ACC256 - Review for Final
Comprehensive Multiple Choice
1.
If a company follows a practice of isolating variances at the earliest point in time, what would be the
appropriate time to isolate and recognize a direct material price variance?
A. When material is issued.
B. When material is purchased.
C. When material is used in production.
D. When production is completed.
2.
Which of the following is the most probable reason a company would experience an unfavorable labor
rate variance and a favorable labor efficiency variance?
A.
The mix of workers assigned to the particular job was heavily weighted towards the use of higher paid, experienced
individuals.
B.
The mix of workers assigned to the particular job was heavily weighted towards the use of new relatively low paid, unskilled
workers.
C.
Because of the production schedule, workers from other production areas were assigned to assist this particular process.
D. Defective materials caused more labor to be used in order to produce a standard unit.
3.
The Reedy Company uses a standard costing system. The following data are available for November:
Actual direct labor hours worked
5,800 hours
Standard direct labor rate
$9 per hour
Labor rate variance
$1,160 favorable
The actual direct labor rate for November is:
A. $9.20
B. $8.80
C. $8.90
D. $9.00
Use the following information for questions 4 & 5. Barrick Company has established a flexible budget for manufacturing overhead
based on direct labor-hours. Total budgeted costs at 200,000 direct labor-hours are as follows:
Variable costs (total):
Packing supplies ......................
Indirect labor.............................
Fixed costs (total):
Utilities ......................................
Rent ..........................................
Insurance..................................
$120,000
$180,000
$100,000
$ 40,000
$ 20,000
4.
At an activity level of 170,000 direct labor-hours, the flexible budget for factory overhead would show the budgeted amount for
utilities as:
A.
$ 85,000.
B.
$140,000.
C.
$160,000.
D.
$100,000.
5.
If Barrick Company plans to operate at 190,000 direct labor-hours during the next period, the flexible
budget would show indirect labor costs of:
A.
$171,000.
B.
$180,000.
C.
$114,000.
D.
$270,000.
6.
Consider the following three statements:
I. A profit center has control over both cost and revenues.
II. An investment center has control over invested funds, but not over costs and revenues.
III. A cost center has no control over sales.
Which statement(s) are correct?
A. Only I.
B. Only II.
C. Only I and II.
D. Only I and III.
1
7. A good example of a common cost which normally could not be allocated to products (a common fixed cost) on a segmented
income statement except on an arbitrary basis would be:
A. direct materials.
B. the product manager’s salary.
C. product advertising outlays.
D. salary of a corporation president.
Use the following information for Company A for questions 8 & 9.
Sales
$900,000
Net operating income
36,000
Stockholders’ equity
100,000
Average operating assets
180,000
Minimum required rate of return
15%
8.
Company A’s residual income is:
A. $24,000
B. $45,000
C. $21,000
D. $9,000
9.
Company A’s return on investment (ROI) is:
A. 36%
B. 20%
C. 15%
D. 4%
10. Which of the following is most relevant to a manufacturing equipment replacement decision?
A. Original cost of the old equipment.
B. A lump-sum write-off amount from the disposal of the old equipment.
C. Disposal value of the old equipment.
D. Gain or loss on the disposal of the old equipment.
11. Manico Company produces three products -- Xan, Yon, & Zen -- with the following characteristics:
Selling price per unit
Variable cost per unit
Contribution margin per unit
Machine hours per unit
Xan
$20 100%
60%
12
40%
$8
5
Yon
$16
12
$4
3
100%
75%
25%
Zen
$15 100%
40%
6
60%
$9
6
The company has only 2,000 machine-hours available each month. In what sequence should orders be filled if the company wants
to maximize its total contribution margin?
