Test Bank for Fundamentals of Cost Accounting, 6th Edition, William Lanen, Shannon Anderson Michael by StudyGuide

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 1 Cost Accounting: Information for Decision Making 1) The value chain comprises activities from research and development through the production process but does not include activities related to the distribution of products or services. 2) Administrative functions are not included as part of the value chain because they are implicitly included in every business function. 3) Under the value chain concept, value-added activities are those that firms perform and that customers perceive as adding utility to the goods they purchase. 4) The value chain is comprised of the activities that take place only during the production process. 5) If a poor facility layout exists and work-in-process inventory must be moved during the production process, the company is likely to be performing value-added activities. 6) Cost information itself is a product with its own customers. 7) Financial accounting information is sufficient for making operational decisions. 8) Cost accounting information is commonly used in developing financial accounting information. 9) Financial accounting information is designed for decision-makers who are directly involved in the daily management of the firm. 10) It is more important for financial accounting information to be comparable between firms than to be useful for managerial decision-making. 11) Cost accounting information developed for managers to use in making decisions must comply with generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS). 12) A cost driver is a factor that causes costs. 13) A cost can be considered a differential cost for one particular course of action but not for another course of action. 14) A responsibility center can be a department, division, or segment, but not a subsidiary of the parent company. 15) It is important that the manager assigned to lead a responsibility center be held accountable for its operations. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

16) Budgeting is primarily used to determine year-end bonuses based on managerial and organizational performance. 17) Managers are usually responsible for the revenues needed to achieve the targets set during the budgeting process, but not the resources consumed to achieve those targets. 18) In general, if activities that do not add value to the company can be eliminated, then costs associated with them will also be eliminated. 19) Accounting systems are important because they are a primary source of information for managers. 20) Benchmarking is a continuous process of measuring a company's products, services, or activities against competitors' performance. 21) Activity-based costing (ABC) is a management tool that focuses on the continuous improvement of all dimensions of a business. 22) Lean manufacturing techniques are used only in the production process. 23) Typical ERP systems integrate information systems that link production, purchasing, human resources, and finance into a single comprehensive information system. 24) Managers face ethical situations on a daily basis, while accountants face them infrequently. 25) Compliance with Sarbanes-Oxley does not mean that the manager has met all of his or her ethical responsibilities. 26) Ethical behavior depends more on a firm's code of conduct than the individual's personal beliefs. 27) Cost accounting information can be used by managers to defraud customers, creditors, and owners. 28) The boundary between what is cost accounting and what belongs in another discipline is often blurred. 29) The set of activities that transforms raw resources into the goods and services end users purchase and consume is called the: A) value chain. B) supply chain. C) demand chain. D) cost-benefit analysis.

30) Which of the following activities would not be considered a value-added activity? A) Production B) Marketing C) Accounting D) Distribution 31) Which of the following statements is false? A) In essence, the value chain and the supply chain are similar; each creates something for which the customer is willing to pay. B) Financial accounting information is important because it is sufficient to provide all the information for operational decisions commonly made by managers. C) The supply or distribution chain is a linked set of organizations that exchange goods and services in combination to provide a final product or service to the customer. D) Eliminating nonvalue-added activities always reduces costs without affecting the value of the product to customers. 32) Managers do not make decisions about future events based on: A) Perfect information. B) Estimated information. C) Actual information. D) Financial information. 33) Which of the following is a nonvalue-added activity? A) Product design B) Customer service C) Research and development D) Rework of defective items 34) (CMA adapted) A costing method that first assigns costs to activities and then assigns them to products based on the products' consumption of those activities is: A) full-absorption costing. B) activity-based costing. C) variable costing. D) benchmarking. 35) (CMA adapted) Cost drivers are: A) activities that cause costs to increase as the activity increases. B) accounting techniques and practices used to control costs. C) accounting reimbursements used to evaluate whether performance is proceeding according to plan. D) a mechanical basis, such as machine hours, computer time, or factory square footage, used to assign costs to activities.

36) During 2020, the Beach Restaurant had sales revenues and food costs of $800,000 and $600,000, respectively. During 2021, Beach plans to introduce a new menu item that is expected to increase sales revenues by $100,000 and food costs by $40,000. Assuming no changes are expected for the other food items, operating profits for 2021 are expected to increase by: A) $260,000. B) $100,000. C) $60,000. D) $40,000. 37) (CMA adapted) The process of creating a financial plan of the revenues and resources needed to carry out activities and meet financial goals is referred to as: A) budgeting. B) benchmarking. C) cost-benefit analysis. D) value-added analysis. 38) The field of accounting that reports according to generally accepted accounting principles (GAAP) is called: A) cost accounting. B) financial accounting. C) managerial accounting. D) responsibility accounting. 39) The field of accounting that focuses on the criterion of relevant information rather than comparability of firms is: A) cost accounting. B) financial accounting. C) responsibility accounting. D) international accounting. 40) The just-in-time (JIT) method of production focuses on: A) increasing sales revenue. B) reducing inventories. C) increasing customer service. D) reducing operating expenses. 41) (CIA adapted) The primary reason for adopting total quality management (TQM) is to achieve: A) reduced delivery time. B) reduced delivery charges. C) greater customer satisfaction. D) greater employee participation.

42) According to the Institute of Management Accountants (IMA), the final step in resolving an ethical dilemma is to: A) consult your own attorney as to legal obligations and rights concerning the ethical conflict. B) clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethical Counselor, an appropriate and confidential ethics hotline, or other impartial advisor. C) consult with the local police. D) discuss the situation with an immediate supervisor. 43) According to the Institute of Management Accountants (IMA), the first step in resolving an ethical dilemma is to: A) consult your own attorney as to legal obligations and rights concerning the ethical conflict. B) call the IMA's ethics hotline. C) clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethical Counselor or other impartial advisor. D) discuss the situation with an immediate supervisor, except when it appears that the supervisor is involved, or with the next level supervisor if involvement of the immediate supervisor is suspected. 44) Which of the following is not one of the basic standards of the Institute of Management Accountants (IMA) Code of Ethics? A) Competence B) Confidentiality C) Honesty D) Integrity 45) Which of the following is not one of the overarching ethical principles of the Institute of Management Accountants (IMA) Code of Ethics? A) Competence B) Responsibility C) Honesty D) Objectivity 46) A general term for a metric that indicates how well an individual, business, product, or firm is working is called: A) a performance measure. B) benchmarking. C) a budget. D) a responsibility center. 47) The cost accounting system that minimizes wasteful or unnecessary transaction processes is: A) performance measure. B) benchmarking. C) budgeting. D) lean accounting.

48) The continual process of measuring a company's own products, services, or activities against competitors' performance is: A) performance measure. B) benchmarking. C) budgeting. D) responsibility center. 49) The costing method that first assigns costs to activities and then assigns them to products based on the products' consumption of activities is called: A) lean accounting. B) responsibility centers. C) activity-based costing. D) budgeting. 50) Having one or more of the firm's activities performed by another firm or individual in the supply or distribution chain is called: A) lean accounting. B) responsibility centers. C) activity-based costing. D) outsourcing. 51) Systems that identify the costs of producing defective units as well as low-quality items that lose sales are called: A) customer relationship management systems. B) distribution chains. C) enterprise resource planning systems. D) cost of quality systems. 52) Systems that allow firms to target profitable customers by assessing customer revenue and costs are called: A) customer relationship management systems. B) distribution chains. C) enterprise resource planning systems. D) cost of quality systems. 53) Information technology that links the various processes of the company into a single comprehensive information system is called: A) a customer relationship management system. B) a distribution chain. C) a cost of quality system. D) an enterprise resource planning system.

54) A management method by which the organization seeks to excel on all dimensions of quality is called: A) customer relationship management. B) a just-in-time method. C) total quality management. D) cost of quality. 55) Which of the following is not a key financial manager in an organization? A) Chief financial officer B) Treasurer C) External auditor D) Controller 56) Which of the following is not normally considered part of the value chain? A) Research and development B) Purchasing C) Administration D) Distribution 57) In 2020, the TransUnion Company had consulting revenues of $1,000,000 while costs were $750,000. In 2021, TransUnion will be introducing a new service that will generate $150,000 in sales revenues and $60,000 in costs. Assuming no changes are expected for the other services, operating profits are expected to increase between 2020 and 2021 by: A) $250,000. B) $150,000. C) $90,000. D) $60,000. 58) In 2020, the Merkel Company had revenues of $2,000,000 and costs of $1,500,000. During 2021, Merkel will be introducing a new product line that is expected to increase sales revenue by $200,000 and costs by $160,000. Assuming no changes are expected for the other products, the operating profits are expected to increase by: A) $540,000. B) $200,000. C) $160,000. D) $40,000. 59) Moving of inventory is an example of a(n): A) cost-benefit analysis. B) value-added activity. C) activity-based cost. D) nonvalue-added activity.

60) Costs that differ among or between two or more alternative courses of action are: A) differential costs. B) cost-benefit analysis. C) activity-based costs. D) cost drivers. 61) Which of the following activities would not be included in the value chain of a manufacturing company? A) Research and Development B) Customer Service C) Design D) Accounting 62) A firm's reply to customer questions via email would be an example of which component of the value chain? A) Customer Service B) Marketing C) Design D) Supply 63) The delivery of products or services to customers is an example of which element in the value chain? A) Production B) Design C) Marketing D) Distribution 64) Which of the following provides much of the information necessary for the coordination of the value chain? A) Distribution chain. B) Financial accounting system. C) Cost accounting system. D) Supply chain. 65) Advertising costs would be associated with which of the following value chain components? A) Production. B) Research and Development. C) Distribution. D) Marketing and sales. 66) Which part of the value chain is outside the firm? A) Design component B) Research and Development component C) Production activity D) Distribution chain 8 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

67) Which of the following statements regarding the value chain is true? A) Service firms benefit from the value chain more than manufacturing firms. B) Value chain components do not overlap. C) Value is not created until after the research and development stage. D) Administrative functions are not included as a separate component of the value chain. 68) Which of the following statements concerning the value chain is false? A) The goal of a value chain is to find areas where a company can either add value or reduce cost. B) The value chain focuses on the entire production process, as well as the sale of the product and service after the sale. C) If a company cannot compete in a specific area of the value chain, it might outsource that portion of the value chain to another entity which can perform it better. D) Successful firms are ones that operate within the entire value chain, thereby overseeing every aspect of the value chain for the customer. 69) Which of the following could be considered part of the value chain in a service firm? A) Inspection of product B) Advertising C) Raw materials D) Distribution 70) Place the four components in the order they appear along the value chain: A = Customer service; B = Design; C = Distribution; and D = Production. A) ABDC B) ACDB C) BDCA D) BADC 71) Managers evaluate value-added activities to determine how they contribute to the final product's: A) service only. B) quality only. C) cost only. D) service, quality, and cost. 72) Which of the following is the best reason why cost accounting information does not need to be comparable to similar information in other organizations? A) Because it is only used by investors and creditors. B) Because no publicly traded companies use cost accounting. C) Because IFRS and cost accounting are converging which eliminates the need for comparability. D) Because managers that use this information are making decisions only for their organization.

73) Financial accounting: A) focuses on the future. B) must comply with GAAP (generally accepted accounting principles). C) reports include detailed information on the various operating segments of the business. D) is prepared for the use of management. 74) The individual who would most likely use only financial accounting information in making decisions is a: A) vice president of marketing. B) factory supervisor. C) department manager. D) company shareholder. 75) The financial accounting system is the primary source of information for: A) decision making on the factory floor. B) improving the performance level of customer service. C) planning the budget for next year. D) preparing the income statement for shareholders. 76) Managerial decisions using cost accounting are more appropriate for which types of costs? A) future costs. B) historical costs. C) current costs. D) externally reported costs. 77) At the middle management level, where managers supervise work and make operating decisions, cost information highlights: A) the company's overall performance. B) comparability across firms. C) financial position and income according to accounting rules. D) some aspect of operations that is different from expectations. 78) Financial accounting provides a historical perspective, while cost accounting emphasizes: A) reporting to shareholders. B) a current perspective. C) the future. D) past transactions. 79) The concept of considering both the costs and benefits of a proposal is known as: A) cost-benefit analysis. B) performance measurement. C) nonvalue-added analysis. D) preparation of financial statements.

80) Departmental managers at Boswell Department Store are allowed considerable discretion in both sourcing and pricing of products, based on local tastes and competition, as well as being responsible for departmental staffing. Based on the concept of the responsibility center, which of the following would not be a performance measure that would be useful in evaluating the performance of departmental managers at the stores? A) Departmental profit compared to budgeted departmental profit. B) Trends in general and administrative expenses for each store. C) Growth in departmental sales compared to the prior period sales D) Departmental customer satisfaction. 81) Snuggle Toys, Inc. had the following summarized results for the month ending July 31: Revenues Costs Operating profits

Actual $ 60,000 53,600 $ 6,400

Budget $ 52,000 45,600 $ 6,400

As the cost accountant, which single statement related to the above financial results is most appropriate in the report to management? A) The departmental manager is performing to expectations because budgeted profits equals actual profits. B) Revenues are above budget and a bonus based on this increase should be considered. C) Costs as a percentage of revenues are above budget and a further scrutiny of the results might be appropriate. D) Costs are 17.5% above budget and the department manager's position should be critically evaluated by senior management. 82) CraftMaster Corporation purchased a machine 7 years ago for $339,000 when it launched product X05K. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 360 machine costing $353,000 or by a new model 280 machine costing $332,000. Management has decided to buy the model 280 machine. It has less capacity than the model 360 machine, but its capacity is sufficient to continue making product X05K. Management also considered, but rejected, the alternative of dropping product X05K and not replacing the old machine. If that were done, the $332,000 invested in the new machine could instead have been invested in a project that would have returned a total of $426,000. In making the decision to buy the model 280 machine rather than the model 360 machine, the differential cost was: A) $21,000. B) $87,000. C) $7,000. D) $14,000.

83) When comparing activity-based costing (ABC) with conventional costing methods, which of the following is the key benefit of the ABC method? A) It is cheaper to implement. B) It is based on only one or two factors, generally volume-related. C) It is simpler. D) It provides more accurate cost numbers. 84) Geno's Body Shop had sales revenues and operating costs in 2020 of $650,000 and $525,000, respectively. In 2021, Geno plans to expand the services it provides to customers to include detailing services. Revenues are expected to increase by $85,000 and operating costs by $50,000 as a result of this expansion. Assuming that there are no changes to the existing body shop business, operating profits would be expected to increase during 2021 by: A) $125,000. B) $85,000. C) $160,000. D) $35,000. 85) Geno's Body Shop had sales revenues and operating costs in 2020 of $650,000 and $525,000, respectively. In 2021, Geno plans to expand the services it provides to customers to include detailing services. Revenues are expected to increase by $85,000 and operating costs by $50,000 as a result of this expansion. Assuming that there are no changes to the existing body shop business, what is the amount of operating profits that are expected be earned in 2021? A) $125,000 B) $85,000 C) $160,000 D) $35,000 86) The goals and objectives of establishing budgeting in an organization include all of the following except: A) the ability to decide whether goals can be achieved. B) the resources needed to carry out its tasks. C) anticipated revenues to be generated. D) the consistent application of generally accepted accounting principles. 87) In 2020, the Allen Company had consulting revenues of $1,000,000, while operating costs were $750,000. In 2021, Allen will be introducing a new service that will generate $150,000 in sales revenues and $60,000 in operating costs. Assuming no changes are expected for the other services, the differential operating costs for 2021 will be: A) $250,000. B) $150,000. C) $90,000. D) $60,000.

88) In 2020, the Allen Company had consulting revenues of $1,000,000 while operating costs were $750,000. In 2021, Allen will be introducing a new service that will generate $150,000 in sales revenues and $60,000 in operating costs. Assuming no changes are expected for the other services, the differential revenue for 2021 will be: A) $250,000. B) $150,000. C) $90,000. D) $60,000. 89) San Juan, Inc. is considering two alternatives: A and B. The costs associated with the alternatives are listed below: Material costs Processing costs Building costs Equipment rental

Alternative A $ 35,000 36,000 12,000 19,000

Alternative B $ 57,000 57,000 28,000 19,000

Are the materials costs and processing costs differential in the choice between alternatives A and B? (Ignore the building costs and equipment rental in this question.) A) Neither materials costs nor processing costs are differential. B) Both materials costs and processing costs are differential. C) Only processing costs are differential. D) Only materials costs are differential. 90) San Juan, Inc. is considering two alternatives: A and B. The costs associated with the alternatives are listed below: Material costs Processing costs Building costs Equipment rental

Alternative A $ 35,000 36,000 12,000 19,000

Alternative B $ 57,000 57,000 28,000 19,000

If only the differential costs of the two decisions are considered, the total differential costs of Alternative B is: A) $161,000. B) $131,500. C) $59,000. D) $102,000.

91) Two alternatives, identified X and Y, are under consideration at Hayden Corporation. Costs associated with the alternatives are listed below. Material costs Processing costs Building costs Equipment rental

Alternative X $ 44,000 37,000 14,000 11,000

Alternative Y $ 56,000 59,000 14,000 11,000

Are the materials costs and processing costs differential in the choice between alternatives X and Y? (Ignore the building costs and equipment rental in this question.) A) Both materials costs and processing costs are differential. B) Only materials costs are differential. C) Only processing costs are differential. D) Neither materials costs nor processing costs are differential. 92) Two alternatives, identified X and Y, are under consideration at Hayden Corporation. Costs associated with the alternatives are listed below. Material costs Processing costs Building costs Equipment rental

Alternative X $ 44,000 37,000 14,000 11,000

Alternative Y $ 56,000 59,000 14,000 11,000

What is the total differential costs of Alternative Y over Alternative X? A) $140,000 B) $123,000 C) $34,000 D) $106,000 93) Marcus Roberts is putting together a training session about value chain components. Which of the following would be a good example of a cost for the component of purchasing? A) Advertising B) Warranty repairs C) Vendor certification D) Patent applications 94) Anna Potts is putting together a training session about value chain components. Which of the following would be a good example of a cost for the component of distribution? A) Advertising B) Warranty repairs C) Vendor certification D) Website creation, hosting, and maintenance

95) Megan Towe is putting together a training session about value chain components. Which of the following would be a good example of a cost for the component of research and development? A) Advertising B) Warranty repairs C) Vendor certification D) Patent applications 96) An Enterprise Resource Planning (ERP) System can best be described as: A) a collection of programs that use a variety of unconnected databases. B) a single database that collects data and feeds it into applications that support each of the company's business activities, such as purchases, production, distribution, and sales. C) a database that is primarily used by a purchasing department to determine the correct amount of a particular supply item to purchase. D) a sophisticated means of linking two or more companies to facilitate their planning processes. 97) The approaches and activities of managers in short-run and long-run planning and control decisions that increase value for customers and lower costs of products and services are known as: A) value chain management. B) enterprise resource planning. C) cost management. D) customer value management. 98) Research and development (R&D), production, and customer service are business functions that are all included as part of: A) the value chain. B) benchmarking. C) marketing. D) the supply chain. 99) All of the following words describe benchmarking except: A) ongoing. B) one-time event. C) continuous. D) measuring process. 100) All of the following are examples of total quality management (TQM) practices except: A) Redesigning a product to reduce its parts by 50 percent. B) Reducing the movement required in a manufacturing job. C) Separating the sales and services functions. D) Raising raw material quality standards.

101) Which area(s) of a business can be improved by using a just-in-time (JIT) system? A) Production, purchasing, and delivery. B) Production only. C) Purchasing only. D) Production and purchasing only. 102) Examples of the controller's functions include all except: A) cost accounting policies. B) budgeting. C) investor relations. D) general ledger. 103) Cost accounting is an integral part of the ________ function in an organization. A) treasurer's B) controller's C) internal auditor's D) president's 104) All of the following actions enhance the new focus on making cost accounting information more relevant in helping a firm achieve strategic goals except: A) increasing emphasis on the management accountant as a business partner. B) increasing emphasis on external financial reporting. C) decreasing emphasis on financial statement inventory cost valuation. D) increasing emphasis on timely and useful information. 105) Which of the following statements is false regarding total quality management (TQM)? A) The adoption of TQM means that the organization is managed to excel on all dimensions. B) The adoption of TQM means that the customer ultimately defines quality. C) With TQM, managers determine the company's performance standards according to what is important to them. D) TQM is a management method focused on quality for the customer. 106) The Institute of Management Accountants' (IMA) standards of ethical conduct for management accountants includes the elements of: A) competence, confidentiality, integrity, and relevance. B) competence, confidentiality, integrity, and credibility. C) competence, confidentiality, independence, and objectivity. D) competence, accuracy, integrity, and independence. 107) According to the IMA Code of Ethics, what should a management accountant do if a significant ethical situation can't be resolved? A) The accountant should confront the guilty party and demand the unethical action be stopped. B) The accountant should try to rationalize and understand the position of the other party. C) The accountant should say nothing about the matter until he or she has retired. D) The accountant should first discuss the matter with the immediate supervisor. 16 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

108) With the enactment of the Sarbanes-Oxley Act of 2002, CEOs and CFOs are now responsible for all of the following except: A) stipulating that the financial statements do not omit material information. B) attesting to the adequacy of the company's internal controls. C) attesting to the accuracy of the company's credit rating with the largest rating agencies. D) disclosing that they have notified the company's auditors and audit committee of any fraud that involves management. 109) The Sarbanes-Oxley Act of 2002 requires an effective internal control system for publicly owned firms. Therefore, with regards to strategic investment decisions, it is important that management consider including all of the following except: A) internal audits of strategic decisions. B) a code of ethics. C) a system of preparing and reporting on investment decisions. D) a system that limits information available to investors. 110) Where there is a lack of good performance measures, it is difficult to motivate managers by using: A) performance-based incentives. B) monetary rewards. C) compensation. D) rewards for products. 111) Which of the following is a false statement regarding cost information and ethical responsibilities? A) Compliance with Sarbanes-Oxley guarantees that a manager has met all of his or her ethical responsibilities. B) Sarbanes-Oxley is important for managers who design cost information systems. C) Managers must be aware of the potential that cost information could be misleading or support fraudulent activity. D) Managers need to understand that performance measurement and compensation systems can lead to unethical conduct.

112) Carley Inc. incurs many types of costs in its operations. Place the number of the appropriate stage in the value chain in Column 2 in the blank next to each cost in column 1. Cost ___ Transportation costs to ship vans to customers

Stage in the Value Chain 1. Customer Service

___ Labor costs for factory workers ___ Overtime costs for scientists working on new engine ___ technology ___ Utilities cost for the design testing center ___ Costs to survey customers about their satisfaction ___ Costs to sponsor a sporting event

2. Distribution 3. Research & Development 4. Marketing 5. Production 6. Design

113) SuperMax is an integrated provider of genetically engineered corn. Many types of costs are incurred in its operations. Place the number of the appropriate stage in the value chain in Column 2 in the blank next to each cost in column 1. Cost Warehouse costs to store seed awaiting shipment to customers Utility costs for seed mill Equipment costs in genetics laboratory Labor costs to staff help-line call center Costs to prepare advertising campaign in national agriculture magazine Costs to contract with growers to provide seed

Stage in the Value Chain 1. Customer Service 2. Distribution 3. Research & Development 4. Marketing 5. Production 6. Purchasing

114) Travon's Limo Service provides transportation services in and around Bentonville. Its profits have been declining, and management is planning to add a package delivery service that is expected to increase revenue by $275,000 per year. The total cost to lease additional delivery vehicles from the local dealer is $60,000 per year. The present manager will continue to supervise all services. However, labor and utilities costs will increase by 40% and rent and other costs will increase by 15% when the package delivery service is added.

a. Prepare a report of the differential costs and revenues if the delivery service is added. b. Should management start up the delivery service? Explain your answer. 115) Morris Inc. is a management consulting firm that specializes in management training programs. Tackle Manufacturing Inc. has approached Morris to contract for management training for a one-year period. Last year's income statement for Morris is as follows: Sales Revenue Costs: Labor Equipment Lease Rent Utilities Supplies Other Costs Manager's Salary Total Costs Operating Profit (Loss)

$ 360,000 $ 120,000 12,000 24,000 8,400 23,600 14,400 80,000 282,400 $ 77,600

To satisfy the Tackle contract, another part-time trainer will need to be hired at $42,000. Supplies will increase by 12% and other costs will increase by 15%. In addition, new equipment will need to be leased at a cost of $2,500. a. What are the differential costs that would be incurred if the Tackle contract is signed? b. If Tackle will pay $55,000 for one year, should Morris accept the contract? Explain your answer. 19 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

116) The Arielle Company reported the following results for the manufacture and sale of one of its products known as Controllers during the most recent year. Sales (6,500 Controllers at $130 each) Cost of sales Distribution costs Advertising expense Salaries Building costs Operating loss

$ 845,000 390,000 65,000 275,000 25,000 145,000 $ (55,000)

The Arielle Company is trying to determine whether or not to discontinue the manufacture and sale of Controllers. The operating results reported above for last year are expected to continue in the foreseeable future if the product is not dropped. The building costs represent the costs of production facilities and equipment that the Controllers product shares with other products produced by Arielle. If the Controllers product were dropped, there would be no change in the building costs of the company. Management has determined that discontinuing the manufacture and sale of Controllers will have no effect on the company's other product lines. Determine the change in operating profits that will happen if the manufacture and sale of Controllers is discontinued. 117) The management of Parachute Corporation is considering dropping product ABC123. Data from the company's accounting system appear below: Sales Cost of goods sold Building expenses Selling and administrative expenses

$ 260,000 125,000 88,000 75,000

All building expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $42,000 of the building expenses and $48,000 of the selling and administrative expenses will not be incurred if product ABC123 is discontinued. a. According to the company's accounting system, what are the operating profits earned by product ABC123? b. What would be the impact on the company's overall operating profits if product ABC123 is dropped? Should the product be dropped?

118) The management of Marvel Corporation has been concerned for some time with the financial performance of its product EX123 and has considered discontinuing it on several occasions. Data from the company's accounting system appear below: Sales Cost of goods sold Building expenses Selling and administrative expenses

$ $ $ $

650,000 293,000 221,000 150,000

In the company's accounting system all building expenses of the company are fully allocated to products. Further investigation has revealed that $95,000 of the building expenses and $85,000 of the selling and administrative expenses will not be incurred if product EX123 is discontinued. a. According to the company's accounting system, what are the operating profits (losses) earned by product EX123? b. What would be the effect on the company's overall operating profits if product EX123 is dropped? 119) Place the letter of the appropriate element of an organization's value chain in Column 2 in the blank next to each operation in Column 1. Column 1 Macy's replies to customers' questions on merchandise

Column 2 Research and A. Development

Updating PetSmart's electronic Internet catalogue of chew bones and leash merchandise. B. Design Development of new software applications at Apple.

C. Production

Contracting with United Parcel Services to ship computers to customers at Best Buy

D. Marketing

Writing of software programs at QuickBook's Professional Accountant Division.

E. Distribution

Creation of new movie ideas at Universal Studios.

Customer F. Service

120) Old-Fashion Flavors is a local ice cream shop. The company currently is showing an operating loss, as evidenced by the income statement below: Sales Costs: Food supplies Labor Utilities Rent Other Manager's salary Total Costs Operating Profits (Losses)

75,000

20,000 16,000 4,000 12,000 4,000 25,000 81,000 (6,000)

The President of the company is considering adding sandwiches to the menu. Sales will be expected to increase by $60,000. The cost of sandwich supplies would be $30,000. Labor costs would increase 40% and other costs 10%. The current manager will continue to manage the operation. a. Prepare a quantitative analysis of the decision to add sandwiches to the menu. b. What qualitative considerations should the company consider in this decision? 121) The Brogan family currently lives in a suburb of a major city. They have a lovely home close to major routes of transportation. Both Mr. and Mrs. Brogan have convenient commutes of 30 minutes or less. Because the school system in their town does not have a quality reputation, they currently send their daughter to private school, conveniently located less than one mile from their home. The family's current monthly living expenses are listed below:

Mortgage, including taxes and insurance Other utilities, including water, heat and telephone Costs of running automobiles Cost of private school Total monthly budget

Monthly Budget $ 5,000 500 800 2,000 $ 8,300

The Brogans are considering moving to a town approximately 20 minutes away. Because of the desirability of the local schools and strict zoning, housing is very expensive in this town. Their daughter would attend public schools. The Brogans estimate that their monthly mortgage, taxes and insurance would increase to $7,000 per month, while the cost of running automobiles would increase 20% and other utilities 10%. Mortgage interest costs are tax deductible and the Brogans are in the 25% tax bracket. Assume that $700 of the increase in their monthly budget is for mortgage interest. What are the costs and benefits of moving? Which can be quantified and which cannot?

122) Place the letter of the appropriate business function of the value chain in Column 2 in the blank next to each cost item in Column 1. Column 1 Cost of customer order forms

Column 2 Research and A Development

Cost of paper used in manufacture of books

B Design

Cost of paper used in packing cartons to ship books

C Production

Cost of paper used in display at national trade show

D Marketing

Depreciation of trucks used to transport books to college bookstores E Distribution Cost of the wood used to manufacture paper

F Customer Service

Salary of the scientists attempting to find another source of printing ink Cost of defining the book size so that a standard-sized box is filled to capacity 123) Morgantown Manufacturing produces electronic storage devices and uses the following three-part classification for its manufacturing costs: materials, labor, and support costs. Total support costs for June were $300 million and were allocated to each product on the basis of labor costs of each line. Summary data (in millions) for June for the most popular electronic storage device, the Giant Watt, was: Material costs Labor costs Support costs Units produced

$ 9,000,000 $ 3,000,000 $ 8,500,000 40,000

a. Compute the manufacturing cost per unit for each Giant Watt produced in June. b. Suppose production will be reduced to 30,000 units in July. Speculate as to whether the unit costs in July will most likely be higher or lower than unit costs in June; it is not necessary to calculate the exact July unit cost. Briefly explain your reasoning.

124) The list of representative cost drivers in the right column below are randomized with respect to the list of functions in the left column. That is, they do not match. Function Purchasing Billing Shipping Computer Support Personnel Customer Service

Representative Cost Driver A. Number of employees B. Number of shipments C. Number of customers D. Number of invoices E. Number of desktop computers F. Number of purchase orders

Required: Match each business function with its representative cost driver. Function 1. Purchasing 2. Billing 3. Shipping 4. Computer Support 5. Personnel 6. Customer Service

Insert letter of appropriate driver (A through F)

125) A restaurant is deciding whether it wants to update its image or not. It currently has a cozy appeal with an outdated décor that is still in good condition, menus and carpet that need to be replaced anyway, and loyal customers. Identify the following for the restaurant management: a. Costs that are relevant to this decision. b. Costs that would not be differential to this decision. c. Any qualitative factors that should be considered. 126) You have been employed as an entry-level management accountant for a little under a year. You suspect that your immediate supervisor is involved in a significant fraud involving diverting company assets to personal use. Briefly describe the steps you might take to resolve this dilemma. 127) Snacking Macs, Inc., currently manufactures three different types of scientifically balanced dog food. The firm is considering eliminating one of the three products. What factors should be taken into account in making this decision?

128) Clancy Mining Company mines iron ore for production into various metal products. During recent years, the company had large fluctuations in its inventories of metal ingots. Much of the volatility of the inventory levels is due to the variability of demand by the company's largest customers, automobile manufacturers. For large orders, the company has the technology to quickly shift production from one product to another. Explain how the company can improve its inventory control system and give the advantages of whatever you recommend. 129) MegaStores is a large, publicly-held corporation. The company does about 80% of its work in government contracts. All contracts use a cost plus fixed fee basis; costs of jobs are agreed upon by contract. Any overruns will result in losses to the company. The company controller, Ricky Bowers CPA, CMA, is discussing two current jobs with the Job Supervisor, Leslie Dawn. Job 100 is currently coming in under budget, but due to construction problems, Job 102 is 20% over budget. Bowers is considering the possibility of having employees who work on Job 102 record their time to Job 101. What are the implications of this decision? 130) The owner of a small retail business asks, "Why do I need cost accountants? My CPA produces financial statements, which are sufficient for me to discover my costs. Look at my Income Statement. I expect sales to increase by 10% next year, so I am planning on a 10% increase in profits. I don't need a cost accountant to tell me that." Income Statement for the Year Ending December 31 Sales Revenue Cost of Goods Sold Gross Margin Selling Costs Administrative Costs Profit before Taxes

$ 457,234 296,348 160,886 76,234 62,350 $ 22,302

Use your knowledge of the concept of differential costs and explain why a cost accountant would question the conclusion that a 10% increase in sales would yield a 10% increase in profit. 131) Create a diagram of the value chain by putting the following components into the correct order: a) purchasing; b) marketing and sales; c) research and development; d) customer service; e) distribution; f) design; g) production. 132) Explain the difference between a value chain, a supply chain, and a distribution chain. 133) Compare financial accounting and cost accounting using the following concepts: users of the information; important criteria; who establishes or defines the system; and how to determine an accounting treatment. 134) The IMA Code of Ethics describes three basic steps a cost accountant should take when faced with an ethical conflict: Discuss, clarify, and consult. Describe each of these three steps.

135) Respond to this comment: "Since cost accountants just prepare accounting data for internal management, cost accountants do not need to be concerned with GAAP or IFRS." 136) What are characteristics of information used in decision making? 137) The Flamboyant Flirt is a small but prosperous hair cutting salon. Diane Stock, the manager of the salon, has been asked by several clients if she will ever offer other "hair related" services (e.g., perm, dye, etc.). After careful thought, Ms. Stock is considering expanding her offerings. However, in order to do so, she will have to hire one additional stylist at a salary of $26,000 per year. Other expenses will increase as follows: rent by 20%, supplies and utilities by 25%, and miscellaneous expenses by 10%. Her revenues from additional services are likely to be $55,000 for the next year (i.e., 2021). The Flamboyant Flirt's income statement for the most recent year is presented below. The Flamboyant Flirt Income Statement for the Year Ended December 2020 Sales Revenue Costs: Labor Utilities Supplies Rent Miscellaneous Manager's Salary Operating Profits

220,000

162,000 58,000

52,000 12,000 45,000 18,000 5,000 30,000

a. Based on your financial analysis, should Diane Stock go ahead with the expansion? b. What other factors must Ms. Stock consider before making a final decision? 138) The manager of a profit center of a large electronics manufacturing corporation made some projections regarding sales and profits for the upcoming fourth quarter of the year. The managers' performance evaluation and compensation depended significantly on his ability to meet budget goals. The manager discovered that the fourth quarter would have to be a particularly good quarter in order to meet these goals. He decided to implement a sales program offering liberal payment terms in order to pull some sales that would normally occur next year into the current year. Customers accepting delivery in the fourth quarter would not have to pay the invoice for 140 days. Also, he sold some equipment that was not being used and realized a significant profit on the sale. Are these actions ethical? Why or why not?

139) The controller of one division of IntroTel, a large diversified firm is compensated by salary plus bonus. The bonus is a significant part of total compensation and is based directly on the profits of the division. Thus, the controller has an incentive to find ways to increase profits, including the delay of discretionary expenses such as research and development, delay of maintenance and repair of manufacturing equipment, and delay of sales promotions. Is finding ways to increase profits as described above unethical? Why or why not? Who is to blame, if anyone? 140) Dockside Sandal Company, a manufacturer of women's sandals, recently implemented a quality improvement program aimed at streamlining the manufacturing process. Bo Mattison, industrial engineer and a resident expert on process improvement, was assigned the task of implementing the program. Mattison's first task was to educate all the employees involved with the production process. He sent a memo to representatives in product design and development, materials management (including purchasing), marketing, distribution, customer service and accounting, in addition to those in the production department, inviting them to attend an information session on the improvement program. He began the meeting by thanking all those who were present (over 35 in number) and spent the first hour explaining the need for such a program. Soon after, the attendees were engaged in a discussion. Several questions were raised during the discussion. Among these, three questions stood out. 1. What is the need for including members from design, marketing, and other functional areas when the improvement program's focus is on streamlining the manufacturing process? 2. What is the role of the cost management expert in this program? 3. Finally, why should the machine operators be involved, as they are not engineers? Consider the three questions that stood out in the discussion. Assume the role of Bo Mattison and prepare a response addressing the questions.

141) Megan Kris, the Vice-President for Human Resources in Learning, Inc. was concerned about a recent memo she had recently received from the CEO's office regarding the possibility of outsourcing the payroll function to Salary Experts, a growing provider of a variety of human resource services. She was shocked that the CEO's office had discussed this matter with the Board of Directors but failed to consult her. Megan was preparing for a meeting with the CEO. In reading the memo and its attachments, Megan observed the following comparison of costs in a report prepared by the controller's office: Payroll department expenses: Salaries of employees Share of utilities Share of building rent Manager's salary Computers and supplies Other department expenses Total annual expenses

$ 210,000 75,000 39,350 69,000 26,000 20,000 $ 439,350

Megan also noted that Salary Experts quoted a fixed fee of $125,000 and variable processing costs of $7.50 per employee transaction. She did not believe that the company will actually save money by outsourcing the payroll function. For one, she did not think that the company will actually save all of the above-mentioned amounts. She knew that the payroll department manager could not be removed from the company because he had to oversee the payroll function and serve as a liaison with the outside company. However, all other employees in the department would likely not be required. a. Assume Learning Inc. has 14,000 employees on its payroll. Can the company save money by outsourcing the payroll function? b. What are the pros and cons of outsourcing the payroll function? 142) Mr. Lee is the production manager of Cathy Company. It is the beginning of the month and he storms into the controller's department, clutching a large folder of reports. "Why am I getting so many reports? I don't need them nor do I want all the details. I've delegated responsibility to my managers so I don't have to worry about details. You've got to do something about this, John." John, the controller, starts to think about the problem that seems to have come about as the company decentralized with many layers of responsibility. He has a vague memory of something he learned from his old cost accounting class and has called you, his former professor, for some advice or suggestions in order to reduce the paper flow. Briefly describe the concept of the hierarchy of performance reports.

143) Adair Company has been busy over the first few years of its existence in penetrating its market and gaining a respectable market share. To facilitate this, Mr. Adair, the CEO, and his controller, Mr. Brown, have been developing the annual master budgets. To date this approach has worked well. Adair has been acquired by a company in a related business but will continue to operate as an independent subsidiary. The CFO of the acquiring company, Mr. Horwitz, has suggested to Mr. Adair that, since it was expected that his company would continue to grow, it adopt a departmental budgeting system; a suggestion Mr. Adair agreed to readily. Mr. Horwitz explained to Adair's departmental managers the concepts of a departmental participative budgeting system and their involvement. The managers were encouraged to take the information and come back with suggestions which could then be put into a formal budget process. a. What benefits will accrue to Adair under this new budgeting system? b. What behavioral issues might arise for departmental managers and for production workers? c. What is the most probable long-term reaction of Adair's people to the participative budget system? 144) Traditionally, companies in the United States have employed a "push" manufacturing style. Studies in Activity Based Management and Quality Control have indicated that this approach is filled with many nonvalue-added activities, which increase overall costs and reduce profits. The "push" style is being replaced with a "pull" approach. Briefly describe the major differences between the push and pull approaches. What nonvalueadded activities are eliminated in a pull manufacturing system? 145) The New York Times recently reported that a number of publicly-held corporations have been accused of illegally doctoring hourly employees' time records. Examples included: ∙ Workers sued Family Dollar and Pep Boys, accusing managers of deleting hours from their time records. ∙ More than a dozen former Walmart employees said in interviews and depositions that managers had altered time records to shortchange employees. ∙ The Department of Labor reached two back-pay settlements with Kinko's photocopy centers after finding that managers had erased time for 13 employees. When interviewed, many of the managers cited pressure from upper-management and the impact of their actions on their own compensation as underlying causes for their actions. All of the companies strongly denied encouraging such illegal and unethical behavior by managers. Compensation experts interviewed agreed that the companies' incentive performance systems may have contributed to the managers' behavior. (New York Times, April 4, 2004) a. Explain how the incentive performance systems of the above-named companies could have contributed to this illegal behavior by managers. b. Discuss the ethical issues involved in the design of incentive performance systems. In designing a performance-based incentive system, what measures should companies take to avoid illegal and unethical behavior by supervisors? 29 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 2 Cost Concepts and Behavior 1) The cost of an item is the sacrifice of resources made to acquire it. 2) An expense is a cost charged against revenue in an accounting period. 3) If a cost is recorded as an asset (for example, prepaid rent for an office building), it becomes an expense when the asset has been consumed. 4) Accounting systems typically record opportunity costs as assets and treat them as intangible items on the financial statements. 5) Total cost of goods purchased minus beginning merchandise inventory plus ending merchandise inventory equals cost of goods sold. 6) Cost of goods sold includes the actual costs of the goods sold and the costs required to sell them to the customer. 7) Period costs are those costs assigned to units of production in the period in which they are incurred. 8) Only direct costs can be classified as product costs; indirect costs are classified as period costs. 9) The three categories of product costs are direct materials, direct labor, and manufacturing overhead. 10) The first step in determining whether a cost is direct or indirect is to specify the cost allocation rule. 11) Total work-in-process during the period is the sum of the beginning work-in-process inventory and the total manufacturing costs incurred during the period. 12) Cost of goods sold plus the ending finished goods inventory minus the beginning finished goods inventory equals the cost of goods manufactured. 13) If the cost of goods manufactured during the period exceeds the cost of goods sold, the ending balance of Finished Goods Inventory account increased. 14) Total variable costs change inversely with changes in the volume of activity. 15) Fixed costs per unit change inversely with changes in the volume of activity. 16) The range within which fixed costs remain constant as volume of activity varies is known as the relevant range. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

17) The term full cost refers to the cost of manufacturing and selling a unit of product and includes both fixed and variable costs. 18) Variable marketing and administrative costs are included in determining full absorption costs. 19) Revenue minus cost of goods sold equals contribution margin. 20) The primary goal of the cost accounting system is to provide managers with information to prepare their annual financial statements. 21) An opportunity cost is A) a cost that is charged against revenue in an accounting period. B) the foregone benefit from the best alternative course of action. C) the excess of operating revenues over operating costs. D) the cost assigned to the products sold during the period. 22) Which of the following statements is (are) true? (1) An asset is a cost that will be matched with revenues in a future accounting period. (2) Opportunity costs are recorded as intangible assets in the current accounting period. A) Only (1) is true. B) Only (2) is true. C) Both of these are true. D) None of these are true. 23) Which of the following statements is (are) false? (1) In general, the term expense is used for managerial purposes, while the term cost refers to external financial reports. (2) An opportunity cost is the benefit forgone by selecting one alternative over another. A) Only (1) is false. B) Only (2) is false. C) Both of these are false. D) None of these are false. 24) Which of the following best distinguishes an opportunity cost from an outlay cost? A) Opportunity costs are recorded, whereas outlay costs are not. B) Outlay costs are speculative in nature, whereas opportunity costs are easily traceable to products. C) Opportunity costs have very little utility in practical applications, whereas outlay costs are always relevant. D) Opportunity costs are sacrifices from foregone alternative uses of resources, whereas outlay costs are cash outflows.

25) Which of the following accounts would be a period cost rather than a product cost? A) Depreciation on manufacturing machinery. B) Maintenance on factory machines. C) Production manager's salary. D) Freight out. 26) A company which manufactures custom-made machinery routinely incurs sizable telephone costs in the process of taking sales orders from customers. Which of the following is a proper classification of this cost? A) Product cost B) Period cost C) Conversion cost D) Prime cost 27) For a manufacturing company, which of the following is an example of a period cost rather than a product cost? A) Wages of salespersons. B) Salaries of machine operators. C) Insurance on factory equipment. D) Depreciation of factory equipment. 28) Tallon Company manufactures a single product. The product's prime costs consist of A) direct materials and direct labor. B) direct materials and manufacturing overhead. C) direct labor and manufacturing overhead. D) direct materials, direct labor and manufacturing overhead. 29) The cost of fire insurance for a manufacturing plant is generally considered to be a: A) product cost. B) period cost. C) variable cost. D) prime cost. 30) An example of a period cost is: A) fire insurance on a factory building. B) salary of a factory supervisor. C) direct materials. D) rent on a headquarters building. 31) Transportation costs incurred by a manufacturing company to ship its product to its customers would be classified as which of the following? A) Product cost B) Manufacturing overhead C) Period cost D) Administrative cost 3 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

32) Doran Technical Company has set up a toll-free telephone line for customer inquiries regarding computer hardware produced by the company. The cost of this toll-free line would be classified as which of the following? A) Product cost B) Manufacturing overhead C) Direct labor D) Period cost 33) Which of the following costs is both a prime cost and a conversion cost? A) direct materials B) direct labor C) manufacturing overhead D) administrative costs 34) Marketing costs include all of the following except: A) Advertising. B) Shipping costs. C) Sales commissions. D) Legal and accounting fees. 35) Property taxes on the manufacturing facility are an element of Conversion Cost No No Yes Yes

a. b. c. d.

Period Cost No Yes No Yes

A) Option A B) Option B C) Option C D) Option D 36) The cost of direct labor will be treated as an expense on the income statement when the resulting: A) payroll costs are paid. B) payroll costs are incurred. C) products are completed. D) products are sold.

37) Calculate the conversion costs from the following information: Fixed manufacturing overhead Variable manufacturing overhead Direct materials Direct labor

$ 2,000 1,000 2,500 1,500

A) $3,000 B) $4,000 C) $4,500 D) $5,000 38) The corporate controller's salary would be considered a(n): A) manufacturing cost. B) product cost. C) administrative cost. D) selling expense. 39) The costs of direct materials are classified as:

A) B) C) D)

Conversion cost Yes No Yes No

Manufacturing cost Yes No Yes Yes

Prime cost Yes No No Yes

A) Choice A B) Choice B C) Choice C D) Choice D

40) Grover Company has the following data for the production and sale of 2,000 units. Sales price per unit Fixed costs: Marketing and administrative Manufacturing overhead Variable costs: Marketing and administrative Manufacturing overhead Direct labor Direct Materials

800per unit

$ 400,000per period $ 200,000per period $ $ $ $

50per unit 80per unit 100per unit 200per unit

What is the conversion cost per unit? A) $100 B) $180 C) $280 D) $380 41) Grover Company has the following data for the production and sale of 2,000 units. Sales price per unit Fixed costs: Marketing and administrative Manufacturing overhead Variable costs: Marketing and administrative Manufacturing overhead Direct labor Direct Materials

800per unit

$ 400,000per period $ 200,000per period $ $ $ $

50per unit 80per unit 100per unit 200per unit

What is the prime cost per unit? A) $100 B) $280 C) $300 D) $480 42) Which one of the following costs is classified as a period cost? (CIA adapted) A) The wages of the workers on the shipping docks who load completed products onto outgoing trucks. B) The wages of a worker paid for idle time resulting from a machine breakdown in the molding department. C) The payments for employee (fringe) benefits paid on behalf of the workers in the manufacturing plant. D) The wages paid to workers for reworking defective products that failed the quality inspection upon completion. 6 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

43) The following cost data for the month of May were taken from the records of the Terrence Manufacturing Company: (CIA adapted) Depreciation on factory equipment Depreciation on sales office Advertising Wages of production workers Raw materials used Sales salaries and commissions Factory rent Factory insurance Materials handling Administrative salaries

1,000 500 7,000 28,000 47,000 10,000 2,000 500 1,500 2,000

Based upon this information, the manufacturing cost incurred during the month was: A) $78,500. B) $80,000. C) $80,500. D) $83,000. 44) Which of the following is not a name for indirect resources? A) Overhead costs B) Burden C) Direct costs D) Common costs 45) Which of the following should be considered part of a manufacturing company's direct labor cost? A) Factory supervisor's salary B) Forklift operator's hourly wages C) Employer-paid health insurance on factory assemblers' wages D) Cost of idle time 46) Tulsa Company, (a merchandising co.) has the following data pertaining to the year ended December 31, 2019: (CPA adapted) Purchases Beginning inventory Ending inventory Freight-in Freight-out

$ 450,000 170,000 210,000 50,000 75,000

What is the cost of goods sold for the year? A) $385,000 B) $460,000 C) $485,000 D) $536,000 7 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

47) The Shoal Company's manufacturing costs for the third quarter of 2019 were as follows: (CPA adapted) Direct materials and direct labor Other variable manufacturing costs Depreciation of factory building and manufacturing equipment Other fixed manufacturing costs

$ 700,000 100,000 80,000 18,000

What amount should be considered product costs for external reporting purposes? A) $700,000 B) $800,000 C) $880,000 D) $898,000 48) The three basic elements of manufacturing cost are direct materials, direct labor, and: A) cost of goods manufactured. B) cost of goods sold. C) work in process. D) manufacturing overhead. 49) Prime cost consists of direct materials combined with: A) direct labor. B) manufacturing overhead. C) indirect materials. D) cost of goods manufactured. 50) Classifying a cost as either direct or indirect depends upon A) whether an expenditure is unavoidable because it cannot be changed regardless of any action taken. B) whether the cost is expensed in the period in which it is incurred. C) the behavior of the cost in response to volume changes. D) the cost object to which the cost is being related. 51) The process of assigning indirect costs to products, services, people, business units, etc., is A) cost object. B) cost pool. C) cost allocation. D) opportunity cost. 52) A(n) ________ is any end to which a cost is assigned. A) cost object B) cost pool C) cost allocation D) opportunity cost 8 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

53) A cost allocation rule is the method or process used to assign the costs in the ________ to the ________. A) cost allocation; cost pool B) cost pool; opportunity cost C) cost object; cost pool D) cost pool; cost object 54) The beginning Work-in-Process Inventory plus the total of the manufacturing costs equals A) total finished goods during the period. B) cost of goods sold for the period. C) total work-in-process during the period. D) cost of goods manufactured for the period. 55) A product cost is deducted from revenue when A) the finished goods are sold. B) the expenditure is incurred. C) the production process takes place. D) the production process is completed. 56) The amount of direct materials issued to production is found by A) subtracting ending work in process from total work in process during the period. B) adding beginning direct materials inventory and the delivered cost of direct materials. C) subtracting ending direct materials from direct materials available for production. D) adding delivered cost of materials, labor, and manufacturing overhead. 57) The beginning Finished Goods Inventory plus the cost of goods manufactured equals A) ending finished goods inventory. B) cost of goods sold for the period. C) total work-in-process during the period. D) cost of goods available for sale for the period. 58) Direct labor would be part of the cost of the ending inventory for which of these accounts? A) Work-in-Process. B) Finished Goods. C) Direct Materials and Work-in-Process. D) Work-in-Process and Finished Goods. 59) The Work-in-Process Inventory of the Model Fabricating Corp. was $3,000 higher on December 31, 2019 than it was on January 1, 2019. This implies that in 2019: A) cost of goods manufactured was higher than cost of goods sold. B) cost of goods manufactured was less than total manufacturing costs. C) manufacturing costs were higher than cost of goods sold. D) manufacturing costs were less than cost of goods manufactured.

60) Which of the following is not a product cost under full-absorption costing? A) Direct materials used in the current period. B) Rent for the warehouse used to store direct materials. C) Salaries paid to the top management in the company. D) Vacation pay accrued for the production workers. 61) The term "gross margin" for a manufacturing firm refers to the excess of sales over: A) cost of goods sold, excluding fixed indirect manufacturing costs. B) all variable costs, including variable marketing and administrative costs. C) cost of goods sold, including fixed indirect manufacturing costs. D) variable costs, excluding variable marketing and administrative costs. 62) Given the following information for a retail company, what is the total cost of goods purchased for the period? Purchases discounts Transportation-in Ending inventory Gross merchandise cost Purchases returns Beginning inventory Sales discounts

3,500 6,700 35,000 304,000 8,400 27,000 10,300

A) $298,800 B) $290,800 C) $282,100 D) $304,000 63) A company had beginning inventories as follows: Direct Materials, $300; Work-in-Process, $500; Finished Goods, $700. It had ending inventories as follows: Direct Materials, $400; Workin-Process, $600; Finished Goods, $800. Material Purchases net were $1,400, Direct Labor $1,500, and Manufacturing Overhead $1,600. What is the Cost of Goods Sold for the period? A) $4,100. B) $4,200. C) $4,300. D) $4,400.

64) Compute the Cost of Goods Sold for 2019 using the following information: Direct Materials, Jan. 1, 2019 Work-in-Process, Dec. 31, 2019 Direct Labor Finished Goods, Dec. 31, 2019 Finished Goods, Jan. 1, 2019 Manufacturing Overhead Direct Materials, Dec. 31, 2019 Work-in Process, Jan. 1, 2019 Purchases of Direct Material

40,000 69,000 48,500 105,000 128,000 72,500 43,000 87,000 75,000

A) $244,000 B) $234,000 C) $211,000 D) $198,000 65) Foxburg Company has the following information: Beginning inventory Ending inventory Purchases of materials Cost of Goods Sold Manufacturing overhead

Work-in-Process $ 300 $ 700 $ 7,700 $ 15,600 $ 4,300

Finished Goods $ 400 $ 900

Materials $ 500 $ 1,500

Finished Goods $ 400 $ 900

Materials $ 500 $ 1,500

What was the direct labor for the period? A) $5,500. B) $5,800. C) $6,300. D) $6,800. 66) Foxburg Company has the following information:

Beginning inventory Ending inventory Purchases of materials (net) Cost of Goods Sold Manufacturing overhead

Work-in-Process $ 300 $ 700 $ 7,700 $ 15,600 $ 4,300

What was the cost of goods available for sale for the period? A) $16,800 B) $16,500 C) $16,100 D) $15,100 11 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

67) During the year, a manufacturing company had the following operating results: Beginning work-in-process inventory Beginning finished goods inventory Direct materials used in production Direct labor Manufacturing overhead incurred Ending work-in-process inventory Ending finished goods inventory

$ $ $ $ $ $ $

45,000 190,000 308,000 475,000 250,000 67,000 89,000

What is the cost of goods manufactured for the year? A) $1,011,000 B) $1,134,000 C) $1,033,000 D) $1,112,000 68) During April, the Meade Enterprises had the following operating results: Sales revenue Gross margin Ending work-in-process inventory Beginning work-in-process inventory Ending finished goods inventory Beginning finished goods inventory Marketing costs Administrative costs

$ 1,500,000 $ 600,000 $ 50,000 $ 80,000 $ 100,000 $ 125,000 $ 250,000 $ 150,000

What is the cost of goods manufactured for April? A) $900,000 B) $875,000 C) $925,000 D) $905,000 69) How would property taxes paid on a factory building be classified in a manufacturing company? A) Fixed, period cost. B) Fixed, product cost. C) Variable, period cost. D) Variable, product cost.

70) How would miscellaneous supplies used in assembling a product be classified for a manufacturing company? A) Fixed, period cost. B) Fixed, product cost. C) Variable, period cost. D) Variable, product cost. 71) How would a 5% sales commission paid to sales personnel be classified in a manufacturing company? A) Fixed, period cost. B) Fixed, product cost. C) Variable, period cost. D) Variable, product cost. 72) The student health center employs one doctor, three nurses, and several other employees. How would you classify (1) the nurses' salary and (2) film and other materials used in radiology to take X-rays? Assume the activity is the number of students visiting the health center. Nurse's Salaries Fixed cost Fixed cost Variable cost Variable cost

a. b. c. d.

Film and Other Materials Used in Radiology Fixed cost Variable cost Fixed cost Variable cost

A) Option A B) Option B C) Option C D) Option D

73) Barton's Taco Tico has four taco makers and ten other employees who take orders from customers and perform other tasks. The four taco makers and the other employees are paid an hourly wage. How would you classify (1) the wages paid to the taco makers and other employees and (2) materials (e.g., cheeses, salsa, tomatoes, lettuce, taco shells, etc.) used to make the tacos? Assume the activity is the number of tacos made.

A. B. C. D.

Employees' Wages Fixed cost Fixed cost Variable cost Variable cost

Materials to Make the Tacos Fixed cost Variable cost Fixed cost Variable cost

A) Choice A B) Choice B C) Choice C D) Choice D 74) The difference between variable costs and fixed costs is (CMA adapted) A) Unit variable costs fluctuate and unit fixed costs remain constant. B) Unit variable costs are fixed over the relevant range and unit fixed costs are variable. C) Total variable costs are constant over the relevant range, while fixed costs change in the longterm. D) Total variable costs are variable over the relevant range but fixed in the long-term, while fixed costs never change. 75) Which terms below correctly describe the cost of the black paint used to paint the dots on a pair of dice? Variable Cost Yes Yes No No

A) B) C) D)

Administrative Cost Yes No Yes No

A) Choice A B) Choice B C) Choice C D) Choice D 76) Manufacturing overhead: A) can be either a variable cost or a fixed cost. B) includes the costs of shipping finished goods to customers. C) includes all factory labor costs. D) includes all fixed costs. 14 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

77) Which of the following statements is (are) true? (1) The term full cost refers to the cost of manufacturing and selling a unit of product and includes both fixed and variable costs. (2) The fixed cost per unit is considered constant despite changes in volume of activity within the relevant range. A) Only (1) is true. B) Only (2) is true. C) Both of these are true. D) None of these are true. 78) The estimated unit costs for a company to produce and sell a product at a level of 12,000 units per month are as follows: Estimated Cost Item Unit Cost Direct material $ 32 Direct labor 20 Variable manufacturing overhead 15 Fixed manufacturing overhead 6 Variable selling expenses 3 Fixed selling expenses 4 What are the estimated conversion costs per unit? A) $35 B) $41 C) $44 D) $48 79) The estimated unit costs for a company to produce and sell a product at a level of 12,000 units per month are as follows: Estimated Cost Item Unit Cost Direct material $ 32 Direct labor 20 Variable manufacturing overhead 15 Fixed manufacturing overhead 6 Variable selling expenses 3 Fixed selling expenses 4 What are the estimated prime costs per unit? A) $73 B) $32 C) $67 D) $52 15 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

80) The estimated unit costs for a company to produce and sell a product at a level of 12,000 units per month are as follows: Estimated Cost Item Unit Cost Direct material $ 32 Direct labor 20 Variable manufacturing overhead 15 Fixed manufacturing overhead 6 Variable selling expenses 3 Fixed selling expenses 4 What are the estimated variable costs per unit? A) $70 B) $38 C) $67 D) $52 81) Grover Company has the following data for the production and sale of 2,000 units. Sales price per unit Fixed costs: Marketing and administrative Manufacturing overhead Variable costs: Marketing and administrative Manufacturing overhead Direct labor Direct materials

800per unit

$ 400,000per period $ 200,000per period $ $ $ $

50per unit 80per unit 100per unit 200per unit

What is the variable manufacturing cost per unit? A) $380 B) $430 C) $480 D) $730

82) Grover Company has the following data for the production and sale of 2,000 units. Sales price per unit Fixed costs: Marketing and administrative Manufacturing overhead Variable costs: Marketing and administrative Manufacturing overhead Direct labor Direct materials

800per unit

$ 400,000per period $ 200,000per period $ $ $ $

50per unit 80per unit 100per unit 200per unit

What is the total manufacturing cost per unit? A) $380 B) $430 C) $480 D) $730 83) Grover Company has the following data for the production and sale of 2,000 units. Sales price per unit Fixed costs: Marketing and administrative Manufacturing overhead Variable costs: Marketing and administrative Manufacturing overhead Direct labor Direct materials

800per unit

$ 400,000per period $ 200,000per period $ $ $ $

50per unit 80per unit 100per unit 200per unit

What is the full cost per unit of making and selling the product? A) $430 B) $480 C) $530 D) $730

84) Grover Company has the following data for the production and sale of 2,000 units. Sales price per unit Fixed costs: Marketing and administrative Manufacturing overhead Variable costs: Marketing and administrative Manufacturing overhead Direct labor Direct materials

800per unit

$ 400,000per period $ 200,000per period $ $ $ $

50per unit 80per unit 100per unit 200per unit

What is the contribution margin per unit? A) $70 B) $320 C) $370 D) $430 85) The following information was collected from the accounting records of the Part SX9 for 3,000 units: Per Unit Per Period Sales price $ 350 Direct Materials 80 Direct Labor 40 Overhead 60 $ 90,000 Marketing 20 Administrative 60,000 What is Part SX9's total cost per unit? A) $180. B) $200. C) $210. D) $250.

86) Mountainburg Industries has developed two new products but has only enough plant capacity to introduce one product during the current year. The following data will assist management in deciding which product should be selected.

Mountainburg's fixed overhead includes rent and utilities, equipment depreciation, and supervisory salaries. Selling and administrative expenses are not allocated to individual products. For Mountainburg's Product L, the costs for direct materials, machining labor, and assembly labor represent A) Conversion costs. B) Period costs. C) Prime costs. D) Common costs.

87) Mountainburg Industries has developed two new products but has only enough plant capacity to introduce one product during the current year. The following data will assist management in deciding which product should be selected.

Mountainburg's fixed overhead includes rent and utilities, equipment depreciation, and supervisory salaries. Selling and administrative expenses are not allocated to individual products. The difference between the $100 estimated selling price for Mountainburg's Product W and its total manufacturing cost of $88 represents A) Contribution margin per unit. B) Gross margin per unit. C) Variable cost per unit. D) Operating profit per unit.

88) Mountainburg Industries has developed two new products but has only enough plant capacity to introduce one product during the current year. The following data will assist management in deciding which product should be selected.

Mountainburg's fixed overhead includes rent and utilities, equipment depreciation, and supervisory salaries. Selling and administrative expenses are not allocated to individual products. The total overhead cost of $27 for Mountainburg's Product W is a(n) A) Sunk cost. B) Opportunity cost. C) Variable cost. D) Mixed cost.

89) Mountainburg Industries has developed two new products but has only enough plant capacity to introduce one product during the current year. The following data will assist management in deciding which product should be selected.

90) Mountainburg Industries has developed two new products but has only enough plant capacity to introduce one product during the current year. The following data will assist management in deciding which product should be selected.

Mountainburg's fixed overhead includes rent and utilities, equipment depreciation, and supervisory salaries. Selling and administrative expenses are not allocated to individual products. The advertising costs for the product selected by Mountainburg will be A) Prime costs. B) Conversion costs. C) Period costs. D) Opportunity costs. 91) Under full absorption costing, which of the following are included in product costs? A) Only direct materials and direct labor. B) Only variable manufacturing costs. C) Only conversion costs. D) All fixed and variable manufacturing costs. 92) Ramos Company has the following unit costs: Variable manufacturing overhead Direct materials Direct labor Fixed manufacturing overhead Fixed marketing and administrative

$ 13 12 17 10 8

What cost per unit would be used for product costs under full absorption costing? A) $29 B) $42 C) $52 D) $60 23 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

93) Ramos Company has the following unit costs: Variable manufacturing overhead Direct materials Direct labor Fixed manufacturing overhead Fixed marketing and administrative

$ 13 12 17 10 8

What cost per unit would be used for product costs under variable costing? A) $29 B) $42 C) $52 D) $60 94) Vegas Company has the following unit costs: Variable manufacturing overhead Direct materials Direct labor Fixed manufacturing overhead Variable marketing and administrative

$ 25 20 19 12 7

Vegas produced and sold 10,000 units. If the product sells for $100, what is the gross margin? A) $170,000 B) $240,000 C) $290,000 D) $360,000 95) Vegas Company has the following unit costs: Variable manufacturing overhead Direct materials Direct labor Fixed manufacturing overhead Variable marketing and administrative

$ 25 20 19 12 7

Vegas produced and sold 10,000 units. If the product sells for $100, what is the contribution margin? A) $170,000 B) $240,000 C) $290,000 D) $360,000

96) Vegas Company has the following unit costs: Variable manufacturing overhead Direct materials Direct labor Fixed manufacturing overhead Variable marketing and administrative

$ 25 20 19 12 7

Vegas produced and sold 10,000 units. If the product sells for $100, what is the operating profit under full absorption costing? A) $170,000 B) $240,000 C) $290,000 D) $360,000 97) Vegas Company has the following unit costs: Variable manufacturing overhead Direct materials Direct labor Fixed manufacturing overhead Variable marketing and administrative

$ 25 20 19 12 7

Vegas produced and sold 10,000 units. If the product sells for $100, what is the operating profit using a contribution margin income statement? A) $170,000 B) $240,000 C) $290,000 D) $360,000 98) The following information is available for Barnes Company for the fiscal year ended December 31: Beginning finished goods inventory in units Units produced Units sold Sales Materials cost Variable conversion cost used Fixed manufacturing cost Indirect operating costs (fixed)

$ $ $ $ $

0 4,800 4,000 400,000 96,000 48,000 72,000 80,000

Cost of goods sold using variable costing is: A) $110,000 B) $120,000 C) $144,000 D) $40,000 25 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

99) The following information is available for Barnes Company for the fiscal year ended December 31: Beginning finished goods inventory in units Units produced Units sold Sales Materials cost Variable conversion cost used Fixed manufacturing cost Indirect operating costs (fixed)

$ $ $ $ $

0 4,800 4,000 400,000 96,000 48,000 72,000 80,000

Cost of goods sold using absorption costing is: A) $246,667 B) $120,000 C) $180,000 D) $40,000 100) The following information is available for Barnes Company for the fiscal year ended December 31: Beginning finished goods inventory in units Units produced Units sold Sales Materials cost Variable conversion cost used Fixed manufacturing cost Indirect operating costs (fixed)

$ $ $ $ $

0 4,800 4,000 400,000 96,000 48,000 72,000 80,000

The variable costing operating income is: A) $120,000 B) $140,000 C) $104,000 D) $128,000

101) The following information is available for Barnes Company for the fiscal year ended December 31: Beginning finished goods inventory in units Units produced Units sold Sales Materials cost Variable conversion cost used Fixed manufacturing cost Indirect operating costs (fixed)

$ $ $ $ $

0 4,800 4,000 400,000 96,000 48,000 72,000 80,000

The absorption costing operating income is: A) $120,000 B) $140,000 C) $128,000 D) $112,000 102) The following information is available for Barnes Company for the fiscal year ended December 31: Beginning finished goods inventory in units Units produced Units sold Sales Materials cost Variable conversion cost used Fixed manufacturing cost Indirect operating costs (fixed)

$ $ $ $ $

0 4,800 4,000 400,000 96,000 48,000 72,000 80,000

The variable costing ending inventory is: A) $36,000 B) $8,000 C) $40,000 D) $24,000

103) The following information is available for Barnes Company for the fiscal year ended December 31: Beginning finished goods inventory in units Units produced Units sold Sales Materials cost Variable conversion cost used Fixed manufacturing cost Indirect operating costs (fixed)

$ $ $ $ $

0 4,800 4,000 400,000 96,000 48,000 72,000 80,000

The absorption costing ending inventory is: A) $40,000 B) $24,000 C) $36,000 D) $8,000 104) The following information is available for Barnes Company for the fiscal year ended December 31: Beginning finished goods inventory in units Units produced Units sold Sales Materials cost Variable conversion cost used Fixed manufacturing cost Indirect operating costs (fixed)

$ $ $ $ $

0 4,800 4,000 400,000 96,000 48,000 72,000 80,000

The difference between the variable costing ending inventory and the absorption costing ending inventory is: A) 800 units times $15 per unit fixed manufacturing cost. B) 800 units times $10 per unit materials cost. C) 800 units times $20 per unit variable conversion cost plus $15 per unit fixed manufacturing cost. D) 800 units times $20 per unit variable conversion cost plus $15 per unit fixed manufacturing cost plus $16.67 per unit indirect operating costs. 105) Absorption costing measures contribution to operating profit as: A) Sales less unit level costs spent on goods sold. B) Sales less variable cost of goods sold. C) Sales less absorption cost of goods sold. D) Sales less all costs including operating expenses.

106) Inventoriable costs: A) include only the prime costs of manufacturing a product. B) include only the conversion costs of providing a service. C) exclude fixed manufacturing costs. D) are regarded as assets until the units are sold. 107) The following information is available for the Weston Consulting Company for the fiscal year ended December 31. Gross margin Operating profit Revenues Income tax rate

$ 170,000 $ 65,500 $ 809,000 34%

Required: (a) Compute the cost of services sold. (b) Compute the total marketing and administrative costs. (c) Compute net income. 108) The following information is available for the Cherryville Enterprises, Inc. for the fiscal year ended December 31. Revenues Gross margin Operating profit Income tax rate

$ $

900,000 315,000 85,000 32%

Required: (a) Compute the cost of goods sold. (b) Compute the total marketing and administrative costs. (c) Compute net income.

109) The following information is available for the Tenor Music Store for the fiscal year ended December 31. Ending inventory Transportation-in costs Purchase discounts Beginning inventory Merchandise cost Purchase returns and allowances Sales revenue Sales discounts

$ 100,100 $ 8,900 $ 15,000 $ 79,000 $ 450,000 $ 6,200 $ 800,000 $ 12,500

Required: (a) Prepare a cost of goods sold statement for Tenor Music Store. (b) Compute the gross margin for the fiscal year ended December 31. 110) Required: Using the table below as a reference, describe whether the following costs incurred in a manufacturing company are (a) fixed or variable and (b) product or period. The first cost item is presented in the table as an example. Cost Item E Annual audit and tax return fees 1 Costs (other than food) of running the cafeteria for factory personnel 2 Direct materials used 3 Clerical staff in administrative offices 4 Depreciation of factory machinery* 5 Property taxes on the factory 6 Insurance premiums on delivery vans 7 Factory custodian pay 8 Sales commissions 9 Rent paid for corporate jet Transportation-in costs for indirect 10 material

Fixed Variable Product Period X X

*Straight-line depreciation method used.

111) The Torchdown Company began operations several years ago. The company purchased a building, and since only half of the space was needed for operations, the remaining space was rented to another firm for rental revenue of $20,000 per year. The success of Torchdown Company's product has resulted in the company needing more space. The renter's lease will expire next month and Torchdown will not renew the lease in order to use the space to expand operations and meet demand. The company's product requires direct materials that cost $25 per unit. The company employs a production supervisor whose salary is $2,000 per month. Production line workers are paid $15 per hour to manufacture and assemble the product. The company rents the equipment needed to produce the product at a rental cost of $1,500 per month. Additional equipment will be needed as production is expanded and the monthly rental charge for this equipment will be $900 per month. The building is depreciated on a straight-line basis at $9,000 per year. The company spends $40,000 per year to market the product. Shipping costs for each unit are $20 per unit. The cost of electricity and other utilities used for product is $2 per unit. The company plans to liquidate several investments in order to expand production. These investments currently earn a return of $8,000 per year.

Required: Using the table below as a reference, describe which cost headings best identify the costs listed in the first column. As more than one type of cost can be applicable, ensure to list all possibilities when entering your answers (e.g., a cost might be a variable cost, and an overhead cost). Name of Variable Fixed Direct Direct Mfg. Period Opportunity cost cost cost materials labor overhead cost cost 1 Amount that can be earned renting building Cost of 2 direct materials Salary of 3 production supervisor Cost of 4 direct labor Equipment 5 rental cost Depreciation 6 on building Marketing 7 costs Shipping 8 costs Electrical 9 costs Foregone 10 investment income

112) The following cost and inventory data were taken from the records of the Flagstaff Company for the year: Costs incurred: Depreciation, factory equipment Depreciation, office equipment Supplies, factory Maintenance, factory equipment Utilities, factory Sales commissions Indirect labor Rent, factory building Purchases of direct materials (net) Direct labor Advertising expense

30,000 7,000 1,500 20,000 8,000 30,000 54,500 70,000 124,000 80,000 90,000

Inventories:

Direct materials Work in process Finished goods

January 1 $ 9,000 6,000 69,000

December 31 $ 11,000 21,000 24,000

Required: (a) Compute the cost of goods manufactured. (b) Compute the cost of goods sold.

113) The Foxboro Manufacturing Company provided you with the following information for the fiscal year ended December 31. Work-in-process inventory, 12/31 Finished goods inventory, 1/1 Direct labor costs incurred Manufacturing overhead costs Direct materials inventory, 1/1 Finished goods inventory, 12/31 Direct materials purchased Work-in-process inventory, 1/1 Direct materials inventory, 12/31

57,900 307,400 1,004,300 2,693,400 250,800 511,000 1,750,200 101,000 169,400

Required: (a) Compute the total manufacturing costs incurred during the year. (b) Compute the total work-in-process during the year. (c) Compute the cost of goods manufactured during the year. (d) Compute the cost of goods sold during the year. (e) Compute the total prime costs for the year. (f) Compute the total conversion costs for the year. 114) The cost accountant for the Corner Manufacturing Company has provided you with the following information for the month of July: Total Fixed Variable costs Per unit Costs Direct labor $ 27.50 Direct materials 84.75 Manufacturing overhead 14.25 $ 120,000 Marketing costs 5.30 50,000 Administrative costs 2.90 75,000 Required: Compute the following per unit items, assuming the company produced and sold 5,000 units at a price of $210.00 per unit. (a) Total variable cost. (b) Variable inventoriable cost. (c) Full absorption cost. (d) Full cost. (e) Contribution margin. (f) Gross margin. (g) Profit margin.

115) The cost accountant for the Friendly Manufacturing Company has provided you with the following information for the month of July:

Direct labor Direct materials Manufacturing overhead Marketing costs Administrative costs Selling price

Variable costs Per unit $ 27.50 84.75 14.25 5.30 2.90 210.00

Total Fixed Costs $ 120,000 50,000 75,000

Required: Assuming the company produced and sold 5,000 units, and there were no units in inventory on July 1, prepare the following income statements for the month of July: (a) Contribution margin income statement. (b) Gross margin income statement. 116) Shuster Industries manufactures baseballs and identified the following costs associated with their manufacturing activity (V = Variable; F = Fixed). The following information is available for the month of June when 25,000 baseballs were produced, but only 23,500 baseballs were sold. Power to run plant equipment (V) Other selling costs (V) Indirect labor (F) Property taxes on factory building (F) Marketing costs (V) Factory Supervisor salaries (F) Direct materials used (V) Depreciation on plant equipment (F) Shipping costs to customer (V) Indirect material and supplies (V) Direct labor (V) Administrative salaries (F) Insurance on factory building (F) Utilities, factory (V) General office costs (F)

25,000 149,150 50,000 12,500 30,000 125,000 500,000 68,000 48,800 37,500 250,000 300,000 62,500 50,000 48,000

Required: Compute the following amounts for July, assuming 30,000 baseballs were produced and sold: (Assume normal production ranges from 15,000 to 40,000 baseballs) (a) Total manufacturing costs. (b) Total conversion costs. (c) Period costs per unit. (d) Full costs per unit. 35 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

117) Each column below is independent and for a different company. Use the data given, which refers to one year for each example, to find the unknown account balances.

Southeast Direct materials inventory, January 1 (a) Direct materials inventory, December 31 $ 4,850 Work-in-process inventory, January 1 2,700 Work-in-process inventory, December 31 3,800 Finished goods inventory, January 1 1,900 Finished goods inventory, December 31 300 Purchases of direct materials 16,100 Cost of goods manufactured during this (b) year Total manufacturing costs 55,550 Cost of goods sold 56,050 Gross margin (c) Direct labor 26,450 Direct materials used 15,300 Manufacturing overhead 13,800 Sales revenue 103,300

Company Central $ 3,920 3,248 7,526 3,472 (d) 4,928 13,440

Northwest $ 16,640 14,664 85,696 79,800 17,888 29,536 66,768

30,486

326,320

26,432 30,464 18,368 4,256 (e) 8,064 (f)

320,424 314,673 666,931 129,688 68,744 (g) 981,604

118) The following data appeared in Moline Company's records on December 31: Direct Materials Inventory, Dec. 31 Direct Materials purchased during the year Finished Goods Inventory, Dec. 31 Indirect labor Direct labor Factory heat, light, and power Factory depreciation Administrative salaries Miscellaneous factory cost Marketing costs Other administrative costs Maintenance on factory equipment Insurance on factory equipment Distribution costs Taxes on manufacturing property Legal fees on customer complaint Direct materials put into production Work-in-Process Inventory, Dec. 31

535,500 2,268,000 567,000 201,600 2,520,000 234,360 396,900 323,820 200,970 233,100 113,400 76,230 119,700 10,080 82,530 51,660 2,407,230 154,980

On January 1, the Finished Goods Inventory account had a balance of $280,000, and the Workin-Process Inventory account had a balance of $90,650. Sales revenue for the year was $6,687,500. Required: (a) Prepare a cost of goods manufactured statement. (b) Prepare a cost of goods sold statement. (c) Prepare a gross margin income statement.

119) The information below has been taken from the cost records of Gator Corp. for the past year: Raw materials used in production Total manufacturing costs charged to production during the year (includes $135 of factory overhead) Cost of goods available for sale Selling & administrative expenses Inventories:

Beginning

$ 326 686 826 25 Ending

Direct materials

Work in process

Finished goods

110

Required: (a) Calculate the cost of direct materials purchased during the year. (b) Calculate the direct labor costs charged to production during the year. (c) Calculate the cost of goods manufactured during the year. (d) Calculate the cost of goods sold for the year. 120) Information from the records of the Shawnee Production Company for the month of January is as follows: Purchases of direct materials Indirect labor Direct labor Depreciation on factory machinery Sales Selling and administrative expenses Rent on factory building Inventories: Direct materials Work-in-process Finished goods

$ 18,000 5,000 10,400 3,000 55,300 6,300 7,000 January 1 $ 8,000 2,100 5,000

January 31 $ 8,700 3,200 5,700

Required: (a) Prepare a statement of cost of goods manufactured and sold for the month of January. (b) Prepare a gross margin income statement for the month of January.

121) The information below has been taken from the cost records of Toro Corp. for the past year: Raw materials used in production Total manufacturing costs charged to production during the year (includes $255 of factory overhead) Cost of goods available for sale Selling & administrative expenses

572

Inventories:

Beginning

Ending

Direct materials

175

155

Work in process

220

190

Finished goods

290

310

1,095 1,415 255

Required: (a) Calculate the cost of direct materials purchased during the year. (b) Calculate the direct labor costs charged to production during the year. (c) Calculate the cost of goods manufactured during the year. (d) Calculate the cost of goods sold for the year. 122) Information from the records of the Navaho Industries for the month of July is as follows: Purchases of direct materials Indirect labor Direct labor Depreciation on factory machinery Sales Selling and administrative expenses Rent on factory building Inventories: Direct materials Work-in-process Finished goods

$ 24,000 6,500 13,200 3,600 75,300 8,900 8,400 $

July 1 8,000 1,100 9,000

July 31 6,700 1,600 6,800

Required: (a) Prepare a statement of cost of goods manufactured and sold for the month of July. (b) Prepare a gross margin income statement for the month of July.

123) The Yellville Company provided you with the following information for the fiscal year ended December 31. Work-in-process inventory, 12/31 Finished goods inventory, 1/1 Direct labor costs incurred Manufacturing overhead costs Direct materials inventory, 1/1 Finished goods inventory, 12/31 Direct materials purchased Work-in-process inventory, 1/1 Direct materials inventory, 12/31

115,800 614,800 2,008,600 5,368,800 501,600 1,022,000 3,500,400 202,000 338,800

Required: (a) Compute the total manufacturing costs incurred during the year. (b) Compute the total work-in-process during the year. (c) Compute the cost of goods manufactured during the year. (d) Compute the cost of goods sold during the year. (e) Compute the total prime costs for the year. (f) Compute the total conversion costs for the year. 124) The Younce Equipment Company provided you with the following information for the fiscal year ended December 31. Work-in-process inventory,12/31 Finished goods inventory, 1/1 Direct labor costs incurred Manufacturing overhead costs Direct materials inventory, 1/1 Finished goods inventory, 12/31 Direct materials purchased Work-in-process inventory, 1/1 Direct materials inventory, 12/31

28,950 153,700 502,150 1,364,700 125,400 255,500 875,100 50,500 84,700

125) Mobile Device Retail has collected the following information for May: Sales revenue Store rent Utilities Sales commissions Merchandise inventory, May 1 Merchandise inventory, May 31 Freight-in Administrative costs Merchandise purchases

1,650,000 84,000 57,200 247,500 118,200 124,600 54,600 115,100 1,091,000

Required: Prepare a gross margin income statement for the month of May. 126) Fowler Retail has collected the following information for August: Sales revenue Store rent Utilities Sales commissions Merchandise inventory, 8/1 Merchandise inventory, 8/31 Freight-in Administrative costs Merchandise purchases

1,155,000 58,800 40,400 173,300 87,220 82,740 30,300 80,600 763,700

Required: Prepare a gross margin income statement for the month of August.

127) Zach Hartman has developed a new electronic device that he has decided to produce and market. The production facility will be in a nearby industrial park which Zach will rent for $4,000 per month. Utilities will cost $500 per month. He will use his personal computer, which he purchased for $2,000 last year, to monitor the production process. The computer will become obsolete before it wears out from use. The computer will be depreciated at the rate of $1,000 per year. He will rent production equipment at a monthly cost of $8,000. Zach estimates the materials cost per finished unit of product to be $50, and the labor cost to be $10. He will hire hourly paid workers and spend his time promoting the product. To do this, he will quit his job which pays $4,500 per month. Advertising will cost $2,000 per month. Zach will not draw a salary from the new company until it gets well established. Required: Complete the chart below by placing an "X" under each heading that helps to identify the cost involved. There can be "Xs" placed under more than one heading for a single cost; e.g., a cost might be an overhead cost and a product cost. There would be an "X" placed under each of these headings opposite the cost. Product Cost Opportunity Variable Fixed Direct Direct Manufacturing Selling Cost Cost Cost Materials Labor Overhead Cost Facility rent Utilities Personal computer depreciation Equipment rent Materials cost Labor cost Present salary Advertising

128) A manufacturing company has provided the following data for the month of March: Inventories: Raw materials Finished goods

Beginning $ 36,000 $ 57,000

$ $

Ending 24,000 28,000

Raw materials purchased during March totaled $69,000 and the cost of goods manufactured totaled $146,000. Required: (a) What was the cost of raw materials used in production during March? Show your work. (b) What was the cost of goods sold for March? Show your work. 129) During the month of June, Bolder Corporation, a manufacturing company, purchased raw materials costing $76,000. The cost of goods manufactured for the month was $129,000. The beginning balance in the raw materials inventory account was $26,000 and the ending balance was $21,000. The beginning balance in the finished goods inventory account was $52,000 and the ending balance was $35,000. Required: (a) What was the cost of raw materials used in production during June? Show your work. (b) What was the cost of goods sold for June? Show your work. 130) A partial listing of costs incurred at Marshall Corporation during August appears below: Direct materials Utilities, factory Sales commissions Administrative salaries Indirect labor Advertising Depreciation of production equipment Direct labor Depreciation of administrative equipment

$ 135,000 $ 11,000 $ 69,000 $ 101,000 $ 29,000 $ 94,000 $ 31,000 $ 73,000 $ 40,000

Required: (a) What is the total amount of product costs listed above? Show your work. (b) What is the total amount of period costs listed above? Show your work.

131) Grankowski Corporation has provided the following partial listing of costs incurred during November: Marketing salaries Property taxes, factory Administrative travel Sales commissions Indirect labor Direct materials Advertising Depreciation of production equipment Direct labor

$ 47,000 $ 6,000 $ 113,000 $ 56,000 $ 36,000 $ 119,000 $ 63,000 $ 56,000 $ 117,000

Required: (a) What is the total amount of product costs listed above? Show your work. (b) What is the total amount of period costs listed above? Show your work. 132) In October, Youngstown Corporation had sales of $273,000, selling expenses of $26,000, and administrative expenses of $47,000. The cost of goods manufactured was $183,000. The beginning balance in the finished goods inventory account was $45,000 and the ending balance was $34,000. Required: Prepare an Income Statement in good form for October. 133) In July, Mountain Life, Inc., a merchandising company, had sales of $295,000, selling expenses of $24,000, and administrative expenses of $29,000. The cost of merchandise purchased during the month was $215,000. The beginning balance in the merchandise inventory account was $25,000 and the ending balance was $30,000. Required: Prepare an Income Statement in good form for July.

134) A number of costs and measures of activity are listed below. Cost Description 1. Cost of heating a hardware store 2. Windshield wiper blades installed on autos at an auto assembly plant 3. Cost of tomato sauce used at a pizza shop 4. Cost of shipping bags of fertilizer to a customer at a chemical plant 5. Cost of electricity for production equipment at a snowboard manufacturer 6. Cost of renting production equipment on a monthly basis at a snowboard manufacturer 7. Cost of vaccine used at a clinic 8. Cost of sales at a hardware store 9. Receptionist's wages at dentist's office 10. Salary of production manager at a snowboard manufacturer

Possible Measure of Activity Dollar sales Number of autos assembled Pizzas cooked Bags shipped Snowboards produced Snowboards produced Vaccines administered Dollar sales Number of patients Snowboards produced

Required: For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the possible measure of activity listed next to it.

135) A number of costs and measures of activity are listed below. Possible Measure of Activity 1. Cost of renting production equipment on a monthly basis Surfboards produced at a surfboard manufacturer 2. Pilot's salary on a regularly scheduled Number of commuter airline passengers 3. Cost of dough used at a pizza shop Pizzas cooked 4. Janitorial wages at a surfboard Surfboards produced manufacturer 5. Cost of shipping bags of garden mulch to a retail garden Bags shipped store 6. Salary of production manager at a surfboard manufacturer Surfboards produced 7. Property tax on corporate headquarters Dollar sales building 8. Cost of heating an electronics store Dollar sales 9. Shift manager's wages at a coffee shop Dollar sales 10. Cost of bags used in packaging chickens for shipment to Crates of chicken grocery stores shipped Cost Description

Required: For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the possible measure of activity listed next to it.

136) A number of costs are listed below. Cost Description

Cost Object 1. A particular personal Supervisor's wages in a computer manufacturing facility computer 2. Salary of the president of a home construction company A particular home 3. Cost of tongue depressors used in an outpatient clinic at The outpatient clinic a hospital 4. Cost of lubrication oil used at the auto repair shop of an The auto repair shop automobile dealer 5. Manger's salary at a hotel run by a chain of hotels The particular hotel 6. Cost of screws used to secure wood trim in a yacht at a A particular yacht yacht manufacturer 7. The Accounting Accounting professor's salary Department 8. Cost of a measles vaccine administered at an outpatient A particular patient clinic at a hospital 9. Cost of electronic navigation system installed in a yacht A particular yacht at a yacht manufacturer 10. Wood used to build a home A particular home Required: For each item above, indicate whether the cost is direct or indirect with respect to the cost object listed next to it. 137) The following data relates to the Sunshine Company: Direct Materials Inventory, Beginning Direct Materials Inventory, Ending Direct Materials Purchases Direct Labor Finished Goods Inventory, Beginning Finished Goods Inventory, Ending Factory overhead Work-in-Process Inventory, Beginning Work-in-Process Inventory, Ending

40 50 210 350 100 95 153 65 80

Required: (a) Compute the direct materials used during the year. (b) Compute the cost of goods manufactured during the year. (c) Compute the cost of goods sold during the year.

138) A computer virus destroyed some of the accounting records for Dorchester Antique Remodeling Company for the years 2019–2021. The following information was salvaged from the computer system. Required: Determine the correct amounts for A through P. Beginning direct materials Purchases of direct materials Ending direct materials Direct materials used Direct labor Manufacturing overhead Total manufacturing costs Beginning work-in-process inventory Ending work-in-process inventory Costs of goods manufactured Beginning finished goods inventory Ending finished goods inventory Cost of goods sold Net sales Selling and Administrative Expenses Net income

12/31/19 $ 50,250 A 34,165 91,385 B 115,325 C 36,450 21,985 386,700 37,000 D 377,500 550,000 135,950 E

12/31/20 F 65,250 45,210 54,205 155,050 G 319,255 H 29,635 I J 42,500 315,755 495,000 K 46,250

12/31/21 $ 45,210 70,125 L M 162,000 127,145 364,130 29,635 N 362,920 42,500 39,550 O P 130,130 39,000

139) Ryan's Lazer Lighting Inc. produces lamps. During 2019, the company incurred the following costs: Factory rent Direct labor used Factory utilities Direct materials purchases Indirect materials Indirect labor

80,000 425,000 50,000 600,000 150,000 90,000

Inventories for the year were: Direct materials Work in process Finished goods

January 1 $ 100,000 20,000 250,000

December 31 $ 75,000 10,000 215,000

Required: Prepare a cost of goods manufactured and sold statement.

140) Explain the difference between an outlay cost, an expense, and an opportunity cost. 141) Explain the difference between a cost, a cost object, and a cost pool. 142) Explain the difference between direct materials inventory, work in process inventory, finished goods inventory, and cost of goods sold. 143) Explain the difference between cost of goods manufactured and cost of goods sold. 144) Explain the difference between a direct cost and an indirect cost. 145) The following information applies to the Jamison Tools Company for the year ended December 31, 2019: Factory Rent Direct Materials Inventory, Beginning Direct Materials Inventory, Ending Direct Materials Purchases Direct Labor-Wages Indirect Labor-Wages Finished Goods Inventory, Beginning Finished Goods Inventory, Ending Indirect Materials Plant Utilities General and Administrative Work-in-Process Inventory, Beginning Work-in-Process Inventory, Ending Marketing Expenses Sales Revenue

330,000 96,000 87,000 654,000 425,000 28,000 25,000 44,000 66,000 40,000 101,350 27,000 33,000 225,000 2,550,000

Required: Prepare a statement of cost of goods manufactured and an income statement for the year ended December 31, 2019.

146) The following information applies to the Garden Master Company for the year ended December 31, 2019: Factory Rent Direct Materials Inventory, Beginning Direct Materials Inventory, Ending Direct Materials Purchases Direct Labor-Wages Indirect Labor-Wages Finished Goods Inventory, Beginning Finished Goods Inventory, Ending Indirect Materials Plant Utilities General and Administrative Work-in-Process Inventory, Beginning Work-in-Process Inventory, Ending Marketing Expenses Sales Revenue

80,000 50,000 45,000 325,000 550,000 25,000 50,000 75,000 50,000 25,000 130,000 50,000 55,000 180,000 1,825,000

Required: Prepare a statement of cost of goods manufactured and an income statement for the year ended December 31, 2019. 147) Michael Corporation has provided the following data for the month of July: Sales Raw materials purchases Direct labor cost Manufacturing overhead Selling expenses Administrative expense

$ 280,000 76,000 42,000 77,000 20,000 35,000

Inventories: Raw materials Work-in-process Finished good

Beginning $ 22,000 15,000 52,000

Ending $ 33,000 23,000 43,000

Required: a. Prepare a Statement of Cost of Goods Manufactured in good form for July. b. Prepare an Income Statement in good form for July.

148) The following information is available for the Crossover Company: Sales: 25,000 units per year at $45 per unit Production: 30,000 units in 2019 and 20,000 units in 2020 At the beginning of 2019 there was no inventory Variable manufacturing costs are $30.00 per unit Fixed manufacturing costs are $150,000 per year Marketing costs are all fixed at $75,000 per year Required: (a) Prepare a gross margin income statement under absorption costing for 2019 and 2020. Include a column for each year and a total column. (b) Prepare a contribution margin income statement under variable costing for 2019 and 2020. Include a column for each year and a total column. (c) Comment on the results and reconcile any differences in income. 149) Razor Corporation produces and sells a single product at $40 per unit. During 2019, the company produced 200,000 units, 160,000 of which were sold during the year. All ending inventory was in finished goods inventory; there was no inventory on hand at the beginning of the year. The following data relate to the company's production process: Direct materials Direct labor Variable Manufacturing overhead Fixed manufacturing overhead Variable marketing and administrative Fixed marketing and administrative

$ 550,000 400,000 100,000 300,000 160,000 110,000

Required: Calculate the following. (a) The unit cost of ending inventory on the balance sheet prepared for stockholders. (b) The unit cost of ending inventory on a variable costing balance sheet. (c) The operating income using absorption costing. (d) The operating income using variable costing. (e) The ending inventory using absorption costing. (f) The ending inventory using variable costing. (g) A reconciliation of the difference in operating income between absorption costing and variable costing using the shortcut method.

150) Consider the following cost and production information for Barnard Steel Building Company, Inc.

Additional information: ∙ Sales revenue: $20,000,000. ∙ Beginning inventory: $1,150,000. ∙ Sales of part D-1340: 80 units. ∙ Sales of all other parts are the same as the number of units produced. ∙ Sales price of part D-1340: $35,500 per unit ∙ The only spending increase was for materials cost due to increased production. All other spending as shown above was unchanged. Barnard Steel Building Company uses the variable costing method. Required: (a) Compute the (1) contribution margin, (2) operating income, and (3) ending inventory for Barnard Steel Building Company. (b) Assume that sales of part D-1340 increase by 30 units to 110 units during the given period (production remains constant). Re-compute the above amounts. (c) Jaime Porter, the controller of Barnard Steel Building Company, is considering the use of absorption costing instead of variable costing to be in line with financial reporting requirements. She knows that the use of a different costing method will give rise to different incentives. Explain to her how alternative methods of calculating product costs create different incentives.

151) Consider the following cost and production information for Darrell Building Components, Inc.

Additional information: ∙ Sales revenue: $5,200,000. ∙ Beginning inventory: $275,000. ∙ The only spending increase was for materials cost due to increased production. All other spending as shown above was unchanged. ∙ Sales of all parts are the same as the number of units produced. Darrell Building Components, Inc. uses the absorption costing method. Required: (a) Compute the (1) gross margin, (2) operating income, and (3) ending inventory for Darrell Building Components, Inc. (b) Assume that production of part D-1251 increases by 25 units during the given period (sales remain constant). Re-compute the above amounts. (c) Thane Smith, the cost manager of Darrell Building Components, argues with the controller that variable costing is a better method for product costing. Using the information in part (b) above, re-compute the operating income for Darrell Building Components using variable costing. Explain any differences in the operating incomes obtained under the two different methods.

152) Hurwitz Corporation had the following activities during 2019: Raw Materials: Inventory, Jan. 1, 2019 Purchases of Raw Materials Inventory, Dec. 31, 2019 Direct Manufacturing Labor Plant Utilities Plant and Equipment Depreciation Indirect Materials Indirect Labor Other Manufacturing Overhead Sales Revenues Selling and Administrative Expenses Income Tax Rate Work-in-process Inventory, Dec. 31, 2019 Work-in-process Inventory, Jan. 1, 2019 Finished Goods Inventory, Jan. 1, 2019 Finished Goods Inventory, Dec. 31, 2019

200,000 318,000 210,000 180,000 50,000 40,000 30,000 150,000 60,000 1,250,000 150,000 30 % 120,000 64,000 80,000 150,000

Required: (a) Prepare a schedule of cost of goods manufactured for 2019. (b) Prepare a schedule of cost of goods sold for 2019. (c) Prepare an income statement for 2019.

153) Styling Toys, Inc. (STI) manufactures a variety of electronic toys for children aged 3 to 14 years. The company started as a Ma & Pa basement operation, and grew steadily over the last nine years. It now employs over 100 people and has sales revenue of over $250 million. Samantha Marks, the CEO of STI also recognizes that competition has increased during this period; therefore future growth will not be easy. Marks recognizes that one of the areas of weakness is the accounting and costing system. Marks' maternal uncle, Zack, had maintained the accounts for the company. He meticulously kept track of all the invoices that were received, payments made, and painstakingly prepared crude annual reports. With Zack passing away at the age of 85, Marks decided to hire a professional cost management expert to keep track of the company's costs. She hired Dona FalconWright, who had just completed her CMA. After acquainting Falcon with the company and its people, Marks decided to get down to business. She called Falcon to her office to have a serious conversation about accounting and costing, in particular. Marks: Dona, I would like you to pay particular attention to developing an official costing system. Currently, we don't have one. I believe this should be your first priority because competition is rising and if we do not understand our costs, we might start losing sales to our rivals. Falcon: I understand your point very well, Ms. Marks. Marks: Call me Sam. Falcon: Very well, Sam. I have a few ideas that I picked up from my CMA courses that I think are worth implementing. However, it looks like we need to start with the basics. Required: Assume the role of Dona Falcon. Write a brief report outlining the basics of a cost management information system. Include in your report the following: ∙ Resources and costs ∙ Supply of resources vs. the use of resources ∙ Classification of costs (three dimensions of resources) ∙ Alternative costing systems

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 3 Fundamentals of Cost-Volume-Profit Analysis 1) Both total revenues (TR) and total costs (TC) are likely to be affected by changes in the output. 2) Cost-volume-profit (CVP) analysis assumes that the production volume equals sales volume so that any changes in unit prices can be ignored. 3) The total contribution margin is the unit contribution margin multiplied by the number of units minus the fixed component of the total costs (TC). 4) Profit is the unit contribution margin multiplied by the number of units minus the fixed component of the total costs (TC). 5) If the average selling price is $0.60 per unit, the average variable cost is $0.36 per unit, and the total fixed costs are $1,500, then sales of 15,000 units will result in operating profits of $3,600. 6) The average selling price is $0.60 per unit, the average variable cost is $0.36 per unit, and the total fixed costs are $1,500. If operating profits of $900 are desired, a sales volume of 2,500 units is necessary. 7) The contribution margin ratio is the contribution margin per unit divided by the selling price per unit. 8) If the fixed costs are $2,400, targeted operating profits is $1,200, selling price per unit is $2, and the contribution margin ratio is 40%, then the required sales volume is 9,000 units. 9) The break-even point in sales dollars is fixed costs divided by the contribution margin ratio. 10) An organization's operating leverage is high when it has a low proportion of variable costs in its total costs. 11) An increase in the selling price per unit will decrease an organization's operating leverage, assuming sales unit volume doesn't change and there are no other changes in its cost structure. 12) The break-even point for an organization with a low operating leverage will be relatively higher than the break-even point for an organization with a high operating leverage. 13) An increase in an organization's fixed costs will result in a lower margin of safety, assuming all other costs and sales remain unchanged. 14) Microsoft Excel® is ideally suited for analyzing alternative CVP scenarios using its "What-If Analysis" function. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

15) Microsoft Excel® cannot be used to find break-even points. 16) An increase in an organization's tax rate will cause an increase in its break-even point. 17) Before-tax operating profits are equal to the after-tax operating profits divided by (1 - tax rate). 18) If an organization's fixed costs are $2,400, tax rate is 40%, and contribution margin is $5,200, then its after-tax operating profits are $1,680. 19) If the fixed costs are $2,400, targeted before-tax operating profit is $1,200, tax rate is 25%, selling price per unit is $2, and contribution margin ratio is 40%, then the sales volume is 9,000 units. 20) Cost-volume-profit (CVP) analysis is more complicated for organizations with multiple products because typically each product has a different contribution margin ratio. 21) The Frances Manufacturing Company sells two products, FRN and CES. FRN has a higher contribution margin ratio than CES. If the product mix shifts towards CES, the company's breakeven point in total units (i.e., FRN plus CES) will increase. 22) In multi-product cost-volume-profit (CVP) analysis, the fixed product mix method and the weighted-average contribution margin method yield different break-even points. 23) The more important the decision, the more the manager will want to ensure that the assumptions made for CVP analysis are applicable. 24) The best course of action in sensitive decisions is that the manager should depend upon the cost analyst's CVP analysis without considering alternative assumptions. 25) The difference between total sales in dollars and total variable costs is called: A) operating profit. B) net profit. C) the gross margin. D) the contribution margin. 26) The following information pertains to Tiller Co.: Sales Variable Costs Fixed Costs

800,000 160,000 40,000

What is Tiller's break-even point in sales dollars? (CPA adapted) A) $200,000 B) $160,000 C) $50,000 D) $40,000 2 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

27) Cost-volume-profit (CVP) analysis is a simple but powerful tool to assist management in making operating decisions. Which of the following does not represent a potential use of CVP analysis? A) Ability to compute the break-even point. B) Ability to determine optimal sales volumes. C) Aids in evaluating tax planning alternatives. D) Aids in determining optimal pricing policies. 28) Which of the following would not cause the break-even point to change? A) Sales price increases. B) Fixed cost decreases. C) Sales volume decreases. D) Variable costs per unit increases. 29) If the fixed costs for a product decrease and the variable costs (as a percentage of sales dollars) decrease, what will be the effect on the contribution margin ratio and the break-even point, respectively?

A. B. C. D.

Contribution Margin Ratio Decrease Increase Decrease Increase

Break-even Point Increase Decrease Decrease Increase

A) Option A B) Option B C) Option C D) Option D 30) The Skyways Company is currently selling its single product for $15. Variable costs are estimated to remain at 70% of the current selling price and fixed costs are estimated to be $4,800 per month. If Skyways increases its selling price by 10%, its variable cost ratio will: A) not change. B) decrease. C) increase. D) Cannot determine with the information given. 31) Cost A is a fixed cost, while B is a variable cost. During the current year, the volume of output has decreased. In terms of cost per unit of output, we would expect that: A) cost A has remained unchanged. B) cost B has decreased. C) cost A has decreased. D) cost B has remained unchanged. 3 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

32) If both the variable cost per unit and the selling price per unit decrease, the new contribution margin ratio in relation to the old contribution margin ratio will be: A) Lower. B) Higher. C) Unchanged. D) Cannot determine with the information given. 33) A company's break-even point will not be increased by: A) an increase in total fixed costs. B) a decrease in the selling price per unit. C) an increase in the variable cost per unit. D) an increase in the number of units produced and sold. 34) Which of the following changes to a company's contribution income statement will always lower the break-even point (either in units or in dollars)? A) Sales price increases by 10%. B) Sales price decreases by 5%. C) Variable costs increase by 10% and fixed costs decrease by 5%. D) Variable costs decrease by 5% and fixed costs increase by 10%. 35) At a break-even point of 400 units, variable costs were $400 and fixed costs were $200. What will the 401st unit sold contribute to operating profits before income taxes? A) $0.50 B) $1.00 C) $1.50 D) $2.00 36) Dartmount Corporation has provided its contribution format income statement for June. The company produces and sells a single product. Sales (2,900 units) Variable costs Contribution margin Fixed costs Operating profit

$ 269,700 107,300 162,400 137,100 $ 25,300

If the company sells 3,100 units, its total contribution margin should be closest to: A) $27,045. B) $181,000. C) $162,400. D) $173,600.

37) Goodson Inc. produces and sells a single product. The company has provided its contribution format income statement for March. Sales (4,500 units) Variable costs Contribution margin Fixed costs Operating profit

$ 427,500 265,500 162,000 135,300 $ 26,700

If the company sells 4,300 units, its operating profit should be closest to: A) $7,700. B) $25,513. C) $26,700. D) $19,500. 38) The contribution margin ratio is 25% for Crowne Company and the break-even point in sales is $200,000. If Crowne Company's target operating profit is $60,000, sales would have to be: A) $260,000. B) $440,000. C) $280,000. D) $240,000. 39) Opal Company manufactures a single product that it sells for $90 per unit and has a contribution margin ratio of 35%. The company's fixed costs are $46,800. If Opal desires a monthly target operating profit equal to 15% of sales, sales will have to be (rounded): A) 1,486 units. B) 3,467 units. C) 1,040 units. D) 2,600 units.

40) Razor Inc. manufactures industrial components. One of its products used as a subcomponent in auto manufacturing is Fluoro2211. The selling price and cost per unit data for 9,000 units of Fluoro2211 are as follows. Per Unit Data Selling Price $ 150 Direct Materials 20 Direct Labor 15 Variable Manufacturing Overhead 12 Fixed Manufacturing Overhead 30 Variable Selling 3 Fixed Selling and Administrative 10 Total Costs 90 Operating Margin $ 60 During the next year, sales of Fluoro2211 are expected to be 10,000 units. All costs will remain the same except for fixed manufacturing overhead, which will increase by 20%, and direct materials, which will increase by 10%. The selling price per unit for next year will be $160. Based on these data, Razor Inc.'s total contribution margin for next year will be: (CMA adapted) A) $882,000. B) $980,000. C) $972,000. D) $1,080,000. 41) Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break-even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted) The sales price of the T-shirts will be $9. ∙ Variable cost to manufacture will increase by one-third. ∙ Fixed costs will increase by 10%. ∙ The income tax rate of 40% will be unchanged. The selling price that would maintain the same contribution margin ratio as last year is: A) $9.00. B) $8.25. C) $10.00. D) $9.50.

42) Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break-even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted) ∙ The sales price of the T-shirts will be $10. ∙ Variable cost to manufacture will increase by one-third. ∙ Fixed costs will increase by 10%. ∙ The income tax rate of 40% will be unchanged. Based on a $10 selling price per unit, the number of T-shirts Dorcan Corporation must sell to break-even in the coming year is: A) 17,000 units. B) 16,500 units. C) 20,000 units. D) 22,000 units. 43) Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break-even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted) ∙ The sales price of the T-shirts will be $9. ∙ Variable cost to manufacture will increase by one-third. ∙ Fixed costs will increase by 10%. ∙ The income tax rate of 40% will be unchanged. Sales for the coming year are expected to exceed last year's by 1,000 units. If this occurs, Dorcan's sales volume in the coming year will be: A) 22,600 units. B) 21,960 units. C) 23,400 units. D) 21,000 units.

44) Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break-even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted) ∙ The sales price of the T-shirts will be $10. ∙ Variable cost to manufacture will increase by one-third. ∙ Fixed costs will increase by 10%. ∙ The income tax rate of 40% will be unchanged. Based on a $10 selling price per unit and if Dorcan Corporation wishes to earn $37,800 in after tax net income for the coming year, the company's sales volume in dollars must be: A) $213,750. B) $257,625. C) $207,000. D) $255,000. 45) Lamar has the following data: Selling Price Variable manufacturing cost Fixed manufacturing cost Variable selling & administrative costs Fixed selling & administrative costs

$ 40 $ 22 $ 150,000per month $ 6 $ 120,000per month

How many units must Lamar produce and sell in order to break-even? A) 8,333 units. B) 12,500 units. C) 15,000 units. D) 22,500 units. 46) Lamar has the following data: Selling Price Variable manufacturing cost Fixed manufacturing cost Variable selling & administrative costs Fixed selling & administrative costs

$ 40 $ 22 $ 150,000per month $ 6 $ 120,000per month

How many units must Lamar produce and sell in order to achieve a profit of $30,000 per month? A) 10,000 units. B) 8,824 units. C) 25,000 units. D) 15,000 units. 8 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

47) Lamar has the following data: Selling Price Variable manufacturing cost Fixed manufacturing cost Variable selling & administrative costs Fixed selling & administrative costs

$ 40 $ 22 $ 150,000per month $ 6 $ 120,000per month

If Lamar produces and sells 30,000 units, what is the margin of safety in units? A) 5,000 units. B) 7,500 units. C) 22,500 units. D) 30,000 units. 48) Gardner Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below. Sales Cost of sales: Direct Material Direct labor Variable Overhead Fixed Overhead Gross Profit Selling and G&A Variable Fixed Operating Income

$ 1,500,000 $ 250,000 150,000 75,000 100,000 $

575,000 925,000

450,000 475,000

200,000 250,000

The break-even point (rounded to the nearest dollar) for Gardner Corporation for the current year is: A) $146,341. B) $636,364. C) $729,730. D) $181,818.

49) Gardner Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below. Sales Cost of sales: Direct Material Direct labor Variable Overhead Fixed Overhead Gross Profit Selling and General & Admin. Exp. Variable Fixed Operating Income

$ 1,500,000 $ 250,000 150,000 75,000 100,000 $

575,000 925,000

450,000 475,000

200,000 250,000

For the coming year, the management of Gardner Corporation anticipates a 10 percent increase in sales, a 12 percent increase in variable costs, and a $45,000 increase in fixed costs. The break-even point for next year (rounded to the nearest dollar) would be: A) $729,027. B) $862,103. C) $214,018. D) $474,000. 50) You have been provided with the following information:

Sales Less variable expenses Contribution margin Less fixed expenses Operating profit

Per Unit $ 15 9 6

Total $ 45,000 27,000 18,000 12,000 $ 6,000

If sales decrease by 500 units, how much will fixed costs have to be reduced by to maintain the current operating profit of $6,000? A) $9,000. B) $7,500. C) $6,000. D) $3,000. 51) Raines Company's sales are $750,000 with operating profits of $130,000. If the contribution margin ratio is 40%, what did the fixed costs amount to? A) $370,000. B) $300,000. C) $270,000. D) $170,000. 10 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

52) The following costs have been estimated based on sales of 30,000 units:

Direct materials Direct labor Manufacturing overhead Selling and administrative

Total Annual Costs $ 300,000 250,000 250,000 150,000

Percent That Is Variable 100% 100% 50% 25%

What selling price (rounded to two decimal places) will yield a contribution margin of 40%? A) $59.38 B) $43.75 C) $39.58 D) $33.25 53) Gena Manufacturing Company has a fixed cost of $225,000 for the production of tubes. Estimated sales are 150,000 units. A before tax profit of $125,000 is desired by the controller. If the tubes sell for $5 each, what unit contribution margin is required to attain the profit target? A) $3.00. B) $2.33. C) $1.47. D) $0.90. 54) At the break-even point, the total contribution margin equals total: (CPA adapted) A) Variable costs. B) Sales. C) Selling and administrative costs. D) Fixed costs. 55) On January 1, 2020, Randolph Co. increased its direct labor wage rates. All other budgeted costs and revenues were unchanged. How did this increase affect Randolph's budgeted breakeven point and budgeted margin of safety? (CPA adapted) Budgeted Break-even Point Increase Increase Decrease Decrease

A. B. C. D.

Budgeted Margin of Safety Increase Decrease Decrease Increase

A) Option A B) Option B C) Option C D) Option D 11 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

56) A company's break-even point will not be changed by: A) a change in total fixed costs. B) a change in the number of units produced and sold. C) a change in the variable cost ratio. D) a change in the contribution margin ratio. 57) If both the variable cost per unit and the selling price per unit increase, the new contribution margin ratio in relation to the old contribution margin ratio will be: A) Lower. B) Higher. C) Unchanged. D) Cannot determine with the information given. 58) Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below. Sales Cost of sales: Direct Material Direct labor Variable Overhead Fixed Overhead Gross Profit Selling and General & Admin. Exp. Variable Fixed Operating Income

$ 3,500,000 $ 500,000 250,000 275,000 600,000

750,000 250,000

1,625,000 $ 1,875,000 1,000,000 $ 875,000

The contribution margin ratio for the current year is: A) 53.6%. B) 49.3%. C) 46.4%. D) 25%.

59) Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below. Sales Cost of sales: Direct Material Direct labor Variable Overhead Fixed Overhead Gross Profit Selling and General & Admin. Exp. Variable Fixed Operating Income

$ 3,500,000 $ 500,000 250,000 275,000 600,000

750,000 250,000

1,625,000 $ 1,875,000 1,000,000 $ 875,000

The break-even point (rounded to the nearest dollar) for Evergreen Corporation for the current year is: A) $2,625,000. B) $1,865,672. C) $1,724,138. D) $2,155,172. 60) Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below. Sales Cost of sales: Direct Material Direct labor Variable Overhead Fixed Overhead Gross Profit Selling and General & Admin. Exp. Variable Fixed Operating Income

$ 3,500,000 $ 500,000 250,000 275,000 600,000

750,000 250,000

1,625,000 $ 1,875,000 1,000,000 $ 875,000

For the coming year, the management of Evergreen Corporation anticipates a 5 percent decrease in sales, a 10 percent increase in all variable costs, and a $45,000 increase in fixed costs. The operating profit for next year would be: A) $477,500. B) $492,500. C) $552,500. D) $831,250.

61) Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below. Sales Cost of sales: Direct Material Direct labor Variable Overhead Fixed Overhead Gross Profit Selling and General & Admin. Exp. Variable Fixed Operating Income

$ 3,500,000 $ 500,000 250,000 275,000 600,000

750,000 250,000

1,625,000 $ 1,875,000 1,000,000 $ 875,000

For the coming year, the management of Evergreen Corporation anticipates a 5 percent decrease in sales, a 10 percent increase in variable costs, and a $45,000 increase in fixed costs. The break-even point for next year would be: A) $3,022,500. B) $2,947,500. C) $2,668,750. D) $2,168,225. 62) You have been provided with the following information: Sales Less variable expenses Contribution margin Less fixed expenses Operating profit

Per Unit $ 15 9 $ 6

Total $ 45,000 27,000 18,000 12,000 $ 6,000

If unit sales decrease by 10%, how much will fixed costs have to be reduced by to maintain the current operating profit? A) $12,000. B) $4,500. C) $6,000. D) $1,800.

63) You have been provided with the following information: Sales Less Variable expenses Contribution margin Less fixed expenses Operating profit

Total $ 90,000 54,000 36,000 24,000 $ 12,000

If sales decrease by 10%, what level of fixed costs will maintain the current operating profit? A) $12,000. B) $20,400. C) $21,600. D) $24,000. 64) You have been provided with the following information: Sales Less variable expenses Contribution margin Less fixed expenses Operating profit

Total $ 90,000 54,000 36,000 24,000 $ 12,000

If sales increase by 10%, what level of fixed costs will yield a 20% increase in profits? A) $14,400. B) $19,200. C) $25,200. D) $26,400. 65) With regard to the CVP graph, which of the following statements is not correct? A) The CVP graph assumes that volume is the only factor affecting total cost. B) The CVP graph assumes that selling prices do not change. C) The CVP graph assumes that variable costs go down as volume goes up. D) The CVP graph assumes that fixed costs are constant in total within the relevant range.

66) Tower Company manufactures and sells a single product with a positive contribution margin. If the selling price and the variable cost per unit both increase 5% and fixed costs do not change, what is the effect on the contribution margin per unit and the contribution margin ratio?

A. B. C. D.

Contribution margin per unit No change Increase Increase Increase

Contribution margin ratio No change Increase No change Decrease

A) Option A B) Option B C) Option C D) Option D 67) Which of the following formulas is used to calculate the contribution margin ratio? A) (Sales − Fixed costs) ÷ Sales. B) (Sales − Cost of goods sold) ÷ Sales. C) (Sales − Variable costs) ÷ Sales. D) (Sales − Total costs) ÷ Sales. 68) Flower Company manufactures and sells a single product that has a positive contribution margin. If the selling price and variable costs both decrease by 5% and fixed costs do not change, then what would be the effect on the contribution margin per unit and the contribution margin ratio?

A. B. C. D.

Contribution margin per unit Decrease Decrease No change No change

Contribution margin ratio Decrease No change Decrease No change

A) Option A B) Option B C) Option C D) Option D 69) If Q equals the level of output, P is the selling price per unit, V is the variable cost per unit, and F is the fixed cost, then the break-even point in units is: A) Q ÷ (P − V). B) F ÷ (P − V). C) V ÷ (P − V). D) F ÷ [Q(P − V)]. 16 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

70) Which of the following would not cause the break-even point to change? A) Sales price increases. B) Sales volume increases. C) Fixed cost increases. D) Variable costs per unit decreases. 71) Which of the following would not cause the break-even point to change? A) Variable costs per unit increases. B) Fixed costs increases. C) Product mix shifts towards the more expensive products. D) Sales volume decreases. 72) If the fixed costs for a product increase and the variable costs (as a percentage of sales dollars) increase, what will be the effect on the contribution margin ratio and the break-even point, respectively?

A. B. C. D.

Contribution Margin Ratio Decrease Increase Decrease Increase

Break-even Point Increase Decrease Decrease Increase

A) Option A B) Option B C) Option C D) Option D 73) A company's break-even point will not be increased by: A) an increase in the number of units produced and sold. B) a decrease in the selling price per unit. C) an increase in the variable cost per unit. D) an increase in the variable cost ratio. 74) Obtuse Company's fixed costs total $150,000, its variable cost ratio is 60% and its variable costs are $4.50 per unit. Based on this information, the break-even point in units is: A) 50,000. B) 37,500. C) 33,333. D) 100,000.

75) Bargain Company's contribution margin ratio is 15%. If the degree of operating leverage is 12 at the $150,000 sales level, operating profit at the $150,000 sales level must equal: A) $1,500. B) $2,700. C) $2,160. D) $1,875. 76) Operating leverage refers to the extent to which an organization's cost structure is made up of: A) differential costs. B) opportunity costs. C) fixed costs. D) relevant costs. 77) A decrease in the margin of safety would be caused by a(n): A) increase in the total fixed costs. B) increase in total revenue (sales). C) decrease in the break-even point. D) decrease in the variable cost per unit. 78) Given the following data: Sales Less variable expenses Contribution margin Less fixed expenses Operating profit

Per Unit $ 15 9 6

Total $ 45,000 27,000 18,000 12,000 $ 6,000

If sales decrease by 500 units, by what percent would fixed costs have to be reduced by to maintain current operating profit? A) 50.0%. B) 33.3%. C) 25.0%. D) 16.7%.

79) The following pertains to Upton Co. for the year ending December 31, 2019: Budgeted Sales Break-even Sales Budgeted Contribution Margin Cashflow Break-even

$ 1,000,000 700,000 600,000 200,000

Upton's margin of safety is: (CPA adapted) A) $300,000. B) $400,000. C) $500,000. D) $800,000. 80) The margin of safety percentage is computed as: A) Break-even sales ÷ Total sales. B) Total sales – Break-even sales. C) (Total sales – Break-even sales) ÷ Break-even sales. D) (Total sales – Break-even sales) ÷ Total sales. 81) The amount by which a company's sales can decline before losses are incurred is called the: A) contribution margin ratio. B) degree of operating leverage. C) margin of safety. D) profit loss. 82) The degree of operating leverage can be calculated as: A) contribution margin divided by sales. B) gross margin divided by operating profit. C) operating profit divided by sales. D) contribution margin divided by operating profit. 83) All other things the same, which of the following would be true of the contribution margin and variable costs of a company with high fixed costs and low variable costs as compared to a company with low fixed costs and high variable costs? Contribution Margin Higher Lower Higher Lower

A. B. C. D.

Variable Costs Higher Higher Lower Lower

A) Option A B) Option B C) Option C D) Option D 19 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

84) Corey Company has a margin of safety percentage of 20%. The break-even point is $200,000 and the variable costs are 45% of sales. Given this information, the operating profit is: A) $27,500. B) $18,000. C) $22,500. D) $22,000. 85) Luxus, Inc. employs 45 sales personnel to market its line of luxury automobiles. The average car sells for $23,000, and a 6% commission is paid to the salesperson. Luxus, Inc. is considering a change to the commission arrangement where the company would pay each salesperson a salary of $2,000 per month plus a commission of 2% of the sales made by that salesperson. The amount of total monthly car sales at which Luxus, Inc. would be indifferent as to which plan to select is: A) $2,250,000. B) $3,000,000. C) $1,500,000. D) $1,250,000. 86) Given the following information: Sales Fixed Expenses Variable Expenses

5,000 2,000 1,750

What would expected operating profit be if the company experienced a 10% increase in fixed costs and a 10% increase in sales volume? A) $1,750. B) $1,550. C) $1,250. D) $1,375.

87) The Terrence Co. manufactures two products, Baubles and Trinkets. The following are projections for the coming year:

Sales Costs: Fixed Variable Income before taxes

Baubles 10,000 units $ 10,000 $ 2,000 6,000 $

8,000 2,000

Trinkets 5,000 units $ 10,000 $ 4,600 4,000 $

8,600 1,400

How many Baubles will be sold at the break-even point, assuming that the facilities are jointly used with the sales mix remaining constant? A) 9,900 B) 8,800 C) 6,600 D) 5,000 88) During 2020, Seth Britain Lab supplied hospitals with a comprehensive diagnostic kit for $120. At a volume of 80,000 kits, Seth had fixed costs of $1,000,000 and a profit before income taxes of $200,000. Due to an adverse legal decision, Seth's 2021 liability insurance increased by $1,200,000 over 2020. Assuming the volume and other costs are unchanged, what should the 2021 price be if Seth is to make the same $200,000 profit before income taxes? (CPA adapted) A) $122.50. B) $135.00. C) $152.50. D) $240.00. 89) Honeysuckle Manufacturing has the following data: Selling Price Variable manufacturing cost Fixed manufacturing cost Variable selling & administrative costs Fixed selling & administrative costs

$ 60 $ 33 $ 250,000per month $ 9 $ 120,000per month

What dollar sales volume does Honeysuckle need to break even? A) $822,222. B) $833,333. C) $900,000. D) $1,233,333.

90) Honeysuckle Manufacturing has the following data: Selling Price Variable manufacturing cost Fixed manufacturing cost Variable selling & administrative costs Fixed selling & administrative costs

$ 60 $ 33 $ 250,000per month $ 9 $ 120,000per month

What dollar sales volume does Honeysuckle need to achieve a $50,000 operating profit per month? A) $1,400,000. B) $7,560,000. C) $933,333. D) $1,233,333. 91) Honeysuckle Manufacturing has the following data: Selling Price Variable manufacturing cost Fixed manufacturing cost Variable selling & administrative costs Fixed selling & administrative costs

$ 60 $ 33 $ 250,000per month $ 9 $ 120,000per month

If Honeysuckle has actual monthly sales of $1,500,000 and desires an operating profit of $50,000 per month, what is the margin of safety in sales dollars? A) $100,000. B) $266,667. C) $50,000. D) $1,130,000. 92) Market Sales had $1,200,000 in sales last month. The variable cost ratio was 60% and operating profits were $80,000. What is Market's break-even sales volume? A) $800,000. B) $1,000,000. C) $1,200,000. D) $2,000,000. 93) Market Sales had $1,200,000 in sales last month. The variable cost ratio was 60% and operating profits were $80,000. What sales volume does Market's need to yield a $200,000 operating profit? A) $1,000,000. B) $1,200,000. C) $1,500,000. D) $2,000,000.

94) Market Sales had $1,200,000 in sales last month. The variable cost ratio was 60% and operating profits were $80,000. What is Market's margin of safety in sales dollars? A) $200,000. B) $300,000. C) $500,000. D) Cannot determine with the information given. 95) Artis Sales has two store locations. Store A has fixed costs of $125,000 per month and a variable cost ratio of 60%. Store B has fixed costs of $200,000 per month and a variable cost ratio of 30%. At what sales volume would the two stores have equal profits or losses? A) $250,000. B) $325,000. C) $361,111. D) Cannot determine with the information given. 96) Artis Sales has two store locations. Store A has fixed costs of $125,000 per month and a variable cost ratio of 60%. Store B has fixed costs of $200,000 per month and a variable cost ratio of 30%. What is the break-even sales volume for Store B? A) $666,667. B) $325,000. C) $285,714. D) Cannot determine with the information given. 97) Artis Sales has two store locations. Store A has fixed costs of $125,000 per month and a variable cost ratio of 60%. Store B has fixed costs of $200,000 per month and a variable cost ratio of 30%. What is the break-even sales volume for Store A? A) $208,333. B) $312,500. C) $325,000. D) Cannot determine with the information given. 98) Liu Sales has two store locations. Sanford has fixed costs of $250,000 per month and a contribution margin ratio of 35%. Orlando has fixed costs of $400,000 per month and a contribution margin ratio of 65%. At what sales volume would the two stores have equal profits or losses? A) $500,000. B) $650,000. C) $1,300,000. D) Cannot determine with the information given. 99) A company's break-even point will not be changed by: A) a change in total fixed costs. B) a change in the selling price per unit. C) a change in the variable cost per unit. D) a change in the income tax rate. 23 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

100) Lake Sales had $2,200,000 in sales last month. The contribution margin ratio was 30% and operating profits were $180,000. What is Lake's break-even sales volume? A) $660,000. B) $1,540,000. C) $1,600,000. D) $2,020,000. 101) Lake Sales had $2,200,000 in sales last month. The contribution margin ratio was 30% and operating profits were $180,000. What sales volume does Lake's need to yield a $240,000 operating profit? A) $600,000. B) $2,020,000. C) $2,400,000. D) $2,440,000. 102) Lake Sales had $2,200,000 in sales last month. The contribution margin ratio was 30% and operating profits were $180,000. What is Lake's margin of safety in sales dollars? A) $480,000. B) $600,000. C) $2,020,000. D) Cannot determine with the information given. 103) Eastwick produces and sells three products. Last month's results are as follows: Revenues Variable costs

P1 $ 100,000 40,000

P2 $ 200,000 140,000

P3 $ 200,000 80,000

Fixed costs total $200,000. What is Eastwick's break-even sales volume? (Assume the current product mix.) A) $500,000. B) $416,667. C) $384,615. D) $460,000.

104) Eastwick produces and sells three products. Last month's results are as follows: Revenues Variable costs

P1 $ 100,000 40,000

P2 $ 200,000 140,000

P3 $ 200,000 80,000

Fixed costs total $200,000. What is Eastwick's margin of safety? (Assume the current product mix.) A) $83,333. B) $40,000. C) $460,000. D) $115,385. 105) Eastwick produces and sells three products. Last month's results are as follows: Revenues Variable costs

P1 $ 100,000 40,000

P2 $ 200,000 140,000

P3 $ 200,000 80,000

Fixed costs total $200,000. What sales volume would generate an operating profit of $150,000? (Assume the current product mix.) A) $650,000. B) $610,000. C) $729,167. D) $850,000. 106) A company has provided the following data: Sales Sales price Variable cost Fixed cost

3,000Units $ 70per unit $ 50per unit $ 25,000

If the sales volume decreases by 25%, the variable cost per unit increases by 15%, and all other factors remain the same, operating profit will: A) decrease by $31,875. B) decrease by $15,000. C) increase by $20,625. D) decrease by $3,125.

107) Winters Company sells three products. Sales and contribution margin ratios for the three products follow: Sales in dollars Contribution margin ratio

Product A $ 20,000 45%

Product B $ 40,000 40%

Product C $ 100,000 15%

Given these data, the contribution margin ratio for the company as a whole would be: A) 25%. B) 75%. C) 33.3%. D) Cannot determine with the information given. 108) Break-even analysis assumes that: A) total costs are constant. B) the average fixed cost per unit is constant. C) the average variable cost per unit is constant. D) variable costs are nonlinear. 109) Break-even analysis assumes that over the relevant range: (CPA adapted) A) Total Fixed Costs are nonlinear. B) Total Costs are unchanged. C) Unit Variable Costs are unchanged. D) Unit Revenues are nonlinear. 110) You have been provided with the following information regarding the Omaha Manufacturing Company: Sales price Variable manufacturing cost per unit Variable marketing cost per unit Fixed manufacturing costs Fixed administrative costs

50 24 6 360,000 80,000

111) Lincoln, Inc. is considering the introduction of a new music player with the following price and cost characteristics: Sales price Variable costs Fixed costs

125each 75each 180,000per year

Projected sales are 7,500 units per year. Required: (consider each question independent of each other): (a) What will the operating profit be? (b) What is the impact on operating profit if the selling price per unit decreases by 15%? (c) What is the net income if variable costs per unit increase by 15% and Lincoln has a 38% tax rate? 112) You have been provided with the following information regarding the Closure Manufacturing Company: Sales Price Variable manufacturing cost per unit Fixed manufacturing costs per unit Variable marketing cost per unit Fixed administrative costs per unit

$ 50 24 12 6 3

This information is based on forecasted sales of 33,000 units. Required: (a) What is the expected operating profit for the upcoming year? (b) What is the break-even point in dollars? (c) How much in sales dollars is required to generate an operating profit of $275,000?

113) You have been provided with the following information regarding the Pharma Manufacturing Company: Sales Price Variable manufacturing cost per unit Variable marketing cost per unit Fixed manufacturing costs Fixed administrative costs

25 12 3 180,000 40,000

This information is based on forecasted sales of 25,000 units. Required: (a) What are the expected operating profits for the upcoming year? (b) What is the break-even point in units? (c) What is the break-even point in dollars? (d) If $80,000 of operating profits is desired, how many units must be sold? (e) How much in sales dollars is required to generate operating profits of $75,000? 114) Chita Corporation produces and sells a single product. The company's contribution format income statement for January appears below: Sales (5,500 units) Variable costs Contribution margin Fixed costs Operating profit

$ 297,000 165,000 132,000 105,300 $ 26,700

Required: Redo the company's contribution format income statement assuming that the company sells 5,700 units. 115) Folsom Inc., which produces and sells a single product, has provided the following contribution format income statement for August: Sales (4,600 units) Variable costs Contribution margin Fixed costs Operating profit

$ 105,800 41,400 64,400 46,000 $ 18,400

Required: Redo the company's contribution format income statement assuming that the company sells 4,500 units.

116) Champion Corporation produces and sells a single product. In April, the company sold 1,700 units. Its total sales were $153,000, its total variable costs were $79,900, and its total fixed costs were $56,800. Required: a. Construct the company's contribution format income statement for April in good form. b. Redo the company's contribution format income statement assuming that the company sells 1,600 units. 117) In November, Townhouse Corporation sold 2,100 units of its only product. Its total sales were $195,300, its total variable costs were $84,000, and its total fixed costs were $98,700. Required: a. Construct the company's contribution format income statement for November in good form. b. Redo the company's contribution format income statement assuming that the company sells 2,300 units. 118) Blizzard Corporation's contribution margin ratio is 74% and its fixed monthly costs are $43,000. Assume that the company's sales for October are expected to be $102,000. Required: Estimate the company's operating profit for October, assuming that the fixed monthly costs do not change. 119) The management of Toro Corporation expects sales in August to be $130,000. The company's contribution margin ratio is 65% and its fixed monthly costs are $54,000. Required: Estimate the company's operating profit for August, assuming that the fixed monthly costs do not change. 120) Boxer Inc. expects its sales in June to be $111,000. The company's contribution margin ratio is 65% and its fixed monthly costs are $64,000. Required: Estimate the company's operating profit for June, assuming that the fixed monthly costs do not change.

121) Rudy Corporation produces and sells a single product. Data concerning that product appear below: Selling price Variable costs Contribution margin

Per Unit $ 150 60 $ 90

Percent of Sales 100% 40% 60%

Fixed costs are $355,000 per month. The company is currently selling 5,000 units per month. Required: The marketing manager believes that a $12,000 increase in the monthly advertising budget would result in a 160-unit increase in monthly sales. What should be the overall effect on the company's monthly operating profit of this change? 122) Alden Corporation produces and sells a single product. Data concerning that product appear below: Selling price Variable costs Contribution margin

Per Unit $ 190 38 $ 152

Percent of Sales 100% 20% 80%

Fixed costs are $110,000 per month. The company is currently selling 1,000 units per month. Required: Management is considering using a new component that would increase the variable cost per unit by $56. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly operating profit of this change if fixed costs are unaffected? 123) The Cornish Corporation has budgeted fixed costs of $125,000 and an estimated selling price of $16.50 per unit. The contribution margin ratio is 40% and the company plans to sell 25,000 units in 2021. Required: (a) Compute the break-even point in dollars. (b) Compute the margin of safety for 2021. (c) Compute the expected operating profit for 2021.

