a. $346 b. $730 c. $365 d. $327 Determine Total Costs & Total Cost per unit. Add the Cost per Unit to (the % mark-up x total cost)= Selling Price Total Costs Variable ($80+150+50+30) x 5,000 = $310 x 5000 = 1,550,000 Fixed 60,000+120,000 180,000 Total Costs 1,730,000 Total Cost per Unit 1,730,000 / 5,000 = $346 per unit Selling Price $346 + (346 x 5.5%) = 346 + 19.03 = 365.03 51