A. orders for Zen first, Xan second, and Yon third.
B. orders for Xan first, Zen second, and Yon third.
C. orders for Yon first, Xan second, and Zen third.
D. orders for Zen first and no orders for Xan or Yon.
12. The Cook Company has two divisions--Eastern and Western. The divisions have the following revenues and expenses:
Eastern
Western
Sales
$550,000
$500,000
Variable costs
275,000
200,000
Direct (Traceable) fixed costs
180,000
150,000
Allocated corporate costs
170,000
135,000
Net Income (Loss)
$(75,000)
$ 15,000
The management of Cook is considering the elimination of the Eastern Division. If the Eastern Division were eliminated, the direct
fixed costs associated with this division could be avoided. However, corporate costs would still be $305,000 in total. Given these
data, the elimination of the Eastern Division would result in an overall company net income (loss) of:
A. $15,000.
B. ($155,000).
C. ($75,000).
D. ($60,000).
2
13. A sunk cost is:
A. a cost that may be saved by not adopting an alternative.
B. a cost that may be shifted to the future with little or no effect on current operations.
C. a cost that cannot be avoided because it has already been incurred.
D. a cost which does not entail any dollar outlay but which is relevant to the decision-making
process.
14. When a decision is made among a number of alternatives, the lost revenue or contribution margin
from choosing one alternate over another is the:
A. Accrued benefit cost
B. Conversion cost
C. Opportunity cost
D. Unrealized cost
15. Property taxes on a manufacturing plant are an element of:
Conversion cost
Period cost
A.
Yes
No
B.
Yes
Yes
C.
No
Yes
D.
No
No
16. In decision making, managers use:
A. financial accounting information exclusively since it is more objective and precise due to wellestablished principles and conventions.
B. information regarding the organization as a whole rather than segments of the organization in
order to capture a broader perspective of the company's operations.
C. information that is as precise as humanly possible.
D. whatever information is relevant to the decision even though the information may not conform to
generally accepted accounting principles.
17. The Work in Process inventory account of a manufacturing firm shows a balance of $3,000 at the end
of an accounting period. The job cost sheets of two uncompleted jobs show charges of $500 and
$300 for materials, and charges of $400 and $600 for direct labor. From this information, it appears
that the company is using a predetermined overhead rate, as a percentage of direct labor costs, of:
A.
83%.
B.
120%.
C.
40%.
D.
300%.
18.
Last month a manufacturing company had the following operating results:
Beginning finished goods inventory ......................
Ending finished goods inventory ...........................
Sales .....................................................................
Gross margin ........................................................
What was the cost of goods manufactured for the month?
A.
$426,000
B.
$374,000
C.
$351,000
D.
$397,000
$77,000
$54,000
$449,000
$75,000
19. Johansen Company uses a predetermined overhead rate based on direct labor hours to apply
manufacturing overhead to jobs. The company has provided the following estimated costs for the
next year:
Direct materials ....................................................
$ 6,000
Direct labor ..........................................................
20,000
Rent on factory building .......................................
15,000
Sales salaries ......................................................
25,000
Depreciation on factory equipment ......................
8,000
Indirect labor ........................................................
12,000
Production supervisor’s salary .............................
15,000
Johansen estimates that 20,000 direct labor hours will be worked during the year. The predetermined overhead rate per hour
will be:
A.
$2.50.
B.
$3.50.
C.
$3.75.
D.
$5.05.
3
20. Which of the following is the appropriate formula to calculate a predetermined overhead rate:
a. actual overhead divided by budgeted (planned) activity
b. budgeted overhead divided by budgeted activity
c. actual overhead divided by actual activity
d. budgeted overhead divided by budgeted activity
21. When the activity level is expected to decline within the relevant range, what effects would be anticipated with respect to each of
the following?
Fixed cost
Variable cost
per unit
per unit
A.
Increase
No change
B.
Increase
Increase
C.
No change
No change
D.
No change
Increase
22.
Activity-based costing, as compared to traditional costing:
A. is a simpler, cheaper way to apply overhead costs
B. uses more cost pools, but fewer predetermined overhead rates
C. results in product costs that more closely reflect the overhead resources consumed in the
products’ production
D. is applied to period rather than product costs
23. Nomb Corporation manufactures a variety of products and uses an activity-based costing system for
manufacturing overhead costs with three activity cost pools. Information on these cost pools for next
year are as follows:
Estimated
Estimated
Activity Cost Pool
Activity Measure
Activity
Overhead Cost
Machine Setups ..................