124) Renee Tyne, now retired, owns the Downtown Beauty Shop. She employs five (5) stylists and pays each a base rate of $500 per month. One of the stylists serves as the manager and receives an extra $300 per month. In addition to the base rate, each stylist also receives a commission of $3 per haircut. A stylist can do as many as 20 haircuts a day, but the average is 14 haircuts per day. The Downtown Beauty Shop is open 24 days a month. You can safely ignore income taxes. Other costs are incurred as follows: Advertising Rent Beauty Supplies Utilities Magazines Cleaning Supplies

$ $ $ $ $ $

200per month 400per month 0.90per haircut 175per month plus $0.35 per haircut 25per month 0.15per haircut

Renee currently charges $8 per haircut. Required: (a) Compute the break-even point in (1) number of haircuts, (2) total sales dollars, and (3) as a percentage of capacity. (b) In July, 1,400 haircuts were given. Compute the operating profits for the month. (c) Renee wants a $2,160 operating profit in August. Compute the number of haircuts that must be given in order to achieve this goal. (d) If 1,500 haircuts are given in August, compute the selling price that would have to be charged in order to have $2,160 in operating profits. 125) You have been provided with the following information regarding the Fremont Manufacturing Company: Sales price Variable manufacturing cost per unit Variable marketing cost per unit Fixed manufacturing costs Fixed administrative costs

50 24 6 360,000 80,000

126) Xi-Tech, Inc. is considering the introduction of a new music player with the following price and cost characteristics: Sales price Variable costs Fixed costs

125each 75each 180,000per year

Required: (a) How many units must Xi-Tech sell to break even? (b) How many units must Xi-Tech sell to make an operating profit of $120,000 for the year? (c) If projected sales are 7,500 units, what is the margin of safety in units? 127) John Martin, now retired, owns the Corner Barber Shop. He employs five (5) barbers and pays each a base rate of $500 per month. One of the barbers serves as the manager and receives an extra $300 per month. In addition to the base rate, each barber also receives a commission of $3 per haircut. A barber can do as many as 20 haircuts a day, but the average is 14 haircuts per day. The Corner Barber Shop is a corporation with a 30% tax rate and is open 24 days a month. Other costs are incurred as follows: Advertising Rent Barber Supplies Utilities Magazines Cleaning Supplies

$ 200per month $ 400per month $ 0.90per haircut $ 175per month plus $0.35 per haircut $ 25per month $ 0.15per haircut

John currently charges $8 per haircut. Required: (a) John wants to earn $2,160 in after-tax operating profits. Compute the number of haircuts that must be given to reach this goal in June. (b) In June, only 1,500 haircuts were given. Compute the price per haircut that John should have charged in June to earn $2,160 in after-tax operating profits.

128) The president of Equipment Enterprises is considering expanding sales by producing three different versions of its product. Each will be targeted by the marketing department to different income levels and, hence, will be produced from three different qualities of materials. After reviewing the sales forecasts, the sales department feels that for every item of Large sold, 4 of Medium can be sold, and 8 of Small can be sold. The following information has been assembled by the sales department and the production department. Large Medium Small Sales price (per unit) $ 15.00 $ 10.00 $ 5.00 Material cost 5.00 4.00 2.00 Direct labor 2.00 1.50 1.25 Variable Overhead 2.00 1.50 1.25 The fixed costs associated with the manufacture of these three products are $75,000 per year. Required: Determine the number of units of each product that would be sold at the break-even point.

129) Galena Company manufactures and sells adjustable canopies that attach to motor homes and trailers. The market covers both new unit purchases as well as replacement canopies. Galena developed its 2021 business plan based on the assumption that canopies would sell at a price of $400 each. The variable costs for each canopy were projected to be $200, and the annual fixed costs were budgeted at $100,000. The goal for Galena 's after-tax operating profits was $240,000; the company's effective tax rate is 40%. While Galena 's sales usually increase during the second quarter, the May financial statements reported that sales were not meeting expectations. For the first five months of 2021, only 350 units had been sold at the established price, with variable costs as planned. It was clear that the 2021 after-tax operating profit goal would not be reached unless some corrective actions were taken. Galena 's president assigned a management committee to analyze the situation and develop several alternative courses of action. The following mutually exclusive alternatives were presented to the president: (1) Reduce the sales price by $40. The sales department predicts that with the significantly reduced price, 2,700 units can be sold during the remainder of 2021. Total fixed and variable unit costs will stay as budgeted. (2) Lower variable costs per unit by $25 through the use of less expensive materials and lightly modified manufacturing techniques. The sales price will also be reduced by $30. These changes can be expected to yield sales of 2,200 for the remainder of 2021. (3) Cut fixed costs by $10,000 and lower the sales price by 5%. Variable costs per unit will be unchanged. Sales of 2,000 units can be expected for the remainder of 2021. Required: (a) If no changes are made to the selling price or cost structure, determine the number of units that Galena must sell in order to break even. (b) If no changes are made to the selling price or cost structure, determine the number of units that Galena must sell in order to achieve its after-tax operating profit objective. (c) Determine which one of the alternatives Galena should select to achieve its after-tax operating profit objective. Be sure to support your selection with appropriate computations. 130) You have been provided with the following information regarding the Ralston Manufacturing Company: Sales Price Variable manufacturing cost per unit Fixed manufacturing costs per unit Variable marketing cost per unit Fixed administrative costs per unit

$ 50 24 12 6 3

This information is based on forecasted sales of 30,000 units. Required: (a) What is the expected operating profit for the upcoming year? (b) What is the break-even point in units? (c) If $160,000 of operating profit is desired, how many units must be sold? 34 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

131) Nation Inc. sells three products. Last month's results are as follows: Revenues Variable costs

P1 $ 200,000 80,000

P2 $ 300,000 280,000

P3 $ 300,000 160,000

Total fixed costs are $100,000 marketing and $125,000 administrative. Required: (a) What was the operating profit last month? (b) What is Nation's break-even sales volume (at the given mix)? (c) What is Nation's margin of safety? 132) Carrie sells three products. Last month's results are as follows: Revenues Variable costs

P1 $ 150,000 60,000

P2 $ 225,000 210,000

P3 $ 225,000 120,000

Total fixed costs are $100,000 marketing and $125,000 administrative. Required: (a) What was the contribution margin ratio? (b) What sales volume does Carrie need to achieve a $100,000 monthly profit? (c) What will profit be if Carrie increases sales by 20%? 133) The Windsome Corporation has budgeted fixed costs of $225,000 and an estimated selling price of $24 per unit. The variable cost ratio is 40% and the company plans to sell 48,000 units in 2021. Required: (a) Compute the break-even point in units. (b) Compute the margin of safety in units for 2021. (c) Compute the expected operating profit for 2021. 134) Bokay Creations has budgeted annual fixed costs of $240,000 and an estimated variable cost ratio of 60%. Required: (a) Compute Bokay's break-even point in sales dollars. (b) Compute Bokay's margin of safety if the company expects to earn revenues of $800,000. (c) Compute Bokay's expected operating profit at the $800,000 revenue.

135) The sales manager of Springdale Enterprises is considering expanding sales by producing three different versions of its product. Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials. After reviewing the sales forecasts, the sales department feels that 40% of units sold will be the original product, 35% will be new model #1 and the remainder will be new model #2. The following information has been assembled by the sales department and the production department. Sales price (per unit) Material cost Direct labor Variable overhead

Original $ 100.00 45.00 20.00 15.00

Model #1 $ 70.00 30.00 15.00 11.25

Model #2 $ 50.00 20.00 10.00 7.50

The fixed costs associated with the manufacture of these three products are $175,000 per year. Required: Determine the number of units of each product that would be sold at the break-even point. 136) The sales manager of Thompson Sales is considering expanding sales by producing three different versions of its product. Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials. After reviewing the sales forecasts, the sales department feels that 70% of units sold will be the original product, 20% will be new model #1 and the remainder will be new model #2. The following information has been assembled by the sales department and the production department. Sales price (per unit) Material cost Direct labor Variable overhead

Original $ 50.00 22.50 10.00 7.00

Model #1 $ 35.00 15.00 7.50 5.25

Model #2 $ 25.00 10.00 5.00 3.50

The fixed costs associated with the manufacture of these three products are $250,000 per year. Required: (a) Determine the number of units of each product that would be sold at the break-even point. (b) Determine the break-even point if the sales estimates are instead 50% original product, 30% model #1, and the remainder model #2.

137) The Teri Aki Diner is a new buffet-style restaurant offering stir-fry and Thai dishes. The buffet has a fixed price of $8.50 per person. The estimated food costs are $2.00 per person, regardless of volume. Fixed costs are related to the number of buffet lines that are maintained, with the estimated costs as follows: Monthly volume 1 line 2 lines 3 lines

0 – 4,000 4,001 – 6,000 6,001 – 7,500

Fixed Costs $ 30,000 $ 37,000 $ 40,000

Required: Determine the break-even point(s). 138) The Beach Party packages horseradish and mustards in a factory that can operate one, two, or three shifts. The product sells for $10 a case and has variable costs of $4 per case. Fixed costs are related to the number of shifts that are operated, with the estimated costs as follows: Daily volume 1 shift 2 shifts 3 shifts

0 – 2,000 2,001 – 4,000 4,001 – 6,000

Fixed Costs $ 3,000 $ 5,700 $ 8,200

Required: (a) Determine the break-even point(s). (b) If Beach Party can sell all it can produce, how many shifts should be operated? 139) Pines Inc. produces and sells two products. During the most recent month, Product DQ393's sales were $25,000 and its variable costs were $5,750. Product BA999's sales were $40,000 and its variable costs were $9,850. The company's fixed costs were $48,310. Required: a. Determine the overall break-even point for the company. b. If the sales mix shifts toward Product DQ393, with no change in total sales, what will happen to the break-even point for the company? Explain. 140) Fortune Tools produces and sells two products. Data concerning these products for the most recent month appear below: Product XYZ Sales $ 14,000 Variable costs $ 6,720 Fixed costs for the entire company were $17,570.

Product VAR $ 27,000 $ 12,550

Required: a. Determine the overall break-even point for the company. b. If the sales mix shifts toward Product XYZ, with no change in total sales, what will happen to the break-even point for the company? Explain. 37 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

141) In the most recent month, Faulkner Corporation's total contribution margin was $208,000 and its operating profit $39,400. Required: a. Compute the degree of operating leverage to two decimal places. b. Using the degree of operating leverage, estimate the percentage change in operating profit that should result from a 1% increase in sales. 142) Drum Co. has provided the following data concerning its only product: Selling Price Current sales Break-even sales

200per unit 18,800units 14,288units

Required: Compute the margin of safety in both dollars and as a percentage of sales. 143) Garrison Inc. produces and sells a single product whose contribution margin ratio is 66%. The company's monthly fixed cost is $667,920 and the company's monthly target profit is $72,600. Required: Determine the dollar sales to attain the company's target profit. 144) Blues Corporation produces and sells a single product whose selling price is $240.00 per unit and whose variable cost is $86.40 per unit. The company's fixed cost is $720,384 per month. Required: Determine the monthly break-even point in both units and dollar sales. 145) Grayson Corporation produces and sells a single product. Data concerning that product appear below: Selling price per unit Variable cost per unit Fixed cost per month

$ 230.00 $ 92.00 $ 621,000

Required: a. Assume the company's monthly target profit is $69,000. Determine the unit sales to attain that target profit. b. Assume the company's monthly target profit is $41,400. Determine the dollar sales to attain that target profit.

146) Morrel Co. produces and sells a single product. The company's income statement for the most recent month is given below: Sales (6,000 units at $40 per unit) Less manufacturing costs: Direct materials Direct labor (variable) Variable factory overhead Fixed factory overhead Gross margin Less selling and other costs: Variable selling and other costs Fixed selling and other costs Operating profit

$ 240,000 $ 48,000 60,000 12,000 30,000

150,000 $ 90,000

24,000 42,000 $

66,000 24,000

There are no beginning or ending inventories. Required: a. Compute the company's monthly break-even point in units of product. b. What would the company's monthly operating profit be if sales increased by 25% and there is no change in total fixed costs? c. What dollar sales must the company achieve in order to earn an operating profit of $50,000 per month? d. The company has decided to automate a portion of its operations. The change will reduce direct labor costs per unit by 40 percent, but it will double the costs for fixed factory overhead. Compute the new break-even point in units. 147) Broken Arrow Inc. produces and sells a single product. Data concerning that product appear below: Selling price Variable costs Contribution margin

Per Unit $ 190 57 $ 133

Percent of Sales 100% 30% 70%

Fixed costs are $226,000 per month. The company is currently selling 2,000 units per month. Required: The marketing manager would like to cut the selling price by $12 and increase the advertising budget by $13,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 200 units. What should be the overall effect on the company's monthly operating profit of these changes?

148) Fairmount Corporation produces and sells a single product. Data concerning that product appear below: Selling price Variable costs Contribution margin

Per Unit $ 120 36 $ 84

Percent of Sales 100% 30% 70%

Fixed costs are $516,000 per month. The company is currently selling 7,000 units per month. Required: The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $9 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $55,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 200 units. What should be the overall effect on the company's monthly operating profit of these changes? 149) Clifford Co. manufactures and sells adjustable windows for remodeling homes and new housing. Clifford developed its budget for the current year assuming that the windows would sell at a price of $500 each. The variable costs for each window were forecasted to be $250 and the annual fixed costs were forecasted to be $130,000. Clifford had targeted a profit of $450,000. While Clifford's sales usually increase during the second quarter, the May financial statements reported that sales were not meeting expectations. For the first five months of the year, only 400 units had been sold at the established price, with variable cost as planned, and it was clear that the target profit for the year would not be reached unless some actions were taken. Clifford's president assigned a management committee to analyze the situation and develop several alternative courses of action. The following three alternatives were presented to the president, only one of which can be selected. ∙ Reduce the selling price by $50. The marketing department forecasts that with the lower price, 3,200 units could be sold during the remainder of the year. ∙ Lower variable costs per unit by $30 through the use of less expensive materials. Because of the difference in materials, the selling price would have to be lowered by $40 and sales of 2,600 units for the remainder of the year are forecast. ∙ Cut fixed costs by $15,000 and lower the selling price by 5 percent. Sales of 2,200 units would be expected for the remainder of the year. Required: a. If no changes are made to the selling price or cost structure, estimate the number of units that must be sold during the year to break-even. b. If no changes are made to the selling price or cost structure, estimate the number of units that must be sold during the year to attain the target profit of $450,000. c. Determine which of the alternatives Clifford's president should select to maximize profit.

150) Volare, Inc. has decided to introduce a new product. The product can be manufactured using either a capital-intensive or labor-intensive method. The manufacturing method will not affect the quality or sales of the product. The estimated manufacturing costs of the two methods are as follows: Variable manufacturing cost per unit Fixed manufacturing cost per year

Capital-Intensive $ 14.00 $ 2,440,000

Labor-Intensive $ 17.60 $ 1,320,000

The company's market research department has recommended an introductory selling price of $30 per unit for the new product. The annual fixed selling and administrative costs of the new product are $500,000. The variable selling and administrative costs are $2 per unit regardless of how the new product is manufactured. Required: a. Calculate the break-even point in units if Volare, Inc. uses the: 1. capital-intensive manufacturing method. 2. labor-intensive manufacturing method. b. Determine the unit sales volume at which the operating profit is the same for the two manufacturing methods. c. Assuming sales of 250,000 units, what is the degree of operating leverage if the company uses the: 1. capital-intensive manufacturing method. 2. labor-intensive manufacturing method. d. What is your recommendation to management concerning which manufacturing method to use?

151) The following monthly data in contribution format are available for the Feta Company and its only product, Product Gamma: Sales Variable costs Contribution margin Fixed costs Operating profit

Total $ 83,700 32,700 51,000 40,000 $ 11,000

Per Unit $ 279 109 $ 170

The company produced and sold 300 units during the month and had no beginning or ending inventories. Required: a. Without resorting to calculations, what is the total contribution margin at the break-even point? b. Management is contemplating the use of plastic gearing rather than metal gearing in Product Gamma. This change would reduce variable costs by $18 per unit. The company's sales manager predicts that this would reduce the overall quality of the product and, thus, would result in a decline in sales to a level of 250 units per month. Should this change be made? c. Assume that Feta Company is currently selling 300 units of Product Gamma per month. Management wants to increase sales and feels this can be done by cutting the selling price by $22 per unit and increasing the advertising budget by $20,000 per month. Management believes that these actions will increase unit sales by 50 percent. Should these changes be made? d. Assume that Feta Company is currently selling 300 units of Product Gamma. Management wants to automate a portion of the production process for Product Gamma. The new equipment would reduce direct labor costs by $20 per unit but would result in a monthly rental cost for the new robotic equipment of $10,000. Management believes that the new equipment will increase the reliability of Product Gamma thus resulting in an increase in monthly sales of 12%. Should these changes be made?

152) Morgan Designs manufactures decorative iron railings. In preparing for next year's operations, management has developed the following estimates: Sales (20,000 units) Direct materials Direct labor (variable) Manufacturing overhead: Variable Fixed Selling & administrative: Variable Fixed

Total $ 1,000,000 $ 200,000 $ 50,000

Per Unit $ 50.00 $ 10.00 $ 2.50

$ $

70,000 80,000

$ $

3.50 4.00

$ $

100,000 30,000

$ $

5.00 1.50

Required: Compute the following items: a. Unit contribution margin. b. Contribution margin ratio. c. Break-even in dollar sales. d. Margin of safety percentage. e. If the sales volume increases by 20%, with no change in total fixed costs, what will be the change in operating profit? f. If the per unit variable production costs increase by 15%, and fixed selling and administrative costs increase by 12%, what will be the new break-even point in dollar sales?

153) Maryland Company offers two products. At present, the following represents the usual results of a month's operations: Product XX

Product ZZ Per Unit

Sales Variable costs Contributio n margin Fixed costs Operating profit

$ 120,000

$ 1.20

60,000

0.60

$ 60,000

$ 0.60

80,00 $ 0 60,00 0 20,00 $ 0

Per Unit

Combined

$0.80

$ 200,000

0.60

120,000

$0.20

80,000 50,000 $ 30,000

Required: a. Find the combined break-even point in dollars. b. Find the margin of safety in dollars. c. The company is considering decreasing product XX's unit sales to 80,000 and increasing product ZZ's unit sales to 180,000, leaving unchanged the selling price per unit, variable cost per unit, and total fixed costs. Would you advise adopting this plan? d. Refer to (c) above. Under the new plan, find the break-even point in dollars. e. Under the new plan in (c) above, find the margin of safety in dollars. 154) Data concerning Fowler Corporation's single product appear below: Selling price Variable costs Contribution margin

Per Unit $ 210 126 $ 84

Percent of Sales 100% 60% 40%

Fixed costs are $444,000 per month. The company is currently selling 7,000 units per month. Required: Management is considering using a new component that would increase the unit variable cost by $2. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 200 units. What should be the overall effect on the company's monthly operating profit of this change if fixed costs are unaffected? 155) Explain the difference between the break-even point, the margin of safety, and operating leverage. 156) Explain the difference between total contribution margin and gross margin. 157) Why is it important for the profit equation to make a distinction between fixed and variable costs? 44 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

158) Why is the time period so important for the definition of fixed costs? 159) Present the profit equation and define all of the terms. 160) Why and how do managers simplify analyses for achieving a given level of profit with two products or services? 161) Discuss the role of assumptions that decision makers must consider when relying on CVP analysis.

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 4 Fundamentals of Cost Analysis for Decision Making 1) Differential analysis involves the comparison of one or more alternative courses of action with the status quo. 2) If there is only one alternative course of action and the status quo is unacceptable, then there really is no decision to make. 3) A decision must involve at least two alternative courses of action. 4) Differential analysis cannot be used for long-run decisions because it cannot incorporate the timing of revenues and costs (i.e., the time value of money). 5) Short-run decisions often have long-run implications. 6) Only variable costs can be differential costs. 7) Fixed costs are always classified as sunk costs in differential cost analysis. 8) The full-cost fallacy occurs when a decision-maker fails to include fixed manufacturing overhead in the product's cost. 9) When deciding whether or not to accept a special order, a decision-maker should focus on differential costs instead of full costs. 10) The differential analysis approach to pricing for special orders could lead to underpricing in the long-run because fixed costs are not included in the analysis. 11) Target costs equal the difference between the target selling price and the desired profit margin. 12) Dumping occurs when a company exports its product to consumers in another country at an export price that is below the domestic price. 13) Price discrimination is the practice of selling identical goods or services to different customers at different prices. 14) Peak-load pricing is the practice of setting prices lowest when the quantity demanded for the product approaches the physical capacity to produce it. 15) The alternative courses of action in a make-or-buy decision are (a) manufacture needed items internally or (b) purchase needed items externally. 16) The reason opportunity costs are not included in the accounting system is because they involve estimates. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

17) Financial statements prepared in accordance with generally accepted accounting principles (GAAP) provide differential cost information. 18) In the short-run, plant capacity is fixed and product choices have to be made that optimize the use of available capacity. 19) With constrained resources, the important measure of profitability is the contribution margin per unit of scarce resource. 20) The theory of constraints focuses on determining the optimal product mix when one or more resources restrict the attainment of a goal or objective. 21) The relevance of a particular cost to a decision is determined by the: (CMA adapted) A) riskiness of the decision. B) number of decision variables. C) amount of the cost. D) potential effect on the decision. 22) In a decision analysis situation, which one of the following costs is not likely to contain a variable cost component? (CMA adapted) A) Labor. B) Overhead. C) Straight-line Depreciation. D) Selling. 23) Differential costs are: (CMA adapted) A) the difference in total costs that result from selecting one choice instead of another. B) the profit foregone by selecting one choice instead of another. C) a cost that continues to be incurred in the absence of activity. D) a cost common to all choices in questions and not clearly allocable to any of them. 24) The period of time over which capacity will be unchanged is: A) long run. B) sunk cost. C) short run. D) product life cycle. 25) Which of the following statements regarding differential costs is (are) false? (A) The full-cost fallacy occurs when a decision-maker fails to include fixed manufacturing overhead in the product's cost. (B) When deciding whether or not to accept a special order, a decision-maker should focus on differential costs instead of full costs. A) Only A. B) Only B. C) Neither A nor B is false. D) Both A and B are false. 2 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

26) Which of the following costs are irrelevant for a special order that will allow an organization to utilize some of its present idle capacity? A) Direct materials. B) Indirect materials. C) Variable overhead. D) Unavoidable fixed overhead. 27) Which of the following statements regarding special orders is (are) true? (A) The primary decision for special orders is determining whether the differential revenue is greater than the differential costs associated with the order. (B) The differential analysis approach to pricing for special orders could lead to underpricing in the long-run because fixed costs are not included in the analysis. A) Only A. B) Only B. C) Neither A nor B is true. D) Both A and B are true. 28) The Arthur Company manufactures kitchen utensils. The company is currently producing well below its full capacity. The Benton Company has approached Arthur with an offer to buy 20,000 utensils at $0.75 each. Arthur sells its utensils wholesale for $0.85 each; the average cost per unit is $0.83, of which $0.12 is fixed costs. If Arthur were to accept Benton's offer, what would be the increase in Arthur's operating profits? A) $400. B) $800. C) $1,600. D) $2,000.

29) The Minton Company has gathered the following information for a unit of its most popular product: Direct materials Direct labor Overhead (40% variable) Cost to manufacture Desired markup (50%) Target selling price

6 3 5 14 7 $ 21

The above cost information is based on 4,000 units. A foreign distributor has offered to buy 1,000 units at a price of $16 per unit. This special order would not disturb regular sales. Variable shipping and other selling expenses would be an additional $1 per unit for the special order. If the special order is accepted, Minton's operating profits will increase by: A) $1,000. B) $1,600. C) $2,000. D) $4,000. 30) The following information relates to the Magna Company for the upcoming year, based on 400,000 units. Sales Cost of goods sold Gross margin Operating expenses Operating profits

Amount $ 4,000,000 3,200,000 800,000 300,000 $ 500,000

Per Unit $ 10.00 8.00 2.00 0.75 $ 1.25

The cost of goods sold includes $1,200,000 of fixed manufacturing overhead; the operating expenses include $100,000 of fixed marketing expenses. A special order offering to buy 50,000 units for $7.50 per unit has been made to Magna. Fortunately, there will be no additional operating expenses associated with the order and Magna has sufficient capacity to handle the order. How much will operate profits be increased if Magna accepts the special order? A) $25,000. B) $62,500. C) $100,000. D) $125,000.

31) The following information relates to a product produced by Faulkland Company: Direct materials Direct labor Variable overhead Fixed overhead Unit cost

$ 10 7 6 8 $ 31

Fixed selling costs are $1,000,000 per year. Variable selling costs of $4 per unit sold are added to cover the transportation cost. Although production capacity is 500,000 units per year, Faulkland expects to produce only 400,000 units next year. The product normally sells for $40 each. A customer has offered to buy 60,000 units for $30 each. The customer will pay the transportation company directly for the transportation charges on the units purchased. If Faulkland accepts the special order, the effect on operating profits would be a: A) $60,000 increase. B) $180,000 increase. C) $420,000 increase. D) $600,000 decrease. 32) If there is excess capacity, the minimum acceptable price for a special order must cover: A) only variable costs associated with the special order. B) variable and fixed manufacturing costs associated with the special order. C) variable and incremental fixed costs associated with the special order. D) variable costs and incremental fixed costs associated with the special order, plus the contribution margin usually earned on regular units. 33) Park Corporation is preparing a bid for a special order that would require 720 liters of material SUN100. The company already has 560 liters of this raw material in stock that originally cost $6.30 per liter. Material SUN100 is used in the company's main product and is replenished on a periodic basis. The resale value of the existing stock of the material is $5.80 per liter. New stocks of the material can be readily purchased for $6.65 per liter. What is the relevant cost of the 720 liters of the raw material when deciding how much to bid on the special order? (CIMA adapted) A) $4,592. B) $4,788. C) $4,456. D) $4,176. 34) Tori Inc. has some material that originally cost $68,400. The material has a scrap value of $30,100 'as is', but if reworked at a cost of $1,400, it could be sold for $30,800. What would be the incremental effect on the company's overall profit of reworking and selling the material rather than selling it 'as is' as scrap? (CIMA adapted) A) $(69,100) B) $(700) C) $29,400 D) $(39,000) 5 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

35) Lafferty Corporation is a specialty component manufacturer with idle capacity. Management would like to use its unused capacity to generate additional profits. A potential customer has offered to buy 6,200 units of component Rocket. Each unit of Rocket requires 8 units of material CES4 and 6 units of material XES7. Data concerning these two materials follow:

Material CES4 XES7

Units in Stock 32,420 31,060

Original Cost Per Unit $ 3.80 $ 9.30

Current Market Price Per Unit $ 3.35 $ 9.60

Disposal Value Per Unit $ 3.10 $ 8.35

Material CES4 is in use in many of the company's products and is routinely replenished. Material XES7 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up. What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product Rocket? (CIMA adapted) A) $528,551 B) $523,280 C) $476,350 D) $484,455 36) Alpha Inc. regularly uses material FLAV4 and currently has in stock 460 liters of the material for which it paid $2,622 several weeks ago. If this were to be sold as is on the open market as surplus material, it would fetch $5.25 per liter. New stocks of the material can be purchased on the open market for $5.85 per liter, but it must be purchased in lots of 1,000 liters. You have been asked to determine the relevant cost of 800 liters of the material to be used in a job for a customer. The relevant cost of the 800 liters of material FLAV4 is: (CIMA adapted) A) $5,850. B) $4,200. C) $4,404. D) $4,680.

37) Starla Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 4,200 units of component JOLT. Each unit of JOLT requires 6 units of material OX8 and 9 units of material POW6. Data concerning these two materials follow:

Material OX8 POW6

Units in Stock 18,600 38,280

Original Cost Per Unit $ 3.60 $ 3.20

Current Market Price Per Unit $ 3.70 $ 2.80

Disposal Value Per Unit $ 3.35 $ 1.65

Material OX8 is in use in many of the company's products and is routinely replenished. Material POW6 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up. What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product JOLT? (CIMA adapted) A) $146,790. B) $199,080. C) $155,610. D) $212,340. 38) Tara Inc. is considering using stocks of an old raw material in a special project. The special project would require all 160 kilograms of the raw material that are in stock and that originally cost the company $1,136 in total. If the company were to buy new supplies of this raw material on the open market, it would cost $7.25 per kilogram. However, the company has no other use for this raw material and would sell it at the discounted price of $6.50 per kilogram if it were not used in the special project. The sale of the raw material would involve delivery to the purchaser at a total cost of $75.00 for all 160 kilograms. What is the relevant cost of the 160 kilograms of the raw material when deciding whether to proceed with the special project? (CIMA adapted) A) $1,040 B) $965 C) $1,136 D) $1,160 39) Which of the following costs are not considered in a differential analysis for a make-or-buy decision? A) Indirect materials and indirect labor if the item is manufactured internally. B) Direct materials and direct labor if the item is purchased. C) Variable overhead if the item is manufactured internally. D) Fixed overhead that will continue if the item is purchased.

40) The Crispy Baking Company is considering the expansion of its business into door-to-door delivery service. This would require an additional $12,500 in labor costs per month. Companyowned vehicles now used to make morning deliveries to restaurants could be used in the afternoons to make the home deliveries. However, it is estimated that an additional $5,000 would be required per month for gas, oil, and maintenance. It is further estimated that the home delivery use of the trucks would be allocated 45% of the existing $6,500 fixed vehicle costs. What is the differential delivery cost per month for expanding into the home delivery market? A) $12,500 B) $17,500 C) $19,750 D) $20,425 41) The time from initial research and development to the time that support to the customer ends is the: A) product life cycle. B) short run. C) target time. D) predatory price. 42) The price based on customers' perceived value for the product and the price that competitors charge is the: A) predatory price. B) target price. C) target cost. D) dumping price. 43) The practice of setting the selling price below cost with the intent to drive competitors out of business is: A) predatory pricing. B) target pricing. C) target costing. D) peak-load pricing. 44) The practice of setting prices highest when the quantity demanded for the product approaches capacity is: A) predatory pricing. B) target pricing. C) peak-load pricing. D) price fixing. 45) Agreement among business competitors to set prices at a particular level is: A) predatory pricing. B) target pricing. C) peak-load pricing. D) price fixing. 8 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

46) Exporting a product to another country at a price below the domestic price is: A) dumping. B) target pricing. C) peak-load pricing. D) price fixing. 47) A target cost is computed as: A) cost to manufacture plus a desired markup. B) cost to manufacture plus designated selling expenses. C) market willingness to pay – cost to manufacture. D) market willingness to pay – desired profit. 48) The operations of Bridgeton Corporation are divided into the Adams Division and the Carter Division. Projections for the next year are as follows:

Sales Variable costs Contribution margin Direct fixed costs Segment margin Allocated common costs Operating income (loss)

Adams Division $ 560,000 196,000 $ 364,000 168,000 $ 196,000 84,000 $ 112,000

Carter Division $ 336,000 154,000 $ 182,000 140,000 $ 42,000 63,000 $ (21,000)

Total $ 896,000 350,000 $ 546,000 308,000 $ 238,000 147,000 $ 91,000

Operating income for Bridgeton Corporation as a whole if the Carter Division were dropped would be: A) $133,000. B) $112,000. C) $91,000. D) $49,000.

49) Damon Industries manufactures 20,000 components per year. The manufacturing costs of the components was determined as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead

$ 100,000 160,000 60,000 80,000

An outside supplier has offered to sell the component for $17. If Damon purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $10,000. If Damon purchases the component from the supplier instead of manufacturing it, the effect on operating profits would be a: A) $70,000 increase. B) $50,000 decrease. C) $10,000 decrease. D) $30,000 increase. 50) Brevard Industries produces two products. Information about the products is as follows: Units produced and sold Selling price per unit Variable costs per unit

Product 1 4,000 $ 15 9

Product 2 10,000 $ 13 8

The company's fixed costs totaled $70,000, of which $15,000 can be directly traced to Product 1 and $40,000 can be directly traced to Product 2. The effect on the firm's profits if Product 2 is dropped would be a: A) $10,000 increase. B) $35,000 increase. C) $35,000 decrease. D) $10,000 decrease. 51) Which of the following costs would continue to be incurred even if a segment is eliminated? A) Direct fixed expenses B) Variable cost of goods sold C) Common fixed costs D) Variable selling and administrative expenses 52) AirStep Shoe Company has two retail stores, one in Gainesville and the other in Orlando. The Gainesville store had sales of $100,000, a contribution margin of 35 percent, and a segment margin of $14,000. The company's two stores have total sales of $250,000, contribution margin of 32 percent, and a total segment margin of $31,000. The contribution margin for the Orlando store must have been: A) $65,000. B) $170,000. C) $105,000. D) $45,000. 10 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

53) Carter Industries has two divisions: the West Division and the East Division. Information relating to the divisions for the year just ended is as follows: Units produced and sold Selling price per unit Variable costs per unit Direct fixed cost Common fixed cost

West 30,000 $ 8 3 48,000 40,000

East 40,000 $ 15 5 110,000 40,000

Common fixed expenses have been allocated equally to each of the two divisions. Carter's segment margin for the West Division is: A) $150,000. B) $102,000. C) $30,000. D) $110,000. 54) Ortega Industries manufactures 15,000 components per year. The manufacturing cost of the components was determined to be as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total

$ 150,000 240,000 90,000 120,000 $ 600,000

Assume that the fixed manufacturing overhead reflects the cost of Ortega's manufacturing facility. This facility cannot be used for any other purpose. An outside supplier has offered to sell the component to Ortega for $34. If Ortega Industries purchases the component from the outside supplier, the effect on operating profits would be a: A) $30,000 decrease. B) $30,000 increase. C) $90,000 decrease. D) $90,000 increase.

55) Ortega Industries manufactures 15,000 components per year. The manufacturing cost of the components was determined to be as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total

$ 150,000 240,000 90,000 120,000 $ 600,000

Assume Ortega Industries could avoid $40,000 of fixed manufacturing overhead if it purchases the component from an outside supplier. An outside supplier has offered to sell the component for $34. If Ortega purchases the component from the supplier instead of manufacturing it, the effect on income would be a: A) $60,000 increase. B) $10,000 increase. C) $100,000 decrease. D) $140,000 increase. 56) The operations of Ranger Corporation are divided into the Stargate Division and the Cosmos Division. Projections for the next year are as follows:

Sales Less: Variable Costs Contribution Margin Less: Direct Fixed Costs Segment Margin Less: Allocated Common Costs Operating Income (Loss)

Stargate Division $ 500,000 180,000 $ 320,000 150,000 $ 170,000 70,000 $ 100,000

Cosmos Division $ 360,000 200,000 $ 160,000 125,000 $ 35,000 55,000 $ (20,000)

Total $ 860,000 380,000 $ 480,000 275,000 $ 205,000 125,000 $ 80,000

Operating income for Ranger Corporation, as a whole, if the Cosmos Division were dropped would be A) $45,000. B) $80,000. C) $100,000. D) $120,000.

57) The Hammer Division of Excel Company produces hardened sledge hammers. One-third of Hammer's output is sold to the Government Products Division of Excel; the remainder is sold to outside customers. Hammer's estimated operating profit for the year is:

The Government Products Division has an opportunity to purchase 10,000 hammers of the same quality from an outside supplier on a continuing basis. The Hammer Division cannot sell any additional products to outside customers. Should the Excel Company allow its Government Products Division to purchase the hammers from the outside supplier at $1.25 per unit? A) No; making the hammers will save Excel $1,500. B) Yes; buying the hammers will save Excel $1,500. C) No; making the hammers will save Excel $2,500. D) Yes; buying the hammers will save Excel $2,500. 58) The Camel Company produces 10,000 units of item Roto 454 annually at a total cost of $190,000. Direct materials Direct labor Variable overhead Fixed overhead Total

20,000 55,000 45,000 70,000 $ 190,000

59) The Camel Company produces 10,000 units of item Roto 454 annually at a total cost of $190,000. Direct materials Direct labor Variable overhead Fixed overhead Total

20,000 55,000 45,000 70,000 $ 190,000

The Yukon Company has offered to supply 10,000 units of Roto 454 per year for $18 per unit. If Camel accepts the offer, $4 per unit of the fixed overhead would be saved. In addition, some of Camel's facilities could be rented to a third party for $15,000 per year. At what price would Camel be indifferent to Yukon's offer? A) $17.00. B) $17.50. C) $18.50. D) $19.50. 60) For the past five years, the MAG Company has produced and sold electronic magnets to chemistry labs throughout the United States. Recently, a strong competitor has entered the market and MAG is considering whether it should continue to produce and sell the electronic magnets. The following information has been gathered to assist management in its decision: A) The machinery used to produce the magnet was purchased five years ago for $500,000. B) Four of the employees who produce magnets would be reassigned to the magnifying glass division. C) The space now used to produce the magnets would be used to eliminate the need to rent warehouse space. D) Sales volume (units) is estimated to drop by 50% once the competitor becomes fully operational. Which of the items listed above is (are) relevant to the decision to continue the production and sale of the electronic magnets? A) A and C. B) B and C. C) C and D. D) A, B, and D.

61) Which of the following statements about the theory of constraints is (are) true? (A) The theory of constraints focuses on determining the optimal product mix when one or more resources restrict the attainment of a goal or objective. (B) The theory of constraints focuses on the rate of throughput contribution and minimizing investment and other operating costs. A) Only A B) Only B C) Neither of these is true. D) Both of these are true. 62) The theory of constraints focuses on minimizing all of the following except: A) selling expenses per unit sold. B) production bottlenecks. C) investment in buildings. D) investment in inventories. 63) The Widner Company manufactures two products: Stainless Serving Spoons and Stainless Serving Forks. The costs and revenues are as follows: Spoons $ 150 80

Sales price Variable cost per unit

Forks $ 88 42

Total demand for Spoons is 14,000 units and for Forks is 9,000 units. Machine time is a scarce resource. During the year, 54,000 machine hours are available. Spoons require 5 machine hours per unit, while Forks require 3 machine hours per unit. How many units of Spoons and Forks should Widner produce? Spoons 14,000 8,307 10,800 5,400

A. B. C. D.

Forks 0 4,154 0 9,000

A) Option A B) Option B C) Option C D) Option D

64) Morgan Inc. has 5,400 machine hours available each month. The following information on the company's three products is available: Contribution margin per unit Machine hours per unit

Product 1 $ 15.00 3

Product 2 $ 18.00 2

Product 3 $ 7.50 1

If market demand exceeds the available capacity, in what sequence should orders be filled to maximize the company's profits? A) Product 1 first, product 2 second, and product 3 third. B) Product 2 first, product 3 second, and product 1 third. C) Product 3 first, product 2 second, and product 1 third. D) Product 3 first, product 1 second, and product 2 third. 65) Xenos Inc. has 6,600 machine hours available each month. The following information on the company's three products is available: Contribution margin per unit Machine hours per unit

Product X $ 20.00 2

Product Y $ 21.00 3

Product Z $ 17.50 2

If market demand exceeds the available capacity, in what sequence should orders be filled to maximize the company's profits? A) Product X first, product Z second, and product Y third. B) Product Y first, product Z second, and product X third. C) Product Y first, product X second, and product Z third. D) Product Z first, product X second, and product Y third.

66) The Garrison Company manufactures two products: Oxy Cleaner and Sonic Cleaner. The costs and revenues are as follows: Oxy Cleaner $ 75 40

Sales Price Variable cost per unit

Sonic Cleaner $ 44 21

Total demand for Oxy is 10,000 units and for Sonic is 6,000 units. Machine hours is a scarce resource. During the year, 50,000 machine hours are available. Oxy requires 4 machine hours per unit, while Sonic requires 2.5 machine hours per unit. How many units of Oxy and Sonic should Garrison produce?

A. B. C. D.

Oxy Cleaner 10,000 0 8,750 10,000

Sonic Cleaner 0 6,000 6,000 6,000

A) Option A B) Option B C) Option C D) Option D 67) The Garrison Company manufactures two products: Oxy Cleaner and Sonic Cleaner. The costs and revenues are as follows:

Sales Price Variable cost per unit

Oxy Cleaner $ 75 40

Sonic Cleaner $ 44 21

Total demand for Oxy is 10,000 units and for Sonic is 6,000 units. Machine time is a scarce resource. During the year, 50,000 machine hours are available. Oxy requires 4 machine hours per unit, while Sonic requires 2.5 machine hours per unit. What is the maximum contribution margin Garrison can achieve during a year? A) $444,250. B) $1,014,000. C) $488,000. D) $855,500.

68) Zantaq Inc. has 5,400 machine hours available each month. The following information on the company's three products is available: Side Bookcases Chairs Tables Contribution margin per unit $ 15.00 $ 18.00 $ 7.50 Machine hours per unit 3 2 1 The market demand is limited to 2,000 units of each of the three products. How many units of each should Zantaq produce and sell? Bookcases 2,000 0 0 1,800

A. B. C. D.

Chairs 2,000 2,000 2,000 0

Side Tables 2,000 2,000 1,400 0

A) Option A B) Option B C) Option C D) Option D 69) Zantaq Inc. has 5,400 machine hours available each month. The following information on the company's three products is available: Side Bookcases Chairs Tables Contribution margin per unit $ 15.00 $ 18.00 $ 7.50 Machine hours per unit 3 2 1 The market demand is limited to 2,000 units of each of the three products. What is the maximum possible contribution margin that Zantaq could make in any month? A) $81,000. B) $46,500. C) $43,000. D) $51,000.

70) Warrior Inc. has 12,000 machine hours available each month. The following information on the company's four products is available: Selling price per unit Variable cost per unit Machine hours per unit

Product W $ 20.00 $ 10.00 2

Product X $ 21.00 $ 9.00 3

Product Y $ 17.50 $ 7.50 4

Product Z $ 15.00 $ 10.00 1.5

If market demand exceeds the available capacity, in what sequence should orders be filled to maximize the company's profits? A) Product W first, product X second, product Z third, and product Y last. B) Product Z first, product W second, product X third, and product Y last. C) Product X first, product W second, product Y third, and product Z last. D) Product X first, product Z second, product Y third, and product W last. 71) The Tire Division of Traker Company produces tires for off-road sport vehicles. One-third of Tire's output is sold to an internal division of Traker; the remainder is sold to outside customers. Tire's estimated operating profit for the year is: Sales Variable costs Fixed costs Operating profits Unit sales

Internal $ 150,000 100,000 30,000 $ 20,000 10,000

Outside $ 400,000 200,000 60,000 $ 140,000 20,000

The internal division has an opportunity to purchase 10,000 tires of the same quality from an outside supplier on a continuing basis. The Tire Division cannot sell any additional products to outside customers. Should Traker Company allow its internal division to purchase the tires from the outside supplier at $13.00 per unit? A) No; making the tires will save Traker $15,000. B) Yes; buying the tires will save Traker $15,000. C) No; making the tires will save Traker $30,000. D) Yes; buying the tires will save Traker $30,000.

72) The Tire Division of Traker Company produces tires for off-road sport vehicles. One-third of Tire's output is sold to an internal division of Traker; the remainder is sold to outside customers. Tire's estimated operating profit for the year is: Sales Variable costs Fixed costs Operating profits Unit sales

Internal $ 150,000 100,000 30,000 $ 20,000 10,000

Outside $ 400,000 200,000 60,000 $ 140,000 20,000

The internal division has an opportunity to purchase 10,000 tires of the same quality from an outside supplier on a continuing basis. The Tire Division cannot sell any additional products to outside customers. What is the minimum selling price that Tire should accept from the internal division? A) $10.00. B) $13.00. C) $15.00. D) $50.00. 73) The Bogart Company produces 5,000 units of item SLM 46 annually at a total cost of $200,000. Direct materials Direct labor Variable overhead Fixed overhead Total

20,000 55,000 45,000 80,000 $ 200,000

74) The Bogart Company produces 5,000 units of item SLM 46 annually at a total cost of $200,000. Direct materials Direct labor Variable overhead Fixed overhead Total

20,000 55,000 45,000 80,000 $ 200,000

The Conner Company has offered to supply all 5,000 units of SLM 46 per year for $35 per unit. If Bogart accepts the offer, $8 per unit of the fixed overhead would be saved. In addition, some of Bogart's leased facilities could be vacated, reducing lease payments by $30,000 per year. At what price would Bogart be indifferent to Conner's offer? A) $40. B) $38. C) $35. D) $24. 75) The Rapid Delivery Service is considering the expansion of its business into afternoon retail delivery service. This would require an additional $25,000 in labor costs per month. Companyowned vehicles now used to make morning deliveries to local manufacturers could be used in the afternoons to make retail deliveries. However, it is estimated that an additional $10,000 would be required per month for gas, oil, and maintenance. It is further estimated that the retail delivery use of the trucks would be allocated 45% of the existing $13,000 fixed vehicle costs. What is the differential delivery cost per month for expanding into the retail delivery market? A) $25,000. B) $35,000. C) $39,500. D) $40,850. 76) The Lamar Company manufactures wiring tools. The company is currently producing well below its full capacity. The Boston Company has approached Lamar with an offer to buy 10,000 tools at $1.75 each. Lamar sells its tools wholesale for $1.85 each; the average cost per unit is $1.83, of which $0.27 is fixed costs. If Lamar were to accept Boston's offer, what would be the increase in Lamar's operating profits? A) $800 B) $1,000 C) $1,900 D) $2,900

77) The Young Company has gathered the following information for a unit of its most popular product: Direct materials Direct labor Overhead (40% variable) Cost to manufacture Desired markup (50%) Target selling price

$ 12 6 10 28 14 $ 42

The above cost information is based on 10,000 units. A distributor has offered to buy 2,000 units at a price of $32 per unit. This special order would not disturb regular sales. Special packaging and other selling expenses would be an additional $0.50 per unit for the special order. If the special order is accepted, Young's operating profits will increase by: A) $4,000. B) $6,400. C) $8,000. D) $19,000. 78) The Young Company has gathered the following information for a unit of its most popular product: Direct materials Direct labor Overhead (40% variable) Cost to manufacture Desired markup (50%) Target selling price

$ 12 6 10 28 14 $ 42

The above cost information is based on 10,000 units. A distributor has offered to buy 2,000 units at a price of $32 per unit. The distributor claims this special order would not disturb regular sales at $42. Special packaging and other selling expenses would be an additional $0.50 per unit for the special order. How many units of regular sales could be lost before this contract is not profitable? A) 0 units B) 950 units C) 1,000 units D) 2,000 units

79) The following information relates to the Jasmine Company for the upcoming year, based on 400,000 units: Sales Cost of goods sold Gross margin Operating expenses Operating profits

Amount $ 8,000,000 6,400,000 1,600,000 600,000 $ 1,000,000

Per Unit $ 20.00 16.00 4.00 1.50 $ 2.50

The cost of goods sold includes $2,400,000 of fixed manufacturing overhead; the operating expenses include $200,000 of fixed marketing expenses. A special order offering to buy 50,000 units for $15.00 per unit has been made to Jasmine. Fortunately, there will be no additional operating expenses associated with the order and Jasmine has sufficient capacity to handle the order. How much will operating profits increase if Jasmine accepts the special order? A) $50,000 B) $125,000 C) $200,000 D) $250,000 80) The following information relates to the Jasmine Company for the upcoming year:Sales Sales Cost of goods sold Gross margin Operating expenses Operating profits

Amount $ 8,000,000 6,400,000 1,600,000 600,000 $ 1,000,000

Per Unit $ 20.00 16.00 4.00 1.50 $ 2.50

The cost of goods sold includes $2,400,000 of fixed manufacturing overhead; the operating expenses include $200,000 of fixed marketing expenses. A special order offering to buy 50,000 units for $15.00 per unit has been made to Jasmine. Fortunately, there will be no additional operating expenses associated with the order; however, Jasmine is operating at full capacity. How much will operating profits increase if Jasmine accepts the special order? A) $50,000. B) $125,000. C) $200,000. D) Operating profits will not increase as a result of accepting the special order.

81) The following information relates to a product produced by Orca Company: Direct materials Direct labor Variable overhead Fixed overhead Unit cost

$ 20 14 12 16 $ 62

Fixed selling costs are $1,000,000 per year. Although production capacity is 500,000 units per year, Orca expects to produce only 400,000 units next year. The product normally sells for $80 each. A customer has offered to buy 60,000 units for $60 each. The customer will pay the transportation charge on the units purchased. If Orca accepts the special order, the effect on operating profits would be a: A) $120,000 increase. B) $360,000 increase. C) $840,000 increase. D) $1,200,000 decrease. 82) The operations of Winston Corporation are divided into the Blink Division and the Blur Division. Projections for the next year are as follows: Sales Variable costs Contribution margin Direct fixed costs Segment margin Allocated common costs Operating income (loss)

Blink Division $ 280,000 98,000 $ 182,000 84,000 $ 98,000 42,000 $ 56,000

Blur Division $ 168,000 77,000 $ 91,000 70,000 $ 21,000 31,500 $ (10,500)

Total $ 448,000 175,000 $ 273,000 154,000 $ 119,000 73,500 $ 45,500

Operating income for Winston Corporation, as a whole, if the Blur Division were dropped would be: A) $66,500. B) $56,000. C) $45,500. D) $24,500.

83) The operations of Winston Corporation are divided into the Blink Division and the Blur Division. Projections for the next year are as follows: Sales Variable costs Contribution margin Direct fixed costs Segment margin Allocated common costs Operating income (loss)

Blink Division $ 280,000 98,000 $ 182,000 84,000 $ 98,000 42,000 $ 56,000

Blur Division $ 168,000 77,000 $ 91,000 70,000 $ 21,000 31,500 $ (10,500)

Total $ 448,000 175,000 $ 273,000 154,000 $ 119,000 73,500 $ 45,500

If the Blur Division were dropped, Blink Division's sales would increase by 30%. If this happened, the operating income for Winston Corporation as a whole would be: A) $72,800. B) $56,000. C) $79,100. D) $59,150. 84) Which of the following statements regarding differential costs is (are) true? (A) The full-cost fallacy occurs when a decision-maker includes fixed manufacturing overhead in the product's cost. (B) When deciding whether or not to accept a special order, a decision-maker should focus on differential costs instead of full costs. A) Only A B) Only B C) Neither of these is true. D) Both of these are true. 85) Which of the following statements regarding special orders is (are) false? (A) The primary decision for special orders is determining whether the differential revenue is greater than the differential costs associated with the order. (B) The differential analysis approach to pricing for special orders will always lead to underpricing in the long-run because fixed costs are not included in the analysis. A) Only A B) Only B C) None of these is false. D) Both of these are false.

86) Which of the following costs are not considered in a differential analysis for a make-or-buy decision? A) Indirect materials if the item is purchased. B) Direct labor if the item is manufactured internally. C) Fixed overhead that will be eliminated if the item is purchased. D) Factory supervisor salaries that will continue if the item is purchased. 87) For the past five years, the McArthur Company has produced and sold frequency meters to genetics labs throughout the United States. Recently, a strong competitor has entered the market and McArthur is considering whether it should continue to produce and sell the frequency meters. The following information has been gathered to assist management in its decision: A) Sales volume (units) is estimated to drop by 25% once the competitor becomes fully operational. B) The equipment used to produce the meters was purchased five-years ago for $1,500,000. C) The space now used to produce the meters would be reallocated to eliminate the need to rent warehouse space. D) The share of the CEO's salary allocated to the frequency meters would be reassigned to the oscillator division. Which of the items listed above is (are) relevant to the decision to continue the production and sale of the frequency meters? A) A and C. B) B and C. C) C and D. D) A, B, and D. 88) Which of the following statements about the theory of constraints is (are) true? (A) The theory of constraints focuses on determining the optimal product mix when two or more resources restrict the attainment of a goal or objective. (B) The theory of constraints focuses on maximizing the rate of throughput contribution while maximizing investment and other operating costs. A) Only A B) Only B C) Neither of these is true. D) Both of these are true. 89) The opportunity cost of making a component part in a factory with no excess capacity is the: (CMA adapted) A) variable manufacturing cost of the component. B) fixed manufacturing cost of the component. C) total manufacturing cost of the component. D) net benefit foregone from the best alternative use of the capacity required.

90) When there is a production constraint, a company should emphasize the products with: A) the highest unit contribution margins. B) the highest contribution margin ratios. C) the highest contribution margin per unit of the constrained resource. D) the highest contribution margins and contribution margin ratios. 91) A study has been conducted to determine if Product A should be dropped. Sales of the product total $200,000 per year; variable expenses total $140,000 per year. Fixed expenses charged to the product total $90,000 per year. The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped. These data indicate that if Product A is dropped, the company's overall net operating income would: A) decrease by $20,000 per year. B) increase by $20,000 per year. C) decrease by $10,000 per year. D) increase by $30,000 per year. 92) The King Company has two divisions—North and South. The divisions have the following revenues and expenses: Sales Variable expenses Traceable fixed expenses Allocated common corporate expenses Net operating income (loss)

North $ 900,000 450,000 260,000 240,000 $ (50,000)

South $ 800,000 300,000 210,000 190,000 $ 100,000

Management at King is pondering the elimination of North Division. If North Division were eliminated, its traceable fixed expenses could be avoided. The total common corporate expenses would be unaffected. Given these data, the elimination of North Division would result in an overall company net operating income of: A) $100,000. B) $150,000. C) $(140,000). D) $50,000.

93) Parton Company, a manufacturer of snowmobiles, is operating at 70% of plant capacity. Parton's plant manager is considering making the headlights now being purchased from an outside supplier for $11.00 each. The Parton plant has idle equipment that could be used to manufacture the headlights. The design engineer estimates that each headlight requires $4.00 of direct materials, $3.00 of direct labor, and $6.00 of manufacturing overhead. Forty percent of the manufacturing overhead is a fixed cost that would be unaffected by this decision. A decision by Parton Company to manufacture the headlights should result in a net gain (loss) for each headlight of: (CMA adapted) A) $(2.00). B) $1.60. C) $0.40. D) $2.80. 94) Item I51 is used in one of Policy Corporation's products. The company makes 18,000 units of this item each year. The company's Accounting Department reports the following costs of producing Item 151 at this level of activity: Direct materials Direct labor Variable manufacturing overhead Supervisor's salary Depreciation of special equipment Allocated general overhead

Per Unit $ 1.20 $ 2.20 $ 3.30 $ 1.00 $ 2.70 $ 8.50

An outside supplier has offered to produce Item 151 and sell it to the company for $15.80 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the item was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $26,000 of these allocated general overhead costs would be avoided. If management decides to buy Item I51 from the outside supplier rather than to continue making the Item, what would be the annual impact on the company's overall net operating income? A) Net operating income would decline by $81,800 per year. B) Net operating income would decline by $55,800 per year. C) Net operating income would decline by $119,800 per year. D) Net operating income would decline by $29,800 per year.

95) Liu Inc. is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 13,000 of the components each year. The unit product cost of the component according to the company's cost accounting system is given as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost

8.80 5.80 1.60 3.60 $ 19.80

Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 30% is avoidable if the components were bought from the outside supplier. In addition, making one component uses 1 minute on the machine that is the company's current constraint. If the components were bought, this machine time would be freed up for use on another product that requires 2 minutes on the constraining machine and that has a contribution margin of $5.20 per unit. When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component? (CIMA adapted) A) $22.40. B) $19.80. C) $17.28. D) $19.88.

96) Item N29 is used by Tyner Corporation to make one of its products. A total of 11,000 units of this item are produced and used every year. The company's Accounting Department reports the following costs of producing Item N29 at this level of activity Direct materials Direct labor Variable manufacturing overhead Supervisor's salary Depreciation of special equipment Allocated general overhead

Per Unit $ 5.90 1.70 5.40 2.60 3.20 3.30

An outside supplier has offered to make Item N29 and sell it to the company for $21.20 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the direct labor, can be avoided. The special equipment used to make the Item was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the items were purchased instead of produced internally. In addition, the space used to make Item N29 could be used to make more of one of the company's other products, generating an additional segment margin of $29,000 per year for that product. What would be the impact on the company's overall net operating income of buying Item N29 from the outside supplier? A) Net operating income would decline by $38,900 per year. B) Net operating income would increase by $29,000 per year. C) Net operating income would decline by $32,600 per year. D) Net operating income would increase by $19,100 per year.

97) Bacon Company makes four products in a single facility. These products have the following unit product costs: Products A $ 14.30 19.40

B $ 10.20 27.40

C $ 11.00 33.60

D $ 10.60 40.40

4.30

2.70

2.60

3.20

26.50

34.80

26.60

37.20

$ 64.50

$ 75.10

$ 73.80

$ 91.40

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost

Additional data concerning these products are listed below. Products Grinding minutes per unit Selling price per unit Variable selling cost per unit Monthly demand in units

A 3.80 $ 76.10

B 5.30 $ 93.50

C 4.30 $ 87.40

D 3.40 $ 104.20

2.20 4,000

1.20 4,000

3.30 3,000

1.60 2,000

The grinding machines are the constraint in the production facility. A total of 53,600 minutes is available per month on these machines. Direct labor is a variable cost in this company. How many minutes of grinding machine time would be required to satisfy demand for all four products? A) 56,100 B) 40,900 C) 53,600 D) 13,000

98) Bacon Company makes four products in a single facility. These products have the following unit product costs: Products A $ 14.30 19.40

B $ 10.20 27.40

C $ 11.00 33.60

D $ 10.60 40.40

4.30

2.70

2.60

3.20

26.50

34.80

26.60

37.20

$ 64.50

$ 75.10

$ 73.80

$ 91.40

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost

Additional data concerning these products are listed below. Products Grinding minutes per unit Selling price per unit Variable selling cost per unit Monthly demand in units

A 3.80 $ 76.10

B 5.30 $ 93.50

C 4.30 $ 87.40

D 3.40 $ 104.20

2.20 4,000

1.20 4,000

3.30 3,000

1.60 2,000

99) Bacon Company makes four products in a single facility. These products have the following unit product costs: Products A $ 14.30 19.40

B $ 10.20 27.40

C $ 11.00 33.60

D $ 10.60 40.40

4.30

2.70

2.60

3.20

26.50

34.80

26.60

37.20

$ 64.50

$ 75.10

$ 73.80

$ 91.40

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost

Additional data concerning these products are listed below. Products Grinding minutes per unit Selling price per unit Variable selling cost per unit Monthly demand in units

A 3.80 $ 76.10

B 5.30 $ 93.50

C 4.30 $ 87.40

D 3.40 $ 104.20

2.20 4,000

1.20 4,000

3.30 3,000

1.60 2,000

100) Bacon Company makes four products in a single facility. These products have the following unit product costs: Products A $ 14.30 19.40

B $ 10.20 27.40

C $ 11.00 33.60

D $ 10.60 40.40

4.30

2.70

2.60

3.20

26.50

34.80

26.60

37.20

$ 64.50

$ 75.10

$ 73.80

$ 91.40

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost

Additional data concerning these products are listed below. Products Grinding minutes per unit Selling price per unit Variable selling cost per unit Monthly demand in units

A 3.80 $ 76.10

B 5.30 $ 93.50

C 4.30 $ 87.40

D 3.40 $ 104.20

2.20 4,000

1.20 4,000

3.30 3,000

1.60 2,000

The grinding machines are the constraint in the production facility. A total of 53,600 minutes is available per month on these machines. Direct labor is a variable cost in this company. Up to how much should the company be willing to pay for one additional minute of grinding machine time if the company has made the best use of the existing grinding machine capacity? (Round off to the nearest whole cent.) A) $35.90 B) $0.00 C) $8.58 D) $11.60

101) Darren Company produces three products with the following costs and selling prices:

Selling price per unit Variable costs per unit Contribution margin per unit Direct labor hours per unit Machine hours per unit

X $ 40 24 $ 16 4 5

Product Y $ 30 16 $ 14 2 7

Z $ 35 20 $ 15 3 4

If Darren has a limit of 20,000 direct labor hours but no limit on units sold or machine hours, then the ranking of the products from the most profitable to the least profitable use of the constrained resource is: A) X, Y, Z. B) Y, Z, X. C) X, Z, Y. D) Z, Y, X. 102) Darren Company produces three products with the following costs and selling prices:

Selling price per unit Variable costs per unit Contribution margin per unit Direct labor hours per unit Machine hours per unit

X $ 40 24 $ 16 4 5

Product Y $ 30 16 $ 14 2 7

Z $ 35 20 $ 15 3 4

If Darren has a limit of 30,000 machine hours but no limit on units sold or direct labor hours, then the ranking of the products from the most profitable to the least profitable use of the constrained resource is: A) Y, Z, X. B) X, Y, Z. C) X, Z, Y. D) Z, X, Y. 103) The Morris Company manufactures wiring tools. The company is currently producing well below its full capacity. The Baker Company has approached Morris with an offer to buy 5,000 tools at $17.50 each. Morris sells its tools wholesale for $18.50 each; the average cost per unit is $18.30, of which $2.70 is fixed costs. Required: a. If Morris were to accept Baker's offer, what would be the increase in Morris' operating profits? b. Assume that Morris is operating at full capacity. If Morris were to accept Baker's offer, what would be the change in Morris' operating profits? 35 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

104) The Parton Company has gathered the following information for a unit of its most popular product: Direct materials Direct labor Overhead (60% variable) Cost to manufacture

$ 20 15 20 $ 55

The above cost information is based on 10,000 units. Parton currently sells 8,500 units for $62 per unit. A distributor has offered to buy 1,000 units at a price of $50 per unit. This special order would not disturb regular sales. Required: a. Calculate Parton's change in operating profits if the special order is accepted. b. How many units of regular sales could be lost before this contract is not profitable? 105) The following information relates to the Klear Company for the upcoming year, based on 300,000 units: Sales Cost of goods sold Gross margin Operating expenses Operating profits

Amount $ 9,000,000 7,200,000 1,800,000 675,000 $ 1,125,000

Per Unit $ 30.00 24.00 6.00 2.25 $ 3.75

The cost of goods sold includes $3,000,000 of fixed manufacturing overhead; the operating expenses include $450,000 of fixed marketing expenses. A special order offering to buy 50,000 units for $25.00 per unit has been made to Klear. Fortunately, there will be no additional operating expenses associated with the order and Klear has sufficient capacity to handle the order. Required: a. How much will operating profits increase if Klear accepts the special order? b. Assume that Klear is operating at full capacity. How much will operating profits change if Klear accepts the special order?

106) The following information relates to a product produced by Baywatch Company: Direct materials Direct labor Variable overhead Fixed overhead Unit cost

50 35 30 40 $ 155

Fixed selling costs are $1,000,000 per year. Although production capacity is 900,000 units per year, Baywatch expects to produce only 800,000 units next year. The product normally sells for $180 each. A customer has offered to buy 60,000 units for $150 each. The customer will pay the transportation charge on the units purchased. Required: a. Compute the effect on operating profits if Baywatch accepts the special order. b. If Baywatch accepts the special order, how much could normal sales drop before all of the differential profits disappear?

107) Douglas Corporation produces and sells three products. The three products, Alpha, Beta, and Gamma, are sold in a local market and in a regional market. At the end of the first quarter of the current year, the following income statement (in thousands of dollars) has been prepared: Sales revenue Cost of goods sold Gross margin Marketing costs Administrative costs Operating profits

Total $ 5,200 4,040 1,160 420 208 $ 532

Local $ 4,000 3,100 900 240 160 $ 500

Regional $ 1,200 940 260 180 48 $ 32

Management has expressed special concern with the regional market because of the extremely poor return on sales. This market was entered a year ago because of excess capacity. It was originally believed that the return on sales would improve with time, but after a year, no noticeable improvement can be seen from the results as reported in the above quarterly statement. In attempting to decide whether to eliminate the regional market, the following information has been gathered: Products Sales revenue Variable manufacturing cost % of sales Variable marketing cost Product Sales by Markets Alpha Beta Gamma

Alpha Beta Gamma $ 2,000 $ 1,600 $ 1,600 60 % 70 % 60% 3 % 2 % 2% Local $ 1,600 1,200 1,200

Regional $ 400 400 400

All administrative costs and fixed manufacturing costs are common to the three products and the two markets and are fixed for the period. Remaining marketing costs are fixed for the period and separable by market. All fixed costs have been arbitrarily allocated to markets. Required: a. Assuming there are no alternative uses for the Douglas Corporation's present capacity, would you recommend dropping the regional market? Why or why not? b. Prepare the quarterly income statement showing contribution margins by products. Do not allocate fixed costs to products. c. It is believed that a new product can be ready for sale next year if the Douglas Corporation decides to go ahead with continued research. The new product can be produced by simply converting equipment presently used in producing product Gamma. This conversion will increase fixed costs by $40,000 per quarter. What must the minimum contribution margin per quarter be for the new product to make the changeover financially feasible?

108) Macro Electronics manufactures low-cost, consumer-grade computers. It sells these computers to various electronics retailers to market under store brand names. It manufactures two computers, the Lightning 2.0 and the Lightning 2.4, which differ in terms of speed, memory, and hard drive capacity. The following information is available:

Direct materials Direct labor Variable overhead Fixed overhead Total cost per unit Selling price Units produced and sold

Lightning 2.0 $ 90 60 30 180 $ 360 600 6,000

Lightning 2.4 $ 110 90 30 240 $ 470 780 3,000

The average wage rate is $30 per hour. The plant has a capacity of 32,000 direct labor-hours. Required: 1. A nationwide discount chain has approached Macro with an offer to buy 2,000 Lightning 2.0 computers and 2,000 Lightning 2.4 computers if the unit prices are lowered to $350 and $450, respectively. a. If Macro accepts the offer, how many direct labor-hours will be required to produce the additional computers? b. How much will the profit increase (or decrease) if Macro accepts this proposal? All other prices will remain the same. 2. Suppose that the customer has offered instead to buy up to 3,000 each of the two models at $350 and $450, respectively. a. How many of each product should be manufactured and sold? Assume current demand will not be affected by the special order. Also assume that the company cannot increase its production capacity to meet the extra demand. b. How much will the profits change if this order is accepted instead?

109) The operations of Balance Corporation are divided into the Kaplan Division and the Norton Division. Projections for the next year are as follows:

Sales Variable costs Contribution margin Direct fixed costs Segment margin Allocated common costs Operating income (loss)

Kaplan Division $ 1,200,000 480,000 $ 720,000 160,000 $ 560,000 360,000 $ 200,000

Norton Division $ 600,000 360,000 $ 240,000 90,000 $ 150,000 180,000 $ (30,000)

Total $ 1,800,000 840,000 $ 960,000 250,000 $ 710,000 540,000 $ 170,000

Required: a. Operating income for Balance Corporation, as a whole, if the Norton Division were dropped would be: b. If the Norton Division were dropped, Kaplan Division's sales would increase by 45%. If this happened, the operating income for Balance Corporation as a whole would be: 110) The Fortune Company produces 15,000 units of Part QT34 annually at a total cost of $600,000. Direct materials Direct labor Manufacturing overhead Total

60,000 165,000 375,000 $ 600,000

Manufacturing overhead is 36% variable. The Xu Company has offered to supply all 15,000 units of Part QT34 per year for $35 per unit. If Fortune accepts the offer, $8 per unit of the fixed overhead would be avoided. In addition, some of Fortune's leased facilities could be vacated, reducing lease payments by $90,000 per year. Required: a. By how much would Fortune's operating profits change if 15,000 of Part QT34 are purchased from Xu? b. At what price would Fortune be indifferent to Xu's offer?

111) The Fair Play Division of Fast Company produces wheels for off-road sport vehicles. Onehalf of Fair Play's output is sold to the Glow Division of Fast; the remainder is sold to outside customers. Fair Play's estimated operating profit for the year is: Sales Variable costs Fixed costs Operating profits Unit sales

Internal $ 300,000 200,000 60,000 $ 40,000 20,000

Outside $ 400,000 200,000 60,000 $ 140,000 20,000

Glow Division has an opportunity to purchase 20,000 wheels of the same quality from an outside supplier on a continuing basis. Required: a. The Fair Play Division cannot sell any additional products to outside customers. Should the Fast Company allow Glow Division to purchase the wheels from the outside supplier at $13.00 per unit? b. If the Fair Play Division is now operating at full capacity and can sell all its units to outside customers at the present selling price, what is the differential cost to Fast of requiring that the wheels be made internally and sold to Glow Division? c. If the Fair Play Division is now operating at full capacity and can sell all its units to outside customers at the present selling price, what is the minimum selling price that Fair Play should accept from Glow Division? d. The Fair Play Division cannot sell any additional products to outside customers. What is the minimum selling price that Fair Play should accept from the Glow Division? 112) Halfway Industries produces two products. Information about the products is as follows: Units produced and sold Selling price per unit Variable costs per unit

Clocks 8,000 $ 16 10

Headphones 20,000 $ 14 9

The company's fixed costs totaled $140,000, of which $30,000 can be directly traced to Clocks and $90,000 can be directly traced to Headphones. Required: The effect on the firm's profits if the Headphone product is dropped would be:

113) Everett Tool Company has two retail stores, one in Dallas and the other in Sand Creek. The Dallas store had sales of $200,000, a contribution margin of 35 percent, and a segment margin of $28,000. The company's two stores have total sales of $500,000, an average contribution margin of 32 percent, and a total segment margin of $62,000. Required: Prepare a segmented income statement for Everett. 114) Dickson Industries has two divisions: the North Division and the South Division. Information relating to the divisions for the year just ended is as follows: North 40,000 $ 9 4 148,000 140,000

Units produced and sold Selling price per unit Variable costs per unit Direct fixed cost Common fixed cost

South 50,000 $ 16 6 220,000 140,000

Common fixed expenses have been allocated equally to each of the two divisions. Required: Prepare a segmented income statement for Dickson. 115) The operations of Jorge Corporation are divided into the Northern Division and the Eastern Division. Projections for the next year are as follows:

Sales Less: Variable costs Contribution margin Less: Direct fixed costs Segment margin Less: Allocated common costs Operating income (loss)

Northern Division $ 750,000 270,000 $ 480,000 225,000 $ 255,000 130,000 $ 125,000

Eastern Division $ 540,000 300,000 $ 240,000 190,000 $ 50,000 95,000 $ (45,000)

Total $ 1,290,000 570,000 $ 720,000 415,000 $ 305,000 225,000 $ 80,000

Required: a. Operating income for Jorge Corporation, as a whole, if the Eastern Division were dropped would be: b. If Eastern Division is dropped, Northern's sales will increase by 20%. What will Jorge Corporation's operating income be?

116) The Ramos Company manufactures two products: Treadmills and Elliptical Trainers. The costs and revenues are as follows: Treadmill $ 300 160

Sales price per unit Variable cost per unit

Elliptical Trainer $ 175 85

Total demand for the Treadmill product is 7,000 units and for the Elliptical Trainer product is 5,000 units. Machine time is a scarce resource. During the year, 48,000 machine hours are available. A Treadmill requires 6 machine hours per unit, while an Elliptical Trainer requires 2.5 machine hours per unit. Required: a. How many units of Treadmills and Elliptical Trainers should Ramos produce? b. What will be the maximum possible contribution margin? 117) Short Inc. has 5,200 machine hours available each month. The following information on the company's three products is available: Contribution margin per unit Machine hours per unit Sales demand in units

Product 1 $ 45.00 3 900

Product 2 $ 54.00 2 1,000

Product 3 $ 22.50 1 3,000

Required: a. What production schedule will maximize the company's profits? b. What will be the maximum possible contribution margin? 118) Rainier Inc. has 6,400 machine hours available each month. The following information on the company's three products is available: Contribution margin per unit Machine hours per unit Sales demand in units

Product X $ 20.00 2 1,000

Product Y $ 21.00 3 1,500

Product Z $ 17.50 2 1,500

Required: a. What production schedule will maximize the company's profits? b. What will be the maximum possible contribution margin?

119) The Valor Company manufactures two products: L and M. The costs and revenues are as follows: Sales price Variable cost per unit Machine hours per unit

Product L $ 150 90 15

Product M $ 112 68 10

Total demand for Product L is 2,000 units and for Product M is 1,000 units. Machine time is a scarce resource. During the year, 36,000 machine hours are available. Required: a. How many units of Products L and M should Valor produce? 120) Giant Inc. has 3,600 machine hours available each month. The following information on the company's three surgical kits is available:

Contribution margin per unit Machine hours per unit Sales demand in units

Surgical Kit 1 $ 5.00 2 1,000

Surgical Kit 2 $ 4.00 1 800

Surgical Kit 3 $ 2.50 3 900

Required: a. What production schedule will maximize the company's profits? b. What will be the maximum possible contribution margin? 121) Moxy Inc. has 9,600 machine hours available each month. The following information on the company's three products is available: Contribution margin per unit Machine hours per unit Sales demand in units

Product X $ 20.00 8 500

Product Y $ 21.00 12 750

Product Z $ 17.50 6 1,000

Required: a. What production schedule will maximize the company's profits? b. What will be the maximum possible contribution margin?

122) Frank Industries manufactures 200,000 components per year. The manufacturing cost of the components was determined as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead

$ 200,000 320,000 120,000 160,000

An outside supplier has offered to sell the component for $3.40 each. If Frank purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $20,000. Required: a. If Frank purchases the component from the supplier instead of manufacturing it, the effect on income would be: b. What is the maximum price Frank would be willing to pay the outside supplier? 123) Talent Industries manufactures 30,000 components per year. The manufacturing cost of the components was determined to be as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total

300,000 480,000 180,000 240,000 $ 1,200,000

Required: a. Assume that the fixed manufacturing overhead reflects the cost of Talent's manufacturing facility. This facility cannot be used for any other purpose. An outside supplier has offered to sell the component to Talent for $34. If Talent Industries purchases the component from the outside supplier, the effect on income would be a: b. Assume Talent Industries could avoid $80,000 of fixed manufacturing overhead if it purchases the component from an outside supplier. An outside supplier has offered to sell the component for $34. If Talent purchases the component from the supplier instead of manufacturing it, the effect on income would be a:

124) The Sands Company manufactures and sells several products, one of which is called a slip differential. The company normally sells 30,000 units of the slip differentials each month. At this activity level, unit costs are: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling Fixed selling

$ 4 3 4 5 3 $ 1

An outside supplier has offered to produce the slip differentials for the Sands Company, and to ship them directly to the Sands Company's customers. This arrangement would permit the Sands Company to reduce its variable selling expenses by one third (due to elimination of freight costs). The facilities now being used to produce the slip differentials would be idle and fixed manufacturing overhead would continue at 60 percent of its present level. The total fixed selling expenses of the company would be unaffected by this decision. Required: What is the maximum acceptable price quotation for the slip differentials from the outside supplier? 125) Carlson Company makes 4,000 units per year of a part called an axial tap for use in one of its products. Data concerning the unit production costs of the axial tap follow: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing cost per unit

$ 35 10 8 20 $ 73

An outside supplier has offered to sell Carlson Company all of the axial taps it requires. If Carlson Company decided to discontinue making the axial taps, 40% of the above fixed manufacturing overhead costs could be avoided. Assume that direct labor is a variable cost. Required: a. Assume Carlson Company has no alternative use for the facilities presently devoted to production of the axial taps. If the outside supplier offers to sell the axial taps for $65 each, should Carlson Company accept the offer? Fully support your answer with appropriate calculations. b. Assume that Carlson Company could use the facilities presently devoted to production of the axial taps to expand production of another product that would yield an additional contribution margin of $80,000 annually. What is the maximum price Carlson Company should be willing to pay the outside supplier for axial taps?

126) Part XE3 is used in one of Sun Corporation's products. The company's Accounting Department reports the following costs of producing the 12,000 units of the part that are needed every year. Per Unit Direct materials $ 4.50 Direct labor 1.20 Variable overhead 2.70 Supervisor's salary 3.00 Depreciation of special equipment 2.30 Allocated general overhead 1.80 An outside supplier has offered to make the part and sell it to the company for $14.70 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $5,000 of these allocated general overhead costs would be avoided. Required: a. Prepare a report that shows the effect on the company's total net operating income of buying part XE3 from the supplier rather than continuing to make it inside the company. b. Which alternative should the company choose? 127) Snagless Corporation has received a request for a special order of 9,000 units of product ZX9 for $46.50 each. The normal selling price of this product is $51.60 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product ZX9 is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost

$ 17.30 6.60 3.80 6.70 $ 34.40

Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like some modifications made to product ZX9 that would increase the variable costs by $6.20 per unit and that would require a one-time investment of $46,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample capacity for producing the special order. Required: Determine the effect on the company's total net operating income of accepting the special order. Show your work!

128) A customer has asked Balkans Corporation to supply 5,000 units of product DX9, with some modifications, for $40.20 each. The normal selling price of this product is $52.80 each. The normal unit product cost of product DX9 is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost

$ 12.70 6.10 8.70 7.70 $ 35.20

Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like some modifications made to product DX9 that would increase the variable costs by $3.50 per unit and that would require a one-time investment of $23,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample capacity for producing the special order. Required: Determine the effect on the company's total net operating income of accepting the special order. Show your work! 129) Florence Corporation makes three products that use the current constraint, which is a particular type of machine. Data concerning those products appear below: Selling price per unit Variable cost per unit Time on the constraint (minutes)

X1 $ 325.89 $ 251.94 5.10

R2 $ 543.15 $ 420.75 8.50

Z3 $ 508.00 $ 397.60 8.00

130) Atuso, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below: Product J1 K2 L3 Selling price $ 80 $ 60 $ 90 Variable costs $ 50 $ 40 $ 55 Fixed costs $ 25 $ 8 $ 22 Grinding machine time (minutes) 10 5 7 Fixed costs are applied to the products on the basis of direct labor hours. Demand for the three products exceeds the company's productive capacity. The grinding machine is the constraint, with only 2,400 minutes of grinding machine time available this week. Required: a. Given the grinding machine constraint, which product should be emphasized? Support your answer with appropriate calculations. b. Assuming that there is still unfilled demand for the product that the company should emphasize in part (a) above, up to how much should the company be willing to pay for an additional hour of grinding machine time?

131) Varix Company makes three products in a single facility. These products have the following unit product costs:

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost

A $ 12.80 14.10 1.20 18.50 $ 46.60

Product B $ 9.30 14.90 0.90 17.20 $ 42.30

C 4.70 10.00 0.50 23.70 $ 38.90 $

Additional data concerning these products are listed below.

Mixing minutes per unit Selling price per unit Variable selling cost per unit Monthly demand in units

A 3.70 $ 59.20 $ 2.90 2,000

Product B 3.40 $ 60.10 $ 2.70 4,000

C 3.90 $ 55.30 $ 3.70 2,000

The mixing machines are potentially the constraint in the production facility. A total of 24,200 minutes is available per month on these machines. Direct labor is a variable cost in this company. Required: a. How many minutes of mixing machine time would be required to satisfy demand for all three products? b. How much of each product should be produced to maximize net operating income? (Round off to the nearest whole unit.) c. Up to how much should the company be willing to pay for one additional hour of mixing machine time if the company has made the best use of the existing mixing machine capacity? (Round off to the nearest whole cent.)

132) Mobley Company makes three products in a single facility. Data concerning these products follow: Product A B C Selling price per unit $ 70.00 $ 92.40 $ 85.90 Direct materials $ 34.00 $ 50.50 $ 56.90 Direct labor $ 21.40 $ 24.00 $ 14.80 Variable manufacturing overhead $ 1.20 $ 0.60 $ 0.50 Variable selling cost per unit $ 1.80 $ 2.30 $ 2.10 Mixing minutes per unit 1.20 0.80 0.40 Monthly demand in units 2,000 4,000 2,000 The mixing machines are potentially the constraint in the production facility. A total of 6,300 minutes is available per month on these machines. Direct labor is a variable cost in this company. Required: a. How many minutes of mixing machine time would be required to satisfy demand for all three products? b. How much of each product should be produced to maximize net operating income? (Round off to the nearest whole unit.) c. Up to how much should the company be willing to pay for one additional hour of mixing machine time if the company has made the best use of the existing mixing machine capacity? (Round off to the nearest whole cent.) 133) The constraint at Trek Inc. is an expensive milling machine. The three products listed below use this constrained resource. Selling price per unit Variable cost per unit Time on the constraint (minutes)

9P $ 404.58 $ 308.88 6.60

8L $ 478.74 $ 371.30 7.90

7N $ 358.44 $ 285.36 5.80

Required: a. Rank the products in order of their current profitability from the most profitable to the least profitable. In other words, rank the products in the order in which they should be emphasized. Show your work! b. Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource? 134) Are sunk costs ever differential costs? Explain. 135) A student in your cost accounting class says, "This whole subject of differential costing is easy; variable costs are the only costs that are relevant." Using an example, what would you tell that student? 51 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

136) You just got your first job after graduation. Your immediate supervisor received a special order at a price that is "below cost" during your first week at the company. The supervisor points to the proposal and says, "These are the kinds of orders that will get you in trouble. Every sale must bear its share of the full costs of running the business. If we sell below our full cost, we'll be out of business in no time." You remember from your course in cost accounting that this may not be as much trouble as the supervisor anticipates. How would you respond and not lose your first job? 137) Explain the difference between full costs and differential costs. 138) Explain what is meant by "the full-cost fallacy" in making pricing decisions. 139) Explain the differences between life-cycle product costing and target costing. 140) Explain the distinction between predatory pricing and peak-load pricing. 141) Why is it important to consider opportunity costs in a make-or-buy decision? 142) On what three main factors does the theory of constraints focus? 143) Flower Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 18,000 medals each month; current monthly production is 17,100 medals. The company normally charges $88 per medal. Cost data for the current level of production are shown below: Variable costs: Direct materials Direct labor Selling and administrative Fixed costs: Manufacturing Selling and administrative

$ 495,900 $ 324,900 $ 30,780 $ 345,420 $ 164,160

The company has just received a special one-time order for 600 medals at $73 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs. Required: Should the company accept this special order? Why? (CMA adapted)

144) Horton Corporation makes a range of products. The company's predetermined overhead rate is $16 per direct labor-hour, which was calculated using the following budgeted data: Variable manufacturing overhead Fixed manufacturing overhead Direct labor-hours

$ 75,000 $ 325,000 25,000

Management is considering a special order for 700 units of product 48 at $64 each. The normal selling price of product 48 is $75 and the unit product cost is determined as follows: Direct materials Direct labor Manufacturing overhead applied Unit product cost

$ 37.00 18.00 16.00 $ 71.00

If the special order were accepted, normal sales of this and other products would not be affected. The company has ample excess capacity to produce the additional units. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by the special order. Required: If the special order were accepted, what would be the impact on the company's overall profit? (CIMA adapted)

145) Juran Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 70,000 units per month is as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling & administrative expense Fixed selling & administrative expense

$ 26.60 4.30 1.90 11.10 1.50 $ 9.10

The normal selling price of the product is $56.70 per unit. An order has been received from an overseas customer for 2,000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $0.70 less per unit on this order than on normal sales. Direct labor is a variable cost in this company. Required: a. Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $51.20 per unit. By how much would this special order increase (decrease) the company's net operating income for the month? b. Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer? c. Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 700 units for regular customers. What would be the minimum acceptable price per unit for the special order? 146) Florida Enterprises produces high quality blankets sold to hotels and resorts. Blankets must be well made because of frequent washings. Currently, Florida sells 10,000 blankets at $60 each with the capacity to produce 12,000 blankets. Florida is considering a special order from a hotel chain in Mexico for 1,000 blankets at a price of $45. Currently, Florida has the following costs: Unit Costs Product Level Costs Facility Costs

$ 250,000 $ 40,000 $ 125,000

If Florida accepts the special order, it will incur an additional $2 per blanket in foreign currency transaction costs. No other product or facility costs will change. Required: a. Determine the impact of the special order on Florida. Prepare your analysis in good form. b. What other factors should Florida consider in taking the special order?

147) Brothers Corp. is considering dropping its talking dog product line due to continuing losses. Revenue and cost data for the talking dog line for the past year follow: Sales (20,000 units) Variable costs Contribution margin Fixed costs

$ 300,000 180,000 120,000 140,000

If the talking dog is discontinued, then Brothers could avoid $110,000 per year in fixed costs. Required: a. What is the change in annual operating income from discontinuing the talking dog product line? b. Assuming all other conditions stay the same, at what level of annual sales of the talking dog (in units) should Brothers be indifferent to discontinuing or continuing the product line? c. Suppose that if the talking dog is dropped, the production and sale of other products would increase so as to generate a $15,000 increase in the contribution margin received from the other products. If all other conditions are the same, what is the change in annual operating income from dropping the talking dog? 148) Price Candies (PC) makes three types of chocolate candy bars. The head of marketing, Nathan Lord found the chart below and believes PC should drop the Almond line. He asks controller, Faye Martin, to review the situation and determine the fate of the Almond Line. Solid Chocolate Sales Unit Costs Facility & Product Costs Segment Income

$ 300,000 $ (100,000) $ (150,000) $ 50,000

Crispy Chocolate $ 500,000 $ (150,000) $ (250,000) $ 100,000

Almond Chocolate $ 400,000 $ (250,000) $ (200,000) $ (50,000)

Required: a. Review the information above and determine the fate of the Almond Line. Prepare your answer in good form. Note: Facility and product level costs are fixed and will not change; they are allocated based upon sales. b. Prepare a memo defending your position on this important issue.

149) Mr. Morgan Henry, accountant for Black & Logan Co. Inc., has prepared the following product-line income data: Product Total A B C Sales $ 100,000 $ 50,000 $ 20,000 $ 30,000 Variable expenses 60,000 30,000 10,000 20,000 Contribution margin 40,000 20,000 10,000 10,000 Fixed expenses: Rent 5,000 2,500 1,000 1,500 Depreciation 6,000 3,000 1,200 1,800 Utilities 4,000 2,000 500 1,500 Supervisor's salary 5,000 1,500 500 3,000 Maintenance 3,000 1,500 600 900 Administrative 10,000 3,000 2,000 5,000 expenses Total fixed expenses 33,000 13,500 5,800 13,700 Net operating income $ 7,000 $ 6,500 $ 4,200 $ (3,700) (loss) The following additional information is available: The factory rent of $1,500 assigned to Product C is avoidable if the product were dropped. The company's total depreciation would not be affected by dropping C. Eliminating Product C will reduce the monthly utility bill from $1,500 to $800. The supervisor's salary is avoidable. If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,000 to $2,000. Elimination of Product C will make it possible to cut two persons from the administrative staff; their combined salaries total $3,000. Required: Prepare an analysis showing whether Product C should be eliminated.

150) Barry Inc. makes a range of products. The company's predetermined overhead rate is $14 per direct labor-hour, which was calculated using the following budgeted data: Variable manufacturing overhead Fixed manufacturing overhead Direct labor-hours

$ 100,000 $ 250,000 25,000

Component ZZ9 is used in one of the company's products. The unit cost of the component according to the company's cost accounting system is determined as follows: Direct materials Direct labor Manufacturing overhead applied Unit product cost

28.00 56.00 39.20 $ 123.20

An outside supplier has offered to supply component ZZ9 for $108 each. The outside supplier is known for quality and reliability. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by this decision. Barry chronically has idle capacity. (CIMA adapted) Required: Is the offer from the outside supplier financially attractive? Why?

151) Muzik Corporation uses part X43 in one of its products. The company's Accounting Department reports the following costs of producing the 16,000 units of the part that are needed every year. Per Unit Direct materials $ 2.90 Direct labor 3.90 Variable overhead 6.70 Supervisor's salary 7.20 Depreciation of special equipment 8.30 Allocated general overhead $ 5.40 An outside supplier has offered to make the part and sell it to the company for $28.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $22,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part X43 could be used to make more of one of the company's other products, generating an additional segment margin of $22,000 per year for that product. Required: a. Prepare a report that shows the effect on the company's total net operating income of buying part X43 from the supplier rather than continuing to make it inside the company. b. Which alternative should the company choose?

152) Ralston Company makes 10,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost

$ 13.20 20.80 3.00 10.90 $ 47.90

An outside supplier has offered to sell the company all of these parts for $42.30 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $39,000 per year. If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $6.40 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products. Required: a. How much of the unit product cost of $47.90 is relevant in the decision of whether to make or buy the part? b. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it? c. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 10,000 units required each year?

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 5 Cost Estimation 1) Cost behavior is the most important characteristic for managerial decision making. 2) In general, accounting records accumulate cost information according to its behavior (i.e., variable and fixed). 3) In general, cost behavior results are likely to differ between the engineering method and the account analysis method. 4) The engineering method of determining cost behavior is particularly useful for new activities or products. 5) One advantage of the engineering method is that it does not require data from prior periods to estimate cost behavior. 6) One advantage of the account analysis method for estimating cost behavior is that it includes actual work conditions. 7) The account analysis method is more subjective than other cost estimation methods because it relies heavily on the personal judgment and experience of accountants. 8) In general, the account analysis method focuses on the underlying relationship between cost and activities from the previous period. 9) The relevant range represents those activity levels for which valid cost relationships have been observed. 10) A scattergraph is useful for identifying outliers/irrelevant data points. 11) One disadvantage of the high-low method is the highest and lowest points may not be representative of normal operating activities. 12) One advantage that regression techniques have over other cost estimation methods is it generates information that can be used to determine how well the estimated cost equation will predict future costs. 13) Because outliers are extreme data points, they can be included in the regression analysis and not significantly affect the results. 14) In general, the use of multiple independent variables increases the proportion of the variation in the dependent variable explained by the cost equation. 15) One way to control the effects of a nonlinear relation between total costs and volume is to reduce the relevant range. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

16) The linear cost estimate tends to understate the slope of the cost line in ranges close to capacity. 17) Cost estimates using regression analysis are always more accurate and dependable than cost estimates using the scattergraph methods. 18) A basic assumption of most cost estimation methods is cost behavior patterns are linear within the relevant range. 19) The quality of the cost equation depends on collecting appropriate data. 20) Different cost estimations methods may produce different cost equations, even when using the same set of data. 21) Which of the following statements is(are) true regarding cost behaviors? (A) In general, accounting records accumulate cost information according to its behavior. (B) Cost behaviors are the most important consideration in managerial decision making. A) Only A is true. B) Only B is true. C) Both of these are true. D) Neither of these is true. 22) Which of the following is the difference between variable costs and fixed costs? (CMA adapted) A) Variable costs per unit fluctuate and fixed costs per unit remain constant. B) Variable costs per unit are fixed over the relevant range and fixed costs per unit are variable. C) Total variable costs are variable over the relevant range and fixed in the long term, while fixed costs never change. D) Variable costs per unit change in varying increments, while fixed costs per unit change in equal units. 23) A cost driver is defined as: (CMA adapted) A) the largest cost in a manufacturing process. B) a fixed cost that cannot be avoided. C) the significant factor in developing a new product. D) a causal factor that increases the total cost of a cost objective. 24) Which cost estimation method does not use the company's cost information as its primary source of information about the relationship between total costs and activity levels? A) Scattergraph. B) High-low. C) Account analysis. D) Engineering estimates.

25) A manager is trying to estimate the manufacturing costs of a new product. The company makes several other products that utilize some of the same manufacturing procedures as the new product. Which cost estimation method would be the best method to determine the total cost of manufacturing the new product? A) Engineering estimates. B) Regression analysis. C) Account analysis. D) Scattergraph. 26) Engineering cost estimates are usually based on operating conditions that are considered: A) optimal. B) practical. C) attainable. D) historical. 27) Identifying the relation between the activity and the costs is a key step in which of the following cost estimation methods? A) Scattergraph. B) High-low method. C) Account analysis. D) Linear regression. 28) Which of the following costs would most likely be classified as variable, assuming the account analysis method is used to determine cost behaviors? A) Indirect materials. B) Supervisory salaries. C) Equipment maintenance. D) Building occupancy costs. 29) Given the following information, compute the total number of units for the period: Direct labor hours Direct labor cost Direct materials cost Total manufacturing cost Fixed overhead cost Variable overhead cost

12,000 $ 2.70per hour $ 75per unit $ 132,600 $ 36,000 50% of total labor cost

A) 360. B) 432. C) 640. D) 840.

30) In the cost equation TC = F + VX, "X" is best described as the: A) costs that do not vary with changes in the activity level. B) costs that do vary with changes in the activity level. C) total cost estimate at a particular activity level. D) activity level used to estimate the total cost. 31) In the cost equation TC = F + VX, "V" is best described as the: A) total costs that do not vary with changes in the activity level. B) intercept of the cost equation. C) slope of the cost equation. D) activity level used to estimate the dependent variable. 32) Ballard Company incurred a total cost of $8,600 to produce 400 units of pulp. Each unit of pulp required five (5) direct labor hours to complete. What is the total fixed cost if the variable cost was $1.50 per direct labor hour? A) $1,700. B) $3,000. C) $5,600. D) $8,000. 33) The term "relevant range," as used in cost accounting, means the range over which: A) relevant costs are incurred. B) costs may fluctuate. C) cost relationships are valid. D) cost data is available. 34) Which of the following cost estimation methods is based on two cost observations? A) Engineering approach. B) High-low method. C) Account analysis. D) Linear regression. 35) A disadvantage of the high-low method of cost analysis is that it: A) typically results in a totally inaccurate cost formula. B) is too time consuming to apply. C) uses only two data points, which may not be representative of normal conditions. D) relies totally on the judgment of the person performing the cost analysis. 36) Obtaining regression estimates for cost estimation requires establishing the existence of a logical relation between activities and the cost to be estimated. Which of the following is not used to refer to these activities? A) independent variables. B) predictors. C) dependent variables. D) X terms. 4 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

37) Obtaining regression estimates for cost estimation requires establishing the existence of a logical relation between activities and the cost to be estimated. Which of the following is not used to refer to the cost to be estimated? A) left-hand side (LHS). B) dependent variable. C) Y term. D) independent variable. 38) Which of the following is not true of regression techniques for estimating costs? A) They permit the inclusion of more than one predictor. B) They typically use the highest and lowest activity points to estimate the relation between cost and activity. C) They help develop estimates that have a broader base than those based on a few select points. D) They are designed to generate a line that best fits a set of data points. 39) The correlation coefficient is: A) the range of values over which the probability may be estimated based upon the regression equation results. B) the proportion of the total variance in the dependent variable explained by the independent variable. C) the measure of variability of the actual observations from the predicting (forecasting) equation line. D) the relative degree that changes in one variable can be used to estimate changes in another variable. 40) Brewsky's is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows: Average monthly customer visits Average monthly total costs Regression Results Intercept b coefficient R2

$ $ $

1,462 4,629 1,496 2.08 0.86814

In a regression equation expressed as y = a + bx, how is the letter b best described? (CMA adapted) A) An estimate of the probability of return customers. B) The fixed costs per customer visit. C) The estimate of the cost for an additional customer visit. D) The proximity of the data points to the regression line.

41) Brewsky's is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows: Average monthly customer visits Average monthly total costs Regression Results Intercept b coefficient R2

$ $ $

1,462 4,629 1,496 2.08 0.86814

In a regression equation expressed as y = a + bx, how is the letter y best described? (CMA adapted) A) An estimate of the total customers for the month. B) The observed store cost for a given month. C) The estimate of the number of new customer visits for the month. D) The proximity of the data points to the regression line. 42) Brewsky's is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows: Average monthly customer visits Average monthly total costs Regression Results Intercept b coefficient R2

$ $ $

1,462 4,629 1,496 2.08 0.86814

In a regression equation expressed as y = a + bx, how is the letter x best described? (CMA adapted) A) Fixed costs per each customer-visit. B) The observed store costs for a given month. C) The estimate of the number of new customer visits for the month. D) The observed customer visits for a given month.

43) Brewsky's is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows: Average monthly customer visits Average monthly total costs Regression Results Intercept b coefficient R2

$ $ $

1,462 4,629 1,496 2.08 0.86814

Based on the data derived from the regression analysis, what are the estimated costs for 1,600 customer visits in a month? (CMA adapted) A) $6,125. B) $4,629. C) $3,328. D) $4,824. 44) Brewsky's is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows: Average monthly customer visits Average monthly total costs Regression Results Intercept b coefficient R2

$ $ $

1,462 4,629 1,496 2.08 0.86814

What is the percent of the total variance that can be explained by the regression equation? (CMA adapted) A) 86.8% B) 31.6% C) 97.7% D) 71.9%

45) The Macon Company uses the high-low method to determine its cost equation. The following information was gathered for the past year: Machine Hours 14,000 6,000

Busiest month (June) Slowest month (December)

Direct Labor Costs $ 200,000 $ 120,000

What are the direct labor costs per machine hour? A) $20.00. B) $16.00. C) $14.29. D) $10.00. 46) The Macon Company uses the high-low method to determine its cost equation. The following information was gathered for the past year: Machine Hours 14,000 6,000

Busiest month (June) Slowest month (December)

Direct Labor Costs $ 200,000 $ 120,000

If Macon expects to use 10,000 machine hours next month, what are the estimated direct labor costs? A) $160,000. B) $180,000. C) $175,000. D) $150,000. 47) Fromme's Frocks has the following machine hours and production costs for the last six months of last year: Month July August September October November December

Machine Hours 15,000 13,500 11,500 15,500 14,800 12,100

Production Cost $ 12,075 10,800 9,580 12,080 11,692 9,922

If Fromme expects to incur 14,000 machine hours in January, what will be the estimated total production cost using the high-low method? A) $8,750.00. B) $11,142.50. C) $22,400.00. D) $10,889.10. 8 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

48) The controller of Fortnight Co. has requested a quick estimate of the manufacturing supplies needed for the Cleveland Plant for the month of July, when production is expected to be 470,000 units to meet the ending inventory requirements and sales of 475,000 units. Fortnight Co.'s budget analyst has the following actual data for the last three months. Month March April May

Production in Units 450,000 540,000 480,000

Manufacturing Supplies $ 723,060 853,560 766,560

Using the high-low method to develop a cost estimating equation, the total estimated cost of needed manufacturing supplies for July would be: (CMA adapted) A) $681,500. B) $688,750. C) $749,180. D) $752,060. 49) The Crater Manufacturing Company recorded overhead costs of $14,182 at an activity level of 4,200 machine hours and $8,748 at 2,300 machine hours. The records also indicated that overhead of $9,730 was incurred at 2,600 machine hours. What is the variable cost per machine hour using the high-low method to estimate the cost equation? A) $2.78. B) $2.86. C) $3.10. D) $3.38. 50) The Missou Manufacturing Company recorded overhead costs of $14,182 at an activity level of 4,200 machine hours and $8,748 at 2,300 machine hours. What is the total estimated cost for 2,600 machine hours using the high-low method to estimate the cost equation? A) $9,730. B) $9,606. C) $9,106. D) $8,788.

51) The cost accountants at the Barkley Company regressed total overhead costs and direct labor hours for the past 30-months and reported the following results: Slope Intercept Correlation Coefficient

$ 41.27 $ 596.36 0.934

What is the estimated overhead cost if 225 direct labor hours are expected to be used in the upcoming period? (rounded to the nearest whole dollar) A) $10,534. B) $9,882. C) $9,230. D) $8,617.

52) The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)

What would be the cost equation if regression analysis is used? A) Maintenance Costs = $7.2884 + ($684.65 × Hours of Activity). B) Maintenance Costs = $684.65 + ($49.515 × Hours of Activity). C) Maintenance Costs = $684.65 + ($7.2884 × Hours of Activity). D) Maintenance Costs = $34.469 + ($0.99724 × Hours of Activity).

53) The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)

Based upon the data derived from the regression analysis, 420 maintenance hours in a month would mean the maintenance costs would be budgeted at: (rounded to the nearest whole dollar) A) $3,797. B) $3,780. C) $3,746. D) $3,600.

54) The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)

What is the variable cost per hour using the high-low method to estimate the cost equation? A) $9.00. B) $7.50. C) $0.1333. D) $0.1111.

55) The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)

What is the fixed cost per month using the high-low method to estimate the cost equation? A) $570. B) $600. C) $1,140. D) $2,250.

56) The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)

Using the high-low method to estimate cost behavior, 420 maintenance hours in a month would mean the maintenance costs would be budgeted at: A) $3,150. B) $3,600. C) $3,720. D) $3,780.

57) The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)

What would be the cost equation if the high-low method is used? A) Maintenance Costs = $9.00 × Hours of Activity. B) Maintenance Costs = 3,600 + (400 × Hours of Activity). C) Maintenance Costs = $570 + ($7.50 × Hours of Activity). D) Maintenance Costs = $34.469 + ($0.99724 × Hours of Activity).

58) The College of Business at Northeast College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below: Administrative Costs $ 129,301 82,613 225,580 216,394 258,263 184,449 219,137 245,000 209,462 191,925 249,978 170,418 128,167 $ 2,510,687 $ 193,130

Month July August September October November December January February March April May June July Total Average

Credit Hours 250 115 1,392 1,000 1,309 1,112 1,339 1,373 1,064 1,123 1,360 420 315 12,172 936

The controller's office has analyzed the data and has given you the results from the regression analysis: SUMMARY OUTPUT Regression Statistics Multiple R

0.9317157

R Square

0.868094147

Adjusted R Square

0.856102705

Standard Error

20,134.92395

Observations

ANOVA df

Regression

29,349,143,514

29,349,143,514 72.3928117

Residual

4,459,566,787

405,415,162.4

Total

33,808,710,301

Significance F 3.61909E-06

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

96,647.0239 12,641.66 7.645118 1.00291E- 68,822.90 124,471.1 68,822.90 124,471.1 8 539 03 05 608 419 608 419

X Variable 1

103.0607697

12.112831 8.508396 3.61909E- 76.400608 129.72093 76.400608 129.72093 03 541 06 33 1 33 1

If the controller uses the high-low method to estimate costs, the variable cost per credit hour is: A) $82.33. B) $103.56. C) $111.96. D) $201.22.

59) The College of Business at Northeast College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below: Administrative Costs $ 129,301 82,613 225,580 216,394 258,263 184,449 219,137 245,000 209,462 191,925 249,978 170,418 128,167 $ 2,510,687 $ 193,130

Month July August September October November December January February March April May June July Total Average

Credit Hours 250 115 1,392 1,000 1,309 1,112 1,339 1,373 1,064 1,123 1,360 420 315 12,172 936

The controller's office has analyzed the data and has given you the results from the regression analysis: SUMMARY OUTPUT Regression Statistics Multiple R

0.9317157

R Square

0.868094147

Adjusted R Square

0.856102705

Standard Error

20,134.92395

Observations

ANOVA df

Regression

29,349,143,514

29,349,143,514 72.3928117

Residual

4,459,566,787

405,415,162.4

Total

33,808,710,301

Significance F 3.61909E-06

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

96,647.0239 12,641.66 7.645118 1.00291E- 68,822.90 124,471.1 68,822.90 124,471.1 8 539 03 05 608 419 608 419

X Variable 1

103.0607697

12.112831 8.508396 3.61909E- 76.400608 129.72093 76.400608 129.72093 03 541 06 33 1 33 1

If the controller uses the high-low method to estimate costs, the fixed cost portion of the cost equation for administrative costs is: A) $198,808.00. B) $69,731.68. C) $96,409.42. D) $19,943.58.

60) The College of Business at Northeast College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below: Administrative Costs $ 129,301 82,613 225,580 216,394 258,263 184,449 219,137 245,000 209,462 191,925 249,978 170,418 128,167 $ 2,510,687 $ 193,130

Month July August September October November December January February March April May June July Total Average

Credit Hours 250 115 1,392 1,000 1,309 1,112 1,339 1,373 1,064 1,123 1,360 420 315 12,172 936

The controller's office has analyzed the data and has given you the results from the regression analysis: SUMMARY OUTPUT Regression Statistics Multiple R

0.9317157

R Square

0.868094147

Adjusted R Square

0.856102705

Standard Error

20,134.92395

Observations

ANOVA df

Regression

29,349,143,514

29,349,143,514 72.3928117

Residual

4,459,566,787

405,415,162.4

Total

33,808,710,301

Significance F 3.61909E-06

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

96,647.0239 12,641.66 7.645118 1.00291E- 68,822.90 124,471.1 68,822.90 124,471.1 8 539 03 05 608 419 608 419

X Variable 1

103.0607697

12.112831 8.508396 3.61909E- 76.400608 129.72093 76.400608 129.72093 03 541 06 33 1 33 1

If the controller uses the high-low method to estimate costs, the cost equation for administrative costs is A) Administrative Costs = $96,409.42 + $103.56 × Credit-hours. B) Administrative Costs = $69,731.68 + $111.96 × Credit-hours. C) Administrative Costs = $201.21 × Credit-hours. D) Administrative Costs = $198,808.

61) The College of Business at Northeast College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below: Administrative Costs $ 129,301 82,613 225,580 216,394 258,263 184,449 219,137 245,000 209,462 191,925 249,978 170,418 128,167 $ 2,510,687 $ 193,130

Month July August September October November December January February March April May June July Total Average

Credit Hours 250 115 1,392 1,000 1,309 1,112 1,339 1,373 1,064 1,123 1,360 420 315 12,172 936

The controller's office has analyzed the data and has given you the results from the regression analysis: SUMMARY OUTPUT Regression Statistics Multiple R

0.9317157

R Square

0.868094147

Adjusted R Square

0.856102705

Standard Error

20,134.92395

Observations

ANOVA df

Regression

29,349,143,514

29,349,143,514 72.3928117

Residual

4,459,566,787

405,415,162.4

Total

33,808,710,301

Significance F 3.61909E-06

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

96,647.0239 12,641.66 7.645118 1.00291E- 68,822.90 124,471.1 68,822.90 124,471.1 8 539 03 05 608 419 608 419

X Variable 1

103.0607697

12.112831 8.508396 3.61909E- 76.400608 129.72093 76.400608 129.72093 03 541 06 33 1 33 1

Based on the results of the high-low analysis, the estimate of administrative costs in a month with 1,000 credit hours would be: (rounded to the nearest whole dollar) A) $181,692. B) $199,969. C) $201,210. D) $198,808.

62) The College of Business at Northeast College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below: Administrative Costs $ 129,301 82,613 225,580 216,394 258,263 184,449 219,137 245,000 209,462 191,925 249,978 170,418 128,167 $ 2,510,687 $ 193,130

Month July August September October November December January February March April May June July Total Average

Credit Hours 250 115 1,392 1,000 1,309 1,112 1,339 1,373 1,064 1,123 1,360 420 315 12,172 936

The controller's office has analyzed the data and has given you the results from the regression analysis: SUMMARY OUTPUT Regression Statistics Multiple R

0.9317157

R Square

0.868094147

Adjusted R Square

0.856102705

Standard Error

20,134.92395

Observations

ANOVA df

Regression

29,349,143,514

29,349,143,514 72.3928117

Residual

4,459,566,787

405,415,162.4

Total

33,808,710,301

Significance F 3.61909E-06

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

96,647.0239 12,641.66 7.645118 1.00291E- 68,822.90 124,471.1 68,822.90 124,471.1 8 539 03 05 608 419 608 419

X Variable 1

103.0607697

12.112831 8.508396 3.61909E- 76.400608 129.72093 76.400608 129.72093 03 541 06 33 1 33 1

If the controller uses regression analysis to estimate costs, the cost equation for administrative costs is: A) Administrative Costs = $19,943.58 + ($13.00 × Credit hours). B) Administrative Costs = $69,474.40 + ($114.30 × Credit hours). C) Administrative Costs = $96,647.02 + ($103.06 × Credit hours). D) Administrative Costs = $12,521.26 + ($11.99 × Credit hours).

63) The College of Business at Northeast College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below: Administrative Costs $ 129,301 82,613 225,580 216,394 258,263 184,449 219,137 245,000 209,462 191,925 249,978 170,418 128,167 $ 2,510,687 $ 193,130

Month July August September October November December January February March April May June July Total Average

Credit Hours 250 115 1,392 1,000 1,309 1,112 1,339 1,373 1,064 1,123 1,360 420 315 12,172 936

The controller's office has analyzed the data and has given you the results from the regression analysis: SUMMARY OUTPUT Regression Statistics Multiple R

0.9317157

R Square

0.868094147

Adjusted R Square

0.856102705

Standard Error

20,134.92395

Observations

ANOVA df

Regression

29,349,143,514

29,349,143,514 72.3928117

Residual

4,459,566,787

405,415,162.4

Total

33,808,710,301

Significance F 3.61909E-06

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

96,647.0239 12,641.66 7.645118 1.00291E- 68,822.90 124,471.1 68,822.90 124,471.1 8 539 03 05 608 419 608 419

X Variable 1

103.0607697

12.112831 8.508396 3.61909E- 76.400608 129.72093 76.400608 129.72093 03 541 06 33 1 33 1

If the controller uses regression analysis to estimate costs, the estimate of the variable portion of administrative costs is: A) Variable Costs = $8.63 × Credit hours. B) Variable Costs = $0.87 × Credit hours. C) Variable Costs = $103.06 × Credit hours. D) Variable Costs = $11.99 × Credit hours.

64) The College of Business at Northeast College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below: Administrative Costs $ 129,301 82,613 225,580 216,394 258,263 184,449 219,137 245,000 209,462 191,925 249,978 170,418 128,167 $ 2,510,687 $ 193,130

Month July August September October November December January February March April May June July Total Average

Credit Hours 250 115 1,392 1,000 1,309 1,112 1,339 1,373 1,064 1,123 1,360 420 315 12,172 936

The controller's office has analyzed the data and has given you the results from the regression analysis: SUMMARY OUTPUT Regression Statistics Multiple R

0.9317157

R Square

0.868094147

Adjusted R Square

0.856102705

Standard Error

20,134.92395

Observations

ANOVA df

Regression

29,349,143,514

29,349,143,514 72.3928117

Residual

4,459,566,787

405,415,162.4

Total

33,808,710,301

Significance F 3.61909E-06

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

96,647.0239 12,641.66 7.645118 1.00291E- 68,822.90 124,471.1 68,822.90 124,471.1 8 539 03 05 608 419 608 419

X Variable 1

103.0607697

12.112831 8.508396 3.61909E- 76.400608 129.72093 76.400608 129.72093 03 541 06 33 1 33 1

If the controller uses regression analysis to estimate costs, the estimate of the fixed portion of administrative costs is: A) Fixed Cost = $103.56. B) Fixed Cost = $12,521.26. C) Fixed Cost = $19,943.58. D) Fixed Cost = $96,647.02.

65) The College of Business at Northeast College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below: Administrative Costs $ 129,301 82,613 225,580 216,394 258,263 184,449 219,137 245,000 209,462 191,925 249,978 170,418 128,167 $ 2,510,687 $ 193,130

Month July August September October November December January February March April May June July Total Average

Credit Hours 250 115 1,392 1,000 1,309 1,112 1,339 1,373 1,064 1,123 1,360 420 315 12,172 936

The controller's office has analyzed the data and has given you the results from the regression analysis: SUMMARY OUTPUT Regression Statistics Multiple R

0.9317157

R Square

0.868094147

Adjusted R Square

0.856102705

Standard Error

20,134.92395

Observations

ANOVA df

Regression

29,349,143,514

29,349,143,514 72.3928117

Residual

4,459,566,787

405,415,162.4

Total

33,808,710,301

Significance F 3.61909E-06

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

96,647.0239 12,641.66 7.645118 1.00291E- 68,822.90 124,471.1 68,822.90 124,471.1 8 539 03 05 608 419 608 419

X Variable 1

103.0607697

12.112831 8.508396 3.61909E- 76.400608 129.72093 76.400608 129.72093 03 541 06 33 1 33 1

Based on the results of the regression analysis, the estimate of administrative costs in a month with 1,000 credit hours would be: (rounded to the nearest whole dollar) A) $198,808. B) $201,000. C) $199,707. D) $96,409.

66) The College of Business at Northeast College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below: Administrative Costs $ 129,301 82,613 225,580 216,394 258,263 184,449 219,137 245,000 209,462 191,925 249,978 170,418 128,167 $ 2,510,687 $ 193,130

Month July August September October November December January February March April May June July Total Average

Credit Hours 250 115 1,392 1,000 1,309 1,112 1,339 1,373 1,064 1,123 1,360 420 315 12,172 936

The controller's office has analyzed the data and has given you the results from the regression analysis: SUMMARY OUTPUT Regression Statistics Multiple R

0.9317157

R Square

0.868094147

Adjusted R Square

0.856102705

Standard Error

20,134.92395

Observations

ANOVA df

Regression

29,349,143,514

29,349,143,514 72.3928117

Residual

4,459,566,787

405,415,162.4

Total

33,808,710,301

Significance F 3.61909E-06

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

96,647.0239 12,641.66 7.645118 1.00291E- 68,822.90 124,471.1 68,822.90 124,471.1 8 539 03 05 608 419 608 419

X Variable 1

103.0607697

12.112831 8.508396 3.61909E- 76.400608 129.72093 76.400608 129.72093 03 541 06 33 1 33 1

The correlation coefficient (rounded to the 3rd decimal) for the regression equation for administrative costs is: A) 0.932. B) 0.868. C) 0.856. D) 0.966.

67) The College of Business at Northeast College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below: Administrative Costs $ 129,301 82,613 225,580 216,394 258,263 184,449 219,137 245,000 209,462 191,925 249,978 170,418 128,167 $ 2,510,687 $ 193,130

Month July August September October November December January February March April May June July Total Average

Credit Hours 250 115 1,392 1,000 1,309 1,112 1,339 1,373 1,064 1,123 1,360 420 315 12,172 936

The controller's office has analyzed the data and has given you the results from the regression analysis: SUMMARY OUTPUT Regression Statistics Multiple R

0.9317157

R Square

0.868094147

Adjusted R Square

0.856102705

Standard Error

20,134.92395

Observations

ANOVA df

Regression

29,349,143,514

29,349,143,514 72.3928117

Residual

4,459,566,787

405,415,162.4

Total

33,808,710,301

Significance F 3.61909E-06

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

96,647.0239 12,641.66 7.645118 1.00291E- 68,822.90 124,471.1 68,822.90 124,471.1 8 539 03 05 608 419 608 419

X Variable 1

103.0607697

12.112831 8.508396 3.61909E- 76.400608 129.72093 76.400608 129.72093 03 541 06 33 1 33 1

The percent of the total variance that can be explained by the regression is: A) 93.3%. B) 86.8%. C) 85.9%. D) 96.6%.

68) The College of Business at Northeast College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below: Administrative Costs $ 129,301 82,613 225,580 216,394 258,263 184,449 219,137 245,000 209,462 191,925 249,978 170,418 128,167 $ 2,510,687 $ 193,130

Month July August September October November December January February March April May June July Total Average

Credit Hours 250 115 1,392 1,000 1,309 1,112 1,339 1,373 1,064 1,123 1,360 420 315 12,172 936

The controller's office has analyzed the data and has given you the results from the regression analysis: SUMMARY OUTPUT Regression Statistics Multiple R

0.9317157

R Square

0.868094147

Adjusted R Square

0.856102705

Standard Error

20,134.92395

Observations

ANOVA df

Regression

29,349,143,514

29,349,143,514 72.3928117

Residual

4,459,566,787

405,415,162.4

Total

33,808,710,301

Significance F 3.61909E-06

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

96,647.0239 12,641.66 7.645118 1.00291E- 68,822.90 124,471.1 68,822.90 124,471.1 8 539 03 05 608 419 608 419

X Variable 1

103.0607697

12.112831 8.508396 3.61909E- 76.400608 129.72093 76.400608 129.72093 03 541 06 33 1 33 1

Based on the results of the regression analysis, the estimate of the variable portion of administrative costs in a month with 200 credit hours would be: A) $198,808. B) $20,612. C) $117,121. D) $40,242. 69) In determining cost behavior in business, the cost function is often expressed as Y = a + bX. Which one of the following cost estimation methods should not be used in estimating fixed and variable costs for the equation? (CMA adapted) A) Scattergraph method. B) Simple regression. C) High and low point method. D) Management analysis of data. 70) Which of the following may be used to estimate how inventory warehouse costs are affected by both the number of shipments and the weight of the material handled? (CPA adapted) A) Economic order quantity analysis. B) Probability analysis. C) Correlation analysis. D) Multiple regression analysis.

71) Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow: Month January February March April May June July August September October November December

Machine Hours 2,500 2,900 1,900 3,100 3,800 3,300 4,100 3,500 2,000 3,700 4,700 4,200

Electricity Costs $ 18,400 21,000 13,500 23,000 28,250 22,000 24,750 22,750 15,500 26,000 31,000 27,750

Summary Output Regression Statistics Multiple R

0.965

R Square

0.932

Adjusted R2

0.925

Standard Error

1,425.18

Observations

12.00

Coefficients

Standard Error

t Stat P-value

Intercept

3,726.88

1,682.82 2.21

0.05

Machine Hours

5.77

0.49 11.7

0.00

Lower 95%

Upper 95%

(22.69) 7,476.45 4.67

6.87

If the controller uses the high-low method to estimate costs, the variable cost per machine hour is: A) $6.25. B) $6.90. C) $5.77. D) $11.70.

72) Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow: Month January February March April May June July August September October November December

Machine Hours 2,500 2,900 1,900 3,100 3,800 3,300 4,100 3,500 2,000 3,700 4,700 4,200

Electricity Costs $ 18,400 21,000 13,500 23,000 28,250 22,000 24,750 22,750 15,500 26,000 31,000 27,750

Summary Output Regression Statistics Multiple R

0.965

R Square

0.932

Adjusted R2

0.925

Standard Error

1,425.18

Observations

12.00

Coefficients

Standard Error

t Stat P-value

Intercept

3,726.88

1,682.82 2.21

0.05

Machine Hours

5.77

0.49 11.7

0.00

Lower 95%

Upper 95%

(22.69) 7,476.45 4.67

6.87

If the controller uses the high-low method to estimate costs, the fixed cost portion of the cost equation for electricity costs is: A) $3,726.88. B) $1,425.18. C) $1,625.00. D) $22,825.00.

73) Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow: Month January February March April May June July August September October November December

Machine Hours 2,500 2,900 1,900 3,100 3,800 3,300 4,100 3,500 2,000 3,700 4,700 4,200

Electricity Costs $ 18,400 21,000 13,500 23,000 28,250 22,000 24,750 22,750 15,500 26,000 31,000 27,750

Summary Output Regression Statistics Multiple R

0.965

R Square

0.932

Adjusted R2

0.925

Standard Error

1,425.18

Observations

12.00

Coefficients

Standard Error

t Stat P-value

Intercept

3,726.88

1,682.82 2.21

0.05

Machine Hours

5.77

0.49 11.7

0.00

Lower 95%

Upper 95%

(22.69) 7,476.45 4.67

6.87

If the controller uses the high-low method to estimate costs, the cost equation for electricity costs is: A) Electricity Costs = $3,726.88 + ($5.77 × Machine-hours). B) Electricity Costs = $1,625.00 + ($6.25 × Machine-hours). C) Electricity Costs = $6.90 × Machine-hours. D) Electricity Costs = $22,825.

74) Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow: Month January February March April May June July August September October November December

Machine Hours 2,500 2,900 1,900 3,100 3,800 3,300 4,100 3,500 2,000 3,700 4,700 4,200

Electricity Costs $ 18,400 21,000 13,500 23,000 28,250 22,000 24,750 22,750 15,500 26,000 31,000 27,750

Summary Output Regression Statistics Multiple R

0.965

R Square

0.932

Adjusted R2

0.925

Standard Error

1,425.18

Observations

12.00

Coefficients

Standard Error

t Stat P-value

Intercept

3,726.88

1,682.82 2.21

0.05

Machine Hours

5.77

0.49 11.7

0.00

Lower 95%

Upper 95%

(22.69) 7,476.45 4.67

6.87

Based on the results of the high-low analysis, the estimate of electricity costs in a month with 2,200 machine hours would be: A) $15,375. B) $22,825. C) $15,180. D) $16,427.

75) Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow: Month January February March April May June July August September October November December

Machine Hours 2,500 2,900 1,900 3,100 3,800 3,300 4,100 3,500 2,000 3,700 4,700 4,200

Electricity Costs $ 18,400 21,000 13,500 23,000 28,250 22,000 24,750 22,750 15,500 26,000 31,000 27,750

Summary Output Regression Statistics Multiple R

0.965

R Square

0.932

Adjusted R2

0.925

Standard Error

1,425.18

Observations

12.00

Coefficients

Standard Error

t Stat P-value

Intercept

3,726.88

1,682.82 2.21

0.05

Machine Hours

5.77

0.49 11.7

0.00

Lower 95%

Upper 95%

(22.69) 7,476.45 4.67

6.87

If the controller uses regression analysis to estimate costs, the cost equation for electricity costs is: A) Electricity Costs = $1,425.18 + ($12.00 × Machine hours). B) Electricity Costs = $3,726.88 + ($1,682.82 × Machine hours). C) Electricity Costs = $1,682.82 + ($0.49 × Machine hours). D) Electricity Costs = $3,726.88 + ($5.77 × Machine hours).

76) Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow: Month January February March April May June July August September October November December

Machine Hours 2,500 2,900 1,900 3,100 3,800 3,300 4,100 3,500 2,000 3,700 4,700 4,200

Electricity Costs $ 18,400 21,000 13,500 23,000 28,250 22,000 24,750 22,750 15,500 26,000 31,000 27,750

Summary Output Regression Statistics Multiple R

0.965

R Square

0.932

Adjusted R2

0.925

Standard Error

1,425.18

Observations

12.00

Coefficients

Standard Error

t Stat P-value

Intercept

3,726.88

1,682.82 2.21

0.05

Machine Hours

5.77

0.49 11.7

0.00

Lower 95%

Upper 95%

(22.69) 7,476.45 4.67

6.87

If the controller uses regression analysis to estimate costs, the estimate of the variable portion of electricity costs is: A) Electricity Costs = $11.70 × Machine hours. B) Electricity Costs = $0.93 × Machine hours. C) Electricity Costs = $5.77 × Machine hours. D) Electricity Costs = $0.49 × Machine hours.

77) Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow: Month January February March April May June July August September October November December

Machine Hours 2,500 2,900 1,900 3,100 3,800 3,300 4,100 3,500 2,000 3,700 4,700 4,200

Electricity Costs $ 18,400 21,000 13,500 23,000 28,250 22,000 24,750 22,750 15,500 26,000 31,000 27,750

Summary Output Regression Statistics Multiple R

0.965

R Square

0.932

Adjusted R2

0.925

Standard Error

1,425.18

Observations

12.00

Coefficients

Standard Error

t Stat P-value

Intercept

3,726.88

1,682.82 2.21

0.05

Machine Hours

5.77

0.49 11.7

0.00

Lower 95%

Upper 95%

(22.69) 7,476.45 4.67

6.87

If the controller uses regression analysis to estimate costs, the estimate of the fixed portion of electricity costs is: A) Fixed Cost = $5.77. B) Fixed Cost = $1,682.82. C) Fixed Cost = $1,425.18. D) Fixed Cost = $3,726.88

78) Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow: Month January February March April May June July August September October November December

Machine Hours 2,500 2,900 1,900 3,100 3,800 3,300 4,100 3,500 2,000 3,700 4,700 4,200

Electricity Costs $ 18,400 21,000 13,500 23,000 28,250 22,000 24,750 22,750 15,500 26,000 31,000 27,750

Summary Output Regression Statistics Multiple R

0.965

R Square

0.932

Adjusted R2

0.925

Standard Error

1,425.18

Observations

12.00

Coefficients

Standard Error

t Stat P-value

Intercept

3,726.88

1,682.82 2.21

0.05

Machine Hours

5.77

0.49 11.7

0.00

Lower 95%

Upper 95%

(22.69) 7,476.45 4.67

6.87

Based on the results of the regression analysis, the estimate of electricity costs in a month with 2,200 machine hours would be: (rounded to the nearest whole dollar) A) $3,727. B) $16,421. C) $15,180. D) $22,825.

79) Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow: Month January February March April May June July August September October November December

Machine Hours 2,500 2,900 1,900 3,100 3,800 3,300 4,100 3,500 2,000 3,700 4,700 4,200

Electricity Costs $ 18,400 21,000 13,500 23,000 28,250 22,000 24,750 22,750 15,500 26,000 31,000 27,750

Summary Output Regression Statistics Multiple R

0.965

R Square

0.932

Adjusted R2

0.925

Standard Error

1,425.18

Observations

12.00

Coefficients

Standard Error

t Stat P-value

Intercept

3,726.88

1,682.82 2.21

0.05

Machine Hours

5.77

0.49 11.7

0.00

Lower 95%

Upper 95%

(22.69) 7,476.45 4.67

6.87

The correlation coefficient for the regression equation for electricity costs is: A) 0.965. B) 0.932. C) 0.925. D) 0.982.

80) Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow: Month January February March April May June July August September October November December

Machine Hours 2,500 2,900 1,900 3,100 3,800 3,300 4,100 3,500 2,000 3,700 4,700 4,200

Electricity Costs $ 18,400 21,000 13,500 23,000 28,250 22,000 24,750 22,750 15,500 26,000 31,000 27,750

Summary Output Regression Statistics Multiple R

0.965

R Square

0.932

Adjusted R2

0.925

Standard Error

1,425.18

Observations

12.00

Coefficients

Standard Error

t Stat P-value

Intercept

3,726.88

1,682.82 2.21

0.05

Machine Hours

5.77

0.49 11.7

0.00

Lower 95%

Upper 95%

(22.69) 7,476.45 4.67

6.87

The percent of the total variance that can be explained by the regression is: A) 96.5%. B) 93.2%. C) 92.5%. D) 98.2%.

81) Balcom Enterprises is planning to introduce a new product that will sell for $110 per unit. Manufacturing cost estimates for 20,000 units for the first year of production are: ∙ Direct materials $1,000,000. ∙ Direct labor $720,000 (based on $18 per hour × 40,000 hours). Although overhead has not be estimated for the new product, monthly data for Balcom's total production for the last two years has been analyzed using simple linear regression. The analysis results are as follows: Dependent variable Independent variable Intercept Coefficient on independent variable Coefficient of correlation R2

Factory overhead costs Direct labor hours $ 120,000 $ 5.00 0.911 0.814

Based on this information, what percentage of the variation in overhead costs is explained by the independent variable? A) 24% B) 81.4% C) 91.1 % D) 9.7%

82) Balcom Enterprises is planning to introduce a new product that will sell for $110 per unit. Manufacturing cost estimates for 20,000 units for the first year of production are: ∙ Direct materials $1,000,000. ∙ Direct labor $720,000 (based on $18 per hour × 40,000 hours). Although overhead has not be estimated for the new product, monthly data for Balcom's total production for the last two years has been analyzed using simple linear regression. The analysis results are as follows: Dependent variable Independent variable Intercept Coefficient on independent variable Coefficient of correlation R2

Factory overhead costs Direct labor hours $ 120,000 $ 5.00 0.911 0.814

Based on this information, what is the total overhead cost for an estimated activity level of 45,000 direct labor-hours? A) $125,000 B) $345,000 C) $600,000 D) $225,000

83) Balcom Enterprises is planning to introduce a new product that will sell for $110 per unit. Manufacturing cost estimates for 20,000 units for the first year of production are: ∙ Direct materials $1,000,000. ∙ Direct labor $720,000 (based on $18 per hour × 40,000 hours). Although overhead has not be estimated for the new product, monthly data for Balcom's total production for the last two years has been analyzed using simple linear regression. The analysis results are as follows: Dependent variable Independent variable Intercept Coefficient on independent variable Coefficient of correlation R2

Factory overhead costs Direct labor hours $ 120,000 $ 5.00 0.911 0.814

Based on this information, how much is the variable manufacturing cost per unit, using the variable overhead estimated by the regression (assuming that direct materials and direct labor are variable costs)? A) $78 B) $91 C) $96 D) $71

84) Balcom Enterprises is planning to introduce a new product that will sell for $110 per unit. Manufacturing cost estimates for 20,000 units for the first year of production are: ∙ Direct materials $1,000,000. ∙ Direct labor $720,000 (based on $18 per hour × 40,000 hours). Although overhead has not be estimated for the new product, monthly data for Balcom's total production for the last two years has been analyzed using simple linear regression. The analysis results are as follows: Dependent variable Independent variable Intercept Coefficient on independent variable Coefficient of correlation R2

Factory overhead costs Direct labor hours $ 120,000 $ 5.00 0.911 0.814

Based on this information, what is the expected contribution margin per unit to be earned during the first year on 20,000 units of the new product? (Assume that all marketing and administrative costs are fixed.) A) $14 B) $13 C) $99 D) $32 85) Given actual amounts of a semi-variable cost for various levels of output, the method that will always give the most reliable measure of the fixed and variable components is the: A) high-low method. B) linear regression method. C) scattergraph method. D) account analysis method. 86) Which of the following statements regarding regression analysis is (are) true? (A) One way to control the effects of a nonlinear relationship between total costs and activity is reduce the relevant range. (B) The linear cost estimate tends to understate the slope of the cost line in ranges close to capacity. A) Only A is true. B) Only B is true. C) Both of these are true. D) Neither of these is true.

87) Which of the following is a common assumption of cost estimation? A) Cost behavior depends on many cost drivers. B) Cost behavior patterns are nonlinear outside of the relevant range. C) Cost behavior patterns are linear within the relevant range. D) Costs are curvilinear. 88) Which of the following is not a data problem an analyst must watch for when estimating cost behavior? A) Missing data. B) Outliers. C) Allocated costs. D) Depreciable assets. 89) Which of the following is not a data problem an analyst must watch for when estimating cost behavior? A) Non-numeric data. B) Inflation. C) Discretionary costs. D) Mismatched time periods. 90) In the learning curve equation Y = aXb, the Y term represents: A) the labor time required to produce the first unit. B) the labor time required to produce the last single unit. C) the cumulative number of units. D) the index of learning. 91) In the learning curve equation Y = aXb, the X term represents: A) the labor time required to produce the first unit. B) the labor time required to produce the last single unit. C) the cumulative number of units. D) the index of learning. 92) In the learning curve equation Y = aXb, the "a" term represents: A) the labor time required to produce the first unit. B) the labor time required to produce the last single unit. C) the cumulative number of units. D) the index of learning. 93) In the learning curve equation Y = aXb, the "b" term represents: A) the labor time required to produce the first unit. B) the labor time required to produce the last single unit. C) the cumulative number of units. D) the index of learning.

