Fundamentals of Cost Accounting 7th Edition Test Bank by Ace Test Banks

Fundamentals of Cost Accounting 7th Edition Test Bank

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Industry Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Gradable : automatic Accessibility : Screen Reader Compatible

2) Administrative functions are not included as part of the value chain because they are implicitly included in every business function. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Industry Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Gradable : automatic Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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4) The value chain is comprised of the activities that take place only during the production process. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Industry Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Gradable : automatic Accessibility : Screen Reader Compatible

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 some nonvalue-added activities. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Remember Difficulty : 1 Easy AACSB : Reflective Thinking AICPA : BB Critical Thinking Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Our Framework for Assessing Cost Accounting Systems Gradable : automatic Accessibility : Screen Reader Compatible

Cost information is a product with its own customers. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Remember Difficulty : 1 Easy AACSB : Reflective Thinking AICPA : BB Critical Thinking Topic : Accounting Systems Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac Gradable : automatic Accessibility : Screen Reader Compatible

Financial accounting information is always sufficient for making operational decisions. ⊚ true ⊚ false

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8) Cost accounting information is commonly used in developing financial accounting information. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Remember Difficulty : 1 Easy AACSB : Reflective Thinking AICPA : BB Critical Thinking Topic : Accounting Systems Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac Gradable : automatic Accessibility : Screen Reader Compatible

9) Financial accounting information is designed for decision makers who are directly involved in the daily management of the firm. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy AICPA : BB Critical Thinking Topic : Accounting Systems Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac Gradable : automatic Accessibility : Screen Reader Compatible

10) It is more important for financial accounting information to be comparable between firms than to be useful for managerial decision making. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : Accounting Systems Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac AICPA : FN Reporting Gradable : automatic Accessibility : Screen Reader Compatible

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). ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : Accounting Systems Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac AICPA : FN Measurement Gradable : automatic Accessibility : Screen Reader Compatible

12)

A cost driver is a factor that causes costs. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy AICPA : FN Measurement Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Gradable : automatic Accessibility : Screen Reader Compatible

13) A cost can be considered a differential cost for one particular course of action but not for another course of action. ⊚ true ⊚ false

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14) A responsibility center can be a department, division, or segment, but not a subsidiary of the parent company. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium AICPA : BB Critical Thinking Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Gradable : automatic Accessibility : Screen Reader Compatible

15) It is important that the manager assigned to lead a responsibility center be held accountable for its operations. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy AICPA : BB Critical Thinking Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Gradable : automatic Accessibility : Screen Reader Compatible

16) Budgeting is primarily used to determine year-end bonuses based on managerial and organizational performance. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy AICPA : BB Critical Thinking Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Gradable : automatic Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium AICPA : BB Critical Thinking Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Gradable : automatic Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy AICPA : FN Measurement Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Our Framework for Assessing Cost Accounting Systems Gradable : automatic Accessibility : Screen Reader Compatible

19) Accounting systems are important because they are a primary source of information for managers. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy AICPA : BB Critical Thinking Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Our Framework for Assessing Cost Accounting Systems Gradable : automatic Accessibility : Screen Reader Compatible

20)

Critical thinking is a systematic process used to analyze a business issue or decision. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy AICPA : BB Critical Thinking Learning Objective : 01-04 Identify current trends in cost accounting, including data analytics and d Topic : Trends in Cost Accounting and Business Decisions Gradable : automatic Accessibility : Screen Reader Compatible

21) Data visualization is the systematic evaluation of information to address a decision problem. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-04 Identify current trends in cost accounting, including data analytics and d Topic : Trends in Cost Accounting and Business Decisions AICPA : BB Leveraging Technology AACSB : Technology Gradable : automatic Accessibility : Screen Reader Compatible

22) Big data is defined by the amount of data, the speed the data is generated and made available, or the variety of data available. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-04 Identify current trends in cost accounting, including data analytics and d Topic : Trends in Cost Accounting and Business Decisions AICPA : BB Leveraging Technology AACSB : Technology Gradable : automatic Accessibility : Screen Reader Compatible

23) Typical ERP systems integrate information systems that link production, purchasing, human resources, finance, and sales into a single comprehensive information system. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-04 Identify current trends in cost accounting, including data analytics and d Topic : Trends in Cost Accounting and Business Decisions AICPA : BB Leveraging Technology AACSB : Technology Gradable : automatic Accessibility : Screen Reader Compatible

24) Managers face ethical situations on a daily basis, while accountants face them infrequently. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Remember Difficulty : 1 Easy AICPA : BB Critical Thinking AACSB : Ethics Learning Objective : 01-05 Understand ethical issues faced by accountants and ways to deal with ethic Topic : Choices: Ethical Issues for Accountants Gradable : automatic Accessibility : Screen Reader Compatible

25) Compliance with Sarbanes-Oxley does not mean that the manager has met all of his or her ethical responsibilities. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : BB Critical Thinking Difficulty : 3 Hard AACSB : Ethics Learning Objective : 01-05 Understand ethical issues faced by accountants and ways to deal with ethic Bloom's : Apply Topic : Choices: Ethical Issues for Accountants Gradable : automatic Accessibility : Screen Reader Compatible

26) Ethical behavior for an individual depends more on the individual’s personal beliefs than a firm's code of conduct. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium AICPA : BB Critical Thinking AACSB : Ethics Learning Objective : 01-05 Understand ethical issues faced by accountants and ways to deal with ethic Topic : Choices: Ethical Issues for Accountants Gradable : automatic Accessibility : Screen Reader Compatible

27)

Cost accounting information can be used to defraud customers, creditors, and owners. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium AICPA : BB Critical Thinking Learning Objective : 01-05 Understand ethical issues faced by accountants and ways to deal with ethic Topic : Choices: Ethical Issues for Accountants Gradable : automatic Accessibility : Screen Reader Compatible

28) The boundary between what is cost accounting and what belongs in another discipline is often blurred. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : BB Critical Thinking Topic : Accounting Systems Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac Gradable : automatic Accessibility : Screen Reader Compatible

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Industry Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Gradable : automatic Accessibility : Screen Reader Compatible

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?

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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 since 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Industry Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Bloom's : Understand Difficulty : 2 Medium Topic : Accounting Systems Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Our Framework for Assessing Cost Accounting Systems Gradable : automatic Accessibility : Screen Reader Compatible

32)

Managers do not make decisions about future events based on: A) Perfect information B) Estimated information C) Actual information D) Financial information

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : Accounting Systems Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac AICPA : BB Resource Management Gradable : automatic Accessibility : Screen Reader Compatible

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium AICPA : BB Critical Thinking Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Our Framework for Assessing Cost Accounting Systems Gradable : automatic Accessibility : Screen Reader Compatible

34)

The systematic evaluation of information to address a decision problem is: A) enterprise resource planning. B) data analytics. C) big data. D) data visualization.

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35)

Data visualization is: A) how the results of the data analysis are summarized and presented. B) the volume and speed with which information is generated and made available. C) the systematic evaluation of information to address a decision problem. D) a systematic process used to analyze a business issue or decision.

Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions AICPA : BB Leveraging Technology AACSB : Technology Gradable : automatic Accessibility : Screen Reader Compatible

36) During 2023, the Beach Restaurant had sales revenues and food costs of $710,000 and $505,000, respectively. During 2024, Beach plans to introduce a new menu item that is expected to increase sales revenues by $95,000 and food costs by $43,000. Assuming no changes are expected for the other food items, operating profits for 2024 are expected to increase by:

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A) $257,000. B) $95,000. C) $52,000. D) $43,000.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Difficulty : 3 Hard AICPA : FN Measurement Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Apply Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible

37) During 2023, the Beach Restaurant had sales revenues and food costs of $850,000 and $630,000, respectively. During 2024, Beach plans to introduce a new menu item that is expected to increase sales revenues by $110,000 and food costs by $45,000. Assuming no changes are expected for the other food items, operating profits for 2024 are expected to increase by: A) $285,000. B) $110,000. C) $65,000. D) $45,000.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 3 Hard AICPA : FN Measurement Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Apply Gradable : automatic Accessibility : Screen Reader Compatible

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38) (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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions AICPA : BB Resource Management Gradable : automatic Accessibility : Screen Reader Compatible

39) 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy Topic : Accounting Systems Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac AICPA : FN Reporting Gradable : automatic Accessibility : Screen Reader Compatible

40) 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.

41)

Enterprise resource planning (ERP) is an information technology that:

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A) evaluates information to address a decision problem. B) links individual systems into a single comprehensive system. C) summarizes and presents the results of data analysis. D) refers to the volume and speed information is generated and made available.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-04 Identify current trends in cost accounting, including data analytics and d Topic : Trends in Cost Accounting and Business Decisions AICPA : BB Resource Management Gradable : automatic Accessibility : Screen Reader Compatible

42) Which of the following is not a goal of integrating various activities in an organization through enterprise resource planning (ERP) systems? A) Avoid lost orders B) Avoid duplication of effort C) Avoid compliance with the Sarbanes-Oxley Act D) Avoid costly studies about the state of the enterprise

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43) 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 another impartial advisor. C) consult with the local police. D) discuss the situation with an immediate supervisor.

Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium AICPA : BB Critical Thinking AACSB : Ethics Learning Objective : 01-05 Understand ethical issues faced by accountants and ways to deal with ethic Topic : Choices: Ethical Issues for Accountants Gradable : automatic Accessibility : Screen Reader Compatible

44) 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 or with the next level supervisor if involvement of the immediate supervisor is suspected.

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45) Which of the following is not one of the basic standards of the Institute of Management Accountants (IMA) Statement of Ethical Professional Practice? A) Professional competence B) Confidentiality C) Independence D) Integrity

Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium AICPA : BB Critical Thinking AACSB : Ethics Learning Objective : 01-05 Understand ethical issues faced by accountants and ways to deal with ethic Topic : Choices: Ethical Issues for Accountants Topic : Institute of Management Accountants Code of Ethics Gradable : automatic Accessibility : Screen Reader Compatible

46) The Sarbanes-Oxley Act of 2002 requires which of the following individuals to sign financial statements and stipulate that the financial statements do not omit material information?

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A) CEO and CFO B) Cost Accountant and Controller C) Financial Accountant and Cost Accountant D) CEO and Internal Auditor

Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Remember Difficulty : 1 Easy AICPA : BB Critical Thinking AACSB : Ethics Learning Objective : 01-05 Understand ethical issues faced by accountants and ways to deal with ethic Topic : Choices: Ethical Issues for Accountants Gradable : automatic Accessibility : Screen Reader Compatible

47)

A general term for a systematic process used to analyze a business issue or decision is: A) critical thinking. B) data visualization. C) enterprise resource planning. D) value chain.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium AICPA : BB Critical Thinking Learning Objective : 01-04 Identify current trends in cost accounting, including data analytics and d Topic : Trends in Cost Accounting and Business Decisions Gradable : automatic Accessibility : Screen Reader Compatible

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48)

The volume and speed with which information is generated and made available is: A) enterprise resource planning. B) data visualization. C) data analytics. D) big data.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-04 Identify current trends in cost accounting, including data analytics and d Topic : Trends in Cost Accounting and Business Decisions AICPA : BB Resource Management Gradable : automatic Accessibility : Screen Reader Compatible

49)

Which of the following critical thinking questions can data visualization help answer? A) What are the relevant questions? B) How can I effectively and persuasively communicate the results of my analysis? C) What are the data relevant to the analysis and where do I find them? D) What are the appropriate tools for analyzing data?

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium AICPA : BB Critical Thinking Learning Objective : 01-04 Identify current trends in cost accounting, including data analytics and d Topic : Trends in Cost Accounting and Business Decisions Gradable : automatic Accessibility : Screen Reader Compatible

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50)

Which of the following critical thinking questions can big data help to best answer? A) What are the relevant questions? B) How can I effectively and persuasively communicate the results of my analysis? C) What are the data relevant to the analysis and where do I find them? D) What are the appropriate tools for analyzing data?

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium AICPA : BB Critical Thinking Learning Objective : 01-04 Identify current trends in cost accounting, including data analytics and d Topic : Trends in Cost Accounting and Business Decisions Gradable : automatic Accessibility : Screen Reader Compatible

51) 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Bloom's : Understand Difficulty : 2 Medium AICPA : BB Resource Management Gradable : automatic Accessibility : Screen Reader Compatible

52)

Data visualization can include the use of which of the following? A) Numbers only B) Graphics only C) Words and numbers only D) Words, numbers, and graphics

53) Which of the following ensures compliance with laws, regulations, and company policies and procedures?

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A) Internal auditor B) External auditor C) Cost accountant D) Treasurer

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac AICPA : BB Resource Management Topic : Key Financial Players in the Organization Gradable : automatic Accessibility : Screen Reader Compatible

54)

The controller of an organization performs all of the following duties except: A) determining cost accounting policies. B) maintaining accounting records. C) designing incentive systems. D) determining policy on debt versus equity financing.

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55)

Cross-functional teams add value to decision making by all of the following except: A) bringing a variety of expertise and perspectives. B) ensuring the needs of the customer are considered. C) ensuring the accounting department makes all final decisions. D) determining the economic feasibility of projects.

56)

Which of the following is not a key financial manager in an organization? A) Chief financial officer B) Treasurer C) External auditor D) Controller

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac AICPA : BB Resource Management Topic : Key Financial Players in the Organization Gradable : automatic Accessibility : Screen Reader Compatible

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57)

Which of the following is not normally considered part of the value chain? A) Research and development B) Purchasing C) Administration D) Distribution

58) In 2023, the TransUnion Company had consulting revenues of $1,200,000 while costs were $745,000. In 2024, TransUnion will be introducing a new service that will generate $250,000 in sales revenues and $80,000 in costs. Assuming no changes are expected for the other services, operating profits are expected to increase between 2023 and 2024 by: A) $455,000. B) $250,000. C) $170,000. D) $80,000.

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59) In 2023, the TransUnion Company had consulting revenues of $1,000,000 while costs were $750,000. In 2024, 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 2023 and 2024 by: A) $250,000. B) $150,000. C) $90,000. D) $60,000.

60) In 2023, the Merkel Company had revenues of $2,100,000 and costs of $1,600,000. During 2024, Merkel will be introducing a new product line that is expected to increase sales revenue by $210,000 and costs by $162,000. Assuming no changes are expected for the other products, the operating profits are expected to increase by: Version 1

A) $548,000. B) $210,000. C) $162,000. D) $48,000.

61) In 2023, the Merkel Company had revenues of $2,000,000 and costs of $1,500,000. During 2024, 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.

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62)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe AICPA : BB Resource Management Topic : Our Framework for Assessing Cost Accounting Systems Gradable : automatic Accessibility : Screen Reader Compatible

63)

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium AICPA : FN Measurement Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Gradable : automatic Accessibility : Screen Reader Compatible

64) 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

Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations AACSB : Reflective Thinking AICPA : BB Critical Thinking Gradable : automatic Accessibility : Screen Reader Compatible

65) A firm's reply to customer questions via email would be an example of which component of the value chain?

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A) Customer Service B) Marketing C) Design D) Supply

Question Details Accessibility : Keyboard Navigation Type : Static Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : BB Marketing Gradable : automatic Accessibility : Screen Reader Compatible

66) 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

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67) 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

Question Details Accessibility : Keyboard Navigation Type : Static Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : BB Critical Thinking Gradable : automatic Accessibility : Screen Reader Compatible

68) 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

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Question Details Accessibility : Keyboard Navigation Type : Static Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : BB Critical Thinking Gradable : automatic Accessibility : Screen Reader Compatible

69)

Which part of the value chain is outside the firm? A) Design component B) Research and Development component C) Production activity D) Distribution chain

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Bloom's : Understand Difficulty : 2 Medium AICPA : BB Critical Thinking Gradable : automatic Accessibility : Screen Reader Compatible

70)

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 separate components of the value chain.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Bloom's : Understand Difficulty : 2 Medium AICPA : BB Critical Thinking Gradable : automatic Accessibility : Screen Reader Compatible

71)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations AICPA : BB Critical Thinking Difficulty : 3 Hard Bloom's : Apply Gradable : automatic Accessibility : Screen Reader Compatible

72)

Which of the following could be considered part of the value chain in a service firm?

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A) Inspection of product B) Advertising C) Raw materials D) Distribution

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Bloom's : Understand Difficulty : 2 Medium AICPA : BB Critical Thinking Gradable : automatic Accessibility : Screen Reader Compatible

73) 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

Question Details Accessibility : Keyboard Navigation Type : Static Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : BB Critical Thinking Gradable : automatic Accessibility : Screen Reader Compatible

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74) 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.

Question Details Accessibility : Keyboard Navigation Type : Static Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : BB Critical Thinking Gradable : automatic Accessibility : Screen Reader Compatible

75) 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.

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Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : BB Critical Thinking Topic : Accounting Systems Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac Gradable : automatic Accessibility : Screen Reader Compatible

76)

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.

77) The individual who would most likely use only financial accounting information in making decisions is a:

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A) vice president of marketing. B) factory supervisor. C) department manager. D) company shareholder.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium AICPA : BB Critical Thinking Topic : Accounting Systems Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac Gradable : automatic Accessibility : Screen Reader Compatible

78)

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.

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79) 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

80) 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.

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81)

Financial accounting provides a historical perspective, while cost accounting emphasizes: A) reporting to shareholders. B) a current perspective. C) the future. D) past transactions.

82)

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.

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Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : BB Critical Thinking Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Our Framework for Assessing Cost Accounting Systems Gradable : automatic Accessibility : Screen Reader Compatible

83) 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.

Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : BB Critical Thinking Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Gradable : automatic Accessibility : Screen Reader Compatible

84) Snuggle Toys, Incorporated, had the following summarized results for the month ending July 31:

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Actual

Budget

Revenues Costs

$ 60,000 53,600

$ 52,000 45,600

Operating profits

$ 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 equal 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 above budget and the department manager's position should be critically evaluated by senior management.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Evaluate Gradable : automatic Accessibility : Screen Reader Compatible

85) CraftMaster Corporation purchased a machine 7 years ago for $357,000 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 $407,000 or by a new model 280 machine costing $349,000. 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 $349,000 invested in the new machine could instead have been invested in a project that would have returned a total of $443,000. In making the decision to buy the model 280 machine rather than the model 360 machine, the differential cost was: Version 1

A) $58,000. B) $86,000. C) $8,000. D) $50,000.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Evaluate AICPA : FN Decision Making Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible

86) 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Evaluate AICPA : FN Decision Making Gradable : automatic Accessibility : Screen Reader Compatible

87)

Which of the following is not true of the Sarbanes-Oxley Act of 2002?

A) It has provisions that affect both companies and accounting firms. B) It requires that the CEO and CFO take responsibility for a company’s financial statements. C) It requires managers to attest to the adequacy of their internal controls. D) It guarantees that all managers will behave ethically.

Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-05 Understand ethical issues faced by accountants and ways to deal with ethic AICPA : BB Resource Management AACSB : Knowledge Application Topic : Choices: Ethical Issues for Accountants Gradable : automatic Accessibility : Screen Reader Compatible

88) Geno's Body Shop had sales revenues and operating costs in 2023 of $670,000 and $535,000, respectively. In 2024, Geno plans to expand the services it provides to customers to include detailing services. Revenues are expected to increase by $89,000 and operating costs by $52,000 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 2024 by: Version 1

A) $135,000. B) $89,000. C) $172,000. D) $37,000.

89) Geno's Body Shop had sales revenues and operating costs in 2023 of $650,000 and $525,000, respectively. In 2024, 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 2024 by: A) $125,000. B) $85,000. C) $160,000. D) $35,000.

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90) Geno's Body Shop had sales revenues and operating costs in 2023 of $700,000 and $550,000, respectively. In 2024, Geno plans to expand the services it provides to customers to include detailing services. Revenues are expected to increase by $95,000 and operating costs by $55,000 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 to be earned in 2024? A) $150,000 B) $95,000 C) $190,000 D) $40,000

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91) Geno's Body Shop had sales revenues and operating costs in 2023 of $650,000 and $525,000, respectively. In 2024, 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 to be earned in 2024? A) $125,000 B) $85,000 C) $160,000 D) $35,000

92) 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) the generation of anticipated revenues. D) the consistent application of generally accepted accounting principles.

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Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : BB Critical Thinking Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Gradable : automatic Accessibility : Screen Reader Compatible

93) In 2023, the Allen Company had consulting revenues of $1,247,000, while, operating costs were $740,000. In 2024, Allen will be introducing a new service that will generate $169,000 in sales revenues and $59,000 in operating costs. Assuming no changes are expected for the other services, the differential operating costs for 2024 will be: A) $507,000. B) $169,000. C) $110,000. D) $59,000.

94) In 2023, the Allen Company had consulting revenues of $1,000,000, while, operating costs were $750,000. In 2024, 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 2024 will be: Version 1

A) $250,000. B) $150,000. C) $90,000. D) $60,000.

95) In 2023, the Allen Company had consulting revenues of $1,125,000, while operating costs were $800,000. In 2024, Allen will be introducing a new service that will generate $160,000 in sales revenues and $65,000 in operating costs. Assuming no changes are expected for the other services, the differential revenue for 2024 will be: A) $325,000. B) $160,000. C) $95,000. D) $65,000.

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96) In 2023, the Allen Company had consulting revenues of $1,000,000, while operating costs were $750,000. In 2024, 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 2024 will be: A) $250,000. B) $150,000. C) $90,000. D) $60,000.

97) San Juan, Incorporated, 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

Alternative B

$ 35,000 36,000 12,000 19,000

$ 57,000 57,000 28,000 19,000

Are the materials costs and processing costs differential in the choice between alternatives A and B?

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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.

98) San Juan, Incorporated, is considering two alternatives: A and B. The costs associated with the alternatives are listed below: Alternative A Material costs Processing costs Building costs Equipment rental

$ 39,500 44,500 14,000 21,000

Alternative B $ 69,000 69,000 39,000 21,000

If only the differential costs of the two decisions are considered, the total differential costs of Alternative B are: A) $198,000. B) $158,500. C) $79,000. D) $119,000.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Evaluate Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible

99) San Juan, Incorporated, is considering two alternatives: A and B. The costs associated with the alternatives are listed below: Alternative A Material costs Processing costs Building costs Equipment rental

$ 38,000 38,000 10,000 21,000

Alternative B $ 60,000 57,000 24,000 21,000

If only the differential costs of the two decisions are considered, the total differential costs of Alternative B are: A) $162,000. B) $141,000. C) $55,000. D) $107,000.

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

$ 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? 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.

101) Two alternatives, identified X and Y, are under consideration at Hayden Corporation. Costs associated with the alternatives are listed below: Alternative X Material costs

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$ 41,000

Alternative Y $ 56,000

Processing costs Building costs Equipment rental

36,000 14,300 11,300

60,000 14,300 11,300

What is the total differential costs of Alternative Y over Alternative X? A) $141,600 B) $122,100 C) $39,000 D) $102,600

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Evaluate Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible

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

$ 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?

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A) $140,000 B) $123,000 C) $34,000 D) $106,000

103) 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

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : BB Industry Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking Gradable : automatic Accessibility : Screen Reader Compatible

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104) 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

105) 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

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106)

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.

107) The specific unit of an organization that is assigned to a manager who is held accountable for that unit’s operations and resources is known as a:

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A) responsibility center. B) cost driver. C) nonvalue-added activity. D) budget.

Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions AICPA : BB Leveraging Technology AACSB : Technology Gradable : automatic Accessibility : Screen Reader Compatible

108) Research and development (R&D), production, and customer service are business functions that are included as part of: A) the value chain. B) benchmarking. C) marketing. D) the supply chain.

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109)

Examples of the controller's functions include all of the following except: A) cost accounting policies. B) budgeting. C) investor relations. D) general ledger.

Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : BB Critical Thinking Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac Topic : Key Financial Players in the Organization Gradable : automatic Accessibility : Screen Reader Compatible

110)

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

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Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : BB Critical Thinking Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac Topic : Key Financial Players in the Organization Gradable : automatic Accessibility : Screen Reader Compatible

111) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Critical Thinking Topic : Accounting Systems Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac Difficulty : 3 Hard Bloom's : Apply Gradable : automatic Accessibility : Screen Reader Compatible

112) The Institute of Management Accountants' (IMA) standards of ethical conduct for management accountants includes the elements of:

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A) confidentiality, independence, integrity, and relevance. B) competence, confidentiality, integrity, and credibility. C) competence, confidentiality, and independence. D) competence, accuracy, integrity, and independence.

113) According to the IMA Code of Ethics, what should a management accountant do if a significant ethical situation cannot be resolved by following established policies? 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.

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114) 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.

115) 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Reflective Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard AACSB : Ethics Learning Objective : 01-05 Understand ethical issues faced by accountants and ways to deal with ethic Bloom's : Analyze Topic : Choices: Ethical Issues for Accountants Gradable : automatic Accessibility : Screen Reader Compatible

116) 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.

Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : BB Critical Thinking AACSB : Ethics Learning Objective : 01-05 Understand ethical issues faced by accountants and ways to deal with ethic Topic : Choices: Ethical Issues for Accountants Gradable : automatic Accessibility : Screen Reader Compatible

117) Which of the following is a false statement regarding cost information and ethical responsibilities?

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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.

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 118) Carley Incorporated 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

Stage in the Value Chain

Transportation costs to ship vans to customers Labor costs for factory workers

1. Customer Service

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

3. Research & Development 4. Marketing

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2. Distribution

5. Production 6. Design

119) 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. Design

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120) 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. Travon’s Limo Service Annual Income Statement Before Expansion Sales Revenue

$ 960,000

Costs: Vehicle Leases

$ 400,000

Labor

290,000

Utilities

50,000

Rent

100,000

Other Costs

60,000

Manager’s Salary

120,000

Total Costs

1,020,000

Operating Profit (Loss)

$ (60,000)

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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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Analyze AICPA : FN Decision Making Gradable : manual Accessibility : Screen Reader Compatible

121) Morris Incorporated is a management consulting firm that specializes in management training programs. Tackle Manufacturing Incorporated 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

$ 360,000

Costs: Labor

$ 120,000

Equipment Lease

12,000

Rent

24,000

Utilities

8,400

Supplies

23,600

Other Costs

14,400

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Manager’s Salary

80,000

Total Costs

282,400

Operating Profit (Loss)

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Analyze AICPA : FN Decision Making Gradable : manual Accessibility : Screen Reader Compatible

122) 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

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$ 845,000 390,000 65,000 275,000 25,000

Building costs

145,000

Operating loss

$ (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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

123) 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

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$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

124) 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

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$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

125) 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 Updating PetSmart’s electronic Internet catalogue of chew bones and leash merchandise. Development of new software applications at Apple. Contracting with United Parcel Services to ship computers to customers at Best

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Column 2 Research and Development Design

Production

Marketing

Buy Writing of software programs at QuickBooks Professional Accountant Division. Creation of new movie ideas at Universal Studios.

Distribution

Customer Service

126) 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)

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$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

127) 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: Monthly Budget Mortgage, including taxes and insurance Other utilities, including water, heat and telephone Costs of running automobiles Cost of private school

$ 5,000 500 800 2,000

Total monthly budget

$ 8,300

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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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

128) 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 Cost of paper used in manufacture of books Cost of paper used in packing cartons to ship books Cost of paper used in display at national trade show

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Column 2 A Research and Development B Design C Production D Marketing

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

E Distribution F Customer Service

129) 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 Indirect manufacturing costs Units produced

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$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

130) 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

Representative Cost Driver

Purchasing

A. Number of employees

Billing

B. Number of shipments

Shipping

C. Number of customers

Computer Support

D. Number of invoices

Personnel

E. Number of desktop computers

Customer Service

F. Number of purchase orders

Required: Match each business function with its representative cost driver.

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Function

Insert letter of appropriate driver (A through F)

1. Purchasing 2. Billing 3. Shipping 4. Computer Support 5. Personnel 6. Customer Service

131) 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.

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132) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : BB Critical Thinking Difficulty : 3 Hard AACSB : Ethics Learning Objective : 01-05 Understand ethical issues faced by accountants and ways to deal with ethic Bloom's : Analyze Gradable : manual Topic : Choices: Ethical Issues for Accountants Accessibility : Screen Reader Compatible

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133) Snacking Macs, Incorporated, 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Reflective Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Evaluate Gradable : manual Accessibility : Screen Reader Compatible

134) 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 101 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static Difficulty : 3 Hard AACSB : Ethics Learning Objective : 01-05 Understand ethical issues faced by accountants and ways to deal with ethic Bloom's : Evaluate Gradable : manual AICPA : BB Legal Topic : Choices: Ethical Issues for Accountants Accessibility : Screen Reader Compatible

135) 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

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

Profit before Taxes

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Analyze AICPA : FN Decision Making Gradable : manual Accessibility : Screen Reader Compatible

136) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Industry Learning Objective : 01-01 Describe the way managers use accounting information to create value in or Topic : Value Creation in Organizations Bloom's : Understand Difficulty : 2 Medium Gradable : manual Accessibility : Screen Reader Compatible

137) Explain the difference between a value chain, a supply chain, and a distribution chain. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

138) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Topic : Accounting Systems Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac AICPA : FN Reporting Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

139) 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.

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140) 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." ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Topic : Accounting Systems Learning Objective : 01-02 Distinguish between the uses and users of cost accounting and financial ac AICPA : FN Reporting Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

141)

What are characteristics of information used in decision making?

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AACSB : Reflective Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

142) 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., 2024). The Flamboyant Flirt's income statement for the most recent year is presented below: The Flamboyant Flirt Income Statement for the Year Ended December 2023 Sales Revenue $ 220,000 Costs: Labor

$ 52,000

Utilities

12,000

Supplies

45,000

Rent

18,000

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Miscellaneous

5,000

Manager’s Salary

30,000

Operating Profits

162,000 $ 58,000

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Evaluate Gradable : manual Accessibility : Screen Reader Compatible

143) 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?

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144) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Reporting Difficulty : 3 Hard AACSB : Ethics Learning Objective : 01-05 Understand ethical issues faced by accountants and ways to deal with ethic Bloom's : Evaluate Gradable : manual Topic : Choices: Ethical Issues for Accountants Accessibility : Screen Reader Compatible

145) Critical thinking is a process used to analyze a business issue or decision. There are a number of resources available to aid in that process, including big data, data analytics, and data visualization. Briefly describe each of those resources and how they aid in the critical thinking process. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 3 Hard Learning Objective : 01-04 Identify current trends in cost accounting, including data analytics and d Topic : Trends in Cost Accounting and Business Decisions AICPA : BB Leveraging Technology Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

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146) 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 adopts 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Learning Objective : 01-03 Explain how cost accounting information is used for decision making and pe Topic : Cost Data for Managerial Decisions Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

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147) 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-level 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard AACSB : Ethics Learning Objective : 01-05 Understand ethical issues faced by accountants and ways to deal with ethic Bloom's : Analyze Gradable : manual Topic : Choices: Ethical Issues for Accountants Accessibility : Screen Reader Compatible

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Answer Key Test name: Lanen7e_ch01 1) FALSE The value chain comprises activities from research and development (R&D) through the production process and including distribution and customer service. 2) TRUE 3) TRUE 4) FALSE 5) TRUE The statement is true. 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 nonvalue-added activities. 6) TRUE 7) FALSE Financial accounting information is generally used by those external to the firm and is not sufficient for making operational decisions. 8) TRUE 9) FALSE 10) TRUE Important criteria for financial accounting include comparability and decision relevance (for investors); decision relevance (for managers) and timeliness are the important criteria for cost accounting. 11) FALSE 12) TRUE 13) TRUE 14) FALSE

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A responsibility center is a specific unit of an organization assigned to a manager who is held accountable for its operations and resources. As such, a department, division, segment, or subsidiary could be considered a responsibility center. 15) TRUE 16) FALSE 17) FALSE 18) TRUE 19) TRUE 20) TRUE This is the definition of critical thinking. 21) FALSE This is the definition of data analytics. Data visualization refers to how the results of the data analysis are summarized and presented to decision makers. 22) TRUE 23) TRUE 24) FALSE 25) TRUE 26) TRUE 27) TRUE 28) TRUE 29) A The value chain is the set of activities that transforms raw resources into the goods and services end users purchase and consume. 30) C Accounting for something does not add value; it is an administrative function. 31) B

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Financial accounting information is not sufficient for operational decisions made by managers. 32) A Perfect information is never available; there is always some uncertainty. 33) D Performing a task correctly adds value; correcting mistakes does not add value. 34) B Data analytics is the systematic evaluation of information to address a decision problem. 35) A Data visualization refers to how the results of data analysis are summarized and presented to decision makers. 36) C Increase in operating profits would be $95,000 − $43,000 = $52,000. 37) C Increase in operating profits would be $110,000 − $45,000 = $65,000. 38) A Budgeting is the process of creating a financial plan of the revenues and resources needed to carry out activities and meet financial goals. 39) B Financial accounting is governed by generally accepted accounting principles (GAAP). Cost, managerial, and responsibility accounting do not depend on GAAP. 40) A The important criterion of cost accounting is that information be relevant for managers making operational decisions; those making decisions using financial accounting data are interested in comparing firms. 41) B

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ERP is an information technology that links activities such as production, purchasing, human resources, finances, and sales into a single comprehensive information system. 42) C By linking the various activities of the organization through ERP systems, managers hope to avoid lost orders, duplication of effort, and costly studies to determine the current state of the enterprise. 43) A Per the IMA Code of Ethics, consulting your own attorney is a last step. 44) D It is best to discuss the situation with the immediate supervisor before bringing in outsiders. 45) C The IMA Statement of Ethical Professional Practice states that members have the responsibility to maintain professional competency, refrain from disclosing confidential information, and maintain integrity and objectivity in their work. Independence is not a standard. 46) A Sarbanes-Oxley requires that the CEO and CFO sign the financial statements and stipulate that the statements do not omit material information. 47) A Critical thinking is a systematic process used to analyze a business issue or decision. 48) D Big data is defined by the sheer amount of data, the speed at which the data is generated and made available, or the variety of data available. 49) B

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Data visualization is used to communicate the results of analysis. It refers to how the results of the analysis are summarized and presented to decision makers. 50) C Big data refers to the volume and speed with which information is generated and made available and can assist in identifying and finding relevant data. 51) D Outsourcing is having one or more of the firm’s activities performed by another firm or individual in the supply or distribution chain. 52) D While we generally think of data visualization in terms of graphical presentations, it may also be textual (consisting of words and numbers). 53) A An internal auditor ensures compliance with laws, regulations, and company policies and procedures. 54) D The chief financial officer (CFO) determines policy on debt versus equity financing. 55) C Cross-functional teams do no ensure that any one department makes all final decisions. 56) C 57) C Administration is imbedded in all of the business functions; it is not a separate function of the value chain. 58) C Increase in operating profit would be $250,000 − $80,000 = $170,000. 59) C Increase in operating profit would be $150,000 − $60,000 = $90,000. Version 1

60) D Increase in operating profit would be $210,000 − $162,000 = $48,000. 61) D Increase in operating profit would be $200,000 − $160,000 = $40,000. 62) D Producing product adds value, moving it around does not add value. 63) A Differential costs are the costs that change in response to a particular course of action. 64) D Accounting is not a separate component in the value chain, instead it is included in every business function of the value chain. 65) A This activity is an example of customer service. 66) D This activity is an example of distribution. 67) C The cost accounting system provides much of the information necessary for the coordination of the value chain. 68) D Advertising costs would be associated with the value chain component of marketing and sales. 69) D The distribution chain is a part of the value chain outside the firm. 70) D Administrative functions are not included as separate components of the value chain. They are included in every business function of the value chain. 71) D

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100

A "total value chain focus" ensures the utility of each value chain function. 72) B Advertising would be a part of the marketing and sales component of the value chain in a service firm. The other three answer choices describe an activity with a "physical" product, not a service. 73) C The correct order is Design, Production, Distribution, and Customer service. 74) D Managers evaluate value-added activities to determine how they contribute to the final product's service, quality, and cost. 75) D Because the managers are making decisions only for their own organization, there is no need for the informa-tion to be comparable to similar information in other organizations. 76) B Financial accounting must comply with GAAP. The other answer choices are characteristics of cost accounting. 77) D Company shareholders would most likely use only financial accounting information in making decisions. The other answer choices are internal users who focus primarily on cost accounting information. 78) D Financial accounting information is used primarily for preparing the income statement. The other answer choices describe internal functions that have to do with the cost accounting system. 79) A

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Managerial decisions deal with the future, so estimates of future costs are more valuable for decision making than are the histori-cal and current costs that are reported externally. 80) D At the middle management level, where managers supervise work and make operating decisions, cost information is used to identify problems by highlighting when some aspect of operations is different from expectations. 81) C Future focus is a basic function of cost accounting. The other answer choices relate to financial accounting. 82) A The concept of considering both the costs and benefits of a proposal is cost-benefit analysis. 83) B A responsibility center allows the specific unit of an organization to be assigned to a manager who is held accountable for its operations and resources. The departmental manager does not have responsibility for controlling all the administrative expenses for each store location. 84) C If revenue is higher, then profits should be higher, unless there is a problem with costs. 85) A Model 360 cost ($407,000) − Model 280 cost ($349,000) = Differential cost ($58,000) 86) A Model 360 cost ($353,000) − Model 280 cost ($332,000) = Differential cost ($21,000). 87) D

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Compliance with Sarbanes-Oxley does not mean that a manager has met all of his or her ethical responsibilities. Sarbanes-Oxley is a law and ethics is based on behavior. 88) D Revenues ($89,000) − Operating costs ($52,000) = Additional operating profit ($37,000) 89) D Revenues ($85,000) − Operating costs ($50,000) = Additional operating profit ($35,000). 90) C Total Revenues ($700,000 + $95,000) − Total Operating costs ($550,000 + $55,000) = Total operating profit = $190,000 91) C Total Revenues ($650,000 + $85,000) − Total Operating costs ($525,000 + $50,000) = Total operating profit = $160,000. 92) D 93) D The additional operating costs are the differential amount of $59,000. 94) D The additional operating costs are the differential amount of $60,000. 95) B The additional revenues are the differential amount of $160,000. 96) B The additional revenues are the differential amount of $150,000. 97) B Both material costs and processing costs are differential because they differ between the two alternatives. 98) C All of the costs except equipment rental are differential ($29,500 + $24,500 + $25,000 = $79,000). Version 1

103

99) C All of the costs except equipment rental are differential ($22,000 + $19,000 + $14,000 = $55,000). 100) A Both material costs and processing costs are differential because they differ between the two alternatives. 101) C Both material costs and processing costs are differential ($15,000 + $24,000 = $39,000). 102) C Both material costs and processing costs are differential ($12,000 + $22,000 = $34,000). 103) C Vendor certification is an example related to the value chain component of purchasing. 104) D Website creation, hosting, and maintenance is an example related to the value chain component of distribution. 105) D Patent applications is an example related to the value chain component of research and development. 106) B An ERP system links the various systems of the enterprise into a single comprehensive information system. 107) A A responsibility center allows the specific unit of an organization to be assigned to a manager who is held accountable for its operations and resources. 108) A All three of these business functions are found in the value chain. Version 1

104

109) C All are examples of the controller's functions except for investor relations. 110) B Cost accounting is an integral part of the controller's function. 111) B Financial accounting focuses on external financial reporting; whereas, cost accounting information is designed to help managers make better decisions. 112) B IMA members have a responsibility to maintain professional competency, refrain from disclosing confidential information, and maintain integrity and objectivity (credibility) in their work. 113) D 114) C Attesting to the accuracy of external credit ratings is not a requirement under the Sarbanes-Oxley Act of 2002. 115) D The Sarbanes-Oxley Act does not suggest that management limit information available to investors. 116) A Good performance measures are necessary in implementing performance-based incentives. 117) A Compliance with Sarbanes-Oxley does not mean that a manager has met all of his or her ethical responsibilities. 118) Cost 2

Transportation costs to ship vans to customers

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Stage in the Value Chain 1. Customer Service

105

5 3

Labor costs for factory workers 2. Distribution Overtime costs for scientists working on 3. Research & new engine technology Development Utilities cost for the design testing 4. Marketing center Costs to survey customers about their 5. Production satisfaction Costs to sponsor a sporting event 6. Design

6 1 4

119) Cost 2 5 3 1 4 6

Stage in the Value Chain

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

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

120)a. Travon’s Limo Service Income Statement Status Quo: No Alternative: Delivery With Delivery Service Service (1) (2) Sales Revenue Costs: Vehicle Leases Labor Utilities Rent Other Costs Manager’s Salary Total Costs Operating Profit (Loss)

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Difference

(3)

$ 960,000

$ 1,235,000

$ 275,000

400,000 290,000 50,000 100,000 60,000 120,000 $ 1,020,000

460,000 406,000 70,000 115,000 69,000 120,000 $ 1,240,000

60,000 116,000 20,000 15,000 9,000 0 $ 220,000

$ (60,000)

$ (5,000)

$ 55,000

106

b. The decision to expand and offer the delivery service results in differential profits of $55,000, so it is profitable to expand. Note that only differential costs and revenues figured in the decision. The manager's salary did not change, so it was not included. 121)a. Differential costs incurred if the contract is signed: (a)

Differential Costs Trainer

$ 42,000

Supplies

2,832

Other Costs

2,160

New Equipment Lease

2,500 $ 49,492

b. Differential revenues of $55,000 will exceed the differential costs of $49,492. As a result, Morris will earn an additional $5,508 in operating profit if it accepts the contract.

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122)Although the company's net operating profits would seem to increase by $55,000 if the manufacture and sale of Controllers were discontinued, the building costs, which amount to $145,000, would continue regardless. As a result, operating profits will actually decrease if the manufacture and sale of Controllers is discontinued as shown below. (Note that the decrease in revenues that would result will decrease operating profits and, as such, it is shown as a negative number below. The cost savings listed below would increase operating profits, which is why these amounts are shown as positive amounts below.)

Sales (6,500 Controllers at $130 each) Cost of sales Distribution costs Advertising expense Salaries

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

Increase (decrease) in operating profits

$ (90,000)

123)a. Operating profits (losses) earned by product ABC123: Sales Cost of goods sold Building expenses Selling and administrative expenses

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

Operating profits (losses)

$ (28,000)

b. Impact on company's overall operating profits if product ABC123 is dropped: Sales Cost of goods sold Building expenses ($88,000 − $46,000) Selling and administrative expenses ($75,000 − $27,000)

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$ (260,000) 125,000 42,000 48,000

108

Increase (decrease) in operating profits

$ (45,000)

Overall operating profits would decrease by $45,000 if product ABC123 were dropped. Therefore, the product should not be dropped. 124)a. Operating profits (losses) earned by product EX123: Sales Cost of goods sold Building expenses Selling and administrative expenses

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

Operating profits (losses)

$ (14,000)

b. Impact on company's overall operating profits if product EX123 is dropped: Sales Cost of goods sold Building expenses Selling and administrative expenses

$ (650,000) 293,000 95,000 85,000

Increase (decrease) in operating profits

$ (177,000)

Overall operating profits would decrease by $177,000 if product EX123 were dropped. Therefore, the product should not be dropped. 125) F D

B E

Column 1 Macy’s replies to customers' questions on merchandise Updating PetSmart’s electronic Internet catalogue of chew bones and leash merchandise. Development of new software applications at Apple. Contracting with United Parcel Services to ship computers to customers at Best

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Column 2 Research and Development Design

Production

Marketing

109

Buy Writing of software programs at QuickBooks Professional Accountant Division. Creation of new movie ideas at Universal Studios.

Distribution

Customer Service

126)a. Alternative: Status Quo

Add Sandwiches

Difference

$ 75,000

$ 135,000

$ 60,000

Food supplies Labor Utilities Rent Other Manager’s salary Total Costs

20,000 16,000 4,000 12,000 4,000 25,000 81,000

50,000 22,400 4,000 12,000 4,400 25,000 117,800

30,000 6,400 0 0 400 0 36,800

Operating Profits (Losses)

$ (6,000)

$ 17,200

$ 23,200

Sales Costs:

b. Qualitative considerations should include the impact on the current manager's morale with the large increase in responsibility, the ability of the company to successfully integrate the new menu and the response of customers to the addition of sandwiches in an ice cream shop. 127)The Brogans should recognize that their total household expenses will not increase significantly. The increased mortgage will be offset by the savings on private school. In addition, since the mortgage is tax deductible and the school is not, the savings in taxes will just about offset the increased monthly costs: Additional mortgage cost Private school savings Tax savings ($700 × 25%)

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$ 2,000 (2,000) (175) 110

Increased auto cost ($800 × 20%) Increased utilities ($500 × 10%)

160 50

Net increase (decrease)

$ 35

Other costs and benefits are not measurable. The Brogans are assuming that their daughter will receive the same quality of education in the public school. Commuting time will increase by 40 minutes per day for both Mr. and Mrs. Brogan. The convenience of being located very close to a major route of transportation will no longer be theirs. 128) D C E D E

C A

Column 1 Cost of customer order forms Cost of paper used in manufacture of books Cost of paper used in packing cartons to ship books Cost of paper used in display at national trade show Depreciation of trucks used to transport books to college bookstores Cost of the wood used to manufacture paper 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

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Column 2 Research and Development Design

Production

Marketing

Distribution

Customer Service

111

129)a. Unit costs for June were: ($9,000,000 + $3,000,000 + $8,500,000) ÷ 40,000 = $512.50 per unit b. Unit costs should be higher in July if only 30,000 units are to be produced. Indirect manufacturing costs most likely include both fixed and variable components. Since fewer units are expected to be produced in July, total fixed costs will be spread over fewer units. This will result in an increase in total cost per unit since variable costs per unit will most likely not change with the decreased production. 130) Function

Insert letter of appropriate driver (A through F)

1. Purchasing

2. Billing

3. Shipping

4. Computer Support

5. Personnel

6. Customer Service

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112

131)For the decision of whether to update the restaurant's image: a. Relevant costs include a one-time cost of the renovation for the updated image, and a change in future sales which includes an increase in sales due to the updated image, decrease in sales due to loss of that cozy appeal, and loss of sales due to being closed or having a limited serving area during renovation. b. Costs that are not differential include replacing the menus and the carpet since they need to be replaced whether the image is updated or not. c. Qualitative considerations include whether the restaurant will lose that cozy appeal it currently has, if the restaurant needs to be closed for renovations it may result in loss of customers, and new customers may not be the type of customer they want to attract.

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113

132)The management accountant should first consult any internal company procedures concerning the resolution of ethical issues, and make sure these procedures are followed as closely as possible. At the same time, the management accountant should make sure that the facts are accurate and are not based on rumors or inaccurate information. If these policies do not resolve the situation, the management accountant should: ● DISCUSS the conflict with your immediate superior or, if the conflict involves your superior, the next level in authority. This might require contacting the board of directors or an appropriate committee of the board, such as the audit committee or the executive committee; ● CLARIFY the relevant issues and concepts by discussions with a disinterested party or by contacting an appropriate and confidential ethics "hotline"; ● CONSULT your attorney about your rights and obligations.

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114

133)In deciding whether or not to eliminate a product, the firm should determine if costs that can be eliminated will exceed the revenues that will be lost. The firm needs to classify the costs into those costs which will be eliminated and therefore are relevant, and which costs will continue even if the product is deleted. Costs that often continue are those costs which have been allocated rather than incurred directly by the product. The firm must also look to see if any other products may be harmed by the elimination of the product. Maybe the products are complements, and loss of one sale will result in loss of another. The firm should consider whether another product's sales might increase if the product is deleted, which could be an opportunity to earn more contribution from another area. Can the firm use the space freed up for some other purpose that could generate additional inflows, which is an opportunity cost? The firm must also look at how its reputation among its customers for selling a full line of products might be damaged as a result of this decision.

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115

134)This is clearly an unethical practice. Since the contract price is a legally binding document, MegaStores would first be violating a legal arrangement with the government. The company could be held liable for the excess charges. This could result in fines, interest and punitive damages; criminal and civil charges could be levied against the employees knowingly involved in these practices. The practice also misleads managers who rely on accurate cost information for pricing, cost control and other decisions. If the jobs are cost plus fixed fee, the client is paying more than he should for the work. In fact, a government indictment could have ramifications of future lost business, not only with the government, but also other potential customers. In addition, Ricky and Leslie could be faced with the loss of their jobs and reputations. As a CPA, Ricky could further lose his professional certification by violating the Code of Ethics of the American Institute of CPAs. 135)The primary purpose of this exercise is to challenge students to think beyond the material presented in the chapter and to write/justify their responses. Answers will vary in depth and breadth but should mention that the change in costs may not be linear, some costs are certainly fixed and others are variable, and the above changes are based on estimates of changes in the cost drivers. 136)(c) research and development → (f) design → (a) purchasing → (g) production → (b) marketing and sales → (e) distribution → (d) customer service

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116

137)The value chain is the set of activities that spans the entire transformation process from raw resources into goods or services purchased and consumed by the end users. The supply chain is the set of firms and individuals that sells goods and services to a firm. The supply chain is an input for a firm. The distribution chain is the set of firms or individuals that buys and distributes the goods from the firm. The distribution chain is the output from a firm. 138) Concepts Financial accounting Cost accounting Users of the information External: investors, Internal: managers creditors, owners Important criteria Comparability, decision Decision relevance relevance for investors for managers, timeliness Who establishes or External standardManagers defines the system setting group How to determine an Standards and rules Relevance for accounting treatment decision making

139)Discuss the conflict with your immediate supervisor or, if the immediate supervisor is involved, the next level in authority. Clarify the relevant issues and concepts by discussions with a disinterested party. Consult with an attorney about your rights and obligations. 140)Although internal accounting is concerned with decision relevance for managers, the cost accountant still needs to be informed as to the GAAP/IFRS concepts regarding recording and measuring of costs.

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117

141)Information used in decision making must be relevant, accurate, timely, and it may be qualitative in nature. Relevant information is pertinent to a decision, i.e., it will make a difference in the decision being made. Because different managerial problems usually require different data, a difficulty is deciding what information is relevant to the situation under review. Information used in decision making must also be accurate or it will be of little use. Accurate information is precise. If cost information is imprecise because of incorrect calculations or incomplete records, the information will not be very useful. But the information must also be relevant. Highly accurate but irrelevant data are of no value to the decision maker. Relevant and accurate information is of value only if it is timely, that is, available in time to make a decision. In an ideal world, the best information will be relevant, accurate, and timely. However, rarely does an organization operates in an ideal environment and some compromise may be needed — particularly between accuracy and timeliness. More accurate information will take longer to produce. There is an inverse relationship between accuracy and timeliness, and the two characteristics must be balanced as to determine what is acceptable. Decision making also involves qualitative characteristics, which are the factors in a decision problem that cannot be expressed in numerical terms. Examples could include poor employee morale, the loss of control that occurs if certain processes are outsourced, and the harm done to an organization if a manager places his or her own goals over the goals of the organization. Quantitative analysis can be used to determine the cost of qualitative factors. Weighing the quantitative and qualitative factors in making decisions is the essence of management. Version 1

118

142)a. The financial implications of expanding the services offered by The Flamboyant Flirt are as follows: The Flamboyant Flirt Income Statement for the Year Ended December 2024 Status Quo Alternative: Difference Expand Sales Revenue $ 220,000 $ 275,000 $ 55,000 Costs: Labor Utilities (25% of $12,000) Supplies (25% of $45,000) Rent (20% of $18,000) Miscellaneous (10% of $5,000) Manager’s Salary Operating Profits

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

78,000 15,000 56,250 21,600 5,500 30,000

$ 26,000 3,000 11,250 3,600 500 0

$ 58,000

$ 68,650

$ 10,650

119

Based on the financial analysis, Diane Stock should go ahead with the expansion because her profits will increase by $10,650 or 18.4%. However, the assumption underlying her decision is that she considers the estimates to be reliable. b. Other factors that Ms. Stock might consider are as follows: ● Expansion of the business may bring in new customers who may ask for a haircut in addition to other services. This will increase revenues from hair cutting also. Expansion may also take away some customers who liked the small size of the salon (provides a more relaxed feeling.) ● Offering a variety of services will allow Ms. Stock to quote package prices on different combinations of services. ● Ms. Stock will have more responsibilities in overseeing the expansion, additional employees and more customers, reducing the quality and quantity of personal time available. 143)Each of the manager's actions needs to be considered separately: ● Liberal credit terms - Acceptable, a business strategy that should be judged on how it affects the firm's operations and profits. ● Attempt to pull sales from one period to another - may not be acceptable. If the purpose of the change in credit terms is simply to move sales from one period to another, then the result is misleading financial reports and fraudulent; if the objective is to increase sales through management of credit policies, then acceptable. ● Sale of equipment - may be acceptable, a business decision that should be judged on how it affects the firm's operations and profits; may not be acceptable if done just to show a short-term gain that would improve current period profit. Version 1

120

144)Since the actions contemplated by the controller are not in the best interests of the company, these actions are probably not ethical, and are in conflict with the ethical standard of integrity. The situation displays both conflict of interests and an attempt to subvert the firm's performance incentive system. Probably both the incentive system and the controller are to blame in this case. While it is not reasonable to expect that the firm can design a bias-free incentive system, it appears that the firm has not done an acceptable job of developing a system that will reward performance based upon the firm's critical success factors, instead of short-term profits only. Improvements in the incentive scheme are possible and necessary. On the other hand, the controller cannot be excused by taking advantage of the opportunity to manipulate profits. The standards are clear on the required professional behavior in this case, and the controller has ignored them for self-serving purposes. 145)Big data refers to data that may be defined by the sheer amount of data, the speed at which the data is generated and made available, or the variety of data available. It aids in generating information needed for decision making. Data analytics is the systematic evaluation of information to address a decision problem. Once the data has been analyzed, data visualization can be used to summarize and present the results to decision makers.

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121

146)a. There will be improved communication and coordination between departments; problems might be identified sooner since the managers are closer to the action; and accountability and performance evaluation should be easier to do. b. Departmental managers will face some positive points in that they are more likely to be motivated to work with a budget they had a hand in developing. They also should accept the results of the performance evaluation and accountability more readily. Unfortunately, there may be tendencies to pad the budget before the fact or manipulate the figures after the fact in order to look better for the evaluation, especially if there are monetary rewards involved. Production workers will have some similar reactions depending on the degree of their involvement in the process. If they consider the budget fair, they will work with it; if not, they might sabotage it. c. If there is a perception that the process has worked well, all involved will be motivated to continue with the process. If there is a feeling that things have not worked well or evaluations have been unfair, they will not work with the process.

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122

147)a. Incentive performance systems can lead to unethical conduct when managers fear losing their jobs when they fail to keep costs down. In addition, when a significant part of the managers' compensation comes from bonuses based on minimizing costs or maximizing profits, managers may be tempted to underreport labor hours in order to cut payroll costs. Many of the managers cited pressure from supervisors to erase hours, refuse to pay overtime, and otherwise manipulate payroll records. b. Designers of performance-based incentive systems should identify the trade-offs between effective rewards, goal alignment, monitoring, and cost in designing an effective performance-based system. It is clear that upper-level management must strongly encourage ethical behavior by mid-level managers. Some of the possible measures that could be taken are: ● Regular written reminders of "payroll integrity" from top management. ● Distributing paper time records to employees, so that they can challenge significant discrepancies in their reported hours. ● Establishing an anonymous call-in line for employees to report possible unethical behavior.

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123

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The cost of an item is a sacrifice of resources. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Topic : What is a Cost? Gradable : automatic Bloom's : Remember Learning Objective : 02-01 Explain the basic concept of "cost." Accessibility : Screen Reader Compatible

An expense is a cost charged against revenue in an accounting period. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Topic : What is a Cost? Gradable : automatic Bloom's : Remember Learning Objective : 02-01 Explain the basic concept of "cost." Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Topic : What is a Cost? Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-01 Explain the basic concept of "cost." Accessibility : Screen Reader Compatible

4) Accounting systems typically record opportunity costs as assets and treat them as intangible items on the financial statements. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Topic : What is a Cost? Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-01 Explain the basic concept of "cost." Accessibility : Screen Reader Compatible

5) Total cost of goods purchased minus beginning merchandise inventory plus ending merchandise inventory equals cost of goods sold. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Accessibility : Screen Reader Compatible

6) Cost of goods sold includes the actual costs of the goods sold and the costs required to sell them to the customer. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Accessibility : Screen Reader Compatible

Nonmanufacturing costs are expensed as they are incurred. ⊚ true ⊚ false

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8) Only direct costs can be classified as product costs; indirect costs are classified as period costs. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Accessibility : Screen Reader Compatible

9) The three categories of product costs are direct materials, direct labor, and manufacturing overhead. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Accessibility : Screen Reader Compatible

10) The first step in determining whether a cost is direct or indirect is to specify the cost allocation rule. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-03 Explain the process of cost allocation. Topic : Cost Allocation Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Accessibility : Screen Reader Compatible

12) Cost of goods sold plus the ending finished goods inventory minus the beginning finished goods inventory equals the cost of goods manufactured. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Accessibility : Screen Reader Compatible

14)

Total variable costs change inversely with changes in the volume of activity. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-05 Define basic cost behaviors, including fixed, variable, semivariable, and Topic : Cost Behavior Accessibility : Screen Reader Compatible

15)

Fixed costs per unit change inversely with changes in the volume of activity. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-05 Define basic cost behaviors, including fixed, variable, semivariable, and Topic : Cost Behavior Accessibility : Screen Reader Compatible

16) The range within which fixed costs remain constant as volume of activity varies is known as the relevant range. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Learning Objective : 02-05 Define basic cost behaviors, including fixed, variable, semivariable, and Topic : Cost Behavior Accessibility : Screen Reader Compatible

17) The term full cost refers to the cost of manufacturing and selling a unit of product and includes both fixed and variable costs. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Accessibility : Screen Reader Compatible

18) Variable marketing and administrative costs are included in determining full absorption costs. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Accessibility : Screen Reader Compatible

19)

Revenue minus cost of goods sold equals contribution margin. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Accessibility : Screen Reader Compatible

20) The primary goal of the cost accounting system is to provide managers with information to prepare their annual financial statements. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers AICPA : FN Decision Making Accessibility : Screen Reader Compatible

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 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.

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22)

Which of the following describes an outlay cost? A) Past, present, or future cash outflow. B) Forgone benefit from the best alternative course of action. C) Cost charged against revenue in an accounting period. D) Expense assigned to products sold during a period.

23)

Which of the following statements is false?

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A) In general, the term expense is used for managerial purposes, while the term cost refers to external financial reports. B) An opportunity cost is the benefit forgone by selecting one alternative over another. C) An outlay cost is a past, present, or future cash outflow. D) A cost is a sacrifice of resources.

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.

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Bloom's : Remember Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Accessibility : Screen Reader Compatible

26) A company that 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?

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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.

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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.

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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?

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A) Product cost B) Manufacturing overhead C) Period cost D) Administrative cost

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

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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.

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35)

Property taxes on the manufacturing facility are an element of: Conversion Cost

Period Cost

No No Yes Yes

No Yes No Yes

a. b. c. d.

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

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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

$ 3,100 1,500 3,600 2,000

A) $4,600 B) $5,600 C) $6,600 D) $7,100

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Bloom's : Apply Type : Algorithmic Accessibility : Screen Reader Compatible

38)

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Bloom's : Apply Accessibility : Screen Reader Compatible

39)

The corporate controller's salary would be considered a(n):

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A) manufacturing cost. B) product cost. C) administrative cost. D) selling expense.

40)

The costs of direct materials are classified as: A B C D

Conversion cost

Manufacturing cost

Prime cost

Yes No Yes No

Yes No Yes Yes

Yes No No Yes

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

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41)

Grover Company has the following data for the production and sale of 1,200 units.

Sales price per unit Fixed costs:

$ 900 per unit

Marketing and administrative Manufacturing overhead Variable costs:

$ 530,000 per period $ 192,000 per period

Marketing and administrative Manufacturing overhead Direct labor Direct Materials

$ 65 per unit $ 95 per unit $ 115 per unit $ 170 per unit

What is the conversion cost per unit? A) $115 B) $210 C) $370 D) $380

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42)

Grover Company has the following data for the production and sale of 2,000 units.

Sales price per unit Fixed costs:

$ 800 per unit

Marketing and administrative Manufacturing overhead Variable costs:

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

Marketing and administrative Manufacturing overhead Direct labor Direct Materials

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

What is the conversion cost per unit? A) $100 B) $180 C) $280 D) $380

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43)

Grover Company has the following data for the production and sale of 1,700 units.