Number of setups
400
$150,000
Quality Control ....................
Number of inspections
1,500
$180,000
Other Overhead ..................
Machine hours
30,000
$480,000
Information (on a per unit basis) related to Model #36 are as follows:
Model #36
Direct material cost .................................
$540
Direct labor cost ......................................
$600
Number of setups....................................
3
Number of inspections ............................
3
Number of machine hours .......................
8
Under the activity-based costing system, what would be the cost of one unit of Model #36?
A.
$1,140
B.
$1,154
C.
$1,651
D.
$2,753
Use the following to answer question 24. Stewart Company is attempting to classify costs according to their cost behavior. Data
concerning activity and costs are listed below:
January
February
Sales in units................
1,200
1,400
Supplies .......................
Insurance .....................
Advertising ...................
$750
800
900
$790
800
1,050
24. The costs that Stewart Company would classify as variable would be:
A.
supplies.
B.
insurance.
C.
advertising.
D.
supplies and advertising
4
25. The t-accounts shown below represent which transaction:
WIP
FG
100
A.
B.
C.
D.
100
Requisition of Raw Materials into production
Completion of work in process
Sale of finished goods
Application of overhead
26.The margin of safety is:
A.
the excess of budgeted or actual sales over budgeted or actual variable expenses.
B.
the excess of budgeted or actual sales over budgeted or actual fixed expenses.
C.
the excess of budgeted or actual sales over the break-even volume of sales.
D.
the excess of budgeted net operating income over actual net operating income.
27. During March, Adams Company had sales of $5,000,000, variable expenses of $3,000,000, and fixed
expenses of $1,500,000. Assume that cost behavior and unit selling price remain unchanged during
April. In order for the company to realize net operating income of $300,000 for April, sales would have
to be:
A.
$3,750,000.
B.
$4,050,000.
C.
$4,500,000.
D.
$4,800,000.
28. Rider Company sells a single product. The product has a selling price of $40 per unit and variable
expenses of $15 per unit. The company's fixed expenses total $30,000 per year. The company's
break-even point in terms of total dollar sales is:
A.
$100,000.
B.
$80,000.
C.
$60,000.
D.
$48,000.
29. Last month, when 10,000 units of a product were manufactured, the cost per unit was $60. At this
level of activity, variable costs are 50% of the total unit costs. If 10,500 units are manufactured next
month and cost behavior patterns remain unchanged, the:
A. total variable cost will remain unchanged.
B. total cost per unit will decrease.
C. fixed costs will increase in total.
D. variable cost per unit will increase.
30. Assume that a firm can sell 10,000 units of a product and that the variable expenses are $2 per unit.
Fixed expenses are $20,000, and the firm wishes to earn a net income of $10,000. What price must the firm be able to charge?
A. $5 per unit.
B. $4 per unit.
C. $3 per unit.
D. $2 per unit.
31. For sales beyond the break-even point:
A. variable expenses will remain constant in total.
B. the contribution margin ratio begins to decrease.
C. the total contribution margin changes from negative to positive.
D. net income will increase by the unit contribution margin for each additional item sold.
5
32. Golden Restaurant would like to estimate the variable and fixed components of its utilities cost and has compiled the following data
for the last five months of operations.
Month
December
January
February
March
April
Meals Served
550
300
250
400
600
Utilities Costs
$40,100
36,000
34,750
38,550
41,400
Using the high-low method of analysis, the estimated variable utilities cost per meal served is:
A. $ 22
B. $ 19
C. $ 73
D. $ 69
33. A method of budgeting where, as quarter 1 of year 1 is completed, the firm immediately budgets for quarter 1 of year 2, is called:
A. operational budgeting.
B. continuous or rolling budgeting.
C. responsibility accounting.
D. zero-based budgeting.
34. The Ross Company has budgeted production for next year as follows:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Production in units
10,000
12,000
16,000
14,000
Four (4) pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year totals 4,000 lbs.