94) Which of the following statements regarding the learning phenomenon is true? A) The more units that are produced, the greater the average time to produce a single unit. B) The relationship between number of units produced and the marginal time to produce the latest unit is linear. C) Total labor cost is a linear function of the total units produced. D) As production doubles, the time to produce the latest unit decreases. 95) Bachmann Products, Inc., has found that new products follow a learning curve. The first two units have been completed with the following results: Units Produced

Marginal Labor Time 1

80.00

68.00

How much time will be needed to complete the 4th unit? A) 74.00 hours. B) 57.80 hours. C) 56.00 hours. D) 54.40 hours. 96) Bachmann Products, Inc., has found that new products follow a learning curve. The first two units have been completed with the following results: Units Produced

Marginal Labor Time 1

80.00

68.00

How much time will be needed to complete the 8th unit? A) 74.00 hours. B) 57.80 hours. C) 56.00 hours. D) 49.13 hours.

97) The following manufacturing costs were incurred by the Miracle Mile Company in 2019: Direct materials Direct labor Manufacturing overhead

$ 225,000 350,000 470,000

These costs were incurred to produce 50,000 units of product. Variable manufacturing overhead was 70% of the direct materials cost. In 2020, the direct material and variable overhead costs per unit will increase by 12%, but the direct labor costs per unit are not expected to change. Fixed manufacturing costs are expected to increase by 8%. Required: (a.) Prepare a cost estimate for an activity level of 40,000 units of product in 2020. (b.) Determine the total product costs per unit for 2019 and 2020. 98) The following manufacturing costs were incurred by the Trinitram Company in 2019: Direct materials Direct labor Manufacturing overhead

$ 112,500 175,000 235,000

These costs were incurred to produce 25,000 units of product. Variable manufacturing overhead was 80% of the direct materials cost. In 2020, the direct material and variable overhead costs per unit will increase by 15%, but the direct labor costs per unit are not expected to change. Fixed manufacturing costs are expected to increase by 7.5%. Required: (a.) Prepare a cost estimate for an activity level of 20,000 units of product in 2020. (b.) Determine the total product costs per unit for 2019 and 2020.

99) The Thomas Company's total overhead costs at various levels of activity are presented below: Month July August September October

Direct Labor Hours 7,500 6,000 9,000 10,500

Total Overhead $ 272,000 234,000 319,000 340,500

Assume that the overhead costs above consist of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 9,000 direct labor hour level of activity is as follows: Utilities (V) Supervisory Salaries (F) Maintenance (M)

$ 137,700 80,000 101,300 319,000

Required: (a.) Using the high-low method, determine the cost formula for maintenance. (b.) Express the company's total overhead costs in linear equation form.

100) The Feline Company has been having some difficulties estimating its manufacturing overhead costs. In the past, manufacturing overhead costs have been related to production levels. However, some production managers have indicated that the size of their production lots might also be having an impact on the amount of their monthly manufacturing overhead costs. In order to investigate this possibility, the company collected information on its monthly manufacturing overhead costs, production in units, and average production lot size for 2020.

Month 1 2 3 4 5 6 7 8 9 10 11 12

Production (Units) 75,000 90,000 65,000 80,000 55,000 50,000 85,000 105,000 102,000 68,000 75,000 95,000

Manufacturing Overhead Cost $ 925,800 843,875 910,125 946,000 879,000 825,000 960,000 1,053,500 1,020,000 905,000 938,000 995,000

Average Monthly Production Lot Size 20 19 24 19 24 18 22 25 23 20 22 24

Required: (a.) Use the high-low method to estimate next month's manufacturing overhead costs, assuming the company is planning to produce 92,000 units. (b.) Use the high-low method to estimate next month's manufacturing overhead costs, assuming the company is planning to run a 21-lot size. 101) Argo Company ran a regression analysis using direct labor hours as the independent variable and manufacturing overhead costs as the dependent variable. The results are summarized below: Intercept Slope Correlation coefficient R-squared

$ 14,600 $ 12.55 0.931 0.867

Argo is planning on operating at a level that would require 12,000 direct labor hours per month in the upcoming year. Required: (a.) Use the information from the regression analysis to write the cost estimation equation for the manufacturing overhead costs. (b.) Compute the estimated manufacturing overhead costs per month for the upcoming year. 57 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

102) The Feline Company has been having some difficulties estimating its manufacturing overhead costs. In the past, manufacturing overhead costs have been related to production levels. However, some production managers have indicated that the size of their production lots might also be having an impact on the amount of their monthly manufacturing overhead costs. In order to investigate this possibility, the company collected information on its monthly manufacturing overhead costs, production in units, and average production lot size for 2020.

Production (Units) 75,000 90,000 65,000 80,000 55,000 50,000 85,000 105,000 102,000 68,000 75,000 95,000

Month 1 2 3 4 5 6 7 8 9 10 11 12

Manufacturing Overhead Cost $ 925,800 843,875 910,125 946,000 879,000 825,000 960,000 1,053,500 1,020,000 905,000 938,000 995,000

Average Monthly Production Lot Size 20 19 24 19 24 18 22 25 23 20 22 24

Regression analysis results of the information presented above are as follows: Ordinary regression: Equation: r-square:

$691,741 + $3.0692 × units 0.628

Multiple regression: Equation: r-square:

$482,172 + $2.4918 × units + $11,770.939 × lot size 0.777

Required: (a.) Use the results from the ordinary regression and estimate next month's manufacturing overhead costs, assuming the company is planning to produce 92,000 units. (final answer should be rounded to the nearest whole dollar) (b.) Use the results from the multiple regression and estimate the next month's manufacturing costs, assuming the company is planning to produce 92,000 units with an average lot size of 21. (final answer should be rounded to the nearest whole dollar) (c.) Comment on which regression seems to be more appropriate under these circumstances. What additional information would you like to see? Be specific. 58 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

103) The Ornate Company produces a single product and has total costs ranging from $321,875 (at 20,000 units) to $966,875 (at 80,000 units). Sales volume in 2020 was 32,000, and operating income was $45,125. Ornate's product is highly specialized; therefore, no units are kept in inventory. Required: (a.) Determine the cost equation for Ornate's costs. (b.) Prepare a contribution margin income statement for 2020 including separate columns for total dollars, per unit dollars, and percentages. (c.) Determine the break-even point (in units and in dollars). 104) Iowa Enterprises had an average cost of $10.75 during a month when 50,000 units were produced. When production doubled several months later, the average cost dropped to $8.25. Required: (a.) Determine the fixed and variable portions of production costs. (b.) What will unit cost be when production equals 80,000 units? 105) Washington Products had costs of $600,000 when sales equaled 75,000 units. When sales increased by 25,000 units, costs increased by $125,000. The selling price is $9 per unit. Required: (a.) Determine the fixed and variable portions of costs. (b.) Prepare a contribution margin income statement for a month with sales of 80,000 units. 106) New Venture, Inc. has received a contract for 8 units of a new product. The contract is a cost-plus contract, with the total to be received equal to the total labor cost + 20%. New Venture found that the first unit of a new product required 120 hours to complete. The second unit was completed using only 114 hours. New Venture believes that the rate of learning that was observed will continue for all 8 units of the contract. The labor wage paid is $25/hour. The following factors are available for various rates of learning: 80% learning, b = –0.3219; 85%, b = –0.2345; 90%, b = –0.1520; 95%, b = –0.0740. Required: (a.) What will the total labor cost be for the contract? (b.) What will the total fee be for the contract?

107) Market Products, Inc., has found that new products follow a learning curve. The first two units have been completed with the following results: Units Produced

Marginal Labor Time

250.00

225.00

Required: (a.) How much time will be needed to complete the 4th unit? (b.) How much time will be needed to complete the 8th unit? (c.) How much time will be needed to complete the 16th unit?

108) Clough Company is interested in establishing the relationship between utility costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow: Month January February March April May June July August September October November December

Utility Costs $ 22,080 25,200 16,200 27,600 33,900 26,400 29,700 27,300 18,600 31,200 37,200 33,300

Machine Hours 3,250 3,770 2,470 4,030 4,940 4,290 5,330 4,550 2,600 4,810 6,110 5,460 SUMMARY OUTPUT Regression Statistics

Multiple R R Square Adjusted R-Square Standard Error Observations

96.5% 93.2% 92.5% 1,710.21 12.00

Coefficients Intercept

4,472.26

Machine Hours

5.329

Standard Error 2,019.39

t Stat

P-value

2.21

0.051

0.455 11.70 3.69E–07

Lower 95%

Upper 95%

–27.23 8971.74 4.314

6.343

Required: (a.) What is the equation for utility costs using the regression analysis? (b.) Does the variable "machine hours" have statistical significance? Explain. (c.) Prepare an estimate of utility costs for a month when 3,000 machine hours are worked.

109) Clough Company is interested in establishing the relationship between utility costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow: Month January February March April May June July August September October November December

Machine Hours 3,250 3,770 2,470 4,030 4,940 4,290 5,330 4,550 2,600 4,810 6,110 5,460

Utility Costs $ 22,080 25,200 16,200 27,600 33,900 26,400 29,700 27,300 18,600 31,200 37,200 33,300

Required: (a.) What is the equation for utility costs using the high-low method? (b.) Prepare an estimate of utility costs for a month when 3,000 machine hours are worked. 110) Yates Corp. wants to develop a cost equation for its administrative costs. The controller believes the appropriate cost driver is units produced. Last year's data are presented below: Month January February March April May June July August September October November December Total Average

Units Produced 32,500 37,700 24,700 40,300 49,400 42,900 53,300 45,500 26,000 48,100 61,100 54,600 516,100 43,008

Administrative Costs $ 24,288 27,720 17,820 30,360 37,290 29,040 32,670 30,030 20,460 34,320 40,920 36,630 $ 361,548 $ 30,129

Required: (a.) What is the equation for administrative costs using the high-low method? (b.) Prepare an estimate of administrative costs for a month when 30,000 units are produced. 62 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

111) Yates Corp. wants to develop a cost equation for its administrative costs. The controller believes the appropriate cost driver is units produced. Last year's data are presented below: Units Produced 32,500 37,700 24,700 40,300 49,400 42,900 53,300 45,500 26,000 48,100 61,100 54,600

Month January February March April May June July August September October November December

Administrative Costs $ 24,288 27,720 17,820 30,360 37,290 29,040 32,670 30,030 20,460 34,320 40,920 36,630

SUMMARY OUTPUT Regression Statistics Multiple R

0.965383

R Square

0.931965

Adjusted R-Square

0.925162

Standard Error

1,881.232

Observations

Coefficients

Standard Error

P-value

Lower 95%

t Stat

Upper 95%

Intercept

4,919.48

2,221.329

2.21

0.051156

–29.9485

9,868.909

Units produced

0.586154

0.050082 11.70

3.69E–07

0.474566

0.697743

Required: (a.) What is the equation for administrative costs using the regression analysis? (b.) Does the variable "units produced" have statistical significance? Explain. (c.) Prepare an estimate of administrative costs for a month when 30,000 units are produced.

112) The Wonder Drug Company's total overhead costs at various levels of activity are presented below: Month September October November December

Direct Labor Hours 15,000 12,000 18,000 21,000

Total Overhead $ 472,000 409,400 542,000 604,700

Assume that the overhead costs above consist of indirect labor, scheduling salaries, and maintenance. The breakdown of these costs for the month of November is as follows: Indirect labor (V) Maintenance (M) Scheduling Salaries (F)

$219,600 197,400 125,000 $542,000

Required: (a.) Using the high-low method, determine the cost formula for maintenance. (b.) Express the company's total overhead costs in linear equation form.

113) The Norcross Company has traditionally estimated manufacturing overhead costs using production volume. Some of the production managers believe that the number of setups may also have an impact on monthly manufacturing overhead costs. In order to investigate this possibility, the company collected information on its monthly manufacturing overhead costs, production in units, and number of setups for 2020. Month 1 2 3 4 5 6 7 8 9 10 11 12

Production (Units) 50,000 65,000 40,000 55,000 30,000 25,000 60,000 80,000 77,000 43,000 50,000 70,000

Manufacturing Overhead Cost $ 800,100 752,500 795,100 822,750 771,225 706,200 843,000 935,200 901,750 786,400 819,600 880,900

Number of Setups 17 16 21 16 21 15 19 22 20 17 19 21

Regression analysis results of the information presented above are as follows: Ordinary regression: Equation: $650,398 + $3.1061 × units r-square: .707 Multiple regression: Equation: [$464,481 + ($2.5356 × units)] + [($11,631.6048 × number of set ups)] r-square: .867 Required: (a.) Use the results from the ordinary regression and estimate next month's manufacturing overhead costs, assuming the company is planning to produce 75,000 units. (final answer should be rounded to the nearest whole dollar) (b.) Use the results from the multiple regression and estimate the next month's manufacturing overhead costs, assuming the company is planning to produce 75,000 units with 18 set ups. (final answer should be rounded to the nearest whole dollar) (c.) Comment on which regression seems to be more appropriate under these circumstances. What additional information would you like to see? Be specific.

114) Barnard Enterprises had an average cost of $8.60 during a month when 75,000 units were produced. When production was 125,000 units several months later, the average cost dropped to $6.98. Required: (a.) Determine the fixed and variable portions of production costs. (b.) What will unit cost be when production equals 110,000 units? 115) Doran Products had costs of $950,000 when sales equaled 55,000 units. When sales increased to 85,000 units, total costs increased to $1,400,000. The selling price is $21 per unit. Required: (a.) Determine the fixed and variable portions of total costs. (b.) Prepare a contribution margin income statement for a month with sales of 70,000 units. 116) Markham, Inc. has received a contract for 8 units of a new product. The contract is a costplus contract, with the total to be received equal to the total labor cost + 30%. Markham found that the first unit of a new product required 90 hours to complete. The second unit was completed using only 76.5 hours. Markham believes that the rate of learning that was observed will continue for all 8 units of the contract. The labor wage paid is $40/hour. The following factors are available for various rates of learning: 80% learning, b = −0.3219; 85%, b = −0.2345; 90%, b = −0.1520; 95%, b = −0.0740. Required: (a.) What will the total labor cost be for the contract?f (b.) What will be the total fee for the contract? 117) Woodman Products, Inc., has found that new products follow a learning curve. The first two units have been completed with the following results: Units Produced

Marginal Labor Time

112.50

90.00

Required: (a.) How much time will be needed to complete the 4th unit? (b.) How much time will be needed to complete the 8th unit? (c.) How much time will be needed to complete the 16th unit?

118) Below are several examples of costs that are labeled fixed or variable according to their typical accounting designations. Under which circumstances would any of these costs behave in a manner opposite to that listed? a. Direct labor—variable. b. Equipment depreciation—fixed. c. Utilities (with a minimum charge)—variable. d. Supervisory salaries—fixed. e. Indirect materials purchased in given lot sizes that become spoiled within a few days— variable. 119) When using past data to predict a cost that has fixed and variable components, it is possible to have an equation with a negative intercept. Does this mean that at a zero production level, the company will make money on its fixed costs? Explain. 120) Describe the engineering method of cost estimation. Provide two advantages and two disadvantages associated with the engineering approach to cost estimation. 121) Explain the difference between the engineering method of cost estimation and the account analysis method. 122) When preparing cost estimates for account analysis purposes, should the costs be extracted from the historical accounting records? 123) Describe two advantages and two disadvantages of the high-low method of cost estimation. 124) Is it possible to compensate for the effects of price instability when preparing cost estimates using high-low or regression techniques? 125) J.C. Riley, who owns Riley's Auto Repair Shop is trying to determine whether the company's advertising program is successful. He has used a spreadsheet program to estimate the relationship between advertising expenditures and sales dollars. Monthly data for the past two years were entered into the program. The regression results indicated the following: Sales dollars = $169, 000 − ($200 × Advertising expenditures) Correlation coefficient = −0.864 To J.C., the results imply that advertising is actually reducing sales. Can you help explain to him what might cause the negative relationship between advertising expenditures and sales?

126) Southside Hospital is trying to get a better idea of the costs in its cardiac surgical unit. Unit cost data for supplies, labor, etc. have been collected for a three-year period. After analyzing the data using Excel, the following output was generated, based on 1,500 procedures. Intercept = $2,169, 000 Coefficient on procedures $972 Correlation coefficient = 0.448 R2 = 0.189 The controller asks you for advice on whether to rely on this estimate. Based on the output, what would you say? 127) What are "outliers" and what effect does their presence have when using regression analysis for cost estimation? 128) Describe the effect on cost estimation of four of the following five problems: 1) missing data, 2) outliers, 3) allocated and discretionary costs, 4) inflation, or 5) mismatched time periods. 129) Your manager asks you for a cost estimate to open a new retail outlet and says, "I want you to use statistical analysis, so it will be objective because it is based on real data." How would you respond? 130) Fast-food restaurants, like Taco Bell and McDonalds, are known for high employee turnover, high quality, and low costs. Using your knowledge of the learning phenomenon, how do these fast-food chains get high quality and low costs when they have so much employee turnover? 131) Assume that as part of their recent merger, Dell and EMC are perfecting a new device that will access and coordinate the internet of things. The new company is interested in estimating the impact of learning on the cost of producing this new device and plan to use data from previous products to estimate the learning parameter. What are the advantages of doing this? What are the disadvantages?

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 6 Fundamentals of Product and Service Costing 1) The term "product" often refers to an organization's output and includes both tangible items (e.g., chair, desk, etc.) and intangible items (e.g., services provided). 2) Individual product costs are relevant for managerial decision-making but irrelevant for preparing the financial statements. 3) One of the most common decisions facing managers is determining the price at which to sell one of their products or to provide their services. 4) It is important that cost management systems are designed using the cost-benefit principle so that the costs of gathering additional information are balanced against the benefits of that information. 5) In general, indirect costs are allocated, while direct costs are assigned. 6) Cost management systems should be designed to report the same costs to each decisionmaker. 7) The only purpose of cost information is to determine the individual product cost on a per unit basis in order to value inventory. 8) "Beginning Balance (BB) plus Transfers Out (TO) equals Ending Balance (EB) plus Transfers In (TI)". 9) The Transfers In (TI) costs in the basic cost flow model of a manufacturing firm are direct materials, direct labor, and manufacturing overhead. 10) The basic cost flow model applies only to physical units and not to costs. 11) If the Beginning Balance (BB) equals the Ending Balance (EB), then the Transfers In (TI) equal the Transfers Out (TO). 12) The predetermined overhead rate is calculated by dividing the prior period's overhead cost by the prior period's allocation base (i.e., activity level). 13) Overestimating a period's allocation base will understate the predetermined overhead rate. 14) Regression analysis can be used to estimate the strength of the relationship between a cost and potential allocation bases for that cost. 15) The two-stage cost allocation process allocates costs to multiple cost pools and then to individual cost objects using different allocation bases. 16) If a company has three cost pools, it should have three different cost allocation bases. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

17) The selection of an appropriate cost allocation base is more important for single-stage cost allocation systems than for two-stage cost allocation systems. 18) Hospitals are more likely to use a process costing system than a job costing system. 19) Process costing systems do not separate and record direct material and direct labor costs for each individual unit of product. 20) Operation costing is a hybrid system used in manufacturing goods that have some common characteristics and some individual characteristics. 21) Which of the following statements is (are) true regarding product costing? (A) Individual product costs are relevant for managerial decision-making but irrelevant for preparing the financial statements. (B) A common decision facing managers is determining the price at which to sell their products or provide their services. A) Only A is true. B) Only B is true. C) Both of these are true D) Neither of these is true. 22) A system that provides information about the costs of processes, products, and services used and produced by an organization is a: A) continuous flow process. B) cost management system. C) two-stage allocation system. D) operations cost. 23) Which of the following statements is (are) false regarding cost allocations and product costing? (A) It is easier to determine the individual product cost for a manufacturer than it is for a wholesaler. (B) In general, indirect costs are assigned, while direct costs are allocated. A) Only A is false. B) Only B is false. C) Both of these are false. D) None of these is false. 24) The Cost Flow Diagram for product costing includes all of the following costs except: A) selling expenses. B) direct materials. C) direct labor. D) fixed manufacturing overhead. 2 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

25) Which of the following statements does not reflect one of the fundamental themes underlying the design of cost systems for managerial purposes? A) Cost systems should have a decision focus. B) Different cost information is used for different purposes. C) Cost information for managerial purposes must meet the cost-benefit principle. D) The primary purpose of cost systems is to gather information to value inventory. 26) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A) ? $ 67,000 149,600 164,600

Case (B) $ 23,000 19,200 97,700 ?

Case (C) $ 7,900 8,300 ? 21,100

Case (B) $ 23,000 19,200 97,700 ?

Case (C) $ 7,900 8,300 ? 21,100

For Case (A) above, what is the Beginning Balance (BB)? A) $52,000. B) $82,000. C) $67,000. D) $97,600. 27) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A) ? $ 67,000 149,600 164,600

For Case (B) above, what is the amount Transferred Out (TO)? A) $93,900. B) $101,500. C) $116,900. D) $120,700. 28) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A) ? $ 67,000 149,600 164,600

Case (B) $ 23,000 19,200 97,700 ?

Case (C) $ 7,900 8,300 ? 21,100

For Case (C) above, what is the amount Transferred In (TI)? A) $12,800. B) $20,700. C) $21,500. D) $29,400. 3 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

29) The basic cost flow model is: A) BB + TO = TI + EB. B) BB + TO – TI = EB. C) EB = BB + TI – TO. D) EB – BB = TO – TI. 30) The basic cost flow model is: A) EB + TO = TI + BB. B) BB + TO – TI = EB. C) EB = BB – TI + TO. D) EB − BB = TO – TI. 31) The basic cost flow model is: A) EB + BB = TI + TO. B) BB + EB = TI + TO. C) EB − BB = TI − TO. D) EB − BB = TO − TI. 32) The basic cost flow model is: A) BB + TO − TI = EB. B) BB + EB − TO = TI. C) BB − TI − TO = EB. D) BB + TI – TO = EB. 33) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A) $ 36,520 ? 166,200 164,400

Case (B) $ 15,100 11,400 ? 93,200

Case (C) $ 5,600 12,200 68,400 ?

For Case (A) above, what is the Ending Balance (EB)? A) $36,920. B) $36,520. C) $34,720. D) $38,320.

34) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A) 36,520 ? 166,200 164,400

Case (B) $ 15,100 11,400 ? 93,200

Case (C) $ 5,600 12,200 68,400 ?

Case (B) $ 15,100 11,400 ? 93,200

Case (C) $ 5,600 12,200 68,400 ?

Case (B) $ 8,630 ? 42,600 46,500

Case (C) $ 71,600 75,100 ? 181,900

For Case (B) above, what is the Transferred-In (TI)? A) $96,900. B) $119,700. C) $89,500. D) $66,700. 35) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A) 36,520 ? 166,200 164,400

For Case (C) above, what is the Transferred-Out (TO)? A) $75,000. B) $61,800. C) $68,400. D) $80,600. 36) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A) ? 34,360 194,600 192,800

For Case (A) above, what is the Beginning Balance (BB)? A) $36,400. B) $32,560. C) $37,680. D) $34,040.

37) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A) ? 34,360 194,600 192,800

Case (B) $ 8,630 ? 42,600 46,500

Case (C) 71,600 75,100 ? 181,900

For Case (B) above, what is the Ending Balance (EB)? A) $4,730. B) $12,530. C) $46,500. D) $8,630. 38) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A) ? 34,360 194,600 192,800

Case (B) $ 8,630 ? 42,600 46,500

Case (C) 71,600 75,100 ? 181,900

For Case (C) above, what is the Transferred-In (TI)? A) $146,700. B) $178,400. C) $190,790. D) $185,400. 39) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A) $ 64,800 61,300 189,100 ?

Case (B) $ 59,840 ? 79,530 76,420

Case (C) ? 13,800 65,200 67,300

For Case (A) above, what is the Transferred-Out (TO)? A) $185,600. B) $192,600. C) $126,100. D) $178,890.

40) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A) 64,800 61,300 189,100 ?

Case (B) $ 59,840 ? 79,530 76,420

Case (C) ? 13,800 65,200 67,300

Case (B) $ 59,840 ? 79,530 76,420

Case (C) ? 13,800 65,200 67,300

For Case (B) above, what is the Ending Balance (EB)? A) $139,300. B) $136,260. C) $62,950. D) $56,730. 41) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A) 64,800 61,300 189,100 ?

For Case (C) above, what is the Beginning Balance (BB)? A) $15,900. B) $2,100. C) $11,700. D) $13,800. 42) Refresh produces soft drinks and sodas. Production of 100,000 liters was started in February, 85,000 liters were completed. Material costs were $38,220 for the month while conversion costs were $16,380. There was no beginning work-in-process; the ending work-in-process was 40% complete. What is the cost of the product that was completed and transferred to finished goods? A) $54,600. B) $51,000. C) $46,410. D) $38,220. 43) Refresh produces soft drinks and sodas. Production of 100,000 liters was started in February, 85,000 liters were completed. Material costs were $38,220 for the month while conversion costs were $16,380. There was no beginning work-in-process; the ending work-in-process was 40% complete. What is the cost of the product that remains in work-in-process? A) $16,380. B) $51,000. C) $3,600. D) $9,000.

44) MegaRock produces quick setting concrete mix. Production of 200,000 tons was started in April, 190,000 tons were completed. Material costs were $3,152,000 for the month while conversion costs were $591,000. There was no beginning work-in-process; the ending work-inprocess was 70% complete. What is the cost of the product that was completed and transferred to finished goods? A) $3,610,000. B) $3,555,850. C) $2,994,400. D) $3,743,000. 45) MegaRock produces quick setting concrete mix. Production of 200,000 tons was started in April, 190,000 tons were completed. Material costs were $3,152,000 for the month while conversion costs were $591,000. There was no beginning work-in-process; the ending work-inprocess was 70% complete. What is the cost of the product that remains in work-in-process? A) $591,000. B) $131,005. C) $187,150. D) $133,000. 46) MegaRock produces quick setting concrete mix. Production of 200,000 tons was started in April, 190,000 tons were completed. Material costs were $3,152,000 for the month while conversion costs were $591,000. There was no beginning work-in-process; the ending work-inprocess was 70% complete. What is the material cost of the product that remains in work-inprocess? A) $315,200. B) $157,600. C) $112,000. D) $160,000. 47) QuikCard processes credit card receipts for local banks. QuikCard processed 1,400,000 receipts in October. All receipts are processed the same day they are received. October costs were labor of $14,000 and overhead of $28,000. What is the cost to process 1,000 receipts? A) $10.00. B) $30.00. C) $20.00. D) $42.00. 48) Slider processes rebate requests for a large building supply firm. Slider processed 420,000 rebates in March. All rebates are processed the same day they are received. March costs were labor of $28,000 and overhead of $14,000. What is the cost to process 1,000 rebates? A) $66.67. B) $100.00. C) $10.00. D) $42.00.

49) When a manufacturing company has a highly automated manufacturing plant producing many different products, what is probably the most appropriate basis of applying overhead costs to work-in-process? A) Direct labor hours. B) Direct labor dollars. C) Machine hours. D) Cost of materials used. 50) Magnum Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for 2020, the company misclassified a portion of direct labor cost as indirect labor. The effect of this misclassification will be to: A) understate the predetermined overhead rate. B) overstate the predetermined overhead rate. C) there will be no effect on the predetermined overhead rate. D) Can't tell from the information provided. 51) In a labor-intensive company in which more overhead is used by the more highly skilled and paid employees, which activity base would be most appropriate for applying overhead to production? A) Direct labor cost. B) Direct material cost. C) Direct labor hours. D) Machine hours. 52) The following information has been gathered for the Harrell Manufacturing Company for its fiscal year ending December 31: Actual manufacturing overhead costs Actual direct labor hours Actual direct labor costs Estimated manufacturing overhead costs Estimated direct labor Estimated direct labor hours

$ 212,500 54,900 $ 445,000 $ 210,000 $ 434,000 56,000

What is the predetermined manufacturing overhead rate per direct labor hour? A) $3.87. B) $3.79. C) $3.83. D) $3.75.

53) The following information has been gathered for the Harrell Manufacturing Company for its fiscal year ending December 31: Actual manufacturing overhead costs Actual direct labor hours Actual direct labor costs Estimated manufacturing overhead costs Estimated direct labor Estimated direct labor hours

$ 212,500 54,900 $ 445,000 $ 210,000 $ 434,000 56,000

What is the predetermined manufacturing overhead rate, assuming direct labor cost is used as the activity base? A) 48.4%. B) 47.2%. C) 49.0%. D) 47.8%. 54) The predetermined manufacturing overhead rate for 2020 was $4.00 per direct labor hour; employees were paid $5.00 per hour. If the estimated direct labor cost was $75,000, what was the estimated manufacturing overhead? A) $15,000. B) $60,000. C) $75,000. D) $93,750. 55) The Bondi Company uses a predetermined overhead rate in applying overhead to production orders on a direct labor cost basis in Department A and on a machine hour basis in Department B. At the beginning of the year, the company made the following estimates: Direct labor cost Factory overhead Direct labor hours Machine hours

Dept. A $ 60,000 $ 90,000 6,000 2,000

Dept. B $ 40,000 $ 45,000 9,000 15,000

What predetermined overhead rate would be used in Department A and Department B, respectively? A) 150% and 300%. B) 150% and $3.00. C) $1.50 and 300%. D) $1.50 and $3.00.

56) Fortify, Inc. uses a predetermined manufacturing overhead rate based on direct labor hours to apply its indirect product costs to jobs. The following information has been collected for the previous year: Direct materials Direct labor Sales commissions Indirect labor Rent on office equipment Depreciation — factory building Utilities — factory

$ 150,000 200,000 100,000 50,000 25,000 75,000 125,000

Fortify used 25,000 direct labor hours and 50,000 machine hours during the previous year. What is the predetermined overhead rate per direct labor hour? A) $24.00. B) $15.00. C) $14.00. D) $10.00. 57) Rapid Enterprises applies manufacturing overhead to its cost objects on the basis of 75% of direct material cost. If Job 17X had $72,000 of manufacturing overhead applied to it during May, the direct materials assigned to Job 17X was: A) $54,000. B) $72,000. C) $96,000. D) $126,000. 58) The Titan Enterprises Company manufactures cleaning spray for public schools. During 2020, the company spent $600,000 on prime costs and $800,000 on conversion costs. Overhead is applied at a rate of 150% of direct labor costs. How much did the company allocate (apply) for manufacturing overhead during 2020? A) $480,000. B) $360,000. C) $320,000. D) $300,000.

59) Flare Co. manufactures textiles. Among Flare's 2020 manufacturing costs were the following salaries and wages: Loom operators Factory foremen Machine mechanics

$ 120,000 45,000 30,000

What was the amount of Flare's 2020 direct labor? (CPA adapted) A) $195,000. B) $165,000. C) $150,000. D) $120,000. 60) Flare Co. manufactures textiles. Among Flare's 2020 manufacturing costs were the following salaries and wages: Loom operators Factory foremen Machine mechanics

$ 120,000 45,000 30,000

What was the amount of Flare's 2020 indirect labor? (CPA adapted) A) $75,000 B) $165,000 C) $150,000 D) $120,000 61) The following direct labor information pertains to the manufacture of product Scour: Time required to make one unit Number of direct workers Number of productive hours per week, per worker Weekly wages per worker Workers' benefits treated as direct labor costs

2direct labor hours 50 40 $ 500 20% of wages

What is the standard direct labor cost per unit of product Scour? (CPA adapted) A) $30. B) $24. C) $15. D) $12.

62) The following direct labor information pertains to the manufacture of product Glaze: Time required to make one unit Number of direct workers Number of productive hours per week, per worker Weekly wages per worker Workers' benefits treated as direct labor costs

3direct labor hours 25 36 $ 700 30% of wages

What is the standard direct labor cost per unit of product Glaze? (CPA adapted) A) $19.44. B) $25.28. C) $58.33. D) $75.83. 63) The cost per unit of the allocation base used to charge overhead to products is the: A) job cost. B) predetermined overhead rate. C) operational cost. D) process cost. 64) Arbor, Inc. has estimated overhead to be $300,000 and labor hours to be 30,000. Actual overhead turned out to be $310,000 when 30,500 labor hours were worked. The predetermined overhead rate would be: A) 101.67%. B) $10.00. C) $10.16. D) $10.33. 65) Arbor, Inc. had overhead of $310,000 during the year when $260,000 in labor costs were incurred. Estimates at the start of the year for overhead and labor costs were $300,000 for overhead and $250,000 for labor costs. The predetermined overhead rate would be: A) 101.67%. B) 104.00%. C) 120.00%. D) 83.33%.

66) The following information has been gathered for Catalyst Legal Services for its fiscal year ending December 31: Actual office overhead costs Actual billable labor hours Actual billable labor costs Estimated office overhead costs Estimated billable labor hours Estimated billable labor costs

$ 1,275,500 44,600 $ 3,960,000 $ 1,080,000 48,000 $ 4,320,000

What is the predetermined office overhead rate per billable labor hour? A) $28.60. B) $26.57. C) $22.50. D) $24.22. 67) The following information has been gathered for Catalyst Legal Services for its fiscal year ending December 31: Actual office overhead costs Actual billable labor hours Actual billable labor costs Estimated office overhead costs Estimated billable labor hours Estimated billable labor costs

$ 1,275,500 44,600 $ 3,960,000 $ 1,080,000 48,000 $ 4,320,000

What is the predetermined office overhead rate per billable labor dollar? A) 118.10%. B) 25.00%. C) 32.21%. D) 400.00%.

68) The following information has been gathered for Foxmoor Industries for its fiscal year ending December 31: Estimated factory overhead costs Actual factory overhead costs Estimated labor hours Actual labor hours Estimated labor costs Actual labor costs Estimated machine hours Actual machine hours

$ $ $ $

1,500,000 1,776,400 48,000 51,700 756,000 840,125 96,000 102,600

What is the predetermined factory overhead rate per labor dollar? A) 178.54%. B) 211.44%. C) 118.43%. D) 198.41%. 69) The following information has been gathered for Foxmoor Industries for its fiscal year ending December 31: Estimated factory overhead costs Actual factory overhead costs Estimated labor hours Actual labor hours Estimated labor costs Actual labor costs Estimated machine hours Actual machine hours

$ $ $ $

1,500,000 1,776,400 48,000 51,700 756,000 840,125 96,000 102,600

What is the predetermined factory overhead rate per labor hour? A) $29.01. B) $31.25. C) $37.01. D) $34.36.

70) The following information has been gathered for Foxmoor Industries for its fiscal year ending December 31: Estimated factory overhead costs Actual factory overhead costs Estimated labor hours Actual labor hours Estimated labor costs Actual labor costs Estimated machine hours Actual machine hours

$ $ $ $

1,500,000 1,776,400 48,000 51,700 756,000 840,125 96,000 102,600

What is the predetermined factory overhead rate per machine hour? A) $15.625. B) $14.620. C) $18.504. D) $17.314. 71) Savor Flavor Supplies applies manufacturing overhead to its products on the basis of 50% of direct material cost. If a job had $35,000 of manufacturing overhead applied to it during May, the direct materials assigned to the job was: A) $17,500. B) $35,000. C) $70,000. D) $140,000. 72) Trippett Industries manufactures cleaning products. During the year, the company spent $600,000 on chemicals and $728,000 on conversion costs. Overhead is applied at a rate of 180% of direct labor costs. How much did the company spend on manufacturing overhead during the year? A) $260,000. B) $468,000. C) $128,000. D) $404,444. 73) The predetermined manufacturing overhead rate for the year was $14.00 per direct labor hour; employees were paid $17.50 per hour. If the estimated direct labor cost was $315,000, what was the estimated manufacturing overhead? A) $22,500. B) $90,000. C) $252,000. D) $393,750.

74) The predetermined manufacturing overhead rate for the year was 140% of direct labor cost; employees were paid $17.50 per hour. If the estimated direct labor hours were 15,000, what was the estimated manufacturing overhead? A) $210,000. B) $187,500. C) $262,500. D) $367,500. 75) In computing its predetermined overhead rate, Stiles Company inadvertently left its indirect labor costs out of the computation. This oversight will cause: A) Manufacturing Overhead to be overapplied. B) the Cost of Goods Manufactured to be understated. C) the debits to the Manufacturing Overhead account to be understated. D) the ending balance in Work-in-Process to be overstated. 76) Which of the following is the correct formula to compute the predetermined overhead rate? A) Estimated total units in the allocation base divided by estimated total manufacturing overhead costs. B) Estimated total manufacturing overhead costs divided by estimated total units in the allocation base. C) Actual total manufacturing overhead costs divided by estimated total units in the allocation base. D) Estimated total manufacturing overhead costs divided by actual total units in the allocation base. 77) Which of the following would probably be the least appropriate allocation base for allocating overhead in a highly automated manufacturer of specialty valves? A) Machine-hours. B) Power consumption. C) Direct labor-hours. D) Machine setups. 78) At the beginning of the year, manufacturing overhead for the year was estimated to be $267,500. At the end of the year, actual direct labor-hours for the year were 22,100 hours, the actual manufacturing overhead for the year was $262,500, and manufacturing overhead for the year was overapplied by $13,750. If the predetermined overhead rate is based on direct laborhours, then the estimated direct labor-hours at the beginning of the year used in the predetermined overhead rate must have been: A) 22,100 direct labor-hours. B) 19,900 direct labor-hours. C) 21,000 direct labor-hours. D) 21,400 direct labor-hours.

79) 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%. 80) Markham Corporation uses a job-order costing system. The following data are for last year: Estimated direct labor-hours Estimated manufacturing overhead costs Actual direct labor-hours Actual manufacturing overhead costs

$ $

12,000 39,000 11,000 37,000

Markham applies overhead using a predetermined rate based on direct labor-hours. What predetermined overhead rate was used last year? A) $3.55 per direct labor-hour. B) $3.25 per direct labor-hour. C) $3.08 per direct labor-hour. D) $3.36 per direct labor-hour. 81) Hyu Corporation bases its predetermined overhead rate on the estimated labor-hours for the upcoming year. At the beginning of the most recently completed year, the company estimated the labor-hours for the upcoming year at 52,000 labor-hours. The estimated variable manufacturing overhead was $2.78 per labor-hour and the estimated total fixed manufacturing overhead was $1,192,360. The actual labor-hours for the year turned out to be 52,600 labor-hours. The predetermined overhead rate for the recently completed year was closest to: A) $2.78. B) $25.45. C) $25.71. D) $22.93.

82) Marvel Company uses a predetermined overhead rate in applying overhead to production orders on a labor-cost basis in Department A and on a machine-hours basis in Department B. At the beginning of the most recently completed year, the company made the following estimates: Direct labor cost Factory overhead Direct labor-hours Machine-hours

Dept. A $ 56,000 $ 67,200 8,000 4,000

Dept. B $ 33,000 $ 45,000 9,000 15,000

What predetermined overhead rate would be used in Department A and Department B, respectively? A) 83% and $5. B) 83% and $3. C) 120% and $3. D) 120% and $5. 83) Moore Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. Data for the most recently completed year appear below: Estimates made at the beginning of the year: Estimated machine-hours Estimated variable manufacturing overhead Estimated total fixed manufacturing overhead Actual machine-hours for the year

19,000 $ 7.89per machine-hour $ 465,880 20,200

The predetermined overhead rate for the recently completed year was closest to: A) $7.89. B) $30.95. C) $24.52. D) $32.41. 84) Ashland Corporation estimates its manufacturing overhead costs to be $160,000 and its direct labor costs to be $320,000 for 2020. The actual manufacturing labor costs were $80,000 for job 1, $120,000 for job 2 and $160,000 for job 3 during 2020. Manufacturing overhead is applied to jobs on the basis of direct labor costs using a predetermined overhead rate. The actual manufacturing overhead cost for the year was $172,000. The amount of overhead assigned to Job 3 during 2020 was: A) $80,000. B) $320,000. C) $160,000. D) $71,110.

85) The predetermined overhead rate for manufacturing overhead for Ashland Corporation was $8.00 per direct labor hour. The estimated labor rate was $10.00 per hour. If the estimated direct labor cost was $150,000, what was the estimated manufacturing overhead? A) $93,750. B) $75,000. C) $120,000. D) $15,000. 86) The Crater Company uses predetermined overhead rates to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labor cost in Dept. A and machine-hours in Dept. B. At the beginning of the year, the company made the following estimates: Direct labor cost Manufacturing overhead Direct labor-hours Machine-hours

Dept A $ 65,000 $ 91,000 8,000 3,000

Dept B $ 42,000 $ 48,000 10,000 12,000

What predetermined overhead rates would be used in Dept A and Dept B, respectively? A) 71% and $4.00. B) 140% and $4.00. C) 140% and $4.80. D) 71% and $4.80. 87) Flambe Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. At the beginning of the most recently completed year, the company estimated the machine-hours for the upcoming year at 22,000 machine-hours. The estimated variable manufacturing overhead was $8.65 per machine-hour and the estimated total fixed manufacturing overhead was $609,400. The predetermined overhead rate for the recently completed year was closest to: A) $36.35 per machine-hour. B) $27.70 per machine-hour. C) $33.32 per machine-hour. D) $8.65 per machine-hour.

88) Horton Industries Company uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for next year: Direct materials Direct labor Sales commissions Salary of production supervisor Indirect materials Advertising expense Rent on factory equipment

$ $ $ $ $ $ $

10,000 30,000 40,000 20,000 4,000 8,000 10,000

Horton estimates that 5,000 direct labor-hours and 10,000 machine-hours will be worked during the year. The predetermined overhead rate per hour will be: A) $6.80. B) $6.40. C) $3.40. D) $8.20. 89) Spring Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. Data for the upcoming year appear below: Estimated machine-hours Estimated variable manufacturing overhead Estimated total fixed manufacturing overhead

$ $

70,000 6.68per machine-hour 1,283,800

The predetermined overhead rate for the recently completed year was closest to: A) $6.68. B) $25.02. C) $25.59. D) $18.34. 90) The following data have been recorded for recently completed Job 674 on its job cost sheet. Direct materials cost was $2,039. A total of 32 direct labor-hours and 175 machine-hours were worked on the job. The direct labor wage rate is $14 per labor-hour. The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $15 per machine-hour. The total cost for the job on its job cost sheet would be: A) $2,967. B) $2,487. C) $2,068. D) $5,112.

91) Job 731 was recently completed. The following data have been recorded on its job cost sheet: Direct materials Direct labor-hours Direct labor wage rate Machine-hours

$ $

2,391 69labor-hours 13per labor-hour 129machine-hours

The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $14 per machine-hour. The total cost that would be recorded on the job cost sheet for Job 731 would be: A) $3,288. B) $5,094. C) $4,254. D) $2,418. 92) Under Pierre Company's job-order costing system, manufacturing overhead is applied to Work in Process inventory using a predetermined overhead rate. During January, Pierre's transactions included the following: Direct materials issued to production Indirect materials issued to production Manufacturing overhead cost incurred Manufacturing overhead cost applied Direct labor cost incurred

$ 90,000 $ 8,000 $ 125,000 $ 113,000 $ 107,000

Pierre Company had no beginning or ending inventories. What was the cost of goods manufactured for January? (CMA adapted) A) $302,000. B) $310,000. C) $322,000. D) $330,000. 93) Buster Corporation, a manufacturing company, has provided data concerning its operations for September. The beginning balance in the raw materials account was $37,000 and the ending balance was $29,000. Raw materials purchases during the month totaled $57,000. Manufacturing overhead cost incurred during the month was $102,000, of which $2,000 consisted of raw materials classified as indirect materials. The direct materials cost for September was: A) $63,000. B) $57,000. C) $65,000. D) $49,000.

94) Morton Inc. has provided the following data for the month of November. The balance in the Finished Goods inventory account at the beginning of the month was $49,000 and at the end of the month was $45,000. The cost of goods manufactured for the month was $226,000. The actual manufacturing overhead cost incurred was $74,000 and the manufacturing overhead cost applied to Work in Process was $70,000. The adjusted cost of goods sold that would appear on the income statement for November is: A) $226,000. B) $230,000. C) $222,000. D) $234,000. 95) A company is considering the use of a single-stage cost allocation process. Under what conditions would this choice be justified? A) The company has many service departments but only one production department. B) The company produces a few products with similar characteristics in a few departments. C) The company has no service departments but many production departments. D) The company produces a wide selection of differing products. 96) Which of the following statements regarding the two-stage cost allocation process is (are) false? (A) If a company has three cost pools, then it should also have three different cost allocation bases. (B) The selection of an appropriate cost allocation base is more important for single-stage cost allocation systems than for two-stage cost allocation systems. A) Only A is false. B) Only B is false. C) Both of these are false. D) Neither of these is false. 97) Cost pools are: A) costs that are accumulated before being allocated to cost objects on some common basis. B) costs that are relevant to decision-making but irrelevant to financial reporting. C) product costs that are assigned to cost objects using direct labor or machine hours. D) accounts in the product life cycle from research and development to customer service. 98) The process of first allocating costs to intermediate cost pools and then to the individual cost objects using different allocation bases is a(n): A) continuous flow process. B) cost management system. C) two-stage allocation system. D) operations cost.

99) Which of the following would be the least appropriate allocation base for allocating overhead in a highly automated (i.e., capital-intensive) manufacturing company? A) Electricity used. B) Machine hours. C) Direct labor hours. D) Material consumed. 100) A system that mass-produces a single, homogeneous output in a continuous process is a(n): A) continuous flow process. B) cost management system. C) two-stage allocation system. D) operation costing. 101) A hybrid costing system that is often used when manufacturing goods that have some common characteristics plus some individual characteristics is called: A) continuous flow process. B) cost management system. C) two-stage allocation system. D) operations costing. 102) Which of the following statements is true? A) Job costing can only be used when a single unit is produced rather than a batch. B) Process costing is used when products are customized. C) Job costing must be used in a continuous flow processing environment. D) Process costing does not separately record the costs for each unit. 103) For which of the following businesses would a job costing system be appropriate? A) Law office. B) Crude oil refinery. C) Baby formula manufacturer. D) Soft drink producer. 104) The loan department of a financial corporation makes loans to businesses. The costs of processing these loans are often several thousand dollars. All loans are initially evaluated using the same financial analysis software, but some require outside services such as appraisals and legal services. Which is the most appropriate costing system for the loan department? A) Job costing. B) Process costing. C) Operation costing. D) Batch costing. 105) The Paris Manufacturing Company produces a single uniform product throughout the year. Which of the following product costing systems should be used by Paris? A) Job costing. B) Process costing. C) Operation costing. D) Batch costing. 24 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

106) Logansville Manufacturing produces lamps for large department stores. For 2020, the two production departments had budgeted allocation bases of 100,000 machine hours in Department 1 and 50,000 direct labor hours in Department 2. The budgeted manufacturing overhead for 2020 was $1,200,000 for Department 1 and $1,000,000 for Department 2. For Job 100, the actual costs incurred in the two departments were as follows: Direct materials purchased Direct materials used Direct labor Indirect labor Indirect materials used Lease on equipment Utilities

Department 1 $ 44,000 34,000 21,000 4,400 3,000 6,500 1,000

Department 2 $ 71,000 7,600 21,400 3,600 1,900 1,500 1,200

Job 100 incurred 700 machine hours in Department 1 and 75 in Department 2, and 200 direct labor hours in Department 1 and 250 in Department 2. The company uses a budgeted departmental overhead rate for applying overhead to production. Job 100 consisted of 3,000 lamps. Required: Calculate the total cost and per unit cost of Job 100. 107) Job 434 was recently completed. The following data have been recorded on its job cost sheet: Direct materials Direct labor-hours Direct labor wage rate Machine-hours Number of units completed

$ 45,000 630labor-hours $ 13per labor-hour 390machine-hours 3,000units

The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $12 per machine-hour. Required: Compute the unit product cost that would appear on the job cost sheet for this job. 108) Job 599 was recently completed. The following data have been recorded on its job cost sheet: Direct materials Direct labor-hours Direct labor wage rate Number of units completed

$ 40,610 1,147DLHs $ 11per DLH 3,100units

The company applies manufacturing overhead on the basis of direct labor-hours. The predetermined overhead rate is $20 per direct labor-hour. Required: Compute the unit product cost that would appear on the job cost sheet for this job. 109) Assume that the following events occurred at a division of Sawyer Enterprises for the current year. (1) Purchased $900,000 in direct materials. (2) Incurred direct labor costs of $520,000. (3) Determined that manufacturing overhead was $820,000. (4) Transferred 75% of the materials purchased to Work-in-Process Inventory. (5) Completed work on 60% of the work in process. Costs assigned equally across all work-inprocess. (6) The inventory accounts have no beginning balances. All costs incurred were debited to the appropriate account and credited to Accounts Payable. Required: Compute the following amounts in the Work-in-Process Inventory account: (a) Transfers-in (TI). (b) Transfers-out (TO). (c) Ending balance (EB). 110) Assume that the following events occurred at a division of Advanced Enterprises for the current year. (1) Purchased $450,000 in direct materials. (2) Incurred direct labor costs of $260,000. (3) Determined that manufacturing overhead was $410,000. (4) Transferred 70% of the materials purchased to Work-in-Process Inventory. (5) Completed work on 65% of the work in process. Costs assigned equally across all work-inprocess. (6) The inventory accounts have no beginning balances. Required: Compute the following amounts in the Work-in-Process Inventory account: (a) Transfers-in (TI). (b) Transfers-out (TO). (c) Ending balance (EB).

111) Determine the missing values from the table below: Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

41,520

Case (B) $

24,100

Case (C) $

Case (D)

5,450

22,400

11,370

38,910

224,870

84,400

189,460

217,400

106,200

193,610

Case (C)

Case (D)

112) Determine the missing values from the table below: Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

? $

Case (B) $

25,760

12,050

11,450

19,455

21,200

5,370

199,460

214,870

87,300

193,610

217,400

131,200

113) Flynn and Morgan Refiners began business on July 1. The following operations data are available for July and the one product the company produces: Beginning inventory Started in July Ending work-in-process inventory (80% complete) Cost incurred in July were: Materials Labor Manufacturing overhead

Gallons -0310,000 30,000 $ 250,000 52,000 154,000

All production at Flynn and Morgan is sold as it is produced (i.e., there are no finished goods inventories). Required: (a) Compute cost of goods sold for July. (b) What is the value of the work-in-process inventory on July 31?

114) Mason Industries restarted operations on September 1 after a 3-month shutdown. There were no beginning inventories. The following operations data are available for September and the one product the company refines: Beginning inventory Completed in September Ending work-in-process inventory (70% complete) Cost incurred in September were: Materials Labor Manufacturing overhead

Gallons -0450,000 15,000 $ 560,400 164,300 242,350

All production at Mason is sold immediately. Required: (a) Compute cost of goods sold for September. (b) What is the value of the work-in-process inventory on September 30? 115) Hindsville produces a cleaning solvent. Production of 200,000 gallons was started in February, 170,000 gallons were completed. Material costs were $138,220 for the month while conversion costs were $116,380. There was no beginning work-in-process; the ending work-inprocess was 60% complete. Required: (a) What is the total cost of the product that was completed and transferred to finished goods? (b) What is the value of the ending work-in-process? 116) Fender Magic produces a paint solvent. Production of 400,000 pounds was started in February, 350,000 pounds were completed. Material costs were $260,130 for the month while conversion costs were $312,620. There was no beginning work-in-process; the ending work-inprocess was 90% complete. Required: (a) What is the total cost of the product that was completed and transferred to finished goods? (b) What is the value of the ending work-in-process? 117) EZ Set produces a quick setting concrete powder. Production of 15,000 tons was started in September, 14,000 tons were completed. Material costs were $394,670 for the month while conversion costs were $201,730. There was no beginning work-in-process; the ending work-inprocess was 20% complete. Required: (a) What is the total cost of the product that was completed and transferred to finished goods? (b) What is the value of the ending work-in-process? 28 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

118) Fill in the missing items for the following inventories: (A) Beginning 68,000 Bal. $ Ending ? Balance Transferred in 64,000 Transferred 76,000 out

(B) $

(C)

7,100

(D)

(E)

100,000

6,200

110,000

134,400

74,400

75,000

153,600

22,000

182,400

264,000

85,200

119) Fill in the missing items for the following inventories: (A) Beginning Bal. Ending Balance Transferred in Transferred Out

(B)

85,000

(C)

3,550

(D)

780,000

(E)

36,000

3,210

640,000

80,000

10,550

75,000

76,000

1,400,000

36,000

? 32,000 64,000 42,000

120) Assume that the following T-accounts represent data from the Morgensen Corporation's accounting records. Required: (a) Find the missing amounts represented by the letters a, b, c, d and e. (b) Determine the company's predetermined overhead rate, based on labor cost. BB = Beginning Balance; EB = Ending Balance TO = Transferred Out Cost of Goods Sold 39,750

BB (1) EB

BB (c) EB

BB Materials Labor Overhead EB

Raw-Material Inventory (a) 22,500 TO 7,125

15,750

Finished Goods 6,750 (d) 10,950

Work-in-Process Inventory 4,500 (b) 24,000 (e) 12,300 Manufacturing Overhead 17,400

43,950

12,000

(1) Denotes materials purchased

121) Smooth Sailing Company experienced the following events during 2020: (1) Purchased $1,800,000 of lumber and other materials for building boats. (2) Incurred $200,000 for advertising. (3) Paid $60,000 to have lumber transported to its factory. (4) Had sales revenue of $6,000,000 during the year. (5) Incurred $400,000 of general and administrative expenses. (6) Took a periodic inventory at year-end and determined that material costing $400,000 was on hand. The inventory at the beginning of the year was $200,000. (7) All costs incurred were added to the appropriate accounts. All sales were on credit. Required: Solve for the following items in the company's Raw Materials inventory account: a) Transfers in (TI). b) Beginning balance (BB). c) Transfers out (TO). d) Ending balance (EB). 122) Gentry Cabinetry produces two models of home shelving, the Basic and the Mega. Data on operations and costs for November are: Machine hours Direct labor hours Units produced Direct material costs Direct labor costs Manufacturing overhead costs Total costs

Basic 8,000 6,000 1,000 $ 20,000 129,000

Mega 4,000 4,000 250 $ 7,500 71,000

Total 12,000 10,000 1,250 $ 27,500 200,000 348,200 $ 575,700

Required: Compute the predetermined overhead rate, assuming Gentry Cabinetry uses: (a) Direct labor hours to allocate overhead costs. (b) Direct labor costs to allocate overhead costs. (c) Machine hours to allocate overhead costs. (d) Compute the unit cost for each model using direct labor costs to allocate overhead.

123) Gentry Cabinetry produces two models of home shelving, the Basic and the Mega. Data on operations and costs for November are: Machine hours Direct labor hours Units produced Direct material costs Direct labor costs Manufacturing overhead costs Total costs

Basic 8,000 6,000 1,000 $ 20,000 129,000

Mega 4,000 4,000 250 $ 7,500 71,000

Total 12,000 10,000 1,250 $ 27,500 200,000 348,200 $ 575,700

Required: Compute the unit cost for each model, assuming Gentry Cabinetry uses: (a) Direct labor hours to allocate overhead costs. (b) Direct labor costs to allocate overhead costs. (c) Machine hours to allocate overhead costs. 124) Barton Carts produces two models of push carts, the Standard and the Deluxe. Data on operations and costs for the month are: Machine hours Direct labor hours Units produced Direct material costs Direct labor costs Manufacturing overhead costs Total costs

Standard 16,000 12,000 4,000 $ 80,000 262,000

Deluxe 8,000 8,000 1,000 $ 30,000 138,000

Total 24,000 20,000 5,000 $ 110,000 400,000 557,400 $ 1,067,400

Required: Compute the total cost for each model, assuming Barton Carts uses: (a) Direct labor hours to allocate overhead costs. (b) Direct labor costs to allocate overhead costs. (c) Machine hours to allocate overhead costs.

125) Misner Office Products produces three models of commercial shelving, the Basic, the Advanced and the Superior. Data on operations and costs for the month are: Machine hours Direct labor hours Units produced Direct material costs Direct labor costs Manufacturing overhead costs Total costs

Basic 8,000 6,000 1,000 $ 20,000 129,000

Advanced 6,000 6,000 500 $ 12,500 100,000

Superior 4,000 4,000 250 $ 7,500 71,000

Total 18,000 16,000 1,750 $ 40,000 300,000 540,800 $ 880,800

Required: Compute the predetermined overhead rate, assuming Misner Office Products uses: (a) Direct labor hours to allocate overhead costs. (b) Direct labor costs to allocate overhead costs. (c) Machine hours to allocate overhead costs. (d) Compute the unit cost for each model using direct labor costs to allocate overhead. 126) Misner Office Products produces three models of commercial shelving, the Basic, the Advanced and the Superior. Data on operations and costs for the month are: Basic Machine hours 8,000 Direct labor hours 6,000 Units produced 1,000 Direct material costs $ 20,000 Direct labor costs 129,000 Manufacturing overhead costs Total costs

Advanced 6,000 6,000 500 $ 12,500 100,000

Superior 4,000 4,000 250 $ 7,500 71,000

Total 18,000 16,000 1,750 $ 40,000 300,000 540,800 $ 880,800

Required: Compute the unit cost for each model, assuming Misner Office Products uses: (a) Direct labor hours to allocate overhead costs. (b) Direct labor costs to allocate overhead costs. (c) Machine hours to allocate overhead costs.

127) Pierce Carts produces three models of push carts, the Economy, the Standard, and the Deluxe. Data on operations and costs for the month are: Economy Machine hours 8,000 Direct labor 4,000 hours Units produced 8,000 Direct material 100,000 costs $ Direct labor costs 200,000 Manufacturing overhead costs Total costs

Standard 16,000

Deluxe 8,000

Total 32,000

12,000

8,000

24,000

4,000

1,000

13,000

80,000 262,000

30,000 138,000

210,000 600,000 684,800

$ 1,494,800

Required: Compute the total cost for each model, assuming Pierce Carts uses: (a) Direct labor hours to allocate overhead costs. (b) Direct labor costs to allocate overhead costs. (c) Machine hours to allocate overhead costs. 128) The management of Marysville Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 48,000 machine-hours. In addition, capacity is 53,000 machine-hours and the actual activity for the year is 47,700 machine-hours. All of the manufacturing overhead is fixed and is $1,144,800 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year, as well as the manufacturing overhead at capacity, and the actual amount of manufacturing overhead for the year. Job J42O, which required 40 machine-hours, is one of the jobs worked on during the year. Required: (a) Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base. (b) Determine how much overhead would be applied to Job J42O if the predetermined overhead rate is based on the estimated amount of the allocation base. (c) Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity. (d) Determine how much overhead would be applied to Job J42O if the predetermined overhead rate is based on the amount of the allocation base at capacity.

129) The management of Norbert Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 70,000 machine-hours. In addition, capacity is 82,000 machine-hours and the actual activity for the year is 72,900 machine-hours. All of the manufacturing overhead is fixed and is $4,132,800 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year. Job O65A, which required 300 machine-hours, is one of the jobs worked on during the year. Required: (a) Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity. (b) Determine how much overhead would be applied to Job O65A if the predetermined overhead rate is based on the amount of the allocation base at capacity. 130) Linger Products uses a two-stage allocation method to assign costs to its products. The following information has been provided for March: Units Machine hours Direct labor hours Direct materials Direct labor Manufacturing overhead Utilities (machine related) Supplies (labor related) Training (labor related) Supervision (labor related) Machine depreciation (machine related) Lease on factory (machine related) Miscellaneous (labor related) Total manufacturing overhead

Product 1 3,000 2,000 2,000 $ 60,000 45,000

Product 2 2,000 4,000 2,000 $ 60,000 45,000

Total 5,000 6,000 4,000 $ 120,000 90,000 $

3,000 8,000 20,000 17,000 24,000 33,000 5,000 $ 110,000

Required: (a) Allocate the manufacturing overhead to two cost pools: machine-related and labor-related. (b) Compute the predetermined overhead rate for the two pools, using machine hours and direct labor hours as the bases. (c) Compute the total costs of production for each of the two products.

131) Airborne Industries uses a two-stage allocation method to assign costs to its products. The following information has been provided for the month: Product X Units 3,000 Machine hours 4,000 Direct labor hours 2,000 Direct materials $ 60,000 Direct labor 45,000 Manufacturing overhead Utilities (machine related) Supplies (labor related) Training (labor related) Supervision (labor related) Machine depreciation (machine related) Lease on factory (machine related) Miscellaneous (labor related) Total manufacturing overhead

Product Y 2,000 8,000 3,000 $ 60,000 80,000

Product Z 1,000 8,000 5,000 $ 75,000 175,000

Total 6,000 20,000 10,000 $ 195,000 300,000

13,000 8,000 20,000 37,000 34,000 66,000 15,000

193,000

132) Airborne Industries uses a two-stage allocation method to assign costs to its products. The following information has been provided for the month: Units Machine hours Direct labor hours Direct materials Direct labor Manufacturing overhead Utilities (machine related) Supplies (labor related) Training (labor related) Supervision (labor related) Machine depreciation (machine related) Lease on factory (machine related) Miscellaneous (labor related) Total manufacturing overhead

Product X 6,000 8,000 4,000 $ 120,000 90,000

Product Y 4,000 16,000 6,000 $ 120,000 160,000

Product Z 2,000 16,000 10,000 $ 150,000 350,000

Total 12,000 40,000 20,000 $ 390,000 600,000

26,000 16,000 40,000 74,000 68,000 132,000 30,000 386,000

Required: (a) Allocate the manufacturing overhead to two cost pools: machine-related and labor-related. (b) Compute the predetermined overhead rate for the two pools, using machine hours and direct labor cost as the bases. (c) Compute the unit cost of production for each of the three products.

133) Adolphus Instruments manufactures two models of calculators. The research model is the RES-1 and the student model is the AS-2. Both models are assembled in the same plant and require the same assembling operations. The difference is in the cost of the internal components. The following data are available for February. RES-1 20,000 $ 40

Number of units Parts cost per unit Other costs: Direct labor

AS-2 80,000 $ 50

Total 100,000

$ 124,000

Indirect materials Other overhead

35,000 141,000

Total

$ 300,000

Adolphus uses operations costing and assigns conversion costs on the number of units assembled. Required: Compute the cost of the RES-1 and AS-2 models for February. 134) Carter Furniture manufactures three models of tables: oak, cherry, and walnut. All models are assembled in the same plant and require the same assembling operations. The difference is in the cost of the wood. The following data are available for July. Number of units Wood costs per unit Other costs: Direct labor Indirect materials Other overhead Total

Oak 1,200 $ 80

Cherry 700 $ 120

Walnut 900 $ 105

Total 2,800 $ 165,000 26,000 61,000 $ 252,000

Carter uses operations costing and assigns conversion costs on the number of tables built. Required: Compute the cost of the each of the three models for July. 135) When designing a cost system, what points should you consider before starting the design? 136) If costs are allocated on a somewhat arbitrary base, what purpose does computing product costs have? 137) What is each component of the basic cost flow model? Describe each component. 38 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

138) Why might a company use direct labor cost as an overhead allocation base rather than using direct labor hours? 139) Describe the two-stage allocation method. When is it important to use a two-stage approach rather than a single-stage approach? 140) How does job costing differ from process costing? 141) Why is operations costing often called a "hybrid" system?

142) Thompson Metal Corporation (TMC) supplies various types of machine tools to manufacturing companies. TMC has always paid a lot of attention to the quality of its products. Recently, an outside supplier has approached TMC to supply an important and intricate component of one of its more advanced tools that TMC has been manufacturing in-house. Sam Weiss, a junior accountant at TMC, has collected the following information regarding this proposal. The costs of manufacturing one unit of this component internally are as follows: Direct materials: Direct labor: Variable overhead: Fixed overhead: Total cost:

$ 29.60 13.00 19.50 (@ 150% of direct labor cost) 26.00 (@ 200% of direct labor cost) $ 88.10

The outside supplier has quoted a price of $90 per unit for supplying this component. The following is a conversation that took place among the manufacturing manager (Dana Rice), the buyer (Emily Scanlon), and Sam Weiss. Weiss: I think that we should continue to manufacture internally because we can save $1.90 per unit on this component. Rice: According to your report, we would save $1.90 per unit, but I do not agree with those numbers. Weiss: What do you mean? I have followed the same costing guidelines this company has used for years. I have even cross-checked my numbers with historical data and know for sure that the overhead rates which I have used are correct. Rice: I am sure you have done your job thoroughly, but I think that our costing system is archaic. This component is complex and difficult to manufacture. I believe that our overhead allocation method does not accurately capture the production difficulties and the additional resources that are devoted to the manufacture of this component. For example, a significant portion of our quality problems are due to this component. We spend close to a third of our quality inspection time on just this component alone, but that is not reflected. These quality problems cause delays in getting this component to the assembly department, and that causes a delay in getting the final product to the customers. Many of our customers are expecting just-in-time deliveries, and they get upset when we're late. Scanlon: I know that the supplier that has approached us has a strong reputation for quality. Therefore, we can rest assured that we will have negligible quality problems. Rice: Sam, your report does not consider this additional benefit from buying outside. I would appreciate it if you can rework your numbers to more accurately reflect the true costs associated with manufacturing this component internally.

143) Silverton Manufacturing Company builds highly sophisticated engine parts for cars competing in stock racing and drag racing. The company uses a normal costing system that applies factory overhead on the basis of direct labor-hours. For 2020, the company estimated that it would incur $256,000 in factory overhead costs and 16,000 direct labor-hours. The April 1, 2020, balance in inventory accounts follow: Materials Inventory Work-in-Process Inventory (Y12) Finished Goods Inventory (Z11)

$ 54,000 $ 21,000 $ 108,000

Job Y12 is the only job in process on April 1, 2020. The following transactions were recorded for the month of April: (1) Purchased materials on account, $180,000. (2) Issued $182,000 of materials to production, $8,000 of which was for indirect materials. Cost of direct materials issued: Job Y12 Job D20 Job E33

$ 46,000 84,000 44,000

(3) Incurred and paid payroll cost of $40,920; Direct labor cost ($20/hour; total 1,196 hours): Job Y12 Job D20 Job E33 Indirect labor Selling and administrative salaries

$ 12,220 8,060 3,640 5,000 12,000

(4) Recognized depreciation for the month: Manufacturing asset $4,400 Selling and administrative asset 3,400 (5) Paid advertising expenses $12,000. (6) Incurred factory utility costs 2,600. (7) Incurred other factory overhead costs 3,200. (8) Applied factory overhead to production on the basis of direct labor-hours. (9) Completed Job Y12 during the month and transferred it to the finished goods warehouse. (10) Sold Job Z11 on account for $118,000. (11) Received $50,000 of collections on account from customers during the month. Required: (a) Calculate the company's predetermined overhead rate. (b) What was the balance of the Materials Inventory account on April 30, 2020? (c) What was the balance of the Work-in-Process Inventory control account on April 30?

144) Ryan & Marks, Design Consultants, has the following budget for the year: Direct labor (for professional hours charged to clients) Overhead Indirect materials Indirect labor Depreciation - Building Depreciation - Furniture Utilities Insurance Property taxes Other expenses Total

$ 202,000 10,000 150,000 50,000 5,000 12,000 4,800 5,200 3,380 $ 240,380

The firm uses direct labor as the cost driver to apply overhead to clients. During January, the firm worked for many clients; data for two of them follow: Henderson account: Direct materials Direct labor Fisher account: Direct materials Direct labor

400 3,000

5,380 12,600

Required: (a) Compute the company'sRyan & Marks budgeted overhead rate. Explain how this is used. (b) Compute the amount of overhead to be charged to the Henderson and Fisher accounts using the predetermined overhead rate calculated in requirement (a). (c) Compute the separate job cost for the Henderson and Fisher accounts.

145) The following information is for Ogden Company for the month of November: 1. Factory overhead costs are applied to jobs at the predetermined rate of $80 per labor-hour. Job X-14 incurred 2,300 labor-hours; Job SM-4 used 1,850 labor-hours. 2. Job X-14 was shipped to customers during November. Job X-14 had a gross margin of 24 percent based on manufacturing cost. 3. Job SM-4 was still in process at the end of November. 4. Factory utilities, factory depreciation, and factory insurance incurred is summarized by these factory vouchers, invoices, and cost memos: Utilities Depreciation Insurance

$ 44,500 53,500 38,600

5. The Company purchased the following direct materials and indirect materials: Material A Material B Indirect materials

6,000 7,000 4,250

Total

$ 17,250

6. Direct materials and indirect materials used are as follows:

Material A Material B Subtotal Indirect materials

Job X-14 $ 5,450 1,650

Job SM-4 $ 33,000 25,500

Total $ 38,450 27,150

$ 7,100

$ 58,500

Total

65,600 66,500

$ 132,100

7. Factory labor incurred for the two jobs and indirect labor is as follows: Job X-14 Job SM-4 Indirect labor Total

32,200 25,900 122,000 $ 180,000

Required: Calculate the total manufacturing cost for Job X-14 and Job SM-4 for November.

146) Nash Company manufactured two products, A and B, during April. For purposes of product costing, an overhead rate of $2.50 per direct-labor hour was used, based on budgeted annual factory overhead of $500,000 and 200,000 budgeted annual direct-labor hours, as follows:

Department 1 Department 2 Total

Budgeted Overhead $ 300,000 200,000 $ 500,000

Budgeted Hours 100,000 100,000 200,000

The number of labor hours required to manufacture each of these products was: Department 1 Department 2 Total

Product A 3 1 4

Product B 1 3 4

During April, production units for products A and B were 1,000 and 3,000, respectively. Required: (a) Using a plant-wide overhead rate, what are total overhead costs assigned to products A and B, respectively? (b) Using departmental overhead rates, what are total overhead costs assigned to products A and B, respectively? (c) Assume that materials and labor costs per unit of Product A are $10 and that the selling price is established by adding 40% of absorption costs to cover profit and selling and administrative expenses. What difference in selling price would result from the use of departmental overhead rates?

147) Technical Measurement Company manufactures precision-measuring devices used by industrial companies in various capacities. The devices are produced in two stages: Assembly and Testing. The company has no beginning inventories because all units produced last year were sold by the end of the year. At the beginning of the year, the company has an order of 8,000 units. The company's predetermined overhead rate is based on materials used in assembly and direct labor hours in testing. Information concerning the predetermined overhead rates appears below: Direct labor is paid $20 per hour. Assembly $ 1,000,000 2,000,000 200,000 3,000,000

Budgeted overhead Budgeted materials use Budgeted direct labor hours Budgeted direct labor cost

Testing 500,000 50,000 100,000 1,500,000

Other information regarding the production process: Assembly $ 2,200,000 3,100,000 1,200,000

Materials requisitioned Direct labor cost Actual overhead cost

Testing 48,000 1,575,000 475,000

Required: (a) Compute the predetermined overhead rate for each department. (b) Calculate the total and per unit cost of producing 8,000 units. 148) Tidy Furniture Company uses a job costing system. The following debits (credits) appeared in the Work-in-Process Inventory account for June 2020: Description June 1 Entire month Entire month Entire month Entire month

Balance Direct Materials Direct Labor Manufacturing overhead Transferred out

Debits $ 20,000 80,000 60,000 45,000

Credits

$ 120,000

Tidy applies overhead to production based on direct labor cost at a predetermined rate of 75%. Job 1000, the only job still in process at the end of June, has been charged with direct labor of $30,000. Tidy's Manufacturing Overhead account showed a credit balance of $10,000 at the end of June 2020. Required: (a) Calculate the amount of direct materials charged to Job 1000. (b) Compute the actual overhead for June 2020.

149) Briefly discuss the issue of choosing an activity measure for setting overhead rates. 150) Distinguish between job costing, process costing, and operations costing. Give an example of a company that would use each.

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 7 Job Costing 1) A job is a product or service that can be easily and conveniently distinguished from other products/services. 2) Job cost sheets are used in accounting systems as a subsidiary ledger for the Work-in-Process account. 3) Job shops have three types of inventory accounts: Direct Materials, Work-in-Process, and Finished Goods. 4) The cost in the ending Finished Goods inventory account consists of the direct materials, direct labor, and manufacturing overhead of all jobs still in process at the end of the period. 5) Accounting for direct materials and direct labor is easier than accounting for manufacturing overhead costs. 6) Indirect materials and indirect labor are two examples of manufacturing overhead costs. 7) The journal entry to record actual manufacturing overhead for indirect materials debits Manufacturing Overhead Control and credits Accounts Payable. 8) The journal entry to record actual manufacturing overhead for indirect labor debits Manufacturing Overhead Control and credits Work-in-Process inventory. 9) The periodic allocation of manufacturing overhead costs to job cost sheets is based on an event, not a transaction. 10) The predetermined overhead rate is computed by dividing the estimated manufacturing overhead costs by the estimated activity of the allocation base. 11) The journal entry to apply manufacturing overhead costs to completed jobs credits either Applied Manufacturing Overhead or Manufacturing Overhead Control. 12) At the end of the accounting period, manufacturing overhead costs are applied to uncompleted jobs using the same predetermined overhead rate that is used to apply manufacturing overhead costs to completed jobs. 13) Overapplied overhead occurs when the actual overhead costs incurred during a period are greater than the overhead costs applied during the period. 14) Underapplied overhead occurs when the actual overhead costs incurred during a period are greater than the overhead costs applied during the period. 15) Normal costing uses the actual allocation base activity to apply manufacturing overhead costs to jobs during the period. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

16) Actual costing does not use a predetermined overhead rate to apply manufacturing overhead costs to jobs completed during the period. 17) Service organizations, by their nature, cannot have a balance in Work-in-Process Inventory. 18) Service organizations generally use the same job costing procedures as manufacturers. 19) It is unethical to intentionally charge costs to the wrong job. 20) Most major projects require budget and completion stage revisions at certain intervals due to their inherent uncertainty. 21) Which of the following statements is(are) true regarding product costing? (A) A job is a cost object that can be easily and conveniently distinguished from other cost objects. (B) Job cost sheets are used in accounting systems as a subsidiary ledger for the Work-in-Process account. A) Only A is true. B) Only B is true. C) Both of these are true. D) Neither of these is true. 22) For which of the following businesses would a job costing system be appropriate? A) Auto repair shop. B) Crude oil refinery. C) Drug manufacturer. D) Root beer producer. 23) Which of the following is not a characteristic of job costing? A) Each job is distinguishable from other jobs. B) Identical units are produced on an ongoing basis. C) Job cost data are used for setting prices and bids. D) It is possible to compare actual costs with estimated costs. 24) Which of the following companies would most likely use job costing? A) Paper manufacturer. B) Paint producer. C) Breakfast cereal maker. D) Advertising agency.

25) The journal entry to record the completion of a job in a job costing system is: A.

Work-In-Process Inventory

xxx

Materials Inventory B.

Materials Inventory

xxx xxx

Purchases C.

Cost of Goods Sold

xxx xxx

Finished Goods Inventory D.

Finished Goods Inventory Work-In-Process Inventory

xxx xxx xxx

A) Option A B) Option B C) Option C D) Option D

26) The journal entry to record the requisition of direct materials for new jobs started during the period is: A.

Work-In-Process Inventory

xxx

Materials Inventory B.

Materials Inventory

xxx xxx

Purchases C.

Cost of Goods Sold

xxx xxx

Finished Goods Inventory D.

Finished Goods Inventory Work-In-Process Inventory

xxx xxx xxx

A) Option A B) Option B C) Option C D) Option D 27) Which of the following is used as the basis for posting to the direct materials section of the job cost sheet? A) Purchase requisition. B) Materials requisition. C) Receiving report. D) Purchase order. 28) Which of the following documents would be used as the basis for posting to the direct labor section of the job cost sheet? A) Purchase requisition. B) Purchase order. C) Receiving report. D) Time card. 29) Which of the following accounts is used to accumulate the actual manufacturing overhead costs incurred during a period? A) Applied Manufacturing Overhead. B) Work-in-Process Inventory. C) Manufacturing Overhead Control. D) Cost of Goods Sold.

30) Compute the Work-in-Process transferred to the finished goods warehouse on April 30 using the following information: Work-In-Process Inventory, April 30 Direct material purchased during April Work-In-Process Inventory, April 1 Direct labor costs incurred Manufacturing overhead costs Direct materials used in production

$ 175 150 200 300 250 125

A) $650. B) $675. C) $700. D) $750. 31) The following events took place at a manufacturing company for the current year: (1) Purchased $95,000 in direct materials. (2) Incurred labor costs as follows: (a) direct, $56,000 and (b) indirect, $13,600. (3) Other manufacturing overhead was $107,000, excluding indirect labor. (4) Transferred 80% of the materials to the manufacturing assembly line. (5) Completed 65% of the Work-in-Process during the year. (6) Sold 85% of the completed goods. (7) There were no beginning inventories. What is the company's Cost of Goods Sold? A) $164,190.00. B) $139,561.50. C) $252,600.00. D) $214,710.50. 32) The following events took place at a manufacturing company for the current year: (1) Purchased $95,000 in direct materials. (2) Incurred labor costs as follows: (a) direct, $56,000 and (b) indirect, $13,600. (3) Other manufacturing overhead was $107,000, excluding indirect labor. (4) Transferred 80% of the materials to the manufacturing assembly line. (5) Completed 65% of the Work-in-Process during the year. (6) Sold 85% of the completed goods. (7) There were no beginning inventories. What is the value of the ending Work-in-Process Inventory? A) $13,261.50. B) $14,259.00. C) $88,410.00. D) $95,060.50. 5 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

33) The following events took place at a manufacturing company for the current year: (1) Purchased $95,000 in direct materials. (2) Incurred labor costs as follows: (a) direct, $56,000 and (b) indirect, $13,600. (3) Other manufacturing overhead was $107,000, excluding indirect labor. (4) Transferred 80% of the materials to the manufacturing assembly line. (5) Completed 65% of the Work-in-Process during the year. (6) Sold 85% of the completed goods. (7) There were no beginning inventories. What is the journal entry to record the direct labor costs for the period? A.

Labor Inventory

XXX

Wages Payable B.

Work-In-Process Inventory

XXX XXX

Wages Payable C.

Manufacturing Overhead Control

XXX XXX

Wages Payable D.

Wages Expense Cash

XXX XXX XXX

A) Option A B) Option B C) Option C D) Option D

34) The following events took place at a manufacturing company for the current year: (1) Purchased $95,000 in direct materials. (2) Incurred labor costs as follows: (a) direct, $56,000 and (b) indirect, $13,600. (3) Other manufacturing overhead was $107,000, excluding indirect labor. (4) Transferred 80% of the materials to the manufacturing assembly line. (5) Completed 65% of the Work-in-Process during the year. (6) Sold 85% of the completed goods. (7) There were no beginning inventories. What is the value of the ending Finished Goods Inventory? A) $13,261.50. B) $24,628.50. C) $26,481.00. D) $164,190.00. 35) The journal entry to record the actual manufacturing overhead costs for indirect materials is: A.

Manufacturing Overhead Control

xxx

Materials Inventory B.

Materials Inventory

xxx xxx

Applied Manufacturing Overhead C.

Manufacturing Overhead Control

xxx xxx

Finished Goods Inventory D.

Work-In-Process Inventory Applied Manufacturing Overhead

xxx xxx xxx

A) Option A B) Option B C) Option C D) Option D

36) The journal entry to record the issuance of direct materials represented by the following materials requisitions for the month includes: Requisition No. 372 373 374 375 376

Description Job No. 179 Job No. 184 Job No. 180 General factory use Job No. 182

Amount $ 5,250 $ 3,700 $ 4,525 $ 725 $ 2,470

A) a debit to Materials Inventory, $15,945. B) a debit to Materials Inventory, $16,670. C) a debit to Work-in-Process Inventory, $15,945. D) a credit to Work-in-Process Inventory, $15,945.

37) The financial records for the Harrison Manufacturing Company have been destroyed in a fire. The following information has been obtained from a separate set of books maintained by the cost accountant. The cost accountant now asks for your assistance in computing the missing amounts. Direct Materials Inventory Beg. Bal. 8,000 ? Purchases ?

End. Bal.

Transferred Out

6,400 Cost of Goods Sold 57,000

Work-in-Process Inventory Beg. Bal. 7,500 ? Materials 18,000 Labor 13,500 Overhead 8,000 End. Bal. ? Finished Goods Inventory Beg. Bal. ? ? Transferred in End. Bal.

Transferred Out

39,500 4,200

What is the amount of the materials purchased? A) $14,400. B) $16,400. C) $18,000. D) $19,600.

38) The financial records for the Harrison Manufacturing Company have been destroyed in a fire. The following information has been obtained from a separate set of books maintained by the cost accountant. The cost accountant now asks for your assistance in computing the missing amounts. Direct Materials Inventory Beg. Bal. 8,000 ? Purchases ?

End. Bal.

Transferred Out

6,400 Cost of Goods Sold 57,000

Work-in-Process Inventory Beg. Bal. 7,500 ? Materials 18,000 Labor 13,500 Overhead 8,000 End. Bal. ? Finished Goods Inventory Beg. Bal. ? ? Transferred in End. Bal.

Transferred Out

39,500 4,200

What is the value of the ending Work-in-Process inventory balance? A) $0. B) $4,200. C) $7,500. D) $8,000.

39) The financial records for the Harrison Manufacturing Company have been destroyed in a fire. The following information has been obtained from a separate set of books maintained by the cost accountant. The cost accountant now asks for your assistance in computing the missing amounts. Direct Materials Inventory Beg. Bal. 8,000 ? Purchases ?

End. Bal.

Transferred Out

6,400 Cost of Goods Sold 57,000

Work-in-Process Inventory Beg. Bal. 7,500 ? Materials 18,000 Labor 13,500 Overhead 8,000 End. Bal. ? Finished Goods Inventory Beg. Bal. ? ? Transferred in End. Bal.

Transferred Out

39,500 4,200

What is the value of the beginning Finished Goods Inventory? A) $0. B) $4,200. C) $13,300. D) $21,700.

40) Stock Co. uses a job costing system. The following debits (credits) appeared in Stock's workin-process account for the month of April: April 1 30 30 30 30

Description Balance Direct materials Direct labor Factory overhead To finished goods

Amount 4,000 24,000 16,000 12,800 (48,000)

Stock applies overhead to production at a predetermined rate of 80% of direct labor cost. Job No. 5, the only job still in process on April 30 has been charged with direct labor of $2,000. What was the amount of direct materials charged to Job No. 5? (CPA adapted) A) $3,000. B) $5,200. C) $8,800. D) $24,000. 41) The following are Margin Co.'s production costs for December: Direct Materials Direct Labor Factory Overhead

100,000 90,000 4,000

What amount of costs should be traced to specific products in the production process? (CPA adapted) A) $194,000. B) $190,000. C) $100,000. D) $90,000. 42) Under Eagle Co.'s job costing system, manufacturing overhead is applied to Work-in-Process using a predetermined annual overhead rate. During February, Eagle's transactions included the following: Direct materials issued to production Indirect materials issued to production Manufacturing overhead incurred Manufacturing overhead applied Direct labor costs

90,000 8,000 125,000 113,000 107,000

Eagle had neither beginning nor ending inventory in Work-in-Process Inventory. What was the cost of jobs completed in February? (CPA adapted) A) $302,000. B) $310,000. C) $322,000. D) $330,000. 12 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

43) Pigot Corporation uses job costing and has two production departments, M and A. Budgeted manufacturing costs for the year are as follows: Dept. M $ 700,000 200,000 600,000

Direct materials Direct labor Factory overhead

Dept. A $ 100,000 800,000 400,000

The actual direct materials and direct labor costs charged to Job. No. 432 during the year were as follows: Direct materials Direct labor: Department M Department A

$ 25,000 $

8,000 12,000

20,000

Pigot applies manufacturing overhead to production orders on the basis of direct labor cost using departmental rates predetermined at the beginning of the year based on the annual budget. The total cost associated with Job. No. 432 for the year should be: A) $50,000. B) $55,000. C) $65,000. D) $75,000.

44) The Falcon Company does not maintain backup documents for its computer files. In June, some of the current data were lost, and you have been asked to help reconstruct the data. The following beginning balances on June 1 are known: Direct Materials Inventory Work-in-Process Inventory Finished Goods Inventory Manufacturing Overhead Control Accounts Payable

12,000 4,500 11,000 16,500 6,000

Reviewing old documents and interviewing selected employees have generated the following additional information: The production superintendent's job cost sheets indicated that materials of $2,600 were included in the June 30 Work-in-Process Inventory. Also, 300 direct labor-hours had been paid at $6.00 per hour for the jobs in process on June 30. The Accounts Payable account is only for direct material purchases. The clerk remembers clearly that the balance in the Accounts Payable on June 30 was $8,000. An analysis of canceled checks indicated payments of $40,000 were made to suppliers during June. Payroll records indicate that 5,200 direct labor-hours were recorded for June. It was verified that there were no variations in pay rates among employees during June. Records at the warehouse indicate that the Finished Goods Inventory totaled $16,000 on June 30. Another record kept manually indicates that the Cost of Goods Sold in June totaled $84,000. The predetermined overhead rate was based on an estimated 60,000 direct labor-hours for the year and an estimated $180,000 in manufacturing overhead costs. What is the ending balance in the Work-in-Process Inventory on June 30? A) $4,800. B) $5,300. C) $9,300. D) $9,800.

45) The Falcon Company does not maintain backup documents for its computer files. In June, some of the current data were lost, and you have been asked to help reconstruct the data. The following beginning balances on June 1 are known: Direct Materials Inventory Work-in-Process Inventory Finished Goods Inventory Manufacturing Overhead Control Accounts Payable

12,000 4,500 11,000 16,500 6,000

Reviewing old documents and interviewing selected employees have generated the following additional information: The production superintendent's job cost sheets indicated that materials of $2,600 were included in the June 30 Work-in-Process Inventory. Also, 300 direct labor-hours had been paid at $6.00 per hour for the jobs in process on June 30. The Accounts Payable account is only for direct material purchases. The clerk remembers clearly that the balance in the Accounts Payable on June 30 was $8,000. An analysis of canceled checks indicated payments of $40,000 were made to suppliers during June. Payroll records indicate that 5,200 direct labor-hours were recorded for June. It was verified that there were no variations in pay rates among employees during June. Records at the warehouse indicate that the Finished Goods Inventory totaled $16,000 on June 30. Another record kept manually indicates that the Cost of Goods Sold in June totaled $84,000. The predetermined overhead rate was based on an estimated 60,000 direct labor-hours for the year and an estimated $180,000 in manufacturing overhead costs. What is the amount of direct materials purchased during June? A) $38,000. B) $40,000. C) $42,000. D) $43,000. 46) What document is used to determine the actual amount of direct labor to record on a job cost sheet? A) Time ticket. B) Payroll register. C) Production order. D) Wages payable account.

47) The Falcon Company does not maintain backup documents for its computer files. In June, some of the current data were lost, and you have been asked to help reconstruct the data. The following beginning balances on June 1 are known: Direct Materials Inventory Work-in-Process Inventory Finished Goods Inventory Manufacturing Overhead Control Accounts Payable

12,000 4,500 11,000 16,500 6,000

Reviewing old documents and interviewing selected employees have generated the following additional information: The production superintendent's job cost sheets indicated that materials of $2,600 were included in the June 30 Work-in-Process Inventory. Also, 300 direct labor-hours had been paid at $6.00 per hour for the jobs in process on June 30. The Accounts Payable account is only for direct material purchases. The clerk remembers clearly that the balance in the Accounts Payable on June 30 was $8,000. An analysis of canceled checks indicated payments of $40,000 were made to suppliers during June. Payroll records indicate that 5,200 direct labor-hours were recorded for June. It was verified that there were no variations in pay rates among employees during June. Records at the warehouse indicate that the Finished Goods Inventory totaled $16,000 on June 30. Another record kept manually indicates that the Cost of Goods Sold in June totaled $84,000. The predetermined overhead rate was based on an estimated 60,000 direct labor-hours for the year and an estimated $180,000 in manufacturing overhead costs. What is the Cost of Goods Manufactured for June? A) $89,000. B) $84,000. C) $94,000. D) $99,000. 48) In a job costing system, direct material cost is ordinarily debited to: A) Manufacturing Overhead. B) Cost of Goods Sold. C) Finished Goods Inventory. D) Work-in-Process Inventory.

49) Which of the following accounts is debited when direct labor is recorded? A) Work-in-Process Inventory. B) Salaries and wages expense C) Salaries and wages payable. D) Manufacturing overhead. 50) The balance in the Work-in-Process Inventory account equals: A) the balance in the Finished Goods Inventory account. B) the balance in the Cost of Goods Sold account. C) the balances on the job cost sheets of uncompleted jobs. D) the balance in the Manufacturing Overhead account. 51) Grayson Inc. has provided the following data for the month of October. The balance in the Finished Goods Inventory account at the beginning of the month was $49,000 and at the end of the month was $45,000. The cost of goods manufactured for the month was $226,000. The actual manufacturing overhead cost incurred was $74,000 and the manufacturing overhead cost applied to Work-in-Process was $70,000. The adjusted cost of goods sold that would appear on the income statement for October is: A) $226,000. B) $230,000. C) $222,000. D) $234,000. 52) Delgato Corporation, a manufacturing company, has provided data concerning its operations for September. The beginning balance in the raw materials account was $37,000 and the ending balance was $29,000. Raw materials purchases during the month totaled $57,000. Manufacturing overhead cost incurred during the month was $102,000, of which $2,000 consisted of raw materials classified as indirect materials. The direct materials cost for November was: A) $63,000. B) $57,000. C) $65,000. D) $49,000.

53) Under Lamar Company's job costing system, manufacturing overhead is applied to Work-inProcess Inventory using a predetermined overhead rate. During June, Lamar's transactions included the following: Direct materials issued to production Indirect materials issued to production Manufacturing overhead cost incurred Manufacturing overhead cost applied Direct labor cost incurred

90,000 8,000 125,000 113,000 107,000

Lamar Company had no beginning or ending inventories. What was the cost of goods manufactured for June? (CMA adapted) A) $302,000. B) $310,000. C) $322,000. D) $330,000. 54) Demur Inc., a manufacturing company, has provided the following data for the month of April. The balance in the Work-in-Process Inventory account was $10,000 at the beginning of the month and $22,000 at the end of the month. During the month, the company incurred direct materials cost of $63,000 and direct labor cost of $39,000. The actual manufacturing overhead cost incurred was $40,000. The manufacturing overhead cost applied to Work-in-Process was $43,000. The cost of goods manufactured for April was: A) $133,000. B) $142,000. C) $145,000. D) $130,000. 55) Fogel Flight Company uses a job costing system. The direct materials for Job #045391 were purchased in September and put into production in October. The job was not completed by the end of October. At the end of October, in what account would the direct materials cost assigned to Job #045391 be located? A) Raw Materials Inventory. B) Work-in-Process Inventory. C) Finished Goods Inventory. D) Cost of Goods Manufactured.

56) Carson Inc. has provided the following data for the month of May. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.

Direct materials Direct labor Manufacturing overhead applied Total

Work-inProcess $ 5,010 2,430

Finished Goods $ 11,500 10,500

Cost of Goods Sold $ 111,320 101,640

Total $ 127,830 114,570

3,200

7,200

69,600

80,000

$ 10,640

$ 29,200

$ 282,560

$ 322,400

Manufacturing overhead for the month was underapplied by $10,000. The company allocates any underapplied or overapplied overhead among work-in-process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts. The journal entry to record the allocation of any underapplied or overapplied overhead for May would include a: A) credit to Finished Goods Inventory of $900. B) debit to Finished Goods Inventory of $29,200. C) credit to Finished Goods Inventory of $29,200. D) debit to Finished Goods Inventory of $900.

57) The following selected data were taken from the books of the Owens O-Rings Company. The company uses job costing to account for manufacturing costs. The data relate to April operations. (1) Materials and supplies were requisitioned from the stores clerk as follows: Job 405, material X, $7,000. Job 406, material X, $3,000; material Y, $6,000. Job 407, material X, $7,000; material Y, $3,200. For general factory use: materials A, B, and C, $2,300. (2) Time tickets for the month were chargeable as follows: Job 405 Job 406 Job 407 Indirect labor

11,000 14,000 8,000 3,700

3,000hours 3,600hours 1,900hours

58) The following selected data were taken from the books of the Owens O-Rings Company. The company uses job costing to account for manufacturing costs. The data relate to April operations. (1) Materials and supplies were requisitioned from the stores clerk as follows: Job 405, material X, $7,000. Job 406, material X, $3,000; material Y, $6,000. Job 407, material X, $7,000; material Y, $3,200. For general factory use: materials A, B, and C, $2,300. (2) Time tickets for the month were chargeable as follows: Job 405 Job 406 Job 407 Indirect labor

11,000 14,000 8,000 3,700

3,000hours 3,600hours 1,900hours

59) The following selected data were taken from the books of the Owens O-Rings Company. The company uses job costing to account for manufacturing costs. The data relate to April operations. (1) Materials and supplies were requisitioned from the stores clerk as follows: Job 405, material X, $7,000. Job 406, material X, $3,000; material Y, $6,000. Job 407, material X, $7,000; material Y, $3,200. For general factory use: materials A, B, and C, $2,300. (2) Time tickets for the month were chargeable as follows: Job 405 Job 406 Job 407 Indirect labor

11,000 14,000 8,000 3,700

3,000hours 3,600hours 1,900hours

(3) Other information: Factory paychecks for $36,700 were issued during the month. Various factory overhead charges of $19,400 were incurred on account. Depreciation of factory equipment for the month was $5,400. Factory overhead was applied to jobs at the rate of $3.50 per direct labor hour. Job orders completed during the month: Job 405 and Job 406. Selling and administrative costs were $2,100. Factory overhead is closed out only at the end of the year. The balance in the factory overhead account would represent the fact that overhead was: A) $1,050 underapplied. B) $3,150 underapplied. C) $1,250 overapplied. D) $4,350 overapplied. 60) What are the transfers from the Finished Goods Inventory called? A) Cost of Goods Manufactured. B) Cost of Goods Available. C) Cost of Goods Completed. D) Cost of Goods Sold. 61) In a job costing system, the dollar amount in the journal entry that transfers the costs of jobs from Work-in-Process Inventory to Finished Goods Inventory is the sum of the costs charged to all jobs: A) sold during the period. B) completed during the period. C) in process during the period. D) started in process during the period.

62) Which of the following events or transactions will not result in manufacturing overhead being applied to production? A) Completion of a job in the current period that was started in a prior period. B) Completion of a job in the current period that was started in the current period. C) Preparing financial statements when work is in process at the end of the period. D) Preparing financial statements when there is no work-in-process at the end of the period. 63) The journal entry to record the completion of a job in a job costing system is: A.

Finished Goods Inventory Materials Inventory

xxx

Work-In-Process Inventory Applied Manufacturing Overhead

xxx

Manufacturing Overhead Control Finished Goods Inventory

xxx

D. Finished Goods Inventory Work-In-Process Inventory

xxx

xxx xxx xxx

A) Option A B) Option B C) Option C D) Option D 64) It is possible that the total cost of a job started in April and completed in May will not include: A) direct materials added in April. B) direct labor added in May. C) applied overhead in April. D) direct materials purchased in May. 65) Underapplied overhead occurs when the balance in the Manufacturing Overhead Control account is: A) greater than the balance in the Applied Manufacturing Overhead account. B) equal to the balance in the Applied Manufacturing Overhead account. C) less than the balance in the Applied Manufacturing Overhead account. D) less than the balance in the Finished Goods Inventory account.

66) Which of the following statements is(are) true regarding the application of manufacturing overhead? (A) Manufacturing overhead is only recorded on the job cost sheets when financial statements are prepared or a job is completed. (B) Overapplied overhead occurs when the actual overhead costs incurred during a period are greater than the overhead costs applied during the period. A) Only A is true. B) Only B is true. C) Both of these are true. D) Neither of these is true. 67) The journal entry to write-off an insignificant underapplied overhead balance at the end of an accounting period is: A. Applied Manufacturing Overhead Cost of Goods Sold Manufacturing Overhead Control

xxx xxx

Applied Manufacturing Overhead Cost of Goods Sold Manufacturing Overhead Control

xxx

Applied Manufacturing Overhead Work-In-Process Inventory Finished Goods Inventory Cost of Goods Sold Manufacturing Overhead Control

xxx xxx xxx xxx

D. Applied Manufacturing Overhead Work-In-Process Inventory Finished Goods Inventory Cost of Goods Sold Manufacturing Overhead Control

xxx

xxx xxx

xxx

xxx xxx xxx xxx

A) Option A B) Option B C) Option C D) Option D

68) The journal entry to write-off a significant underapplied overhead balance at the end of an accounting period is: A.

Applied Manufacturing Overhead Cost of Goods Sold Manufacturing Overhead Control

xxx xxx

Applied Manufacturing Overhead Cost of Goods Sold Manufacturing Overhead Control

xxx

Applied Manufacturing Overhead Work-In-Process Inventory Finished Goods Inventory Cost of Goods Sold Manufacturing Overhead Control

xxx xxx xxx xxx

Applied Manufacturing Overhead Work-In-Process Inventory Finished Goods Inventory Cost of Goods Sold Manufacturing Overhead Control

xxx

xxx xxx

xxx

xxx xxx xxx xxx

A) Option A B) Option B C) Option C D) Option D 69) If a company multiplies its predetermined overhead rate by the actual activity level of its allocation base, it is using: A) standard costing. B) normal costing. C) actual costing. D) budget costing. 70) If a company multiplies its actual overhead rate by the actual activity level of its allocation base, it is using: A) standard costing. B) normal costing. C) actual costing. D) budget costing.

71) The journal entry to write-off an insignificant overapplied overhead balance at the end of an accounting period for a service firm is: A. Applied Manufacturing Overhead Cost of Services Billed Manufacturing Overhead Control

xxx xxx

Applied Manufacturing Overhead Cost of Services Billed Manufacturing Overhead Control

xxx

Applied Manufacturing Overhead Work-In-Process Inventory Finished Goods Inventory Cost of Services Billed Manufacturing Overhead Control

xxx xxx xxx xxx

D. Applied Manufacturing Overhead Work-In-Process Inventory Finished Goods Inventory Cost of Services Billed Manufacturing Overhead Control

xxx

xxx xxx

xxx

xxx xxx xxx xxx

A) Option A B) Option B C) Option C D) Option D 72) Manufacturing overhead applied on the basis of direct labor-hours was $120,000, while actual manufacturing overhead incurred was $124,000 for the month of April. Which of the following is always true given the statement above? A) Overhead was overapplied by $4,000. B) Overhead was underapplied by $4,000. C) Actual direct labor-hours exceeded budgeted direct labor-hours. D) Actual direct labor-hours were less than budgeted direct labor-hours.

73) Travis Company's records show that overhead was overapplied by $10,000 last year. This overapplied overhead was closed out to the Cost of Goods Sold account at the end of the year. In trying to determine why overhead was overapplied by such a large amount, the company has discovered that $6,000 of depreciation on factory equipment was charged to administrative expense in error. Given the above information, which of the following statements is true? A) Manufacturing overhead was actually overapplied by $16,000 for the year. B) The company's net income is understated by $6,000 for the year. C) Under the circumstances posed above, the error in recording depreciation would have no effect on operating income for the year. D) The $6,000 in depreciation should have been charged to Work-in-Process rather than to administrative expense. 74) The actual manufacturing overhead incurred at Liberty Industries during May was $59,000, while the manufacturing overhead applied to Work-in-Process was $74,000. The company's Cost of Goods Sold was $289,000 prior to closing out its Manufacturing Overhead account. The company closes out its Manufacturing Overhead account to Cost of Goods Sold. Which of the following statements is true? A) Manufacturing overhead was overapplied by $15,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $274,000. B) Manufacturing overhead was underapplied by $15,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $274,000. C) Manufacturing overhead was overapplied by $15,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $304,000. D) Manufacturing overhead was underapplied by $15,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $304,000. 75) The predetermined overhead rate for manufacturing overhead for 2020 is $4.00 per direct labor hour. Employees are expected to earn $5.00 per hour and the company is planning on paying its employees $100,000 during the year. However, only 75% of the employees are classified as "direct labor." What was the estimated manufacturing overhead for 2020? A) $60,000. B) $75,000. C) $80,000. D) $93,750. 76) Before prorating the manufacturing overhead costs at the end of 2020, the Cost of Goods Sold and Finished Goods Inventory accounts had applied overhead costs of $57,500 and $20,000 in them, respectively. There was no Work-in-Process at the beginning or end of 2020. During the year, manufacturing overhead costs of $74,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $77,500 at the end of 2020. If the under or overapplied overhead is prorated between Cost of Goods Sold and the inventory accounts, how much will be allocated to the Finished Goods Inventory? (rounded to the nearest whole dollar) A) $903. B) $1,217. C) $1,283. D) $2,597. 27 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

77) Before prorating the manufacturing overhead costs at the end of 2020, the Cost of Goods Sold and Finished Goods Inventory accounts had applied overhead costs of $57,500 and $20,000 in them, respectively. There was no Work-in-Process at the beginning or end of 2020. During the year, manufacturing overhead costs of $74,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $77,500 at the end of 2020. If the under- or overapplied overhead is prorated between Cost of Goods Sold and the inventory accounts, what will be the Cost of Goods Sold balance after the proration? (rounded to the nearest whole dollar) A) $58,403. B) $56,597. C) $60,197. D) $54,903. 78) In a traditional job costing system, the use of indirect labor in the production department increases: (CPA adapted) A) Stores Control. B) Work-in-Process Control. C) Manufacturing Overhead Control. D) Manufacturing Overhead Applied. 79) Which of the following actions do not cause an impropriety in job costing? A) Misstating the stage of completion. B) Choosing to use normal costing rather than actual costing. C) Charging costs to the wrong job. D) Choosing an allocation method based on the results rather than choosing the method based on resource usage. 80) Which of the following approaches allocates overhead by multiplying a predetermined overhead rate × actual activity? A) Actual costing. B) Normal costing. C) Regression costing. D) Standard costing. 81) Which of the following approaches allocates overhead by multiplying an actual overhead rate × actual activity? A) Actual costing. B) Normal costing. C) Regression costing. D) Standard costing. 82) Which of the following approaches allocates overhead by multiplying a predetermined rate × standard activity? A) Actual costing. B) Normal costing. C) Regression costing. D) Standard costing. 28 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

83) Reyes Corporation applies overhead using a normal costing approach based upon machinehours. Budgeted factory overhead was $266,400, budgeted machine-hours were 18,500. Actual factory overhead was $287,920, actual machine-hours were 19,050. How much overhead would be applied to production? A) $266,400. B) $274,320. C) $279,607. D) $287,920. 84) Reyes Corporation applies overhead using a normal costing approach based upon machinehours. Budgeted factory overhead was $266,400, budgeted machine-hours were 18,500. Actual factory overhead was $287,920, actual machine-hours were 19,050. How much is the over- or underapplied overhead? A) $21,520 underapplied. B) $13,600 underapplied. C) $7,920 overapplied. D) $0. 85) Reyes Corporation applies overhead using an actual costing approach. Budgeted factory overhead was $266,400, budgeted machine-hours were 18,500. Actual factory overhead was $287,920, actual machine-hours were 19,050. How much overhead would be applied to production? A) $266,400. B) $274,320. C) $279,607. D) $287,920. 86) Reyes Corporation applies overhead using an actual costing approach. Budgeted factory overhead was $266,400, budgeted machine-hours were 18,500. Actual factory overhead was $287,920, actual machine-hours were 19,050. How much is the over- or underapplied overhead? A) $21,520 underapplied. B) $13,600 underapplied. C) $7,920 overapplied. D) $0. 87) Reyes Corporation applies overhead using a normal costing approach based upon machinehours. Budgeted factory overhead was $232,750, budgeted machine-hours were 17,500. Actual factory overhead was $227,830, actual machine-hours were 16,150. How much overhead would be applied to production? A) $214,795. B) $227,830. C) $232,750. D) $246,875.

88) Reyes Corporation applies overhead using a normal costing approach based upon machinehours. Budgeted factory overhead was $232,750, budgeted machine-hours were 17,500. Actual factory overhead was $227,830, actual machine-hours were 16,150. How much is the over- or underapplied overhead? A) $13,035 overapplied. B) $13,035 underapplied. C) $4,920 overapplied. D) $4,920 underapplied. 89) Which terms will make the following statement true? When manufacturing overhead is overapplied, the Manufacturing Overhead Control account has a ________ balance and applied manufacturing overhead is greater than ________ manufacturing overhead. A) debit, actual B) credit, actual C) debit, estimated D) credit, estimated 90) Which of the following is correct with respect to closing out overapplied manufacturing overhead to Cost of Goods Sold versus closing it out to Work-in-Process Inventory, Finished Goods Inventory, and Cost of Goods Sold? A) The balance in the Work-in-Process account after allocation will be higher if the overapplied overhead is closed out by allocating it to all appropriate accounts. B) The balance in the Work-in-Process account after allocation will be the same under either method. C) Operating income will be higher if all of the overapplied overhead is closed out to Cost of Goods Sold. D) Cost of Goods Sold will be lower if the overapplied overhead is closed out by allocating it to the inventory accounts as well as to Cost of Goods Sold. 91) Duran Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the total estimated manufacturing overhead was $224,580. At the end of the year, actual direct labor-hours for the year were 18,200 hours, manufacturing overhead for the year was underapplied by $12,100, and the actual manufacturing overhead was $219,580. The predetermined overhead rate for the year must have been closest to: A) $11.40. B) $12.34. C) $12.06. D) $10.53.

92) Nexus Corporation uses a predetermined overhead rate based on direct labor cost to apply manufacturing overhead to jobs. Last year, the company's estimated manufacturing overhead was $1,200,000 and its estimated level of activity was 50,000 direct labor-hours. The company's direct labor wage rate is $12 per hour. Actual manufacturing overhead amounted to $1,240,000, with actual direct labor cost of $650,000. For the year, manufacturing overhead was: A) overapplied by $60,000. B) underapplied by $60,000. C) overapplied by $40,000. D) underapplied by $44,000. 93) Perion Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 11,200 hours and the total estimated manufacturing overhead was $259,840. At the end of the year, actual direct labor-hours for the year were 10,800 hours and the actual manufacturing overhead for the year was $254,840. Overhead at the end of the year was: A) $4,280 overapplied. B) $9,280 overapplied. C) $9,280 underapplied. D) $4,280 underapplied. 94) At the beginning of the year, manufacturing overhead for the year was estimated to be $267,500. At the end of the year, actual direct labor-hours for the year were 22,100 hours, the actual manufacturing overhead for the year was $262,500, and manufacturing overhead for the year was overapplied by $13,750. If the predetermined overhead rate is based on direct laborhours, then the estimated direct labor-hours at the beginning of the year used to calculate the predetermined overhead rate was: A) 22,100 direct labor-hours. B) 19,900 direct labor-hours. C) 21,000 direct labor-hours. D) 21,400 direct labor-hours. 95) Golden Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 21,600 hours. At the end of the year, actual direct labor-hours for the year were 20,400 hours, the actual manufacturing overhead for the year was $506,920, and manufacturing overhead for the year was underapplied by $23,440. The estimated manufacturing overhead at the beginning of the year used to calculate the predetermined overhead rate must have been: A) $501,920. B) $531,445. C) $483,480. D) $511,920.

96) Fortune Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. On October 1, the estimates for the month were: Manufacturing overhead Direct labor-hours During October, the actual results were: Manufacturing overhead Direct labor-hours

$ 17,000 13,600 $ 18,500 12,000

The cost records for October will show: A) Overapplied overhead of $1,500. B) Underapplied overhead of $1,500. C) Overapplied overhead of $3,500. D) Underapplied overhead of $3,500. 97) 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%. 98) Faucette Corporation has provided the following data concerning manufacturing overhead for January: Actual manufacturing overhead incurred Manufacturing overhead applied to Work-in-Process

$ 52,000 $ 75,000

The company's Cost of Goods Sold was $369,000 prior to closing out its Manufacturing Overhead account. The company closes out its Manufacturing Overhead account to Cost of Goods Sold. Which of the following statements is true? A) Manufacturing overhead was underapplied by $23,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $392,000. B) Manufacturing overhead was underapplied by $23,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $346,000. C) Manufacturing overhead was overapplied by $23,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $346,000. D) Manufacturing overhead was overapplied by $23,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $392,000.

99) In computing its predetermined overhead rate, Marple Company inadvertently left its indirect labor costs out of the computation. This oversight will cause: A) Manufacturing Overhead to be overapplied. B) the Cost of Goods Manufactured to be understated. C) the debits to the Manufacturing Overhead account to be understated. D) the ending balance in Work-in-Process to be overstated. 100) Which of the following is the correct formula to compute the predetermined overhead rate? A) Estimated total units in the allocation base divided by estimated total manufacturing overhead costs. B) Estimated total manufacturing overhead costs divided by estimated total units in the allocation base. C) Actual total manufacturing overhead costs divided by estimated total units in the allocation base. D) Estimated total manufacturing overhead costs divided by actual total units in the allocation base. 101) The Work-in-Process Inventory account of a manufacturing firm has a balance of $2,400 at the end of an accounting period. The job cost sheets of two uncompleted jobs show charges of $400 and $200 for materials used, and charges of $300 and $500 for direct labor used. Overhead is applied as a percentage of direct labor costs. The predetermined rate is: A) 41.7%. B) 80.0%. C) 125.0%. D) 240.0%. 102) Midwest Corporation has provided the following data concerning manufacturing overhead for 2020: Estimated manufacturing overhead for the year Estimated direct labor hours for the year

$ 30,000 2,000

Two jobs were worked on during the year: Job A-101 and Job A-102. The number of direct labor-hours spent on Job A-101 and Job A-102 were 1,200 and 1,000, respectively. The actual manufacturing overhead was $37,000. What is the predetermined manufacturing overhead rate per direct labor hour for the year? A) $15. B) $20. C) $25. D) $30.

103) Midwest Corporation has provided the following data concerning manufacturing overhead for 2020: Estimated manufacturing overhead for the year Estimated direct labor hours for the year

$ 30,000 2,000

Two jobs were worked on during the year: Job A-101 and Job A-102. The number of direct labor-hours spent on Job A-101 and Job A-102 were 1,200 and 1,000, respectively. The actual manufacturing overhead was $37,000. What was the amount of manufacturing overhead applied to Job A-101? A) $16,000. B) $18,000. C) $24,000. D) $44,000. 104) Midwest Corporation has provided the following data concerning manufacturing overhead for 2020: Estimated manufacturing overhead for the year Estimated direct labor hours for the year

$ 30,000 2,000

Two jobs were worked on during the year: Job A-101 and Job A-102. The number of direct labor-hours spent on Job A-101 and Job A-102 were 1,200 and 1,000, respectively. The actual manufacturing overhead was $37,000. What is the amount of the under- or overapplied manufacturing overhead? A) $1,000 underapplied. B) $3,000 overapplied. C) $4,000 underapplied. D) $7,000 overapplied. 105) In a traditional job costing system, the issuance of indirect materials to a production department increases: (CPA adapted) A) Stores Control. B) Work-in-Process Control. C) Manufacturing Overhead Control. D) Manufacturing Overhead Applied. 106) One of the primary differences between job costing for service firms and job costing for manufacturing companies is service firms generally: A) use fewer direct materials. B) have less direct labor. C) do not use predetermined overhead rates. D) have no Work-in-Process Inventory. 34 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

107) Which of the following is not a difference between job costing for service firms and job costing for manufacturing companies? A) Service firms generally use fewer direct materials than manufacturing companies. B) Service firms' overhead accounts have slightly different titles (e.g., Applied Service Overhead). C) Service firms' finished jobs are charged to Cost of Services Billed instead of Cost of Goods Sold. D) Service firms' costs are immediately expensed since all work is completed during a period. 108) The journal entry to record the completion of a contract in a job costing system for a service firm is: A. Cost of Services Billed Wages Payable

xxx

Work-In-Process Inventory Wages Payable

xxx

Cost of Services Billed Work-In-Process Inventory

xxx

Finished Goods Inventory Work-In-Process Inventory

xxx

A) Option A B) Option B C) Option C D) Option D 109) Complex jobs that take multiple time periods and require the work of many different departments, divisions, or subcontractors are called: A) clients. B) projects. C) customers. D) contracts.

110) The financial records for the Lazer Manufacturing Company have been destroyed in a flood. The following information has been obtained from a separate set of books maintained by the cost accountant. The cost accountant now asks for your assistance in computing the missing amounts. Beginning $ Ending $ Direct materials $ 8,000 $ 6,400 Work-in-process 7,500 ??? Finished goods ??? 4,200 Other information: Direct materials used $ 18,000 Direct labor 13,500 Overhead applied 8,000 Cost of goods manufactured 39,500 Cost of goods sold 57,000 Required: Compute the following: (a) Direct materials purchased. (b) Ending Work-in-process inventory. (c) Beginning Finished goods inventory. 111) The Duggart Company had the following transactions and events during its first year of operations. Estimated overhead for the year was $770,000; estimated direct labor cost for the year was $350,000. 1. Purchased materials on account, $567,000. 2. Requisitioned materials for production as follows: direct materials - 85 percent of purchases, indirect materials - 12 percent of purchases. 3. Direct labor for production is $331,000, indirect labor is $125,000. 4. Overhead incurred (not including materials or labor): $529,000. 5. Overhead is applied to production based on direct labor cost at the rate of ________. 6. Goods costing $976,000 were completed during the period. 7. Goods costing $513,200 were sold on account for $776,000. Required: Determine the ending balances for: (a) Materials Inventory (b) Work-in-Process Inventory (c) Finished Goods Inventory

112) Mirror Lake Corporation recorded the following transactions for the just completed month: 1. $60,000 in raw materials were purchased on account. 2. $51,000 in raw materials were requisitioned for use in production. Of this amount, $42,000 was for direct materials and the remainder was for indirect materials. 3. Total labor wages of $92,000 were incurred and paid. Of this amount, $81,000 was for direct labor and the remainder was for indirect labor. 4. Additional manufacturing overhead cost of $155,000 were incurred. All were on account. Required: Record the above transactions in journal entries. 113) During April, Orbitz Corporation incurred $64,000 of actual manufacturing overhead costs. During the same period, the manufacturing overhead applied to Work-in-Process was $66,000. Required: Prepare journal entries to record the incurrence of manufacturing overhead and the application of manufacturing overhead to Work-in-Process. 114) The following cost data relate to the manufacturing activities of Falco Industries during the just completed year: Total actual manufacturing overhead costs incurred (including $15,000 of indirect materials) Purchases of raw materials (both direct and indirect) Direct labor cost Inventories: Raw materials, beginning Raw materials, ending Work-in-Process, beginning Work-in-Process, ending

$ 353,000 $ 250,000 $ 135,000 $ $ $ $

10,000 15,000 20,000 35,000

The company uses a predetermined overhead rate to apply manufacturing overhead cost to production. The predetermined overhead rate for the year was $15 per machine-hour. A total of 23,000 machine-hours was recorded for the year. Required: a. Compute the amount of underapplied or overapplied overhead cost for the year. b. Prepare a Schedule of Cost of Goods Manufactured for the year.

115) The following selected data were taken from the books of the Fisher Foil Company. The company uses job costing to account for manufacturing costs. The data relate to June operations. (1) Materials and supplies were requisitioned from the stores clerk as follows: Job 405, material X, $7,000. Job 406, material X, $3,000; material Y, $6,000. Job 407, material X, $7,000; material Y, $3,200. For general factory use: materials A, B, and C, $2,300. (2) Time tickets for the month were chargeable as follows: Job 405 Job 406 Job 407 Indirect labor

$ 11,000 14,000 8,000 3,700

300hrs 360hrs 190hrs

(3) Other information: There was no beginning work-in-process inventory. Factory paychecks for $36,700 were issued during the month. Various factory overhead charges of $19,400 were incurred on account. Depreciation of factory equipment for the month was $5,400. Factory overhead was applied to jobs at the rate of $35.00 per direct labor hour. Job orders completed during the month: Job 405 and Job 406. Selling and administrative costs were $2,100. Factory overhead is closed out only at the end of the year. Required: (a) Determine the ending work-in-process balance on June 30. (b) Determine the cost of goods manufactured for June. (c) Is factory overhead over- or underapplied for June? What is the monthly value? 116) Prepare the necessary journal entries from the following information for Blalock Company. a. Purchased materials on account, $56,700. b. Requisitioned materials for production as follows: direct materials - 80 percent of purchases, indirect materials - 15 percent of purchases. c. Direct labor for production is $33,100, indirect labor is $12,500. d. Overhead incurred (not including indirect materials or indirect labor): $52,900. e. Overhead is applied to production based on direct labor cost at the rate of 220 percent. f. Goods costing $97,600 were completed during the period. g. Goods costing $51,320 were sold on account for $77,600. h. Close the overhead control account to Cost of Goods Sold.

117) On October 1, the general ledger of Morgan Industries had the following accounts and balances: Materials inventory Work-in-process inventory Finished goods inventory Manufacturing overhead (overapplied)

$ 19,200 48,750 8,100 2,000

The subsidiary ledgers had the following information on October 1:

Job Number B81 B83

Job Cost Sheets Direct Direct Materials Labor $ ? $ 7,000 4,300 ? ? ?

Finished Goods Cards Job Number Cost B80 $ 5,200 B82 ? ?

Manufacturing Overhead $ 8,750 11,500 $ 20,250

During October, the following costs were incurred on account: Materials Factory labor Manufacturing overhead

46,500 49,000 56,350

A summary of the materials requisition slips and the labor time tickets for the month revealed the following distribution: Applicable To Job B81 Job B83 Job B84 Job B85 Job B86 General Use

Materials Requisitions $ 8,000 5,100 8,600 19,900 12,750 ? $ 58,250

Time Tickets $ 4,000 1,700 10,500 16,750 ? 4,500 ?

Overhead is applied based upon direct labor cost. Jobs B81, B83, and B84 were for 8,000, 6,000 and 4,800 units of product, respectively, and were completed during October. Jobs B80, B81, B82, and B83 were sold on account for $150,000. Required: Prepare T-accounts for a job costing system, posting the beginning balances and all transactions for the month. Clearly indicate the ending balances for the accounts and label the 'cost of goods manufactured' and 'cost of goods sold' amounts. 39 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

118) The Shotz Company had the following transactions and events during its first year of operations. Estimated overhead for the year was $770,000; estimated direct labor cost for the year was $350,000. 1. Purchased materials on account, $567,000. 2. Requisitioned materials for production as follows: direct materials - 85 percent of purchases, indirect materials - 12 percent of purchases. 3. Direct labor for production is $331,000, indirect labor is $125,000. 4. Overhead incurred (not including materials or labor): $529,000. 5. Overhead is applied to production based on direct labor cost at the rate of ________. 6. Goods costing $976,000 were completed during the period. 7. Goods costing $513,200 were sold on account for $776,000. Required: (a) Prepare the journal entries to record the transactions for the year. (b) Prepare the journal entry to prorate the over- or underapplied overhead to the appropriate accounts. 119) During July, Morris Corporation purchased $76,000 of raw materials on credit to add to its raw materials inventory. A total of $81,000 of raw materials was requisitioned from the storeroom for use in production. These requisitioned raw materials included $5,000 of indirect materials. Required: Prepare journal entries to record the purchase of materials and their use in production.

120) The following selected data were taken from the records of the Fisher Foil Company. The company uses a job costing system to account for its manufacturing costs. Fisher's fiscal year runs from January 1 to December 31; manufacturing overhead is closed out only at the end of the fiscal year. The following information relates to August operations. (1) Jobs in process on August 1. Job No. W12 X13

Materials $ 800 1,000

Labor $ 1,200 1,620

Overhead ?? ??

(2) Jobs completed during August: W12, X13, Y14. (3) Material requisitions and labor time tickets indicated the following: Job No. W12 X13 Y14 Z15 General use

Material Requisitions $ 610 370 2,780 4,050 390

Time Tickets $ 760 1,420 3,100 1,080 540

(4) Jobs sold during August: W12, X13. (5) Fisher applies overhead to production based upon labor costs. (6) Selected account balances on August 1 were: Overhead Materials Work in process Finished goods

$ 1,400overapplied 5,175 9,555 -0-

(7) Various overhead incurred (excluding indirect materials and indirect labor) during August, $13,500. (8) Materials (direct and indirect) purchased during August, $10,905. Required: (a) What is the balance in the Materials Inventory account on August 31? (b) Is the manufacturing overhead account over- or underapplied on August 31? By how much? (c) Compute the cost of goods manufactured for August. (d) Compute the cost of goods sold for August. (e) What is the balance of the Work-in-Process Inventory account on August 31? 41 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

121) Augusta Test Systems manufactures automated test systems that perform quality inspections during and at the completion of the manufacturing process. As most manufacturing processes are unique, Augusta's test equipment is designed to customer specifications, and each system has a selling price in excess of $300,000. The company uses a job costing system based on the full absorption of actual costs and applies overhead on the basis of machine hours using a predetermined overhead rate. For the fiscal year ended November 30, budgeted manufacturing overhead was $1,960,000, and the expected activity level was 98,000 machine hours. Data regarding several jobs at Augusta are presented below. By the end of November, all jobs but RX-115 were completed, and all completed jobs had been delivered to customers with the exception of SL-205. Job No. XJ-107 ST-211 XD-108 SL-205 RX-115

Balance 10/31 $ 118,600 121,450 21,800 34,350

Direct Materials $ 4,000 2,500 86,400 71,800 18,990

Direct Labor $ 8,400 12,160 36,650 32,175 21,845

Machine Hours 150 300 3,100 2,700 1,400

Required: (a) Determine the balance in the Finished Goods Inventory on November 30. (b) Compute the cost of goods manufactured for November. (c) Compute the Cost of Goods Sold for November. (d) Determine the balance in Work-In-Process Inventory on November 30.

122) A manufacturing company employs job costing to account for its costs. There are three production departments, and separate departmental overhead application rates are employed because the operations of the departments are so different. All jobs generally pass through all three production departments. Data regarding the hourly direct labor rates, overhead application rates, and three jobs on which work was done during the month appear below. Job 101 and Job 102 were completed during the current month. (CIA Examination adapted) Production Departments Department 1 Department 2 Department 3

Direct Labor Rate $ 12.00 18.00 15.00

Beginning Work-in-Process Direct materials: Department 1 Department 2 Department 3 Direct labor hours: Department 1 Department 2 Department 3 Machine hours: Department 1 Department 2 Department 3

Manufacturing overhead application rates 50% of direct materials $ 8.00 per machine hour 75% of direct labor cost Job 101 $ 25,500

Job 102 $ 32,400

Job 103 $ -0-

$ 40,000 $ 3,000 $ -0-

$ 26,000 $ 5,000 $ -0-

$ 58,000 $ 14,000 $ -0-

500 200 1,500

400 250 1,800

300 350 2,500

-01,200 1,500

-01,500 1,800

-02,700 2,500

Required: (a) Compute the completed costs of Job 101 and Job 102. (b) Compute the value of the Work-in-Process Inventory at the end of the month.

123) Kid's World Manufacturing Company is a manufacturer of furnishings for infants and children. The company uses job costing and employs a full absorption accounting method for cost accumulation. Kid's World Work-in-Process Inventory on April 30 consisted of the following jobs: Accumulated Job No. Items Units Cost CBSI02 Cribs 20,000 $ 900,000 PLP086 Playpens 15,000 420,000 DRS114 Dressers 25,000 250,000 Total $ 1,570,000 Kid's World applies manufacturing overhead on the basis of direct labor-hours. The company's estimated manufacturing overhead for the period ending May 31 totals $4,500,000; the company estimated it would use 600,000 direct labor-hours during the year. At the end of April, the balance in Kid's World Materials Inventory, which includes both materials and purchased parts, was $668,000. Additions to, and requisitions from, the materials inventory during the month of May included the following: Purchased Materials Parts Purchased $ 242,000 $ 396,000 Requisitions: Job CBS102 51,000 104,000 Job PLP086 3,000 10,800 Job DRS114 124,000 87,000 Job STR077 (10,000 strollers) 62,000 81,000 Job CRG096 (5,000 carriages) 65,000 187,000 During the month of May, Kid's World factory payroll consisted of the following: Hours 12,000 4,400 19,500 3,500 14,000

Job CBS102 Job PLP086 Job DRS114 Job STR077 Job CRG096 Indirect supervision Total

Cost $ 122,400 43,200 200,500 30,000 138,000 57,600 $ 591,700

Listed below are the jobs that were completed and the units that were sold during the month of May. Job No. CBS102 PLP086 STR077 CRG096

Items Cribs Playpens Strollers Carriages

Quantity Completed 20,000 15,000 10,000 5,000

Required: (a) Compute the value of Kid's World Work-in-Process Inventory on May 31. (b) Compute the value of Kid's World Cost of Goods Manufactured for May. 124) Halston Manufacturing uses actual costing. The following events took place during the current year: (1) Purchased $95,000 in direct materials. (2) Incurred labor costs as follows: (a) direct, $56,000 and (b) indirect, $13,600. (3) Other manufacturing overhead was $107,000, excluding indirect labor. (4) Transferred 80% of the materials to the manufacturing assembly line. (5) Completed 65% of the Work-in-Process during the year. (6) Sold 85% of the completed goods. (7) There were no beginning inventories. Required: (a) Determine the ending Direct Materials Inventory balance. (b) Determine the ending Work-in-Process Inventory balance. (c) Determine the ending Finished Goods Inventory balance. (d) Determine the Cost of Goods Manufactured.

125) The Focus Company does not maintain backup documents for its computer files. In June, some of the current data were lost, and you have been asked to help reconstruct the data. The following beginning balances are known: Direct materials inventory Work-in-process inventory Finished goods inventory Manufacturing overhead control Accounts payable

$ 24,000 9,000 22,000 33,000 12,000

Reviewing old documents and interviewing selected employees have generated the following additional information: The production superintendent's job cost sheets indicated that materials of $5,200 were included in the June 30 Work-in-Process Inventory. Also, 300 direct labor-hours had been paid at $12.00 per hour for the jobs in process on June 30. The Accounts Payable account is only for direct material purchases. The clerk remembers clearly that the balance in the Accounts Payable on June 30 was $16,000. An analysis of canceled checks indicated payments of $80,000 were made to suppliers during June. Payroll records indicate that 5,200 direct labor-hours were recorded for June. It was verified that there were no variations in pay rates among employees during June. Records at the warehouse indicate that the Finished Goods Inventory totaled $32,000 on June 30. Another record kept manually indicates that the Cost of Goods Sold in June totaled $168,000. The predetermined overhead rate was based on an estimated 60,000 direct labor-hours for the year and an estimated $360,000 in manufacturing overhead costs. Required: (a) Compute the Cost of Goods Manufactured. (b) Compute the ending Work-in-Process Inventory balance. (c) Compute the ending Direct Materials Inventory balance.

126) Windham Manufacturing Company employs job costing to account for its costs. There are three production departments, and separate departmental overhead application rates are employed. All jobs generally pass through all three production departments. Data regarding the hourly direct labor rates, overhead application rates, and three jobs on which work was done during the month appear below. Job 611 and Job 613 were completed during the current month, Job 612 was still in process. (CIA Examination adapted) Production Dept Cutting Machining Assembly Beginning WIP Direct materials: Cutting Machining Assembly Direct labor hours: Cutting Machining Assembly Machine hours: Cutting Machining Assembly

Direct Labor Rate $ 14.00 $ 20.00 $ 22.00

Manufacturing overhead application rate 40%of direct materials $ 10.00per machine hour 80%of direct labor cost Job 611 $ 52,500

Job 612 $ 16,200

Job 613 $ -0-

50,000 4,000 -0-

32,000 7,000 -0-

76,000 19,000 -0-

500 800 1,100

400 750 1,200

600 850 3,500

-02,200 500

-01,800 800

-03,400 750

Required: (a) Compute the completed costs of Job 611 and Job 613. (b) Compute the value of the Work-in-Process Inventory at the end of the month.