Sales price per unit Fixed costs:

$ 900 per unit

Marketing and administrative Manufacturing overhead Variable costs:

$ 580,000 per period $ 314,500 per period

Marketing and administrative Manufacturing overhead Direct labor Direct Materials

$ 65 per unit $ 95 per unit $ 110 per unit $ 220 per unit

What is the prime cost per unit? A) $110 B) $315 C) $330 D) $610

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44)

Grover Company has the following data for the production and sale of 2,000 units.

Sales price per unit Fixed costs:

$ 800 per unit

Marketing and administrative Manufacturing overhead Variable costs:

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

Marketing and administrative Manufacturing overhead Direct labor Direct Materials

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

What is the prime cost per unit? A) $100 B) $280 C) $300 D) $480

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45)

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.

46) 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

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$ 2,400

Depreciation on sales office Advertising Wages of production workers Raw materials used Sales salaries and commissions Factory rent Factory insurance Materials handling Administrative salaries

600 8,400 31,500 42,000 11,400 3,400 600 2,900 3,400

Based upon this information, the manufacturing cost incurred during the month was: A) $79,900. B) $82,800. C) $83,400. D) $84,300.

47) 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

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

Administrative salaries

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.

48)

Which of the following is not a name for indirect resources? A) Overhead costs B) Burden C) Direct costs D) Common costs

Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements AACSB : Reflective Thinking AICPA : BB Critical Thinking Accessibility : Screen Reader Compatible

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49) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements AICPA : BB Critical Thinking Accessibility : Screen Reader Compatible

50) Tulsa Company, (a merchandising company) has the following data pertaining to the year ended December 31, 2022: (CPA adapted) Purchases Beginning inventory Ending inventory Freight-in Freight-out

$ 570,000 194,000 222,000 62,000 81,000

What is the cost of goods sold for the year? A) $523,000 B) $604,000 C) $623,000 D) $685,000

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51) Tulsa Company, (a merchandising company) has the following data pertaining to the year ended December 31, 2022: (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

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52) The Shoal Company's manufacturing costs for the third quarter of 2022 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

$ 720,000 110,000 82,000 20,000

What amount should be considered product costs for external reporting purposes? A) $720,000 B) $830,000 C) $912,000 D) $932,000

53) The Shoal Company's manufacturing costs for the third quarter of 2022 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?

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A) $700,000 B) $800,000 C) $880,000 D) $898,000

54)

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.

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55)

Prime cost consists of direct materials combined with: A) direct labor. B) manufacturing overhead. C) indirect materials. D) cost of goods manufactured.

56)

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.

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57) is:

The process of assigning indirect costs to products, services, people, business units, etc.,

A) cost object. B) cost pool. C) cost allocation. D) opportunity cost.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Learning Objective : 02-03 Explain the process of cost allocation. Topic : Cost Allocation Accessibility : Screen Reader Compatible

58)

A(n) __________ blankis any end to which a cost is assigned. A) cost object B) cost pool C) cost allocation D) opportunity cost

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Learning Objective : 02-03 Explain the process of cost allocation. Topic : Cost Allocation Accessibility : Screen Reader Compatible

59) A cost allocation rule is the method or process used to assign the costs in the __________blank to the __________.blank A) cost allocation; cost pool B) cost pool; opportunity cost C) cost object; cost pool D) cost pool; cost object

60) The beginning Work-in-Process Inventory plus the total of the manufacturing costs equals:

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Accessibility : Screen Reader Compatible

61)

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.

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62)

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.

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63)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Accessibility : Screen Reader Compatible

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64) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Accessibility : Screen Reader Compatible

65) The Work-in-Process Inventory of the Model Fabricating Corporation was $3,000 higher on December 31, 2022, than it was on January 1, 2022. This implies that in 2022: 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) total manufacturing costs were less than cost of goods manufactured.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Analyze Accessibility : Screen Reader Compatible

66)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Accessibility : Screen Reader Compatible

67)

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.

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68) 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

$ 4,600 7,600 46,000 338,000 9,600 35,500 11,600

A) $331,400 B) $320,900 C) $313,800 D) $338,000

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Type : Algorithmic Accessibility : Screen Reader Compatible

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69) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Accessibility : Screen Reader Compatible

70) A company had beginning inventories as follows: Direct Materials, $350; Work-inProcess, $550; Finished Goods, $750. It had ending inventories as follows: Direct Materials, $450; Work-in-Process, $650; Finished Goods, $850. Material Purchases, net were $1,600, Direct Labor $1,700, and Manufacturing Overhead $1,800. What is the Cost of Goods Sold for the period?

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A) $4,700. B) $4,800. C) $4,900. D) $5,000.

71) A company had beginning inventories as follows: Direct Materials, $300; Work-inProcess, $500; Finished Goods, $700. It had ending inventories as follows: Direct Materials, $400; Work-in-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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Accessibility : Screen Reader Compatible

72)

Compute the Cost of Goods Sold for 2022 using the following information:

Direct Materials, January 1, 2022 Work-in-Process, December 31, 2022 Direct Labor Finished Goods, December 31, 2022 Finished Goods, January 1, 2022 Manufacturing Overhead Direct Materials, December 31, 2022 Work-in Process, January 1, 2022 Purchases of Direct Material

$ 45,000 69,500 53,500 115,000 143,000 74,500 53,000 97,000 85,000

A) $262,500 B) $260,500 C) $232,500 D) $213,000

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73)

Compute the Cost of Goods Sold for 2022 using the following information:

$ 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Accessibility : Screen Reader Compatible

74)

Foxburg Company has the following information:

Beginning inventory Ending inventory Purchases of materials

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Work-inProcess $ 1,000 $ 2,100 $ 10,500

Finished Goods $ 1,100 $ 2,300

Materials $ 1,200 $ 2,900

Cost of Goods Sold

$ 18,400

Manufacturing overhead

$ 5,650

What was the direct labor for the period? A) $6,250 B) $7,250 C) $7,700 D) $8,900

75)

Foxburg Company has the following information:

Beginning inventory Ending inventory Purchases of materials

Work-inProcess $ 300 $ 700 $ 7,700

Cost of Goods Sold

$ 15,600

Manufacturing overhead

$ 4,300

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Accessibility : Screen Reader Compatible

76)

Foxburg Company has the following information:

Beginning inventory Ending inventory Purchases of materials (net)

Work-inProcess $ 750 $ 1,600 $ 9,500

Cost of Goods Sold

$ 17,400

Manufacturing overhead

$ 5,150

Finished Goods $ 850 $ 1,800

Materials $ 950 $ 2,400

What was the cost of goods available for sale for the period? A) $19,950 B) $19,200 C) $18,350 D) $16,450

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77)

Foxburg Company has the following information:

Beginning inventory Ending inventory Purchases of materials (net)

Work-inProcess $ 300 $ 700 $ 7,700

Cost of Goods Sold

$ 15,600

Manufacturing overhead

$ 4,300

Finished Goods $ 400 $ 900

Materials $ 500 $ 1,500

What was the cost of goods available for sale for the period? A) $16,800 B) $16,500 C) $16,100 D) $15,100

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Accessibility : Screen Reader Compatible

78)

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

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$ 50,000 $ 200,000 $ 328,000 $ 525,000 $ 270,000 $ 77,000

Ending finished goods inventory

$ 94,000

What is the cost of goods manufactured for the year? A) $1,096,000 B) $1,229,000 C) $1,123,000 D) $1,202,000

79)

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Accessibility : Screen Reader Compatible

80)

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

$ 1,520,000 $ 610,000 $ 51,000 $ 82,000 $ 101,000 $ 127,000 $ 252,000 $ 152,000

What is the cost of goods manufactured for April? A) $910,000 B) $884,000 C) $936,000 D) $915,000

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81)

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Accessibility : Screen Reader Compatible

82) 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

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83) 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.

84) How would a 5% sales commission paid to sales personnel be classified in a manufacturing company?

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A) Fixed, period cost. B) Fixed, product cost. C) Variable, period cost. D) Variable, product cost.

85) 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 a. b. c. d.

Fixed cost Fixed cost Variable cost Variable cost

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-05 Define basic cost behaviors, including fixed, variable, semivariable, and Topic : Cost Behavior Accessibility : Screen Reader Compatible

86) 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. Employees’ Wages A. B. C. D.

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-05 Define basic cost behaviors, including fixed, variable, semivariable, and Topic : Cost Behavior Accessibility : Screen Reader Compatible

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87)

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 long term. D) Total variable costs are variable over the relevant range but fixed in the long term, while fixed costs never change.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-05 Define basic cost behaviors, including fixed, variable, semivariable, and Topic : Cost Behavior Accessibility : Screen Reader Compatible

88) Which terms below correctly describe the cost of the black paint used to paint the dots on a pair of dice? Variable Cost

Administrative Cost

Yes Yes No No

Yes No Yes No

A) B) C) D)

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

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-05 Define basic cost behaviors, including fixed, variable, semivariable, and Topic : Cost Behavior AACSB : Reflective Thinking AICPA : BB Critical Thinking Accessibility : Screen Reader Compatible

89)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Learning Objective : 02-05 Define basic cost behaviors, including fixed, variable, semivariable, and Topic : Cost Behavior AACSB : Reflective Thinking AICPA : BB Critical Thinking Accessibility : Screen Reader Compatible

90)

The term “full cost” refers to:

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A) the fixed and variable costs of manufacturing and selling a unit of product. B) only the fixed costs of manufacturing and selling a unit of product. C) the fixed and variable costs of manufacturing a unit of product only. D) only the variable costs of manufacturing and selling a unit of product.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Accessibility : Screen Reader Compatible

91) The estimated unit costs for a company to produce and sell a product at a level of 12,600 units per month are as follows: Cost Item Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses

Estimated Unit Cost $ 35 34 29 9 4 5

What are the estimated conversion costs per unit? A) $38 B) $72 C) $43 D) $63

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Type : Algorithmic Accessibility : Screen Reader Compatible

92) 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: Cost Item Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses

Estimated Unit Cost $ 38 28 23 4 2 3

What are the estimated conversion costs per unit? A) $27 B) $55 C) $32 D) $51

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93) The estimated unit costs for a company to produce and sell a product at a level of 14,000 units per month are as follows: Cost Item Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses

Estimated Unit Cost $ 39 29 24 5 3 4

What are the estimated prime costs per unit? A) $97 B) $39 C) $92 D) $68

94) 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: Cost Item Direct material Direct labor Variable manufacturing overhead

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Estimated Unit Cost $ 32 20 15

Fixed manufacturing overhead Variable selling expenses Fixed selling expenses

6 3 4

What are the estimated prime costs per unit? A) $73 B) $32 C) $67 D) $52

95) The estimated unit costs for a company to produce and sell a product at a level of 13,000 units per month are as follows: Cost Item Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses

Estimated Unit Cost $ 39 30 25 7 2 3

What are the estimated variable costs per unit? A) $96 B) $57 C) $94 D) $69

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96) 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: Cost Item Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses

Estimated Unit Cost $ 32 20 15 6 3 4

What are the estimated variable costs per unit? A) $70 B) $38 C) $67 D) $52

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97)

Grover Company has the following data for the production and sale of 1,900 units.

Sales price per unit Fixed costs:

$ 950 per unit

Marketing and administrative Manufacturing overhead Variable costs:

$ 418,000 per period $ 370,500 per period

Marketing and administrative Manufacturing overhead Direct labor Direct Materials

$ 50 per unit $ 80 per unit $ 100 per unit $ 240 per unit

What is the variable manufacturing cost per unit? A) $420 B) $470 C) $615 D) $885

98)

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

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$ 800 per unit

$ 400,000 per period $ 200,000 per period 62

Variable costs: Marketing and administrative Manufacturing overhead Direct labor Direct Materials

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

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

99)

Grover Company has the following data for the production and sale of 1,200 units.

Sales price per unit Fixed costs:

$ 900 per unit

Marketing and administrative Manufacturing overhead Variable costs:

$ 180,000 per period $ 192,000 per period

Marketing and administrative Manufacturing overhead Direct labor Direct Materials

$ 65 per unit $ 95 per unit $ 100 per unit $ 170 per unit

What is the total manufacturing cost per unit?

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A) $365 B) $430 C) $525 D) $740

100)

Grover Company has the following data for the production and sale of 2,000 units.

Sales price per unit Fixed costs:

$ 800 per unit

Marketing and administrative Manufacturing overhead Variable costs:

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

Marketing and administrative Manufacturing overhead Direct labor Direct Materials

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

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

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101)

Grover Company has the following data for the production and sale of 2,300 units.

Sales price per unit Fixed costs:

$ 950 per unit

Marketing and administrative Manufacturing overhead Variable costs:

$ 529,000 per period $ 253,000 per period

Marketing and administrative Manufacturing overhead Direct labor Direct Materials

$ 65 per unit $ 95 per unit $ 115 per unit $ 230 per unit

What is the full cost per unit of making and selling the product? A) $505 B) $550 C) $615 D) $845

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102)

Grover Company has the following data for the production and sale of 2,000 units.

Sales price per unit Fixed costs:

$ 800 per unit

Marketing and administrative Manufacturing overhead Variable costs:

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

Marketing and administrative Manufacturing overhead Direct labor Direct Materials

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

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

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103)

Grover Company has the following data for the production and sale of 2,300 units.

Sales price per unit Fixed costs:

$ 950 per unit

Marketing and administrative Manufacturing overhead Variable costs:

$ 529,000 per period $ 253,000 per period

Marketing and administrative Manufacturing overhead Direct labor Direct Materials

$ 65 per unit $ 95 per unit $ 115 per unit $ 230 per unit

What is the contribution margin per unit? A) $105 B) $400 C) $445 D) $505

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104)

Grover Company has the following data for the production and sale of 2,000 units.

Sales price per unit Fixed costs:

$ 800 per unit

Marketing and administrative Manufacturing overhead Variable costs:

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

Marketing and administrative Manufacturing overhead Direct labor Direct Materials

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

What is the contribution margin per unit? A) $70 B) $320 C) $370 D) $430

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105) The following information was collected from the accounting records of the Part SX9 for 2,900 units: Per Unit Sales price

$ 550

Direct Materials

110

Direct Labor

Overhead Marketing

70 15

Administrative

Per Period

$ 72,500

43,500

What is Part SX9's total cost per unit? A) $230 B) $245 C) $255 D) $285

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106) The following information was collected from the accounting records of the Part SX9 for 3,000 units: Per Unit Sales price

$ 350

Direct Materials

Direct Labor

Overhead Marketing

60 20

Administrative

Per Period

$ 90,000

60,000

What is Part SX9's total cost per unit? A) $180 B) $200 C) $210 D) $250

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107) 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. Product L

Product W

Direct materials Machining labor ($12 per hour) Assembly labor ($10 per hour) Variable overhead ($8 per hour) Fixed overhead ($4 per hour)

$ 44 18 30 36 18

$ 36 15 10 18 9

Total Manufacturing Cost

$ 146

$ 88

$ 170 $ 240,000 $ 500,000

$ 100 $ 175,000 $ 350,000

Estimated selling price per unit Actual research and development costs Estimated advertising costs

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

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108) 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. Product L

Product W

Direct materials Machining labor ($12 per hour) Assembly labor ($10 per hour) Variable overhead ($8 per hour) Fixed overhead ($4 per hour)

$ 44 18 30 36 18

$ 36 15 10 18 9

Total Manufacturing Cost

$ 146

$ 88

$ 170 $ 240,000 $ 500,000

$ 100 $ 175,000 $ 350,000

Estimated selling price per unit Actual research and development costs Estimated advertising costs

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Accessibility : Screen Reader Compatible

109) 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. Product L

Product W

Direct materials Machining labor ($12 per hour) Assembly labor ($10 per hour) Variable overhead ($8 per hour) Fixed overhead ($4 per hour)

$ 44 18 30 36 18

$ 36 15 10 18 9

Total Manufacturing Cost

$ 146

$ 88

$ 170 $ 240,000 $ 500,000

$ 100 $ 175,000 $ 350,000

Estimated selling price per unit Actual research and development costs Estimated advertising costs

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-05 Define basic cost behaviors, including fixed, variable, semivariable, and Topic : Cost Behavior Accessibility : Screen Reader Compatible

110) 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. Product L

Product W

Direct materials Machining labor ($12 per hour) Assembly labor ($10 per hour) Variable overhead ($8 per hour) Fixed overhead ($4 per hour)

$ 44 18 30 36 18

$ 36 15 10 18 9

Total Manufacturing Cost

$ 146

$ 88

$ 170 $ 240,000 $ 500,000

$ 100 $ 175,000 $ 350,000

Estimated selling price per unit Actual research and development costs Estimated advertising costs

Mountainburg's fixed overhead includes rent and utilities, equipment depreciation, and supervisory salaries. Selling and administrative expenses are not allocated to individual products. Direct material costs for Mountainburg's two new products are: A) Prime costs B) Conversion costs C) Opportunity costs D) Period costs

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111) 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. Product L

Product W

Direct materials Machining labor ($12 per hour) Assembly labor ($10 per hour) Variable overhead ($8 per hour) Fixed overhead ($4 per hour)

$ 44 18 30 36 18

$ 36 15 10 18 9

Total Manufacturing Cost

$ 146

$ 88

$ 170 $ 240,000 $ 500,000

$ 100 $ 175,000 $ 350,000

Estimated selling price per unit Actual research and development costs Estimated advertising costs

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

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112)

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Accessibility : Screen Reader Compatible

113)

Ramos Company has the following unit costs:

Variable manufacturing overhead Direct materials Direct labor Fixed manufacturing overhead Fixed marketing and administrative

$ 12 10 14 9 8

What cost per unit would be used for product costs under full absorption costing? Version 1

A) $24 B) $36 C) $45 D) $53

114)

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

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115)

Ramos Company has the following unit costs:

Variable manufacturing overhead Direct materials Direct labor Fixed manufacturing overhead Fixed marketing and administrative

$ 12 10 14 9 8

What cost per unit would be used for product costs under variable costing? A) $24 B) $36 C) $45 D) $53

116)

Ramos Company has the following unit costs:

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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

117)

Vegas Company has the following unit costs:

Variable manufacturing overhead Direct materials Direct labor Fixed manufacturing overhead Variable marketing and administrative

$ 30 25 24 17 8

Vegas produced and sold 13,500 units. If the product sells for $115, what is the gross margin? A) $148,500 B) $256,500 C) $378,000 D) $486,000

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Type : Algorithmic Accessibility : Screen Reader Compatible

118)

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Accessibility : Screen Reader Compatible

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119)

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 10

Vegas produced and sold 11,000 units. If the product sells for $110, what is the contribution margin? A) $264,000 B) $374,000 C) $396,000 D) $506,000

120)

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?

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A) $170,000 B) $240,000 C) $290,000 D) $360,000

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Accessibility : Screen Reader Compatible

121)

Vegas Company has the following unit costs:

Variable manufacturing overhead Direct materials Direct labor Fixed manufacturing overhead Variable marketing and administrative

$ 41 36 35 28 23

Vegas produced and sold 13,200 units. If the product sells for $196, what is the operating profit under full absorption costing? A) $435,600 B) $739,200 C) $805,200 D) $1,108,800

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122)

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Accessibility : Screen Reader Compatible

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123)

Vegas Company has the following unit costs:

Variable manufacturing overhead Direct materials Direct labor Fixed manufacturing overhead Variable marketing and administrative

$ 42 37 36 29 24

Vegas produced and sold 13,400 units. If the product sells for $202, what is the operating profit using a contribution margin income statement? A) $455,600 B) $777,200 C) $844,200 D) $1,165,800

124)

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?

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A) $170,000 B) $240,000 C) $290,000 D) $360,000

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Accessibility : Screen Reader Compatible

125) 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 7,000 5,100 $ 663,000 $ 140,000 $ 70,000 $ 490,000 $ 102,000

Cost of goods sold using variable costing is: A) $116,600 B) $153,000 C) $155,600 D) $46,600

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Type : Algorithmic Accessibility : Screen Reader Compatible

126) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Accessibility : Screen Reader Compatible

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127) 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 7,800 5,500 $ 715,000 $ 156,000 $ 78,000 $ 702,000 $ 110,000

Cost of goods sold using absorption costing is: A) $726,667 B) $440,000 C) $660,000 D) $147,000

128) 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

0 4,800 4,000

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Sales Materials cost Variable conversion cost used Fixed manufacturing cost Indirect operating costs (fixed)

$ 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Accessibility : Screen Reader Compatible

129) 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:

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A) $120,000 B) $140,000 C) $104,000 D) $128,000

130) 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

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Accessibility : Screen Reader Compatible

131) 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 6,400 4,800 $ 960,000 $ 128,000 $ 64,000 $ 352,000 $ 96,000

The absorption costing operating income is: A) $436,000 B) $456,000 C) $444,000 D) $428,000

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132) 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

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Accessibility : Screen Reader Compatible

133) 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 8,400 5,800 $ 754,000 $ 168,000 $ 84,000 $ 882,000 $ 116,000

The variable costing ending finished goods inventory is: A) $90,000 B) $62,000 C) $94,000 D) $78,000

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134) 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 finished goods inventory is: A) $36,000 B) $8,000 C) $40,000 D) $24,000

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Accessibility : Screen Reader Compatible

135) 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 7,600 5,400 $ 702,000 $ 152,000 $ 76,000 $ 646,000 $ 108,000

The absorption costing ending inventory is: A) $241,000 B) $257,000 C) $253,000 D) $225,000

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136) 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

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Accessibility : Screen Reader Compatible

137) 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 5,400 4,300 $ 559,000 $ 108,000 $ 54,000 $ 162,000 $ 86,000

The difference between the variable costing ending inventory and the absorption costing ending inventory is: A) 1,100 units times $30 per unit fixed manufacturing cost B) 1,100 units times $25 per unit materials cost C) 1,100 units times $35 per unit variable conversion cost plus $30 per unit fixed manufacturing cost D) 1,100 units times $35 per unit variable conversion cost plus $30 per unit fixed manufacturing cost plus $31.67 per unit indirect operating costs

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138) 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

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Analyze Accessibility : Screen Reader Compatible

139)

Absorption costing measures gross 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.

Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers AACSB : Reflective Thinking AICPA : BB Critical Thinking Accessibility : Screen Reader Compatible

140)

Inventoriable costs:

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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 treated as assets until the units are sold.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : Details of Manufacturing Cost Flows Accessibility : Screen Reader Compatible

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 141) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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142) The following information is available for the Cherryville Enterprises, Incorporated 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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100

143) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

144) Required:Using the following table 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

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Fixed X

Variable

Product

Period X

101

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 10. Transportation-in costs for indirect material

*Straight-line depreciation method used. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-05 Define basic cost behaviors, including fixed, variable, semivariable, and Topic : Cost Behavior Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

Version 1

102

145) 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 following table 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 cost

Variabl Fixe Direct Direc Manufacturin Perio Opportunit e cost d material t g overhead d y cost cost s labor cost

1. Amount that can be earned renting building 2. Cost of direct materials 3. Salary of production supervisor 4. Cost of direct labor 5. Equipment rental cost

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103

6. Depreciatio n on building 7. Marketing costs 8. Shipping costs 9. Electrical costs 10. Foregone investment income

______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : What is a Cost? Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Learning Objective : 02-05 Define basic cost behaviors, including fixed, variable, semivariable, and Topic : Cost Behavior Bloom's : Analyze Topic : Details of Manufacturing Cost Flows Learning Objective : 02-01 Explain the basic concept of "cost." Gradable : manual Accessibility : Screen Reader Compatible

146) The following cost and inventory data were taken from the records of the Flagstaff Company for the year: Version 1

104

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: January 1 Direct materials Work in process Finished goods

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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105

147) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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

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106

Direct labor

Variable costs Per unit $ 27.50

Direct materials

84.75

Manufacturing overhead Marketing costs Administrative costs

14.25 5.30 2.90

Total Fixed Costs

$ 120,000 50,000 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Learning Objective : 02-05 Define basic cost behaviors, including fixed, variable, semivariable, and Topic : Cost Behavior Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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107

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

Direct labor

Variable costs Per unit $ 27.50

Direct materials

84.75

Manufacturing overhead Marketing costs Administrative costs Selling price

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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108

150) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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109

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-05 Define basic cost behaviors, including fixed, variable, semivariable, and Topic : Cost Behavior Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Bloom's : Apply Topic : Details of Manufacturing Cost Flows Gradable : manual Accessibility : Screen Reader Compatible

151) 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.

Direct materials inventory, January 1 Direct materials inventory, December 31 Work-in-process inventory, January 1 Work-in-process inventory, December 31 Finished goods inventory, January 1 Finished goods inventory, December 31 Purchases of direct materials Cost of goods manufactured during this year Total manufacturing costs Cost of goods sold Gross margin Direct labor Direct materials used

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Southeast (a)

Company Central $ 3,920

Northwest $ 16,640

$ 4,850

3,248

14,664

2,700

7,526

85,696

3,800

3,472

79,800

1,900

(d)

17,888

300

4,928

29,536

16,100 (b)

13,440 30,486

66,768 326,320

55,550 56,050 (c) 26,450 15,300

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

320,424 314,673 666,931 129,688 68,744

110

Manufacturing overhead Sales revenue

13,800 103,300

8,064 (f)

(g) 981,604

152)

The following data appeared in Moline Company's records on December 31:

Direct Materials Inventory, December 31 Direct Materials purchased during the year Finished Goods Inventory, December 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, December 31

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$ 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

111

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

153) The following information has been taken from the cost records of Gator Corporation 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: Direct materials Work in process Finished goods

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$ 326 686

826 25 Beginning 75 80 90

Ending 85 30 110

112

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

154) 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.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

155) The following information has been taken from the cost records of Toro Corporation 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 and administrative expenses Inventories: Direct materials Work in process Finished goods

$ 572 1,095

1,415 255 Beginning 175 220 290

Ending 155 190 310

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114

______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

156)

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

157) 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

158) 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

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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117

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

159)

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

160)

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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119

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

161) 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. Opportunit Variabl Fixe Product Cost y Cost e Cost d Direct Direc Manufacturin Sellin Cost Material t g Overhead g Cost s Labor Facility rent Utilities Personal computer depreciatio n

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120

Equipment rent Materials cost Labor cost Present salary Advertising

______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static Topic : What is a Cost? Difficulty : 3 Hard Learning Objective : 02-05 Define basic cost behaviors, including fixed, variable, semivariable, and Topic : Cost Behavior Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs AICPA : FN Decision Making AACSB : Reflective Thinking AICPA : BB Critical Thinking Bloom's : Analyze Learning Objective : 02-01 Explain the basic concept of "cost." Gradable : manual Accessibility : Screen Reader Compatible

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

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Beginning

Ending

$ 36,000 $ 57,000

$ 24,000 $ 28,000

121

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply AICPA : BB Critical Thinking Gradable : manual Accessibility : Screen Reader Compatible

163) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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122

164)

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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165) 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

166) 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.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

167) In July, Mountain Life, Incorporated, 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-02 Explain how costs are presented in financial statements. Topic : Presentation of Costs in Financial Statements Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

168)

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium Learning Objective : 02-05 Define basic cost behaviors, including fixed, variable, semivariable, and Topic : Cost Behavior AACSB : Reflective Thinking AICPA : BB Critical Thinking Gradable : manual Accessibility : Screen Reader Compatible

169)

A number of costs and measures of activity are listed below:

Cost Description

Possible Measure of Activity Surfboards produced

1. Cost of renting production equipment on a monthly basis at a surfboard manufacturer 2. Pilot’s salary on a regularly scheduled Number of passengers commuter airline 3. Cost of dough used at a pizza shop Pizzas cooked 4. Janitorial wages at a surfboard manufacturer Surfboards produced 5. Cost of shipping bags of garden mulch to a Bags shipped retail garden store 6. Salary of production manager at a surfboard Surfboards produced manufacturer 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 Crates of chicken shipment to grocery stores shipped

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127

170)

A number of costs are listed below:

Cost Description 1. Supervisor’s wages in a computer manufacturing facility 2. Salary of the president of a home construction company 3. Cost of tongue depressors used in an outpatient clinic at a hospital 4. Cost of lubrication oil used at the auto repair shop of an automobile dealer 5. Manger’s salary at a hotel run by a chain of hotels 6. Cost of screws used to secure wood trim in a yacht at a yacht manufacturer 7. Accounting professor’s salary 8. Cost of a measles vaccine administered at an outpatient clinic at a hospital 9. Cost of electronic navigation system installed in a yacht at a yacht manufacturer 10. Wood used to build a home

Cost Object A particular personal computer A particular home The outpatient clinic The auto repair shop The particular hotel A particular yacht The Accounting Department A particular patient A particular yacht 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Difficulty : 2 Medium Learning Objective : 02-03 Explain the process of cost allocation. Topic : Cost Allocation AACSB : Reflective Thinking AICPA : BB Critical Thinking Gradable : manual Accessibility : Screen Reader Compatible

171)

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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129

172) A computer virus destroyed some of the accounting records for Dorchester Antique Remodeling Company for the years 2022–2024. 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

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12/31/22

12/31/23

12/31/24

$ 50,250 A 34,165 91,385 B 115,325 C 36,450

F 65,250 45,210 54,205 155,050 G 319,705 H

$ 45,210 70,125 L M 162,000 127,145 364,130 29,635

21,985

29,635

386,700 37,000

I J

362,920 42,500

D 377,500 550,000 135,950

42,500 315,755 495,000 K

39,550 O P 130,130

46,250

39,000

130

______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements AACSB : Reflective Thinking AICPA : BB Critical Thinking Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

173) Ryan's Lazer Lighting Incorporated produces lamps. During 2022, 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: January 1 Direct materials Work in process Finished goods

$ 100,000 20,000 250,000

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

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

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Bloom's : Apply AACSB : Reflective Thinking AICPA : BB Critical Thinking Gradable : manual Accessibility : Screen Reader Compatible

174) Explain the difference between an outlay cost, an expense, and an opportunity cost. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Topic : What is a Cost? Difficulty : 2 Medium Learning Objective : 02-01 Explain the basic concept of "cost." Gradable : manual Accessibility : Screen Reader Compatible

175) Explain the difference between a cost, a cost object, and a cost pool. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Topic : What is a Cost? Difficulty : 2 Medium Learning Objective : 02-03 Explain the process of cost allocation. Topic : Cost Allocation Learning Objective : 02-01 Explain the basic concept of "cost." Gradable : manual Accessibility : Screen Reader Compatible

176) Explain the difference between direct materials inventory, work in process inventory, finished goods inventory, and cost of goods sold. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Difficulty : 2 Medium Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : Details of Manufacturing Cost Flows Gradable : manual Accessibility : Screen Reader Compatible

177)

Explain the difference between cost of goods manufactured and cost of goods sold.

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133

178) Explain the difference between a direct cost and an indirect cost. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Difficulty : 2 Medium Learning Objective : 02-03 Explain the process of cost allocation. Topic : Cost Allocation Gradable : manual Accessibility : Screen Reader Compatible

179) The following information applies to the Jamison Tools Company for the year ended December 31, 2022:

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134

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, 2022. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

180) The following information applies to the Garden Master Company for the year ended December 31, 2022: Factory Rent

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$ 80,000

135

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

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

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136

182) The following information is available for the Crossover Company: Sales: 25,000 units per year at $45 per unit Production: 30,000 units in 2022 and 20,000 units in 2023 At the beginning of 2022 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 2022 and 2023. Include a column for each year and a total column. (b) Prepare a contribution margin income statement under variable costing for 2022 and 2023. Include a column for each year and a total column. (c) Comment on the results and reconcile any differences in income. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-06 Identify the components of a product’s costs. Topic : Components of Product Costs Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers AICPA : BB Critical Thinking Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

183) Razor Corporation produces and sells a single product at $40 per unit. During 2022, 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

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$ 550,000 400,000 100,000

137

Fixed manufacturing overhead Variable marketing and administrative Fixed marketing and administrative

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

184) Consider the following cost and production information for Barnard Steel Building Company, Incorporated. Part C-2472 144 Quantity

Subtotal

Variable costs: Materials

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Average per unit

Part D-1340 120 Subtotal

Average per unit

All other parts 1140 Subtotal

Average per unit

138

cost 180,000 Conversio 72,000 n cost Total $ variable 252,000 costs Fixed costs: Fixed 885,600 productio n cost Fixed 723,600 operating cost Total $ fixed 1,609,20 costs 0

1,250 500

405,000 129,000

3,375 1,075

2,446,440 974,700

2,146 855

$ 1,750

$ 534,000

$ 4,450

3,421,140

$ 3,001

6,150

738,000

6,150

7,011,000

6,150

5,025

603,000

5,025

5,728,480

5,025

$ 11,17 5

$ 1,341,00 0

$ 11,17 5

$ 12,739,48 0

$ 11,17 5

Total costs

$ 12,92 5

$ 1,875,00 0

$ 15,62 5

$ 16,160,62 0

$ 14,17 6

$ 1,861,20 0

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.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers AICPA : BB Critical Thinking Bloom's : Analyze Gradable : manual

185) Consider the following cost and production information for Darrell Building Components, Incorporated. Quantity

Part C-1849 72 Part D-1251 60 All other parts 570 Subtotal Average Subtotal Average Subtotal Average Per Per unit Per unit unit

Variable costs: Materials $ 45,000 cost Conversion 18,000 cost Total $ 63,000 variable costs Fixed costs: Fixed production costs Fixed

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$ 625

$ 101,400 32,400

$ 1,690 540

$ 611,610

$ 875

$ 133,800

$ 2,230

855,570

$ 1,501

221,400

3,075

184,500

3,075

1,752,750

3,075

181,080

2,515

150,900

2,515

1,433,550

2,515

250

243,960

$ 1,073 428

140

operating costs Total fixed costs

$ 402,480

$ 5,590

$ 335,400

$ 5,590

$ 3,186,300

$ 5,590

Total costs

$ 465,480

$ 6,465

$ 469,200

$ 7,820

$ 4,041,870

$ 7,091

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, Incorporated uses the absorption costing method. Required:(a) Compute the (1) gross margin, (2) operating income, and (3) ending inventory for Darrell Building Components, Incorporated. (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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers AICPA : BB Critical Thinking Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

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186)

Hurwitz Corporation had the following activities during 2022:

Raw Materials: Inventory, January 1, 2022 Purchases of Raw Materials Inventory, December 31, 2022 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, December 31, 2022 Work-in-process Inventory, January 1, 2022 Finished Goods Inventory, January 1, 2022 Finished Goods Inventory, December 31, 2022

$ 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 2022. (b) Prepare a schedule of cost of goods sold for 2022. (c) Prepare an income statement for 2022. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

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187) Styling Toys, Incorporated (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 Falcon, 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 ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Understand Difficulty : 2 Medium Learning Objective : 02-04 Understand how material, labor, and overhead costs are added to a product Topic : How Costs Flow through the Statements Learning Objective : 02-07 Understand the distinction between financial and contribution margin incom Topic : How to Make Cost Information More Useful to Managers AACSB : Communication AICPA : BB Industry Gradable : manual Accessibility : Screen Reader Compatible

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Answer Key Test name: Lanen7e_ch02 1) TRUE 2) TRUE This statement is the definition of an expense. 3) TRUE 4) FALSE Opportunity costs are not reflected in the accounting system. 5) FALSE Total cost of goods purchases plus beginning merchandise inventory minus ending merchandise inventory equals cost of goods sold. 6) FALSE Cost of goods sold includes only the actual costs of the goods that were sold and does not include the costs required to sell them to the customer, such as the salaries of salespeople. 7) TRUE 8) FALSE Product costs include both direct and indirect manufacturing costs. 9) TRUE 10) FALSE The first step in determining whether a cost is direct or indirect is defining the cost object. 11) TRUE 12) TRUE 13) TRUE 14) FALSE Total variable costs change in direct proportion to the change in volume of activity. Version 1

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15) TRUE 16) TRUE 17) TRUE 18) FALSE The two costs are included in full cost, but not in determining full absorption costs. 19) FALSE Revenue minus variable costs equals contribution margin. 20) FALSE The goal of the cost accounting system is to provide managers with information useful for decision making. 21) B Opportunity cost is the forgone benefit that could have been realized from the best forgone alternative use of a resource. Opportunity cost is not attached to products. 22) A An outlay cost is a past, present, or future cash outflow. 23) A Expense is for external financial statements. 24) D Opportunity cost is the forgone benefit that could have been realized from the best forgone alternative use of a resource, whereas outlay cost is a past, present, or future cash outflow. 25) D Freight out is a selling cost while all the others are production costs. 26) B Telephone costs associated with taking sales orders from customers are a selling cost rather than a production cost. 27) A Wages of salespeople would be a selling cost which is a period cost. Version 1

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28) A Prime costs are direct materials and direct labor. 29) A Fire insurance for the manufacturing plant is part of product costs. 30) D Rent on the headquarters building is a period cost, whereas the other answer choices are product costs. 31) C Transportation costs incurred to ship a company's product are a period cost. 32) D The cost of the toll-free line is a period cost as it belongs in the selling department. 33) B Direct labor is the only cost that fits both terms. 34) D Legal and accounting are administrative rather than marketing. 35) C Property taxes on the manufacturing facility is a product cost since it is a part of manufacturing, but taxes are also indirect, so they are a conversion cost. 36) D Direct labor is expensed when the products are sold. This supports the matching principle. 37) C $2,000 + $1,500 + $3,100 = $6,600 38) C $1,500 + $1,000 + $2,000 = $4,500 39) C The corporate controller's salary is an administrative cost. Version 1

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40) D Direct materials are a manufacturing cost and a prime cost; they are not a conversion cost. 41) C $115 + $95 + ($192,000/1,200) = $370 42) C $100 + $80 + ($200,000/2,000) = $280 43) C $220 + $110 = $330 44) C $200 + $100 = $300 45) A Shipping to customers is a selling (period) cost. 46) B $2,400 + $31,500 + $42,000 + $3,400 + $600 + $2,900 = $82,800 47) B $1,000 + $28,000 + $47,000 + $2,000 + $500 + $1,500 = $80,000 48) C All answer options are names for indirect resources except direct costs. 49) C Only wages and benefits of the workers that transform the materials into a finished product should be included in direct labor cost. 50) B $194,000 + $570,000 + $62,000 − $222,000 = $604,000 51) B $170,000 + $450,000 + $50,000 − $210,000 = $460,000 52) D $720,000 + $110,000 + $82,000 + $20,000 = $932,000 53) D $700,000 + $100,000 + $80,000 + $18,000 = $898,000 Version 1

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54) D The three elements of manufacturing cost are direct materials, direct labor and manufacturing overhead. 55) A Direct materials and direct labor = Prime costs 56) D The first step in classifying a cost as either direct or indirect is defining the cost object to which the cost is being related. 57) C This statement is a definition of cost allocation. 58) A This statement is a definition of a cost object. 59) D 60) C Beginning WIP Inventory + Total Manufacturing Costs = Total WIP during the period 61) A Product costs are expensed when the goods are sold. This supports the matching principle. 62) C DM available for production − Ending DM Inventory = DM issued to production 63) D Beginning FG Inventory + Cost of Goods Manufactured = Cost of Goods Available 64) D Direct labor would be part of the cost of WIP Inventory for the goods not completed, and also part of the cost of FG Inventory for the goods completed but not yet sold. 65) B Version 1

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If WIP Inventory was higher at the end of the year than at the beginning of the year, then the cost of goods manufactured must have been less than the total manufacturing costs for the year. 66) C Management salaries are a period cost. 67) C Gross margin = Sales − Cost of Goods Sold. Cost of Goods Sold includes all manufacturing costs (both fixed and variable). It does not include selling costs 68) A All costs associated with the acquisition of the goods constitutes the cost of goods purchased ($338,000 + $7,600 − $4,600 − $9,600) = $331,400 69) A All costs associated with the acquisition of the goods constitute the cost of goods purchased ($304,000 + $6,700 − $3,500 − $8,400) = $298,800 70) B $350 + $1,600 − $450 = $1,500 (Direct materials used in production) $550 + $1,500 + $1,700 + $1,800 − $650 = $4,900 (COGM) $750 + $4,900 − $850 = $4,800 (COGS) 71) B $300 + $1,400 − $400 = $1,300 (Direct materials used in production) $500 + $1,300 + $1,500 + $1,600 − $600 = $4,300 (COGM) $700 + $4,300 − $800 = $4,200 (COGS) 72) B $45,000 + $85,000 − $53,000 = $77,000 (Direct materials used in production) $97,000 + $77,000 + $53,500 + $74,500 − $69,500 = $232,500 (COGM) $143,000 + $232,500 − $115,000 = $260,500 (COGS) 73) B

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$40,000 + $75,000 − $43,000 = $72,000 (Direct materials used in production) $87,000 + $72,000 + $48,500 + $72,500 − $69,000 = $211,000 (COGM) $128,000 + $211,000 − $105,000 = $234,000 (COGS) 74) A $1,200 + $10,500 − $2,900 = $8,800 (Direct materials used in production) $1,100 + COGM − $2,300 = $18,400; COGM = $19,600 $1,000 + $8,800 + Direct Labor + $5,650 − $2,100 = $19,600; Direct Labor = $6,250 75) A $500 + $7,700 − $1,500 = $6,700 (Direct materials used in production) $400 + COGM − $900 = $15,600; COGM = $16,100 $300 + $6,700 + Direct Labor + $4,300 − $700 = $16,100; Direct Labor = $5,500 76) B $850 + COGM − $1,800 = $17,400; COGM = $18,350 $850 + $18,350 = $19,200 (COGAFS) 77) B $400 + COGM − $900 = $15,600; COGM = $16,100 $400 + $16,100 = $16,500 (COGAFS) 78) A $50,000 + $328,000 + $525,000 + $270,000 − $77,000 = $1,096,000 79) A $45,000 + $308,000 + $475,000 + $250,000 − $67,000 = $1,011,000 80) B $1,520,000 − $610,000 = $910,000 (COGS); $127,000 + COGM − $101,000 = $910,000; COGM = $884,000 81) B

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$1,500,000 − $600,000 = $900,000 (COGS): $125,000 + COGM − $100,000 = $900,000; COGM = $875,000 82) B Taxes are fixed in behavior, and since they are on the factory building, they are a product cost. 83) D Supplies are variable in behavior, and since they are used to assembly products, they are a product cost. 84) C The use of a percentage implies a variable cost and being paid to sales personnel, it is a period cost. 85) B The nurse's salary is a fixed cost, while the film and other radiology materials are variable costs. 86) D Employees’ wages would be a variable cost (maybe semi variable), while the materials to make tacos are variable. 87) B Within the relevant range, unit variable costs are constant, total variable costs fluctuate; unit fixed costs fluctuate, total fixed costs are constant. 88) B The paint is a variable manufacturing cost, not an administrative cost. 89) A Manufacturing overhead can be either a fixed or a variable cost. 90) A Full cost is the sum of all costs of manufacturing and selling a unit or product (includes both fixed and variable costs). 91) B Labor + Overhead = $34 + $29 + $9 = $72 92) B Version 1

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Labor + Overhead = $28 + $23 + $4 = $55 93) D Material + Labor = $39 + $29 = $68 94) D Material + Labor = $32 + $20 = $52 95) A $39 + $30 + $25 + $2 = $96 96) A $32 + $20 + $15 + $3 = $70 97) A $240 + $100 + $80 = $420 98) A $200 + $100 + $80 = $380 99) C $170 + $100 + $95 + ($192,000/1,200) = $525 100) C $200 + $100 + $80 + ($200,000/2,000) = $480 101) D $230 + $115 + $95 + ($253,000/2,300) + $65 + ($529,000/2,300) = $845 102) D $200 + $100 + $80 + ($200,000/2,000) + $50 + ($400,000/2,000) = $730 103) C $950 − $230 − $115 − $95 − $65 = $445 104) C $800 − $200 − $100 − $80 − $50 = $370 105) D $110 + $50 + $70 + ($72,500/2,900) + $15 + ($43,500/2,900) = $285 106) D Version 1

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$80 + $40 + $60 + ($90,000/3,000) + $20 + ($60,000/3,000) = $250 107) C Materials + Labor = Prime Costs 108) B Selling price − COGS = Gross Margin 109) D The total overhead cost is a mixed cost as it includes both fixed and variable costs. 110) A Prime costs are the direct costs, namely, direct materials and direct labor. 111) C Advertising is a selling cost and considered a period cost since its influence cannot be tied to changes in volume. 112) D Full absorption includes all fixed and variable manufacturing costs. 113) C $12 + $10 + $14 + $9 = $45 114) C $13 + $12 + $17 + $10 = $52 115) B $12 + $10 + $14 = $36 116) B $13 + $12 + $17 = $42 117) B $115 − ($30 + $25 + $24 + $17) = $19; $19 × 13,500 = $256,500 118) B $100 − ($25 + $20 + $19 + $12) = $24; $24 × 10,000 = $240,000 119) C $110 − ($25 + $20 + $19 + $10) = $36; $36 × 11,000 = $396,000 Version 1

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120) C $100 − ($25 + $20 + $19 + $7) = $29; $29 × 10,000 = $290,000 121) A $196 − ($41 + $36 + $35 + $28 + $23) = $33; $33 × 13,200 = $435,600 122) A $100 − ($25 + $20 + $19 + $12 + $7) = $17; $17 × 10,000 = $170,000 123) A $202 − ($42 + $37 + $36 + $29 + $24) = $34; $34 × 13,400 = $455,600 124) A $100 − ($25 + $20 + $19 + $12 + $7) = $17; $17 × 10,000 = $170,000 125) B ($140,000 + $70,000)/7,000 = $30 per unit × 5,100 = $153,000 126) B ($96,000 + $48,000)/4,800 = $30 per unit × 4,000 = $120,000 127) C ($156,000 + $78,000 + $702,000)/7,800 = $120 per unit × 5,500 = $660,000 128) C ($96,000 + $48,000 + $72,000)/4,800 = $45 per unit × 4,000 = $180,000 129) D $400,000 − [($96,000 + $48,000) / 4,800 × 4,000] − $72,000 − $80,000 = $128,000 130) D $400,000 − [($96,000 + $48,000) / 4,800 × 4,000] − $72,000 − $80,000 = $128,000 131) B $960,000 − [($128,000 + $64,000 + $352,000) / 6,400 × 4,800] − $96,000 = $456,000 132) B

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$400,000 − [($96,000 + $48,000 + $72,000) / 4,800 × 4,000] − $80,000 = $140,000 133) D ($168,000 + $84,000)/8,400 = $30 per unit; $30 per unit × (8,400 units − 5,800 units) = $78,000 134) D ($96,000 + $48,000)/4,800 = $30 per unit; $30 per unit × (4,800 units − 4,000 units) = $24,000 135) C ($152,000 + $76,000 + $646,000)/7,600 = $115 per unit; $115 per unit × (7,600 units − 5,400 units) = $253,000 136) C ($96,000 + $48,000 + $72,000)/4,800 = $45 per unit; $45 per unit × (4,800 units − 4,000 units) = $36,000 137) A Variable costing ending inventory: ($108,000 + $54,000)/5,400 = $30 per unit; Absorption costing ending inventory: ($108,000 + $54,000 + $162,000)/5,400 = $60 per unit; $60 − $30 = $30; $30 per unit fixed manufacturing costs × 1,100 units in ending inventory 138) A Variable costing ending inventory: ($96,000 + $48,000)/4,800 = $30 per unit; Absorption costing ending inventory: ($96,000 + $48,000 + $72,000)/4,800 = $45 per unit; $45 − $30 = $15; $15 per unit fixed manufacturing costs × 800 units in ending inventory 139) C Sales − absorption cost of goods sold = gross profit 140) D Inventoriable costs are treated as assets until units are sold.

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141)(a) $809,000 − x = $170,000; x = $639,000. (b) $170,000 − x = $65,500; x = $104,500. (c) $65,500 − (0.34 × $65,500) = x; x = $43,230. 142)(a) $900,000 − x = $315,000; x = $585,000. (b) $315,000 − x = $85,000; x = $230,000. (c) $85,000 − (0.32 × $85,000) = $57,800. 143)(a) Tenor Music Store Cost of Goods Sold Statement For Year Ended December 31 Beginning inventory

$ 79,000

Cost of goods purchased: Merchandise cost

$ 450,000

Purchase returns and allowances

(6,200)

Purchase discounts

(15,000)

Transportation-in costs

8,900

Total cost of goods purchased

437,700

Cost of goods available for sale

516,700

Ending inventory

(100,100)

Cost of goods sold

$ 416,600

(b) Sales revenue (gross)

$ 800,000

Less sales discounts

(12,500)

Sales revenue (net)

$ 787,500

Cost of goods sold

416,600

Gross margin

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$ 370,900

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144) Cost Item 1. Costs (other than food) of running the cafeteria for factory personnel 2. Direct materials used

Fixed X

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

Variable

Product X

X X

8. Sales commissions

X X

9. Rent paid for corporate jet

10. Transportation-in costs for indirect material

Period

X X

145) Name of cost 1. Amount that can be earned renting building 2. Cost of direct materials 3. Salary of production supervisor 4. Cost of direct labor

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Variabl Fixe Direct Direc Manufacturin Perio Opportunit e cost d material t g overhead d y cost cost s labor cost X

159

5. Equipment rental cost 6. Depreciatio n on building 7. Marketing costs 8. Shipping costs 9. Electrical costs 10. Foregone investment income

146)(a) Beginning work-in-process inventory Manufacturing costs during the year: Direct materials

$ 6,000

Beginning inventory

$ 9,000

Purchases (net)

124,000

Direct materials available

133,000

Ending inventory

(11,000)

Direct materials put into production Direct labor

$ 122,000 80,000

Manufacturing overhead Depreciation, factory equipment Supplies, factory

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$ 30,000 1,500

160

Maintenance, factory equipment

20,000

Utilities, factory

8,000

Indirect labor

54,500

Rent, factory building

70,000

Total manufacturing overhead Total manufacturing costs Incurred Ending work-in-process Inventory Cost of goods manufactured

184,000 386,000 (21,000) $ 371,000

(b) Beginning finished goods inventory Cost of goods manufactured Cost of goods available for sale Ending finished goods inventory

$ 69,000 371,000 440,000 (24,000)

Costs of goods sold

$ 416,000

147)(a) ($250,800 + 1,750,200 − 169,400) + 1,004,300 + 2,693,400 = x; x = $5,529,300 (b) $101,000 + 5,529,300 = x; x = $5,630,300 (c) $5,630,300 − 57,900 = x; x = $5,572,400 (d) $307,400 + 5,572,400 − 511,000 = x; x = $5,368,800 (e) ($250,800 + 1,750,200 − 169,400) + 1,004,300 = x; x = $2,835,900 (f) $1,004,300 + 2,693,400 = x; x = $3,697,700

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148)(a) $84.75 + 27.50 + 14.25 + 5.30 + 2.90 = x; x = $134.70 (b) $84.75 + 27.50 + 14.25 = x; x = $126.50 (c) $84.75 + 27.50 + 14.25 + ($120,000/5,000) = x; x = $150.50 (d) $84.75 + 27.50 + 14.25 + 5.30 + 2.90 + [(120,000 + 50,000 + 75,000)/5,000] = x; x = $183.70 (e) $210.00 − (84.75 + 27.50 + 14.25 + 5.30 + 2.90) = x; x = $75.30 (f) $210.00 − [84.75 + 27.50 + 14.25 + (120,000/5,000)] x; x = $59.50 (g) $210.00 − [$84.75 + 27.50 + 14.25 + 5.30 + 2.90 + [(120,000 + 50,000 + 75,000)/5,000]] = x; x = $26.30 149)(a) Friendly Manufacturing Company Contribution Margin Income Statement For the Month Ended July 31 Revenues

$ 1,050,000

Variable costs: Direct materials

$ 423,750

Direct labor

137,500

Manufacturing overhead

71,250

Marketing costs

26,500

Administrative costs

14,500

Total variable costs

673,500

Contribution margin

376,500

Fixed costs: Manufacturing overhead

120,000

Marketing costs

50,000

Administrative costs

75,000

Total fixed costs

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245,000

162

Operating profits

$ 131,500

(b) Friendly Manufacturing Company Gross Margin Income Statement For the Month Ended July 31 Revenues

$ 1,050,000

Cost of goods sold: Direct materials Direct labor Manufacturing overhead

$ 423,750 137,500 191,250

Cost of goods sold:

752,500

Gross margin

297,500

Expenses: Marketing costs

76,500

Administrative costs

89,500

Total expenses Operating profits

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166,000 $ 131,500

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150)(a) [($500,000 + 250,000 + 25,000 + 37,500 + 50,000)/25,000] = Variable manufacturing costs per unit Variable manufacturing cost per unit = $34.50. ($34.50 × 30,000) + (50,000 + 12,500 + 125,000 + 68,000 + 62,500) = Total manufacturing costs Total manufacturing costs = $1,035,000 + $318,000 = $1,353,000. (b) [($250,000 + 25,000 + 37,500 + 50,000)/25,000] = Conversion costs per unit Conversion costs per unit = $14.50. ($14.50 × 30,000) + (50,000 + 12,500 + 125,000 + 68,000 + 62,500) = Total conversion costs Total conversion costs = $435,000 + $318,000 = $753,000. (c) ($149,150 + 30,000 + 48,800)/23,500 = Period costs per unit Period costs per unit = $9.70. ($9.70 × 30,000) + (300,000 + 48,000) = Total period costs Total period costs = $639,000. $639,000/30,000 = Period costs per unit Period costs per unit = $21.30. (d) ($1,353,000/30,000) + $21.30 = Full costs per unit Full costs per unit = $66.40.

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151)(a) $x + 16,100 − 4,850 = $15,300; x = $4,050 (b) $2,700 + 55,550 − 3,800 = x; x = $54,450 (c) $103,300 − 56,050 = x; x = $47,250 (d) $x + 30,486 − 4,928 = 30,464; x = $4,906 (e) $3,920 + 13,440 − 3,248 = x; x = $14,112 (f) $x − 30,464 = 18,368; x = $48,832 (g) $68,744 + 129,688 + x = 320,424; x = $121,992 152)(a): Moline Company Cost of Goods Manufactured Statement For the Year Ended December 31 Beginning Work-in-process inventory Manufacturing costs during the year: Direct materials: Beginning inventory (not given) Purchases (net)

$ 674,730

Direct materials available

2,942,730

Ending inventory

(535,500)

$ 90,650

2,268,000

Direct materials put into production Direct labor

2,407,230 2,520,000

Manufacturing overhead: Depreciation

$ 396,900

Insurance

119,700

Maintenance

76,230

Plant heat, Light, and power Indirect labor

234,360

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201,600

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Property taxes

82,530

Miscellaneous

200,970

Total manufacturing overhead

1,312,290

Total manufacturing costs incurred Total work in process during the year Ending Work-in-process inventory

6,239,520

Cost of goods manufactured

$ 6,175,190

6,330,170 (154,980)

(b): Moline Company Cost of Goods Sold Statement For the Year Ended December 31 Beginning Finished goods inventory Cost of goods manufactured Cost of goods available for sale Ending Finished goods inventory Cost of goods sold

$ 280,000 6,175,190 6,455,190 (567,000) $ 5,888,190

(c): Moline Company Gross Margin Income Statement For the Year Ended December 31 Revenues

$ 6,687,500

Cost of goods sold

5,888,190

Gross margin

799,310

Marketing costs [$233,100 + 10,080]

243,180

Administrative costs [$323,820 + 113,400 + 51,660] Total expenses

488,880

Operating profit

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732,060 $ 67,250

166

153)(a) $75 + x − 85 = 326; x = $336 (b) $326 + x + 135 = $686; x = $225 (c) $80 + 686 − 30 = $736 (d) $826 − 110 = $716 154)(a) Shawnee Production Company Cost of Goods Manufactured and Sold Statement For the Month Ended January 31 Beginning Work-in-Process inventory

$ 2,100

Direct Materials: Beginning inventory

$ 8,000

Purchases

18,000

Ending inventory

(8,700)

Direct materials put into production

17,300

Direct labor

10,400

Manufacturing overhead: Indirect labor

5,000

Depreciation on machinery

3,000

Rent on building

7,000

Total manufacturing overhead

15,000

Total work-in-process during the month

44,800

Ending work-in-process Inventory

(3,200)

Cost of goods manufactured

$ 41,600

Beginning finished goods inventory

5,000

Finished goods available for sale

46,600

Ending finished goods inventory

(5,700)

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167

Cost of goods sold

$ 40,900

(b) Shawnee Production Company Gross Margin Income Statement For the Month Ended January 31 Sales Cost of goods sold Gross margin Selling and administrative expenses

$ 55,300 40,900 14,400 6,300

Operating profit

8,100

155)(a) $175 + x − 155 = 572; x = $552 (b) $572 + x + 255 = $1,095; x = $268 (c) $220 + 1,095 − 190 = $1,125 (d) $1,415 − 310 = $1,105 156)(a) Navaho Industries Cost of Goods Manufactured and Sold Statement For the Month Ended July 31 Beginning Work-in-Process Inventory

$ 1,100

Direct Materials: Beginning inventory

$ 8,000

Purchases

24,000

Ending direct materials

(6,700)

Direct materials put into production

25,300

Direct labor

13,200

Manufacturing overhead: Indirect labor

6,500

Depreciation on machinery

3,600

Rent on building

8,400

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168

Total manufacturing overhead

18,500

Total work-in-process during the month

58,100

Ending work-in-process inventory

(1,600)

Cost of goods manufactured

$ 56,500

Beginning finished goods inventory

9,000

Finished goods available for sale

65,500

Ending finished goods inventory

(6,800)

Cost of goods sold

$ 58,700

(b) Sales Cost of goods sold Gross margin Selling & administrative expenses

$ 75,300 58,700 16,600 8,900

Operating profit

$ 7,700

157)(a) [$501,600 + 3,500,400 − 338,800] + 2,008,600 + 5,368,800 = x; x = $11,040,600 (b) $202,000 + 11,040,600 = x; x = $11,242,600 (c) $11,242,600 − 115,800 = x; x = $11,126,800 (d) $614,800 + 11,126,800 − 1,022,000 = x; x = $10,719,600 (e) [$501,600 + 3,500,400 − 338,800] + 2,008,600 = x; x = $5,671,800 (f) $2,008,600 + 5,368,800 = x; x = $7,377,400 158)(a) [($125,400 + 875,100 − 84,700) + 502,150 + 1,364,700] = x; x = $2,782,650 (b) $50,500 + 2,782,650 = x; x = $2,833,150 (c) $2,833,150 − 28,950 = x; x = $2,804,200 (d) $153,700 + 2,804,200 − 255,500 = x; x = $2,702,400 159) Mobile Device Retail Gross Margin Income Statement

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169

For the Month Ended May 31 Sales revenue

$ 1,650,000

Merchandise inventory (5/1)

$ 118,200

Purchases

1,091,000

Freight-in

54,600

Goods available for sale

1,263,800

Less merchandise inventory (5/31)

(124,600)

Cost of goods sold

1,139,200

Gross margin

510,800

Selling and administrative expenses: Sales commissions

247,500

Store rent

84,000

Utilities

57,200

Administrative

115,100

Total selling and administrative expenses

503,800

Operating profit

7,000

160) Fowler Retail Gross Margin Income Statement For the Month Ended August 31 Sales revenue

$ 1,155,000

Merchandise inventory (8/1)

$ 87,220

Purchases

763,700

Freight-in

30,300

Goods available for sale

881,220

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170

Less merchandise inventory (5/31)

(82,740)

Cost of goods sold

798,480

Gross margin

356,520

Selling and administrative expenses: Sales commissions

173,300

Store rent

58,800

Utilities

40,400

Administrative

80,600

Total selling and administrative expenses

353,100

Operating profit

$ 3,420

161)

Facility rent Utilities

Opportunit Variabl Fixe Direct Product Cost y Cost e Cost d Material Direc Manufacturin Sellin Cost s t g Overhead g Cost Labor X X

Personal computer depreciatio n Equipment rent Materials cost Labor cost Present salary Advertising

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X X

171

162)(a) Beginning materials inventory Add: Purchases of raw materials Raw materials available for use Deduct: Ending raw materials inventory

$ 36,000 69,000 105,000 24,000

Raw materials used in production

$ 81,000

(b) Cost of goods manufactured Add: Beginning finished goods inventory Goods available for sale Deduct: Ending finished goods inventory

$ 146,000 57,000 203,000 28,000

Cost of goods sold

$ 175,000

163)(a) Beginning raw materials inventory Add: Purchases of raw materials Raw materials available for use Deduct: Ending raw materials inventory

$ 26,000 76,000 102,000 21,000

Raw materials used in production

$ 81,000

(b) Cost of goods manufactured Add: Beginning finished goods inventory Goods available for sale

$ 129,000 52,000 181,000

Deduct: Ending finished goods inventory

35,000

Cost of goods sold

$ 146,000

164)(a) Product costs consist of direct materials, direct labor, and manufacturing overhead: Direct materials

$ 135,000

Direct labor

73,000

Manufacturing overhead: Utilities, factory

$ 11,000

Indirect labor

29,000

Depreciation of production equipment

31,000

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71,000

172

Total product costs

$ 279,000

(b) Period costs consist of all costs other than product costs: Administrative salaries Sales commissions Depreciation of administrative equipment Advertising

$ 101,000 69,000 40,000 94,000

Total period costs

$ 304,000

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173

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Both total revenues (TR) and total costs (TC) are likely to be affected by changes in the output. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 1 Easy Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Bloom's : Remember Accessibility : Screen Reader Compatible

2) Cost-volume-profit (CVP) analysis assumes that the production volume equals sales volume so that any changes in unit prices can be ignored. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Accessibility : Screen Reader Compatible

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). ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 2 Medium AICPA : FN Measurement Bloom's : Understand Accessibility : Screen Reader Compatible

4) Profit is the unit contribution margin multiplied by the number of units minus the fixed component of the total costs (TC). ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 2 Medium AICPA : FN Measurement Bloom's : Understand Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 3 Hard AICPA : FN Measurement Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 3 Hard AICPA : FN Measurement Accessibility : Screen Reader Compatible

7) The contribution margin ratio is the contribution margin per unit divided by the selling price per unit. ⊚ true ⊚ false

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8) If the fixed costs are $2,400, targeted operating profit 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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 3 Hard Accessibility : Screen Reader Compatible

9) The break-even point in sales dollars is fixed costs divided by the contribution margin ratio. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 1 Easy Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Bloom's : Remember AICPA : FN Measurement Accessibility : Screen Reader Compatible

10) An organization's operating leverage is high when it has a low proportion of variable costs in its total costs. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 2 Medium Learning Objective : 03-02 Understand the effect of cost structure on decisions. Bloom's : Understand Topic : Use of CVP to Analyze Effect of Different Cost Structures Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 3 Hard Learning Objective : 03-02 Understand the effect of cost structure on decisions. Bloom's : Analyze Topic : Use of CVP to Analyze Effect of Different Cost Structures Accessibility : Screen Reader Compatible

12) All else equal, 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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 3 Hard Learning Objective : 03-02 Understand the effect of cost structure on decisions. Bloom's : Analyze Topic : Use of CVP to Analyze Effect of Different Cost Structures Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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14) Microsoft Excel® is ideally suited for analyzing alternative CVP scenarios using its "What-If Analysis" function. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 2 Medium Learning Objective : 03-03 Use Microsoft Excel to perform CVP analysis. Topic : CVP Analysis with Spreadsheets Bloom's : Understand Accessibility : Screen Reader Compatible

15)

Microsoft Excel® cannot be used to find break-even points. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 2 Medium Learning Objective : 03-03 Use Microsoft Excel to perform CVP analysis. Topic : CVP Analysis with Spreadsheets Bloom's : Understand Accessibility : Screen Reader Compatible

16)

An increase in an organization's tax rate will cause an increase in its break-even point. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 3 Hard Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model Bloom's : Analyze Accessibility : Screen Reader Compatible

17) Before-tax operating profits are equal to the after-tax operating profits divided by (1 − tax rate). ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model AICPA : FN Measurement Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Gradable : automatic Difficulty : 3 Hard Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model AICPA : FN Measurement Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Gradable : automatic Difficulty : 3 Hard Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model AICPA : FN Measurement Accessibility : Screen Reader Compatible

20) Cost-volume-profit (CVP) analysis is more complicated for organizations with multiple products because typically each product has a different contribution margin ratio. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model Accessibility : Screen Reader Compatible

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 break-even point in total units (i.e., FRN plus CES) will increase. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 3 Hard Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model Bloom's : Analyze Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 2 Medium Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model Bloom's : Understand Accessibility : Screen Reader Compatible

23) The more important the decision, the more the manager will want to ensure that the assumptions made for CVP analysis are applicable. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 2 Medium Topic : Extensions of the CVP Model Learning Objective : 03-05 Understand the assumptions and limitations of CVP analysis. Bloom's : Understand Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 2 Medium Topic : Extensions of the CVP Model Learning Objective : 03-05 Understand the assumptions and limitations of CVP analysis. Bloom's : Understand Accessibility : Screen Reader Compatible

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 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.