The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs. Budgeted
purchases of raw materials in the second quarter would be:
A. 54,400 lbs.
B. 56,800 lbs.
C. 49,600 lbs
D. 48,000 lbs.
Use the following to answer questions 35 & 36:The Khaki Company has the following budgeted sales data:
January
February
March
April
Credit sales ...............
$400,000
$350,000
$300,000
$320,000
Cash sales ................
$70,000
$90,000
$80,000
$70,000
The regular pattern of collection of credit sales is 40% in the month of sale and 60% in the month following sale. There are no bad
debts.
35. The budgeted cash receipts for April would be:
A.
$308,000.
B.
$250,000.
C.
$378,000.
D.
$384,000.
36. The budgeted accounts receivable balance on February 28 would be:
A.
$128,000.
B.
$192,000.
C.
$210,000.
D.
$234,000.
37.Using the following data for April, calculate the cost of goods manufactured:
Direct materials .............................................................. Direct
$23,000
materials
Direct labor..................................................................... $21,000
Manufacturing overhead ................................................ $37,000
Beginning work in process inventory .............................. $13,000
Ending work in process inventory .................................. $18,000
The cost of goods manufactured was:
A.
$81,000.
B.
$76,000.
C.
$94,000.
D.
$86,000.
6
38. Freestone Company is considering renting Machine Y to replace Machine X. It is expected that Y will
waste less direct materials than does X. If Y is rented, X will be sold on the open market. For this decision, which of the following
factors is (are) relevant?
I.
Cost of direct materials used
II.
Resale value of Machine X
A.
Only I
B.
Only II
C.
Both I and II
D.
Neither I nor II
39. Which of the following types of costs would be directly attributable to a segment?
A.
Variable costs of the segment
B.
Indirect costs of the segment
C.
Common Fixed costs
D.
Sunk costs
40. Costs that are significant in the decision-making process but are NOT recorded in the accounting
records are:
A. Opportunity costs
B. Differential costs
C. Sunk costs
D.
Overhead costs
Review Problems:
P1
Material Variances
Harmon Household Products, Inc. manufactures a number of consumer items for general household use. One of
these products, a chopping board, requires an expensive hardwood. During a recent month, the company
manufactured 4,000 chopping boards using 11,000 board feet of hardwood. The hardwood cost the company
$18,700. The company’s standards for one chopping board are 2.5 board feet of hardwood, at a cost of $1.80 per
board foot.
Required:
1.
What cost for wood should have been incurred to make 4,000 chopping blocks?
2.
Compute the materials price variance, the materials quantity variance and the total variance.
7
P2
Direct Labor Variances
AirMeals, Inc., prepares in-flight meals for a number of major airlines. One of the company’s products is stuffed
cannelloni with roasted pepper sauce, fresh baby corn, and spring salad. During the most recent week, the
company prepared 6,000 of these meals using 1,150 direct labor hours. The company paid these direct labor
workers a total of $11,500 for this work, or $10 per hour.
According to the standard cost card for this meal, it should require 0.20 direct labor hours at a cost of $9.50 per
hour.
Required:
1.
What direct labor cost should have been incurred to prepare 6,000 meals?
2.
P3
Compute the labor rate variance, labor efficiency variance, and a total variance.
Measures of Internal Business Process Performance
Lipex, Ltd., of Birmingham, England, is interested in cutting the amount of time between when a customer places
an order and when the order is completed. For the first quarter of the year, the following data were reported:
Inspection time
Process time
Wait time
Queue time
Move time
Required:
1.
0.5 days
2.8 days
16.0 days
4.0 days
0.7 days
Compute the throughput time.
2.
Compute the manufacturing cycle efficiency (MCE) for the quarter.
3.
What percentage of the throughput time was spent in non-value-added activities?
4.
Compute the delivery cycle time.
5.