127) Carlson Corporation applies overhead based upon machine-hours. Budgeted factory overhead was $266,400 and budgeted machine-hours were 18,500. Actual factory overhead was $287,920 and actual machine-hours were 19,050. Before disposition of over- or underapplied overhead, the cost of goods sold was $560,000 and ending inventories were as follows: Direct materials WIP Finished goods Total

60,000 190,000 250,000 $ 500,000

Required: a. Compute the amount of overhead applied to production. b. Prepare the journal entry to dispose of the over/underapplied overhead using the write-off to cost of goods sold approach. c. Prepare the journal entry to dispose of the over/underapplied overhead using the proration approach. 128) Job 7890 was recently completed. The following data have been recorded on its job cost sheet: Direct materials Direct labor-hours Direct labor wage rate Machine-hours Number of units completed

$ 45,000 630labor-hours $ 13per labor-hour 390machine-hours 3,000units

The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $12 per machine-hour. Required: Compute the unit product cost that would appear on the job cost sheet for Job 7890. 129) Job 5432 was recently completed. The following data have been recorded on its job cost sheet: Direct materials Direct labor-hours Direct labor wage rate Number of units completed

$ 40,610 1,147DLHs $ 11per DLH 3,100units

The company applies manufacturing overhead on the basis of direct labor-hours. The predetermined overhead rate is $20 per direct labor-hour. Required: Compute the unit product cost that would appear on the job cost sheet for Job 5432. 48 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

130) Island Corporation applies overhead based upon machine-hours. Budgeted factory overhead was $375,000 and budgeted machine-hours were 12,500. Actual factory overhead was $387,920 and actual machine-hours were 13,150. Required: a. Compute the overhead application rate. b. Compute the amount of overhead applied to production. c. Determine the amount of over- or underapplied overhead. 131) Northface Company applies overhead based upon labor-hours. Budgeted factory overhead was $910,000 and budgeted labor-hours were 32,500. Actual factory overhead was $893,675 and actual labor-hours were 31,560. Required: a. Compute the overhead application rate. b. Compute the amount of overhead applied to production. c. Determine the amount of over- or underapplied overhead. 132) Yang Company applies overhead at a rate of $26 per direct labor hour. Budgeted labor hours were 25,000; actual labor hours exceeded the budget by 1,600 hours. Overhead was overapplied by $3,758. Required: (a) Compute the budgeted overhead for the year. (b) Compute actual overhead for the year. 133) Wang's Corporation applies overhead based upon machine-hours. Budgeted factory overhead was $325,000 and budgeted machine-hours were 13,000. Actual factory overhead was $312,330 and actual machine-hours were 12,660. Before disposition of over- or underapplied overhead, the cost of goods sold was $725,000 and ending inventories were as follows: WIP Finished goods Total

$ 150,000 375,000 $ 525,000

134) Harkin Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. Data for the upcoming year appear below: Estimated machine-hours Estimated variable manufacturing overhead Estimated total fixed manufacturing overhead

73,000 $ 3.49per machine-hour $ 838,770

Required: Compute the company's predetermined overhead rate. 135) Hsu Corporation bases its predetermined overhead rate on the estimated labor-hours for the upcoming year. At the beginning of the most recently completed year, the company estimated the labor-hours for the upcoming year at 32,000 labor-hours. The estimated variable manufacturing overhead was $7.17 per labor-hour and the estimated total fixed manufacturing overhead was $584,320. The actual labor-hours for the year turned out to be 33,300 labor-hours. Required: Compute the company's predetermined overhead rate for the recently completed year. 136) Ramos Corporation bases its predetermined overhead rate on the estimated labor-hours for the upcoming year. Data for the most recently completed year appear below: Estimates made at the beginning of the year: Estimated labor-hours Estimated variable manufacturing overhead Estimated total fixed manufacturing overhead Actual labor-hours for the year

24,000 $ 6.86per labor-hour $ 394,560 24,500

Required: Compute the company's predetermined overhead rate for the recently completed year. 137) Calvin Corporation bases its predetermined overhead rate on the estimated labor-hours for the upcoming year. At the beginning of the most recently completed year, the company estimated the labor-hours for the upcoming year at 13,000 labor-hours. The estimated variable manufacturing overhead was $2.35 per labor-hour and the estimated total fixed manufacturing overhead was $156,130. Required: Compute the company's predetermined overhead rate.

138) In June, Robust Engineering worked on three contracts: 1,200 hours for Tico Company, 1,100 hours for Navel LLC, and 3,400 hours for Lutron Corp. Robust bills clients at the rate of $150 per hour; labor cost for its engineering staff is $45 per hour. The total number of hours worked in June was 6,000 (any untraced hours are considered overhead), and non-labor overhead costs were $325,000. Overhead is applied to clients at $55 per labor-hour. In addition, Robust had $243,000 in marketing and administrative costs. All transactions are on account. All services were billed. Required: a. Determine the cost of each of the three jobs. b. What is the amount of over- or underapplied overhead? c. How much operating profit did Robust make in June? Assume the over- or underapplied overhead is not closed out each month. 139) The Maryland Company is a computer repair shop and had the following transactions and events during the year. Estimated overhead for the year was $175,000; estimated labor for the year was 6,000 hours. 1. Purchased materials on account, $126,000. 2. Traced materials to repair jobs $110,880; general shop materials used $9,500. 3. Labor traced to repair jobs $165,000, untraced labor was $22,200. 4. Overhead incurred (not including materials or labor): $139,600. 5. Overhead is applied to repair jobs based on labor hours. All workers were paid $30/hr. 6. Ending work-in-process consisted of one repair job with a cost of $1,976. There was no beginning work-in-process. 7. Repair jobs were billed to the customers for $476,000. Required: (a) Prepare the journal entries to record the transactions for the year. (b) Prepare the journal entry to write-off the over- or underapplied overhead to the cost of repair jobs. (c) What would Maryland's operating profit for the year?

140) Music Master Components produces parts for concert hall sound systems. The parts are produced to specification by their customers, who pay either a fixed price (the price does not depend directly on the cost of the job) or price equal to recorded cost plus a fixed fee (cost plus). For the upcoming year (year 2), Music Master expects only two clients (Client 1 and Client 2). The work done for Client 1 will all be done under fixed-price contracts while the work done for Client 2 will all be done under cost-plus contracts. Manufacturing overhead for year 2 is estimated to be $10 million. Other budgeted data for year 2 include: Client 1 Client 2 Machine Hours (thousands) 4,000 4,000 Direct Labor Costs ($000's) $ 5,000 $ 15,000 Required: a. Compute the predetermined rate assuming that Music Master Components uses machine-hours to apply overhead. b. Compute the predetermined rate assuming that Music Master Components uses direct labor cost to apply overhead. c. Which allocation base will provide a higher income for Music Master Components? d. Is it ethical to choose an allocation method based on which one leads to higher income for the firm? 141) What are characteristics of companies that are likely to use a job costing system and what are examples of types of companies that are likely to use a job costing system? 142) Why is control of materials important from a managerial planning perspective? 143) Describe two alternative approaches to the handling of over- or underapplied overhead. 144) Why might a company use a predetermined rate for applying overhead rather than just apply actual overhead? 145) Describe the difference between normal costing, actual costing, and standard costing. 146) How does job costing for a service organization differ from job costing for a manufacturer? 147) Describe three possible unethical actions that can cause impropriety in job costing and give examples. 1) Misstating the stage of completion; 2) charging costs to wrong jobs; 3) misrepresenting the cost of jobs. 148) ProBuild Contractors sells to government agencies using a cost-plus contract and to private firms using fixed price contracts. What choices does ProBuild have in the design of its job costing system that affect the cost of the government jobs?

149) Melbourne Consultants works for only two clients: a large for-profit corporation and a small environmental not-for-profit agency. The fee charged for work is based on cost. In deciding how to allocate overhead, the CFO of Melbourne Consultants decides to use the base that allocates the most cost to the large corporation. Is this ethical? 150) In the context of job costing, what are projects? What additional costing issues are there with projects? 151) Santos Company is a manufacturing firm that uses job costing. At the beginning of the year, the company's inventory balances were as follows: Raw materials Work-in-Process Finished goods

$ 24,000 73,000 27,000

The company applies overhead to jobs using a predetermined overhead rate based on machinehours. At the beginning of the year, the company estimated that it would work 45,000 machinehours and incur $180,000 in manufacturing overhead cost. The following transactions were recorded for the year: a. Raw materials were purchased, $416,000. b. Raw materials were requisitioned for use in production, $420,000 ($380,000 direct and $40,000 indirect). c. The following employee costs were incurred: direct labor, $414,000; indirect labor, $60,000; and administrative salaries, $212,000. d. Selling costs, $141,000. e. Factory utility costs, $20,000. f. Depreciation for the year was $81,000 of which $73,000 is related to factory operations and $8,000 is related to selling, general, and administrative activities. g. Manufacturing overhead was applied to jobs. The actual level of activity for the year was 48,000 machine-hours. h. The cost of goods manufactured for the year was $1,004,000. i. Sales for the year totaled $1,416,000 and the costs on the job cost sheets of the goods that were sold totaled $989,000. j. The balance in the Manufacturing Overhead account was closed out to Cost of Goods Sold. Required: Prepare the appropriate journal entry for each of the items above (a) through (j). You can assume that all transactions with employees, customers, and suppliers were conducted in cash.

152) Cherry Company is a manufacturing firm that uses job costing. The company's inventory balances were as follows at the beginning and end of the year:

Raw materials Work-in-Process Finished goods

Beginning Balance $ 11,000 32,000 108,000

Ending Balance $ 15,000 14,000 123,000

The company applies overhead to jobs using a predetermined overhead rate based on machinehours. At the beginning of the year, the company estimated that it would work 17,000 machinehours and incur $272,000 in manufacturing overhead cost. The following transactions were recorded for the year: ∙ Raw materials were purchased, $416,000. ∙ Raw materials were requisitioned for use in production, $412,000 ($376,000 direct and $36,000 indirect). ∙ The following employee costs were incurred: direct labor, $330,000; indirect labor, $69,000; and administrative salaries, $157,000. ∙ Selling costs, $113,000. ∙ Factory utility costs, $29,000. ∙ Depreciation for the year was $121,000 of which $114,000 is related to factory operations and $7,000 is related to selling, general, and administrative activities. ∙ Manufacturing overhead was applied to jobs. The actual level of activity for the year was 15,000 machine-hours. ∙ Sales for the year totaled $1,282,000. Required: a. Prepare a schedule of cost of goods manufactured in good form. b. Was the overhead underapplied or overapplied? By how much? c. Prepare an income statement for the year in good form. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.

153) Dickerson Corporation has provided the following data for the month of April: Inventories: Raw materials Work-in-Process Finished goods

Beginning $ 21,000 $ 17,000 $ 46,000

Additional information: Raw materials purchases Direct labor cost Manufacturing overhead cost incurred Indirect materials included in manufacturing overhead cost incurred Manufacturing overhead cost applied to Work-in-Process

Ending $ 35,000 $ 19,000 $ 38,000 $ 76,000 $ 81,000 $ 42,000 $ 6,000 $ 44,000

Required: Prepare a Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold in good form. 154) Townley Inc. has provided the following data for the month of February. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.

Direct materials Direct labor Manufacturing overhead applied Total

Work-inProcess $ 7,570 8,810

Finished Goods $ 19,200 24,000

Cost of Goods Sold $ 35,280 44,100

8,320

15,600

28,080

52,000

$ 24,700

$ 58,800

$ 107,460

$ 190,960

Total 62,050 76,910

Manufacturing overhead for the month was overapplied by $3,000. The company allocates any underapplied or overapplied overhead among Work-in-Process, Finished Goods, and Cost of Goods Sold at the end of the month on the basis of the overhead applied during the month in those accounts. Required: Provide the journal entry that would record the allocation of underapplied or overapplied among Work-in-Process, Finished Goods, and Cost of Goods Sold.

155) Aardvark Inc. has provided the following data for the month of November. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month. Work-inProcess $ 3,500 3,260

Direct materials Direct labor Manufacturing 3,840 overhead applied Total $ 10,600

Finished Goods $ 11,200 14,400

Cost of Goods Sold $ 51,800 66,600

Total $ 66,500 84,260

7,680

36,480

48,000

$ 33,280

$ 154,880

$ 198,760

Manufacturing overhead for the month was underapplied by $6,000. The company allocates any underapplied or overapplied overhead among Work-in-Process, Finished Goods, and Cost of Goods Sold at the end of the month on the basis of the overhead applied during the month in those accounts. Required: Determine the cost of Work-in-Process, Finished Goods, and Cost of Goods Sold AFTER allocation of the underapplied or overapplied overhead for the period. 156) The management of Satellite Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 13,000 machine-hours. In addition, capacity is 16,000 machine-hours and the actual activity for the year is 12,900 machine-hours. All of the manufacturing overhead is fixed and is $29,120 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year. Required: a. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity. b. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

157) The management of Atlas Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 19,000 machine-hours. In addition, capacity is 21,000 machine-hours and the actual activity for the year is 18,200 machine-hours. All of the manufacturing overhead is fixed and is $71,820 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year. Required: a. Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base. b. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base. c. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity. d. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity. 158) The management of Grainger Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 48,000 machine-hours. In addition, capacity is 53,000 machine-hours and the actual activity for the year is 47,700 machine-hours. All of the manufacturing overhead is fixed and is $1,144,800 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year. Job SUA-600, which required 40 machine-hours, is one of the jobs worked on during the year. Required: a. Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base. b. Determine how much overhead would be applied to Job SUA-600 if the predetermined overhead rate is based on estimated amount of the allocation base. c. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base. d. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity. e. Determine how much overhead would be applied to Job SUA-600 if the predetermined overhead rate is based on the amount of the allocation base at capacity. f. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity. 57 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

159) The management of Royal Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 70,000 machine-hours. In addition, capacity is 82,000 machine-hours and the actual activity for the year is 72,900 machine-hours. All of the manufacturing overhead is fixed and is $4,132,800 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year. Job 706H, which required 300 machine-hours, is one of the jobs worked on during the year. Required: a. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity. b. Determine how much overhead would be applied to Job 706H if the predetermined overhead rate is based on the amount of the allocation base at capacity. c. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity. 160) The management of Philly Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 37,000 machine-hours. In addition, capacity is 46,000 machine-hours and the actual activity for the year is 36,900 machine-hours. All of the manufacturing overhead is fixed and is $697,820 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year. Required: a. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base. b. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 8 Process Costing 1) Process costing assumes all units are homogeneous and follow the same path through the production process. 2) The equivalent unit concept refers to the actual amount of work during the period stated in terms of the work required to complete an equal number of whole units. 3) The number of units in the beginning Work-in-Process Inventory plus the units transferred out during the period equals the number of units started during the period plus the number of units in the ending Work-in-Process Inventory. 4) If materials are added continuously throughout the production process, then the equivalent units for materials will always equal the equivalent units for the conversion costs. 5) If materials are only added at the beginning of the production process, then the degree of completion for materials in the ending Work-in-Process Inventory is always 100%. 6) If materials are only added at the beginning of the production process, then the degree of completion for materials in the ending Work-in-Process Inventory will be the same as the degree of completion for the conversion costs. 7) If materials are only added at the end of the production process, then the degree of completion for materials of units in the ending Work-in-Process Inventory is always 0%. 8) In the weighted-average approach, the number of physical units transferred out cannot be greater than the equivalent number of units produced during the period. 9) The weighted-average approach to process costing combines the work and costs done in prior periods with the work and costs done in the current period. 10) In a weighted-average process costing system, the costs in the beginning Work-in-Process Inventory are not used to compute the costs transferred-out. 11) First-in, first-out (FIFO) process costing transfers out the costs in beginning inventory before transferring out the costs associated with units started and completed. 12) If the beginning Work-in-Process inventory is zero, first-in, first-out (FIFO) and weightedaverage process costing will assign the same amount to the units transferred out. 13) In general, the ending Work-in-Process Inventory value computed using first-in, first-out (FIFO) will be the same as the ending value computed using weighted-average process costing. 14) It is possible for units in the beginning Work-in-Process Inventory to also be part of the ending Work-in-Process Inventory. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

15) The more prices change, the greater the difference between the costs assigned to units transferred out using weighted-average costing and the costs assigned to units transferred out using first-in, first-out (FIFO). 16) In general, weighted-average costing is simpler to use while first-in, first-out (FIFO) costing provides greater decision-making benefits to managers. 17) The degree of completion associated with prior department costs is always 100%. 18) Job costing requires more detailed record keeping than process costing. 19) Operation costing is used in manufacturing goods that have some common characteristics and some individual characteristics. 20) Operation costing accounts for material costs like job costing and conversion costs like process costing. 21) In process 2, material G is added when a batch is 60% complete. Ending work-in-process units, which are 50% complete, would be included in the computation of equivalent units for: (CPA adapted) Conversion Costs A. B. C. D.

Yes No No Yes

Material G No Yes No Yes

A) Option A. B) Option B. C) Option C. D) Option D.

22) The following examples briefly describe the manufacture of two different products. Which costing method (job-order or process) would be the best method to use for each project? I. Steven Lawless manufactures Lawless Fine Wine Coolers. Steven once made the statement, "People can have any flavor of Lawless Fine Wine Coolers they want as long it's strawberry." II. Northridge Spacetronics is manufacturing three space shuttles for the country of Xanadu. Each shuttle is slightly different and production will last approximately two years. I A. B. C. D.

Process Job-Order Process Job-Order

II Process Job-Order Job-Order Process

A) Option A. B) Option B. C) Option C. D) Option D. 23) Which of the following statements is (are) true regarding product costing? (A) Twenty cans of paint that are 25% full are equivalent to four cans of paint that are completely full. (B) The equivalent unit concept refers to the actual amount of work during the period stated in terms of whole units. A) Only A is true. B) Only B is true. C) Both of these are true. D) Neither of these is true. 24) A company should use process costing, rather than job costing, if: A) production is only partially completed during the accounting period. B) the product is manufactured in batches only as orders are received. C) the product is composed of mass-produced homogeneous units. D) the product goes through several steps of production. 25) Which of the following characteristics applies to process costing, but does not apply to job order costing? A) the need for averaging. B) the use of equivalent units of production. C) separate, identifiable jobs. D) the use of predetermined overhead rates.

26) Equivalent units for a process costing system, using the weighted-average method, would be equal to: A) units completed during the period and transferred out. B) units started and completed during the period plus equivalent units in the ending work-inprocess inventory. C) units completed during the period less equivalent units in the beginning inventory, plus equivalent units in the ending work-in-process inventory. D) units completed during the period plus equivalent units in the ending work-in-process inventory. 27) The Fremont Company uses the weighted-average method in its process costing system. The company recorded 29,500 equivalent units for conversion costs for November in a particular department. There were 6,000 units in the ending work-in-process inventory on November 30, 75% complete with respect to conversion costs. The November 1 work-in-process inventory consisted of 8,000 units, 50% complete with respect to conversion costs. A total of 25,000 units were completed and transferred out of the department during the month. The number of units started during November in the department was: A) 24,500 units. B) 23,000 units. C) 27,000 units. D) 21,000 units. 28) In a process costing system, the application of factory overhead usually would be recorded as an increase in: (CPA adapted) A) Finished goods inventory control. B) Factory overhead control. C) Cost of goods sold. D) Work-in-process inventory control. 29) Sigman Co.'s inventories in process were at the following stages of completion at April 30: No. of Units 100 50 200

Percent Complete 90 80 10

Equivalent units of production in ending inventory amounted to: (CPA adapted) A) 150. B) 180. C) 330. D) 350.

30) An error was made by Marrow Company in computing the percentage-of-completion of the current year's ending Work-in-Process Inventory. The error resulted in the assignment of a lower percentage of completion to each component of the inventory than actually was the case. There was no beginning Work-in-Process Inventory. What is the effect of this error on (1) cost assigned to cost of goods completed for the period and (2) the computation of costs per equivalent unit? A) Understated; Understated B) Understated; Overstated C) Overstated; Understated D) Overstated; Overstated 31) Which of the following organizations would most likely use a process costing system? A) Gasoline refinery. B) Automobile retailer. C) Airplane manufacturer. D) Public accounting firm. 32) An equivalent unit of conversion costs is equal to the amount of conversion costs required to: A) start a unit. B) start and complete a unit. C) transfer a unit in. D) transfer a unit out. 33) Of the following process costing steps, which must be done last? A) Compute the equivalent units of production. B) Compute the costs per equivalent unit of production. C) Measure the physical flow of resources. D) Identify the product costs to account for. 34) The Phantom Corporation started 4,800 units during February. Phantom started the month with 700 units in process (40% complete) and ended the month with 400 units in process (40% complete). How many units were transferred to the Finished Goods Inventory during February? A) 5,500 units B) 5,380 units C) 5,100 units D) 4,400 units 35) If the units in the beginning Work-in-Process Inventory are greater than the units in the ending Work-in-Process Inventory, then the units transferred out are: A) more than the units started during the period. B) equal to the equivalent units of production. C) less than the units started during the period. D) equal to the actual work done during the period.

36) Phantom Company has beginning and ending Work-in-Process Inventories that are 45% and 10% complete, respectively. Materials are added at the beginning of the process. If first-in, firstout (FIFO) process costing is used, the total equivalent units for materials will equal the number of units: A) transferred out during the period. B) started and completed during the period. C) started into the process during the period. D) started into the process plus the units in the ending inventory. 37) Which of the following statements concerning a process cost accounting system is false? A) The units in beginning inventory plus the units transferred out during the month should equal the units in the ending inventory plus the units transferred in during the month. B) If material is used evenly throughout a process, the number of equivalent material units will equal the number of equivalent units for the conversion (processing) costs. C) Actual costing may be used in a process costing system to assign indirect overhead costs to departments. D) The units in beginning inventory plus the units transferred in during the month should equal the units in the ending inventory plus the units transferred out during the month. 38) The weighted-average method of process costing differs from the FIFO method of process costing in that the weighted-average method: A) can be used under any cost flow assumption. B) does not require the use of predetermined overhead rates. C) keeps costs in the beginning inventory separate from current period costs. D) does not consider the degree of completion of units in the beginning work-in-process inventory when computing equivalent units of production. 39) The Miracle Company had 20,000 units in process on December 31, 2020 which was 80% complete as to materials but only 40% complete as to conversion costs. The company's records show 40,000 units were transferred to the Finished Goods Inventory during January 2021. On January 31, 2021, 15,000 units were on hand which were 30% complete as to conversion costs and 60% complete as to materials. What are the equivalent units of production (EUPs) for the conversion costs in January, assuming Miracle uses first-in, first-out (FIFO)? A) 34,000 EUPs B) 35,000 EUPs C) 36,500 EUPs D) 41,500 EUPs

40) The Townson Manufacturing Company has gathered the following information for the month of September: • 6,000 units in the beginning Work-in-Process Inventory (75% complete as to materials, 1/3 complete with respect to the conversion costs). • 60,000 units were started into production. • 50,000 units were completed and transferred to the next department. • The ending Work-in-Process Inventory is complete as to materials but only 3/8 complete with respect to conversion costs. What are the equivalent units of production (EUPs) for materials in the month of September assuming Townson uses weighted-average process costing? A) 52,000 EUPs B) 64,500 EUPs C) 66,000 EUPs D) 61,500 EUPs 41) The Townson Manufacturing Company has gathered the following information for the month of September: • 6,000 units in the beginning Work-in-Process Inventory (75% complete as to materials, 1/3 complete with respect to the conversion costs). • 60,000 units were started into production. • 50,000 units were completed and transferred to the next department. • The ending Work-in-Process Inventory is complete as to materials but only 3/8 complete with respect to conversion costs. What are the equivalent units of production (EUPs) for the conversion costs in the month of September assuming Townson uses weighted-average process costing? A) 64,500 EUPs B) 56,000 EUPs C) 61,500 EUPs D) 54,000 EUPs 42) Haberdashery Company has a beginning Work-in-Process Inventory of 25,000 units (40% complete). During the period, 110,000 units were started and the ending Work-in-Process Inventory consisted of 20,000 units (80% complete). What are the equivalent units for conversion costs using weighted-average process costing? A) 110,000 EUPs B) 115,000 EUPs C) 121,000 EUPs D) 131,000 EUPs

43) Seaside Company uses the weighted-average method in its process costing system. The Sanding Department started the month with 8,000 units in its beginning work-in-process inventory that were 70% complete with respect to conversion costs. An additional 69,000 units were transferred in from the prior department during the month to begin processing in the Sanding Department. There were 5,000 units in the ending work-in-process inventory of the Sanding Department that were 20% complete with respect to conversion costs. What were the equivalent units of production (EUPs) for conversion costs in the Sanding Department for the month? A) 67,400 EUPs B) 73,000 EUPs C) 72,000 EUPs D) 66,000 EUPs 44) The Marshall Company has a process costing system. All materials are added when the process is first begun. At the beginning of September, there were no units of product in process. During September 50,000 units were started; 5,000 of these were still in process at the end of September and were 3/5 finished. The equivalent units of material in September were: A) 40,000. B) 45,000. C) 48,000. D) 50,000. 45) The Chart Company has a process costing system. All materials are added when the process is first begun. At the beginning of September, there were no units of product in process. During September 50,000 units were started; 5,000 of these were still in process at the end of September and were 3/5 finished. The equivalent units for the conversion costs in September were: A) 40,000. B) 45,000. C) 48,000. D) 50,000. 46) Department B had a beginning inventory of 400 units, 1/4 completed; an ending inventory of 300 units, 2/3 completed, and received 900 units during the period from Department A. What were the equivalent units of production of Department B, assuming weighted-average process costing? A) 800 equivalent units. B) 900 equivalent units. C) 1,100 equivalent units. D) 1,200 equivalent units.

47) Madison Corporation's production cycle starts in the Processing Department. The following information is available for April: Units 40,000 280,000 25,000

Work-in-process, April 1 (25% complete) Total units in process during April Work-in-process, April 30 (60% complete)

Materials are added at the beginning of the process in the Processing Department. What are the equivalent units of production for the month of April, assuming Madison uses the weightedaverage method? Materials 240,000 255,000 280,000 315,000

A. B. C. D.

Conversion Costs 260,000 235,000 270,000 285,000

A) Option A. B) Option B. C) Option C. D) Option D. 48) Department A had no Work-in-Process at the beginning of the period, 1,000 units were completed during the period, 200 units were 50% completed at the end of the period, and the following manufacturing costs were debited to the departmental Work-in-Process account during the period: Direct materials (1,200 at $10) Direct labor Factory overhead

$ 12,000 5,500 4,400

Assuming that all direct materials are added at the beginning of production and Department A uses weighted-average process costing, what is the total cost of the departmental Work-inProcess Inventory at the end of the period? A) $3,650. B) $2,900. C) $2,000. D) $1,825.

49) DriveTrain, Inc. instituted a new process in October 2020. During October, 10,000 units were started in Department A. Of the units started, 8,000 were transferred to Department B, and 2,000 remained in Work-in-Process at October 31, 2020. The Work-in-Process at October 31, 2020, was 100% complete as to material costs and 50% complete as to conversion costs. Material costs of $27,000 and conversion costs of $36,000 were charged to Department A in October. What were the total costs transferred to Department B assuming Department A uses weighted-average process costing? A) $46,900. B) $53,600. C) $56,000. D) $57,120. 50) In a process costing system, manufacturing overhead applied is usually recorded as a debit to: A) Finished goods. B) Work-in-process. C) Manufacturing overhead. D) Cost of goods sold. 51) The Lakeside Company uses a weighted-average process costing system. The following data are available: Beginning inventory Units started in production Units finished during the period Units in process at the end of the period (complete as to materials, ¼ complete as to labor and overhead) Cost of materials used Labor and overhead costs

-020,000 16,000 4,000 $ 35,200 $ 37,400

Equivalent units of production for materials are: A) 16,000. B) 17,000. C) 19,000. D) 20,000.

52) The Lakeside Company uses a weighted-average process costing system. The following data are available: Beginning inventory Units started in production Units finished during the period Units in process at the end of the period (complete as to materials, ¼ complete as to labor and overhead) Cost of materials used Labor and overhead costs

-020,000 16,000 4,000 $ 35,200 $ 37,400

Equivalent units of production for labor and overhead are: A) 16,000. B) 17,000. C) 19,000. D) 20,000. 53) The Lakeside Company uses a weighted-average process costing system. The following data are available: Beginning inventory Units started in production Units finished during the period Units in process at the end of the period (complete as to materials, ¼ complete as to labor and overhead) Cost of materials used Labor and overhead costs

-020,000 16,000 4,000 $ 35,200 $ 37,400

Cost per equivalent unit of materials is: A) $2.20. B) $2.07. C) $1.85. D) $1.76.

54) The Lakeside Company uses a weighted-average process costing system. The following data are available: Beginning inventory Units started in production Units finished during the period Units in process at the end of the period (complete as to materials, ¼ complete as to labor and overhead) Cost of materials used Labor and overhead costs

-020,000 16,000 4,000 $ 35,200 $ 37,400

Cost per equivalent unit of labor and overhead is: A) $2.34. B) $2.20. C) $1.97. D) $1.87. 55) The Lakeside Company uses a weighted-average process costing system. The following data are available: Beginning inventory Units started in production Units finished during the period Units in process at the end of the period (complete as to materials, ¼ complete as to labor and overhead) Cost of materials used Labor and overhead costs

-020,000 16,000 4,000 $ 35,200 $ 37,400

Total cost of the 16,000 units finished is: A) $63,360. B) $67,320. C) $72,640. D) $65,120.

56) The Lakeside Company uses a weighted-average process costing system. The following data are available: Beginning inventory Units started in production Units finished during the period Units in process at the end of the period (complete as to materials, ¼ complete as to labor and overhead) Cost of materials used Labor and overhead costs

-020,000 16,000 4,000 $ 35,200 $ 37,400

Total cost of the 4,000 units of the ending inventory: A) $15,840. B) $14,520. C) $9,240. D) $8,910. 57) The following information pertains to Oklahoma Co.'s Tulsa Division for the month of April: Units Materials Beginning Work-in-Process 15,000 $ 5,500 Started in April 40,000 $ 18,000 Units completed 42,500 Ending Work-in-Process 12,500 All materials are added at the beginning of the process. Using the weighted-average method, the cost per equivalent unit of materials is: (CPA adapted) (Round your answer to 2 decimal places.) A) $0.59. B) $0.55. C) $0.45. D) $0.43.

58) Nebraska Company uses the weighted-average method in its process costing system. The first processing department, the Welding Department, started the month with 18,000 units in its beginning work-in-process inventory that were 30% complete with respect to conversion costs. The conversion cost in this beginning work-in-process inventory was $44,820. An additional 90,000 units were started into production during the month. There were 21,000 units in the ending work-in-process inventory of the Welding Department that were 10% complete with respect to conversion costs. A total of $677,970 in conversion costs were incurred in the department during the month. What would be the cost per equivalent unit for conversion costs for the month? (Round your answer to 3 decimal places.) A) $8.112. B) $8.300. C) $7.533. D) $6.108. 59) Kansas Company uses the weighted-average method in its process costing system. Operating data for the first processing department for the month of June appear below:

Beginning work-in-process inventory Started into production during June Ending work-in-process inventory

Units

Percent Complete with Respect to Conversion

11,000

98,000 21,000

80%

According to the company's records, the conversion cost in beginning work-in-process inventory was $46,915 at the beginning of June. Additional conversion costs of $825,183 were incurred in the department during the month. What was the cost per equivalent unit for conversion costs for the month? (Round your answer to 3 decimal places.) A) $8.420. B) $6.934. C) $8.530. D) $8.322.

60) Fanciful Structures Company uses the weighted-average method in its process costing system. The first processing department, the Welding Department, started the month with 22,000 units in its beginning work-in-process inventory that were 20% complete with respect to conversion costs. The conversion cost in this beginning work-in-process inventory was $23,320. An additional 97,000 units were started into production during the month and 101,000 units were completed in the Welding Department and transferred to the next processing department. There were 18,000 units in the ending work-in-process inventory of the Welding Department that were 40% complete with respect to conversion costs. A total of $529,380 in conversion costs were incurred in the department during the month. What would be the cost per equivalent unit for conversion costs for the month? (Round your answer to 3 decimal places.) A) $5.300. B) $5.458. C) $4.603. D) $5.108. 61) Holcomb Company uses the weighted-average method in its process costing system. The Shaping Department is the second department in its production process. The data below summarize the department's operations in January.

Beginning work-in-process inventory Transferred in from the prior department during January Completed and transferred to the next department during January Ending work-in-process inventory

Units 3,800

Percent Complete with Respect to Conversion 90%

53,000

51,300 5,500

30%

The accounting records indicate that the conversion cost that had been assigned to beginning work-in-process inventory was $5,096 and a total of $87,668 in conversion costs were incurred in the department during January. What was the cost per equivalent unit for conversion costs for January in the Shaping Department? (Round your answer to 3 decimal places.) A) $1.654. B) $1.752. C) $1.490. D) $1.499.

62) In the computation of the manufacturing cost per equivalent unit, the weighted-average method of process costing considers: A) current costs only. B) current costs plus cost of beginning Work-in-Process Inventory. C) current costs plus cost of ending Work-in-Process Inventory. D) current costs less cost of beginning Work-in-Process Inventory. 63) Morgenstern Company had Work-in-Process Inventories that were 45% complete at the start of the month. Work-in-Process at the end of the month was 10% complete. Materials were added at the beginning of the process. If weighted-average process costing is used, the total equivalent units for materials will equal the number of units: A) transferred out during the period. B) started and completed during the period. C) started into the process during the period. D) transferred out during the process plus the units in the ending inventory. 64) Materials are added at the beginning of a process in a process costing system. The beginning Work-in-Process Inventory was 30% complete as to conversion costs. Using first-in, first-out (FIFO) process costing, the total equivalent units for materials are: A) beginning inventory this period for this process. B) units started this period in this process. C) units started this period in this process plus the beginning inventory. D) units started this period in this process plus 70% of the beginning inventory this period. 65) Parkway Company incurred $126,000 in material costs during July. Additionally, the 12,000 units in the Work-in-Process Inventory on July 1 had materials assigned to them of $32,000, even though they were only 5% complete as to materials. No additional units were started during July, and there were no unfinished units on hand on July 31. What is the material cost per equivalent unit for July, assuming Parkway uses weighted-average process costing? A) $10.50. B) $11.59. C) $13.17. D) $15.49. 66) Cranford Company completed and transferred out 2,300 units in May 2020. There were 200 units in the Work-in-Process Inventory on May 31, 2020, 30% complete as to conversion costs and 100% complete as to materials. The month's charges for conversion costs and material costs were $9,440 and $6,250, respectively. There was no beginning inventory on May 1, 2020. What is the cost of the work transferred-out during May, assuming that Cranford uses weightedaverage process costing? A) $8,510. B) $14,950. C) $15,690. D) $16,250.

67) A form prepared periodically for each processing department summarizing (1) the units for which the department is accountable and the disposition of these units and (2) the costs charged to the department and the allocation of these costs is called a: A) schedule of Cost of Goods Manufactured. B) production cost report. C) job order cost sheet. D) schedule of Cost of Goods Sold. 68) The FIFO method provides a major advantage over the weighted-average method in that: A) the calculation of equivalent units is less complex under the FIFO method. B) the FIFO method treats units in the beginning inventory as if they were started and completed during the current period. C) the FIFO method provides measurements of work done during the current period. D) the weighted-average method ignores units in the beginning and ending work-in-process inventories. 69) The computation of equivalent units under the FIFO method: A) treats units in the beginning work-in-process inventory as if they were started and completed during the current period. B) treats units in the beginning work-in-process inventory as if they represent a batch of goods separate and distinct from goods started and completed during the current period. C) treats units in the ending work-in-process inventory as if they were started and completed during the current period. D) ignores units in the beginning and ending work-in-process inventories. 70) Tori Company uses the FIFO method in its process costing system. The first processing department, the Soldering Department, started the month with 17,000 units in its beginning work-in-process inventory that were 70% complete with respect to conversion costs. The conversion cost in this beginning work-in-process inventory was $101,150. An additional 68,000 units were started into production during the month. There were 23,000 units in the ending workin-process inventory of the Soldering Department that were 80% complete with respect to conversion costs. A total of $565,125 in conversion costs were incurred in the department during the month. What would be the cost per equivalent unit for conversion costs? (Round your answer to 3 decimal places.) A) $8.500. B) $8.311. C) $8.250. D) $7.839.

71) Sarfina Corporation uses the FIFO method in its process costing system. Operating data for the Casting Department for the month of September appear below: Units Beginning work-in-process inventory Transferred in from the prior department during September Ending work-in-process inventory

15,000

Percent Complete with Respect to Conversion 20 %

89,000 24,000

90%

According to the company's records, the conversion cost in beginning work-in-process inventory was $15,660 at the beginning of September. Additional conversion costs of $526,524 were incurred in the department during the month. What would be the cost per equivalent unit for conversion costs for September? (Round your answer to 3 decimal places.) A) $5.916. B) $5.340. C) $5.220. D) $5.213. 72) Garrison Corporation uses the FIFO method in its process costing system. Data concerning the first processing department for the most recent month are listed below: Beginning work-in-process inventory: Units in beginning work-in-process inventory Materials costs Conversion costs Percent complete with respect to materials Percent complete with respect to conversion Units started into production during the month Materials costs added during the month Conversion costs added during the month Ending work-in-process inventory: Units in ending work-in-process inventory Percent complete with respect to materials Percent complete with respect to conversion

600 $ 6,600 $ 2,700 60% 10% 7,000 $ 102,200 $ 259,200 1,500 55% 10%

How many units were started AND completed during the month in the first processing department? A) 6,100. B) 5,500. C) 7,600. D) 7,000. 18 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

73) Garrison Corporation uses the FIFO method in its process costing system. Data concerning the first processing department for the most recent month are listed below: Beginning work-in-process inventory: Units in beginning work-in-process inventory Materials costs Conversion costs Percent complete with respect to materials Percent complete with respect to conversion Units started into production during the month Materials costs added during the month Conversion costs added during the month Ending work-in-process inventory: Units in ending work-in-process inventory Percent complete with respect to materials Percent complete with respect to conversion

600 6,600 2,700 60% 10% 7,000 $ 102,200 $ 259,200 $ $

1,500 55% 10%

The cost per equivalent unit for conversion costs for the first department for the month is closest to: (Round your answer to 2 decimal places.) A) $42.49. B) $43.96. C) $45.00. D) $41.87. 74) Bentwood Corporation uses the FIFO method in its process costing system. Data concerning the first processing department for the most recent month are listed below: Beginning work-in-process inventory: Units in beginning work-in-process inventory Materials costs Conversion costs Percent complete with respect to materials Percent complete with respect to conversion Units started into production during the month Units transferred to the next department during the month Materials costs added during the month Conversion costs added during the month Ending work-in-process inventory: Units in ending work-in-process inventory Percent complete with respect to materials Percent complete with respect to conversion

900 17,100 10,200 70% 25% 7,300 6,100 $ 148,200 $ 247,500 $ $

2,100 80% 35%

What are the equivalent units for materials for the month in the first processing department? A) 1,680. B) 7,150. C) 8,200. D) 5,200. 19 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

75) Bentwood Corporation uses the FIFO method in its process costing system. Data concerning the first processing department for the most recent month are listed below: Beginning work-in-process inventory: Units in beginning work-in-process inventory Materials costs Conversion costs Percent complete with respect to materials Percent complete with respect to conversion Units started into production during the month Units transferred to the next department during the month Materials costs added during the month Conversion costs added during the month Ending work-in-process inventory: Units in ending work-in-process inventory Percent complete with respect to materials Percent complete with respect to conversion

900 $ 17,100 $ 10,200 70% 25% 7,300 6,100 $ 148,200 $ 247,500 2,100 80% 35%

The cost per equivalent unit for conversion costs for the first department for the month is closest to: (Round your answer to 2 decimal places.) A) $40.57. B) $45.33. C) $39.31. D) $37.44. 76) Which of the following statements regarding first-in, first-out (FIFO) process costing is(are) true? (A) First-in, first-out (FIFO) process costing transfers out the costs in beginning inventory before transferring out the costs associated with units started and completed. (B) First-in, first-out process costing requires one additional step in assigning costs to the units transferred out and the ending Work-in-Process Inventory. A) Only A is true. B) Only B is true. C) Both of these are true. D) Neither of these is true. 77) In order to compute equivalent units of production using the FIFO method of process costing, work for the period must be broken down to units: A) completed during the period and units in ending inventory. B) started during the period and units transferred out during the period. C) completed from beginning inventory, started and completed during the month, and units in ending inventory. D) processed during the period and units completed during the period. 20 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

78) The Finishing Department had 5,000 incomplete units in its beginning Work-in-Process Inventory which were 100% complete as to materials and 30% complete as to conversion costs. 15,000 units were received from the previous department. The ending Work-in-Process Inventory consisted of 2,000 units which were 50% complete as to materials and 30% complete as to conversion costs. The Finishing Department uses first-in, first-out (FIFO) process costing. How many units were transferred-out during the period? A) 12,000. B) 13,000. C) 18,000. D) 20,000. 79) The Finishing Department had 5,000 incomplete units in its beginning Work-in-Process Inventory which were 100% complete as to materials and 30% complete as to conversion costs. 15,000 units were received from the previous department. The ending Work-in-Process Inventory consisted of 2,000 units which were 50% complete as to materials and 30% complete as to conversion costs. The Finishing Department uses first-in, first-out (FIFO) process costing. How many units were started and completed during the period? A) 12,000. B) 13,000. C) 18,000. D) 20,000. 80) The Finishing Department had 5,000 incomplete units in its beginning Work-in-Process Inventory which were 100% complete as to materials and 30% complete as to conversion costs. 15,000 units were received from the previous department. The ending Work-in-Process Inventory consisted of 2,000 units which were 50% complete as to materials and 30% complete as to conversion costs. The Finishing Department uses first-in, first-out (FIFO) process costing. What are the equivalent units of production for materials during the period? A) 12,000. B) 13,000. C) 14,000. D) 15,000. 81) The Finishing Department had 5,000 incomplete units in its beginning Work-in-Process Inventory which were 100% complete as to materials and 30% complete as to conversion costs. 15,000 units were received from the previous department. The ending Work-in-Process Inventory consisted of 2,000 units which were 50% complete as to materials and 30% complete as to conversion costs. The Finishing Department uses first-in, first-out (FIFO) process costing. What are the equivalent units of production for the conversion costs during the period? A) 14,500. B) 15,100. C) 16,500. D) 17,100. 21 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

82) In computing the current period's manufacturing cost per equivalent unit, the FIFO method of process costing considers: (CPA adapted) A) only current period costs. B) current period costs plus cost of beginning work-in-process inventory. C) current period costs less cost of beginning work-in-process inventory. D) current period costs plus the cost of ending work-in-process inventory. 83) The debits to Work-in-Process for Department #2 for the month of April of the current year, together with information concerning production, are presented below. All direct materials come from Department #1. The units completed include the 1,200 in process at the beginning of the period. Department #2 uses FIFO costing. WORK-IN-PROCESS - DEPARTMENT #2 1,200 units, ¼ completed $1,200 Product X, 6,200 units From Dept. 1, 6,000 units 3,600 Direct Labor 8,000 Factory OH 4,800 1,000 units, ½ complete ????

????

What are the total costs to be accounted for on the production cost report for Department #2 for the period? A) $16,400. B) $17,600. C) $11,600. D) $12,660. 84) The debits to Work-in-Process for Department #2 for the month of April of the current year, together with information concerning production, are presented below. All direct materials come from Department #1. The units completed include the 1,200 in process at the beginning of the period. Department #2 uses FIFO costing. WORK-IN-PROCESS - DEPARTMENT #2 1,200 units, ¼ completed $1,200 Product X, 6,200 units From Dept. 1, 6,000 units 3,600 Direct Labor 8,000 Factory OH 4,800 1,000 units, ½ complete ????

????

What are the equivalent units of production for conversion costs? A) 500. B) 5,500. C) 5,900. D) 6,400. 22 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

85) The debits to Work-in-Process for Department #2 for the month of April of the current year, together with information concerning production, are presented below. All direct materials come from Department #1. The units completed include the 1,200 in process at the beginning of the period. Department #2 uses FIFO costing. WORK-IN-PROCESS - DEPARTMENT #2 1,200 units, ¼ completed $1,200 Product X, 6,200 units From Dept. 1, 6,000 units 3,600 Direct Labor 8,000 Factory OH 4,800 1,000 units, ½ complete ????

????

The conversion costs per equivalent unit is: A) $1.00. B) $1.50. C) $2.00. D) $2.55. 86) The debits to Work-in-Process for Department #2 for the month of April of the current year, together with information concerning production, are presented below. All direct materials come from Department #1. The units completed include the 1,200 in process at the beginning of the period. Department #2 uses FIFO costing. WORK-IN-PROCESS - DEPARTMENT #2 1,200 units, ¼ completed $1,200 Product X, 6,200 units From Dept. 1, 6,000 units 3,600 Direct Labor 8,000 Factory OH 4,800 1,000 units, ½ complete ????

????

The unit cost of Product X started in the prior period and completed in the current period is: A) $2.00. B) $3.60. C) $2.55. D) $3.45.

87) The debits to Work-in-Process for Department #2 for the month of April of the current year, together with information concerning production, are presented below. All direct materials come from Department #1. The units completed include the 1,200 in process at the beginning of the period. Department #2 uses FIFO costing. WORK-IN-PROCESS - DEPARTMENT #2 1,200 units, ¼ completed $1,200 Product X, 6,200 units From Dept. 1, 6,000 units 3,600 Direct Labor 8,000 Factory OH 4,800 1,000 units, ½ complete ????

????

The unit cost of Product X started and completed in the current period is: A) $2.00. B) $2.50. C) $2.55. D) $2.60. 88) The debits to Work-in-Process for Department #2 for the month of April of the current year, together with information concerning production, are presented below. All direct materials come from Department #1. The units completed include the 1,200 in process at the beginning of the period. Department #2 uses FIFO costing. WORK-IN-PROCESS - DEPARTMENT #2 1,200 units, ¼ completed $1,200 Product X, 6,200 units From Dept. 1, 6,000 units 3,600 Direct Labor 8,000 Factory OH 4,800 1,000 units, ½ complete ????

????

The cost of goods transferred to finished goods is: A) $17,660. B) $16,000. C) $13,000. D) $12,800.

89) The debits to Work-in-Process for Department #2 for the month of April of the current year, together with information concerning production, are presented below. All direct materials come from Department #1. The units completed include the 1,200 in process at the beginning of the period. Department #2 uses FIFO costing. WORK-IN-PROCESS - DEPARTMENT #2 1,200 units, ¼ completed $1,200 Product X, 6,200 units From Dept. 1, 6,000 units 3,600 Direct Labor 8,000 Factory OH 4,800 1,000 units, ½ complete ????

????

The cost of the ending Work-in-Process Inventory is: A) $2,600. B) $1,600. C) $600. D) $1,000. 90) In a production cost report using process costing, transferred-in costs are most similar to: A) material added at the beginning of the process. B) conversion costs added during the process. C) costs transferred-out to the next process. D) costs included in beginning inventory. 91) A process costing system was used for a department that began operations in January 2020. Approximately the same number of physical units, at the same degree of completion, were in work-in-process at the end of both January and February. Monthly conversion costs are allocated between ending work-in-process and units completed. Compared to the FIFO method, would the weighted-average method use the same or a greater number of equivalent units to calculate the monthly allocations? (CPA adapted) Equivalent Units for Weighted Average compared to FIFO January February A. Same Same B. Greater Same C. Greater Greater D. Same Greater A) Option A B) Option B C) Option C D) Option D

92) Bentley Enterprises uses process costing to control costs in the manufacture of Dust Sensors for the mining industry. The following information pertains to operations for November. (CMA Exam adapted) Work in process, November 1st Started in production during November Work in process, November 30th

Units 16,000 100,000 24,000

The beginning inventory was 60% complete as to materials and 20% complete as to conversion costs. The ending inventory was 90% complete as to materials and 40% complete as to conversion costs. Costs pertaining to November are as follows: Beginning inventory: direct materials, $54,560; direct labor, $20,320; manufacturing overhead, $15,240. Costs incurred during the month: direct materials, $468,000; direct labor, $182,880; manufacturing overhead, $391,160. What is the equivalent unit cost for materials assuming Bentley uses first-in, first-out (FIFO) process costing? A) $4.12. B) $4.50. C) $4.60. D) $4.80.

93) Bentley Enterprises uses process costing to control costs in the manufacture of Dust Sensors for the mining industry. The following information pertains to operations for November. (CMA Exam adapted) Units st 16,000 Work in process, November 1 Started in production during November 100,000 24,000 Work in process, November 30th The beginning inventory was 60% complete as to materials and 20% complete as to conversion costs. The ending inventory was 90% complete as to materials and 40% complete as to conversion costs. Costs pertaining to November are as follows: Beginning inventory: direct materials, $54,560; direct labor, $20,320; manufacturing overhead, $15,240. Costs incurred during the month: direct materials, $468,000; direct labor, $182,880; manufacturing overhead, $391,160. What is the equivalent unit cost for the conversion costs assuming Bentley uses first-in, first-out (FIFO) process costing? A) $5.65. B) $5.83. C) $6.00. D) $6.20.

94) Bentley Enterprises uses process costing to control costs in the manufacture of Dust Sensors for the mining industry. The following information pertains to operations for November. (CMA Exam adapted) Units st Work in process, November 1 16,000 Started in production during November 100,000 Work in process, November 30th 24,000 The beginning inventory was 60% complete as to materials and 20% complete as to conversion costs. The ending inventory was 90% complete as to materials and 40% complete as to conversion costs. Costs pertaining to November are as follows: Beginning inventory: direct materials, $54,560; direct labor, $20,320; manufacturing overhead, $15,240. Costs incurred during the month: direct materials, $468,000; direct labor, $182,880; manufacturing overhead, $391,160. What are the total costs in the ending Work-in-Process Inventory assuming Bentley uses first-in, first-out (FIFO) process costing? A) $153,168. B) $154,800. C) $155,328. D) $156,960.

95) Bentley Enterprises uses process costing to control costs in the manufacture of Dust Sensors for the mining industry. The following information pertains to operations for November. (CMA Exam adapted) Units Work in process, November 1 16,000 Started in production during November 100,000 Work in process, November 30 24,000 The beginning inventory was 60% complete as to materials and 20% complete as to conversion costs. The ending inventory was 90% complete as to materials and 40% complete as to conversion costs. Costs pertaining to November are as follows: Beginning inventory: direct materials, $54,560; direct labor, $20,320; manufacturing overhead, $15,240. Costs incurred during the month: direct materials, $468,000; direct labor, $182,880; manufacturing overhead, $391,160. What is the equivalent unit cost for materials assuming Bentley uses weighted-average process costing? A) $4.12. B) $4.50. C) $4.60. D) $4.80.

96) Bentley Enterprises uses process costing to control costs in the manufacture of Dust Sensors for the mining industry. The following information pertains to operations for November. (CMA Exam adapted) Units Work in process, November 1 16,000 Started in production during November 100,000 Work in process, November 30 24,000 The beginning inventory was 60% complete as to materials and 20% complete as to conversion costs. The ending inventory was 90% complete as to materials and 40% complete as to conversion costs. Costs pertaining to November are as follows: Beginning inventory: direct materials, $54,560; direct labor, $20,320; manufacturing overhead, $15,240. Costs incurred during the month: direct materials, $468,000; direct labor, $182,880; manufacturing overhead, $391,160. What is the equivalent unit cost for the conversion costs assuming Bentley uses weightedaverage process costing? A) $5.65. B) $5.83. C) $6.00. D) $6.20. 97) Bentley Enterprises uses process costing to control costs in the manufacture of Dust Sensors for the mining industry. The following information pertains to operations for November. (CMA Exam adapted) Units Work in process, November 1 16,000 Started in production during November 100,000 Work in process, November 30 24,000 The beginning inventory was 60% complete as to materials and 20% complete as to conversion costs. The ending inventory was 90% complete as to materials and 40% complete as to conversion costs. Costs pertaining to November are as follows: Beginning inventory: direct materials, $54,560; direct labor, $20,320; manufacturing overhead, $15,240. Costs incurred during the month: direct materials, $468,000; direct labor, $182,880; manufacturing overhead, $391,160. What are the total costs in the ending Work-in-Process Inventory assuming Bentley uses weighted-average process costing? A) $86,400. B) $153,960. C) $154,800. D) $156,960. 30 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

98) A process costing system: A) uses a separate Work-in-process account for each processing department. B) uses a single Work-in-process account for the entire company. C) uses a separate Work-in-process account for each type of product produced. D) does not use a Work-in-process account in any form. 99) Additional materials are added in the second department of a four-department production process. However, this addition does not increase the number of units being produced in the second department, but will: A) increase the equivalent units of production. B) increase the total cost per unit. C) decrease the value of the transferred-in costs. D) decrease the total costs to account for. 100) Under which of the following conditions will the FIFO method produce the same cost of goods manufactured as the weighted-average method? A) There is no ending inventory. B) There is no beginning inventory. C) The beginning and ending inventories are equal. D) The beginning and ending inventories are both 50% complete. 101) Which of the following statements is(are) true? I. For cost control, the FIFO method of process costing is better than the weighted-average method. II. The weighted-average method of process costing assigns more cost to units completed (transferred out) than the FIFO method. A) Only I is true. B) Only II is true. C) Both of these are true. D) Neither of these is true. 102) Which of the following statements is(are) false? (A) Operations costing accounts for material costs like job costing and conversion costs like process costing. (B) An automobile manufacturer is more likely to use an operations costing system than a process costing system. A) Only A is false. B) Only B is false. C) Both of these are false. D) Neither of these is false.

103) Operation costing systems are used when the products have: A) used a standardized method that is repeatedly performed. B) common characteristics and no individual characteristics. C) individual characteristics and no common characteristics. D) some common characteristics and some individual characteristics. 104) An operation costing system is: A) identical to a process costing system except that actual cost is used for manufacturing overhead. B) the same as a process costing system except that materials are allocated on the basis of batches of production. C) the same as a job order costing system except that materials are accounted for in the same way as they are in a process costing system. D) the same as a job order costing system except that no overhead allocations are made since actual costs are used throughout. 105) Predetermined manufacturing overhead rates can be used in all of the following costing systems except: A) job costing. B) process costing. C) operation costing. D) actual costing. 106) Cordon Processing uses a process costing system to account for its solvent plant. Beginning inventory consisted of 14,000 gallons (80% complete as to materials, 55% complete as to conversion). Cordon added 213,000 gallons into the process during April. On April 30, there were 18,000 gallons still in process (60% complete as to materials, 45% complete as to conversion). Required: (a) Calculate the equivalent units of production for each input, assuming Cordon uses weightedaverage. (b) Calculate the equivalent units of production for each input, assuming Cordon uses FIFO. 107) Ralston Fine Hardwoods uses a process costing system to account for its wood processing plant. Beginning inventory consisted of 4,000 board feet of lumber (100% complete as to materials, 35% complete as to conversion). Ralston added 132,000 board feet into the process during April. On April 30, there were 10,000 board feet still in process (100% complete as to materials, 22% complete as to conversion). Required: (a) Calculate the equivalent units of production for each input, assuming Ralston uses weightedaverage. (b) Calculate the equivalent units of production for each input, assuming Ralston uses FIFO.

108) Manning Corporation uses the weighted-average method in its process costing. The following data pertain to its Processing Department for September.

Work-in-process, September 1 Units started into production during September Units completed during September and transferred to the next department Work-in-process, September 30

Units 700 8,300 7,300 1,700

Percent Complete Materials Conversion 65% 45%

90%

40%

Required: Compute the equivalent units of production for both materials and conversion costs for the Processing Department for September using the weighted-average method. 109) The following data have been provided by Florrisant Corporation, which uses the weightedaverage method in its process costing. The data are for the company's Assembly Department for October. Percent Complete Units Materials Conversion Work-in-process, October 1 900 55% 50% Units started into production during October 8,200 Units completed during October and transferred to the next department 7,100 Work-in-process, October 31 2,000 85% 35% Required: Compute the equivalent units of production for both materials and conversion costs for the Assembly Department for October using the weighted-average method. 110) Markov Inc. uses the weighted-average method in its process costing system. The following data concern the operations of the company's first processing department, Sculpting, for a recent month. Work-in-process, beginning: Units in process Percent complete with respect to materials Percent complete with respect to conversion Units started into production during the month Work-in-process, ending: Units in process Percent complete with respect to materials Percent complete with respect to conversion

200 50% 40% 11,000 500 80% 10%

Required: Using the weighted-average method, determine the equivalent units of production for materials and conversion costs. 33 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

111) Roubideaux Corporation uses process costing. The following data pertain to its Packing Department for February. Units in process, February 1: materials 85% complete, conversion 70% complete Units started into production during February Units completed and transferred to the next department Units in process, February 28: materials 50% complete, conversion 20% complete

500 6,900 6,200 1,200

Required: Determine the equivalent units of production for materials and conversion costs for the Packing Department for February using the weighted-average method. Weighted-average method: 112) Highlite Corporation uses the weighted-average method in its process costing. The following data pertain to its Formulation Department for November. Units in process, November 1: materials 85% complete, conversion 75% complete Units started into production during November Units completed and transferred to the next department Units in process, November 30: materials 70% complete, conversion 25% complete

700 5,500 4,700 1,500

Required: Determine the equivalent units of production for materials and conversion costs for the Formulation Department for November using the weighted-average method. 113) Everglades Furniture uses a process costing system to account for its chair factory. Beginning inventory consisted of 5,000 units (100% complete as to materials, 55% complete as to conversion) with a cost of $124,800 materials and $104,500 conversion. 58,000 units were started into production during the month with material costs of $1,537,000 and $2,124,375 of conversion costs. The ending inventory of 6,000 chairs was 100% complete as to materials and 40% complete as to conversion. Everglades uses weighted-average costing. Required: (Use 4 decimal places in your calculations.) a. Compute the equivalent units of production for each input. b. Compute the cost per equivalent unit. c. Compute the cost transferred out to finished goods. d. Compute the ending work-in-process inventory balance.

114) Toxo Chemicals produces a solvent in its Glendale plant. Three chemicals are combined at the start of the process and blended under pressure for a period of time. At the 75% point of completion, an additional chemical is added. The following information has been gathered:

BWIP Added

Chemical Mix $ 5,000 65,000

Additional Chemical -015,000

Conversion Cost $ 3,000 35,000

Gallons 10,000 100,000

Toxo completed 98,000 gallons during the month. The process engineer informs you that the beginning WIP was at the 30% completion point, the ending WIP is at 70%. Toxo uses weighted-average costing. Required: (Use 4 decimal places in your calculations.) a. Compute the equivalent units of production for each input. b. Compute the cost per equivalent unit. c. Compute the cost transferred out to finished goods. d. Compute the ending work-in-process inventory balance. 115) Tracker Sports is a manufacturer of sportswear. Tracker produces its products in two departments. The information for the current month for Department #2 is as follows: Beginning work-in-process Units transferred in from Department #1 Units completed Ending work-in-process Beginning WIP (transferred-in costs) Beginning WIP (direct materials) Beginning WIP (direct labor) Beginning WIP (overhead) Costs transferred in from Department #1 Direct materials added during month Direct labor during month Manufacturing overhead applied

20,000units 40,000units 50,000units 10,000units $ 50,000 $ 12,000 $ 3,200 $ 1,600 $ 100,000 $ 60,000 $ 20,000 ???

Required: (Use 4 decimal places in your calculations.) a. Compute the equivalent units of production for each input. b. Compute the cost per equivalent unit. c. Compute the cost transferred out to finished goods. d. Compute the ending work-in-process inventory balance. 116) Malcom Industries manufactures a silicone paste wax that goes through three processing departments: cracking, blending, and packing. All raw materials are introduced at the start of work in the cracking department, with conversion costs being incurred uniformly in each department. The Work-in-Process inventory account for the cracking department for July contains the following information: Work-in-Process Inventory (Cracking Department) Balance, July 1 (35,000 lbs, 4/5 done) $ Direct materials (280,000 lbs) Conversion costs Balance, July 31 (45,000 lbs, 2/3 done) Costs transferred to Blending Dept

63,700 397,600 189,700 ?? ??

The beginning balance inventory consists of $43,400 in materials cost. Malcom uses the weighted-average method to account for its operations. Required: (Use 4 decimal places for computations.) (a) What would be the Cracking Department's inventory balance on July 31? (b) What would be the cost transferred to the Blending Dept. in July?

117) The Safety Chemical Company produces a special kind of body oil that is widely used by professional sports trainers. The oil is produced in three processes: Refining, Blending, and Mixing. Raw oil materials are introduced at the beginning of the refining process. A "mountainair scent" material is added in the blending process when processing is 50% completed. The following Work-in-Process account for the Blending Department is available for the month of July. The July 1 Work-in-Process balance contains $5,920 in material costs and $1.56/unit in costs transferred in from the Refining Department. Work-in-Process: Blending Beginning balance (8,000 gal, 30% complete) Costs transferred in from Refining (29,000 gal.) Materials Direct labor Overhead Ending balance (4,000 gal, 40% complete)

$ 22,850 48,200 20,810 5,748 11,600 ??

The Safety Chemical Company uses weighted-average costing. Required: (Use 4 decimal places for computations.) (a) Compute the equivalent units of production for Blending. (b) Compute the unit costs in the Blending Department for the month of July. (c) Compute the costs transferred out to the Mixing Department for July. (d) Compute the July 31 Work-in-Process Inventory balance.

118) The Safety Chemical Company produces a special kind of body oil that is widely used by professional sports trainers. The oil is produced in three processes: Refining, Blending, and Mixing. Raw oil materials are introduced at the beginning of the refining process. A "mountainair scent" material is added in the blending process when processing is 50% completed. The following Work-in-Process account for the Refining Department is available for the month of July. The July 1 Work-in-Process balance contains $1,500 in material costs. Work-in-Process: Refining Beginning balance (5,000 gal, 80% complete) Materials (30,000 gal.) Direct labor Overhead Ending balance (6,000 gal., 2/3 complete)

6,500 12,300 14,500 21,750 ??

The Safety Chemical Company uses weighted-average costing. Required: (Use 4 decimal places for computations.) (a) Compute the equivalent units of production for Refining for July. (b) Compute the material cost per unit and the conversion cost per unit for July. (c) Compute the costs transferred to the Blending Department for July. (d) Compute the July 31 Work-in-Process Inventory balance. 119) The Rosa Lee Manufacturing Company produces a single product in a single processing department. The material is added when 25% of the conversion costs have been added. The Work-in-Process Inventory account on April 30 includes the following information: Beginning balance Materials Labor Overhead

1,682($600 is materials) 5,325 10,863 15,012

During the month, the company finished and transferred 72,000 units out of the Work-in-Process Inventory. 9,000 units were in process at the beginning of the month and were 40% complete. 8,000 units were in process at the end of the month and were 70% complete. The company uses weighted-average process costing. Required: (Use 4 decimal places for computations.) (a) Compute the equivalent units of production (EUP) for materials and conversion costs in April. (b) Compute the unit material costs and unit conversion costs for April. (c) Compute the total cost transferred out of the Work-in-Process inventory during the month of April. (d) Compute the cost of the ending Work-in-Process inventory for April. 38 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

120) Pattern Corporation uses the FIFO method in its process costing. The following data pertain to its Cutting Department for August.

Work-in-process, August 1 Units started into production during August Units completed during August and transferred to the next department Work-in-process, August 31

Units 500 8,100 7,200 1,400

Percent Complete Materials Conversion 50% 45%

75%

30%

Required: Compute the equivalent units of production for both materials and conversion costs for the Cutting Department for August using the FIFO method. 121) The following data pertain to the Grinding Department of Dancer Corporation for July. The company uses the FIFO method in its process costing.

Work-in-process, July 1 Units started into production during July Units completed during July and transferred to the next department Work-in-process, July 31

Units 900 6,700 5,700 1,900

Percent Complete Materials Conversion 60% 25%

70%

30%

Required: Compute the equivalent units of production for both materials and conversion costs for the Grinding Department for July using the FIFO method.

122) Mobility, Inc. uses the FIFO method in its process costing system. The following data concern the operations of the company's first processing department, Shaping, for a recent month. Work-in-process, beginning: Units in process Percent complete with respect to materials Percent complete with respect to conversion Units started into production during the month Work-in-process, ending: Units in process Percent complete with respect to materials Percent complete with respect to conversion

500 70% 40% 28,000 100 50% 30%

Required: Using the FIFO method, determine the equivalent units of production for materials and conversion costs. 123) Galaxy Corporation uses the FIFO method in its process costing. The following data pertain to its Assembly Department for June. Units in process, June 1: materials 55% complete, conversion 15% complete Units started into production during June Units completed and transferred to the next department Units in process, June 30: materials 50% complete, conversion 40% complete

800 5,200 4,300 1,700

Required: Determine the equivalent units of production for the Assembly Department for June using the FIFO method.

124) The following data have been provided by Brice Corporation for the 3-D Printing Department. The company uses the FIFO method in its process costing. Units in process, August 1: materials 60% complete, conversion 30% complete Units started into production during August Units started and completed during August Units completed and transferred to the next department during August Units in process, August 31: materials 65% complete, conversion 25% complete

900 8,400 6,500 7,400 1,900

Required: Determine the equivalent units of production for the 3-D Printing Department for August using the FIFO method. 125) The Microprocessor Manufacturing Company produces a single product in a single processing department. The material is added when 25% of the conversion costs have been added. The Work-in-Process Inventory account on April 30 includes the following information: Beginning balance Material Labor Overhead

1,382 5,325 10,863 15,012

During the month, the company finished and transferred 72,000 units out of the Work-in-Process Inventory. 9,000 units were in process at the beginning of the month, which were 40% complete. 8,000 units were in process at the end of the month, which were 70% complete. The company uses first-in, first-out (FIFO) process costing. Required (use 4 decimal places for computations): (a) Compute the equivalent units of production (EUP) for materials and conversion costs in April. (b) Compute the unit material costs and unit conversion costs for April. (c) Compute the total cost transferred out of the Work-in-Process Inventory during the month of April. (d) Compute the cost of the ending inventory for April.

126) The Safety Chemical Company produces a special kind of body oil that is widely used by professional sports trainers. The oil is produced in three processes: Refining, Blending, and Mixing. Raw oil materials are introduced at the beginning of the refining process. A "mountainair scent" material is added in the blending process when processing is 50% completed. The following Work-in-Process account for the Refining Department is available for the month of July. The July 1 Work-in-Process balance contains $1,500 in material costs. Work-in-Process: Refining Beginning balance (5,000 gal, 80% complete) Materials (30,000 gal.) Direct labor Overhead Ending balance (6,000 gal., 2/3 complete)

6,500 12,300 14,500 21,750 ??

The following Work-in-Process account for the Blending Department is available for the month of July. The July 1 Work-in-Process balance contains $5,920 in material costs and $1.56/unit in costs transferred in from the Refining Department. Work-in-Process: Blending Beginning balance (8,000 gal, 30% complete) Costs transferred in from Refining Materials Direct labor (725 hours) Overhead Ending balance (4,000 gal., 40% complete)

$ 22,850 ??? 20,810 5,748 11,600

The Safety Chemical Company uses first-in, first-out (FIFO) costing for the Refining Department and weighted-average costing for the Blending Department. Required (use 4 decimal places for computations): Part 1: Refining Department (a) Compute the equivalent units of production for July. (b) Compute the material cost per unit and the conversion cost per unit for July. (c) Compute the costs transferred to the Blending Department for July. (d) Compute the July 31 Work-in-Process Inventory balance. Part 2: Blending Department (e) Compute the equivalent units of production. (f) Compute the unit costs in the Blending Department for the month of July. (g) Compute the costs transferred out for July. (h) Compute the July 31 Work-in-Process Inventory balance.

127) The Safety Chemical Company produces a special kind of body oil that is widely used by professional sports trainers. The oil is produced in three processes: Refining, Blending, and Mixing. Raw oil materials are introduced at the beginning of the refining process. A "mountainair scent" material is added in the blending process when processing is 50% completed. The following Work-in-Process account for the Refining Department is available for the month of July. The July 1 Work-in-Process balance contains $1,500 in material costs. Work-in-Process: Refining Beginning balance (5,000 gallons, 80% complete) Materials (30,000 gallons) Direct labor Overhead Ending balance (6,000 gallons, 2/3 complete)

7,500 12,300 14,500 21,750

The Safety Chemical Company uses first-in, first-out (FIFO) costing. Required (use 4 decimal places for computations): (a) Compute the equivalent units of production for Refining for July. (b) Compute the material cost per unit and the conversion cost per unit for July. (c) Compute the costs transferred to the Blending Department for July. (d) Compute the July 31 Work-in-Process Inventory balance. 128) The Safety Chemical Company produces a special kind of body oil that is widely used by professional sports trainers. The oil is produced in three processes: Refining, Blending, and Mixing. Raw oil materials are introduced at the beginning of the refining process. A "mountainair scent" material is added in the blending process when processing is 50% completed. The following Work-in-Process account for the Blending Department is available for the month of July. The July 1 Work-in-Process balance contains $10,370 in conversion costs, and $1.56/unit in costs transferred in from the Refining Department. Work-in-Process: Blending Beginning balance (8,000 gal, 30% complete) Costs transferred in from Refining (29,000 gal.) Materials Direct labor Overhead Ending balance (4,000 gal., 40% complete)

$ 22,850 48,200 20,810 5,748 11,600 ??

The Safety Chemical Company uses first-in, first-out (FIFO) costing. Required (use 4 decimal places for computations): (a) Compute the equivalent units of production for Blending. (b) Compute the unit costs in the Blending Department for the month of July. (c) Compute the costs transferred out to the Mixing Department for July. (d) Compute the July 31 Work-in-Process Inventory balance. 43 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

129) Tracker Sports is a manufacturer of sportswear. Tracker produces its products in two departments. The information for the current month for Department #2 is as follows: Beginning work-in-process Units transferred in from Department #1 Units completed Ending work-in-process Beginning WIP transferred in costs Beginning WIP direct materials Beginning WIP direct labor Beginning WIP overhead Costs transferred in from Department #1 Direct material added during month Direct labor during month Manufacturing overhead applied

20,000units 40,000units 50,000units 10,000units $ 50,000 $ 12,000 $ 3,200 $ 1,600 $ 100,000 $ 60,000 $ 20,000 ???

Beginning WIP was half complete as to conversion costs. Direct materials for Department #2 are added when the process is 25% complete. Manufacturing overhead is applied at a rate equal to 50 percent of direct labor. Ending WIP was 60 percent complete. Tracker Sports uses first-in, first-out (FIFO) costing. Required: (HINT: use 4 decimal places in your calculations) a. Compute the equivalent units of production for each input. b. Compute the cost per equivalent unit. c. Compute the cost transferred out to finished goods. d. Compute the ending work-in-process inventory balance.

130) Malcom Industries manufactures a silicone paste wax that goes through three processing departments: cracking, blending, and packing. All raw materials are introduced at the start of work in the cracking department, with conversion costs being incurred uniformly in each department. The Work-in-Process inventory account for the cracking department for July contains the following information: Work-in-Process Inventory (Cracking Department) Work-in-Process Inventory (Cracking Department) Balance, July 1 (35,000 lbs, 4/5 done) Direct materials (280,000 lbs) Conversion costs Balance, July 31 (45,000 lbs, 2/3 done) Costs transferred to Blending Dept

63,700 397,600 189,700 ?? ??

The beginning balance inventory consists of $43,400 in materials cost. Malcom uses the first-in, first-out (FIFO) method to account for its operations. Required: (use 4 decimal places for computations) (a) What would be the Cracking Department's inventory balance on July 31? (b) What would be the cost transferred to the Blending Dept. in July? 131) Everglades Furniture uses a process cost system to account for its chair factory. Beginning inventory consisted of 5,000 units (100% complete as to material, 55% complete as to labor) with a cost of $124,800 materials and $104,500 conversion. 58,000 units were started into production during the month with material costs of $1,537,000 and $2,124,375 of conversion costs. The ending inventory of 6,000 chairs was 100% complete as to materials and 40% complete as to labor. Everglades uses first-in, first-out (FIFO) costing. Required: (use 4 decimal places in your calculations) a. Compute the equivalent units of production for each input. b. Compute the cost per equivalent unit. c. Compute the cost transferred out to finished goods. d. Compute the ending work-in-process inventory balance.

132) Toxo Chemicals produces a solvent in its Glendale plant. Three chemicals are combined at the start of the process and blended under pressure for a period of time. At the 75% point of completion, an additional chemical is added. The following information has been gathered: Chemical Mix $ 5,000 65,000

BWIP Added

Additional Chemical -015,000

Conversion Cost $ 3,000 35,000

Gallons 10,000 100,000

Toxo completed 98,000 gallons during the month. The process engineer informs you that the beginning WIP was at the 40% completion point, the ending WIP is at 70%. Toxo uses first-in, first out (FIFO) costing. Required: (use 4 decimal places in your calculations) a. Compute the equivalent units of production for each input. b. Compute the cost per equivalent unit. c. Compute the cost transferred out to finished goods. d. Compute the ending work-in-process inventory balance. 133) Racquet Master (RM) Sports manufactures and distributes two types of tennis rackets: Dominant Drive (DD) and Major Smash (MS). Both types of rackets go through Operations 1 and 3. MS also goes through Operation 2, which adds a layer of graphite for additional strength. All material is added at the beginning of their respective operations. The following information relates to a work order from Discount Warehouse, Inc. for 30,000 units of DD (Work order #286) and 8,000 units of MS (Work order #354). Direct materials: Operation 1 Operation 2 Operation 3 Conversion costs: Operation 1 Operation 2 Operation 3

Work order #286

Work order #354

$ 120,000 --45,000

$ 80,000 20,000 30,000

30,000 --14,793

15,000 25,000 14,896

Required: Assume that there are 3,000 units of DD and 2,000 units of MS in Operation 3 at the end of the reporting period that are 45% and 65% complete, respectively. Compute the ending inventory for Operation 3.

134) Martin Enterprises uses three operations in sequence to manufacture an assortment of flower pots. In each operation, the same procedures, time, and costs are used to perform that operation, regardless of the type of pot being produced. During March, a batch of 500 Clay Pots and a batch of 800 Porcelain Pots were put through the first operation. All materials for a batch are introduced at the beginning of the operation for that batch. The costs shown below were incurred in March for the first operation: Direct Labor Manufacturing Overhead Direct Materials: Clay Pots Porcelain Pots

$ 4,450 3,600 $ 1,200 $ 2,400

There were no inventories at the beginning of the month; 400 units of Clay Pots and 600 units of Porcelain Pots were transferred to the next operation. The ending inventories were 30% and 60% complete for Clay and Porcelain, respectively. Required: What is the total cost of the ending inventory in process for operation #1? 135) Carmen Products makes four models of guitars. All of the models go through the same assembly line but they differ as to the materials used and the degree of finishing. The Basic model has a low gloss finish and goes immediately to Packaging upon completion in Assembly. The Super model and the Premium model go through a Buffing process upon completion in Assembly. They then go on to Packaging. The Deluxe model is the top of the line and goes first to Buffing from the Assembly, then to Special Polishing, then to Packaging. Carmen uses operations costing and allocates conversion costs based on the number of units processed in each department. Total

Basic 1,000

Super 500

Premium 250

$ 97,500

$ 40,000

$ 30,000

$ 20,000

Units Materials Conversion costs: Assembly Buffing Special Polish Packaging Total

Deluxe 50 7,50 $ 0

$ 54,000 32,000 3,000 9,000 $ 98,000

Required: What is the cost per unit of each of the completed guitars? 47 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

136) Sparkle Inc. is a company that produces liquid cleaning products. Sparkle's management is trying to decide whether to install a job or process costing system. The manufacturing vice president has stated that job costing gives the best control because it is possible to assign costs to specific lots of goods. The controller, however, has stated that job costing requires too much record keeping. Would a process costing system meet the manufacturing vice president's control objectives? Explain. 137) What would happen to the equivalent units, production cost per unit and costs transferred out for a company using weighted-average if the degree of completion of the ending inventory were underestimated? 138) Describe the five steps in preparing a production cost report. 139) Explain the major differences between weighted-average costing and FIFO costing. 140) Is cost accumulation easier under a process costing system or a job costing system? 141) What characteristics of the production process would lead a company to use process costing rather than job costing? 142) The more important individual unit costs are for making decisions, the more likely it is that process costing will be preferred to job costing. Do you agree? 143) Carlton Electronics manufactures three cell phone models, General, Premium, and Deluxe, which differ in the components included. Production takes place in two departments, Assembly and Special Packaging. Batches of General phones are made to service government military contracts. Premium model phones are specific to corporate contracts. Deluxe model phones are sold commercially through big-box stores. Explain why operation costing might be a consideration for Carlton.

144) Production and cost data for the month of February for Process A of the Packer Manufacturing Company follow: Units in process, February 1 (100% complete with respect to materials; 25% complete with respect to conversion cost) New units started in process Units completed Units in process, February 28 (100% complete with respect to materials; 1/3 complete with respect to conversion cost) Work-in-process inventory, February 1: Materials Conversion Costs incurred in February: Materials issued Conversion

2,000 8,000 7,000 3,000 $ $

600 100

$ 2,560 $ 1,500

The company uses the weighted-average cost method in its process costing system. Required: a. Calculate the equivalent units and cost per equivalent unit for February for materials and for conversion costs (use three decimal places in your calculations). b. Determine the cost transferred to finished goods. c. Determine the amount of cost that should be assigned to the ending work-in-process.

145) Tiny Villages Inc. uses the weighted-average method in its process costing system. The following data concern the operations of the company's first processing department, Extruding, for a recent month. Work-in-process, beginning: Units in process Percent complete with respect to materials Percent complete with respect to conversion Costs in the beginning inventory: Materials cost Conversion cost Units started into production during the month Units completed and transferred out Costs added to production during the month: Materials cost Conversion cost Work-in-process, ending: Units in process Percent complete with respect to materials Percent complete with respect to conversion

300 80% 70% $ $

1,368 8,064 11,000 11,000

$ 64,948 $ 412,179 300 80% 10%

Required: a. Determine the equivalent units of production. b. Determine the costs per equivalent unit. c. Determine the cost of ending work-in-process inventory. d. Determine the cost of the units transferred to the next department.

146) Paradise Inc. uses the weighted-average method in its process costing system. The following data concern the operations of the company's first processing department, Cutting, for a recent month. Work-in-process, beginning: Units in process Percent complete with respect to materials Percent complete with respect to conversion Costs in the beginning inventory: Materials cost Conversion cost Units started into production during the month Units completed and transferred out Costs added to production during the month: Materials cost Conversion cost Work-in-process, ending: Units in process Percent complete with respect to materials Percent complete with respect to conversion

100 70% 80% $ $

525 1,696 11,000 10,700

$ 83,405 $ 223,606 400 50% 20%

Required: Using the weighted-average method: a. Determine the equivalent units of production for materials and conversion costs. b. Determine the cost per equivalent unit for materials and conversion costs. c. Determine the cost of units transferred out of the department during the month. d. Determine the cost of ending work-in-process inventory in the department. 147) In October, one of the processing departments at Radiance Corporation had beginning work-in-process inventory of $29,000 and ending work-in-process inventory of $23,000. During the month, the cost of units transferred out from the department was $311,000. Required: Construct a cost reconciliation report for the department for the month of October. 148) In May, one of the processing departments at Patton Corporation had beginning work-inprocess inventory of $31,000. During the month, $369,000 of costs were added to production and the cost of units transferred out from the department was $368,000. Required: Construct a cost reconciliation report for the department for the month of May.

149) Dickerson Company uses a process costing system. The following information relates to one month's activity in the company's Mixing Department. Conversion Units Percent Complete Beginning work-in-process inventory 10,000 20% Units started 21,000 Units completed and transferred out 26,000 Ending work-in-process inventory 5,000 80% The conversion cost of the beginning inventory was $6,500. During the month, $112,000 in additional conversion cost was incurred. Required: a. Assume that the company uses the FIFO method. Compute: 1. The equivalent units of production for conversion for the month. 2. The cost per equivalent unit for conversion for the month. 3. The total cost transferred out during the month. 4. The cost assigned to the ending work-in-process inventory. b. Assume that the company uses the weighted-average cost method. Compute: 1. The equivalent units of production for conversion for the month. 2. The cost per equivalent unit for conversion for the month. 3. The total cost transferred out during the month. 4. The cost assigned to the ending work-in-process inventory.

150) Vacumatic, Inc. uses the FIFO method in its process costing system. The following data concern the operations of the company's first processing department, Assembly, for a recent month. Work-in-process, beginning: Units in process Percent complete with respect to materials Percent complete with respect to conversion Costs in the beginning inventory: Materials cost Conversion cost Units started into production during the month Units completed and transferred out Costs added to production during the month: Materials cost Conversion cost Work-in-process, ending: Units in process Percent complete with respect to materials Percent complete with respect to conversion

700 50% 10% $ $

595 2,093 14,000 14,600

$ 21,465 $ 440,618 100 60% 60%

151) Emerson, Inc. uses the FIFO method in its process costing system. The following data concern the operations of the company's first processing department, Mixing, for a recent month. Work-in-process, beginning: Units in process Percent complete with respect to materials Percent complete with respect to conversion Costs in the beginning inventory: Materials cost Conversion cost Units started into production during the month Units completed and transferred out Costs added to production during the month: Materials cost Conversion cost Work-in-process, ending: Units in process Percent complete with respect to materials Percent complete with respect to conversion

500 70% 30% $ $

2,240 4,365 16,000 16,000

$ 98,580 $ 468,930 500 50% 20%

Required: Using the FIFO method: a. Determine the equivalent units of production for materials and conversion costs. b. Determine the cost per equivalent unit for materials and conversion costs. c. Determine the cost of ending work-in-process inventory. d. Determine the cost of units transferred out of the department during the month. 152) Hsu Corporation uses the FIFO method in its process costing system. The following data concern the company's Grinding Department for the month of August. Cost in beginning work-in-process inventory Units started and completed this month Cost per equivalent unit Equivalent units required to complete the units in beginning work-in-process inventory Equivalent units in ending work-in-process inventory

$ 1,090 2,670 Materials $ 17.80

Conversion $ 34.50

180 120

160 99

Required: Determine the cost of units transferred out of the department and the cost of ending work-inprocess inventory during August using the FIFO method.

153) The following data has been provided by Radiotronics Inc., a company that uses the FIFO method in its process costing system. The data concern the company's Wiring Department for the month of March. Cost in beginning work-in-process inventory Units started and completed this month Cost per equivalent unit Equivalent units required to complete the units in beginning work-in-process inventory Equivalent units in ending work-in-process inventory

$ 2,260 4,650 Materials $ 33.30

Conversion $ 21.20

300 380

230 297

Required: Determine the cost of the units transferred out and the cost of ending work-in-process inventory of the department during March using the FIFO method.

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 9 Activity-Based Costing 1) The death spiral can occur even in firms with increasing demand. 2) The death spiral concept refers to the process of continually decreasing selling prices to meet foreign competition. 3) The basic approach in product costing is to allocate costs in the cost pools to the individual cost objects, which are the products or services of interest. 4) The basic difference between a first-stage cost allocation and a second-stage cost allocation is that cost pools are not used in first-stage cost allocations. 5) Predetermined overhead rates are not used in first-stage cost allocations but are used in second-stage cost allocations. 6) The plantwide allocation concept cannot be used in nonmanufacturing organizations. 7) The single-stage cost allocation system uses a plantwide rate because the cost pool is the entire plant. 8) The department cost allocation method provides more accurate product cost information for managerial decision-making than the plantwide cost allocation method. 9) Companies that manufacture products that are similar and use the same resources should use the plantwide cost allocation method. 10) Using the department allocation method, a company establishes a separate overhead allocation rate for each department. 11) If a company manufactures diverse products using different sets of resources in a plant, it is best to use a plantwide allocation rate. 12) Activity-based costing (ABC) is a two-stage cost allocation system that (1) allocates costs to activities and (2) then to products based on their use of the activities. 13) The basic difference between the department cost allocation method and activity-based costing (ABC) is the number of stages involved in allocating costs to products. 14) Direct labor cost (DLC) and direct labor hours (DLH) are examples of volume-related cost drivers in the cost hierarchy. 15) Any discrete task that an organization undertakes to make or deliver a product or service is known as a stage. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

16) Activity-based costing is based on the concept that products produce activities and activities produce resources. 17) The number of products produced is an example of a facility-related cost driver in the cost hierarchy. 18) A cost hierarchy classifies cost drivers by general dimensions or levels of activity. 19) If a company has identified three major activities as setting up, handling material, and assembling, possible cost drivers would most likely be set-up hours, production runs, and number of shipments, respectively. 20) When applying activity-based costing, the first step would be to compute the cost driver rates. 21) Activity-based costing (ABC) provides more detailed measures of costs than do plantwide or department allocation methods. 22) Activity-based costing is so beneficial because it provides more information about product costs but requires less recordkeeping. 23) Installing activity-based costing requires teamwork among employees and departments within an organization. 24) Before using activity-based costing (ABC), managers must apply the cost-benefit principle to the additional recordkeeping costs associated with ABC. 25) In general, traditional product costing methods allocate less cost to low-volume products and more costs to high-volume products than activity-based costing (ABC). 26) Using direct labor costs to allocate overhead costs in an activity-based costing (ABC) system will encourage management to reduce labor costs. 27) In general, low-volume products (and services) have a lower degree of complexity associated with them. 28) When overhead is applied based on the volume of output, high-volume products tend to "subsidize" low-volume products. 29) The flow of activity-based costs through the ledger is the same as their flow using traditional methods except that the accounts are based on activities, not departments. 30) Activity-based costs are a function of both volume and complexity. 31) Activity-based costing (ABC) can be applied to administrative activities (e.g., purchasing) but not to marketing activities. 2 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

32) Within a purchasing department, a cost driver of the potential number of vendors could best cost the activity of placing orders. 33) Individual ABC systems do not vary because there is one ABC method. 34) It is possible to apply activity-based costing (ABC) to segments of an organization without applying it to the entire organization. 35) Time-driven activity-based costing (TDABC) is more costly to implement than an unmodified activity-based costing system. 36) Time equations can be used in extended time-driven activity-based costing (TDABC) systems to allow managers to adjust the times for orders with different characteristics. 37) When product costs are used for decision-making, what assumption is most likely to distort the decisions? A) There is a proportionality of overhead costs and output, regardless of whether a product is dropped or not. B) Some overhead estimates can decrease when a product is dropped. C) Some overhead costs could be fixed when a product is dropped. D) The cost accounting system treats all overheads as if it were variable with respect to the allocation base. 38) When a department or product line is dropped, the common fixed costs which had been allocated to that department: A) are eliminated. B) become variable costs. C) are allocated to the remaining departments or product lines. D) become sunk costs. 39) Traditional product costing systems (e.g., job and process costing) are designed primarily: A) To derive an allocation base. B) To ensure that a single cost driver allocation base leads to appropriate managerial decisions. C) To accumulate cost information for financial reporting. D) To accumulate cost information for managerial decisions. 40) A two-stage system first allocates costs to: A) Products or services and then allocates costs to departments or activities. B) The cost driver and then allocates costs to the cost hierarchy. C) A product line and then allocates costs to the department. D) Departments or activities and then allocates costs to products or services. 41) First stage cost objects do not include: A) Supplies B) Depreciation C) Maintenance and Repair Costs D) Direct materials 3 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

42) The basic difference between a first-stage cost allocation and a second-stage cost allocation is that: A) cost pools are not used in first-stage cost allocations. B) predetermined overhead rates are used in first-stage cost allocations but not in second-stage cost allocations. C) the first stage prohibits firms from aligning the allocation of costs with the use of resources. D) when used in an ABC system, the first stage assigns costs to activities. 43) Activity-based costing (ABC) is a costing technique that uses a two-stage allocation process. Which of the following statements best describes these two stages? A) The costs are assigned to activities, and then to the products based upon their use of the activities. B) The costs are assigned to departments, and then to the products based upon their use of activity resources. C) Service department costs are allocated to the production departments, and then to the products based upon their use of the activities. D) Indirect costs are assigned to activities, and then to the products based upon the direct cost resources used by the activities. 44) Cost pools are used with: Plantwide Rates A. B. C. D.

Yes No No Yes

Department Rates No Yes No Yes

A) Option A B) Option B C) Option C D) Option D 45) Which of the following should not be used as the allocation base in a company that appropriately uses a single plantwide rate? A) Sales volume. B) Machine hours. C) Material costs. D) Direct labor cost.

46) Which of the following would be least likely to be used as an allocation base in a company that applies a single plantwide rate? A) Machine hours. B) Direct material costs. C) Direct labor cost. D) Direct labor hours. 47) Multiple (departmental) manufacturing overhead rates are considered preferable to a single (plantwide) overhead rate when: (CMA adapted) A) Manufacturing is limited to a single product flowing through identical departments in a fixed sequence. B) Various products are manufactured that do not pass through the same departments or use the same manufacturing techniques. C) Individual cost drivers cannot accurately be determined with respect to cause-and-effect relationships. D) The single or plantwide rate is related to several identified cost drivers. 48) The classification of cost drivers into general levels of activity, volume, batch, product, and so on is known as: A) Cost allocation. B) Value-added costing. C) A cost hierarchy. D) Cost driver management. 49) Which of the following statements is true? A) One of the lessons learned from activity-based costing (ABC) is that all costs are really a function of volume. B) The primary purpose of the plantwide and department allocation methods is allocating direct costs to specific products. C) A problem with activity-based costing (ABC) is that it requires more recordkeeping than other methods. D) Direct cost allocations are required for the plantwide and department allocation methods. 50) The electricity used for production machinery would be classified as a: A) Volume-related activity. B) Batch-related activity. C) Product-related activity. D) Facility-related activity. 51) The number of services provided by an accounting firm would be classified as an: A) Volume-related activity. B) Batch-related activity. C) Product-related activity. D) Facility-related activity.

52) Which of the following costs is not related to a batch-related activity? A) Material handling. B) Machine setups. C) Shipping costs. D) Compliance costs. 53) Which of the following would not be a batch-related activity? A) Setting up a machine for a new production run. B) Performing 100% inspection. C) Purchasing materials. D) Processing a customer order. 54) Which of the following measures is used by traditional costing systems as an allocation base for allocating overhead costs to the units produced? A) Volume-related activities. B) Batch-related activities. C) Product-related activities. D) Facility-related activities. 55) Which of the following measures is not used by activity-based costing (ABC) systems as an allocation base for allocating overhead costs to the units produced? A) Volume-related activities. B) Batch-related activities. C) Product-related activities. D) Need-related activities. 56) What is the typical effect on the numbers of cost pools and cost assignment bases when an activity-based costing (ABC) system replaces a traditional costing system? (CPA adapted) Cost Pools

Cost Assignment Bases

A. No effect

No effect

B. Increase

No effect

C. No effect

Increase

D. Increase

Increase

A) Option A B) Option B C) Option C D) Option D

57) Plant administration is an example of a: A) Volume-related activity. B) Batch-related activity. C) Product-related activity. D) Facility-related activity. 58) Which of the following activities would be classified as a batch-level activity? A) Setting up equipment. B) Designing a new product. C) Training employees. D) Milling a part required for the final product. 59) Would the following activities at a manufacturer of canned soup be best classified as volume-related, batch-related, or product-related activities? Researching new recipes

Shipping orders to grocery stores

A. Volume

Volume

B. Batch

Batch

C. Product

Volume

D. Product

Batch

A) Option A B) Option B C) Option C D) Option D 60) Plant property taxes are an example of a cost that would be considered to be: A) Volume-related. B) Batch-related. C) Product-related. D) Facility-related. 61) Product costs are computed by: A) Dividing the cost driver rate by the number of units of the cost driver in each product. B) Multiplying the cost driver rate by the number of units of the cost driver in each product. C) Adding the cost driver rates of all products. D) Averaging the plantwide cost driver rate with the cost driver for each product. 62) Which of the following is not a step involved in activity-based costing? A) Identify the activities that consume resources and assign costs to those activities. B) Determine how to reduce the costs of making products by cutting activities. C) Assign costs to products by multiplying the cost driver rate by the volume of cost driver units consumed by the product. D) Compute a cost rate per cost driver unit or transaction. 7 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

63) Which of the following statements is true? A) Activity-based costs per unit are always greater than volume-based costs per unit. B) Volume-based costing has typically resulted in lower gross margins for high-volume products and higher gross margins for low-volume products. C) Different cost allocation methods are constructed so that they typically result in the same or similar estimates of how much it costs to make a product. D) Activity-based costing typically provides less information about product costs while requiring more recordkeeping. 64) Volume-based costing allocates indirect product costs based on the volume of output, using such allocation bases as direct labor hours, machine hours, or the amount of direct material used in the production process. Activity-based costing (ABC) has consistently shown that volumebased costing ________ the cost of high-volume products and ________ the cost of low-volume products. High-Volume Products

Low-Volume Products

A. Overstates

Overstates

B. Overstates

Understates

C. Understates

Overstates

D. Understates

Understates

A) Option A B) Option B C) Option C D) Option D 65) Companies using activity-based costing (ABC) have learned that costs are a function of: A) Volume and activities. B) Time and complexity. C) Volume and time. D) Resources and time. 66) Activity-based costing provides: A) More detailed measures of costs than do plantwide or department allocation methods. B) Less detailed measures of costs than do plantwide or department allocation methods. C) More detailed measures of costs than do plantwide allocations but less than department allocation methods. D) Less detailed measures of costs than do plantwide allocations but more than department allocation methods.

67) Which one of the following accounts is not used in an activity-based costing (ABC) system? A) Materials Inventory. B) Work-in-Process Inventory. C) Finished Goods Inventory. D) Allocations Incurred. 68) Which of the following would be a reasonable basis for assigning the materials handling costs to the units produced in an activity-based costing (ABC) system? A) Number of production runs per year. B) Number of components per completed unit. C) Amount of time required to produce one unit. D) Amount of overhead applied to each completed unit. 69) Which of the following statements is true regarding activity-based costing in administration? A) The principles of ABC are different when applied to administrative services. B) ABC in administration involves five steps. C) All cost drivers in an administrative system will be time-related. D) Activity-based costing for administrative services follows the same four-step procedure described for manufacturing. 70) Which of the following would be the most appropriate activity and cost drivers pairing for a Purchasing Department? A) Activity: Placing orders - Possible Cost Driver: Number of orders. B) Activity: Placing orders - Possible Cost Driver: Number of new hires. C) Activity: Placing orders - Possible Cost Driver: Frequency of audits. D) Activity: Placing orders - Possible Cost Driver: Employee turnover rate. 71) Which of the following statements is true regarding time-driven activity-based costs? A) A manager needs to determine the cost of resources for each individual item produced. B) This approach requires interviews and surveys from multiple managers and employees. C) It is more costly than the unmodified ABC system. D) It uses the cost of the resources supplied to a department and the time it takes to complete the various activities of the department. 72) Which of the following statements is true regarding time equations used in time-driven activity-based costing? A) Time equations cannot adjust extra time for new vendors. B) Time equations allow managers to adjust the times for orders with different characteristics. C) Time equations cannot be used where there is a maximum size of an order that can be inspected or transported to the warehouse. D) Time equations are only used as part of unmodified ABC systems.

73) Flawless Cosmetic Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour. Loren is the department manager of the Makeup Department that produces Products - Concealer (C) and Glow Cream (GC). Jennifer is the department manager of the Hair Care Department that manufactures Product - Shampoo (S). The product costs (per case of 24 bottles) and other information are as follows:

Direct materials Direct labor Overhead Machine hours Number of cases (per year)

C $ 100.00 42.00 28.00 $ 170.00 4 300

Products GC $ 72.00 31.50 21.00 $ 124.50 2 500

S $ 48.00 12.00 14.00 $ 74.00 3 600

Based on this information, if Flawless changes its allocation basis to machine hours, what is the overhead rate per machine hour? A) $3.00 B) $2.00 C) $21.00 D) $6.825 74) Flawless Cosmetic Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour. Loren is the department manager of the Makeup Department that produces Products - Concealer (C) and Glow Cream (GC). Jennifer is the department manager of the Hair Care Department that manufactures Product - Shampoo (S). The product costs (per case of 24 bottles) and other information are as follows:

Direct materials Direct labor Overhead Machine hours Number of cases (per year)

C $ 100.00 42.00 28.00 $ 170.00 4 300

Products GC $ 72.00 31.50 21.00 $ 124.50 2 500

S $ 48.00 12.00 14.00 $ 74.00 3 600

If Flawless changes its allocation basis to machine hours, what is the total product cost per case for Product GC? A) $163.50 B) $144.00 C) $138.15 D) $117.15 10 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

75) Flawless Cosmetic Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour. Loren is the department manager of the Makeup Department that produces Products - Concealer (C) and Glow Cream (GC). Jennifer is the department manager of the Hair Care Department that manufactures Product - Shampoo (S). The product costs (per case of 24 bottles) and other information are as follows:

Direct materials Direct labor Overhead Machine hours Number of cases (per year)

C $ 100.00 42.00 28.00 $ 170.00 4 300

Products GC $ 72.00 31.50 21.00 $ 124.50 2 500

S $ 48.00 12.00 14.00 $ 74.00 3 600

If Flawless changes its allocation basis to machine hours, what is the total product cost per case for Product C? A) $161.50. B) $169.30. C) $182.44. D) $183.36. 76) Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period: Department Consumer Commercial

DLH 14,000 8,000

Loans Processed 700 300

Direct Costs $ 280,000 $ 180,000

If Banc Corp. Trust uses a bankwide rate based on direct labor hours, what would be the indirect costs allocated to the Consumer Department? A) $49,000. B) $252,000. C) $198,000. D) $396,000.

77) Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period: Department Consumer Commercial

DLH 14,000 8,000

Loans Processed 700 300

Direct Costs $ 280,000 $ 180,000

If Banc Corp. Trust uses a bankwide rate based on direct labor hours, what would be the indirect costs allocated to the Commercial Department? A) $144,000. B) $138,000. C) $180,000. D) $148,500. 78) Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period: Department Consumer Commercial

DLH 14,000 8,000

Loans Processed 700 300

Direct Costs $ 280,000 $ 180,000

If Banc Corp. Trust uses a bankwide rate based on the number of loans processed, what would be the total costs for the Commercial Department? A) $118,800. B) $180,000. C) $298,800. D) $318,000.

79) Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period: Department Consumer Commercial

DLH 14,000 8,000

Loans Processed 700 300

Direct Costs $ 280,000 $ 180,000

If Banc Corp. Trust uses a bankwide rate based on the number of loans processed, what would be the total costs for the Consumer Department? A) $280,000. B) $256,800. C) $576,000. D) $557,200. 80) Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period: Department Consumer Commercial

DLH 14,000 8,000

Loans Processed 700 300

Direct Costs $ 280,000 $ 180,000

81) Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period: Department Consumer Commercial

DLH 14,000 8,000

Loans Processed 700 300

Direct Costs $ 280,000 $ 180,000

Banc Corp. Trust estimates that it costs $500 to analyze and close a commercial loan. This amount has been included in the $396,000 of indirect costs. How much of the $396,000 indirect costs should be allocated to the Commercial Department, if Banc Corp. Trust uses a bankwide rate based on the number of loans processed? A) $246,000. B) $280,000. C) $172,200. D) $116,000. 82) Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period: Department Consumer Commercial

DLH 14,000 8,000

Loans Processed 700 300

Direct Costs $ 280,000 $ 180,000

Banc Corp. Trust estimates that it costs $400 to analyze and close a commercial loan. What is the overhead rate if Banc Corp. Trust allocates the remaining indirect costs using direct labor hours? A) $12.55 per hour. B) $18.00 per hour. C) $1,000 per loan. D) $800 per loan.

83) Vanguard Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Assembly Processing orders Inspection

Total Cost $ 942,480 $ 85,050 $ 126,854

Total Activity 66,000machine-hours 1,800orders 1,820inspection-hours

The company makes 430 units of product O37W a year, requiring a total of 690 machine-hours, 40 orders, and 10 inspection-hours per year. The product's direct materials cost is $35.72 per unit and its direct labor cost is $29.46 per unit. According to the activity-based costing system, the average cost of product O37W is closest to: A) $94.11 per unit. B) $89.72 per unit. C) $65.18 per unit. D) $92.49 per unit. 84) Pinnocle Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Assembly Processing orders Inspection

Total Cost Total Activity $ 1,114,920 57,000machine-hours $ 47,016 1,800orders $ 107,328 1,560inspection-hours

The company makes 430 units of product S78N a year, requiring a total of 1,120 machine-hours, 40 orders, and 30 inspection-hours per year. The product's direct materials cost is $49.81 per unit and its direct labor cost is $12.34 per unit. The product sells for $129.90 per unit. According to the activity-based costing system, the product margin for product S78N is: A) $4,116.50. B) $29,132.50. C) $6,180.50. D) $5,161.30.

85) Donnati Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Assembly Processing orders Inspection

Total Cost $ 383,180 $ 50,798 $ 106,110

Total Activity 23,000machine-hours 1,100orders 1,620inspection-hours

Data concerning one of the company's products, Product A43V, appear below: Selling price per unit Direct materials cost per unit Direct labor cost per unit Annual unit production and sales Annual machine-hours Annual orders Annual inspection-hours

$ 124.60 $ 22.08 $ 45.77 210 320 80 10

According to the activity-based costing system, the product margin for Product A43V is: A) $2,891.90. B) $5,931.30. C) $11,917.50. D) $2,236.90. 86) Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information: Activity Production setups Material handling Packaging costs

Cost Driver Number of setups Number of parts Number of units

Amount 82,000 48,000 130,000 $ 260,000 $

M 8 56 80,000

XY 12 24 50,000

What is the total overhead allocated to Product M using the current system? A) $113,600. B) $130,000. C) $146,400. D) $160,000.

87) Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information: Activity Production setups Material handling Packaging costs

Cost Driver Number of setups Number of parts Number of units

Amount $ 82,000 48,000 130,000 $ 260,000

M 8 56 80,000

XY 12 24 50,000

What is the total overhead per unit allocated to Product M using activity-based costing (ABC)? A) $2.60. B) $2.27. C) $2.00. D) $1.83. 88) Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information: Activity Production setups Material handling Packaging costs

Cost Driver Number of setups Number of parts Number of units

Amount 82,000 48,000 130,000 $ 260,000 $

M 8 56 80,000

XY 12 24 50,000

What is the total overhead allocated to Product XY using the current system? A) $113,600. B) $100,000. C) $146,400. D) $160,000.

89) Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information: Activity Production setups Material handling Packaging costs

Cost Driver Number of setups Number of parts Number of units

Amount $ 82,000 48,000 130,000 $ 260,000

XY 12 24 50,000

8 56 80,000

What is the total overhead per unit allocated to Product XY using activity-based costing (ABC)? A) $2.60. B) $2.27. C) $2.00. D) $1.83. 90) The Mega Construction Company recently switched to activity-based costing (ABC) from the department allocation method. The department method allocated overhead costs at a rate of $60 per machine hour. The cost accountant for the Finishing Department has gathered the following data: Activity Material handling Machine setups Utilities Quality control

Cost Drivers Tons of material handled Number of production runs Machine hours Number of inspections

Rate 80 3,750 25 $ 500 $

During April, Mega purchased and used $100,000 of direct materials at $20 per ton. There were 8 production runs using a total of 12,000 machine hours in April. The manager of the Finishing Department needed 12 inspections. Actual overhead costs totaled $820,000 for the month. How much overhead costs were applied to the Work-in-Process Inventory during April using activity-based costing? A) $536,000. B) $720,000. C) $736,000. D) $820,000.

91) The Mega Construction Company recently switched to activity-based costing (ABC) from the department allocation method. The department method allocated overhead costs at a rate of $60 per machine hour. The cost accountant for the Finishing Department has gathered the following data: Activity Material handling Machine setups Utilities Quality control

Cost Drivers Tons of material handled Number of production runs Machine hours Number of inspections

Rate $ 80 3,750 25 $ 500

During April, Mega purchased and used $100,000 of direct materials at $20 per ton. There were 8 production runs using a total of 12,000 machine hours in April. The manager of the Finishing Department needed 12 inspections. Actual overhead costs totaled $820,000 for the month. How much overhead costs were applied to the Work-in-Process Inventory during April using traditional costing? A) $536,000. B) $720,000. C) $736,000. D) $820,000.

92) Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,700 units of Basic Product and 1,100 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Basic Product requires 0.3 direct labor hours per unit and Deluxe Product requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $98,785. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows: Estimated Activity Cost Pool Activity 1 Activity 2 General Factory Total

Overhead Costs $ 30,528 17,385 50,872 $ 98,785

Expected Activity Basic Product Deluxe Product Total 1,000 600 1,600 1,700 200 1,900 510 660 1,170

(Note: The General Factory costs are allocated on the basis of direct labor hours.) The predetermined overhead rate under the traditional costing system is closest to: A) $9.15. B) $43.48. C) $84.43. D) $19.08.

93) Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,700 units of Basic Product and 1,100 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Basic Product requires 0.3 direct labor hours per unit and Deluxe Product requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $98,785. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows: Estimated Activity Cost Pool Activity 1 Activity 2 General Factory Total

Overhead Costs $ 30,528 17,385 50,872 $ 98,785

Expected Activity Basic Product Deluxe Product Total 1,000 600 1,600 1,700 200 1,900 510 660 1,170

The overhead cost per unit of Deluxe Product under the traditional costing system is closest to: A) $50.66. B) $5.49. C) $26.09. D) $11.45.

94) Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,700 units of Basic Product and 1,100 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Basic Product requires 0.3 direct labor hours per unit and Deluxe Product requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $98,785. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows: Estimated Activity Cost Pool Activity 1 Activity 2 General Factory Total

Overhead Costs $ 30,528 17,385 50,872 $ 98,785

Expected Activity Basic Product Deluxe Product Total 1,000 600 1,600 1,700 200 1,900 510 660 1,170

(Note: The General Factory costs are allocated on the basis of direct labor hours.) The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to: A) $9.15. B) $51.99. C) $86.93. D) $10.23.

95) Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,700 units of Basic Product and 1,100 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Basic Product requires 0.3 direct labor hours per unit and Deluxe Product requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $98,785. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows: Estimated Activity Cost Pool Activity 1 Activity 2 General Factory Total

Overhead Costs $ 30,528 17,385 50,872 $ 98,785

Expected Activity Basic Product Deluxe Product Total 1,000 600 1,600 1,700 200 1,900 510 660 1,170

(Note: The General Factory costs are allocated on the basis of direct labor hours.) The overhead cost per unit of Deluxe Product under the activity-based costing system is closest to: A) $50.66. B) $26.09. C) $35.28. D) $38.16.

96) Chang Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Plain and Fancy, about which it has provided the following data: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

Plain $ 24.50 $ 5.00 0.20 45,000

Fancy $ 59.30 $ 25.00 1.00 15,000

The company's estimated total manufacturing overhead for the year is $985,440 and the company's estimated total direct labor-hours for the year is 24,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Supporting direct labor (DLHs) Setting up machines (setups) Parts administration (part types) Total

DLHs Setups Part types

Estimated Overhead Cost $ 384,000 255,840 345,600 $ 985,440 Expected Activity Plain Fancy 9,000 15,000 1,032 936 624 240

Total 24,000 1,968 864

The manufacturing overhead that would be applied to a unit of Plain under the company's traditional costing system is closest to: A) $8.21. B) $3.20. C) $11.73. D) $19.94.

97) Chang Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Plain and Fancy, about which it has provided the following data: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

Plain $ 24.50 $ 5.00 0.20 45,000

Fancy $ 59.30 $ 25.00 1.00 15,000

DLHs Setups Part types

Estimated Overhead Cost $ 384,000 255,840 345,600 $ 985,440 Expected Activity Plain Fancy 9,000 15,000 1,032 936 624 240

Total 24,000 1,968 864

The manufacturing overhead that would be applied to a unit of product Fancy under the activitybased costing system is closest to: A) $71.57. B) $41.06. C) $8.11. D) $30.51.

98) Russell Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Slow and Fast, about which it has provided the following data: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

Slow $ 14.10 $ 3.20 0.20 30,000

Fast $ 43.40 $ 25.60 1.60 15,000

The company's estimated total manufacturing overhead for the year is $1,526,700 and the company's estimated total direct labor-hours for the year is 30,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Assembling products (DLHs) Preparing batches (batches) Product support (product variations) Total

DLHs Batches Product variations

Estimated Overhead Cost $ 720,000 362,700 444,000 $ 1,526,700 Expected Activity Slow Fast Total 6,000 24,000 30,000 1,380 1,410 2,790 570 540 1,110

The manufacturing overhead that would be applied to a unit of product Slow under the company's traditional costing system is closest to: A) $18.38. B) $28.56. C) $10.18. D) $4.80.

99) Russell Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Slow and Fast, about which it has provided the following data: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

Slow $ 14.10 $ 3.20 0.20 30,000

Fast $ 43.40 $ 25.60 1.60 15,000

DLHs Batches Product variations

Estimated Overhead Cost $ 720,000 362,700 444,000 $ 1,526,700 Expected Activity Slow Fast Total 6,000 24,000 30,000 1,380 1,410 2,790 570 540 1,110

The manufacturing overhead that would be applied to a unit of product Fast under the activitybased costing system is closest to: A) $81.42. B) $65.02. C) $146.44. D) $12.22.

100) Upton Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Long and Short, about which it has provided the following data: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

Long $ 14.20 $ 16.80 0.80 45,000

Short $ 48.30 $ 50.40 2.40 10,000

The company's estimated total manufacturing overhead for the year is $3,170,400 and the company's estimated total direct labor-hours for the year is 60,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Direct labor support (DLHs) Setting up machines (setups) Part administration (part types) Total

DLHs Setups Part types

Estimated Overhead Cost $ 1,740,000 422,400 1,008,000 $ 3,170,400 Expected Activity Long Short 36,000 24,000 1,140 1,500 900 2,460

Total 60,000 2,640 3,360

The unit product cost of Product Long under the company's traditional costing system is closest to: A) $54.20. B) $73.27. C) $64.25. D) $31.00.

101) Upton Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Long and Short, about which it has provided the following data: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

Long $ 14.20 $ 16.80 0.80 45,000

Short $ 48.30 $ 50.40 2.40 10,000

DLHs Setups Part types

Estimated Overhead Cost $ 1,740,000 422,400 1,008,000 $ 3,170,400 Expected Activity Long Short 36,000 24,000 1,140 1,500 900 2,460

Total 60,000 2,640 3,360

Unit overhead cost of Product Short under the activity-based costing system is closest to: A) $266.10. B) $98.70. C) $167.40. D) $225.52.

102) Cassidy Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, VIP and Kommander, about which it has provided the following data: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

VIP $ 27.50 $ 15.60 0.60 40,000

Kommander $ 62.10 $ 52.00 2.00 15,000

The company's estimated total manufacturing overhead for the year is $2,449,440 and the company's estimated total direct labor-hours for the year is 54,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Assembling products (DLHs) Preparing batches (batches) Product support (product variations) Total

DLHs Batches Product variations

Estimated Overhead Cost $ 918,000 397,440 1,134,000 $ 2,449,440 Expected Activity VIP Kommander 24,000 30,000 1,458 1,026 2,592 1,188

Total 54,000 2,484 3,780

The unit product cost of Product VIP under the company's traditional costing system is closest to: A) $53.30. B) $70.32. C) $43.10. D) $78.57.

103) Cassidy Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, VIP and Kommander, about which it has provided the following data: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

VIP $ 27.50 $ 15.60 0.60 40,000

Kommander $ 62.10 $ 52.00 2.00 15,000

DLHs Batches Product variations

Estimated Overhead Cost $ 918,000 397,440 1,134,000 $ 2,449,440 Expected Activity VIP Kommander 24,000 30,000 1,458 1,026 2,592 1,188

Total 54,000 2,484 3,780

Unit overhead cost of Product Kommander under the activity-based costing system is closest to: A) $204.82. B) $68.70. C) $182.80. D) $114.10.

104) Miracle Consulting Corporation has its headquarters in Chicago and operates from three branch offices in Portland, Dallas, and Miami. Two of the company's activity cost pools are General Service and Research Service. These costs are allocated to the three branch offices using an activity-based costing system. Information for next year follows: Activity Cost Pool General service Research service

Activity Measure % of time devoted to branch Computer time

Estimated Cost $ 700,000 $ 140,000

Estimated branch data for next year is as follows: Portland Dallas Miami

% of time 30% 60% 10%

Computer time 200,000minutes 150,000minutes 50,000minutes

How much of the headquarters cost allocation should the Dallas office expect to receive next year? A) $280,000. B) $409,500. C) $472,500. D) $504,000. 105) A basic assumption of activity-based costing (ABC) is that: A) All manufacturing costs vary directly with units of production. B) Products or services require the performance of activities and activities consume resources. C) Only costs that respond to unit-level drivers are product costs. D) Only variable costs are included in the activity cost pools. 106) In an activity-based costing (ABC) system, what should be used to assign departmental manufacturing overhead costs to products produced in varying lot sizes? A) A product's ability to bear cost allocations. B) A single cause-and-effect relationship. C) Multiple cause-and-effect relationships. D) Relative net sales values of the products.

107) Mission Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information provided below. (CMA based) Wall Mirrors

Specialty Windows

Units Produced

Material moves per product line

200

300

Direct labor hours per product line Budgeted material handling costs: $50,000

Under a traditional costing system that allocates overhead on the basis of direct labor hours, the materials handling costs allocated to one unit of Wall Mirrors would be: A) $1,000. B) $500. C) $2,000. D) $5,000. 108) Mission Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information provided below. (CMA based) Wall Mirrors

Specialty Windows

Units Produced

Material moves per product line

200

300

Direct labor hours per product line Budgeted material handling costs: $50,000

Under a traditional costing system that allocates overhead on the basis of direct labor hours, the materials handling costs allocated to one unit of Specialty Windows would be: A) $1,500. B) $500. C) $2,000. D) $5,000.

109) Mission Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information provided below. (CMA based) Wall Mirrors

Specialty Windows

Units Produced

Material moves per product line

200

300

Direct labor hours per product line Budgeted material handling costs: $50,000

Under an activity-based costing (ABC) system, the materials handling costs allocated to one unit of Wall Mirrors would be: A) $625.00. B) $312.50. C) $833.33. D) $1,000.00. 110) Mission Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information provided below. (CMA based) Wall Mirrors

Specialty Windows

Units Produced

Material moves per product line

200

300

Direct labor hours per product line Budgeted material handling costs: $50,000

Under an activity-based costing (ABC) system, the materials handling costs allocated to one unit of Specialty Windows would be: A) $1,875.00. B) $937.50. C) $312.50. D) $1,500.00.

111) Falcon Company manufactures and sells two models of a computer tablets. The Basic Model has limited networking capability while the Explorer Model has significantly more features. The tablets are produced to order and the company has no inventories at the end of the year. The cost accounting system at Falcon allocates overhead to products based on direct-labor cost. Overhead in year 1, which just ended, was $3,412,500. Other data for year 1 for the two products follow: Basic Model Explorer Model (20,000 units) (3,000 units) Sales revenue $ 6,600,000 $ 3,645,000 Direct materials 3,200,000 450,000 Direct labor 1,600,000 675,000 Required: a. Compute product line profits for the Basic Model and the Explorer Model for year 1. b. A study of overhead shows that without the Basic Model, overhead would fall to $2,750,000. Assume all other revenues and costs would remain the same for the Explorer Model in year 2. Compute product line profits for the Explorer Model in year 2 assuming the Basic Model was not produced or sold. 112) Brenda's Big Burgers, a small hamburger restaurant and take-out drive-through, has identified the following resources that it uses in its business: Required: Fill in the chart below indicating the cost hierarchy that each of these costs is related: Volume Batch Product related related related

Facility related

A. Bread for burger buns Take-out bags assuming one per B. customer order C. Ground sirloin Mayonnaise, catsup, pickles, and D. onions E. Salary of the restaurant manager F. Restaurant rent G. Workers hourly wages H. Advertising and coupons for Brenda's Colossal Burger I. Utilities J. Brenda's Buy- Any One Burger and Get one Free Burger Promotion 35 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

113) Conway Mountain Analysis offers agriculture and environmental assays. Its Soil Division performs testing on soil (S), as well as examines for the presence of pesticide residue (PR). Aggregated operating costs for the division are $1,050,000 based on a single overhead pool at a rate of $70 per testing hour. S testing uses 5,000 hours and PR uses 10,000 hours. The company is trying to determine whether a better costing structure can be established. The controller has identified the following costs: (1) Salaries and wages of laboratory techs are $600,000 based on 45% to S testing and 55% to PR testing. (2) Equipment related overhead like maintenance and utilities amounts to $150,000, with a cost driver of number of test hours. (3) Setup costs are $120,000 assigned based on 10,000 total setup hours. S testing requires 4,200 setup hours and PR testing requires 5,800 setup hours. (4) Costs of test designs amount to $180,000, based on the time required to design the tests. S testing requires 3,250 hours and P testing requires 1,750 hours. Required: Classify (1) through (4) above as volume-, batch-, product-, or facility-related costs. 114) Conform Foam Products produces different kinds of industrial packing materials, all in one manufacturing facility. They have identified four activities for their costing system: Materials management—allocated by number of purchase orders Chemical processing—allocated on metric tons Molding—allocated on direct labor hours Packaging—allocated by number of units produced The activity rates are as follows: Materials management Chemical processing Molding Packaging

$ 10.00Per purchase order 6.50Per metric ton 23.50Per direct labor hour 0.25Per unit

Engineering design shows that the order will require direct materials of $775, direct labor cost of $125, 5 purchase orders, 6 metric tons of chemical base, and 12 direct labor hours. The size of the order to produce is 5,000 units of product. Required: (1) Calculate the overhead cost of the order. (2) Calculate total cost of the order.

115) Blalock Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $10 per direct labor hour. Department A produces Products #101X and #102Y. Department A has $262,000 in traceable overhead. Department B manufactures Product #103Z. Department B has $128,000 in traceable overhead. The product costs (per unit) and other information are as follows:

Direct materials Direct labor Overhead Machine hours (per unit) Number of cases (per year)

101X $ 60.00 42.00 40.00 $ 142.00 4 3,000

Products 102Y $ 58.00 31.50 30.00 $ 119.50 2 5,000

103Z $ 46.00 12.00 20.00 $ 78.00 3 6,000

Required: a. If Blalock changes its allocation basis to machine hours, what is the total overhead cost per unit for Product 101X, 102Y, and 103Z? b. If Blalock changes its overhead allocation to departmental rates, what is the overhead cost per unit for Product 101X, 102Y, and 103Z, assuming Departments A and B use direct labor hours and machine hours as their respective allocation bases? 116) Conway Mountain Analysis offers agriculture and environmental assays. Its Soil Division performs testing on soil (S), as well as examines for the presence of pesticide residue (PR). Aggregated operating costs for the division are $1,050,000 based on a single overhead pool at a rate of $70 per testing hour. S testing uses 5,000 hours and PR uses 10,000 hours. The company is trying to determine whether a better costing structure can be established. The controller has identified the following costs: (1) Salaries and wages of laboratory techs are $600,000 (based on 45% for S and 55% for PR testing). (2) Equipment related overhead like depreciation, maintenance, utilities, and insurance amounts to $150,000, with a cost driver of number of test hours. (3) Setup costs are $120,000 assigned based on 10,000 total setup hours. S testing requires 4,200 setup hours and PR testing requires 5,800 setup hours. (4) Costs of test designs amount to $180,000, based on the time required to design the tests. S testing requires 3,250 hours and P testing requires 1,750 hours. Required: (a) Calculate the cost per test hour for S and PR using an improved costing system. (b) Explain briefly the reasons why these costs are different from the $70 per test-hour under the current costing system.

117) Pretty Dog Corporation manufactures two models of grooming stations, a standard and a deluxe model. The following activity and cost information has been compiled: Product Standard Deluxe Overhead costs

Number of Setups Number of Components Number of Direct Labor Hours 3 30 650 7 50 150 $ 30,000 $ 50,000

Assume a traditional costing system applies the overhead costs based on direct labor hours. Required: a. What is the total amount of overhead costs assigned to the standard model? b. What is the total amount of overhead costs assigned to the deluxe model? Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead. c. What is the total amount of overhead costs assigned to the standard model? d. What is the total amount of overhead costs assigned to the deluxe model? 118) JennerMaid Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $20 per direct labor hour. Department 1 produces Product X and has $256,000 in traceable overhead. Department 2 manufactures Products Y and Z and has $524,000 in traceable overhead. The product costs (per unit) and other information are as follows:

Direct materials Direct labor Overhead Machine hours (per unit) Number of units (per year)

X $ 85.00 42.00 40.00 $ 167.00 4 6,000

Products Y $ 74.00 31.50 30.00 $ 135.50 2 10,000

Z $ 66.00 22.00 20.00 $ 108.00 3 12,000

Required: a. If JennerMaid changes its allocation basis to machine hours, what is the overhead cost per unit for Product X, Y, and Z? b. If JennerMaid changes its overhead allocation to departmental rates, what is the overhead cost per unit for Product X, Y, and Z, assuming Department 1 uses direct labor hours and Department 2 uses machine hours as their respective allocation bases? (round to four decimal places)

119) Cameron Company has two major segments with the following information: Annual revenue Annual salesperson salaries Number of customers Miles driven

East $ 400,000 300,000 60 180,000

West $ 1,200,000 450,000 90 120,000

Total $ 1,600,000 750,000 150 300,000

The business also has overhead costs as follows: Cost Pool Travel Entertainment Administrative Total

Cost in Pool $ 72,000 288,000 289,000 $ 649,000

Cost driver Number of miles driven Number of customers Salaries

NOTE: overhead does not include salesperson salaries. Required: a. Determine the income of each segment if overhead costs are allocated based on sales revenue. b. Determine the income of each segment if overhead costs are allocated using activity-based cost drivers. 120) The Sparkle Cleaning Company provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system: Activity Cost Pool Cleaning Job support Client support Other Total

Total Cost $ 101,574 32,724 5,472 100,000 $ 239,770

Total Activity 16,200hours 1,800jobs 320clients Not applicable

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. One particular client, the Smith family, requested 32 jobs during the year that required a total of 192 hours of housecleaning. For this service, the client was charged $2,200. Required: a. Using an activity-based costing system, compute the client margin for the Smith family. (Round all calculations to the nearest whole cent.) b. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to clients on the basis of cleaning hours. Compute the margin for the Smith family. (Round all calculations to the nearest whole cent.) 39 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

121) Cooke Company manufactures two products, Product F and Product G. The company expects to produce and sell 1,400 units of Product F and 1,800 units of Product G during the current year. The company uses activity-based costing to compute unit product costs for external reports. Below are current year data for the company's three activity cost pools:

Activity Cost Pool Machine setups Purchase orders General factory

Total Cost $ 10,800 $ 77,520 $ 75,920

Product F 80setups 510orders 2,240hours

Total Activity Product G Total 100setups 180setups 1,010orders 1,520orders 3,600hours 5,840hours

Required: Using the activity-based costing approach, determine the overhead cost per unit for each product. 122) Barnard Corporation has provided the following data from its activity-based costing accounting system: Activity Cost Pools Designing products Batch Setup Assembling products

Total Cost $ 806,715 $ 23,660 $ 42,240

Total Activity 6,895product design hours 910batch set-ups 3,520assembly hours

Required: Compute the activity rates for each of the three cost pools. Show your work. 123) Data concerning three of Parkeman Corporation's activity cost pools appear below: Activity Cost Pools Assembling products Designing products Batch Setup

Total Cost $ 49,830 557,220 38,180

Total Activity 4,530assembly hours 3,012product design hours 830batch set-ups

Required: Compute the activity rates for each of the three cost pools. Show your work.

124) Safety Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products. Activity Cost Pools Batch Setup Processing customer orders Assembling products

Activity Rate $ 62.52per batch $ 19.58per customer order $ 8.71per assembly hour

Data concerning two products appear below: Product C

Product E

Number of batches

Number of customer orders

Number of assembly hours

419

162

Required: How much overhead cost would be assigned to each of the products using the company's activity-based costing system? 125) Work Horse Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products. Activity Cost Pools Batch Setup Assembling products Processing customer orders

Activity Rate $ 83.75per batch $ 2.88per assembly hour $ 50.41per customer order

Data concerning two products appear below: Product J

Product S

Number of batches

Number of assembly hours

105

824

Number of customer orders

Required: a. How much overhead cost would be assigned to Product J using the company's activity-based costing system? Show your work. b. How much overhead cost would be assigned to Product S using the company's activity-based costing system? Show your work!

126) Maxim Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products. Activity Cost Pools Batch Setup Processing customer orders Assembling products

Activity Rate $ 74.76per batch $ 55.40per customer order $ 1.36per assembly hour

Last year, Product P involved 33 batches, 1 customer order, and 368 assembly hours. Required: How much overhead cost would be assigned to Product P using the company's activity-based costing system? Show your work. 127) Sarno Corporation has an activity-based costing system with three activity cost poolsProcessing, Batch Setup, and Other. Costs in the Processing cost pool are assigned to products based on machine-hours (MHs) and costs in the Batch Setup cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the company's two products appear below: Activity Cost Pools Processing Batch Setup Other Product #1 Product #2 Total Sales Direct materials Direct labor

$ 3,000 $ 9,800 $ 9,200 MHs 5,800 4,200 10,000

Batches 700 300 1,000 Product #1 $ 45,300 $ 19,600 $ 15,900

Product #2 $ 48,400 $ 16,900 $ 24,200

Required: a. Calculate activity rates for each activity cost pool using activity-based costing. b. Determine the amount of overhead cost that would be assigned to each product using activitybased costing. c. Determine the product margins for each product using activity-based costing.

128) Market Corporation has an activity-based costing system with three activity cost poolsProcessing, Batch Setup, and Other. The company's overhead costs, which consist of factory utilities and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Data concerning the company's costs and activity-based costing system appear below: Factory utilities Indirect labor

$ 39,000 $ 3,000

Distribution of Resource Consumption Across Activity Cost Pools Processing

Batch Setup

Other

Factory utilities

0.10

0.60

0.30

Indirect labor

0.30

0.10

0.60

Required: Assign overhead costs to activity cost pools using activity-based costing. 129) Vargus Corporation has an activity-based costing system with three activity cost poolsProcessing, Batch Setup, and Other. The company's overhead costs consist of equipment depreciation and indirect labor and are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Equipment depreciation totals $72,000 and indirect labor totals $8,000. Data concerning the distribution of resource consumption across activity cost pools appear below: Processing

Batch Setup

Other

Equipment depreciation

0.20

0.40

Indirect labor

0.20

0.30

0.50

Required: Assign overhead costs to activity cost pools using activity-based costing.

130) Yang Corporation has an activity-based costing system with three activity cost poolsMachining, Batch Setup, and Other. The company's overhead costs, which consist of equipment depreciation and indirect labor, have been allocated to the cost pools already and are provided in the table below.

Costs in the Machining cost pool are assigned to products based on machine-hours (MHs) and costs in the Batch Setup cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the company's two products and the company's costs appear below: MHs 4,400 5,600 10,000

Product Z Product Q Total Sales Direct materials Direct labor

Batches 400 1,600 2,000 Product Z $ 137,900 $ 59,700 $ 57,500

Product Q $ 173,300 $ 43,400 $ 96,000

131) Air Dream Products has contracted with you to analyze and update its costing and pricing practices. The company's product line has changed over time from general air conditioning units to customizable mini-split units. Although some large orders are received, the majority of business is now generated from products designed and produced in small lots in order to meet specific detailed environmental and technical standards. The company has experienced increased overhead growth, including costs in customer service, production scheduling, inventory control and laboratory work. Overhead has doubled since the shift in product lines and management believes that the larger orders are being penalized, while smaller orders are receiving favorable cost and selling price treatment. Required: 1. Why would the shift in product lines have caused such major increases in overhead? 2. Is it possible that management is correct in its belief about the costs of the large and small orders and, if so, why? 3. Write a memo to management suggesting how it might change the cost accounting system to reflect the changes in the business. 132) How can activity-based systems help managers in a global marketplace? 133) Brenda's Big Burgers, a small hamburger restaurant and take-out drive-through, has identified the following resources that it uses in its business: Required: Suggest a proper cost driver for each of the following items: Cost Driver Example A. Bread for burger buns B. Take-out bags assuming one per drive-through customer order C. Ground sirloin D. Mayonnaise, catsup, pickles, and onions E. Salary of the restaurant manager F. Restaurant rent G. Workers hourly wages H. Coupons for Brenda's Colossal Burger I. Utilities J. Brenda's Buy-Any One Burger and Get one Free Burger Promotion

134) Required: For each of the following costs in manufacturing companies, identify a cost driver and explain why it is appropriate. Manufacturing Costs A. Equipment maintenance B. Building utilities C. Computer operations D. Quality control E. Material handling F. Material storage G. Factory depreciation H. Set up costs I. Engineering changes J. Advertising expense

Driver and why appropriate

135) Why is a plantwide allocation method often considered to be a single-stage allocation approach? Explain. 136) Describe the four steps involved in activity-based costing. 137) Describe four classifications of cost drivers. 138) Last year, Jasmine Taylor opened a gift store in a busy shopping center. She spent a lot on advertising and attracted many customers into the store, but very few customers made purchases and sales were declining. Jasmine paid attention to questions and requests made by customers and determined that they often requested items that were within the scope of her business but that she did not carry. When she offered to order items for her customers, delivery was usually too late and, again, sales were lost. What measures should Jasmine take to improve her business? 139) "Activity-based costing is just a more precise form of product costing and is only usable in a production setting." Do you agree or disagree? Explain why. 140) Explain how activity-based costing provides a more detailed measure of costs than do plantwide or department allocation methods. 141) In recent years, why has labor become such a small part of product costs and how can its use in overhead allocation perpetrate errors in decision-making?

142) Lamar Company manufactures two products, Product K9 and Product L43. Product L43 is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product K9. Product L43 is the more complex of the two products, requiring 2.0 hours of direct labor time per unit to manufacture compared to 1.0 hour of direct labor time for Product K9. Product L43 is produced on an automated production line. Overhead currently is applied to the products on the basis of direct labor-hours. The company estimated it would incur $510,000 in manufacturing overhead costs and produce 10,000 units of Product L43 and 40,000 units of Product K9 during the current year. Unit costs for materials and labor are: Direct material Direct labor

Product K9 $ 11 6

Product L43 $ 24 12

Required: a. Compute the predetermined overhead rate under the current method and determine the unit product cost of each product for the current year. b. The company is considering the use of activity-based costing as an alternative to its traditional costing method for manufacturing overhead. Data relating to the company's activity cost pools for the current year are given below:

Activity Cost Pool Machine setups required Purchase orders issued Machine-hours required Maintenance requests issued

Total Cost $ 204,000 43,500 105,000 157,500 $ 510,000

Total Activity Product Product K9 L43 800 1,600 500 100 7,000 10,500 650 850

Total 2,400 600 17,500 1,500

Using the data above, determine the unit product cost of each product for the current year. c. What items of overhead cost make Product L43 so costly to produce according to the activitybased costing system? What influence might the activity-based costing data have on management's opinions regarding the profitability of Product L43?

143) Sylvia's Housecleaning Service provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system: Activity Cost Pool Cleaning Job support Client support Other Total

Total Cost $ 252,787 73,758 7,668 230,000 $ 564,213

Total Activity 44,900hours 5,700jobs 270clients Not applicable

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. One particular client, the Layton family, requested 49 jobs during the year that required a total of 245 hours of housecleaning. For this service, the client was charged $2,500. Required: a. Compute the activity rates (i.e., cost per unit of activity) for the activity cost pools. Round all calculations to the nearest whole cent. b. Using the activity-based costing system, compute the customer margin for the Layton family. Round all calculations to the nearest whole cent. c. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours. Compute the margin for the Layton family. Round all calculations to the nearest whole cent.