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Question Details Accessibility : Keyboard Navigation Type : Static Difficulty : 1 Easy Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Bloom's : Remember AACSB : Reflective Thinking AICPA : FN Measurement Accessibility : Screen Reader Compatible

26)

The following information pertains to Tiller Company:

Sales Variable Costs Fixed Costs

$ 770,000 154,000 37,600

What is Tiller's break-even point in sales dollars? (CPA adapted) Note: Round intermediate calculation to 2 decimal places. A) $191,600 B) $154,000 C) $47,000 D) $37,600

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 3 Hard AICPA : FN Measurement Type : Algorithmic Accessibility : Screen Reader Compatible

27)

The following information pertains to Tiller Company:

Sales

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$ 800,000

Variable Costs Fixed Costs

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

28) 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Accessibility : Screen Reader Compatible

29)

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

30) 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.

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Contribution Margin Ratio Decrease Increase

Break-even Point Increase Decrease

C. D.

Decrease Increase

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

31) 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 3 Hard Accessibility : Screen Reader Compatible

32) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible

33) 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:

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A) lower. B) higher. C) unchanged. D) cannot determine with the information given.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible

34)

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.

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35) 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%.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible

36) At a break-even point of 350 units, variable costs were $630 and fixed costs were $385. What will the 351st unit sold contribute to operating profits before income taxes? A) $1.10 B) $1.80 C) $2.90 D) $4.00

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37) 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

38) Dartmount Corporation has provided its contribution format income statement for June. The company produces and sells a single product. Sales (3,400 units) Variable costs Contribution margin Fixed costs

$ 309,400 129,200 180,200 135,600

Operating profit

$ 44,600

If the company sells 3,600 units, its total contribution margin should be closest to: A) $47,224. B) $198,400. C) $180,200. D) $190,800.

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39) 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

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

Operating profit

$ 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.

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40) Goodson Incorporated produces and sells a single product. The company has provided its contribution format income statement for March. Sales (4,660 units) Variable costs Contribution margin Fixed costs

$ 442,700 274,940 167,760 136,900

Operating profit

$ 30,860

If the company sells 4,460 units, its operating profit should be closest to: A) $11,860. B) $29,673. C) $30,860. D) $23,660.

41) Goodson Incorporated 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

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

Operating profit

$ 26,700

If the company sells 4,300 units, its operating profit should be closest to:

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A) $7,700. B) $25,513. C) $26,700. D) $19,500.

42) The contribution margin ratio is 25% for Crowne Company and the break-even point in sales is $205,000. If Crowne Company's target operating profit is $55,000, sales would have to be: A) $260,000. B) $425,000. C) $235,000. D) $220,000.

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43) 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.

44) Opal Company manufactures a single product that it sells for $100 per unit and has a contribution margin ratio of 30%. The company's fixed costs are $47,000. If Opal desires a monthly target operating profit equal to 20% of sales, sales will have to be (rounded): Note: Round intermediate calculations to 2 decimal places A) 1,567 units. B) 2,350 units. C) 940 units. D) 4,700 units.

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45) 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.

46) Razor Incorporated 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 9,200 units of Fluoro2211 are as follows. Per Unit Data

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Selling Price Direct Materials Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead Variable Selling Fixed Selling and Administrative Total Costs

$ 550 220 35 32 50 23 30 390

Operating Margin

$ 160

During the next year, sales of Fluoro2211 are expected to be 10,200 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 $560. Based on these data, Razor Incorporated's total contribution margin for next year will be: (CMA adapted) A) $2,127,600. B) $2,225,600. C) $2,217,600. D) $2,325,600.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

47) Razor Incorporated 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 Direct Materials

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$ 150 20

Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead Variable Selling Fixed Selling and Administrative Total Costs Operating Margin

15 12 30 3 10 90 $ 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 Incorporated's total contribution margin for next year will be: (CMA adapted) A) $882,000. B) $980,000. C) $972,000. D) $1,080,000.

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48) Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $11.70 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 22,800 shirts to break-even. The after-tax net income last year was $5,880. Dorcan’s expectations for the coming year include the following: (CMA adapted) ● The sales price of the T-shirts will be $23. ● 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) $14.60. B) $13.85. C) $15.60. D) $15.10.

49) 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. Dorcan’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:

Version 1

A) $9.00. B) $8.25. C) $10.00. D) $9.50.

50) Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.78 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 22,800 shirts to break-even. The after-tax net income last year was $5,880. Dorcan’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) 20,313 units. B) 19,813 units. C) 23,313 units. D) 25,313 units.

Version 1

51) 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. Dorcan’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.

Version 1

52) Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $12.30 each, and the variable cost to manufacture them was $7.30 per unit. The company needed to sell 23,200 shirts to break-even. The after-tax net income last year was $6,000. Dorcan's expectations for the coming year include the following: (CMA adapted) ● The sales price of the T-shirts will be $15. ● 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 1,160 units. If this occurs, Dorcan's sales volume in the coming year will be: A) 26,360 units. B) 25,720 units. C) 27,160 units. D) 24,760 units.

Version 1

53) 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. Dorcan'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.

Version 1

54) 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 $3.75 per unit. The company needed to sell 20,000 shirts to break-even. The after-tax net income last year was $6,240. Dorcan'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 $77,616 in aftertax net income for the coming year, the company's sales volume in dollars must be: A) $41,732. B) $43,172. C) $40,772. D) $423,720.

Version 1

55) 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. Dorcan'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 aftertax 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.

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56)

Lamar has the following data:

Selling price

$ 40

Variable manufacturing cost

$ 22

Fixed manufacturing cost Variable selling & administrative costs

$ 153,000 per month $ 6

Fixed selling & administrative costs

$ 123,000 per month

How many units must Lamar produce and sell in order to break-even? A) 8,833 units B) 13,000 units C) 15,500 units D) 23,000 units

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57)

Lamar has the following data:

Selling price

$ 40

Variable manufacturing cost

$ 22

Fixed manufacturing cost Variable selling & administrative costs

$ 150,000 per month $ 6

Fixed selling & administrative costs

$ 120,000 per 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

58)

Lamar has the following data:

Selling price

$ 40

Variable manufacturing cost

$ 22

Fixed manufacturing cost Variable selling & administrative costs

$ 159,000 per month $ 6

Fixed selling & administrative costs

$ 129,000 per month

How many units must Lamar produce and sell in order to achieve a profit of $39,000 per month? Version 1

A) 9,833 units B) 17,250 units C) 27,250 units D) 19,750 units

59)

Lamar has the following data:

Selling price

$ 40

Variable manufacturing cost

$ 22

Fixed manufacturing cost Variable selling & administrative costs

$ 150,000 per month $ 6

Fixed selling & administrative costs

$ 120,000 per 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

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60)

Lamar has the following data:

Selling price

$ 40

Variable manufacturing cost

$ 22

Fixed manufacturing cost Variable selling & administrative costs

$ 210,000 per month $ 6

Fixed selling & administrative costs

$ 180,000 per month

If Lamar produces and sells 90,000 units, what is the margin of safety in units? A) 18,333 units B) 57,500 units C) 22,500 units D) 25,000 units

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Bloom's : Apply Gradable : automatic Difficulty : 3 Hard Learning Objective : 03-02 Understand the effect of cost structure on decisions. AICPA : FN Measurement Topic : Use of CVP to Analyze Effect of Different Cost Structures Type : Algorithmic Accessibility : Screen Reader Compatible

Version 1

61)

Lamar has the following data:

Selling price

$ 40

Variable manufacturing cost

$ 22

Fixed manufacturing cost Variable selling & administrative costs

$ 150,000 per month $ 6

Fixed selling & administrative costs

$ 120,000 per 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Gradable : automatic Difficulty : 3 Hard Learning Objective : 03-02 Understand the effect of cost structure on decisions. AICPA : FN Measurement Topic : Use of CVP to Analyze Effect of Different Cost Structures Accessibility : Screen Reader Compatible

62) 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

$ 2,270,000

Cost of Sales: Direct Material Direct Labor

Version 1

$ 360,000 260,000

Variable Overhead Fixed Overhead Gross Profit

91,500 210,000

921,500 $ 1,348,500

Selling and G&A: Variable Fixed

$ 310,000 360,000

670,000

Operating Income

$ 678,500

The break-even point (rounded to the nearest dollar) for Gardner Corporation for the current year is: A) $546,334. B) $1,036,364. C) $1,129,723. D) $581,811.

63) 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

$ 1,500,000

Cost of Sales: Direct Material

Version 1

$ 250,000

Direct Labor

150,000

Variable Overhead

75,000

Fixed Overhead Gross Profit

100,000

575,000 $ 925,000

Selling and G&A: Variable Fixed

$ 200,000 250,000

450,000

Operating Income

$ 475,000

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.

64) 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

$ 1,990,000

Cost of Sales:

Version 1

Direct Material

$ 320,000

Direct Labor

220,000

Variable Overhead

85,500

Fixed Overhead Gross Profit

170,000

795,500 $ 1,194,500

Selling and G&A: Variable Fixed

$ 270,000 320,000

Operating Income

590,000 $ 604,500

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 $52,000 increase in fixed costs. The break-even point for next year (rounded to the nearest dollar) would be: Note: Do not round intermediate calculations. A) $1,000,336. B) $1,133,412. C) $485,327. D) $649,000.

65) 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.

Version 1

Sales

$ 1,500,000

Cost of Sales: Direct Material

$ 250,000

Direct Labor

150,000

Variable Overhead

75,000

Fixed Overhead Gross Profit

100,000

575,000 $ 925,000

Selling and G&A: Variable Fixed

$ 200,000 250,000

Operating Income

450,000 $ 475,000

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: Note: Do not round intermediate calculations. A) $729,027. B) $862,103. C) $214,018. D) $474,000.

Version 1

66)

You have been provided with the following information: Per Unit

Sales Less variable expenses

Total

$ 60 24

$ 180,000 72,000

108,000

Contribution margin Less fixed expenses

72,000

Operating profit

$ 36,000

If sales decrease by 800 units, how much will fixed costs have to be reduced by to maintain the current operating profit of $36,000? A) $86,400 B) $72,000 C) $57,600 D) $28,800

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 3 Hard Bloom's : Analyze Type : Algorithmic Accessibility : Screen Reader Compatible

67)

You have been provided with the following information: Per Unit

Sales Less variable expenses Contribution margin

Version 1

Total

$ 15 9

$ 45,000 27,000

18,000

Less fixed expenses

12,000

Operating profit

$ 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible

68) Raines Company's sales are $910,000 with operating profits of $162,000. If the contribution margin ratio is 40%, what did the fixed costs amount to? A) $402,000 B) $364,000 C) $302,000 D) $202,000

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69) 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

70)

The following costs have been estimated based on sales of 32,800 units:

Direct materials Direct labor Manufacturing overhead

Version 1

Total Annual Costs $ 423,200 287,100 278,000

Percent That Is Variable 100% 100% 50%

Selling and administrative

178,000

25%

What selling price (rounded to two decimal places) will yield a contribution margin of 40%? A) $65.42 B) $49.59 C) $45.42 D) $39.09

71)

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

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72) Gena Manufacturing Company has a fixed cost of $265,000 for the production of tubes. Estimated sales are 154,000 units. A before-tax profit of $126,160 is desired by the controller. If the tubes sell for $25 each, what unit contribution margin is required to attain the profit target? A) $2.79 B) $2.54 C) $1.26 D) $0.69

73) 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?

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A) $3.00 B) $2.33 C) $1.47 D) $0.90

74)

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Accessibility : Screen Reader Compatible

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75) On January 1, 2023, Randolph Company increased its direct labor wage rates. All other budgeted costs and revenues were unchanged. How did this increase affect Randolph's budgeted break-even point and budgeted margin of safety? (CPA adapted) Budgeted Break-Even Point A. B. C. D.

Increase Increase Decrease Decrease

Budgeted Margin of Safety Increase Decrease Decrease Increase

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 3 Hard Learning Objective : 03-02 Understand the effect of cost structure on decisions. Bloom's : Analyze Topic : Use of CVP to Analyze Effect of Different Cost Structures Accessibility : Screen Reader Compatible

76)

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

Version 1

77) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible

78) 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

$ 3,820,000

Cost of Sales:

Version 1

Direct Material

$ 532,000

Direct Labor

410,000

Variable Overhead

291,000

Fixed Overhead Gross Profit Selling and General & Administrative Expense: Variable Fixed

760,000

1,993,000 $ 1,827,000

$ 782,000 282,000

Operating Income

1,064,000 $ 763,000

The contribution margin ratio for the current year is: A) 51.6%. B) 47.3%. C) 44.4%. D) 23.0%.

79) 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

$ 3,500,000

Cost of Sales:

Version 1

Direct Material

$ 500,000

Direct Labor

250,000

Variable Overhead

275,000

Fixed Overhead Gross Profit Selling and General & Administrative Expense: Variable Fixed

600,000

1,625,000 $ 1,875,000

$ 750,000 250,000

Operating Income

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%.

80) 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

$ 3,520,000

Cost of Sales:

Version 1

Direct Material

$ 502,000

Direct Labor

260,000

Variable Overhead

276,000

Fixed Overhead Gross Profit Selling and General & Administrative Expense: Variable Fixed

610,000

1,648,000 $ 1,872,000

$ 752,000 252,000

Operating Income

1,004,000 $ 868,000

The break-even point (rounded to the nearest dollar) for Evergreen Corporation for the current year is: Note: Round contribution margin ratio (percentage) to one decimal place. A) $2,652,000. B) $1,892,672. C) $1,755,601. D) $2,182,172.

81) 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

$ 3,500,000

Version 1

Cost of Sales: Direct Material

$ 500,000

Direct Labor

250,000

Variable Overhead

275,000

Fixed Overhead Gross Profit Selling and General & Administrative Expense: Variable Fixed

600,000

1,625,000 $ 1,875,000

$ 750,000 250,000

Operating Income

1,000,000 $ 875,000

The break-even point (rounded to the nearest dollar) for Evergreen Corporation for the current year is: Note: Round contribution margin ratio (percentage) to one decimal place. A) $2,625,000. B) $1,865,672. C) $1,724,138. D) $2,155,172.

82) 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. Version 1

Sales

$ 3,540,000

Cost of Sales: Direct Material

$ 504,000

Direct Labor

270,000

Variable Overhead

277,000

Fixed Overhead Gross Profit Selling and General & Administrative Expense: Variable Fixed

620,000

1,671,000 $ 1,869,000

$ 754,000 254,000

Operating Income

1,008,000 $ 861,000

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 $47,000 increase in fixed costs. The operating profit for next year would be: A) $456,500. B) $471,500. C) $531,500. D) $810,250.

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83) 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

$ 3,500,000

Cost of Sales: Direct Material

$ 500,000

Direct Labor

250,000

Variable Overhead

275,000

Fixed Overhead Gross Profit Selling and General & Administrative Expense: Variable Fixed

600,000

1,625,000 $ 1,875,000

$ 750,000 250,000

Operating Income

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.

Version 1

84) 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

$ 3,800,000

Cost of Sales: Direct Material

$ 530,000

Direct Labor

400,000

Variable Overhead

290,000

Fixed Overhead Gross Profit Selling and General & Administrative Expense: Variable Fixed Operating Income

750,000

1,970,000 $ 1,830,000

$ 780,000 280,000

1,060,000 $ 770,000

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 $60,000 increase in fixed costs. The break-even point for next year would be: Note: Round contribution margin ratio (percentage) to three decimal places. A) $2,865,721. B) $3,144,471. C) $2,805,721. D) $2,790,721.

Version 1

85) 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

$ 3,500,000

Cost of Sales: Direct Material

$ 500,000

Direct Labor

250,000

Variable Overhead

275,000

Fixed Overhead Gross Profit Selling and General & Administrative Expense: Variable Fixed Operating Income

600,000

1,625,000 $ 1,875,000

$ 750,000 250,000

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: Note: Round contribution margin ratio (percentage) to three decimal places.

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A) $3,022,500. B) $2,947,500. C) $2,668,750. D) $2,168,225.

86)

You have been provided with the following information: Per Unit

Total

Sales Less variable expenses

$ 51 27

$ 153,000 81,000

Contribution margin

$ 24

72,000

Less fixed expenses Operating profit

48,000 $ 24,000

If unit sales decrease by 10%, how much will fixed costs have to be reduced by to maintain the current operating profit? A) $48,000 B) $18,000 C) $24,000 D) $7,200

Version 1

87)

You have been provided with the following information: Per Unit

Total

Sales Less variable expenses

$ 15 9

$ 45,000 27,000

Contribution margin

$ 6

18,000

Less fixed expenses

12,000

Operating profit

$ 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

Version 1

88)

You have been provided with the following information: Total

Sales Less variable expenses Contribution margin Less fixed expenses

$ 186,000 102,000 84,000 56,000

Operating profit

$ 28,000

If sales decrease by 10%, what level of fixed costs will maintain the current operating profit? A) $28,000 B) $47,600 C) $53,600 D) $56,000

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89)

You have been provided with the following information: Total

Sales Less variable expenses Contribution margin Less fixed expenses

$ 90,000 54,000 36,000 24,000

Operating profit

$ 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

90)

You have been provided with the following information: Total

Sales Less variable expenses Contribution margin Less fixed expenses

$ 100,000 58,000 42,000 28,000

Operating profit

$ 14,000

Version 1

If the contribution margin increases by 20%, what level of fixed costs will yield a 30% increase in profits? A) $19,600 B) $11,200 C) $32,200 D) $33,600

91)

You have been provided with the following information: Total

Sales Less variable expenses Contribution margin Less fixed expenses

$ 90,000 54,000 36,000 24,000

Operating profit

$ 12,000

If the contribution margin increases 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

Version 1

92)

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.

Question Details Accessibility : Keyboard Navigation Type : Static Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : FN Measurement Bloom's : Understand Accessibility : Screen Reader Compatible

93) 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? Contribution margin per unit A.

Version 1

No change

Contribution margin ratio No change

B. C. D.

Increase Increase Increase

Increase No change Decrease

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

Question Details Accessibility : Keyboard Navigation Type : Static Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 3 Hard AACSB : Reflective Thinking AICPA : FN Measurement Bloom's : Analyze Accessibility : Screen Reader Compatible

94)

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

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95) 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? Contribution margin per unit A. B. C. D.

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

Question Details Accessibility : Keyboard Navigation Type : Static Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Gradable : automatic Difficulty : 3 Hard AACSB : Reflective Thinking AICPA : FN Measurement Bloom's : Analyze Accessibility : Screen Reader Compatible

96) 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)].

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97)

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 decrease.

98)

Which of the following would not cause the break-even point to change? A) Variable costs per unit increase. B) Fixed costs increase. C) Product mix shifts towards the more expensive products. D) Sales volume decreases.

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99) 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? Contribution Margin Ratio

Break-Even Point

Decrease Increase Decrease Increase

Increase Decrease Decrease Increase

A. B. C. D.

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

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100)

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.

101) Obtuse Company's fixed costs total $201,000, 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) 67,000. B) 50,250. C) 44,667. D) 134,000.

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102) 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.

103) Bargain Company's contribution margin ratio is 20%. If the degree of operating leverage is 16 at the $200,000 sales level, operating profit at the $200,000 sales level must equal:

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A) $2,000. B) $3,600. C) $5,120. D) $2,500.

104) 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.

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105) 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.

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106)

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.

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107)

Given the following data: Per Unit

Total

Sales Less variable expenses

$ 18 10

$ 54,000 30,000

Contribution margin

$ 8

24,000

Less fixed expenses

16,000

Operating profit

$ 8,000

If sales decrease by 500 units, by what percent would fixed costs have to be reduced to maintain current operating profit? A) 50.0% B) 20.0% C) 25.0% D) 30.0%

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108)

Given the following data: Per Unit

Total

Sales Less variable expenses

$ 15 9

$ 45,000 27,000

Contribution margin

$ 6

18,000

Less fixed expenses

12,000

Operating profit

$ 6,000

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

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109)

The following pertains to Upton Company for the year ending December 31, 2022:

Budgeted Sales Break-Even Sales Budgeted Contribution Margin Cashflow Break-Even

$ 1,220,000 850,000 750,000 275,000

Upton's margin of safety is: (CPA adapted) A) $370,000. B) $470,000. C) $575,000. D) $945,000.

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110)

The following pertains to Upton Company for the year ending December 31, 2022:

Budgeted Sales

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$ 1,000,000

Break-Even Sales Budgeted Contribution Margin Cashflow Break-Even

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.

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111)

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.

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112) the:

The amount by which a company's sales can decline before losses are incurred is called

A) contribution margin ratio. B) degree of operating leverage. C) margin of safety. D) profit loss.

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113)

The degree of operating leverage can be calculated as:

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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.

114) 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? A. B. C. D.

Contribution Margin

Variable Costs

Higher Lower Higher Lower

Higher Higher Lower Lower

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

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115) Corey Company has a margin of safety percentage of 20%. The break-even point is $290,000 and the variable costs are 35% of sales. Given this information, the operating profit is: A) $47,125. B) $20,300. C) $25,375. D) $37,700.

116) 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:

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A) $27,500. B) $18,000. C) $22,500. D) $22,000.

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117) Luxus, Incorporated, employs 45 sales personnel to market its line of luxury automobiles. The average car sells for $27,000, and a 6% commission is paid to the salesperson. Luxus, Incorporated, is considering a change to the commission arrangement where the company would pay each salesperson a salary of $2,500 per month plus a commission of 2% of the sales made by that salesperson. The amount of total monthly car sales at which Luxus, Incorporated, would be indifferent as to which plan to select is: A) $2,812,500. B) $3,750,000. C) $1,875,000. D) $1,562,500.

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118) Luxus, Incorporated, 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, Incorporated, 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, Incorporated, 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.

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119)

Given the following information:

Sales

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$ 7,000

Fixed Expenses Variable Expenses

2,200 1,950

What would expected operating profit be if the company experienced a 10% increase in fixed costs and a 10% increase in sales volume? A) $1,950. B) $1,700. C) $2,850. D) $3,135.

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120)

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

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

Sales

Baubles 11,000 units $ 11,000

Trinkets 5,500 units $ 11,000

Costs: Fixed Variable Income before taxes

$ 2,400 4,400

$ 7,680 6,800 $ 4,200

2,200

9,880 $ 1,120

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) 6,720 B) 2,940 C) 7,200 D) 4,000

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

Sales

Baubles 10,000 units $ 10,000

Trinkets 5,000 units $ 10,000

Costs: Fixed Variable Income before taxes

$ 2,000 6,000

$ 4,600 8,000 $ 2,000

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

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123) During 2023, Seth Britain Lab supplied hospitals with a comprehensive diagnostic kit for $100. At a volume of 80,000 kits, Seth had fixed costs of $1,050,000 and a profit before income taxes of $230,000. Due to an adverse legal decision, Seth's 2024 liability insurance increased by $1,280,000 over 2023. Assuming the volume and other costs are unchanged, what should the 2024 price be if Seth is to make the same $230,000 profit before income taxes? (CPA adapted) A) $102.90 B) $116.00 C) $134.90 D) $200.00

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124) During 2023, 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 2024 liability insurance increased by $1,200,000 over 2023. Assuming the volume and other costs are unchanged, what should the 2024 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

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125)

Honeysuckle Manufacturing has the following data:

Selling price

$ 160

Variable manufacturing cost

$ 63

Fixed manufacturing cost Variable selling & administrative costs

$ 270,000 per month $ 49

Fixed selling & administrative costs

$ 160,000 per month

What dollar sales volume does Honeysuckle need to break even? A) $955,555 B) $966,666 C) $120,000 D) $1,433,333

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126)

Honeysuckle Manufacturing has the following data:

Selling price

$ 60

Variable manufacturing cost

$ 33

Fixed manufacturing cost Variable selling & administrative costs

$ 250,000 per month $ 9

Fixed selling & administrative costs

$ 120,000 per month

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

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127)

Honeysuckle Manufacturing has the following data:

Selling price

$ 90

Variable manufacturing cost

$ 42

Fixed manufacturing cost Variable selling & administrative costs

$ 256,000 per month $ 21

Fixed selling & administrative costs

$ 132,000 per month

What dollar sales volume does Honeysuckle need to achieve a $59,000 operating profit per month? A) $1,490,000 B) $8,046,000 C) $993,333 D) $1,312,620

128)

Honeysuckle Manufacturing has the following data:

Selling price

$ 60

Variable manufacturing cost

$ 33

Fixed manufacturing cost Variable selling & administrative costs

$ 250,000 per month $ 9

Fixed selling & administrative costs

$ 120,000 per month

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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

129)

Honeysuckle Manufacturing has the following data:

Selling price

$ 50

Variable manufacturing cost

$ 30

Fixed manufacturing cost Variable selling & administrative costs

$ 240,000 per month $ 6

Fixed selling & administrative costs

$ 111,000 per month

If Honeysuckle has actual monthly sales of $1,550,000 and desires an operating profit of $55,000 per month, what is the margin of safety in sales dollars? A) $100,000 B) $296,429 C) $55,000 D) $1,199,000

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130)

Honeysuckle Manufacturing has the following data:

Selling price

$ 60

Variable manufacturing cost

$ 33

Fixed manufacturing cost Variable selling & administrative costs

$ 250,000 per month $ 9

Fixed selling & administrative costs

$ 120,000 per 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

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131) Market Sales had $1,233,000 in sales last month. The variable cost ratio was 60% and operating profits were $82,200. What is Market's break-even sales volume? A) $822,000 B) $1,027,500 C) $1,233,000 D) $2,055,000

132) 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

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133) Market Sales had $1,254,000 in sales last month. The variable cost ratio was 60% and operating profits were $83,600. What sales volume does Market's need to yield a $236,000 operating profit? A) $1,180,000 B) $1,254,000 C) $1,635,000 D) $2,090,000

134) 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?

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A) $1,000,000 B) $1,200,000 C) $1,500,000 D) $2,000,000

135) Market Sales had $1,254,000 in sales last month. The variable cost ratio was 60% and operating profits were $83,600. What is Market's margin of safety in sales dollars? A) $209,000 B) $309,000 C) $522,500 D) Cannot determine with the information given

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136) 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

137) Artis Sales has two store locations. Store A has fixed costs of $205,000 per month and a variable cost ratio of 55%. Store B has fixed costs of $380,000 per month and a variable cost ratio of 30%. At what sales volume would the two stores have equal profits or losses? A) $700,000 B) $585,000 C) $688,235 D) Cannot determine with the information given.

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138) 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.

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139) Artis Sales has two store locations. Store A has fixed costs of $158,000 per month and a variable cost ratio of 60%. Store B has fixed costs of $222,000 per month and a variable cost ratio of 30%. What is the break-even sales volume for Store B?

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A) $740,000 B) $380,000 C) $317,143 D) Cannot determine with the information given.

140) 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.

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141) Artis Sales has two store locations. Store A has fixed costs of $195,000 per month and a variable cost ratio of 70%. Store B has fixed costs of $360,000 per month and a variable cost ratio of 40%. What is the break-even sales volume for Store A? A) $278,571 B) $650,000 C) $555,000 D) Cannot determine with the information given.

142) 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.

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143) Liu Sales has two store locations. Sanford has fixed costs of $154,000 per month and a contribution margin ratio of 30%. Orlando has fixed costs of $340,000 per month and a contribution margin ratio of 70%. At what sales volume would the two stores have equal profits or losses? A) $465,000 B) $494,000 C) $1,145,000 D) Cannot determine with the information given.

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144) 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? Version 1

A) $500,000 B) $650,000 C) $1,300,000 D) Cannot determine with the information given.

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145)

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.

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100

146) Lake Sales had $2,200,000 in sales last month. The contribution margin ratio was 35% and operating profits were $175,000. What is Lake's break-even sales volume? A) $770,000 B) $1,430,000 C) $1,700,000 D) $2,025,000

147) 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

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101

148) Lake Sales had $2,300,000 in sales last month. The contribution margin ratio was 30% and operating profits were $165,000. What sales volume does Lake need to yield a $262,500 operating profit? A) $550,000 B) $2,135,000 C) $2,625,000 D) $2,562,500

149) 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 need to yield a $240,000 operating profit? A) $600,000 B) $2,020,000 C) $2,400,000 D) $2,440,000

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102

150) Lake Sales had $2,800,000 in sales last month. The contribution margin ratio was 40% and operating profits were $190,000. What is Lake's margin of safety in sales dollars? A) $930,000 B) $475,000 C) $2,610,000 D) Cannot determine with the information given.

151) 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?

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103

A) $480,000 B) $600,000 C) $2,020,000 D) Cannot determine with the information given.

152)

Eastwick produces and sells three products. Last month's results are as follows:

Revenues Variable costs

$ 140,000 44,000

$ 240,000 144,000

$ 240,000 97,200

Fixed costs total $240,000. What is Eastwick's break-even sales volume? (Assume the current product mix.) A) $620,000 B) $444,444 C) $521,739 D) $525,200

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153)

Eastwick produces and sells three products. Last month's results are as follows:

Revenues Variable costs

$ 100,000 40,000

$ 200,000 140,000

$ 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

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154)

Eastwick produces and sells three products. Last month's results are as follows:

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105

Revenues Variable costs

$ 120,000 42,000

$ 220,000 142,000

$ 220,000 124,000

Fixed costs total $220,000. What is Eastwick's margin of safety? (Assume the current product mix.) A) $71,111 B) $42,000 C) $528,000 D) $160,000

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155)

Eastwick produces and sells three products. Last month's results are as follows:

Revenues Variable costs

$ 100,000 40,000

$ 200,000 140,000

$ 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

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156)

Eastwick produces and sells three products. Last month's results are as follows:

Revenues Variable costs

$ 250,000 55,000

$ 350,000 210,000

$ 350,000 124,500

Fixed costs total $350,000. What sales volume would generate an operating profit of $225,000? (Assume the current product mix.) A) $1,175,000 B) $1,120,000 C) $974,576 D) $1,525,000

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157)

Eastwick produces and sells three products. Last month's results are as follows:

Revenues Variable costs

$ 100,000 40,000

$ 200,000 140,000

$ 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Gradable : automatic Difficulty : 3 Hard Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model Accessibility : Screen Reader Compatible

158)

A company has provided the following data:

Sales Sales price Variable cost Fixed cost

3,700 units $ 85 per unit $ 65 per unit $ 26,000

If the sales volume decreases by 30%, the variable cost per unit increases by 10%, and all other factors remain the same, operating profit will:

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A) decrease by $39,035. B) decrease by $48,100. C) increase by $55,315. D) decrease by $8,965.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Bloom's : Apply Gradable : automatic Difficulty : 3 Hard Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model AICPA : FN Measurement Type : Algorithmic Accessibility : Screen Reader Compatible

159)

A company has provided the following data:

Sales Sales price Variable cost Fixed cost

3,000 units $ 70 per unit $ 50 per 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.

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

Product A

Product B

Product C

$ 39,000 40%

$ 59,000 42%

$ 119,000 44%

Given these data, the contribution margin ratio for the company as a whole would be: A) 43%. B) 94%. C) 51.3%. D) Cannot determine with the information given.

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161) Winters Company sells three products. Sales and contribution margin ratios for the three products follow: Product A

Product B

Product C

$ 20,000 45%

$ 40,000 40%

$ 100,000 15%

Sales in dollars Contribution margin ratio

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.

162)

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.

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Question Details Accessibility : Keyboard Navigation Type : Static Gradable : automatic Difficulty : 2 Medium Learning Objective : 03-05 Understand the assumptions and limitations of CVP analysis. AACSB : Reflective Thinking AICPA : FN Measurement Bloom's : Understand Topic : Assumptions and Limitations of CVP Analysis Accessibility : Screen Reader Compatible

163)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 2 Medium Learning Objective : 03-05 Understand the assumptions and limitations of CVP analysis. Bloom's : Understand Topic : Assumptions and Limitations of CVP Analysis Accessibility : Screen Reader Compatible

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 164) 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

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$ 50 24 6 360,000

112

Fixed administrative costs

80,000

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 $180,000 of operating profit is desired, how many units must be sold? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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

$ 125 each 75 each 180,000 per 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

166) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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167) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

168) 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

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$ 297,000 165,000 132,000 105,300 115

Operating profit

$ 26,700

Required:Redo the company's contribution format income statement assuming that the company sells 5,700 units. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

169) Folsom Incorporated, 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

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

Operating profit

$ 18,400

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

172) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

173) 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.

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174) Boxer Incorporated 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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175) Rudy Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Selling price Variable costs

$ 150 60

Contribution margin

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

176) Alden Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Selling price Variable costs

$ 190 38

Contribution margin

$ 152

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Percent of Sales 100% 20% 80%

119

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

177) 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 2024. Required:(a) Compute the break-even point in dollars. (b) Compute the margin of safety for 2024. (c) Compute the expected operating profit for 2024. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard Learning Objective : 03-02 Understand the effect of cost structure on decisions. Gradable : manual Topic : Use of CVP to Analyze Effect of Different Cost Structures Accessibility : Screen Reader Compatible

178) 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. 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

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

179) 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

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

$ 125 each 75 each 180,000 per 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard Learning Objective : 03-02 Understand the effect of cost structure on decisions. Gradable : manual Topic : Use of CVP to Analyze Effect of Different Cost Structures Accessibility : Screen Reader Compatible

181) 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. 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

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$ 200 per month $ 400 per month $ 0.90 per haircut

123

Utilities Magazines Cleaning Supplies

$ 175 per month plus $0.35 per haircut $ 25 per month $ 0.15 per 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model Gradable : manual Accessibility : Screen Reader Compatible

182) 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. Sales price (per unit) Material cost Direct labor

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Large

Medium

Small

$ 15.00 5.00 2.00

$ 10.00 4.00 1.50

$ 5.00 2.00 1.25

124

Variable Overhead

2.00

1.50

1.25

The fixed costs associated with the manufacturing 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Difficulty : 3 Hard Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model Gradable : manual Accessibility : Screen Reader Compatible

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183) 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 2024 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 2024, only 350 units had been sold at the established price, with variable costs as planned. It was clear that the 2024 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. (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 2024. 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 2024. (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 2024. 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model Gradable : manual Bloom's : Create Accessibility : Screen Reader Compatible

184) 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

185)

Nation Incorporated sells three products. Last month's results are as follows:

Revenues Variable costs

$ 200,000 80,000

$ 300,000 280,000

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Difficulty : 3 Hard Learning Objective : 03-02 Understand the effect of cost structure on decisions. Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model Gradable : manual Topic : Use of CVP to Analyze Effect of Different Cost Structures Accessibility : Screen Reader Compatible

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186)

Carrie sells three products. Last month's results are as follows:

Revenues Variable costs

$ 150,000 60,000

$ 225,000 210,000

$ 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%? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model Gradable : manual Accessibility : Screen Reader Compatible

187) 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 2024. Required:(a) Compute the break-even point in units. (b) Compute the margin of safety in units for 2024. (c) Compute the expected operating profit for 2024.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard Learning Objective : 03-02 Understand the effect of cost structure on decisions. Gradable : manual Topic : Use of CVP to Analyze Effect of Different Cost Structures Accessibility : Screen Reader Compatible

188) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard Learning Objective : 03-02 Understand the effect of cost structure on decisions. Gradable : manual Topic : Use of CVP to Analyze Effect of Different Cost Structures Accessibility : Screen Reader Compatible

189) 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

Model #1

Model #2

$ 100.00 45.00 20.00 15.00

$ 70.00 30.00 15.00 11.25

$ 50.00 20.00 10.00 7.50

The fixed costs associated with the manufacturing 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Difficulty : 3 Hard Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model Gradable : manual Accessibility : Screen Reader Compatible

190) 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

Model #1

Model #2

$ 50.00 22.50 10.00 7.00

$ 35.00 15.00 7.50 5.25

$ 25.00 10.00 5.00 3.50

The fixed costs associated with the manufacturing 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 breakeven point. (b) Determine the break-even point if the sales estimates are instead 50% original product, 30% model #1, and the remainder model #2. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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191) 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). ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Difficulty : 3 Hard Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model Gradable : manual Accessibility : Screen Reader Compatible

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192) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Difficulty : 3 Hard Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model Gradable : manual Accessibility : Screen Reader Compatible

196)

Drum Company has provided the following data concerning its only product:

Selling Price Current sales Break-even sales

$ 200 18,800 14,288

per unit units units

Required:Compute the margin of safety in both dollars and as a percentage of sales.

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197) Garrison Incorporated 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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198) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

201) Broken Arrow Incorporated produces and sells a single product. Data concerning that product appear below: Per Unit Selling price Variable costs

$ 190 57

Percent of Sales 100% 30%

Contribution margin

$ 133

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?

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202) Fairmount Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Selling price Variable costs

$ 120 36

Percent of Sales 100% 30%

Contribution margin

$ 84

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

208)

Data concerning Fowler Corporation's single product appear below: Per Unit

Selling price Variable costs

$ 210 126

Percent of Sales 100% 60%

Contribution margin

$ 84

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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209) Explain the difference between the break-even point, the margin of safety, and operating leverage. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 2 Medium Learning Objective : 03-02 Understand the effect of cost structure on decisions. Bloom's : Understand Gradable : manual Topic : Use of CVP to Analyze Effect of Different Cost Structures Accessibility : Screen Reader Compatible

210) Explain the difference between total contribution margin and gross margin. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 2 Medium Bloom's : Understand Gradable : manual Accessibility : Screen Reader Compatible

211) Why is it important for the profit equation to make a distinction between fixed and variable costs? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 2 Medium Bloom's : Understand Gradable : manual Accessibility : Screen Reader Compatible

212) Why is the time period so important for the definition of fixed costs? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 2 Medium Bloom's : Understand Gradable : manual Accessibility : Screen Reader Compatible

213) Present the profit equation and define all of the terms. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 03-01 Use cost-volume-profit (CVP) analysis to evaluate data and decisions. Topic : Cost-Volume-Profit Analysis Difficulty : 2 Medium Bloom's : Understand Gradable : manual Accessibility : Screen Reader Compatible

214) Why and how do managers simplify analyses for achieving a given level of profit with two products or services? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 03-04 Incorporate taxes, multiple products, and alternative cost structures into Topic : Extensions of the CVP Model Bloom's : Understand Gradable : manual Accessibility : Screen Reader Compatible

215) Discuss the role of assumptions that decision makers must consider when relying on CVP analysis. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 03-05 Understand the assumptions and limitations of CVP analysis. Bloom's : Understand Gradable : manual Topic : Assumptions and Limitations of CVP Analysis Accessibility : Screen Reader Compatible

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Answer Key Test name: Lanen7e_ch03 1) TRUE 2) FALSE 3) FALSE 4) TRUE 5) FALSE $3,600 is the contribution margin, not operating profits. Profit = (P − V)X − F = ($0.60 − $0.36)(15,000) − $1,500 = $3,600 − $1,500 = $2,100 6) FALSE Profit = (P − V)X − F $900 = ($0.60 − $0.36)X − $1,500; $900 = $0.24X − $1,500; X = 10,000 units 7) TRUE 8) FALSE Target volume = (Fixed costs + Target profit) / Contribution margin per unit Target volume = ($2,400 + $1,200) / ($2 × 40%) = $3,600 / $0.80 = 4,500 units 9) TRUE The statement made in the question is a definition of the break-even in sales dollars. 10) TRUE 11) TRUE 12) FALSE 13) TRUE 14) TRUE Version 1

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15) FALSE 16) FALSE 17) TRUE 18) TRUE After-tax profit = [(P − V)X − F] × (1 − t) = ($5,200 − $2,400) × (1 − 40%) = $2,800 × 60% = $1,680 19) FALSE Target volume = [Fixed costs + (Target profit / (1 − t))] / Unit contribution margin X = [$2,400 + ($1,200 / (1 − 25%))] / ($2 × 40%) = ($2,400 + $1,600) / $0.80 = 5,000 units 20) TRUE Multiple products make it necessary to develop a weighted-average contribution margin in order to calculate break-even. 21) TRUE 22) FALSE 23) TRUE 24) FALSE 25) D Contribution margin = Total sales − Total variable costs. 26) C ($770,000 − $154,000)/$770,000 = 80%; $37,600/0.80 = $47,000. 27) C ($800,000 − $160,000)/$800,000 = 80%; $40,000/0.80 = $50,000. 28) C CVP analysis addresses pricing and volume, but it does not address tax planning. 29) C 30) B

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If VC decreases, CM% increases; if FC decreases, the break-even point will also decrease. 31) B $15(.70) = $10.50 is variable cost; $15(1.10) = $16.50 is the increased selling price; $10.50/$16.50 = 63.6% (vs. 70%) is the new variable cost ratio (vs. the current variable cost ratio). 32) D Variable cost per unit has remained constant, while fixed cost in total remains unchanged but has increased on a per unit basis. 33) D In order to make a decision, we need to know the amount or percentage of change. 34) D 35) A 36) A $630 variable costs + $385 fixed costs at break-even makes sales $1,015/350 units = $2.90 unit − $1.80 variable costs per unit = $1.10 profit per unit. 37) A $400 variable costs + $200 fixed costs at break-even makes sales $600/400 units = $1.50 a unit − $1.00 variable costs per unit = $0.50 profit per unit. 38) D Sales (3,600 units)* Variable costs Contribution margin Fixed costs

$ 327,600 136,800 190,800 135,600

Operating profit

$ 55,200

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Sales $309,400 ÷ 3,400 = $91 per unit Variable costs $129,200 ÷ 3,400 = $38 per unit Sales 3,600 units × $91 per unit = $327,600 Variable costs 3,600 units × $38 per unit = $136,800 39) D Sales (3,100 units)* Variable costs Contribution margin Fixed costs

$ 288,300 114,700 173,600 137,100

Operating profit

$ 36,500

Sales $269,700 ÷ 2,900 = $93 per unit Variable costs $107,300 ÷ 2,900 = $37 per unit Sales 3,100 units × $93 per unit = $288,300 Variable costs 3,100 units × $37 per unit = $114,700 40) D Sales (4,460 units)* Variable costs Contribution margin Fixed costs

$ 423,700 263,140 160,560 136,900

Operating profit

$ 23,660

Sales $442,700 ÷ 4,660 = $95.00 per unit Variable costs $274,940 ÷ 4,660 = $59.00 per unit Sales 4,460 units × $95.00 per unit = $423,700 Variable costs 4,460 units × $59.00 per unit = $263,140 41) D Sales (4,300 units)* Variable costs Contribution margin Fixed costs

$ 408,500 253,700 154,800 135,300

Operating profit

$ 19,500

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Sales $427,500 ÷ 4,500 = $95.00 per unit Variable costs $265,500 ÷ 4,500 = $59.00 per unit Sales 4,300 units × $95.00 per unit = $408,500 Variable costs 4,300 units × $59.00 per unit = $253,700 42) B Revised sales = (Target operating profit ÷ Contribution margin ratio) + Break-even sales = ($55,000 ÷ 25%) + $205,000 = $220,000 + $205,000 = $425,000 total sales 43) B Revised sales = (Target operating profit ÷ Contribution margin ratio) + Break-even sales = ($60,000 ÷ 25%) + $200,000 = $240,000 + $200,000 = $440,000 total sales 44) D Sales = Variable cost + Fixed cost + Target profit X = 0.70X + $47,000 + 0.20X 0.1X = $47,000 X = $470,000 $470,000 ÷ $100 per unit = 4,700 units 45) D Sales = Variable cost + Fixed cost + Target profit X = 0.65X + $46,800 + 0.15X 0.2X = $46,800 X = $234,000 $234,000 ÷ $90 per unit = 2,600 units 46) D ($560 − $242 − $35 − $32 − $23) × 10,200 units = $2,325,600. 47) D ($160 − $22 − $15 − $12 − $3) × 10,000 units = $1,080,000. Version 1

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48) C If variable cost increases by 1/3, then the selling price must also increase by 1/3 to maintain the same contribution margin ratio. $11.70 × 1.333 = $15.60. 49) C If variable cost increases by 1/3, then the selling price must also increase by 1/3 to maintain the same contribution margin ratio. $7.50 × 1.333 = $10.00. 50) B FC (last year) = ($7.78 − $2.25) × 22,800 units = $126,084; FC (coming year) = $126,084 × 1.10 = $138,692 VC = $2.25 × 1.333 = $3 $138,692/($10 selling price − $3) = 19,813 units. 51) B FC (last year) = ($7.50 − 2.25) × 20,000 units = $105,000; FC (coming year) = $105,000 × 1.10 = $115,500 VC = $2.25 × 1.333 = $3 $115,500/($10 selling price − $3) = 16,500 units. 52) A FC = ($12.30 − $7.30) × 23,200 units = $116,000; Pretax income = $6,000/(1 − 0.40) = $10,000; Units sold last year = ($116,000 + $10,000)/($12.30 − $7.30) = 25,200 Sales volume in the coming year = 25,200 + 1,160 = 26,360 units. 53) A FC = ($7.50 − 2.25) × 20,000 units = $105,000; Pretax income = $5,040/(1 − 0.40) = $8,400; Units sold last year = ($105,000 + $8,400)/($7.50 − $2.25) = 21,600 Sales volume in the coming year = 21,600 + 1,000 = 22,600 units. 54) D

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FC = ($7.50 − $3.75) × 20,000 units = $75,000 × 1.10 = $82,500; Pretax income = $77,616/(1 − 0.40) = $129,360; ($82,500 + $129,360)/($10 − $5) = 42,372 units; 42,372 × $10 = $423,720. 55) D FC = ($7.50 − $2.25) × 20,000 units = $105,000 × 1.10 = $115,500; Pretax income = $37,800/(1 − 0.40) = $63,000; ($115,500 + $63,000)/($10 − $3) = 25,500 units; 25,500 × $10 = $255,000. 56) D ($153,000 + $123,000)/($40 − $22 − $6) = 23,000 units. 57) D ($150,000 + $120,000)/($40 − $22 − $6) = 22,500 units. 58) C ($159,000 + $129,000 + $39,000)/($40 − $22 − $6) = 27,250 units. 59) C ($150,000 + $120,000 + $30,000)/($40 − $22 − $6) = 25,000 units. 60) B ($210,000 + $180,000)/($40 − $22 − $6) = 32,500 BE units; 90,000 − 32,500 = 57,500 units 61) B ($150,000 + $120,000)/($40 − $22 − $6) = 22,500 BE units; 30,000 − 22,500 = 7,500 units 62) B $360,000 + $260,000 + $91,500 + $310,000 = $1,021,500 variable costs; ($2,270,000 − $1,021,500)/$2,270,000 = 55% contribution margin; ($210,000 + $360,000)/0.55 = $1,036,364 break-even. 63) B $250,000 + $150,000 + $75,000 + $200,000 = $675,000 variable costs; ($1,500,000 − $675,000)/$1,500,000 = 55% contribution margin; ($100,000 + $250,000)/0.55 = $636,364 break-even. Version 1

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64) A $320,000 + $220,000 + $85,500 + $270,000 = $895,500 variable costs; ($1,990,000 × 1.10) − ($895,500 × 1.12)/$2,189,000 = 0.541818 contribution margin. ($490,000 + $52,000)/$0.541818 = $1,000,336 break-even. 65) A $250,000 + $150,000 + $75,000 + $200,000 = $675,000 variable costs; ($1,500,000 × 1.10) − ($675,000 × 1.12)/$1,650,000 = 0.541818 contribution margin. ($350,000 + 45,000)/0.541818 = $729,027 break-even. 66) D $180,000/$60 = 3,000 units − 800 units = 2,200 units × ($60 − $24) = $79,200 − $72,000 = $7,200 new profit. To maintain current profit level of $36,000, fixed costs will have to be reduced by $28,800. 67) D $45,000/$15 = 3,000 units − 500 units = 2,500 units × ($15 − $9) = $15,000 − $12,000 = $3,000 new profit. To maintain current profit level of $6,000, fixed costs will have to be reduced by $3,000. 68) D ($910,000 × 0.40) − FC = $162,000, FC = $202,000. 69) D ($750,000 × 0.40) − FC = $130,000, FC = $170,000. 70) C Selling price (100%) − VC (60%) = CM (40%). [$423,200 + $287,100 + ($278,000 × 50%) + ($178,000 × 25%) = $893,800/32,800 units = $27.25 VC per unit. $27.25/60% = $45.42 selling price. 71) C

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Selling price (100%) − VC (60%) = CM (40%). [$300,000 + $250,000 + ($250,000 × 50%) + ($150,000 × 25%) = $712,500/30,000 units = $23.75 VC per unit. $23.75/60% = $39.58 selling price. 72) B ($265,000 + $126,160)/154,000 = $2.54. 73) B ($225,000 + $125,000)/150,000 = $2.33. 74) D 75) B Direct labor is a variable cost, so the unit contribution margin will decrease, increasing the break-even point. Since break-even increases and sales are unchanged, the margin of safety decreases. 76) B 77) D Need to know size (or percentage) for the increase of each. 78) B $532,000 + $410,000 + $291,000 + $782,000 = $2,015,000 (total variable costs); ($3,820,000 − $2,015,000)/$3,820,000 = 47.3%. 79) B $500,000 + $250,000 + $275,000 + $750,000 = $1,775,000 (total variable costs); ($3,500,000 − $1,775,000)/$3,500,000 = 49.3%. 80) C $502,000 + $260,000 + $276,000 + $752,000 = $1,790,000 (total variable costs); ($3,520,000 − $1,790,000)/$3,520,000 = 49.1%; ($610,000 + $252,000)/0.491 = $1,755,601. 81) C

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$500,000 + $250,000 + $275,000 + $750,000 = $1,775,000 (total variable costs); ($3,500,000 − $1,775,000)/$3,500,000 = 49.3%; ($600,000 + $250,000)/0.493 = $1,724,138. 82) A $504,000 + $270,000 + $277,000 + $754,000 = $1,805,000 (total variable costs). ($3,540,000 × 0.95) − ($1,805,000 × 1.10) − ($874,000 + $47,000) = $456,500. 83) A $500,000 + $250,000 + $275,000 + $750,000 = $1,775,000 (total variable costs). ($3,500,000 × 0.95) − ($1,775,000 × 1.10) − ($850,000 + $45,000) = $477,500. 84) D $530,000 + $400,000 + $290,000 + $780,000 = $2,000,000 (total variable costs). ($3,800,000 × 0.95) − ($2,000,000 × 1.10)/($3,800,000 × 0.95) = 39.058% CM. ($1,030,000 + $60,000)/0.39058 = $2,790,721. 85) D $500,000 + $250,000 + $275,000 + $750,000 = $1,775,000 (total variable costs). ($3,500,000 × 0.95) − [($1,775,000 × 1.10)/($3,500,000 × 0.95)] = 41.278% CM. ($850,000 + 45,000)/0.41278 = $2,168,225. 86) D $153,000/$51 = 3,000 units; [(3,000 × 0.9) × $24 CM] − FC = $24,000; FC = $40,800; thus FC will have to decrease by $7,200. 87) D Version 1

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$45,000/$15 = 3,000 units; [(3,000 × 0.9) × $6 CM] − FC = $6,000; FC = $10,200; thus FC will have to decrease by $1,800. 88) B ($84,000 × 0.9) − $28,000 = $47,600. 89) B ($36,000 × 0.9) − $12,000 = $20,400. 90) C ($42,000 × 1.20) − ($14,000 × 1.30) = $32,200. 91) C ($36,000 × 1.1) − ($12,000 × 1.2) = $25,200. 92) C Total variable costs go up as volume goes up. 93) C The contribution margin per unit increases and there is no change in the contribution margin ratio. For example: Selling price Variable cost Contribution margin Contribution margin per unit Contribution margin ratio Contribution margin per unit

Static 5% Change $ 100 $ 105 60 63 $ 40 $ 42 Increase 40% 40% No change

94) C (Sales − Variable costs) ÷ Sales. 95) B The contribution margin per unit decreases and there is no change in the contribution margin ratio. For example: Selling price Variable cost Contribution margin Contribution margin per unit Contribution margin ratio Contribution margin per unit

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96) B Unit sales to break-even = Fixed costs ÷ Unit CM, or F ÷ (P − V). 97) B 98) D 99) A A variable cost increase will decrease CM%; a fixed cost increase will increase the break-even point. 100) A 101) A $4.50 (VC per unit)/60% = $7.50 selling price. $201,000/($7.50 − $4.50) = 67,000 units. 102) A $4.50 (VC per unit)/60% = $7.50 selling price. $150,000/($7.50 − $4.50) = 50,000 units. 103) D Operating profit percentage = Contribution margin ratio ÷ Operating leverage = 20% ÷ 16 = 1.25% × $200,000 = $2,500 operating profit 104) D Operating profit percentage = Contribution margin ratio ÷ Operating leverage 15% ÷ 12 = 1.25% × $150,000 = $1,875 operating profit. 105) C Operating leverage is determined by the cost structure of the organization, the amount of the fixed versus variable costs. 106) A 107) C $54,000/$18 = 3,000 units − 500 units = 2,500 units × ($18 − $10) = $20,000 − $16,000 = $4,000 new profit. To maintain current profit level of $8,000, fixed costs will have to be reduced by $4,000 or 25.0%. Version 1

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108) C $45,000/$15 = 3,000 units − 500 units = 2,500 units × ($15 − $9) = $15,000 − $12,000 = $3,000 new profit. To maintain current profit level of $6,000, fixed costs will have to be reduced by $3,000 or 25%. 109) A $1,220,000 − $850,000 = $370,000. 110) A $1,000,000 − $700,000 = $300,000. 111) D Margin of safety percentage = Margin of safety in dollars ÷ Total budgeted (or actual) sales 112) C 113) D Degree of operating leverage = Contribution margin ÷ Operating profit. 114) C The contribution margin would be higher and the variable costs would be lower. For example: Selling price Variable cost Contribution margin Fixed Costs Contribution Margin Variable Costs

High FC/Low VC Low FC/High VC $ 500 $ 500 100 300 $ 400 $ 200 300 100 Higher Lower

115) A $290,000 ÷ (1 − 0.20) = $362,500; ($362,500 − $290,000) × (1 − 0.35) = $47,125. 116) A $200,000 ÷ (1 − 0.20) = $250,000; ($250,000 − $200,000) × (1 − 0.45) = $27,500. 117) A

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[($2,500 × 45) + (0.02)(total revenue)] = (0.06)(total revenue); $112,500 + 0.02TR = 0.06TR; $112,500 = 0.04TR; TR = $112,500/0.04 = $2,812,500. 118) A [($2,000 × 45) + (0.02)(total revenue)] = (0.06)(total revenue); $90,000 + 0.02TR = 0.06TR; $90,000 = 0.04TR; TR = $90,000/0.04 = $2,250,000. 119) D ($7,000 × 1.10) − ($1,950 × 1.10)* − ($2,200 × 1.10) = $7,700 − $2,145 − $2,420 = $3,135 *Variable costs will also increase with sales volume. 120) D ($5,000 × 1.10) − ($1,750 × 1.10)* − ($2,000 × 1.10) = $5,500 − $1,925 − $2,200 = $1,375 *Variable costs will also increase with sales volume. 121) C Baubles CM: ($11,000 − $4,400)/11,000 units = $0.60 per unit; Trinkets: ($11,000 − $2,200)/5,500 units = $1.60 per unit. Sales mix: 2 Bauble: 1 Trinket; CM per bundle = (2 × $0.60) + (1 × $1.60) = $2.80 per bundle. Fixed cost = $2,400 + $7,680 = $10,080; Break-even: $10,080/$2.80 = 3,600 bundles. Baubles: 2 × 3,600 bundles = 7,200 units. 122) C

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Baubles CM: ($10,000 − $6,000)/10,000 units = $0.40 per unit; Trinkets: ($10,000 − $4,000)/5,000 units = $1.20 per unit. Sales mix: 2 Bauble: 1 Trinket; CM per bundle = (2 × $0.40) + (1 × $1.20) = $2.00 per bundle. Fixed cost = $2,000 + $4,600 = $6,600; Break-even: $6,600/$2 = 3,300 bundles. Baubles: 2 × 3,300 bundles = 6,600 units. 123) B Profit = Contribution margin – Fixed costs $230,000 = CM − $1,050,000, CM = $1,280,000 CM per unit = $1,280,000 ÷ 80,000 = $16 Variable cost per unit = Sales price per unit $100 − CM per unit $16 = $84 Additional fixed cost (insurance) $1,280,000 ÷ 80,000 = $16 additional cost per unit needed to cover insurance Sales price $100 + additional cost to cover insurance $16 = $116 Proof-2024: Sales ($116 × 80,000) Less: Variable Costs ($84 × 80,000) Contribution Margin Less: Fixed Costs ($1,050,000 + $1,280,000) Income before Income Taxes