If by using Lean Production all queue time can be eliminated in production, what will be the new MCE?
8
P4
Standard Cost Variance Analysis:
Alpha Company produces toys for national distribution. The standard cost card for one of its products shows the
following:
Standard allowed
Direct Materials
Direct Labor
12 ozs. @ $0.56 per oz.
2 hrs. @ $5.50 per hr.
Standard
cost per unit
$6.72
11.00
During the month of December, Alpha produced 2,000 units of the product. Actual purchasing and production figures
for the month were:
Direct Materials Purchased:
28,000 ozs., at a total cost of $14,560
Direct Materials Used in Production:
27,000 ozs.
Direct Labor Incurred:
3,900 hrs. at a total cost of $22,425
REQUIRED: Compute the following standard cost variances and clearly indicate whether the variance is Favorable (F) or
Unfavorable (U). You must show your calculations to receive credit.
Materials Price Variance
Materials Quantity (Usage) Variance
Labor Rate Variance
Labor Efficiency Variance
9
P5
StoneWorks is a company that sells tile. It has three profit centers: ceramic, stone and granite. Financial
information for the three centers for the year just ended follows:
Ceramic
Stone
Granite
Revenue ............................................................................ $100,000
$125,000
$150,000
Fixed costs:
Costs unique to the profit center .................................
30,000
45,000
64,000
Costs allocated by the retail store ..............................
6,000
7,000
8,000
Variable costs as a percentage of sales ...........................
40%
60%
60%
1.
Calculate each profit center’s contribution and segment margins and overall company profits. (I.e. Create a
contribution format, segmented income statement!)
P6
Job Costing
Prepare journal entries to record the following transactions:
1. Raw materials costing $20,000 were purchased on account
2. $6,000 of raw materials were requisitioned for use in production: $5,000 in direct materials and $1,000 in indirect
materials
3. Direct labor costs incurred but not paid were $7,000 for 1,000 direct labor hours
4. Sales travel costs were $4,000 paid in cash
5. Utility costs for the factory were $8,000, paid in cash
6. Overhead was applied to jobs at the rate of $6.50 per direct labor hour
7. Job J124 was completed at a cost of $1,500
8. Sales of $10,000 were made on account. These goods had a cost of $4,400 according to their job cost sheets
Debit
Credit
10
P7
Decentralization
1. The MEC Company has two divisions: the Computer division and the Printer division. Cost and revenue information for
the two divisions for the year is as follows:
Revenue ............................................................................
Fixed costs:
Costs unique to each division ...........................................
Costs allocated by corporate headquarters ......................
Variable cost per unit ........................................................
Unit sales of each division’s product .................................
Computer
Division
$1,100,000
Printer
Division
$750,000
450,000
50,000
7
75,000
375,000
70,000
6
52,000
Prepare a segment margin income statement showing each division’s contribution and segment margins and the
overall company profit.
11
P8
a.
Relevant Costs for Decision Making
The Mixedup Company makes two products, Carpet Polish and Floor Deodorizer. Operating information from the previous year is as follows:
Carpet Polish
Floor Deodorizer
Sales price per unit
$ 7.00
$ 10.00
Variable cost per unit
4.00
8.00
Units produced & sold
5,000
4,000
Machine hours used
5,000
2,000
Fixed costs of $20,000 per year are presently allocated evenly between both products. If the product mix were to change, total fixed costs would remain
the same. Assuming everything produced for either product can be sold, how many units of each product should be produced and sold if machine hours
are limited to 10,000?
b.
Sound Inc. reported the following results from the sale of 24,000 radios:
Sales
$528,000
Variable manufacturing costs
288,000
Fixed manufacturing costs
120,000
Variable selling costs
52,800
Fixed administration costs
35,200
Rhythm Co. has offered to purchase 3,000 radios at $16 each. Sound estimates approximately 5,000 units could be made with the capacity currently
available in the factory. The owner of Sound is in favor of accepting the order. She feels it would be profitable because no variable selling costs will be
incurred. The plant manager is opposed because his “full cost” of production is $17. What would the change in profit be if the special order is accepted?