144) Harrison Industries has an activity-based costing system with three activity cost poolsProcessing, Batch Setup, and Other. The company's overhead costs, which consist of factory utilities and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Costs in the Processing cost pool are assigned to products based on machine-hours (MHs) and costs in the Batch Setup cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the two products appear below: Factory utilities Indirect labor

$ 29,000 $ 7,000

Distribution of Resource Consumption Across Activity Cost Pools Processing

Setting Up

Other

Factory utilities

0.40

0.10

0.50

Indirect labor

0.50

0.20

0.30

Product #1 $ 54,000 19,100 26,300

Product #2 $ 85,100 $ 33,500 $ 35,000

Product #1 Product #2 Total Sales Direct materials Direct labor

MHs 2,900 7,100 10,000

Batches 700 300 1,000

Required: a. Assign overhead costs to activity cost pools using activity-based costing. b. Calculate activity rates for each activity cost pool using activity-based costing. c. Determine the amount of overhead cost that would be assigned to each product using activitybased costing. d. Determine the product margins for each product using activity-based costing.

145) Excel Manufacturing has an activity-based costing system with three activity cost poolsMachining, Batch Setup, and Other. The company's overhead costs have already been allocated to the cost pools and total $28,000 for the Machining cost pool, $13,800 for the Batch Setup cost pool, and $27,200 for the Other cost pool. Costs in the Machining cost pool are assigned to products based on machine-hours (MHs) and costs in the Batch Setup cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the company's two products and the company's costs appear below: MHs 5,200 14,800 20,000

Product A Product B Total Sales Direct materials Direct labor

Batches 500 500 1,000 Product A $ 124,300 $ 53,100 $ 54,000

Product B $ 166,000 $ 71,500 $ 56,600

146) Sebastian Corporation's activity-based costing system has three activity cost poolsMachining, Batch Setup, and Other. The company's overhead costs, which consist of equipment depreciation and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Equipment depreciation Indirect labor

$ 27,000 $ 7,000

Distribution of Resource Consumption Across Activity Cost Pools Machining

Batch Setup

Other

Equipment depreciation

0.40

0.30

Indirect labor

0.20

0.30

0.50

MHs 8,100 1,900 10,000

Batches 400 1,600 2,000

Additional data concerning the company's products appears below: Sales Direct materials Direct labor

Product Snorkel $ 71,400 $ 21,900 $ 33,700

Product Fin $ 57,600 $ 19,900 $ 25,100

147) Farris Corporation's activity-based costing system has three activity cost pools-Machining, Batch Setup, and Other. The company's overhead costs have already been allocated to these cost pools as follows: Machining Batch Setup Other

$ 15,200 44,800 16,000

Costs in the Machining cost pool are assigned to products based on machine-hours (MHs) and costs in the Batch Setup cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. The following table shows the machine-hours and number of batches associated with each of the company's two products: Product Sea Product Air Total

MHs 2,000 8,000 10,000

Batches 800 200 1,000

Additional data concerning the company's products appears below: Sales Direct materials Direct labor

Product Sea $ 220,700 78,600 $ 89,600

Product Air $ 165,500 83,100 58,000

148) Swannee Company manufactures two products, Product A and Product B. The company estimated it would incur $160,790 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor-hours. Data concerning the current period's operations appear below: Estimated volume Direct labor-hours per unit Direct materials cost per unit Direct labor cost per unit

Product A 3,400units 1.40hour $ 7.40 $ 14.00

Product B 4,800units 1.90hours $ 12.70 $ 19.00

Required: a. Compute the predetermined overhead rate under the current method and determine the unit product cost of each product for the current year. b. The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor-hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:

Activity Cost Pool Machine setups Purchase orders General Factory

Estimated Overhead Costs $ 12,190 79,200 69,400 $ 160,790

Expected Activity Product Product A B Total 80 150 230 730 920 1,650 4,760 9,120 13,880

Determine the unit product cost of each product for the current period using the activity-based costing approach.

149) Merkel Industries has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Large and Small, about which it has provided the following data: Large Small Direct materials per unit $ 17.80 $ 55.40 Direct labor per unit $ 16.10 $ 55.20 Direct labor-hours per unit 0.70 2.40 Annual production 30,000 15,000 The company's estimated total manufacturing overhead for the year is $1,793,790 and the company's estimated total direct labor-hours for the year is 57,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Supporting direct labor (DLHs) Setting up machines (setups) Parts administration (part types) Total

Estimated Overhead Cost $ 285,000 437,190 1,071,600 $ 1,793,790

Activities

Large

Small

Total

Supporting direct labor

21,000

36,000

57,000

Setting up machines

798

2,565

3,363

Parts administration

1,539

1,140

2,679

Required: a. Determine the unit product cost of each of the company's two products under the traditional costing system. b. Determine the unit product cost of each of the company's two products under activity-based costing system.

150) JamMaster Audio Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Boom and Wow, about which it has provided the following data: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

Boom $ 14.90 $ 4.20 0.20 40,000

Wow $ 44.30 $ 25.20 1.20 15,000

The company's estimated total manufacturing overhead for the year is $1,809,600 and the company's estimated total direct labor-hours for the year is 26,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Assembling products (DLHs) Preparing batches (batches) Engrave (MHs) Total Activities

Estimated Overhead Cost $ 702,000 132,600 975,000 $ 1,809,600 Boom

Wow

Total

Assembling products

8,000

18,000

26,000

Preparing batches

884

442

1,326

Engrave

702

1,248

1,950

151) Smithville Industries has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Manual and Power, about which it has provided the following data: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

Manual $ 27.50 $ 7.80 0.60 40,000

Power $ 64.90 $ 23.40 1.80 15,000

The company's estimated total manufacturing overhead for the year is $2,675,460 and the company's estimated total direct labor-hours for the year is 51,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Supporting direct labor (DLHs) Setting up machines (setups) Parts administration (part types) Total

Estimated Overhead Cost $ 1,326,000 456,960 892,500 $ 2,675,460 Manual

Power

Total

Supporting direct labor

24,000

27,000

51,000

Setting up machines

2,346

510

2,856

Parts administration

1,122

663

1,785

Required: a. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system. b. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.

152) Matchbox Manufacturing has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Utility and Super, about which it has provided the following data: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

Utility $ 34.10 $ 16.10 0.70 30,000

Super $ 52.70 $ 39.10 1.70 10,000

The company's estimated total manufacturing overhead for the year is $1,527,600 and the company's estimated total direct labor-hours for the year is 38,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Assembling products (DLHs) Preparing batches (batches) Axial milling (MHs) Total

Estimated Overhead Cost $ 608,000 197,600 722,000 $ 1,527,600 Utility

Super

Total

Assembling products

21,000

17,000

38,000

Preparing batches

456

1,520

1,976

Axial milling

570

874

1,444

153) The manager of the Personnel Department at King Enterprises has been reading about timedriven ABC and wants to apply it to her department. She has identified four basic activities where her employees spend the most time: Interviewing; Hiring, Assessment, and Separation Processing. The Department employs five staff who perform these activities. The manager provides the following estimates for the amount of time it takes to complete each of these activities: ∙ Interviewing: 40 minutes; ∙ Hiring: 60 minutes; ∙ Assessment: 85 minutes; ∙ Separation processing: 95 minutes. Employees in Personnel work 35-hour weeks with four weeks for vacation. Of the 35 hours, five are reserved for administrative tasks, training, and so on. The costs of the personnel department, including any allocated costs from other staff functions is $1,404,000. During the year, Personnel conducted 1,200 interviews, made 405 hires, made 2,850 assessments, and had 235 separations. Required: a. What is the cost per minute for activities in Personnel? b. What is the cost of interviewing and hiring one employee? c. How many minutes of unused capacity did Personnel have for the year? d. What was the cost of the unused capacity in Personnel?

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 10 Fundamentals of Cost Management 1) Activity-based cost management (ABCM) uses the information provided by activity-based costing (ABC) to identify ways to improve operations. 2) Activity-based cost management (ABCM) can be used for managerial decision-making in service, merchandising, and manufacturing companies. 3) Storing materials, work-in-process items, and finished goods in inventory are essential, valueadded activities in most companies. 4) In general, decreasing (or eliminating) the resources committed to nonvalue-added activities will decrease customer response time. 5) In general, the unit-level (or volume-related) costs in an activity-based costing (ABC) system are variable costs. 6) In general, the capacity-related costs in an activity-based costing (ABC) system are variable costs. 7) Managerial decisions based on activity-based costing (ABC) information affect only volumerelated, batch-related, and product-related costs. 8) The basic concepts involved in activity-based costing (ABC) can be used to determine customer profitability as well as product costs. 9) In activity-based costing, the cost driver rate is computed by dividing the total cost per activity by the estimated number of units produced. 10) Activity-based costing (ABC) techniques used to evaluate customer profitability can also be applied to evaluating suppliers. 11) The difference between the resources used and the resources supplied is called unused resource capacity in a typical activity-based cost management (ABCM) system. 12) Unused resource capacity plus the amount of the resources used is equal to the amount of resources supplied. 13) Theoretical capacity is the amount of production possible assuming expected downtime for scheduled maintenance, normal breaks, and vacations. 14) Theoretical capacity is the long-run expected volume based on reasonably attainable working conditions. 15) Unused capacity costs incurred for the benefit of a company's customers (e.g., meet seasonal demands) should be assigned to the customers that require (use) the excess capacity. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

16) In general, managerial decisions affecting capacity-related costs and activities also affect volume-level, batch-level, and product-level cost and activities. 17) Tangible customer expectations include how the product's salespeople treat customers and the time required to deliver the product to the customer. 18) Quality can be defined as the degree to which a product or service performs as it was designed to do. 19) A cost of quality system is based on the trade-off between incurring costs to meet product (or service) specifications and the costs of failing to meet those specifications. 20) Internal failure costs include materials wasted in the production process and correcting products before they are sold. 21) Which of the following statements about activity-based costing (ABC) is not true? (CIA adapted) A) In ABC, cost drivers are used to link costs to products. B) ABC is useful for assigning marketing and distribution costs. C) ABC differs from traditional costing systems in that products are not cross-subsidized. D) ABC is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products. 22) In an activity-based costing (ABC) system, cost reduction is accomplished by identifying and eliminating: (CPA adapted) All Cost Drivers A. B. C. D.

No Yes No Yes

Non value-added Activities No Yes Yes No

A) Option A. B) Option B. C) Option C. D) Option D.

23) Barter Company's cost management and product costing procedures follow activity-based costing (ABC) principles. Activities have been identified and classified as being either valueadded or nonvalue-added for each product. Which of the following activities, used in Barter's production process, is nonvalue-added? (CPA adapted) A) Drill press activity. B) Heat treatment activity. C) Design engineering activity. D) Raw materials storage activity. 24) Activity analysis is one of the first stages in implementing activity-based cost management (ABCM). Which of the following steps in activity analysis is usually performed first? A) Classify all activities as value-added or nonvalue-added. B) Chart, from start to finish, the activities used to complete the product or service. C) Identify the process objectives that are defined by what the customer wants or expects from the process. D) Continuously improve the efficiency of all value-added activities and develop plans to eliminate or reduce nonvalue-added ones. 25) Activity analysis is an important approach to operations control and the successful implementation of activity-based cost management (ABCM). Which of the following procedures is not part of activity analysis? A) Chart, from start to finish, the activities used to complete the product or service. B) Classify all activities as either value-added or nonvalue-added activities. C) Identify the process objectives as defined by what the customer desires from the process. D) Compute the predetermined rate per activity by dividing the total cost pool by the total cost drivers. 26) Which of the following is not true of process reengineering? A) It is the changing of operational processes to improve performance. B) It often takes place after examining ABC data to determine opportunities for improvement. C) It involves identifying what the customer wants or expects from the firm's products or services. D) It is the sixth, and final, step of ABCM activity analysis. 27) Which of the following is a value-added activity? A) Storing items. B) Moving items. C) Waiting for work. D) Assembling items. 28) Which of the following activities is most likely to be classified as value-added for a manufacturing company? A) Storing. B) Ordering. C) Inspecting. D) Assembling. 3 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

29) Which of the following activities is most likely to be classified as value-added for a merchandise company? A) Purchasing. B) Waiting. C) Receiving. D) Setting up. 30) Activity-based cost management (ABCM) can best be defined as: A) a cost system using multiple departmental overhead rates. B) the use of cost information gathered using activity-based costing (ABC). C) a quality-control system focusing on eliminating errors and mistakes. D) an incentive system for a company's key decision-makers. 31) Which of the following items would be classified as a volume-related cost in an activitybased cost management (ABCM) system? A) Indirect materials. B) Production supervisor's salary. C) Depreciation on factory building. D) Research and development. 32) Which of the following items would be classified as a batch-related cost in an activity-based cost management (ABCM) system? A) Indirect labor. B) Production supervisor's salary. C) Depreciation on factory building. D) Machinery set-up costs. 33) Which of the following items would be classified as a product-related cost in an activitybased cost management (ABCM) system? A) Change order to meet a new customer's specification. B) Movement of materials for products in production. C) Long-term lease payments for factory equipment. D) Insurance and property taxes on factory building. 34) Which of the following items would not be used as the cost driver for a volume-related cost in an activity-based cost management (ABCM) system? A) Direct labor hours. B) Machine hours. C) Units produced. D) Square footage. 35) In an activity-based cost management (ABCM) system, facility-related costs are those that are incurred to: A) sustain the company's marketing program. B) maintain the plant's production capacity. C) support the research and development process. D) cause a change in the engineering plans for a product. 4 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

36) McArthur Company has gathered the following data related to its production process of two of its products for the week ended April 30: Model Quantity produced Unit-related material costs Variable conversion costs Total direct costs Indirect costs: Indirect manufacturing costs Indirect operating costs Total indirect costs Total costs

Item #B200 60 $ 42,000 72,000 $ 114,000

Item #C440 100 $ 100,000 300,000 $ 400,000

163,200 255,000 418,200 $ 532,200

272,000 425,000 697,000 $ 1,097,000

The costs above that appear to be allocated rather than traced are: A) Unit-related material costs. B) Variable conversion costs. C) Indirect manufacturing costs only. D) All indirect costs. 37) Fence Industries is preparing its annual profit plan. As part of its analysis of the profitability of its customers, management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows:

Units purchased Purchase orders (annual)

Customer A 100,000 5

Customer B 200,000 20

What is the amount of the sales support costs that should be allocated to Customer A assuming Fence uses units purchased to compute activity-based costs? A) $2,400. B) $4,000. C) $8,000. D) $9,600.

38) Fence Industries is preparing its annual profit plan. As part of its analysis of the profitability of its customers, management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows:

Units purchased Purchase orders (annual)

Customer A 100,000 5

Customer B 200,000 20

What is the amount of the sales support costs that should be allocated to Customer B, assuming Fence uses units purchased to compute activity-based costs? A) $2,400. B) $4,000. C) $8,000. D) $9,600. 39) Fence Industries is preparing its annual profit plan. As part of its analysis of the profitability of its customers, management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows:

Units purchased Purchase orders (annual)

Customer A 100,000 5

Customer B 200,000 20

What is the amount of the sales support costs that should be allocated to Customer A, assuming Fence uses purchases orders to compute activity-based costs? A) $2,400. B) $4,000. C) $8,000. D) $9,600. 40) Fence Industries is preparing its annual profit plan. As part of its analysis of the profitability of its customers, management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows:

Units purchased Purchase orders (annual)

Customer A 100,000 5

Customer B 200,000 20

What is the amount of the sales support costs that should be allocated to Customer B, assuming Fence uses purchases orders to compute activity-based costs? A) $2,400. B) $4,000. C) $8,000. D) $9,600. 6 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

41) Republic Industries decides to price delivery services according to the results of a recent activity-based costing (ABC) study. The study indicates Republic should charge $8 per order, 2% of annual order value for general delivery costs, $1.25 per item, and $30 for delivery. A year later, Republic collected the following information for two of its best customers: Cost driver Number of orders Number of deliveries Total number of items Annual order value

Customer C 18 10 2,000 $ 120,000

Customer D 8 10 4,000 $ 80,000

What are the total delivery costs charged to Customer D during the year? A) $5,344. B) $5,364. C) $6,900. D) $6,964. 42) Republic Industries decides to price delivery services according to the results of a recent activity-based costing (ABC) study. The study indicates Republic should charge $8 per order, 2% of annual order value for general delivery costs, $1.25 per item, and $30 for delivery. A year later, Republic collected the following information for two of its best customers: Cost driver Number of orders Number of deliveries Total number of items Annual order value

Customer C 18 10 2,000 $ 120,000

Customer D 8 10 4,000 $ 80,000

What are the total delivery costs charged to Customer C during the year? A) $5,344. B) $5,364. C) $6,900. D) $6,964.

43) Benton Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows:

Units purchased Purchase orders (annual) Number of shipments received

Vendor A 100,000 6 12

Vendor B 200,000 24 52

What is the amount of the purchasing costs that should be allocated to Vendor A, assuming Benton uses units purchased to compute activity-based costs? A) $9,600. B) $16,000. C) $32,000. D) $38,400. 44) Benton Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows:

Units purchased Purchase orders (annual) Number of shipments received

Vendor A 100,000 6 12

Vendor B 200,000 24 52

What is the amount of the purchasing costs that should be allocated to Vendor B, assuming Benton uses units purchased to compute activity-based costs? A) $9,600. B) $16,000. C) $32,000. D) $38,400.

45) Benton Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows:

Units purchased Purchase orders (annual) Number of shipments received

Vendor A 100,000 6 12

Vendor B 200,000 24 52

What is the amount of the purchasing costs that should be allocated to Vendor A, assuming Benton uses purchases orders to compute activity-based costs? A) $9,600. B) $16,000. C) $32,000. D) $38,400. 46) Benton Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows:

Units purchased Purchase orders (annual) Number of shipments received

Vendor A 100,000 6 12

Vendor B 200,000 24 52

What is the amount of the purchasing costs that should be allocated to Vendor B, assuming Benton uses purchases orders to compute activity-based costs? A) $9,600. B) $16,000. C) $32,000. D) $38,400.

47) Benton Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows:

Units purchased Purchase orders (annual) Number of shipments received

Vendor A 100,000 6 12

Vendor B 200,000 24 52

What is the amount of the purchasing costs that should be allocated to Vendor A, assuming Benton uses number of shipments received to compute activity-based costs? A) $9,000. B) $16,000. C) $32,000. D) $39,000. 48) Benton Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows:

Units purchased Purchase orders (annual) Number of shipments received

Vendor A 100,000 6 12

Vendor B 200,000 24 52

What is the amount of the purchasing costs that should be allocated to Vendor B, assuming Benton uses number of shipments received to compute activity-based costs? A) $9,000. B) $16,000. C) $32,000. D) $39,000.

49) Express Travel decides to price delivery services according to the results of a recent activitybased costing (ABC) study. The study indicates Express Travel should charge $16 per order, 1% of annual order value for general delivery costs, $2.50 per item, and $45 for delivery. A year later, Express Travel collected the following information for three of its customers: Cost driver Number of orders Number of deliveries Total number of items Annual order value

Customer A 18 10 2,000 $ 120,000

Customer B 8 10 4,000 $ 80,000

Customer C 12 24 12,000 $ 100,000

What are the total delivery costs charged to Customer A during the year? A) $5,738. B) $6,650. C) $6,938. D) $20,235. 50) Express Travel decides to price delivery services according to the results of a recent activitybased costing (ABC) study. The study indicates Express Travel should charge $16 per order, 1% of annual order value for general delivery costs, $2.50 per item, and $45 for delivery. A year later, Express Travel collected the following information for three of its customers: Cost driver Number of orders Number of deliveries Total number of items Annual order value

Customer A 18 10 2,000 $ 120,000

Customer B 8 10 4,000 $ 80,000

Customer C 12 24 12,000 $ 100,000

What are the total delivery costs charged to Customer B during the year? A) $13,490. B) $11,378. C) $10,800. D) $10,578.

51) Express Travel decides to price delivery service according to the results of a recent activitybased costing (ABC) study. The study indicates Express Travel should charge $16 per order, 1% of annual order value for general delivery costs, $2.50 per item, and $45 for delivery. A year later, Express Travel collected the following information for three of its customers: Cost driver Number of orders Number of deliveries Total number of items Annual order value

Customer A 18 10 2,000 $ 120,000

Customer B 8 10 4,000 $ 80,000

Customer C 12 24 12,000 $ 100,000

What are the total delivery costs charged to Customer C during the year? A) $16,863. B) $20,000. C) $31,272. D) $32,272. 52) Activity-based costing (ABC) information cannot be used by managerial decision-makers to evaluate the: A) profitability of a customer. B) market potential of a product. C) cost of using a particular supplier. D) whether to continue providing a service. 53) Crafter Lumber Supply noticed a recent decline in the amount of purchases from a key customer. Worried that other customers might also reduce their purchases, Crafter's management decided to evaluate the cost of its delivery service. Which of the following cost drivers is more appropriate for general administrative costs of the Delivery Department? A) Number of different items ordered. B) Value of each order. C) Total number of items in each order. D) Number of deliveries made. 54) The unused resource capacity is the difference between the resources supplied and the resources: A) purchased. B) wasted. C) used. D) on hand. 55) The amount of resources used in an activity-based costing (ABC) system for a specific activity is computed by multiplying the: A) cost driver rate by the actual cost driver volume. B) cost driver rate by the planned cost driver volume. C) overhead rate by the actual cost driver volume. D) overhead rate by the planned cost driver volume. 12 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

56) South Beach Industries reports the following information about resources. At the beginning of the year, South Beach estimated it would spend $180,000 for materials, $42,000 for purchasing, $35,000 for setups, and $36,000 for repairs. Cost Driver Volume

Rate Resources used: Materials Purchasing Setups Repairs Resources supplied: Materials Purchasing Setups Repairs

$ $ $ $

10/lb 250/purchase order 450/setup 36/job

18,350lbs 160purchase orders 80setups 700jobs

$ 192,700 $ 44,300 $ 37,500 $ 30,000

The unused resource capacity for materials for South Beach is: A) $12,700. B) $3,500. C) $19,270. D) $9,200. 57) South Beach Industries reports the following information about resources. At the beginning of the year, South Beach estimated it would spend $180,000 for materials, $42,000 for purchasing, $35,000 for setups, and $36,000 for repairs. Cost Driver Volume

Rate Resources used: Materials Purchasing Setups Repairs Resources supplied: Materials Purchasing Setups Repairs

$ $ $ $

10/lb 250/purchase order 450/setup 36/job

18,350lbs 160purchase orders 80setups 700jobs

$ 192,700 $ 44,300 $ 37,500 $ 30,000

The unused resource capacity for purchasing for South Beach is: A) $5,538. B) $2,000. C) $4,300. D) $2,300. 13 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

58) South Beach Industries reports the following information about resources. At the beginning of the year, South Beach estimated it would spend $180,000 for materials, $42,000 for purchasing, $35,000 for setups, and $36,000 for repairs. Cost Driver Volume

Rate Resources used: Materials Purchasing Setups Repairs Resources supplied: Materials Purchasing Setups Repairs

$ $ $ $

10/lb 250/purchase order 450/setup 36/job

18,350lbs 160purchase orders 80setups 700jobs

$ 192,700 $ 44,300 $ 37,500 $ 30,000

The unused resource capacity for setups for South Beach is: A) $2,500. B) $1,080. C) $1,500. D) $1,000. 59) South Beach Industries reports the following information about resources. At the beginning of the year, South Beach estimated it would spend $180,000 for materials, $42,000 for purchasing, $35,000 for setups, and $36,000 for repairs. Cost Driver Volume

Rate Resources used: Materials Purchasing Setups Repairs Resources supplied: Materials Purchasing Setups Repairs

$ $ $ $

10/lb 250/purchase order 450/setup 36/job

18,350lbs 160purchase orders 80setups 700jobs

$ 192,700 $ 44,300 $ 37,500 $ 30,000

The unused resource capacity for repairs for South Beach is: A) $4,800. B) $10,800. C) $6,000. D) $3,600. 14 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

60) Macon Publishing reports the following information about resources. At the beginning of the year, Macon estimated it would spend $42,000 for setups and $21,000 for clerical.

Resources used: Setups Clerical Resources supplied: Setups Clerical

$ $

Rate

Cost Driver Volume

250 30

175runs 500pages typed

$ 45,000 20,000

The unused resource capacity for setups for Macon Publishing is: A) $1,250. B) $3,000. C) $1,750. D) $5,000. 61) Macon Publishing reports the following information about resources. At the beginning of the year, Macon estimated it would spend $42,000 for setups and $21,000 for clerical.

Resources used: Setups Clerical Resources supplied: Setups Clerical

$ $

Rate

Cost Driver Volume

250 30

175runs 500pages typed

$ 45,000 20,000

The unused resource capacity for clerical for Macon Publishing is: A) $5,000. B) $1,000. C) $6,000. D) $1,260.

62) Denim Products reports the following information about resources. At the beginning of the year, Denim estimated it would spend $84,000 for setups and $41,000 for quality testing. Cost Driver Resources used: Setups Quality testing Resources supplied: Setups Quality testing

$ $

Rate

Volume

250/run 40/test

350runs 900tests

$ 90,000 $ 40,000

The unused resource capacity for setups for Denim Products is: A) $6,000. B) $2,500. C) $1,000. D) $3,500. 63) Denim Products reports the following information about resources. At the beginning of the year, Denim estimated it would spend $84,000 for setups and $41,000 for quality testing. Cost Driver Resources used: Setups Quality testing Resources supplied: Setups Quality testing

Rate

Volume

250/run 40/test

350runs 900tests

$ 90,000 40,000

The unused resource capacity for quality testing for Denim Products is: A) $4,000. B) $2,000. C) $1,000. D) $5,000.

64) Scallon Products reports the following information about resources. At the beginning of the year, Scallon estimated it would spend $8,000 for energy and $12,000 for repairs. Cost Driver Resources used: Energy Repairs Resources supplied: Energy Repairs

$ $

Rate

Volume

0.80/MH 24/job

11,350MH 600jobs

$ 10,500 $ 18,000

The unused resource capacity for energy for Scallon Products is: A) $8,000. B) $1,080. C) $1,420. D) $2,500. 65) Scallon Products reports the following information about resources. At the beginning of the year, Scallon estimated it would spend $8,000 for energy and $12,000 for repairs. Cost Driver Resources used: Energy Repairs Resources supplied: Energy Repairs

$ $

Rate

Volume

0.80/MH 24/job

11,350MH 600jobs

$ 10,500 $ 18,000

The unused resource capacity for repairs for Scallon Products is: A) $2,400. B) $12,000. C) $6,000. D) $3,600. 66) The amount of production possible under normal working conditions, including planned downtime and scheduled vacations, is called: A) actual capacity. B) normal capacity. C) practical capacity. D) theoretical capacity.

67) Which of the following statements is(are) true? (A) Theoretical capacity is the long-run expected volume based on reasonably attainable working conditions. (B) The cost of excess capacity is allocated to individual cost objects using the cost driver rate. A) Only A is true. B) Only B is true. C) Both of these are true. D) Neither of these is true. 68) Which of the following statement is(are) true? (A) Unused capacity costs incurred for the benefit of a company's customers (e.g., meet seasonal demands) should be assigned to the customers that require (use) the excess capacity. (B) In general, managerial decisions affecting capacity-related costs and activities also affect volume-related, batch-related, and product-related cost and activities. A) Only A is true. B) Only B is true. C) Both of these are true. D) Neither of these is true. 69) A company has high winter demand and low summer demand for its services. The cost of the unused summer capacity should be allocated: A) to an account called Idle Capacity. B) evenly to all customers. C) only to the winter customers. D) only to the summer customers. 70) Which of the following is not an explanation of why a company would operate at less than theoretical capacity? A) Scheduled maintenance of equipment. B) Breakdowns in equipment. C) Customer demand is less than anticipated. D) Customer demand is more than anticipated. 71) The degree to which a good or service meets specifications is called: A) conformance to specifications. B) customer quality demands. C) a conformance cost. D) a compliance cost.

72) Which of the following statements regarding quality costs is(are) false? (A) In a cost of quality system, internal and external failure costs are called conformance costs. (B) Prevention costs are costs incurred to detect individual units of product that do not conform to its specifications. A) Only A is false. B) Only B is false. C) Both of these are false. D) Neither of these is false. 73) Which of the following is not an example of a prevention cost? A) Training employees to improve quality. B) Designing products to reduce production problems. C) Correcting product defects before they are sold. D) Inspecting the production process as it occurs. 74) Which of the following is an example of a prevention cost? A) Machine inspection. B) Warranty repairs. C) Field testing. D) Marketing costs. 75) Which of the following is an example of an internal failure cost? A) Training employees to improve quality. B) Designing products to reduce production problems. C) Correcting product defects before they are sold. D) Inspecting the production process as it occurs. 76) Which of the following is not an example of an external failure cost? A) Accepting company liability resulting from product failure. B) Experiencing decreasing sales as a result of poor-quality products. C) Repairing or replacing defective products after they've been sold. D) Testing products in use at the customer's site. 77) Which of the following statements regarding the trade-off between conformance and nonconformance costs is(are) false? (A) The optimal level for a company's quality control program occurs when its conformance costs equal its nonconformance costs. (B) There is an inverse relationship between the costs spent on nonconformance costs and the level of quality achieved. A) Only A is false. B) Only B is false. C) Both of these are false. D) Neither of these is false. 19 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

78) Which of the following items is included in almost all quality control systems? A) Quality-related waiting time. B) Quality planning and analysis. C) Excess or obsolete inventory. D) Quality-related overtime. 79) Water Industries' quality control report for August contains the following items: Gathering, analysis, and reporting quality data Inspecting raw materials received from vendors Testing and inspecting finished products Visiting customer sites to test product Designing product to reduce production problems Repairing and/or replacing products under warranty Maintaining the equipment used to gather quality data Cost (net) of materials wasted during production

$ 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

What would be the total of the prevention costs on the August quality control report for Water Industries? A) $5,000. B) $7,000. C) $11,000. D) $15,000. 80) Water Industries' quality control report for August contains the following items: Gathering, analysis, and reporting quality data Inspecting raw materials received from vendors Testing and inspecting finished products Visiting customer sites to test product Designing product to reduce production problems Repairing and/or replacing products under warranty Maintaining equipment used to gather production quality data Cost (net) of materials wasted during production

$ 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

What would be the total of the appraisal costs on the August quality control report for Water Industries? A) $7,000. B) $11,000. C) $12,000. D) $15,000.

81) Water Industries' quality control report for August contains the following items: Gathering, analysis, and reporting quality data Inspecting raw materials received from vendors Testing and inspecting finished products Visiting customer sites to test product Designing product to reduce production problems Repairing and/or replacing products under warranty Maintaining equipment used to gather production quality data Cost (net) of materials wasted during production

$ 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

What would be the total of the internal failure costs on the August quality control report for Water Industries? A) $8,000. B) $13,000. C) $14,000. D) $16,000. 82) Water Industries' quality control report for August contains the following items: Gathering, analysis, and reporting quality data Inspecting raw materials received from vendors Testing and inspecting finished products Visiting customer sites to test product Designing product to reduce production problems Repairing and/or replacing products under warranty Maintaining equipment used to gather production quality data Cost (net) of materials wasted during production

$ 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

What would be the total of the external failure costs on the August quality control report for Water Industries? A) $4,000. B) $6,000. C) $7,000. D) $14,000.

83) Water Industries' quality control report for August contains the following items: Gathering, analysis, and reporting quality data Inspecting raw materials received from vendors Testing and inspecting finished products Visiting customer sites to test product Designing product to reduce production problems Repairing and/or replacing products under warranty Maintaining equipment used to gather production quality data Cost (net) of materials wasted during production

$ 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

What would be the total of the conformance costs on the August quality control report for Water Industries? A) $22,000. B) $20,000. C) $15,000. D) $13,000. 84) Water Industries' quality control report for August contains the following items: Gathering, analysis, and reporting quality data Inspecting raw materials received from vendors Testing and inspecting finished products Visiting customer sites to test product Designing product to reduce production problems Repairing and/or replacing products under warranty Maintaining equipment used to gather production quality data Cost (net) of materials wasted during production

$ 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

What would be the total of the nonconformance costs on the August quality control report for Water Industries? A) $22,000. B) $21,000. C) $14,000. D) $13,000.

85) Glory Enterprises quality control report for August contains the following items: Liability costs associated with defective products Disposal costs of defective products failing inspection Disposal costs of raw materials failing inspection Quality training provided to workers Lost sales due to poor quality and defective products Advertising costs to offset perception of poor product quality Raw materials used to correct defects before product was sold Testing and inspecting a sample of finished goods

$ 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

What would be the total of the conformance costs on the August quality control report for Glory Enterprises? A) $200,000. B) $170,000. C) $150,000. D) $90,000. 86) Glory Enterprises quality control report for August contains the following items: Liability costs associated with defective products Disposal costs of defective products failing inspection Disposal costs of raw materials failing inspection Quality training provided to workers Lost sales due to poor quality and defective products Advertising costs to offset perception of poor product quality Raw materials used to correct defects before product was sold Testing and inspecting a sample of finished goods

$ 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

What would be the total of the nonconformance costs on the August quality control report for Glory Enterprises? A) $120,000. B) $150,000. C) $180,000. D) $210,000.

87) Glory Enterprises quality control report for August contains the following items: Liability costs associated with defective products Disposal costs of defective products failing inspection Disposal costs of raw materials failing inspection Quality training provided to workers Lost sales due to poor quality and defective products Advertising costs to offset perception of poor product quality Raw materials used to correct defects before product was sold Testing and inspecting a sample of finished goods

$ 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

What would be the total of the prevention costs on the August quality control report for Glory Enterprises? A) $180,000. B) $120,000. C) $90,000. D) $70,000. 88) Glory Enterprises quality control report for August contains the following items: Liability costs associated with defective products Disposal costs of defective products failing inspection Disposal costs of raw materials failing inspection Quality training provided to workers Lost sales due to poor quality and defective products Advertising costs to offset perception of poor product quality Raw materials used to correct defects before product was sold Testing and inspecting a sample of finished goods

$ 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

What would be the total of the appraisal costs on the August quality control report for Glory Enterprises? A) $30,000. B) $70,000. C) $80,000. D) $90,000.

89) Glory Enterprises quality control report for August contains the following items: Liability costs associated with defective products Disposal costs of defective products failing inspection Disposal costs of raw materials failing inspection Quality training provided to workers Lost sales due to poor quality and defective products Advertising costs to offset perception of poor product quality Raw materials used to correct defects before product was sold Testing and inspecting a sample of finished goods

$ 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

What would be the total of the internal failure costs on the August quality control report for Glory Enterprises? A) $60,000. B) $90,000. C) $100,000. D) $120,000. 90) Glory Enterprises quality control report for August contains the following items: Liability costs associated with defective products Disposal costs of defective products failing inspection Disposal costs of raw materials failing inspection Quality training provided to workers Lost sales due to poor quality and defective products Advertising costs to offset perception of poor product quality Raw materials used to correct defects before product was sold Testing and inspecting a sample of finished goods

$ 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

What would be the total of the external failure costs on the August quality control report for Glory Enterprises? A) $70,000. B) $110,000. C) $120,000. D) $140,000. 91) Which of the following is not a prevention activity in controlling quality? A) Certifying suppliers. B) Field testing. C) Quality training. D) Process improvement. 92) Which of the following is a prevention activity in controlling quality? A) Designing products for manufacturability. B) Inspecting machines. C) Statistical process control. D) Field testing. 25 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

93) Which of the following is an appraisal activity? A) Quality evaluations. B) Statistical process control. C) Warranty repairs. D) Field replacements. 94) Which of the following is a prevention activity? A) Field replacements. B) Warranty repairs. C) Supplier certification. D) Statistical process control. 95) Which of the following is an internal failure activity? A) Quality evaluations. B) Inspecting materials. C) Inspecting machines. D) Delaying processes. 96) Internal failure activities: A) seek to prevent defects in the products or services being produced. B) inspect inputs and attributes of individual units of products or services to detect whether they conform to specifications or customer expectations. C) correct defective processes or products and services before they are delivered to customers. D) are activities required after defective products or services are delivered to customers. 97) External failure activities: A) seek to prevent defects in the products or services being produced. B) inspect inputs and attributes of individual units of products or services to detect whether they conform to specifications or customer expectations. C) correct defective processes or products and services before they are delivered to customers. D) are activities required after defective products or services are delivered to customers. 98) Prevention activities: A) seek to prevent defects in the products or services being produced. B) inspect inputs and attributes of individual units of products or services to detect whether they conform to specifications or customer expectations. C) correct defective processes or products and services before they are delivered to customers. D) are activities required after defective products or services are delivered to customers. 99) Appraisal activities: A) seek to prevent defects in the products or services being produced. B) inspect inputs and attributes of individual units of products or services to detect whether they conform to specifications or customer expectations. C) correct defective processes or products and services before they are delivered to customers. D) are activities required after defective products or services are delivered to customers. 26 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

100) Forensic Specialists compiled the following information for its first quarter cost of quality report: Sales Cost of goods sold Disposing of scrap Quality training Inspecting materials on delivery Performance reviews Resolving customer complaints Certifying suppliers

$ 5,600,000 $ 3,360,000 $ 235,200 $ 84,000 $ 280,000 $ 70,000 $ 31,920 $ 140,000

The total cost of prevention activities for Forensic Specialists is: A) $294,000. B) $224,000. C) $459,200. D) $504,000. 101) Forensic Specialists compiled the following information for its first quarter cost of quality report: Sales Cost of goods sold Disposing of scrap Quality training Inspecting materials on delivery Performance reviews Resolving customer complaints Certifying suppliers

$ 5,600,000 $ 3,360,000 $ 235,200 $ 84,000 $ 280,000 $ 70,000 $ 31,920 $ 140,000

The relevant percentage to be used to express internal failure activities at Forensic Specialists is: A) 27.9%. B) 4.77%. C) 4.2%. D) 15.02%.

102) Forensic Specialists compiled the following information for its first quarter cost of quality report: Sales Cost of goods sold Disposing of scrap Quality training Inspecting materials on delivery Performance reviews Resolving customer complaints Certifying suppliers

$ 5,600,000 $ 3,360,000 $ 235,200 $ 84,000 $ 280,000 $ 70,000 $ 31,920 $ 140,000

The total cost of external failure activities at Forensic Specialists is: A) $420,560. B) $31,920. C) $117,600. D) $175,000. 103) Forensic Specialists compiled the following information for its first quarter cost of quality report: Sales Cost of goods sold Disposing of scrap Quality training Inspecting materials on delivery Performance reviews Resolving customer complaints Certifying suppliers

$ 5,600,000 $ 3,360,000 $ 235,200 $ 84,000 $ 280,000 $ 70,000 $ 31,920 $ 140,000

The relevant percentage to be used to express appraisal activities at Forensic Specialists is: A) 5.7%. B) 33.2%. C) 2.75%. D) 1.25%.

104) Tabor Detective Services is evaluating its system. The company gathered the information below:

Process Interviews Research Pursuit Travel

Available Hours per Value-Added Time (hours Week per client) 70 2 130 3 75 0.5 200 4

Average Demand 20 30 120 35

Practical capacity is 75% for each process. Which process is most likely to be a current bottleneck? A) Interviews. B) Research. C) Pursuit. D) Travel. 105) Windom Corporation manufactures small airplane propellers. Sales for April totaled $850,000. Information regarding resources for the month follows: Parts management Energy Quality inspections Long-term labor Temporary labor Setups Materials Depreciation Marketing Customer service Administrative

Resources Used $ 30,000 50,000 45,000 25,000 20,000 70,000 150,000 60,000 70,000 10,000 50,000

Resources Supplied $ 35,000 50,000 50,000 35,000 24,000 100,000 150,000 100,000 75,000 20,000 70,000

In addition, Windom spent $25,000 on 50 engineering changes with a cost driver rate of $500 and $30,000 on eight outside contracts with a cost driver rate of $3,750. Required: a. Prepare a traditional income statement. b. Prepare an activity-based income statement.

106) Rock Island Manufacturing makes motor brackets. Information regarding resources for the month follows: Resources Used Resources Supplied Parts management $ 60,000 $ 70,000 Energy 100,000 100,000 Quality inspections 90,000 100,000 Long-term labor 50,000 70,000 Temporary labor 40,000 48,000 Setups 140,000 200,000 Materials 300,000 300,000 Depreciation 120,000 200,000 Marketing 140,000 150,000 Customer service 20,000 40,000 Administrative 100,000 140,000 In addition, Rock Island spent $25,000 on 40 engineering changes with a cost driver rate of $600. Required: a. Prepare an analysis of the unused resource capacity for the month. 107) Mirror Industries manufactures electric trolling motors. Sales for the month totaled $1,700,000. Information regarding resources for the month follows: Administrative Customer service Depreciation Energy Engineering Long-term labor Marketing Materials Parts management Quality inspections Setups Temporary labor

Resources Used $ 100,000 20,000 120,000 100,000 50,000 50,000 140,000 300,000 60,000 90,000 140,000 40,000

Resources Supplied $ 140,000 40,000 200,000 100,000 52,000 70,000 150,000 300,000 70,000 100,000 200,000 48,000

Required: a. Prepare a traditional income statement. b. Prepare an activity-based income statement.

108) Miracle Mile Corporation manufactures electric scooters. Information regarding resources for the month follows: Resources Used Resources Supplied Administrative $ 100,000 $ 145,000 Customer service 25,000 50,000 Depreciation 130,000 200,000 Energy 90,000 90,000 Engineering 50,000 52,000 Long-term labor 60,000 80,000 Marketing 120,000 130,000 Materials 250,000 250,000 Parts management 65,000 75,000 Quality inspections 100,000 120,000 Setups 150,000 200,000 Temporary labor 50,000 56,000 Required: a. Prepare an analysis of the unused resource capacity for the month. 109) Taylor's Cafe Supply Company delivers restaurant supplies throughout the city. Taylor's adds 4% to the order cost to cover the delivery cost. The delivery fee is meant to just cover the cost of delivery. A consultant has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities are: Activity Process order Load truck Deliver merchandise Process invoice Total overhead

Cost Driver number of orders number of items number of orders number of invoices

Cost 25,000 50,000 30,000 24,000 $ 129,000 $

Driver Volume 4,000orders 80,000items 4,000orders 6,000invoices

Two of Taylor's customers are City Diner and Le Chien Chaud. Below are data on orders and deliveries to these two customers: Order value Number of orders Number of items Number of invoices

City Diner $ 24,000 50 550 12

Le Chien Chaud $ 32,000 100 1,600 120

Required: (a) What would be the delivery charge for each customer under the current policy of 4% of order value? (b) What would the activity-based costing system estimate as the cost of delivering to each customer? 31 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

110) Vargas Financial (VF) only offers checking accounts. Customers can write checks and use a network of automated teller machines. VF earns revenue by investing the money deposited (subject to reserve requirements). Currently VF averages 6% return annually on its investments. In order to compete with larger banks, VF pays depositors 1% on all deposits. A recent study classified the operating costs of the bank into four activities. Data on these activities are: Activity Use ATM Visit branch

Cost Driver number of uses number of visits number of Process transaction transactions General bank total deposits overhead Total overhead

Cost 2,000,000 6,000,000

Driver Volume 10,000,000uses 750,000visits

4,000,000

40,000,000transactions

8,000,000

450,000,000

$ 20,000,000

Data on two representative customers are shown below: Customer A ATM uses 300 Branch visits 5 Number of transactions 60 Average deposit $ 450

Customer B 50 20 1,200 $ 10,000

Required: (a) Compute the operating profit for Vargas Financial. (b) Compute the profit of Customer A and Customer B, assuming that customer costs are based only on deposits. (c) Compute the profit of Customer A and Customer B, assuming that customer costs are computed using the information in the activity-based costing analysis. 111) Mobile Repair Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $125,000 for purchasing support should be assigned to the individual vendors from the information given as follows:

Units purchased Purchase orders (annual) Number of shipments received

Vendor A Vendor B Vendor C 100,000 200,000 200,000 6 24 100 12 52 25

Required: a. Allocate the purchasing costs to the three vendors, assuming Mobile Repair uses units purchased to compute activity-based costs. b. Allocate the purchasing costs to the three vendors, assuming Mobile Repair uses purchases orders to compute activity-based costs. c. Allocate the purchasing costs to the three vendors, assuming Mobile Repair uses number of shipments to compute activity-based costs. 32 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

112) Bison Creek Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $250,000 for purchasing support should be assigned to the individual vendors from the information given as follows:

Units purchased Purchase orders (annual) Number of shipments received

Vendor A Vendor B Vendor C 100,000 100,000 500,000 12 24 50 12 52 100

Required: a. Allocate the purchasing costs to the three vendors, assuming Bison Creek uses units purchased to compute activity-based costs. b. Allocate the purchasing costs to the three vendors, assuming Bison Creek uses purchases orders to compute activity-based costs. c. Allocate the purchasing costs to the three vendors, assuming Bison Creek uses number of shipments to compute activity-based costs. 113) Hidden Valley Company produces precision components. Hidden Valley has six customers, one of which accounts for 40 percent of the sales, with the remaining five accounting for the rest of the sales. The five smaller customers purchase components in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Hidden Valley 's customer activity follow:

Units purchased Orders placed Number of sales calls Manufacturing cost

Large Customer 200,000 10 20 $ 600,000

Five Small Customers 300,000 350 230 $ 900,000

Order-filling costs for Hidden Valley Company total $180,000, and sales-force costs are $275,000. Required: a. Allocate the order-filling and sales force costs to the customers based on sales volume. b. Allocate the order-filling and sales force costs to the customers using an activity-based costing approach.

114) Kingston Company produces precision components. Kingston has 11 customers, one of which accounts for 60 percent of the sales, with the remaining ten accounting for the rest of the sales. The ten smaller customers purchase components in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Kingston's customer activity follow:

Units purchased Orders placed Number of sales calls Manufacturing cost

Large Customer 300,000 12 20 $ 900,000

Ten Small Customers 200,000 420 230 $ 600,000

Order-filling costs for Kingston Company total $360,000, and sales-force costs are $300,000. Required: a. Allocate the order-filling and sales force costs to the customers based on sales volume. b. Allocate the order-filling and sales force costs to the customers using an activity-based costing approach. 115) Kingston Company produces precision components. Kingston has 11 customers, one of which accounts for 60 percent of the sales, with the remaining ten accounting for the rest of the sales. The ten smaller customers purchase components in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Kingston's customer activity follow:

Units purchased Orders placed Number of sales calls Manufacturing cost Sales

Large Customer 300,000 12 20 $ 900,000 $ 1,800,000

Ten Small Customers 200,000 420 230 $ 600,000 $ 1,200,000

Order-filling costs for Kingston Company total $360,000, and sales-force costs are $300,000. Required: a. Determine the profitability of each of the two classes of customers (large and small). Allocate the order-filling and sales force costs to the customers based on sales volume. b. Determine the profitability of each of the two classes of customers (large and small). Allocate the order-filling and sales force costs to the customers using an activity-based costing approach.

116) Bountiful Harvest Distribution delivers supplies to small grocers throughout the region. Bountiful currently adds 5% to the order cost to cover the delivery cost. The delivery fee is meant to just cover the cost of delivery. A consultant has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities are: Activity Process order Load truck Deliver goods Process invoice Total overhead

Cost Driver number of orders number of items number of orders number of invoices

Cost $ 50,000 100,000 60,000 48,000 $ 258,000

Driver Volume 4,000orders 80,000items 4,000orders 6,000invoices

Three of Bountiful's customers are Rosy's Corner Market, Katy's Fine Foods, and Amy's City Market. Below are data on orders and deliveries to these three customers: Order value Number of orders Number of items Number of invoices

Rosy's $ 48,000 50 550 12

Katy's $ 64,000 100 1,600 120

Amy's $ 120,000 25 1,750 18

Required: (a) What would be the delivery charge for each customer under the current policy of 5% of order value? (b) What would the activity-based costing system estimate for the cost of delivering to each customer?

117) Gruber Industries provides the following information about resources: Cost Driver Rate Resources used Materials Energy Setups Purchasing Customer service Long-term labor Administrative

12 48 300 240 160 80 60

Resources supplied Materials Energy Setups Purchasing Customer service Long-term labor Administrative

Cost Driver Volume 15,000pounds 675machine hours 150setups 160purchase orders 175returns 640labor hours 840administrative hours $ 192,000 36,480 50,400 44,000 35,200 53,000 54,000

In addition, sales for the period totaled $600,000. Required: Compute the unused resource capacity for each preceding item.

118) Jones Industries provides the following information about resources: Cost Driver Rate Resources used Materials Energy Setups Purchasing Customer service Long-term labor Administrative

24 90 450 350 210 80 75

Resources supplied Materials Energy Setups Purchasing Customer service Long-term labor Administrative

Cost Driver Volume 25,000gallons 870machine hours 130setups 170purchase orders 85returns 1,600labor hours 2,200administrative hours $ 625,000 86,480 60,400 74,000 35,200 153,000 188,000

Required: Compute the unused resource capacity for each preceding item. 119) Morrison Supply provides the following information about resources: Cost Driver Rate Resources used Administrative Customer service Energy Long-term labor Materials Purchasing Setups Resources used Administrative Customer service Energy Long-term labor Materials Purchasing Setups

50 310 80 90 12 145 450

Cost Driver Volume 1,200administrative hours 65returns 770machine hours 1,600labor hours 50,000units 120purchase orders 115setups $

68,000 31,200 66,480 163,000 625,000 34,000 60,400

Required: Compute the unused resource capacity for each preceding item. 37 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

120) The following represents the financial information of Fabriz Corporation, a manufacturer of electronic components, for two months: Sales Costs: Process inspection Scrap Quality training Warranty repairs Testing equipment Customer complaints Rework Preventive maintenance Materials inspection Field testing

March $ 539,000

April $ 495,000

3,300 3,700 37,600 8,600 14,000 5,600 34,000 27,000 13,000 18,800

3,760 3,860 26,000 9,600 14,000 6,800 37,000 19,000 9,600 24,800

Required: a. Classify these items into prevention, appraisal, internal failure, or external failure costs. b. Calculate the ratio of the prevention, appraisal, internal failure, and external failure costs to sales for March and April. 121) Categorize each of the following quality activities by placing an X in the appropriate column. Required: Prevention

Appraisal

Internal Failure

External Failure

1. Inspecting raw materials received from vendors 2. Cost (net) of materials wasted during production 3. Gathering, analysis, and reporting quality data 4. Repairing and/or replacing products under warranty 5. Testing product in use at customer sites 6. Maintaining the equipment used to gather quality data 7. Testing and inspecting finished products 8. Designing product to reduce production problems 38 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

122) Categorize each of the following quality activities by placing an X in the appropriate column. Required: Prevention

Appraisal

Internal Failure

External Failure

1. Lost sales 2. Materials inspection End-of-process 3. sampling 4. Process inspection 5. Warranty repairs 6. Product design 7. Rework 8. Field testing 9. Scrap 10. Product liability 11. Reinspection/retesting 12. Quality training 123) The following represents the financial information of Madison Tool Corporation, a manufacturer of testing equipment: Customer complaints Field testing Materials inspection Preventive maintenance Process inspection Quality training Rework Scrap Testing equipment Warranty repairs

May $ 11,200 37,600 26,000 54,000 6,600 75,200 68,000 7,400 28,000 17,200

Required: a. Classify these items into prevention, appraisal, internal failure, or external failure costs and determine the total cost of each category.

124) The following represents quality cost data for Monnett Corporation: Field testing Finished goods inspection Materials inspection Preventive maintenance Process inspection Product design Product liability insurance Quality training Rework Scrap Testing equipment Warranty repairs

$ 67,100 48,700 37,000 54,000 46,900 96,700 48,000 75,200 68,000 17,400 36,000 77,200

Required: a. Classify these items into prevention, appraisal, internal failure, or external failure costs and determine the total cost of each category.

125) Fine Grape produces premium wine. Its success in the industry is due to its quality, although all of its customers, wine shops and specialty grocery stores, are very cost conscious and negotiate for price cuts on all large orders. Noting that the wine industry is becoming increasingly competitive, Fine Grape is looking for a way to meet the challenge. It is negotiating with Culinary Delights, a regional specialty grocery store, to purchase a large order of wine. Fine Grape is currently producing under-capacity and would like to keep its production facilities, gaining better economies of scale by increasing production. Culinary Delights has agreed to a large order but only at a price of $39 per bottle. The special order can be produced in one batch with available capacity. Fine Grape has prepared the following data related to next month's operations (per unit, for 10,000 bottles, made in 10 batches of 1,000 each) Sales price Per unit costs Variable manufacturing costs Batch-related costs Variable marketing costs Fixed manufacturing costs Fixed marketing costs Special order information (order is produced in one batch) Sales units Sales price per bottle

55 22 5 10 6 2

2,000 39

No variable marketing costs are associated with this order, but Fine Grape has spent $2,500 during the past two months trying to get Culinary Delights to place the special order. Required: (1) How much will the special order change Fine Grape's total operating income? (2) How much would the special order change Fine Grape's total operating income if fine Grape is operating at full capacity and would lose the sale of the 2,000 bottles to regular customers? (3) How might the special order fit into Fine Grape's competitive strategy?

126) Joseph Hutton Enterprises has met all production requirements for the current month and has an opportunity to produce additional units of product with its excess capacity. Unit selling prices and costs for three models of one of its product lines are as follows: Selling price Direct materials Direct labor ($15/hr.) Variable Overhead Fixed Overhead

No Frills $ 35.00 10.00 7.50 4.00 3.00

Standard Options Super $ 45.00 $ 65.00 12.00 14.00 12.00 21.00 6.40 11.20 5.00 5.00

Variable overhead is charged to products on the basis of direct labor dollars, and fixed overhead is charged to products on the basis of machine hours. Required: (1) If Joseph Hutton Enterprises has excess machine capacity and can add more labor as needed (neither machine capacity nor labor is a constraint), the excess production capacity should be devoted to producing which product or products? (2) If Joseph Hutton Enterprises has excess machine capacity but a limited amount of labor time, the production capacity should be devoted to producing which product or products? 127) Smooth, Inc. manufactures bath and beauty products such as soaps, skin creams, lotions, and other products primarily for people with dry and sensitive skin. It has just introduced a new line of product that removes the spotting and wrinkling in skin associated with aging. It sells these products in pharmacies and department stores at prices slightly higher than those of other brands because of Smooth's excellent reputation for quality and effectiveness. Smooth currently has very low utilization of plant capacity. Two years ago, in anticipation of rapid growth, the company opened a new large manufacturing plant, which has yet to be utilized more than 50 percent. Partly for this reason, Smooth has sought new partners and was able, with the help of financial analysts, to locate suitable business partners. The first potential partner identified in this search was a large supermarket chain, Price-Mart, which is interested in the partnership because it wants Smooth to manufacture an age cream to sell in its stores. The product would be essentially the same as the Smooth product but would be packaged in the Price-Mart brand name. The agreement would pay Smooth $2.00 per unit and would allow PriceMart a limited right to advertise the product as manufactured for Price-Mart by Smooth. Smooth's CFO has made some calculations and has determined that the direct materials, direct labor, and other variable costs needed for the Price-Mart order would be about $1.00 per unit as compared to the full cost of $2.50 (materials, labor, and overhead) for the equivalent Smooth product. Required: Should Smooth Inc. accept the proposal from Price-Mart? Why or why not? (Include strategic considerations)

128) Stonehouse Corporation developed the following information regarding quality for the first quarter of the year 2020: Sales Wasted time Training Inspecting finished goods Performance reviews Resolving customer complaints Certifying suppliers Total

6,800,000 285,600 102,000 340,000 85,000 38,760 170,000 1,021,360

Required: Prepare a cost of quality report sorting costs by quality activity and expressing in relevant percentage terms. 129) Identify each of the following as Prevention Activities (P), Appraisal Activities (A), Internal Failure Activities (I) or External Failure Activities (E): (1) Field Testing (2) Statistical process control (3) Sampling at the end of process (4) Disposing of scrap (5) Quality evaluations (6) Retesting (7) Settling product liability (8) Resolving customer complaints (9) Lost sales (10) Restoring reputation 130) For each of the following products or services, indicate the most important customer quality attributes and the most important customer quality tradeoffs. (a) Personal computer (b) Legal representation in divorce court (c) New home purchase (d) Meals in a fast food restaurant (e) Airline travel (f) Prom dress (g) Cruise ship vacation (h) Auto repair 131) Describe the six steps that are taken in an activity analysis.

132) Companies are continuously seeking ways to improve the quality of production and reduce costs. One of the areas is to work with suppliers to improve the quality and reliability of parts and products shipped. In an article entitled "In Defense of Activity-Based Cost Management," Robert S. Kaplan says: An ABC model can play a major role in improving supplier relationships as well. These relationships must be a vital part of any quality and cycle-time improvement program. A key insight is to use ABC to distinguish between low-price and low-cost suppliers. Traditional cost accounting, with its emphasis on purchase price variances, encourages purchasing people to continually scan the population of potential suppliers to obtain low price quotations. Most companies have learned, the hard way, that many of their low-price suppliers are actually extremely high-cost suppliers. (Source: Management Accounting: November, 1992) Required: (a) Explain what Kaplan means by "many of their low-price suppliers are actually extremely high-cost suppliers." (b) What general prevention and appraisal activities can be used to improve the quality and reliability of parts and products shipped from suppliers? 133) What is the relationship between customer profitability analysis and ABC?

134) Cost allocation bases are factors that cost management analysts use to assign indirect costs to cost objects. Ideally, cost-allocation bases should reflect a cause-and-effect relationship between resource spending and use. Ideally, an Activity-Based Costing (ABC) approach will provide a more accurate and useful accounting for an organization's resources. Recent studies have found that, in spite of increasing costs and diminishing resources, very few Higher Education Institutions use the tools and techniques of an ABC cost allocation system to assign costs to academic departments. While direct costs, such as faculty salaries, are traceable to individual academic departments or courses, many indirect costs, such as facility use, computer use, and student support services, are more difficult to assign. In a traditional approach, many higher education institutions assign such costs based on a single factor, such as the number of courses taught in the university. (Source: Activity-Based Costing for Higher Education Institutions, Management Accounting Quarterly, Winter, 2001) Required: (a) Explain why the use of a single-cost driver such as the number of courses may result in inaccurate management information as to the cost of offering courses in individual academic departments. (b) For each of the indirect costs listed below, identify an appropriate cost-driver that might be used to allocate costs to determine the cost of offering a single course in an academic department if an Activity-Based-Costing model were used. ∙ Computer use ∙ Facility use ∙ Student services ∙ Course design ∙ Lecturing/class meeting time ∙ Assignment grading

135) Explain the differences between resources used, resources supplied, and unused resource capacity. 136) Franklin Industrial Equipment Corporation manufactures lawn mowers and snow blowers. It also manufactures engines that are used by the Lawn Mower Assembly Division (LMAD). The Engine Division (ED) also sells about 40% of its output to the outside market (these are multipurpose engines). Its annual capacity is 150,000 units and annual output is 135,000 units. All engines sold internally to the LMAD are priced at cost plus 20% markup. In January 2020, the Snow Blower Assembly Division (SBAD) approached the ED to 'buy' 20,000 engines. Jean Wyse, the controller of ED, computed the costs of manufacturing these engines as follows: Total Per unit Materials $ 300,000 $ 15.00 Labor 400,000 20.00 Special equipment 36,000 1.80 Quality inspection 24,000 1.20 Other manufacturing costs 350,000 17.50 Total costs $ 1,110,000 $ 55.50 Wyse quoted a price of $66.60 for each engine transferred to the SBAD. Jeb Hart, the manager of SBAD, was furious to note that the ED was "trying to make money off a sister division." He argued that the price must include only the cost of materials, as all other costs will be incurred irrespective of whether or not SBAD places the order for 20,000 engines. Mark Matley, the production manager of ED, pointed out that the special equipment will be purchased only for fulfilling this internal order. Moreover, he argued that inspection must also be done just like on all other engines; therefore, the inspection costs must also be included. Labor is paid a flat monthly salary. Other manufacturing costs include both variable and fixed components (in roughly equal proportion). Required: (a) Given that excess capacity exists, what is the minimum price that the ED should charge to the SBAD? (b) What are the pros and cons of internal sourcing? 137) Quality costs can be divided into two categories: conformance and nonconformance. Explain the difference between the two and give two examples of each. 138) Describe the four types of quality costs and give an example of each. 139) Explain the difference between actual activity, theoretical capacity, practical capacity, and normal activity.

140) Jessica Long, the production manager of Maxim Corporation is frustrated by the company's policy of not scrapping defective units but reworking them. She has pointed out several times to senior management that some units are beyond rework and should be scrapped. According to her, in most cases, it would be cheaper to scrap and build a new unit from scratch rather than trying to rework a defective unit. However, Peter Crouch, the CEO, is not convinced. He wants his controller, Melinda Gates, to gather some information. After researching the problem, Gates provides the following information: Selling price: Manufacturing costs: Direct materials Direct labor Variable overhead Variable marketing costs Fixed overhead Reworking costs: Materials Labor Direct machining costs

$ 132per unit 27 32 24 10 32 $

25 48 35

Gates also observes that reworking a defective product consumes more labor time than making a unit from scratch. As a result, for every three units reworked, Maxim forgoes the production and sale of two units. Required: (a) Do you agree with Jessica Long that it is cheaper to scrap than rework a defective unit? Show your computations. (b) How can the cost information generated by Gates be useful in reducing the number of defectives?

141) Stella McDonald is a purchasing agent for a motorcycle manufacturer. Stella is evaluating two potential suppliers of seats for the company's motorcycles. One supplier (A) quotes a price of $165 per seat and assures 100% quality and delivery standards. The second supplier (B) quotes a price of $135 per seat but does not give any written assurances on quality or delivery. McDonald is not sure which supplier should be awarded the contract. Assume you are the management accountant for the motorcycle manufacturer. McDonald asks you to prepare an estimate of the related costs of buying the seats from supplier B. She tells you that the estimate is needed because unless dollar estimates are attached to nonfinancial factors, such as lost production costs, her supervisor will not give it full attention. McDonald provides you with the following information: ∙ Production output is 2,000 motorcycles per year based on 250 production days a year. ∙ Production time per day is 8 hours at a cost of $4,000 per hour to run the production line. ∙ Lost production time due to poor quality is 1%. ∙ Satisfied customers purchase, on average, three motorcycles during a lifetime. ∙ Satisfied customers recommend the product, on average, to 5 other people. ∙ Marketing estimates that using the seat from supplier B will result in 5 lost customers per year from repeat business and referrals. ∙ Average contribution margin per motorcycle is $5,000. Required: Estimate the costs of buying motorcycle seats from supplier B. (Note: This problem requires you to think creatively and make reasonable estimates; therefore, there is more than one correct answer.)

142) Thompson Metal Corporation (TMC) supplies various types of machine tools to manufacturing companies. TMC has always paid a lot of attention to the quality of its products. Recently, an outside supplier has approached TMC to supply an important and intricate component of one of its more advanced tools that TMC has been manufacturing in-house. Sam Weiss, a junior accountant at TMC, has collected the following information regarding this proposal. The cost of manufacturing one unit of this component internally are as follows: Direct materials: Direct labor: Variable overhead: Fixed overhead: Total cost:

$ 29.60 13.00 19.50(@150% of direct labor cost) 26.00(@200% of direct labor cost) $ 88.10

The outside supplier has quoted a price of $90 per unit for supplying this component. The following is a conversation that took place among the manufacturing manager (Dana Rice), buyer (Emily Scanlon), and Sam Weiss. Weiss: I think that we should continue to manufacture internally because we can save $1.90 per unit on this component. Rice: According to your report, we would save $1.90 per unit, but I do not agree with those numbers. Weiss: What do you mean? I have followed the same costing guidelines this company has used for years. I have even cross-checked my numbers with historical data and know for sure that the overhead rates which I have used are correct. Rice: I am sure you have done your job thoroughly, but I think that our costing system is archaic. This component is complex and difficult to manufacture. I believe that our overhead allocation method does not accurately capture the production difficulties and the additional resources that are devoted to the manufacture of this component. For example, a significant portion of our quality problems are due to this component. We spend close to a third of our quality inspection time on just this component alone, but that is not reflected. These quality problems cause delays in getting this component to the assembly department, and that causes a delay in getting the final product to the customers. Many of our customers are expecting just-in-time deliveries, and they get upset when we're late. Scanlon: I know that the supplier that has approached us has a strong reputation for quality. Therefore, we can rest assured that we will have negligible quality problems. Rice: Sam, your report does not consider this additional benefit from buying outside. I would appreciate if you can rework your numbers to better reflect the true costs associated with manufacturing this component internally.

Required: (a) Assume the role of Sam Weiss. What are the different elements of costs that are likely to be associated with the manufacture of the component? Does the current costing system capture these costs? (b) Recommend improvements in the costing system. (c) How can Weiss quantify "qualitative" benefits such as quality and on-time delivery? 143) Mulvey Corporation manufactures large kitchen appliances. The following represents financial information for two years: Sales Costs: Process Inspection Scrap Quality Training Warranty Repairs Testing Equipment Resolving Customer Complaints Rework Preventative Maintenance Material Inspection Field Testing Total costs

2020 $ 7,840,000

2021 $ 7,040,000

52,800 57,600 610,000 140,000 230,000 89,000 544,000 440,000 210,000 300,000 $ 2,673,400

60,000 60,200 440,000 150,000 230,000 108,400 390,000 304,000 150,000 400,000 $ 2,292,600

Required: (a) Classify these cost items as prevention (P), appraisal (A), internal failure (I) or external failure (E) activities. (b) Calculate the ratio of prevention, appraisal, internal failure, and external failure costs to sales for 2020 and 2021. (c) Prepare a cost of quality report for 2020. 144) Scranton Extruded Plastics is a company involved in the injection molding process of plastic extruders. The company had a process of inspection, checking line work, and handling returns from customers to identify and correct quality problems. Scrapped extruders are ground into powder and fed back to the extruders as raw material; thus, all scrapped extruders are reused at some point. The company's cost accounting system indicates that the cost of scrap is "zero," a view also held by Scranton's management. (Source: "Activity Based management" by Peter B. B. Turney published in Management Accounting) Required: a) Comment on the view that scrap costs is zero at Scranton Extruded Plastics. b) Identify internal and external failure activities that were required by Scranton. c) Identify prevention and appraisal activities that could have been employed.

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 11 Service Department and Joint Cost Allocation 1) The human resource department in a manufacturing company would be considered a service department. 2) One reason to allocate service department costs to user departments is to encourage the user departments to monitor their use of the service department costs. 3) The direct method makes no cost allocations between or among service departments. 4) The selection of an allocation base in the direct method is easier than the selection of an allocation base in the step method. 5) The step method allocates some, but not all, service department costs to other service departments. 6) One advantage of the step method is that all reciprocal services are recognized between service departments. 7) With the reciprocal method, the total service department costs less the direct costs of the service department equal the cost allocated to the service department. 8) One potential disadvantage of the reciprocal method is it could overstate the cost of running the organization's service departments. 9) In deciding whether to outsource a service department or not, the cost of the service department should be estimated using the step method of allocation. 10) Joint products are outputs from common inputs and a common production process. 11) Joint costs are processing costs incurred after the split-off point in a common production process. 12) The estimated net realizable value for a product is its estimated selling price after processing the product beyond the split-off point. 13) In general, it is better to use a product's market value at the split-off point than its estimated net realizable value in allocating joint costs. 14) The estimated net realizable value at the split-off point is calculated by taking the sales value after further processing and deducting the additional processing costs. 15) If a company's two joint products can be sold at the split-off point, there is no reason for allocating the joint costs to the products. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

16) The physical quantities method of allocating joint costs is often used when the output sales prices are highly volatile. 17) The physical quantities method allocates joint costs so that each joint product has the same gross margin as a percentage of sales. 18) In a sell-or-process-further decision, the additional costs incurred after the split-off point are irrelevant. 19) In a sell-or-process-further decision, the common costs incurred prior to the spilt-off point are irrelevant. 20) Since by-products have minor sales value, alternative methods of accounting for them will not have a material effect on the financial statements. 21) Service department costs are allocated to user departments, in part, because: A) it measures the use of plant capacity. B) it helps ensure that machines are operating efficiently. C) user departments use the functions of service departments. D) service departments are final cost centers. 22) Which of the following best describes intermediate cost centers? A) Any cost center whose costs are not allocated to another cost center. B) Service departments cannot be intermediate cost centers. C) User departments cannot be intermediate cost centers. D) Any cost center whose costs are charged to other departments in an organization. 23) Which of the following best describes final cost centers? A) Any cost center whose costs are not allocated to another cost center. B) Service departments are always final cost centers. C) User departments cannot be final cost centers. D) Any cost center whose costs are charged to other departments in an organization. 24) Which of the following would be an appropriate cost-allocation base for allocating the cost of the company cafeteria? A) Square footage occupied by departments. B) Number of hours of use. C) Number of meals served. D) Salaries of personnel purchasing meals. 25) Which of the following is the least practical reason for allocating service department costs to user departments? A) To ascertain profitability of user departments. B) To evaluate performance of managers and divisions. C) To make user departments aware that services are costly. D) To provide the best possible service to users. 2 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

26) Service department costs are: A) Generally treated as period costs rather than product costs. B) Reported as selling and administrative expenses on the income statement. C) Eventually applied by the user departments to the units produced. D) Seldom found in manufacturing organizations. 27) A management purpose for allocating joint costs of a processing center to the various products produced is to: A) Establish inventory values for unsold units. B) Record accurate cost of sales by product line. C) Compute total processing cost variances by product. D) Report correct standard product costs for comparative analysis. 28) Which of the following service departments could logically use space occupied (square footage) to allocate its costs to user departments? A) Material Handling. B) Cafeteria. C) Custodial Services. D) Cost Accounting. 29) Which of the following departments is not a service department in a typical manufacturing company? A) Assembly. B) Accounting. C) Human resources. D) Information processing. 30) Criteria for selecting allocation bases for service department allocations should not include: A) Direct, traceable benefits from the service. B) The extent of facilities provided. C) The ease of making an allocation. D) Sales dollars generated during the period.

31) Dreamland University has 20 departments. Two of its best departments are the (1) College of Innovation (COI) and (2) Testing Services. The College of Innovation (COI) attempts to teach students the difficult, but useful, skill of innovation. Testing Services grades examinations for professors. How would these two departments be classified? College of Innovation Service User User Service

A. B. C. D.

Testing Services Service Service User User

A) Option A B) Option B C) Option C D) Option D 32) Which of the following is not a reason to justify the allocation of support services? A) Tax reporting requirements. B) Influencing behavior of employees. C) To trace costs to the activity that created the costs. D) Cost based contracts. 33) Which of the following statements is(are) false regarding the direct method of allocating service department costs? (A) The selection of an allocation base in the direct method is easier than the selection of an allocation base in the step method. (B) Once an allocation is made from a service department using the direct method, no further allocations are made back to that department. A) Only A is false. B) Only B is false. C) Neither of these is false. D) Both of these are false.

34) Jamison Company has two service departments and two producing departments. Square footage of space occupied by each department follows: Custodial services General administration Producing Department A Producing Department B

1,000feet 3,000feet 8,000feet 8,000feet 20,000feet

The department costs of Custodial Services are allocated on a basis of square footage of space. If Custodial Services costs are budgeted at $38,000, the amount of cost allocated to General Administration under the direct method would be: A) $0. B) $7,125. C) $6,000. D) $5,700. 35) Veneer Company has two service departments and two producing departments. The number of employees in each department is: Personnel Cafeteria Producing Department A Producing Department B

10 25 265 250 550

The department costs of the Personnel Department are allocated on a basis of the number of employees. If these costs are budgeted at $37,125 during a given period, the amount of cost allocated (rounded to two decimal places) to Department B under the direct method would be: A) $0. B) $17,187.50. C) $16,875.00. D) $18,021.84. 36) Which of the following is not a benefit of cost allocation? A) Instilling responsibility for all costs of the company in division managers. B) Constructing performance measures that may be more meaningful than contribution margins. C) Relating indirect costs to contracts, jobs and products. D) Additional bookkeeping costs incurred to provide cost allocation information.

37) Tenet Engineering, Inc. operates two user divisions as separate cost objects. To determine the costs of each division, the company allocates common costs to the divisions. During the past month, the following common costs were incurred: Computer services (85% fixed) Building occupancy Personnel costs Total common costs

$ 260,000 600,000 110,000 $ 970,000

The following information is available concerning various activity measures and service usages by each of the divisions: Area occupied (square feet) Payroll Computer time (hours) Computer storage (megabytes) Equipment value Operating profit (pre-allocations)

Division A 20,000 $ 380,000 200 4,050 $ 200,000 $ 555,000

Division B 40,000 $ 180,000 220 -0$ 250,000 $ 495,000

If common computer service costs are allocated using computer time as the allocation basis, what is the computer cost allocated to Division B (rounded to the nearest whole dollar)? A) $136,190. B) $137,647. C) $144,444. D) $173,333.

38) Tenet Engineering, Inc. operates two user divisions as separate cost objects. To determine the costs of each division, the company allocates common costs to the divisions. During the past month, the following common costs were incurred: Computer services (85% fixed) Building occupancy Personnel costs Total common costs

$ 260,000 600,000 110,000 $ 970,000

Division A 20,000 $ 380,000 200 4,050 $ 200,000 $ 555,000

Division B 40,000 $ 180,000 220 -0$ 250,000 $ 495,000

Using the most appropriate allocation basis, what is the personnel cost allocated to Division A (rounded to the nearest whole dollar)? A) $58,143. B) $74,643. C) $76,463. D) $110,000.

39) Tenet Engineering, Inc. operates two user divisions as separate cost objects. To determine the costs of each division, the company allocates common costs to the divisions. During the past month, the following common costs were incurred: Computer services (85% fixed) Building occupancy Personnel costs Total common costs

$ 260,000 600,000 110,000 $ 970,000

Division A 20,000 $ 380,000 200 4,050 $ 200,000 $ 555,000

Division B 40,000 $ 180,000 220 -0$ 250,000 $ 495,000

If all common costs are allocated using operating profit as the allocation basis, what is the total cost allocated to Division B (rounded to the nearest whole dollar)? A) $457,286. B) $512,714. C) $555,000. D) $1,087,576. 40) Which of the following methods provides no data for service departments to monitor each other's costs? A) Direct method. B) Reciprocal method. C) Step method. D) All three methods, Direct, Step and Reciprocal, provide data for monitoring costs.

41) The Maryville Construction Company occupies 85,000 square feet for construction of mobile homes. There are two manufacturing departments, finishing and assembly, and four service departments labeled S1, S2, S3, and S4. Information relevant to Maryville is as follows:

Department S1 S2 S3 S4 Finishing Assembly

Area used S1 17,000 --4,250 --8,500 0.20 4,250 0.30 21,250 --29,750 ---

S2 0.10 --0.20 0.10 -----

Allocation S3 S4 Finishing Assembly 0.20 --0.20 0.50 0.30 0.30 --0.40 --0.30 0.20 0.10 0.30 --0.20 0.10 -----------------

Rent paid for the area used is $720,000. How much rent is allocable to the assembly department using the direct method of allocation? A) $420,000. B) $332,500. C) $300,000. D) $252,000. 42) The Maryville Construction Company occupies 85,000 square feet for construction of mobile homes. There are two manufacturing departments, finishing and assembly, and four service departments labeled S1, S2, S3, and S4. Information relevant to Maryville is as follows:

Department S1 S2 S3 S4 Finishing Assembly

Area used S1 17,000 --4,250 --8,500 0.20 4,250 0.30 21,250 --29,750 ---

S2 0.10 --0.20 0.10 -----

Allocation S3 S4 Finishing Assembly 0.20 --0.20 0.50 0.30 0.30 --0.40 --0.30 0.20 0.10 0.30 --0.20 0.10 -----------------

Rent paid for the area used is $720,000. How much rent would be charged to S4 using the step method of allocation and a S3-S4-S1-S2 sequence for the allocations? A) $36,000. B) $40,000. C) $54,000. D) $90,000. 9 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

43) If two service departments service the same number of departments, which service department's costs should be allocated first when using the step method? A) The service department that provides the most service to other service departments. B) The service department that provides the most service to the user departments. C) The service department with the least cost. D) The service department that provides the least service to other service departments. 44) Which of the following is a weakness of the step method of service cost allocations? A) Computations are more complex than the reciprocal method. B) All interdepartmental services are ignored. C) All intradepartmental services are ignored. D) The order of service department allocation has to be determined. 45) The Hsu Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $300,000 are allocated on the basis of machine hours. The Accounting Department's costs of $120,000 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $300,000 and $500,000, respectively.

Machine hours Number of employees

Maintenance Accounting 480 20 2 2

A B 2,300 200 8 4

What is the Maintenance Department's cost allocated to Department A using the direct method? A) $92,000. B) $230,000. C) $276,000. D) $386,400. 46) The Hsu Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $300,000 are allocated on the basis of machine hours. The Accounting Department's costs of $120,000 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $300,000 and $500,000, respectively.

Machine hours Number of employees

Maintenance Accounting 480 20 2 2

A B 2,300 200 8 4

What is the Accounting Department's cost allocated to Department B using the direct method? A) $40,000. B) $80,000. C) $20,000. D) $10,000. 10 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

47) The Hsu Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $300,000 are allocated on the basis of machine hours. The Accounting Department's costs of $120,000 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $300,000 and $500,000, respectively.

Machine hours Number of employees

Maintenance Accounting 480 20 2 2

A B 2,300 200 8 4

What is the Maintenance Department's cost allocated to Department B (rounded to the nearest whole dollar) using the step method and assuming the Maintenance Department's costs are allocated first? A) $276,000. B) $230,000. C) $322,000. D) $23,810. 48) The Hsu Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $300,000 are allocated on the basis of machine hours. The Accounting Department's costs of $120,000 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $300,000 and $500,000, respectively.

Machine hours Number of employees

Maintenance Accounting 480 20 2 2

A B 2,300 200 8 4

What is the cost of the Accounting Department's cost allocated to Department A (rounded to the nearest whole dollar) using the step method and assuming the Maintenance Department's costs are allocated first? A) $81,333. B) $81,587. C) $80,000. D) $68,571.

49) Steven Parker owns and operates Steven's Septic Service and Legal Advice. Steven's two revenue generating (production) operations are supported by two service departments: Clerical and Janitorial. Costs in the service departments are allocated in the following order using the designated allocation bases: Clerical: Variable cost: expected number of work orders processed. Fixed cost: long-run average number of work orders processed. Janitorial: Variable cost: labor hours. Fixed cost: square footage of space occupied. Average and expected activity levels for next month (June) are as follows:

Septic Service Legal advice Clerical Janitorial

No. of Work Orders Labor Hours Square Footage Expected Average 50 80 560 1,800 25 20 840 2,200 20 20 400 1,600 5 20 200 1,000

Expected costs in the service departments for June are as follows: Variable costs Fixed costs

Clerical $ 12,000 $ 8,400

Janitorial $ 4,200 $ 800

Under the step method of allocation, how much Clerical Service cost should be allocated to the Septic Service operation for June? (Assume Clerical costs are allocated before Janitorial costs and round all calculations to the nearest whole dollar.) A) $12,689. B) $13,100. C) $13,620. D) $15,596.

50) Steven Parker owns and operates Steven's Septic Service and Legal Advice. Steven's two revenue generating (production) operations are supported by two service departments: Clerical and Janitorial. Costs in the service departments are allocated in the following order using the designated allocation bases: Clerical: Variable cost: expected number of work orders processed Fixed cost: long-run average number of work orders processed Janitorial: Variable cost: labor hours Fixed cost: square footage of space occupied Average and expected activity levels for next month (June) are as follows:

Septic Service Legal advice Clerical Janitorial

No. of Work Orders Labor Hours Square Footage Expected Average 50 80 560 1,800 25 20 840 2,200 20 20 400 1,600 5 20 200 1,000

Expected costs in the service departments for June are as follows: Variable costs Fixed costs

Clerical $ 12,000 $ 8,400

Janitorial $ 4,200 $ 800

Under the direct method of allocation, what is the total amount of service cost allocated to the Legal Advice operation for June? (Round all calculations to the nearest whole dollar.) A) $6,231. B) $7,720. C) $8,640. D) $9,330.

51) Cordner Corporation has two production departments, P1 and P2, and two service departments, S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows:

Department S1 S2 P1 P2

Direct costs $ 60,000 $ 100,000 $ 160,000 $ 140,000

Proportion of Services Used by: S1 S2 P1 P2 0.70 0.10 0.20 0.20 0.30 0.50

Under the direct method of cost allocation, the amount of S1 costs allocated to S2 would be: A) $42,000. B) $20,000. C) $0. D) $6,000. 52) Cordner Corporation has two production departments, P1 and P2, and two service departments, S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows:

Department S1 S2 P1 P2

Direct costs $ 60,000 $ 100,000 $ 160,000 $ 140,000

Proportion of Services Used by: S1 S2 P1 P2 0.70 0.10 0.20 0.20 0.30 0.50

Under the direct method of cost allocation, the amount of S1 costs allocated to P1 would be: A) $20,000. B) $6,000. C) $30,000. D) $62,500.

53) Cordner Corporation has two production departments, P1 and P2, and two service departments, S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows:

Department S1 S2 P1 P2

Direct costs $ 60,000 $ 100,000 $ 160,000 $ 140,000

Proportion of Services Used by: S1 S2 P1 P2 0.70 0.10 0.20 0.20 0.30 0.50

Under the step method of cost allocation, the amount of S2 costs allocated to S1 would be: A) $40,000. B) $20,000. C) $0. D) $42,000. 54) Cordner Corporation has two production departments, P1 and P2, and two service departments, S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows:

Department S1 S2 P1 P2

Direct costs $ 60,000 $ 100,000 $ 160,000 $ 140,000

Proportion of Services Used by: S1 S2 P1 P2 0.70 0.10 0.20 0.20 0.30 0.50

Under the step-method of cost allocation, the amount of costs allocated from S2 to P2 would be: A) $88,750. B) $50,000. C) $62,500. D) $53,250.

55) Cordner Corporation has two production departments, P1 and P2, and two service departments, S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows:

Department S1 S2 P1 P2

Direct costs $ 60,000 $ 100,000 $ 160,000 $ 140,000

Proportion of Services Used by: S1 S2 P1 P2 0.70 0.10 0.20 0.20 0.30 0.50

Under the step method of allocation, the total amount of service costs allocated to producing departments would be: A) $118,000. B) $160,000. C) $140,000. D) $40,000. 56) Palace Company has two service departments and two user departments. The number of employees in each department is: Personnel Cafeteria Producing Department A Producing Department B

10 25 265 250 550

The fixed costs of the Personnel Department are allocated on a basis of the number of employees. If these costs are budgeted at $37,125 during a given period, the amount of cost allocated to the Cafeteria under the step method would be: A) $0. B) $1,718.75. C) $1,687.50. D) $1,802.18. 57) There are several methods for allocating service department costs to production departments. The method which recognizes service provided by one service department to another but does not recognize reciprocal interdepartmental service is called: (CMA adapted) A) Direct method. B) Variable method. C) Linear method. D) Step method.

58) Because this allocation method recognizes that service departments often provide each other with interdepartmental service, it is theoretically considered to be the most accurate method for allocating service department costs to production departments. This method is: (CMA adapted) A) Direct method. B) Variable method. C) Linear method. D) Reciprocal method. 59) The following information relates to Osceola Corporation for the past accounting period. Service Department A Service Department B Producing Department C Producing Department D

Direct costs $ 80,000 60,000 15,000 20,000

Proportion of service by A to: B 10% C 60% D 30% A C D

Proportion of service by B to: 30% 20% 50%

Using the reciprocal (simultaneous solution) method, Department A's cost allocated to Department C (rounded to the nearest whole dollar) is: A) $48,000. B) $58,800. C) $60,619. D) $98,000.

60) The following information relates to Osceola Corporation for the past accounting period. Service Department A Service Department B Producing Department C Producing Department D B C D

Direct costs $ 80,000 60,000 15,000 20,000

Proportion of service by A to: 10% 60% 30%

Proportion of service by B to: A 30% C 20% D 50% Using the reciprocal (simultaneous solution) method, Department B's cost allocated to Department C (rounded to the nearest whole dollar) is: A) $29,021 B) $14,021 C) $13,192 D) $7,794

61) The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required. The following costs were incurred in three operating departments and three service departments in Westmoreland Company. Department Subassemblies Final assembly Marketing Building occupancy Research & development Supervision

Direct Costs $ 550,000 775,000 285,000 85,000 120,000 45,000

Label P1 P2 P3 S1 S2 S3

Use of services by other departments is as follows.

Service Cost Center Building occupancy R&D Supervision

Subassemblies

User Departments Final Building Assembly Marketing Occupancy R&D Supervision

0.30

0.25

0.20

---

0.15

0.10

0.50 0.20

0.50 0.30

--0.20

--0.10

--0.20

-----

The equation for department P1 (subassemblies) is: A) P1 = $550,000 + 0.25P2 + 0.20P3 + 0.15S2 + 0.10S3. B) P1 = $550,000 + 0.30S1 + 0.50S2 + 0.20S3. C) P1 = 0.30S1 + 0.50S2 + 0.20S3. D) P1 = 0.30S1 + 0.50S.

62) The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required. The following costs were incurred in three operating departments and three service departments in Westmoreland Company. Department Subassemblies Final assembly Marketing Building occupancy Research & development Supervision

Direct Costs $ 550,000 775,000 285,000 85,000 120,000 45,000

Label P1 P2 P3 S1 S2 S3

Use of services by other departments is as follows.

Service Cost Center Building occupancy R&D Supervision

Subassemblies

User Departments Final Building Assembly Marketing Occupancy R&D

Supervision

0.30

0.25

0.20

---

0.15

0.10

0.50 0.20

0.50 0.30

--0.20

--0.10

--0.20

-----

The equation for department P2 (final assembly) is: A) P2 = 0.25S1 + 0.50S2 + 0.30S3. B) P2 = $775,000 + 0.25P2 + 0.20P3 + 0.15S2 + 0.10S3. C) P2 = $775,000 + 0.30S1 + 0.50S2 + 0.20S3. D) P2 = $775,000 +0.25S1 + 0.50S2 + 0.30S3.

63) The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required. The following costs were incurred in three operating departments and three service departments in Westmoreland Company. Department Subassemblies Final assembly Marketing Building occupancy Research & development Supervision

Direct Costs $ 550,000 775,000 285,000 85,000 120,000 45,000

Label P1 P2 P3 S1 S2 S3

Use of services by other departments is as follows.

Service Cost Center Building occupancy R&D Supervision

Subassemblies

User Departments Final Building Assembly Marketing Occupancy R&D Supervision

0.30

0.25

0.20

---

0.15

0.10

0.50 0.20

0.50 0.30

--0.20

--0.10

--0.20

-----

The equation for department P3 (marketing) is: A) P3 = $285,000 + 0.20S1 + 0.20S3. B) P3 = $285,000 + 0.20S1 + 0.60S2 + 0.20S3. C) P3 = $285,000 + 0.20S1 + 0.20S2 + 0.60S3. D) P3 = $285,000 + 0.50S1 + 0.50S3.

64) The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required. The following costs were incurred in three operating departments and three service departments in Westmoreland Company. Department Subassemblies Final assembly Marketing Building occupancy Research & development Supervision

Direct Costs $ 550,000 775,000 285,000 85,000 120,000 45,000

Label P1 P2 P3 S1 S2 S3

Use of services by other departments is as follows.

Service Cost Center Building occupancy R&D Supervision

Subassemblies

User Departments Final Building Assembly Marketing Occupancy R&D Supervision

0.30

0.25

0.20

---

0.15

0.10

0.50 0.20

0.50 0.30

--0.20

--0.10

--0.20

-----

The equation for department S1 (building occupancy) is: A) S1 = 0.10S3. B) S1 = $85,000 + 1.00S3. C) S1 = $85,000 + 0.10S3. D) S1 = $85,000 + 0.90S2 + 0.10S3.

65) The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required. The following costs were incurred in three operating departments and three service departments in Westmoreland Company. Department Subassemblies Final assembly Marketing Building occupancy Research & development Supervision

Direct Costs $ 550,000 775,000 285,000 85,000 120,000 45,000

Label P1 P2 P3 S1 S2 S3

Use of services by other departments is as follows.

Service Cost Center Building occupancy R&D Supervision

Subassemblies

User Departments Final Building Assembly Marketing Occupancy R&D Supervision

0.30

0.25

0.20

---

0.15

0.10

0.50 0.20

0.50 0.30

--0.20

--0.10

--0.20

-----

The equation for department S2 (research and development) is: A) S2 = $120,000 + 0.15S1 + 0.65S2 + 0.20S3. B) S2 = 0.15S1 + 20S3. C) S2 = $120,000 + 0.15S1 + 0.20S3. D) S2 = $120,000 + 0.40S1 + 0.60S3.

66) The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required. The following costs were incurred in three operating departments and three service departments in Westmoreland Company. Department Subassemblies Final assembly Marketing Building occupancy Research & development Supervision

Direct Costs $ 550,000 775,000 285,000 85,000 120,000 45,000

Label P1 P2 P3 S1 S2 S3

Use of services by other departments is as follows.

Service Cost Center Building occupancy R&D Supervision

Subassemblies

User Departments Final Building Assembly Marketing Occupancy R&D Supervision

0.30

0.25

0.20

---

0.15

0.10

0.50 0.20

0.50 0.30

--0.20

--0.10

--0.20

-----

The equation for department S3 (supervision) is: A) S3 = $45,000 + 0.90S1 + 0.10S2. B) S3 = $45,000 + 0.10S1. C) S3 = $45,000 + 1.00S1. D) S3 = 0.10S1.

67) Advanced Computer Solutions, Inc. has two main services: (1) time on a timeshared computer system and (2) proprietary computer programs. The operation department (Op) provides computer time and the programming department (P) writes programs. The percentage of each service used by each department for a typical period is: Supplied User Op P Sold to customers

Op --30% 70%

P 40% --60%

In a typical period, the operation department (Op) spends $4,500 and the programming department (P) spends $2,500. Under the step method (Op first), what is the cost of the computer time and the computer programs for sale? A. B. C. D.

$ $ $ $

Time 4,500 3,150 1,350 2,700

Programs $ 2,500 $ 3,850 $ 5,650 $ 4,300

A) Option A B) Option B C) Option C D) Option D

68) Advanced Computer Solutions, Inc. has two main services: (1) time on a timeshared computer system, and (2) proprietary computer programs. The operation department (Op) provides computer time and the programming department (P) writes programs. The percentage of each service used by each department for a typical period is: Supplied User Op P Sold to customers

Op --30% 70%

P 40% --60%

In a typical period, the operation department (Op) spends $4,500 and the programming department (P) spends $2,500. Under the reciprocal method what is the algebraic solution to the cost allocation problem? A) Op = $4,500 + 0.40P; P = $2,500 + 0.30Op. B) Op = $4,500 + 0.70P; P = $2,500 + 0.60Op. C) Op = $2,500 + 0.40P; P = $4,500 + 0.30Op. D) Op = $2,500 + 0.70P; P = $4,500 + 0.60Op. 69) Which of the following best describes the objective of joint cost allocation? A) Inventory valuation. B) Pricing goods for sale. C) Making decisions about levels of production. D) Making decisions about raw materials requirements. 70) Allocated joint costs are useful for: A) Setting the selling price of a product. B) Determining whether to continue producing an item. C) Controlling user department costs. D) Determining inventory cost for accounting purposes. 71) For the purposes of allocating joint costs to joint products, the sales price at the point of sale, reduced by the cost to complete after split-off, is assumed to be equal to the: (CPA adapted) A) Total costs. B) Joint costs. C) Sales price less a normal profit margin at point of sale. D) Net realizable value at split-off. 72) Which of the following cost items is not allocable as joint costs when a single manufacturing process produces several main products and several by-products? A) Direct materials. B) Variable overhead. C) Direct labor. D) Freight-out. 26 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

73) Which of the following is not a step needed to maximize the profits from joint products? A) Forecasting the sales price of each final product. B) Identifying alternative sets and quantities of final products possible from the joint process. C) Determining how to allocate joint costs to the final products. D) Estimating the costs required to further process joint products into salable products. 74) Which of the following statements about maximizing the profit of joint product processes is true? A) Joint processing costs incurred prior to split-off should be allocated before making those decisions. B) Only additional expenditures for further processing are relevant. C) Only revenues from selling or processing beyond the split-off point are relevant. D) Revenues from selling or processing beyond the split-off point and additional expenditures for further processing are relevant. 75) For purposes of allocating joint costs to joint products, the estimated net realizable value at split-off is equal to: A) Final sales price reduced by cost to complete after split-off. B) Sales price less a normal profit margin at the point of sale. C) Separable product cost plus a normal profit margin. D) Total sales value less joint costs at point of split-off. 76) The method of accounting for joint product costs that will produce the same gross margin percentage for all products is the: A) Replacement method. B) Physical quantities method. C) Net realizable value method. D) Units produced method. 77) Which of the following statements is false? A) The estimated net realizable value for a product is its estimated selling price after processing the product beyond the split-off point. B) In general, it is better to use a product's market value at the split-off point than its estimated net realizable value. C) The estimated net realizable value at the split-off point is calculated by taking the sales value after further processing and deducting the additional processing costs. D) It is better to use the net realizable value method for allocating joint costs than the estimated net realizable value method.

78) Net realizable value at the split-off point is used to allocate: Costs After Split-off Point No No Yes Yes

A. B. C. D.

Incurred Joint Costs No Yes No Yes

A) Option A B) Option B C) Option C D) Option D 79) Products X, Y, and Z are produced from the same process at a cost of $5,200. Five thousand pounds of raw material yields 1,500 X, 2,500 Y, and 1,000 Z. Selling prices are: X $2 per unit, Y $4 per unit, and Z valueless. The ending inventory of X is 50 units. What is the value of the ending inventory if joint costs are allocated using net realizable value? A) $21.67. B) $31.20. C) $40.00. D) $42.00. 80) Bonanza Co. manufactures products X and Y from a joint process that also yields a byproduct, Z. Revenue from sales of Z is treated as a reduction of joint costs. Additional information is as follows:

Joint costs were allocated using the net realizable value method at the split-off point. The joint costs allocated to product X were A) $75,000. B) $100,800. C) $150,000. D) $168,000.

81) Great Falls Company makes two products, Wool Gloves and Wool Mittens. They are initially processed from the same raw material and then, after split-off, further processed separately. Additional information is as follows: Final Sales Price Joint Costs Prior to Split-Off Point Costs Beyond Split-Off Point

Gloves $ 9,000 ? $ 3,000

Mittens $ 6,000 ? $ 3,000

Total $ 15,000 $ 6,600 $ 6,000

What are the joint costs allocated to Gloves and Mittens assuming Great Falls uses the estimated net realizable value approach? A. B. C. D.

Gloves $ 3,300 $ 3,960 $ 4,400 $ 4,560

Mittens $ 3,300 $ 2,640 $ 2,200 $ 2,040

A) Option A B) Option B C) Option C D) Option D 82) Atkinson, Inc., manufactures products A, B, and C from a common process. Joint costs were $60,000. Additional information is as follows:

Product A B C

Units Produced 6,000 4,000 2,000 12,000

If Processed Further Sales Value at SplitOff Sales Value $ 40,000 $ 55,000 35,000 45,000 25,000 30,000 $ 100,000 $ 130,000

Additional Costs $ 4,000 6,000 8,000 $ 18,000

Assuming that joint production costs are allocated using the physical quantities method (units produced), what were the costs allocated to Product A? A) $27,000. B) $29,000. C) $33,000. D) $30,000.

83) Atkinson, Inc., manufactures products A, B, and C from a common process. Joint costs were $60,000. Additional information is as follows:

Product A B C

Units Produced 6,000 4,000 2,000 12,000

If Processed Further Sales Value at SplitOff Sales Value $ 40,000 $ 55,000 35,000 45,000 25,000 30,000 $ 100,000 $ 130,000

Additional Costs $ 4,000 6,000 8,000 $ 18,000

Assuming that joint product costs are allocated using the net realizable value method, what were the total costs assigned to Product B? A) $26,000. B) $26,796. C) $27,000. D) $28,286. 84) Tanner Corporation produced 3,660 units, consisting of three separate products, in a joint process for the year. The market for these products was so unstable that it was not practical to estimate the selling price of the products. A cost of $425,000 was incurred in the joint process. Product X's production was 80% of product Y's while product Z's production was 125% of product Y's. What is the amount of the joint cost allocable to product X (rounded to the nearest whole dollar) assuming Tanner uses the physical quantities method of allocation? A) $111,475. B) $114,865. C) $139,344. D) $141,667.

85) Cariboo Manufacturing Company incurred a joint cost of $600,000 in the production of X and Y in a joint process. Presently, 1,800 of X and 1,400 of Y are being produced each month. Management plans to decrease X's production by 300 units in order to increase the production of Y by 500 units. Additionally, this change will require minor modifications, which will add $20,000 to the joint cost. This cost is entirely attributable to product Y. What is the amount of the joint costs allocable to X and Y before changes to existing production assuming Cariboo allocates their joint costs according to the proportion of X and Y produced? A. B. C. D.

$ $ $ $

Product X 262,500 264,706 273,529 337,500

$ $ $ $

Product Y 337,500 335,294 326,471 262,500

A) Option A B) Option B C) Option C D) Option D 86) Upton Company produces two main products and a by-product out of a joint process. The ratio of output quantities to input quantities of direct material used in the joint process remains consistent from month to month. Upton has employed the physical quantities method to allocate joint production costs to the two main products. The net realizable value of the by-product is used to reduce the joint production costs before the joint costs are allocated to the main products. Data regarding Upton's operations for the current month are presented in the chart below. During the month, Upton incurred joint production costs of $2,520,000. The main products are not marketable at the split-off point and, thus, have to be processed further.

Monthly output in pounds Selling Price per pound Separable process costs

First Main Product 90,000 $ 30 $ 540,000

Second Main Product 150,000 $ 14 $ 660,000

By-Product 60,000 $ 2

The amount of joint production cost that Upton would allocate to the Second Main Product by using the physical quantities method to allocate joint production costs would be: A) $1,200,000. B) $1,260,000. C) $1,500,000. D) $1,575,000.

87) The Mallak Company produced three joint products at a joint cost of $100,000. Two of these products were processed further. Production and sales were: Product P Q R

Weight 300,000lbs. 100,000lbs. 100,000lbs.

Sales 245,000 30,000 175,000

Additional Processing Costs $ 200,000 -0100,000

If the estimated net realizable value method is used and product Q is accounted for as a main product, how much of the joint costs would be allocated to product R? A) $38,889. B) $41,667. C) $50,000. D) $62,500. 88) The Mallak Company produced three joint products at a joint cost of $100,000. Two of these products were processed further. Production and sales were: Product P Q R

Weight 300,000lbs. 100,000lbs. 100,000lbs.

Sales 245,000 30,000 175,000

Additional Processing Costs $ 200,000 -0100,000

Assume Q is a by-product and Mallak uses the cost reduction method of accounting for byproduct cost. If estimated net realizable value is used, how much of the joint costs would be allocated to product R? A) $38,889. B) $43,750. C) $50,000. D) $62,500.

89) The Mallak Company produced three joint products at a joint cost of $100,000. Two of these products were processed further. Production and sales were: Product P Q R

Weight 300,000lbs. 100,000lbs. 100,000lbs.

Sales 245,000 30,000 175,000

Additional Processing Costs $ 200,000 -0100,000

If joint costs are allocated based on relative weight of the outputs and all products are main products, how much of the joint costs would be allocated to product P? A) $43,750. B) $50,000. C) $60,000. D) $62,500. 90) The Mallak Company produced three joint products at a joint cost of $100,000. Two of these products were processed further. Production and sales were: Product P Q R

Weight 300,000lbs. 100,000lbs. 100,000lbs.

Sales 245,000 30,000 175,000

Additional Processing Costs $ 200,000 -0100,000

What is the net income of Mallak Company if the estimated net realizable value method of joint cost allocation is used? A) $20,000. B) $50,000. C) $150,000. D) $350,000.

91) Cambridge Company manufactures three main products, L, M, and N, from a joint process. Additional information for June production activity follows: Units produced Joint costs Sales value at split-off Additional costs if process further Sale value if processed further

L 50,000 ? $ 420,000 $ $

88,000 538,000

M 40,000 ? $ 270,000 $ $

30,000 320,000

N 10,000 ? $ 60,000 $ $

12,000 78,000

Total 100,000 $ 450,000 $ 750,000 $ $

130,000 936,000

Assuming that the 10,000 units of N were processed further and sold for $78,000, what was Cambridge's gross profit from this sale? Assume the physical quantities method of allocation is used. A) $21,000. B) $28,500. C) $30,000. D) $66,000. 92) Which of the following is not a physical measure that can be used for allocating joint costs using the physical quantities method? A) Tons of steel. B) Ounces of gold. C) Dollars of labor. D) Feet of lumber. 93) In joint product costing and analysis, which one of the following costs is relevant when deciding the point at which a product should be sold in order to maximize profits? (CMA adapted) A) Separable costs after the split-off point. B) Joint costs to the spilt-off point. C) Sales salaries for the period when the units were produced. D) Purchase costs of the materials required for the joint products.

94) Delite Confectionary Company produces various types of candies. Several candies could be sold at the split-off point or processed further and sold in a different form after further processing. The candies are produced in a joint processing operation with $500,000 of joint processing costs monthly, which are allocated based on pounds produced. Information concerning this process for a recent month appears below:

Candy type Sweet Meats Chocolate Delight Minty Wonders

Number of Price per pound at pounds split-off 50,000 $ 8 100,000 25,000

$ $

10 5

Further processing costs $ 75,000 30,000 $ $ 20,000

Price after processing further $ 10.00 $ $

10.50 5.50

Based on the information presented, which of the products should be processed further? A) Sweet Meats only. B) Both Sweet Meats and Chocolate Delight. C) Minty Wonders only. D) Both Sweet Meats and Minty Wonders. 95) Delite Confectionary Company produces various types of candies. Several candies could be sold at the split-off point or processed further and sold in a different form after further processing. The candies are produced in a joint processing operation with $500,000 of joint processing costs monthly, which are allocated based on pounds produced. Information concerning this process for a recent month appears below:

Candy type Sweet Meats Chocolate Delight Minty Wonders

Number of Price per pound at pounds split-off 50,000 $ 8 100,000 25,000

$ $

10 5

Further processing costs $ 75,000 30,000 $ $ 20,000

Price after processing further $ 10.00 $ $

10.50 5.50

The net advantage (disadvantage) of processing Sweet Meats further is: A) a $25,000 disadvantage to process further. B) a $32,143 advantage to process further. C) a $25,000 advantage to process further. D) a $282,143 disadvantage to process further.

96) Delite Confectionary Company produces various types of candies. Several candies could be sold at the split-off point or processed further and sold in a different form after further processing. The candies are produced in a joint processing operation with $500,000 of joint processing costs monthly, which are allocated based on pounds produced. Information concerning this process for a recent month appears below:

Candy type Sweet Meats Chocolate Delight Minty Wonders

Number of Price per pound at pounds split-off 50,000 $ 8 100,000 25,000

$ $

10 5

Further processing costs $ 75,000 30,000 $ $ 20,000

Price after processing further $ 10.00 $ $

10.50 5.50

The joint processing costs in this operation: A) Should be allocated to products to determine whether they are sold at split-off or processed further. B) Should be ignored in determining whether to sell at split-off or process further. C) Should be ignored in making all product decisions. D) Are never included in product cost, as they are misleading to all management decisions. 97) Delite Confectionary Company produces various types of candies. Several candies could be sold at the split-off point or processed further and sold in a different form after further processing. The candies are produced in a joint processing operation with $500,000 of joint processing costs monthly, which are allocated based on pounds produced. Information concerning this process for a recent month appears below:

Candy type Sweet Meats Chocolate Delight Minty Wonders

Number of Price per pound at pounds split-off 50,000 $ 8 100,000 25,000

$ $

10 5

Further processing costs $ 75,000 30,000 $ $ 20,000

Price after processing further $ 10.00 $ $

10.50 5.50

If Chocolate Delight is processed further, the gross profit margin that will appear in a product line income statement for Chocolate Delight (rounded to the nearest whole dollar) would be: A) $734,286. B) $520,000. C) $1,020,000. D) $632,596.

98) The Foxmoor Company produces three products, X, Y, and Z, from a single raw material input. Product Y can be sold at the split-off point for total revenues of $50,000 or it can be processed further at a total cost of $16,000 and then sold for $68,000. Product Y: A) Should be sold at the split-off point, rather than processed further. B) Would increase the company's overall net income by $18,000 if processed further and then sold. C) Would increase the company's overall net income by $68,000 if processed further and then sold. D) Would increase the company's overall net income by $2,000 if processed further and then sold. 99) Product C is one of several joint products that come out of Department M. The joint costs incurred in Department M total $40,000. Product C can be sold at split-off or processed further and sold as a higher quality item. The decision to process further should be based on the: A) Assumption that the $40,000 is irrelevant. B) Allocation of the $40,000, using the net realizable value. C) Allocation of the $40,000, using a physical measures approach. D) Allocation of the $40,000, using the relative sales value at split-off method. 100) The characteristic that is most often used to distinguish a product as either a main product or a by-product is the amount of: A) Sales value of the products produced during the common production process. B) Direct manufacturing costs (e.g., materials) incurred before the split-off point. C) Physical measures in the products produced during the common production process. D) Time (i.e., labor) required to produce the products from start to finish. 101) If by-product revenue is treated as other revenue instead of deducted from the netrealizable-value of the main products: A) Overall gross margin of the company will be higher. B) Overall gross margin of the company will be lower. C) The answer would depend on how joint product costs were allocated. D) There is no difference in the overall gross margin of the company. 102) Products with a relatively minor sales value are called: A) Scrap. B) Spoilage. C) By-products. D) Main products. 103) Joint products and by-products are produced simultaneously by a single process or series of processes and: A) Joint products are salable at the split-off point, but by-products are not. B) By-products are salable at the split-off point, but joint products are not. C) The revenue from by-products may be recognized at the time of production. D) All by-products must be allocated some portion of joint costs. 37 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

104) Which of the following statements regarding accounting for by-products is true? A) If all products are sold in the same period as they are produced, treating by-product revenue as other revenue will result in a higher overall gross margin. B) If all products are sold in the same period as they are produced, treating by-product netrealizable-value as a deduction of the cost of the main products will result in a higher overall gross margin. C) If all products are sold in the same period as they are produced, total reported revenues will be the same regardless of how by-product revenue is accounted for. D) If all products are sold in the same period as they are produced, the reported gross margin will be the same regardless of how by-product revenue is accounted for. 105) For each of the support service costs listed below, name an appropriate cost allocation base: (1.) Building rental cost (2.) Payroll department salaries (3.) Company cafeteria cost (4.) Human resources department (5.) Accounting department (6.) Computer equipment depreciation (7.) Insurance costs on computer equipment (8.) Depreciation on company airplane (9.) Factory manager (10.) Cost to clean company uniforms (11.) Costs of corporate daycare facility (12.) Equipment maintenance (13.) Cost of corporate workout facility (14.) Building insurance (15.) Cost of delivery truck for a moving company

106) Wimbledon Corporation has two production Departments, Assembly and Machining, and two service departments, Personnel and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of July, 2020 are as follows: Proportion of Services Used by: Department Personnel Cafeteria Machining Assembly

Direct costs $ 30,000 $ 50,000 $ 80,000 $ 70,000

Personnel 0.20

Cafeteria 0.40

Machining 0.30 0.50

Assembly 0.30 0.30

Required: Compute the allocation of service department costs to producing departments for July 2020 using the direct method. 107) Prestige Financial Credit Company produces two styles of credit reports: Individual and Corporate. The difference between the two is the amount of background information and data collection required. The Corporate report uses more skilled personnel because additional checking and data are required. Total support service costs to be allocated are $3,200,000. The relevant figures for the year just completed follow: Allocation base Data purchased Research hours Interview hours Number of reports

Individual $ 40,000 24,000 1,000 16,000

Corporate $ 80,000 30,000 10,000 3,000

Required: For each of the four potential allocation bases, determine the amount of support service cost allocated to each type of report. Round all percentages to two decimal places.

108) Data Master is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Cynthia Moore, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Moore is considering three different methods of allocating overhead costs: the direct method, the step method, and the reciprocal method. Moore assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department.

Information systems are allocated on the basis of hours of computer usage; facilities are allocated on the basis of floor space. Required: Allocate the service department costs to the user departments using the direct method. (Round to the nearest whole dollar and provide total user department costs.) 109) Data Master is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Cynthia Moore, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Moore is considering three different methods of allocating overhead costs-the direct method, the step method, and the reciprocal method. Moore assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department.

Information systems are allocated on the basis of hours of computer usage; facilities are allocated on the basis of floor space. Required: Allocate the service department costs to the user departments using the step method. Allocate Information Systems first and round to the nearest whole dollar. Provide total user department costs. 40 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

110) Yellville Regional Hospital is a small hospital with two service departments and three revenue areas: Service Department Housekeeping (HK) Laundry Revenue Areas: Surgery Semiprivate rooms Maternity

Direct Costs $ 80,000 $ 132,000 $ 400,000 $ 200,000 $ 150,000

Square Feet 500 1,500 2,000 1,000

Laundry Pounds 16,000 48,000 24,000 12,000

The hospital wants to allocate the service department costs to the revenue areas. Housekeeping is allocated based on square footage; Laundry is allocated based on pounds of laundry. The normal capacity for Surgery is 200 hours per month; normal capacity for semiprivate rooms is 600 patient days; and normal capacity for maternity is 200 patient days. Required: Determine the overhead rate for the three revenue areas. Allocate the service department costs to the revenue areas using the direct method. 111) Yellville Regional Hospital is a small hospital with two service departments and three revenue areas: Service Department Housekeeping (HK) Laundry Revenue Areas: Surgery Semiprivate rooms Maternity

Direct Costs $ 80,000 $ 132,000 $ 400,000 $ 200,000 $ 150,000

Square Feet 500

Laundry Pounds 16,000 -

1,500 2,000 1,000

48,000 24,000 12,000

The hospital wants to allocate the service department costs to the revenue areas. Housekeeping is allocated based on square footage; Laundry is allocated based on pounds of laundry. The normal capacity for Surgery is 200 hours per month; normal capacity for semiprivate rooms is 600 patient days; and normal capacity for maternity is 200 patient days. Required: Determine the overhead rate for the three revenue areas. Allocate the service department costs to the revenue areas using the step method. Allocate the service department with the largest dollar value first.

112) Jack Donaldson owns and operates Jack's Abstracting Service. Jack's two revenue generating operations (Abstracting Services and Closing Services) are supported by two service departments: Clerical and Custodial. Costs in the service departments are allocated in the following order using the designated allocation bases. Clerical: number of transactions processed. Custodial: square footage of space occupied. Average and expected activity levels for next month are as follows:

Abstract services Closing services Clerical Custodial

Numbers of Transactions 50 25

Square Footage 1,800 2,200 1,600

Expected Costs $ 40,000 10,000

Required: Use the direct method to allocate the service department costs to the revenue generating departments. Provide the total costs for the revenue departments. 113) Jack Donaldson owns and operates Jack's Abstracting Service. Jack's two revenue generating operations Abstracting Services and Closing Services are supported by two service departments: Clerical and Custodial. Costs in the service departments are allocated in the following order using the designated allocation bases. Clerical: number of transactions processed. Custodial: square footage of space occupied. Average and expected activity levels for next month are as follows:

Abstract services Closing services Clerical Custodial

Number of Transactions 50 25 5

Square Footage 1,800 2,200 1,600

Expected Costs $ 40,000 10,000

Required: a. Use the step method to allocate the service department costs to the revenue generating departments. Assume Clerical costs are allocated before Custodial costs and round all calculations to the nearest whole dollar. Provide the total costs for the revenue departments. b. Use the step method to allocate the service department costs to the revenue generating departments but now assume Custodial costs are allocated before Clerical costs. Provide the total costs for the revenue departments.

114) Aardvark Industries has two production departments, Assembly and Finishing, and three Service Departments, Personnel, Maintenance, and Cafeteria. Data relevant to Aardvark are: Department Personnel Maintenance Cafeteria Assembly Finishing

Direct Cost $ 500,000 420,000 200,000 380,000 150,000

Personnel

Maintenance 0.10

0.20

Cafeteria

Assembly 0.70 0.80 0.30

Finishing 0.20 0.20 0.30

Required: Allocate the service department costs of Aardvark Industries using the step method of cost allocation. 115) Mena Corporation has two production departments, Assembly and Finishing, and three service departments, Personnel, Maintenance, and Cafeteria. Data relevant to Mena are: Department Personnel Maintenance Cafeteria Assembly Finishing

Direct cost $ 500,000 420,000 200,000 380,000 150,000

Personnel

Maintenance 0.10

0.20

Cafeteria

Assembly 0.70 0.80 0.30

Finishing 0.20 0.20 0.30

Assembly and Finishing worked on two jobs during the month: Jobs 100 and 101. Costs are allocated to jobs based on machine hours in Assembly and labor hours in Finishing. The machine and labor hours worked in each department are as follows: Assembly Finishing Job 100 Job 101

Labor Hours

200

800

Machine Hours

1,000

200

Labor Hours

100

900

Machine Hours

500

100

Required: Determine the amount of service department costs to be allocated to Jobs 100 and 101. Mena allocates service department costs to production departments using the direct method of allocation. (Round cost per hour to four decimal places and all other calculations to the nearest whole dollar.)

116) Boston Corporation has two production departments, Assembly and Machining, and two service departments, Personnel and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of July, 2020 are as follows: Proportion of Services Used by: Department Personnel Cafeteria Machining Assembly

Direct costs $ 30,000 $ 50,000 $ 80,000 $ 70,000

Personnel

Cafeteria 0.40

0.20

Machining 0.30 0.50

Assembly 0.30 0.30

Required: Compute the allocation of service department costs to producing departments for July 2020 using the step method. 117) Data Master is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Cynthia Moore, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Moore is considering three different methods of allocating overhead costs: the direct method, the step method, and the reciprocal method. Moore assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department. Service Departments Info Systems Budgeted Overhead Info Systems (hours) Facilities (Square feet)

50,000

Facilities $

25,000 400

200,000

User Departments Computer Program $

75,000

Consulting $

110,000

Training $

85,000

Total $

345,000

1,100

600

900

3,000

400,000

600,000

800,000

2,000,000

118) Jack Donaldson owns and operates Jack's Abstracting Service. Jack's two revenue generating operations (Abstracting Services and Closing Services) are supported by two service departments: Clerical and Custodial. Costs in the service departments are allocated in the following order using the designated allocation bases. Clerical: number of transactions processed. Custodial: square footage of space occupied. Average and expected activity levels for next month are as follows: Number of Transactions Abstract services Closing services Clerical Custodial

Square Footage 50 25

1,800 2,200 1,600

Expected Costs $ 40,000 10,000

Required: Use the reciprocal method to allocate the service department costs to the revenue generating departments. Provide the total costs for the revenue departments. 119) Yellville Regional Hospital is a small hospital with two service departments and three revenue areas: Service Department Housekeeping (HK) Laundry Revenue Areas: Surgery Semiprivate Rooms Maternity

Direct Costs $ 80,000 $ 132,000

Square Feet 500

$ 400,000 $ 200,000 $ 150,000

1,500 2,000 1,000

Laundry Pounds 16,000 48,000 24,000 12,000

120) Franklin Corporation has three operating departments (Fabricating, Assembly, and Finishing) and two service departments (Custodial and Administrative). The following information has been provided: Custodial Department Costs # employees Square feet

250,000 10 --

Admin $

Fabricating

Assembly

Finishing

400,000

-15,000

80 30,000

100 35,000

60 20,000

Allocations are based on the following: Custodial: Square feet Administrative: Number of employees Required: Franklin has been approached by Sparkle Cleaning to outsource the custodial service. Assuming all costs are variable, what is the relevant cost of the custodial department to compare with the Sparkle Cleaning bid? 121) The Joplin Company conducts a simple chemical process in Department #1, which produces three separate items: A, K, and H. A is processed further in Department #2. K is processed further in Department #3. Product H is a by-product, to be accounted for by the cost reduction method. The following information relates to September: Department #1's costs $420,000. Department #2's costs $150,000. Department #3's costs $60,000. A: 25,000 pounds completed; 23,500 pounds sold for $12 per pound. K: 75,000 pounds completed; 70,000 pounds sold for $7.50 per pound. H: 10,000 pounds completed; 10,000 pounds sold for $1.50 per pound. (There are shipping costs of $0.30 per pound.) There were no beginning inventories. Required: Prepare a schedule to show the computation for the unit costs per pound for Products A, K, and H assuming Joplin uses the estimated net realizable value method to allocate joint costs to the main products.

122) Simpson Manufacturing Enterprises uses a joint production process that produces three products at the split-off point. Joint production costs during April were $720,000. The company uses the net realizable value method for allocating joint costs. Product information for April was as follows:

Gallons produced Sales prices per gallon: At the split-off After further processing Costs to process after split-off

R 2,500

Product S 5,000

$ 100 $ 150 $ 150,000

$ 80 $ 115 $ 150,000

$ 20 $ 30 $ 100,000

7,500

Required: a. Assume that all three products are main products and that they can be sold at the split-off point or processed further, whichever is economically beneficial to Simpson. Allocate the joint costs to the three products. b. Assume that Simpson uses the physical quantities method to allocate the joint costs. How much would be allocated to each of the three products? 123) Clean-Burn, Inc. is a small petroleum company that acquires high-grade crude oil from lowvolume production wells owned by individuals and small partnerships. The crude oil is processed in a single refinery into Two Oil, Six Oil, and impure distillates. Clean-Burn does not have the technology or capacity to process these products further and sell most of its output each month to major refineries. There were no inventories on November 1. Crude oil acquired and placed into production Direct labor and related costs Refinery overhead

$ 5,000,000 2,000,000 3,000,000

Production and sales Two Oil, 300,000 barrels produced; 280,000 barrels sold at $20 each. Six Oil, 240,000 barrels produced; 220,000 barrels sold at $30 each. Distillates, 120,000 barrels produced and sold at $15 per barrel. Required: a. Allocate the joint costs to the products using the physical quantities method. b. Allocate the joint costs to the products using the net realizable value method.

124) Smokey Enterprises buys Liquid Charcoal for $0.80 a gallon. At the end of processing in Department 1, the liquid charcoal splits off into Products U, V, and W. Product U is sold at the split-off point, with no further processing. Products V and W require further processing before they can be sold; Product V is processed in Department 2, and Product W is processed in Department 3. Following is a summary of costs and other related data for the most recent accounting period:

Cost of liquid charcoal Direct labor Manufacturing overhead

1 $ 104,000 $ 16,000 $ 10,000

Gallons sold Gallons on hand end of period Sales in dollars

U 20,000 15,000 $ 30,000

Department 2 $ 45,000 $ 27,000 Products V 30,000 0 $ 96,000

3 $ $

65,000 49,000

W 50,000 15,000 $ 142,000

There were no beginning inventories and there was no liquid charcoal on hand at the end of the period. All gallons on hand in ending inventory were complete as to processing. Required: a. Determine the product cost for U, V, and W, assuming the physical quantities method is used to allocate joint costs. b. Determine the product cost for U, V, and W, assuming the net realizable value method is used to allocate joint costs. 125) The Wang Company conducts a simple chemical process in Department #1, which produces three separate items: A, B, and C. A is processed further in Department #2. B is processed further in Department #3. Product C can be sold immediately. The following information relates to October: Department #1's costs $540,000. Department #2's costs $120,000. Department #3's costs $300,000. A: 25,000 pounds completed; 23,500 pounds sold for $12 per pound. B: 75,000 pounds completed; 70,000 pounds sold for $7.50 per pound. C: 50,000 pounds completed; 46,000 pounds sold for $5.00 per pound. There were no beginning inventories. Required: a. Allocate the joint process costs to Products A, B, and C assuming the estimated net realizable value method is used. b. Allocate the joint process costs to products A, B, and C assuming the physical quantities method is used. 48 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

126) The Marketplace Corporation produces two consumer products and a by-product. Zylon is ready for sale after split-off, while Qytol must be further processed. The by-product is a heavy residue in the bottom of the vat. The net realizable value of the by-product is credited against the $565,000 joint cost of the Heating Department. Volume and cost data for February is as follows: Gallons Produced 200,000 400,000 5,000

Zylon Qytol By-Product

Selling Price $ 2.00 1.10 0.50

Additional Processing 0 $ 40,000 0

Required: a. Allocate the Heating Department cost to the products using the physical quantities method. b. Allocate the Heating Department cost to the products using the estimated net realizable value (workback) method. 127) The Delicious Canning Company processes tomatoes into ketchup, tomato juice, and canned tomatoes. During the summer, the joint costs of processing the tomatoes were $420,000. There were no beginning or ending inventories for the summer. Production and sales value information for the summer were as follows: Product Ketchup Juice Canned

Cases 100,000 150,000 200,000

Additional Costs $ 3.00per case 5.00per case 2.50per case

Selling Price $ 28per case $ 25per case 10per case

Required: a. Determine the amount allocated to each product if the estimated net realizable value method is used. b. Determine the amount allocated to each product if the physical quantities method is used.

128) The Joplin Company conducts a simple chemical process in Department #1, which produces three separate items: A, K, and H. A is processed further in Department #2. K is processed further in Department #3. Product H is a by-product, to be accounted for by the other revenue method. The following information relates to September: Department #1's costs $420,000. Department #2's costs $150,000. Department #3's costs $60,000. A: 25,000 pounds completed; 23,500 pounds sold for $12 per pound. K: 75,000 pounds completed; 70,000 pounds sold for $7.50 per pound. H: 10,000 pounds completed; 10,000 pounds sold for $1.50 per pound. (There are shipping costs of $0.30 per pound.) There were no beginning inventories. Required: Prepare a schedule to show the computation for the unit costs per pound for Products A, K, and H assuming Joplin uses the physical quantities method to allocate joint costs to the main products. 129) Highlands, Inc. operates a sawmill facility. The company accounts for the sawdust that results from the primary sawing operation as a by-product. The sawdust is sold to another company at a price of $1.00 per hundred cubic feet. Normally, sales revenue from the sawdust is $21,200 per month. The sawdust is charged to inventory at $2.20 per hundred cubic feet, although there is no direct cost to process it. As an alternative, Highlands can rent equipment that will process the dust into imitation logs for fireplaces. These logs sell for $25.00 per log to wholesalers, who package and add scent to them. 75 logs can be produced from 100 cubic feet of sawdust. Cost of the equipment to produce these logs and the additional personnel required to operate the equipment are $360,000 per month, regardless of the output. Required: Should Highlands sell the sawdust for $1.00 per hundred cubic feet or process it into imitation logs? Support your answer with the appropriate calculations.

130) Voorhees Manufacturing Corporation produces three products in a joint process. Additional information is as follows: Product Units produced Sales value at split off Additional costs if processed further Sales value if processed further Joint costs Product weights in pounds

O 42,000 $ 250,000 $ $

18,000 290,000

$ $ $

84,000

P 50,000 50,000 30,000 70,000

Q 8,000 $ 20,000 $ $

150,000

10,000 25,000 8,000

Total 100,000 $ 320,000 $

58,000

385,000 $ $ 300,000 242,000

Required: (a) Determine which products should be sold at split-off and which should be processed further. (b) Assuming Voorhees makes decisions that are in its best interest for overall profitability, what would be the company's gross margin? 131) Ridgeline Enterprises produces three products in a joint process. Products A and B are processed further. Additional information is as follows: Units produced Sales value at split-off Additional costs if processed further Sales value if processed further Joint Costs Product Weight in pounds

A 42,000 $ 250,000 $ $

18,000 290,000 168,000

B 50,000 $ 30,000 $ $

30,000 70,000 300,000

C 8,000 $ 20,000 $ $

0 0 32,000

Total 100,000 $ 300,000 $

48,000

360,000 $ $ 200,000 500,000

Required: (a) Allocate the joint costs, assuming that all products are joint products and joint-costs are allocated using the physical quantities method. (b) Allocate the joint costs using the physical quantities method, assuming that product C is considered a by-product, whose sales value is deducted from the total joint costs.

132) Geneva Powder Company produces body powders in batches. Each type of powder can be sold in its current condition or processed further and specialized for high-priced department stores. Joint processing costs are $200,000. Data concerning the various products appear below:

Type of Powder Cosmetic Powder Medicated Powder Baby Powder

Number of Pounds 200,000 400,000 50,000

Price per Pound at Split-Off $ 10 $ 8 $ 5

Further Processing Costs $ 150,000 $ 60,000 $ 80,000

Price after Processing Further $ 11.50 $ 8.40 $ 5.50

Required: (a) Determine which products should be sold at split-off and which should be processed further. (b) The Regis Department Store approaches Geneva Powder. Regis would like Geneva Powder to process Baby Powder into a special powder for its infants department. At what price per pound would Geneva Powder be economically indifferent between selling the powder at the split-off point and processing it further for Regis? 133) Indicate whether the following costs would be treated as joint product costs or costs incurred after the split-off point. Use J for joint product costs and S for costs incurred after the split-off point. (a) (b) (c) (d) (e) (f) (g)

Cost of planting, growing and picking pineapples in a pineapple factory Costs of processing apples at a cider mill Costs of processing pineapples into juice and sliced pineapples Depreciation on oil rigs for an oil producer Costs of running a fishing boat used to catch varieties of fish, lobsters, etc. Labor costs, of "shucking" clams to produce clam chowder Costs of chopping onions to be used in spaghetti sauce and soup in a food manufacturer (h) Cost of processing rejected meat parts into hot dogs in a meat processing plant (i) Cost of processing wood and sawdust into particle board in a sawmill (j) Ingredients and packaging added to batches of spaghetti in (g) above (k) Costs of refining gasoline in (d) above (l) Processing of pulp into paperboard in a paper manufacturer (m) Utility costs of processing timber for a lumber manufacturer

134) The Macon Industries started the production of K1 (its main product) and S2 (its byproduct) on January 2, 2020. During 2020, 7,500 units of K1 and 1,500 units of S2 were produced. In 2020, 6,000 units of K1 and 1,000 units of S2 were sold at $57.00 and $1.10 per unit, respectively. Production was halted at the end of 2020 and the inventory was sold in 2021 at the normal selling prices. The joint production costs were $240,000 and are entirely avoidable. The separable costs to produce K1 were $2.60 per unit and to produce S2 were $0.45 per unit. Operating expenses were $60,000 in 2020 and $12,000 in 2021. Required: a. Prepare an income statement for 2020 and 2021 assuming the "other revenue" method of accounting for by-products is used. b. Prepare an income statement for 2020 and 2021, assuming the "cost reduction" method of accounting for by-products is used and by-product costs are expensed in the period in which they are incurred. 135) What is the difference between an intermediate cost center and a final cost center? 136) Describe the difference between the direct method of service department allocation, the step method, and the reciprocal method. 137) Why does the sequence in which service departments are allocated make a difference when using the step method but not when using the reciprocal method? 138) Which of the three service department allocation methods should be used for decision making? Explain your reasoning. 139) What are some of the reasons that joint costs are allocated? 140) Explain the difference between the net realizable value method for joint cost allocation and the netback (or workback) method. 141) In a sell-or-process-further decision, (a) what are the relevant data to be considered and (b) what is the decision process associated with the split-off point? 142) Describe two methods of accounting for by-products. What effects do these methods have on the allocation of the joint cost to the main products?

143) Boswell Consulting has two service departments, S1 and S2, and three production departments, P1, P2, and P3. Data for a recent month follow: Service Provided to: S1 S2

Costs

$ 200,000

S2 0.10

P1 0.20 0.20

0.30 $

100,000

600,000

P2 0.40 0.40 800,00 $ 0

P3 0.30 0.10 $ 1,000,000

Required: (a) Determine the allocations to the production departments when the reciprocal method is used. (b) Briefly describe why the reciprocal method is theoretically preferable to other methods of allocation.

144) Morgan and Regis Consultants is a large, international consulting organization. The company provides consulting services in the computer and Internet areas. The company also has several divisions that provide manufacturing of various computer parts. The company has five divisions that are all profit centers. Each division includes allocated corporate costs in its annual budget. The budget for the coming year for the Building and Grounds Service Department is $6,000,000. Included in this budget is the maintenance of all corporate buildings, depreciation, cleaning, insurance, and all other facility-related maintenance costs. The company uses a weighted method of allocating facility costs based on the type of space maintained by each division. Space ranges from manufacturing warehouses, which are least expensive to maintain, to computer mainframe space, which requires specialized temperature controls, air conditioning, and maintenance. The company has decided to use a weighting system assigning the following relative weights to each type of space: 1 for warehouse, 3 for office, and 5 for computer space. Below, find data relating to the five divisions and the square footage of each type of space. Currently, Division 5, the Internet Consulting Division, is the largest in sales volume and profits for the company, which has been growing at the rate of 20% per year, while Divisions 3 and 4 have been struggling due to declining margins on technology products.

Office Weighting Division 1 Division 2 Division 3 Division 4 Division 5 Total

3 10,000 31,000 15,000 15,000 30,000 1,01,000

Type of space Computer Warehouse 5 1 0 0 10,000 5,000 12,000 32,000 10,000 50,000 30,000 0 62,000 87,000

Total 10,000 46,000 59,000 75,000 60,000 2,50,000

Required: (a) As director of corporate budgeting, you are required to send to each division its facility allocation for the coming year. Prepare a schedule showing how the budget of $6,000,000 will be allocated to each division. (Round allocation rate to six decimal places) (b) Describe potential motivational problems brought on by these allocations.