$ 9,280,000 6,720,000 2,560,000 2,330,000 $ 230,000

124) B

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Profit = Contribution margin – Fixed costs $200,000 = CM − $1,000,000, CM = $1,200,000 CM per unit = $1,200,000 ÷ 80,000 = $15 Variable cost per unit = Sales price per unit $120 – CM per unit $15 = $105 Additional fixed cost (insurance) $1,200,000 ÷ 80,000 = $15 additional cost per unit needed to cover insurance Sales price $120 + additional cost to cover insurance $15 = $135 Proof-2024: Sales ($135 × 80,000) Less: Variable Costs ($105 × 80,000) Contribution Margin Less: Fixed Costs ($1,000,000 + $1,200,000) Income before Income Taxes

$ 10,800,000 8,400,000 2,400,000 2,200,000 $ 200,000

125) D ($160 − $63 − $49)/$160 = 30%; ($270,000 + $160,000)/30% = $1,433,333. 126) D ($60 − $33 − $9)/$60 = 30%; ($250,000 + $120,000)/30% = $1,233,333. 127) A ($90 − $42 − $21)/$90 = 30%; ($256,000 + $132,000 + $59,000)/30% = $1,490,000. 128) A ($60 − $33 − $9)/$60 = 30%; ($250,000 + $120,000 + $50,000)/30% = $1,400,000. 129) B ($50 − $30 − $6)/$50 = 28%; BE = ($240,000 + $111,000)/28% = $1,253,571. $1,550,000 − $1,253,571 = $296,429. 130) B

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($60 − $33 − $9)/$60 = 30%; BE = ($250,000 + $120,000)/30% = $1,233,333. $1,500,000 − $1,233,333 = $266,667. 131) B Fixed costs = $1,233,000 × (1 − 0.6) − $82,200 = $411,000; $411,000/(1 − 0.6) = $1,027,500. 132) B Fixed costs = $1,200,000 × (1 − 0.6) − $80,000 = $400,000; $400,000/(1 − 0.6) = $1,000,000. 133) C Fixed costs = $1,254,000 × (1 − 0.6) − $83,600 = $418,000; ($418,000 + $236,000)/(1 − 0.6) = $1,635,000. 134) C Fixed costs = $1,200,000 × (1 − 0.6) − $80,000 = $400,000; ($400,000 + $200,000)/(1 − 0.6) = $1,500,000. 135) A Fixed costs = $1,254,000 × (1 − 0.6) − $83,600 = $418,000; $418,000/(1 − 0.6) = $1,045,000; $1,254,000 − 1,045,000 = $209,000. 136) A Fixed costs = $1,200,000 × (1 − 0.6) − $80,000 = $400,000; $400,000/(1 − 0.6) = $1,000,000; $1,200,000 − $1,000,000 = $200,000. 137) A (1 − 0.55)TR − $205,000 = (1 − 0.30)TR − $380,000; $175,000 = 0.25TR; TR = $700,000. 138) A (1 − 0.6)TR − $125,000 = (1 − 0.3)TR − $200,000; $75,000 = 0.3TR; TR = $250,000. 139) C $222,000/(1 − 0.3) = $317,143. 140) C Version 1

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$200,000/(1 − 0.3) = $285,714. 141) B $195,000/(1 − 0.70) = $650,000. 142) B $125,000/(1 − 0.6) = $312,500. 143) A 0.30TR − $154,000 = 0.70TR − $340,000; $186,000 = 0.4TR; TR = $465,000. 144) A 0.35TR − $250,000 = 0.65TR − $400,000; $150,000 = 0.3TR; TR = $500,000. 145) D 146) C Fixed costs = ($2,200,000 × 0.35) − $175,000 = $595,000; $595,000/0.35 = $1,700,000. 147) C Fixed costs = ($2,200,000 × 0.3) − $180,000 = $480,000; $480,000/0.3 = $1,600,000. 148) C Fixed costs = ($2,300,000 × 0.30) − $165,000 = $525,000; ($525,000 + $262,500)/0.30 = $2,625,000. 149) C Fixed costs = ($2,200,000 × 0.3) − $180,000 = $480,000; ($480,000 + $240,000)/0.3 = $2,400,000. 150) B Fixed costs = ($2,800,000 × 0.40) − $190,000 = $930,000; $930,000/0.40 = $2,325,000; $2,800,000 − $2,325,000 = $475,000. 151) B Fixed costs = ($2,200,000 × 0.3) − $180,000 = $480,000; $480,000/0.3 = $1,600,000; $2,200,000 − $1,600,000 = $600,000. Version 1

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152) B CM = ($140,000 − $44,000) + ($240,000 − $144,000) + ($240,000 − $97,200) = $334,800. CM% = $334,800/$620,000 = 54%. BE = $240,000/0.54 = $444,444. 153) B CM = ($100,000 − $40,000) + ($200,000 − $140,000) + ($200,000 − $80,000) = $240,000. CM% = $240,000/$500,000 = 48%. BE = $200,000/0.48 = $416,667. 154) A CM = ($120,000 − $42,000) + ($220,000 − $142,000) + ($220,000 − $124,000) = $252,000. CM% = $252,000/$560,000 = 45%. BE = $220,000/0.45 = $488,889; $560,000 − $488,889 = $71,111. 155) A CM = ($100,000 − $40,000) + ($200,000 − $140,000) + ($200,000 − $80,000) = $240,000. CM% = $240,000/$500,000 = 48%. BE = $200,000/0.48 = $416,667; $500,000 − $416,667 = $83,333. 156) C CM = ($250,000 − $55,000) + ($350,000 − $210,000) + ($350,000 − $124,500) = $560,500. CM% = $560,500/$950,000 = 59%. ($350,000 + $225,000)/0.59 = $974,576. 157) C CM = ($100,000 − $40,000) + ($200,000 − $140,000) + ($200,000 − $80,000) = $240,000. CM% = $240,000/$500,000 = 48%. ($200,000 + $150,000)/0.48 = $729,167. Version 1

161

158) A Contribution Income Statement Current versus Changes 1 Volume 3,700 Sales $ 314,500 2 Variable costs 240,500 Contribution margin 74,000 Fixed costs 26,000 Operating profit

$ 48,000

2,590 $ 220,150 185,185 34,965 26,000 $ 8,965

New sales volume: 3,700 units × 70% = 2,590. 2 New variable costs: $65 × 110% = $71.50. Decrease in operating profit = $48,000 − $8,965 = $39,035. 159) A Contribution Income Statement Current versus Changes 1 Volume 3,000 Sales $ 210,000 2 Variable costs 150,000 Contribution margin 60,000 Fixed costs 25,000 Operating profit

$ 35,000

2,250 $ 157,500 129,375 28,125 25,000 $ 3,125

New sales volume: 3,000 units × 75% = 2,250. New variable costs: $50 × 115% = $57.50. Decrease in operating profit = $35,000 − $3,125 = $31,875. 160) A 2

Sales in dollars (a) Contribution margin ratio (b) Contribution margin (a) × (b)

Product A

Product B

Product C

Total

$ 39,000 40%

$ 59,000 42%

$ 119,000 44%

$ 217,000 43%

$ 15,600

$ 24,780

$ 52,360

$ 92,740

Product A

Product B

Product C

Total

$ 20,000 45%

$ 40,000 40%

$ 100,000 15%

$ 160,000 25%

161) A Sales in dollars (a) Contribution margin

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162

ratio (b) Contribution margin (a) × (b)

$ 9,000

$ 16,000

$ 15,000

$ 40,000

162) C 163) C 164)(a) [($50 − $24 − $6) × 30,000] − ($360,000 + $80,000) = $160,000. (b) $440,000/$20 = 22,000 units. (c) ($440,000 + $180,000)/$20 = 31,000 units. 165)(a) [($125 − $75) × 7,500] − $180,000 = $195,000. (b) {[($125 × 85%) − $75] × $7,500} − 180,000 = $54,375; [($125 − $75) − $180,000] − $54,375 = $140,625 (or 72%) decrease. (c) {[$125 − ($75 × 115%)] × 7,500] − 180,000} = $110,625 × (1 − 0.38) = $68,587.50 166)(a) [($50 − $24 − $6) × 33,000] − [($12 + $3) × 33,000] = $165,000. (b) $495,000/[($50 − $30)/$50] = $1,237,500. (c) ($495,000 + $275,000)/0.4 = $1,925,000. 167)(a) [($25 − $12 − $3) × 25,000] − ($180,000 + $40,000) = $30,000. (b)$220,000/$10 = 22,000 units. (c)22,000 × $25 = $550,000. (d)($220,000 + $80,000)/$10 = 30,000 units. (e)($220,000 + $75,000)/$10 = 29,500 units × $25 = $737,500. Version 1

163

168) Sales (5,700 units × $54) Variable costs (5,700 units × $30) Contribution margin Fixed costs

$ 307,800 171,000 136,800 105,300

Operating profit

$ 31,500

169) Sales (4,500 units × $23) Variable costs (4,500 units × $9) Contribution margin Fixed costs

$ 103,500 40,500 63,000 46,000

Operating profit

$ 17,000

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164

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Differential analysis involves the comparison of one or more alternative courses of action with the status quo. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 1 Easy Learning Objective : 04-01 Use differential analysis to analyze decisions. Topic : Differential Analysis Gradable : automatic Bloom's : Remember Accessibility : Screen Reader Compatible

2) If there is only one alternative course of action and the status quo is unacceptable, then there really is no decision to make. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Learning Objective : 04-01 Use differential analysis to analyze decisions. Topic : Differential Analysis Gradable : automatic Difficulty : 2 Medium Accessibility : Screen Reader Compatible

A decision must involve at least two alternative courses of action. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 1 Easy Learning Objective : 04-01 Use differential analysis to analyze decisions. Topic : Differential Analysis Gradable : automatic Bloom's : Remember Accessibility : Screen Reader Compatible

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). ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Learning Objective : 04-01 Use differential analysis to analyze decisions. Topic : Differential Analysis Gradable : automatic Difficulty : 2 Medium Accessibility : Screen Reader Compatible

Short-run decisions often have long-run implications. ⊚ true ⊚ false

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Only variable costs can be differential costs. ⊚ true ⊚ false

Fixed costs are always classified as sunk costs in differential cost analysis. ⊚ true ⊚ false

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8) The full-cost fallacy occurs when a decision maker fails to include fixed manufacturing overhead in the product's cost. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Topic : Differential Analysis and Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

9) When deciding whether or not to accept a special order, a decision maker should focus on differential costs instead of full costs. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Topic : Differential Analysis and Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Topic : Differential Analysis and Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

11) Target costs equal the difference between the target selling price and the desired profit margin. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Topic : Long-Run Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-03 Apply several approaches for establishing prices based on costs for long-r

12) Dumping occurs when a company exports its product to consumers in another country at an export price that is below the domestic price. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 1 Easy Gradable : automatic Bloom's : Remember AICPA : BB Legal Topic : Legal Issues Relating to Costs and Sales Prices Accessibility : Screen Reader Compatible Learning Objective : 04-03 Apply several approaches for establishing prices based on costs for long-r

13) Price discrimination is the practice of selling identical goods or services to different customers at different prices. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 1 Easy Gradable : automatic Bloom's : Remember AICPA : BB Legal Topic : Legal Issues Relating to Costs and Sales Prices Accessibility : Screen Reader Compatible Learning Objective : 04-03 Apply several approaches for establishing prices based on costs for long-r

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Topic : Legal Issues Relating to Costs and Sales Prices AICPA : BB Industry Accessibility : Screen Reader Compatible Learning Objective : 04-03 Apply several approaches for establishing prices based on costs for long-r

15) The alternative courses of action in a make-or-buy decision are to manufacture needed items internally or purchase needed items externally. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Topic : Use of Differential Analysis for Production Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

16) The reason opportunity costs are not included in the accounting system is because they involve estimates. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

17) Financial statements prepared in accordance with generally accepted accounting principles (GAAP) provide differential cost information. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

18) In the short-run, plant capacity is fixed and product choices have to be made that optimize the use of available capacity. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Topic : Use of Differential Analysis for Production Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

19) With constrained resources, the important measure of profitability is the contribution margin per unit of scarce resource. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Topic : Use of Differential Analysis for Production Decisions Topic : The Theory of Constraints Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Topic : The Theory of Constraints Accessibility : Screen Reader Compatible Learning Objective : 04-05 Understand and apply the theory of constraints.

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 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.

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Learning Objective : 04-01 Use differential analysis to analyze decisions. Topic : Differential Analysis Gradable : automatic Difficulty : 2 Medium Accessibility : Screen Reader Compatible

23)

Differential costs are: (CMA adapted)

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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 the choices in the question 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Topic : Differential Analysis and Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

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25)

Which of the following statements regarding differential costs is false?

A) The full-cost fallacy occurs when a decision maker fails to include fixed manufacturing overhead in the product's cost. B) By considering fixed costs in short-run differential analysis, a decision maker might be including irrelevant information. C) Full product cost includes variable costs of producing and selling products as well as a share of the organization’s fixed costs. D) The full-cost fallacy is a common mistake in short-run decisions but not long-run decisions.

26) Which of the following costs are irrelevant for a special order, which 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

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27)

Which of the following statements regarding special orders is 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 overpricing in the long run because fixed costs are included in the analysis. C) Special orders are usually long-term commitments that impact other sales. D) Special orders are usually short-run occurrences and must include full product costs in the analysis.

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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 26,000 utensils at $0.75 each. Arthur sells its utensils wholesale for $0.86 each; the average cost per unit is $0.81, of which $0.10 is fixed costs. If Arthur were to accept Benton's offer, what would be the increase in Arthur's operating profits? A) $1,300. B) $1,040. C) $1,560. D) $2,860.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Difficulty : 3 Hard Topic : Differential Analysis and Pricing Decisions Type : Algorithmic Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

29) 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Difficulty : 3 Hard Topic : Differential Analysis and Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

30) 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%)

$ 9 4 5 18 9

Target selling price

$ 27

The above cost information is based on 5,500 units. A foreign distributor has offered to buy 2,500 units at a price of $20 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) $2,500. B) $4,000. C) $5,000. D) $10,000.

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31) 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%)

$ 6 3 5 14 7

Target selling price

$ 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.

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32) The following information relates to the Magna Company for the upcoming year, based on 480,000 units. Amount

Per Unit

Sales Cost of goods sold Gross margin Operating expenses

$ 4,800,000 3,840,000 960,000 360,000

$ 10.00 8.00 2.00 0.75

Operating profits

$ 600,000

$ 1.25

The cost of goods sold includes $1,440,000 of fixed manufacturing overhead; the operating expenses include $120,000 of fixed marketing expenses. A special order offering to buy 82,000 units for $9.10 per unit has been made to Magna. Fortunately, there will be no additional fixed expenses associated with the order and Magna has sufficient capacity to handle the order. How much will operating profits be increased if Magna accepts the special order? Note: Round your answer to the nearest whole dollar. A) $220,200. B) $257,700. C) $295,200. D) $320,200.

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33) The following information relates to the Magna Company for the upcoming year, based on 400,000 units. Amount

Per Unit

Sales Cost of goods sold Gross margin Operating expenses

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

$ 10.00 8.00 2.00 0.75

Operating profits

$ 500,000

$ 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 fixed 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.

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34)

The following information relates to a product produced by Faulkland Company:

Direct materials Direct labor Variable overhead Fixed overhead

$ 15 12 11 13

Unit cost

$ 51

Fixed selling costs are $1,150,000 per year. Variable selling costs of $4 per unit sold are added to cover the transportation costs. Although production capacity is 650,000 units per year, Faulkland expects to produce only 550,000 units next year. The product normally sells for $60 each. A customer has offered to buy 75,000 units for $50 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) $75,000 increase. B) $600,000 increase. C) $900,000 increase. D) $750,000 decrease.

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35)

The following information relates to a product produced by Faulkland Company:

Direct materials Direct labor Variable overhead Fixed overhead

$ 10 7 6 8

Unit cost

$ 31

Fixed selling costs are $1,000,000 per year. Variable selling costs of $4 per unit sold are added to cover the transportation costs. 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.

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36)

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.

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37) Park Corporation is preparing a bid for a special order that would require 860 liters of material SUN100. The company already has 640 liters of this raw material in stock that originally cost $7.70 per liter. Material SUN100 is used in the main product of the company and is replenished on a regular basis. The resale value of the existing stock of the material is $6.50 per liter. New stocks of the material can be readily purchased for $8.05 per liter. What is the relevant cost of the 860 liters of the raw material when deciding how much to bid on the special order? (CMA adapted) A) $6,699. B) $6,923. C) $6,358. D) $5,590.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply AICPA : FN Measurement Difficulty : 3 Hard Topic : Differential Analysis and Pricing Decisions Type : Algorithmic Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

38) 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 main product of the company and is replenished on a regular 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? (CMA adapted) A) $4,592. B) $4,788. C) $4,456. D) $4,176.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply AICPA : FN Measurement Difficulty : 3 Hard Topic : Differential Analysis and Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

39) Tori Incorporated has some material that originally cost $68,600. The material has a scrap value of $30,200 'as is', but if reworked at a cost of $1,450, it could be sold for $30,900. 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? (CMA adapted) A) $(69,350) B) $(750) C) $29,450 D) $(39,150)

40) Tori Incorporated 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? (CMA adapted) Version 1

A) $(69,100) B) $(700) C) $29,400 D) $(39,000)

41) 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 6,330 units of Rocket. Each unit of Rocket requires 8 units of material CES4 and 6 units of material XES7. Data concerning these two materials follows: Material CES4 XES7

Units in Stock 45,420 32,360

Original Cost Per Unit $ 4.06 $ 9.56

Current Market Price Per Unit $ 4.00 $ 10.25

Disposal Value Per Unit $ 3.36 $ 9.00

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? (CMA adapted) A) $595,501 B) $590,230 C) $543,300 D) $551,405

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42) 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 Rocket. Each unit of Rocket requires 8 units of material CES4 and 6 units of material XES7. Data concerning these two materials follows: Material CES4 XES7

Units in Stock 32,420 31,060

Original Cost Per Unit $ 3.80 $ 9.30

Current Market Disposal Value Price Per Unit Per Unit $ 3.35 $ 3.10 $ 9.60 $ 8.35

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43) Alpha Incorporated regularly uses material FLAV4 and currently has in stock 640 liters of the material for which it paid $2,838 several weeks ago. If this were to be sold as is on the open market as surplus material, it would fetch $5.35 per liter. New stocks of the material can be purchased on the open market for $5.70 per liter, but it must be purchased in lots of 1,350 liters. You have been asked to determine the relevant cost of 1,100 liters of the material to be used in a job for a customer. The relevant cost of the 1,100 liters of material FLAV4 is: (CMA adapted) A) $7,695. B) $5,885. C) $6,046. D) $6,270.

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44) Alpha Incorporated 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: (CMA adapted) A) $5,850. B) $4,200. C) $4,404. D) $4,680.

45) 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 4,350 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 follows: Material OX8 POW6

Units in Stock 33,600 39,780

Original Cost Per Unit $ 3.90 $ 3.50

Current Market Disposal Value Price Per Unit Per Unit $ 4.45 $ 3.65 $ 3.55 $ 2.40

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? (CMA adapted)

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A) $201,285. B) $253,575. C) $210,105. D) $266,835.

46) 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 follows: Material OX8 POW6

Units in Stock 18,600 38,280

Original Cost Per Unit $ 3.60 $ 3.20

Current Market Disposal Value Price Per Unit Per Unit $ 3.70 $ 3.35 $ 2.80 $ 1.65

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47) Tara Incorporated is considering using stocks of an old raw material in a special project. The special project would require all 520 kilograms of the raw material that are in stock and that originally cost the company $3,640 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 $165 for all 520 kilograms. What is the relevant cost of the 520 kilograms of the raw material when deciding whether to proceed with the special project? (CMA adapted) A) $3,380 B) $3,215 C) $3,640 D) $3,770

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48) Tara Incorporated 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? (CMA adapted) A) $1,040 B) $965 C) $1,136 D) $1,160

49) Which of the following costs are not considered in a differential analysis for a make-orbuy 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Understand Gradable : automatic Difficulty : 2 Medium AICPA : FN Measurement Topic : Differential Analysis and Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

50) The Crispy Baking Company is considering the expansion of its business into door-todoor delivery service. This would require an additional $13,300 in labor costs per month. Company-owned 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 $5,800 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 $6,700 fixed vehicle costs. What is the differential delivery cost per month for expanding into the home delivery market? A) $13,300. B) $19,100. C) $21,710. D) $22,115.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

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51) The Crispy Baking Company is considering the expansion of its business into door-todoor delivery service. This would require an additional $12,500 in labor costs per month. Company-owned 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions Difficulty : 3 Hard Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

52) 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 1 Easy Topic : Differential Analysis Gradable : automatic Bloom's : Remember Accessibility : Screen Reader Compatible Learning Objective : 04-03 Apply several approaches for establishing prices based on costs for long-r

53) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Topic : Long-Run Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-03 Apply several approaches for establishing prices based on costs for long-r

54) The practice of setting the selling price below cost with the intent to drive competitors out of business is:

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A) predatory pricing. B) target pricing. C) target costing. D) peak-load pricing.

55) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Topic : Legal Issues Relating to Costs and Sales Prices Accessibility : Screen Reader Compatible Learning Objective : 04-03 Apply several approaches for establishing prices based on costs for long-r

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56)

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.

57)

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.

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58)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Topic : Long-Run Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-03 Apply several approaches for establishing prices based on costs for long-r

59) The operations of Bridgeton Corporation are divided into the Adams Division and the Carter Division. Projections for the next year are as follows: Adams Division Carter Division Sales Variable costs Contribution margin

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$ 640,000 212,000 $ 428,000

$ 362,000 170,000 $ 192,000

Total $ 1,002,000 382,000 $ 620,000

Direct fixed costs Segment margin Allocated common costs

184,000 $ 244,000 95,000

156,000 $ 36,000 79,000

340,000 $ 280,000 174,000

Operating income (loss)

$ 149,000

$ (43,000)

$ 106,000

Operating income for Bridgeton Corporation as a whole if the Carter Division were dropped would be: A) $192,000. B) $149,000. C) $106,000. D) $70,000.

60) The operations of Bridgeton Corporation are divided into the Adams Division and the Carter Division. Projections for the next year are as follows: Adams Division Carter Division

Total

Sales Variable costs Contribution margin Direct fixed costs Segment margin Allocated common costs

$ 560,000 196,000 $ 364,000 168,000 $ 196,000 84,000

$ 336,000 154,000 $ 182,000 140,000 $ 42,000 63,000

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

Operating income (loss)

$ 112,000

$ (21,000)

$ 91,000

Operating income for Bridgeton Corporation as a whole if the Carter Division were dropped would be:

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A) $133,000. B) $112,000. C) $91,000. D) $49,000.

61) Damon Industries manufactures 24,000 components per year. The manufacturing costs of the components were determined as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead

$ 120,000 164,000 64,000 84,000

An outside supplier has offered to sell the component for $16. If Damon purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $10,400. If Damon purchases the component from the supplier instead of manufacturing it, the effect on operating profits would be a: A) $89,600 increase. B) $37,600 decrease. C) $25,600 decrease. D) $46,400 increase.

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62) Damon Industries manufactures 20,000 components per year. The manufacturing costs of the components were 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.

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63)

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

Product 2

5,850 $ 20 14

11,900 $ 18 13

The company's fixed costs totaled $89,000, of which $16,900 can be directly traced to Product 1 and $41,900 can be directly traced to Product 2. The effect on the firm's profits if Product 2 is dropped would be a: A) $17,600 increase. B) $42,600 increase. C) $42,600 decrease. D) $17,600 decrease.

64)

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

Product 2

4,000 $ 15 9

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:

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A) $10,000 increase. B) $35,000 increase. C) $35,000 decrease. D) $10,000 decrease.

65) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Topic : Use of Differential Analysis for Production Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

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66) AirStep Shoe Company has two retail stores, one in Gainesville and the other in Orlando. The Gainesville store had sales of $170,000, a contribution margin of 35 percent, and a segment margin of $15,400. The company's two stores have total sales of $390,000, contribution margin of 32 percent, and a total segment margin of $33,800. The contribution margin for the Orlando store must have been: A) $110,500. B) $265,200. C) $154,700. D) $65,300.

67) 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.

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68) 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

East

46,000 $ 6 3 64,000 56,000

35,000 $ 13 3 126,000 56,000

Common fixed expenses have been allocated equally to each of the two divisions. Carter's segment margin for the West Division is: A) $138,000. B) $74,000. C) $46,000. D) $82,000.

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69) 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

East

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

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.

70) Ortega Industries manufactures 19,550 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

$ 176,000 370,000 103,000 250,000

Total

$ 899,000

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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) $15,700 decrease. B) $15,700 increase. C) $47,100 decrease. D) $47,100 increase.

71) 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

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

Total

$ 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.

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72) Ortega Industries manufactures 16,050 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

$ 156,000 270,000 93,000 150,000

Total

$ 669,000

Assume Ortega Industries could avoid $55,000 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) $169,800 increase. B) $28,300 increase. C) $283,000 decrease. D) $396,200 increase.

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73) 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

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

Total

$ 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.

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74) 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

Stargate Division $ 560,000 192,000 $ 368,000 162,000 $ 206,000 91,000

Cosmos Division $ 382,000 212,000 $ 170,000 137,000 $ 33,000 67,000

Total $ 942,000 404,000 $ 538,000 299,000 $ 239,000 158,000

Operating Income (Loss)

$ 115,000

$ (34,000)

$ 81,000

Operating income for Ranger Corporation, as a whole, if the Cosmos Division were dropped would be A) $48,000. B) $81,000. C) $115,000. D) $149,000.

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75) 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

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

Cosmos Division $ 360,000 200,000 $ 160,000 125,000 $ 35,000 55,000

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

Operating Income (Loss)

$ 100,000

$ (20,000)

$ 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.

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76) 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:

Sales Variable costs Fixed costs Operating profits Unit sales

Government Products Outside Customers Division $ 69,000 $ 148,000 (11,800) (23,600) (12,000) (24,000) $ 45,200

$ 100,400

11,800

23,600

The Government Products Division has an opportunity to purchase 11,800 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 $1,950. B) Yes; buying the hammers will save Excel $1,950. C) No; making the hammers will save Excel $2,950. D) Yes; buying the hammers will save Excel $2,950.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions Difficulty : 3 Hard Bloom's : Analyze Type : Algorithmic Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

77) 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:

Sales Variable costs Fixed costs

Government Products Outside Customers Division $ 15,000 $ 40,000 (10,000) (20,000) (3,000) (6,000)

Operating profits

$ 2,000

$ 14,000

Unit sales

10,000

20,000

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.

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78) The Camel Company produces 10,100 units of item Roto 454 annually at a total cost of $194,000. Direct materials Direct labor Variable overhead Fixed overhead

$ 21,000 56,000 46,000 71,000

Total

$ 194,000

The Yukon Company has offered to supply 10,100 units of Roto 454 per year for $16 per unit. If Camel accepts the offer, $3 per unit of the fixed overhead would be saved. In addition, some of Camel's facilities could be rented to a third party for $15,100 per year. What are the relevant costs for the "make" alternative? A) $153,300. B) $146,500. C) $168,400. D) $167,500.

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79) 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

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

Total

$ 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. What are the relevant costs for the "make" alternative? A) $160,000. B) $165,000. C) $175,000. D) $185,000.

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80) The Camel Company produces 11,200 units of item Roto 454 annually at a total cost of $212,800. Direct materials Direct labor Variable overhead Fixed overhead

$ 22,400 61,600 50,400 78,400

Total

$ 212,800

The Yukon Company has offered to supply 11,200 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 $23,520 per year. At what price would Camel be indifferent to Yukon's offer? A) $17.60. B) $18.10. C) $19.10. D) $20.10.

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81) 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

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

Total

$ 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.

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82) For the past five years, the Major Company has produced and sold electronic magnets to chemistry labs throughout the United States. Recently, a strong competitor has entered the market and Major 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: 1. (A) The machinery used to produce the magnet was purchased five years ago for $500,000. 2. (B) Four of the employees who produce magnets would be reassigned to the magnifying glass division. 3. (C) The space now used to produce the magnets would be used to eliminate the need to rent warehouse space. 4. (D) Sales volume (units) is estimated to drop by 50% once the competitor becomes fully operational. Which of the items listed above 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Topic : Use of Differential Analysis for Production Decisions Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

83) Which of the following statements about the theory of constraints is (are) correct? 1. (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. 2. (B) The theory of constraints focuses on the rate of throughput contribution and minimizing investment and other operating costs.

A) Only A is true. B) Only B is true. C) A and B are both false. D) A and B are both true.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Topic : The Theory of Constraints Accessibility : Screen Reader Compatible Learning Objective : 04-05 Understand and apply the theory of constraints.

84)

The theory of constraints focuses on minimizing all of the following except:

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A) selling expenses per unit sold. B) production bottlenecks. C) investment in buildings. D) investment in inventories.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Topic : The Theory of Constraints Accessibility : Screen Reader Compatible Learning Objective : 04-05 Understand and apply the theory of constraints.

85) The Widner Company manufactures two products: Stainless Serving Spoons and Stainless Serving Forks. The costs and revenues are as follows: Sales price Variable cost per unit

Spoons

Forks

$ 150 80

$ 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 A. B. C. D.

14,000 8,307 10,800 5,400

Forks 0 4,154 0 9,000

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions Topic : The Theory of Constraints Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

86) Morgan Incorporated 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

Product 2

Product 3

$ 15.00 3

$ 18.00 2

$ 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Topic : Use of Differential Analysis for Production Decisions Topic : The Theory of Constraints Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

87) Xenos Incorporated 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

Product Y

Product Z

$ 20.00 2

$ 21.00 3

$ 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Topic : Use of Differential Analysis for Production Decisions Topic : The Theory of Constraints Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

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88) The Garrison Company manufactures two products: Oxy Cleaner and Sonic Cleaner. The costs and revenues are as follows: Oxy Cleaner Sales Price Variable cost per unit

$ 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. How many units of Oxy and Sonic should Garrison produce? Oxy Cleaner A. B. C. D.

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Topic : Use of Differential Analysis for Production Decisions Topic : The Theory of Constraints Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

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89) The Garrison Company manufactures two products: Oxy Cleaner and Sonic Cleaner. The costs and revenues are as follows: Oxy Cleaner Sales Price Variable cost per unit

$ 75 45

Sonic Cleaner $ 44 23

Total demand for Oxy is 11,000 units and for Sonic is 7,000 units. Machine time is a scarce resource. During the year, 60,000 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) $465,750. B) $1,133,000. C) $477,000. D) $954,000.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions Topic : The Theory of Constraints Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

90) The Garrison Company manufactures two products: Oxy Cleaner and Sonic Cleaner. The costs and revenues are as follows: Oxy Cleaner Sales Price Variable cost per unit

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$ 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions Topic : The Theory of Constraints Difficulty : 3 Hard Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

91) Zantaq Incorporated 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

Bookcases

Chairs

Side Tables

$ 15.00 3

$ 18.00 2

$ 7.50 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 A. B. C. D.

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2,000 0 0 1,800

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Topic : Use of Differential Analysis for Production Decisions Topic : The Theory of Constraints Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

92) Zantaq Incorporated has 5,500 machine hours available each month. The following information on the company's three products is available: Contribution margin per unit Machine hours per unit

Bookcases

Chairs

Side Tables

$ 45.00 3

$ 38.00 2

$ 17.50 1

The market demand is limited to 2,100 units of each of the three products. What is the maximum possible contribution margin that Zantaq could make in any month? A) $137,050. B) $102,550. C) $99,050. D) $107,050.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions Topic : The Theory of Constraints Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

93) Zantaq Incorporated 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

Bookcases

Chairs

Side Tables

$ 15.00 3

$ 18.00 2

$ 7.50 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions Topic : The Theory of Constraints Difficulty : 3 Hard Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

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94) Warrior Incorporated 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

Product X

Product Y

Product Z

$ 20.00

$ 21.00

$ 17.50

$ 15.00

$ 10.00

$ 9.00

$ 7.50

$ 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Topic : Use of Differential Analysis for Production Decisions Topic : The Theory of Constraints Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

95) The Tire Division of Traker Company produces tires for off-road sport vehicles. Onethird 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: Internal

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Outside

Sales Variable costs Fixed costs

$ 180,000 120,000 40,000

$ 480,000 240,000 80,000

Operating profits

$ 20,000

$ 160,000

12,000

24,000

Unit sales

The internal division has an opportunity to purchase 12,000 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 $18,000. B) Yes; buying the tires will save Traker $18,000. C) No; making the tires will save Traker $36,000. D) Yes; buying the tires will save Traker $36,000.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions Difficulty : 3 Hard Bloom's : Analyze Type : Algorithmic Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

96) The Tire Division of Traker Company produces tires for off-road sport vehicles. Onethird 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: Internal

Outside

Sales Variable costs Fixed costs

$ 150,000 100,000 30,000

$ 400,000 200,000 60,000

Operating profits

$ 20,000

$ 140,000

10,000

20,000

Unit sales

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

97) The Tire Division of Traker Company produces tires for off-road sport vehicles. Onethird 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: Internal Sales Variable costs Fixed costs

Outside

$ 234,000 193,800 34,200

$ 570,000 387,600 68,400

Operating profits

$ 6,000

$ 114,000

Unit sales

11,400

22,800

The internal division has an opportunity to purchase 11,400 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 maximum selling price that Tire should be willing to pay an outside supplier?

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A) $17.00. B) $20.00. C) $22.00. D) $85.00.

98) The Tire Division of Traker Company produces tires for off-road sport vehicles. Onethird 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: Internal

Outside

Sales Variable costs Fixed costs

$ 150,000 100,000 30,000

$ 400,000 200,000 60,000

Operating profits

$ 20,000

$ 140,000

10,000

20,000

Unit sales

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 maximum selling price that Tire should be willing to pay an outside supplier? A) $10.00. B) $13.00. C) $15.00. D) $50.00.

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99) The Bogart Company produces 5,400 units of item SLM 46 annually at a total cost of $216,000. Direct materials Direct labor Variable overhead Fixed overhead

$ 21,600 59,400 48,600 86,400

Total

$ 216,000

The Conner Company has offered to supply all 5,400 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 $32,400 per year. What are the relevant costs for the "make" alternative? A) $135,200. B) $190,200. C) $205,200. D) $215,200.

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100) 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

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

Total

$ 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. What are the relevant costs for the "make" alternative? A) $120,000. B) $175,000. C) $190,000. D) $200,000.

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101) The Bogart Company produces 8,000 units of item SLM 46 annually at a total cost of $320,000. Direct materials Direct labor Variable overhead Fixed overhead

$ 32,000 88,000 72,000 128,000

Total

$ 320,000

The Conner Company has offered to supply all 8,000 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 $288,000 per year. At what price would Bogart be indifferent to Conner's offer? A) $70. B) $68. C) $65. D) $54.

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102) 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

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

Total

$ 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.

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103) The Rapid Delivery Service is considering the expansion of its business into an afternoon retail delivery service. This would require an additional $43,000 in labor costs per month. Company-owned 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 $11,800 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 40% of the existing $14,800 fixed vehicle costs. What is the differential delivery cost per month for expanding into the retail delivery market? A) $43,000. B) $54,800. C) $59,520. D) $60,720.

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104) 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. Company-owned 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.

105) 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 15,000 tools at $1.80 each. Lamar sells its tools wholesale for $1.90 each; the average cost per unit is $1.88, of which $0.32 is fixed costs. If Lamar were to accept Boston's offer, what would be the increase in Lamar's operating profits? A) $1,200. B) $1,500. C) $3,600. D) $5,100.

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106) 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

107) The Young Company has gathered the following information for a unit of its most popular product: Direct materials

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$ 11

Direct labor Overhead (40% variable) Cost to manufacture Desired markup (50%)

6 15 32 16

Target selling price

$ 48

The above cost information is based on 11,900 units. A distributor has offered to buy 2,500 units at a price of $36 per unit. This special order would not disturb regular sales. Special packaging and other selling expenses would be an additional $0.40 per unit for the special order. If the special order is accepted, Young's operating profits will increase by: A) $7,500. B) $9,000. C) $10,000. D) $31,500.

108) 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%)

$ 12 6 10 28 14

Target selling price

$ 42

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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.

109) 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%)

$ 14 6 10 30 15

Target selling price

$ 45

The above cost information is based on 11,800 units. A distributor has offered to buy 2,100 units at a price of $34 per unit. The distributor claims this special order would not disturb regular sales at $45. Special packaging and other selling expenses would be an additional $0.60 per unit for the special order. How many units of regular sales could be lost before this contract is not profitable?

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A) 0 units. B) 940 units. C) 1,050 units. D) 2,100 units.

110) 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%)

$ 12 6 10 28 14

Target selling price

$ 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

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111) The following information relates to the Jasmine Company for the upcoming year, based on 428,000 units: Amount

Per Unit

Sales Cost of goods sold Gross margin Operating expenses

$ 8,560,000 6,848,000 1,712,000 642,000

$ 20.00 16.00 4.00 1.50

Operating profits

$ 1,070,000

$ 2.50

The cost of goods sold includes $2,268,400 of fixed manufacturing overhead; the operating expenses include $214,000 of fixed marketing expenses. A special order offering to buy 78,000 units for $20.60 per unit has been made to Jasmine. Fortunately, there will be no additional fixed costs 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) $78,000 B) $195,000 C) $694,200 D) $390,000

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112) The following information relates to the Jasmine Company for the upcoming year, based on 400,000 units: Amount

Per Unit

Sales Cost of goods sold Gross margin Operating expenses

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

$ 20.00 16.00 4.00 1.50

Operating profits

$ 1,000,000

$ 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 fixed costs 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Topic : Differential Analysis Gradable : automatic Bloom's : Apply Difficulty : 3 Hard Topic : Differential Analysis and Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

113) The following information relates to the Jasmine Company for the upcoming year, based on 404,000 units: Amount

Per Unit

Sales Cost of goods sold Gross margin Operating expenses

$ 8,080,000 6,464,000 1,616,000 606,000

$ 20.00 16.00 4.00 1.50

Operating profits

$ 1,010,000

$ 2.50

The cost of goods sold includes $2,383,600 of fixed manufacturing overhead; the operating expenses include $202,000 of fixed marketing expenses. A special order offering to buy 54,000 units for $15.80 per unit has been made to Jasmine. Fortunately, there will be no additional fixed 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) $54,000. B) $135,000. C) $270,000. D) Operating profits will not increase as a result of accepting the special order.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 3 Hard Bloom's : Analyze Topic : Differential Analysis and Pricing Decisions Type : Algorithmic Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

114) The following information relates to the Jasmine Company for the upcoming year, based on 400,000 units: Amount

Per Unit

Sales Cost of goods sold Gross margin Operating expenses

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

$ 20.00 16.00 4.00 1.50

Operating profits

$ 1,000,000

$ 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 fixed 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 3 Hard Bloom's : Analyze Topic : Differential Analysis and Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

115)

The following information relates to a product produced by Orca Company:

Direct materials Direct labor Variable overhead Fixed overhead

$ 32 23 21 22

Unit cost

$ 98

Fixed selling costs are $1,600,000 per year. Although production capacity is 530,000 units per year, Orca expects to produce only 424,000 units next year. The product normally sells for $110 each. A customer has offered to buy 60,060 units for $90 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) $120,120 increase. B) $360,360 increase. C) $840,840 increase. D) $1,201,200 decrease.

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116)

The following information relates to a product produced by Orca Company:

Direct materials Direct labor Variable overhead Fixed overhead

$ 20 14 12 16

Unit cost

$ 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.

117) The operations of Winston Corporation are divided into the Blink Division and the Blur Division. Projections for the next year are as follows: Blink Division Blur Division Sales Variable costs Contribution margin

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$ 350,000 112,000 $ 238,000

$ 192,000 91,000 $ 101,000

Total $ 542,000 203,000 $ 339,000

Direct fixed costs Segment margin Allocated common costs

98,000 $ 140,000 53,000

84,000 $ 17,000 45,500

182,000 $ 157,000 98,500

Operating income (loss)

$ 87,000

$ (28,500)

$ 58,500

Operating income for Winston Corporation, as a whole, if the Blur Division were dropped would be: A) $115,500. B) $87,000. C) $58,500. D) $41,500.

118) The operations of Winston Corporation are divided into the Blink Division and the Blur Division. Projections for the next year are as follows: Blink Division Blur Division

Total

Sales Variable costs Contribution margin Direct fixed costs Segment margin Allocated common costs

$ 280,000 98,000 $ 182,000 84,000 $ 98,000 42,000

$ 168,000 77,000 $ 91,000 70,000 $ 21,000 31,500

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

Operating income (loss)

$ 56,000

$ (10,500)

$ 45,500

Operating income for Winston Corporation, as a whole, if the Blur Division were dropped would be:

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A) $66,500. B) $56,000. C) $45,500. D) $24,500.

119) The operations of Winston Corporation are divided into the Blink Division and the Blur Division. Projections for the next year are as follows: Blink Division Blur Division

Total

Sales Variable costs Contribution margin Direct fixed costs Segment margin Allocated common costs

$ 310,000 104,000 $ 206,000 90,000 $ 116,000 45,000

$ 180,000 83,000 $ 97,000 76,000 $ 21,000 37,500

$ 490,000 187,000 $ 303,000 166,000 $ 137,000 82,500

Operating income (loss)

$ 71,000

$ (16,500)

$ 54,500

If the Blur Division were dropped, Blink Division's sales would increase by 35%. If this happened, the operating income for Winston Corporation as a whole would be: A) $95,850. B) $71,000. C) $105,600. D) $73,575.

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120) The operations of Winston Corporation are divided into the Blink Division and the Blur Division. Projections for the next year are as follows: Blink Division Blur Division

Total

Sales Variable costs Contribution margin Direct fixed costs Segment margin Allocated common costs

$ 280,000 98,000 $ 182,000 84,000 $ 98,000 42,000

$ 168,000 77,000 $ 91,000 70,000 $ 21,000 31,500

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

Operating income (loss)

$ 56,000

$ (10,500)

$ 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.

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121) Which of the following statements regarding differential costs is (are) correct? 1. (A) The full-cost fallacy occurs when a decision maker includes fixed manufacturing overhead in the product's cost. 2. (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 is true. B) Only B is true. C) Both A and B are false. D) Both A and B are true.

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122) Which of the following statements regarding special orders is (are) correct? 1. (A) The primary decision for special orders is determining whether the differential revenue is greater than the differential costs associated with the order. 2. (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 is false. B) Only B is false. C) Both A and B are false. D) Both A and B are true.

123) Which of the following costs are not considered in a differential analysis for a make-orbuy 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Topic : Use of Differential Analysis for Production Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

124) 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: 1. (A) Sales volume (units) is estimated to drop by 25% once the competitor becomes fully operational. 2. (B) The equipment used to produce the meters was purchased five-years ago for $1,500,000. 3. (C) The space now used to produce the meters would be reallocated to eliminate the need to rent warehouse space. 4. (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.

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125) Which of the following statements about the theory of constraints is (are) correct? 1. (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. 2. (B) The theory of constraints focuses on maximizing the rate of throughput contribution while maximizing investment and other operating costs.

A) Only A is true. B) Only B is true. C) Both A and B are false. D) Both A and B are true.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Topic : The Theory of Constraints Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible Learning Objective : 04-05 Understand and apply the theory of constraints.

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126) 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.

Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement AACSB : Reflective Thinking Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

127)

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.

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Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Topic : The Theory of Constraints AACSB : Reflective Thinking Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

128) A study has been conducted to determine if Product A should be dropped. Sales of the product total $224,000 per year; variable expenses total $156,800 per year. Fixed expenses charged to the product total $100,800 per year. The company estimates that $44,800 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 $22,400 per year. B) increase by $22,400 per year. C) decrease by $11,200 per year. D) increase by $33,600 per year.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

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129) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Difficulty : 3 Hard Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

130) The King Company has two divisions—North and South. The divisions have the following revenues and expenses: North

South

Sales Variable expenses Traceable fixed expenses Allocated common corporate expenses

$ 970,000 464,000 274,000 268,000

$ 940,000 370,000 224,000 204,000

Net operating income (loss)

$ (36,000)

$ 142,000

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:

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A) $142,000. B) $178,000. C) $(126,000). D) $36,000.

131) The King Company has two divisions—North and South. The divisions have the following revenues and expenses: North

South

Sales Variable expenses Traceable fixed expenses Allocated common corporate expenses

$ 900,000 450,000 260,000 240,000

$ 800,000 300,000 210,000 190,000

Net operating income (loss)

$ (50,000)

$ 100,000

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132) 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 $11.60 each. The Parton plant has idle equipment that could be used to manufacture the headlights. The design engineer estimates that each headlight requires $4.15 of direct materials, $3.15 of direct labor, and $6.15 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) $(1.85). B) $1.84. C) $0.61. D) $2.91.

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133) 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.

134) Item I51 is used in one of Policy Corporation's products. The company makes 19,200 units of this item each year. The company's Accounting Department reports the following costs of producing Item 151 at this level of activity: Per Unit Direct materials Direct labor Variable manufacturing overhead Supervisor’s salary Depreciation of special equipment Allocated general overhead

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$ 1.50 $ 2.50 $ 3.60 $ 1.30 $ 3.00 $ 8.80

An outside supplier has offered to produce Item 151 and sell it to the company for $17.00 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 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 $28,400 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 $99,140 per year. B) Net operating income would decline by $70,740 per year. C) Net operating income would decline by $127,120 per year. D) Net operating income would decline by $42,340 per year.

135) 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: Per Unit Direct materials Direct labor Variable manufacturing overhead Supervisor’s salary Depreciation of special equipment Allocated general overhead

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$ 1.20 $ 2.20 $ 3.30 $ 1.00 $ 2.70 $ 8.50

100

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.

136) Liu Incorporated is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 14,000 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

$ 9.80 7.10 1.75 3.80

Unit product cost

$ 22.45

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101

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 $5.50 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? (CMA adapted) A) $25.20. B) $22.45. C) $19.79. D) $22.54.

137) Liu Incorporated 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

$ 8.80 5.80 1.60 3.60

Unit product cost

$ 19.80

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102

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.

138) Item N29 is used by Tyner Corporation to make one of its products. A total of 12,100 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: Per Unit Direct materials Direct labor Variable manufacturing overhead Supervisor’s salary Depreciation of special equipment Allocated general overhead

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$ 7.00 2.80 5.95 3.15 4.30 3.80

103

An outside supplier has offered to make Item N29 and sell it to the company for $25.60 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 $30,100 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 $47,040 per year. B) Net operating income would increase by $30,100 per year. C) Net operating income would decline by $50,970 per year. D) Net operating income would increase by $13,160 per year.

139) 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: Per Unit Direct materials Direct labor Variable manufacturing overhead Supervisor’s salary Depreciation of special equipment Allocated general overhead

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$ 5.90 1.70 5.40 2.60 3.20 3.30

104

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.

140) Bacon Company makes four products in a single facility. These products have the following unit product costs: Products Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost

A $ 14.95 20.05 4.95

B $ 10.85 28.05 3.35

C $ 11.65 34.25 3.25

D $ 11.25 41.05 3.85

27.15

35.45

27.25

37.85

$ 67.10

$ 77.70

$ 76.40

$ 94.00

Additional data concerning these products are listed below. Version 1

105

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

A 3.80 $ 76.75 $ 2.85

B 5.30 $ 94.15 $ 1.85

C 4.30 $ 88.05 $ 3.95

D 3.40 $ 104.85 $ 2.25

4,260

3,260

2,260

The grinding machines are the constraint in the production facility. A total of 54,900 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) 60,468 B) 44,150 C) 57,760 D) 14,040

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply AICPA : FN Measurement Topic : The Theory of Constraints Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible Learning Objective : 04-05 Understand and apply the theory of constraints.

141) Bacon Company makes four products in a single facility. These products have the following unit product costs: Products Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing

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A $ 14.30 19.40 4.30

B $ 10.20 27.40 2.70

C $ 11.00 33.60 2.60

D $ 10.60 40.40 3.20

26.50

34.80

26.60

37.20

106

overhead Unit product cost

$ 64.50

$ 75.10

$ 73.80

$ 91.40

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 $ 2.20

B 5.30 $ 93.50 $ 1.20

C 4.30 $ 87.40 $ 3.30

D 3.40 $ 104.20 $ 1.60

4,000

3,000

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply AICPA : FN Measurement Topic : The Theory of Constraints Difficulty : 3 Hard Accessibility : Screen Reader Compatible Learning Objective : 04-05 Understand and apply the theory of constraints.

142) Bacon Company makes four products in a single facility. These products have the following unit product costs: Products Direct materials Direct labor

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A $ 14.40 19.50

B $ 10.30 27.50

C $ 11.10 33.70

D $ 10.70 40.50 107

Variable manufacturing overhead Fixed manufacturing overhead Unit product cost

4.40

2.80

2.70

3.30

26.60

34.90

26.70

37.30

$ 64.90

$ 75.50

$ 74.20

$ 91.80

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 $ 76.20 $ 2.30

B 5.30 $ 93.60 $ 1.30

C 4.30 $ 87.50 $ 3.40

D 3.40 $ 104.30 $ 1.70

4,040

3,040

2,040

The grinding machines are the constraint in the production facility. A total of 53,800 minutes is available per month on these machines. Direct labor is a variable cost in this company. Which product makes the LEAST profitable use of the grinding machines? A) Product A B) Product B C) Product C D) Product D

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

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D 108

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead

$ 14.30 19.40 4.30

$ 10.20 27.40 2.70

$ 11.00 33.60 2.60

$ 10.60 40.40 3.20

26.50

34.80

26.60

37.20

Unit product cost

$ 64.50

$ 75.10

$ 73.80

$ 91.40

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 $ 2.20

B 5.30 $ 93.50 $ 1.20

C 4.30 $ 87.40 $ 3.30

D 3.40 $ 104.20 $ 1.60

4,000

3,000

2,000

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Topic : The Theory of Constraints Difficulty : 3 Hard Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

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109

144) Bacon Company makes four products in a single facility. These products have the following unit product costs: Products Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost

A $ 14.50 19.60 4.50

B $ 10.40 27.60 2.90

C $ 11.20 33.80 2.80

D $ 10.80 40.60 3.40

26.70

35.00

26.80

37.40

$ 65.30

$ 75.90

$ 74.60

$ 92.20

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 $ 76.30 $ 2.40

B 5.30 $ 93.70 $ 1.40

C 4.30 $ 87.60 $ 3.50

D 3.40 $ 104.40 $ 1.80

4,080

3,080

2,080

The grinding machines are the constraint in the production facility. A total of 54,000 minutes is available per month on these machines. Direct labor is a variable cost in this company. Which product makes the MOST profitable use of the grinding machines? A) Product A B) Product B C) Product C D) Product D

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110

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Topic : The Theory of Constraints Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

145) Bacon Company makes four products in a single facility. These products have the following unit product costs: Products Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost

A $ 14.30 19.40 4.30

B $ 10.20 27.40 2.70

C $ 11.00 33.60 2.60

D $ 10.60 40.40 3.20

26.50

34.80

26.60

37.20

$ 64.50

$ 75.10

$ 73.80

$ 91.40

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 $ 2.20

B 5.30 $ 93.50 $ 1.20

C 4.30 $ 87.40 $ 3.30

D 3.40 $ 104.20 $ 1.60

4,000

3,000

2,000

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111

A) Product A B) Product B C) Product C D) Product D

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Topic : The Theory of Constraints Difficulty : 3 Hard Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

146) Bacon Company makes four products in a single facility. These products have the following unit product costs: Products Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost

A $ 14.35 19.45 4.35

B $ 10.25 27.45 2.75

C $ 11.05 33.65 2.65

D $ 10.65 40.45 3.25

26.55

34.85

26.65

37.25

$ 64.70

$ 75.30

$ 74.00

$ 91.60

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

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A 3.80 $ 76.15 $ 2.25

B 5.30 $ 93.55 $ 1.25

C 4.30 $ 87.45 $ 3.35

D 3.40 $ 104.25 $ 1.65

4,020

3,020

2,020

112

The grinding machines are the constraint in the production facility. A total of 53,700 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) $35.91 B) $8.58 C) $8.55 D) $11.62

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Topic : The Theory of Constraints Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

147) Bacon Company makes four products in a single facility. These products have the following unit product costs: Products Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost

A $ 14.30 19.40 4.30

B $ 10.20 27.40 2.70

C $ 11.00 33.60 2.60

D $ 10.60 40.40 3.20

26.50

34.80

26.60

37.20

$ 64.50

$ 75.10

$ 73.80

$ 91.40

Additional data concerning these products are listed below. Products

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113

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

A 3.80 $ 76.10 $ 2.20

B 5.30 $ 93.50 $ 1.20

C 4.30 $ 87.40 $ 3.30

D 3.40 $ 104.20 $ 1.60

4,000

3,000

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Topic : The Theory of Constraints Difficulty : 3 Hard Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

148)

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

Selling price per unit Variable costs per unit

X $ 130 78

Product Y $ 68 34

Z $ 80 48

Contribution margin per unit

$ 52

$ 34

$ 32

Direct labor hours per unit

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114

Machine hours per unit

If Darren has a limit of 21,800 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.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Topic : The Theory of Constraints Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

149)

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

Selling price per unit Variable costs per unit

X $ 40 24

Product Y $ 30 16

Z $ 35 20

Contribution margin per unit

$ 16

$ 14

$ 15

Direct labor hours per unit Machine hours per unit

4 5

2 7

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:

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115

A) X, Y, Z. B) Y, Z, X. C) X, Z, Y. D) Z, Y, X.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Topic : The Theory of Constraints Difficulty : 3 Hard Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

150)

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

Selling price per unit Variable costs per unit

X $ 100 54

Product Y $ 90 46

Z $ 95 50

Contribution margin per unit

$ 46

$ 44

$ 45

Direct labor hours per unit Machine hours per unit

4 5

2 7

2 4

If Darren has a limit of 20,000 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,Z,Y. C) Z,X,Y. D) X,Y,Z.

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116

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Topic : The Theory of Constraints Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

151)

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

Selling price per unit Variable costs per unit

X $ 40 24

Product Y $ 30 16

Z $ 35 20

Contribution margin per unit

$ 16

$ 14

$ 15

Direct labor hours per unit Machine hours per unit

4 5

2 7

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.

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117

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Topic : The Theory of Constraints Difficulty : 3 Hard Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

161)

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

Headphones

8,000 $ 16 10

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: ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

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118

162) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

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

North

South

40,000 $ 9 4 148,000 140,000

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.

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119

168) 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

Product M

$ 150 90 15

$ 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:How many units of Products L and M should Valor produce? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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120

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions Topic : The Theory of Constraints Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions. Learning Objective : 04-05 Understand and apply the theory of constraints.

173) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

176) 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

$ 17.30 6.60 3.80 6.70

Unit product cost

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply AICPA : FN Measurement Difficulty : 3 Hard Gradable : manual Topic : Differential Analysis and Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

177) 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

$ 12.70 6.10 8.70 7.70

Unit product cost

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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183) Are sunk costs ever differential costs? Explain. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Learning Objective : 04-01 Use differential analysis to analyze decisions. Topic : Differential Analysis Difficulty : 2 Medium Gradable : manual Accessibility : Screen Reader Compatible

184) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Learning Objective : 04-01 Use differential analysis to analyze decisions. Topic : Differential Analysis Difficulty : 2 Medium Gradable : manual Topic : Differential Analysis and Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

185) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Learning Objective : 04-01 Use differential analysis to analyze decisions. Topic : Differential Analysis Difficulty : 2 Medium Gradable : manual Topic : Differential Analysis and Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

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186) Explain the difference between full costs and differential costs. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Learning Objective : 04-01 Use differential analysis to analyze decisions. Topic : Differential Analysis Difficulty : 2 Medium Gradable : manual Topic : Differential Analysis and Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

187) Explain what is meant by "the full-cost fallacy" in pricing decisions. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Difficulty : 2 Medium Gradable : manual Topic : Differential Analysis and Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-02 Use differential analysis to make pricing decisions.

188) Explain the differences between life-cycle product costing and target costing. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Topic : Differential Analysis Difficulty : 2 Medium Gradable : manual Topic : Long-Run Pricing Decisions Accessibility : Screen Reader Compatible Learning Objective : 04-03 Apply several approaches for establishing prices based on costs for long-r

189) Explain the distinction between predatory pricing and peak-load pricing. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Difficulty : 2 Medium Topic : Legal Issues Relating to Costs and Sales Prices Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 04-03 Apply several approaches for establishing prices based on costs for long-r

190) Why is it important to consider opportunity costs in a make-or-buy decision? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Difficulty : 2 Medium Topic : Use of Differential Analysis for Production Decisions Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

191) On what three main factors does the theory of constraints focus? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Understand Difficulty : 2 Medium Topic : The Theory of Constraints Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 04-05 Understand and apply the theory of constraints.

192) Flower Company 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 is shown below: Variable costs: Direct materials Direct labor Selling and administrative Fixed costs:

$ 495,900 $ 324,900 $ 30,780

Manufacturing Selling and administrative

$ 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) ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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193) 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? (CMA adapted) ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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198) Mr. Morgan Henry, accountant for Black & Logan Company Incorporated, has prepared the following product-line income data: Total $ 100,000 60,000 40,000

A $ 50,000 30,000 20,000

Product B $ 20,000 10,000 10,000

Rent Depreciation Utilities Supervisor's salary Maintenance Administrative expenses Total fixed expenses

5,000 6,000 4,000 5,000 3,000 10,000 33,000

2,500 3,000 2,000 1,500 1,500 3,000 13,500

1,000 1,200 500 500 600 2,000 5,800

1,500 1,800 1,500 3,000 900 5,000 13,700

Net operating income (loss)

$ 7,000

$ 6,500

$ 4,200

$ (3,700)

Sales Variable expenses Contribution margin Fixed expenses:

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C $ 30,000 20,000 10,000

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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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

199) Barry Incorporated 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

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$ 28.00 56.00 39.20

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Unit product cost

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Topic : Use of Differential Analysis for Production Decisions AICPA : FN Measurement Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 04-04 Use differential analysis to make production decisions.