P9
Relevant Costs for Decision Making
1.
Haynes Company has been approached by a new customer with an offer to purchase 1,500 units of Haynes’s product at a price of $8 each.
The new customer is geographically separated from Haynes’s customers, and there would be no effect on existing sales. Haynes normally produces
10,000 units but only plans to produce and sell 8,000 in the coming year. The normal sales price is $11.50 per unit. Unit cost information is as follows:
Direct Materials
$3.00
Direct Labor
1.60
Variable Overhead
1.30
Fixed Overhead
4.00
Unit Cost
$9.90
If Haynes accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity. However, the distribution
center at the warehouse is operating at full capacity and would need to add capacity costing $2,000.
Required: Determine the impact on the company’s profits if the special order is accepted.
2.
Garro Company is currently manufacturing part K9, producing 40,000 units annually. The part is used in the production of several products
made by Garro. The cost per unit for K9 is as follows:
Direct Materials
$14.00
Direct Labor
6.00
Variable Overhead
3.00
Fixed Overhead
5.00
Unit Cost
$28.00
Of the total fixed overhead assigned to K9, $160,000 is direct fixed overhead (the lease of production machinery and salary of a production line
supervisor – neither of which will be needed if the line is dropped). The remaining fixed overhead is common fixed overhead. An outside supplier has
offered to sell the part to Garro for $26. There is no alternative use for the facilities currently used to produce the part.
Required: Should Garro make or buy part K9? Show computations to support your answer.
12
ACC256 – Practice Exam for Final – SOLUTIONS
ANSWERS TO MULTIPLE CHOICE QUESTIONS:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
B
A
B
D
A
D
D
D
B
C
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
B
B
C
C
A
D
B
C
A
B
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
A
C
D
C
B
C
C
D
B
A
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
D
B
B
C
C
C
B
C
A
A
ANSWERS TO PROBLEMS:
P1
1. See below--$18,000
2.
Actual Quantity of Inputs, at
Actual Quantity of Inputs, at
Standard Quantity Allowed
Actual Price
Standard Price
for Output, at Standard Price
(AQ × AP)
(AQ × SP)
(SQ × SP)
$18,700
11,000 board feet × $1.80 per
10,000 board feet × $1.80
board foot
per board foot
= $19,800
= $18,000



Price Variance,
Quantity Variance,
$1,100 F
$1,800 U
Total Variance, $700 U
Alternatively:
Materials Price Variance = AQ (AP – SP)
11,000 board feet ($1.70 per board foot* – $1.80 per board foot) =
$1,100 F
*$18,700 ÷ 11,000 board feet = $1.70 per board foot.
Materials Quantity Variance = SP (AQ – SQ)
$1.80 per board foot (11,000 board feet – 10,000 board feet) =
$1,800 U
1. See below. $11,400
2.
Actual Hours of
Actual Hours of Input, at the
Standard Hours
Input, at the Actual Rate
Standard Rate
Allowed for Output, at the
13
Standard Rate
×
×
×
1,150 hours ×
1,150 hours ×
1,200 hours ×
$10.00 per hour
$9.50 per hour
$9.50 per hour
= $11,500
= $10,925
= $11,400



Rate Variance,
Efficiency Variance,
$575 U
$475 F
Total Variance, $100 U
Alternatively, the variances can be computed using the formulas:
Labor rate variance = AH(AR – SR)
= 1,150 hours ($10.00 per hour – $9.50 per hour)
= $575 U
Labor efficiency variance = SR(AH – SH)
= $9.50 per hour (1,150 hours – 1,200 hours)