145) Castro Corporation has one service department and three producing departments. The budget for the following year allocates the service department costs to the producing departments based on the number of employees in each department. Currently, the budget for the service department is $2,400,000 and the number of employees in each department is as follows: Department 1: 100 Department 2: 50 Department 3: 150 During the year, due to sudden expanded growth, Department 2 has to add 50 new employees; however the service department costs have not increased due to budget constraints. Required: (a) What were the expected service department allocations at the beginning of the year to each production department? (b) What will be the actual allocations based on the number of employees each department has at year end? (c) Comment on the reasonableness of the situation. What are the potential causes of any problems created by this allocation method? 146) Liberty Credit Checks produces two styles of credit reports: personal and corporate. The difference between the two is the amount of background information and data collection required. The corporate report uses more skilled personnel because additional checking and data are required. Total support service costs to be allocated are $3,200,000. The relevant figures for the year just completed follow: Allocation base Data purchased Research hours Interview hours Number of reports

Individual $ 40,000 24,000 1,000 16,000

Corporate $ 80,000 30,000 10,000 3,000

147) Portofino Manufacturing Corporation manufactures three products in a joint process. Additional information is as follows: Product Units produced Sales value at split-off Additional costs if processed further Sales value if processed further Joint Costs

J 16,000 $ 300,000 $ $

48,000 340,000

K 4,000 $ 100,000 $ $

20,000 160,000

L 2,000 $ 20,000 $ $

6,000 40,000

Total 22,000 $ 420,000 $

74,000

540,000 $ $ 120,000

Required: (a) Allocate the joint costs to the three products using the net realizable value method. (b) Determine which products should be sold at split-off and which products should be processed further. 148) Dawson Corporation produces a product called Blocker, which gives rise to a by-product called Spotter. The only costs associated with Spotter are additional processing costs of $4 for each unit. Dawson accounts for Spotter's sales first by deducting its separable costs from its sales and then by deducting this net amount from the cost of sales of Blocker. This year, 9,600 units of Spotter were produced. They were all sold for $8 each. Company operating expenses were $250,000 for the year. Sales revenue and cost of goods sold for Blocker were $1,600,000 and $800,000, respectively. (CPA adapted) Required: (a) Calculate the company's gross margin under the current accounting method. (b) Assume the company changes its accounting method and accounts for the by-product's net realizable value as "other revenue." Calculate the gross margin under the new method. (c) Under what circumstances would method (a) or (b) be preferred?

149) Bartoff Foods produces three supplemental food products simultaneously through a refining process costing $186,000. The joint products, Bulkup and Bodybuilder, have a final selling price of $8 per pound and $10 per pound, respectively, after additional processing costs of $2 per pound for each product incurred after the split-off point. Quicksnack, a by-product, is sold at the split-off point for $6 per pound. The production of Bulkup results in 20,000 pounds with a caloric value of 6,000 calories per pound. The production of Bodybuilder, which is very high in carbohydrates, has a caloric value of 12,500 calories per pound. 10,000 pounds of Bodybuilder are produced. Quicksnack has a caloric value of 2,000 calories a pound and 2,000 pounds are produced. (CMA adapted) Required: (a) Allocate the joint product costs using the net-realizable-value method, assuming that Quicksnack is accounted for as a by-product, with its net realizable value deducted from the cost of the main products. (b) Allocate the joint product costs using the physical quantities method, assuming that Quicksnack is accounted for as a by-product, with its sales revenue accounted for as "other revenue." Bartoff uses calories per pound as the physical measurement. (c) Compute Bartoff Food's gross margin under requirements (a) and (b). 150) Timberland Corporation produces three products from a joint process: One-X, Two-Y, and Three-Z. Each product can be processed further and sold for more. Data on the processes are as follows: Product One-X Units produced 16,000 Joint costs $ 60,000 Sales value at split-off (c) Additional Processing Costs $ 14,000 Sales value if Processed $ 140,000 Further

Two-Y 8,000 (a) (d) $ 10,000

Three-Z 4,000 (b) $ 30,000 $ 6,000

Total 28,000 $ 120,000 $ 200,000 $ 30,000

$ 60,000

$ 40,000

$ 240,000

The amount of joint costs for One-X is the amount that has been allocated. Required: Determine the values for the lettered spaces. (CPA adapted)

151) Penny's Pineapples is a pineapple grower. After cultivating, fertilizing, growing, and picking pineapples, the company sells whole pineapples to food processors. The company is considering adding a processing line where sliced pineapples and pineapple juice, along with a "mash" used for animal feed will be the final products. Projected information about the costs follows: Product Sliced pineapple Pineapple juice Mash

Separable costs $ 600,000 $ 150,000 $ 120,000

Units produced 900,000cans 400,000bottles 500,000pounds

Final selling price per unit $ 3.00per can $ 1.75per bottle $ 0.50per pound

Joint product costs of cultivating, fertilizing and picking pineapples total $1,000,000. Required: (a) Determine the amount of joint costs allocated to each product using the net realizable value method. (b) Determine the final cost per unit for each product. (c) Determine the gross margin as a percent of sales for each product. (d) A fertilizer manufacturer approaches Penny Martin, the President of the company, and asks to buy the rinds and other excess materials currently used to produce Mash. He would be willing to pay $0.30 per pound for these materials. What advice would you give Penny? 152) Fantasy Manufacturing produces three products in a joint operation. Information regarding the products appears below: Units Produced Sales Value at Split-off Additional costs if Processed further Sales Value if Processed Further Joint Costs

Item 1 20,000 $ 150,000 $ $

10,000 170,000

Item 2 25,000 $ 50,000 $ $

30,000 90,000

Item 3 10,000 $ 20,000 $ $

5,000 28,000

Total 55,000 $ 220,000 $

45,000

288,000 $ $ 100,000

Required: Allocate the joint costs using the net realizable value method.

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 12 Fundamentals of Management Control Systems 1) The design and use of management control systems affects how an individual makes and implements decisions. 2) In general, there is a direct relationship between the quality of the information provided to managers and the quality of decisions made using that information. 3) Rational managers will always make decisions that are in the best interest of the organization employing them. 4) Decentralization is the delegation of the authority to make decisions in the organization's name to subordinates. 5) In general, organizations are more centralized in the early stages of their existence and more decentralized as they grow. 6) One advantage of decentralization is faster response time to changes in the organization's environment by local managers. 7) One advantage of centralization is better use of top management's time on strategic decisions. 8) Properly developed and implemented management control systems influence subordinates to act in the organization's best interest. 9) Delegated decision authority is the specification of what decisions a subordinate can make in the organization. 10) It is important to not consider an organization's compensation and reward system when designing its performance evaluation system. 11) Managers in a cost center are held responsible for both the costs and volumes of inputs used to produce a product or provide a service. 12) In general, profit centers are found at higher levels in an organization than investment centers. 13) Properly designed management control systems can totally eliminate the inherent conflict between individual behavior and organizational goals. 14) There is no single accounting measure that can fully measure the performance of a profit or investment center. 15) Fixed compensation is generally not linked to measured performance; i.e., it is independent of measured performance. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

16) Properly designed management control systems have both fixed compensation and contingent compensation. 17) Cost allocations based on dual rates assume that a common cost can be separated into a fixed component and a variable component. 18) The primary reason to use a dual-rate allocation system is to focus a manager's performance evaluation on factors under the manager's direct control. 19) It is possible for performance evaluation systems and/or management control systems to contribute to unethical or fraudulent behavior. 20) Properly designed management control systems will eliminate fraudulent behavior by maximizing goal congruence within the organization. 21) One of the key internal controls for any organization is separation of duties. 22) Internal controls are not legally required for publicly traded companies. 23) The design and use of management control systems uses concepts from which of the following disciplines? A) Demography. B) Economics. C) Trigonometry. D) Physics. 24) What is the purpose of a management control system? A) To align more closely the interests of the manager and the interests of the organization. B) To allow individuals to obtain business experience. C) To define the performance measures for employees. D) To focus on the well-being of employees. 25) Which of the following correctly defines a principal-agent relationship? A) The relationship between a superior and a subordinate. B) The relationship between two superiors. C) The relationship between two subordinates. D) The relationship between a supervisor and a subversive. 26) What is the primary managerial responsibility in an organization? A) Development of employees. B) Development of profits. C) Decision making. D) Development of performance measurements.

27) Which of the following would be considered a principal in the principal-agent relationship? A) A stockbroker in an investment arrangement. B) A real estate agent for someone buying a house. C) A customer leasing a car. D) An employer hiring an employee. 28) Which of the following statements is/are true regarding managerial decisions? (A) The design and use of management control systems affects how an individual makes and implements decisions. (B) Rational managers will always make decisions that are in the best interest of the organization employing them. A) Only A is true. B) Only B is true. C) Both of these are true. D) None of these is true. 29) Decentralization refers to the delegation of decision-making authority to: A) top management. B) superiors. C) board of directors. D) subordinates. 30) Which of the following is not a characteristic of a decentralized organization? A) Better use of local knowledge. B) Better use of top management's time. C) Reduced response time to environmental changes. D) More decisions made by relatively few individuals. 31) Which of the following statements is false? A) The U.S. military is a good example of an organization that is highly decentralized. B) The degree of decentralization depends on how many decisions principals delegate to agents. C) Management control systems are used to measure the performance of an agent's decisions. D) Most organizations have some operating units that are centralized and some that are decentralized. 32) Which of the following is not a cost of decentralization? A) Managers in a decentralized organization might have a narrow focus on their own unit's performance rather than the attainment of their organization's overall goals. B) Managers in a decentralized organization might make the same types of decisions that are being made at headquarters resulting in administrative duplication. C) Delegating decision making to the lowest level possible enables an organization to respond in a timely way to opportunities and problems. D) Delegating decision making to the lowest level possible may lead to poor decisions based on incomplete information.

33) Which one of the following will not occur in an organization that gives managers throughout the organization maximum freedom to make decisions? (CMA adapted) A) More effective solutions to operational problems. B) Individual managers regard the managers of other segments as they do external parties. C) Two divisions of the organization having competing models that aim for the same market segments. D) Delays in securing approval for the introduction of new products. 34) ________ is the delegation of decision-making authority to lower management levels within the organization. A) Transfer pricing B) Centralization C) Decentralization D) Goal congruence 35) Which of the following is not a benefit of decentralization? A) Allowing managers some autonomy in decision-making provides managerial training for future higher-level managers. B) In a decentralized organization some tasks or services may be duplicated unnecessarily. C) Managers with some decision-making authority usually exhibit greater motivation than those who merely execute the decisions of others. D) Managers of the organization's subunits are specialists, thereby enabling them to manage their departments most effectively. 36) Which of the following statements is true regarding decentralization? A) Decentralization increases the complexity of problems. B) Managers in a decentralized organization have less knowledge about local business advantages. C) Decentralization limits fast responses to business changes. D) Decentralization allows managers to receive on-the-job training in decision-making. 37) What does dysfunctional decision-making refer to? A) Administrative duplication. B) Local managers making decisions in their interests, which can differ from those of the organization. C) Delegated decision authority. D) Poor decisions based on incomplete information. 38) Which of the following elements is not part of a management control system? A) Delegated decision authority. B) Performance evaluation system. C) Knowledge of local conditions. D) Compensation and reward system.

39) An operating unit of an organization is called a cost center if it is responsible: A) only for costs. B) only for revenues. C) for costs and revenues. D) for investments in assets. 40) An operating unit of an organization is called an investment center if it is responsible: A) only for costs. B) only for revenues. C) for costs and revenues. D) for investments in assets. 41) An operating unit of an organization is called a revenue center if it is responsible: A) only for costs. B) for selling a product. C) for all costs and revenues. D) for investments in assets. 42) An operating unit of an organization is called a profit center if it is responsible: A) only for costs. B) only for revenues. C) for costs and revenues. D) for investments in assets. 43) An operating unit that is responsible for revenues and costs is commonly referred to as a(n): A) expense center. B) revenue center. C) profit center. D) asset center. 44) An operating unit that is responsible for revenues only is commonly referred to as a(n): A) expense center. B) revenue center. C) profit center. D) asset center. 45) An operating unit that is responsible for only costs is commonly referred to as a(n): A) cost center. B) revenue center. C) profit center. D) asset center.

46) When managers are held responsible for costs but the input-output relationship is not well specified, a(n) ________ is established. A) standard cost center B) revenue center C) discretionary cost center D) asset center 47) When managers are held responsible for costs and the input-output relationship is well specified, a(n) ________ is established. A) cost center B) revenue center C) discretionary cost center D) asset center 48) Decentralized organizations can delegate authority and still maintain control and monitor managers' performance by designing appropriate management control systems. Which of the following responsibility centers would be evaluated similar to an independent business? (CMA, adapted) A) Profit center. B) Revenue center. C) Investment center. D) Discretionary cost center. 49) Controllable revenue is included in a performance report of a: Profit Center A. B. C. D.

Yes Yes No No

Investment Center No Yes No Yes

A) Option A B) Option B C) Option C D) Option D

50) Controllable revenue is included in a performance report of a: Revenue Center A. B. C. D.

Cost Center

Yes Yes No No

No Yes No Yes

A) Option A B) Option B C) Option C D) Option D 51) Controllable revenue is included in a performance report of a: Cost Center A. B. C. D.

Yes Yes No No

Profit Center No Yes No Yes

A) Option A B) Option B C) Option C D) Option D 52) Assets invested in a responsibility center are included in a performance report of a: Profit Center A. B. C. D.

Yes Yes No No

Investment Center No Yes No Yes

A) Option A B) Option B C) Option C D) Option D

53) Assets invested in a responsibility center are included in a performance report of a: Profit Center A. B. C. D.

Yes Yes No No

Cost Center No Yes No Yes

A) Option A B) Option B C) Option C D) Option D 54) A manager makes a decision that is beneficial for a specific investment center and for the entire organization. From the organization's perspective, this decision results in: A) goal congruence. B) decentralization. C) contingent compensation. D) fixed compensation. 55) Responsibility accounting defines an operating center that is responsible for revenue and costs as a(n): (CMA adapted) A) profit center. B) revenue center. C) division. D) operating unit. 56) The least complex segment or area of responsibility for which costs are allocated is a(n): (CMA adapted) A) profit center. B) investment center. C) contribution center. D) cost center. 57) Which of the following statements is/are correct? I. A profit center has control over both costs 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. A) Only I. B) Only II. C) Only I and III. D) Only I and II.

58) The purpose of the Data Processing Department of Haslam Corporation is to assist the various departments of the corporation with their information needs free of charge. The Data Processing Department would best be evaluated as a(n): A) cost center. B) revenue center. C) profit center. D) investment center. 59) Which of the following departments would not be a cost center? A) County fire department. B) University book store. C) University power plant. D) City building and grounds department. 60) Which of the following subunits would most likely be considered a cost center? A) Jewelry department. B) Parts department. C) Legal department. D) Electronics department. 61) A successful responsibility accounting reporting system is dependent upon (CMA adapted): A) The correct allocation of controllable variable costs. B) Identification of the management level at which all costs are controllable. C) The proper delegation of responsibility and authority. D) A reasonable separation of costs into their fixed and variable components since fixed costs are not controllable and must be eliminated from the responsibility report. 62) The following is a summarized income statement for McClaron Manor Co.'s profit center 12608 for April: Contribution Margin Period Expenses Manager' s Salary Corporate Expense Allocation Net Income

$ 175,000 $ 11,000 $ 2,000 $ 8,000

$ (21,000) $ 154,000

Which of the following amounts is most likely subject to the control of the profit center's manager? (CPA, adapted) A) Contribution Margin of $175,000. B) Contribution Margin of $175,000 and Period Expenses of $11,000. C) Contribution Margin of $175,000 and Period Expenses of $13,000. D) Contribution Margin of $175,000 and Period Expenses of $21,000.

63) Revenue center and profit center managers are both responsible for meeting: A) Budgeted income. B) Budgeted costs. C) Budgeted revenues. D) Minimum return on investment as established by the company as a whole. 64) Which of the following subunits is most likely to be considered an investment center? A) Accounting department. B) Assembly department. C) Petrochemical division. D) Research and development department. 65) The controllability concept states that managers should be held responsible for: A) all items over which they have decision-making authority. B) costs and revenues, but not investments in assets used in their division. C) only items that are allocated to their divisions on a per-unit basis. D) fixed compensation items, but not contingent compensation items. 66) Relative performance evaluations (RPE) are not designed to: A) compare managers to other comparable managers. B) compare divisions with other comparable divisions. C) remove the effect of environmental factors that are beyond a manager's control. D) restate departmental goals so meaningful comparisons can be made. 67) Which of the following items would be classified as a fixed compensation item? A) Administrative salaries. B) Sales commissions. C) Stock options. D) Piece rates. 68) Which of the following items would not be classified as a contingent compensation item? A) Administrative salaries. B) Sales commissions. C) Stock options. D) Piece rates. 69) Which of the following statements is/are true regarding compensation? (A) Fixed compensation is generally not linked to measured performance; i.e., it is independent of measured performance. (B) Properly designed management control systems have contingent compensation items but not fixed compensation items. A) Only A is true. B) Only B is true. C) Both of these are true. D) None of these is true. 10 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

70) In responsibility accounting, a center's performance is measured by those costs which are controllable. Controllable costs are best described as including: (CMA adapted) A) direct materials and direct labor only. B) only those costs that the manager can influence in the current period. C) only discretionary costs. D) those costs about which the manager is knowledgeable and informed. 71) Banglor Manufacturing Corporation uses a responsibility accounting system in its operations. Which one of the following items is least likely to appear in a performance report for a manager of one of Banglor's assembly lines? (CMA adapted) A) Direct labor. B) Materials. C) Repairs and maintenance. D) Depreciation on the manufacturing facility. 72) When comparing performance report information for top management with that of lowerlevel management: (CMA adapted) A) top management reports are more detailed. B) lower-level management reports are typically for longer time periods. C) top management reports show control over fewer costs. D) lower-level management reports are likely to contain more quantitative data and less financial data. 73) Which of the following is the purpose of relative performance evaluation (RPE)? A) To ensure that all managers are subjected to identical evaluations. B) To hold managers accountable for all divisions, regardless of control or responsibility. C) To evaluate management on internal targets only to avoid ambiguity. D) To compare managers or divisions to other comparable managers and divisions. 74) The use of dual rates in a cost allocation system assumes that common costs can be: A) separated into their fixed and variable components. B) traced directly to a specific division or manager. C) allocated based on a physical quantities measure. D) assigned to an investment responsibility center. 75) Which of the following statements is/are false regarding the effective use of management control systems? (A) In general, single rate cost allocations should not be used in management control systems because clear control over the cost being allocated cannot be determined. (B) The primary reason to use a dual rate allocation system is to focus a manager's performance evaluation on factors under the manager's direct control. A) Only A is false. B) Only B is false. C) Both of these are false. D) None of these is false. 11 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

76) Barrington Box Enterprises has two divisions, large and small, that share the common costs of the company's communications network. The annual common costs are $4,500,000. You have been provided with the following information for the upcoming year:

Large Small

Calls 100,000 80,000

Time on Network (hours) 120,000 330,000

What is the allocation rate for the upcoming year, assuming Barrington Box uses the single-rate method and allocates common costs based on the number of calls? A) $10.00. B) $15.00. C) $20.00. D) $25.00. 77) Barrington Box Enterprises has two divisions, large and small, that share the common costs of the company's communications network. The annual common costs are $4,500,000. You have been provided with the following information for the upcoming year:

Large Small

Calls 100,000 80,000

Time on Network (hours) 120,000 330,000

What is the allocation rate for the upcoming, year assuming Barrington Box uses the single-rate method and allocates common costs based on the time on the network ? A) $10.98. B) $10.00. C) $8.00. D) $7.14.

78) Barrington Box Enterprises has two divisions, large and small, that share the common costs of the company's communications network. The annual common costs are $4,500,000. You have been provided with the following information for the upcoming year:

Large Small

Calls 100,000 80,000

Time on Network (hours) 120,000 330,000

The cost accountant determined $2,700,000 of the communication network's costs were fixed and should be allocated based on the number of calls. The remaining costs should be allocated based on the time on the network. What is the total communication network costs allocated to the Large Box Division, assuming the company uses dual-rates to allocate common costs? A) $2,700,000. B) $2,520,000. C) $1,980,000. D) $1,500,000. 79) Barrington Box Enterprises has two divisions, large and small, that share the common costs of the company's communications network. The annual common costs are $4,500,000. You have been provided with the following information for the upcoming year:

Large Small

Calls 100,000 80,000

Time on Network (hours) 120,000 330,000

80) The Copy Department in the College of Business at State University provides photocopying services for both the Marketing and Economics Departments. The following budget has been prepared for the year. Available capacity Budgeted usage: Marketing Economics Cost equation

6,000,000pages 3,600,000pages 1,800,000pages $120,000 + $0.025per page

If the Copy Department uses a dual rate for allocating its costs based on usage, how much cost will be allocated to the Marketing Department? A) $85,000. B) $90,000. C) $150,000. D) $170,000. 81) The Copy Department in the College of Business at State University provides photocopying services for both the Marketing and Economics Departments. The following budget has been prepared for the year. Available capacity Budgeted usage: Marketing Economics Cost equation

6,000,000pages 3,600,000pages 1,800,000pages $120,000 + $0.025per page

If the Copy Department uses a dual rate for allocating its costs based on usage, how much cost will be allocated to the Economics Department? A) $85,000. B) $90,000. C) $105,000. D) $120,000.

82) The Copy Department in the College of Business at State University provides photocopying services for both the Marketing and Economics Departments. The following budget has been prepared for the year. Available capacity Budgeted usage: Marketing Economics Cost equation

6,000,000pages 3,600,000pages 1,800,000pages $120,000 + $0.025per page

If the Copy Department uses a dual-rate for allocating its costs, how much cost will be allocated to the Economics Department, assuming the Economics Department actually made 2,100,000 copies during the year? A) $85,000. B) $92,500. C) $132,500. D) $112,500. 83) The Copy Department in the College of Business at State University provides photocopying services for both the Marketing and Economics Departments. The following budget has been prepared for the year Available capacity Budgeted usage: Marketing Economics Cost equation

6,000,000pages 3,600,000pages 1,800,000pages $120,000 + $0.025per page

If the Copy Department uses a dual-rate for allocating its costs, how much cost will be allocated to the Marketing Department, assuming the Marketing Department actually made 3,000,000 copies during the year? A) $135,000. B) $150,000. C) $155,000. D) $170,000.

84) The Copy Department in the College of Business at State University provides photocopying services for both the Marketing and Economics Departments. The following budget has been prepared for the year. Available capacity Budgeted usage: Marketing Economics Cost equation

6,000,000pages 3,600,000pages 1,800,000pages $120,000 + $0.025per page

If the Copy Department uses a dual-rate for allocating its costs, how much cost will be allocated to the Economics Department, assuming the Economics Department actually made 1,500,000 copies during the year? A) $77,500. B) $92,500. C) $132,500. D) $112,500. 85) The Copy Department in the College of Business at State University provides photocopying services for both the Marketing and Economics Departments. The following budget has been prepared for the year. Available capacity Budgeted usage: Marketing Economics Cost equation

6,000,000pages 3,600,000pages 1,800,000pages $120,000 + $0.025per page

If the Copy Department uses a dual-rate for allocating its costs, how much cost will be allocated to the Marketing Department, assuming the Marketing Department actually made 3,800,000 copies during the year? A) $135,000. B) $150,000. C) $155,000. D) $175,000.

86) Mesa Telcom has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $2,400,000. You have been provided with the following information for the upcoming year:

Commercial Retail Consumer

Connections 60,000 80,000 100,000

Time on Network (hours) 120,000 150,000 330,000

What is the allocation rate for the upcoming year, assuming Mesa Telcom uses the single-rate method and allocates common costs based on the number of connections? A) $10.00. B) $15.00. C) $20.00. D) $40.00. 87) Mesa Telcom has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $2,400,000. You have been provided with the following information for the upcoming year:

Commercial Retail Consumer

Connections 60,000 80,000 100,000

Time on Network (hours) 120,000 150,000 330,000

Mesa Telcom uses the single rate method and allocates common costs based on the number of connections. What is the total computer server network cost allocated to the Commercial Division? A) $480,000. B) $514,286. C) $600,000. D) $1,200,000.

88) Mesa Telcom has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $2,400,000. You have been provided with the following information for the upcoming year:

Commercial Retail Consumer

Connections 60,000 80,000 100,000

Time on Network (hours) 120,000 150,000 330,000

What is the allocation rate for the upcoming year, assuming Mesa Telcom uses the single-rate method and allocates common costs based on the time on the network? A) $20.00. B) $16.00. C) $4.00. D) $2.86. 89) Mesa Telcom has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $2,400,000. You have been provided with the following information for the upcoming year:

Commercial Retail Consumer

Connections 60,000 80,000 100,000

Time on Network (hours) 120,000 150,000 330,000

Mesa Telcom uses the single rate method and allocates common costs based on the time on the network. What is the total computer server network cost allocated to the Retail Division? A) $429,000. B) $600,000. C) $657,800. D) $3,000,000.

90) Mesa Telcom has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $2,400,000. You have been provided with the following information for the upcoming year:

Commercial Retail Consumer

Connections 60,000 80,000 100,000

Time on Network (hours) 120,000 150,000 330,000

The cost accountant determined $1,700,000 of the server network's costs were fixed and should be allocated based on the number of connections. The remaining costs should be allocated based on the time on the network. What is the total server network costs allocated to the Commercial Division, assuming the company uses dual-rates to allocate common costs? A) $514,286. B) $480,000. C) $600,000. D) $565,000. 91) Mesa Telcom has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $2,400,000. You have been provided with the following information for the upcoming year:

Commercial Retail Consumer

Connections 60,000 80,000 100,000

Time on Network (hours) 120,000 150,000 330,000

92) Mesa Telcom has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $2,400,000. You have been provided with the following information for the upcoming year:

Commercial Retail Consumer

Connections 60,000 80,000 100,000

Time on Network (hours) 120,000 150,000 330,000

The cost accountant determined $1,700,000 of the server network's costs were fixed and should be allocated based on the number of connections. The remaining costs should be allocated based on the time on the network. What is total server network costs allocated to the Consumer Division (rounded to the nearest whole dollar), assuming the company uses dual-rates to allocate common costs? A) $1,200,000. B) $1,093,333. C) $954,896. D) $750,000. 93) The Document Creation Center (DCC) for Arlington Corp. provides photocopying and document services for three departments in the Minneapolis office. The following budget has been prepared for the year. Available capacity Budgeted usage: Software Development Training Management Cost equation

8,000,000pages 1,600,000pages 3,000,000pages 2,400,000pages $280,000 + $0.03per page

If DCC uses a dual-.rate for allocating its costs based on usage, how much cost will be allocated to the Software Development Department? A) $98,000. B) $104,000. C) $112,000. D) $118,857.

94) The Document Creation Center (DCC) for Arlington Corp. provides photocopying and document services for three departments in the Minneapolis office. The following budget has been prepared for the year. Available capacity Budgeted usage: Software Development Training Management Cost equation

8,000,000pages 1,600,000pages 3,000,000pages 2,400,000pages $280,000 + $0.03per page

If DCC uses a dual-rate for allocating its costs based on usage, how much cost will be allocated to the Training Department? A) $183,750. B) $210,000. C) $195,000. D) $222,857. 95) The Document Creation Center (DCC) for Arlington Corp. provides photocopying and document services for three departments in the Minneapolis office. The following budget has been prepared for the year. Available capacity Budgeted usage: Software Development Training Management Cost equation

8,000,000pages 1,600,000pages 3,000,000pages 2,400,000pages $280,000 + $0.03per page

If DCC uses a dual-ate for allocating its costs based on usage, how much cost will be allocated to the Management Department? A) $168,000. B) $156,000. C) $178,286. D) $147,000.

96) The Document Creation Center (DCC) for Arlington Corp. provides photocopying and document services for three departments in the Minneapolis office. The following budget has been prepared for the year. Available capacity Budgeted usage: Software Development Training Management Cost equation

8,000,000pages 1,600,000pages 3,000,000pages 2,400,000pages $280,000 + $0.03per page

If DCC uses a dual-rate for allocating its costs, how much cost will be allocated to the Management Department, assuming the Management Department actually made 2,100,000 copies during the year? A) $147,000. B) $136,500. C) $159,000. D) $150,761. 97) The Document Creation Center (DCC) for Arlington Corp. provides photocopying and document services for three departments in the Minneapolis office. The following budget has been prepared for the year. Available capacity Budgeted usage: Software Development Training Management Cost equation

8,000,000pages 1,600,000pages 3,000,000pages 2,400,000pages $280,000 + $0.03per page

If DCC uses a dual-rate for allocating its costs, how much cost will be allocated to the Management Department, assuming the Management Department actually made 2,950,000 copies during the year? A) $184,500. B) $191,750. C) $211,783. D) $206,500.

98) The Document Creation Center (DCC) for Arlington Corp. provides photocopying and document services for three departments in the Minneapolis office. The following budget has been prepared for the year. Available capacity Budgeted usage: Software Development Training Management Cost equation

8,000,000pages 1,600,000pages 3,000,000pages 2,400,000pages $280,000 + $0.03per page

If DCC uses a dual-rate for allocating its costs, how much cost will be allocated to the Training Department, assuming the Training Department actually made 3,250,000 copies during the year? A) $227,500. B) $211,250. C) $217,500. D) $223,017. 99) The Document Creation Center (DCC) for Arlington Corp. provides photocopying and document services for three departments in the Minneapolis office. The following budget has been prepared for the year. Available capacity Budgeted usage: Software Development Training Management Cost equation

8,000,000pages 1,600,000pages 3,000,000pages 2,400,000pages $280,000 + $0.03per page

If DCC uses a dual-rate for allocating its costs, how much cost will be allocated to the Training Department, assuming the Training Department actually made 2,770,000 copies during the year? A) $180,050. B) $190,079. C) $193,900. D) $203,100.

100) The Document Creation Center (DCC) for Arlington Corp. provides photocopying and document services for three departments in the Minneapolis office. The following budget has been prepared for the year. Available capacity Budgeted usage: Software Development Training Management Cost equation

8,000,000pages 1,600,000pages 3,000,000pages 2,400,000pages $280,000 + $0.03per page

If DCC uses a dual-rate for allocating its costs, how much cost will be allocated to the Software Development Department, assuming the Software Development Department actually made 1,160,000 copies during the year? A) $75,400. B) $98,800. C) $81,200. D) $84,312. 101) The Document Creation Center (DCC) for Arlington Corp. provides photocopying and document services for three departments in the Minneapolis office. The following budget has been prepared for the year. Available capacity Budgeted usage: Software Development Training Management Cost equation

8,000,000pages 1,600,000pages 3,000,000pages 2,400,000pages $280,000 + $0.03per page

102) Darren Corporation's Maintenance Department provides services to the company's two operating divisions — the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period. Data appear below: Maintenance Department: Budgeted variable cost Budgeted total fixed cost Paints Division: Percentage of peak period capacity required Actual cases Stains Division: Percentage of peak period capacity required Actual cases

$ 2 per case $ 830,000 30% 20,000 70% 63,000

For performance evaluation purposes, how much Maintenance Department cost should be charged to the Paints Division at the end of the year? A) $298,800. B) $498,000. C) $289,000. D) $240,000. 103) The fixed costs of Black Company's personnel department are allocated to operating departments on the basis of direct labor-hours. The following data have been provided: Operating Department X

Direct labor-hours — Long-run average

15,000

10,000

Direct labor-hours — Actual

10,000

6,000

The fixed costs of the personnel department are budgeted at $56,000 per year and are incurred in order to support long-run average requirements. How much of this fixed cost should be charged to Operating Department X at the end of the year for performance evaluation purposes? A) $35,000. B) $33,600. C) $52,500. D) $22,400.

104) Poole Corporation's Maintenance Department provides services to the company's two operating divisions — the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period. Data appear below: Maintenance Department: Budgeted variable cost Budgeted total fixed cost Actual total variable cost Actual total fixed cost Paints Division: Percentage of peak period capacity required Budgeted cases Actual cases Stains Division: Percentage of peak period capacity required Budgeted cases Actual cases

$ 5 per case $ 558,000 $ 322,504 $ 561,490 30% 15,000 15,040 70% 47,000 46,980

For performance evaluation purposes, how much Maintenance Department cost should be charged to the Stains Division at the end of the year? A) $669,623. B) $637,339. C) $625,500. D) $657,584. 105) Waterford Company maintains a cafeteria for its employees. For June, variable food costs were budgeted at $45 per employee based on a budgeted level of 200 employees in other departments. During the month, an average of 190 employees worked in other departments and actual food costs totaled $9,250. How much food cost should be charged to the other departments at the end of the month for performance evaluation purposes? A) $9,000. B) $9,250. C) $8,550. D) $9,737. 106) Cost allocation of shared facilities cost is intended to remind managers of: A) the cost of using a shared resource. B) both the cost and value of using shared resources. C) how much capacity a firm has. D) why the firm invests in these facilities.

107) The dual-rate method is a cost allocation approach that separates a common cost into fixed and variable components and: A) allocates only the fixed components. B) allocates only the variable components. C) allocates all components with a single standard allocation base. D) allocates each component using a different allocation base. 108) If a budgeted activity base is used as the base in cost allocation, each department's cost allocation will be predictable, and not influenced by the: A) actual total cost. B) change in activity. C) variations from budget. D) actual usage in other departments. 109) The concepts of cost allocation that are used in manufacturing can also apply in: A) service and not-for-profit industries. B) service industries only. C) not-for-profit industries only. D) limited instances outside of manufacturing. 110) Which of the following is not one of the objectives of cost allocation? A) Motivate managers to exert a high-level of effort. B) Provide useful departmental and product costs. C) Identify production constraints. D) Provide the right incentive for managers to make decisions. 111) Examples of pressures that can lead to financial fraud do not include: A) unrealistic budgets. B) inappropriate bonus plans. C) overemphasis on long-term results. D) overemphasis on short-term results. 112) Which one of the following firms is likely to experience dysfunctional motivation on the part of its managers due to its allocation methods? (CMA adapted) A) To allocate depreciation of forklifts used by workers at its central warehouse, Amir Electronics uses predetermined amounts calculated on the basis of the long-term average use of the services provided by the warehouse to the various segments. B) Seattle Electronics uses the sales revenue of its various divisions to allocate costs connected with the upkeep of its headquarters building. It also uses ROI to evaluate the divisional performance. C) Rose Industrial does not allow its service departments to pass on their cost overruns to production departments. D) Xi Enterprises' management information system (MIS) is operated out of headquarters and serves its various divisions. Xi's allocation of MIS-related costs to its divisions is limited to costs the divisions will incur if they were to outsource their MIS needs. 27 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

113) The Sarbanes-Oxley Act of 2002 requires that management of publicly traded companies: A) use investment centers to evaluate top managers. B) report on the adequacy of the company's internal controls over financial reporting. C) compensate managers with fixed compensation plans only. D) eliminate stock options for managerial compensation. 114) Which of the following is not an internal control? A) Rotating personnel among tasks. B) Separation of duties. C) Setting limits on the amount of expenditures. D) Using absolute performance standards. 115) Internal controls include all of the following except: A) using contingent compensation plans. B) requiring management authorization for the use of a company's assets. C) reconciling various sets of books. D) requiring employees to take vacations. 116) Maryland Hotels operates a centralized call center for the reservation needs of its time-share units. Costs associated with use of the center are charged to the time-share group (Luxury, Resort, Standard, and Budget) where a reservation is made on the basis of time on a call. Idle time of the reservation agents, time spent on calls where no reservation is made, and the fixed cost of the equipment are allocated on the number of reservations made in each group. Due to recent increased competition in the time-share business, the company has decided that it is necessary to more accurately allocate its costs to price its services competitively and profitably. During the current period, the use of the call center for each group was as follows (in thousands of seconds for time usage and in number of reservations): Division Luxury Resort Standard Budget

Time Usage Number of Reservations 750,000 50,000 1,250,000 100,000 2,000,000 300,000 1,500,000 250,000

During this period, the cost of the computer center amounted to $2,410,000 for personnel and $1,240,000 for equipment and other costs. Required: Determine the allocation to each of the divisions using: (You may round all decimals to three places.) a. a single rate based on time used. b. multiple rates based on time used (for personnel costs) and number of reservations (for equipment and other cost).

117) Atlantic Resorts operates a centralized call center for the reservation needs of its time-share units. Costs associated with use of the center are charged to the time-share group (Luxury, Standard, and Budget) where a reservation is made on the basis of time spent on a call. Due to recent increased competition in the time-share business, the company has decided that it is necessary to more accurately allocate its costs to price its services competitively and profitably. During the current period, the use of the call center for each group was as follows (in thousands of seconds for time usage and in number of reservations): Division Luxury Standard Budget

Time Usage Number of Reservations 500,000 50,000 2,000,000 300,000 1,500,000 250,000

During this period, the cost of the computer center amounted to $1,760,000 for personnel and $1,240,000 for equipment and other costs. Required: Determine the allocation to each of the divisions using: (Round all decimals to three places.) a. a single rate based on time used. b. multiple rates based on time used (for personnel costs) and number of reservations (for equipment and other cost). 118) Seaside Resorts operates a centralized call center for the reservation needs of its time-share units. Costs associated with use of the center are charged to the time-share group (Luxury and Standard) where a reservation is made on the basis of time spent on a call. Due to recent increased competition in the time-share business, the company has decided that it is necessary to more accurately allocate its costs to price its services competitively and profitably. During the current period, the use of the call center for each group was as follows (in thousands of seconds for time usage and in number of reservations): Division Luxury Standard

Time Usage Number of Reservations 500,000 50,000 2,000,000 300,000

During this period, the cost of the computer center amounted to $1,220,000 for personnel and $960,000 for equipment and other costs. Required: Determine the allocation to each of the divisions using: (Round all decimals to three places.) a. a single rate based on time used. b. multiple rates based on time used (for personnel costs) and number of reservations (for equipment and other cost).

119) The Document Creation Center (DCC) for Atlas Corp. provides document services for three departments in the St. Louis office. The following budget has been prepared for the month. Budgeted usage: Software Development Training Management Cost equation

160,000pages 300,000pages 340,000pages $31,000 + $0.03per page

Required: If DCC uses a dual-rate for allocating its costs based on usage, how much cost will be allocated to the three user departments? (Use three decimal places in your calculations.) 120) The legal department for Trump Corporation provides legal services for four departments in the Manhattan office. The following budget has been prepared for the month. Budgeted usage: Purchasing Marketing Training Management Cost equation

160contracts 200contracts 300contracts 340contracts $167,500 + $50per contract

Required: If Trump uses a dual-rate for allocating its costs based on usage, how much cost will be allocated to the four user departments? (Use three decimal places in your calculations.) 121) The Human Resources Department for Vargis Corp. provides personnel services for two departments in the Kansas City office. The following budget has been prepared for the month. Budgeted: Production Management Cost equation

860employees 140employees $46,500 + $20per employee

Required: If Vargis uses a dual-rate for allocating its costs based on employees, how much cost will be allocated to the two departments? (Use three decimal places in your calculations.)

122) The Document Creation Center (DCC) for Atlas Corp. provides document services for three departments in the St. Louis office. The following budget has been prepared for the month. Pages Documents Budgeted usage: Software Development 320,000 2,500 Training 600,000 4,500 Management 480,000 5,500 Costs: Fixed $ 63,000 Variable $ 35,000 Required: If DCC uses a dual-rate for allocating its costs, allocating fixed costs based on number of documents and variable costs based on number of pages, how much cost will be allocated to the three user departments? (Use three decimal places in your calculations.) 123) The legal department for Basil Corp. provides legal services for four departments in the Manhattan office. The following budget has been prepared for the month. Budgeted usage: Purchasing Marketing Training Management Costs: Fixed Variable

Contracts 160 200 300 240

Pages Reviewed 3,200 7,200 9,000 2,400

$ 267,000 $ 105,000

Required: If Basil uses a dual-rate for allocating its costs, allocating fixed costs based on number of contracts and variable costs based on number of pages reviewed, how much cost will be allocated to the four user departments? (Round fixed cost percentages to three decimal places and variable rate to four decimal places.)

124) Waverley Services has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $1,200,000. You have been provided with the following information for the upcoming year:

Commercial Retail Consumer

Connections 30,000 40,000 50,000

Time on Network (hours) 120,000 150,000 290,000

Required: a. What is the allocation rate for the upcoming year assuming Waverley uses the single-rate method and allocates common costs based on the number of connections? Calculate the allocated amount for each division. b. What is the allocation rate for the upcoming year assuming Waverley uses the single-rate method and allocates common costs based on the time on network? (Do not round rate - carry out six decimal places.) Calculate the allocated amount for each division. c. The cost accountant determined $850,000 of the server network's costs were fixed and should be allocated based on the number of connections. The remaining costs should be allocated based on the time on the network. What is the total server network costs allocated to each division? (Round immediate calculations to three decimal places.) 125) Collins Enterprises has four divisions, commercial, retail, research, and consumer, that share the common costs of the company's computer server network. The annual common costs are $2,400,000. You have been provided with the following information for the upcoming year:

Commercial Retail Research Consumer

Connections 60,000 80,000 40,000 120,000

Time on Network (hours) 120,000 150,000 100,000 330,000

Required: a. What is the allocation rate for the upcoming year assuming Collins uses the single-rate method and allocates common costs based on the number of connections? (Do not round rate - carry out six decimal places.) Calculate the allocated amount for each division. b. What is the allocation rate for the upcoming year assuming Collins uses the single-rate method and allocates common costs based on the time on network? (Do not round rate - carry out six decimal places.) Calculate the allocated amount for each division. c. The cost accountant determined $1,700,000 of the server network's costs were fixed and should be allocated based on the number of connections. The remaining costs should be allocated based on the time on the network. What is the total server network costs allocated to each division? (Round immediate calculations to three decimal places.)

126) Jamison Industries has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $2,400,000. You have been provided with the following information for the upcoming year:

Commercial Retail Consumer

Connections 60,000 80,000 100,000

Time on Network (hours) 120,000 150,000 330,000

Required: (Use three decimal places in your calculations.) a. What is the allocation rate for the upcoming year assuming Jamison uses the single-rate method and allocates common costs based on the number of connections? Calculate the allocated amount for each division. b. What is the allocation rate for the upcoming year assuming Jamison uses the single-rate method and allocates common costs based on the time on network? Calculate the allocated amount for each division. 127) Markov Engineering has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $2,400,000. You have been provided with the following information for the upcoming year:

Commercial Retail Consumer

Connections 60,000 80,000 100,000

Time on Network (hours) 120,000 150,000 330,000

Required: The cost accountant determined $1,800,000 of the server network's costs were fixed and should be allocated based on the number of connections. The remaining costs should be allocated based on the time on the network. What is the total server network costs allocated to each division? (Use three decimal places in your calculations.)

128) Sumner Corporation has four divisions, commercial, retail, research, and consumer, that share the common costs of the company's computer server network. The annual common costs are $3,500,000. You have been provided with the following information for the upcoming year:

Commercial Retail Research Consumer

Connections 70,000 90,000 20,000 100,000

Time on Network (hours) 120,000 150,000 100,000 330,000

Required: (Use three decimal places in your calculations.) a. What is the allocation rate for the upcoming year assuming Sumner uses the single-rate method and allocates common costs based on the number of connections? b. What is the allocation rate for the upcoming year assuming Sumner uses the single-rate method and allocates common costs based on the time on network? Calculate the allocated amount for each division. 129) Kingston Industries has four divisions, commercial, retail, research, and consumer, that share the common costs of the company's computer server network. The annual common costs are $3,600,000. You have been provided with the following information for the upcoming year:

Commercial Retail Research Consumer

Connections 60,000 70,000 20,000 100,000

Time on Network (hours) 100,000 150,000 70,000 330,000

Required: a. The cost accountant determined $2,300,000 of the server network's costs were fixed and should be allocated based on the number of connections. The remaining costs should be allocated based on the time on the network. What is the total server network costs allocated to each division? (Use three decimal places in your calculations.)

130) Roadways Enterprises has two divisions, Production and Support, that share the common costs of the company's communications network. The annual common costs are $4,500,000. You have been provided with the following information for the upcoming year:

Production Support

Calls 200,000 160,000

Time on Network (hours) 240,000 660,000

Required: (Use three decimal places in your calculations.) a. What is the allocation rate for the upcoming year assuming Roadways uses the single-rate method and allocates common costs based on the number of calls? Calculate the costs allocated to each division. b. What is the allocation rate for the upcoming year assuming Roadways uses the single-rate method and allocates common costs based on the time on the network? Calculate the costs allocated to each division. c. The cost accountant determined $2,700,000 of the communication network's costs were fixed and should be allocated based on the number of calls. The remaining costs should be allocated based on the time on the network. What is the total communication network costs allocated to each division? 131) Santa Fe Industries has two divisions, Marketing and Finance, that share the common costs of the company's communications network. The annual common costs are $2,250,000. You have been provided with the following information for the upcoming year:

Marketing Finance

Calls 50,000 40,000

Time on Network (hours) 120,000 330,000

Required: (Use three decimal places in your calculations.) a. What is the allocation rate for the upcoming year assuming Santa Fe uses the single-rate method and allocates common costs based on the number of calls? Calculate the costs allocated to each division. b. What is the allocation rate for the upcoming year assuming Santa Fe uses the single-rate method and allocates common costs based on the time on the network? Calculate the costs allocated to each division.

132) Talent Engineering has two divisions, Research and Sales, that share the common costs of the company's communications network. The annual common costs are $2,250,000. You have been provided with the following information for the upcoming year: Calls 50,000 40,000

Research Sales

Time on Network (hours) 60,000 165,000

Required: The cost accountant determined $1,350,000 of the communication network's costs were fixed and should be allocated based on the number of calls. The remaining costs should be allocated based on the time on the network. What is the total communication network costs allocated to each division? (Use three decimal places in your calculations.) 133) The Barton Creek Company has three client-contact departments: Market Research, Branding, and Promotion. Each department requires the services of the Legal Department for the contracts that each undertakes. The size of the Legal Department was based on long-run estimates of contracts. Information on the Legal Department's budgeted and actual costs is as follows: The budget for the Legal Department is $300,000 + $10/contract. The budgeted volume of contracts is as follows: Market Research Branding Promotion

300 500 700

The actual number of contracts for Market Research was 315, for Branding was 450, and for Promotion was 720. Required: (Use three decimal places in your calculations.) a. If a single charging rate based on budgeted usage is used, how much of the cost of the Legal Department would be allocated to each of the producing departments? b. If a dual charging rate is used, how much of the cost of the Legal Department would be allocated to each of the producing departments?

134) The Barton Creek Company has three client-contact departments: Market Research, Branding, and Promotion. Each department requires the services of the Legal Department for the contracts that each undertakes. The size of the Legal Department was based on long-run estimates of contracts. Information on the Legal Department's budgeted and actual costs is as follows: The budget for the Legal Department is $200,000 + $7.50/contract. The budgeted volume of contracts is as follows: Market Research Branding Promotion

300 500 700

The actual number of contracts for Market Research was 286, for Branding was 450, and for Promotion was 675. Required: (Use three decimal places in your calculations.) a. If a single charging rate based on budgeted usage is used, how much of the cost of the Legal Department would be allocated to each of the producing departments? b. If a dual charging rate is used, how much of the cost of the Legal Department would be allocated to each of the producing departments? 135) The Barton Creek Company has three client-contact departments: Market Research, Branding, and Promotion. Each department requires the services of the Legal Department for the contracts that each undertakes. The size of the Legal Department was based on long-run estimates of contracts. Information on the Legal Department's budgeted and actual costs is as follows: The budget for the Legal Department is $400,000 + $15/contract. The budgeted volume of contracts is as follows: Market Research Branding Promotion

200 400 800

The actual number of contracts for Market Research was 207, for Branding was 512, and for Promotion was 820. Required: (Use four decimal places in your calculations.) a. If a single charging rate based on budgeted usage is used, how much of the cost of the Legal Department would be allocated to each of the producing departments? b. If a dual charging rate is used, how much of the cost of the Legal Department would be allocated to each of the producing departments? 37 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

136) Seattle Corporation has two operating divisions - Inland Division and Coast Division. The company's Customer Service Department provides services to both divisions. The variable costs of the Customer Service Department are budgeted at $29 per order. The Customer Service Department's fixed costs are budgeted at $381,600 for the year. The fixed costs of the Customer Service Department are determined based on the peak period orders.

Inland Division Coast Division

Percentage of Peak Period Capacity Required 25% 75%

Budgeted Orders 1,500 5,700

At the end of the year, actual Customer Service Department variable costs totaled $219,905 and fixed costs totaled $383,860. The Inland Division had a total of 1,520 orders and the Coast Division had a total of 5,690 orders for the year. Required: a. Prepare a report showing how much of the Customer Service Department's costs should be charged to each of the operating divisions at the end of the year. b. How much of the actual Customer Service Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs? 137) Warehouse Services is a service department in the Vancouver Company, providing storage service to three operating departments. The company charges the costs of this department to operating departments on the basis of cubic feet occupied. Last year, Warehouse Services budgeted variable storage cost of $0.15 per cubic foot occupied. The budgeted total fixed cost was $120,000 and was determined by the long-term storage needs of the operating departments. Actual storage space occupied during the year, along with longterm storage needs of operating departments, is given below:

Long-term storage needs in cubic feet Actual storage space used

Operating Department X Y Z 200,000 600,000 800,000 160,000 590,000 750,000

Actual variable storage costs amounted to $0.16 per cubic foot occupied. Actual fixed storage costs were $123,000. Required: a. Compute the amount of variable storage cost that should be charged to each operating department at the end of the year for performance evaluation purposes. b. Compute the amount of fixed storage cost that should be charged to each operating department at the end of the year for performance evaluation purposes. 38 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

138) Terrain, Inc. has a maintenance department that provides services to the company's two operating departments. The variable costs of the maintenance department are charged on the basis of the number of maintenance hours logged in each department. Last year, budgeted variable maintenance costs were $8.60 per maintenance hour and actual variable maintenance costs were $8.75 per maintenance hour. The budgeted and actual maintenance hours for each operating department for last year appear below: Operating Departments A B 1,000 2,000 1,100 1,700

Budgeted maintenance hours Actual maintenance hours

Required: a. Compute the amount of variable maintenance department cost that should have been charged to each operating department at the end of the year for performance evaluation purposes. b. Compute the amount of actual variable maintenance department cost that should not have been charged to the operating departments at the end of the year for performance evaluation purposes. 139) Layton Company operates a cafeteria for the benefit of its employees. The company subsidizes the cafeteria heavily by allowing employees to purchase meals at greatly reduced prices. Budgeted and actual costs in the cafeteria for the year just ended are as follows: Variable costs Fixed costs

Budgeted $ 500,000 $ 340,000

Actual $ 436,000 $ 352,000

Costs of the cafeteria are charged to producing departments on the basis of the number of employees in these departments. Fixed costs are charged on the basis of the peak-period number of employees. Data on employees in the company's producing departments follows:

Budgeted number of employees Actual number of employees Peak-period number of employees

Machining Assembly Total 300 500 800 200 400 600 400 600 1,000

Required: a. Compute the dollar amount of variable and fixed costs that should be charged to each of the producing departments at the end of the year for purposes of evaluating performance. b. Identify the amount, if any, of actual costs that should not be charged to the operating departments.

140) The Sunset Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year. Budgeted costs of operating the plant for 2,000 to 3,000 hours: Fixed operating costs per year $ 900,000 Variable operating costs $1,200 Budgeted long-run usage per year: Flashlight Division 2,000 Night Light Division 500 Practical capacity 3,000

per hour hours hours hours

Assume that practical capacity is used to calculate the allocation rates. Actual usage for the year by the Flashlight Division was 1,400 hours and by the Night Light Division was 600 hours. Required: 1. If a single-rate cost-allocation method is used, what amount of cost will be allocated to the Flashlight Division? Assume actual usage is used to allocate operating costs. 2. If a dual-rate cost-allocation method is used, what amount of operating costs will be budgeted for the Night Light Division? 3. If a dual-rate cost-allocation method is used, what amount of cost will be allocated to the Night Light Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs. 141) Smash Burgers is a fast-food restaurant that sells vegetarian burgers and hot dogs in a 1950s environment. The fixed operating costs of the company are $5,000 per month. The controlling shareholder, interested in product profitability and pricing, wants all costs allocated to either the burgers or the hot dogs. The following information is provided for the operations of the company:

Sales for January Sales for February

Burgers 4,000 6,400

Hot Dogs 2,400 2,400

Required: a. What amount of fixed operating costs is assigned to the burgers and hot dogs when actual sales are used as the allocation base for January? For February? b. Hot dog sales for January and February remained constant. Did the amount of fixed operating costs allocated to hot dogs also remain constant for January and February? Explain why or why not. Comment on any other observations.

142) Cost allocation bases are factors that cost management analysts use to assign indirect costs to cost objects. Ideally, cost-allocation bases should reflect a cause-and-effect relationship between resource spending and use. Ideally, an Activity-Based-Costing (ABC) approach will provide a more accurate and useful accounting for an organization's resources. Recent studies have found that, in spite of increasing costs and diminishing resources, very few Higher Education Institutions use the tools and techniques of an ABC cost allocation system to assign costs to academic departments. While direct costs, such as faculty salaries, are traceable to individual academic departments or courses, many indirect costs, such as facility use, computer use, and student support services, are more difficult to assign. In a traditional approach, many higher education institutions assign such costs based on a single factor, such as the number of courses taught in the university. (Source: Activity-Based Costing for Higher Education Institutions, Management Accounting Quarterly, Winter, 2001) Required: (a) Explain why the use of a single-cost driver such as the number of courses may result in inaccurate management information as to the cost of running courses in individual academic departments. (b) For each of the indirect costs listed below, identify an appropriate cost-driver that might be used to allocate costs to determine the cost of offering a single course in an academic department if an Activity-Based-Costing model were used. ∙ Computer use ∙ Facility use ∙ Student services ∙ Course design ∙ Lecturing/class meeting time ∙ Assignment grading 143) Affordable Credit Checks produces two styles of credit reports: personal and corporate. The difference between the two is the amount of background information and data collection required. The corporate report uses more skilled personnel because additional checking and data are required. Total support service costs to be allocated are $3,200,000. The relevant figures for the year just completed follow: Allocation base Data purchased Research hours Interview hours Number of reports

Individual $ 40,000 24,000 1,000 16,000

Corporate $ 80,000 30,000 10,000 3,000

Required: (a) Which allocation base would be preferred by each manager? Which allocation base would be least preferred? (b) Provide arguments that each manager would make for his/her preferred allocation base. How would each manager argue against his/her least preferred allocation base? 41 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

144) Rainier Company has a purchasing department that provides services to two factories located in Carbondale and the other in Peoria. Budgeted costs for the purchasing department consist of $55,000 per year of fixed costs and $8 per purchase order for variable costs. The level of budgeted fixed costs is determined by the peak-period requirements. The Carbondale factory requires 40% of the peak-period capacity and the Peoria factory requires 60%. During the current year, 1,800 purchase orders were processed for the Carbondale factory and 2,700 purchase orders for the Peoria factory. Required: Compute the amount of purchasing department cost that should be charged to each factory for the year. 145) Koski Corporation's Maintenance Department provides services to the company's two operating divisions - the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are determined based on the number of cases produced by the operating departments during the peak period. Data appear below: Maintenance Department: Budgeted variable cost Budgeted total fixed cost Actual total variable cost Actual total fixed cost Paints Division: Percentage of peak period capacity required Budgeted cases Actual cases Stains Division: Percentage of peak period capacity required Budgeted cases Actual cases

$ 4 per case $ 870,000 $ 382,756 $ 871,590 40% 26,000 26,010 60% 61,000 60,980

Required: a. Prepare a report showing how much of the Maintenance Department's costs should be charged to each of the operating divisions at the end of the year. b. How much of the actual Maintenance Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs? 146) Decentralization is the delegation of decision-making authority to subordinates in the organization's name. A key part of this is the principal-agent relationship. Explain what this relationship is and give examples. 147) Describe five advantages of decentralization. 148) Describe two disadvantages of decentralization. 42 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

149) Logistics Services Company has recently expanded by acquiring two smaller companies in the transportation industry. Prior to these acquisitions, Logistics Services used a centralized style of organization because it was small enough that the top management team was heavily involved in the day-to-day activities of the firm. Ms. Trane, the CEO, feels that this style is no longer suitable for the larger, more diverse organization. She has hired a consultant to help her and her management team create a new structure which, when developed on paper, will be described to the affected employees and their inputs will be sought. Since no one in the company knows much about management styles, Ms. Trane felt this would be an efficient way to get the ball rolling, but realized the consultants would not have the specialized knowledge about her company and the two acquisitions. One of the first things she feels she will need to do is to explain the benefits of decentralization that will accrue to both the company and the affected employees. Required: Ms. Trane has asked you, as the consultant, to provide her with a general list of advantages of decentralization that she will tailor to her company before presenting it to the executives and other affected employees. 150) Langsam, Inc. has used a decentralized form of organizational structure for the past five years. The controller, Ms. Terrance, has noticed that some of the divisions are still using fixed assets that are fully depreciated and that there has been little acquisition activity in these divisions. Coupled with this are very high ROIs, especially when compared to the other divisions that seem to have a regular program of disposition and replacement of fixed assets. She takes her concerns and observations to the Financial Vice President who says he will review her findings and look into the problem. Required: What are the potential negative effects of decentralization? 151) Describe the three main elements of a management control system. 152) Describe the five basic types of decentralized units in responsibility accounting. 153) There are five common types of responsibility centers listed below. Required: Briefly describe each of the following terms and provide an example of each term. (a) Cost Center (b) Discretionary Cost Center (c) Revenue Center (d) Profit Center (e) Investment Center 43 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

154) Explain the difference between fixed compensation and contingent compensation. Give an example of each. 155) The order entry department of Dano Associated Industries is considering improvements in the order entry process, which includes preparing quotations based on customers' requests (via the sales representative) and processing orders received from customers. A typical sequence of events might begin with a sales representative meeting with a customer to discuss the type of system desired. The sales representative then fills out a paper form and faxes it or phones it in to an order entry associate, who might make several subsequent phone calls to the sales representative, the potential customer, or the manufacturing department to prepare the quote properly. These phone calls deal with such questions as exchangeability of parts, part numbers, current prices for parts, or allowable sales discounts. Order entry staff then keys in the configuration of the desired system, including part numbers, and informs the sales representative of the quoted price. Each quote is assigned a quotation number. To smooth production, manufacturing often produces systems with standard configurations in anticipation of obtaining orders from recent quotes for systems. The systems usually involve adding on special features to the standard configuration. Production in advance of orders sometimes results in duplication in manufacturing; however, because customers often fail to put the assigned quotation numbers on their orders. When order entry receives an order, the information on the order is reentered into the computer to produce an order acknowledgement. This order acknowledgement is sent to the manufacturing department, which produces the system ordered by customer. When the order acknowledgement is sent to the invoicing department, the information is reviewed again to generate an invoice to send to the customer. Enrique Ramos, the order entry manager, has received many complaints from the order entry department's internal customers regarding quality and timeliness problems, and is considering ways to improve the efficiency and quality of the order entry process. Required: (a) Develop some indicators that Ramos could use to assess the performance of the order entry process. (b) List four possible errors that might be found in the quote and/or the order acknowledgement (i.e., the outputs of the order entry process). (c) What do you think are the likely causes of delays and quality problems? 156) The manager of a business unit of a large corporation made some projections regarding sales and profits for the upcoming final quarter of the year. The manager's performance evaluation and compensation depended significantly on his ability to meet budget goals. The manager discovered that the final quarter would have to be a particularly good quarter in order to meet these goals. He decided to implement a sales program offering liberal payment terms in order to pull some sales that would normally occur next year into the current year. Customers accepting delivery in the fourth quarter would not have to pay the invoice for 140 days. Also, he sold some equipment that was not being used and realized a significant profit on the sale. Required: Are these actions ethical? Why or why not? 44 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

157) The controller of one division of a large diversified firm is compensated by salary plus bonus. The bonus is a significant part of total compensation and is based directly on the profits of the division. Thus, the controller has an incentive to find ways to increase profits, including the delay of discretionary expenses such as research and development, delay of maintenance and repair of manufacturing equipment, and delay of sales promotions. Required: Is finding ways to increase profits as described above unethical? Why or why not? Who is to blame, if anyone? 158) How does the separation of duties help prevent financial fraud? 159) The fixed costs of operating the maintenance facility of Indian River Hospital are $4,500,000 annually. Variable costs are incurred at the rate of $30 per maintenance hour. The facility averages 40,000 maintenance hours a year. Budgeted and actual hours for 2020 are as follows:

Building and grounds Operating and emergency Patient care Administration Total

Budgeted hours 10,000 8,000 21,000 1,000 40,000

Actual hours 12,000 8,000 22,000 1,200 43,200

Assume that budgeted maintenance hours are used to calculate the allocation rates. Required: a. If a single-rate cost allocation method is used, what amount of maintenance cost will be budgeted for each department? b. If a single-rate cost allocation method is used, what amount of maintenance cost will be allocated to each department based on actual usage? c. If a dual-rate cost allocation method is used, what amount of maintenance cost will be budgeted for each department? d. If a dual-rate cost allocation method is used, what amount of maintenance cost will be allocated to each department based on actual usage?

160) The Michael Vamosi Corporation operates one central plant that has two divisions, the Lamp Division and the Flashlight Division. The following data apply to the coming budget year: Budgeted costs of operating the plant for 10,000 to 20,000 hours: Fixed operating costs per year $ 240,000 Variable operating costs $ 10 per hour Practical capacity 20,000 hours per year Budgeted long-run usage per year: Lamp Division

800 hours × 12 months = 9,600 hours per year

Flashlight Division

450 hours × 12 months = 5,400 hours per year

Assume that practical capacity is used to calculate the allocation rates. Further assume that actual usage of the Lamp Division was 700 hours and the Flashlight Division was 400 hours for the month of June. Required: a. If a single-rate cost allocation method is used, what amount of operating costs will be budgeted for the Lamp Division each month? For the Flashlight Division each month? b. For the month of June, if a single-rate cost allocation method is used, what amount of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume actual usage is used to allocate operating costs. c. If a dual-rate cost allocation method is used, what amount of operating costs will be budgeted for the Lamp Division each month? For the Flashlight Division each month? d. For the month of June, if a dual-rate cost allocation method is used, what amount of cost will be allocated to the Lamp Division? To the Flashlight Division?

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 13 Planning and Budgeting 1) A budget is the plan, stated in financial terms, of how an organization expects to carry out its activities and meet its goals. 2) A master budget consists of (a) organizational goals, (b) strategic long-range profit plan, and (c) tactical short-range profit plan. 3) Participative budgeting streamlines the budgeting process by reducing budget development time. 4) Individual managers' beliefs and expectations are incorporated into the budgeting process using grass roots budgeting procedures. 5) Sales projections are often the most difficult part of the budgeting process because it involves a considerable amount of subjectivity. 6) An organization's sales staff is more likely to provide a lower sales forecast than a forecast provided by market researchers. 7) The Delphi technique uses highly sophisticated computerized time series analysis to reduce the subjectivity surrounding the sales forecast. 8) Both variable and fixed manufacturing overhead costs are included in the manufacturing overhead budget. 9) The production budget allows management to plan for the resources needed to meet the current sales demand and ensure that inventory levels are sufficient for future sales. 10) Denton Company has 10,000 units on hand at the beginning of the year and plans to sell 100,000 units during the year. If the ending inventory needs to be twice the beginning inventory, Denton will need to produce 90,000 units during the year. 11) Denton Company wants to have 10,000 units on hand at the end of the year after marketing 100,000 units during the year. If the beginning inventory is 5,000 units, Denton needs to produce 105,000 units during the year. 12) The production budget must be prepared before the direct materials, direct labor, and overhead budgets can be prepared. 13) Estimates for direct labor costs can be obtained from the engineering and production management. 14) Bottlenecks in the production process can be discovered by the budgeting process before they occur. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

15) In effect, the cash budget simply restates the budgeted income statement to the cash basis. 16) The cash budget is normally prepared before the budgeted income statement. 17) When assembling the master budget, the budgeted balance sheet is the last budget prepared in the process. 18) The sales budget drives the rest of the budgeting process for both manufacturers and merchandisers. 19) A production budget is not needed for a service organization. 20) Ethical conflicts can occur in the budgeting process because managers supply information for the budgets that are then used to evaluate their performance. 21) The use of sensitivity analysis techniques allows managers to ask "what-if" questions regarding budget assumptions and estimates. 22) Sensitivity analysis is more likely to be used for sales forecasts than for fixed overhead costs. 23) The major objectives of any budget system are to: (CIA adapted) A) define responsibility centers, provide a framework for performance evaluation, and promote communication and coordination among organization segments. B) define responsibility centers, facilitate the fixing of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates. C) foster the planning of operations, provide a framework for performance evaluation, and promote communication and coordination among organization segments. D) foster the planning of operations, facilitate the fixing of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates. 24) Which of the following statements is (are) true regarding the master budget? (A) A master budget consists of (a) organizational goals, (b) strategic long-range profit plan, and (c) tactical short-range profit plan. (B) A master budget consists of only a budgeted (a) income statement, (b) balance sheet, and (c) stockholders' equity statement. A) Only A is true. B) Only B is true. C) Both of these are true. D) None of these is true. 25) Establishing organizational goals as a management function is more important: A) at top management levels. B) at lower management levels. C) at middle management levels. D) for staff functions than line functions. 2 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

26) Which of the following terms is not an alternative for a master budget? A) Budget plan. B) Static budget. C) Profit plan. D) Planning budget. 27) A master budget: A) indicates costs of the organization only for the coming year. B) indicates sales of the organization only for the coming year. C) indicates sales, production, and costs of the organization for the coming year. D) indicates sales and production but does not address costs of the organization for the coming year. 28) Which of the following is not a component of an overall organization plan for an organization? A) Organization goals. B) Strategic long-range profit plan. C) Tactical short-range profit plan. D) Profit plans of competitors. 29) Which of the following is not a benefit of budgeting? A) It reduces the need for tracking actual cost activity. B) It sets benchmarks for evaluation performance. C) It uncovers potential bottlenecks. D) It formalizes a manager's planning efforts. 30) Which of the following statements is (are) true regarding the benefits associated with participative budgeting? (A) Goal congruence by divisions means top management need not be concerned with overall profitability. (B) Employee motivation and acceptance of goals is enhanced. A) Only A is true. B) Only B is true. C) Both of these are true. D) None of these is true. 31) Oklahoma Telephone Company has been forced by competition to put much more emphasis on planning and controlling its costs. Accordingly, the company's controller has suggested initiating a formal budgeting process. Which of the following steps will not help the company gain maximum acceptance by employees of the proposed budgeting system? (CMA adapted) A) Implementing the change quickly. B) Including in departmental responsibility reports only those items that are under the department manager's control. C) Demonstrating top management support for the budgeting program. D) Ensuring that favorable deviations of actual results from the budget, as well as unfavorable deviations, are discussed with the responsible managers. 3 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

32) Which of the following statements is not correct? A) The sales budget is the starting point in preparing the master budget. B) The sales budget is constructed by multiplying the expected sales in units by the sales price. C) Using methods such as trend analysis and the Delphi technique can help reduce subjectivity in forecasting sales. D) The cash budget must be prepared prior to the sales budget because managers want to know the expected cash collections on sales made to customers in prior periods before projecting sales for the current period. 33) In general, the first budget prepared is the: A) production budget. B) direct labor budget. C) sales budget. D) overhead budget. 34) In developing a master budget for a manufacturing company, which one of the following items should be done first? A) Development of a sales budget. B) Development of the capital budget. C) Determination of manufacturing capacity. D) Determination of the advertising budget. 35) The forecasting method in which individual forecasts of group members are submitted anonymously and evaluated by the group as a whole is called: A) trend analysis. B) econometric models. C) the Delphi technique. D) regression analysis. 36) The Variable Speed Company manufactures a line of high quality tools. The company sold 1,000,000 hammers at a price of $4 per unit last year. The company estimates that this volume represents a 20% share of the current hammers market. The market is expected to increase by 5%. Marketing specialists have determined that, as a result of a new advertising campaign and packaging, the company will increase its share of this larger market to 24%. Due to changes in prices, the new price for the hammer will be $4.30 per unit. This new price is expected to be in line with the competition and have no effect on the volume estimates. What are the estimated sales revenues in the coming year? A) $5,040,000. B) $5,160,000. C) $5,418,000. D) $5,689,000.

37) The statistical method of forecasting that relies heavily on regression models is called: A) econometric models. B) Delphi technique. C) scattergraph method. D) participative budgeting. 38) Acutron is a large securities dealer. Last year, the company made 120,000 trades with an average commission of $120. Because of the general economic climate, Acutron expects trade volume to decline by 20%. Fortunately, the average commission per trade is likely to increase by 10% because trades are expected to be large in the coming year. What are the estimated commission's revenues for Acutron in the coming year? A) $11,520,000. B) $12,672,000. C) $15,552,000. D) $15,840,000. 39) Adair Credit, Inc. has $35.0 million in consumer loans with an average interest rate of 12.0%. The company has $30.0 million in home equity loans with an average interest rate of 8.0%, and owns $5.0 million in corporate securities with an average interest rate of 6%. Next year, consumer loans are estimated to increase to $40.0 million because of a rate decrease to 10.0%, while home equity loans are estimated to increase to $32.0 million at an average interest rate of 6.5%. Unfortunately, the investment in corporate securities is estimated to decrease by 20% and the average interest rate is estimated to be 9.0%. What is Adair's estimated change in revenues next year? A) $460,000 decrease. B) $460,000 increase. C) $700,000 increase. D) $700,000 decrease. 40) The master budget process usually begins with the: (CMA adapted) A) production budget. B) operating budget. C) financial budget. D) sales budget.

41) A company has the following annual budget data: Beginning finished goods inventory Sales Ending finished goods inventory Direct materials Direct labor Variable factory overhead Selling costs Fixed factory overhead

40,000 70,000 30,000 $ 10 $ 20 $ 5 $ 2 $ 80,000

units units units per unit per unit per unit per unit

What are total budgeted production costs for the year? (CIA adapted) A) $2,100,000. B) $2,180,000. C) $2,240,000. D) $2,320,000.

42) Rerun Manufacturing Company is in the process of preparing its 2020 budget and is anticipating the following changes: 30% increase in the number of units sold. 20% increase in the direct material unit cost. 15% increase in the direct labor cost per unit. 10% increase in the manufacturing overhead cost per unit. 14% increase in the sales price. 7% increase in the administrative expenses. Rerun does not keep any units in inventory. The composition of the cost of finished products during 2019 for direct materials, direct labor, and factory overhead, respectively, was in the ratio of 3:2:1. The condensed income statement for 2019 is as follows: Sales (30,000 units) Less sales returns Net sales Cost of goods sold Gross profit Selling expenses Admin.expenses Net income

$ 450,000 13,500 436,500 306,000 $ 130,500 $

60,000 30,000 $

90,000 40,500

What are estimated net sales for 2020, assuming the sales return/gross sales relationship remains constant? A) $646,893. B) $585,000. C) $571,500. D) $567,450.

43) Rerun Manufacturing Company is in the process of preparing its 2020 budget and is anticipating the following changes: 30% increase in the number of units sold. 20% increase in the direct material unit cost. 15% increase in the direct labor cost per unit. 10% increase in the manufacturing overhead cost per unit. 14% increase in the sales price. 7% increase in the administrative expenses. Rerun does not keep any units in inventory. The composition of the cost of finished products during 2019 for materials, direct labor, and factory overhead, respectively, was in the ratio of 3:2:1. The condensed income statement for 2019 is as follows: Sales (30,000 units) Less sales returns Net sales Cost of goods sold Gross profit Selling expenses Admin.expenses Net income

$ 450,000 13,500 436,500 306,000 $ 130,500 $

60,000 30,000 $

90,000 40,500

What is the estimated cost of goods sold for 2020 assuming the number of units sold does not change? A) $464,100 B) $402,900 C) $397,800 D) $357,000 44) Trevor Company expects sales of Product W to be 60,000 units in April, 75,000 units in May, and 70,000 units in June. The company desires that the inventory on hand at the end of each month be equal to 40% of the next month's expected unit sales. Due to excessive production during March, on March 31 there were 25,000 units of Product W in the ending inventory. Given this information, Trevor Company's production of Product W for the month of April should be: A) 60,000 units. B) 65,000 units. C) 75,000 units. D) 66,000 units.

45) Vermicelli Company plans to sell 200,000 units of finished product in July and anticipates a growth rate in sales of 5% per month. The desired monthly ending inventory in units of finished product is 80% of the next month's estimated sales. There are 150,000 finished units in inventory on June 30. Vermicelli Company's production requirement in units of finished product for the three-month period ending September 30 is: (CMA adapted) A) 712,025 units. B) 630,500 units. C) 664,000 units. D) 665,720 units. 46) The Pizza Merchandise Company has budgeted $40,000 in sales for the month of December. The company's cost of goods sold is 30% of sales. If the company has budgeted to purchase $18,000 in merchandise during December, then the budgeted change in inventory levels over the month of December is: A) $6,000 increase. B) $10,000 decrease. C) $22,000 decrease. D) $15,000 increase. 47) Pablo Company has budgeted production for next year as follows:

Production in units

Quarter First Second Third Fourth 60,000 80,000 90,000 70,000

Two pounds of material A are required for each unit produced. The company has a policy of maintaining a stock of material A on hand at the end of each quarter equal to 25% of the next quarter's production needs for material A. A total of 30,000 pounds of material A are on hand to start the year. Budgeted purchases of material A for the second quarter would be: A) 82,500 pounds. B) 165,000 pounds. C) 200,000 pounds. D) 205,000 pounds.

48) Vargas Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.77 direct labor-hours. The direct labor rate is $11.20 per direct labor-hour. The production budget calls for producing 7,100 units in October and 6,900 units in November. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 5,480 hours in total each month even if there is not enough work to keep them busy. What would be the total combined direct labor cost for the two months? A) $122,752.00. B) $120,736.00. C) $120,881.60. D) $122,606.40. 49) Pouch Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.84 direct labor-hours. The direct labor rate is $9.40 per direct labor-hour. The production budget calls for producing 2,100 units in June and 1,900 units in July. If the direct labor work force is fully adjusted to the total direct labor-hours needed each month, what would be the total combined direct labor cost for the two months? A) $15,792.00. B) $15,002.40. C) $16,581.60. D) $31,584.00. 50) Trini Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 8,100 direct labor-hours will be required in May. The variable overhead rate is $1.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $100,440 per month, which includes depreciation of $8,910. All other fixed manufacturing overhead costs represent current cash flows. The May cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A) $102,870. B) $11,340. C) $91,530. D) $111,780. 51) The manufacturing overhead budget at Levetron Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 7,100 direct labor-hours will be required in August. The variable overhead rate is $8.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $132,770 per month, which includes depreciation of $24,850. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for August should be: A) $8.60. B) $27.30. C) $23.80. D) $18.70.

52) Rack Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 3,700 direct labor-hours will be required in September. The variable overhead rate is $5.70 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $48,100 per month, which includes depreciation of $5,550. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for September should be: A) $5.70. B) $13.00. C) $18.70. D) $17.20. 53) The manufacturing overhead budget at Rost Corporation is based on budgeted direct laborhours. The direct labor budget indicates that 2,800 direct labor-hours will be required in September. The variable overhead rate is $7.00 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $43,120 per month, which includes depreciation of $3,640. All other fixed manufacturing overhead costs represent current cash flows. The September cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A) $59,080. B) $62,720. C) $19,600. D) $39,480. 54) The marketing and administrative expense budget of Frazier Corporation is based on budgeted unit sales, which are 5,500 units for June. The variable marketing and administrative expense is $1.00 per unit. The budgeted fixed marketing and administrative expense is $101,200 per month, which includes depreciation of $6,050 per month. The remainder of the fixed marketing and administrative expense represents current cash flows. The cash disbursements for marketing and administrative expenses on the June marketing and administrative expense budget should be: A) $100,650. B) $106,700. C) $5,500. D) $95,150. 55) Bentonville Inc. bases its marketing and administrative expense budget on budgeted unit sales. The sales budget shows 3,200 units are planned to be sold in December. The variable marketing and administrative expense is $3.10 per unit. The budgeted fixed marketing and administrative expense is $60,800 per month, which includes depreciation of $6,720 per month. The remainder of the fixed marketing and administrative expense represents current cash flows. The cash disbursements for marketing and administrative expenses on the December marketing and administrative expense budget should be: A) $70,720. B) $54,080. C) $64,000. D) $9,920. 11 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

56) The Colson Company has budgeted sales for the year as follows: Quarter Sales in units

1 12,000

2 14,000

3 18,000

4 16,000

The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units. The finished goods inventory at the start of the year is 3,000 units. Scheduled production for the third quarter is (in units) A) 17,500 units. B) 18,500 units. C) 18,000 units. D) 16,500 units. 57) The Colson Company has budgeted sales for the year as follows: Quarter Sales in units

1 12,000

2 14,000

3 18,000

4 16,000

The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units. The finished goods inventory at the start of the year is 3,000 units. Scheduled production for the second quarter is (in units): A) 17,500 units. B) 16,500 units. C) 15,000 units. D) 13,000 units. 58) The Tori Company had budgeted production for the year as follows: Quarter Production in units

1 10,000

2 12,000

3 16,000

4 14,000

59) The Molson Company had budgeted production for the year as follows: Quarter Production in units

1 10,000

2 12,000

3 16,000

4 14,000

Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,000 lbs. The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs in materials. Budgeted purchases of raw materials in the second quarter would be: A) 48,000 lbs. B) 46,400 lbs. C) 49,600 lbs. D) 54,400 lbs. 60) Krier Industries has just completed its sales forecasts and its marketing department estimates that the company will sell 36,000 units during the upcoming year. In the past, management has maintained inventories of finished goods at approximately three months' sales. However, the estimated inventory at the start of the year of the budget period is only 6,000 units. Sales occur evenly throughout the year. What is the estimated production level (units) for the first month of the upcoming budget year? A) 12,000. B) 9,000. C) 6,000. D) 3,000. 61) The Ralston Company manufactures a special line of graphic tubing items. The company estimates it will sell 75,000 units of this item in 2020. The beginning finished goods inventory contains 20,000 units. The target for each year's ending inventory is 10,000 units. Each unit requires five feet of plastic tubing. The tubing inventory currently includes 70,000 feet of the required tubing. Materials on hand are targeted to equal three months' production. Any shortage in materials will be made up by the immediate purchase of materials. Sales take place evenly throughout the year. What is the production budget (in units) for 2020? A) 60,000. B) 65,000. C) 75,000. D) 85,000.

62) The Ralston Company manufactures a special line of graphic tubing items. The company estimates it will sell 75,000 units of this item in 2020. The beginning finished goods inventory contains 20,000 units. The target for each year's ending inventory is 10,000 units. Each unit requires five feet of plastic tubing. The tubing inventory currently includes 70,000 feet of the required tubing. Materials on hand are targeted to equal three months' production. Any shortage in materials will be made up by the immediate purchase of materials. Sales take place evenly throughout the year. What are the materials requirements (in feet) for 2020? A) 313,750. B) 336,250. C) 363,750. D) 386,250. 63) The following budgeted information is provided: Month Sales in units Production in units

1 15,000 16,000

2 20,000 22,000

3 18,000 15,000

One pound of materials is required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs. At the beginning of Month 1, there were 3,200 lbs. of materials on hand. Purchases of raw materials for Month 1 would be (in pounds): A) 25,000. B) 23,400. C) 17,200. D) 22,000. 64) Which of the following represents the correct order in which the indicated budget documents for a manufacturing company would be prepared? A) Sales budget, cash budget, direct materials budget, direct labor budget. B) Production budget, sales budget, direct materials budget, direct labor budget. C) Sales budget, cash budget, production budget, direct materials budget. D) Marketing and administrative expense budget, budgeted income statement, cash budget, budgeted balance sheet. 65) The starting point in preparing a comprehensive budget for a manufacturing company limited by its ability to produce and not by its ability to sell is A) a sales forecast. B) an estimate of production capacity. C) an estimate of cash receipts and disbursements. D) a projection of fixed asset acquisitions.

66) Merriweather Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other institutions. The table tops are manufactured by Merriweather, but the table legs are purchased from an outside supplier. The Assembly Department takes a manufactured table top and attaches the four purchased table legs. It takes 20 minutes of labor to assemble a table. The company follows a policy of producing enough tables to ensure that 40% of next month's sales are in the finished goods inventory. Merriweather also purchases sufficient raw materials (legs) to ensure that raw materials (legs) inventory is 60% of the following month's scheduled production needs. Merriweather's sales budget in units for the next quarter is as follows: (CMA adapted) July August September

2,300 2,500 2,100

Merriweather's ending inventories in units for June 30 are: Finished goods Raw materials (legs)

1,900 4,000

The number of tables to be produced during August is: A) 1,400 tables. B) 2,340 tables. C) 1,440 tables. D) 1,900 tables.

67) Merriweather Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other institutions. The table tops are manufactured by Merriweather, but the table legs are purchased from an outside supplier. The Assembly Department takes a manufactured table top and attaches the four purchased table legs. It takes 20 minutes of labor to assemble a table. The company follows a policy of producing enough tables to ensure that 40% of next month's sales are in the finished goods inventory. Merriweather also purchases sufficient raw materials (legs) to ensure that raw materials (legs) inventory is 60% of the following month's scheduled production needs. Merriweather's sales budget in units for the next quarter is as follows: (CMA adapted) July August September

2,300 2,500 2,100

Merriweather's ending inventories in units for June 30 are: Finished goods Raw materials (legs)

1,900 4,000

Assume the required production for August and September is 1,600 units and 1,800 units, respectively, and the July 31 raw materials (legs) inventory is 4,200 units. The number of table legs to be purchased in August is: A) 6,520 legs. B) 9,400 legs. C) 6,280 legs. D) 6,400 legs. 68) Budgeted production needs are determined by: A) adding budgeted sales in units to the desired ending inventory in units and deducting the beginning inventory in units from this total. B) adding budgeted sales in units to the beginning inventory in units and deducting the desired ending inventory in units from this total. C) adding budgeted sales in units to the desired ending inventory in units. D) deducting the beginning inventory in units from budgeted sales in units. 69) Which of the following is not correct regarding the manufacturing overhead budget? A) Total budgeted cash disbursements for manufacturing overhead is equal to the total of budgeted variable and fixed manufacturing overhead. B) Manufacturing overhead costs should be broken down by cost behavior. C) The manufacturing overhead budget should provide a schedule of all costs of production other than direct materials and direct labor. D) Budgeting overhead requires the use of many factors including production levels, management discretion, corporate policies, and external factors.

70) The number of units required for production is equal to: A) budgeted sales plus units in the beginning inventory minus the units in the ending inventory. B) budgeted sales plus units in the ending inventory minus the units in the beginning inventory. C) budgeted sales plus the units in the ending inventory. D) budgeted sales minus the units in the beginning inventory. 71) The amount of materials to be purchased during the budget period is equal to budgeted: A) total production needs plus units in the beginning materials inventory minus the units in the ending materials inventory. B) total production needs plus units in the ending materials inventory minus the units in the beginning materials inventory. C) units to be produced plus units in the beginning materials inventory minus the units in the ending materials inventory. D) units to be produced plus units in the ending materials inventory minus the units in the beginning materials inventory. 72) Which of the following budgets does not require the production budget? A) Direct materials. B) Direct labor. C) Manufacturing overhead. D) Marketing and administrative expenses. 73) The manufacturing overhead budget requires that costs be separated into their fixed and variable components. Another budget that has this requirement is the: A) direct labor. B) direct materials. C) cost of goods sold. D) marketing and administrative expenses. 74) Which of the following statements does not reflect a difficulty in preparing the marketing and administrative budget? A) Managers have discretion about how much money is spent. B) Managers have discretion about the timing of when money is spent. C) Marketing and administrative expenses are made up of fixed and variable items. D) Marketing and administrative expenses normally have a one-year time horizon. 75) Which of the following types of accounts would not be included on a budgeted balance sheet? A) Cash. B) Assets. C) Liabilities. D) Revenues.

76) The Arkansas Company makes and sells a product called Product K. Each unit of Product K sells for $24 and has a unit variable cost of $18. The company has the following budgeted data for November: ∙ Sales of $1,152,200, all in cash. ∙ A cash balance on November 1 of $48,000. ∙ Cash disbursements (other than interest) during November of $1,160,000. ∙ A minimum cash balance on November 30 of $60,000. If necessary, the company will borrow cash from a bank. The borrowing will be in multiples of $1,000 and will bear interest at 2% per month. All borrowing will take place at the beginning of the month. The November interest will be paid in cash during November. The amount of cash needed to be borrowed on November 1 to cover all cash disbursements and to obtain the desired November 30 cash balance is: A) $20,000. B) $21,000. C) $37,000. D) $38,000. 77) Riff, Inc. is working on its cash budget for June. The budgeted beginning cash balance is $16,000. Budgeted cash receipts total $188,000 and budgeted cash disbursements total $187,000. The desired ending cash balance is $40,000. The excess (deficiency) of cash available over disbursements for June will be: A) $15,000. B) $1,000. C) $17,000. D) $204,000.

78) Center Company makes collections on sales according to the following schedule: 30% in the month of sale 60% in the month following sale 8% in the second month following sale The following sales are expected: January February March

Expected Sales $ 100,000 $ 120,000 $ 110,000

Cash collections in March should be budgeted to be: A) $110,000. B) $110,800. C) $105,000. D) $113,000. 79) Ari, Inc. is working on its cash budget for December. The budgeted beginning cash balance is $14,000. Budgeted cash receipts total $127,000 and budgeted cash disbursements total $126,000. The desired ending cash balance is $40,000. Any borrowing is in multiples of $1,000 and interest is paid in the month following the borrowing. To attain its desired ending cash balance for December, the company needs to borrow: A) $25,000. B) $0. C) $55,000. D) $40,000. 80) Which one of the following budgets would be the last one prepared in the master budget preparation process? A) Manufacturing overhead budget. B) Cost of goods sold budget. C) Marketing cost budget. D) Cash budget. 81) Cash disbursements would not include payments for: A) dividends. B) income taxes. C) accounts receivable. D) capital budget expenditures.

82) Tennison Corporation had the following transactions in its first year of operations: Sales (90% collected in year) Bad debt write-offs Disbursements for production costs and other expenses Disbursements for income taxes Purchases of fixed assets Depreciation of fixed assets Proceeds from issuance of common stock Proceeds from short-term borrowings Payments on short-term borrowings

$ 1,500,000 60,000 1,200,000 90,000 400,000 80,000 500,000 100,000 50,000

What is the cash balance at year-end? A) $150,000. B) $170,000. C) $210,000. D) $280,000. 83) The Model Company is to begin operations in April. It has budgeted April sales of $30,000, May sales of $34,000, June sales of $40,000, July sales of $42,000, and August sales of $38,000. Note that 10% of each month's sales is expected to represent cash sales; 75% of the balance is expected to be collected in the month following the sale, 17% the second month, 6% the third month, and the balance is expected to be uncollectible. What is the amount of cash to be collected in the month of July? A) $34,022. B) $38,022. C) $42,000. D) $37,580. 84) The Model Company is to begin operations in April. It has budgeted April sales of $30,000, May sales of $34,000, June sales of $40,000, July sales of $42,000, and August sales of $38,000. Note that 10% of each month's sales is expected to represent cash sales; 75% of the balance is expected to be collected in the month following the sale, 17% the second month, 6% the third month, and the balance is expected to be uncollectible. What is the amount of cash to be collected in the month of August? A) $40,106. B) $40,340. C) $38,036. D) $44,140.

85) The Model Company is to begin operations in April. It has budgeted April sales of $30,000, May sales of $34,000, June sales of $40,000, July sales of $42,000, and August sales of $38,000. Note that 10% of each month's sales is expected to represent cash sales; 75% of the balance is expected to be collected in the month following the sale, 17% the second month, 6% the third month, and the balance is expected to be uncollectible. The Model Company is considering charging 1 1/2% on any balance that is not collected in the month following the month of sale. This charge would also change the collection percentages to 15% cash sales, 80% of the balance collected in the month following the sale, 16% the second month, and 3% the third month. This stricter credit policy will reduce the estimated sales budgets by 7% each month. Under this stricter credit policy, what is the amount of cash to be collected in July? Round all calculations to the nearest whole dollar. A) $39,199. B) $35,312. C) $38,193. D) $36,242. 86) Page Company makes 30% of its sales for cash and 70% on account. 60% of the credit sales are collected in the month of sale, 25% in the month following sale, and 12% in the second month following sale. The remainder is uncollectible. The following information has been gathered for the current year: Month

Total sales

$60,000

$70,000

$50,000

$30,000

Total cash receipts in Month 4 will be: A) $38,000. B) $47,900. C) $27,230. D) $36,230. 87) Page Company makes 30% of its sales for cash and 70% on account. 60% of the credit sales are collected in the month of sale, 25% in the month following sale, and 12% in the second month following sale. The remainder is uncollectible. The following information has been gathered for Page's first year of operations: Month Total sales

1 $60,000

2 $70,000

3 $50,000

4 $30,000

Total cash receipts in Month 3 will be: A) $52,200. B) $53,290. C) $50,000. D) $51,510. 21 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

88) The Beatrice Manufacturing Company increased its merchandise inventory by $17,000 over the year. The company also granted its customers more liberal credit terms which increased the accounts receivable by $37,500. Sales were $975,000 and the accounts payable decreased by $27,500. The gross profit on sales is 45%. Marketing and administrative expenses were $145,000; this included depreciation expense of $4,000. What were the cash disbursements for the year? A) $721,750. B) $706,500. C) $689,500. D) $599,750. 89) The Express Company is preparing its cash budget for the month of June. The following information is available concerning its inventories: Inventories at beginning of June Estimated purchases of June Estimated cost of goods sold for June Estimated payments in June for purchases in May Estimated payments in June for purchases prior to May Estimated payments in June for purchases in June

67,500 330,000 337,500 56,250 15,000 80%

What are the estimated cash disbursements for inventories in June? A) $264,000. B) $320,250. C) $335,250. D) $341,250. 90) The Overland Company is preparing its cash budget for the month of June. The following information is available concerning its accounts receivable: Estimated credit sales for June Actual credit sales for May Estimated collections in June for credit sales in June Estimated collections in June for credit sales in May Estimated collections in June for credit sales prior to May Estimated write-offs in June for uncollectible credit sales Estimated provision for bad debts in June for credit sales in June

$ 300,000 225,000 25% 65% $ 18,000 12,000 10,000

What are the estimated cash receipts from accounts receivable collections in June? A) $221,250. B) $227,250. C) $229,250. D) $239,250.

91) The Kansas Company is preparing a cash budget for the month of July. The following information on accounts receivable collections is available from Kansas' past collection experience: Percent of current month's sales collected this month Percent of prior month's sales collected this month Percent of sales two months prior to current month collected this month Percent of sales three months prior to current month collected this month

15% 72% 6% 3%

The remaining 4% are not collected and are written off as bad debts. Credit sales to date are as follows: July (estimated) June May April

$ $ $ $

150,000 135,000 120,000 145,000

What are the estimated collections in July? A) $125,250. B) $131,250. C) $133,250. D) $137,250.

92) Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $5,500, accounts receivable of $437,000, inventories of $446,250, and accounts payable of $133,055. The budget is to be based on the following assumptions: SALES: Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible. PURCHASES: The marketing, general, and administrative expenses and 60% of all purchases of merchandise are paid in the month purchased, with the remainder of merchandise purchases paid in the following month. The number of units in each month's ending inventory is equal to 125% of the next month's sales (units). The cost of each unit of inventory is $30. Marketing, general, and administrative expenses, of which $3,000 is depreciation, are equal to 15% of the current month's sales. Actual and projected sales are as shown below: March April May June July August

Dollars $ 472,000 $ 484,000 $ 476,000 $ 456,000 $ 480,000 $ 480,000

Units 11,800 12,100 11,900 11,400 12,000 12,200

What are the budgeted merchandise purchases (in dollars) for May? A) $338,250. B) $355,500. C) $357,000. D) $375,750.

93) Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $5,500, accounts receivable of $437,000, inventories of $446,250, and accounts payable of $133,055. The budget is to be based on the following assumptions: SALES: Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible. PURCHASES: The marketing, general, and administrative expenses and 60% of all purchases of merchandise are paid in the month purchased, with the remainder of merchandise purchases paid in the following month. The number of units in each month's ending inventory is equal to 125% of the next month's sales (units). The cost of each unit of inventory is $30. Marketing, general, and administrative expenses, of which $3,000 is depreciation, are equal to 15% of the current month's sales. Actual and projected sales are as shown below: March April May June July August

Dollars $ 472,000 $ 484,000 $ 476,000 $ 456,000 $ 480,000 $ 480,000

Units 11,800 12,100 11,900 11,400 12,000 12,200

What are the budgeted merchandise purchases (in dollars) for June? A) $319,500. B) $342,000. C) $364,500. D) $375,000.

94) Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $5,500, accounts receivable of $437,000, inventories of $446,250, and accounts payable of $133,055. The budget is to be based on the following assumptions: SALES: Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible. PURCHASES: The marketing, general, and administrative expenses and 60% of all purchases of merchandise are paid in the month purchased, with the remainder of merchandise purchases paid in the following month. The number of units in each month's ending inventory is equal to 125% of the next month's sales (units). The cost of each unit of inventory is $30. Marketing, general, and administrative expenses, of which $3,000 is depreciation, are equal to 15% of the current month's sales. Actual and projected sales are as shown below: March April May June July August

Dollars $ 472,000 $ 484,000 $ 476,000 $ 456,000 $ 480,000 $ 480,000

Units 11,800 12,100 11,900 11,400 12,000 12,200

What are the budgeted cash disbursements during the month of June? A) $407,520. B) $419,400. C) $421,950. D) $434,280.

95) Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $5,500, accounts receivable of $437,000, inventories of $446,250, and accounts payable of $133,055. The budget is to be based on the following assumptions: SALES: Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible. PURCHASES: The marketing, general, and administrative expenses and 60% of all purchases of merchandise are paid in the month purchased, with the remainder of merchandise purchases paid in the following month. The number of units in each month's ending inventory is equal to 125% of the next month's units of sales. The cost of each unit of inventory is $30. Marketing, general, and administrative expenses, of which $3,000 is depreciation, are equal to 15% of the current month's sales. Actual and projected sales are as shown below: March April May June July August

Dollars $ 472,000 $ 484,000 $ 476,000 $ 456,000 $ 480,000 $ 480,000

Units 11,800 12,100 11,900 11,400 12,000 12,200

What are the budgeted cash collections during the month of May? A) $445,894. B) $453,880. C) $472,114. D) $474,934.

96) Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $5,500, accounts receivable of $437,000, inventories of $446,250, and accounts payable of $133,055. The budget is to be based on the following assumptions: SALES: Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible. PURCHASES: The marketing, general, and administrative expenses and 60% of all purchases of merchandise are paid in the month purchased, with the remainder of merchandise purchases paid in the following month. The number of units in each month's ending inventory is equal to 125% of the next month's units of sales. The cost of each unit of inventory is $30. Marketing, general, and administrative expenses, of which $3,000 is depreciation, are equal to 15% of the current month's sales. Actual and projected sales are as shown below: March April May June July August

Dollars $ 472,000 $ 484,000 $ 476,000 $ 456,000 $ 480,000 $ 480,000

Units 11,800 12,100 11,900 11,400 12,000 12,200

What are the budgeted number of inventory units that need to be purchased in July? A) 11,750. B) 15,000. C) 12,250. D) 12,000.

97) Jackson Company has developed the following sales projections for the calendar year: May June July August September October

$ 100,000 120,000 140,000 160,000 150,000 130,000

Normal cash collection experience has been that 50% of sales is collected during the month of sale and 45% in the month following the sale. The remaining 5% of sales are never collected. Jackson's budgeted cash collections for the third calendar quarter are: (CMA adapted) A) $450,000. B) $440,000. C) $414,000. D) $360,000. 98) A company is preparing its cash budget for the coming month. All sales are on account. Given the following:

Cash Accounts Receivable Sales Cash disbursements Depreciation Ending accounts receivable balance

Beginning Balances $ 50,000 180,000

Budget Amounts $

800,000 780,000 25,000 210,000

What is the expected cash balance of the company at the end of the coming month? (CIA adapted) A) $15,000. B) $40,000. C) $45,000. D) $70,000.

99) A company is formulating its plans for the coming year, including the preparation of its cash budget. Historically, the company's sales are 30% cash. The remaining sales are on credit with the following collection pattern: Percent age 40% 58% 2%

Collections on Account In the month of sale In the month following the sale Uncollectible Sales for the first 5 months of the coming year are forecast as follows: January February March April May

$ 3,500,000 3,800,000 3,600,000 4,000,000 4,200,000

For the month of April, the total cash receipts from sales and collections on accounts would be: (CIA adapted) A) $3,729,968. B) $3,781,600. C) $4,025,200. D) $4,408,000. 100) Shown below is the sales forecast for Kalin Inc. for the first four months of the coming year. Jan Feb Mar Apr Cash sales $ 15,000 $ 24,000 $ 18,000 $ 14,000 Credit sales $ 100,000 $ 120,000 $ 90,000 $ 70,000 On average, 50% of credit sales are paid for in the month of the sale, 30% in the month following sale, and the remainder are paid two months after the month of the sale. Assuming there are no bad debts, the expected cash inflow in March is: (CMA adapted) A) $138,000. B) $122,000. C) $119,000. D) $108,000.

101) Budgeted sales in Washburn Company over the next four months are given below: Budgeted sales

September $100,000

October $160,000

November $180,000

December $120,000

Twenty-five percent of the company's sales are for cash and 75% are on account. Collections for sales on account follow a stable pattern as follows: 50% of a month's credit sales are collected in the month of sale, 30% are collected in the month following sale, and 15% are collected in the second month following sale. The remainder is uncollectible. Given these data, cash collections for December should be: A) $138,000. B) $133,500. C) $120,000. D) $103,500. 102) The following data have been taken from the budget reports of Kenyon Company, a merchandising company. January February March April May June

Purchases $ 160,000 $ 160,000 $ 160,000 $ 140,000 $ 140,000 $ 120,000

$ $ $ $ $ $

Sales 100,000 200,000 240,000 300,000 260,000 240,000

Forty percent of purchases are paid for in cash at the time of purchase, and 30% are paid for in each of the next two months. Purchases for the previous November and December were $150,000 per month. Employee wages are 10% of sales for the month in which the sales occur. Marketing and administrative expenses are 20% of the following month's sales. (July sales are budgeted to be $220,000.) Interest payments of $20,000 are paid quarterly in January and April. Kenyon's cash disbursements for the month of April would be: (CMA adapted) A) $140,000. B) $254,000. C) $200,000. D) $248,000. 103) Budgeted Balance sheets combine all of the following except: A) an estimate of financial position at the beginning of the budget period. B) the estimated results of operations for the period (from the income statements). C) estimated changes in assets and liabilities. D) an examination of all revenues, costs, and other transactions in terms of their effects on cash.

104) Serene Corporation, an auto parts retailer, had 17,000 units of brake calipers on hand at the end of 2019. The company's inventory policy is to maintain an ending inventory equal to 15% of the current year's sales. During 2020, Serene sold 210,000 units of calipers. How many units did Serene purchase in 2020? A) 224,500. B) 210,000. C) 196,150. D) 194,700. 105) Virginia Company, a merchandising firm, operated five sales offices last year at a total cost of $500,000, of which $70,000 represented fixed costs. Virginia has determined that total costs are significantly influenced by the number of sales offices operated. Last year's costs and number of sales offices can be used as the basis for predicting annual costs. What would be the budgeted cost for the coming year if Virginia were to operate seven sales offices? (CPA adapted) A) $700,000. B) $672,000. C) $602,000. D) $586,000. 106) Which of the following budgets is not required in a wholesale organization? A) Cash. B) Sales. C) Production. D) Cost of goods sold. 107) Which of the following budgets is not required in a service organization? A) Cash. B) Sales. C) Labor. D) Cost of goods sold. 108) Which of the following statements is true regarding ethical issues accompanying budgeting? A) Conflicts of interest do not arise when employees are asked for input to help establish a budget. B) Easy target incentives are eliminated through budgeting. C) The conflicts of biased budgeting can be avoided in a decentralized firm. D) If budget targets are difficult to meet, employees could turn to fraudulent financial reporting. 109) Sensitivity analysis can best be used in the budgeting process to: A) explore the uncertainty surrounding their estimates. B) remove the subjective nature from the budgeting process. C) answer "what-if" questions regarding key projections. D) consider alternatives and options in the budgeting process.

110) Dalley Inc. has the following information for its first year of operations: Revenues (200,000 units) Manufacturing costs: Materials Variable cash costs Fixed cash costs Depreciation (fixed) Marketing & administrative costs: Marketing (variable) Marketing depreciation Administrative (fixed) Administrative depreciation Total costs Operating profits

$ 2,900,000 $

168,000 142,400 327,600 999,000

422,400 149,600 509,200 74,800 $ 2,793,000 $ 107,000

All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to increase by 15%, but sales prices are expected to fall by 4%. Material costs per unit are expected to decrease by 6%. Other unit variable manufacturing costs are expected to decrease by 2.5% per unit. Fixed manufacturing costs (other than depreciation) are expected to increase by 6%. Variable marketing costs per unit will remain constant. Administrative costs (other than depreciation) are expected to increase by 10%. Assume there are no inventories. Dalley operates on a cash basis. Required: Prepare a budgeted income statement for year 2.

111) Oregon Inc. has the following information for its first year of operations: Revenues (250,000 units) Manufacturing costs: Materials Variable cash costs Fixed cash costs Depreciation (fixed) Marketing & administrative costs: Marketing (variable) Marketing depreciation Administrative (fixed) Administrative depreciation Total costs Operating profits

$ 3,730,000 $

665,000 904,000 360,000 445,000

475,000 113,000 450,550 42,000 $ 3,454,550 $ 275,450

All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to increase by 13%, and sales prices are expected to increase by 4%. Material costs per unit are expected to increase by 8%. Other unit variable manufacturing costs are expected to increase by 10% per unit. Fixed manufacturing costs (other than depreciation) are expected to increase by 6%. Variable marketing costs per unit will remain constant. Administrative costs (other than depreciation) are expected to increase by 12%. Assume there are no inventories. Oregon operates on a cash basis. Required: Prepare a budgeted income statement for year 2.

112) A sales budget is given below for one of the products manufactured by Trumpet, Ltd. Month July August September October November December

Sales Budget in Units 28,000 30,000 34,000 36,000 29,000 26,000

The inventory of finished goods at the end of each month must be equal to 20% of the next month's sales. On June 30, the finished goods inventory totaled 6,800 units. Each unit of product requires ten ounces of a special chemical known as AQ-12. Sometimes the chemical is in short supply; for this reason, the company has a policy of maintaining an inventory at the end of each month equal to 75% of the next month's production needs. This requirement was met on July 1 of the current year Required: Prepare a budget showing the quantity of AQ-12 to be purchased for October. 113) A sales budget is given below for one of the products manufactured by Reyes, Ltd. Month July August September October November December

Sales Budget in Units 36,000 40,000 48,000 52,000 38,000 31,000

The inventory of finished goods at the end of each month must be equal to 30% of the next month's sales. On June 30, the finished goods inventory totaled 16,800 units. Each unit of product requires four pounds of material. The company has a policy of maintaining a material inventory at the end of each month equal to 25% of the next month's production needs. This requirement was met on July 1 of the current year. Required: Prepare a budget showing the quantity of material to be purchased for August.

114) Flores Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.07 direct labor-hours. The direct labor rate is $8.50 per direct labor-hour. The production budget calls for producing 4,800 units in June and 5,300 units in July. Required: Construct the direct labor budget for the next two months, assuming that the direct labor work force is fully adjusted to the total direct labor-hours needed each month. 115) Arctic Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.41 direct labor-hours. The direct labor rate is $8.50 per direct labor-hour. The production budget calls for producing 2,300 units in August and 2,200 units in September. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 960 hours in total each month even if there is not enough work to keep them busy. Required: Construct the direct labor budget for the next two months. 116) Endpoint Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $1.30 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $98,900 per month, which includes depreciation of $19,780. All other fixed manufacturing overhead costs represent current cash flows. The September direct labor budget indicates that 8,600 direct labor-hours will be required in that month. Required: a. Determine the cash disbursement for manufacturing overhead for September. b. Determine the predetermined overhead rate for September. 117) The manufacturing overhead budget of Waverly Corporation is based on budgeted direct labor-hours. The June direct labor budget indicates that 5,800 direct labor-hours will be required in that month. The variable overhead rate is $7.70 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $111,360 per month, which includes depreciation of $17,400. All other fixed manufacturing overhead costs represent current cash flows. Required: a. Determine the cash disbursement for manufacturing overhead for June. b. Determine the predetermined overhead rate for June.

118) Ng Inc. bases its marketing and administrative expense budget on the number of units sold. The variable marketing and administrative expense is $4.30 per unit. The budgeted fixed marketing and administrative expense is $30,240 per month, which includes depreciation of $3,510. The remainder of the fixed marketing and administrative expense represents current cash flows. The sales budget shows 2,700 units are planned to be sold in April. Required: Prepare a schedule showing total marketing and administrative expenses for April, as well as the cash disbursements for marketing and administrative expenses. 119) The marketing and administrative expense budget of Kimble Corporation is based on the number of units sold, which are budgeted to be 2,500 units in January. The variable marketing and administrative expense is $4.40 per unit. The budgeted fixed marketing and administrative expense is $35,750 per month, which includes depreciation of $4,000. The remainder of the fixed marketing and administrative expense represents current cash flows. Required: Prepare a schedule showing total marketing and administrative expenses for January, as well as the cash disbursements for marketing and administrative expenses. 120) Rocket Plating Company plans to sell 120,000 units of a certain product line at a price of $6 per unit. There are 10,000 units of the product in inventory at January 1 and the inventory is to be increased 20% during the year. Two types of materials are used to make the product. Four units of Material A, costing 30 cents each, are required for each unit of product, and two units of Material B, costing 40 cents each, are required for each unit of product. On January 1, there are 10,000 units of Material A in inventory and 5,000 units of Material B. Plans for the year indicate that 12,000 units of Material A and 6,000 units of Material B are to be in the inventory on December 31. Each unit of product can be produced in 15 minutes of direct labor time. Direct labor is paid at the rate of $8.00 an hour. The variable manufacturing overhead rate is $0.50 per direct labor hour and the fixed manufacturing overhead for the year is estimated at $140,000. Required: a. Prepare a production budget for the year. b. Prepare a direct materials budget for the year. c. Prepare a direct labor budget for the year. d. Prepare a budget for manufacturing overhead for the year.

121) A sales budget is given below for one of the products manufactured by Dance, Ltd. Month July August September October November December

Sales Budget in Units 18,000 20,000 24,000 26,000 19,000 16,000

The inventory of finished goods at the end of each month must be equal to 5,000 units plus 10% of the next month's sales. On June 30, the finished goods inventory totaled 6,800 units. Each unit of product requires three ounces of a special liquid extract known as SV-6. Sometimes the extract is in short supply; for this reason, the company has a policy of maintaining an inventory at the end of each month equal to one half of the next month's production needs. This requirement was met on July 1 of the current year. Required: Prepare a budget showing the quantity of SV-6 to be purchased for September. 122) The production manager of Dame Enterprises plans to have an inventory on hand at the end of each month that will equal 150% of the next month's sales. This requirement was met at the end of February. A sales budget for the four months ending June 30th is as follows: Month March April May June

Units 30,000 50,000 80,000 40,000

Required: Prepare a production budget for April and May.

123) Atlanta Import Enterprises, a wholesaler of imported goods, expects the following unit sales over the next five months: Month April May June July August

Units 200,000 240,000 270,000 300,000 280,000

Atlanta Import's goal is to maintain an inventory equal to 10% of next month's sales requirements. March 31st inventory is projected to be 18,000 units. Required: Prepare a purchases budget (in units) for Atlanta Import for as many months as is possible based on data provided. Assume a 30-day month 124) Shipping Company plans to sell 90,000 units of a certain product line at a price of $16 per unit. There are 7,500 units of the product in inventory at January 1 and the inventory is to be increased 15% during the year. Two types of materials are used to make the product. Three units of Material A, costing 40 cents each, are required for each unit of product, and two units of Material B, costing 36 cents each, are required for each unit of product. On January 1, there are 10,000 units of Material A in inventory and 5,000 units of Material B. Plans for the year indicate both Material A and B inventories will increase 10%. Each unit of product can be produced in 20 minutes of direct labor time. Direct labor is paid at the rate of $12.00 an hour. The variable manufacturing overhead rate is $2.60 per direct labor hour and the fixed manufacturing overhead for the year is estimated at $175,000. Required: a. Prepare a production budget for the year. b. Prepare a direct materials budget for the year. c. Prepare a direct labor budget for the year. d. Prepare a budget for manufacturing overhead for the year.

125) Folkes, Inc has prepared a sales budget for the second quarter as shown below: April May June

Budgeted Sales $ 400,000 500,000 600,000

The company is in the process of preparing a cash budget for the second quarter. To this end, the following information has been assembled: In month of sale In month following sale In second month following sale

Collections on Sales 70% 25% 5%

The company gives a 1% cash discount to customers paying in the month of the sale. Records show past sales to be: January $300,000, February $340,000, and March $360,000. Required: Prepare a schedule of cash receipts for the third quarter. 126) Parlour Company, a retailer, has the following sales budget for the coming year. Month January February March April

Sales $ 180,000 $ 190,000 $ 210,000 $ 230,000

The sales price per unit is $10; the cost of sales is 70% of sales. Parlour keeps inventory equal to double the coming month's budgeted sales requirements. It pays for purchases 65% in the month of purchase and 35% in the month after purchase. Inventory at the beginning of January is $204,400. Accounts Payable on January 1 is $43,000. Required: a. Prepare a schedule of purchases, in units and in dollars, for the first three months of the year. b. Prepare a schedule of cash disbursements on account for the first three months of the year.

127) Xenos Company has the following sales projections for the coming months: Month January February March April May June

Sales $ 60,000 68,000 75,000 80,000 95,000 90,000

Xenos collects 20% of its sales in the month of sale, 45% in the month following the sale, and 35% in the second month following the sale. Required: a. Prepare a schedule of cash receipts for the three months April through June. b. What would be the accounts receivable balance on June 30? 128) Italian Company, a retailer of Italian handbags, has the following sales budget for the coming year. Month January February March April

Sales $ 300,000 $ 315,000 $ 345,000 $ 367,500

The sales price per unit is $15; the cost of sales is 60% of sales. Italian keeps inventory equal to the coming month's budgeted sales requirements. It pays for purchases 55% in the month of purchase and 45% in the month after purchase. Inventory at the beginning of January is $172,800. Accounts Payable on January 1 is $83,000. Required: a. Prepare a schedule of purchases, in units and in dollars, for the first three months of the year. b. Prepare a schedule of cash disbursements on account for the first three months of the year. c. Determine the accounts payable balance as of March 31.

129) Roman Company, a merchandising firm, has the following sales budget for the coming year. Month July August September October

Sales $270,000 $288,000 $312,000 $330,000

The sales price per unit is $20; the cost of sales is 60% of sales. Roman keeps inventory equal to 50% of the coming month's budgeted sales requirements. It pays for purchases 35% in the month of purchase and 65% in the month after purchase. Inventory at the beginning of July is $78,000. Accounts Payable on July 1 is $100,750. Required: a. Prepare a schedule of purchases, in units and in dollars, for the first three months of the year. b. Prepare a schedule of cash disbursements on account for the first three months of the year. 130) Software Corporation is preparing its cash budget for November. The budgeted beginning cash balance is $31,000. Budgeted cash receipts total $135,000 and budgeted cash disbursements total $141,000. The desired ending cash balance is $50,000. The company can borrow up to $100,000 at any time from a local bank, with interest not due until the following month. Required: Prepare the company's cash budget for November in good form. 131) Things Inc. is preparing its cash budget for April. The budgeted beginning cash balance is $19,000. Budgeted cash receipts total $105,000 and budgeted cash disbursements total $98,000. The desired ending cash balance is $50,000. The company can borrow up to $120,000 at any time from a local bank, with interest not due until the following month. Required: Prepare the company's cash budget for April in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance. 132) Wings Inc. is preparing its cash budget for November. The budgeted beginning cash balance is $10,000. Budgeted cash receipts total $100,000 and budgeted cash disbursements total $104,000. The desired ending cash balance is $30,000. Required: a. Calculate the excess (deficiency) of cash available over disbursements for November. b. To attain its desired ending cash balance for November, how much should the company borrow.

133) The Boxer Company, a merchandising firm, has budgeted its activity for December according to the following information: ∙ Sales at $500,000, all for cash. ∙ Merchandise Inventory on November 30 was $250,000. ∙ The cash balance at December 1 was $20,000. ∙ Marketing and administrative expenses are budgeted at $50,000 for December and are paid for in cash. ∙ Budgeted depreciation for December is $30,000. ∙ The planned merchandise inventory on December 31 is $260,000. ∙ The cost of goods sold represents 75% of the sales price. ∙ All purchases are paid for in cash in the month of purchase. Required: a. What are the budgeted cash receipts for December? b. What are the budgeted cash disbursements for December? 134) James, Inc. makes a product that has peak sales in September of each year. The company has prepared a sales budget for the third quarter as shown below: Month July August September

Budgeted Sales $ 200,000 400,000 600,000

The company is in the process of preparing a cash budget for the third quarter and must determine the expected cash collections by month. To this end, the following information has been assembled: In month of sale In month following sale In second month following sale

Collections on Sales 60% 25% 15%

The company gives a 3% cash discount to customers paying in the month of their sale. The company charges 2% interest to customers who pay in the second month following their sales. The accounts receivable balance to start the quarter is $150,000: $35,000 from May's sales and $115,000 from June's sales. Required: Prepare a schedule of cash receipts for the third quarter.

135) Davis Company has forecast its sales as follows: August September October November December

$ $ $ $ $

180,000(actual) 280,000(actual) 360,000 400,000 450,000

Davis has experienced collections of 40% during the month of sale, 50% the month after the sale, and 10% the second month after the sale. Required: a. Prepare a schedule of cash receipts for the 3-month period October - December. b. What will the Accounts Receivable balance be on December 31? 136) Parker Company has forecast its sales as follows: November December January February March April

$ 190,000(actual) $ 240,000(actual) $ 280,000 $ 300,000 $ 350,000 $ 320,000

Parker has experienced collections of 55% during the month of sale, 38% the month after the sale, and 7% the second month after the sale. Required: a. Prepare a schedule of cash receipts for the 4-month period January - April. b. What will the Accounts Receivable balance be on April 30? 137) Thomas Company's past experience has demonstrated that 55% of the net sales billed in a month are collected during the month, 35% are collected in the following month and 9% are collected in the second following month. Customers are allowed a 3% discount if payment is made within 5 days after the billing date. 65% of the customers that pay in the month of the sale, pay within 5 days and take the discount. A sales budget for the four months ending June 30 is as follows: Month March April May June

Units Selling Price 30,000 $ 5.20 50,000 5.20 80,000 5.60 40,000 5.60

Required: Prepare a schedule of cash receipts for May and June. 44 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

138) Falcon Enterprises expects the following unit sales over the next five months: Month April May June July August

Unit Sales 400,000 480,000 540,000 600,000 560,000

Falcon's goal is to maintain an inventory equal to 20% of next month's sales requirements. March 31 inventory is projected to be 70,000 units. Required: Prepare a purchases budget (in units) for Falcon for as many months as is possible based on data provided. Assume a 30-day month. 139) Templeton Enterprises expects the following unit sales over the next few months: Month June July August September October November

Unit Sales 100,000 120,000 135,000 150,000 140,000 125,000

Templeton's goal is to maintain an inventory equal to a 6-day supply. May 31 inventory is projected to be 18,000 units. Required: Prepare a purchases budget (in units) for Templeton for as many months as is possible based on data provided. Assume a 30-day month 140) What are the differences between strategic planning and the tactical planning process? 141) Describe what is meant by participative budgeting and give an example of a benefit and a drawback. 142) Describe the difference between the following sales forecasting techniques: Delphi technique, trend analysis, and econometric models. 143) Why is it more difficult to prepare a marketing and administrative budget than it is to prepare a production budget? 45 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

144) What is the "curse of growth" with respect to budgeting and why is this a critical problem affecting new firms? 145) Why does a service organization not need to prepare a production budget or a cost of goods sold budget? 146) Why does budgeting create serious ethical issues for many people and give an example? 147) What does the phrase, "use it or lose it," mean in the context of budgeting? 148) A friend of yours wants to plan a 5K fun-run for a local charity. He explains that his strategic objective is to maximize contributions and also develop numerous scenario budgets for the event due to several venue alternatives and weather uncertainties. He knows that you have taken a managerial accounting course and asks for your advice. Based on this information, what would you suggest to your friend? 149) Goodnight and Son is a small business that, after struggling for a while, has taken off. Goodnight, Jr. has been attending various seminars to improve his business knowledge and has brought back several new ideas to see if they can be implemented in the company. One idea that he felt was very urgent to implement was for he and his father, and others in managerial positions, to sit down and develop a strategic plan and a budget process for the company. This had not been done when the company started so he would have to do some persuading to get the others accepting and involved. One other thing he had learned at one of his seminars was that something like this had to be accepted at the top before others would accept it. Required: What kinds of issues should Goodnight, Jr. bring up to get his idea accepted? 150) Allentown Company has been busy over the first few years of its existence in penetrating its market and gaining a respectable market share. To facilitate this, Mr. Marks, the CEO, and his controller, Mr. Nance, have been developing the annual master budgets. To date, this approach has worked well. Allentown has been acquired by a company in a related business but will continue to operate as an independent subsidiary. The CFO of the acquiring company, Mr. Radisson, has suggested to Mr. Marks that, since it was expected that his company would continue to grow, it adopt a departmental budgeting system; a suggestion Mr. Marks agreed to readily. Mr. Radisson explained to Marks' departmental managers the concepts of a departmental participative budgeting system and their involvement. The managers were encouraged to take the information and come back with suggestions which could then be put into a formal budget process. Required: a. What benefits will accrue to Mr. Marks under this new budgeting system? b. What behavioral issues might arise for departmental managers and for production workers? c. What is the most probable long-term reaction of Marks' people to the participative budget system? 46 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

151) Autumn Corporation makes and sells a single product called a Security Surge. The company is in the process of preparing its Marketing and Administrative Expense Budget for the last quarter of the year. The following budget data are available:

Sales commissions Shipping Advertising Executive salaries Depreciation on office equipment Other

Variable Cost Per Security Surge Sold $ 1.50 $ 2.30 $ 4.50 $ 0.60

Monthly Fixed Cost $ 36,000 $ 146,000 $ 13,000 $ 36,000

All of these expenses (except depreciation) are paid in cash in the month they are incurred. Required: a. If the company budgets to sell 22,000 Security Surges in November, what would the total budgeted marketing and administrative expenses be for November? b. If the company budgets to sell 19,000 Security Surges in December, what would the budgeted total cash disbursements for marketing and administrative expenses be for December? c. If the total budgeted marketing and administrative expense for October is $409,000, then how many Security Surges does the company plan to sell in October?

152) Lien Company is a merchandising company that sells a single product. The company's inventories, production, and sales in units for the next three months have been forecasted as follows:

Beginning inventory Merchandise purchases Sales Ending inventory

October November December 10,000 10,000 10,000 60,000 70,000 35,000 60,000 70,000 40,000 10,000 10,000 5,000

Units are sold for $12 each. One fourth of all sales are paid for in the month of sale and the balance is paid for in the following month. Accounts receivable at September 30 totaled $450,000. Merchandise is purchased for $7 per unit. Half of the purchases are paid for in the month of the purchase and the remainder is paid for in the month following purchase. Marketing and administrative expenses are expected to total $120,000 each month. One half of these expenses will be paid in the month in which they are incurred and the balance will be paid in the following month. Accounts payable at September 30 totaled $290,000. Cash at September 30 totaled $80,000. A payment of $300,000 for purchase of equipment is scheduled for November, and a dividend of $200,000 is to be paid in December. Ignore depreciation for purposes of preparing the schedules Required: a. Prepare a schedule of expected cash collections for each month October-December. b. Prepare a schedule showing expected cash disbursements for merchandise purchases and marketing and administrative expenses for each month October-December. c. Prepare a cash budget for each month October--December. There is no minimum required ending cash balance.

153) Marino Company has projected sales and production in units for the second quarter of the year as follows:

Sales Production

April 30,000 25,000

May 20,000 25,000

June 25,000 30,000

Required: a. Cash production costs are budgeted at $6 per unit produced. Of these production costs, 40% are paid in the month in which they are incurred and the balance in the following month. Marketing and administrative expenses (all paid in cash) amount to $60,000 per month. The accounts payable balance on March 31 totals $96,000, all of which will be paid in April. Prepare a schedule for each month showing budgeted cash disbursements for Marino Company. b. Assume that all units will be sold on account for $15 each. Cash collections from sales are budgeted at 60% in the month of sale, 30% in the month following the month of sale and the remaining 10% in the second month following the month of sale. Accounts receivable on March 31 totaled $255,000 ($45,000 from February's sales and the remainder from March.) Prepare a schedule for each month showing budgeted cash receipts for Marino Company. 154) Albert Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow: ∙ Sales are budgeted at $350,000 for November, $360,000 for December, and $340,000 for January. ∙ Collections are expected to be 60% in the month of sale, 39% in the month following the sale, and 1% uncollectible. ∙ The cost of goods sold is 75% of sales. ∙ The company purchases 40% of its merchandise in the month prior to the month of sale and 60% in the month of sale. Payment for merchandise is made in the month following the purchase. ∙ The November beginning balance in the accounts receivable account is $70,000. ∙ The November beginning balance in the accounts payable account is $257,000. Required: a. Prepare a Schedule of Expected Cash Collections for November and December. b. Prepare a Merchandise Purchases Budget for November and December.

155) Rockwell Company is a fast-growing company with monthly sales for the current year estimated at a relatively steady upward trend. Past history has shown that all sales are collected within two months with negligible uncollectibles. The product for a given month is purchased partially in the month before sale and the rest during the month of sale and is paid for over a twomonth period. Property and income taxes are paid quarterly while other expenses are paid as incurred. The company has a desired ending cash balance for each month of $150,000, and when necessary, borrows to meet shortfalls and invests overages. The success of the company has been sudden and Ms. Harrison, the controller, is concerned about meeting the goals of the company without getting into serious short-term financial difficulties. As a result, she has been very conscientious about preparing the cash budget and keeping it up-to-date as conditions warrant. Required: Why is cash budgeting important for a rapidly expanding firm such as Rockwell Company?

156) High Plains Lumber sells lumber and general building supplies to building contractors in a medium-sized town in North Dakota. Data regarding the store's operations follow: ∙ Sales are budgeted at $340,000 for November, $350,000 for December, and $370,000 for January. ∙ Collections are expected to be 55% in the month of sale, 44% in the month following the sale, and 1% uncollectible. ∙ The cost of goods sold is 75% of sales. ∙ The company purchases 60% of its merchandise in the month prior to the month of sale and 40% 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 $19,000. ∙ Ignore taxes. Statement of Financial Position October 31 Assets: Cash Accounts receivable (net of allowance for uncollectible accounts) Inventory Property, plant, and equipment (net of $598,000 accumulated depreciation) Total assets Liabilities and Stockholders' Equity: Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity

13,000 82,000 153,000 1,138,000

$ 1,386,000 $

257,000 600,000 529,000 $1,386,000

Required: a. Determine the net income for December. b. Determine the cash balance at the end of December. c. Calculate the accounts receivable balance, net of uncollectible accounts, at the end of December. d. Determine the accounts payable at the end of December. e. Determine the balance in Retained earnings at the end of December.

157) Washington Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow: ∙ Sales are budgeted at $320,000 for November, $340,000 for December, and $330,000 for January. ∙ Collections are expected to be 75% in the month of sale, 20% in the month following the sale, and 5% uncollectible. ∙ The cost of goods sold is 65% of sales. ∙ The company purchases 80% of its merchandise in the month prior to the month of sale and 20% 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 $21,000. ∙ Monthly depreciation is $16,000. ∙ Ignore taxes. Statement of Financial Position October 31 Assets Cash Accounts receivable (net of allowance for uncollectible accounts) Inventory Property, plant, and equipment (net of $658,000 accumulated depreciation) Total assets Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity

22,000 82,000 166,400 1,170,000

$ 1,440,400 $

199,000 840,000 401,400 $ 1,440,400

Required: a. Prepare a Schedule of Expected Cash Collections for November and December. b. Prepare a Merchandise Purchases Budget for November and December. c. Prepare Cash Budgets for November and December. d. Prepare Budgeted Income Statements for November and December. e. Prepare a Budgeted Balance Sheet for the end of December.

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 14 Business Unit Performance Measurement 1) Divisional income statements do not have to follow generally accepted accounting principles (GAAP) because they are internal reports. 2) One advantage of using after-tax income as a performance measure of divisional results is that it is a financial accounting measure that is used to compute organizational income. 3) One disadvantage of using after-tax income as a performance measure of divisional results is that it is an absolute measure which makes it difficult to compare divisions of significantly different sizes. 4) The profit margin ratio is computed by dividing after-tax income by sales. 5) In general, it is better to have a higher return on investment (ROI) than a lower one. 6) One problem associated with using accounting measures to evaluate divisional performance is the measures are based on historical information. 7) A problem with ratio-based measures is that managers can make decisions that improve divisional income but lower organizational performance. 8) It is not possible for a manager to accept an unacceptable project when his/her performance is evaluated using ROI. 9) Residual income is the difference between the divisional income and the cost of invested capital required to operate the division. 10) The use of residual income reduces, but does not eliminate, the suboptimization problem. 11) Managerial myopia is the distortion in incentives that results from using accounting measures to evaluate performance. 12) Most organizations use residual income instead of return on investment (ROI) as a performance measure. 13) Economic value added (EVA) adjustments are made to both the after-tax income and the capital employed. 14) Treating research and development costs as an expense rather than a long-term asset may reduce a manager's inclination to participate in research and development activities. 15) One problem with economic value added (EVA) adjustments is determining the appropriate life for expenditures that benefit multiple periods. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

16) Like return on investment (ROI), economic value added (EVA) adjustments fail to sufficiently address the suboptimization problem. 17) In general, a division's investment base includes an allocated share of the corporate headquarters' assets. 18) Treating research and development costs as an expense rather than a long-term asset may reduce a manager's inclination to participate in research and development activities. 19) Current costs should not be used to compute either return on investment (ROI) or residual income because current costs are not generally accepted accounting principles (GAAP). 20) Treating research and development costs as an expense rather than a long-term asset may reduce a manager's inclination to participate in research and development activities. 21) Which of the following is not an advantage of after-tax income as a performance measure? A) It reflects the results of decisions under the division manager's control. B) It summarizes the results of decisions affecting revenues and costs. C) It makes comparison of divisions easy because they use the same measure, dollars of income. D) It is financial income computed differently from the income of the firm. 22) Which of the following statements is(are) true? (A) Divisional income statements do not include allocated common costs. (B) The gross margin ratio is computed by dividing operating income by sales. A) Only A is true. B) Only B is true. C) Both of these are true. D) Neither of these is true. 23) After-tax income divided by sales is called the: A) gross margin ratio. B) profit margin ratio. C) operating margin ratio. D) contribution margin ratio. 24) The measure (ratio) that reflects the performance of a manager regarding sales and cost of goods sold, but not other operating costs and income taxes, is called the: A) gross margin ratio. B) profit margin ratio. C) operating margin ratio. D) contribution margin ratio.

25) If a division is evaluated using return on investment (ROI) without regard to how assets are financed, the denominator in the ROI calculation will be: A) current assets. B) working capital. C) total assets available. D) total assets employed. 26) Return on investment (ROI) can be decomposed into the asset turnover and the: A) gross margin ratio. B) profit margin ratio. C) operating margin ratio. D) contribution margin ratio. 27) The asset turnover is a measure (ratio) of an investment center's ability to: A) earn profits. B) generate sales. C) control costs. D) remain solvent. 28) Which of the following statements does not represent a limitation of using return on investment (ROI) for measuring and evaluating performance? A) ROI uses accounting income which is based on historical information. B) ROI cannot be used to compare divisions of different sizes. C) ROI has the potential to create goal congruence problems. D) ROI fails to align some costs incurred in one period with the benefits received in another period. 29) How will increases in the following items affect return on investment (ROI)? Increase in Expenses Decrease ROI Decrease ROI Increase ROI Increase ROI

A. B. C. D.

Increase in Inventory Decrease ROI Increase ROI Decrease ROI Increase ROI

A) Option A B) Option B C) Option C D) Option D 30) A manager can increase his/her return on investment (ROI) by: A) reducing the asset turnover. B) decreasing residual income. C) increasing the operating profit margin. D) expanding operating assets while holding sales and expenses constant. 3 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

31) The Maxim Corporation reported the following operating results for its three divisions: South, West, and East. Sales After-tax income Divisional assets

South Division $ 380,000 $ 20,000 $ 200,000

West Division $ 1,700,000 $ 50,000 $ 625,000

East Division $ 2,000,000 $ 100,000 $ 800,000

Which division has the smallest return on investment (ROI)? A) South. B) West. C) East. D) All three divisions have the same ROI. 32) The Maxim Corporation reported the following operating results for its three divisions: South, West, and East. Sales After-tax income Divisional assets

South Division $ 380,000 $ 20,000 $ 200,000

West Division $ 1,700,000 $ 50,000 $ 625,000

East Division $ 2,000,000 $ 100,000 $ 800,000

Which division has the largest asset turnover? A) South. B) West. C) East. D) All three divisions have the same asset turnover. 33) The Maxim Corporation reported the following operating results for its three divisions: South, West, and East. Sales After-tax income Divisional assets

South Division $ 380,000 $ 20,000 $ 200,000

West Division $ 1,700,000 $ 50,000 $ 625,000

East Division $ 2,000,000 $ 100,000 $ 800,000

Which division has the highest profit margin? A) South. B) West. C) East. D) All three divisions have the same profit margin.