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Answer Key Test name: Lanen7e_ch04 1) TRUE This statement is a definition of differential analysis. 2) TRUE 3) TRUE 4) FALSE The time value of money can be incorporated into the analysis for longrun decisions. 5) TRUE 6) FALSE 7) FALSE 8) FALSE The fallacy occurs when fixed costs are included. 9) TRUE 10) TRUE In the long run, fixed costs become differential and should be included. 11) TRUE 12) TRUE This statement is the definition of dumping. 13) TRUE This statement is the definition of price discrimination. 14) FALSE Prices are set highest when capacity is being approached. 15) TRUE 16) FALSE

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Opportunity costs are not included in the system because they are not the result of a transaction. Many items included in the accounting system involve estimates (such as depreciation). 17) FALSE 18) TRUE 19) TRUE 20) TRUE 21) D Relevance is predicated upon whether it affects a decision. 22) C Straight-line depreciation is a fixed cost since it is the same amount each period. 23) A Differential costs are costs that differ among or between alternatives. 24) C In the long run, capacity can be adjusted; in the short run, it cannot. 25) A The full-cost fallacy is when fixed costs are included. 26) D Unavoidable fixed costs will be incurred whether the special order is undertaken or not. 27) A Special order decisions involve differential analysis. 28) B [$0.75 − ($0.81 − $0.10)] × 26,000 = $1,040 29) B [$0.75 − ($0.83 − $0.12)] × 20,000 = $800 30) D [$20 − $9 − $4 − ($5 × 40%) − $1] × 2,500 = $4 × 2,500 = $10,000. 31) D Version 1

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[$16 − $6 − $3 − ($5 × 40%) − $1] × 1,000 = $4 × 1,000 = $4,000. 32) C Cost of sales: ($3,840,000 − $1,440,000)/480,000 = $5.00; Operating Expenses: ($360,000 − $120,000)/480,000 = $0.50; Sales $9.10 − $5.00 − $0.50 = $3.60 × 82,000 units = $295,200. 33) C Cost of sales: ($3,200,000 − $1,200,000)/400,000 = $5; Operating Expenses: ($300,000 − $100,000)/400,000 = $0.50; Sales $7.50 − $5 − $0.50 = $2 × 50,000 units = $100,000. 34) C $50 − ($15 + $12 + $11) = $12 × 75,000 = $900,000 increase. The selling costs do not need to be included because the customer will pay those directly to the transportation company. 35) C $30 − ($10 + $7 + $6) = $7 × 60,000 = $420,000 increase. The selling costs do not need to be included because the customer will pay those directly to the transportation company. 36) C The differential costs must be covered. There are no opportunity costs since there is excess capacity. 37) B 860 liters × current market $8.05 = $6,923. 38) B 720 liters × current market $6.65 = $4,788. 39) B Sales value of reworked material Less: Cost to rework material Net sales value Current scrap value Net disadvantage

$ 30,900 1,450 $ 29,450 30,200 $ (750)

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Sales value of reworked material Less: Cost to rework material Net sales value Current scrap value Net disadvantage

$ 30,800 1,400 $ 29,400 30,100 $ (700)

41) D 6,330 units Rocket × 8 units CES4 = 50,640 units × $4.00 current market 6,330 units Rocket × 6 units XES7 = 37,980 units: In inventory 32,360 units × $9.00 disposal value Purchase 5,620 units × $10.25 current market Relevant cost of materials

$ 202,560

291,240 57,605 $ 551,405

42) D 6,200 units Rocket × 8 units CES4 = 49,600 units × $3.35 current market 6,200 units Rocket × 6 units XES7 = 37,200 units: In inventory 31,060 units × $8.35 disposal value Purchase 6,140 units × $9.60 current market Relevant cost of materials

$ 166,160

259,351 58,944 $ 484,455

43) D 1,100 liters × current market $5.70 = $6,270 44) D 800 liters × current market $5.85 = $4,680 45) C 4,350 units JOLT × 6 units OX8 = 26,100 units × $4.45 current market 4,350 units JOLT × 9 units POW6 = 39,150 units: In inventory 39,150 units × $2.40 disposal value Relevant cost of materials

$ 116,145

93,960 $ 210,105

46) C 4,200 units JOLT × 6 units OX8 = 25,200 units × $3.70 current market 4,200 units JOLT × 9 units POW6 = 37,800 units:

$ 93,240

In inventory 37,800 units × $1.65 disposal value

62,370

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Relevant cost of materials

$ 155,610

47) B 520 kg × discounted price of $6.50 per kg = $3,380 $3,380 − $165 delivery cost = $3,215 relevant cost. 48) B 160 kg × discounted price of $6.50 per kg = $1,040 $1,040 − $75.00 delivery cost = $965 relevant cost. 49) D A cost that does not change is not included in the analysis. 50) B $13,300 + $5,800 = $19,100 51) B $12,500 + $5,000 = $17,500. 52) A The product life cycle covers the time from initial research and development to the time at which support to the customer is withdrawn. 53) B A target price is the estimated price for a product or service that potential customers will be willing to pay. 54) A For the practice to be predatory, managers must set the price below cost and intend to harm competition. 55) C Peak-load pricing is the practice of setting prices highest when the quantity demanded for the product approaches the physical capacity to produce it. 56) D Price fixing is the agreement among business competitors to set prices at a particular level. 57) A Version 1

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Dumping occurs when a company exports its product to consumers in another country at an export price that is below the domestic price. 58) D Target cost is based on external market prices and desired profit. 59) D $149,000 − $79,000 = $70,000 60) D $112,000 − $63,000 = $49,000 61) C Make: $120,000 + $164,000 + $64,000 = $348,000 Buy: $24,000 × $16 = $384,000 − $10,400 = $373,600 Make $348,000 − Buy $373,600 = −$25,600 decrease in operating profits to Buy 62) C Make: $100,000 + $160,000 + $60,000 = $320,000. Buy: $20,000 × $17 = $340,000 − $10,000 = $330,000. Make $320,000 − Buy $330,000 = −$10,000 decrease in operating profits to Buy. 63) D Product 2 Dropped: ($18 − $13) = $5 CM × 11,900 = $59,500 CM decrease. $59,500 CM decrease − $41,900 FC decrease = $17,600 decrease in operating profits. 64) D Product 2 Dropped: ($13 − $8) = $5 CM × 10,000 = $50,000 CM decrease. $50,000 CM decrease − $40,000 FC decrease = $10,000 decrease in operating profits. 65) C Common fixed costs continue even if a segment is eliminated. Version 1

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66) D Total CM: $390,000 × 32% = $124,800 Gainesville CM: $170,000 × 35% = $59,500 Orlando = $124,800 − $59,500 = $65,300 67) D Total CM: $250,000 × 32% = $80,000. Gainesville CM: $100,000 × 35% = $35,000. Orlando = $80,000 − $35,000 = $45,000. 68) B [46,000 × ($6 − $3)] − $64,000 = $74,000 69) B [30,000 × ($8 − $3)] − $48,000 = $102,000. 70) A Make: $176,000 + $370,000 + $103,000 = $649,000. Buy: 19,550 × $34 = $664,700. Make $649,000 − Buy $664,700 = $15,700 decrease. 71) A Make: $150,000 + $240,000 + $90,000 = $480,000. Buy: 15,000 × $34 = $510,000. Make $480,000 − Buy $510,000 = $(−30,000) decrease. 72) B Make: $156,000 + $270,000 + $93,000+ $55,000 = $574,000. Buy: 16,050 × $34 = $545,700. Make $574,000 − Buy $545,700 = $28,300 increase. 73) B Make: $150,000 + $240,000 + $90,000 + $40,000 = $520,000. Buy: 15,000 × $34 = $510,000. Make $520,000 − Buy $510,000 = $10,000 increase. 74) A $206,000 − $158,000 = $48,000 Version 1

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75) A $170,000 − $125,000 = $45,000. 76) C Cost to buy externally: $1.25 × 11,800 units = $14,750; Cost to make internally: $1.00 × 11,800 units = $11,800. $14,750 − $11,800 = $2,950. Differential costs increase by $2,950 to purchase, so continue to make. 77) C Cost to buy externally: $1.25 × 10,000 units = $12,500; Cost to make internally: $1.00 × 10,000 units = $10,000. $12,500 − $10,000 = $2,500. Differential costs increase by $2,500 to purchase, so continue to make. 78) C $21,000 + $56,000 + $46,000 + ($3 × 10,100) + $15,100 = $168,400 79) C $20,000 + $55,000 + $45,000 + ($4 × 10,000) + $15,000 = $175,000. 80) B $22,400 + $61,600 + $50,400 + ($4 × 11,200) + $23,520 = $202,720. $202,720/11,200 = $18.10. 81) B $20,000 + $55,000 + $45,000 + ($4 × 10,000) + $15,000 = $175,000. $175,000/10,000 = $17.50. 82) C (A) is a sunk cost, (B) will be there anyway, (C & D) would differ. 83) D Both statements are true. 84) A Selling expenses are not necessarily minimized. 85) D

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Spoons CM/hour: ($150 − 80)/5 = $14; Forks CM/hour: ($88 − $42)/3 = $15.33. Produce Forks first: 9,000 × 3 hours. = 27,000 hours used; 54,000 − 27,000 = 27,000 hours remaining. Spoons: 27,000 hours available/5 = 5,400 units. 86) B P1 CM/hour = $15/3 = $5; P2: $18/2 = $9; P3: $7.50/1 = $7.50. Priority would be P2 ($9/hour), followed by P3 ($7.50/hour), and then P1 ($5/hour). 87) A X CM/hour = $20/2 = $10; Y: $21/3 = $7; Z: $17.50/2 = 8.75. Priority would be X ($10/hour), followed by Z ($8.75/hour), and then Y ($7/hour). 88) C Oxy CM/hour = ($75 − $40)/4 = $8.75; Sonic CM/hour: ($44 − $21)/2.5 = $9.20. Produce Sonic first: 6,000 Produce Sonic first: 6,000 × 2.5 hours = 15,000 hours used; 50,000 − 15,000 = 35,000 hours remaining. Oxy: 35,000 hours available/4 = 8,750 units. 89) A Oxy CM/hour: ($75 − $45)/4 = $7.50; Sonic CM/hour: ($44 − $23)/2.5 = $8.40. Produce Sonic first: 7,000 units of Sonic × 2.5 hours = 17,500 hours used: 60,000 − 17,500 = 42,500 hours remaining. Oxy: 42,500 hours available/4 = 10,625 units CM = (10,625 × $30) + (7,000 × $21) = $465,750. 90) A

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Oxy CM/hour = ($75 – $40)/4 = $8.75; Sonic CM/hour: ($44 – $21)/2.5 = $9.20. Produce Sonic first: 6,000 × 2.5 hours. = 15,000 hours used; 50,000 – 15,000 = 35,000 hours remaining. Oxy: 35,000 hours available/4 = 8,750 units. CM = (8,750 × $35) + (6,000 × $23) = $444,250. 91) C Bookcases CM/hour = $15/3 = $5; Chairs: $18/2 = $9; Side Tables: $7.50/1 = $7.50. Priority would be Chairs ($9/hour), followed by Side Tables ($7.50/hour), and then Bookcases ($5/hour). Chairs: 2,000 units × 2 hours = 4,000 hours; 5,400 − 4,000 = 1,400 hours remaining. Side Tables: 1,400 units; Bookcases: 0 units. 92) B Bookcases CM/hour = $45/3 = $15; Chairs: $38/2 = $19; Side Tables: $17.50/1 = $17.50. Priority would be Chairs ($19/hour), followed by Side Tables ($17.50/hour), and then Bookcases ($15/hour). Chairs: 2,100 units × 2 hours = 4,200 hours; 5,500 − 4,200 = 1,300 hours remaining. Side Tables: 1,300 units, Bookcases: 0 units. CM: (2,100 × $38) + (1,300 × $17.50) + (0 × $45) = $102,550. 93) B

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Bookcases CM/hour = $15/3 = $5; Chairs: $18/2 = $9; Side Tables: $7.50/1 = $7.50. Priority would be Chairs ($9/hour), followed by Side Tables ($7.50/hour), and then Bookcases ($5/hour). Chairs: 2,000 units × 2 hours = 4,000 hrs; 5,400 − 4,000 = 1,400 hours remaining. Side Tables: 1,400 units, Bookcases: 0 units. CM: (2,000 × $18) + (1,400 × $7.50) + (0 × $15) = $46,500. 94) A W CM/hour = ($20 − $10)/2 = $5; X: ($21 − $9)/3 = $4; Y: ($17.50 − $7.50)/4 = $2.50; Z: ($15 − $10)/1.5 = $3.33. Priority would be W ($5/hour), followed by X ($4/hour), Z ($3.33/hour) and then Y ($2.50/hour). 95) C Cost to buy externally: $13.00 × 12,000 units = $156,000. Cost to make internally: $10.00 × 12,000 units = $120,000. $156,000 − $120,000 = $36,000. Differential costs increase by $36,000 to purchase, so continue to make. 96) C Cost to buy externally: $13.00 × 10,000 units = $130,000. Cost to make internally: $10.00 × 10,000 units = $100,000. $130,000 − $100,000 = $30,000. Differential costs increase by $30,000 to purchase, so continue to make. 97) A Lost CM: $0; cost to make: $17; Cost to make: $193,800 ÷ 11,400 units = $17. 98) A Lost CM: $0; cost to make: $10; Cost to make: $100,000 ÷ 10,000 units = $10. 99) C Version 1

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$21,600 + $59,400 + $48,600 + ($8 × 5,400) + $32,400 = $205,200. 100) C $20,000 + $55,000 + $45,000 + ($8 × 5,000) + $30,000 = $190,000. 101) B $32,000 + $88,000 + $72,000 + ($8 × 8,000) + $288,000 = $544,000/8,000 units = $68. 102) B $20,000 + $55,000 + $45,000 + ($8 × 5,000) + $30,000 = $190,000/5,000 units = $38. 103) B $43,000 + $11,800 = $54,800. 104) B $25,000 + $10,000 = $35,000. 105) C [$1.80 − ($1.88 − $0.32)] × 15,000 = $3,600. 106) C [$1.75 − ($1.83 − $0.27)] × 10,000 = $1,900. 107) D [$36 − $11 − $6 − $6 − $0.40] × 2,500 = $31,500. 108) D [$32 − $12 − $6 − $4 − $0.50] × 2,000 = $19,000. 109) B [$34 − $14 − $6 − $4 − $0.60] × 2,100 = $19,740/($45 − $14 − $6 − $4) = $19,740/$21 = 940 units. 110) B [$32 − $12 − $6 − $4 − $0.50] × 2,000 = $19,000/($42 − $12 − $6 − $4) = $19,000/$20 = 950 units. 111) C

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Cost of sales: ($6,848,000 − $2,268,400)/428,000 = $10.70; Operating Expenses: ($642,000 − $214,000)/428,000 = $1.00; Sales: $20.60− $10.70 − $1.00 = $8.90 × 78,000 units = $694,200. 112) C Cost of sales: ($6,400,000 − $2,400,000)/400,000 = $10; Operating Expenses: ($600,000 − $200,000)/400,000 = $1.00; Sales: $15.00 − $10 − $1 = $4 × 50,000 units = $200,000. 113) D The lack of excess capacity means there are opportunity costs equal to the lost contribution. Jasmine should continue to charge $20 per unit. 114) D The lack of excess capacity means there are opportunity costs equal to the lost contribution. Jasmine should continue to charge $20 per unit. 115) C $90 − ($32 + $23 + $21) = $14 × 60,060 = $840,840 increase; the transportation costs do not need to be included since the customer pays for them. 116) C $60 − ($20 + $14 + $12) = $14 × 60,000 = $840,000 increase; the transportation costs do not need to be included since the customer pays for them. 117) D $87,000 − $45,500 = $41,500. 118) D $56,000 − $31,500 = $24,500. 119) C $206,000 × 135% = $278,100 − $90,000 − $45,000 − $37,500 = $105,600. 120) C

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$182,000 × 130% = $236,600 − $84,000 − $42,000 − $31,500 = $79,100. 121) D Both statements are true. 122) B Differential analysis will not always lead to underpricing because there are times the fixed costs are differential. It may lead to underpricing, but it is not a certainty. 123) D A cost that does not change is not included in the analysis. 124) A (B) is a sunk cost, (D) will be there anyway, (A & C) would differ. 125) C (A) at least one constraining resource, not two; (B) want to minimize the investment and other costs. 126) D Opportunity costs and benefits are all about amounts foregone. 127) C To maximize profits, the alternatives must be selected in order of the highest contribution margin per unit of the constrained resource. 128) C Sales Variable expenses Contribution margin Fixed expenses: Fixed manufacturing expenses Net operating income (loss)

Keep the Product $ 224,000 156,800 67,200

Drop the Product $ 0 0 0

Difference $ (224,000) 156,800 (67,200)

100,800

44,800

56,000

$ (33,600)

$ (44,800)

$ (11,200)

Net operating income would decline by $11,200 if Product A were dropped. Therefore, the product should not be dropped. Version 1

147

129) C Sales Variable expenses Contribution margin Fixed expenses: Fixed manufacturing expenses Net operating income (loss)

Keep the Product $ 200,000 140,000 60,000

Drop the Product $ 0 0 0

Difference $ (200,000) 140,000 (60,000)

90,000

40,000

50,000

$ (30,000)

$ (40,000)

$ (10,000)

Net operating income would decline by $10,000 if Product A were dropped. Therefore, the product should not be dropped. 130) C Keep the Division $ 970,000 464,000 506,000

Drop the Division $ 0 0 0

$ 274,000 268,000

$ 0 268,000

$ 274,000

Net operating income (loss)

$ (36,000) $ (268,000)

$ (232,000)

South Net operating income (loss)

$ 142,000

King Company Net operating income (loss)

$ (126,000)

Sales Variable expenses Contribution margin Fixed expenses: Traceable fixed expenses Allocated common corporate expenses

Difference $ (970,000) 464,000 (506,000)

Net operating loss for King Company would be $126,000 if North Division were dropped. Therefore, North Division should not be dropped. 131) C Sales Variable expenses Contribution margin

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Keep the Division $ 900,000 450,000 450,000

Drop the Division $ 0 0 0

Difference $ (900,000) 450,000 (450,000)

148

Fixed expenses: Traceable fixed expenses Allocated common corporate expenses

$ 260,000 240,000

$ 0 240,000

$ 260,000

Net operating income (loss)

$ (50,000) $ (240,000)

$ (190,000)

South Net operating income (loss)

$ 100,000

King Company Net operating income (loss)

$ (140,000)

Net operating loss for King Company would be $140,000 if North Division were dropped. Therefore, North Division should not be dropped. 132) C Make Purchase cost Direct materials

$ 11.60 $ 4.15

Direct labor

3.15

Variable manufacturing overhead*

3.69

Total cost

Buy

$ 10.99

$ 11.60

*$6.15 − (40% × $6.15) = $3.69 The company should make the part rather than buy it from the outside supplier since it costs $0.61 less to make and the company has excess plant capacity. 133) C Make Purchase cost Direct materials

$ 11.00 $ 4.00

Direct labor

3.00

Variable manufacturing overhead*

3.60

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Buy

149

Total cost

$ 10.60

$ 11.00

*$6 − (40% × $6) = $3.60 The company should make the part rather than buy it from the outside supplier since it costs $0.40 less to make and the company has excess plant capacity. 134) C Make

Buy

Direct materials (19,200 units × $1.50 per unit) Direct labor (19,200 units × $2.50 per unit)

$ 28,800

Variable overhead (19,200 units × $3.60 per unit) Supervisor’s salary (19,200 units × $1.30 per unit) Depreciation of special equipment (not relevant) Allocated general overhead (avoidable only)

69,120

48,000

24,960 0 28,400

Outside purchase price (19,200 units × $17.00 per unit) Total cost

$ 326,400 $ 199,280

$ 326,400

Net operating income would decline by $127,120 per year. 135) C Make

Buy

Direct materials (18,000 units × $1.20 per unit) Direct labor (18,000 units × $2.20 per unit)

$ 21,600

Variable overhead (18,000 units × $3.30 per unit) Supervisor’s salary (18,000 units × $1.00 per unit) Depreciation of special equipment (not relevant) Allocated general overhead (avoidable only)

59,400

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39,600

18,000 0 26,000

150

Outside purchase price (18,000 units × $15.80 per unit) Total cost

$ 284,400 $ 164,600

$ 284,400

Net operating income would decline by $119,800 per year. 136) D Make Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead* Opportunity cost ($5.50 ÷ 2 minute)

$ 9.80 7.10 1.75 1.14 2.75

Total cost

$ 22.54

*$3.80 × 0.3 = $1.14 137) D Make Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead* Opportunity cost ($5.20 ÷ 2 minute)

$ 8.80 5.80 1.60 1.08 2.60

Total cost

$ 19.88

*$3.60 × 0.3 = $1.08 138) C Make

Buy

Direct materials (12,100 units × $7.00 per unit) Direct labor (12,100 units × $2.80 per unit)

$ 84,700

Variable overhead (12,100 units × $5.95 per unit) Supervisor’s salary (12,100 units × $3.15 per unit) Depreciation of special equipment (not relevant) Allocated general overhead (avoidable only)

71,995

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33,880

38,115 0 0

151

Outside purchase price (12,100 units × $25.60 per unit) Opportunity cost

$ 309,760 (30,100)

Total cost

$ 228,690

$ 279,660

Net operating income would decline by $50,970 per year. 139) C Make

Buy

Direct materials (11,000 units × $5.90 per unit) Direct labor (11,000 units × $1.70 per unit)

$ 64,900

Variable overhead (11,000 units × $5.40 per unit) Supervisor’s salary (11,000 units × $2.60 per unit) Depreciation of special equipment (not relevant) Allocated general overhead (avoidable only)

59,400

18,700

28,600 0 0

Outside purchase price (11,000 units × $21.20 per unit) Opportunity cost

$ 233,200 (29,000)

Total cost

$ 171,600

$ 204,200

Net operating income would decline by $32,600 per year. 140) A Products Grinding minutes per unit Monthly demand in units Minutes of grinding time

A 3.80

B 5.30

C 4.30

D 3.40

4,260

3,260

2,260

16,188

22,578

14,018

7,684

Total minutes of grinding time

60,468

141) A Products

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Grinding minutes per unit Monthly demand in units Minutes of grinding time

A 3.80

B 5.30

C 4.30

D 3.40

4,000

3,000

2,000

15,200

21,200

12,900

6,800

Total minutes of grinding time

56,100

142) C Products A $ 76.20 14.40 19.50 4.40

B $ 93.60 10.30 27.50 2.80

C $ 87.50 11.10 33.70 2.70

D $ 104.30 10.70 40.50 3.30

2.30

1.30

3.40

1.70

Unit contribution margin

$ 35.60

$ 51.70

$ 36.60

$ 48.10

Grinding minutes per unit

3.80

5.30

4.30

3.40

$ 9.37

$ 9.75

$ 8.51

$ 14.15

Selling price per unit Direct materials Direct labor Variable manufacturing overhead Variable selling cost per unit

Contribution margin per unit per grinding minute

Product C makes the LEAST profitable use of the grinding machines. 143) C Products A $ 76.10 14.30 19.40 4.30

B $ 93.50 10.20 27.40 2.70

C $ 87.40 11.00 33.60 2.60

D $ 104.20 10.60 40.40 3.20

2.20

1.20

3.30

1.60

Unit contribution margin

$ 35.90

$ 52.00

$ 36.90

$ 48.40

Grinding minutes per unit

3.80

5.30

4.30

3.40

$ 9.45

$ 9.81

$ 8.58

$ 14.24

Selling price per unit Direct materials Direct labor Variable manufacturing overhead Variable selling cost per unit

Contribution margin per unit

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153

per grinding minute 3

Product C makes the LEAST profitable use of the grinding machines. 144) D Products A $ 76.30 14.50 19.60 4.50

B $ 93.70 10.40 27.60 2.90

C $ 87.60 11.20 33.80 2.80

D $ 104.40 10.80 40.60 3.40

2.40

1.40

3.50

1.80

Unit contribution margin

$ 35.30

$ 51.40

$ 36.30

$ 47.80

Grinding minutes per unit

3.80

5.30

4.30

3.40

$ 9.29

$ 9.70

$ 8.44

$ 14.06

Selling price per unit Direct materials Direct labor Variable manufacturing overhead Variable selling cost per unit

Contribution margin per unit per grinding minute

Product D makes the MOST profitable use of the grinding machines. 145) D Products A $ 76.10 14.30 19.40 4.30

B $ 93.50 10.20 27.40 2.70

C $ 87.40 11.00 33.60 2.60

D $ 104.20 10.60 40.40 3.20

2.20

1.20

3.30

1.60

Unit contribution margin

$ 35.90

$ 52.00

$ 36.90

$ 48.40

Grinding minutes per unit

3.80

5.30

4.30

3.40

$ 9.45

$ 9.81

$ 8.58

$ 14.24

Selling price per unit Direct materials Direct labor Variable manufacturing overhead Variable selling cost per unit

Contribution margin per unit per grinding minute

Product D makes the MOST profitable use of the grinding machines. Version 1

154

146) C Products A $ 76.15 14.35 19.45 4.35

B $ 93.55 10.25 27.45 2.75

C $ 87.45 11.05 33.65 2.65

D $ 104.25 10.65 40.45 3.25

2.25

1.25

3.35

1.65

Unit contribution margin

$ 35.75

$ 51.85

$ 36.75

$ 48.25

Grinding minutes per unit

3.80

5.30

4.30

3.40

$ 9.41

$ 9.78

$ 8.55

$ 14.19

Selling price per unit Direct materials Direct labor Variable manufacturing overhead Variable selling cost per unit

Contribution margin per unit per grinding minute

The company should be willing to pay up to the contribution margin per unit per grinding minute for the marginal job, which is $8.55 per minute. 147) C Products A $ 76.10 14.30 19.40 4.30

B $ 93.50 10.20 27.40 2.70

C $ 87.40 11.00 33.60 2.60

D $ 104.20 10.60 40.40 3.20

2.20

1.20

3.30

1.60

Unit contribution margin

$ 35.90

$ 52.00

$ 36.90

$ 48.40

Grinding minutes per unit

3.80

5.30

4.30

3.40

$ 9.45

$ 9.81

$ 8.58

$ 14.24

Selling price per unit Direct materials Direct labor Variable manufacturing overhead Variable selling cost per unit

Contribution margin per unit per grinding minute

The company should be willing to pay up to the contribution margin per unit per grinding minute for the marginal job, which is $8.58 per minute. 148) B Selling price per unit Variable costs per unit

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Product X $ 130 78

Y $ 68 34

Z $ 80 48

155

Contribution margin per unit

$ 52

$ 34

$ 32

Direct labor hours per unit Unit CM per direct labor hour

4 $ 13 3

2 $ 17 1

2 $ 16 2

Product X $ 40 24

Y $ 30 16

Z $ 35 20

Contribution margin per unit

$ 16

$ 14

$ 15

Direct labor hours per unit Unit CM per direct labor hour

4 $ 4 3

2 $ 7 1

3 $ 5 2

Product X $ 100 54

Y $ 90 46

Z $ 95 50

Contribution margin per unit

$ 46

$ 44

$ 45

Direct labor hours per unit Unit CM per direct labor hour

5 $ 9.20 2

7 $ 6.29 3

4 $ 11.25 1

Product X $ 40 24

Y $ 30 16

Z $ 35 20

Contribution margin per unit

$ 16

$ 14

$ 15

Direct labor hours per unit Unit CM per direct labor hour

5 $ 3.20 2

7 $ 2.00 3

4 $ 3.75 1

149) B Selling price per unit Variable costs per unit

150) C Selling price per unit Variable costs per unit

151) D Selling price per unit Variable costs per unit

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156

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Cost behavior is the most important characteristic of costs for managerial decision making. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Topic : Basic Cost Behavior Patterns Gradable : automatic AACSB : Analytical Thinking Accessibility : Screen Reader Compatible Learning Objective : 05-01 Explain the reasons for estimating fixed and variable costs.

2) In general, accounting records accumulate cost information according to its behavior (i.e., variable and fixed). ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Topic : Basic Cost Behavior Patterns Gradable : automatic AACSB : Analytical Thinking Accessibility : Screen Reader Compatible Learning Objective : 05-01 Explain the reasons for estimating fixed and variable costs.

3) In general, cost behavior results are likely to differ between the engineering method and the account analysis method. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic AACSB : Analytical Thinking Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

4) The engineering method of determining cost behavior is particularly useful for new activities or products. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Difficulty : 1 Easy Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

5) One advantage of the engineering method is that it does not require data from prior periods to estimate cost behavior. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

6) One advantage of the account analysis method for estimating cost behavior is that it includes actual work conditions. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

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. ⊚ true ⊚ false

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8) In general, the account analysis method focuses on the underlying relationship between cost and activities from the previous period. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

The relevant range represents the activity levels for which a cost estimate may be valid. ⊚ true ⊚ false

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10)

A scattergraph is useful for identifying outliers. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

11) One disadvantage of the high-low method is the highest and lowest points may not be representative of normal operating activities. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Difficulty : 1 Easy Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

12) One advantage that regression techniques have over other cost estimation methods is that they generate information that can be used to determine how well the estimated regression equation describes the relations between costs and activities. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

13) Because outliers are extreme data points, they can be included in the regression analysis and not significantly affect the results. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

14) In general, the use of multiple independent variables increases the proportion of the variation in the dependent variable explained by the cost equation. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

15) One way to control the effects of a nonlinear relation between total costs and volume is to define the relevant range. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

16) The linear cost estimate tends to understate the slope of the cost line in ranges close to capacity. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

17) Cost estimates using regression analysis are always more accurate and dependable than cost estimates using the scattergraph method. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

18) A basic assumption of most cost estimation methods is that cost behavior patterns are linear within the relevant range. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : How is an Estimation Method Chosen? Accessibility : Screen Reader Compatible Learning Objective : 05-05 Evaluate and explain the advantages and disadvantages of alternative cost

19) In general, the more sophisticated a cost estimation method is, the more accurate the resulting cost estimates will be. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Difficulty : 1 Easy Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Topic : How is an Estimation Method Chosen? Accessibility : Screen Reader Compatible Learning Objective : 05-05 Evaluate and explain the advantages and disadvantages of alternative cost

20) Different cost estimation methods may produce different estimates of costs, even when using the same set of data. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : How is an Estimation Method Chosen? Accessibility : Screen Reader Compatible Learning Objective : 05-05 Evaluate and explain the advantages and disadvantages of alternative cost

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 21) Which of the following statements is false regarding cost behaviors? A) Cost behaviors are the most important consideration in managerial decision making. B) In general, accounting records accumulate cost information according to its behavior. C) The basic idea in cost estimation is to estimate the relation between costs and cost drivers. D) The key terms for describing cost behavior are variable costs and fixed costs.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Topic : Basic Cost Behavior Patterns Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Accessibility : Screen Reader Compatible Learning Objective : 05-01 Explain the reasons for estimating fixed and variable costs. Topic : Why Estimate Costs?

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 and fixed costs per unit are variable, over the relevant range. 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)

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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 object.

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.

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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 often based on operating conditions that are considered: A) optimal. B) practical. C) attainable. D) historical.

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27) A method that calls for a review of each account making up the total cost is which of the following cost estimation methods? A) Scattergraph B) High-low method C) Account analysis D) Linear regression

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible AACSB : ReflectiveThinking Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

28) Which of the following costs would most likely be classified as variable, assuming the account analysis method is used to determine cost behaviors?

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A) Indirect materials B) Supervisory salaries C) Equipment maintenance D) Building occupancy costs

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

29)

Given the following information, compute the total number of units for the period:

Direct labor hours

13,200

Direct labor cost Direct materials cost Total manufacturing cost

$ 2.70 $ 75 $ 163,260

Fixed overhead cost

$ 60,000

Variable overhead cost

per hour per unit

50% of total labor cost

A) 372 B) 444 C) 664 D) 864

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Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

30)

Given the following information, compute the total number of units for the period:

Direct labor hours

12,000

Direct labor cost Direct materials cost Total manufacturing cost

$ 2.70 per hour $ 75 per unit $ 132,600

Fixed overhead cost

$ 36,000

Variable overhead cost

50% of total labor cost

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

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31)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

32)

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) variable cost per unit, which represents the slope of the cost equation. D) activity level used to estimate the dependent variable.

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33) Ballard Company incurred a total cost of $9,700 to produce 300 units of pulp. Each unit of pulp required six (6) direct labor hours to complete. What is the total fixed cost if the variable cost was $1.50 per direct labor hour? A) $3,850 B) $2,700 C) $7,000 D) $9,250

34) 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?

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A) $1,700 B) $3,000 C) $5,600 D) $8,000

35)

The term "relevant range," as used in cost accounting, means the range over which: A) relevant costs are incurred. B) costs may fluctuate. C) a cost estimate may be valid. D) cost data is available.

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36)

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

37)

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.

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38) 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

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

39) 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

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

40)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

41)

The correlation coefficient is:

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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 the linear relation between two or more variables. D) the relative degree that changes in one variable can be used to estimate changes in another variable.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic AACSB : Analytical Thinking Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

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 patron-izing 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)

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

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 patron-izing 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

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 patron-izing 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

45) 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 patron-izing 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

1,690 $ 4,914 $ 1,724 $ 2.38 0.89113

Based on the data derived from the regression analysis, what are the estimated costs for 1,500 customer visits in a month? (CMA adapted) A) $6,638 B) $4,914 C) $3,570 D) $5,294

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Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

46) 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

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

47) 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 patron-izing 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

1,642 $ 4,854 $ 1,676 $ 2.30 0.88629

What is the percent of the total variance that can be explained by the regression equation? (CMA adapted) A) 88.6% B) 29.6% C) 98.0% D) 72.9%

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Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

48) 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%

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

49) The Macon Company uses the high-low method to determine its cost equation. The following information was gathered for the past year:

Busiest month (June) Slowest month (December)

Machine Hours 12,000 5,000

Direct Labor Costs $ 210,000 $ 140,000

What are the direct labor costs per machine hour? A) $28.00 B) $20.59 C) $17.50 D) $10.00

Question Details Accessibility : Keyboard Navigation Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

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50) The Macon Company uses the high-low method to determine its cost equation. The following information was gathered for the past year:

Busiest month (June) Slowest month (December)

Machine Hours 14,000 6,000

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

Question Details Accessibility : Keyboard Navigation Type : Static Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

51) The Macon Company uses the high-low method to determine its cost equation. The following information was gathered for the past year:

Busiest month (June) Slowest month (December)

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Machine Hours 21,500 15,000

Direct Labor Costs $ 261,950 $ 195,000

If Macon expects to use 17,500 machine hours next month, what are the estimated direct labor costs? A) $220,750. B) $235,500. C) $180,250. D) $203,250.

52) The Macon Company uses the high-low method to determine its cost equation. The following information was gathered for the past year:

Busiest month (June) Slowest month (December)

Machine Hours 14,000 6,000

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

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53) 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 Production Cost 16,300 $ 12,140 14,800 12,100 12,800 9,610 16,800 12,210 16,100 11,757 13,400 9,961

If Fromme expects to incur 11,900 machine hours in January, what will be the estimated total production cost using the high-low method? Note: Round the variable cost per hour to 3 decimal places. A) $7,735.00 B) $9,025.00 C) $19,945.00 D) $8,648.75

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54) 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 Production Cost 15,000 $ 12,075 13,500 10,800 11,500 9,580 15,500 12,080 14,800 11,692 12,100 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? Note: Round the variable cost per hour to 3 decimal places. A) $8,750.00 B) $11,142.50 C) $22,400.00 D) $10,889.10

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55) The controller of Fortnight Company 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 580,000 units to meet the ending inventory requirements and sales of 585,000 units. Fortnight Company's budget analyst has the following actual data for the last three months. Month

Production in Units 505,000 650,000 590,000

March April May

Manufacturing Supplies $ 680,660 854,660 768,210

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) $696,000. B) $702,000. C) $776,660. D) $770,660.

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56) The controller of Fortnight Company 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 Company's budget analyst has the following actual data for the last three months. Month

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

March April May

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.

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57) The Crater Manufacturing Company recorded overhead costs of $14,362 at an activity level of 5,100 machine hours and $8,074 at 2,480 machine hours. The records also indicated that overhead of $9,820 was incurred at 2,780 machine hours. What is the variable cost per machine hour using the high-low method to estimate the cost equation? A) $1.96 B) $2.40 C) $3.53 D) $2.82

58) 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? Version 1

A) $2.78 B) $2.86 C) $3.10 D) $3.38

59) The Missou Manufacturing Company recorded overhead costs of $14,322 at an activity level of 4,900 machine hours and $8,418 at 2,440 machine hours. What is the total estimated cost for 2,740 machine hours using the high-low method to estimate the cost equation? Note: Round unit variable overhead cost to the nearest cent. A) $9,800 B) $9,138 C) $6,576 D) $8,418

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60) 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

61) 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

$ 42.02 $ 615.26 0.964

What is the estimated overhead cost if 220 direct labor hours are expected to be used in the upcoming period? Note: Rounded to the nearest whole dollar.

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A) $10,204 B) $9,860 C) $9,244 D) $8,606

Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

62) 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? Note: rounded to the nearest whole dollar. A) $10,534. B) $9,882. C) $9,230. D) $8,617.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

63) 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)

January February March April May June July August September October November December Sum Average A coefficient

Hours of Activity 488 328 408 308 508 318 328 528 498 478 358 348 4,896 408

B coefficient Standard error of the a coefficient

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Maintenance Costs $ 4,280 3,080 3,680 2,900 4,430 3,040 3,110 4,550 4,340 4,130 3,380 3,240 $ 44,160 3,680 706.35 7.2884

50.465

Standard error of the b coefficient

0.1213

Standard error of the estimate

34.469

0.9972

T-value a

13.997

T-value b

60.105

What would be the cost equation if regression analysis is used? A) Maintenance Costs = $706.35 + ($50.465 × Hours of Activity). B) Maintenance Costs = $7.2884 + ($706.35 × Hours of Activity). C) Maintenance Costs = $706.35 + ($7.2884 × Hours of Activity). D) Maintenance Costs = $34.469 + ($0.99724 × Hours of Activity).

64) 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)

January February

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Hours of Activity 480 320

Maintenance Costs $ 4,200 3,000

March April May June July August September October November December Sum Average A coefficient

400 300 500 310 320 520 490 470 350 340 4,800 400

B coefficient

3,600 2,820 4,350 2,960 3,030 4,470 4,260 4,050 3,300 3,160 $ 43,200 3,600 684.65 7.2884

Standard error of the a coefficient

49.515

Standard error of the b coefficient

0.12126

Standard error of the estimate

34.469

0.99724

T-value a

13.827

T-value b

60.105

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).

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

65) 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)

January February March April May June July August September October November December Sum Average A coefficient B coefficient

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Hours of Activity 518 358 438 338 538 348 358 558 528 508 388 378 5,256 438

Maintenance Costs $ 4,580 3,380 3,980 3,200 4,730 3,340 3,410 4,850 4,640 4,430 3,680 3,540 $ 47,760 3,980 787.70 7.2884

Standard error of the a coefficient

54.036

Standard error of the b coefficient

0.1213

Standard error of the estimate

34.469

0.9972

T-value a

14.577

T-value b

60.105

Based upon the data derived from the regression analysis, 515 maintenance hours in a month would mean the maintenance costs would be budgeted at: Note: Rounded to the nearest whole dollar. A) $4,611 B) $4,540 C) $4,541 D) $4,360

Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

66) 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)

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January February March April May June July August September October November December Sum Average A coefficient

Hours of Activity 480 320 400 300 500 310 320 520 490 470 350 340 4,800 400

B coefficient

Maintenance Costs $ 4,200 3,000 3,600 2,820 4,350 2,960 3,030 4,470 4,260 4,050 3,300 3,160 $ 43,200 3,600 684.65 7.2884

Standard error of the a coefficient

49.515

Standard error of the b coefficient

0.12126

Standard error of the estimate

34.469

0.99724

T-value a

13.827

T-value b

60.105

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

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

67) 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)

January February March April May June July August September October November December Sum Average A coefficient B coefficient

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Hours of Activity 580 350 460 330 560 354 350 570 550 530 400 380 5,424 452

Maintenance Costs $ 4,260 3,060 3,660 2,880 4,410 3,020 3,090 4,530 4,320 4,110 3,360 3,220 $ 43,920 3,660 895.24 6.1167

Standard error of the a coefficient

108.488

Standard error of the b coefficient

0.2346

Standard error of the estimate

79.009

0.9855

T-value a

8.252

T-value b

26.067

What is the variable cost per hour using the high-low method to estimate the cost equation? A) $6.62 B) $5.52 C) $0.0980 D) $0.0818

Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

68) 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)

January

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Hours of Activity 480

Maintenance Costs $ 4,200 48

February March April May June July August September October November December Sum Average A coefficient

320 400 300 500 310 320 520 490 470 350 340 4,800 400

B coefficient

3,000 3,600 2,820 4,350 2,960 3,030 4,470 4,260 4,050 3,300 3,160 $ 43,200 3,600 684.65 7.2884

Standard error of the a coefficient

49.515

Standard error of the b coefficient

0.12126

Standard error of the estimate

34.469

0.99724

T-value a

13.827

T-value b

60.105

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

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69) 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)

January February March April May June July August September October November December Sum Average A coefficient B coefficient

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Hours of Activity 580 350 460 330 560 354 350 580 550 530 400 380 5,424 452

Maintenance Costs $ 4,260 3,060 3,660 2,880 4,410 3,020 3,090 4,530 4,320 4,110 3,360 3,220 $ 43,920 3,660 895.24 6.1167

Standard error of the a coefficient

108.488

Standard error of the b coefficient

0.2346

Standard error of the estimate

79.009

0.9855

T-value a

8.252

T-value b

26.067

What is the fixed cost per month using the high-low method to estimate the cost equation? A) $1,058 B) $1,110 C) $2,110 D) $4,180

Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Statistical Cost Estimation Type : Algorithmic Accessibility : Screen Reader Compatible

70) 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)

January

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Hours of Activity 480

Maintenance Costs $ 4,200

February March April May June July August September October November December Sum Average A coefficient

320 400 300 500 310 320 520 490 470 350 340 4,800 400

B coefficient

3,000 3,600 2,820 4,350 2,960 3,030 4,470 4,260 4,050 3,300 3,160 $ 43,200 3,600 684.65 7.2884

Standard error of the a coefficient

49.515

Standard error of the b coefficient

0.12126

Standard error of the estimate

34.469

0.99724

T-value a

13.827

T-value b

60.105

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

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71) 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)

January February March April May June July August September October November December Sum Average A coefficient B coefficient

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Hours of Activity 600 660 840 600 1,040 670 660 1,080 1,010 970 750 720 9,600 800

Maintenance Costs $ 4,560 3,360 3,960 3,180 4,710 3,320 3,390 4,830 4,620 4,410 3,660 3,520 $ 47,520 3,960 1,773.50 2.7331

Standard error of the a coefficient

557.023

Standard error of the b coefficient

0.6807

Standard error of the estimate

405.915

0.6172

T-value a

3.184

T-value b

4.015

Using the high-low method to estimate cost behavior, 510 maintenance hours in a month would mean the maintenance costs would be budgeted at what amount? Note: Round the variable cost per hour to 2 decimals. A) $3,830 B) $4,100 C) $4,510 D) $4,570

Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

72) 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)

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January February March April May June July August September October November December Sum Average A coefficient

Hours of Activity 480 320 400 300 500 310 320 520 490 470 350 340 4,800 400

B coefficient

Maintenance Costs $ 4,200 3,000 3,600 2,820 4,350 2,960 3,030 4,470 4,260 4,050 3,300 3,160 $ 43,200 3,600 684.65 7.2884

Standard error of the a coefficient

49.515

Standard error of the b coefficient

0.12126

Standard error of the estimate

34.469

0.99724

T-value a

13.827

T-value b

60.105

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

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73) 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)

January February March April May June July August September October November December Sum Average A coefficient B coefficient

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Hours of Activity 470 540 690 500 840 550 540 880 820 790 600 580 7,800 650

Maintenance Costs $ 4,460 3,260 3,860 3,080 4,610 3,220 3,290 4,730 4,520 4,310 3,560 3,420 $ 46,320 3,860 1,748.60 3.2483

Standard error of the a coefficient

584.110

Standard error of the b coefficient

0.8784

Standard error of the estimate

426.389

0.5776

T-value a

2.994

T-value b

3.698

What would be the cost equation when the high-low method is used? A) Maintenance Costs = $2.16 × Hours of Activity. B) Maintenance Costs = $3,860 + ($650 × Hours of Activity). C) Maintenance Costs = $4,150 + ($0.66 × Hours of Activity). D) Maintenance Costs = $426.389 + ($0.57758 × Hours of Activity).

74) 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) Hours of Activity

Version 1

Maintenance Costs

January February March April May June July August September October November December Sum Average A coefficient

480 320 400 300 500 310 320 520 490 470 350 340 4,800 400

B coefficient

$ 4,200 3,000 3,600 2,820 4,350 2,960 3,030 4,470 4,260 4,050 3,300 3,160 $ 43,200 3,600 684.65 7.2884

Standard error of the a coefficient

49.515

Standard error of the b coefficient

0.12126

Standard error of the estimate

34.469

0.99724

T-value a

13.827

T-value b

60.105

What would be the cost equation when 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).

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

Administrative Costs $ 130,301 83,413 226,180 216,794 258,463 185,449 219,937 245,600 209,862 192,125 250,978 171,218 128,767 $ 2,519,087 $ 193,776

Credit Hours 1,250 635 1,912 1,520 1,829 1,632 1,859 1,893 1,584 1,643 1,880 940 835 19,412 1,493

The controller's office has analyzed the data and has given you the results from the regression analysis:

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SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9085201 0.825408732 0.809536799 23,121.17056 13

Regression

27,800,900,364 27,800,900,364

Residual

5,880,473,811

Total

33,681,374,175

Coeffic Standard ients Error Inte 30,209 23,570 rcep .74624 .69478 t X 109.53 15.189 Vari 84452 62175 able 1

7.211 40045 8

52.0042966

Significance F 1.72718E05

534,588,528.2

t Stat P-value 1.281 66550

0.226 31641 2 1.727 18E05

Lower 95% 21,669 .00318 76.106 31318

Upper 95% 82,08 8.495 7 142.9 70577

Lower 95.0% 21,669 .00318 76.106 31318

Upper 95.0% 82,08 8.495 7 142.9 70577

If the controller uses the high-low method to estimate costs, the variable cost per credit hour is: A) $82.17. B) $103.40. C) $111.80. D) $200.90.

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

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

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:

Version 1

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9317157 0.868094147 0.856102705 20,134.92395 13

Regression

29,349,143,514 29,349,143,514 72.3928117

Residual

4,459,566,787

Total

33,808,710,301

Coeffic Standard ients Error Inte 96,647 12,641 rcep .02398 .66539 t X 103.06 12.112 Vari 07697 83103 able 1

t Stat 7.645 11803 8.508 39654 1

Significance F 3.61909E06

405,415,162.4

PLower value 95% 1.00 68,822 291E .90608 -05 3.61 76.400 909E 60833 -06

Upper 95% 124,47 1.1419

Lower 95.0% 68,822 .90608

Upper 95.0% 124,47 1.1419

129.72 0931

76.400 60833

129.72 0931

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.

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

Administrative Costs $ 130,251 83,373 226,150 216,774 258,453 185,399 219,897 245,570 209,842 192,115 250,928 171,178 128,737 $ 2,518,667 $ 193,744

Credit Hours 1,200 609 1,886 1,494 1,803 1,606 1,833 1,867 1,558 1,617 1,854 914 809 19,050 1,465

The controller's office has analyzed the data and has given you the results from the regression analysis:

Version 1

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9115513 0.830925708 0.815555318 22,754.96587 13

Regression

27,991,726,133 27,991,726,133

Residual

5,695,673,188

Total

33,687,399,321

Coeffic Standard ients Error Inte 33,100 22,741 rcep .32024 .85454 t X 109.62 14.909 Vari 53458 81739 able 1

t Stat 1.455 48025 7.352 56126 3

F 54.0601571

Significance F 1.4436E05

517,788,471.6

PLower value 95% 0.173 47479 16,954 .16413 1.443 76.809 6E-05 05896

Upper 95% 83,15 4.804 6 142.4 41633

Lower 95.0% 16,954 .16413 76.809 05896

Upper 95.0% 83,15 4.804 6 142.4 41633

If the controller uses the high-low method to estimate costs, the fixed cost portion of the cost equation for administrative costs is: Note: Round the variable cost per credit hour to 2 decimal places. A) $19,778.00. B) $15,276.34. C) $96,280.27. D) $19,916.88.

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

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

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:

Version 1

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9317157 0.868094147 0.856102705 20,134.92395 13

Regression

29,349,143,514 29,349,143,514 72.3928117

Residual

4,459,566,787

Total

33,808,710,301

Coeffic Standard ients Error Inte 96,647 12,641 rcep .02398 .66539 t X 103.06 12.112 Vari 07697 83103 able 1

t Stat 7.645 11803 8.508 39654 1

Significance F 3.61909E06

405,415,162.4

PLower value 95% 1.00 68,822 291E .90608 -05 3.61 76.400 909E 60833 -06

Upper 95% 124,47 1.1419

Lower 95.0% 68,822 .90608

Upper 95.0% 124,47 1.1419

129.72 0931

76.400 60833

129.72 0931

If the controller uses the high-low method to estimate costs, the fixed cost portion of the cost equation for administrative costs is: Note: Round the variable cost per credit hour to 2 decimal places. A) $198,808.00. B) $69,731.68. C) $96,409.42. D) $19,943.58.

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

Administrative Costs $ 129,451 82,733 225,670 216,454 258,293 184,599 219,257 245,090 209,522 191,955 250,128 170,538 128,257 $ 2,511,947 $ 193,227

Credit Hours 400 193 1,470 1,078 1,387 1,190 1,417 1,451 1,142 1,201 1,438 498 393 13,258 1,020

The controller's office has analyzed the data and has given you the results from the regression analysis:

Version 1

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9327181 0.869963033 0.858141490 19,984.60564 13

Regression

29,391,233,739 29,391,233,739

Residual

4,393,229,090

Total

33,784,462,829

Coeffic Standard ients Error Inte 86,208 13,651 rcep .30382 .03481 t X 104.93 12.232 Vari 58161 36465 able 1

t Stat 6.315 14790 8.578 53891 2

F 73.5913299

Significance F 3.34292E06

399,384,462.7

PLower value 95% 5.71 56,162 542E .57879 -05 3.34 78.012 292E 56307 -06

Upper 95% 116,25 4.0288

Lower 95.0% 56,162 .57879

Upper 95.0% 116,25 4.0288

131.85 9069

78.012 56307

131.85 9069

If the controller uses the high-low method to estimate costs, the cost equation for administrative costs is: Note: Round the variable cost per credit hour to 2 decimal places. A) Administrative Costs = $87,810.64 + ($103.53 × Credit-hours). B) Administrative Costs = $61,132.90 + ($111.93 × Credit-hours). C) Administrative Costs = $201.18 × Credit-hours. D) Administrative Costs = $173,012.

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

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

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:

Version 1

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9317157 0.868094147 0.856102705 20,134.92395 13

Regression

29,349,143,514 29,349,143,514 72.3928117

Residual

4,459,566,787

Total

33,808,710,301

Coeffic Standard ients Error Inte 96,647 12,641 rcep .02398 .66539 t X 103.06 12.112 Vari 07697 83103 able 1

t Stat 7.645 11803 8.508 39654 1

Significance F 3.61909E06

405,415,162.4

PLower value 95% 1.00 68,822 291E .90608 -05 3.61 76.400 909E 60833 -06

Upper 95% 124,47 1.1419

Lower 95.0% 68,822 .90608

Upper 95.0% 124,47 1.1419

129.72 0931

76.400 60833

129.72 0931

If the controller uses the high-low method to estimate costs, the cost equation for administrative costs is Note: Round the variable cost per credit hour to 2 decimal places. 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.

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

Administrative Costs $ 129,601 82,853 225,760 216,514 258,323 184,749 219,377 245,180 209,582 191,985 250,278 170,658 128,347 $ 2,513,207 $ 193,324

Credit Hours 550 271 1,548 1,156 1,465 1,268 1,495 1,529 1,220 1,279 1,516 576 471 14,344 1,103

The controller's office has analyzed the data and has given you the results from the regression analysis:

Version 1

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9323308 0.869240766 0.857353563 20,034.60265 13

Regression

29,350,930,283 29,350,930,283

Residual

4,415,238,338

Total

33,766,168,621

Coeffic Standard ients Error Inte 75,742 14,830 rcep .91080 .40938 t X 106.56 12.461 Vari 36614 74706 able 1

8.551 26178 5

73.1240781

Significance F 3.44752E06

401,385,303.5

t Stat P-value 5.107 27040

0.000 34016 2 3.447 52E06

Lower 95% 43,101 .39984

Upper 95% 108,38 4.4218

Lower 95.0% 43,101 .39984

Upper 95.0% 108,38 4.4218

79.135 54108

133.99 1782

79.135 54108

133.99 1782

Based on the results of the high-low analysis, the estimate of administrative costs in a month with 1,120 credit hours would be: Note: Round the variable cost per credit hour to 2 decimal places. Round your final answer to the nearest whole dollar. A) $177,863. B) $195,756. C) $196,950. D) $194,619.

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Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

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

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

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:

Version 1

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9317157 0.868094147 0.856102705 20,134.92395 13

Regression

29,349,143,514 29,349,143,514 72.3928117

Residual

4,459,566,787

Total

33,808,710,301

Coeffic Standard ients Error Inte 96,647 12,641 rcep .02398 .66539 t X 103.06 12.112 Vari 07697 83103 able 1

t Stat 7.645 11803 8.508 39654 1

Significance F 3.61909E06

405,415,162.4

PLower value 95% 1.00 68,822 291E .90608 -05 3.61 76.400 909E 60833 -06

Upper 95% 124,47 1.1419

Lower 95.0% 68,822 .90608

Upper 95.0% 124,47 1.1419

129.72 0931

76.400 60833

129.72 0931

Based on the results of the high-low analysis, the estimate of administrative costs in a month with 1,000 credit hours would be: Note: Round the variable cost per credit hour to 2 decimal places. Round your final answer to the nearest whole dollar. A) $181,692. B) $199,969. C) $201,210. D) $198,808.

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83) 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:

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

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Administrative Costs $ 130,101 83,253 226,060 216,714 258,423 185,249 219,777 245,480 209,782 192,085 250,778 171,058 128,647 $ 2,517,407 $ 193,647

Credit Hours 1,050 531 1,808 1,416 1,725 1,528 1,755 1,789 1,480 1,539 1,776 836 731 17,964 1,382

The controller's office has analyzed the data and has given you the results from the regression analysis: SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9193606 0.845223969 0.831153421 21,777.39471 13

Regression

28,488,699,806 28,488,699,806

Residual

5,216,804,122

Total

33,705,503,929

Coeffic Standard ients Error Inte 42,213 20,450 rcep .93270 .69707 t X 109.58 Vari 72787 able 1

14.139 35996

60.0704359

Significance F 8.81711E06

474,254,920.2

t Stat P-value 2.064 18063

0.063 40651 7

7.750 51198 0

8.817 11E06

Lower 95% 2,797 .7480 6 78.46 67572 8

Upper 95% 87,22 5.613 5 140.7 07800

Lower 95.0% 2,797 .7480 6 78.46 67572 8

Upper 95.0% 87,22 5.613 5 140.7 07800

If the controller uses regression analysis to estimate costs, the cost equation for administrative costs is: A) Administrative Costs = $27,752.61 + ($13.00 × Credit hours). B) Administrative Costs = -$2,146 + ($120.83 × Credit hours). C) Administrative Costs = $42,213.93 + ($109.59 × Credit hours). D) Administrative Costs = $18,313.26 + ($14.02 × Credit hours).

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

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

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:

Version 1

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9317157 0.868094147 0.856102705 20,134.92395 13

Regression

29,349,143,514 29,349,143,514 72.3928117

Residual

4,459,566,787

Total

33,808,710,301

Coeffic Standard ients Error Inte 96,647 12,641 rcep .02398 .66539 t X 103.06 12.112 Vari 07697 83103 able 1

t Stat 7.645 11803 8.508 39654 1

Significance F 3.61909E06

405,415,162.4

PLower value 95% 1.00 68,822 291E .90608 -05 3.61 76.400 909E 60833 -06

Upper 95% 124,47 1.1419

Lower 95.0% 68,822 .90608

Upper 95.0% 124,47 1.1419

129.72 0931

76.400 60833

129.72 0931

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).

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

85) 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:

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

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Administrative Costs $ 129,801 83,013 225,880 216,594 258,363 184,949 219,537 245,300 209,662 192,025 250,478 170,818 128,467 $ 2,514,887 $ 193,453

Credit Hours 750 375 1,652 1,260 1,569 1,372 1,599 1,633 1,324 1,383 1,620 680 575 15,792 1,215

0.9294251 0.863831106 0.851452116 20,437.46479 13

Regression

29,147,254,770 29,147,254,770

Residual

4,594,589,636

Total

33,741,844,406

Coeffic Standard ients Error Inte 61,941 16,732 rcep .91529 .45219 t X 108.26 12.959 Vari 00115 73920 able 1

8.353 56404 9

69.7820323

Significance F 4.3198E06

417,689,966.9

t Stat P-value 3.701 90302

0.003 49001 9 4.319 8E-06

Lower 95% 25,114 .03632 79.735 81782

Upper 95% 98,76 9.794 3 136.7 84205

Lower 95.0% 25,114 .03632 79.735 81782

Upper 95.0% 98,76 9.794 3 136.7 84205

If the controller uses regression analysis to estimate costs, the estimate of the variable portion of administrative costs is: A) Variable Costs = $13.84 × Credit hours. B) Variable Costs = $6.08 × Credit hours. C) Variable Costs = $108.26 × Credit hours. D) Variable Costs = $17.20 × Credit hours.

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

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

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:

Version 1

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9317157 0.868094147 0.856102705 20,134.92395 13

Regression

29,349,143,514 29,349,143,514 72.3928117

Residual

4,459,566,787

Total

33,808,710,301

Coeffic Standard ients Error Inte 96,647 12,641 rcep .02398 .66539 t X 103.06 12.112 Vari 07697 83103 able 1

t Stat 7.645 11803 8.508 39654 1

Significance F 3.61909E06

405,415,162.4

PLower value 95% 1.00 68,822 291E .90608 -05 3.61 76.400 909E 60833 -06

Upper 95% 124,47 1.1419

Lower 95.0% 68,822 .90608

Upper 95.0% 124,47 1.1419

129.72 0931

76.400 60833

129.72 0931

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.

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

87) 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:

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

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Administrative Costs $ 129,351 82,653 225,610 216,414 258,273 184,499 219,177 245,030 209,482 191,935 250,028 170,458 128,197 $ 2,511,107 $ 193,162

Credit Hours 300 141 1,418 1,026 1,335 1,138 1,365 1,399 1,090 1,149 1,386 446 341 12,534 964

0.9321989 0.868994839 0.857085279 20,062.49314 13

Regression

29,369,143,334 29,369,143,334

Residual

4,427,539,941

Total

33,796,683,275

Coeffic Standard ients Error Inte 93,173 12,960 rcep .64480 .70790 t X 103.70 12.140 Vari 58894 67077 able 1

t Stat 7.188 93177 8.542 02303 3

F 72.9661575

Significance F 3.48374E06

402,503,631.0

PLower value 95% 1.77 64,647 759E .31905 -05 3.48 76.984 374E 45319 -06

Upper 95% 121,69 9.9705

Lower 95.0% 64,647 .31905

Upper 95.0% 121,69 9.9705

130.42 7326

76.984 45319

130.42 7326

If the controller uses regression analysis to estimate costs, the estimate of the fixed portion of administrative costs is: A) Fixed Cost = $104.22. B) Fixed Cost = $12,841.97. C) Fixed Cost = $19,873.79. D) Fixed Cost = $93,173.64.

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

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

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

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Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9317157 0.868094147 0.856102705 20,134.92395 13

Regression

29,349,143,514 29,349,143,514 72.3928117

Residual

4,459,566,787

Total

33,808,710,301

Coeffic Standard ients Error Inte 96,647 12,641 rcep .02398 .66539 t X 103.06 12.112 Vari 07697 83103 able 1

t Stat 7.645 11803 8.508 39654 1

Significance F 3.61909E06

405,415,162.4

PLower value 95% 1.00 68,822 291E .90608 -05 3.61 76.400 909E 60833 -06

Upper 95% 124,47 1.1419

Lower 95.0% 68,822 .90608

Upper 95.0% 124,47 1.1419

129.72 0931

76.400 60833

129.72 0931

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

89) 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:

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

Version 1

Administrative Costs $ 129,451 82,733 225,670 216,454 258,293 184,599 219,257 245,090 209,522 191,955 250,128 170,538 128,257 $ 2,511,947 $ 193,227

Credit Hours 400 193 1,470 1,078 1,387 1,190 1,417 1,451 1,142 1,201 1,438 498 393 13,258 1,020

0.9327181 0.869963033 0.858141490 19,984.60564 13

Regression

29,391,233,739 29,391,233,739

Residual

4,393,229,090

Total

33,784,462,829

Coeffic Standard ients Error Inte 86,208 13,651 rcep .30000 .03481 t X 104.94 12.232 Vari 00000 36465 able 1

t Stat 6.315 14790 8.578 53891 2

F 73.5913299

Significance F 3.34292E06

399,384,462.7

PLower value 95% 5.71 56,162 542E .57879 -05 3.34 78.012 292E 56307 -06

Upper 95% 116,25 4.0288

Lower 95.0% 56,162 .57879

Upper 95.0% 116,25 4.0288

131.85 9069

78.012 56307

131.85 9069

Based on the results of the regression analysis, the estimate of administrative costs in a month with 1,000 credit hours would be: Note: Rounded to the nearest whole dollar. A) $190,265. B) $192,457. C) $191,148. D) $87,866.