= $475 F
P3
1. Throughput time
= Process time + Inspection time + Move time + Queue time
= 2.8 days + 0.5 days + 0.7 days + 4.0 days
= 8.0 days
2. Only process time is value-added time; therefore the manufacturing cycle efficiency (MCE) is:
MCE=
Value-added time 2.8 days
=
=0.35
Throughput time 8.0 days
3. If the MCE is 35%, then the complement of this figure, or 65% of the time, was spent in non-value-added activities.
4. Delivery cycle time
= Wait time + Throughput time
= 16.0 days + 8.0 days
= 24.0 days
5. If all queue time in production is eliminated, then the throughput time drops to only 4 days (0.5 + 2.8 + 0.7). The MCE
becomes:
MCE=
Value-added time 2.8 days
=
=0.70
Throughput time 4.0 days
Thus, the MCE increases to 70%. This exercise shows quite dramatically how the lean production approach can
improve operations and reduce throughput time.
14
P4
STANDARD COST VARIANCE ANALYSIS
MATERIALS PRICE VARIANCE:
MATERIALS QUANTITY VARIANCE
LABOR RATE VARIANCE
LABOR EFFICIENCY VARIANCE
$1,120 F
$1,680 U
$ 975 U
$ 550 F
P5
Segment Reporting & Decentralization
1.
Calculate each profit center’s contribution and segment margins and overall company profits.
Revenue
- Variable Costs
Contribution Margin.
- Traceable Fixed Costs
Segment Margin
- Common Fixed Costs
Net Income
P6
Total Company
$375,000
- 205,000
170,000
139,000
31,000
21,000
10,000
Ceramic
$100,000
- 40,000
60,000
30,000
30,000
Stone
$125,000
- 75,000
50,000
45,000
5,000
Granite
$150,000
- 90,000
60,000
64,000
(4,000)
Job costing
Debit
1
2
3
4
5
6
7
8
9
Raw Materials (RM) Inventory
Accounts Payable (A/P)
Credit
20,000
20,000
Work in Process (WIP) Inventory
Manufacturing Overhead (MOH)
RM Inventory
5,000
1,000
WIP Inventory
Wages Payable
7,000
Selling Expense
Cash
4,000
MOH
Cash
8.000
WIP Inventory
MOH
6,500
Finished Goods Inventory
WIP Inventory
1,500
6.000
7,000
4,000
8,000
6,500
1,500
Accounts Receivable
Sales Revenue
10,000
10,000
Cost of Goods Sold
Finished Goods Inventory
4,400
4,400
15
P7
Segment Reporting & Decentralization
1. Segment Income Statement
Total Company
Revenue
- Variable Costs
Contribution Margin
- Traceable Fixed Costs
Division (Segment) Margin
- Common Fixed Costs
Net Income
P8
$1,850,000
- 837,000
1,013,000
- 825,000
188,000
- 120,000
$ 68,000
Computer
Division
$1,100,000
- 525,000
575,000
- 450,000
125,000
Printer Division
$750,000
- 312,000
438,000
-375,000
63,000
Relevant Costs for Decision-Making
a.
CM per unit
Hrs required per unit
CM / machine hour
Carpet Polish
$3
1
$3
Floor Deodorizer
$2
0.5
$4
With no limit on demand, we would produce only the Floor Deodorizer
b.
Incremental Revenue
Incremental Costs
Incremental Income
P9
Per unit
$16
12
$4
Total (3,000 units)
$48,000
36,000
$12,000
Relevant Costs for Decision Making
1.
Incremental Revenue:
Incremental Costs:
Direct Materials
Direct Labor
Variable Overhead
Addl Warehouse Cost
Incremental Income if accepted
Per Unit
$ 8.00
Total (1,500 units)
$ 12,000
$3.00
1.60
1.30
1.33
$ .77
4,500
2,400
1,950
2,000
$ 1,150
2.
Incremental Cost to Buy:
Per Unit
$26.00
Total (40,000 units)
$1,040,000
$14.00
6.00
3.00
4.00
$27.00
$560,000
240,000
120,000
160,000
$1,080,000
Incremental Cost to Make:
Direct Materials
Direct Labor
Variable Overhead
Fixed Overhead
Total
Decision: Buying it is $40,000 cheaper ($1 per unit)
16