34) The following information was presented by User-Friendly Industries Company for an asset purchased at the beginning of the previous year. Original cost of the asset Useful life of the asset Annual operating profit, including depreciation Salvage value

$ 20,000 10years $ 4,000 $ -0-

What is the return on investment (ROI) assuming User-Friendly uses (a) the straight-line method for depreciation and (b) beginning-of-year net book values to compute ROI? A) 11.1%. B) 20.0%. C) 22.2%. D) 25.0%. 35) The following information was presented by Outdoors Manufacturing Company for an asset purchased at the beginning of the previous year. Original cost of the asset Useful life of the asset Cash flow annual operating profit Salvage value

$ 20,000 10years $ 4,000 $ -0-

What is the return on investment (ROI) assuming Outdoors uses (a) the straight-line method for depreciation and (b) beginning-of-year net book values to compute ROI? A) 11.1%. B) 20.0%. C) 10.0%. D) 22.2%. 36) The following information was presented by Shower Wonder Enterprises for an asset purchased at the beginning of the previous year. Original cost of the asset Useful life of the asset Cash flow annual operating profit Salvage value

$ 20,000 10years $ 4,000 $ -0-

What is the return on investment (ROI) assuming Shower Wonder uses (a) the straight-line method for depreciation and (b) average net book values to compute ROI? A) 21.1%. B) 20.0%. C) 22.2%. D) 11.76%.

37) Garage Corporation's return on investment (ROI) on some new equipment was 20% using beginning-of-year net book value. The gross book value of the equipment is $250,000. Accumulated depreciation at the beginning of the year was $10,000. This represents one-half year's straight-line depreciation. What is the annual before-tax cash flow from the new equipment? A) $68,000. B) $60,000. C) $48,000. D) $20,000. 38) Madrigal Corporation purchased a new machine for $120,000. The machine has an estimated useful life of 10-years with no salvage value and a return on investment (ROI) of 15%. ROI is computed using annual cash flows and straight-line depreciation. What is the annual cash flow using the gross book value method? A) $12,200. B) $18,000. C) $28,200. D) $30,000. 39) The Nacho Division of the Tex-Mex Company has a return on investment (ROI) of 12%, sales of $200,000, and an asset turnover of 2.0. What was Nacho's operating income? A) $6,000. B) $12,000. C) $24,000. D) $48,000. 40) The following information is available for Sweet Dreams Company: Sales Operating expenses Operating assets Stockholder's equity Cost of capital

$ 100,000 $ 94,000 $ 40,000 $ 25,000 10%

What is Sweet Dreams Company's return on investment (ROI)? A) 6.0%. B) 10.0%. C) 15.0%. D) 24.0%. 41) The Gallop Company has an asset turnover of 3.0 times, using assets of $45,000. The company also has a return on investment (ROI) of 20%. What was Gallop's operating profit margin? A) 5.0%. B) 6.0%. C) 6.7%. D) 8.3%. 6 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

42) How will decreases in the following items affect return on investment (ROI)?

A. B. C. D.

Decrease in Sales Decrease ROI Decrease ROI Increase ROI Increase ROI

Decrease in Equipment Decrease ROI Increase ROI Decrease ROI Increase ROI

A) Option A B) Option B C) Option C D) Option D 43) A firm earning a profit can increase its return on investment by: (CMA adapted) A) increasing sales revenue and operating expenses by the same dollar amount. B) decreasing sales revenues and operating expenses by the same percentage. C) increasing investment and operating expenses by the same dollar amount. D) increasing sales revenues and operating expenses by the same percentage. 44) Return on investment (ROI) is a very popular measure employed to evaluate the performance of corporate segments because it incorporates all of the major ingredients of profitability (revenue, cost, investment) into a single measure. Under which one of the following combinations of actions regarding a segment's revenues, costs, and investment would a segment's ROI always increase? (CIA adapted) Sales Increase Decrease Increase Increase

A. B. C. D.

Equipment Decrease Decrease Increase Decrease

Investment Increase Decrease Increase Decrease

A) Option A B) Option B C) Option C D) Option D

45) The following information pertains to Artemis Co. for the year ended December 31: (CPA adapted) Sales Income Capital investment

$ 600,000 $ 100,000 $ 400,000

Which of the following equations should be used to compute Artemis' return on investment (ROI)? A) (4/6) × (6/1) = ROI B) (1/6) × (6/4) = ROI C) (4/6) × (1/6) = ROI D) (6/4) × (6/1) = ROI 46) The following information pertains to Zootime Co.'s Shelter Division for the current year: (CPA adapted) Sales Variable cost Traceable fixed costs Average invested capital Imputed interest rate

$ 311,000 $ 250,000 $ 50,000 $ 40,000 10%

Zootime's return on investment was: A) 10.00%. B) 13.33%. C) 27.50%. D) 30.00%. 47) A division earning a profit will increase its return on investment (ROI) if it increases operating expenses and: A) sales by the same dollar amount. B) sales by the same percentage. C) investment by the same dollar amount. D) investment by the same percentage. 48) In computing the margin in a ROI analysis, which of the following is used? A) Sales in the denominator. B) Net operating income in the denominator. C) Average operating assets in the denominator. D) Residual income in the denominator.

49) In determining the dollar amount to use for operating assets in the return on investment (ROI) calculation, companies will generally use either net book value or gross cost of the assets. Which of the following is not an argument for the use of net book value rather than gross cost? A) It is consistent with how assets are reported on the balance sheet. B) It eliminates the depreciation method as a factor in ROI calculations. C) It encourages the replacement of old, worn-out equipment. D) It will result in a decrease of ROI each year. 50) Average operating assets are $110,000 and net operating income is $23,100. The company invests $25,000 in new assets for a project that will increase net operating income by $4,750. What is the return on investment (ROI) of the new project? A) 21%. B) 19%. C) 18.5%. D) 20%. 51) Last year, a company had stockholders' equity of $160,000, net operating income of $16,000, and sales of $100,000. The asset turnover was 0.5 and the return on investment (ROI) was: A) 10%. B) 9%. C) 8%. D) 7%. 52) Sales and average operating assets for Wyeth Company and Genesis Company are given below: Average Operating Sales Assets Wyeth Company $ 20,000 $ 8,000 Genesis Company $ 50,000 $ 10,000 What is the margin that each company will have to earn in order to generate a return on investment of 20%? A) 12% and 16%. B) 50% and 100%. C) 8% and 4%. D) 2.5% and 5%. 53) Rex Company's sales last year totaled $150,000 and its return on investment (ROI) was 12%. If the company's turnover was 3, then its net operating income for the year must have been: A) $6,000. B) $2,000. C) $18,000. D) it is impossible to determine from the data given.

54) The Dry Wall Division reports the following operating data for the past two years: Margin Turnover Average operating assets Net operating income Stockholders' equity Sales

Year 1 16 % 2.5 ? $ 40,000 $ 80,000 ?

Year 2 ? 2.0 $ 150,000 ? $ 125,000 ?

The return on investment at the Dry Wall Division was exactly the same in Year 1 and Year 2. The margin in Year 2 was: A) 48%. B) 32%. C) 20%. D) 10%. 55) The Dry Wall Division reports the following operating data for the past two years: Margin Turnover Average operating assets Net operating income Stockholders' equity Sales

Year 1 16 % 2.5 ? $ 40,000 $ 80,000 ?

Year 2 ? 2.0 $ 150,000 ? $ 125,000 ?

The return on investment at the Dry Wall Division was exactly the same in Year 1 and Year 2. Sales in Year 2 amounted to: A) $250,000. B) $300,000. C) $325,000. D) $350,000.

56) The Dry Wall Division reports the following operating data for the past two years: Margin Turnover Average operating assets Net operating income Stockholders' equity Sales

Year 1 16 % 2.5 ? $ 40,000 $ 80,000 ?

Year 2 ? 2.0 $ 150,000 ? $ 125,000 ?

The return on investment at the Dry Wall Division was exactly the same in Year 1 and Year 2. Average operating assets in Year 1 were: A) $160,000. B) $150,000. C) $125,000. D) $100,000. 57) The Dry Wall Division reports the following operating data for the past two years: Margin Turnover Average operating assets Net operating income Stockholders' equity Sales

Year 1 16 % 2.5 ? $ 40,000 $ 80,000 ?

Year 2 ? 2 $ 150,000 ? $ 125,000 ?

The return on investment at the Dry Wall Division was exactly the same in Year 1 and Year 2. Net operating income in Year 2 amounted to: A) $60,000. B) $50,000. C) $40,000. D) $35,000.

58) The following data are available for the South Division of Manhattan Products, Inc. and the single product it makes: Unit selling price Variable cost per unit Annual fixed costs Average operating assets

$ 20 $ 12 $ 280,000 $ 1,500,000

How many units must South sell each year to have an ROI of 16%? A) 240,000. B) 1,300,000. C) 52,000. D) 65,000. 59) The Country Garden Company's current net operating income is $16,800 and its average operating assets are $80,000. The Country Garden's required rate of return is 18%. A new project being considered would require an investment of $15,000 and would generate annual net operating income of $3,000. What is the residual income of the new project? A) 20.8%. B) 20%. C) $(150). D) $300. 60) Imagination Corporation uses residual income to evaluate the performance of its divisions. Imagination's minimum required rate of return is 11%. In April, the Commercial Products Division had average operating assets of $100,000 and net operating income of $9,400. What was the Commercial Products Division's residual income in April? A) $(1,600). B) $1,600. C) $1,034. D) $(1,034). 61) Division B had an ROI last year of 15%. The division's minimum required rate of return is 10%. If the division's average operating assets last year were $450,000, then the division's residual income for last year was: A) $67,500. B) $22,500. C) $37,500. D) $45,000. 62) Which of the following will not result in an increase in the residual income, assuming other factors remain constant? A) An increase in sales. B) An increase in the minimum required rate of return. C) A decrease in expenses. D) A decrease in operating assets. 12 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

63) All other things constant, which of the following would increase residual income? A) Increase in average operating assets. B) Decrease in average operating assets. C) Increase in minimum required rate of return. D) Decrease in net operating income. 64) Which of the following statement(s) is/are true? (A) If a division's return on investment (ROI) exceeds its cost of capital, then its residual income is positive. (B) If a division's cost of capital equals its return on investment (ROI), then its residual income is zero. A) Only (A) is true. B) Only (B) is true. C) Both of these are true. D) Neither of these is true. 65) Residual income is similar to the ________ notion of profit as being the amount left over after all costs, including the cost of the capital employed in the division, are subtracted. A) accountant's B) manager's C) shareholder's D) economist's 66) Which of the following statement(s) is/are false? (A) Residual income can be used to compare divisions of different sizes. (B) Residual income can be used to compare divisions that are profit centers. A) Only (A) is false. B) Only (B) is false. C) Both of these are false. D) Neither of these is false. 67) Managerial performance can be measured in many different ways including return on investment (ROI) and residual income. A good reason for using residual income instead of ROI is that: A) residual income can be computed without regard to identifying an investment base. B) appropriate goal congruence behavior is more likely to occur when using residual income. C) residual income is well accepted in many organizations and often used in the financial press. D) ROI does not take into consideration both the investment turnover ratio and return-on-sales percentage.

68) How will decreases in the following items affect residual income?

A. B. C. D.

Decrease in Expenses Decrease RI Decrease RI Increase RI Increase RI

Decrease in Inventory Decrease RI Increase RI Decrease RI Increase RI

A) Option A B) Option B C) Option C D) Option D 69) Residual income is a performance evaluation that is used in conjunction with, or instead of, return on investment (ROI). In many cases, residual income is preferred to ROI because: (CIA adapted) A) residual income is a measure over time, while ROI represents the results for one period. B) residual income concentrates on maximizing absolute dollars of income rather than a percentage return, as with ROI. C) the imputed interest rate used in calculating residual income is more easily derived than the target rate that is compared to the calculated ROI. D) average investment is employed with residual income while year-end investment is employed with ROI. 70) Residual income is a better measure for performance evaluation of an investment center manager than return on investment because: (CMA adapted) A) the problems associated with measuring the asset base are eliminated. B) desirable investment decisions are less likely to be neglected by high-return divisions. C) only the gross book value of assets needs to be calculated. D) the arguments about the implicit cost of interest are eliminated.

71) Kevin Thomas is the general manager of the Modular Homes Division, and his performance is measured using the residual income method. Thomas is reviewing the following forecasted information for his division for next year: (CMA adapted) Category Working capital Revenue Plant and equipment

Amount (thousands) $ 1,800 30,000 17,200

If the cost of capital is 15% and Thomas wants to achieve a residual income target of $2,000,000, what will costs have to be in order to achieve the target? A) $9,000,000. B) $10,800,000. C) $25,150,000. D) $25,690,000. 72) Bella Vista Service Co. is a computer service center. For the month of May, Bella Vista Service Co. had the following operating statistics: (CMA adapted) Sales Operating income Net profit after taxes Total assets Stockholder's equity Cost of capital

$ 450,000 25,000 8,000 500,000 200,000 6%

Based on the above information, which one of the following statements is correct? A) Bella Vista Service Co. has a return on investment of 4%. B) Bella Vista Service Co. has a residual income of $(2,000). C) Bella Vista Service Co. has a return on investment of 5.6%. D) Bella Vista Service Co. has a residual income of $(22,000). 73) How will increases in the following items affect residual income?

A. B. C. D.

Increase in Sales Decrease RI Decrease RI Increase RI Increase RI

Increase in Equipment Decrease RI Increase RI Decrease RI Increase RI

A) Option A B) Option B C) Option C D) Option D 15 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

74) Which of the following should not be used for the cost of capital to compute residual income? A) Historical weighted average cost of capital. B) Marginal after-tax cost of new equity capital. C) Cost of debt and equity used to finance a project. D) Return on investment (ROI). 75) Which one of the following items would most likely not be incorporated into the calculation of a division's investment base when using the residual income approach for performance measurement and evaluation? A) Land being held by the division as a potential site for a new plant and parking lot. B) Division inventories when division management exercises control over the inventory levels. C) Division accounts payable when division management exercises control over the amount of short-term credit utilized. D) Division accounts receivable when division management exercises control over credit policy and credit terms. 76) The Pathways Company has an asset turnover of 3.0 times, using assets of $45,000. The company also has a return on investment (ROI) of 20%. If the residual income was $2,250, what was the company's cost of capital? A) 6.0%. B) 10.0%. C) 15.0%. D) 20.0%. 77) In 2020, Evans Corporation had an operating profit of $750,000 and a residual income of $300,000. If Evans' cost of capital is 15%, what is the amount of the invested capital? A) $5,000,000. B) $3,000,000. C) $2,000,000. D) $1,250,000. 78) The following information is available for Kiss Company: Sales Operating expenses Operating assets Stockholder's equity Cost of capital

$ 100,000 $ 94,000 $ 40,000 $ 25,000 10%

What is Kiss Company's residual income? A) $2,000. B) $2,500. C) $3,500. D) $4,000. 16 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

79) The following information has been gathered for the Door Division: Return on investment (ROI) Sales Operating assets Cost of Capital Profit margin

15.0% $ 120,000 $ 60,000 12.0% 7.5%

What is the Door Division's residual income? A) $1,800. B) $2,700. C) $3,600. D) $5,400. 80) The following information has been gathered for the Brake Division: Sales Operating income Average current assets Cost of capital Return on investment

$ 420,000 $ 75,000 $ 260,000 12% 15%

What is the Brake Division's residual income? A) $15,000. B) $22,500. C) $18,750. D) $48,000. 81) The Labrador Falls Company has three divisions: A Division, B Division, and C Division. Sales Net operating income Residual income Average Division Assets Cost of Capital Profit Margin Asset Turnover Return on investment

A $ 320,000 60,000 ? ? 12% 20% ? 15%

B $ 540,000 ? 36,000 ? 16% 5% 4.0 ?

C ? $ 24,000 14,400 80,000 ? ? ? ?

What was A Division's residual income last year? A) $12,000. B) $22,500. C) $30,000. D) $48,000. 17 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

82) The Labrador Falls Company has three divisions: A Division, B Division, and C Division. Sales Net operating income Residual income Average Division Assets Cost of Capital Profit Margin Asset Turnover Return on investment

A $ 320,000 60,000 ? ? 12% 20% ? 15%

B $ 540,000 ? 36,000 ? 16% 5% 4.0 ?

C ? $ 24,000 14,400 80,000 ? ? ? ?

What was B Division's return on investment (ROI) last year? A) 16.00%. B) 20.00%. C) 24.00%. D) 33.75%. 83) The Labrador Falls Company has three divisions: A Division, B Division, and C Division. Sales Net operating income Residual income Average Division Assets Cost of Capital Profit Margin Asset Turnover Return on investment

A $ 320,000 60,000 ? ? 12% 20% ? 15%

B $ 540,000 ? 36,000 ? 16% 5% 4.0 ?

C ? $ 24,000 14,400 80,000 ? ? ? ?

What was A Division's residual income last year? A) 8%. B) 12%. C) 18%. D) 20%. 84) Which of the following items would not be an example of an economic value added (EVA) adjustment to eliminate accounting distortions? A) Research & development costs. B) Advertising expenditures. C) Patent amortization. D) Common stock.

85) Which of the following items would not require an adjustment to capital employed when using economic value added (EVA)? A) Research & development costs. B) Advertising expenditures. C) Preferred stock. D) Accounts Payable. 86) Economic value added (EVA) is a concept that is closely related to residual income. EVA is computed by: A) subtracting the adjusted total cost of capital from the adjusted after-tax income. B) subtracting adjusted after-tax income from total divisional investment. C) dividing adjusted after-tax income by adjusted divisional investment. D) dividing adjusted after-tax income by adjusted total cost of capital. 87) Economic value added (EVA) assumes that which of the following GAAP expenses would not result in an adjustment to either the income or the capital employed? A) Research & development costs. B) Use of process costing rather than job costing. C) Advertising expenses. D) Write-off of goodwill. 88) Which of the following statements regarding the use of historical costs and current costs to compute return on investment (ROI) is(are) true? (A) Historical costs are based on the original costs to acquire a long-term asset, while current costs represent the costs to replace the long-term asset. (B) For a specific multiple-period project, the return on investment (ROI) computed using current costs will generally be less than the ROI computed using historical costs. A) Only (A) is true. B) Only (B) is true. C) Both of these are true. D) Neither of these is true. 89) Level return on investments (ROI) over the life of a long-term project is more likely when ROI is computed using: A) historical costs and net book values. B) historical costs and gross book values. C) current costs and net book values. D) current costs and gross book values. 90) Using ending balances for the investment base in computing return on investment (ROI) might encourage managers to acquire assets: A) early in the year and dispose of assets late in the year. B) early in the year and dispose of assets early in the year. C) late in the year and dispose of assets late in the year. D) late in the year and dispose of assets early in the year. 19 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

91) Using beginning balances for the investment base in computing return on investment (ROI) might encourage managers to acquire assets: A) early in the year and dispose of assets late in the year. B) early in the year and dispose of assets early in the year. C) late in the year and dispose of assets late in the year. D) late in the year and dispose of assets early in the year. 92) One division of the Marvin Educational Enterprises has depreciable assets costing $4,000,000. The cash flows from these assets for the past three years have been: Year 1 2 3

Cash flows $ 1,200,000 $ 1,400,000 $ 1,620,000

The current (i.e., replacement) costs of these assets were expected to increase 25% each year. Marvin used the straight-line depreciation method and the assets had an estimated useful life of 10 years with no salvage value. For return on investment (ROI) calculations, Marvin uses endof-year balances. What is the ROI using historical cost and gross book value? A. B. C. D.

Year 1 20.0% 25.0% 18.0% 30.0%

Year 2 25.0% 28.0% 26.5% 35.0%

Year 3 30.5% 32.0% 28.0% 40.5%

A) Option A B) Option B C) Option C D) Option D

93) One division of the Marvin Educational Enterprises has depreciable assets costing $4,000,000. The cash flows from these assets for the past three years have been: Year 1 2 3

Cash flows $ 1,200,000 $ 1,400,000 $ 1,620,000

The current (i.e., replacement) costs of these assets were expected to increase 25% each year. Marvin used the straight-line depreciation method and the estimated useful life is 10-years with no salvage value. For return on investment (ROI) calculations, Marvin uses end-of-year balances. What is the ROI using historical cost and net book value? A. B. C. D.

Year 1 21.5% 22.2% 23.0% 24.8%

Year 2 34.0% 31.3% 32.0% 35.0%

Year 3 42.0% 43.6% 47.0% 49.5%

A) Option A B) Option B C) Option C D) Option D

94) One division of the Marvin Educational Enterprises has depreciable assets costing $4,000,000. The cash flows from these assets for the past three years have been: Year 1 2 3

Cash flows $ 1,200,000 $ 1,400,000 $ 1,620,000

Year 1 14.0% 13.0% 12.0% 14.0%

Year 2 18.0% 14.0% 10.1% 12.4%

Year 3 22.4% 14.0% 9.5% 10.7%

A) Option A B) Option B C) Option C D) Option D

95) One division of the Marvin Educational Enterprises has depreciable assets costing $4,000,000. The cash flows from these assets for the past three years have been: Year 1 2 3

Cash flows $ 1,200,000 $ 1,400,000 $ 1,620,000

Year 1 14.6% 15.8% 15.6% 15.6%

Year 2 15.9% 15.9% 15.5% 15.8%

Year 3 16.0% 14.9% 15.3% 11.9%

A) Option A B) Option B C) Option C D) Option D

96) One division of the Marvin Educational Enterprises has depreciable assets costing $4,000,000. The cash flows from these assets for the past three years have been: Year 1 2 3

Cash flows $ 1,200,000 $ 1,400,000 $ 1,620,000

The current (i.e., replacement) costs of these assets were expected to increase 25% each year. Marvin used the straight-line depreciation method and the estimated useful life is 10-years with no salvage value. For return on investment (ROI) calculations, Marvin uses end-of-year balances. What is the residual income for each year, assuming the cost of capital is 15% and Marvin uses historical costs and gross book values to compute residual income? A. B. C. D.

Year 1 $ 200,000 $ 200,000 $ 250,000 $ 250,000

Year 2 $ 400,000 $ 200,000 $ 200,000 $ 400,000

Year 3 $ 620,000 $ 200,000 $ 450,000 $ 375,000

A) Option A B) Option B C) Option C D) Option D

97) One division of the Marvin Educational Enterprises has depreciable assets costing $4,000,000. The cash flows from these assets for the past three years have been: Year 1 2 3

Cash flows $ 1,200,000 $ 1,400,000 $ 1,620,000

The current (i.e., replacement) costs of these assets were expected to increase 25% each year. Marvin used the straight-line depreciation method and the estimated useful life is 10-years with no salvage value. For return on investment (ROI) calculations, Marvin uses end-of-year balances. What is the residual income for each year, assuming the cost of capital is 15% and Marvin uses historical costs and net book values to compute residual income? A. B. C. D.

Year 1 $ 200,000 $ 260,000 $ 260,000 $ 280,000

Year 2 $ 435,000 $ 520,000 $ 420,000 $ 400,000

Year 3 $ 690,000 $ 800,000 $ 540,000 $ 750,000

A) Option A B) Option B C) Option C D) Option D 98) The Jones Company purchased assets costing $200,000 which will be depreciated over 5 years using straight-line depreciation and no salvage value. Jones also purchased land and other assets, which are not depreciable, at a cost of $200,000. It is estimated that in 5 years, the value of these assets will be unchanged. Assume that annual cash profits are $80,000 and, for return on investment (ROI) calculations, the company uses end-of-year asset values. What is the ROI for each year using net book value? A. B. C. D.

Year 1 11.1% 10.0% 10.0% 11.1%

Year 2 12.5% 10.0% 8.9% 11.5%

Year 3 14.3% 10.0% 7.3% 12.5%

Year 4 16.7% 10.0% 6.5% 12.3%

A) Option A B) Option B C) Option C D) Option D 25 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

99) The Jones Company purchased assets costing $200,000 which will be depreciated over 5 years using straight-line depreciation and no salvage value. Jones also purchased land and other assets, which are not depreciable, at a cost of $200,000. It is estimated that in 5 years, the value of these assets will be unchanged. Assume that annual cash profits are $80,000 and, for return on investment (ROI) calculations, the company uses end-of-year asset values. What is the ROI for each year using gross book value? A. B. C. D.

Year 1 10.0% 10.0% 12.5% 10.0%

Year 2 9.5% 10.0% 11.0% 12.5%

Year 3 8.0% 10.0% 12.0% 14.0%

Year 4 7.9% 10.0% 15.0% 17.0%

A) Option A B) Option B C) Option C D) Option D 100) The Jones Company purchased assets costing $200,000 which will be depreciated over 5 years using straight-line depreciation and no salvage value. Jones also purchased land and other assets, which are not depreciable, at a cost of $200,000. It is estimated that in 5 years, the value of these assets will be unchanged. Assume that annual cash profits are $80,000 and, for return on investment (ROI) calculations, the company uses end-of-year asset values. If sales each year average $840,000, what will be the asset turnover using gross book value? A) 3.0. B) 2.6. C) 2.1. D) 1.9. 101) Seaside Enterprises has the following data for its three divisions for the year: Revenues Cost of sales Allocated corporate overhead Other general & administration

SB $ 1,200,000 769,500 72,000 158,500

TH $ 3,800,000 1,900,000 228,000 1,100,000

GM $ 2,800,000 1,400,000 210,000 1,100,000

102) La Mesa Foods has the following data for its two divisions for the year: Uno $ 600,000 384,750 36,000 79,250

Revenues Cost of sales Allocated corporate overhead Other general & administration

Dos $ 1,900,000 950,000 114,000 550,000

Required: a. Compute divisional operating income for each of the divisions. Assume taxes are 30%. b. Calculate the gross margin ratio for each division. c. Calculate the operating margin ratio for each division. d. Calculate the profit margin ratio for each division. 103) Nue Wines has the following data for its three divisions for the year: Revenues Cost of sales Allocated corporate overhead Other general & administration Return on Investment

Ein $ 12,000,000 7,695,000

Zwei $ 38,000,000 19,000,000

Drei $ 28,000,000 14,000,000

720,000

2,280,000

2,100,000

1,585,000

11,000,000

15%

12%

Required: a. Compute divisional operating income for each of the divisions. Assume taxes are 35%. b. Calculate the profit margin ratio for each division. c. Calculate the asset turnover for each division. 104) La Mesa Stores has the following data for its two divisions for the year: Revenues Cost of sales Allocated corporate overhead Other general & administration Return on Investment

Uno $ 6,000,000 3,769,500 400,000 772,000 14%

Dos $ 18,000,000 9,400,000 1,200,000 5,700,000 12%

105) The Calculating Fashion Company has two operating divisions: North and South. The following information was collected from its financial statements. Operating income Sales Average operating assets

North $ 15,375 90,100 47,620

South 9,160 128,445 37,690

Required: Compute the following ratios for each division: a. Profit margin b. Asset turnover c. Return on investment (ROI) 106) The Calculating Fashion Company has two operating divisions: North and South. The following information was collected from its financial statements. Operating income Sales Average operating assets

North $ 15,375 90,100 47,620

South 9,160 128,445 37,690

Required: The South Division has a goal to increase its ROI to 30% by the end of next year. Compute the increase (decrease) required in each of the following items in order to achieve this goal. a. Operating assets b. Total costs c. Sales

107) You are the manager of an operating division of a manufacturing company. Your division has $4,500,000 in assets, and your budgeted income statement for the current year follows: Revenues Cash costs: Variable Fixed Depreciation

$ 8,000,000 1,000,000 3,750,000 1,375,000

Your company uses a performance evaluation and bonus plan, which is based on return on investment (ROI) computed with end-of-year gross asset balances. In October, you discover that you can purchase a new machine for $3,250,000, which will enable you to expand the output of your division and save costs. The machine would have a salvage value of $250,000 and would be depreciated over 3 years using the straight-line method. It will increase output by 10% while reducing cash fixed costs by 5%. If you accept the machine, it will be installed in late December, but no depreciation will be taken on the new machine this year. If you do buy this machine, you will have to dispose of the machine you are now using, which you just purchased last January. That machine cost you $2,500,000 but has no salvage value. $750,000 of the depreciation on the income statement is depreciation for this machine. In the ROI calculations, the company includes any gains or losses for equipment disposal in income for the year. You may safely ignore all taxes for this analysis. Required: a. What is your division's ROI this year if you do not acquire the new machine? b. What is your division's ROI this year if you do acquire the new machine? c. What is your division's expected ROI next year if the machine is acquired and meets expectations?

108) The ArtMart Company has three divisions: X Division, Y Division, and Z Division. Operating results for the three divisions for last year were as follows: Residual income Net operating income Average operating assets Sales Profit margin

Division X 98,400 188,600 820,000 1,640,000 11.5%

Division Y 27,200 115,600 680,000 1,445,000 8.0%

Division Z 2,000 52,000 400,000 1,040,000 5.0 %

Corporate headquarters is offering an investment opportunity to each of the divisions. The opportunity will yield an operating income of $35,000, based on an average operating investment of $246,000. Required: a. If the divisions are being evaluated using return on investment (ROI), what will be the decision (accept or reject) of each division regarding this opportunity? Support your answer with the appropriate calculations. b. If the divisions are being evaluated using residual income, what will be the decision (accept or reject) of each division regarding this opportunity? Support your answer with the appropriate calculations. 109) The following information is available about the status and operations for Division A of Boxwood Company, which has a minimum required ROI of 20%. Answer each item independently of the others. Division A Divisional investment $ 200,000 Divisional profit $ 70,000 Divisional sales $ 400,000 Required: a. Compute the ROI for Division A. b. Division A could increase its profit by $16,000 by increasing its investment by $60,000. Compute its new ROI. c. Division A could increase its profit margin ratio by one percentage point (for example: from 12% to 13%), without increasing total sales or investment. Compute its new ROI. d. Division A could reduce its investment so that its asset turnover increased by one time, while holding total sales and profit constant. Compute its new ROI.

110) The following information is available about the status and operations for Division B of Boxwood Company, which has a minimum required ROI of 20%. Answer each item independently of the others. Division B Divisional investment $ 1,500,000 Divisional profit $ 550,000 Divisional sales $ 3,600,000 Required: a. Compute the ROI for Division B. b. Division B could increase its profit by $25,000 by increasing its investment by $100,000. Compute its new ROI. c. Division B could increase its profit margin ratio by one percentage point (for example: from 13% to 14%), without increasing total sales or investment. Compute its new ROI. d. Division B could reduce its investment so that its asset turnover increased by one time, while holding total sales and profit constant. Compute its new ROI. 111) Radner Industries is a division of a major corporation. Last year the division had total sales of $23,380,000, net operating income of $2,828,980, and average operating assets of $7,000,000. The company's minimum required rate of return is 12%. Required: a. What is the division's margin? b. What is the division's turnover? c. What is the division's return on investment (ROI)? 112) Danali Fabrication is a division of a major corporation. Last year the division had total sales of $21,120,000, net operating income of $2,006,400, and average operating assets of $6,000,000. The company's minimum required rate of return is 12%. Required: What is the division's return on investment (ROI)? 113) The following information is available about the Appliance Division of Rainier Company. Rainier requires a return of 9% from all divisions. Appliance Division Earnings from Operations Appliance Division Sales Appliance Division Identifiable Assets

$ 18,462,000 $ 112,600,000 $ 173,700,000

Required: a. Compute the ROI for the Appliance Division. b. Compute the residual income for the Appliance Division.

114) Bleu Stone is a division of a major corporation. The following data are for the latest year of operations: Sales Net operating income Average operating assets The company's minimum required rate of return

$ 30,000,000 $ 1,170,000 $ 8,000,000 18%

Required: a. What is the division's margin? b. What is the division's turnover? c. What is the division's return on investment (ROI)? d. What is the division's residual income? 115) Bleu Stone is a division of a major corporation. The following data are for the latest year of operations: Sales Net operating income Average operating assets The company's minimum required rate of return

$ 33,040,000 $ 1,453,760 $ 8,000,000 18%

Required: a. What is the division's return on investment (ROI)? b. What is the division's residual income? 116) Edmonson Corporation had net operating income of $150,000 and average operating assets of $500,000. The company requires a return on investment of 19%. Required: a. Calculate the company's current return on investment and residual income. b. The company is investigating an investment of $400,000 in a project that will generate annual net operating income of $78,000. What is the return on investment of the project? What is the residual income of the project? Should the company invest in this project? 117) The following information is available about the Charger Division of Weston Company. Weston requires a return of 8% from all divisions. Charger Division Earnings from Operations Charger Division Sales Charger Division Identifiable Assets

$ 12,854,000 $ 92,500,000 $ 156,000,000

Required: a. Compute the ROI for the Charger Division. b. Compute the residual income for the Charger Division. 32 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

118) The following information is available about the status and operations for Division A of Abad Company, which has a minimum required ROI of 20%. Answer each item independently of the others. Division A Divisional investment $ 100,000 Divisional profit $ 35,000 Divisional sales $ 200,000 Required: a. Compute the ROI for Division A. b. Compute the residual income for Division A. c. Division A could increase its profit by $8,000 by increasing its investment by $30,000. Compute its total residual income. d. Division A could increase its profit margin ratio by one percentage point (for example: from 12% to 13%), without increasing total sales or investment. Compute its new ROI. e. Division A could reduce its investment so that its asset turnover increased by one time, while holding total sales and profit constant. Compute its new ROI. 119) The following information is available about the status and operations for Division B of Abad Company, which has a minimum required ROI of 20%. Answer each item independently of the others. Division B Divisional investment $ 750,000 Divisional profit $ 275,000 Divisional sales $ 1,800,000 Required: a. Compute the ROI for Division B. b. Compute the residual income for Division B. c. Division B could increase its profit by $10,000 by increasing its investment by $40,000. Compute its total residual income. d. Division B could increase its profit margin ratio by one percentage point (for example: from 10% to 11%), without increasing total sales or investment. Compute its new ROI. e. Division B could reduce its investment so that its asset turnover increased by one time, while holding total sales and profit constant. Compute its new ROI.

120) Big Sky Industries is a division of a major corporation. The following data are for the latest year of operations: Sales Net operating income Average operating assets The company's minimum required rate of return

$ 24,900,000 $ 1,319,700 $ 6,000,000 12%

Required: a. What is the division's margin? b. What is the division's turnover? c. What is the division's return on investment (ROI)? d. What is the division's residual income? 121) Big Sky Industries is a division of a major corporation. The following data are for the latest year of operations: Sales Net operating income Average operating assets The company's minimum required rate of return

$ 12,700,000 $ 1,054,100 $ 5,000,000 16%

Required: a. What is the division's return on investment (ROI)? b. What is the division's residual income? 122) Raisin Corporation uses residual income to evaluate the performance of its divisions. The minimum required rate of return for performance evaluation purposes is 19%. The Processed Foods Division had average operating assets of $410,000 and net operating income of $86,000 in June. Required: What was the Processed Foods Division's residual income in June? 123) The Parts Division of the Stein Corporation had average operating assets of $150,000 and net operating income of $27,800 in March. The company uses residual income to evaluate the performance of its divisions, with a minimum required rate of return of 17%. Required: What was the Parts Division's residual income in March?

124) Edinger Industries is a division of a major corporation. The following data are for the latest year of operations: Sales Net operating income Average operating assets The company's minimum required rate of return

$ 20,760,000 $ 2,553,480 $ 6,000,000 16%

Required: What is the division's residual income? 125) The following information is available about the status and operations for Division A of Triplex Company, which has a minimum required ROI of 10%. Answer each item independently of the others. Division A Divisional investment $ 100,000 Divisional profit $ 17,500 Divisional sales $ 200,000 Required: a. Compute the residual income for Division A. b. Division A could increase its profit by $4,000 by increasing its investment by $30,000. Compute its new residual income. c. Division A could increase its profit margin ratio by one percentage point (for example: from 12% to 13%), without increasing total sales or investment. Compute its new residual income. d. Division A could reduce its investment so that its asset turnover increased by one time, while holding total sales and profit constant. Compute its new residual income. 126) The following information is available about the status and operations for Division B of Tallon Company, which has a minimum required ROI of 20%. Answer each item independently of the others. Division B Divisional investment $ 1,500,000 Divisional profit $ 550,000 Divisional sales $ 3,600,000 Required: a. Compute the residual income for Division B. b. Division B could increase its profit by $25,000 by increasing its investment by $100,000. Compute its new residual income. c. Division B could increase its profit margin ratio by one percentage point (for example: from 13% to 14%), without increasing total sales or investment. Compute its new residual income. (Round immediate calculations to three decimal places.) d. Division B could reduce its investment so that its asset turnover increased by one time, while holding total sales and profit constant. Compute its new residual income. 35 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

127) The Augment Manufacturing Company has three divisions: X Division, Y Division, and Z Division. Operating results for the three divisions for last year were as follows: Residual income Net operating income Average operating assets Sales Profit margin

Division X 98,400 188,600 820,000 1,640,000 11.5%

Division Y 27,200 115,600 680,000 1,445,000 8.0%

Division Z 12,000 76,000 400,000 1,040,000 5.0%

Required: a. What is the ROI for each of the three divisions? b. What is the cost of capital for each of the three divisions? 128) The Butyl Division of the Swiss Corporation just started operations. It purchased depreciable assets costing $2,500,000 with an expected life of five years, after which the assets can be salvaged for $400,000. Depreciation is computed for the financial statements on a straight-line basis, using the salvage value. Annual operating cash flows are $1,300,000. Required: a. Compute the division's return on investment (ROI) for each year, using beginning of the year asset values, historical costs, and net book values. b. Compute the division's return on investment (ROI) for each year, using end of the year asset values, historical costs, and net book values. 129) The Butyl Division of the Swiss Corporation just started operations. It purchased depreciable assets costing $2,500,000 with an expected life of five years, after which the assets can be salvaged for $400,000. Depreciation is computed for the financial statements on a straight-line basis, using the salvage value. Annual operating cash flows are $1,300,000 for year 1. Assume that all cash flows and asset prices increase by 12.5% per year. Required: a. Compute the division's ROI for the first three years, using end of the year asset values, current costs, and net book values. b. Compute the division's ROI for the first three years, using end of the year asset values, current costs, and gross book values.

130) Three years ago, one division of the Calsone Enterprise Company purchased depreciable assets costing $2,000,000. The cash flows from these assets for the past three years have been: Year 1 2 3

Cash flows $ 600,000 700,000 810,000

Calsone uses the straight-line depreciation method and the assets had an estimated useful life of 10 years with no salvage value. For return on investment (ROI) calculations, Calsone uses endof-year balances. Required: a. What was the ROI for each year using historical cost and gross book value? b. What was the ROI for each year using historical cost and net book value? 131) Explain the difference between the gross margin ratio, the operating margin ratio, and the profit margin ratio. 132) What are two disadvantages of using divisional income as a performance measure? 133) Describe the two main limitations of return on investment. 134) How does the use of residual income overcome the limitations of using return on investment? 135) How does EVA differ from residual income? 136) "I think that EVA is the best performance measure. I am going to recommend that we evaluate managers at all levels, including the chief executive officer (CEO), using it." Do you think this statement is appropriate? Explain. 137) Explain how using gross book value to measure the assets gives different results than using net book value. What happens to ROI over time under each of the two measures? 138) What is the problem with choosing a beginning, ending or average balance when measuring the investment base for performance evaluation?

139) Financial data for Windsor, Inc. for last year appear below:

The company paid dividends of $104,000 last year. The "Investment in Pine Company" on the statement of financial position represents an investment in the stock of another company. Required: a. Compute the company's margin, turnover, and return on investment for last year. b. The Board of Directors of Windsor, Inc. has set a minimum required return of 25%. What was the company's residual income last year?

140) Financial data for Beaker Company for last year appear below:

The company paid dividends of $2,100 last year. The "Investment in Cedar Company" on the statement of financial position represents an investment in the stock of another company. Required: a. Compute the company's margin, turnover, and return on investment for last year. b. The Board of Directors of Beaker Company has set a minimum required return of 20%. What was the company's residual income last year?

141) Xi, Inc. is just starting up. The management team has decided from the beginning that decentralization was the preferred organizational style and has made this clear in all interviews and discussions with potential employees. Mr. Yang, the CEO, is unsure about the best way to evaluate his division managers. He has heard the terms return on investment, residual income, economic value added, and flexible budgets but wants to know the pros and cons of each. Required: Briefly describe ROI, residual income, EVA and other approaches to performance evaluation. Include in your discussion, where appropriate, how to calculate the measure and problem areas in the development of some of the results. 142) Mrs. Young is the manager of the Children's Toy division of Ferguson Corporation. Every year she just misses the cut off established by the company for the awarding of bonuses. She is concerned inasmuch as she believes she is running her division effectively and her income has been increasing slowly but steadily over the years she has been with the company. She knows that the company uses ROI as the performance measure to evaluate divisions and begins to study the formula to see what she should do to improve the ROI for her division. Required: Briefly discuss several ways to improve ROI. 143) Decentralization is lauded as important to good management. But it is not without its problems. Required: Identify the advantages and disadvantages of decentralization? How do ROI, Residual Income, and EVA affect these issues?

144) Mallory, Inc. has the following data available for two of its divisions for last year:

Sales Contribution Margin Operating income Average operating assets Weighted average cost of capital

Asian Division $ 460,000 184,000 92,000 368,000 14%

European Division $ 900,000 470,000 90,000 750,000 14%

The tax rate for Mallory, Inc. is 18%. Required: (1) Compute the following for each division: (a) Profit margin. (b) Asset turnover. (c) ROI. (d) Residual income. (e) EVA (assume there are no current liabilities). (2) Briefly discuss which division appears most successful and why? 145) Roxie, Inc. has used a decentralized form of organizational structure for the past five years. The controller, Ms. Hamburg, has noticed that some of the divisions are still using fixed assets that are fully depreciated and that there has been little acquisition activity in these divisions. Coupled with this are very high ROIs, especially when compared to the other divisions that seem to have a regular program of disposition and replacement of fixed assets. She takes her concerns and observations to the Financial Vice President who says he will review her findings and look into the problem. Required: 1) What are the potential negative effects of decentralization? 2) Specifically discuss the issues involved in suboptimization.

146) Suade Inc. manufactures furniture and is organized into three large divisions: bedroom, living room, and dining room furniture. The following information presents operating revenues, operating incomes and invested assets of the company over the last three years. (all amounts in 000s) Operating Revenues Dining Room Living Room Bedroom Operating Income Dining Room Living Room Bedroom Invested Assets Dining Room Living Room Bedroom

2020 $ 8,000 4,500 8,800

2021 $ 15,000 3,600 7,600

2022 $ 16,000 2,400 6,600

2,500 450 1,200

$ 12,000 2,500 4,500

3,100 900 1,500

$ 12,500 2,400 4,700

1,800 600 1,600

$ 12,500 2,200 4,900

The following table shows the number of managers covered by the current compensation package of Suade Inc.: Number of Managers Dinning Room Living Room Bedroom

2020 300 40 120

2021 350 40 140

2022 375 37 175

The current compensation package is an annual bonus award. The managers share in the bonus pool. The pool is calculated as 12% of the annual residual income of the company. The residual income is defined as operating income minus an interest charge of 15% of invested assets. Required: (1) Use asset turnover, profit margin ratio, and ROI to explain the differences in profitability of the three divisions. (2) Compute the bonus amount to be paid during each year. Also, compute the (average) individual executive bonus amounts. (3) If the bonus was calculated by divisional residual income what would be the bonus amounts? (4) Discuss the benefits and problems of basing the bonus on residual income of a company compared to using divisional residual income.

147) The High Seas, Inc. manufactures water vessels and is organized into three large divisions: jet skis, fishing boats, and yachts. The following information presents operating revenues, operating incomes, and invested assets of the company over the last three years: Operating Revenues (all amounts in $000s) Jet Skis Fishing Boats Yachts Operating Income Jet Skis Fishing Boats Yachts Invested Assets Jet Skis Fishing Boats Yachts

2020 $ 2,000 5,000 8,000

2021 $ 3,000 5,000 7,000

2022 $ 4,000 4,000 8,000

700 2,500 3,000

$ 1,000 2,000 3,500

$ 1,500 $ 1,500 2,500

$ 2,000 $ 1,500 3,000

500 3,000 4,000

$ 1,200 $ 2,000 3,000

The following table shows the number of managers covered by the current compensation package of The High Seas, Inc.: Number of Managers Jet Skis Fishing Boats Yachts

2020 50 200 250

2021 60 180 200

2022 70 160 250

The current compensation package is an annual bonus award. The managers share in the bonus pool. The pool is calculated as 10% of the annual residual income of the company. The residual income is defined as operating income minus an interest charge of 14% of invested assets. Required: (1) Compute the bonus amount to be paid during each year. Also, compute the (average) individual executive bonus amounts. (2) If the bonus was calculated by divisional residual income, what would be the bonus amounts?

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 15 Transfer Pricing 1) A transfer price is the value assigned to the transfer of goods or services between divisions within the same organization. 2) Transfer prices are not used to record the exchange between two cost centers within the same organization. 3) Transfer prices cannot be used for decision making, product costing, or performance evaluation. 4) From an organization's viewpoint, transfer prices have no effect on total profits assuming the transfer occurs between two responsibility centers. 5) If a transfer has no effect on divisional profit, risk-neutral managers will be indifferent between making the transfer or not. 6) If an intermediate market exists but divisions are prohibited from buying or selling from the outside, the intermediate market can be ignored in determining the optimal transfer price. 7) A perfect intermediate market exists if buyers can buy and sellers can sell outside of the organization. 8) When a perfect intermediate market exists, the optimal transfer price is the intermediate market price. 9) In general, the optimal transfer price for a division is the sum of its outlay costs and the opportunity cost of not transferring its goods to another division. 10) The use of an optimal transfer price eliminates potential conflicts between an organization's interests and the divisional manager's interest. 11) A market price-based transfer pricing policy allows the selling division to determine the price for transfers between divisions within the same organization. 12) A selling division at capacity is indifferent between selling to outsiders and transferring inside at the market price. 13) When actual costs are used as the basis for a transfer, inefficiencies of the selling division are transferred to the buying division. 14) A transfer made at cost does not motivate the selling division to transfer its goods or services internally. 15) In general, negotiated transfer prices fall in a range between the selling division's differential costs and the buying division's market price. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

16) In the United States, more companies use cost-based transfer prices than market-based transfer prices. 17) In interstate transactions, transfers can reduce an organization's tax liability when the selling division is in a lower tax jurisdiction than the buying division. 18) Tax avoidance is unethical when inflated transfer prices are used in international transactions to shift profits from a division in one country to a division in another country. 19) An organization that has significant foreign operations must disclose how its transfer prices are established between domestic and foreign divisions. 20) The GAAP financial reporting rules for segments require that all companies use transfer prices based on market prices. 21) Which of the following statements is(are) false? (A) From an organization's viewpoint, transfer prices have no effect on total profits assuming the transfer occurs between two responsibility centers. (B) A transfer price is the value assigned to the transfer of goods or services between divisions within the same organization. A) Only A is false. B) Only B is false. C) Both of these are false. D) Neither of these is false. 22) Which of the following responsibility centers is affected by the use of market-based transfer prices? A) Cost center. B) Profit center. C) Revenue center. D) Production center. 23) Transfer prices are used for all of the following except: A) decision making. B) product costing. C) performance evaluation. D) generation of overall organization profit. 24) A division can sell externally for $60 per unit. Its variable manufacturing costs are $35 per unit, and its variable marketing costs are $12 per unit. What is the opportunity cost of transferring internally, assuming the division is operating at capacity? A) $13. B) $25. C) $35. D) $47. 2 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

25) A division can sell externally for $60 per unit. Its variable manufacturing costs are $35 per unit, and its variable marketing costs are $12 per unit. What is the optimal transfer price for transferring internally, assuming the division is operating at capacity? A) $12. B) $35. C) $47. D) $60. 26) Division A has variable manufacturing costs of $50 per unit and fixed costs of $10 per unit. Assuming that Division A is operating at capacity, what is the opportunity cost of an internal transfer when the market price is $75? A) $20. B) $25. C) $50. D) $60. 27) Division A has variable manufacturing costs of $50 per unit and fixed costs of $10 per unit. Assuming that Division A is operating at capacity, what is the optimal transfer price of an internal transfer when the market price is $75? A) $20. B) $25. C) $50. D) $75. 28) Division A has variable manufacturing costs of $50 per unit and fixed costs of $10 per unit. Assuming that Division A is operating significantly below capacity, what is the optimal transfer price of an internal transfer when the market price is $75? A) $20. B) $25. C) $50. D) $60. 29) Division B has variable manufacturing costs of $50 per unit and fixed costs of $10 per unit. Assuming that Division B is operating significantly below capacity, what is the opportunity cost of an internal transfer when the market price is $75? A) $0. B) $25. C) $50. D) $60.

30) Dockside Enterprises Incorporated operates two divisions: (1) a management division that owns and manages bulk carriers on the Great Lakes and (2) a repair division that operates a dry dock in Tampa, Florida. The repair division works on company ships and outside large-hull ships. The repair division has an estimated variable cost of $37 per labor-hour, has a backlog of work for outside ships, and charges $70.00 per hour for labor, which is standard for this type of work. The management division complained that it could hire its own repair workers for $45.00 per hour, including leasing an adequate work area. What is the minimum transfer price per hour that the repair division should obtain for its services, assuming it is operating at capacity? A) $33.00. B) $37.00. C) $45.00. D) $70.00. 31) Dockside Enterprises Incorporated operates two divisions: (1) a management division that owns and manages bulk carriers on the Great Lakes and (2) a repair division that operates a dry dock in Tampa, Florida. The repair division works on company ships and outside large-hull ships. The repair division has an estimated variable cost of $37 per labor-hour, has a backlog of work for outside ships, and charges $70.00 per hour for labor, which is standard for this type of work. The management division complained that it could hire its own repair workers for $45.00 per hour, including leasing an adequate work area. What is the maximum transfer price per hour that the management division should pay? A) $33.00. B) $37.00. C) $45.00. D) $70.00. 32) Dockside Enterprises Incorporated operates two divisions: (1) a management division that owns and manages bulk carriers on the Great Lakes and (2) a repair division that operates a dry dock in Tampa, Florida. The repair division works on company ships and outside large-hull ships. The repair division has an estimated variable cost of $37 per labor-hour, has a backlog of work for outside ships, and charges $70.00 per hour for labor, which is standard for this type of work. The management division complained that it could hire its own repair workers for $45.00 per hour, including leasing an adequate work area. If the repair division had idle capacity, what is the minimum transfer price that the repair division should obtain? A) $33.00. B) $37.00. C) $45.00. D) $70.00.

33) You have been provided with the following information for Division X of a decentralized company: Selling price Variable cost per unit Fixed cost per unit Sales volume (units) Capacity (units)

90 66 20 22,500 25,000

Division Y of the same company would like to purchase all of its units internally. Division Y needs 6,000 units each period and currently pays $84 per unit to an outside firm. What is the lowest price that Division X could accept from Division Y? (Assume that Division Y wants to use a sole supplier and will not purchase less than 6,000 from a supplier.) A) $90. B) $84. C) $80. D) $66. 34) When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred, the lowest acceptable transfer price for the selling division is: A) the variable cost of producing a unit of product. B) the full absorption cost of producing a unit of product. C) the market price charged to outside customers, less costs saved by transferring internally. D) the amount that the purchasing division would have to pay an outside seller to acquire a similar product for its use. 35) Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers Variable cost per unit Total fixed costs Capacity in (units)

$ 75 $ 50 $ 400,000 25,000

36) Part 43X costs the Southern Division of Norris Corporation $26 to produce. Making up that cost are direct materials of $10, direct labor of $4, variable manufacturing overhead of $9, and fixed manufacturing overhead of $3. Southern Division sells Part 43X to other companies for $30. The Northern Division of Norris Corporation can use Part 43X in one of its products. The Southern Division has enough idle capacity to produce all of the units of Part 43X that the Northern Division would require. What is the lowest transfer price at which the Southern Division should be willing to sell Part 43X to the Northern Division? A) $30. B) $26. C) $23. D) $27. 37) The Wheel Division of Frankov Corporation has the capacity for making 75,000 wheel sets per year and regularly sells 60,000 each year on the outside market. The regular sales price is $100 per wheel set, and the variable production cost per unit is $65. The Retail Division of Frankov Corporation currently buys 30,000 wheel sets (of the kind made by the Wheel Division) yearly from an outside supplier at a price of $90 per wheel set. If the Retail Division were to buy the 30,000 wheel sets it needs annually from the Wheel Division at a transfer price of $87 per wheel set, the change in annual net operating income for the company as a whole would be: A) $600,000. B) $225,000. C) $750,000. D) $135,000. 38) Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers Variable cost per unit Total fixed costs Capacity in units

$ 50 $ 30 $ 400,000 25,000

39) Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers Variable cost per unit Total fixed costs Capacity in units

$ 40 $ 30 $ 10,000 20,000

Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $38 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A has ample capacity to produce the units for Division B without any increase in fixed costs and without impacting sales to outside customers. If Division A sells to Division B, the variable cost per unit would be $1 lower than when selling to outside customers. What should be the lowest acceptable transfer price from the perspective of Division A? A) $40. B) $38. C) $30. D) $29. 40) The Raisin Division of Trail Mix Foods, Incorporated had the following operating results last year: Sales (150,000 pounds of raisins) Variable expenses Contribution margin Fixed expenses Profit

$ 60,000 37,500 22,500 12,000 $ 10,500

Raisin expects identical operating results this year. The Raisin Division has the ability to produce and sell 200,000 pounds of raisins annually. Assume that the Peanut Division of Trail Mix Foods wants to purchase an additional 20,000 pounds of raisins from the Raisin Division. Raisin will be able to increase its profit by accepting any transfer price above: A) $0.25 per pound. B) $0.08 per pound. C) $0.15 per pound. D) $0.40 per pound.

41) The Raisin Division of Trail Mix Foods, Incorporated had the following operating results last year: Sales (150,000 pounds of raisins) Variable expenses Contribution margin Fixed expenses Profit

$ 60,000 37,500 22,500 12,000 $ 10,500

Raisin expects identical operating results this year. Assume that the Raisin Division is currently operating at its capacity of 150,000 pounds of raisins. Also assume that the Peanut Division wants to purchase an additional 20,000 pounds of raisins from the Raisin Division. Under these conditions, what amount per pound of raisins would the Raisin Division have to charge the Peanut Division in order to maintain its current profit? A) $0.40 per pound. B) $0.08 per pound. C) $0.15 per pound. D) $0.25 per pound. 42) The Gear Division makes a part with the following characteristics: Production capacity Selling price to outside customers Variable cost per unit Fixed cost, total

25,000units $ 18 $ 11 $ 100,000

The Motor Division of the same company would like to purchase 10,000 units each period from the Gear Division. The Motor Division now purchases the part from an outside supplier at a price of $17 each. Suppose the Gear Division has ample excess capacity to handle all of the Motor Division's needs without any increase in fixed costs and without impacting sales to outside customers. If the Gear Division refuses to accept the $17 price internally and the Motor Division continues to buy from the outside supplier, the company as a whole will be: A) worse off by $70,000 each period. B) better off by $10,000 each period. C) worse off by $60,000 each period. D) worse off by $20,000 each period.

43) The Gear Division makes a part with the following characteristics: Production capacity Selling price to outside customers Variable cost per unit Fixed cost, total

25,000units $ 18 $ 11 $ 100,000

The Motor Division of the same company would like to purchase 10,000 units each period from the Gear Division. The Motor Division now purchases the part from an outside supplier at a price of $17 each. Suppose that the Gear Division is operating at capacity and can sell all of its output to outside customers. If the Gear Division sells the parts to Motor Division at $17 per unit, the company as a whole will be: A) better off by $10,000 each period. B) worse off by $20,000 each period. C) worse off by $10,000 each period. D) There will be no change in the status of the company as a whole. 44) Division A produces a part with the following characteristics: Capacity in units Selling price per unit Variable costs per unit Fixed costs per unit

$ $ $

50,000 30 18 3

45) Division A produces a part with the following characteristics: Capacity in units Selling price per unit Variable costs per unit Fixed costs per unit

50,000 $ 30 $ 18 $ 3

Division B, another division in the company, would like to buy this part from Division A. Division B is currently purchasing the part from an outside source at $28 per unit. If Division A sells to Division B, $1 in variable costs can be avoided. Suppose that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without impacting sales to outside customers. From the point of view of Division A, any sales to Division B should be priced no lower than: A) $29. B) $30. C) $18. D) $17. 46) The Pillar Division of the Gothic Building Company produces basic pillars which can be sold to outside customers or sold to the Lantern Division of the Gothic Company. The Lantern Division wants to purchase 25,000 pillars from the Pillar Division. The following data are available for last year's activities of the Pillar Division: Capacity in units Selling price per pillar to outside customers Variable costs per pillar Fixed costs, total

300,000 pillars $ 1.75 $ 0.90 $ 150,000

The total fixed costs would be the same for all the alternatives considered. Suppose there is ample capacity so that transfers of the pillars to the Lantern Division do not impact sales to outside customers. What is the lowest transfer price that would not reduce the profits of the Pillar Division? A) $0.90. B) $1.35. C) $1.41. D) $1.75.

47) The Pillar Division of the Gothic Building Company produces basic pillars which can be sold to outside customers or sold to the Lantern Division of the Gothic Company. The Lantern Division wants to purchase 25,000 pillars from the Pillar Division. The following data are available for last year's activities of the Pillar Division: Capacity in units Selling price per pillar to outside customers Variable costs per pillar Fixed costs, total

300,000 pillars $ 1.75 $ 0.90 $ 150,000

The total fixed costs would be the same for all the alternatives considered. Suppose the transfers of pillars to the Lantern Division would reduce sales to outside customers by 15,000 units. What is the lowest transfer price that would not reduce the profits of the Pillar Division? A) $0.90. B) $1.35. C) $1.41. D) $1.75. 48) The Pillar Division of the Gothic Building Company produces basic pillars which can be sold to outside customers or sold to the Lantern Division of the Gothic Company. The Lantern Division wants to buy 25,000 pillars from the Pillar Division. The following data are available for last year's activities of the Pillar Division: Capacity in units Selling price per pillar to outside customers Variable costs per pillar Fixed costs, total

300,000 pillars $ 1.75 $ 0.90 $ 150,000

The total fixed costs would be the same for all the alternatives considered. Suppose the transfers of pillars to the Lantern Division would reduce sales to outside customers by 15,000 units. Further suppose that an outside supplier is willing to provide the Lantern Division with basic pillars at $1.45 each. If the Lantern Division had chosen to buy all of its pillars from the outside supplier instead of the Pillar Division, the change in net operating income for the company as a whole would have been: A) $1,250 decrease. B) $10,250 increase. C) $1,000 decrease. D) $13,750 decrease.

49) The Stake Division of the Outdoor Lumination Company produces stakes which can be sold to outside customers or transferred to the Solar Light Division of the Outdoor Lumination Company. Last year, the Solar Light Division bought 50,000 stakes from the Stake Division. The following data are available for last year's activities in the Stake Division: Capacity in units Quantity sold to outside customers Selling price per stake to outside customers Total variable costs per stake Fixed operating costs

400,000 stakes 350,000 stakes $ 3.00 $ 2.00 $ 200,000

In order to sell 50,000 stakes to the Solar Light Division, the Stake Division had to give up sales of 30,000 stakes to outside customers. That is, the Stake Division could sell 380,000 stakes each year to outside customers (rather than only 350,000 stakes as shown above) if it were not making sales to the Solar Light Division. What is the lowest acceptable transfer price from the viewpoint of the selling division? A) $2.50. B) $2.00. C) $2.60. D) $3.00. 50) The Stake Division of the Outdoor Lumination Company produces stakes which can be sold to outside customers or transferred to the Solar Light Division of the Outdoor Lumination Company. Last year, the Solar Light Division bought 50,000 stakes from the Stake Division. The following data are available for last year's activities in the Stake Division: Capacity in units Quantity sold to outside customers Selling price per stake to outside customers Total variable costs per stake Fixed operating costs

400,000 stakes 350,000 stakes $ 3.00 $ 2.00 $ 200,000

In order to sell 50,000 stakes to the Solar Light Division, the Stake Division had to give up sales of 30,000 stakes to outside customers. That is, the Stake Division could sell 380,000 stakes each year to outside customers (rather than only 350,000 stakes as shown above) if it were not making sales to the Solar Light Division. Suppose that last year an outside supplier would have been willing to provide the Solar Light Division with the basic stakes at $2.10 each. If the Solar Light Division had chosen to buy all of its stakes from the outside supplier instead of the Stake Division, the change in net operating income for the company as a whole would have been: A) $45,000 increase. B) $20,000 decrease. C) $20,000 increase. D) $25,000 increase. 12 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

51) Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers Variable cost per unit Total fixed costs Capacity in units

$ 50 $ 30 $ 400,000 25,000

Division Y of the same company would like to use the part manufactured by Division X in one of its products. Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute the part made by Division X. Division Y requires 5,000 units of the part each period. Division X can sell all of the units it makes to outside customers. What is the lowest acceptable transfer price from the standpoint of the selling division? A) $50. B) $49. C) $46. D) $30. 52) Division X of Operandi Corporation makes and sells a single product which is used by manufacturers of fork lift trucks. Currently, it sells 12,000 units per year to outside customers at $24 per unit. The annual capacity is 20,000 units and the variable costs to make each unit is $16. Division Y of Operandi Corporation would like to buy 10,000 units a year from Division X to use in its products. There would be no cost savings from transferring the units within the company rather than selling them on the outside market. What should be the lowest acceptable transfer price from the perspective of Division X? A) $24.00. B) $21.40. C) $17.60. D) $16.00. 53) Division A of Chappelle Company has the capacity for making 3,000 motors per month and regularly sells 1,950 motors each month to outside customers at a contribution margin of $62 per motor. The variable cost per motor is $35.70. Division B of Chappelle Company would like to obtain 1,400 motors each month from Division A. What should be the lowest acceptable transfer price from the perspective of Division A? A) $26.57. B) $51.20. C) $35.70. D) $62.00.

54) Which of the following statements is(are) true? (A) If a transfer has no effect on divisional profit, managers will be indifferent between making the transfer or not. (B) If an intermediate market exists but divisions are prohibited from buying or selling from the outside, the intermediate market can be ignored in determining the optimal transfer price. A) Only A is true. B) Only B is true. C) Both of these are true. D) Neither of these is true. 55) In general, if a potential transfer has no effect on divisional profits: A) no transfer will take place between the divisions. B) managers will be indifferent between making the transfer or not. C) the organization should not intervene to force a transfer. D) the optimal transfer price is the opportunity cost for the buying division. 56) An intermediate market is perfect when: A) there are no quality differences between inside and outside suppliers. B) there are quality differences between inside and outside customers. C) buyers and sellers can sell any quantity without affecting the market price. D) buyers and sellers are motivated to make decisions that are consistent with those of the organization. 57) When there is no intermediate market: A) there is no optimal transfer price. B) the selling division cannot transfer its goods internally. C) the buying division cannot purchase its goods externally. D) there is no reason for top management to intervene in transfer pricing disputes. 58) The general principle on setting transfer prices that are in the organization's best interests is: A) outlay cost plus opportunity cost of the resource at the point of transfer. B) only variable costs plus opportunity cost of the resource at the point of transfer. C) lost contribution margin less the allocated fixed costs for the selling division. D) gross margin for the buying division plus the gross margin for the selling division. 59) If the selling division has excess capacity, the transfer price should be set at its: A) outlay costs. B) outlay costs plus the foregone contribution to the organization of making the transfer internally. C) selling price less the variable costs. D) selling price less the variable costs plus the foregone contribution to the organization of making the transfer internally.

60) Given a competitive outside market for identical intermediate goods, what is the best transfer price, assuming all relevant information is readily available? A) Standard production cost per unit. B) Market price of the intermediate goods. C) Actual full cost per unit plus a normal markup. D) Market price of the final goods less any opportunity costs. 61) The optimal transfer price when there are intermediate markets and the seller is operating at capacity is normally the: A) full cost. B) outlay cost. C) variable cost. D) market price. 62) A division can sell externally for $40 per unit. Its variable manufacturing costs are $15 per unit, and its variable marketing costs are $6 per unit. What is the opportunity cost of transferring internally, assuming the division is operating at capacity? A) $15. B) $19. C) $21. D) $25. 63) Division A has variable manufacturing costs of $25 per unit and fixed costs of $5 per unit. Division A is operating at capacity. What is the opportunity cost of an internal transfer when the market price is $35? A) $5. B) $10. C) $25. D) $30. 64) Lock Division of Morgantown Corporation sells 80,000 units of part Z-25 to the outside market. Part Z-25 sells for $40, has a variable cost of $22, and a fixed cost per unit of $10. The Lock Division has a capacity to produce 100,000 units per period. The Cabinet Division currently purchases 10,000 units of part Z-25 from the Lock Division for $40. The Cabinet Division has been approached by an outside supplier willing to supply the parts for $36. What is the effect on Morgantown's overall profit if the Lock Division refuses to sell at the outside supplier's price and the Cabinet Division decides to buy outside? A) No change in Morgantown's profits. B) $140,000 decrease in Morgantown's profits. C) $80,000 decrease in Morgantown's profits. D) $40,000 increase in Morgantown's profits.

65) The Lock Division of Morgantown Corporation sells 80,000 units of part Z-25 to the outside market. Part Z-25 sells for $40, has a variable cost of $22, and a fixed cost per unit of $10. The Lock Division has a capacity to produce 100,000 units per period. The Cabinet Division currently purchases 10,000 units of part Z-25 from the Lock Division for $40. The Cabinet Division has been approached by an outside supplier willing to supply the parts for $36. What is the effect on Morgantown's overall profit if the Lock Division agrees to sell to the Cabinet Division at the outside supplier's price and the Cabinet Division continues to buy inside? A) No change in Morgantown's profits. B) $140,000 decrease in Morgantown's profits. C) $80,000 decrease in Morgantown's profits. D) $40,000 increase in Morgantown's profits. 66) Concrete Corporation has two producing centers, Contractor and Retailer. The Contractor Division has a variable cost of $12 for its products and a total fixed cost of $120,000. The Contractor Division also has idle capacity for up to 50,000 units per month. The Retailer Division would like to purchase 20,000 units of the Contractor Division's products per month but is unable to convince the Contractor Division to transfer units to the Retailer Division at $16 per unit. The Contractor Division has consistently argued that the market price of $20 is nonnegotiable. What is The Contractor Division's opportunity cost of not transferring units to the Retailer Division? A) $20. B) $12. C) $8. D) $4. 67) You have been provided with the following information for the Wool Division of a decentralized company: Selling price Variable cost per unit Fixed cost per unit Sales volume (units) Capacity (units)

$ $ $

45 33 12 22,500 25,000

The Blanket Division would like to purchase all of its units internally. The Blanket Division needs 6,000 units each period and currently pays $42 per unit to an outside firm. Assuming that the Blanket Division wants to use a sole supplier and will not purchase less than 6,000 from a supplier, what is the lowest price that Wool Division should accept from the Blanket Division? A) $45. B) $42. C) $40. D) $38.

68) Given the following data for Keyboard Division: Selling price to outside customers Variable cost per unit Total fixed cost Capacity (in units)

$ $ $

25 12 50,000 125,000

The Computer Division would like to purchase 15,000 units each period from the Keyboard Division. The Keyboard Division has ample excess capacity to handle all of the Computer Division's needs. The Computer Division now purchases from an outside supplier at a price of $20. If the Keyboard Division refuses to accept an $18 price internally, the company, as a whole, will be worse off by: A) $30,000. B) $75,000. C) $90,000. D) $120,000. 69) Given the following data for Electrical Cord Division: Selling price to outside customers Variable cost per unit Total fixed cost Capacity (in units)

40 30 10,000 2,000

Assume that the Electrical Cord Division is selling all it can produce to outside customers. If it sells to the Appliance Division, $1 can be avoided in variable cost per unit. The Appliance Division is presently purchasing from an outside supplier at $38 per unit. From the point of view of the company as a whole, any sales to the Appliance Division should be priced at: A) $40. B) $39. C) $38. D) The company would not want the transfer to take place.

70) Given the following data for Handle Division: Selling price to outside customers Variable cost per unit Fixed cost per unit (based on capacity) Capacity (in units)

150 80 30 50,000

The Cabinet Division would like to purchase 10,000 units from the Handle Division at a price of $125 per unit. Handle Division has no excess capacity to handle the Cabinet Division's requirements. The Cabinet Division currently purchases from an outside supplier at a price of $140. If the Handle Division accepts a $125 price internally, the company, as a whole, will be better or worse off by: A) $600,000 B) $(100,000) C) $115,000 D) $250,000 71) Altoona Corporation has two divisions, Hinges and Doors, which are both organized as profit centers. The Hinge Division produces and sells hinges to the Door Division and to outside customers. The Hinge Division has total costs per unit of $35, $20 of which are variable. The Hinge Division is operating significantly below capacity and sells the hinges for $50. The Door Division has received an offer from an outsider vendor to supply all the hinges it needs (20,000 hinges) at a cost of $45. The manager of the Door Division is considering the offer but wants to approach the Hinge Division first. What would be the profit impact to Altoona Corporation as a whole if the Door Division purchased the 20,000 hinges it needs from the outside vendor for $45? A) No change in profit to Altoona. B) $100,000 increase in profits. C) $100,000 decrease in profits. D) $500,000 decrease in profits. 72) Altoona Corporation has two divisions, Hinges and Doors, which are both organized as profit centers. The Hinge Division produces and sells hinges to the Door Division and to outside customers. The Hinge Division has total costs of $35, $20 of which are variable. The Hinge Division is operating significantly below capacity and sells the hinges for $50. The Door Division has received an offer from an outsider vendor to supply all the hinges it needs (20,000 hinges) at a cost of $45. The manager of the Door Division is considering the offer but wants to approach the Hinge Division first. What is the minimum transfer price from the Hinge Division to the Door Division? A) $20. B) $35. C) $45. D) $50. 18 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

73) Altoona Corporation has two divisions, Hinges and Doors, which are both organized as profit centers. The Hinge Division produces and sells hinges to the Door Division and to outside customers. The Hinge Division has total costs of $35, $20 of which are variable. The Hinge Division is operating significantly below capacity and sells the hinges for $50. The Door Division has received an offer from an outsider vendor to supply all the hinges it needs (20,000 hinges) at a cost of $45. The manager of the Door Division is considering the offer but wants to approach the Hinge Division first. What is the maximum transfer price that the Door Division would accept from the Hinge Division? A) $20. B) $35. C) $45. D) $50. 74) Retro Rides, Incorporated, operates two divisions: (1) a Management Division that owns and manages classic automobile rentals in Miami, Florida and (2) a Repair Division that restores classic automobiles in Clearwater, Florida. The Repair Division works on classic motorcycles, as well as other classic automobiles. The Repair Division has an estimated variable cost of $28.50 per labor-hour and has a backlog of work for automobile restoration. They charge $48.00 per hour for labor, which is standard for this type of work. The Management Division complained that it could hire its own repair workers for $30.00 per hour, including leasing an adequate work area. What is the minimum transfer price per hour that the Repair Division should obtain for its services, assuming it is operating at capacity? A) $28.50. B) $30.00. C) $39.00. D) $48.00.

75) Retro Rides, Incorporated, operates two divisions: (1) a Management Division that owns and manages classic automobile rentals in Miami, Florida and (2) a Repair Division that restores classic automobiles in Clearwater, Florida. The Repair Division works on classic motorcycles, as well as other classic automobiles. The Repair Division has an estimated variable cost of $28.50 per labor-hour and has a backlog of work for automobile restoration. They charge $48.00 per hour for labor, which is standard for this type of work. The Management Division complained that it could hire its own repair workers for $30.00 per hour, including leasing an adequate work area. What is the maximum transfer price per hour that the Management Division should pay? A) $28.50. B) $30.00. C) $39.00. D) $46.50. 76) Retro Rides, Incorporated, operates two divisions: (1) a Management Division that owns and manages classic automobile rentals in Miami, Florida and (2) a Repair Division that restores classic automobiles in Clearwater, Florida. The Repair Division works on classic motorcycles, as well as other classic automobiles. The Repair Division has an estimated variable cost of $28.50 per labor-hour and has a backlog of work for automobile restoration. They charge $48.00 per hour for labor, which is standard for this type of work. The Management Division complained that it could hire its own repair workers for $30.00 per hour, including leasing an adequate work area. If the Repair Division had idle capacity, what is the minimum transfer price that the Repair Division should obtain? A) $28.50. B) $30.00. C) $39.00. D) $46.50. 77) Frocks and Gowns, Incorporated, has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $750,000 and produces and sells 100,000 units of Collars at a market price of $10.00 per unit. Variable costs for the Collars total $3.50 per unit and fixed charges are $4.00 per unit (based on a capacity of 120,000 units). The Night Wear Division wants to purchase 25,000 units of Collars from the Day Wear Division. However, the Night Wear Division is only willing to pay $6.75 per unit. What is the contribution margin for the Day Wear Division without the transfer to the Night Wear Division? A) $250,000. B) $650,000. C) $675,000. D) $1,000,000. 20 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

78) Frocks and Gowns, Incorporated, has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $750,000 and produces and sells 100,000 units of Collars at a market price of $10.00 per unit. Variable costs for the Collars total $3.50 per unit and fixed charges are $4.00 per unit (based on a capacity of 120,000 units). The Night Wear Division wants to purchase 25,000 units of Collars from the Day Wear Division. However, the Night Wear Division is only willing to pay $6.75 per unit. What is the contribution margin for the Day Wear Division if it transfers 25,000 units to the Night Wear Division at $6.75 per unit? A) $250,000. B) $650,000. C) $675,000. D) $698,750. 79) Frocks and Gowns, Incorporated, has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $750,000 and produces and sells 100,000 units of Collars at a market price of $10.00 per unit. Variable costs for the Collars total $3.50 per unit and fixed charges are $4.00 per unit (based on a capacity of 120,000 units). The Night Wear Division wants to purchase 25,000 units of Collars from the Day Wear Division. However, the Night Wear Division is only willing to pay $6.75 per unit. What is the minimum transfer price that the Day Wear Division would accept for the 25,000 unit order from the Night Wear Division if it wishes to maintain its pre-order contribution margin? A) $3.50. B) $4.00. C) $4.80. D) $6.00. 80) A company is highly centralized. The Cutting Division, which is operating at capacity, produces a component that it currently sells in a perfectly competitive market for $13 per unit. At the current level of production, the fixed cost of producing this component is $4 per unit and the variable cost is $7 per unit. The Grinding Division would like to purchase this component from the Cutting Division. The price that the Cutting Division should charge the Grinding Division per unit for this component is: A) $7. B) $11. C) $13. D) $15.

81) A company has two divisions, Softwoods and Hardwoods, each operating as a profit center. The Softwood Division charges the Hardwood Division $35 per unit for each unit transferred to the Hardwood Division. Other data for the Softwood Division are as follows: Variable Cost per unit Fixed Costs Annual Sales to the Hardwood Division Annual Sales to Outsiders

$ 30 $ 10,000 5,000units 50,000units

The Softwood Division is planning to raise its transfer price to $50 per unit. The Hardwood Division can purchase units at $40 per unit from outsiders but doing so would idle the Softwood Division's facilities (now committed to producing units for the Hardwood Division). The Softwood Division cannot increase its sales to outsiders. From the perspective of the company as a whole, from who should the Hardwood Division acquire the units, assuming the Hardwood Division's market is unaffected? A) Outside vendors. B) The Softwood Division, but only at the variable cost per unit. C) The Softwood Division, but only until fixed costs are covered, then should purchase from outside vendors. D) The Softwood Division, in spite of the increased transfer price. 82) Given the following information for Camping Division: Selling price to outside customers Variable cost per unit Total fixed costs Capacity in units

$ 50 $ 30 $ 400,000 25,000

The Lantern Division would like to purchase internally from the Camping Division. The Lantern Division now purchases 5,000 units each period from outside suppliers at $49 per unit. The Camping Division has ample excess capacity to handle all of the Lantern Division's needs. What is the lowest price that the Camping Division could accept? A) $50.00. B) $49.00. C) $46.00. D) $30.00.

83) Accutron, a large manufacturing company, has several autonomous divisions that sell their products in perfectly competitive external markets as well as internally to the other divisions of the company. Top management expects each of its divisional managers to take actions that will maximize the organization's goal as well as their own goals. Top management also promotes a sustained level of management effort of all of its divisional managers. Under these circumstances, for products exchanged between divisions, the transfer price that will generally lead to optimal decisions for Accutron would be a transfer price equal to the: (CIA adapted) A) full cost of the product. B) full cost of the product plus a markup. C) variable cost of the product plus a markup. D) market price of the product. 84) Martin Company currently manufactures all component parts used in the manufacturing of various hand tools. The Extruding Division produces a steel handle used in three different tools. The budget for these handles is 120,000 units with the following unit cost: Direct materials Direct labor Variable overhead Fixed overhead Total unit cost

$ 0.60 0.40 0.10 0.20 $ 1.30

85) Martin Company currently manufactures all component parts used in the manufacturing of various hand tools. The Extruding Division produces a steel handle used in three different tools. The budget for these handles is 120,000 units with the following unit cost: Direct material Direct labor Variable overhead Fixed overhead Total unit cost

$ 0.60 0.40 0.10 0.20 $ 1.30

The Polishing Division purchases 20,000 handles from the Extruding Division and completes the hand tools. An outside supplier, Venture Steel, has offered to supply 20,000 units of the handle to the Polishing Division for $1.25 per unit. The Extruding Division currently has idle capacity that cannot be used. If Martin Company would like to develop a range of transfer prices, what would be the maximum transfer price that the Polishing Division would be willing to pay the Extruding Division? A) $1.00. B) $1.10. C) $1.25. D) $1.30. 86) Martin Company currently manufactures all component parts used in the manufacturing of various hand tools. The Extruding Division produces a steel handle used in three different tools. The budget for these handles is 120,000 units with the following unit cost:| Direct material Direct labor Variable overhead Fixed overhead Total unit cost

$ 0.60 0.40 0.10 0.20 $ 1.30

87) The Alpha Division of a company, which is operating at capacity, produces and sells 1,000 units of a certain electronic component in a perfectly competitive market. Revenue and cost data are as follows: (CIA adapted) Sales Variable costs Fixed costs

$ 50,000 34,000 12,000

The minimum transfer price that should be charged to the Beta Division of the same company for each component is: A) $12. B) $34. C) $46. D) $50. 88) The Hinges Division of Altoona Corporation sells 80,000 units of part Z-25 to the outside market. Part Z-25 sells for $40 and has a variable cost per unit of $22 and a fixed cost per unit of $10. The Hinges Division has a capacity to produce 100,000 units per period. The Door Division currently purchases 10,000 units of part Z-25 from the Hinges Division for $40. The Door Division has been approached by an outside supplier willing to supply the parts for $36. If Altoona uses a negotiated transfer pricing system, what is the maximum transfer price that should be charged for this transaction? A) $40. B) $36. C) $32. D) $22. 89) The Hinges Division of Altoona Corporation sells 80,000 units of part Z-25 to the outside market. Part Z-25 sells for $40 and has a variable cost per unit of $22 and a fixed cost per unit of $10. The Hinges Division has a capacity to produce 100,000 units per period. The Door Division currently purchases 10,000 units of part Z-25 from the Hinges Division for $40. The Door Division has been approached by an outside supplier willing to supply the parts for $36. If Altoona uses a negotiated transfer pricing system, what is the minimum transfer price that should be charged for this transaction? A) $40. B) $36. C) $32. D) $22.

90) The Eastern Division sells goods internally to the Western Division at Tennessee Company. The quoted external price in industry publications from a supplier near Eastern is $200 per ton plus transportation. It costs $20 per ton to transport the goods to Western. Eastern's actual market cost per ton to buy the direct materials to make the transferred product is $100 and actual per-ton direct labor is $50. Other actual costs of storage and handling are $40. Tennessee Company's president selects a $220 transfer price. This is an example of: (CIA adapted) A) market-based transfer pricing. B) cost-based transfer pricing. C) negotiated transfer pricing. D) cost plus 20% transfer pricing. 91) Which of the following is the most significant disadvantage of a cost-based transfer price? (CIA adapted) A) Requires internally developed information. B) Imposes market effects on company operations. C) Requires externally developed information. D) May not promote long-term efficiencies. 92) An appropriate transfer price between two divisions of The Fathom Company can be determined from the following data: (CIA adapted) Fabricating Division Market price of subassembly Variable cost of subassembly Excess capacity (in units) Assembling Division Number of units needed

$ $

50 20 1,000 900

What is the natural bargaining range for the two divisions? A) Between $20 and $50. B) Between $50 and $70. C) Any amount less than $50. D) $50 is the only acceptable transfer price. 93) A limitation of transfer prices based on actual cost is that they: (CIA adapted) A) charge inefficiencies to the department that is transferring the goods. B) charge inefficiencies to the department that is receiving the goods. C) must be adjusted by some markup. D) lack clarity and administrative convenience. 94) Which of the following is not an appropriate use of transfer pricing? A) Product costing. B) Decision making. C) Establishing standard costs. D) Evaluating performance. 26 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

95) An internal transfer between two divisions is in the best economic interests of the entire organization when: A) the variable costs plus the opportunity cost of the selling division is greater than the external price for the buying division. B) the variable costs plus the opportunity cost of the selling division is less than the external price for the buying division. C) there is excess capacity in the buying division with no alternative use. D) there is no established market price for the buying division. 96) Top management intervention in settling transfer pricing disputes between two divisions should be avoided unless A) there is no intermediate market. B) the intermediate market is imperfect. C) there is an extraordinarily large order. D) there are no opportunity costs. 97) The transfer price that should be used by top management in evaluating whether a division should buy within the company or from an outside supplier is the: A) negotiated transfer price. B) transfer price based on full cost. C) transfer price based on variable cost. D) transfer price based on an open market price. 98) Some managers prefer to use cost rather than market price in controlling transfers between divisions. If cost is to be used, then it should be: A) full cost. B) direct cost. C) variable cost. D) standard cost. 99) Cost-based transfer prices that include a normal markup to the costs act as a surrogate for: A) negotiated market prices. B) opportunity costs. C) differential costs. D) market prices. 100) Multinational firms often face conflicting pressures when developing transfer pricing policies. Tax avoidance results when: A) inflated transfer prices are used to reduce the profits of divisions in high tax-rate countries. B) inflated transfer prices are used to reduce the profits of divisions in low tax-rate countries. C) cost-based transfer prices are used instead of market transfer prices in high tax-rate countries. D) cost-based transfer prices are used instead of negotiated market transfer prices in low tax-rate countries.

101) Which of the following transfer pricing methods must be used in segment reporting by the oil and gas industry? A) Absorption cost. B) Differential cost. C) Negotiated market price. D) Market price. 102) Galena Corporation manufactures RD34 in its City Division. This output is sold to the Urban Division as a raw material in the Urban Division's product. The City Division also further processes the RD34 into RD35, and then sells it to other companies. The City Division's variable costs for the basic ingredient are $15 per unit. The Urban Division's variable costs are $5 per unit in addition to what it pays the City Division. The Urban Division has a capacity of 400,000 units and it can sell everything it produces. The market price for the finished additive is $40 per unit. If the City Division converts the RD34 into RD35, it can receive $25 per unit on the open market, but it incurs an additional $4 per unit for this processing. Required: (a) What is the lowest price the City Division should be willing to transfer RD34 to the Urban Division, assuming the City Division is not operating at capacity? (b) What is the lowest price the City Division should be willing to transfer RD34 to the Urban Division, assuming the City Division is operating at capacity? (c) Ignore parts (a) and (b). Assume that the City Division has a capacity of 500,000 units but can only sell 300,000 on the open market. How many units should the City Division sell externally and how many units should it sell to Urban Division at a transfer price of $20? 103) Shipping Industries is a decentralized company that evaluates its divisions based on ROI. The North Division has the capacity to produce 2,000 units of a component. The North Division's variable costs are $85 per unit and fixed costs are $70 per unit. The South Division can use the North Division's product as a component in one of its products. The South Division would incur $65 of variable costs to convert the component into its own product which sells for $310. Required (consider each question independently): (a) Assume the North Division can sell all that it produces for $185 each. The South Division needs 100 units. What is the appropriate transfer price? (b) Assume the North Division can sell 1,800 units at $265. Any excess capacity will be unused unless the units are purchased by the South Division (which can use up to 100 units). What are the minimum and maximum transfer prices?

104) Trevor Company operates several investment centers. The manager of the Genesis Division expects the following results for the coming year: Sales (50,000 units at $20) Variable costs Contribution margin Fixed costs Profit

$ 1,000,000 600,000 $ 400,000 250,000 $ 150,000

Included in the Genesis Division's variable cost is $7 for a component it buys from an outside supplier. One of these components is required in each unit of the Genesis Division's product. The manager of the Genesis Division has just found that she can buy the component from the Solar Division, another division of Trevor Company. The Solar Division sells 300,000 units of the component to outsiders at $8 and its variable cost is $4 per unit. The Solar Division offers to sell the component to Genesis at a price of $6. Solar is operating well below capacity. Required: (a) If Genesis accepts the offer, what will happen to the income of the Solar Division? (b) If Genesis accepts the offer, what will happen to the income of the Genesis Division? (c) If Genesis accepts the offer, what will happen to the income of the Trevor Company? 105) The Trevor Company operates several investment centers. The manager of the Genesis Division expects the following results for the coming year: Sales (50,000 units at $20) Variable costs Contribution margin Fixed costs Profit

$ 1,000,000 600,000 $ 400,000 250,000 $ 150,000

Included in the Genesis Division's variable cost is $7 for a component it buys from an outside supplier. One of these components is required in each unit of the Genesis Division's product. The manager of the Genesis Division has just found that she can buy the component from the Solar Division, another division of Trevor Company. The Solar Division sells 300,000 units of the component to outsiders at $8 and its variable cost is $4 per unit. Solar offers to sell the component to Genesis at a price of $6. Solar has a capacity of 330,000 units. Assume that Genesis wants to buy all of its needs from one source, so Solar must supply all or none of the Genesis Division's needs for 50,000 units. Required: (a) Determine the change in income of the Solar Division of supplying the component to Genesis for $6 per unit as opposed to not supplying the component to Genesis. (b) Determine the change in income of Trevor Company if Solar supplies the component to Genesis for $6 per unit. 29 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

106) The Barrel Division of Chemco Incorporated has a capacity of 200,000 units and expects the following results in the coming period: Sales (160,000 units at $4) Variable costs, at $2 Fixed costs Income

$ 640,000 320,000 260,000 $ 60,000

The Tank Division of Chemco Incorporated currently purchases 50,000 units of a part for one of its products from an outside supplier for $4 per unit. The Tank Division's manager believes he could use a minor variation of the Barrel Division's product instead and offers to buy the units from the Barrel Division for $3.50 per unit. Making the variation desired by the Tank Division would cost the Barrel Division an additional $0.50 per unit and would increase the Barrel Division's annual cash fixed costs by $20,000. The Barrel Division's manager agrees to the deal offered by the Tank Division's manager. Required: (a) What is the effect of the deal on the Tank Division's income? (b) What is the effect of the deal on the Barrel Division's income? (c) What is the effect of the deal on the income of Chemco Incorporated as a whole? 107) Division A of Spangler Company expects the following results: Sales (5,000 × $60) (25,000 × $72) Variable costs at $36 Contribution margin Fixed costs, all common, allocated on the basis of relative units Profit

To Division B $ 300,000

To Outsiders

180,000 $ 120,000

$ 1,800,000 900,000 $ 900,000

60,000

300,000

60,000

600,000

Division B has the opportunity to buy the 5,000 units it needs from an outside supplier at $45 each. Required (consider each question independently): (a) Division A refuses to meet the $45 price, sales to outsiders cannot be increased, and Division B buys from the outside supplier. Compute the effect on the income of Spangler Company. (b) Division A cannot increase its sales to outsiders, does meet the $45 price, and Division B continues to buy from Division A. Compute the effect on the income of Spangler Company.

108) Veritron Division of Argos Incorporated has a capacity of 100,000 units and expects the following results for the year: Sales (90,000 units at $30) Variable costs, at $20 Fixed costs Income

$ 2,700,000 1,800,000 700,000 $ 200,000

Magnatron Division of Argos Incorporated currently purchases 20,000 units of a part for one of its products from an outside supplier at $32 per unit. Magnatron's manager believes she could use a minor variation of Veritron's product instead and offers to buy the units from Veritron for $26 per unit. Making the variation desired by Magnatron would cost Veritron an additional $5 per unit and would increase Veritron's annual cash fixed costs by $80,000. Veritron's manager agrees to the deal offered by Magnatron's manager. Required: (a) What is the effect of the deal on Magnatron's income? (b) What is the effect of the deal on Veritron's income? (c) What is the effect of the deal on the income of Argos Incorporated as a whole? 109) Division A of Spangler Company expects the following results: Sales (5,000 × $60) (25,000 × $60) Variable costs at $36 Contribution margin Fixed costs, all common, allocated on the basis of relative units Profit

To Division B $ 300,000

To Outsiders

180,000 $ 120,000

$ 1,500,000 900,000 $ 600,000

60,000

300,000

60,000

300,000

Division B has the opportunity to buy the 5,000 units it needs from an outside supplier at $45 each. Assume that Division A cannot increase sales to outsiders. Required: (a) What would be the optimal transfer price? (b) Assume that Spangler allows the divisional managers to negotiate transfer prices. What would the maximum transfer price be? (c) Assume that Spangler allows the divisional managers to negotiate transfer prices. What would the minimum transfer price be?

110) Winton Industries evaluates its divisions based on residual income. The Springfield Division has the capacity to produce 20,000 units of a component. The Springfield Division's variable costs are $150 per unit and fixed costs are $110 per unit. The Monnett Division can use the Springfield Division's product as a component in one of its products. The Monnett Division would incur $75 of variable costs to convert the component into its own product which sells for $300. Required (consider each question independently): (a) Assume the Springfield Division can sell all that it produces for $285 each. The Monnett Division needs 1,000 units. What is the appropriate transfer price? (b) Assume the Springfield Division can sell 18,000 units at $285. Any excess capacity will be unused unless the units are purchased by the Monnett Division (which can use up to 1,000 units). What are the minimum and maximum transfer prices? 111) Table Lake Cruises, Incorporated, operates two divisions: (1) a Recreational Division that owns and manages charter boats on the lake and (2) a Repair Division that works on small gasoline crafts as well medium-size diesel engine boats. The Repair Division has an estimated variable cost of $45 per labor-hour and has a backlog of work for diesel engines. They charge $125 per hour for labor & overhead, which is standard for this type of work. The Recreational Division complained that it could hire its own repair workers for $85 per hour, including leasing an adequate work area. Required: (a) What is the minimum transfer price per hour that the Repair Division should obtain for its services, assuming it is operating at capacity? (b) What is the maximum transfer price per hour that the Recreational Division should pay? (c) If the Repair Division had idle capacity, what is the minimum transfer price that the Repair Division should obtain? 112) The Counter Division can sell externally for $60 per unit. Its variable manufacturing costs are $35 per unit, and its fixed costs are $12 per unit. Required: (a) What is the optimal transfer price for transferring internally, assuming the division is operating at capacity? (b) What is the optimal transfer price for transferring internally, assuming the division is operating at well below capacity?

113) Salamander Company expects the following results in the coming period: Sales A: (10,000 × $160) B: (25,000 × $72) Variable costs Contribution margin Fixed costs Profit

Division A $ 1,600,000 1,360,000 $ 240,000 160,000 $ 80,000

Division B $ 1,800,000 900,000 $ 900,000 360,000 $ 540,000

Included in Division A's costs are 10,000 units of a subcomponent purchased from an outside supplier for $45. The managers have recently initiated negotiations for Division B to supply the components to Division A. Division B has a total capacity of 40,000 units. Required: (a) Would the Salamander Company prefer the subcomponent used by A to be purchased internally from B or from the outside vendor? (b) What would be the maximum and minimum transfer prices? 114) The following segment reporting statement includes Salamander Company's expected results for the coming period:

Sales A: (10,000 × $160) B: (25,000 × $72) Variable costs Contribution margin Fixed costs Profit

Salamander Company Segment Reporting Statement Division A $ 1,600,000 1,360,000 $ 240,000 160,000 $ 80,000

Division B $ 1,800,000 900,000 $ 900,000 360,000 $ 540,000

Included in Division A's costs are 10,000 units of a subcomponent purchased from an outside supplier for $45. The managers have recently initiated negotiations for Division B to supply the components to Division A. Division B has a total capacity of 40,000 units. Required: (a) Prepare a new segment reporting statement for the Salamander Company, assuming an internal transfer at the maximum transfer price. (b) Prepare a new segment reporting statement for the Salamander Company, assuming an internal transfer at the minimum transfer price.

115) Thai Company has two divisions organized as profit centers: Redmon and Tomlin. Thai expects the following results in the coming period: Redmon Sales Redmon: (10,000 × $16) Tomlin: (250,000 × $7.20) Variable costs Contribution margin Fixed costs Profit

Tomlin

$ 1,600,000 1,360,000 $ 240,000 160,000 $ 80,000

$ 1,800,000 1,000,000 $ 800,000 460,000 $ 340,000

Included in Redmon's costs are 100,000 units of a subcomponent purchased from an outside supplier for $4.50 per unit. The managers have recently initiated negotiations for Tomlin to supply the components to Redmon. Tomlin has a total capacity of 400,000 units. Required: (a) Would Thai Company prefer the subcomponent used by Redmon to be purchased internally from Tomlin or from the outside vendor? What would be the profit impact of this decision? (b) What would be the maximum and minimum transfer prices?

116) Macon Motor Works has just acquired a new Battery Division. The Battery Division produces a standard 12-volt battery that it sells to retail outlets at a competitive price of $20. The retail outlets purchase about 800,000 batteries a year. Since the Battery Division has a capacity of 1,000,000 batteries per year, top management is thinking that it might be wise for the company's Automotive Division to start purchasing batteries from the newly acquired Battery Division. The Automotive Division now purchases 300,000 batteries per year from an outside supplier at a price of $18 per battery. The discount from the competitive $20 price is a result of the large quantity purchased. The Battery Division's cost per battery is shown below: Direct materials Direct labor Variable overhead Fixed overhead Total cost

8 4 2 2 $ 16

Fixed costs are based on 1,000,000 batteries. Both divisions are to be treated as investment centers, and their performance is to be evaluated by the ROI formula. Required: (a) What transfer price would you recommend and why? (b) What transfer price would you recommend if the Battery Division is now selling 1,000,000 batteries a year to retail outlets? (c) Suppose the manager of the Battery Division can increase its capacity to 1,500,000 units for $1,200,000. She then has the option of (c1) cutting the retail price to $17.50 with the certainty that sales will increase to 1,500,000 batteries, or (c2) maintaining the outside price of $20.00 for the 800,000 batteries and transferring the 300,000 batteries to the Automotive Division at some price that would produce the same income for the Battery Division as option (c1). What is the minimum transfer price you would recommend in the (c2) option?

117) Chattanooga, Incorporated, has two divisions for its metal fabrication business. The Stamp Division stamps the objects and then transfers them to the Finish Division, which finishes and sells them. Last year, the Stamp Division had administrative expenses of $40,000. The Finish Division incurred additional production costs of $120,000 (exclusive of amounts paid to the Stamp Division for the stamped steel) to process 120,000 units. The Finish Division sold the finished goods for $500,000 and incurred $80,000 in variable selling and administrative expenses. Required: (a) Prepare income statements for each division. Use a transfer price of the Stamp Division's total cost plus 5%. Assume Cost of Goods Sold for the Finish Division is $351,000. (b) Repeat (a), using a transfer price of $2.00 per unit; this is also the market price. (c) Repeat (a), using a negotiated transfer price of $1.90 per unit. (d) Which transfer price results in higher income to Chattanooga Incorporated? 118) Division S sells its product to unrelated parties at a price of $20 per unit. It incurs variable costs of $7 per unit and has fixed costs of $50,000 per month. Monthly production is generally 10,000 units. Division B uses Division S's product in its operations. It can purchase the units from Division S at $20 per unit but must pay $1.50 per unit in shipping costs. Alternatively, Division B can buy from Division S's competition at a delivered price of $21 per unit. Required: (a) From the company's perspective, should Division B purchase the units internally or externally? Assume Division S has ample capacity to handle all of Division B's needs. (b) Would your answer change if Division S can sell everything it produces to outside customers?

119) Calvin Machinery Company manufactures heavy-duty equipment used in foundries, mining operations, and similar operations. The company is decentralized, with various division managers having control over capital investments and most production decisions. The Cylinder Division fabricates a component which is used by the Press Division in its production of metal presses. The Cylinder Division has been selling to the Press Division at a price of $3,000 per unit. Because of a cost increase, the Cylinder Division wants to increase its price to $3,200, even though the Press Division can still purchase an equivalent component externally for $3,000. The following information has been gathered regarding this issue: Press Division's annual purchases Cylinder Division's variable costs Cylinder Division's fixed costs

100units $ 2,400per unit $ 600per unit

Required: (support your answers with appropriate calculations) (a) If the Press Division buys its units externally, the Cylinder Division will have idle capacity for which there are no alternative uses. Will the company as a whole benefit if the Press Division purchases its units externally for $3,000 per unit? (b) If the Press Division buys its units externally, the Cylinder Division will have idle capacity which can be used to generate a positive cash flow of $40,000. Will the company as a whole benefit if the Press Division purchases its units externally for $3,000 per unit? (c) Refer to (b). Will your answer change if the price at which the Press Division can buy externally decreases to $2,700 per unit?

120) The GrowPro Manufacturing Company has a division (Division P) that produces an essential ingredient used by the Lawn Division in making lawn fertilizer. Historically, 75% of Division P's output has been purchased by Division L and 25% has been sold to other fertilizer companies. The transfer price between Division P and Division L has been based on the outside sales price less selling and administrative expenses directly applicable to the outside sales. Last year, the transfer price was $35 per ton and Division P would like the same transfer price this year. However, the general manager of Division L has found an outside supplier who will sell the ingredient for $30 per ton. She would like to continue buying from Division P, but Division P's manager does not want to match the $30 price because he thinks that the margin is too small. Top management does not get involved in transfer pricing disputes, but rather, allows division managers to make their own decisions concerning internal or external purchases and sales. The following information has been gathered regarding Division P's operations last year: Sales Variable costs Fixed costs

Sales to L $ 4,200,000 3,000,000 360,000

External $ 2,000,000 1,000,000 120,000

The information presented above is based on selling 120,000 tons internally and 40,000 tons externally. Required: (a) If Division L buys externally, Division P can increase its current external sales by only 20,000 tons. What arguments can the general manager of Division L make to help Division P to match the $30 price? (b) Division L wants to use only one supplier, so Division P will either sell 120,000 tons to Division L or nothing. If Division L's capacity is 160,000 tons, how many units does Division P need to sell to outsiders at $50 per ton before it is better off selling to outsiders? Ignore any additional marketing costs which would be incurred to increase sales.

121) The Measurement Division of Flow Company produces pumps which it sells for $20 each to outside customers. The Measurement Division's cost per pump, based on normal volume of 500,000 units per period, is shown below: Variable costs Fixed overhead Total

$ 12 3 $ 15

Flow has recently purchased a small company which makes sprinkler systems. This new company is presently purchasing 100,000 pumps each year from another manufacturer. Since the Measurement Division has a capacity of 600,000 pumps per year and is now selling only 500,000 pumps to outside customers, management would like the new Sprinkler Division to begin purchasing its pumps internally. The Sprinkler Division is now paying $20 per pump, less a 10% quantity discount. The Measurement Division could avoid $1 per unit in variable costs on any sales to the Sprinkler Division. Required: (a) Treating each division as an independent profit center, within what price range should the internal sales price fall? (b) Now assume that the Measurement Division is selling 600,000 pumps per year on the outside. Determine the appropriate transfer price. Show all computations. 122) Finnish Corporation has a Supply Division that does work for other divisions in the company as well as for outside customers. The company's Custodial Products Division has asked the Supply Division to provide it with 10,000 special parts each year. The special parts would require $15.00 per unit in variable production costs. The Custodial Products Division has a bid from an outside supplier for the special parts at $29.00 per unit. In order to have time and space to produce the special parts, the Supply Division would have to cut back production of another product - the H56 that it is currently producing. The H56 sells for $32.00 per unit and requires $19.00 per unit in variable production costs. Packaging and shipping costs of the H56 are $3.00 per unit. Packaging and shipping costs for the new special part would be only $1.00 per unit. The Supply Division is currently producing and selling 40,000 units of the H56 each year. Production and sales of the H56 would drop by 20% if the new special part is produced for the Custodial Products Division. Required: (a) What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 10,000 special parts per year from the Supply Division to the Custodial Products Division? (b) Is it in the best interests of Finnish Corporation for this transfer to take place? Explain.

123) Division N has asked Division M of the same company to supply it with 10,000 units of part P782 this year to use in one of its products. Division N has received a bid from an outside supplier for the parts at a price of $25.00 per unit. Division M has the capacity to produce 50,000 units of part P782 per year. Division M expects to sell 46,000 units of part P782 to outside customers this year at a price of $26.00 per unit. To fill the order from Division N, Division M would have to cut back its sales to outside customers. Division M produces part P782 at a variable cost of $17.00 per unit. The cost of packing and shipping the parts for outside customers is $1.00 per unit. These packing and shipping costs would not have to be incurred on sales of the parts to Division N. Required: (a) What is the range of transfer prices within which both divisions' profits would increase as a result of agreeing to the transfer of 10,000 parts this year from Division M to Division N? (b) Is it in the best interest of the overall company for this transfer to take place? Explain. 124) Farris Yard Equipment Corporation manufactures lawn mowers and snow blowers. It also manufactures engines that are used by the Lawn Mower Assembly Division (LMAD). The Engine Division (ED) also sells about 40% of its output to the outside market (these are multipurpose engines). ED's annual capacity is 155,000 units and annual output is currently 135,000 units. All engines sold internally to the LMAD are priced at cost plus 20% markup. In January 2020, the Snow Blower Assembly Division (SBAD) approached the ED to 'buy' 20,000 engines. Diane Rogers, the controller of ED, computed the costs of manufacturing these engines as follows: Total Per unit Materials $ 300,000 $ 15.00 Labor 400,000 20.00 Special equipment 36,000 1.80 Quality inspection 24,000 1.20 Other manufacturing costs 350,000 17.50 Total costs $ 1,110,000 $ 55.50 Rogers quoted a price of $66.60 for each engine transferred to the SBAD. Jackson White, the manager of SBAD, was furious to note that the ED was "trying to make money off a sister division." He argued that the price must include only the cost of materials, as all other costs will be incurred irrespective of whether or not SBAD places the order for 20,000 engines. Morton Downey, the production manager of ED, pointed out that the special equipment will be purchased only for fulfilling this internal order. Moreover, he argued that inspection must also be done just like on all other engines; therefore, the inspection costs must also be included. Labor is paid a flat monthly salary. Other manufacturing costs include both variable and fixed components (in roughly equal proportion). Required: (a) Given that excess capacity exists, what is the minimum price that the ED must charge to the SBAD? (b) What are the pros and cons of internal sourcing? 40 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

125) Allentown Division of Sparks Incorporated transfers its product to the Youngstown Division. The Youngstown Division can either buy the item internally or externally. The cost of purchasing the item externally is $73 per unit. The Allentown Division has just completed its annual cost update as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling and administrative expenses Total costs Desired return Sales price

$ 25.00 18.00 6.00 3.50 4.00 8.50 $ 65.00 14.00 $ 79.00

The Allentown Division is operating at 60 percent of its 400,000 unit capacity. Required: a) What is the minimum transfer price the Allentown Division should charge for internal transfers? b) What is the maximum price the Youngstown Division would be willing to pay? c) Why should the Allentown Division reduce its price to the Youngstown Division? 126) The following costs exist for the Wiring Division of Coriander Corporation: Direct materials Direct labor Manufacturing overhead (25% variable) Operating expenses (30% variable) Output

$ 67,500 45,000 45,000 75,000 30,000units

The output of the Wiring Division, which sells for $10 per unit externally, is used by the Electrical Harness Division. Required: Compute the transfer price for a unit of the Wiring Division's output using: a) market price. b) variable production cost plus 30%. c) absorption cost plus 25%. d) variable cost. e) total cost plus 10%.

127) SEMO Incorporated has a division located in Spain and another in the United States. The Spanish Division produces a part needed for the product made by the U.S. Division. There is substantial excess capacity in the Spanish Division. The tax rate of the Spanish Division is 35% and U.S. Division tax rate is 30%. The part sells externally for $75 and the Spanish division's manufacturing costs are: Direct materials Direct labor Variable overhead Fixed overhead

$ 32 12 6 19

Required: a) What would be the lowest acceptable transfer price for the Spanish division? b) What would be the highest acceptable transfer price for the U.S. division? c) What would be the transfer price that would be the best for SEMO Incorporated and why? 128) The following information is available for the two divisions of MAC Company: Division A: Selling price to outside market Standard unit-level costs Division B: Selling price of finished product Standard unit-level costs

$ 55 35 $ 95 25

Division A has no excess production capacity. Required: a) In order to ensure the best use of the productive capacity of Division A, what transfer price should be set by Division A and what effect does this transfer price have on the overall margin for the company? Is the answer goal congruent under the general rule? b) Should Division B accept a special order for its product if the selling price is reduced to $70. Use your answer from (a) and explain. c) Would your answer to (b) change if Division A had excess capacity? Explain.

129) Division X has asked Division K of the Easton Company to supply it with 5,000 units of part L433 this year to use in one of its products. Division X has received a bid from an outside supplier for the parts at a price of $26.00 per unit. Division K has the capacity to produce 30,000 units of part L433 per year. Division K expects to sell 26,000 units of part L433 to outside customers this year at a price of $30.00 per unit. To fill the order from Division X, Division K would have to cut back its sales to outside customers. Division K produces part L433 at a variable cost of $21.00 per unit. The cost of packing and shipping the parts for outside customers is $2.00 per unit. These packing and shipping costs would not have to be incurred on sales of the parts to Division X. Required: a. What is the range of transfer prices within which both the divisions' profits would increase as a result of agreeing to the transfer of 5,000 parts this year from Division K to Division X? b. Is it in the best interest of the Easton Company overall for this transfer to take place? Explain. 130) Pomme Corporation has a Motor Division that does work for other divisions in the company as well as for outside customers. The company's Equipment Division has asked the Motor Division to provide it with 2,000 special motors each year. The special motors would require $17.00 per unit in variable production costs. The Equipment Division has a bid from an outside supplier for the special motors at $28.00 per unit. In order to have time and space to produce the special motor, the Motor Division would have to cut back production of another motor - the J789 that it is currently producing. The J789 sells for $34.00 per unit and requires $22.00 per unit in variable production costs. Packaging and shipping costs of the J789 are $4.00 per unit. Packaging and shipping costs for the new special motor would be only $0.50 per unit. The Motor Division is currently producing and selling 10,000 units of the J789 each year. Production and sales of the J789 would drop by 10% if the new special motor is produced for the Equipment Division. Required: a. What is the range of transfer prices within which both the divisions' profits would increase as a result of agreeing to the transfer of 2,000 special motors per year from the Motor Division to the Equipment Division? b. Is it in the best interest of Pomme Corporation for this transfer to take place? Explain.

131) Randolph Company has two divisions organized as profit centers: Redmon and Tomlin. Randolph expects the following results in the coming period: Redmon sales Redmon: (10,000 × $16) Tomlin: (250,000 × $7.20) Variable costs Contribution margin Fixed costs Profit

Tomlin

$ 1,600,000 1,360,000 $ 240,000 160,000 $ 80,000

$ 1,800,000 1,000,000 $ 800,000 460,000 $ 340,000

Included in Redmon's costs are 100,000 units of a subcomponent purchased from an outside supplier for $4.50. The managers have recently initiated negotiations for Tomlin to supply the components to Redmon. Tomlin has a total capacity of 400,000 units. Required: a. Prepare a new segment reporting statement for Randolph, assuming an internal transfer at the maximum transfer price. b. Prepare a new segment reporting statement for Randolph, assuming an internal transfer at the minimum transfer price. 132) Why is transfer pricing only a concern for profit or investment centers and not for cost or revenue centers? 133) Explain the general principle for determining the optimal transfer price. 134) What is meant by a dual transfer pricing system? What are some advantages and disadvantages of it? 135) What are the limitations of market-based transfer prices? 136) What are the advantages and disadvantages of using a negotiated transfer price? 137) Why is transfer pricing important in tax accounting? 138) What are the principal items that must be disclosed about each segment and how does this differ if a company has significant foreign operations? 139) Hartland Company has used market price as its transfer price for the Sterling Division for many years with no problems. This year, because of changes in the economy, the demand for its final product has dropped along with the price. Required: Explain the problems of basing the transfer prices on distress market prices and possible solutions to the problems. 44 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

140) Midland Incorporated has two divisions: Production and Marketing, which it treats as profit centers. Because the Production Division has no marketing capabilities, it does not have a traditional market price to consider and the company does not want to use negotiation. Required: Discuss the following cost-based transfer prices along with problems that might exist for each. a) Standard cost. b) Full absorption cost. c) Actual cost. 141) Mr. Massee, Vice President of Production, is looking at two of the divisions that report to him. These divisions are viewed as profit centers by the company. He has called in the head of the Brake Division, which provides a part used by the Wheel Division, because he has noticed that the Wheel Division is going to an external supplier for the part. Mr. Omsby, the head of the Brake Division, tells him that he has set the transfer price at $38 per part even though the external price is $33 per part. The standard unit-level cost is $22. "I have set the $38 price because I am operating with no excess capacity and do not want to have the internal transfer to the Wheel Division. I have some good external customers and do not want to lose them by selling internally. If I had excess capacity, I would be willing sell to the Wheel Division at a lower price." Mr. Massee says that he has to think about this situation because something doesn't seem right to him. After Mr. Omsby leaves the office, he calls his friend in the controller's department for some help. Required: Assume you are the friend that Mr. Massee calls. Explain to Mr. Massee the differences in transfer pricing when there is no excess capacity and when there is excess capacity and what Mr. Omsby is doing wrong. 142) Ms. Clarke, one of the marketing managers, has come to the meeting with a number of reports about one of her products. The Vice President of Marketing sees her agitation and asks her what the problem is. "Well, the product made by the East Coast Division is losing sales even after the price had been lowered drastically. The manager of the division is threatening to close because of the reduced demand." The Vice President of Marketing asks why the lowered prices are a problem and Ms. Clarke says that, according to the manager, the price used to transfer the goods to the Southern Division are based on market price and, with the lowered market price, the unit-level costs are no longer being covered and he is losing money on every transfer as well as every third-party sale. Required: Explain further to the Vice President of Marketing the issues involved in transfer pricing when there are distressed market prices. 45 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

143) Briefly discuss some of the general issues of multinational transfer pricing. 144) During the current year, Tuesday Company's foreign Division A incurred production costs of $4 million for units that are transferred to its other foreign Division B. Costs in Division B, outside of the costs of production of the final product, are $8 million. These are third-party costs. Sales revenue for the final product for Division B is $30 million. Other companies in the same country import a similar type of part as Division B at a cost of $7 million. Tuesday has set its transfer price at $14 million, justifying this price because of the special controls it has on the operations in Division A as well as its special manufacturing method. The tax rate in the country where Division A is located is 40% while the tax rate for Division B's country is 70%. Required: a) What would Tuesday's total tax liability for both divisions be if it used the $7 million transfer price? b) What would the total tax liability be if it used the $14 million transfer price? 145) How do import duties affect transfer pricing? 146) Space Incorporated has just purchased a foreign subsidiary that makes a component used by one of the domestic divisions. Ms. Jenner, the controller, has been asked about issues that should be considered in establishing a transfer price for the new subsidiary. Since this is Space's first foray into the multinational arena, there is little to no expertise in international issues in the company. Ms. Jenner has told her boss that she will get back to him with a report as to the issues to be considered. She then calls a friend of hers at a branch of one of the big-four CPA firms that deals with international issues for some help. Required: What is the basic information that Ms. Jenner will be given by her friend? 147) Briefly discuss transfer prices in relation to external segment reporting under GAAP.

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 16 Fundamentals of Variance Analysis 1) In essence, the terms "master budget" and "operating budget" mean the same thing and can be used interchangeably. 2) Variances are the difference between actual results and budgeted results. 3) In general, and holding all other things constant, an unfavorable variance decreases operating profits. 4) A favorable variance is not necessarily good, and an unfavorable variance is not necessarily bad. 5) The terms "master budget" and "flexible budget" mean the same thing and can be used interchangeably. 6) A flexible budget adjusts the static budget to reflect the actual activity level achieved during the period. 7) If the budgeted activity level is greater than the actual activity level, then the total budgeted costs of the master budget will be greater than the total budgeted costs of the flexible budget. 8) The difference between operating profits in the master budget and operating profits in the flexible budget is called a sales price variance. 9) The sales activity variance is the result of a difference between budgeted units sold and actual units sold. 10) The sales price variance is the actual selling price per unit times the difference between budgeted number of units and the actual number of units sold. 11) Production cost variances are input variances, while sales activity variances are output variances. 12) The flexible and master budget amounts are the same for fixed marketing and administrative costs. 13) The standard cost for a unit of output is the standard price per unit of input times the standard number of inputs per one unit of output. 14) Both the actual material used and the standard quantity allowed for material are based on the actual output attained. 15) It is possible to have a favorable direct material price variance and an unfavorable direct material efficiency variance. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

16) The materials price variance is computed by multiplying the difference between the actual price and the standard price by the actual quantity of materials used in production. 17) An unfavorable direct labor efficiency variance could be the result of poor supervision or poor scheduling by divisional managers. 18) Variance analysis for fixed production costs is virtually the same as for variable production costs. 19) The budget (or spending) variance for fixed production costs is the difference between the actual fixed costs and the budgeted fixed costs. 20) The production volume variance is the difference between fixed costs on the flexible budget and the fixed costs on the master budget. 21) When using standard costing, costs are transferred through the production process at their standard costs. 22) Standards and budgets are the same thing. 23) A standard cost system may be used in: (CPA adapted) A) job-order costing but not process costing. B) either job-order costing or process costing. C) process costing but not job-order costing. D) neither process costing nor job-order costing. 24) Which of the following statements is(are) true? (A) A favorable variance is not necessarily good, and an unfavorable variance is not necessarily bad. (B) The master budget includes operating budgets (e.g., production budget) and financial budgets (e.g., cash budget). A) Only A is true. B) Only B is true. C) Both of these are true. D) Neither of these is true. 25) An operating budget would not include a: A) cash budget. B) sales budget. C) labor budget. D) production budget.

26) A variance can best be described as: A) benchmarks common to other firms in the same industry. B) differences between planned results and actual results. C) useful for performance evaluations but not making decisions. D) generally accepted accounting principles when standards are used. 27) The simplest measure of performance is the variance that compares: A) standard material prices with actual material prices. B) standard direct labor rates with actual direct labor rates. C) budgeted sales revenue with actual sales revenue. D) budgeted operating income with actual operating income. 28) In general, the terms favorable and unfavorable are used to describe the effect of a variance on: A) operating profits. B) sales revenue. C) production costs. D) operating expenses. 29) Which of the following statements regarding variances is(are) false? (A) In general and holding all other things constant, an unfavorable variance decreases operating profits. (B) A favorable variance is not always good, and an unfavorable variance is not always bad. A) Only A is false. B) Only B is false. C) Both of these are false. D) Neither of these is false. 30) Which of the following variances will always be favorable when actual sales exceed budgeted sales? A) Variable cost B) Fixed cost C) Sales activity D) Operating profit 31) Which of the following organizational policies is most likely to result in undesirable managerial behavior? (CMA adapted) A) Raj Chemicals sponsors television coverage of cricket matches between national teams representing India and Pakistan. The expenses of such media sponsorship are not allocated to its various divisions. B) Felix Eagle, the chief executive officer of Eagle Rock Brewery, wrote a memorandum to his executives stating, "Operating plans are contracts and they should be met without fail." C) The budgeting process at Lawrence Manufacturing starts with operating managers providing goals for their respective departments. D) Gallen Lighting holds quarterly meetings of departmental managers to consider possible changes in the budgeted targets due to changing conditions. 3 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

32) When a manager is concerned with monitoring total cost, total revenue, and net profit conditioned upon the level of productivity, an accountant should normally recommend: (CPA adapted)

A. B. C. D.

Flexible Budgeting Yes Yes No No

Standard Costing No Yes Yes No

A) Option A B) Option B C) Option C D) Option D 33) Based on past experience, Moss Company has developed the following budget formula for estimating its shipping expenses: Shipping costs = $16,000 + ($0.50 × lbs. shipped). The company's shipments average 12 lbs. per shipment. The planned activity and actual activity regarding orders and shipments for the current month are given in the following schedule: Sales orders Shipments Units shipped Sales Total pounds shipped

Plan 800 800 8,000 $ 120,000 9,600

Actual 780 820 9,000 $ 144,000 12,300

The actual shipping costs for the month amounted to $21,000. The appropriate monthly flexible budget allowance for shipping costs for the purpose of performance evaluation would be: (CMA adapted) A) $20,680. B) $20,920. C) $20,800. D) $22,150. 34) The purpose of the flexible budget is to: A) allow management some latitude in meeting goals. B) eliminate cyclical fluctuations in production reports by ignoring variable costs. C) compare actual and budgeted results at virtually any level of production. D) reduce the total time in preparing the annual budget. 4 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

35) The basic difference between a master budget and a flexible budget is that a: A) flexible budget considers only variable costs but a master budget considers all costs. B) flexible budget allows management latitude in meeting goals whereas a master budget is based upon a fixed standard. C) master budget is for an entire production facility but a flexible budget is applicable to single departments only. D) master budget is based on one specific level of production and a flexible budget can be prepared for any production level within a relevant range. 36) The slope of the flexible budget line is the: A) selling price per unit. B) variable cost per unit. C) fixed cost per unit. D) contribution margin per unit. 37) The intercept of the flexible budget line is: A) sales. B) variable costs. C) fixed costs. D) contribution margin. 38) When using a flexible budget, what will happen to variable costs on a per-unit basis as production increases within the relevant range? A) Decrease B) Increase C) Remain unchanged D) Fixed costs are not considered in flexible budgeting 39) The Valenti Company uses flexible budgeting for cost control. Valenti produced 10,800 units of product during October, incurring indirect material costs of $13,000. Valenti's master budget reflected indirect material costs of $180,000 at a production volume of 144,000 units. What was the indirect material cost variance for October? A) $1,100 favorable B) $1,100 unfavorable C) $2,000 favorable D) $500 favorable

40) James Manufacturing has the following information available for July: Flexible Budget Variance

Actual Results Units

13,000

Sales revenue

Flexible Budget

Sales Activity Variance

Master Budget

2,000 U

$ 91,000

105,000

3,250 U

$ 4,000 F

30,000

$ 6,000 U

$ 13,000 F

Less: Variable manufacturing costs

Variable marketing and administrative Contribution margin

87,750

? $

52,000

What was James's actual sales revenue for July? A) $156,000 B) $169,000 C) $180,000 D) $191,000 41) James Manufacturing has the following information available for July: Flexible Budget Variance

Actual Results Units

13,000

Sales revenue

Flexible Budget

Sales Activity Variance

Master Budget

2,000 U

$ 91,000

105,000

3,250 U

$ 4,000 F

30,000

$ 6,000 U

$ 13,000 F

Less: Variable manufacturing costs

Variable marketing and administrative Contribution margin

87,750

? $

52,000

What was James's flexible budget sales revenue for July? A) $139,000. B) $156,000. C) $169,000. D) $180,000.

42) James Manufacturing has the following information available for July: Flexible Budget Variance

Actual Results Units

13,000

Sales revenue

Flexible Budget

Sales Activity Variance

Master Budget

2,000 U

$ 91,000

105,000

3,250 U

$ 4,000 F

30,000

$ 6,000 U

$ 13,000 F

Less: Variable manufacturing costs

Variable marketing and administrative Contribution margin

87,750

? $

52,000

What was James's flexible budget contribution margin for July? A) $39,000. B) $45,000. C) $52,000. D) $58,000. 43) James Manufacturing has the following information available for July: Flexible Budget Variance

Actual Results Units

13,000

Sales revenue

Flexible Budget

Sales Activity Variance

Master Budget

2,000 U

$ 91,000

105,000

3,250 U

$ 4,000 F

30,000

$ 6,000 U

$ 13,000 F

Less: Variable manufacturing costs

Variable marketing and administrative Contribution margin

87,750

? $

52,000

What was James's master budget sales revenue? A) $124,000. B) $148,000. C) $156,000. D) $180,000.

44) James Manufacturing has the following information available for July: Flexible Budget Variance

Actual Results Units

13,000

Sales revenue

Flexible Budget

Sales Activity Variance

Master Budget

2,000 U

$ 91,000

105,000

3,250 U

$ 4,000 F

30,000

$ 6,000 U

$ 13,000 F

Less: Variable manufacturing costs

Variable marketing and administrative Contribution margin

87,750

? $

52,000

What was James's master budget contribution margin? A) $52,000. B) $47,500. C) $45,000. D) $39,000. 45) James Manufacturing has the following information available for July: Flexible Budget Variance

Actual Results Units

13,000

Sales revenue

Flexible Budget

Sales Activity Variance

Master Budget

2,000 U

$ 91,000

105,000

3,250 U

$ 4,000 F

30,000

$ 6,000 U

$ 13,000 F

Less: Variable manufacturing costs

Variable marketing and administrative Contribution margin

87,750

? $

52,000

What was James's activity variance for variable manufacturing costs? A) $4,000. B) $14,000. C) $24,000. D) $34,000.

46) James Manufacturing has the following information available for July: Flexible Budget Variance

Actual Results Units

13,000

Sales revenue

Flexible Budget

Sales Activity Variance

Master Budget

2,000 U

$ 91,000

105,000

3,250 U

$ 4,000 F

30,000

$ 6,000 U

$ 13,000 F

Less: Variable manufacturing costs

Variable marketing and administrative Contribution margin

87,750

? $

52,000

Was James's activity variance for variable manufacturing costs favorable or unfavorable? A) Favorable B) Unfavorable 47) In analyzing company operations, the controller of the Carson Corporation found a $250,000 favorable flexible budget revenue variance. The variance was calculated by comparing the actual results with the flexible budget. This variance can be wholly explained by: (CMA adapted) A) the total flexible budget variance. B) the total static budget variance. C) changes in unit selling prices. D) changes in the number of units sold. 48) The difference between operating profits in the master budget and operating profits in the flexible budget is called the: A) sales activity variance. B) flexible budget variance. C) production volume variance. D) total operating profit variance. 49) Which of the following statements is(are) true regarding the sales activity variance? (A) The sales activity variance is the actual selling price per unit times the difference between the budgeted units and actual units. (B) If the sales activity variance for sales revenue is unfavorable, then the contribution margin sales activity variance will be unfavorable. A) Only A is true. B) Only B is true. C) Neither of these is true. D) Both of these are true. 9 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

50) The sales price variance is the difference between the actual sales revenues and the: A) budgeted selling price multiplied by the budgeted number of units sold. B) budgeted selling price multiplied by the actual number of units sold. C) actual selling price multiplied by the budgeted number of units sold. D) actual selling price multiplied by the actual number of units sold. 51) Which of the following statements is not true regarding the fixed production cost variance? A) The fixed production cost variance is the difference between actual and budgeted costs. B) With respect to this variance, fixed costs are affected by activity levels within a relevant range. C) The flexible budget's fixed costs equal the master budget's fixed costs. D) Fixed costs are treated as period costs for purposes of this variance. 52) Which of the following is the name of a form providing standard quantities of inputs required to produce a unit of output and the standard prices for the inputs? A) Static budget B) Standard cost sheet C) Variance account D) Master budget 53) If the total materials variance for a given operation is favorable, why must this variance be further evaluated as to price and usage? A) There is no need to further evaluate the total materials variance if it is favorable. B) Generally accepted accounting principles require that all variances be analyzed in three stages. C) All variances must appear in the annual report to equity owners for proper disclosure. D) A further evaluation lets management evaluate the activities of the purchasing and production functions. 54) Which department is customarily held responsible for an unfavorable materials quantity variance? A) Quality control B) Purchasing C) Engineering D) Production

55) When are the following direct materials variances ideally reported?

A. B. C. D.

Quantity Purchase Date Time of Use Purchase Date Time of Use

Price Purchase Date Time of Use Time of Use Purchase Date

A) Option A B) Option B C) Option C D) Option D 56) In the general model, a price variance is calculated as: A) (AP × AQ) – (AP × SQ) B) (AP × SQ) – (SP × SQ) C) (AP × AQ) – (SP × AQ) D) (AP × AQ) – (SP × SQ) 57) In the general model, an efficiency variance is calculated as: A) (SP × AQ) – (SP × SQ) B) (AP × SQ) – (SP × SQ) C) (AP × AQ) – (SP × SQ) D) (AP × AQ) – (SP × AQ) 58) Which of the following direct labor variances uses the standard hours allowed for the actual number of units produced? Price A. B. C. D.

Yes No Yes No

Efficiency Yes No No Yes

A) Option A B) Option B C) Option C D) Option D

59) 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. 60) Which variance will be unfavorable due to employees working more hours than allowed for the actual number of units produced? A) Price (rate) B) Efficiency C) Sales activity D) Production volume 61) In general, the direct labor efficiency variance is the responsibility of the: A) purchasing agent. B) company president. C) production manager. D) industrial engineering. 62) The variable overhead price variance is due to: A) price items only. B) efficiency items only. C) both price and efficiency items. D) neither price or efficiency items. 63) If overhead is applied to production using direct labor hours and the direct labor efficiency variance is favorable, then the variable overhead efficiency variance is: A) favorable. B) unfavorable. C) either favorable or unfavorable. D) neither favorable nor unfavorable.

64) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

Direct Materials Direct Labor

Standard Quantity 8pounds 0.25hour

Standard Price $ 1.80per pound $ 8.00per hour

Standard Cost $ 14.40 2.00 $ 16.40

During November, TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours. What is the direct materials price variance for November? A) $14,250 B) $14,400 C) $16,000 D) $17,100 65) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

Direct Materials Direct Labor

Standard Quantity 8pounds 0.25hour

Standard Price $ 1.80per pound $ 8.00per hour

Standard Cost $ 14.40 2.00 $ 16.40

66) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

Direct Materials Direct Labor

Standard Quantity 8pounds 0.25hour

Standard Price $ 1.80per pound $ 8.00per hour

Standard Cost $ 14.40 2.00 $ 16.40

During November, TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours. What is the direct materials efficiency variance for November? A) $14,250 B) $14,400 C) $16,000 D) $17,100 67) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

Direct Materials Direct Labor

Standard Quantity 8pounds 0.25hour

Standard Price $ 1.80per pound $ 8.00per hour

Standard Cost $ 14.40 2.00 $ 16.40

68) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

Direct Materials Direct Labor

Standard Quantity 8pounds 0.25hour

Standard Price $ 1.80per pound $ 8.00per hour

Standard Cost $ 14.40 2.00 $ 16.40

During November, TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours. What is the direct labor rate variance for November? A) $1,800 B) $1,900 C) $2,000 D) $2,200 69) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

Direct Materials Direct Labor

Standard Quantity 8pounds 0.25hour

Standard Price $ 1.80per pound $ 8.00per hour

Standard Cost $ 14.40 2.00 $ 16.40

70) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

Direct Materials Direct Labor

Standard Quantity 8pounds 0.25hour

Standard Price $ 1.80per pound $ 8.00per hour

Standard Cost $ 14.40 2.00 $ 16.40

During November, TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours. What is the direct labor efficiency variance for November? A) $1,800 B) $1,900 C) $2,000 D) $2,090 71) TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

Direct Materials Direct Labor

Standard Quantity 8pounds 0.25hour

Standard Price $ 1.80per pound $ 8.00per hour

Standard Cost $ 14.40 2.00 $ 16.40

72) The following information summarizes the standard cost for producing one metal tennis racket frame at Spaulding Industries. In addition, the variances for one month's production are given. Assume that all inventory accounts have zero balances at the beginning of the month.

Materials Direct Labor 2 hrs @ $2.60 Factory Overhead: Variable Fixed

Standard Cost Per Unit $ 4.00 5.20

Standard Monthly Costs $ 8,400 10,920

1.80 5.00 16.00

3,780 10,500 $ 33,600

$ Variances: Material price Material quantity Labor rate Labor efficiency

$ 244.75 $ 500.00 $ 520.00 $ 2,080.00

unfavorable unfavorable favorable unfavorable

What were the actual direct labor hours worked during the month? A) 5,000 B) 4,800 C) 4,200 D) 4,000

73) The following information summarizes the standard cost for producing one metal tennis racket frame at Spaulding Industries. In addition, the variances for one month's production are given. Assume that all inventory accounts have zero balances at the beginning of the month.

Materials Direct Labor 2 hrs @ $2.60 Factory Overhead: Variable Fixed

Standard Cost Per Unit $ 4.00 5.20

Standard Monthly Costs $ 8,400 10,920

1.80 5.00 16.00

3,780 10,500 $ 33,600

$ Variances: Material price Material quantity Labor rate Labor efficiency

$ 244.75 $ 500.00 $ 520.00 $ 2,080.00

unfavorable unfavorable favorable unfavorable

What was the actual quantity of materials used during the month? A) 2,156 B) 2,100 C) 2,225 D) 1,975

74) The following information summarizes the standard cost for producing one metal tennis racket frame at Spaulding Industries. In addition, the variances for one month's production are given. Assume that all inventory accounts have zero balances at the beginning of the month.