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

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

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:

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SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9317157 0.868094147 0.856102705 20,134.92395 13

Regression

29,349,143,514 29,349,143,514 72.3928117

Residual

4,459,566,787

Total

33,808,710,301

Coeffic Standard ients Error Inte 96,647 12,641 rcep .02398 .66539 t X 103.06 12.112 Vari 07697 83103 able 1

t Stat 7.645 11803 8.508 39654 1

Significance F 3.61909E06

405,415,162.4

PLower value 95% 1.00 68,822 291E .90608 -05 3.61 76.400 909E 60833 -06

Upper 95% 124,47 1.1419

Lower 95.0% 68,822 .90608

Upper 95.0% 124,47 1.1419

129.72 0931

76.400 60833

129.72 0931

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

91) 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:

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

Version 1

Administrative Costs $ 129,801 83,013 225,880 216,594 258,363 184,949 219,537 245,300 209,662 192,025 250,478 170,818 128,467 $ 2,514,887 $ 193,453

Credit Hours 750 375 1,652 1,260 1,569 1,372 1,599 1,633 1,324 1,383 1,620 680 575 15,792 1,215

0.9294251 0.863831106 0.851452116 20,437.46479 13

Regression

29,147,254,770 29,147,254,770

Residual

4,594,589,636

Total

33,741,844,406

Coeffic Standard ients Error Inte 61,941 16,732 rcep .91529 .45219 t X 108.26 12.959 Vari 00115 73920 able 1

8.353 56404 9

69.7820323

Significance F 4.3198E06

417,689,966.9

t Stat P-value 3.701 90302

0.003 49001 9 4.319 8E-06

Lower 95% 25,114 .03632 79.735 81782

Upper 95% 98,76 9.794 3 136.7 84205

Lower 95.0% 25,114 .03632 79.735 81782

Upper 95.0% 98,76 9.794 3 136.7 84205

The correlation coefficient for the regression equation for administrative costs is: Note: Rounded to 3 decimal places. A) 0.929. B) 0.865. C) 0.853. D) 0.963.

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

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

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:

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SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9317157 0.868094147 0.856102705 20,134.92395 13

Regression

29,349,143,514 29,349,143,514 72.3928117

Residual

4,459,566,787

Total

33,808,710,301

Coeffic Standard ients Error Inte 96,647 12,641 rcep .02398 .66539 t X 103.06 12.112 Vari 07697 83103 able 1

t Stat 7.645 11803 8.508 39654 1

Significance F 3.61909E06

405,415,162.4

PLower value 95% 1.00 68,822 291E .90608 -05 3.61 76.400 909E 60833 -06

Upper 95% 124,47 1.1419

Lower 95.0% 68,822 .90608

Upper 95.0% 124,47 1.1419

129.72 0931

76.400 60833

129.72 0931

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

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

93) 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:

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

Version 1

Administrative Costs $ 130,251 83,373 226,150 216,774 258,453 185,399 219,897 245,570 209,842 192,115 250,928 171,178 128,737 $ 2,518,667 $ 193,744

Credit Hours 1,200 609 1,886 1,494 1,803 1,606 1,833 1,867 1,558 1,617 1,854 914 809 19,050 1,465

0.9115513 0.830925708 0.815555318 22,754.96587 13

Regression

27,991,726,133 27,991,726,133

Residual

5,695,673,188

Total

33,687,399,321

Coeffic Standard ients Error Inte 33,100 22,741 rcep .32024 .85454 t X 109.62 14.909 Vari 53458 81739 able 1

t Stat 1.455 48025 7.352 56126 3

F 54.0601571

Significance F 1.4436E05

517,788,471.6

PLower value 95% 0.173 47479 16,954 .16413 1.443 76.809 6E-05 05896

Upper 95% 83,15 4.804 6 142.4 41633

Lower 95.0% 16,954 .16413 76.809 05896

Upper 95.0% 83,15 4.804 6 142.4 41633

The percent of the total variance that can be explained by the regression is: A) 89.6%. B) 83.1%. C) 82.2%. D) 92.9%.

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

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

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:

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SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9317157 0.868094147 0.856102705 20,134.92395 13

Regression

29,349,143,514 29,349,143,514 72.3928117

Residual

4,459,566,787

Total

33,808,710,301

Coeffic Standard ients Error Inte 96,647 12,641 rcep .02398 .66539 t X 103.06 12.112 Vari 07697 83103 able 1

t Stat 7.645 11803 8.508 39654 1

Significance F 3.61909E06

405,415,162.4

PLower value 95% 1.00 68,822 291E .90608 -05 3.61 76.400 909E 60833 -06

Upper 95% 124,47 1.1419

Lower 95.0% 68,822 .90608

Upper 95.0% 124,47 1.1419

129.72 0931

76.400 60833

129.72 0931

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%.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

95) 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:

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

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Administrative Costs $ 129,651 82,893 225,790 216,534 258,333 184,799 219,417 245,210 209,602 191,995 250,328 170,698 128,377 $ 2,510,827 $ 193,356

Credit Hours 600 297 1,574 1,182 1,491 1,294 1,521 1,555 1,246 1,305 1,542 602 497 14,706 1,131

0.9318702 0.868382093 0.856416828 20,098.46470 13

Regression

29,316,649,159 29,316,649,159

Residual

4,443,431,116

Total

33,760,080,275

Coeffic Standard ients Error Inte 72,266 15,267 rcep .94773 .78207 t X 107.04 12.564 Vari 17979 90223 able 1

t Stat

F 72.5752537

Significance F 3.57536E06

403,948,283.3

4.733 29704

PLower value 95% 0.000 38,662 61607 .78597

Upper 95% 105,87 1.1095

Lower 95.0% 38,662 .78597

Upper 95.0% 105,87 1.1095

8.519 11108 9

3.575 36E06

134.69 6961

79.386 63454

134.69 6961

79.386 63454

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) $178,424. B) $21,408. C) $117,919. D) $41,838.

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100

Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Bloom's : Analyze Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

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

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

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:

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101

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df

0.9317157 0.868094147 0.856102705 20,134.92395 13

Regression

29,349,143,514 29,349,143,514 72.3928117

Residual

4,459,566,787

Total

33,808,710,301

Coeffic Standard ients Error Inte 96,647 12,641 rcep .02398 .66539 t X 103.06 12.112 Vari 07697 83103 able 1

t Stat 7.645 11803 8.508 39654 1

Significance F 3.61909E06

405,415,162.4

PLower value 95% 1.00 68,822 291E .90608 -05 3.61 76.400 909E 60833 -06

Upper 95% 124,47 1.1419

Lower 95.0% 68,822 .90608

Upper 95.0% 124,47 1.1419

129.72 0931

76.400 60833

129.72 0931

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

97)

Which of the following cost estimation methods relies heavily on personal judgment? A) Scattergraph method B) Simple regression C) High-low method D) Account analysis method

98) 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)

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A) Economic order quantity analysis B) Probability analysis C) Correlation analysis D) Multiple regression analysis

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

99) 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 Electricity Costs 2,600 $ 19,250 3,000 22,700 2,000 14,350 3,200 24,700 3,900 29,100 3,400 23,700 4,200 25,600 3,600 23,600 2,100 17,200 3,800 27,700 4,800 32,700 4,300 28,600 Summary Output Regression Statistics Multiple R 0.955 R Square 0.912

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Adjusted R2 Standard Error Observations Coefficients Intercept 4,476.65 Machine 5.76 Hours

Standard Error 1,979.98 0.56

0.904 1,630.46 12.00 t Stat P-value 2.26 10.20

0.05 0.00

Lower 95% 64.99 4.50

Upper 95% 8,888.32 7.01

If the controller uses the high-low method to estimate costs, the variable cost per machine hour is: A) $6.55. B) $7.00. C) $5.76. D) $10.20.

100) 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

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Machine Hours Electricity Costs 2,500 $ 18,400 2,900 21,000 1,900 13,500 3,100 23,000 3,800 28,250

105

June July August September October November December

3,300 4,100 3,500 2,000 3,700 4,700 4,200

22,000 24,750 22,750 15,500 26,000 31,000 27,750

Summary Output Regression Statistics Multiple R R Square Adjusted R2 Standard Error Observations Coefficient s Intercep 3,726.88 t Machine 5.77 Hours

Standard Error 1,682.8 2 0.49

0.965 0.932 0.925 1,425.18 12.00 t Stat P-value Lower 95% Upper 95% 2.2 1 11. 7

0.0 5 0.0 0

(22.69 ) 4.67

7,476.4 5 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.

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106

101) 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 Electricity Costs 3,100 $ 18,700 3,500 21,600 2,500 13,800 3,700 23,600 4,400 28,550 3,900 22,600 4,700 25,050 4,100 23,050 2,600 16,100 4,300 26,600 5,800 31,600 5,400 28,050 Summary Output Regression Statistics Multiple R 0.947 R Square 0.897 2 Adjusted R 0.887 Standard Error 1,753.98 Observations 12.00 Coefficient Standard t Stat P-value Lower 95% s Error Intercep 3,776.7 2,145.8 1.7 0.1 (1,004.49 t 7 5 6 1 ) Machine 4.87 0.52 9.3 0.0 3.71 Hours 5 0

Upper 95% 8,558.0 3 6.04

If the controller uses the high-low method to estimate costs, the fixed cost portion of the cost equation for electricity costs is: Note: Round intermediate calculations to 2 decimal places.

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A) $3,776.77. B) $1,753.98. C) $338.00. D) $22,962.00.

102) 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

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108

Adjusted R2 Standard Error Observations Coefficient s Intercep 3,726.88 t Machine 5.77 Hours

Standard Error 1,682.8 2 0.49

0.925 1,425.18 12.00 t Stat P-value Lower 95% Upper 95% 2.2 1 11. 7

0.0 5 0.0 0

(22.69 ) 4.67

7,476.4 5 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: Note: Round intermediate calculations to 2 decimal places. A) $3,726.88. B) $1,425.18. C) $1,625.00. D) $22,825.00.

103) 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

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Machine Hours Electricity Costs 2,100 $ 19,000 2,500 22,200 1,500 14,100

109

April May June July August September October November December

2,700 3,400 2,900 3,700 3,100 1,600 3,300 4,300 3,800

24,200 28,850 23,200 25,350 23,350 16,700 27,200 32,200 28,350

Summary Output Regression Statistics Multiple R R Square Adjusted R2 Standard Error Observations Coefficient Standard s Error Intercep 6,967.3 1,631.9 t 2 1 Machine 5.76 0.54 Hours

0.959 0.919 0.911 1,558.51 12.00 t Stat P-value Lower 95% 4.27 10.6 8

0.0 0 0.0 0

3,331.2 0 4.56

Upper 95% 10,603.4 4 6.96

If the controller uses the high-low method to estimate costs, the cost equation for electricity costs is: Note: Round intermediate calculations to 2 decimal places. A) Electricity Costs = $6,967.32 + ($5.76 × Machine-hours). B) Electricity Costs = $4,422 + ($6.46 × Machine-hours). C) Electricity Costs = $7.00 × Machine-hours. D) Electricity Costs = $21,978.

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Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

104) 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 Electricity Costs 2,500 $ 18,400 2,900 21,000 1,900 13,500 3,100 23,000 3,800 28,250 3,300 22,000 4,100 24,750 3,500 22,750 2,000 15,500 3,700 26,000 4,700 31,000 4,200 27,750 Summary Output Regression Statistics Multiple R 0.965 R Square 0.932 2 Adjusted R 0.925 Standard Error 1,425.18 Observations 12.00 Coefficient Standard t Stat P-value Lower 95% Upper 95% s Error Intercep 3,726.88 1,682.8 2.2 0.0 (22.69 7,476.4 t 2 1 5 ) 5

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Machine Hours

5.77

0.49

11. 7

0.0 0

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.

105) 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

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Machine Hours Electricity Costs 2,300 $ 19,100 2,700 22,400 1,700 14,200 2,900 24,400 3,600 28,950 3,100 23,400 3,900 25,450 3,300 23,450 1,800 16,900 3,500 27,400 4,500 32,400 112

December

4,000

28,450

Summary Output Regression Statistics Multiple R R Square Adjusted R2 Standard Error Observations Coefficient Standard s Error Intercep 5,970.5 1,766.7 t 2 7 Machine 5.76 0.55 Hours

0.957 0.917 0.908 1,586.26 12.00 t Stat P-value Lower 95% 3.38 10.4 9

0.0 1 0.0 0

2,033.9 0 4.54

Upper 95% 9,907.1 3 6.98

Using the high-low method, the estimate of electricity costs in a month with 2,000 machine hours would be: Note: Round cost per machine hour to 2 decimal places and all other dollar amounts to nearest whole dollar. A) $16,150. B) $23,300. C) $16,265. D) $17,491.

Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

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106) 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

Using the high-low method, 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.

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107) 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 Electricity Costs 3,000 $ 18,650 3,400 21,500 2,400 13,750 3,600 23,500 4,300 28,500 3,800 22,500 4,600 25,000 4,000 23,000 2,500 16,000 4,200 26,500 5,600 31,500 5,200 28,000 Summary Output Regression Statistics Multiple R 0.952 R Square 0.906 2 Adjusted R 0.897 Standard Error 1,676.51 Observations 12.00 Coefficient Standard t Stat P-value Lower 95% s Error Intercep 3,639.3 2,048.6 1.7 0.1 (925.25 t 3 0 8 1 )

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Upper 95% 8,203.9 0 115

Machine Hours

5.04

0.51

9.8 3

0.0 0

3.89

6.18

If the controller uses regression analysis to estimate costs, the cost equation for electricity costs is: A) Electricity Costs = $1,676.51 + ($12.00 × Machine-hours). B) Electricity Costs = $3,639.33 + ($2,048.60 × Machine-hours). C) Electricity Costs = $2,048.60 + ($0.51 × Machine-hours). D) Electricity Costs = $3,639.33 + ($5.04 × Machine-hours).

108) 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

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Machine Hours Electricity Costs 2,500 $ 18,400 2,900 21,000 1,900 13,500 3,100 23,000 3,800 28,250 3,300 22,000 4,100 24,750 3,500 22,750 2,000 15,500 3,700 26,000 4,700 31,000 116

December

4,200

27,750

Summary Output Regression Statistics Multiple R R Square Adjusted R2 Standard Error Observations Coefficient s Intercep 3,726.88 t Machine 5.77 Hours

Standard Error 1,682.8 2 0.49

0.965 0.932 0.925 1,425.18 12.00 t Stat P-value Lower 95% Upper 95% 2.2 1 11. 7

0.0 5 0.0 0

(22.69 ) 4.67

7,476.4 5 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).

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

109) 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:

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

Upper 95% 8,203.9 0 6.18

If the controller uses regression analysis to estimate costs, the estimate of the variable portion of electricity costs is: A) Variable electricity costs = $9.83 × Machine-hours. B) Variable electricity costs = $0.91 × Machine-hours. C) Variable electricity costs = $5.04 × Machine-hours. D) Variable electricity costs = $0.51 × Machine-hours.

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110) 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

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Machine Hours

5.77

0.49

11. 7

0.0 0

4.67

6.87

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

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

111) 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

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Machine Hours Electricity Costs 2,300 $ 19,100 2,700 22,400 1,700 14,200 2,900 24,400 3,600 28,950 3,100 23,400 3,900 25,450 3,300 23,450 1,800 16,900 3,500 27,400 4,500 32,400 120

December

4,000

28,450

Summary Output Regression Statistics Multiple R R Square Adjusted R2 Standard Error Observations Coefficient Standard s Error Intercep 5,970.5 1,766.7 t 2 7 Machine 5.76 0.55 Hours

0.957 0.917 0.908 1,586.26 12.00 t Stat P-value Lower 95% 3.38 10.4 9

0.0 1 0.0 0

2,033.9 0 4.54

Upper 95% 9,907.1 3 6.98

If the controller uses regression analysis to estimate costs, the estimate of the fixed portion of electricity costs is: A) Fixed Cost = $5.76. B) Fixed Cost = $1,766.77. C) Fixed Cost = $1,586.26. D) Fixed Cost = $5,970.52.

112) 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:

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

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

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

113) 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 Electricity Costs 2,000 $ 18,950 2,400 22,100 1,400 14,050 2,600 24,100 3,300 28,800 2,800 23,100 3,600 25,300 3,000 23,300 1,500 16,600 3,200 27,100 4,200 32,100 3,700 28,300 Summary Output Regression Statistics Multiple R 0.960 R Square 0.921 2 Adjusted R 0.913 Standard Error 1,545.17 Observations 12.00 Coefficient Standard t Stat P-value Lower 95% Upper 95% s Error Intercep 7,465.9 1,566.6 4.77 0.0 3,975.3 10,956.6 t 9 1 0 7 2

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Machine Hours

5.76

0.53

10.7 8

0.0 0

4.57

6.95

Based on the results of the regression analysis, the estimate of electricity costs in a month with 1,700 machine hours would be: Note: Rounded to the nearest whole dollar. A) $7,466. B) $17,258. C) $16,185. D) $23,070.

Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

114) 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

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Machine Hours Electricity Costs 2,500 $ 18,400 2,900 21,000 1,900 13,500 3,100 23,000 3,800 28,250 3,300 22,000 4,100 24,750 3,500 22,750 2,000 15,500 3,700 26,000

124

November December

4,700 4,200

31,000 27,750

Summary Output Regression Statistics Multiple R R Square Adjusted R2 Standard Error Observations Coefficient s Intercep 3,726.88 t Machine 5.77 Hours

Standard Error 1,682.8 2 0.49

0.965 0.932 0.925 1,425.18 12.00 t Stat P-value Lower 95% Upper 95% 2.2 1 11. 7

0.0 5 0.0 0

(22.69 ) 4.67

7,476.4 5 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: Note: Rounded to the nearest whole dollar. A) $3,727. B) $16,421. C) $15,180. D) $22,825.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

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115) 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 Electricity Costs 3,200 $ 18,750 3,600 21,700 2,600 13,850 3,800 23,700 4,500 28,600 4,000 22,700 5,200 25,100 4,200 23,100 2,700 16,200 4,400 26,700 6,000 31,700 5,700 28,100 Summary Output Regression Statistics Multiple R 0.924 R Square 0.854 2 Adjusted R 0.840 Standard Error 2,090.15 Observations 12.00 Coefficient Standard t Stat P-value Lower 95% Upper 95% s Error Intercep 4,863.9 2,487.7 1.9 0.0 (679.08 10,406.9 t 5 4 6 8 ) 8 Machine 4.45 0.58 7.6 0.0 3.15 5.74 Hours 6 0

The correlation coefficient for the regression equation for electricity costs is: A) 0.924. B) 0.854. C) 0.840. D) 0.904.

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116) 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

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Machine Hours

5.77

0.49

11. 7

0.0 0

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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

117) 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

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Machine Hours Electricity Costs 3,100 $ 18,700 3,500 21,600 2,500 13,800 3,700 23,600 4,400 28,550 3,900 22,600 4,700 25,050 4,100 23,050 2,600 16,100 4,300 26,600 5,800 31,600 5,400 28,050

128

Summary Output Regression Statistics Multiple R R Square Adjusted R2 Standard Error Observations Coefficient Standard s Error Intercep 3,776.7 2,145.8 t 7 5 Machine 4.87 0.52 Hours

0.947 0.897 0.887 1,753.98 12.00 t Stat P-value 1.7 6 9.3 5

0.1 1 0.0 0

Lower 95% (1,004.49 ) 3.71

Upper 95% 8,558.0 3 6.04

The percent of the total variance that can be explained by the regression is: A) 94.7%. B) 89.7%. C) 88.7%. D) 94.7%.

118) 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

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Machine Hours Electricity Costs 2,500 $ 18,400

129

February March April May June July August September October November December

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

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 R Square Adjusted R2 Standard Error Observations Coefficient s Intercep 3,726.88 t Machine 5.77 Hours

Standard Error 1,682.8 2 0.49

0.965 0.932 0.925 1,425.18 12.00 t Stat P-value Lower 95% Upper 95% 2.2 1 11. 7

0.0 5 0.0 0

(22.69 ) 4.67

7,476.4 5 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%.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

119) Balcom Enterprises is planning to introduce a new product that will sell for $100 per unit. Manufacturing cost estimates for 20,500 units for the first year of production are: ● Direct materials $1,045,500. ● Direct labor $615,000 (based on $15 per hour × 41,000 hours). Although overhead has not been 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 $ 121,000 $ 4.00 0.914 0.816

Based on this information, what percentage of the variation in overhead costs is explained by the independent variable? A) 25% B) 81.6% C) 91.4% D) 10%

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120) 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 been 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%

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

121) Balcom Enterprises is planning to introduce a new product that will sell for $130 per unit. Manufacturing cost estimates for 23,500 units for the first year of production are: ● Direct materials $1,339,500. ● Direct labor $705,000 (based on $15 per hour × 47,000 hours). Although overhead has not been 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 $ 127,000 $ 5.00 0.932 0.828

Based on this information, what is the total overhead cost for an estimated activity level of 52,000 direct labor-hours? A) $132,000 B) $387,000 C) $635,000 D) $260,000

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Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

122) 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 been 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

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

123) Balcom Enterprises is planning to introduce a new product that will sell for $120 per unit. Manufacturing cost estimates for 28,000 units for the first year of production are: ● Direct materials $1,372,000. ● Direct labor $1,008,000 (based on $18 per hour × 56,000 hours). Although overhead has not been 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 $ 136,000 $ 5.00 0.959 0.846

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) $77 B) $92 C) $95 D) $72

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Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

124) 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 been 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 esti-mated by the regression (assuming that direct materials and direct labor are variable costs)? A) $78 B) $91 C) $96 D) $71

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

125) Balcom Enterprises is planning to introduce a new product that will sell for $110 per unit. Manufacturing cost estimates for 29,500 units for the first year of production are: ● Direct materials $1,534,000. ● Direct labor $885,000 (based on $15 per hour × 59,000 hours). Although overhead has not been 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 $ 139,000 $ 5.00 0.968 0.852

Based on this information, what is the expected contribution margin per unit to be earned during the first year on 29,500 units of the new product? (Assume that all marketing and administrative costs are fixed.) A) $18 B) $10 C) $102 D) $33

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Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Type : Algorithmic Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

126) 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 been 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

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

127)

Which of the following is false regarding the selection of an estimation method?

A) In general, the more sophisticated estimation methods yield more accurate cost estimates. B) The most informative estimate of cost behavior results from using the high-low method. C) All cost estimation methods make assumptions to simplify the analysis. D) All cost estimation methods yield imperfect estimates of an unknown cost behavior pattern.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : How is an Estimation Method Chosen? Accessibility : Screen Reader Compatible Learning Objective : 05-05 Evaluate and explain the advantages and disadvantages of alternative cost

128) Which of the following refers to the systematic relationship between the amount of experience in performing a task and the time required to perform it?

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A) Regression B) Relevant range C) Learning phenomenon D) Correlation coefficient

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129)

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.

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130) 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

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131) 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

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132)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : Learning Curves (Appendix B) Accessibility : Screen Reader Compatible Learning Objective : 05-07 (Appendix B) Explain and apply the mathematical relationship describing th

133)

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.

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134)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : Learning Curves (Appendix B) Accessibility : Screen Reader Compatible Learning Objective : 05-07 (Appendix B) Explain and apply the mathematical relationship describing th

135)

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : Learning Curves (Appendix B) Accessibility : Screen Reader Compatible Learning Objective : 05-07 (Appendix B) Explain and apply the mathematical relationship describing th

136)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Topic : Learning Phenomenon Topic : Learning Curves (Appendix B) Accessibility : Screen Reader Compatible Learning Objective : 05-04 Incorporate the effects of learning and expected improvements when estimat Learning Objective : 05-07 (Appendix B) Explain and apply the mathematical relationship describing th

137) Bachmann Products, Incorporated, has found that new products follow a learning curve. The first two units have been completed with the following results:

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Units Produced 1 2

Marginal Labor Time 80.00 56.00

How much time will be needed to complete the 4th unit? A) 62.00 hours. B) 39.20 hours. C) 32.00 hours. D) 26.40 hours.

Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Learning Phenomenon Type : Algorithmic Accessibility : Screen Reader Compatible Learning Objective : 05-04 Incorporate the effects of learning and expected improvements when estimat

138) Bachmann Products, Incorporated, has found that new products follow a learning curve. The first two units have been completed with the following results: Units Produced 1 2

Marginal Labor Time 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

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139) Bachmann Products, Incorporated, has found that new products follow a learning curve. The first two units have been completed with the following results: Units Produced 1 2

Marginal Labor Time 70.00 49.00

How much time will be needed to complete the 8th unit? A) 55.00 hours. B) 34.30 hours. C) 28.00 hours. D) 24.01 hours.

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140) Bachmann Products, Incorporated, has found that new products follow a learning curve. The first two units have been completed with the following results: Units Produced 1 2

Marginal Labor Time 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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Gradable : automatic AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Learning Phenomenon Accessibility : Screen Reader Compatible Learning Objective : 05-04 Incorporate the effects of learning and expected improvements when estimat

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 141) The following manufacturing costs were incurred by the Miracle Mile Company in 2022: Direct materials Direct labor Manufacturing overhead

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$ 225,000 350,000 470,000

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These costs were incurred to produce 50,000 units of product. Variable manufacturing overhead was 70% of the direct materials cost. In 2023, 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 2023. (b) Determine the total product costs per unit for 2022 and 2023. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

142)

The following manufacturing costs were incurred by the Trinitram Company in 2022:

Direct materials Direct labor Manufacturing overhead

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$ 112,500 175,000 235,000

148

These costs were incurred to produce 25,000 units of product. Variable manufacturing overhead was 80% of the direct materials cost. In 2023, 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 2023. (b) Determine the total product costs per unit for 2022 and 2023. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

143) The Thomas Company's total overhead costs at various levels of activity are presented below:

Month July August September October

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Direct Labor Hours 7,500 6,000 9,000 10,500

Total Overhead $ 272,000 234,000 319,000 340,500

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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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

144) 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 2023. Month

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Production (Units)

Manufacturing Overhead Cost

Average Monthly Production Lot Size

150

1 2 3 4 5 6 7 8 9 10 11 12

75,000 90,000 65,000 80,000 55,000 50,000 85,000 105,000 102,000 68,000 75,000 95,000

$ 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

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

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145) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

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146) 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 2023. 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

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:

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$482,172 + $2.4918 × units + $11,770.939 × lot size 0.777

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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. Note: Round final answer 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. Note: Round final answer 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

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147) 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 2023 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 2023 including separate columns for total dollars, per unit dollars, and percentages. (c) Determine the break-even point (in units and in dollars). ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

148) 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?

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149) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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150) New Venture, Incorporated, 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 be the total amount of the contract? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Learning Curves (Appendix B) Accessibility : Screen Reader Compatible Learning Objective : 05-07 (Appendix B) Explain and apply the mathematical relationship describing th

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151) Market Products, Incorporated, has found that new products follow a learning curve. The first two units have been completed with the following results:

Units Produced 1 2

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Learning Phenomenon Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 05-04 Incorporate the effects of learning and expected improvements when estimat

152) 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

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Machine

Utility Costs

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

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 Coefficient Standard s Error Intercep 4,472.26 2,019.3 t 9 Machine 5.329 0.455 Hours

$ 22,080 25,200 16,200 27,600 33,900 26,400 29,700 27,300 18,600 31,200 37,200 33,300

96.5% 93.2% 92.5% 1,710.21 12.00 t Stat P-value Lower 95% Upper 95% 2.21

0.051

11.7 0

3.69E –07

−27.2 3 4.314

8971.7 4 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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153) 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? Note: Round the variable unit cost to 4 decimal places and the fixed cost to 2 decimal places. (b) Prepare an estimate of utility costs for a month when 3,000 machine hours are worked. Note: Round your final answer to 2 decimal places. Version 1

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154) Yates Corporation 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

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

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

Total

516,100

$ 361,548

Average

43,008

$ 30,129

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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. Note: Round the variable cost per unit to 4 decimal places. Round fixed costs and final answer to 2 decimal places. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

155) Yates Corporation 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

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Units Produced 32,500 37,700 24,700 40,300 49,400 42,900 53,300

Administrative Costs $ 24,288 27,720 17,820 30,360 37,290 29,040 32,670

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August September October November December

45,500 26,000 48,100 61,100 54,600 SUMMARY OUTPUT Regression Statistics

Multiple R R Square Adjusted R-Square Standard Error Observations Coefficient s Intercep 4,919.48 t Units 0.586154 produced

Standard Error 2,221.32 9 0.050082

30,030 20,460 34,320 40,920 36,630

0.965383 0.931965 0.925162 1,881.232 12 t Stat P-value Lower 95% Upper 95% 2.21 11.7 0

0.05115 6 3.69E– 07

– 29.9485 0.47456 6

9,868.90 9 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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156) 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.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

157) 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 2023. Month 1 2 3 4 5 6 7 8 9 10 11 12

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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

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Regression analysis results of the information presented above are as follows: Ordinary regression: Equation: $650,398 + $3.1061 × Units R-square: 0.707 Multiple regression: Equation: [$464,481 + ($2.5356 × Units)] + ($11,631.6048 × Number of setups) R-square: 0.867 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. Note: Round final answer 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 setups. Note: Round final answer 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

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158) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

159) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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160) Markham, Incorporated, 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 + 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? (b) What will be the total amount of the contract? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Learning Curves (Appendix B) Accessibility : Screen Reader Compatible Learning Objective : 05-07 (Appendix B) Explain and apply the mathematical relationship describing th

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161) Woodman Products, Incorporated, has found that new products follow a learning curve. The first two units have been completed with the following results: Units Produced 1 2

Marginal Labor Time 112.50 90.00

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162) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Topic : Basic Cost Behavior Patterns AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 05-01 Explain the reasons for estimating fixed and variable costs.

163) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Topic : Basic Cost Behavior Patterns AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 05-01 Explain the reasons for estimating fixed and variable costs.

164) Describe the engineering method of cost estimation. Provide two advantages and two disadvantages associated with the engineering approach to cost estimation. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

165) Explain the difference between the engineering method of cost estimation and the account analysis method. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

166) When preparing cost estimates for account analysis purposes, should the costs be extracted from the historical accounting records? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

167) Describe two advantages and two disadvantages of the high-low method of cost estimation. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

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168) Is it possible to compensate for the effects of price instability when preparing cost esti-mates using high-low or regression techniques? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

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169) 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 expendi-tures and sales? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-02 Estimate costs using a variety of methods, specifically engineering estima

170) 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?

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171) What are "outliers" and what effect does their presence have when using regression analysis for cost estimation? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

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172) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Gradable : manual Topic : What Methods Are Used to Estimate Cost Behavior? Accessibility : Screen Reader Compatible Learning Objective : 05-03 Use regression analysis to estimate costs, interpret regression analysis r

173) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Understand Difficulty : 3 Hard Topic : Learning Phenomenon Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 05-05 Evaluate and explain the advantages and disadvantages of alternative cost

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174) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : Learning Phenomenon Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 05-04 Incorporate the effects of learning and expected improvements when estimat

175) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making AACSB : Analytical Thinking Bloom's : Understand Difficulty : 2 Medium Topic : Learning Phenomenon Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 05-04 Incorporate the effects of learning and expected improvements when estimat

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Answer Key Test name: Lanen7e_ch05 1) TRUE 2) FALSE Accounting records typically accumulate costs by account, not by behavior. 3) TRUE 4) TRUE 5) TRUE 6) TRUE 7) TRUE 8) TRUE 9) TRUE This statement is a definition of the term 'relevant range.’ 10) TRUE 11) TRUE 12) TRUE 13) FALSE Outliers are extreme points and can significantly affect analysis results. 14) TRUE 15) TRUE 16) TRUE 17) FALSE Not always. If the data is linear, the scattergraph method will give the same results as regression analysis. 18) TRUE 19) TRUE 20) TRUE Version 1

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21) B Accounting records accumulate information by account, not by behavior. 22) B Within the relevant range, total variable costs change proportionately with activity levels while variable cost per unit is constant. Within the relevant range, total fixed costs are constant but fixed costs per unit will vary with activity levels. 23) D A cost driver is a causal factor that increases the total cost of a cost object. 24) D The engineering method does not require data from prior activities in the organization, as it can be used to estimate costs for totally new activities. 25) A Scattergraph, account analysis, and regression analysis require information from existing activities. A new product has no previous history. Engineering estimates would be the best method because it does not require data from prior activities. 26) A Engineering estimates are often based on optimal conditions. 27) C Account analysis is a cost estimation method that calls for a review of each account making up the total cost being analyzed. 28) A Only indirect materials would have variable behavior. All the other items have fixed behavior. 29) C $163,260 = ($75 × Units) + (13,200 × $2.70) + [0.50(13,200 × $2.70)] + $60,000; Units = 664. Version 1

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30) C $132,600 = ($75 × Units) + (12,000 × $2.70) + [.50(12,000 × $2.70)] + $36,000; Units = 640. 31) D The letter “X” is best described as the activity level used to estimate the total cost; for example, “X” could be the volume in number of units of output. 32) C The letter “V” represents the variable cost per unit which makes up the slope of the cost equation. 33) C $9,700 = FC + $1.50(300 × 6); FC = $7,000 34) C $8,600 = FC + $1.50(400 × 5); FC = $5,600 35) C Relevant range is the range of activity levels within which a given total fixed cost or unit variable cost will be unchanged. It is the level of activity for which a cost estimate may be valid. 36) B The high-low cost estimation method estimates costs based on two cost observations, usually at the highest and lowest activity levels. 37) C The high-low method is easy to apply but the highest and lowest points could represent unusual circumstances. 38) C These activities are referred to as predictors, X terms, independent variables, or the right-hand side (RHS) of a regression equation. The dependent variable is the cost to be estimated. 39) D

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The cost to be estimated can be called the dependent variable, the Y term, or the left-hand side (LHS) of the regression equation. 40) B The high-low cost estimation is the method that typically uses the highest and lowest activity points to estimate the relation between cost and activity. 41) C The correlation coefficient measures the proximity of the data points to the regression line. 42) C The letter b is best described as the estimate of the cost for an additional customer visit. 43) B The letter y is best described as the observed store cost for a given month. 44) D The letter x is best described as the observed customer visits for a given month. 45) D The estimated costs for a month with 1,500 customer visits = $1,724 + ($2.38 × 1,500 customer visits) = $5,294. 46) D The estimated costs for a month with 1,600 customer visits = $1,496 + ($2.08 × 1,600 customer visits) = $4,824. 47) A The total variance that can be explained by the regression is 88.6% (R2). 48) A The total variance that can be explained by the regression is 86.8% (R2). 49) D

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Direct Labor Costs per Machine Hour = ($210,000 − $140,000) ÷ (12,000 − 5,000) = $10.00. 50) D Direct Labor Costs per Machine Hour = ($200,000 − $120,000) ÷ (14,000 − 6,000) = $10.00. 51) A Direct Labor Costs per Machine Hour = ($261,950 − $195,000) ÷ (21,500 − 15,000) = $10.30 FC = $195,000 − ($10.30 × 15,000) = $40,500 TC = $40,500 + ($10.30 × 17,500) = $220,750 52) A Direct Labor Costs per Machine Hour = ($200,000 − $120,000) ÷ (14,000 − 6,000) = $10 FC = $120,000 − ($10 × 6,000) = $60,000 TC = $60,000 + ($10 × 10,000) = $160,000 53) B VC per hour = ($12,210 – $9,610) ÷ (16,800 – 12,800) = $0.650 FC = $12,210 – ($0.650 × 16,800) = $1,290.00 TC = $1,290.00 + ($0.650 × 11,900) = $9,025.00. 54) B VC per hour = ($12,080 − $9,580) ÷ (15,500 − 11,500) = $0.625 FC = $12,080 − ($0.625 × 15,500) = $2,392.50 TC = $2,392.50 + ($0.625 × 14,000) = $11,142.50 55) D VC per unit = ($854,660 – $680,660) ÷ (650,000 – 505,000) = $1.20 per unit FC = $854,660 – ($1.20 × 650,000) = $74,660 TC = $74,660 + ($1.20 × 580,000) = $770,660 56) D

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VC per unit = ($853,560 − $723,060) ÷ (540,000 − 450,000) = $1.45 per unit FC = $853,560 − ($1.45 × 540,000) = $70,560 TC = $70,560 + ($1.45 × 470,000) = $752,060 57) B ($14,362 − $8,074)/(5,100 − 2,480) = $2.40. 58) B ($14,182 − $8,748) ÷ (4,200 − 2,300) = $2.86. 59) B VC = ($14,322 − $8,418) ÷ (4,900 − 2,440) = $2.40 FC = $14,322 − ($2.40 × 4,900) = $2,562 TC = $2,562 + ($2.40 × 2,740) = $9,138 60) B VC = ($14,182 – $8,748) / (4,200 – 2,300) = $2.86 FC = $14,182 – ($2.86 × 4,200) = $2,170 TC = $2,170 + ($2.86 × 2,600) = $9,606 61) B $615.26 + ($42.02 × 220) = $9,860. 62) B $596.36 + ($41.27 × 225) = $9,882. 63) C Maintenance Costs = A coefficient or intercept + (B coefficient or slope × X term or predictor). Maintenance Costs = $706.35 + ($7.2884 × Hours of Activity). 64) C Maintenance Costs = A coefficient or intercept + (B coefficient or slope × X term or predictor). Maintenance Costs = $684.65 + ($7.2884 × Hours of Activity). 65) C

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Maintenance Costs = A coefficient or intercept + (B coefficient or slope × X term or predictor). $787.70 + ($7.2884 × 515 hours) = $4,541. 66) C Maintenance Costs = A coefficient or intercept + (B coefficient or slope × X term or predictor). $684.65 + ($7.2884 × 420 hours) = $3,746. 67) B ($4,260 − $2,880) ÷ (580 − 330) = $5.52 68) B ($4,470 – $2,820) ÷ (520 – 300) = $7.50 69) A VC per hour = ($4,260 − $2,880) ÷ (580 − 330) = $5.52FC = $2,880 − ($5.52 × 330) = $1,058 70) A VC per hour = ($4,470 − $2,820) ÷ (520 − 300) = $7.50 FC = $2,820 − ($7.50 × 300) = $570 71) C VC per hour = ($4,830 − $4,560) ÷ (1,080 − 600) = $.56 FC = $4,560 − ($.56 × 600) = $4,224 TC = $4,224 + ($.56 × 510) = $4,510 72) C VC per hour = ($4,470 − $2,820) ÷ (520 − 300) = $7.50 FC = $2,820 − ($7.50 × 300) = $570 TC = $570 + ($7.50 × 420) = $3,720 73) C VC per hour = ($4,730 − $4,460) ÷ (880 − 470) = $.66FC = $4,460 − ($.66 × 470) = $4,150 Maintenance Costs = $4,150 + ($.66 × Hours of Activity) 74) C Version 1

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VC per hour = ($4,470 − $2,820) ÷ (520 − 300) = $7.50 FC = $2,820 − ($7.50 × 300) = $570 Maintenance Costs = $570 + ($7.50 × Hours of Activity) 75) C VC per credit hour = ($226,180 − $83,413) ÷ (1,912 − 635) = $111.80. 76) C VC per credit hour = ($225,580 − $82,613) ÷ (1,392 − 115) = $111.96 77) B VC per credit hour = ($226,150 − $83,373) ÷ (1,886 − 609) = $111.81 FC = $226,150 − ($111.81 × 1,886) = $15,276.34 78) B VC per credit hour = ($225,580 − $82,613) ÷ (1,392 − 115) = $111.96 FC = $225,580 − ($111.96 × 1,392) = $69,731.68 79) B VC per credit hour = ($225,670 − $82,733) ÷ (1,470 − 193) = $111.93 FC = $225,670 − ($111.93 × 1,470) = $61,132.90 Administrative Costs = $61,132.90 + ($111.93 × Credit-hours) 80) B VC per credit hour = ($225,580 − $82,613) ÷ (1,392 − 115) = $111.96 FC = $225,580 − ($111.96 × 1,392) = $69,731.68 Administrative Costs = $69,731.68 + ($111.96 × Credit-hours) 81) A VC per credit hour = ($225,760 − $82,853) ÷ (1,548 − 271) = $111.91FC = $225,760 − ($111.91 × 1,548) = $52,523.32 $52,523.32 + ($111.91 × 1,120 credit hours) = $177,863.00 82) A VC per credit hour = ($225,580 − $82,613) ÷ (1,392 − 115) = $111.96 FC = $225,580 − ($111.96 × 1,392) = $69,731.68 $69,731.68 + ($111.96 × 1,000 credit hours) = $181,691.68 83) C Version 1

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Using the Excel output, Cost = $42,213.93 + ($109.59 × Credit hours). 84) C Using the Excel output, Cost = $96,647.02 + ($103.06 × Credit hours). 85) C Using the Excel output, Variable Costs = $108.26 × Credit hours. 86) C Using the Excel output, Variable Costs = $103.06 × Credit hours. 87) D Using the Excel output, fixed cost = $93,173.64. 88) D Using the Excel output, fixed cost = $96,647.02. 89) C $86,208.30 + ($104.94 × 1,000) = $191,148. 90) C $96,647.02 + ($103.06 × 1,000) = $199,707. 91) A The correlation coefficient for the regression equation for administrative costs is Multiple R or 0.929. 92) A The correlation coefficient for the regression equation for administrative costs is Multiple R or 0.932. 93) B The percent of the total variance that can be explained by the regression is R-squared or 83.1%. 94) B The percent of the total variance that can be explained by the regression is R-squared or 86.8%. 95) B $107.04 × 200 = $21,408 96) B Version 1

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$103.06 × 200 = $20,612 97) D Management analysis of data is a judgmental approach. 98) D Multiple regression analysis allows for the inclusion of multiple predictors. 99) A VC per machine hour = ($32,700 − $14,350) ÷ (4,800 − 2,000) = $6.55. 100) A VC per machine hour = ($31,000 − $13,500) ÷ (4,700 − 1,900) = $6.25. 101) C VC per machine hour = ($31,600 − $13,800) ÷ (5,800 − 2,500) = $5.39 FC = $31,600 − ($5.39 × 5,800) = $338 102) C VC per machine hour = ($31,000 − $13,500) ÷ (4,700 − 1,900) = $6.25 FC = $31,000 − ($6.25 × 4,700) = $1,625.00 103) B VC per machine hour = ($32,200 − $14,100) ÷ (4,300 − 1,500) = $6.46FC = $32,200 − ($6.46 × 4,300) = $4,422 Electricity Costs = $4,422.00 + ($6.46 × Machine-hours) 104) B VC per machine hour = ($31,000 − $13,500) ÷ (4,700 − 1,900) = $6.25 FC = $31,000 − ($6.25 × 4,700) = $1,625 Electricity Costs = $1,625.00 + ($6.25 × Machine-hours) 105) A VC per machine hour = ($32,400 − $14,200) ÷ (4,500 − 1,700) = $6.50FC = $32,400 − ($6.50 × 4,500) = $3,150 $3,150 + ($6.50 × 2,000 machine-hours) = $16,150 106) A

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VC per machine hour = ($31,000 − $13,500) ÷ (4,700 − 1,900) = $6.25 FC = $31,000 − ($6.25 × 4,700) = $1,625 $1,625 + ($6.25 × 2,200 machine-hours) = $15,375 107) D Using the Excel output, Electricity Costs = $3,639.33 + ($5.04 × Machine-hours). 108) D Using the Excel output, Electricity Costs = $3,726.88 + ($5.77 × Machine hours). 109) C Using the Excel output, Variable electricity costs = $5.04 × Machinehours. 110) C Using the Excel output, Variable electricity costs = $5.77 × Machine hours. 111) D Using the Excel output, Fixed Cost = $5,970.52 (Intercept). 112) D Using the Excel output, Fixed Cost = $3,726.88 (Intercept). 113) B $7,465.99 + ($5.76 × 1,700) = $17,258 114) B $3,726.88 + ($5.77 × 2,200) = $16,421 115) A Multiple R, or the correlation coefficient, for the regression equation for electricity costs is 0.924. 116) A Multiple R, or the correlation coefficient, for the regression equation for electricity costs is 0.965. 117) B Version 1

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The percent of the total variance that can be explained by the regression is the R square or 89.7% (0.897). 118) B The percent of the total variance that can be explained by the regression is the R square or 93.2% (0.932). 119) B R2 (coefficient of determination) explains the proportion of the variation in Y (dependent variable) explained by the X predictors (independent variables). 120) B R2 (coefficient of determination) explains the proportion of the variation in Y (dependent variable) explained by the X predictors (independent variables). 121) B $127,000 + ($5 × 52,000) = $387,000 122) B $120,000 + ($5 × 45,000) = $345,000 123) C 56,000 hours ÷ 28,000 units = 2 labor hours per unit ($1,372,000 ÷ 28,000) + ($1,008,000 ÷ 28,000) + ($5 × 2 labor hours) = $49 + $36 + $10 = $95 124) C 40,000 hours ÷ 20,000 units = 2 labor hours per unit ($1,000,000 ÷ 20,000) + ($720,000 ÷ 20,000) + ($5 × 2 labor hours) = $50 + $36 + $10 = $96 125) A 59,000 hours ÷ 29,500 units = 2 labor hours per unit ($1,534,000 ÷ 29,500) + ($885,000 ÷ 29,500) + ($5 × 2 labor hours) = $52 + $30 + $10 = $92; $110 − $92 = $18 126) A Version 1

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40,000 hours ÷ 20,000 units = 2 labor hours per unit ($1,000,000 ÷ 20,000) + ($720,000 ÷ 20,000) + ($5 × 2 labor hours) = $50 + $36 + $10 = $96; $110 − $96 = $14 127) B Probably the most informative estimate of cost behavior results from using several methods because each has the potential to provide information that the others do not. 128) C The learning phenomenon is the systematic relationship between the amount of experience in performing a task and the time required to perform it. 129) C The two basic assumptions of cost estimation are that cost behavior depends on just one cost driver and cost behavior patterns are linear within the relevant range. 130) D Depreciable assets do not create data problems. 131) A Non-numeric data is easily incorporated into the analysis using indicator variables. 132) B In this equation, the Y term represents the number of labor-hours per unit required for the last single unit produced. 133) C In this equation, the X term represents the cumulative number of units produced. 134) A In this equation, the a term represents the number of labor-hours required to produce the first unit. 135) D Version 1

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In this equation, the b term represents the index of learning equal to the natural logarithm (In) of the learning rate divided by the In of 2. 136) D 137) B 56.00 ÷ 80.00 = 70% × 56.00 = 39.20 hours 138) B 68 ÷ 80 = 85% × 68 = 57.80 hours 139) D 49/70 = 70% × 49 = 34.30 hours for 4th unit 34.30 × 70% = 24.01 hours for 8th unit 140) D 68/80 = 85% × 68 = 57.80 hours for 4th unit 57.80 × 85% = 49.13 hours for 8th unit 141)(a) Variable overhead costs (2022) = 70% × $225,000 = $157,500. Fixed overhead costs (2022) = $470,000 − $157,500 = $312,500. 2022 Direct materials Direct labor Variable overhead costs Fixed overhead costs Total

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$ 225,000 350,000 157,500 312,500

$ 201,600 280,000 141,120 337,500

$ 1,045,000

$ 960,220

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(1) [($225,000 ÷ 50,000) × 1.12] × 40,000 = $201,600 (2) ($350,000 ÷ 50,000) × 40,000 = $280,000 (3) [($157,500 ÷ 50,000) × 1.12] × 40,000 = $141,120 (4) $312,500 × 1.08 = $337,500 (b) 2022 unit cost: $1,045,000 ÷ 50,000 = $20.90 2023 unit cost: $960,220 ÷ 40,000 = $24.01 142)(a) Variable overhead costs (2022) = 80% × $112,500 = $90,000 Fixed overhead costs (2022) = $235,000 − $90,000 = $145,000 2022

2023

Direct materials Direct labor Variable overhead costs Fixed overhead costs

$ 112,500 175,000 90,000 145,000

$ 103,500 140,000 82,800 155,875

Total

$ 522,500

$ 482,175

(1) (2) (3) (4)

(1) [($112,500 ÷ 25,000) × 1.15] × 20,000 = $103,500 (2) ($175,000 ÷ 25,000) × 20,000 = $140,000 (3) [($90,000 ÷ 25,000) × 1.15] × 20,000 = $82,800 (4) $145,000 × 1.075 = $155,875 (b) 2022 unit cost: $522,500 ÷ 25,000 = $20.90 2023 unit cost: $482,175 ÷ 20,000 = $24.11

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143)(a) Utilities per hour = $137,700 ÷ 9,000 = $15.30 per direct labor hour Utility cost at the high point = $15.30 × 10,500 = $160,650 Utility cost at the low point = $15.30 × 6,000 = $91,800 Maintenance cost at the high point = $340,500 − $80,000 − $160,650 = $99,850 Maintenance cost at the low point = $234,000 − $80,000 − $91,800 = $62,200 Maintenance cost per hour = ($99,850 − $62,200) ÷ (10,500 − 6,000) = $8.36667 Fixed maintenance costs per month = $99,850 − ($8.36667 × 10,500) = $12,000 Total maintenance costs = $12,000 + ($8.36667 × Direct labor hours) (b) Total overhead costs = ($80,000 + $12,000) + [($15.30 + 8.36667) × Direct labor hours] = $92,000 + ($23.66667 × Direct labor hours). 144)(a) Variable cost per unit = ($1,053,500 − $825,000) ÷ (105,000 − 50,000) = $4.154 Fixed costs = $1,053,500 − ($4.154 × 105,000) = $617,330 TC = $617,330 + ($4.154 × 92,000) = $999,498 (b) Variable cost per unit = ($1,053,500 − $825,000) ÷ (25 − 18) = $32,642.857 Fixed costs = $1,053,500 − ($32,642.857 × 25) = $237,429 TC = $237,429 + ($32,642.857 × 21) = $922,929

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145)(a) Total manufacturing overhead costs = $14,600 + ($12.55 × Direct labor hours) (b) Total manufacturing overhead costs = $14,600 + ($12.55 × 12,000) = $165,200 146)(a) Total manufacturing overhead costs = $691,741 + ($3.0692 × 92,000) = $974,107 (b) Total manufacturing overhead costs = [$482,172 + ($2.4918 × 92,000) + ($11,770.939 × 21)] = $958,607 (c) The multiple regression improves the fit over the ordinary regression. The r-square improves from 0.628 to 0.777. Additional information may include tests to determine the significance of the coefficients.

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147)(a) Variable cost per unit = ($966,875 − $321,875) ÷ (80,000 − 20,000) = $10.75 Fixed costs = $966,875 − (80,000 × $10.75) = $106,875 Total costs = $106,875 + ($10.75 × Units) (b) Total contribution margin = $45,125 + 106,875 = $152,000 Total variable costs = $10.75 × 32,000 = $344,000 Total sales = $344,000 + 152,000 = $496,000 Selling price per unit = $496,000 ÷ 32,000 = $15.50 Contribution margin per unit = $152,000 ÷ 32,000 = $4.75 Contribution margin ratio = $152,000 ÷ $496,000 = 30.645%

Sales Variable costs Contribution margin

Total

Per Unit

$ 496,000 344,000 152,000

$ 15.50 10.75 $ 4.75

100.000 69.355 30.645

Fixed costs

106,875

Operating profits

$ 45,125

(c) BE = $106,875 ÷ $4.75 = 22,500 units BE = $106,875 ÷ 0.30645 = $348,752 (or 22,500 units × $15.50 = $348,750) BE = 22,500 units or $348,750

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148)Total costs must be used rather than unit costs. (a) Month 1: 50,000 units × $10.75 = $537,500 Month 2: 100,000 × $8.25 = $825,000 Variable cost = ($825,000 − $537,500) ÷ (100,000 − 50,000) = $5.75 Fixed cost = $825,000 − (100,000 × $5.75) = $250,000 (b) $250,000 + ($5.75 × 80,000) = $710,000 $710,000 ÷ 80,000 units = $8.875 149)(a) Variable cost per unit = $125,000 ÷ 25,000 = $5 Fixed cost = $600,000 − (75,000 × $5) = $225,000 Total costs = $225,000 + ($5 × Units sold) (b) Revenue (80,000 × $9) Variable costs (80,000 × $5) Contribution margin Fixed cost

$ 720,000 400,000 320,000 225,000

Operating profit

$ 95,000

150)(a) The learning rate is 114 hours ÷ 120 hours = 95% learning rate. Units Produced 1(120 × 1–0.074) 2(120 × 2–0.074) 3(120 × 3–0.074) 4(120 × 4–0.074) 5(120 × 5–0.074) 6(120 × 6–0.074) 7(120 × 7–0.074) 8(120 × 8–0.074)

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Cumulative Labor Time 120.00 234.00 344.63 452.93 559.46 664.56 768.47 871.36

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871.36 hours × $25 = $21,784 (b) $21,784 × 120% = $26,140.80 151)Learning rate = 225/250 = 90% (a) 225 × 0.9 = 202.50 (b) 202.50 × 0.9 = 182.25 (c) 182.25 × 0.9 = 164.025

152)(a) $4,472.26 + ($5.329 × Machine hours) (b) Yes, the t-stat of 11.70 exceeds the general rule of thumb of 2. (c) $4,472.26 + ($5.329 × 3,000) = $20,459.26 153)(a) Variable cost per unit: ($37,200 – $16,200) ÷ (6,110 − 2,470) = $5.7692 Fixed = $37,200 – (6,110 × 5.7692) = $1,950.19 Total utility costs = $1,950.19 + ($5.7692 × Units) (b) $1,950.19 + (5.7692 × 3,000) = $19,257.79

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154)(a) Variable cost per unit = ($40,920 – $17,820) ÷ (61,100 − 24,700) = $0.6346 Fixed costs = $40,920 − (61,100 × 0.6346) = $2,145.94 Total administrative costs = $2,145.94 + ($0.6346 × Units) (b) $2,145.94 + ($0.6346 × 30,000) = $21,183.94 155)(a) Total administrative costs = $4,919.48 + ($0.586154 × Units) (b) Yes, the t-stat of 11.70 exceeds the general rule of thumb of 2. (c) $4,919.48 + ($0.586154 × 30,000) = $22,504.10

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156)(a) Indirect labor per hour = $219,600 ÷ 18,000 = $12.20 per direct labor hour. Indirect labor cost at the high point = $12.20 × 21,000 = $256,200. Indirect labor cost at the low point = $12.20 × 12,000 = $146,400. Maintenance cost at the high point = $604,700 − 125,000 − 256,200 = $223,500. Maintenance cost at the low point = $409,400 − 125,000 − 146,400 = $138,000. Variable maintenance cost per hour = ($223,500 − $138,000) ÷ (21,000 − 12,000) = $9.50. Fixed maintenance cost per month = $223,500 − ($9.50 × 21,000) = $24,000 Total maintenance costs = $24,000 + ($9.50 × Direct labor hours). (b) Total overhead costs = ($125,000 + $24,000) + [($12.20 + $9.50) × Direct labor hours] = $149,000 + ($21.70 × Direct labor hours). 157)(a) Total manufacturing overhead costs = $650,398 + ($3.1061 × 75,000) = $883,356. (b) Total manufacturing overhead costs = [$464,481 + ($2.5356 × 75,000)] + [($11,631.6048 × 18)] = $864,020. (c) The multiple regression improves the fit over the ordinary regression. The r-square improves from 0.707 to 0.867. Additional information may include tests to determine the significance of the coefficients.

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158)Total costs must be used rather than unit costs. (a) Month 1: 75,000 units × $8.60 = $645,000. Month 2: 125,000 × $6.98 = $872,500. Variable cost per unit = ($872,500 − $645,000) ÷ (125,000 − 75,000) = $4.55. Fixed cost = $872,500 − (125,000 × $4.55) = $303,750. Total production costs = $303,750 + ($4.55 × Units). (b) $303,750 + ($4.55 × 110,000) = $804,250. $804,250 ÷ 110,000 units = $7.31. 159)(a) Variable cost per unit = ($1,400,000 − 950,000) ÷ (85,000 − 55,000) = $15 Fixed cost = $950,000 − (55,000 × $15) = $125,000 Total costs = $125,000 + ($15 × Units sold) (b) Revenue (70,000 × $21) Variable costs (70,000 × $15) Contribution margin Fixed cost Operating profit

$ 1,470,000 1,050,000 420,000 125,000 $ 295,000

160)(a) The learning rate is 76.5 hours ÷ 90 hours = 85% learning rate. Units Produced 1(90 × 1–0.2345) 2(90 × 2–0.2345) 3(90 × 3–0.2345) 4(90 × 4–0.2345)

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201

5(90 × 5–0.2345) 6(90 × 6–0.2345) 7(90 × 7–0.2345) 8(90 × 8–0.2345)

61.71 59.12 57.03 55.27

362.79 421.91 478.94 534.21

534.21 hours × $40 = $21,368.40 (b) $21,368.40 × 130% = $27,778.92 161)Learning rate = 90 ÷ 112.5 = 80% (a) 90 × 0.8 = 72.00 hours (b) 72.00 × 0.8 = 57.60 hours (c) 57.60 × 0.8 = 46.08 hours

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162)a. Direct labor would be fixed if a union contract limited the company's ability to lay off unneeded personnel or if management were contemplating a change in facilities but maintaining the same labor force. b. Equipment depreciation would be a variable cost if computed on a unitof-production basis. c. Utilities are variable above the minimum, but if the company's usage falls to the minimum or below, the costs would be fixed. d. Supervisory salaries normally increase in steps. If the activity range is narrow, the costs are fixed; but if the range is wide enough so that several "steps" would fall within the range, then the costs would appear to be variable. e. A certain (fixed) level of spoilage may be a fact of life in some operations. An example might be certain waste that occurs in setting up machines.

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163)It is possible for empirical data to show a negative intercept even though fixed costs cannot be negative. It may be that the slope of the cost curve is particularly steep over the values used in the estimation process. It may be that the operations are relatively far away from the intercept. This would be particularly likely if the company were operating close to capacity. Negative intercepts usually mean that there is some error in the specification of the cost estimate. If the company is operating close to capacity, for example, then the assumption of a linear cost function may be in error—or may only be a reasonable approximation in the range of activity close to capacity. 164)The engineering method is based on what needs to be performed in order to produce a good or service. One advantage is it can detail each step required to perform the operation; a second advantage is it does not require data from prior activities—it can be used for new activities. One disadvantage is it can be expensive to conduct since it evaluates every activity; a second disadvantage is the estimates are often based on optimal conditions. 165)The engineering method is based on what must be done to perform an activity; the account analysis analyzes what was done in the past to perform the activity. Engineering is what should, account analysis is what was. 166)Data in the historical accounting records should only be used as long as similar trends are likely to continue in the future. In periods of price instability or technological innovation, use of the historical data without adjustment is likely to result in incorrect estimates. A better alternative is to use the costs that are expected to be incurred during the period for which the cost estimate is prepared.

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167)Advantages: (1) only requires two data points. (2) easy to apply. Disadvantages: (1) most of the information available is ignored. (2) high and low points may not be representative of typical activity. 168)Yes, possible ways include: ● Adjusting the data to present all costs in some common dollar measure. ● Using activity measures that are expressed in dollars that move with the price change effects in the cost to be estimated. ● Using a multiple regression approach with a suitable price index as one of the predictor variables. 169)This is a frequently encountered problem when applying analytical techniques to certain costs. Quite often the advertising expenditures result in sales being generated in the following month or so. In addition, many companies increase their advertising when sales are declining and cut back on advertising when there is capacity business. A better model might be developed by relating this month's sales to last month's advertising. Similar problems can also exist for repair and maintenance costs. This is because machines are usually given routine repairs and maintenance during slow periods.

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170)Since the R2 for the equation is only 18.9%, this is very low for this type of regression. The controller might want to consider other methods. More than likely, the problem centers on the amount of variation in the nature of procedures, such that the estimate of an average procedure cost is not very precise or reliable. By their very nature, an open-heart triple bypass surgery will be much more costly, and require different drivers, than a heart catheterization where the patient requires no overnight hospital stay. 171)An outlier is a data point that lies a significant distance away from the regression line. Since the regression line is computed so the sum of the square of each error (distance between the predicted value and the actual value) is minimized, one point situated at an extreme distance will cause a very large impact on estimating the regression line. 172)Students should choose any 4 of the 5: (1) Missing data: Depending on the data, this could have little impact (if the data are representative) or have a very large impact (if the data include extreme values). (2) Outliers: Extreme observations can unduly affect the cost estimates. Since regression minimizes the sum of the square of the errors, the outlier has a larger impact on the estimation than a more representative point. (3) Allocated and discretionary costs: An allocated cost may in fact be fixed, but the allocation relates it to activity, so it will appear variable. Discretionary cost behavior may be budgeted so that it appears variable. (4) Inflation: Historical data will not reflect future cost behavior due to changing prices. (5) Mismatched time periods: This will cause inaccuracies in relating cost with the activity. The cost will be for one period, the activity will be from a different period. Version 1

206

173)It is certainly possible that for this example a statistical analysis is best. However, it depends on the goal of the analysis. Good data might not be available. For example, the new outlet might be located in an area in which the company has no operations. In addition, historical data might not be representative of the future. It would be best to use a combination of methods and compare the estimates. 174)These chains use standardized techniques and processes that are able to transmit information to employees effectively so that they can learn quickly and learn on the job. 175)Data from previous products, which are likely to be similar, provide information about how learning might affect the cost of the new product. The disadvantage is that the products are different and these differences might lead to learning rates that are different and, as a result, cost estimates that are not realistic. Also, since Dell is primarily a hardware company and EMC primarily works with digital or cloud-based solutions, the learning curve of these two different environments are very different in functionality and may result in unrealistic results.