Materials Direct Labor 2 hrs @ $2.60 Factory Overhead: Variable Fixed

Standard Cost Per Unit $ 4.00 5.20

Standard Monthly Costs $ 8,400 10,920

1.80 5.00 16.00

3,780 10,500 $ 33,600

$ Variances: Material price Material quantity Labor rate Labor efficiency

$ 244.75 $ 500.00 $ 520.00 $ 2,080.00

unfavorable unfavorable favorable unfavorable

What was the actual price per unit paid for the direct material during the month, assuming all materials purchased were put into production? A) $4.34 B) $4.22 C) $4.11 D) $4.00 75) Data on Gantry Company's direct labor costs are given below: Standard direct-labor hours Actual direct-labor hours Direct-labor efficiency variance-favorable Direct-labor rate variance-favorable Total direct labor payroll

$ $ $

30,000 29,000 4,000 5,800 110,200

What was Gantry's actual direct labor rate? A) $3.60 B) $3.80 C) $4.00 D) $5.80

76) Data on Gantry Company's direct labor costs are given below: Standard direct-labor hours Actual direct-labor hours Direct-labor efficiency variance-favorable Direct-labor rate variance-favorable Total direct labor payroll

$ $ $

30,000 29,000 4,000 5,800 110,200

What was Gantry's standard direct labor rate? A) $3.54 B) $3.80 C) $4.00 D) $5.80 77) Batson Company produces Trivets. Based on its master budget, the company should produce 1,000 Trivets each month, working 2,500 direct labor hours. During May, only 900 Trivets were produced. The company worked 2,400 direct labor hours. The standard hours allowed for May production would be: A) 2,500 hours. B) 2,400 hours. C) 2,250 hours. D) 1,800 hours. 78) Information on Kimble Company's direct labor costs for the month of January is as follows: Actual direct labor hours Standard direct labor hours Total direct labor payroll Direct labor efficiency variance-favorable

$ $

34,500 35,000 241,500 3,200

What is Kimble's direct labor rate variance? A) $17,250 B) $20,700 C) $18,750 D) $21,000 79) Information on Kimble Company's direct labor costs for the month of January is as follows: Actual direct labor hours Standard direct labor hours Total direct labor payroll Direct labor efficiency variance-favorable

$ $

34,500 35,000 241,500 3,200

Is the direct labor rate variance favorable or unfavorable? A) Favorable B) Unfavorable 20 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

80) The following data pertains to the direct materials cost for the month of October: Standard costs Actual costs

5,000units allowed at $20 each 5,050units input at $19 each

What is the direct materials efficiency variance? A) $950 favorable B) $950 unfavorable C) $1,000 favorable D) $1,000 unfavorable 81) The Fellowes Company has developed standards for direct labor. During June, 75 units were scheduled and 100 were produced. Data related to direct labor are: Standard hours allowed Standard wages allowed Actual direct labor

3hours per unit $ 4.00per hour 310hours (total cost $1,209)

What is the direct labor rate variance for June? A) $30 unfavorable. B) $31 favorable. C) $31 unfavorable. D) $30 favorable. 82) When computing standard cost variances, the difference between actual and standard prices multiplied by actual quantity yields a(n): (CMA adapted) A) combined price and quantity variance. B) efficiency variance. C) price variance. D) quantity variance. 83) Shawn Incorporated planned to produce 3,000 units of its single product, Megatron, during November. The standard specifications for one unit of Megatron include six pounds of material at $0.30 per pound. Actual production in November was 3,100 units of Megatron. The accountant computed a favorable materials price variance of $380 and an unfavorable materials quantity variance of $120. Based on these variances, one could conclude that: (CMA adapted) A) more materials were purchased than were used. B) more materials were used than were purchased. C) the actual cost of materials was less than the standard cost. D) the actual usage of materials was less than the standard allowed.

84) Miller Company planned to produce 3,000 units of its single product, Tallium, during November. The standards for one unit of Tallium specify six pounds of materials at $0.30 per pound. Actual production in November was 3,100 units of Tallium. There was a favorable materials price variance of $380 and an unfavorable materials quantity variance of $120. Based on these variances, one could conclude that: (CMA adapted) A) more materials were purchased than were used. B) more materials were used than were purchased. C) the actual cost per pound for materials was less than the standard cost per pound. D) the actual usage of materials was less than the standard allowed. 85) An unfavorable direct labor efficiency variance could be caused by: (CMA adapted) A) an unfavorable materials quantity variance. B) an unfavorable variable overhead rate variance. C) a favorable materials quantity variance. D) a favorable variable overhead rate variance. 86) Variable manufacturing overhead is applied to products on the basis of standard direct labor hours. If the direct labor efficiency variance is unfavorable, the variable overhead efficiency variance will be: (CMA adapted) A) favorable. B) unfavorable. C) either favorable or unfavorable. D) zero. 87) Given the following information in standard costing: Standard Actual

16,000 hours at $4.00 15,800 hours at $4.20

What is the direct labor rate variance? A) $3,160 favorable. B) $3,160 unfavorable. C) $2,360 favorable. D) $2,360 unfavorable.

88) Information for Bonanza Company's direct labor cost for February is as follows: Actual direct labor hours Total direct labor payroll Efficiency variance Rate variance

$ $ $

69,000 483,000 6,400 F 41,400 U

What were the standard direct labor hours for February? A) 70,000. B) 69,000. C) 72,000. D) 71,400. 89) The standard unit cost is used in the calculation of which of the following variances? (CPA adapted)

A. B. C. D.

Materials Price Variance No No Yes Yes

Materials Usage Variance No Yes No Yes

A) Option A B) Option B C) Option C D) Option D 90) A favorable materials price variance coupled with an unfavorable materials usage variance would most likely result from: (CMA adapted) A) machine efficiency problems. B) product mix production changes. C) labor efficiency problems. D) the purchase of lower-than-standard-quality materials. 91) Excess direct labor wages resulting from overtime premium will be disclosed in which type of variance? (CPA adapted) A) Yield. B) Quantity. C) Labor efficiency. D) Labor rate.

92) The budget for the month of May was for 9,000 units at a direct materials cost of $15 per unit. Direct labor was budgeted at 45 minutes per unit for a total of $81,000. Actual output for the month was 8,500 units with $127,500 in direct materials and $77,775 in direct labor expense. The direct labor standard of 45 minutes was obtained throughout the month. Variance analysis of the performance for the month of May would show a(n): (CMA adapted) A) favorable materials efficiency (quantity) variance of $7,500. B) favorable direct labor efficiency variance of $1,275. C) unfavorable direct labor efficiency variance of $1,275. D) unfavorable direct labor price (rate) variance of $1,275. 93) Jackson Company uses a standard cost system. The following information pertains to direct labor for product B for the month of October: Standard hours allowed for actual production Actual rate paid per hour Standard rate per hour Labor efficiency variance

2,000 $ 8.40 $ 8.00 $ 1,600U

What were the actual hours worked for the month of October? A) 1,800. B) 1,810. C) 2,190. D) 2,200. 94) The fixed factory overhead application rate is a function of a predetermined activity level. If standard hours allowed for actual output equal this predetermined activity level for a given period, the volume variance will be: (CPA adapted) A) zero. B) favorable. C) unfavorable. D) either favorable or unfavorable, depending on the budgeted overhead. 95) The following information is available for Baxter Manufacturing for April: Actual machine hours Standard machine hours allowed Denominator activity (machine hours) Actual fixed overhead costs Budgeted fixed overhead costs Predetermined overhead rate ($1 variable + $4 fixed)

840 900 1,000 $ 3,800 $ 4,000 $ 5

What is the fixed overhead price (spending) variance for April? A) $200. B) $400. C) $300. D) $240. 24 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

96) The following information is available for Baxter Manufacturing for April: Actual machine hours Standard machine hours allowed Denominator activity (machine hours) Actual fixed overhead costs Budgeted fixed overhead costs Predetermined overhead rate ($1 variable + $4 fixed)

840 900 1,000 $ 3,800 $ 4,000 $ 5

Is the fixed overhead price (spending) variance for April favorable or unfavorable? A) Favorable. B) Unfavorable. 97) The following information is available for Baxter Manufacturing for April: Actual machine hours Standard machine hours allowed Denominator activity (machine hours) Actual fixed overhead costs Budgeted fixed overhead costs Predetermined overhead rate ($1 variable + $4 fixed)

840 900 1,000 $ 3,800 $ 4,000 $ 5

What is the production volume variance? A) $200. B) $400. C) $300. D) $240. 98) The following information is available for Baxter Manufacturing for April: Actual machine hours Standard machine hours allowed Denominator activity (machine hours) Actual fixed overhead costs Budgeted fixed overhead costs Predetermined overhead rate ($1 variable + $4 fixed)

840 900 1,000 $ 3,800 $ 4,000 $ 5

Is the production volume variance for April favorable or unfavorable? A) Favorable. B) Unfavorable.

99) The following information is available for the Danske Company: Denominator hours for May Actual hours worked during May Standard hours allowed for May Flexible budget fixed overhead cost Actual fixed overhead costs for May

15,000 14,000 12,000 $ 45,000 $ 48,000

Danske Company had total underapplied overhead of $15,000. Additional information is as follows: Variable Overhead: Applied based on standard direct labor hours allowed Budgeted based on standard direct labor hours

$ 42,000 38,000

Fixed Overhead: Applied based on standard direct labor hours allowed Budgeted based on standard direct labor hours

$ 30,000 27,000

What is the actual total overhead for the period? A) $50,000. B) $45,000. C) $80,000. D) $87,000.

100) The following information is available for the Danske Company: Denominator hours for May Actual hours worked during May Standard hours allowed for May Flexible budget fixed overhead cost Actual fixed overhead costs for May

15,000 14,000 12,000 $ 45,000 $ 48,000

$ 42,000 38,000

Fixed Overhead: Applied based on standard direct labor hours allowed Budgeted based on standard direct labor hours

$ 30,000 27,000

What is the fixed overhead price (spending) variance for May? A) $1,000 unfavorable. B) $3,000 unfavorable. C) $2,000 unfavorable. D) $2,000 favorable.

101) The following information is available for the Danske Company: Denominator hours for May Actual hours worked during May Standard hours allowed for May Flexible budget fixed overhead cost Actual fixed overhead costs for May

15,000 14,000 12,000 $ 45,000 $ 48,000

$ 42,000 38,000

Fixed Overhead: Applied based on standard direct labor hours allowed Budgeted based on standard direct labor hours

$ 30,000 27,000

What is the production volume variance for May? A) $2,000. B) $3,000. C) $6,000. D) $9,000. 102) The following information is available for the Danske Company: Denominator hours for May Actual hours worked during May Standard hours allowed for May Flexible budget fixed overhead cost Actual fixed overhead costs for May

15,000 14,000 12,000 $ 45,000 $ 48,000

$ 42,000 38,000

Fixed Overhead: Applied based on standard direct labor hours allowed Budgeted based on standard direct labor hours

$ 30,000 27,000

Is the production volume variance favorable or unfavorable? A) Favorable. B) Unfavorable. 28 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

103) Which one of the following variances is of least significance from a behavioral control perspective? (CMA adapted) A) Unfavorable materials quantity variance amounting to 20% of the quantity allowed for the output attained. B) Unfavorable labor efficiency variance amounting to 10% more than the budgeted hours for the output attained. C) Favorable materials price variance obtained by purchasing raw materials from a new vendor. D) Fixed factory overhead volume variance resulting from management's decision midway through the fiscal year to reduce its budgeted output by 20%. 104) The production volume variance is computed by calculating the difference between the: A) actual fixed overhead and applied fixed overhead. B) actual fixed overhead and budget at actual level of activity reached. C) actual fixed overhead and budget at denominator level of activity planned. D) budget at actual levels of activity reached and fixed overhead applied. 105) Which of the following is not an alternative name for the production volume variance? A) Capacity variance. B) Idle capacity variance. C) Denominator variance. D) Fixed overhead efficiency variance. 106) The production volume variance must be computed when a company uses: A) activity-based costing. B) process costing. C) job-order costing. D) full-absorption costing. 107) Which of these variances is least significant for cost control? A) Labor price variance. B) Material quantity variance. C) Fixed overhead price variance. D) Production volume variance. 108) A debit balance in the direct labor efficiency variance account indicates that A) standard hours exceed actual hours. B) actual hours exceed standard hours. C) standard rate and standard hours exceed actual rate and actual hours. D) actual rate and actual hours exceed standard rate and standard hours. 109) If materials are carried in the direct materials inventory account at standard cost, then it is reasonable to assume that the: A) raw materials inventory account is understated. B) price variance is recognized when materials are purchased. C) company does not follow generally accepted accounting principles. D) price variance is recognized when materials are placed into production. 29 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

110) The Elon Company had great difficulty in controlling overhead costs. At a recent convention, the president heard about a control device for overhead costs known as a flexible budget and she has hired you to implement this budgeting program. After some effort, you develop the following cost formulas for the company's machining department. These costs are based on a normal operating range of 15,000 to 23,000 machine-hours per month: Machine setup Lubricants Utilities Indirect labor Depreciation

$ 0.20per machine-hour $ 1.00per machine-hour plus $8,000 per month $ 0.70per machine-hour $ 0.60per machine-hour plus $20,000 per month $ 32,000per month

During March, the first month after your preparation of the above data, the machining department worked 18,000 machine-hours and produced 9,000 units of product. The actual costs of this production were: Machine set-up Lubricants Utilities Indirect labor Depreciation

4,800 24,500 12,000 32,500 32,500 $ 106,300

The department had originally been budgeted to work 19,000 machine-hours during March. Required: Prepare a performance report for the machining department for the month of March including columns for the (a) actual results, (b) flexible budget, (c) flexible budget variance, (d) master budget, and (e) sales activity variance.

111) The Ornate Company has the following information pertaining to the month of March: Units of output, actual Fixed costs, actual Operating profit, master budget Sales price variance Beginning and ending inventories Sales volume variance, revenue Budgeted selling price per unit Variable costs, master budget Contribution margin, actual

$ $ $ $ $ $ $

21,000 497,000 220,000 84,000U 0 300,000U 100 1,680,000 516,000

Required: Prepare a performance report for March including columns for the (a) actual results, (b) flexible budget, (c) flexible budget variance, (d) master budget, and (e) sales activity variance.

112) Fargo Company manufactures special electrical equipment and parts. Eastern employs a standard cost accounting system with separate standards established for each product. A special transformer is manufactured in the Transformer Department. Production volume is measured by direct labor hours in this department and a flexible budget system is used to plan and control department overhead. Standard costs for the special transformer are determined annually in September for the coming year. The standard cost of a transformer was computed at $67.00 as shown below. Direct materials: Iron Copper Direct labor Variable overhead Fixed overhead Total

5sheets 3spools 4hours 4hours 4hours

@ @ @ @ @

$ 2.00 $ 3.00 $ 7.00 $ 3.00 $ 2.00

$ 10.00 9.00 28.00 12.00 8.00 $ 67.00

Overhead rates were based upon normal and expected monthly capacity, both of which were 4,000 direct labor hours. Practical capacity for this department is 5,000 direct labor hours per month. Variable overhead costs are expected to vary with the number of direct labor hours actually used. During October, 800 transformers were produced. This was below expectations because a work stoppage occurred at the copper supplier and shipments were delayed. The following costs were incurred in October: Direct materials: Iron: Copper: Direct labor:

purchased 4,200 sheets, total cost $8,750 Used: 4,200 sheets purchased 2,600 spools, total cost $7,890 Used: 2,600 spools 3,400 hours Total payroll: $24,080

Required: Compute each of the following variances, showing all your work. Be sure to indicate whether the variances are favorable or unfavorable. a. Direct materials price variance for both iron and copper. b. Direct material efficiency variance for both iron and copper c. Direct labor rate variance. d. Direct labor efficiency variance.

113) Jemco Corporation makes automotive engines. For the most recent month, budgeted production was 6,000 engines. The standard power cost is $8.80 per machine-hour. The company's standards indicate that each engine requires 6.1 machine-hours. Actual production was 6,400 engines. Actual machine-hours were 38,730 machine-hours. Actual power cost totaled $350,628. Required: Determine the rate and efficiency variances for the variable overhead power cost and indicate whether those variances are unfavorable or favorable. Show your work. 114) The Rogers Company uses a standard cost accounting system and estimates production for the year to be 60,000 units. At this volume, the company's variable overhead costs are $0.50 per direct labor hour. The company's single product has a standard cost of $30.00 per unit. Included in the $30.00 is $13.20 for direct materials (3 yards) and $12.00 of direct labor (2 hours). Production information for the month of March follows: Number of units produced Materials purchased (18,500 yards) Materials used in production (yards) Direct labor cost incurred ($6.50/hour)

6,000 $ 88,800 18,500 $ 75,400

Required: (Be sure to indicate whether the variances are favorable or unfavorable and show your work.) a. Compute the direct material price variance. b. Compute the direct material efficiency variance. c. Compute the direct labor price (rate) variance. d. Compute the direct labor efficiency variance.

115) The Atlas Company has developed standard overhead costs based upon a capacity of 180,000 direct labor hours: Standard costs per unit: Variable portion Fixed portion

2 hours @ $3 = $ 6 2 hours @ $5 = 10 $ 16

During April, 85,000 units were scheduled for production; however, only 80,000 units were actually produced. The following data relate to April: Actual direct labor cost incurred was $644,000 for 165,000 actual hours of work. Actual overhead incurred totaled $1,378,000; $518,000 variable and $860,000 fixed. All inventories are carried at standard cost. Required: (Be sure to indicate whether the variances are favorable or unfavorable and show your work.) a. Compute the variable overhead price variance. b. Compute the variable overhead efficiency variance. 116) Horton Company adopted a standard cost system several years ago. The standard costs for the prime costs of its single product are as follows: Material: 8 kilograms @ $5 per kilogram Labor: 6 hours @ $8.20 per hour

$ 40.00 $ 49.20

The following operating data were taken from the records for November: Units completed Budgeted output Purchase of materials Total actual labor costs Actual labor hours Material efficiency (quantity) variance Total material variance

5,600 units 6,000 units 50,000 kilograms $ 300,760 36,500 hours $ 1,500 unfavorable $ 750 unfavorable

Required: (Be sure to indicate whether the variances are favorable or unfavorable and show your work.) a. What is the direct labor rate variance for November? b. What is the direct labor efficiency variance for November? c. What is the actual kilograms of material used in the production process during November? d. Assume the purchasing department is responsible for the material price variance, what is the actual price paid per kilogram of material during November (assume no increase/decrease in inventory during the month)? 34 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

117) The following standards have been established for a raw material used to make product JN36: Standard quantity of material per unit of output Standard price of the material

6.3 pounds $ 15.50 per pound

The following data pertain to a recent month's operations: Actual material purchased Actual cost of material purchased Actual material used in production Actual output

6,700 pounds $ 100,500 6,400 pounds 920 units of product JN36

Required: a. What is the materials price variance for the month? b. What is the materials quantity variance for the month? 118) The data below relate to a product of Bellingham Company. Standard costs: Materials, 2 pounds at $6 per pound Labor, 3 hours at $15 per hour Actual results were: Production Material purchased & used, 7,300 pounds Labor, 10,360 hours

$ 12 $ 45

per unit per unit

3,600 units $ 42,340 $ 160,580

Required: (Be sure to indicate whether the variances are favorable or unfavorable and show your work.) a. Compute the direct material price variance. b. Compute the direct material usage variance. c. Compute the direct labor rate variance. d. Compute the direct labor efficiency variance.

119) The following data have been provided by Vegas Corporation: Budgeted production Standard machine-hours per unit Standard lubricants Standard supplies Actual production Actual machine-hours Actual lubricants (total) Actual supplies (total)

8,300 units 4.5 machine-hours $ 5.10 per machine-hour $ 2.90 per machine-hour 8,600 38,270 $ 211,801 $ 107,566

units machine-hours

Required: Compute the variable overhead rate variances for lubricants and for supplies. Indicate whether each of the variances is favorable (F) or unfavorable (U). Show your work. 120) The following data for November have been provided by Mazzio Corporation, a producer of precision drills for oil exploration: Budgeted production Standard machine-hours per drill Standard indirect labor Standard power Actual production Actual machine-hours Actual indirect labor Actual power

4,000 drills 8.4 machine-hours $ 9.40 per machine-hour $ 2.90 per machine-hour 4,300 36,530 $ 362,756 $ 97,693

drills machine-hours

Required: Compute the variable overhead rate variances for indirect labor and for power for November. Indicate whether each of the variances is favorable (F) or unfavorable (U). Show your work.

121) Shum Company manufactures special electrical equipment and parts. Shum employs a standard cost accounting system with separate standards established for each product. A special transformer is manufactured in the Transformer Department. Production volume is measured by direct labor hours in this department and a flexible budget system is used to plan and control department overhead. Standard costs for the special transformer are determined annually in September for the coming year. The standard cost of a transformer was computed at $67.00 as shown below. Direct materials: Iron Copper Direct labor Variable overhead Fixed overhead Total

5sheets 3spools 4hours 4hours 4hours

@ @ @ @ @

$ 2.00 $ 3.00 $ 7.00 $ 3.00 $ 2.00

$ 10.00 9.00 28.00 12.00 8.00 $ 67.00

Overhead rates were based upon normal and expected monthly capacity, both of which were 4,000 direct labor hours. Practical capacity for this department is 5,000 direct labor hours per month. Variable overhead costs are expected to vary with the number of direct labor hours actually used. During October, 800 transformers were produced. This was below expectations because a work stoppage occurred at the copper supplier and shipments were delayed. The following data pertain to October's operations: Direct materials: Iron: Copper: Direct labor:

Overhead: Variable Fixed

purchased 5,000 sheets @ $2.00/sheet Used: 3,900 sheets purchased 2,200 spools @ $3.10 Used: 2,600 spools 3,400 hours Total payroll: $24,080

$ 10,000 $ 8,800

Required: Compute each of the following variances, showing all your work. Be sure to indicate whether the variances are favorable or unfavorable. a. Variable overhead spending variance. b. Variable overhead efficiency variance. c. Fixed overhead spending (budget) variance. d. Production volume variance. 37 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

122) Ole Company manufactures special electrical equipment and parts. Ole employs a standard cost accounting system with separate standards established for each product. A special transformer is manufactured in the Transformer Department. Production volume is measured by direct labor hours in this department and a flexible budget system is used to plan and control department overhead. Standard costs for the special transformer are determined annually in September for the coming year. The standard cost of a transformer was computed at $57.00 as shown below. Direct materials: Copper Direct labor Variable overhead Fixed overhead Total

3spools 4hours 4hours 4hours

@ @ @ @

$ 3.00 $ 7.00 $ 3.00 $ 2.00

9.00 28.00 12.00 8.00 $ 57.00

Overhead rates were based upon normal and expected monthly capacity, both of which were 4,000 direct labor hours. Practical capacity for this department is 5,000 direct labor hours per month. Variable overhead costs are expected to vary with the number of direct labor hours actually used. During October, 900 transformers were produced. This was below expectations because a work stoppage occurred during contract negotiations with the labor force. Once the contract was settled, the wage rate was increased to $7.25/hour and overtime was scheduled in an attempt to catch up to expected production levels. The following costs were incurred in October: Direct materials: Copper: Direct labor: Regular time Overtime

purchased 2,600 spools @ $3.08/spool Used: 2,600 spools 2,000 hours @ $7.00 1,400 hours @ $7.25

600 of the 1,400 hours were subject to overtime premium. The total overtime premium is included in variable overhead in accordance with company accounting practices. Overhead: Variable Fixed

$ 16,670 $ 8,800

Required: Compute each of the following variances, showing all your work. Be sure to indicate whether the variances are favorable or unfavorable. a. Direct materials price variance. b. Direct material efficiency (quantity) variance. c. Direct labor rate variance. d. Direct labor efficiency variance. e. Variable overhead spending variance. f. Variable overhead efficiency variance. g. Fixed overhead spending (budget) variance. h. Production volume variance. 123) The Bartok Company uses a standard cost accounting system and estimates production for the year to be 60,000 units. At this volume, the company's variable overhead costs are $0.50 per direct labor hour. The company's single product has a standard cost of $30.00 per unit. Included in the $30.00 is $13.20 for direct materials (3 yards) and $12.00 of direct labor (2 hours). Production information for the month of March follows: Number of units produced Materials purchased (18,500 yards) Materials used in production (yards) Variable overhead costs incurred Fixed overhead costs incurred Direct labor cost incurred ($6.50/hour)

6,000 $ 88,800 18,500 $ 6,380 $ 20,400 $ 75,400

Required: (Be sure to indicate whether the variances are favorable or unfavorable.) a. Compute the predetermined overhead rate used for the year b. Compute the budgeted fixed costs for the month. c. Compute the variable overhead spending variance. d. Compute the variable overhead efficiency variance. e. Compute the fixed overhead spending (budget) variance. f. Compute the production volume variance.

124) The condensed flexible budget of the Evergreen Company for the year is given below: Direct labor-hours Overhead costs: Variable costs Fixed costs

30,000 $ 75,000 ?

Direct labor- hours 40,000 50,000 ? ? ? $ 320,000

The company produces a single product that requires 2.5 direct labor-hours to complete. The direct labor wage rate is $7.50 per hour. Three yards of raw material are required for each unit of product, at a cost of $5 per yard. Assume that the company chooses 50,000 direct labor-hours as the denominator level of activity, but actually worked 48,000 hours during the year, producing 18,500 units. Actual overhead costs for the year are: Variable costs Fixed costs Total overhead costs

$ 124,800 321,700 $ 446,500

125) The condensed flexible budget of the Texas Company for the year is given as $160,000 + $1.25/direct labor hour. The company produces a single product that requires 2.5 direct laborhours to complete. Assume that the company chooses 100,000 direct labor-hours as the denominator level of activity, but actually worked 96,000 hours during the year producing 37,000 units. Actual overhead costs for the year are: Variable costs Fixed costs Total overhead costs

$ 124,800 158,800 $ 283,600

Required: (Be sure to indicate whether the variances are favorable or unfavorable.) a. Compute the variable overhead price variance and the variable overhead efficiency variance. b. Compute the fixed overhead spending (budget) variance and the production volume variance. 126) The following information relates to the month of April for The Trolley Manufacturing Company, which uses a standard cost accounting system. Actual direct labor hours used Standard hours allowed for good output Fixed overhead spending variance – unfavorable Actual total overhead Budgeted fixed costs Normal activity in hours Total overhead application rate per DLH

$ $ $ $

7,000 7,500 300 16,000 4,500 6,000 2.25

127) The data below relate to a product of AirWay Company. Standard costs: Labor(3 hours at $15 per hour) Variable overhead at $8 per labor hour Budgeted fixed production costs Budgeted production for the year

$ 45per unit $ 24per unit $ 140,000per year 4,000units

Actual results: Production Labor(10,360 hours) Overhead incurred ($142,700 fixed)

3,600Units $ 160,580 $ 222,200

Required: (Be sure to indicate whether the variances are favorable or unfavorable.) a. What is the variable overhead efficiency variance? b. What is the variable overhead price variance? c. What is the fixed overhead budget variance? d. What is the fixed production volume variance? 128) The Matten Company has developed standard overhead costs based upon a capacity of 180,000 direct labor hours: Standard costs per unit: Variable portion Fixed portion

2 hours @ $3 = $ 6 2 hours @ $5 = 10 $ 16

129) The following information relates to the month of April for The Kennedy Manufacturing Company, which uses a standard cost accounting system. Actual total direct labor Actual direct labor hours used Standard hours allowed for actual output Variable overhead price variance – unfavorable Actual total overhead Budgeted fixed costs Normal activity in hours Total overhead application rate per DLH

$ 43,400 14,000 15,000 $ 1,400 $ 32,000 $ 9,000 12,000 $ 2.25

Required: (Be sure to indicate whether the variances are favorable or unfavorable.) a. What is the variable overhead efficiency variance? b. What is the fixed overhead spending variance? c. What is the fixed production volume variance? 130) The Fort Company produces and sells a single product. Standards have been established for the product as follows: Direct materials: 5 pounds @ $3.50 per pound = $17.50. Direct labor: 3 hours @ $5.50 per hour = $16.50. Actual cost and usage figures for the past month follow: Units produced Direct materials used Direct materials purchased (4,500 pounds) Direct labor cost (2,000 hours)

750 4,000pounds $ 14,400 $ 11,200

Required: Prepare journal entries to record: a. The purchase of raw materials. b. The usage of raw materials in production. c. The incurrence of direct labor cost.

131) The following standards have been established for a raw material used in the production of product U98: Standard quantity of the material per unit of output Standard price of the material

2.6 pounds $ 14.50 per pound

The following data pertain to a recent month's operations: Actual material purchased Actual cost of material purchased Actual material used in production Actual output

7,600 Pounds $ 110,960 7,300 Pounds 2,800 units of product U98

Required: a. What is the materials price variance for the month? b. What is the materials quantity variance for the month? c. Prepare journal entries to record the purchase and use of the raw material during the month. (All raw materials are purchased on account.) 132) The standards for product J42 call for 3.6 feet of a raw material that costs $14.00 per feet. Last month, 5,500 feet of the raw material were purchased for $76,175. The actual output of the month was 1,260 units of product J42. A total of 4,800 feet of the raw material were used to produce this output. Required: a. What is the materials price variance for the month? b. What is the materials quantity variance for the month? c. Prepare journal entries to record the purchase and use of the raw material during the month. (All raw materials are purchased on account.) 133) Compound Y23Z is used by Overton Corporation to make one of its products. The standard cost of compound Y23Z is $38.70 per ounce and the standard quantity is 4.6 per unit of output. Data concerning the compound in the most recent month appear below: Cost of material purchased in November, per ounce Material purchased in November, ounces Material used in production in November, ounces Actual output in November, units

$ 39.20 2,800 2,360 500

The raw material was purchased on account. Required: a. Record the purchase of the raw material in a journal entry. b. Record the use of the raw material in production in a journal entry.

134) The standards for product A22G specify 8.2 direct labor-hours per unit at $11.90 per direct labor-hour. Last month 200 units of product A22G were produced using 1,700 direct labor-hours at a total direct labor wage cost of $20,060. Required: a. What was the labor rate variance for the month? b. What was the labor efficiency variance for the month? c. Prepare a journal entry to record direct labor costs during the month, including the direct labor variances. 135) Angler Corporation has provided the following data concerning its direct labor costs for November: Standard wage rate Standard hours Actual wage rate Actual hours Actual output

$ 14.70 2.4 $ 14.80 5,990 2,600

per DLH DLHs per unit per DLH DLHs units

Required: Prepare the journal entry to record the incurrence of direct labor costs. 136) The Norris Company uses a standard cost accounting system and estimates production for the year to be 60,000 units. At this volume, the company's variable overhead costs are $0.50 per direct labor hour. The company's single product has a standard cost of $30.00 per unit. Included in the $30.00 is $13.20 for direct materials (3 yards) and $12.00 of direct labor (2 hours). Production information for the month of March follows: Number of units produced Materials purchased (18,500 yards) Materials used in production (yards) Direct labor cost incurred ($6.50/hour)

6,000 $ 88,800 18,500 $ 75,400

137) Darren Company adopted a standard cost system several years ago. The standard costs for the prime costs of its single product are as follows: Material: 8 kilograms @ $5 per kilogram Labor: 6 hours @ $8.20 per hour

$ 40.00 $ 49.20

5,600 units 6,000 units 50,000 kilograms $ 300,760 36,500 hours $ 1,500 unfavorable $ 750 unfavorable

Required: Prepare the journal entries to record the following: a. Purchase and use of direct materials (Assume materials are used as purchased and no inventory is maintained). b. Recognition of direct labor. 138) The Fox Company uses a standard cost accounting system and estimates production for the year to be 60,000 units. At this volume, the company's variable overhead costs are $0.50 per direct labor hour. The company's single product has a standard cost of $30.00 per unit. Included in the $30.00 is $13.20 for direct materials (3 yards) and $12.00 of direct labor (2 hours). Production information for the month of March follows: Number of units produced Materials purchased (18,500 yards) Materials used in production (yards) Variable overhead costs incurred Fixed overhead costs incurred Direct labor cost incurred ($6.50/hour)

6,000 $ 88,800 18,500 $ 6,380 $ 20,400 $ 75,400

Required: Prepare the journal entries to record the following: a. Incurring actual overhead. b. Application of overhead to production. c. Closing of overhead accounts and recognizing variances. d. Transferring production to finished goods.

139) The Morocco Company uses a standard cost accounting system and estimates production for the year to be 60,000 units. At this volume, the company's variable overhead costs are $0.50 per direct labor hour. The company's single product has a standard cost of $30.00 per unit. Included in the $30.00 is $13.20 for direct materials (3 yards) and $12.00 of direct labor (2 hours). Production information for the month of March follows: Number of units produced Materials purchased (13,300 yards) Materials used in production (yards) Variable overhead costs incurred Fixed overhead costs incurred Direct labor cost incurred ($6.25/hour)

4,500 $ 61,600 13,300 $ 4,380 $ 20,400 $ 75,750

Required: Prepare the journal entries to record the following: a. Purchase and use of direct materials (Assume materials are used as purchased and no inventory is maintained). b. Recognition of direct labor. c. Incurring actual overhead. d. Application of overhead to production. e. Closing of overhead accounts and recognizing variances. f. Transferring production to finished goods. 140) Explain two reasons for preparing a variance analysis. 141) Explain the difference between operating budgets, financial budgets, and flexible budgets. 142) Explain the difference between the sales volume variance and the production volume variance. 143) Explain how standards and budgets are different. 144) Explain two reasons why splitting production costs into price and efficiency variances is beneficial for management control.

145) The Tennison Company uses a standard cost system in which manufacturing overhead costs are applied to units of the company's single product on the basis of standard direct labor-hours (DLHs). The standard cost card for the product follows: Standard Cost Card-per unit of product Direct Materials(4 yards at $3.50 per yard) Direct Labor(1.5 DLHs at $8 per DLH) Variable Overhead(1.5 DLHs at $2 per DLH) Fixed Overhead(1.5 DLHs at $6 per DLH) Standard cost per unit

$ 14 12 3 9 $ 38

The following data pertain to last year's activities: ∙ The company manufactured 18,000 units of product during the year. A total of 70,200 yards of material was purchased during the year at a cost of $3.75 per yard. All of this material was used to manufacture the 18,000 units. ∙ The company worked 29,250 direct labor-hours during the year at a cost of $7.80 per hour. ∙ The denominator activity level was 22,500 direct labor-hours. ∙ Budgeted fixed manufacturing overhead costs were $135,000 while actual manufacturing overhead costs were $133,200. ∙ Actual variable overhead costs were $61,425. Required: a. Compute the direct materials price and quantity variances for the year. b. Compute the direct labor rate and efficiency variances for the year. c. Compute the variable overhead rate and efficiency variances for the year. d. Compute the fixed manufacturing overhead budget and volume variances for the year. 146) Angie Manufacturing uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard machine-hours. At standard, each unit of product requires one machine-hour to complete. The standard variable overhead is $1.75 per machine-hour and Budgeted Fixed Manufacturing Costs are $300,000 per year. The denominator level of activity is 150,000 machine-hours, or 150,000 units. Actual data for the year were as follows: Actual variable overhead cost Actual fixed manufacturing overhead cost Actual machine-hours Units produced

$ 211,680 $ 315,000 126,000 120,000

Required: a. What are the predetermined variable and fixed manufacturing overhead rates for the year? b. Compute the variable overhead rate and efficiency variances for the year. c. Compute the fixed manufacturing overhead budget and volume variances for the year.

147) Upton Company uses a standard cost system for its single product. The following data are available: Actual experience for the current year: Purchases of raw materials (15,000 yards at $13 per yard) Raw materials used Direct labor costs (10,200 hours at $10 per hour) Actual variable overhead cost Units produced

$ 195,000 12,000 yards $ 102,000 $ 84,150 12,600 units

Standards per unit of product: Raw materials Direct labor Variable overhead

1.1 yards at $15 per yard 0.80 hours at $9.50 per hour $8 per direct labor hour

Required: Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase: a. Direct materials price variance. b. Direct materials quantity variance. c. Direct labor rate variance. d. Direct labor efficiency variance. e. Variable overhead rate variance. f. Variable overhead efficiency variance.

148) Ralston Corporation makes a product with the following standard costs: Inputs Direct materials Direct labor Variable overhead

Standard Quantity or Hours 6.9liters 0.3hours 0.3hours

Standard Price or Rate $ 5.00per liter $ 17.00per hour $ 6.00per hour

Standard Cost Per Unit $ 34.50 $ 5.10 $ 1.80

The company reported the following results concerning this product in August. Originally budgeted output Actual output Raw materials used in production Actual direct labor-hours Purchases of raw materials Actual price of raw materials Actual direct labor rate Actual variable overhead rate

8,600 8,400 58,330 2,310 62,500 $ 4.90 $ 17.10 $ 5.50

units units liters hours liters per liter per hour per hour

The materials price variance is recognized when materials are purchased. Variable overhead is applied on the basis of direct labor-hours. Required: a. Compute the materials quantity variance. b. Compute the materials price variance. c. Compute the labor efficiency variance. d. Compute the direct labor rate variance. e. Compute the variable overhead efficiency variance. f. Compute the variable overhead rate variance.

149) Pure Corporation makes a product with the following standard costs:

Inputs Direct materials Direct labor Variable overhead

Standard Quantity or Hours 4.3pounds 0.7hours 0.7hours

Standard Price or Rate $ 6.00per pound $ 20.00per hour $ 2.00per hour

Standard Cost Per Unit $ 25.80 $ 14.00 $ 1.40

The company reported the following results concerning this product in September. Originally budgeted output Actual output Raw materials used in production Purchases of raw materials Actual direct labor-hours Actual cost of raw materials purchases Actual direct labor cost Actual variable overhead cost

1,900 1,700 7,210 7,600 1,260 $ 43,320 $ 25,578 $ 2,394

units units pounds pounds hours

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. Required: a. Compute the materials quantity variance. b. Compute the materials price variance. c. Compute the labor efficiency variance. d. Compute the direct labor rate variance. e. Compute the variable overhead efficiency variance. f. Compute the variable overhead rate variance.

150) Photo Corporation makes a product with the following standard costs: Inputs Direct materials Direct labor Variable overhead

Standard Quantity or Hours 7.8 kilos 0.4 hours 0.4 hours

Standard Price or Rate $ 1.00 per kilo $ 18.00 per hour $ 3.00 per hour

The company reported the following results concerning this product in August. Actual output Raw materials used in production Purchases of raw materials Actual direct labor-hours Actual cost of raw materials purchases Actual direct labor cost Actual variable overhead cost

8,500 65,550 69,000 3,410 $ 75,900 $ 66,495 $ 9,889

units kilos kilos hours

151) Meera Corporation makes a product with the following standard costs: Inputs Direct materials Direct labor Variable overhead

Standard Quantity or Hours 8.1ounces 0.5hours 0.5hours

Standard Price or Rate $ 3.00per ounce $ 18.00per hour $ 2.00per hour

In December the company produced 4,200 units using 34,870 ounces of the direct material and 1,900 direct labor-hours. During the month, the company purchased 39,700 ounces of the direct material at a total cost of $111,160. The actual direct labor cost for the month was $35,530 and the actual variable overhead cost was $3,990. The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. Required: a. Compute the materials quantity variance. b. Compute the materials price variance. c. Compute the labor efficiency variance. d. Compute the direct labor rate variance. e. Compute the variable overhead efficiency variance. f. Compute the variable overhead rate variance.

152) Al-Shabad Company produces a single product. The company has set the following standards for materials and labor:

Direct materials Direct labor

Standard quantity or hours per unit ? pounds per unit 3.0hours per unit

Standard price or rate $ ? per pound $ 10per hour

During the past month, the company purchased 7,000 pounds of direct materials at a cost of $17,500. All of this material was used in the production of 1,300 units of product. Direct labor cost totaled $36,750 for the month. The following variances have been computed:

Materials quantity variance Total materials variance Labor efficiency variance

$ $ $

1,375 U 375 F 4,000 F

Required: 1. For direct materials: a. Compute the standard price per pound of materials. b. Compute the standard quantity allowed for materials for the month's production. c. Compute the standard quantity of materials allowed per unit of product. 2. For direct labor: a. Compute the actual direct labor cost per hour for the month. b. Compute the labor rate variance. 153) In the new cost management scheme of things, what are some of the disadvantages of the traditional standard cost system (list at least four)?

154) Market Manufacturing Inc. has developed the following standards for one of its products. The materials are not substitutable. Material 1 Material 2 Direct labor Total variable cost per unit

5yards 6pieces 3hours

$ 6/ yard $ 5/ piece $ 24/ hour

$ 30 $ 30 $ 72 $ 132

The records for March showed the following actual results: Material 1 Material 2 Direct labor Units produced

Purchased Used Purchased Used

10,000 yards for $58,000 9,500 yards 15,000 pieces for $78,750 12,100 pieces 5,900 hours for $147,500 2,000 units

Required: (1) Calculate the following variances: (a) Material purchase price variance for material 1. (b) Material quantity variance for material 1. (c) Material purchase price variance for material 2. (d) Material quantity variance for material 2. (e) Labor rate variance. (f) Labor efficiency variance. (2) Give at least one possible cause for each of the following variances: (a) material 2 quantity variance. (b) labor rate variance. (c) labor efficiency variance.

155) Easton Industries developed the following standards for one of its products: Material Labor Total variable cost

5feet 10hours

$ 15/ foot $ 15/ hour

$ 75 $ 150 $ 225

Actual results for September were: Units produced Material purchased Material used Direct Labor

12,000 40,000 feet for $14.25/foot 70,000 feet 119,500 hours at $15.10/hour

Required: (1) Calculate the following variances: (a) Material purchase price variance. (b) Material quantity variance. (c) Labor rate variance. (d) Labor efficiency variance. (2) Why would it be inappropriate to calculate the material price variance at the time the material is used; might there be a situation when it might be all right to do so? 156) Megham Company manufactures a single product. The following standards have been developed for it: Direct Material Direct Labor

6pounds 2hours

$ 4/pound $ 15/hour

During May, the following actual activities occurred: Material purchased, 12,000 pounds for $45,600; material used in the production of 2,000 units of product, 13,000 pounds; direct labor, 3,500 hours costing $56,000. Required: (1) Compute the following variances: (a) material quantity variance. (b) labor rate variance. (c) labor efficiency variance. (2) Give one possible explanation for each of the 3 variances computed.

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 17 Additional Topics in Variance Analysis 1) The variable production cost variances are computed using the units produced instead of the units sold. 2) If variances are not prorated at the end of the accounting period, they are closed to the Cost of Goods Sold. 3) If the number of units produced exceeds the number of units sold, the full-absorption operating profit will be lower than variable costing operating profit. 4) The direct materials price variance is based on the quantity of materials purchased when the quantity purchased is different from the quantity used. 5) The market share variance is more controllable by the marketing department than the industry volume variance. 6) The industry volume variance is the portion of the sales activity variance due to a change in the company's proportion of sales in the markets in which they operate. 7) An increase in an industry's volume and a decrease in a company's market share implies that the company's sales price variance is unfavorable. 8) The general approach in variance analysis is to separate the variance into components based on a budgeting formula. 9) If a company sells two products, it is possible for both products to have a favorable sales mix variance. 10) The sales quantity variance is the same as the sales activity variance on a flexible budget performance report. 11) If a company sells two products, it is possible for both products to have an unfavorable sales quantity variance. 12) The production yield variance is conceptually the same as the sales quantity variance. 13) The production mix variance measures the impact of substituting one material for another material during the production process. 14) The direct labor yield variance is unfavorable when the total hours worked during a period are less than the total standard hours allowed for the actual number of units produced. 15) The basic variance analysis framework used for manufacturing companies can also be used in service organizations. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

16) Labor variances are more important than material variances in service organizations. 17) Professional accounting firms could not compute a labor mix and labor yield variance for their auditors because labor in accounting is not substitutable. 18) Output is usually defined as sales units in merchandising, but service organizations use measures of activity units, like patient days. 19) Two important characteristics to consider when deciding how many variances to review are is the impact of the variance and the extent to which the variance can be controlled. 20) The only variances that should be investigated are those for which the expected benefits of correction exceed the costs of investigating and correcting. 21) Some variances are the result of accounting errors and omissions, including timing differences. 22) Some variances are the result of standards that are inaccurate or do not reflect the current production process. 23) Which of the following statements is(are) true? (A) If variances are prorated at the end of the accounting period, an unfavorable direct materials price variance will, when prorated, increase the value of the Finished Goods Inventory. (B) Insignificant variances are not generally prorated at the end of the accounting period and are closed to the Cost of Goods Sold. A) Only A is true. B) Only B is true. C) Both of these are true. D) Neither of these is true. 24) Standards are estimates and should be based on: A) perfect performance. B) an average of past conditions. C) the most likely level of performance. D) current conditions. 25) In a standard costing system, overhead is applied to production on a basis of: A) the denominator hours chosen for the period. B) the budgeted hours for the normal production level of activity. C) the actual hours required to complete the output of the period. D) the standard hours allowed to complete the output of the period.

26) One advantage of using a standard costing system is that it: A) makes the record keeping process more complex and difficult. B) never requires updating if standard costs have been carefully determined. C) reduces the amount of information available to a manager. D) provides managers with information that is useful in making decisions to improve performance. 27) Which of the following statements is(are) false? (A) All variances should be prorated to inventories and cost of goods sold at the end of the accounting period. (B) If the number of units produced exceeds the number of units sold, the full-absorption operating profit will be lower than variable costing operating profit. A) Only A is false. B) Only B is false. C) Both of these are false. D) Neither of these is false. 28) If raw materials are carried in the Materials Inventory at standard cost, then it is reasonable to assume that the: A) price variance is recognized when materials are purchased. B) price variance is recognized when materials are placed into production. C) company does not follow generally accepted accounting principles. D) efficiency variance is recognized when the materials are purchased. 29) Ingredient A12H is a material used to make Calvin Corporation's major product. The standard cost of Ingredient A12H is $23.00 per ounce and the standard quantity is 3.8 ounces per unit of output. Data concerning the compound for October appear below: Cost of material purchased in October Material purchased in October Material used in production in October Actual output in October

$ 23.10 2,300 2,120 600

per ounce ounces ounces units

The material was purchased on account and Calvin Corporation uses a standard costing system. The debit to the Materials Inventory account for October would total: A) $52,900. B) $52,440. C) $48,760. D) $53,130.

30) Ingredient A12H is a material used to make Calvin Corporation's major product. The standard cost of Ingredient A12H is $23.00 per ounce and the standard quantity is 3.8 ounces per unit of output. Data concerning the compound for October appear below: Cost of material purchased in October Material purchased in October Material used in production in October Actual output in October

$ 23.10 2,300 2,120 600

per ounce ounces ounces units

The material was purchased on account and Calvin Corporation uses a standard costing system. The credit to the Materials Inventory account for October would total: A) $52,440. B) $48,760. C) $52,900. D) $53,130. 31) Ingredient A12H is a material used to make Calvin Corporation's major product. The standard cost of Ingredient A12H is $23.00 per ounce and the standard quantity is 3.8 ounces per unit of output. Data concerning the compound for October appear below: Cost of material purchased in October Material purchased in October Material used in production in October Actual output in October

$23.10 2,300 2,120 600

per ounce ounces ounces units

The material was purchased on account and Calvin Corporation uses a standard costing system. The Material Price Variance for October would be recorded as a: A) debit of $230. B) credit of $212. C) debit of $212. D) credit of $230.

32) Ingredient A12H is a material used to make Calvin Corporation's major product. The standard cost of Ingredient A12H is $23.00 per ounce and the standard quantity is 3.8 ounces per unit of output. Data concerning the compound for October appear below: Cost of material purchased in October Material purchased in October Material used in production in October Actual output in October

$ 23.10 2,300 2,120 600

per ounce ounces ounces units

The material was purchased on account and Calvin Corporation uses a standard costing system. The Material Efficiency Variance for October would be recorded as a: A) credit of $3,680. B) debit of $4,140. C) credit of $4,140. D) debit of $3,680. 33) Ingredient B4376 is used to make Razor Corporation's major product. The standard cost of Ingredient B4376 is $24.50 per ounce and the standard quantity is 6.1 ounces per unit of output. In the most recent month, 5,030 ounces of the compound were used to make 700 units of the output. When recording the use of materials in production under a standard costing system, Materials Inventory would be: A) credited for $123,235. B) debited for $123,235. C) debited for $104,615. D) credited for $104,615. 34) Barium Corporation has provided the following data concerning its most important raw material, Compound XYY2: Standard cost Standard quantity Material used in production in August Actual output in August

$ 23.80 5.7 2,350 400

per liter liters per unit of output liters units

When recording the use of materials in production under a standard costing system, Materials Inventory would be: A) debited for $55,930. B) debited for $54,264. C) credited for $55,930. D) credited for $54,264.

35) When the actual amount of a material used in production is greater than the standard amount allowed for the actual output, the journal entry would include: A) debit to Materials Inventory; credit to Materials Efficiency Variance. B) debit to Work-In-Process Inventory; credit to Materials Efficiency Variance. C) debit to Materials Inventory; debit to Materials Efficiency Variance. D) debit to Work-In-Process Inventory; debit to Materials Efficiency Variance. 36) The Fantasy Gifts Company, a maker of Holiday novelties, needs your help immediately. The company's accountant resigned without leaving adequate records or explanations for what she did. In reviewing the records, you find the following information for May: Materials Purchased Materials Used

20,000units 15,000units

You find a copy of the budget which shows that materials were budgeted at $0.60/unit. You know that the material price variance is recorded at the time of purchase and you find some handwritten notes among the accountant's work papers, which indicate the following: Material price variance Material efficiency variance

$ 200F $ 600F

What was the total actual cost of the direct materials purchased during May? A) $9,000. B) $11,800. C) $12,000. D) $12,200. 37) The Fantasy Gifts Company, a maker of Holiday novelties, needs your help immediately. The company's accountant resigned without leaving adequate records or explanations for what she did. In reviewing the records, you find the following information for May: Materials Purchased Materials Used

20,000units 15,000units

$ 200F $ 600F

What was the total standard cost of direct materials purchased during May? A) $9,150. B) $11,800. C) $12,000. D) $12,200. 6 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

38) The Fantasy Gifts Company, a maker of Holiday novelties, needs your help immediately. The company's accountant resigned without leaving adequate records or explanations for what she did. In reviewing the records, you find the following information for May: Materials Purchased Materials Used

20,000units 15,000units

$ 200F $ 600F

What was the total standard cost of direct materials purchased during May? A) $8,260. B) $8,400. C) $9,440. D) $9,600. 39) Which of the following sales variances is further analyzed into the market share and industry volume variances? A) Quantity. B) Efficiency. C) Mix. D) Activity. 40) Which of the following statements is (are) true? (A)The market share variance is more controllable by the marketing department than the industry volume variance. (B)The industry volume variance is the portion of the sales activity variance due to a change in the company's proportion of sales in the markets in which they operate. A) Only A is true. B) Only B is true. C) Both of these are true. D) Neither of these is true. 41) The sales activity variance is equal to the sum of the market share variance and the: A) selling price variance. B) industry volume variance. C) sales quantity variance. D) sales mix variance.

42) Using the abbreviations listed below, what is the formula for the industry volume variance? AMS = actual market share BMS = budgeted market share BCM = budgeted contribution margin per unit ACM = actual contribution margin per unit ATM = actual total market BTM = budgeted total market A) (ATM − BTM) (BMS) (ACM) B) (ATM – BTM) (BMS) (BCM) C) (AMS – BMS) (ATM) (ACM) D) (AMS – BMS) (ATM) (BCM) 43) Using the abbreviations listed below, what is the market share variance? AMS = actual market share BMS = budgeted market share BCM = budgeted contribution margin per unit ACM = actual contribution margin per unit ATM = actual total market BTM = budgeted total market A) (ATM − BTM) (BMS) (ACM) B) (ATM − BTM) (BMS) (BCM) C) (AMS −BMS) (ATM) (ACM) D) (AMS − BMS) (ATM) (BCM) 44) The budget for a given cost during a given period was $80,000. The actual cost for the period was $72,000. Considering these facts, the plant manager has done a better-than-expected job in controlling the cost if: (CPA adapted) A) the cost is variable and actual production was 90% of budgeted production. B) the cost is variable and actual production equals budgeted production. C) the cost is variable and actual production was 80% of budgeted production. D) the cost is a discretionary fixed cost and actual production equals budgeted production.

45) The exhibit below reflects a summary of performance for a single item of a retail store's inventory for the month ended April 30: (CIA adapted)

The sales activity variance is: A) $20,000 favorable. B) $20,000 unfavorable. C) $11,000 favorable. D) $12,000 unfavorable. 46) Danner Fashions sells a line of women's dresses. Danner's performance report for November is shown below: (CMA adapted) The company uses a flexible budget to analyze its performance and to measure the effect on operating income of the various factors affecting the difference between budgeted and actual operating income.

The effect of the sales activity variance on the contribution margin for November is: A) $30,000 unfavorable. B) $18,000 unfavorable. C) $20,000 unfavorable. D) $15,000 unfavorable.

47) Danner Fashions sells a line of women's dresses. Danner's performance report for November is shown below: (CMA adapted) The company uses a flexible budget to analyze its performance and to measure the effect on operating income of the various factors affecting the difference between budgeted and actual operating income.

The sales price variance for November is: A) $30,000 unfavorable. B) $18,000 unfavorable. C) $20,000 unfavorable. D) $15,000 unfavorable. 48) Danner Fashions sells a line of women's dresses. Danner's performance report for November is shown below: (CMA adapted) The company uses a flexible budget to analyze its performance and to measure the effect on operating income of the various factors affecting the difference between budgeted and actual operating income.

The variable costs flexible budget variance for November is: A) $5,000 favorable. B) $5,000 unfavorable. C) $4,000 favorable. D) $4,000 unfavorable.

49) Danner Fashions sells a line of women's dresses. Danner's performance report for November is shown below: (CMA adapted) The company uses a flexible budget to analyze its performance and to measure the effect on operating income of the various factors affecting the difference between budgeted and actual operating income.

What additional information is needed for Danner to calculate the dollar impact of a change in market share on operating income for November? (CMA adapted) A) Danner's budgeted market share and the budgeted total market size. B) Danner's budgeted market share, the budgeted total market size, and average market selling price. C) Danner's budgeted market share and the actual total market size. D) Danner's actual market share and the actual total market size. 50) For a company that produces more than one product, the sales activity variance can be divided into which two of the following additional variances? (CMA adapted) A) Sales price variance and flexible budget variance. B) Sales mix variance and sales price variance. C) Sales efficiency variance and sales price variance. D) Sales quantity variance and sales mix variance. 51) Actual and budgeted information about the sales of a product are presented below for June: (CIA adapted) Units Sales Revenue

Actual 8,000 $ 92,000

Budget 10,000 $ 105,000

The sales price variance for June was: A) $8,000 favorable. B) $8,000 unfavorable. C) $10,000 unfavorable. D) $10,500 unfavorable.

52) Which of the following income statement items is analyzed using the sales mix and the sales quantity variances? A) Operating expenses. B) Cost of goods sold. C) Gross margin. D) Contribution margin. 53) The sales mix variance would be: A) favorable when a company sells relatively fewer of the products that have contribution margins lower than average. B) favorable when a company sells relatively more of the products that have contribution margins higher than average. C) unfavorable when a company sells relatively fewer of the products that have selling prices higher than average. D) unfavorable when a company sells more of the products that have selling prices lower than average. 54) The sales quantity variance would be favorable when a company sells: A) relatively fewer of the products bearing contribution margins lower than average. B) relatively more of the products bearing contribution margins higher than average. C) more total units than budgeted, holding the sales mix constant. D) less total units than budgeted, holding the sales mix constant. 55) The Morton Company gathered the following information for the year. Budgeted sales mix (units) Budgeted and actual sales price Budgeted variable cost per unit Actual sales (units) Actual sales mix Fixed costs

Product K 40% $ 48 $ 32 60%

Product R 60% $ 36 $ 24 40%

Total 100% 126,000 100% $ 80,000

What is the total sales mix variance? A) $705,600. B) $403,200. C) $302,400. D) $100,800.

56) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Deluxe Sales (units) 8,000 2,000 Sales price per unit $ 8,000 $ 12,000 Variable costs per unit $ 6,400 $ 9,000 Actual sales were 7,000 basic models and 2,800 deluxe models. The actual sales prices were the same as the budgeted sales prices for both models. What is the sales activity variance for the basic model? A) $1,280,000. B) $1,600,000. C) $11,200,000. D) $12,800,000. 57) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Sales (units) Sales price per unit Variable costs per unit

Basic 8,000 $ 8,000 $ 6,400

Deluxe 2,000 $ 12,000 $ 9,000

Actual sales were 7,000 basic models and 2,800 deluxe models. The actual sales prices were the same as the budgeted sales prices for both models. Is the sales activity variance for the basic model favorable or unfavorable? A) Favorable. B) Unfavorable. 58) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Sales (units) Sales price per unit Variable costs per unit

Basic 8,000 $ 8,000 $ 6,400

Deluxe 2,000 $ 12,000 $ 9,000

Actual sales were 7,000 basic models and 2,800 deluxe models. The actual sales prices were the same as the budgeted sales prices for both models. What is the sales activity variance for the deluxe model? A) $400,000. B) $800,000. C) $1,600,000. D) $2,400,000. 13 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

59) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Sales (units) Sales price per unit Variable costs per unit

Basic 8,000 $ 8,000 $ 6,400

Deluxe 2,000 $ 12,000 $ 9,000

Actual sales were 7,000 basic models and 2,800 deluxe models. The actual sales prices were the same as the budgeted sales prices for both models. Is the sales activity variance for the deluxe model favorable or unfavorable? A) Favorable. B) Unfavorable. 60) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Sales (units) Sales price per unit Variable costs per unit

Basic 8,000 $ 8,000 $ 6,400

Deluxe 2,000 $ 12,000 $ 9,000

Actual sales were 7,000 basic models and 2,800 deluxe models. The actual sales prices were the same as the budgeted sales prices for both models. What is the sales mix variance for the basic model? A) $256,000. B) $1,344,000. C) $1,600,000. D) $2,520,000. 61) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Sales (units) Sales price per unit Variable costs per unit

Basic 8,000 $ 8,000 $ 6,400

Deluxe 2,000 $ 12,000 $ 9,000

Actual sales were 7,000 basic models and 2,800 deluxe models. The actual sales prices were the same as the budgeted sales prices for both models. Is the sales mix variance for the basic model favorable or unfavorable? A) Favorable. B) Unfavorable. 14 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

62) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Sales (units) Sales price per unit Variable costs per unit

Basic 8,000 $ 8,000 $ 6,400

Deluxe 2,000 $ 12,000 $ 9,000

Actual sales were 7,000 basic models and 2,800 deluxe models. The actual sales prices were the same as the budgeted sales prices for both models. What is the sales quantity variance for the basic model? A) $120,000. B) $256,000. C) $1,344,000. D) $1,600,000. 63) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Sales (units) Sales price per unit Variable costs per unit

Basic 8,000 $ 8,000 $ 6,400

Deluxe 2,000 $ 12,000 $ 9,000

Actual sales were 7,000 basic models and 2,800 deluxe models. The actual sales prices were the same as the budgeted sales prices for both models. Is the sales quantity variance for the basic model favorable or unfavorable? A) Favorable. B) Unfavorable.

64) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Sales (units) Sales price per unit Variable costs per unit

Basic 8,000 $ 8,000 $ 6,400

Deluxe 2,000 $ 12,000 $ 9,000

Actual sales were 7,000 basic models and 2,800 deluxe models. The actual sales prices were the same as the budgeted sales prices for both models. What is the sales mix variance for the deluxe model? A) $1,176,000. B) $1,344,000. C) $2,400,000. D) $2,520,000. 65) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Sales (units) Sales price per unit Variable costs per unit

Basic 8,000 $ 8,000 $ 6,400

Deluxe 2,000 $ 12,000 $ 9,000

Actual sales were 7,000 basic models and 2,800 deluxe models. The actual sales prices were the same as the budgeted sales prices for both models. Is the sales mix variance for the deluxe model favorable or unfavorable? A) Favorable. B) Unfavorable.

66) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Sales (units) Sales price per unit Variable costs per unit

Basic 8,000 $ 8,000 $ 6,400

Deluxe 2,000 $ 12,000 $ 9,000

Actual sales were 7,000 basic models and 2,800 deluxe models. The actual sales prices were the same as the budgeted sales prices for both models. What is the sales quantity variance for the deluxe model? A) $120,000. B) $256,000. C) $1,344,000. D) $1,600,000. 67) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Sales (units) Sales price per unit Variable costs per unit

Basic 8,000 $ 8,000 $ 6,400

Deluxe 2,000 $ 12,000 $ 9,000

68) The Vargas Company had the following expectations for the year: Budgeted results for the year were: Total market for the product Vargas' budgeted sales Variable costs per unit Selling price per unit Actual results for the year were: Total market for the product Vargas's actual sales Total Variable costs Total sales

175,000units $ 1,763,125 $ 18.75 $ 32.50 166,250units 56,525 $ 1,073,975 $ 1,752,275

What is Vargas' industry volume variance? A) $37,296.88. B) $40,906.25. C) $35,700.00. D) $32,550.00. 69) The Vargas Company had the following expectations for the year: Budgeted results for the year were: Total market for the product Vargas's budgeted sales Variable costs per unit Selling price per unit Actual results for the year were: Total market for the product Vargas's actual sales Total Variable costs Total sales

175,000units $ 1,763,125 $ 18.75 $ 32.50 166,250units 56,525 units $ 1,073,975 $ 1,752,275

Is the industry volume variance favorable or unfavorable? A) Unfavorable. B) Favorable.

70) The next year's budget for Trend, Inc., a multi-product company, is given below:

At the end of the year, the total fixed costs and the variable costs per unit were exactly as budgeted, but the following units per product line were sold. Trend, Inc. analyzes the effects its sales variances have on the profitability of the company. Product Lines A B

Units 253,230 113,770

Sales $ 1,848,579 $ 1,479,010

What is the total sales price variance? A) $22,203.50. B) $28,442.50. C) $50,646.50. D) $79,088.50. 71) The next year's budget for Trend, Inc., a multi-product company, is given below:

Units 253,230 113,770

Sales $ 1,848,579 $ 1,479,010

Is the total sales price variance favorable or unfavorable? A) Favorable. B) Unfavorable.

72) The next year's budget for Trend, Inc., a multi-product company, is given below:

Units 253,230 113,770

Sales $ 1,848,579 $ 1,479,010

What is the total sales mix variance? A) $12,478.00. B) $20,815.00. C) $33,915.00. D) $40,553.50. 73) The next year's budget for Trend, Inc., a multi-product company, is given below:

Units 253,230 113,770

Sales $ 1,848,579 $ 1,479,010

Is the total sales mix variance favorable or unfavorable? A) Favorable. B) Unfavorable.

74) The next year's budget for Trend, Inc., a multi-product company, is given below:

Units 253,230 113,770

Sales $ 1,848,579 $ 1,479,010

What is the total sales quantity variance? A) $3,570.00. B) $20,815.00. C) $33,915.00. D) $40,553.50. 75) The next year's budget for Trend, Inc., a multi-product company, is given below:

Units 253,230 113,770

Sales $ 1,848,579 $ 1,479,010

Is the total sales quantity variance favorable or unfavorable? A) Favorable B) Unfavorable

76) A manufacturer of industrial equipment has a standard costing system based on standard direct labor-hours (DLHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below: Level of activity Overhead costs at the denominator activity level: Variable overhead cost Fixed overhead cost

2,500DLHs $ 8,500 $ 34,625

The following data pertain to operations for the most recent period: Actual hours Standard hours allowed for the actual output Actual total variable manufacturing overhead cost Actual total fixed manufacturing overhead cost

2,600DLHs 2,592DLHs $ 9,100 $ 35,025

What is the predetermined overhead rate to the nearest cent? A) $16.97. B) $17.25. C) $16.59. D) $17.65. 77) A manufacturer of industrial equipment has a standard costing system based on standard direct labor-hours (DLHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below: Level of activity Overhead costs at the denominator activity level: Variable overhead cost Fixed overhead cost

2,500DLHs $ 8,500 $ 34,625

2,600DLHs 2,592DLHs $ 9,100 $ 35,025

How much overhead was applied to products during the period to the nearest dollar? A) $44,712. B) $44,125. C) $43,125. D) $44,850. 22 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

78) The labor yield variance is actual total hours at: A) actual mix times actual labor rates less actual total hours at actual mix times standard labor rates. B) actual mix times standard labor rates less standard total hours at standard mix times standard labor rates. C) actual mix times standard labor rates less actual total hours at standard mix times standard labor rates. D) standard mix times standard labor rates less standard total hours at standard mix times standard labor rates. 79) The labor mix variance is actual total hours at: A) actual mix times actual labor rates less actual total hours at actual mix times standard labor rates. B) actual mix times standard labor rates less standard total hours at standard mix times standard labor rates. C) actual mix times standard labor rates less actual total hours at standard mix times standard labor rates. D) standard mix times standard labor rates less standard total hours at standard mix times standard labor rates. 80) The computation of the material yield variance does not require the: A) standard material mix. B) standard material price. C) standard output units. D) total material actually acquired. 81) A credit balance in the labor yield variance implies: A) the total units produced was greater than the expected number of units given the total labor hours actually used. B) the total units produced was less than the expected number of units given the total labor hours actually used. C) the total units produced was greater than the expected number of units given the total standard hours allowed. D) the total units produced was less than the expected number of units given the total standard hours allowed.

82) What is the correct journal entry to record a favorable materials mix variance assuming all material variances are recognized when the direct materials are issued to production? A) Work in Process Inventory XXX Direct Materials Mix Variance XXX Direct Materials Inventory XXX B) Work in Process Inventory Direct Materials Mix Variance Direct Materials Inventory C) Finished Goods Inventory Direct Materials Mix Variance Work in Process Inventory D) Finished Goods Inventory Direct Materials Mix Variance Work in Process Inventory

XXX XXX XXX

83) What is the correct journal entry to record direct labor when the actual labor mix is favorable and the total standard hours allowed is greater than the total actual hours worked? A) Work in Process Inventory XXX Direct labor yield variance XXX Direct labor mix variance XXX Wages Payable XXX B) Work in Process Inventory Direct labor yield variance Direct labor mix variance Wages Payable C) Finished Goods Inventory Direct labor mix variance Direct labor yield variance Work in Process Inventory D) Finished Goods Inventory Direct labor yield variance Direct labor mix variance Work in Process Inventory

XXX XXX XXX XXX

84) The Shum Company makes a product, Z, from two materials: X and Y. The standard prices and quantities are as follows: X $ 6 10

Price per pound Pounds per unit of product Z

Y $ 9 5

In May, 21,000 units of Z were produced by Shum Company, with the following actual prices and quantities of materials used: X Price per pound Pounds used

5.70 216,000

8.40 114,000

What is the total direct materials mix variance for May? A) $12,000. B) $24,000. C) $36,000. D) $60,000. 85) The Shum Company makes a product, Z, from two materials: X and Y. The standard prices and quantities are as follows: X $ 6 10

Price per pound Pounds per unit of product Z

Y $ 9 5

In May, 21,000 units of Z were produced by Shum Company, with the following actual prices and quantities of materials used: X Price per pound Pounds used

5.70 216,000

Y $

8.40 114,000

Is the total direct materials mix variance favorable or unfavorable? A) Favorable. B) Unfavorable.

86) The Shum Company makes a product, Z, from two materials: X and Y. The standard prices and quantities are as follows: X $ 6 10

Price per pound Pounds per unit of product Z

Y $ 9 5

In May, 21,000 units of Z were produced by Shum Company, with the following actual prices and quantities of materials used: X Price per pound Pounds used

5.70 216,000

8.40 114,000

What is the total direct material yield variance for May? A) $45,000. B) $81,000. C) $109,800. D) $117,000. 87) The Shum Company makes a product, Z, from two materials: X and Y. The standard prices and quantities are as follows: X $ 6 10

Price per pound Pounds per unit of product Z

Y $ 9 5

In May, 21,000 units of Z were produced by Shum Company, with the following actual prices and quantities of materials used: X Price per pound Pounds used

5.70 216,000

Y $

8.40 114,000

Is the total direct material yield variance favorable or unfavorable? A) Favorable. B) Unfavorable.

88) The Becton Enterprises (BE) produces a gasoline additive, Charger Power. This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process. Careful controls are required during the production process to ensure that the proper mix of input chemicals is achieved and that evaporation is controlled. Loss of output and efficiency may result if the controls are not effective. The standard cost of producing a 500-liter batch of Charger Power is $135. The standard materials mix and related standard cost of each chemical used in a 500-liter batch are:

The quantities of chemicals purchased and used during the current production period are shown in the schedule below. A total of 140 batches of Charger Power were manufactured during the current production period. The controller of BE has determined its costs and chemical usage variations at the end of the production period.

If BE recognizes all variances at the earliest possible moment, what is the total material price variance? A) $160. B) $540. C) $890. D) $1,270.

89) The Becton Enterprises (BE) produces a gasoline additive, Charger Power. This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process. Careful controls are required during the production process to ensure that the proper mix of input chemicals is achieved and that evaporation is controlled. Loss of output and efficiency may result if the controls are not effective. The standard cost of producing a 500-liter batch of Charger Power is $135. The standard materials mix and related standard cost of each chemical used in a 500-liter batch are:

Is the total material price variance favorable or unfavorable? A) Favorable. B) Unfavorable.

90) The Becton Enterprises (BE) produces a gasoline additive, Charger Power. This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process. Careful controls are required during the production process to ensure that the proper mix of input chemicals is achieved and that evaporation is controlled. Loss of output and efficiency may result if the controls are not effective. The standard cost of producing a 500-liter batch of Charger Power is $135. The standard materials mix and related standard cost of each chemical used in a 500-liter batch are:

What is the total material yield variance? A) $388.50. B) $294.50. C) $280.00. D) $94.50.

91) The Becton Enterprises (BE) produces a gasoline additive, Charger Power. This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process. Careful controls are required during the production process to ensure that the proper mix of input chemicals is achieved and that evaporation is controlled. Loss of output and efficiency may result if the controls are not effective. The standard cost of producing a 500-liter batch of Charger Power is $135. The standard materials mix and related standard cost of each chemical used in a 500-liter batch are:

Is the material yield variance favorable or unfavorable? A) Favorable. B) Unfavorable.

92) The Becton Enterprises (BE) produces a gasoline additive, Charger Power. This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process. Careful controls are required during the production process to ensure that the proper mix of input chemicals is achieved and that evaporation is controlled. Loss of output and efficiency may result if the controls are not effective. The standard cost of producing a 500-liter batch of Charger Power is $135. The standard materials mix and related standard cost of each chemical used in a 500-liter batch are:

What is the total material mix variance? A) $476.00. B) $420.00. C) $388.50. D) $280.00.

93) The Becton Enterprises (BE) produces a gasoline additive, Charger Power. This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process. Careful controls are required during the production process to ensure that the proper mix of input chemicals is achieved and that evaporation is controlled. Loss of output and efficiency may result if the controls are not effective. The standard cost of producing a 500-liter batch of Charger Power is $135. The standard materials mix and related standard cost of each chemical used in a 500-liter batch are:

Is the material mix variance favorable or unfavorable? A) Favorable. B) Unfavorable.

94) A company makes a product using two materials, one of which is interchangeable with a third material. The standards for producing one 200-pound batch are presented below. The last 200-pound batch was produced using 140 pounds of M and 90 pounds of O. The price of M was $0.03 per pound and the actual price of O was $0.10. Material O H M

Standard Quantity (lbs) 0 80 120 200

Standard Cost/lb. $ 0.10 0.08 0.02

Total Cost $ 0 6.40 2.40 $ 8.80

What is the material mix variance? A) $1.68. B) $3.00. C) $1.32. D) $0.84. 95) A company makes a product using two materials, one of which is interchangeable with a third material. The standards for producing one 200-pound batch are presented below. The last 200-pound batch was produced using 140 pounds of M and 90 pounds of O. The price of M was $0.03 per pound and the actual price of O was $0.10. Material O H M

Standard Quantity (lbs) 0 80 120 200

Standard Cost/lb. $ 0.10 0.08 0.02

Total Cost $ 0 6.40 2.40 $ 8.80

Is the material mix variance favorable or unfavorable? A) Favorable. B) Unfavorable.

96) A company makes a product using two materials, one of which is interchangeable with a third material. The standards for producing one 200-pound batch are presented below. The last 200-pound batch was produced using 140 pounds of M and 90 pounds of O. The price of M was $0.03 per pound and the actual price of O was $0.10. Material O H M

Standard Quantity (lbs) 0 80 120 200

Standard Cost/lb. $ 0.10 0.08 0.02

Total Cost $ 0 6.40 2.40 $ 8.80

What is the material yield variance? A) $1.12. B) $1.68. C) $3.00. D) $1.32. 97) A company makes a product using two materials, one of which is interchangeable with a third material. The standards for producing one 200-pound batch are presented below. The last 200-pound batch was produced using 140 pounds of M and 90 pounds of O. The price of M was $0.03 per pound and the actual price of O was $0.10. Material O H M

Standard Quantity (lbs) 0 80 120 200

Standard Cost/lb. $ 0.10 0.08 0.02

Total Cost $ 0 6.40 2.40 $ 8.80

Is the material yield variance favorable or unfavorable? A) Favorable. B) Unfavorable.

98) Bonner Company's direct labor cost for March was as follows: Actual direct labor hours Standard direct labor hours Rate variance Total payroll Labor mix variance

30,000 31,500 $ 4,500U $ 189,000 $ 4,225U

What was Bonner's direct labor yield variance? A) $13,450. B) $9,675. C) $9,225. D) $5,000. 99) Bonner Company's direct labor cost for March was as follows: Actual direct labor hours Standard direct labor hours Rate variance Total payroll Labor mix variance

30,000 31,500 $ 4,500U $ 189,000 $ 4,225U

Is the direct labor yield variance favorable or unfavorable? A) Favorable. B) Unfavorable. 100) Prince Inc. has the following information: Total payroll Standard direct labor hours Labor rate variance Labor mix variance Labor yield variance

$ 165,300 45,000 $ 8,700F $ 4,000F $ 2,000F

What was the standard direct labor rate? A) $3.50. B) $3.80. C) $4.00. D) $5.80.

101) Prince Inc. has the following information: Total payroll Standard direct labor hours Labor rate variance Labor mix variance Labor yield variance

$ 165,300 45,000 $ 8,700F $ 4,000F $ 2,000F

What was Prince's actual direct labor rate? A) $3.60. B) $3.70. C) $3.80. D) $3.90. 102) Which of the following statements would be false regarding application of the variance analysis model to nonmanufacturing costs? A) The basic framework used for manufacturing is also used for nonmanufacturing costs. B) Merchandising and service organizations focus on marketing and administrative costs to measure efficiency and control costs. C) The need for analysis of price and efficiency variances in nonmanufacturing settings is increasing. D) Service organizations are unable to substitute different types of labor. 103) The Foxmoore Company experienced a $100,000 shortfall in sales revenues for the year. Top management is quite disturbed about this and has decided to use variance analysis in assigning the responsibility for the decline. Which of the following variances would most likely be within the control of the marketing department? A) Sales mix. B) Market share. C) Sales quantity. D) Industry volume. 104) Which of the following factors should not be considered when deciding whether to investigate a variance? A) Absolute or relative magnitude of the variance. B) Trend or pattern of the variance over time. C) Chance that an "out-of-control" situation can be corrected. D) Whether the variance is favorable or unfavorable. 105) There are several reasons why actual results differ from standards. Which of the following does not represent a reason why a variance might occur? A) Inaccurate information from the accounting system. B) Increasing the accuracy of a variance report by decreasing its timeliness. C) Standards which do not reflect the current economic conditions. D) Operating conditions that are consistently inefficient. 37 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

106) Fremont, Inc., builds storage boxes to custom order. Materials include 20 board feet of lumber at $1.25/board foot. Standards call for 2 hours of labor at $15 per hour. During March, 4,200 boxes were built. Materials purchased totaled $103,890 for 86,300 board feet of lumber. Actual lumber usage in production was 82,310 board feet. The March payroll was $139,360 for 9,150 hours. Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute the direct material price variance. b. Compute the direct material efficiency variance. c. Compute the direct labor rate variance. d. Compute the direct labor efficiency variance. 107) Malloy Corporation has provided the following data concerning its most important raw material, compound I51D: Standard cost Standard quantity Cost of material purchased in October Material purchased in October Material used in production in October Actual output in October

$ 30.50 4.6 $ 30.70 4,000 3,580 800

per liter liters per unit of output per liter liters liters units

The raw material was purchased on account. Required: a. Record the purchase of the raw material at standard cost in a journal entry. b. Record the use of the raw material in production in a journal entry.

108) The data below relate to a product of Omaha Company. Standard costs: Materials, 3 pounds at $7 per pound Labor, 4 hours at $18 per hour Budgeted production for the year Actual results were: Production Material purchases, 6,000 pounds Labor, 7,420 hours Material used in production

$ $

21per unit 72per unit 2,000units

1,800units $ 48,230 $ 140,170 5,750pounds

Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute the direct material price variance. b. Compute the direct material efficiency variance. c. Compute the direct labor rate variance. d. Compute the direct labor efficiency variance. 109) Compound Y23Z is used by Carrington Corporation to make one of its products. The standard cost of compound Y23Z is $38.70 per ounce and the standard quantity is 4.6 per unit of output. Data concerning the compound in the most recent month appear below: Cost of material purchased in November, per ounce Material purchased in November, ounces Material used in production in November, ounces Actual output in November, units

$ 39.20 2,800 2,360 500

110) The following standards have been established for a raw material used to make product P62: Standard quantity of the material per unit of output Standard price of the material

6.3pounds $ 15.50per pound

The following data pertain to a recent month's operations: Actual material purchased Actual cost of material purchased Actual material used in production Actual output

6,700pounds $ 100,500 6,400pounds 920units of product P62

Required: a. What is the material price variance for the month? b. What is the material efficiency variance for the month? 111) High Tech builds fence panels to custom order. Materials include 15 units of lumber at $2.25 per unit. Standards call for 3 hours of labor at $25 per hour. During October, 3,121 fence panels were built. Materials purchased totaled $113,650 for 51,100 units of lumber. Actual lumber usage in production was 51,069 units. The October payroll was $248,000 for 9,500 hours. Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute the direct material price variance. b. Compute the direct material efficiency variance. c. Compute the direct labor rate variance. d. Compute the direct labor efficiency variance.

112) The Oregon Company produces and sells a single product. Standards have been established for the product as follows: Direct materials: 5 pounds @ $3.50 per pound = $17.50 Direct labor: 3 hours @ $5.50 per hour = $16.50 Actual cost and usage figures for the past month follow: Units produced Direct materials used Direct materials purchased (4,500 pounds) Direct labor cost (2,000 hours)

750 4,000pounds $ 14,400 $ 11,200

Required: Prepare journal entries to record: a. The purchase of raw materials. b. The usage of raw materials in production. c. The incurrence of direct labor cost. 113) The data below relate to a product of Bullfrog Company. Standard costs: Materials, 2 pounds at $6 per pound Labor, 3 hours at $15 per hour Budgeted production for the year Actual results were: Production Material purchases, 8,000 pounds Labor, 10,360 hours Material used in production

$ $

12per unit 45per unit 4,000units

3,600units $ 46,400 $ 160,580 7,300pounds

114) Next year's budget for Howard, Inc., a multi-product company, is given below:

At the end of the year, the total fixed costs and the variable costs per unit were exactly as budgeted, but the following units per product line were sold. Howard analyzes the effects its sales variances have on the profitability of the company. Product Line A B

Units 252,230 113,770

Sales $ 1,848,579 $ 1,479,010

Mkt share 15.0% 17.0%

Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute the sales activity variance for each product. b. Compute the market share variance for each product. c. Compute the industry volume variance for each product. 115) The Buffett Company had the following expectations: Total market for the product Buffett's budgeted sales Contribution margin per unit Actual results for the year were: Total market for the product Buffett's actual sales

175,000units 54,250 $ 13.00 166,250units 56,525

Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute Buffett's sales activity variance. b. Compute Buffett's market share variance. c. Computer Buffett's industry volume variance.

116) Next year's budget for Alton, Inc., is given below:

At the end of the year, the total fixed costs and the variable costs per unit were exactly as budgeted, but the following units per product line were sold: Product Line 1 2

Units 126,200 56,800

Sales $ 958,579 $ 721,010

Mkt share 16.0% 14.2%

Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute the sales activity variance for each product. b. Compute the market share variance for each product. c. Compute the industry volume variance for each product. 117) The Stangle Company had the following expectations: Total market for the product Stangle's budgeted sales Contribution margin per unit Actual results for the year were: Total market for the product Stangle's actual sales

350,000units 108,500 $ 12.00 332,500units 113,050

Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute Stangle's sales activity variance. b. Compute Stangle's market share variance. c. Computer Stangle's industry volume variance.

118) Porcini Enterprises produces two products, AR and QT. Actual and budgeted information for the year ending April 30 is provided below:

Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute the sales activity variance for each product. b. Compute the sales mix variance for each product. c. Compute the sales quantity variance for each product. 119) Next year's budget for Canfield, Inc., a multi-product company, is given below:

At the end of the year, the total fixed costs and the variable costs per unit were exactly as budgeted, but the following units per product line were sold. Canfield analyzes the effects its sales variances have on the profitability of the company. Product Line A B

Units 252,230 113,770

Sales $ 1,848,579 $ 1,479,010

120) Virginia Enterprises produces two products, Standard and Deluxe. Actual and budgeted information for the year is provided below:

Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute the sales activity variance for each product. b. Compute the sales mix variance for each product. c. Compute the sales quantity variance for each product. 121) Next year's budget for Temper, Inc., is given below:

At the end of the year, the total fixed costs and the variable costs per unit were exactly as budgeted, but the following units per product line were sold: Product Line 1 2

Units 126,200 56,800

Sales $ 958,579 $ 721,010

122) A chemical company in the Midwest produces a solvent used by manufacturers of plastics. Three basic chemicals go into this solvent. The standards for one-liter of this product are: Chemical A: 500 ml. @ $10 per liter Chemical B: 100 ml. @ $50 per liter Chemical C: 400 ml. @ $20 per liter During the last period, 10,000 liters of the solvent were produced and the company purchased the following amounts of each chemical: Chemical A: 6,400 liters @ $9.00 per liter Chemical B: 900 liters @ $75.00 per liter Chemical C: 4,200 liters @ $20.00 per liter Because these chemicals are volatile, the company uses them immediately upon purchase, so there are no beginning and ending inventories. Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute the direct material price variances for the three basic chemicals. b. Compute the direct material efficiency variances for the three basic chemicals. c. Compute the direct material mix variances for the three basic chemicals. d. Compute the direct material yield variances for the three basic chemicals. 123) A chemical company produces a product used by manufacturers of plastics. Two basic chemicals go into this product. The standards for one-liter of this product are: Chemical 1: 800 ml. @ $50 per liter Chemical 2: 200 ml. @ $200 per liter During the last period, 5,000 liters of the solvent were produced and the company purchased the following amounts of each chemical: Chemical 1: 5,400 liters @ $59.00 per liter Chemical 2: 900 liters @ $225.00 per liter Because these chemicals are volatile, the company uses them immediately upon purchase, so there are no beginning and ending inventories. Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute the direct material price variances for the two basic chemicals. b. Compute the direct material efficiency variances for the two basic chemicals. c. Compute the direct material mix variances for the two basic chemicals. d. Compute the direct material yield variances for the two basic chemicals. 46 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

124) A company's direct labor standards for a given operation and the actual results for the current period are provided below: Standard rates: Level One: $20 per hour Level Two: $15 per hour Time to produce one unit: Two (2) Level One workers at 15-minutes each Three (3) Level Two workers at 10 minutes each Actual Results: Units produced: 10,000 Labor used: 4,000 hours of Level One workers at $25 per hour 6,800 hours of Level Two workers at $15 per hour Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute the labor rate variances for each worker level. b. Compute the labor efficiency variances for each worker level. c. Compute the labor mix variances for each worker level. d. Compute the labor yield variances for each worker level. 125) A company's direct labor standards for a given operation and the actual results for the current period are provided below: Standard rates: Class A: $24 per hour Class B: $12 per hour Time to produce one unit: Three (3) Class A workers at 20 minutes each Two (2) Class B workers at 15-minutes each Actual Results: Units produced: 6,000 Labor used: 5,800 hours of Class A workers; total payroll: $156,600 3,500 hours of Class B workers; total payroll: $49,000 Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute the labor rate variances for each worker level. b. Compute the labor efficiency variances for each worker level. c. Compute the labor mix variances for each worker level. d. Compute the labor yield variances for each worker level. 47 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

126) The Foggybottom Chemicals produces a product by mixing three ingredients to make a finished product. The standard cost of producing a 50-gallon drum of the product is $19.50. The standard materials mix and related standard cost of each chemical used in a 50-gallon batch are:

The quantities of chemicals purchased and used during the current production period are shown in the schedule below. A total of 520 batches were manufactured during the current production period. The costs and chemical usage variations at the end of the production period are:

Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. If variances are recorded at the earliest possible moment, what is the material price variance (in total and for each ingredient)? b. What is the material efficiency variance (in total and for each ingredient)? c. What is the material yield variance (in total and for each ingredient)? d. What is the material mix variance (in total and for each ingredient)?

127) A company's direct labor standards for a given operation and the actual results for the current period are provided below: Standard rates: Advanced: $18 per hour Trained: $15 per hour Novice: $10 per hour Time to produce one unit: One (1) Advanced worker at 30 minutes each = Three (3) Trained workers at 20 minutes each = Two (2) Novice workers at 15 minutes each =

30 minutes/unit 60 minutes/unit 30 minutes/unit 120 minutes/unit

Actual Results: Units produced: 4,000 Labor used: 2,200 hours of Advanced workers 4,300 hours of Trained workers 1,900 hours of Novice workers Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute the labor efficiency variances for each worker level. b. Compute the labor mix variances for each worker level. c. Compute the labor yield variances for each worker level. 128) Tallon & Associates is a consulting firm specializing in business location studies. The results for last year, along with the budget, are as follows:

Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Prepare a flexible budget using billable hours as the measure of output. b. Prepare a sales activity variance analysis. c. Compute the sales price variance. 49 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

129) The standard direct labor cost for room cleaning at Texas Hotels is $2.50 per room ($10 per hour in wages divided by 4 rooms cleaned per hour). Actual labor costs were $11,330 for the month. During the period there were 1,100 labor hours worked; 3,920 rooms were cleaned during the month. Required: (Be sure to indicate whether the variance is favorable or unfavorable.) a. Compute the labor price variance for the period. b. Compute the labor efficiency variance for the period. 130) What is the advantage of recognizing materials price variances at the time of purchase rather than at the time of use? 131) Explain the difference between the market share variance and the industry volume variance. 132) Explain the difference between the sales mix variance and the sales quantity variance. 133) When deciding how many variances to calculate, what two items need to be considered? Be sure to define your terms. 134) Explain what production mix and production yield variances measure. How do these variances relate to efficiency variances? 135) Olsen Company uses a standard cost system for its only product. The bickering between purchasing and production that occurs every month after the material variances are developed has the production vice president, Mr. Becker, at his wits end. He has checked the job descriptions of the individuals involved and notes that the purchasing department is responsible for the price at which materials and supplies are purchased and the manufacturing department is responsible for the quantity of material used. This seems very clear cut to him so he has gone to the cost accountant for some additional help. Required: As the cost accountant, explain to Mr. Becker why, or why not, this division of duties solves the conflict between price and quantity variances.

136) Advantage Co. sells two types of drives—standard and specialty. The budget is based on a combination of last year's information as well as forecasted industry sales and the company's market share. The following information is provided for June:

Selling price per drive Variable price per drive Contribution margin Sales (units) Fixed costs

Budgeted Standard Specialty $ 50 $ 70 24 40 $ 26 $ 30 5,000 1,000 $60,000

Actual Standard Specialty $ 52 $ 70 24 42 $ 28 $ 28 4,500 1,500 $63,000

Required: 1) Prepare a static budget and flexible budget for the company for June. 2) What is the sales activity variance? 137) Maxine Watters, the managerial accountant, has been asked by the President of Coolare Ceiling Fan Company to prepare an analysis of the effectiveness of the new management team. The company manufactures paper fans. 2020 standards: Direct materials - 4 parts @ $2 per part Direct labor - one half hour (0.5) @ $10 per hour Estimated production - 100,000 Actual results 2020: Direct materials - 585,000 parts at a total cost of $1,462,500 were purchased and used Direct labor - 51,000 hours at a cost of $561,000 Actual production - 130,000 fans Required: Requirement: Compute the direct material and direct labor price and efficiency variances.

138) Resolution Company is meeting with the consultants it hired to help it with problems arising from its increasing sales and increasing production to meet them. The consultants have informed the company that they need to make price concessions in order to have their product sold over a large area. To do this, costs need to be reduced and controlled. They recommended installation of a standard costing system and a flexible budgeting system. The CEO took the recommendations back to the company management, explained to all, and a team was set up to develop the standards. The team was composed of the purchasing manager, processing manager, production engineer, and V.P. of sales. Each member of the team, rather than working to develop standards, came up with reasons why they wouldn't work. The team made its report to the CEO who told them to come up with the standards or he would have the consultants set them. Required: (a) What are the advantages and disadvantages of standard costing? (b) What has gone wrong in this situation and will having the outside consultant do the work change anything?

Fundamentals of Cost Accounting, 6e (Lanen) Chapter 18 Performance Measurement to Support Business Strategy 1) One reason financial measures are used to evaluate performance is that they are easily quantifiable. 2) One disadvantage of using nonfinancial measures to evaluate performance is that they are only available on a monthly, quarterly, or annual basis. 3) One question that an organization's mission statement should answer is how the organization will evaluate its performance relative to its competitors. 4) In general, all managers in a given organization are responsible for the same things and should be evaluated using the same financial and nonfinancial measures. 5) In general, performance measures—financial and nonfinancial—should relate to what managers at different levels control. 6) A business model is a description of how different levels and employees in the organization must perform for the organization to achieve its goals and objectives. 7) In general, the use of multiple measures to evaluate performance is better than the use of a single performance measure. 8) At the middle levels in the organization, control and performance measurement focus on how people carry out the daily activities that create the organization's products. 9) At the upper level of the organization, performance measurement focuses on whether the organization is meeting its responsibilities and performing well from the stakeholders' perspective. 10) A balanced scorecard is basically a balance sheet prepared using nonfinancial measures. 11) The concept of a balanced scorecard is to measure how well the organization is doing from the view of employees, suppliers, customers, business partners, and the community, as well as the shareholders. 12) A balanced scorecard uses only nonfinancial measures to determine how well the organization is doing in view of competing stakeholder concerns. 13) Continuous improvement involves the search for and implementation of the best way to do something as practiced by other organizations or in other parts of one's own organization. 14) One of the important guidelines of benchmarking is to not benchmark everything at the bestin-the-business level; no organization can be the best at everything. 1 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

15) The primary objective of benchmarking is to evaluate performance of an activity, operation, or organization relative to the performance by other companies. 16) Manufacturing cycle time is the total time involved in processing, moving, storing, and inspecting a good or providing a service. 17) Improving the efficiency of the manufacturing cycle involves decreasing the time spent processing a good. 18) The number of defective units is an example of a subjective performance measure. 19) Partial productivity is the ratio of the value of output to the value of all key inputs. 20) One advantage of nonfinancial measures is that managers directly involved in operations are likely to understand them. 21) Employee involvement in real decision-making is likely to increase the employee's commitment to the organization and its objectives. 22) Employees empowered with real decision-making authority are more likely to be more responsive to customer concerns. 23) ________ is a firm's ability to generate products or services that are perceived by its customers as being superior and unique as opposed to those offered by its competitors. A) Strategy B) Product differentiation C) Cost leadership D) The balanced scorecard 24) ________ is a firm's ability to implement low costs compared to its competitors with productivity improvements, increased efficiency, reduction of waste, and the use of cost control. A) Strategy B) Product differentiation C) Cost leadership D) The balanced scorecard 25) Which of the following statements is(are) true regarding financial measures? (A) One disadvantage of using financial measures to evaluate performance is that they are typically reported on a monthly, quarterly, or annual basis. (B) One reason financial measures are used to evaluate performance is that they are easily quantifiable. A) Only A is true. B) Only B is true. C) Both of these are true. D) Neither of these is true. 2 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

26) A description of an organization's values, definition of its responsibilities to stakeholders, and identification of its major strategies is called its: A) business-level strategy. B) mission statement. C) performance objectives. D) master budget. 27) Which of the following nonfinancial measures would not be used to evaluate a middle manager's performance? A) Frequency of meeting customer delivery requirements. B) Amount of unwanted employee turnover. C) Success in dealing with suppliers. D) Fulfilling responsibilities to company shareholders. 28) A balanced scorecard shows measures of performance as they related to areas of performance. Which of the following is a measure of performance of customer value? A) Gross margin ratio. B) Retention of existing customers. C) Hours of job related training. D) Process cycle time. 29) Which of the following is not one of the four views of the balanced scorecard? A) Financial. B) Competitor performance. C) Internal business process. D) Learning and growth. 30) Which of the following best describes possible objectives related to the customer perspective of the balanced scorecard? A) Reduced cycle time, project management. B) Improved relationships, timeliness. C) Increased revenue, reduced costs. D) Employee satisfaction, global knowledge improvement. 31) A business model attempts to minimize problems associated with: A) decentralization. B) divisional autonomy. C) goal congruence. D) maximizing profits.

32) Which of the following statements is(are) false regarding performance measures? (A) In general, the use of multiple measures to evaluate performance is better than the use of a single performance measure. (B) Managers evaluated using multiple measures will most likely act differently than managers evaluated using single measures. A) Only A is false. B) Only B is false. C) Both of these are false. D) Neither of these is false. 33) A balanced scorecard is a set of: A) performance measures. B) financial statements. C) budget schedules. D) annual reports. 34) In general, a balanced scorecard is used to evaluate an organization's performance using: A) standard costs and variance analysis. B) multiple financial and nonfinancial measures. C) financial statements and ratio analysis. D) the Board of Directors' audit committee. 35) One of the results in using balanced scorecards is a shift from a focus on financial results to a focus on: A) maximizing market share. B) minimizing budgetary slack. C) eliminating fraudulent behavior. D) increasing customer satisfaction. 36) Which of the following balanced scorecard perspectives focuses on quality and process improvement? A) Financial. B) Customer. C) Internal Business Process. D) Learning and growth. 37) Which of the following balanced scorecard perspectives focuses on customer service issues? A) Financial. B) Customer. C) Internal Business Process. D) Learning and Growth.

38) Which of the following balanced scorecard perspectives focuses on shareholder's interests? A) Financial. B) Customer. C) Internal Business Process. D) Learning and growth. 39) Which of the following balanced scorecard perspectives focuses on employee development? A) Financial. B) Customer. C) Internal Business Process. D) Learning and growth. 40) In the balanced scorecard, the financial perspective addresses which of the following questions? A) "To achieve our mission, how will we sustain our ability to change and improve?" B) "To succeed financially, how should we appear to our shareholders?" C) "To satisfy our shareholders and customers, in what business process must we excel?" D) "To achieve our mission, how should we appear to our customers?" 41) In the balanced scorecard, the internal business process perspective addresses which of the following questions? A) "To achieve our mission, how will we sustain our ability to change and improve?" B) "To succeed financially, how should we appear to our shareholders?" C) "To satisfy our shareholders and customers, in what business process must we excel?" D) "To achieve our mission, how should we appear to our customers?" 42) In the balanced scorecard, the learning and growth perspective addresses which of the following questions? A) "To achieve our mission, how will we sustain our ability to change and improve?" B) "To succeed financially, how should we appear to our shareholders?" C) "To satisfy our shareholders and customers, in what business process must we excel?" D) "To achieve our mission, how should we appear to our customers?" 43) In the balanced scorecard, the customer perspective addresses which of the following questions? A) "To achieve our mission, how will we sustain our ability to change and improve?" B) "To succeed financially, how should we appear to our shareholders?" C) "To satisfy our shareholders and customers, in what business process must we excel?" D) "To achieve our mission, how should we appear to our customers?" 44) The balanced scorecard measures an organization's performance in all of the following areas except: A) financial. B) government. C) customer. D) learning and growth. 5 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

45) ________ communicates an organization's strategy into an inclusive set of performance measures that provide the structure for implementing that strategy. A) Productivity component B) Product differentiation C) Cost leadership D) The balanced scorecard 46) The first step to the successful implementation of a balanced scorecard is specifying the: A) organization's vision and strategy. B) elements that pertain to value-added aspects of the business. C) owner's expectations about return on investment. D) objectives of all four balanced scorecard measurement perspectives. 47) Which of the following represents value-added time in the manufacturing cycle? A) Inspection Time. B) Storage Time. C) Move Time. D) Process Time. 48) Manufacturing Cycle Efficiency is computed as: A) Processing Time × Manufacturing Cycle Time. B) Processing Time ÷ Inspection Time. C) Processing Time ÷ Manufacturing Cycle Time. D) Moving Time ÷ Storage Time. 49) Which of the following is not included in manufacturing cycle time? A) Inspection time. B) Storing time. C) Moving time. D) Marketing time. 50) Mountainburg Corporation keeps track of the time required to fill orders. The times recorded for a particular order appear below: Hours Processing Time Inspection Time Moving Time Storing Time

1.2 0.3 3.8 4.2

The manufacturing cycle time was: A) 5.3 hours. B) 20.7 hours. C) 15.4 hours. D) 9.5 hours. 6 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

51) Travis Corporation keeps track of the time required to fill orders. The times recorded for a particular order appear below: Hours Processing Time Inspection Time Moving Time Storing Time

0.7 0.3 2.9 8.7

The manufacturing cycle efficiency was closest to: A) 0.73. B) 0.06. C) 0.15. D) 0.02. 52) Steinwand Corporation keeps track of the time required to fill orders. Data concerning a particular order appear below: Hours Processing Time Inspection Time Moving Time Storing Time

1.9 0.2 2.8 7.2

The manufacturing cycle time was: A) 20.3 hours. B) 25.2 hours. C) 4.9 hours. D) 12.1 hours.

53) Steinwand Corporation keeps track of the time required to fill orders. Data concerning a particular order appear below: Hours Processing Time Inspection Time Moving Time Storing Time

1.9 0.2 2.8 7.2

The manufacturing cycle efficiency was closest to: A) 0.24. B) 0.16. C) 0.92. D) 0.08. 54) Morgenstern Corporation keeps track of the time required to fill orders. The times recorded for a particular order appear below: Hours Processing Time Inspection Time Moving Time Storing Time

1.6 0.1 2.6 7.2

The manufacturing cycle time was: A) 4.3 hours. B) 31.6 hours. C) 27.3 hours. D) 11.5 hours.

55) Morgenstern Corporation keeps track of the time required to fill orders. The times recorded for a particular order appear below: Hours Processing Time Inspection Time Moving Time Storing Time

1.6 0.1 2.6 7.2

The manufacturing cycle efficiency was closest to: A) 0.05. B) 0.57. C) 0.14. D) 0.16. 56) Which of the following items is not part of the continuous improvement philosophy? A) Eliminate activities that are nonvalue-added. B) Improve the efficiency of activities that are value-added. C) Use benchmarking to identify activities that need improvement. D) Provide bonus incentives to managers for accurate performance reports. 57) Benchmarks are used to evaluate the performance of an activity or operation relative to other organizations or other parts of one's own organization. Which of the following is not a guideline for using benchmarks to evaluate performance? A) Benchmarks should only be used for nonfinancial measures. B) Do not benchmark everything at the best-in-the-business level. C) Benchmark only best-in-the-business activities that are important. D) Use internal benchmarks for less important activities or operations. 58) Which of the following statements is(are) false? (A) Internal, regional, and local benchmarks should be used for the most important processes and activities in an organization. (B) In general, the use of multiple measures to evaluate performance is better than the use of a single performance measure. A) Only A is false. B) Only B is false. C) Both of these are false. D) Neither of these is false. 59) Which of the following is typically not considered an objective of quality control? A) Reduce costs associated with customer complaints. B) Reduce costs of honoring product or service warranty. C) Increase customer satisfaction with product or service. D) Increase the number of deliveries made when promised. 9 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

60) Functional performance measures differ from customer satisfaction performance measures in that they are used primarily to evaluate: A) internal processes. B) external processes. C) benchmark processes. D) continuous improvement processes. 61) Manufacturing cycle efficiency is computed by dividing process time by: A) moving time + storage time. B) storage time + inspection time. C) moving time + storage time + inspection time. D) process time + moving time + storage time + inspection time. 62) Which of the following statements is(are) true regarding performance measures? (A) In general, objective performance measures are better than subjective performance measures. (B) In general, the use of multiple performance measures is better than the use of single performance measures. A) Only A is true. B) Only B is true. C) Both of these are true. D) Neither of these is true. 63) An objective performance measure is one where: A) different people will agree as to the appropriateness of a measure. B) different people will agree as to the method to calculate the measure. C) different managers will calculate a measure differently. D) different managers will view the facts and come to different conclusion. 64) A subjective performance measure is one where: A) different people will agree as to the appropriateness of a measure. B) different people will agree as to the method to calculate the measure. C) different managers will calculate a measure the same. D) different managers will view the facts and come to different conclusions. 65) Which of the following is not a mistake often made when measuring nonfinancial performance? A) Using subjective rather than objective measures. B) Not linking measure to strategy. C) Not validating links between activities and strategies. D) Not setting appropriate performance targets.

66) Which of the following performance measures would be used to evaluate the personnel department performance? A) Number of product recalls. B) Percentage of late deliveries. C) Number of requests for transfers. D) Length of time to fill vacant positions. 67) Partial productivity measures are most closely related to what type of variances? A) Price variances. B) Sales mix variances. C) Efficiency variances. D) Production volume variances. 68) Total factor productivity: A) is a ratio of the value of output to the value of all key inputs. B) is the same thing as the production volume variance. C) focuses on an individual input. D) includes materials and labor but not overhead. 69) If a manager wants to assess performance relative to the industry, it is best to use: A) partial productivity measures. B) production volume variances. C) sales price variances. D) total factor productivity. 70) Partial productivity: A) is a ratio of the value of output to the value of all key inputs. B) is the same thing as the production volume variance. C) focuses on an individual input. D) includes materials and labor but not overhead. 71) Which of the following is not a partial productivity measure? A) tons output/tons of material used. B) sales value/total cost. C) gallons output/direct labor hour. D) units produced/machine hour. 72) Which of the following is a total factor productivity measure? A) Tons output/tons of material used. B) Units produced/machine hour. C) Sales value/total cost. D) Gallons output/direct labor hour.

73) The Otero Manufacturing Company collected the following information (in days): April Transporting product Processing product Inspecting product Storing product

2.0 14.0 0.5 6.0

What is the manufacturing cycle efficiency? A) 87.5%. B) 63.6%. C) 62.2%. D) 42.9%. 74) The Otero Manufacturing Company collected the following information (in days): April Transporting product Processing product Inspecting product Storing product

2.0 14.0 0.5 6.0

What is the manufacturing cycle time? A) 14.0 days. B) 16.0 days. C) 22.0 days. D) 22.5 days. 75) The Malcolm Company collected the following information (in days): Manufacturing product Storing product Transporting product Inspecting product

20.0 8.0 2.0 1.0

What is the manufacturing cycle efficiency? A) 28.6%. B) 64.5%. C) 71.4%. D) 90.9%.

76) The Malcolm Company collected the following information (in days): Manufacturing product Storing product Transporting product Inspecting product

20.0 8.0 2.0 1.0

What is the manufacturing cycle time? A) 10 days. B) 31 days. C) 28 days. D) 22 days. 77) The Majors Company collected the following information (in days): Inspecting product Transporting product Storing product Manufacturing product

4 6 15 40

What is the manufacturing cycle efficiency? A) 61.5%. B) 72.7%. C) 87.0%. D) 27.3%. 78) The Majors Company collected the following information (in days): Inspecting product Transporting product Storing product Manufacturing product

4 6 15 40

What is the manufacturing cycle time? A) 21 days. B) 65 days. C) 55 days. D) 46 days.

79) The Falisari Company collected the following information (in days): Inspecting product Transporting product Storing product Manufacturing product

4 14 20 65

What is the manufacturing cycle efficiency? A) 100.0%. B) 82.2%. C) 63.1%. D) 76.5%. 80) The Falisari Company collected the following information (in days): Inspecting product Transporting product Storing product Manufacturing product

4 14 20 65

What is the manufacturing cycle time? A) 65 days. B) 34 days. C) 103 days. D) 85 days. 81) The Ramos Company collected the following information (in days): Transporting product Manufacturing product Inspecting product Storing product

4.0 28.0 1.5 6.0

What is the manufacturing cycle efficiency? A) 87.5%. B) 82.4%. C) 70.9%. D) 17.6%.

82) The Ramos Company collected the following information (in days): Transporting product Manufacturing product Inspecting product Storing product

4.0 28.0 1.5 6.0

What is the manufacturing cycle time? A) 39.5 days. B) 34.0 days. C) 32.0 days. D) 10.0 days. 83) The Boxwood Machining Co. has the following information for last year: Tons of metal input Labor hours Overhead costs Tons of output produced

28,000 10,000 $ 125,000 20,000

The partial productivity for metal is: A) 2.800. B) 1.400. C) 0.714. D) 0.526. 84) The Boxwood Machining Co. has the following information for last year: Tons of metal input Labor hours Overhead costs Tons of output produced

28,000 10,000 $ 125,000 20,000

The partial productivity for labor is: A) 2.800. B) 2.000. C) 0.526. D) 0.500.

85) The California Machining Co. has the following information for last year: Feet of metal input Labor hours Tons of output produced

150,000 12,000 6,000

The partial productivity for metal is: A) 0.04. B) 0.08. C) 12.50. D) 25.00. 86) The California Machining Co. has the following information for last year: Feet of metal input Labor hours Tons of output produced

150,000 12,000 6,000

The partial productivity for labor is: A) 12.50. B) 2.00. C) 0.50. D) 0.12. 87) The White Hot Mining Co. has the following information for last year: Labor hours Tons of output produced

12,000 175,000

The partial productivity for labor is: A) 1.000. B) 0.069. C) 14.583. D) 12.000.

88) The Trundle Pass Mining Co. has the following information for last year: Labor hours Tons of output produced

112,000 1,575,000

The partial productivity for labor is: A) 1.120. B) 0.071. C) 14.063. D) 112.000. 89) The Cave Springs Milling Co. has the following information for last year: Material input Labor hours Yards of output produced

13,112,000 126,000 1,575,000

The partial productivity for materials is: A) 0.12 B) 1.31 C) 8.33 D) 15.75 90) The Alma Milling Co. has the following information for last year: Material input Labor hours Yards of output produced

6,864,000 97,000 1,311,000

The partial productivity for materials is: A) 0.131. B) 0.191. C) 0.686. D) 5.236.

91) The Fort Smith Co. has the following information for last year: Material input Labor hours Yards of output produced

4,396,000 112,000 1,155,000

The partial productivity for materials is: A) 1.136. B) 0.288. C) 0.263. D) 3.802. 92) The Fort Smith Co. has the following information for last year: Material input Labor hours Yards of output produced

4,396,000 112,000 1,155,000

The partial productivity for labor is: A) 0.097. B) 0.256. C) 3.906. D) 10.313. 93) Tungsten Forging Co. has provided the following information for last year: Tons of metal input Labor hours Overhead costs Tons of forging produced

10,000 5,000 $ 125,000 8,000

@ $10/ton @ $30/hour @ selling price of $60/ton

The total factor productivity measure is: A) $480,000. B) $375,000. C) 1.28. D) 0.78.

94) Toomey Toolworks Co. has provided the following information for last year: Tons of metal input Labor hours Overhead costs Tons of forging produced

20,000 15,000 $ 225,000 16,000

@ $15/ton @ $30/hour @ selling price of $75/ton

The total factor productivity measure is: A) 1.231. B) 1.600. C) 2.167. D) 3.250. 95) Prancing Products has provided the following information for last year: Gallons input Labor hours Overhead costs Gallons finished

10,000 5,000 $ 125,000 8,000

@ $15/gallon @ $20/hour @ selling price of $55/gallon

The total factor productivity measure is: A) 1.25. B) 1.60. C) 15.63. D) 1.17. 96) Sojourn Enterprises has provided the following information for last year: Material costs Labor hours Overhead costs Product produced

$ 225,000 $ 85,000 $ 311,000 32,000

@ selling price of $22/each

The total factor productivity measure is: A) 1.003. B) 1.134. C) 0.882. D) 0.362.

97) Premier Products Co. has provided the following information for last year: Material costs Labor hours Overhead costs Product produced

$ 150,000 $ 45,000 $ 117,000 8,000

@ selling price of $45/each

The total factor productivity measure is: A) $150,000. B) $312,000. C) 1.154. D) 0.832. 98) Moonlight Co. has provided the following information for last year: Material costs Labor costs Overhead costs Product produced Total factor productivity

$ 300,000 $ 90,000 $ 234,000 16,000 1.154

units

The selling price of the product (rounded) is: A) $45.01. B) $33.80. C) $39.00. D) $28.13. 99) Magnum Co. has provided the following information for last year: Gallons input Labor costs Overhead costs Gallons finished Total factor productivity

20,000 ??? $ 250,000 16,000 1.1733

@ $15/gallon @ selling price of $55/gallon

The total labor cost (rounded) is: A) $293,325. B) $482,500. C) $468,750. D) $200,021.

100) Walters Co. has provided the following information for last year: Gallons input Labor costs Overhead costs Gallons finished Total factor productivity

??? 10,000 $ 250,000 16,000 1.1733

@ $20/hr @ selling price of $55/gallon

The total material cost (rounded) is: A) $293,325. B) $582,500. C) $300,021. D) $200,000. 101) Harringer Co. has provided the following information for last year: Gallons input Labor costs Overhead costs Gallons finished Total factor productivity

10,000 5,000 ??? 8,000 1.0732

@ $20/gallon @ $20/hr @ selling price of $55/gallon

The total overhead cost (rounded) is: A) $172,200. B) $109,989. C) $140,000. D) $200,000. 102) Cavanaugh Co. has provided the following information for last year: Gallons input Labor costs Overhead costs Gallons finished Total factor productivity

??? 5,000 $ 110,000 8,000 1.0732

@ $20/gallon @ $20/hr @ selling price of $55/gallon

The total number of gallons input (rounded) is: A) 10,000 gallons. B) 8,600 gallons. C) 7,450 gallons. D) 200,000 gallons.

103) Employee involvement is important in an effective performance measurement system because it: A) increases the employee's commitment to the organization and its objectives. B) decreases the employee's reliance on financial performance measures. C) increases the likelihood that goal congruence problems will occur. D) decreases the chances of an unfavorable manufacturing cycle time. 104) Which of the following is not a difficulty in implementing nonfinancial performance measurement systems? A) Fixation on financial measures. B) Reliability of the nonfinancial measures. C) Nonfinancial measures decrease goal congruence. D) Lack of correlation between nonfinancial measures and financial results. 105) The Miller Manufacturing Company collected the following information (in days) for April and May: April Transporting product Processing product Inspecting product Storing product

2.0 14.0 0.5 8.0

May 3.0 16.0 0.8 5.0

Required: a. Calculate the manufacturing cycle efficiency for April and May. b. Calculate the processing time required for May so that May's manufacturing cycle efficiency is equal to April's manufacturing cycle efficiency. 106) The Satin Manufacturing Company collected the following information (in days) for July and August: July Transporting product Processing product Inspecting product Storing product

2.0 17.0 0.5 7.0

August 3.0 18.0 1.2 7.0

107) The Gantry Company collected the following information (in days) for November and December: November Transporting product Processing product Inspecting product Storing product

December

2.0 15.0 1.0 8.0

3.0 18.0 1.2 7.0

Required: a. Calculate the manufacturing cycle efficiency for November and December. b. Assume January's processing time will be the same as December. If Gantry's target for manufacturing cycle efficiency is 65%, what will be January's target for non-processing times? 108) The Miller Manufacturing Company collected the following information (in days) for April and May: April Transporting product Processing product Inspecting product Storing product

May 2.0 5.0 0.5 2.0

3.0 7.0 0.8 3.0

Required: a. Calculate the manufacturing cycle efficiency for April and May. b. Calculate the processing time required for May so that May's manufacturing cycle efficiency is equal to April's manufacturing cycle efficiency. 109) The Satin Manufacturing Company collected the following information (in days) for July and August: July Transporting product Processing product Inspecting product Storing product

August 2.0 5.0 0.5 1.0

3.0 7.0 0.8 3.0

Required: a. Calculate the manufacturing cycle efficiency for July and August. b. Assume September's processing time will be the same as August. If Satin's target for manufacturing cycle efficiency is 65%, what will be September's target for manufacturing cycle time? 23 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

110) The Gantry Company collected the following information (in days) for November and December: November Transporting product Processing product Inspecting product Storing product

December 2.0 6.0 1.0 2.0

3.0 7.0 0.8 3.0

Required: a. Calculate the manufacturing cycle efficiency for November and December. b. Assume January's processing time will be the same as December. If Gantry's target for manufacturing cycle efficiency is 65%, what will be January's target for non-processing times? 111) The Everton Manufacturing Company collected the following information (in days):

Transporting product Processing product Inspecting product Storing product

April 2.0 5.0 0.5 2.0

May 3.0 7.0 0.8 3.0

June 2.0 7.0 1.0 4.0

Required: a. Calculate the manufacturing cycle efficiency for April, May, and June. b. Calculate the processing time required for June so that the manufacturing cycle efficiency is equal to the most efficient of the previous two months. 112) The Altoona Manufacturing Company collected the following information (in days) for July, August, and September:

Transporting product Processing product Inspecting product Storing product

July 2.0 5.0 0.5 1.0

August 3.0 7.0 0.8 3.0

September 2.0 7.0 1.0 4.0

Required: a. Calculate the manufacturing cycle efficiency for July, August, and September. b. Assume October's processing time will be the same as September. If Altoona's target for manufacturing cycle efficiency is 65%, what will be October's target for manufacturing cycle time?

113) The Gantry Company collected the following information (in days) for October, November, and December: October November December 1.0 2.0 3.0 6.0 6.0 7.0 2.0 1.0 0.8 4.0 2.0 3.0

Transporting product Processing product Inspecting product Storing product

Required: a. Calculate the manufacturing cycle efficiency for October, November, and December. b. Assume January's processing time will be the same as December. If Gantry's target for manufacturing cycle efficiency is 60%, what will be January's target for non-processing times? 114) Marion Forging Co. has provided the following information for last year: Tons of metal input Labor hours Overhead costs Tons of forging produced

14,000 5,000 $ 125,000 10,000

Required: Calculate the partial productivity for: a. Metal. b. Labor. 115) Marion Forging Co. has provided the following information for last year: Tons of metal input Labor hours Overhead costs Tons of forging produced

14,000 5,000 $ 125,000 10,000

@ $10/ton @ $30/hour @ selling price of $60/ton

Required: Calculate the total factor productivity measure.

116) Pantipazole Products Co. has provided the following information for last year: Material costs Labor hours Overhead costs Tons of forging produced

$ 150,000 $ 45,000 $ 117,000 8,000

@ selling price of $45/each

Required: Calculate the total factor productivity measure. 117) Shuster Metalworks Co. has provided the following information for last year: Pounds of metal input Labor hours Overhead costs Pounds of output produced

21,000 8,000 $ 165,000 12,000

Required: Calculate the partial productivity for: a. Metal. b. Labor. 118) Shuster Metalworks Co. has provided the following information for last year: Pounds of metal input Labor hours Overhead costs Pounds of output produced

21,000 8,000 $ 165,000 12,000

@ $12/pound @ $25/hour @ selling price of $70/pound

Required: Calculate the total factor productivity measure. 119) Cummings Co. has provided the following information for last year: Material costs Labor costs Overhead costs Product produced

$ 225,000 $ 70,000 $ 175,000 9,000

@ selling price of $60/each

Required: Calculate the total factor productivity measure.

120) Maeve Co. has provided the following information for last year: Pounds of input Labor hours Overhead costs Units of output produced

35,000 8,000 $ 142,000 15,000

Required: Calculate the partial productivity for: a. Metal. b. Labor. 121) Colbyville Co. has provided the following information for last year: Pounds of input Labor hours Overhead costs Units of output produced

35,000 8,000 $ 142,000 15,000

@ $17/pound @ $26/hour @ selling price of $85/unit

Required: Calculate the total factor productivity measure. 122) Beach Co. has provided the following information for last year: Material costs Labor costs Overhead costs Product produced

$ 160,000 $ 62,000 $ 171,000 11,000

@ selling price of $52/each

Required: Calculate the total factor productivity measure. 123) Melbourne, Inc. has provided the following information for last year: Pounds of input Labor hours Overhead costs Units of output produced

42,000 11,000 $ 187,000 33,000

@ $18/pound @ $24/hour @ selling price of $85/unit

Required: Calculate the partial productivity for: a. Metal. b. Labor.

124) Melbourne Inc., has provided the following information for last year: Pounds of input Labor hours Overhead costs Units of output produced

42,000 11,000 $ 187,000 33,000

@ $18/pound @ $24/hour @ selling price of $60/unit

Required: Calculate the total factor productivity measure. 125) Indiatlantic Corporation's management keeps track of the time it takes to process orders. During the most recent month, the following average times were recorded per order: Hours Processing Time Inspection Time Moving Time Storing Time

1.1 0.4 0.8 4.8

Required: a. Compute the manufacturing cycle time. b. Compute the manufacturing cycle efficiency. c. What percentage of the production time is spent in non-value-added activities? 126) During the most recent month at Harrison Corporation, storing time was 3.0 days, inspection time was 0.8 days, processing time was 2.8 days, and moving time was 0.6 days. Required: a. Compute the manufacturing cycle time. b. Compute the manufacturing cycle efficiency. c. What percentage of the production time is spent in non-value-added activities? 127) Michael Corporation's management reports that its average manufacturing cycle time is 6.3 days, its manufacturing cycle efficiency is 0.27, its average move time is 0.1 day, and its average storage time is 3.9 days. Required: a. What is the process time? b. What is the inspection time?

128) Karin Corporation keeps track of the time required to fill orders. The times required for a particular order appear below: Hours Processing Time Inspection Time Moving Time Storing Time

0.6 0.3 2.1 8.4

Required: a. Determine the manufacturing cycle time. Show your work. b. Determine the manufacturing cycle efficiency. Show your work. 129) Consider the following management activities: ∙ Choose the organization's long-term strategy. ∙ Plan and organize the use of resources into efficient operations. ∙ Implement plans and organizational change. ∙ Measure and report results. ∙ Define the organization's scale and scope of operations. Required: a. Identify the sequence in which the decisions must be carried out. Why is it important to carry out these activities sequentially? b. How can an effective cost management system support the above activities? 130) Consider a local coffee shop, a Starbucks store, and a retail gas station that offers fresh coffee in its convenience stores. Required: Characterize these stores according to the Porter strategy framework. 131) Studebaker Corporation, one of the earliest auto manufacturers, prospered in the late 1940s and into the 1950s. Its advertising after World War II emphasized quality of design and production. The corporation also used the stability of its work force in its advertisements, often featuring pictures of father and son working side by side in its factories. Required: a. From just this brief description of Studebaker Corporation, which type of competitive strategy—cost leadership or differentiation—would you guess Studebaker was using? Explain your choice. b. Given your answer in Part (a), speculate on what market factors might have caused the corporation to go into bankruptcy and cease production in the mid-1960s.

132) Describe the difference between a company's mission statement and its business-level strategy. 133) Levi Strauss and Co., maker of Levi's familiar 501 and 505 brands of jeans, also makes a "Signature" brand that was introduced several years ago for discount retailers such as Walmart. Levi's strategy with the new jeans was to sell a competitively priced pair. The jeans were to be about one-half the price of the familiar 501 and 505 jeans. To get costs down Levi would: ∙ Use cheaper fabrics and materials. ∙ Shun costly mass-market advertising. ∙ Strictly limit the number of fits, styles, and colors. The Signature brand had a good first year of sales; assume that results for the second year and later are not yet in. Required: a. Assess the new strategy at Levi. What do you think are the potential benefits and risks? b. How will the firm's value chain and balanced scorecard change as a result of the new strategy? 134) For each of the following jobs, identify a possible nonfinancial performance measure. (a) Computer help desk worker at your university. (b) Dental hygienist. (c) Airline gate agent. (d) City bus driver. 135) What is a business model? 136) Explain how producing more units than can be sold can increase operating income. Would this be an issue in a service company or is it only an issue in a manufacturing environment? Could a company employ this strategy indefinitely to show continuous increases in profits? 137) Describe the four common perspectives that are used in the balanced scorecard.

138) Sam Almasi, the CEO of Almasi Technologies Inc. (ATI), a biotechnology firm had recently returned from a conference on modern cost management and performance measurement methods where he was exposed to target costing, value-chain analysis, balanced scorecard, activity-based management, and other ideas. ATI is a five-year old company operating in a growing, but competitive market. It develops and produces a number of different enzymes for use by research scientists and pharmaceutical companies. Its main competitors are also small to medium-sized firms just like ATI. The key to growth in this industry is the ability to develop new products in a short time. Gail Stevenson, the vice-president (VP) for research & development (R&D), has noticed that some of ATI's new developments did not perform well because of the delays in their introduction into the market. Stevenson is very keen on hiring the best scientists and ensuring that they stay current in their fields because knowledge is the key competitive weapon in the biotechnology industry. Bob Phillips, the controller of ATI, had another concern. He has been noticing that the new products were not only delayed but their actual development costs were usually higher than budgeted. One of his goals was to see that the new products were profitable for the company. Linda Joseph, the production manager, had a different concern of her own. Based on her observation, the production of the new enzymes was taking longer. Her feeling was that the products spent too much time in the quality control (QC) department. Barry Laker, the manager of the QC department, argued that the new enzymes lacked the rigorous specifications that are demanded in the marketplace. Consequently, the QC department has to perform additional tests to get to the root cause of the problems. Almasi had heard complaints from all quarters, and decided to convene a meeting of all the department heads. Almasi: Good afternoon, everyone. I am troubled that despite hiring a number of talented scientists, we are unable to compete effectively in the marketplace. Many of the recent entrants in the game seem to be beating us easily. Stevenson: Sam, the key to our growth is rapid introduction of new products. Although my scientists are developing new enzymes in record times, they seem to be getting held up in manufacturing, and especially, the QC department. Laker: Sam, I think I can pinpoint the root cause of the problem. I agree that our scientists are developing new enzymes in record times, but they do not seem to be paying any attention to standards. It looks like my department will have to provide training to them regarding quality control matters. Stevenson: With due respect, I do not think there is more to know about QC standards. It looks like the QC department wants more attention and is therefore creating all this unnecessary fuss. Joseph: I think I will agree with Barry that there are problems at the R&D side. My production scientists are also complaining that adequate specifications have not been developed; they have to constantly phone their R&D counterparts for clarifications. 31 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

Stevenson: I do not believe that the production problems can be attributed to R&D. I have personally screened each and every scientist during the hiring process. Phillips: I don't think we will make much progress as a company if we keep pointing fingers at one another. We all must realize that all problems, regardless of their origin, finally affect the bottom-line of our company. Unless we set aside our differences and work together as a team, we will be unable to compete with our rivals. Some of our competitors follow best practices, which we must try to emulate. Almasi: I agree with Bob. We must all look for solutions. I recently attended a conference where noted speakers talked about the value-chain of a company, interrelationships between functions, and the balanced scorecard. In fact, some speakers suggested that companies must stop discussing in terms of individual functions or departments; instead they must talk in terms of processes and understand linkages among all the processes that exist in an organization. I believe there are a number of ideas that we could adopt. I will leave the conference proceedings in the library, and suggest that we all read about these different topics. How about getting together after six weeks and discussing a plan of action? Thank you and see you all after six weeks. Required: Assume the role of a consultant preparing a report for ATI. Discuss the following aspects in your report: a. The internal value-chain of ATI. b. The balanced scorecard. Identify the goals of the company under each perspective of the scorecard and cause-effect relationships, and develop potential measures that could be used. c. How the inter-departmental differences can be eliminated. 139) Granite Manufacturing produces high-end furniture products for the luxury hotel industry. Granite has succeeded through excellence in design, careful attention to quality in manufacturing and in customer service, and through continuous product innovation. The manufacturing process at Granite begins with a close consultation with each customer so that the finished product exactly meets the customer's specifications. This commonly means unique designs, special fabrics, and high levels of manufacturing quality. In addition, Granite believes that a key competitive edge it has over other competitors is that it has an outstanding design staff that is able to work with customers to come up with product designs that go beyond the customer's expectations. Required: Present a balanced scorecard for Granite Manufacturing with 3-4 perspectives and 3-4 quantitative critical success factors (CSFs) in each perspective.

140) Jackie Horner started Glad Rags to combine fashion and sustainability. The original production of sandals made from recycled plastic has expanded to a complete line of casual footwear. Current sales total over $2 million. Jackie hired the firm's first controller early this year, and has asked him to detail suggestions for ways to increase profits. Thomas Roberts, the new controller, has compiled a list of recommended changes that focus on quality improvements. Glad Rags' customers expect high quality at a low price, a "value" product. So, the company must simultaneously watch costs and quality. After receiving his list of suggestions, Jackie calls Thomas to her office and says, "I don't see how improving quality can increase productivity. In fact, it seems to me that efforts to improve quality will slow down production and decrease productivity." Required: Using specific examples, help Thomas explain to Jackie why efforts to improve quality can also boost productivity. How does productivity play a role in the firm's strategy and competitive environment? 141) What is the difference between continuous improvement and benchmarking? 142) Dr. Hal Trotter is the director of the Wellness House, a residential center for recovering alcoholics. A typical patient spends 3-4 weeks in an intensive program of rehabilitation. The Wellness House has a staff of 45, including 12 certified therapists, to serve an average patient load of 15. Dr. Trotter is attempting to develop some productivity measures for the center, but is not aware of the limitations of productivity measurement in not-for-profit organizations. You have been called in as a consultant to help develop appropriate productivity measures. Required: (a) Identify any major differences/limitations you face in developing performance measures for the Wellness House. (b) Recommend two or three overall measures of productivity that are appropriate for the Wellness House as a not-for-profit organization.

143) Divisional managers of Crusing Incorporated have been expressing growing dissatisfaction with the current methods used to measure divisional performance. Divisional operations are evaluated every quarter by comparison with the static budget prepared during the prior year. Divisional managers claim that many factors are completely out of their control but are included in this comparison. This results in an unfair and misleading performance evaluation. The managers have been particularly critical of the process used to establish standards and budgets. The annual budget, stated by quarters, is prepared six months prior to the beginning of the operating year. Pressure by top management to reflect increased earnings has often caused divisional managers to overstate revenues and/or understate expenses. In addition, once the budget had been established, divisions were required to "live with the budget." Frequently, external factors such as the state of the economy, changes in consumer preferences, and actions of competitors have not been adequately recognized in the budget parameters that top management supplied to the divisions. The credibility of the performance review is curtailed when the budget cannot be adjusted to incorporate these changes. Top management, recognizing the current problems, has agreed to establish a committee to review the situation and to make recommendations for a new performance evaluation system. The committee consists of each division manager, the Corporate Controller, and the Executive Vice President who serves as the chairman. At the first meeting, one division manager outlined an Achievement of Objectives System (AOS). In this performance evaluation system, divisional managers would be evaluated according to three criteria: (1) Doing better than last year - Various measures would be compared to the same measures of the prior year. (2) Planning realistically - Actual performance for the current year would be compared to realistic plans and/or goals. (3) Managing current assets - Various measures would be used to evaluate the divisional management's achievements and reactions to changing business and economic conditions. A division manager believed this system would overcome many of the inconsistencies of the current system because divisions could be evaluated from three different viewpoints. In addition, managers would have the opportunity to show how they would react and account for changes in uncontrollable external factors. A second division manager was also in favor of the proposed AOS. However, he cautioned that the success of a new performance evaluation system would be limited unless it had the complete support of top management. Further, this support should be visible within all divisions. He believed that the committee should recommend some procedures which would enhance the motivational and competitive spirit of the divisions. Required: a. Explain whether or not the proposed AOS would be an improvement over the measure of divisional performance now used by Crusing Incorporated. b. Develop specific performance measures for each of the three criteria in the proposed AOS which could be used to evaluate divisional managers. c. Discuss the motivational and behavioral aspects of the proposed performance system. Also, recommend specific programs which could be instituted to promote morale and give incentives to divisional management. 34 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

144) Companies are continuously seeking ways to improve quality of production and reduce costs. One of the areas is to work with suppliers to improve the quality and reliability of parts and products shipped. In an article entitled "In Defense of Activity-Based Cost Management," Robert S. Kaplan says: An ABC model can play a major role in improving supplier relationships as well. These relationships must be a vital part of any quality and cycle-time improvement program. A key insight is to use ABC to distinguish between low-price and low-cost suppliers. Traditional cost accounting, with its emphasis on purchase price variances, encourages purchasing people to continually scan the population of potential suppliers to obtain low price quotations. Most companies have learned, the hard way, that many of their low-price suppliers are actually extremely high-cost suppliers. (Source: Management Accounting: November, 1992) Required: (a) Explain what Kaplan means by "many of their low-price suppliers are actually extremely high-cost suppliers." (b) What general prevention and appraisal activities can be used to improve the quality and reliability of parts and products shipped from suppliers? 145) What is productivity, and what are the differences between partial productivity measures and total factor productivity? 146) Explain how nonfinancial performance measures for customer satisfaction may differ from functional performance measures. 147) Why is worker involvement important to an organization's success? 148) At some manufacturing companies, line employees are allowed to stop the line or halt production if they think there is a problem occurring. In other words, if units begin to be processed that are outside of specifications. Required: Discuss the advantages and disadvantage of this employee empowerment policy.