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207

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 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). ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Cost Management Systems Difficulty : 1 Easy Gradable : automatic Accessibility : Screen Reader Compatible

2) Individual product costs are relevant for managerial decision-making but irrelevant for preparing the financial statements. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Cost Management Systems Difficulty : 1 Easy Gradable : automatic Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Cost Management Systems Difficulty : 1 Easy Gradable : automatic Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Cost Management Systems Difficulty : 1 Easy Gradable : automatic Accessibility : Screen Reader Compatible

In general, indirect costs are allocated, while direct costs are assigned. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Cost Management Systems Difficulty : 2 Medium Bloom's : Understand Gradable : automatic Accessibility : Screen Reader Compatible

6) Cost management systems should be designed to report the same costs to each decisionmaker. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Difficulty : 1 Easy Topic : Fundamental Themes Underlying the Design of Cost Systems for Managerial Purposes Gradable : automatic Accessibility : Screen Reader Compatible

7) The only purpose of cost information is to determine the individual product cost on a per unit basis in order to value inventory. ⊚ true ⊚ false

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8) "Beginning Balance (BB) plus Transfers Out (TO) equals Ending Balance (EB) plus Transfers In (TI)". ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Difficulty : 2 Medium Bloom's : Understand Topic : Costing in a Single-Product, Continuous Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

9) The Transfers In (TI) costs in the basic cost flow model of a manufacturing firm are direct materials, direct labor, and manufacturing overhead. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Difficulty : 1 Easy Topic : Costing in a Single-Product, Continuous Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

10)

The basic cost flow model applies only to physical units and not to costs. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Difficulty : 1 Easy Topic : Costing in a Single-Product, Continuous Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

11) If the Beginning Balance (BB) equals the Ending Balance (EB), then the Transfers In (TI) equal the Transfers Out (TO). ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Difficulty : 2 Medium Bloom's : Understand Topic : Costing in a Single-Product, Continuous Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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). ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Difficulty : 2 Medium Bloom's : Understand Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

13) rate.

Overestimating a period's allocation base will understate the predetermined overhead ⊚ ⊚

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true false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Difficulty : 2 Medium Bloom's : Understand Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

14) The cost per unit of the allocation base used to charge overhead to products is the predetermined overhead rate. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Difficulty : 2 Medium Bloom's : Understand Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

15) The two-stage cost allocation process allocates costs to multiple cost pools and then to individual cost objects using different allocation bases. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Learning Objective : 06-03 Allocate costs using a two-stage allocation system. Topic : Multiple Allocation Bases and Two-Stage Systems Gradable : automatic Accessibility : Screen Reader Compatible

16)

The final step of the two-stage cost allocation system is to assign costs to cost pools. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Bloom's : Understand Learning Objective : 06-03 Allocate costs using a two-stage allocation system. Topic : Multiple Allocation Bases and Two-Stage Systems Gradable : automatic Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Difficulty : 2 Medium Bloom's : Understand Learning Objective : 06-03 Allocate costs using a two-stage allocation system. Topic : Multiple Allocation Bases and Two-Stage Systems Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

18)

Hospitals are more likely to use a process costing system than a job costing system. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Bloom's : Understand Learning Objective : 06-04 Describe the three basic types of product costing systems (job, process, a Topic : Different Companies, Different Production and Costing Systems Gradable : automatic Accessibility : Screen Reader Compatible

19) Process costing systems do not separate and record direct material and direct labor costs for each individual unit of product. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Bloom's : Understand Learning Objective : 06-04 Describe the three basic types of product costing systems (job, process, a Topic : Different Companies, Different Production and Costing Systems Gradable : automatic Accessibility : Screen Reader Compatible

20) Operations costing is a hybrid system used in manufacturing goods that have some common characteristics and some individual characteristics. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Learning Objective : 06-04 Describe the three basic types of product costing systems (job, process, a Topic : Different Companies, Different Production and Costing Systems Gradable : automatic Accessibility : Screen Reader Compatible

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 21) Which of the following statements is false regarding product costing?

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A) A common decision facing managers is determining the price at which to sell their products or provide their services. B) Individual product costs are relevant for managerial decision-making but irrelevant for preparing the financial statements. C) Individual product costs are used to compute inventory values and cost of goods sold for financial statements. D) Individual product costs are used in decision-making by various product managers.

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 costing system.

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23) Which of the following statements is false regarding cost allocations and product costing? A) In general, indirect costs are allocated, while direct costs are assigned. B) The cost allocation rule indicates how to allocate costs from cost pools to cost objects. C) It is easier to determine the individual product cost for a manufacturer than it is for a wholesaler. D) The goal in designing a cost management system is to make the best trade-off between the cost of bad decisions and the cost of developing the information.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Cost Management Systems Difficulty : 2 Medium Bloom's : Understand Gradable : automatic Accessibility : Screen Reader Compatible

24)

The Cost Flow Diagram for product costing includes all of the following costs except:

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A) selling expenses. B) direct materials. C) direct labor. D) fixed manufacturing overhead.

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Difficulty : 2 Medium Bloom's : Understand Topic : Fundamental Themes Underlying the Design of Cost Systems for Managerial Purposes Gradable : automatic Accessibility : Screen Reader Compatible

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26)

Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A)

Case (B)

Case (C)

? $ 73,000 155,600 170,600

$ 29,000 25,200 103,700 ?

$ 13,900 14,300 ? 27,100

For Case (A) above, what is the Beginning Balance (BB)? A) $58,000 B) $88,000 C) $73,000 D) $97,600

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible

27) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

? $ 67,000 149,600 164,600

Case (B)

Case (C)

$ 23,000 19,200 97,700 ?

$ 7,900 8,300 ? 21,100

For Case (A) above, what is the Beginning Balance (BB)?

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A) $52,000 B) $82,000 C) $67,000 D) $97,600

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

28) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

? $ 78,000 160,600 175,600

Case (B) $ 34,000 30,200 108,700 ?

Case (C) $ 18,900 19,300 ? 32,100

For Case (B) above, what is the amount Transferred Out (TO)? A) $104,900 B) $112,500 C) $138,900 D) $142,700

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29) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

? $ 67,000 149,600 164,600

Case (B)

Case (C)

$ 23,000 19,200 97,700 ?

$ 7,900 8,300 ? 21,100

For Case (B) above, what is the amount Transferred Out (TO)? A) $93,900 B) $101,500 C) $116,900 D) $120,700

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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30) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

? $ 87,000 169,600 184,600

Case (B) $ 43,000 39,200 117,700 ?

Case (C) $ 27,900 28,300 ? 43,100

For Case (C) above, what is the amount Transferred In (TI)? A) $14,800 B) $42,700 C) $43,500 D) $71,400

31) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

? $ 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)?

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A) $12,800 B) $20,700 C) $21,500 D) $29,400

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

32)

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.

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33)

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.

34)

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.

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35)

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.

36) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

$ 46,520 ? 176,200 174,400

Case (B) $ 16,100 12,400 ? 103,200

Case (C) $ 6,600 13,200 79,400 ?

For Case (A) above, what is the Ending Balance (EB)? A) $43,920 B) $46,520 C) $44,720 D) $48,320

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37) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

$ 36,520 ? 166,200 164,400

Case (B)

Case (C)

$ 15,100 11,400 ? 93,200

$ 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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38)

Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A)

Case (B)

Case (C)

$ 41,520 ? 171,200 169,400

$ 20,100 16,400 ? 98,200

$ 10,600 17,200 73,900 ?

For Case (B) above, what is the Transferred-In (TI)? A) $101,900 B) $134,700 C) $94,500 D) $61,700

39) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

$ 36,520 ? 166,200 164,400

Case (B) $ 15,100 11,400 ? 93,200

Case (C) $ 5,600 12,200 68,400 ?

For Case (B) above, what is the Transferred-In (TI)?

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A) $96,900 B) $119,700 C) $89,500 D) $66,700

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

40) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

$ 50,250 ? 180,200 178,400

Case (B) $ 29,100 25,400 ? 107,200

Case (C) $ 19,600 26,200 83,800 ?

For Case (C) above, what is the Transferred-Out (TO)? A) $90,400 B) $77,200 C) $83,800 D) $110,000

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41) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

$ 36,520 ? 166,200 164,400

Case (B)

Case (C)

$ 15,100 11,400 ? 93,200

$ 5,600 12,200 68,400 ?

For Case (C) above, what is the Transferred-Out (TO)? A) $75,000 B) $61,800 C) $68,400 D) $80,600

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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42) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

? 35,460 195,700 193,900

Case (B) $ 8,740 ? 43,700 47,600

Case (C) $ 72,700 76,200 ? 183,000

For Case (A) above, what is the Beginning Balance (BB)? A) $37,500 B) $33,660 C) $39,000 D) $35,140

43)

Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A)

Case (B)

Case (C)

? 34,360 194,600 192,800

$ 8,630 ? 42,600 46,500

$ 71,600 75,100 ? 181,900

For Case (A) above, what is the Beginning Balance (BB)?

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A) $36,400 B) $32,560 C) $37,680 D) $34,040

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

44) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

? 36,260 196,500 194,700

Case (B) $ 8,820 ? 44,500 48,400

Case (C) $ 73,500 77,000 ? 183,800

For Case (B) above, what is the Ending Balance (EB)? A) $4,920 B) $12,600 C) $48,400 D) $9,010

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45) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

? 34,360 194,600 192,800

Case (B)

Case (C)

$ 8,630 ? 42,600 46,500

$ 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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46) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

? 35,060 195,300 193,500

Case (B) $ 8,700 ? 43,300 47,200

Case (C) $ 72,300 75,800 ? 182,600

For Case (C) above, what is the Transferred-In (TI)? A) $147,400 B) $179,100 C) $191,490 D) $186,100

47) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

? 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)?

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A) $146,700 B) $178,400 C) $190,790 D) $185,400

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

48) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

$ 66,000 62,500 190,300 ?

Case (B) $ 61,040 ? 80,730 77,620

Case (C) ? 15,000 66,400 68,500

For Case (A) above, what is the Transferred-Out (TO)? A) $186,800 B) $193,800 C) $127,300 D) $179,970

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49) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

$ 64,800 61,300 189,100 ?

Case (B)

Case (C)

$ 59,840 ? 79,530 76,420

? 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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50)

Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A)

Case (B)

Case (C)

$ 65,700 62,200 190,000 ?

$ 60,740 ? 80,430 77,320

? 14,700 66,100 68,200

For Case (B) above, what is the Ending Balance (EB)? A) $141,100 B) $138,240 C) $63,850 D) $57,540

51) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

$ 64,800 61,300 189,100 ?

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)?

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A) $139,300 B) $136,260 C) $62,950 D) $56,730

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

52) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

$ 65,600 62,100 189,900 ?

Case (B) $ 60,640 ? 80,330 77,220

Case (C) ? 14,600 66,000 68,100

For Case (C) above, what is the Beginning Balance (BB)? A) $16,700 B) $2,180 C) $12,260 D) $14,520

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53) Case (A) Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

$ 64,800 61,300 189,100 ?

Case (B)

Case (C)

$ 59,840 ? 79,530 76,420

? 13,800 65,200 67,300

For Case (C) above, what is the Beginning Balance (BB)? A) $15,900 B) $2,100 C) $11,700 D) $13,800

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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54) Refresh, Incorporated produces soft drinks and sodas. Production of 101,470 liters was started in February, 86,020 liters were completed. Material costs were $38,340 for the month while conversion costs were $16,980. 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) $55,260 B) $51,612 C) $46,950 D) $38,700

55) Refresh, Incorporated 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

56) Refresh, Incorporated produces soft drinks and sodas. Production of 107,000 liters was started in February, and 92,000 liters were completed. Material costs were $45,220 for the month while conversion costs were $23,380. There was no beginning work-in-process, and the ending work-in-process was 40% complete. What is the cost of the product that remains in work-inprocess? A) $23,380 B) $64,400 C) $4,200 D) $9,000

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57) Refresh, Incorporated produces soft drinks and sodas. Production of 100,000 liters was started in February, and 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, and the ending work-in-process was 40% complete. What is the cost of the product that remains in work-inprocess? A) $16,380 B) $51,000 C) $3,600 D) $9,000

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

58) MegaRock produces quick setting concrete mix. Production of 201,470 tons was started in April, and 191,020 tons were completed. Material costs were $3,152,120 for the month while conversion costs were $616,245. There was no beginning work-in-process, and the ending workin-process was 70% complete. What is the cost of the product that was completed and transferred to finished goods? A) $3,629,380 B) $3,574,940 C) $3,010,480 D) $3,763,100

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59) MegaRock produces quick setting concrete mix. Production of 200,000 tons was started in April, and 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, and the ending workin-process 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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60) MegaRock produces quick setting concrete mix. Production of 206,860 tons was started in April, and 194,760 tons were completed. Material costs were $3,152,560 for the month while conversion costs were $810,425. There was no beginning work-in-process, and the ending workin-process was 70% complete. What is the cost of the product that remains in work-in-process? A) $733,700 B) $162,688 C) $232,420 D) $165,165

61) MegaRock produces quick setting concrete mix. Production of 200,000 tons was started in April, and 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, and the ending workin-process 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

62) MegaRock produces quick setting concrete mix. Production of 201,470 tons was started in April, and 191,020 tons were completed. Material costs were $3,173,360 for the month while conversion costs were $591,600. There was no beginning work-in-process, and the ending workin-process was 70% complete. What is the material cost of the product that remains in work-inprocess? A) $617,700 B) $136,900 C) $117,040 D) $195,580

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63) MegaRock produces quick setting concrete mix. Production of 200,000 tons was started in April, and 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, and the ending workin-process 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

64) QuikCard processes credit card receipts for local banks. QuikCard processed 1,550,000 receipts in October. All receipts are processed the same day they are received. October costs were labor of $27,000 and overhead of $35,000. What is the cost to process 1,700 receipts? A) $29.61 B) $68.00 C) $59.23 D) $36.47

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65) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

66) Slider processes rebate requests for a large building supply firm. Slider processed 800,000 rebates in March. All rebates are processed the same day they are received. March costs were labor of $47,000 and overhead of $33,000. What is the cost to process 4,800 rebates?

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A) $319.94 B) $480.00 C) $48.00 D) $194.00

67) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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68) 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

69) Magnum Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for 2023, 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Bloom's : Analyze Gradable : automatic Accessibility : Screen Reader Compatible

70) 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.

71) 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

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$ 215,500 55,200 $ 448,000

Estimated manufacturing overhead costs Estimated direct labor Estimated direct labor hours

$ 216,670 $ 437,000 56,300

What is the predetermined manufacturing overhead rate per direct labor hour? A) $3.90 B) $3.83 C) $3.93 D) $3.85

72) 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

73) 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

$ 222,500 55,900 $ 455,000 $ 219,450 $ 444,000 57,000

What is the predetermined manufacturing overhead rate, assuming direct labor cost is used as the activity base? A) 49.4% B) 48.2% C) 50.1% D) 48.9%

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74) 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%

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

75) The predetermined manufacturing overhead rate for 2023 was $5.00 per direct labor hour, and employees were paid $6.00 per hour. If the estimated direct labor cost was $81,000, what was the estimated manufacturing overhead?

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A) $13,500 B) $67,500 C) $81,000 D) $97,200

76) The predetermined manufacturing overhead rate for 2023 was $4.00 per direct labor hour, and 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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77) 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

Department A

Department B

$ 71,000 $ 122,120 7,100 3,100

$ 51,000 $ 57,155 10,100 16,100

What predetermined overhead rate would be used in Department A and Department B, respectively? A) 172% and 355% B) 172% and $3.55 C) $1.72 and 355% D) $1.72 and $3.55

78) 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

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Department A

Department B

$ 60,000 $ 90,000

$ 40,000 $ 45,000

Direct labor hours Machine hours

6,000 2,000

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

79) Fortify, Incorporated uses a predetermined manufacturing overhead rate based on direct labor hours to apply its indirect product costs to jobs. At the beginning of the year, the company made the following estimates: Direct materials Direct labor Sales commissions Indirect labor Rent on office equipment Depreciation — factory building Utilities — factory

$ 167,000 217,000 117,000 67,000 42,000 92,000 135,000

Fortify estimated 42,000 direct labor hours and 67,000 machine hours would be used during the year. What is the predetermined overhead rate per direct labor hour?

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A) $16.14 B) $10.14 C) $9.14 D) $7.00

80) Fortify, Incorporated uses a predetermined manufacturing overhead rate based on direct labor hours to apply its indirect product costs to jobs. At the beginning of the year, the company made the following estimates: 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 estimated 25,000 direct labor hours and 50,000 machine hours would be used during the year. What is the predetermined overhead rate per direct labor hour? A) $24.00 B) $15.00 C) $14.00 D) $10.00

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

81) Rapid Enterprises allocates manufacturing overhead to its cost objects on the basis of 80% of direct material cost. If Product 17X had $73,000 of manufacturing overhead allocated to it during May, the direct materials assigned to Product 17X was: A) $58,400. B) $73,000. C) $91,250. D) $131,400.

82) Rapid Enterprises allocates manufacturing overhead to its cost objects on the basis of 75% of direct material cost. If Product 17X had $72,000 of manufacturing overhead allocated to it during May, the direct materials assigned to Product 17X was:

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A) $54,000. B) $72,000. C) $96,000. D) $126,000.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

83) The Titan Enterprises Company manufactures cleaning spray for public schools. During 2023, the company spent $920,000 on prime costs and $960,000 on conversion costs. Overhead is allocated at a rate of 150% of direct labor costs. How much did the company allocate for manufacturing overhead during 2023? A) $576,000 B) $440,000 C) $384,000 D) $364,000

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84) The Titan Enterprises Company manufactures cleaning spray for public schools. During 2023, the company spent $600,000 on prime costs and $800,000 on conversion costs. Overhead is allocated at a rate of 150% of direct labor costs. How much did the company allocate for manufacturing overhead during 2023? A) $480,000 B) $360,000 C) $320,000 D) $300,000

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

85) Flare Corporation manufactures textiles. Among Flare's 2023 manufacturing costs were the following salaries and wages: Loom operators Factory foremen Machine mechanics

$ 129,000 54,000 39,000

What was the amount of Flare's 2023 direct labor? (CPA adapted) A) $222,000 B) $183,000 C) $168,000 D) $129,000

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86) Flare Corporation manufactures textiles. Among Flare's 2023 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 2023 direct labor? (CPA adapted) A) $195,000 B) $165,000 C) $150,000 D) $120,000

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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87) Flare Corporation manufactures textiles. Among Flare's 2023 manufacturing costs were the following salaries and wages: Loom operators Factory foremen Machine mechanics

$ 134,000 59,000 44,000

What was the amount of Flare's 2023 indirect labor? (CPA adapted) A) $103,000 B) $193,000 C) $178,000 D) $134,000

88) Flare Corporation manufactures textiles. Among Flare's 2023 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 2023 indirect labor? (CPA adapted) A) $75,000 B) $165,000 C) $150,000 D) $120,000

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

89)

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

direct labor hours

$ 1,200 20% of wages

What is the standard direct labor cost per unit of product Scour? (CPA adapted) A) $72 B) $52 C) $43 D) $26

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90)

The following direct labor information pertains to the manufacture of product Scour:

Time required to make one unit Number of direct workers

2 50

Number of productive hours per week, per worker Weekly wages per worker

Workers’ benefits treated as direct labor costs

direct labor hours

$ 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

91)

The following direct labor information pertains to the manufacture of product Glaze:

Time required to make one unit Number of direct workers

3 direct labor hours 25

Number of productive hours per week, per worker Weekly wages per worker

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$ 1,450

Workers’ benefits treated as direct labor costs

30% of wages

What is the standard direct labor cost per unit of product Glaze? (CPA adapted) A) $40.29 B) $52.38 C) $120.83 D) $157.08

92)

The following direct labor information pertains to the manufacture of product Glaze:

Time required to make one unit Number of direct workers

3 25

Number of productive hours per week, per worker Weekly wages per worker

Workers’ benefits treated as direct labor costs

direct labor hours

$ 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

93)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

94) Arbor, Incorporated has estimated overhead to be $423,000 and labor hours to be 47,000. Actual overhead turned out to be $433,000 when 47,500 labor hours were worked. The predetermined overhead rate would be:

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A) 82.04%. B) $9.00. C) $9.12. D) $9.21.

95) Arbor, Incorporated 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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96) Arbor, Incorporated had overhead of $380,000 during the year when $330,000 in labor costs were incurred. Estimates at the start of the year for overhead and labor costs were $608,000 for overhead and $320,000 for labor costs. The predetermined overhead rate would be: A) 161.03%. B) 164.62%. C) 190.00%. D) 131.91%.

97) Arbor, Incorporated 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%.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

98) 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

$ 1,415,500 46,000 $ 4,100,000 $ 1,220,000 49,400 $ 4,460,000

What is the predetermined office overhead rate per billable labor hour? A) $30.77 B) $28.65 C) $24.70 D) $26.52

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99) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

100) 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

$ 1,413,500 46,000 $ 4,100,000 $ 1,159,600 49,400 $ 4,460,000

What is the predetermined office overhead rate per billable labor dollar? Version 1

A) 121.90% B) 26.00% C) 34.48% D) 384.62%

101) 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%

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

102) 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

$ 1,900,000 $ 1,786,000 56,000 59,700 $ 760,000 $ 844,125 100,000 106,600

What is the predetermined factory overhead rate per labor dollar? A) 224.96% B) 266.42% C) 149.23% D) 250.00%

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103) 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%

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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104) 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

$ 1,630,200 $ 1,781,200 52,000 55,700 $ 758,000 $ 842,125 98,000 104,600

What is the predetermined factory overhead rate per labor hour? A) $29.11 B) $31.35 C) $37.13 D) $34.46

105) 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

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$ 1,500,000 $ 1,776,400 48,000 51,700 $ 756,000

Actual labor costs Estimated machine hours Actual machine hours

$ 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

106) 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

$ 1,870,500 $ 1,824,400 88,000 91,700 $ 776,000 $ 860,125 116,000 122,600

What is the predetermined factory overhead rate per machine hour? A) $16.125 B) $15.080 C) $19.104 D) $17.874

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107) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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108) Savor Flavor Supplies allocates manufacturing overhead to its products on the basis of 50% of direct material cost. If a product had $165,000 of manufacturing overhead allocated to it during May, the direct materials assigned to the product were: A) $82,500. B) $165,000. C) $330,000. D) $660,000.

109) Savor Flavor Supplies allocates manufacturing overhead to its products on the basis of 50% of direct material cost. If a product had $35,000 of manufacturing overhead allocated to it during May, the direct materials assigned to the product were: A) $17,500. B) $35,000. C) $70,000. D) $140,000.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

110) Trippett Industries manufactures cleaning products. During the year, the company spent $601,000 on chemicals and $741,000 on conversion costs. Overhead is allocated at a rate of 160% of direct labor costs. How much did the company spend on manufacturing overhead during the year? A) $285,000 B) $456,000 C) $140,000 D) $463,125

111) Trippett Industries manufactures cleaning products. During the year, the company spent $600,000 on chemicals and $728,000 on conversion costs. Overhead is allocated at a rate of 180% of direct labor costs. How much did the company spend on manufacturing overhead during the year? Version 1

A) $260,000 B) $468,000 C) $128,000 D) $404,444

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

112) The predetermined manufacturing overhead rate for the year was $18.00 per direct labor hour; employees were paid $22.50 per hour. If the estimated direct labor cost was $324,000, what was the estimated manufacturing overhead? A) $18,000 B) $72,000 C) $259,200 D) $405,000

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113) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

114) The predetermined manufacturing overhead rate for the year was 140% of direct labor cost; employees were paid $19.00 per hour. If the estimated direct labor hours were 15,600, what was the estimated manufacturing overhead? A) $237,000 B) $211,700 C) $296,400 D) $414,960

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115) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

116) In computing its predetermined overhead rate, Stiles Company inadvertently left its indirect labor costs out of the computation. This oversight will cause:

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A) the estimated allocation base to be overstated. 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Bloom's : Analyze Gradable : automatic Accessibility : Screen Reader Compatible

117) rate?

Which of the following is the correct formula to compute the predetermined overhead

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

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Difficulty : 2 Medium Bloom's : Understand Topic : Costing in a Multiple-Product, Discrete Process Industry AACSB : Reflective Thinking Gradable : automatic Accessibility : Screen Reader Compatible

118) 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

119) At the beginning of the year, manufacturing overhead for the year was estimated to be $280,800 and the total number of direct labor-hours needed for the year was estimated to be 26,000. At the end of the year, actual direct labor-hours for the year were 23,100 hours, the actual manufacturing overhead for the year was $275,800. If the predetermined overhead rate is based on direct labor-hours, then the predetermined overhead rate must have been:

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A) $11.99 per direct labor-hour. B) $10.61 per direct labor-hour. C) $12.16 per direct labor-hour. D) $10.80 per direct labor-hour.

120) At the beginning of the year, manufacturing overhead for the year was estimated to be $267,500 and the total number of direct labor-hours needed for the year was estimated to be 25,000. 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. If the predetermined overhead rate is based on direct labor-hours, then the predetermined overhead rate must have been: A) $11.88 per direct labor-hour. B) $10.50 per direct labor-hour. C) $12.10 per direct labor-hour. D) $10.70 per direct labor-hour.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

121) year:

Markham Corporation uses a job-order costing system. The following data are for last

Estimated direct labor-hours Estimated manufacturing overhead costs Actual direct labor-hours Actual manufacturing overhead costs

14,900 $ 59,000 13,000 $ 57,000

Markham allocates overhead using a predetermined rate based on direct labor-hours. What predetermined overhead rate was used last year? A) $4.54 per direct labor-hour B) $3.96 per direct labor-hour C) $3.83 per direct labor-hour D) $4.38 per direct labor-hour

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122) year:

Markham Corporation uses a job-order costing system. The following data are for last

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 allocates 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

123) 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 55,200 labor-hours. The estimated variable manufacturing overhead was $3.10 per labor-hour and the estimated total fixed manufacturing overhead was $1,228,200. The actual labor-hours for the year turned out to be 55,800 laborhours. The predetermined overhead rate for the recently completed year was closest to: A) $3.10. B) $25.09. C) $25.35. D) $22.57.

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124) 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 laborhours. The predetermined overhead rate for the recently completed year was closest to: A) $2.78. B) $25.45. C) $25.71. D) $22.93.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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125) 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

Department A

Department B

$ 68,000 $ 122,400 9,200 5,200

$ 45,000 $ 58,320 10,200 16,200

What predetermined overhead rate would be used in Department A and Department B, respectively? A) 119% and $17.00 B) 125% and $15.00 C) 180% and $3.60 D) 180% and $17.00

126) 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: Department A Direct labor cost Factory overhead Direct labor-hours Machine-hours

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$ 56,000 $ 67,200 8,000 4,000

Department 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

127) Moore Corporation bases its predetermined overhead rate on the estimated machinehours 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

20,900 $ 9.70 per machine-hour $ 514,140 22,100

The predetermined overhead rate for the recently completed year was closest to: A) $9.70. B) $32.96. C) $24.60. D) $34.30.

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128) Moore Corporation bases its predetermined overhead rate on the estimated machinehours 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 $ 7.89 per 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

129) Ashland Corporation estimates its manufacturing overhead costs to be $176,000 and its direct labor costs to be $352,000 for 2023. The actual manufacturing labor costs were $88,000;for Product 1, $132,000 for Product 2 and $176,000 for Product 3 during 2023. Manufacturing overhead is allocated to Products on the basis of direct labor costs using a predetermined overhead rate. The actual manufacturing overhead cost for the year was $189,200. The amount of overhead assigned to Product 3 during 2023 was: A) $88,000. B) $352,000. C) $176,000. D) $78,300.

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130) Ashland Corporation estimates its manufacturing overhead costs to be $160,000 and its direct labor costs to be $320,000 for 2023. The actual manufacturing labor costs were $80,000 for Product 1, $120,000 for Product 2 and $160,000 for Product 3 during 2023. Manufacturing overhead is allocated to Products 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 Product 3 during 2023 was: A) $80,000. B) $320,000. C) $160,000. D) $71,110.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

131) 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 $162,000, what was the estimated manufacturing overhead? A) $101,500 B) $81,000 C) $129,600 D) $16,200

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Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry AACSB : Reflective Thinking Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible

132) 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

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry AACSB : Reflective Thinking Gradable : automatic Accessibility : Screen Reader Compatible

133) The Crater Company uses predetermined overhead rates to allocate manufacturing overhead to products. The predetermined overhead rate is based on labor cost in Department A and machine-hours in Department B. At the beginning of the year, the company made the following estimates:

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Direct labor cost Manufacturing overhead Direct labor-hours Machine-hours

Department A

Department B

$ 79,000 $ 165,900 9,400 4,400

$ 56,000 $ 100,500 11,400 13,400

What predetermined overhead rates would be used in Department A and Department B, respectively? A) 113% and $18.00 B) 210% and $7.50 C) 210% and $8.30 D) 106.56% and $8.30

134) The Crater Company uses predetermined overhead rates to allocate manufacturing overhead to products. The predetermined overhead rate is based on labor cost in Department A and machine-hours in Department B. At the beginning of the year, the company made the following estimates: Direct labor cost Manufacturing overhead Direct labor-hours Machine-hours

Department A

Department B

$ 65,000 $ 91,000 8,000 3,000

$ 42,000 $ 48,000 10,000 12,000

What predetermined overhead rates would be used in Department A and Department B, respectively?

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A) 71% and $4.00 B) 140% and $4.00 C) 140% and $4.80 D) 71% and $4.80

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

135) Flambe Corporation bases its predetermined overhead rate on the estimated machinehours for the upcoming year. At the beginning of the most recently completed year, the company estimated the machine-hours for the upcoming year at 23,200 machine-hours. The estimated variable manufacturing overhead was $10.45 per machine-hour and the estimated total fixed manufacturing overhead was $642,640. The predetermined overhead rate for the recently completed year was closest to: A) $38.15 per machine-hour. B) $29.02 per machine-hour. C) $35.00 per machine-hour. D) $10.45 per machine-hour.

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136) Flambe Corporation bases its predetermined overhead rate on the estimated machinehours 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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137) Horton Industries Company uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to products. 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

$ 12,000 $ 32,000 $ 44,000 $ 23,150 $ 7,150 $ 10,000 $ 14,200

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) $8.90. B) $8.30. C) $4.45. D) $10.72.

138) Horton Industries Company uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to products. 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

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$ 10,000 $ 30,000 $ 40,000 $ 20,000 $ 4,000 $ 8,000

Rent on factory equipment

$ 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

139) Spring Corporation bases its predetermined overhead rate on the estimated machinehours for the upcoming year. Data for the upcoming year appear below: Estimated machine-hours

70,500

Estimated variable manufacturing overhead Estimated total fixed manufacturing overhead

$ 7.43 per machine-hour $ 1,292,970

The predetermined overhead rate for the upcoming year is closest to: A) $7.43. B) $25.77. C) $26.34. D) $18.89.

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140) Spring Corporation bases its predetermined overhead rate on the estimated machinehours for the upcoming year. Data for the upcoming year appear below: Estimated machine-hours

70,000

Estimated variable manufacturing overhead Estimated total fixed manufacturing overhead

$ 6.68 per machine-hour $ 1,283,800

The predetermined overhead rate for the upcoming year is closest to: A) $6.68. B) $25.02. C) $25.59. D) $18.34.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

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141) The following data have been recorded for the production of Product A-11 in the current period. Direct materials cost was $2,139. A total of 42 direct labor-hours and 185 machine-hours were worked to make the product. The direct labor wage rate is $24 per labor-hour. The company allocates manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $25 per machine-hour. The total cost for Product A-11 for the current period would be: A) $4,197. B) $3,147. C) $2,188. D) $7,772.

142) The following data have been recorded for the production of Product A-11 in the current period. Direct materials cost was $2,039. A total of 32 direct labor-hours and 175 machine-hours were worked to make the product. The direct labor wage rate is $14 per labor-hour. The company allocates manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $15 per machine-hour. The total cost for Product A-11 for the current period would be: A) $2,967. B) $2,487. C) $2,068. D) $5,112.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

143)

The following data relates to the production of Product B-09 for the current period:

Direct materials Direct labor-hours Direct labor wage rate Machine-hours

$ 4,291 88 labor-hours $ 13 per labor-hour 129 machine-hours

The company allocates manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $33 per machine-hour. The total cost for Product B-09 for the current period would be: A) $6,256. B) $9,692. C) $8,092. D) $4,603.

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144)

The following data relates to the production of Product B-09 for the current period:

Direct materials Direct labor-hours Direct labor wage rate Machine-hours

$ 2,391 69 labor-hours $ 13 per labor-hour 129 machine-hours

The company allocates manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $14 per machine-hour. The total cost for Product B-09 for the current period would be: A) $3,288. B) $5,094. C) $4,254. D) $2,418.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : automatic Accessibility : Screen Reader Compatible

145) Under Pierre Company's job-order costing system, manufacturing overhead is allocated 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 allocated

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$ 100,000 $ 6,000 $ 135,000 $ 123,000

Direct labor cost incurred

$ 117,000

Pierre Company had no beginning or ending inventories. What was the cost of goods manufactured for January? (CMA adapted) A) $334,000 B) $340,000 C) $352,000 D) $358,000

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible

146) Under Pierre Company's job-order costing system, manufacturing overhead is allocated 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 allocated 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Accessibility : Screen Reader Compatible

147) Buster Corporation, a manufacturing company, has provided data concerning its operations for September. The beginning balance in the raw materials account was $71,000 and the ending balance was $46,000. Raw materials purchases during the month totaled $91,000. Manufacturing overhead cost incurred during the month was $119,000, of which $5,000 consisted of raw materials classified as indirect materials. The direct materials cost for September was: A) $111,000. B) $91,000. C) $116,000. D) $66,000.

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148) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Accessibility : Screen Reader Compatible

149) Morton Incorporated 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 $50,600 and at the end of the month was $46,600. The cost of goods manufactured for the month was $242,000. The actual manufacturing overhead cost incurred was $90,000 and the manufacturing overhead cost allocated to Work in Process was $86,000. The adjusted cost of goods sold that would appear on the income statement for November is: A) $242,000. B) $246,000. C) $238,000. D) $250,000.

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150) Morton Incorporated 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 allocated 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Accessibility : Screen Reader Compatible

151) A company is considering the use of a single-stage cost allocation process. Under what conditions would this choice be justified? Version 1

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A) The company has many service departments and many production departments. 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.

152) Which of the following statements regarding the two-stage cost allocation process is 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. C) It involves first allocating costs to intermediate cost pools and then to individual cost objects. D) It uses two or more allocation bases to allocate manufacturing overhead to products.

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101

153)

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.

154) The process of first allocating costs to intermediate cost pools and then to the individual cost objects using different allocation bases is a(n):

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A) continuous flow process. B) cost management system. C) two-stage allocation system. D) operations cost.

155) 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.

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156) a(n):

A system that mass-produces a single, homogeneous output in a continuous process is

A) continuous flow process. B) cost management system. C) two-stage allocation system. D) operation costing.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Learning Objective : 06-04 Describe the three basic types of product costing systems (job, process, a Topic : Different Companies, Different Production and Costing Systems Gradable : automatic Accessibility : Screen Reader Compatible

157) 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.

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104

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Learning Objective : 06-04 Describe the three basic types of product costing systems (job, process, a Topic : Different Companies, Different Production and Costing Systems Gradable : automatic Accessibility : Screen Reader Compatible

158)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Bloom's : Understand Learning Objective : 06-04 Describe the three basic types of product costing systems (job, process, a Topic : Different Companies, Different Production and Costing Systems Gradable : automatic Accessibility : Screen Reader Compatible

159)

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Bloom's : Understand Learning Objective : 06-04 Describe the three basic types of product costing systems (job, process, a Topic : Different Companies, Different Production and Costing Systems Gradable : automatic Accessibility : Screen Reader Compatible

160) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Bloom's : Understand Learning Objective : 06-04 Describe the three basic types of product costing systems (job, process, a Topic : Different Companies, Different Production and Costing Systems Gradable : automatic Accessibility : Screen Reader Compatible

161) The Paris Manufacturing Company produces a single uniform product throughout the year. Which of the following product costing systems should be used by Paris?

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A) Job costing B) Process costing C) Operation costing D) Batch costing

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Bloom's : Understand Learning Objective : 06-04 Describe the three basic types of product costing systems (job, process, a Topic : Different Companies, Different Production and Costing Systems Gradable : automatic Accessibility : Screen Reader Compatible

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 162) Logansville Manufacturing produces machinery for large contractors. For 2023, it produces two pieces of machinery, B-13 and C-18, which differ both in the materials and components used and in the labor skill required. Data for 2023 follow: Units produced Machine hours Direct labor-hours

Direct materials cost Direct labor costs Manufacturing overhead Total costs

B-13

C-18

Total

3,000 100,000 50,000

8,000 125,000 70,000

11,000 225,000 120,000

$ 250,000 800,000

$ 175,000 700,000

$ 425,000 1,500,000 2,200,000 $ 4,125,000

Required:Calculate the individual product costs per unit for 2023 assuming Logansville uses number of units produced to allocate overhead to products.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

163)

The following data is available for the production of Product H-15 for the current period:

Direct materials Direct labor-hours Direct labor wage rate Machine-hours Number of units completed

$ 45,000 630 labor-hours $ 13 per labor-hour 390 machine-hours 3,000 units

The company allocates manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $12 per machine-hour. Required:Compute the unit product cost for Product H-15 for the current period. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

164) The following data is available for the production of Product A-1822 for the current period: Direct materials Direct labor-hours Direct labor wage rate Number of units completed

$ 40,610 1,147 DLHs $ 11 per DLH 3,100 units

The company allocates 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 for Product A-1822 for the current period. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

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165) Assume that the following events occurred at a division of Sawyer Enterprises for the current year. 1. (1) Purchased $900,000 in direct materials. 2. (2) Incurred direct labor costs of $520,000. 3. (3) Determined that manufacturing overhead was $820,000. 4. (4) Transferred 75% of the materials purchased to Work-in-Process Inventory. 5. (5) Completed work on 60% of the work in process. Costs assigned equally across all work-inprocess. 6. (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: 1. (a) Transfers-in (TI). 2. (b) Transfers-out (TO). 3. (c) Ending balance (EB). ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

166) Assume that the following events occurred at a division of Advanced Enterprises for the current year. 1. (1) Purchased $450,000 in direct materials. 2. (2) Incurred direct labor costs of $260,000. 3. (3) Determined that manufacturing overhead was $410,000. 4. (4) Transferred 70% of the materials purchased to Work-in-Process Inventory. 5. (5) Completed work on 65% of the work in process. Costs assigned equally across all work-inprocess. 6. (6) The inventory accounts have no beginning balances. Required:Compute the following amounts in the Work-in-Process Inventory account: 1. (a) Transfers-in (TI). 2. (b) Transfers-out (TO). 3. (c) Ending balance (EB). ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

167)

Required:Determine the missing values from the table below:

Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A)

Case (B)

Case (C)

Case (D)

$ 41,520 ? 224,870 217,400

$ 24,100 22,400 ? 106,200

$ 5,450 11,370 84,400 ?

? $ 38,910 189,460 193,610

______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

168)

Required:Determine the missing values from the table below:

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Beginning Balance (BB) Ending Balance (EB) Transferred In (TI) Transferred Out (TO)

Case (A)

Case (B)

Case (C)

Case (D)

? $ 19,455 199,460 193,610

$ 25,760 ? 214,870 217,400

$ 12,050 21,200 ? 131,200

$ 11,450 5,370 87,300 ?

______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

169) Flynn and Morgan Refiners began business on July 1. The following operations data are available for July and the one product the company produces: Gallons Beginning inventory Started in July Ending work-in-process inventory (80% complete) Cost incurred in July were: Materials Labor Manufacturing overhead

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-0310,000 30,000

$ 250,000 52,000 154,000

113

All production at Flynn and Morgan is sold as it is produced (i.e., there are no finished goods inventories). Required:1. (a) Compute cost of goods sold for July. 2. (b) What is the value of the work-in-process inventory on July 31? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

170) 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: Gallons Beginning inventory Completed in September Ending work-in-process inventory (70% complete) Cost incurred in September were: Materials Labor Manufacturing overhead

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-0450,000 15,000

$ 560,400 164,300 242,350

114

All production at Mason is sold immediately. Required:1. (a) Compute cost of goods sold for September. 2. (b) What is the value of the work-in-process inventory on September 30? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

171) 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:1. (a) What is the total cost of the product that was completed and transferred to finished goods? 2. (b) What is the value of the ending work-in-process? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

172) 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:1. (a) What is the total cost of the product that was completed and transferred to finished goods? 2. (b) What is the value of the ending work-in-process? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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173) 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:1. (a) What is the total cost of the product that was completed and transferred to finished goods? 2. (b) What is the value of the ending work-in-process? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

174)

Required:Fill in the missing items for the following inventories:

Beginning Balance Ending Balance Transferred in Transferred out

(A)

(B)

(C)

(D)

(E)

$ 68,000 ? 64,000 76,000

$ 7,100 6,200 ? 22,000

$ 100,000 110,000 75,000 ?

? 134,400 153,600 182,400

$ 85,200 74,400 ? 264,000

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

175)

Required:Fill in the missing items for the following inventories:

Beginning Balance Ending Balance Transferred in Transferred Out

(A)

(B)

$ 85,000 ? 80,000 76,000

$ 3,550 3,210 10,550 ?

(D)

(E)

$ 36,000 $ 36,000 75,000 ?

? 32,000 64,000 42,000

______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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176) Assume that the following T-accounts represent data from the Morgensen Corporation's accounting records. Required:1. (a) Find the missing amounts represented by the letters a, b, c, d and e. 2. (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 Debit Credit 39,750

Raw-Material Inventory Debit Credit BB

(a)

(1)

22,500

7,125

15,750

Finished Goods Debit Credit BB

6,750

(d) 10,950

Work-in-Process Inventory Debit Credit

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4,500

Materials

(b)

Labor

24,000

Overhead

(e)

12,300

43,950

Manufacturing Overhead Debit Credit 17,400

12,000

(1) Denotes materials purchased ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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177) Smooth Sailing Company experienced the following events during 2023: 1. (1) Purchased $1,800,000 of lumber and other materials for building boats. 2. (2) Incurred $200,000 for advertising. 3. (3) Paid $60,000 to have lumber transported to its factory. 4. (4) Had sales revenue of $6,000,000 during the year. 5. (5) Incurred $400,000 of general and administrative expenses. 6. (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. (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: 1. a) Transfers in (TI). 2. b) Beginning balance (BB). 3. c) Transfers out (TO). 4. d) Ending balance (EB). ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Costing in a Single-Product, Continuous Process Industry Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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178) 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

Basic

Mega

Total

8,000 6,000 1,000 $ 20,000 129,000

4,000 4,000 250 $ 7,500 71,000

12,000 10,000 1,250 $ 27,500 200,000 348,200

Total costs

$ 575,700

Required:Compute the predetermined overhead rate, assuming Gentry Cabinetry uses: 1. (a) Direct labor hours to allocate overhead costs. 2. (b) Direct labor costs to allocate overhead costs. 3. (c) Machine hours to allocate overhead costs. 4. (d) Compute the unit cost for each model using direct labor costs to allocate overhead. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

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179) 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

Basic

Mega

Total

8,000 6,000 1,000 $ 20,000 129,000

4,000 4,000 250 $ 7,500 71,000

12,000 10,000 1,250 $ 27,500 200,000 348,200

Total costs

$ 575,700

Required:Compute the unit cost for each model, assuming Gentry Cabinetry uses: 1. (a) Direct labor hours to allocate overhead costs. 2. (b) Direct labor costs to allocate overhead costs. 3. (c) Machine hours to allocate overhead costs. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

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180) 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

Standard

Deluxe

Total

16,000 12,000 4,000 $ 80,000 262,000

8,000 8,000 1,000 $ 30,000 138,000

24,000 20,000 5,000 $ 110,000 400,000 557,400

Total costs

$ 1,067,400

Required:Compute the total cost for each model, assuming Barton Carts uses: 1. (a) Direct labor hours to allocate overhead costs. 2. (b) Direct labor costs to allocate overhead costs. 3. (c) Machine hours to allocate overhead costs. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

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181) 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

Basic

Advanced

Superior

Total

8,000 6,000 1,000 $ 20,000 129,000

6,000 6,000 500 $ 12,500 100,000

4,000 4,000 250 $ 7,500 71,000

18,000 16,000 1,750 $ 40,000 300,000 540,800

Total costs

$ 880,800

Required:Compute the predetermined overhead rate, assuming Misner Office Products uses: 1. (a) Direct labor hours to allocate overhead costs. 2. (b) Direct labor costs to allocate overhead costs. 3. (c) Machine hours to allocate overhead costs. 4. (d) Compute the unit cost for each model using direct labor costs to allocate overhead. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

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182) 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

Basic

Advanced

Superior

Total

8,000 6,000 1,000 $ 20,000 129,000

6,000 6,000 500 $ 12,500 100,000

4,000 4,000 250 $ 7,500 71,000

18,000 16,000 1,750 $ 40,000 300,000 540,800

Total costs

$ 880,800

Required:Compute the unit cost for each model, assuming Misner Office Products uses: 1. (a) Direct labor hours to allocate overhead costs. 2. (b) Direct labor costs to allocate overhead costs. 3. (c) Machine hours to allocate overhead costs. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

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183) Pierce Carts produces three models of push carts, the Economy, 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

Economy

Standard

Deluxe

Total

8,000 4,000 8,000 $ 100,000 200,000

16,000 12,000 4,000 $ 80,000 262,000

8,000 8,000 1,000 $ 30,000 138,000

32,000 24,000 13,000 $ 210,000 600,000 684,000

Total costs

$ 1,494,000

Required:Compute the total cost for each model, assuming Pierce Carts uses: 1. (a) Direct labor hours to allocate overhead costs. 2. (b) Direct labor costs to allocate overhead costs. 3. (c) Machine hours to allocate overhead costs. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

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184) 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:1. (a) Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base. 2. (b) Determine how much overhead would be allocated to Product J42O if the predetermined overhead rate is based on the estimated amount of the allocation base. 3. (c) Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity. 4. (d) Determine how much overhead would be allocated to Product J42O if the predetermined overhead rate is based on the amount of the allocation base at capacity. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

185) 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:1. (a) Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity. 2. (b) Determine how much overhead would be allocated to Product O65A if the predetermined overhead rate is based on the amount of the allocation base at capacity. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

186) 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)

Product 1

Product 2

Total

3,000 2,000 2,000 $ 60,000 45,000

2,000 4,000 2,000 $ 60,000 45,000

5,000 6,000 4,000 $ 120,000 90,000

$ 3,000

Supplies (labor-related)

8,000

Training (labor-related)

20,000

Supervision (labor-related)

17,000

Machine depreciation (machinerelated) Lease on factory (machine-related)

24,000

Miscellaneous (labor-related)

5,000

Total manufacturing overhead

$ 110,000

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130

Required:1. (a) Allocate the manufacturing overhead to two cost pools: machine-related and labor-related. 2. (b) Compute the predetermined overhead rate for the two pools, using machine hours and direct labor hours as the bases. 3. (c) Compute the total costs of production for each of the two products. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-03 Allocate costs using a two-stage allocation system. Topic : Multiple Allocation Bases and Two-Stage Systems Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

187) 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 (machinerelated) Supplies (labor-related)

Version 1

Product X Product Y

Product Z

Total

3,000 4,000 2,000 $ 60,000 45,000

1,000 8,000 5,000 $ 75,000 175,000

6,000 20,000 10,000 $ 195,000 300,000

2,000 8,000 3,000 $ 60,000 80,000

$ 13,000 8,000

131

Training (labor-related)

20,000

Supervision (laborrelated) Machine depreciation (machine-related) Lease on factory (machine-related) Miscellaneous (laborrelated)

37,000

Total manufacturing overhead

34,000 66,000 15,000 $ 193,000

Required:1. (a) Allocate the manufacturing overhead to two cost pools: machine-related and labor-related. 2. (b) Compute the predetermined overhead rate for the two pools, using machine hours and direct labor hours as the bases. 3. (c) Compute the total costs of production for each of the three products. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-03 Allocate costs using a two-stage allocation system. Topic : Multiple Allocation Bases and Two-Stage Systems Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

188) Airborne Industries uses a two-stage allocation method to assign costs to its products. The following information has been provided for the month:

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Product X Product Y Product Z Units Machine hours Direct labor hours Direct materials Direct labor Manufacturing overhead

Total

6,000 4,000 2,000 12,000 8,000 16,000 16,000 40,000 4,000 6,000 10,000 20,000 $ 120,000 $ 120,000 $ 150,000 $ 390,000 90,000 160,000 350,000 600,000

Utilities (machinerelated) Supplies (labor-related)

$ 26,000

Training (labor-related)

40,000

Supervision (laborrelated) Machine depreciation (machine-related) Lease on factory (machinerelated) Miscellaneous (laborrelated)

74,000

Total manufacturing overhead

16,000

68,000 132,000 30,000 $ 386,000

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-03 Allocate costs using a two-stage allocation system. Topic : Multiple Allocation Bases and Two-Stage Systems Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

189) 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. Number of units Parts cost per unit

RES-1

AS-2

20,000 $ 40

80,000 $ 50

Total 100,000

Other costs: Direct labor

$ 124,000

Indirect materials

35,000

Other overhead

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-04 Describe the three basic types of product costing systems (job, process, a Topic : Different Companies, Different Production and Costing Systems Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

190) 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. Oak Number of units Wood costs per unit

1,200 $ 80

Cherry 700 $ 120

Walnut 900 $ 105

Total 2,800

Other costs: Direct labor

$ 165,000

Indirect materials

26,000

Other overhead

61,000

Total

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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191) When designing a cost system, what points should you consider before starting the design? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Difficulty : 2 Medium Bloom's : Understand Topic : Fundamental Themes Underlying the Design of Cost Systems for Managerial Purposes Gradable : manual Accessibility : Screen Reader Compatible

192) If costs are allocated on a somewhat arbitrary base, what purpose does computing product costs have? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Cost Management Systems Difficulty : 2 Medium Bloom's : Understand Gradable : manual Accessibility : Screen Reader Compatible

193) What is each component of the basic cost flow model? Describe each component. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Difficulty : 2 Medium Bloom's : Understand Topic : Costing in a Single-Product, Continuous Process Industry Gradable : manual Accessibility : Screen Reader Compatible

194) Why might a company use direct labor cost as an overhead allocation base rather than using direct labor hours? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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195) Describe the two-stage allocation method. When is it important to use a two-stage approach rather than a single-stage approach? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Bloom's : Understand Learning Objective : 06-03 Allocate costs using a two-stage allocation system. Topic : Multiple Allocation Bases and Two-Stage Systems Gradable : manual Accessibility : Screen Reader Compatible

196) How does job costing differ from process costing? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Bloom's : Understand Learning Objective : 06-04 Describe the three basic types of product costing systems (job, process, a Topic : Different Companies, Different Production and Costing Systems Gradable : manual Accessibility : Screen Reader Compatible

197) Why is operations costing often called a "hybrid" system? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Bloom's : Understand Learning Objective : 06-04 Describe the three basic types of product costing systems (job, process, a Topic : Different Companies, Different Production and Costing Systems Gradable : manual Accessibility : Screen Reader Compatible

198) 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:

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Direct materials:

$ 29.60

Direct labor:

13.00

Variable overhead: Fixed overhead:

19.50 26.00

Total cost:

(@ 150% of direct labor cost) (@ 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. Required:1. (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? 2. (b) Recommend improvements in the costing system. 3. (c) How can Weiss quantify "qualitative" benefits such as quality and on-time delivery?

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Difficulty : 3 Hard Topic : Fundamental Themes Underlying the Design of Cost Systems for Managerial Purposes AICPA : FN Decision Making Bloom's : Evaluate Gradable : manual Accessibility : Screen Reader Compatible

199) Silverton Manufacturing Company builds highly sophisticated engine parts for cars competing in stock racing and drag racing. The company uses a predetermined overhead rate to allocate factory overhead on the basis of direct labor-hours. For 2023, the company estimated that it would incur $256,000 in factory overhead costs and 16,000 direct labor-hours. The April 1, 2023, balance in inventory accounts follow: Materials Inventory Work-in-Process Inventory (Y12) Finished Goods Inventory (Z11)

$ 54,000 $ 21,000 $ 108,000

Product Y12 is the only Product in process on April 1, 2023. The following transactions were recorded for the month of April: 1.(1) Purchased materials on account, $180,000. 2.(2) Issued $182,000 of materials to production, $8,000 of which was for indirect materials. Cost of direct materials issued: Product Y12 Product D20 Product E33

$ 46,000 84,000 44,000

1.(3) Incurred and paid payroll cost of $40,920; Direct labor cost ($20 per hour; total 1,196 hours): Product Y12 Product D20 Product E33 Indirect labor

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$ 12,220 8,060 3,640 5,000

141

Selling and administrative salaries

12,000

1.(4) Recognized depreciation for the month: Manufacturing asset $4,400 Selling and administrative asset 3,400 1.(5) Paid advertising expenses $12,000. 2.(6) Incurred factory utility costs 2,600. 3.(7) Incurred other factory overhead costs 3,200. 4.(8) Allocated factory overhead to production on the basis of direct labor-hours. 5.(9) Completed Product Y12 during the month and transferred it to the finished goods warehouse. 6.(10) Sold Product Z11 on account for $118,000. 7.(11) Received $50,000 of collections on account from customers during the month. Required:1. (a) Calculate the company's predetermined overhead rate. 2. (b) What was the balance of the Materials Inventory account on April 30, 2023? 3. (c) What was the balance of the Work-in-Process Inventory control account on April 30? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Cost Management Systems Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

200)

Ryan & Marks, Design Consultants has the following budget for the year:

Direct labor (for professional hours charged to clients)

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$ 202,000

142

Overhead Indirect materials Indirect labor Depreciation - Building Depreciation - Furniture Utilities Insurance Property taxes Other expenses

10,000 150,000 50,000 5,000 12,000 4,800 5,200 3,380

Total

$ 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:

$ 400 3,000

Direct materials Direct labor

$ 5,380 12,600

Required:1. (a) Compute the company’s budgeted overhead rate. Explain how this is used. 2. (b) Compute the amount of overhead to be charged to the Henderson and Fisher accounts using the predetermined overhead rate calculated in requirement (a). 3. (c) Compute the separate job cost for the Henderson and Fisher accounts. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Cost Management Systems Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

201) The following information is for Ogden Company for the month of November: 1. Factory overhead costs are allocated to products at the predetermined rate of $80 per laborhour. Product X-14 incurred 2,300 labor-hours; Product SM-4 used 1,850 labor-hours. 2. Product X-14 was shipped to customers during November. Product X-14 had a gross margin of 24 percent based on manufacturing cost. 3. Product 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

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Product X-14

Product SM-4

$ 5,450

$ 33,000

Total $ 38,450 144

Material B

1,650

25,500

27,150

Subtotal

$ 7,100

$ 58,500

$ 65,600

Indirect materials

66,500

Total

$ 132,100

7. Factory labor incurred for the two products and indirect labor is as follows: Product X-14 Product SM-4 Indirect labor

$ 32,200 25,900 122,000

Total

$ 180,000

Required:Calculate the total manufacturing cost for Product X-14 and Product SM-4 for November. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Cost Management Systems Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

202) 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: Budgeted Overhead

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Budgeted Hours

145

Department 1 Department 2 Total

$ 300,000 200,000

100,000 100,000

$ 500,000

200,000

The number of labor hours required to manufacture each of these products was: Department 1 Department 2 Total

Product A

Product B

3 1

1 3

During April, production units for products A and B were 1,000 and 3,000, respectively. Required:1. (a) Using a plant-wide overhead rate, what are total overhead costs assigned to products A and B, respectively? 2. (b) Using departmental overhead rates, what are total overhead costs assigned to products A and B, respectively? 3. (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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Cost Management Systems Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

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203) Technical Measurement Company manufactures precision-measuring devices used by industrial companies in various capacities. Technical Measurement produces two devices: A-12 and T-73. 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 for A-12 and direct labor hours for T-73. Information concerning the predetermined overhead rates appears below: Direct labor is paid $20 per hour. A-12 Budgeted overhead Budgeted materials use Budgeted direct labor hours Budgeted direct labor cost

$ 1,000,000 2,000,000 200,000 3,000,000

T-73 $ 500,000 50,000 100,000 1,500,000

Other information regarding the production of the products: Direct materials Direct labor cost Actual overhead cost

A-12

T-73

$ 2,200,000 3,100,000 1,200,000

$ 48,000 1,575,000 475,000

Required:1. (a) Compute the predetermined overhead rate for each product. 2. (b) Calculate the total and per unit cost of producing 4,000 units of A-12 and the total and per unit cost of producing 8,000 units of T-73. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Cost Management Systems Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry Gradable : manual Accessibility : Screen Reader Compatible

204) Tidy Furniture Company uses a job costing system. The following debits (credits) appeared in the Work-in-Process Inventory account for June 2023: Description

Debits

June 1

Balance

Entire month

Direct Materials

80,000

Entire month

Direct Labor

60,000

Entire month

Manufacturing overhead

45,000

Entire month

Transferred out

Credits

$ 20,000

$ 120,000

Tidy allocates 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 2023. Required:1. (a) Calculate the amount of direct materials charged to Product 1000. 2. (b) Compute the actual overhead for June 2023. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 06-01 Describe how a product costing system works and apply these principles to Topic : Cost Management Systems Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Bloom's : Apply Difficulty : 3 Hard Topic : Costing in a Multiple-Product, Discrete Process Industry AACSB : Reflective Thinking Gradable : manual Accessibility : Screen Reader Compatible

205) Briefly discuss the issue of choosing an activity measure for setting overhead rates. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 06-02 Allocate overhead to products and services in a manner that provides usefu Difficulty : 2 Medium Bloom's : Understand Topic : Costing in a Multiple-Product, Discrete Process Industry AICPA : FN Decision Making Gradable : manual Accessibility : Screen Reader Compatible

206) Distinguish between job costing, process costing, and operations costing. Give an example of a company that would use each.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Bloom's : Understand Learning Objective : 06-04 Describe the three basic types of product costing systems (job, process, a Topic : Different Companies, Different Production and Costing Systems Gradable : manual Accessibility : Screen Reader Compatible

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Answer Key Test name: Lanen7e_ch06 1) TRUE 2) FALSE Individual product costs are relevant for preparing financial statements. It is useful for calculating inventory values and cost of goods sold. 3) TRUE 4) TRUE 5) TRUE 6) FALSE Cost management systems should be designed so they reflect different (relevant) information for different purposes. 7) FALSE Valuing inventory is one purpose of cost information. Cost information is also used to make decisions regarding pricing, production, promotion, and so on. 8) FALSE The basic inventory equation states that BB + TI − TO = EB (or, BB + TI = EB + TO). 9) TRUE 10) FALSE The basic cost flow model applies to both physical units and the costs associated with those physical units. 11) TRUE 12) FALSE 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). Version 1

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13) TRUE 14) TRUE The predetermined overhead rate equals Total estimated overhead divided by the total estimated allocation base. 15) TRUE Two-stage cost allocation is the process of allocating costs to intermediate cost pools (multiple) and then to the individual costs objects using differing allocations bases. 16) FALSE In the two-stage cost allocation system, costs are first assigned to cost pools and then to the individual cost objects. 17) FALSE The selection of an appropriate cost allocation base is important for both single-stage and two-stage cost allocation systems. 18) FALSE A job costing system is more likely to be used by hospitals because it traces costs to specific, unique jobs (cases). 19) TRUE Process costing systems are used when identical units are produced through a series of uniform production steps. 20) TRUE This statement is the definition of operations costing. 21) B Individual product costs are relevant for both managerial decisionmaking and preparing financial statements. 22) B This statement is the definition of a cost management system. 23) C Determining product cost is difficult for manufacturers. 24) A Version 1

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Selling expense is not a product cost; it is a period cost. 25) D Managerial purposes imply decision making. Valuing inventory is financial reporting. 26) B BB + $155,600 − $170,600 = $73,000; BB = $88,000 27) B BB + $149,600 − $164,600 = $67,000; BB = $82,000 28) B $34,000 + $108,700 − TO = $30,200; TO = $112,500 29) B $23,000 + $97,700 − TO = $19,200; TO = $101,500 30) C $27,900 + TI − $43,100 = $28,300; TI = $43,500 31) C $7,900 + TI − $21,100 = $8,300; TI = $21,500 32) C Although the sides of the equation are reversed from the text narrative, the equivalency still exists whether shown as EB = BB + TI − TO or BB + TI − TO = EB. 33) A The terms are moved around, but the algebra makes EB + TO = TI + BB and BB + TI − TO = EB equivalent. 34) C The terms are moved around, but the algebra makes EB − BB = TI − TO and BB + TI − TO = EB equivalent. 35) D This is the basic cost flow model showing the flow of activity through an inventory account. 36) D Version 1

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$46,520 + $176,200 − $174,400 = $48,320 37) D $36,520 + $166,200 − $164,400 = $38,320 38) C $20,100 + TI − $98,200 = $16,400; TI = $94,500 39) C $15,100 + TI − $93,200 = $11,400; TI = $89,500 40) B $19,600 + $83,800 − TO = $26,200; TO = $77,200 41) B $5,600 + $68,400 − TO = $12,200; TO = $61,800 42) B BB + $195,700 − $193,900 = $35,460; BB = $33,660 43) B BB + $194,600 − $192,800 = $34,360; BB = $32,560 44) A $8,820 + $44,500 − $48,400 = $4,920 45) A $8,630 + $42,600 − $46,500 = $4,730 46) D $72,300 + TI − $182,600 = $75,800; TI = $186,100 47) D $71,600 + TI − $181,900 = $75,100; TI = $185,400 48) B $66,000 + $190,300 − TO = $62,500; TO = $193,800 49) B $64,800 + $189,100 − TO = $61,300; TO = $192,600 50) C $60,740 + $80,430 − $77,320 = $63,850 51) C Version 1

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$59,840 + $79,530 − $76,420 = $62,950 52) A BB + $66,000 − $68,100 = $14,600; BB = $16,700 53) A BB + $65,200 − $67,300 = $13,800; BB = $15,900 54) B Equivalent production = 86,020 + [40% × (101,470 − 86,020)] = 92,200 units. Cost per unit = ($38,340 + $16,980) ÷ 92,200 = $0.60; Costs transferred = 86,020 × $0.60 = $51,612 55) B Equivalent production = 85,000 + [40% × (100,000 − 85,000)] = 91,000 units. Cost per unit = ($38,220 + $16,380) ÷ 91,000 = $0.60; Costs transferred = 85,000 × $0.60 = $51,000 56) C Equivalent production = 92,000 + [40% × (107,000 − 92,000)] = 98,000 units. Cost per unit = ($45,220 + $23,380) ÷ 98,000 = $0.70 Costs in ending WIP = [40% × (107,000 − 92,000)] × $0.70 = $4,200 57) C Equivalent production = 85,000 + [40% × (100,000 − 85,000)] = 91,000 units. Cost per unit = ($38,220 + $16,380) ÷ 91,000 = $0.60 Costs in ending WIP = [40% × (100,000 − 85,000)] × $0.60 = $3,600 58) A Equivalent production = 191,020 + [70% × (201,470 − 191,020)] = 198,335 tons. Cost per unit = ($3,152,120 + $616,245) ÷ 198,335 = $19.00 Costs transferred = 191,020 × $19.00 = $3,629,380 Version 1

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59) A Equivalent production = 190,000 + [70% × (200,000 − 190,000)] = 197,000 tons. Cost per unit = ($3,152,000 + $591,000) ÷ 197,000 = $19 Costs transferred = 190,000 × $19 = $3,610,000 60) D Equivalent production = 194,760 + [70% × (206,860 − 194,760)] = 203,230 tons. Cost per unit = ($3,152,560 + $810,425) ÷ 203,230 = $19.50; Costs remaining in WIP = [70% × (206,860 − 194,760)] × $19.50 = $165,165 61) D Equivalent production = 190,000 + [70% × (200,000 − 190,000)] = 197,000 tons. Cost per unit = ($3,152,000 + $591,000) ÷ 197,000 = $19; Costs remaining in WIP = [70% × (200,000 − 190,000)] × $19 = $133,000 62) C Equivalent production = 191,020 + [70% × (201,470 − 191,020)] = 198,335 tons. Material cost per unit = $3,173,360 ÷ 198,335 = $16 Costs remaining in WIP = [70% × (201,470 − 191,020)] × $16 = $117,040 63) C Equivalent production = 190,000 + [70% × (200,000 − 190,000)] = 197,000 tons. Material cost per unit = $3,152,000 ÷ 197,000 = $16 Costs remaining in WIP = [70% × (200,000 − 190,000)] × $16 = $112,000 64) B Version 1

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($27,000 + $35,000) ÷ 1,550,000 = $0.04 per receipt × 1,700 receipts = $68.00 65) B ($14,000 + $28,000) ÷ 1,400,000 = $0.03 per receipt × 1,000 receipts = $30 66) B ($47,000 + $33,000) ÷ 800,000 = $0.10 per rebate × 4,800 rebates = $480 67) B ($28,000 + $14,000) ÷ 420,000 = $0.10 per rebate × 1,000 rebates = $100 68) C Machine hours would more closely reflect the usage of the automated equipment. 69) B Misclassifying the direct labor will cause the numerator to be larger and the denominator to be smaller, thus overstating the rate. 70) A Higher labor cost would reflect the higher skill level. 71) D $216,670 ÷ 56,300 = $3.85 per DL hour 72) D $210,000 ÷ 56,000 = $3.75 per DL hour 73) A $219,450 ÷ $444,000 = 49.4% per DL$ 74) A $210,000 ÷ $434,000 = 48.4% per DL$ 75) B ($81,000 ÷ $6.00) × $5.00 = $67,500 76) B Version 1

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($75,000 ÷ $5) × $4 = $60,000 77) B Department A: $122,120 ÷ $71,000 = 172% $57,155 ÷ 16,100 = $3.55 78) B Department A: $90,000 ÷ $60,000 = 150% $45,000 ÷ 15,000 = $3.00 79) D ($67,000 + $92,000 + $135,000) ÷ 42,000 = $7.00 80) D ($50,000 + $75,000 + $125,000) ÷ 25,000 = $10.00 81) C $73,000 ÷ 0.80 = $91,250 82) C $72,000 ÷ 0.75 = $96,000 83) A DL + 1.50DL = $960,000; DL = $384,000; OH = $960,000 − $384,000 = $576,000 84) A DL + 1.50DL = $800,000; DL = $320,000; OH = $800,000 − $320,000 = $480,000 85) D Direct Labor = loom operators 86) D Direct Labor = loom operators 87) A Factory foremen + Machine Mechanics = indirect labor = $59,000 + $44,000 = $103,000 88) A

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Factory foremen + Machine Mechanics = indirect labor = $45,000 + $30,000 = $75,000 89) A DL/unit = [$1,200 + ($1,200 × 0.20)] ÷ (40 ÷ 2) = $72 90) A DL/unit = [$500 + ($500 × 0.20)] ÷ (40 ÷ 2) = $30 91) D DL/unit = [$1,450 + ($1,450 × 0.30)] ÷ (36 ÷ 3) = $157.08 92) D DL/unit = [$700 + ($700 × 0.30)] ÷ (36 ÷ 3) = $75.83 93) B This statement is a definition of predetermined overhead rate. 94) B $423,000 ÷ 47,000 hours = $9.00 per hour 95) B $300,000 ÷ 30,000 hours = $10.00 per hour 96) C $608,000 ÷ $320,000 = 190% 97) C $300,000 ÷ $250,000 = 120% 98) C $1,220,000 ÷ 49,400 = $24.70 99) C $1,080,000 ÷ 48,000 = $22.50 100) B $1,159,600 ÷ $4,460,000 = 26.00% 101) B $1,080,000 ÷ $4,320,000 = 25% 102) D $1,900,000 ÷ $760,000 = 250.00% Version 1

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103) D $1,500,000 ÷ $756,000 = 198.41% 104) B $1,630,200 ÷ 52,000 = $31.35 105) B $1,500,000 ÷ 48,000 = $31.25 106) A $1,870,500 ÷ 116,000 = $16.125 107) A $1,500,000 ÷ 96,000 = $15.625 108) C $165,000 ÷ 0.50 = $330,000 109) C $35,000 ÷ 0.50 = $70,000 110) B DL + 1.60DL = $741,000; DL = $285,000; OH = $741,000 − $285,000 = $456,000 111) B DL + 1.80DL = $728,000; DL = $260,000; OH = $728,000 − $260,000 = $468,000 112) C ($324,000 ÷ $22.50) × $18.00 = $259,200 113) C ($315,000 ÷ $17.50) × $14 = $252,000 114) D (15,600 × $19.00) × 140% = $414,960 115) D (15,000 × $17.50) × 140% = $367,500 116) B

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The omission of an overhead item will cause the application to be less than it should be and Cost of Goods Manufactured will be less than it should be. 117) B Predetermined overhead rate = Estimated overhead divided by estimated allocation base. 118) C Direct labor hours should not be used in an automated environment to allocate manufacturing overhead. 119) D Predetermined overhead rate = Estimated overhead ÷ Estimated allocation base = $280,800 ÷ 26,000 direct labor-hours = $10.80 per direct labor-hour 120) D Predetermined overhead rate = Estimated overhead ÷ Estimated allocation base = $267,500 ÷ 25,000 direct labor-hours = $10.70 per direct labor-hour 121) B Predetermined overhead rate = Estimated manufacturing overhead ÷ Estimated direct labor-hours = $59,000 ÷ 14,900 direct labor-hours = $3.96 per direct labor-hour 122) B Predetermined overhead rate = Estimated manufacturing overhead ÷ Estimated direct labor-hours = $39,000 ÷ 12,000 direct labor-hours = $3.25 per direct labor-hour 123) C

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Estimated total manufacturing overhead = $1,228,200 + ($3.10 per labor-hour × 55,200 labor-hours) = $1,399,320 Predetermined overhead rate = $1,399,320 ÷ 55,200 labor-hours = $25.35 per labor-hour 124) C Estimated total manufacturing overhead = $1,192,360 + ($2.78 per labor-hour × 52,000 labor-hours) = $1,336,920 Predetermined overhead rate = $1,336,920 ÷ 52,000 labor-hours = $25.71 per labor-hour 125) C Department A Predetermined overhead rate = Manufacturing overhead ÷ Direct labor cost. = $122,400 ÷ $68,000 = 180% of direct labor cost Department B Predetermined overhead rate = Manufacturing overhead ÷ Machinehours. = $58,320 ÷ 16,200 = $3.60 per machine-hour 126) C

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Department A Predetermined overhead rate = Manufacturing overhead ÷ Direct labor cost = $67,200 ÷ $56,000 = 120% of direct labor cost Department B Predetermined overhead rate = Manufacturing overhead ÷ Machinehours = $45,000 ÷ 15,000 = $3 per machine-hour 127) D Estimated total manufacturing overhead = $514,140 + ($9.70 per machine-hour × 20,900 machine-hours) = $716,870 Predetermined overhead rate = $716,870 ÷ 20,900 machine-hours = $34.30 per machine-hour 128) D Estimated total manufacturing overhead = $465,880 + ($7.89 per machine-hour × 19,000 machine-hours) = $615,790 Predetermined overhead rate = $615,790 ÷ 19,000 machine-hours = $32.41 per machine-hour 129) A Predetermined rate = $176,000 ÷ $352,000 = 50% of DL cost; $176,000 × 0.50 = $88,000 130) A Predetermined rate = $160,000 ÷ $320,000 = 50% of DL cost; $160,000 × 0.50 = $80,000 131) C $162,000 ÷ $10 = 16,200 hours × $8 per hour = $129,600 132) C $150,000 ÷ $10 = 15,000 hours × $8 per hour = $120,000 Version 1

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133) B Department A Predetermined overhead rate = Manufacturing overhead ÷ Direct labor cost. = $165,900 ÷ $79,000 = 210% of direct labor cost Department B Predetermined overhead rate = Manufacturing overhead ÷ Machinehours. = $100,500 ÷ 13,400 machine-hours = $7.50 per machine-hour 134) B Department A Predetermined overhead rate = Manufacturing overhead ÷ Direct labor cost. = $91,000 ÷ $65,000 = 140% of direct labor cost Department B Predetermined overhead rate = Manufacturing overhead ÷ Machinehours. = $48,000 ÷ 12,000 machine-hours = $4 per machine-hour 135) A Estimated total manufacturing overhead = $642,640 + ($10.45 per machine-hour × 23,200 machine-hours) = $885,080 Predetermined overhead rate = $885,080 ÷ 23,200 machine-hours = $38.15 per machine-hour 136) A

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Estimated total manufacturing overhead = $609,400 + ($8.65 per machine-hour × 22,000 machine-hours) = $799,700 Predetermined overhead rate = $799,700 ÷ 22,000 machine-hours = $36.35 per machine-hour 137) C Estimated manufacturing overhead = Estimated salary of production supervisor + Estimated indirect materials + Estimated rent on factory equipment = $23,150 + $7,150 + $14,200 = $44,500 estimated manufacturing overhead Predetermined overhead rate = Manufacturing overhead ÷ Machinehours = $44,500 ÷ 10,000 machine-hours = $4.45 per machine-hour 138) C Estimated manufacturing overhead = Estimated salary of production supervisor + Estimated indirect materials + Estimated rent on factory equipment = $20,000 + $4,000 + $10,000 = $34,000 estimated manufacturing overhead Predetermined overhead rate = Manufacturing overhead ÷ Machinehours = $34,000 ÷ 10,000 machine-hours = $3.40 per machine-hour 139) B Estimated total manufacturing overhead = $1,292,970 + ($7.43 per machine-hour × 70,500 machine-hours) = $1,816,785 Predetermined overhead rate = $1,816,785 ÷ 70,500 machine-hours = $25.77 per machine-hour 140) B Version 1

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Estimated total manufacturing overhead = $1,283,800 + ($6.68 per machine-hour × 70,000 machine-hours) = $1,751,400 Predetermined overhead rate = $1,751,400 ÷ 70,000 machine-hours = $25.02 per machine-hour 141) D Direct materials Direct labor (42 direct labor-hours × $24 per direct-labor hour) Overhead (185 machine-hours × $25 per machine-hour)

$ 2,139 1,008

Total manufacturing costs for A-11

$ 7,772

4,625

142) D Direct materials Direct labor (32 direct labor-hours × $14.00 per direct-labor hour) Overhead (175 machine-hours × $15.00 per machine-hour)

$ 2,039 448

Total manufacturing costs for A-11

$ 5,112

2,625

143) B Direct materials Direct labor (88 direct labor-hours × $13.00 per directlabor hour) Overhead (129.00 machine-hours × $33 per machine-hour)

$ 4,291 1,144

Total manufacturing cost for Product B-09

$ 9,692

4,257

144) B Direct materials Direct labor (69 direct labor-hours × $13.00 per directlabor hour) Overhead (129 machine-hours × $14.00 per machine-hour)

$ 2,391 897

Total manufacturing cost for Product B-09

$ 5,094

1,806

145) B Cost of goods manufactured = Beginning Work in Process inventory + Direct materials + Direct labor + Allocated manufacturing overhead − Ending Work in Process inventory = $0 + $100,000 + $117,000 + $123,000 − $0 = $340,000 cost of goods manufactured 146) B Version 1

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Cost of goods manufactured = Beginning Work in Process inventory + Direct materials + Direct labor + Allocated manufacturing overhead − Ending Work in Process inventory = $0 + $90,000 + $107,000 + $113,000 − $0 = $310,000 cost of goods manufactured 147) A Direct materials cost = Beginning raw materials inventory + Raw materials purchases − Indirect materials − Ending raw materials inventory = $71,000 + $91,000 − $5,000 − $46,000 = $111,000 direct materials cost 148) A Direct materials cost = Beginning raw materials inventory + Raw materials purchases − Indirect materials − Ending raw materials inventory = $37,000 + $57,000 − $2,000 − $29,000 = $63,000 direct materials cost 149) D Adjusted cost of goods sold = Beginning finished goods inventory + Cost of goods manufactured + Actual manufacturing overhead − Allocated manufacturing overhead − Ending finished goods inventory = $50,600 + $242,000 + $90,000 − $86,000 − $46,600 = $250,000 adjusted cost of goods sold 150) D Adjusted cost of goods sold = Beginning finished goods inventory + Cost of goods manufactured + Actual manufacturing overhead − Allocated manufacturing overhead − Ending finished goods inventory = $49,000 + $226,000 + $74,000 − $70,000 − $45,000 = $234,000 adjusted cost of goods sold 151) B Version 1

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Single-stage is best when there are few products with similar characteristics. 152) B Selection of the appropriate costing base is important in both situations. 153) A Cost pools are a collection of costs to be assigned to cost objects. 154) C This statement is the definition of the two-stage allocation process. 155) C 156) A This statement is the definition of a continuous flow process. 157) D This is the definition of operation costing. 158) D Job costing can be used for batches; process costing is used for homogeneous units, is more appropriate in a continuous flow process, and does not separately record the costs for each unit. 159) A Law office would have many different types of jobs. The refinery, baby formula, and soft drinks would all be uniform and could use process costing. 160) C Operation costing is appropriate because outside services would vary but the evaluation costs and other elements of the process would be standardized. 161) B A single uniform product would use a process costing system. 162) B-13 Units produced

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3,000

C-18 8,000

Total 11,000 168

Direct materials Direct labor Manufacturing overhead a Total costs

$ 250,000 800,000 600,000 b

$ 175,000 700,000 1,600,000 c

$ 1,650,000

$ 2,475,000

Units produced

÷ 3,000

÷ 8,000

Unit cost

$ 550.00

$ 309.38

$ 425,000 1,500,000 2,200,000 $ 4,125,000

a.@$200 per unit (= $2,200,000 ÷ 11,000 units) b.$600,000 = $200 per unit × 3,000 units c.$1,600,000 = $200 per unit × 8,000 units 163)Cost Summary Direct materials Direct labor $13 per DLH × 630 DLHs Manufacturing overhead $12 per MH × 390 MHs Total cost

$ 45,000 8,190 4,680 $ 57,870

Unit product cost

$ 19.29

164)Cost Summary Direct materials Direct labor $11 per DLH × 1,147 DLHs Manufacturing overhead $20 per DLH × 1,147 DLHs

$ 40,610 12,617 22,940

Total cost

$ 76,167

Unit product cost

$ 24.57

165)1. (a) (0.75 × $900,000) + $520,000 + $820,000 = $2,015,000. 2. (b) 0.60 × $2,015,000 = $1,209,000. 3. (c) BB + TI − TO = EB; 0 + $2,015,000 − $1,209,000 = $806,000. 166)1. (a) (0.70 × $450,000) + $260,000 + $410,000 = $985,000. 2. (b) 0.65 × $985,000 = $640,250. 3. (c) BB + TI − TO = EB; 0 + $985,000 − $640,250 = $344,750.

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167)Case A: $41,520 + $224,870 − $217,400; EB = $48,990 Case B: $24,100 + TI − $106,200 = $22,400; TI = $104,500 Case C: $5,450 + $84,400 − TO = $11,370; TO = $78,480 Case D: BB + $189,460 − $193,610 = $38,910; BB = $43,060 168)Case A: BB + $199,460 − $193,610 = $19,455; BB = $13,605 Case B: $25,760 + $214,870 − $217,400; EB = $23,230 Case C: $12,050 + TI − $131,200 = $21,200; TI = $140,350 Case D: $11,450 + $87,300 − TO = $5,370; TO = $93,380 169)1. (a) Equivalent units: (310,000 − 30,000) + (80% × 30,000) = 304,000 gallons Cost per gallon: ($250,000 + $52,000 + $154,000) ÷ 304,000 = $1.50 per gallon Cost of Goods Sold: 280,000 gallons × $1.50 = $420,000 2. (b) Ending WIP = (30,000 × 80%) × $1.50 = $36,000 170)1. (a) Equivalent units: 450,000 + (70% × 15,000) = 460,500 gallons; Cost per gallon: ($560,400 + $164,300 + $242,350) ÷ 460,500 = $2.10 per gallon; Cost of Goods Sold: 450,000 gallons × $2.10 = $945,000 2. (b) Ending WIP = (15,000 × 70%) × $2.10 = $22,050

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171)Equivalent production = 170,000 + [60% × (200,000 − 170,000)] = 188,000 gallons; Cost per unit = ($138,220 + $116,380) ÷ 188,000 = $1.3543 1. (a) Costs transferred = 170,000 × $1.3543 = $230,231 2. (b) Ending WIP: [60% × (200,000 − 170,000)] × $1.3543 = $24,377 172)Equivalent production = 350,000 + [90% × (400,000 − 350,000)] = 395,000 pounds; Cost per unit = ($260,130 + $312,620) ÷ 395,000 = $1.45 1. (a) Costs transferred = 350,000 × $1.45 = $507,500 2. (b) Ending WIP: [90% × (400,000 − 350,000)] × $1.45 = $65,250 173)Equivalent production = 14,000 + [20% × (15,000 − 14,000)] = 14,200 tons; Cost per unit = ($394,670 + $201,730) ÷ 14,200 = $42 1. (a) Costs transferred = 14,000 × $42 = $588,000 2. (b) Ending WIP: [20% × (15,000 − 14,000)] × $42 = $8,400 174)

Beginning Balance Ending Balance Transferred in Transferred out

(A)

(B)

(C)

(D)

(E)

$ 68,000 $ 56,000 64,000 76,000

$ 7,100 6,200 21,100 22,000

$ 100,000 110,000 75,000 65,000

$ 163,200 $ 134,400 153,600 182,400

$ 85,200 74,400 253,200 264,000

(A)

(B)

(C)

(D)

(E)

$ 85,000 $ 89,000 80,000

$ 3,550 3,210 10,550

175)

Beginning Balance Ending Balance Transferred in

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$ 780,000 640,000 1,260,000

$ 36,000 $ 10,000 $ 36,000 32,000 75,000 64,000

171

Transferred Out

76,000

10,890

1,400,000

75,000

42,000

176)1. (a) (a) $375 (b) $15,750 (c) $43,950 (d) $39,750 (e) $12,000. 2. (b) Overhead allocated is $12,000; Direct labor is $24,000. Predetermined rate: $12,000/$24,000 = 50% of direct labor cost. 177)Transfers in = $1,860,000 ($1,800,000 of purchases plus $60,000 of transportation). Beginning balance = $200,000. Transfers out = $1,660,000 ($200,000 + $1,860,000 − $400,000). Ending balance = $400,000. 178)1. (a) $348,200 ÷ 10,000 hrs = $34.82 per hour 2. (b) $348,200 ÷ $200,000 = 174.10% 3. (c) $348,200 ÷ 12,000 Machine hrs = $29.0167 per MHr 4. (d) Basic: $20,000 + $129,000 + (174.1% × $129,000) = $373,589 ÷ 1,000 units = $373.589 Mega: $7,500 + $71,000 + (174.1% × $71,000) = $202,111 ÷ 250 units = $808.444

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179)1. (a) Overhead rate: $348,200 ÷ 10,000 hrs = $34.82 per hour Basic: $20,000 + $129,000 + ($34.82 × 6,000) = $357,920 ÷ 1,000 units = $357.92 Mega: $7,500 + $71,000 + ($34.82 × 4,000) = $217,780 ÷ 250 units = $871.12 2. (b) Overhead rate: $348,200 ÷ $200,000 = 174.10% Basic: $20,000 + $129,000 + (174.1% × $129,000) = $373,589 ÷ 1,000 units = $373.589 Mega: $7,500 + $71,000 + (174.1% × $71,000) = $202,111 ÷ 250 units = $808.444 3. (c) Overhead rate: $348,200 ÷ 12,000 Machine hrs = $29.0167 per MHr Basic: $20,000 + $129,000 + ($29.0167 × 8,000) = $381,134 ÷ 1,000 units = $381.134 Mega: $7,500 + $71,000 + ($29.0167 × 4,000) = $194,567 ÷ 250 units = $778.268

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180)1. (a) Overhead rate: $557,400 ÷ 20,000 hrs = $27.87 per hr Standard: $80,000 + $262,000 + ($27.87 × 12,000) = $676,440 Deluxe: $30,000 + $138,000 + ($27.87 × 8,000) = $390,960 2. (b) Overhead rate: $557,400 ÷ $400,000 = 139.35% Standard: $80,000 + $262,000 + (139.35% × $262,000) = $707,097 Deluxe: $30,000 + $138,000 + (139.35% × $138,000) = $360,303 3. (c) Overhead rate: $557,400 ÷ 24,000 Machine hrs = $23.225 per MHr Standard: $80,000 + $262,000 + ($23.225 × 16,000) = $713,600 Deluxe: $30,000 + $138,000 + ($23.225 × 8,000) = $353,800 181)1. (a) $540,800 ÷ 16,000 hrs = $33.80 per hr 2. (b) $540,800 ÷ $300,000 = 180.267% 3. (c) $540,800 ÷ 18,000 Machine hrs = $30.0444 per MHr 4. (d) Basic: $20,000 + $129,000 + (180.267% × $129,000) = $381,544 ÷ 1,000 units = $381.544 Advanced: $12,500 + $100,000 + (180.267% × $100,000) = $292,767 ÷ 500 units = $585.534 Superior: $7,500 + $71,000 + (180.267% × $71,000) = $206,490 ÷ 250 units = $825.96

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182)1. (a) Overhead rate: $540,800 ÷ 16,000 hrs = $33.80/hr Basic: $20,000 + $129,000 + ($33.80 × 6,000) = $351,800 ÷ 1,000 units = $351.80 Advanced: $12,500 + $100,000 + ($33.80 × 6,000) = $315,300 ÷ 500 units = $630.60 Superior: $7,500 + $71,000 + ($33.80 × 4,000) = $213,700 ÷ 250 units = $854.80 2. (b) Overhead rate: $540,800 ÷ $300,000 = 180.267% Basic: $20,000 + $129,000 + (180.267% × $129,000) = $381,544 ÷ 1,000 units = $381.544 Advanced: $12,500 + $100,000 + (180.267% × $100,000) = $292,767 ÷ 500 units = $585.534 Superior: $7,500 + $71,000 + (180.267% × $71,000) = $206,490 ÷ 250 units = $825.96 3. (c) Overhead rate: $540,800/18,000 Machine hrs = $30.0444 per MHr Basic: $20,000 + $129,000 + ($30.0444 × 8,000) = $389,355 ÷ 1,000 units = $389.355 Advanced: $12,500 + $100,000 + ($30.0444 × 6,000) = $292,766 ÷ 500 units = $585.532 Superior: $7,500 + $71,000 + ($30.0444 × 4,000) = $198,678 ÷ 250 units = $794.712

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183)1. (a) Overhead rate: $684,000 ÷ 24,000 hrs = $28.50 per hr. Economy: $100,000 + $200,000 + ($28.50 × 4,000) = $414,000. Standard: $80,000 + $262,000 + ($28.50 × 12,000) = $684,000. Deluxe: $30,000 + $138,000 + ($28.50 × 8,000) = $396,000. 2. (b) Overhead rate: $684,000 ÷ $600,000 = 114% Economy: $100,000 + $200,000 + (114% × $200,000) = $528,000. Standard: $80,000 + $262,000 + (114% × $262,000) = $640,680. Deluxe: $30,000 + $138,000 + (114% × $138,000) = $325,320. 3. (c) Overhead rate: $684,000 ÷ 32,000 Machine hrs = $21.375 per MHr. Economy: $100,000 + $200,000 + ($21.375 × 8,000) = $471,000. Standard: $80,000 + $262,000 + ($21.375 × 16,000) = $684,000. Deluxe: $30,000 + $138,000 + ($21.375 × 8,000) = $339,000. 184)1. (a) Calculation of the predetermined overhead rate: Estimated total manufacturing overhead

$ 1,144,800

Estimated total amount of the allocation base

48,000

MHs

Predetermined overhead rate

$ 23.85

per MH

2. (b) Manufacturing overhead allocated to Product J42O: Number of hours for the job Predetermined overhead rate

40 $ 23.85

Manufacturing overhead allocated to the Product

$ 954.00

MHs per MH

3. (c) Calculation of the predetermined overhead rate: Estimated total manufacturing overhead at capacity Total amount of the allocation base at capacity

Version 1

$ 1,144,800 53,000

MHs

176

Predetermined overhead rate

$ 21.60

per MH

4. (d) Manufacturing overhead allocated to Product J42O: Number of hours for the job Predetermined overhead rate

40 $ 21.60

Manufacturing overhead allocated to the Product

$ 864.00

MHs per MH

185)1. (a) Calculation of the predetermined overhead rate: Estimated total manufacturing overhead at capacity Total amount of the allocation base at capacity Predetermined overhead rate

$ 4,132,800 82,000

MHs

$ 50.40

per MH

2. (b) Manufacturing overhead allocated to Product O65A: Number of hours for the product Predetermined overhead rate

300 $ 50.40

Manufacturing overhead allocated to the product

MHs per MH

$ 15,120.00

186)1. (a) Manufacturing overhead Utilities (machine-related)

Labor

Total $ 3,000

Supplies (labor-related)

$ 8,000

8,000

Training (labor-related)

20,000

Supervision (labor-related)

17,000

Machine depreciation (machinerelated) Lease on factory (machine-related)

Machine $ 3,000

24,000

33,000

Miscellaneous (labor-related) Total

Version 1

$ 60,000

5,000

$ 50,000

$ 110,000

177

2. (b) Machine: $60,000 ÷ 6,000 MHr = $10 per MHr; Labor: $50,000 ÷ 4,000 DLH = $12.50 per DLH. 3. (c) Product 1: $60,000 + $45,000 + ($10 × 2,000 MH) + ($12.50 × 2,000 DLH) = $150,000. Product 2: $60,000 + $45,000 + ($10 × 4,000 MH) + ($12.50 × 2,000 DLH) = $170,000. 187)1. (a) Manufacturing overhead Utilities (machine-related)

Machine $ 13,000

Labor

Total $ 13,000

Supplies (labor-related)

$ 8,000

8,000

Training (labor-related)

20,000

Supervision (labor-related)

37,000

Machine depreciation (machinerelated) Lease on factory (machine-related)

34,000

66,000

Miscellaneous (labor-related) Total

Version 1

$ 113,000

15,000

$ 80,000

$ 193,000

178

2. (b) Machine: $113,000 ÷ 20,000 MH = $5.65 per MH; Labor: $80,000 ÷ 10,000 DLH = $8.00 per DLH 3. (c) Product X: $60,000 + $45,000 + ($5.65 × 4,000 MH) + ($8 × 2,000 DLH) = $143,600 Product Y: $60,000 + $80,000 + ($5.65 × 8,000 MH) + ($8 × 3,000 DLH) = $209,200 Product Z: $75,000 + $175,000 + ($5.65 × 8,000) + ($8 × 5,000) = $335,200 188)1. (a) Manufacturing overhead Utilities (machine-related)

Labor

Total $ 26,000

Supplies (labor-related)

$ 16,000

16,000

Training (labor-related)

40,000

Supervision (labor-related)

74,000

Machine depreciation (machinerelated) Lease on factory (machine-related)

Machine $ 26,000

68,000

132,000

Miscellaneous (labor-related) Total

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$ 226,000

30,000

$ 160,000

$ 386,000

179

2. (b) Machine: $226,000 ÷ 40,000 MHr = $5.65 per MHr; Labor: $160,000 ÷ $600,000 = 26.667%. 3. (c) Product X: $120,000 + $90,000 + ($5.65 × 8,000 MH) + (26.667% × $90,000) = $279,200 ÷ 6,000 units = $46.53. Product Y: $120,000 + $160,000 + ($5.65 × 16,000 MH) + (26.667% × $160,000) = $413,067 ÷ 4,000 units = $103.27. Product Z: $150,000 + $350,000 + ($5.65 × 16,000) + (26.667% × $350,000) = $683,735 ÷ 2,000 units = $341.87. 189)RES-1: $43; AS-2: $53 Conversion costs: $300,000 ÷ 100,000 units = $3 per unit RES-1: $40 parts + $3 conversion = $43; AS-2: $50 parts + $3 conversion = $53. 190)Conversion costs: $252,000 ÷ 2,800 units = $90 per unit; Oak: $80 wood + $90 conversion = $170 per unit; Cherry: $120 wood + $90 conversion = $210 per unit; Walnut: $105 wood + $90 conversion = $195 per unit 191)There are three important points to consider: 1.The cost system should meet the needs of the users (the decision makers). 2.The cost system must provide the appropriate data for its intended purpose. Different cost information is used for different purposes. 3.Cost information for managerial purposes must meet the cost-benefit test. The costs of implementing the system should be less than the benefits derived from the system (i.e., better decisions).

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192)The cost of conducting a special study every time we need to know the cost of an item is very expensive. Although the product costs determined using allocations may not be "right," they are often "good enough." There needs to be a balance between the potential distortion in costs and the cost of determining the product cost through special studies. 193)The basic cost flow model is as follows: Beginning balance + Transfers in − Transfers out = Ending balance. Beginning balance is the balance of inventory at the beginning of the period. Transfers in represent inventory purchased or transferred in from another department (for example, raw materials would be goods transferred in to work in process) for the period. Transfers out are goods transferred from one department to another (for example, work in process would be transferred out to finished goods). Ending balance represents the amount of inventory in a department at the end of the accounting period. 194)Direct labor cost would be a better choice as an allocation base if a large portion of the overhead is employee related and is affected by either the wage rate or the seniority of the employees. If the overhead costs are determined by labor activity regardless of seniority or skill, then direct labor hours would be a better choice. 195)The two-stage allocation method splits the overhead allocation into two steps. The first stage allocates costs to an intermediate cost pool. This intermediate cost pool is then allocated to the individual cost objects. The two-stage approach is used when the overhead is caused by multiple drivers and the cost objects use the drivers at different rates. 196)Job costing is used when the units being produced are unique and use the production process/resources in varying amounts. Process costing is used when the product is homogeneous and is produced in uniform production steps. Version 1

181

197)Operations costing is a hybrid system because it contains characteristics of both job costing and process costing. The different materials for each unit can be traced using job costing principles while the labor and overhead reflects the standardized production process and uses process costing principles.

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182

198)1. (a) Several costs are likely to be incurred to manufacture the component. Examples include: 2.direct and indirect materials 3.direct and indirect labor 4.machining 5.inspecting 6.reworking 7.packaging 8.procurement of materials 9.design and engineering The current costing system appears to capture direct materials and direct labor costs separately and lump all other costs into overhead. It is also not clear as to what items are included as part of overhead. Moreover, the current costing system seems to assume that all products consume overhead resources in a fixed ratio, thereby ignoring that the manufacture of complex components would likely consume more resources than the level of resources consumed by simple components. Furthermore, the current costing system fails to identify the additional costs due to the quality problems associated with this component. 10. (b) The most important change to the costing system is better tracing of costs and identification of cost drivers. By separating the costs of machining, inspection, reworking, packaging, procurement, design, and engineering costs, TMC will be able to attach costs to products (or components) based on their consumption of the different resources. Such a system will allow managers to more clearly identify all costs and benefits associated with buying the component from an outside supplier versus continuing to manufacture it internally.

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183

11. (c) Factors such as quality and on-time delivery are becoming important sources of competitive advantage. Unfortunately, very few organizations are attempting to "quantify" these benefits. The costs associated with poor quality can be tracked by recording the costs of additional inspection, reworking, scrap and warranty. The notion of Cost of Quality (COQ) has been adopted by several companies and is providing valuable information for managers to make process improvements. Similarly, costs associated with late delivery because of poor processes can be tracked. These would include expediting costs in order to meet delivery schedules and potential lost sales due to poor on-time delivery performance. 199)1. (a) Predetermined overhead rate: $16.00 per DL hour ($256,000 ÷ 16,000). 2. (b) Ending Balance of Materials Inventory: Beginning Materials Inventory +Purchases Available –Materials Used

$ 54,000 180,000 234,000 182,000

Ending Materials Inventory

$ 52,000

1.(c) Ending Balance in Work-in-Process Inventory: Beginning WIP Inventory

$ 21,000

+Direct Materials

174,000

+Direct Labor

23,920

+Allocated Overhead –Transferred to FG Inventory

19,136 (88,996)

Ending WIP Inventory

$ 149,060

Version 1

($46,000 + $84,000 + $44,000) ($12,220 + $8,060 + $3,640) ($9,776 + $6,448 + $2,912)

184

200)1. (a) Budgeted overhead rate = 119% direct labor cost ($240,380/$202,000) This is used to allocate an estimated overhead amount to each specific account based on the direct professional labor that has occurred for each account during the period. 2. (b) Amount of overhead charged: Henderson Account: Fisher Account:

$3,570 (119% × $3,000) $14,994 (119% × $12,600)

3. (c) Cost Direct materials Direct labor Overhead Total

Henderson $ 400 3,000 3,570

Fisher $ 5,380 12,600 14,994

$ 6,970

$ 32,974

X-14

SM-4

Total

$ 7,100 32,200 184,000

$ 58,500 25,900 148,000

$ 65,000 58,000 332,000

$ 223,300

$ 232,400

$ 455,700

201)

Direct Materials Direct Labor Overhead allocated X-14: (2,300 × $80) SM-4: (1,850 × $80) Total Manufacturing Costs

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185

202)1. (a) Plant-wide Overhead Rate: Product A: $2.50 × 4 hours × 1,000 units = $10,000 Product B: $2.50 × 4 hours × 3,000 units = $30,000 2. (b) Departmental Overhead Rates: Department 1 Rate: $300,000 ÷ 100,000 = $3 per direct labor hour Department 2 Rate: $200,000 ÷ 100,000 = $2 per direct labor hour Product A: [($3 × 3) + ($2 × 1)] × 1,000 = $11,000 Product B: [($3 × 1) + ($2 × 3)] × 3,000 = $27,000. 3. (c) Product A Plantwide Rate Prime cost Overhead* Total cost 40% markup Selling price

$ 10.00 10.00 20.00 8.00 28.00

Departmental Rates $ 10.00 11.00 21.00 8.40 29.40

Increase in selling price $29.40 − $28.00 = $1.40 * Overhead calculations: Plant-wide rate $2.50 × 4 = $10 per unit Departmental rates ($3 × 3) + ($2 × 1) = $11 per unit 203)1. (a) A-12 Estimated overhead Estimated allocation base

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$ 1,000,000 2,000,000 materials use

T-73 $ 500,000 100,000 DLHs

186

Predetermined overhead rate: A-12 = 50.00% of materials used; T-73 = $5.00 per direct labor-hour. 2. (b) Total and per unit cost of producing 4,000 units of each: A-12

T-73

Direct materials Direct Labor Overhead allocated*

$ 2,200,000 3,100,000 1,100,000

$ 48,000 1,575,000 393,750

Total cost

$ 6,400,000

$ 2,016,750

8,000 $ 800

−4,000 $ 504.19

Number of units Cost per unit

*Overhead calculations: A-12: $2,200,000 × 0.5 = $1,100,000. T-73: $1,575,000 ÷ $20 = 78,750 hrs. × $5 = $393,750. 204)1. (a) $32,500. Ending Balance in WIP = ($20,000 + $80,000 + $60,000 + $45,000 – $120,000) = $85,000. Labor = $30,000, Overhead = $30,000 × .75 = $22,500. Materials = $85,000 − $30,000 − $22,500 = $32,500. 2. (b) Actual overhead is $35,000. Since the Manufacturing Overhead account has a credit balance of $10,000, allocated overhead of $45,000 exceeds actual overhead by $10,000, so actual overhead = $35,000.

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187

205)The activity measure chosen should be one that moves proportionately with variable overhead. The most traditional measures have been direct labor hours and direct labor cost. Labor hours are becoming less relevant as an activity measure because of the impact of technology, and are being replaced by machine hours, robotic hours, or process time which tie into the more automated manufacturing processes of today. Labor cost and other dollar-based measures have a different set of problems. In particular, they are impacted by changes in the price level, and therefore, subject to more fluctuation. 206)Job costing treats each individual job as a unit of output and assigns costs to each job as the resources are used. Each job has a separate accounting record. Construction, movies, and airplanes would be examples of products that would use job costing. Job costing should be used whenever it is important to distinguish the cost of specific units from one another because there are differences in materials, labor, or other costs. Process costing treats all the units processed during a time period as the output and does not separate and record costs for each unit produced. There is no expected cost variation in the individual units, so trying to separate them is of little value. Process costing would be used by food and soft drink manufacturers, oil companies, and paint manufacturers. Operations costing is a hybrid of job and process costing. It is used where companies produce large batches of similar products where significantly different kinds of materials are used. A car manufacturer or a computer manufacturer who custom fits each computer to order may use operations costing.

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188

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) A job is a product or service that can be easily and conveniently distinguished from other products or services. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Defining a Job Bloom's : Remember Accessibility : Screen Reader Compatible

2) Job cost sheets are used in accounting systems as a subsidiary ledger for the Work-inProcess account. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Bloom's : Remember Accessibility : Screen Reader Compatible Topic : Using Accounting Records in a Job Shop

3) Job shops have three types of inventory accounts: Direct Materials, Work-in-Process, and Finished Goods. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Accessibility : Screen Reader Compatible

4) The cost in the ending Finished Goods inventory account consists of the direct materials, direct labor, and manufacturing overhead for all jobs still in process at the end of the period. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Computing the Cost of a Job Bloom's : Remember Accessibility : Screen Reader Compatible

5) Accounting for direct materials and direct labor is easier than accounting for manufacturing overhead costs. ⊚ true ⊚ false

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Indirect materials and indirect labor are examples of manufacturing overhead costs. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Computing the Cost of a Job Bloom's : Remember Accessibility : Screen Reader Compatible

7) The journal entry to record actual manufacturing overhead for indirect materials debits Manufacturing Overhead Control and credits Accounts Payable. ⊚ true ⊚ false

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8) The journal entry to record actual manufacturing overhead for indirect labor debits Manufacturing Overhead Control and credits Work-in-Process Inventory. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Accessibility : Screen Reader Compatible

9) The periodic allocation of manufacturing overhead costs to job cost sheets is based on an event, not a transaction. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Difficulty : 2 Medium Accessibility : Screen Reader Compatible

10) The predetermined overhead rate is computed by dividing the estimated manufacturing overhead costs by the estimated activity of the allocation base. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Gradable : automatic Topic : Computing the Cost of a Job Bloom's : Remember Learning Objective : 07-02 Account for overhead using predetermined rates. Accessibility : Screen Reader Compatible

11) The journal entry to apply manufacturing overhead costs to completed jobs credits either Applied Manufacturing Overhead or Manufacturing Overhead Control. ⊚ true ⊚ false

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12) At the end of the accounting period, manufacturing overhead costs are applied to incomplete jobs using the same predetermined overhead rate that is used to apply manufacturing overhead costs to completed jobs. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Difficulty : 2 Medium Accessibility : Screen Reader Compatible

13) Overapplied overhead occurs when the actual overhead costs incurred during a period are greater than the overhead costs applied during the period. ⊚ true ⊚ false

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Accessibility : Screen Reader Compatible

14) Underapplied overhead occurs when the actual overhead costs incurred during a period are greater than the overhead costs applied during the period. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Accessibility : Screen Reader Compatible

15) Normal costing uses the actual allocation base activity to apply manufacturing overhead costs to jobs during the period. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Gradable : automatic Topic : Computing the Cost of a Job Bloom's : Remember Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Accessibility : Screen Reader Compatible

16) Actual costing does not use a predetermined overhead rate to apply manufacturing overhead costs to jobs completed during the period. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Accessibility : Screen Reader Compatible

17)

Service organizations, by their nature, cannot have a balance in Work in Process. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 07-04 Apply job costing in service organizations. Topic : Using Job Costing in Service Organizations Accessibility : Screen Reader Compatible

18)

Service organizations generally use the same job costing procedures as manufacturers. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 07-04 Apply job costing in service organizations. Topic : Using Job Costing in Service Organizations Accessibility : Screen Reader Compatible

19)

It is unethical to intentionally charge costs to the wrong job. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Learning Objective : 07-05 Identify ethical issues in job costing and know how to respond to them. Topic : Ethical Issues and Job Costing Accessibility : Screen Reader Compatible

20) Most major projects require budget and completion stage revisions at certain intervals due to their inherent uncertainty. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Learning Objective : 07-06 Describe the difference between projects and jobs and understand the impli Topic : Managing Projects Accessibility : Screen Reader Compatible

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 21) Which of the following statements is false regarding job costing?

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A) A job is a product or service that can distinguished from other products and services at a reasonable cost. B) Job cost sheets are used in accounting systems as a subsidiary ledger for the Work-inProcess account. C) A job cost sheet is a control account. D) A job is a cost object in a job shop.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Defining a Job Bloom's : Remember Accessibility : Screen Reader Compatible

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Defining a Job Difficulty : 2 Medium Accessibility : Screen Reader Compatible

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Defining a Job Difficulty : 2 Medium Accessibility : Screen Reader Compatible

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Defining a Job Difficulty : 2 Medium Accessibility : Screen Reader Compatible

25)

The journal entry to record the completion of a job in a job costing system is:

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

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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

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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?

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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

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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 materials purchased during April Work-In-Process Inventory, April 1 Direct labor costs incurred Manufacturing overhead costs Direct materials used in production

$ 315 290 340 440 390 265

A) $1,070 B) $1,095 C) $1,120 D) $1,170

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

31) 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 materials 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

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A) $650 B) $675 C) $700 D) $750

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Accessibility : Screen Reader Compatible

32) The following events took place at a manufacturing company for the current year: 1. (1) Purchased $102,000 in direct materials. 2. (2) Incurred labor costs as follows: (a) direct, $63,000 and (b) indirect, $20,600. 3. (3) Other manufacturing overhead was $114,000, excluding indirect labor. 4. (4) Transferred 75% of the materials to the manufacturing assembly line. 5. (5) Completed 60% of the Work-in-Process during the year. 6. (6) Sold 80% of the completed goods. 7. (7) There were no beginning inventories. What is the company's Cost of Goods Sold?

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A) $164,460 B) $131,568 C) $274,100 D) $219,280

33) The following events took place at a manufacturing company for the current year: 1. (1) Purchased $95,000 in direct materials. 2. (2) Incurred labor costs as follows: (a) direct, $56,000 and (b) indirect, $13,600. 3. (3) Other manufacturing overhead was $107,000, excluding indirect labor. 4. (4) Transferred 80% of the materials to the manufacturing assembly line. 5. (5) Completed 65% of the Work-in-Process during the year. 6. (6) Sold 85% of the completed goods. 7. (7) There were no beginning inventories. What is the company's Cost of Goods Sold?

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A) $164,190.00 B) $139,561.50 C) $252,600.00 D) $214,710.50

34) The following events took place at a manufacturing company for the current year: 1. (1) Purchased $95,400 in direct materials. 2. (2) Incurred labor costs as follows: (a) direct, $56,400 and (b) indirect, $14,000. 3. (3) Other manufacturing overhead was $107,400, excluding indirect labor. 4. (4) Transferred 80% of the materials to the manufacturing assembly line. 5. (5) Completed 65% of the Work-in-Process during the year. 6. (6) Sold 85% of the completed goods. 7. (7) There were no beginning inventories. What is the value of the ending Work-in-Process Inventory?

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A) $13,341.50 B) $14,343.00 C) $88,942.00 D) $95,632.50

35) The following events took place at a manufacturing company for the current year: 1. (1) Purchased $95,000 in direct materials. 2. (2) Incurred labor costs as follows: (a) direct, $56,000 and (b) indirect, $13,600. 3. (3) Other manufacturing overhead was $107,000, excluding indirect labor. 4. (4) Transferred 80% of the materials to the manufacturing assembly line. 5. (5) Completed 65% of the Work-in-Process during the year. 6. (6) Sold 85% of the completed goods. 7. (7) There were no beginning inventories. What is the value of the ending Work-in-Process Inventory?

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A) $13,261.50 B) $14,259.00 C) $88,410.00 D) $95,060.50

36) The following events took place at a manufacturing company for the current year: 1. (1) Purchased $95,000 in direct materials. 2. (2) Incurred labor costs as follows: (a) direct, $56,000 and (b) indirect, $13,600. 3. (3) Other manufacturing overhead was $107,000, excluding indirect labor. 4. (4) Transferred 80% of the materials to the manufacturing assembly line. 5. (5) Completed 65% of the Work-in-Process during the year. 6. (6) Sold 85% of the completed goods. 7. (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

Version 1

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

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37) The following events took place at a manufacturing company for the current year: 1. (1) Purchased $95,600 in direct materials. 2. (2) Incurred labor costs as follows: (a) direct, $56,600 and (b) indirect, $14,200. 3. (3) Other manufacturing overhead was $107,600, excluding indirect labor. 4. (4) Transferred 80% of the materials to the manufacturing assembly line. 5. (5) Completed 65% of the Work-in-Process during the year. 6. (6) Sold 85% of the completed goods. 7. (7) There were no beginning inventories. What is the value of the ending Finished Goods Inventory? A) $13,381.50 B) $24,850.80 C) $26,721.00 D) $165,672.00

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38) The following events took place at a manufacturing company for the current year: 1. (1) Purchased $95,000 in direct materials. 2. (2) Incurred labor costs as follows: (a) direct, $56,000 and (b) indirect, $13,600. 3. (3) Other manufacturing overhead was $107,000, excluding indirect labor. 4. (4) Transferred 80% of the materials to the manufacturing assembly line. 5. (5) Completed 65% of the Work-in-Process during the year. 6. (6) Sold 85% of the completed goods. 7. (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

39) is:

The journal entry to record the actual manufacturing overhead costs for indirect materials

Manufacturing Overhead Control

Version 1

xxx

Materials Inventory B.

xxx

Materials Inventory

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

40) The journal entry to record the issuance of direct materials represented by the following materials requisitions for the month includes: Requisition Number 372 373 374 375 376

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Description Job Number 179 Job Number 184 Job Number 180 General factory use Job Number 182

Amount $ 6,750 $ 5,200 $ 6,025 $ 875 $ 3,970

A) a debit to Materials Inventory, $21,945. B) a debit to Materials Inventory, $22,820. C) a debit to Work-in-Process Inventory, $21,945. D) a credit to Work-in-Process Inventory, $22,820.

41) The journal entry to record the issuance of direct materials represented by the following materials requisitions for the month includes: Requisition Number 372 373 374 375 376

Description Job Number 179 Job Number 184 Job Number 180 General factory use Job Number 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.

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42) 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 Debit Credit Beginning Balance Purchases

9,600 ?

Ending Balance

8,000

? Transferred Out

Cost of Goods Sold Debit Credit 73,000

Work-in-Process Inventory

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Debit

Credit

Beginning Balance Materials

9,100 21,200

Labor

15,100

Overhead

9,600

Ending Balance

? Transferred Out

? Finished Goods Inventory Debit Credit

Beginning Balance

Transferred In

41,100

Ending Balance

5,800

? Transferred Out

What is the amount of the materials purchased? A) $17,600 B) $19,600 C) $21,200 D) $22,800

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43) 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 Debit Credit Beginning Balance Purchases

8,000 ?

Ending Balance

6,400

? Transferred Out

Cost of Goods Sold Debit Credit 57,000

Work-in-Process Inventory Debit Credit Beginning Balance Materials

7,500 18,000

Labor

13,500

Overhead

8,000

Ending Balance

? Transferred Out

? Finished Goods Inventory

Version 1

Debit Beginning Balance

Credit ?

Transferred In

39,500

Ending Balance

4,200

? Transferred Out

What is the amount of the materials purchased? A) $14,400 B) $16,400 C) $18,000 D) $19,600

44) 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 Debit Credit Beginning Balance Purchases

Version 1

9,500 ?

? Transferred Out

Ending Balance

7,900 Cost of Goods Sold Debit Credit 72,000

Work-in-Process Inventory Debit Credit Beginning Balance Materials

9,000 21,000

Labor

15,000

Overhead

9,500

Ending Balance

? Transferred Out

? Finished Goods Inventory Debit Credit

Beginning Balance

Transferred In

41,000

Ending Balance

5,700

? Transferred Out

What is the value of the ending Work-in-Process inventory balance?

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A) $0 B) $5,700 C) $13,500 D) $9,500

45) 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 Debit Credit Beginning Balance Purchases

8,000 ?

Ending Balance

6,400

? Transferred Out

Cost of Goods Sold Debit Credit 57,000

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Work-in-Process Inventory Debit Credit Beginning Balance Materials

7,500 18,000

Labor

13,500

Overhead

8,000

Ending Balance

? Transferred Out

? Finished Goods Inventory Debit Credit

Beginning Balance

Transferred In

39,500

Ending Balance

4,200

? Transferred Out

What is the value of the ending Work-in-Process inventory balance? A) $0 B) $4,200 C) $7,500 D) $8,000

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46) 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 Debit Credit Beginning Balance Purchases

9,400 ?

Ending Balance

7,800

? Transferred Out

Cost of Goods Sold Debit Credit 71,000

Work-in-Process Inventory

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Debit

Credit

Beginning Balance Materials

8,900 20,800

Labor

14,900

Overhead

9,400

Ending Balance

? Transferred Out

? Finished Goods Inventory Debit Credit

Beginning Balance

Transferred In

40,900

Ending Balance

5,600

? Transferred Out

What is the value of the beginning Finished Goods Inventory? A) $0 B) $5,600 C) $14,700 D) $35,700

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47) 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 Debit Credit Beginning Balance Purchases

8,000 ?

Ending Balance

6,400

? Transferred Out

Cost of Goods Sold Debit Credit 57,000

Work-in-Process Inventory Debit Credit Beginning Balance Materials

7,500 18,000

Labor

13,500

Overhead

8,000

Ending Balance

? Transferred Out

? Finished Goods Inventory

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Debit Beginning Balance

Credit ?

Transferred In

39,500

Ending Balance

4,200

? Transferred Out

What is the value of the beginning Finished Goods Inventory? A) $0 B) $4,200 C) $13,300 D) $21,700

48) Stock Company uses a job costing system. The following debits (credits) appeared in Stock's Work-in-Process Inventory account for the month of April: April 1 30 30 30 30

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Description Balance Direct materials Direct labor Factory overhead To finished goods

Amount $ 5,800 28,800 30,400 14,600 (49,800)

Stock applies overhead to production at a predetermined rate of 80% of direct labor cost. Job Number 5, the only job still in process on April 30, has been charged with direct labor of $3,800. What was the amount of direct materials charged to Job Number 5? (CPA adapted) A) $3,600 B) $22,960 C) $29,800 D) $28,800

49) Stock Company uses a job costing system. The following debits (credits) appeared in Stock's Work-in-Process Inventory 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 Number 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 Number 5? (CPA adapted) A) $3,000 B) $5,200 C) $8,800 D) $24,000

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50)

The following are Margin Company's production costs for December:

Direct Materials Direct Labor Factory Overhead

$ 109,000 99,000 5,000

What amount of costs should be traced to specific products in the production process? (CPA adapted) A) $213,000 B) $208,000 C) $109,000 D) $99,000

51)

The following are Margin Company's production costs for December:

Direct Materials

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$ 100,000

Direct Labor Factory Overhead

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

52) Under Eagle Company's job costing system, manufacturing overhead is applied to Workin-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

$ 100,000 18,000 135,000 123,000 117,000

Eagle had neither beginning nor ending inventory in Work-in-Process Inventory. What was the cost of jobs completed in February? (CPA adapted) A) $322,000 B) $340,000 C) $352,000 D) $370,000

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53) Under Eagle Company's job costing system, manufacturing overhead is applied to Workin-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

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54) Pigot Corporation uses job costing and the budgeted manufacturing costs for the year are as follows: Direct materials Direct labor Factory overhead

$ 710,000 202,500 607,500

The actual direct materials and direct labor costs charged to Job Number 432 during the year were as follows: Direct materials Direct labor

$26,000 13,500

Pigot applies manufacturing overhead to production orders on the basis of direct labor cost using rates predetermined at the beginning of the year based on the annual budget. The total cost associated with Job Number 432 for the year should be: A) $39,500. B) $54,000. C) $66,500. D) $80,000.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

55) Pigot Corporation uses job costing and the budgeted manufacturing costs for the year are as follows: Direct materials Direct labor Factory overhead

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$ 700,000 200,000 600,000

The actual direct materials and direct labor costs charged to Job Number 432 during the year were as follows: Direct materials Direct labor

$ 25,000 12,000

56) 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

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$ 12,100 4,600 11,100 17,500 6,100

Reviewing old documents and interviewing selected employees have generated the following additional information: The production superintendent's job cost sheets indicated that materials of $2,700 were included in the June 30 Work-in-Process Inventory. Also, 310 direct labor-hours had been paid at $5.00 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 $8,100. An analysis of canceled checks indicated payments of $41,000 were made to suppliers during June. Payroll records indicate that 5,300 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 $16,200 on June 30. Another record kept manually indicates that the Cost of Goods Sold in June totaled $85,000. The predetermined overhead rate was based on an estimated 61,000 direct labor-hours for the year and an estimated $244,000 in manufacturing overhead costs. What is the ending balance in the Work-in-Process Inventory on June 30? A) $4,910 B) $5,490 C) $9,510 D) $9,910

57) 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

Version 1

$ 12,000 4,500

Finished Goods Inventory Manufacturing Overhead Control Accounts Payable

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

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58) 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

$ 12,500 4,800 11,500 21,500 6,500

Reviewing old documents and interviewing selected employees have generated the following additional information: The production superintendent's job cost sheets indicated that materials of $3,100 were included in the June 30 Work-in-Process Inventory. Also, 350 direct labor-hours had been paid at $9.00 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 $8,500. An analysis of canceled checks indicated payments of $45,000 were made to suppliers during June. Payroll records indicate that 5,700 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 $17,000 on June 30. Another record kept manually indicates that the Cost of Goods Sold in June totaled $89,000. The predetermined overhead rate was based on an estimated 65,000 direct labor-hours for the year and an estimated $260,000 in manufacturing overhead costs. What is the amount of direct materials purchased during June? A) $43,000 B) $45,000 C) $47,000 D) $48,000

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Computing the Cost of a Job Bloom's : Apply Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

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59) 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Computing the Cost of a Job Bloom's : Apply Difficulty : 3 Hard Accessibility : Screen Reader Compatible

60) What accounting document is used to record direct labor costs in the Work-in-Process account? A) Time card B) Payroll register C) Production order D) Wages payable account

61) 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

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$ 12,800 5,300 12,800

Manufacturing Overhead Control Accounts Payable

24,500 6,800

Reviewing old documents and interviewing selected employees have generated the following additional information: The production superintendent's job cost sheets indicated that materials of $3,400 were included in the June 30 Work-in-Process Inventory. Also, 380 direct labor-hours had been paid at $7.00 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 $8,800. An analysis of canceled checks indicated payments of $48,000 were made to suppliers during June. Payroll records indicate that 6,000 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 $17,600 on June 30. Another record kept manually indicates that the Cost of Goods Sold in June totaled $92,000. The predetermined overhead rate was based on an estimated 68,000 direct labor-hours for the year and an estimated $272,000 in manufacturing overhead costs. What is the Cost of Goods Manufactured for June? A) $96,800 B) $92,000 C) $101,600 D) $107,600

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Computing the Cost of a Job Bloom's : Apply Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

62) 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

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$ 12,000

Work-in-Process Inventory Finished Goods Inventory Manufacturing Overhead Control Accounts Payable

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Computing the Cost of a Job Bloom's : Apply Difficulty : 3 Hard Accessibility : Screen Reader Compatible

63)

In a job costing system, direct material requisitions are ordinarily debited to:

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A) Manufacturing Overhead. B) Cost of Goods Sold. C) Finished Goods Inventory. D) Work-in-Process Inventory.

64)

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

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65)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Difficulty : 2 Medium Accessibility : Screen Reader Compatible Topic : Using Accounting Records in a Job Shop

66) Grayson Incorporated 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 $58,000 and at the end of the month was $54,000. The cost of goods manufactured for the month was $235,000. The actual manufacturing overhead cost incurred was $83,000 and the manufacturing overhead cost applied to Work-in-Process was $79,000. Assuming any over- or underapplied overhead is written off to Cost of Goods Sold, what amount would appear on the income statement for Cost of Goods Sold for October? A) $235,000 B) $239,000 C) $231,000 D) $243,000

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

67) Grayson Incorporated 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. Assuming any over- or underapplied overhead is written off to Cost of Goods Sold, what amount would appear on the income statement for Cost of Goods Sold for October? A) $226,000 B) $230,000 C) $222,000 D) $234,000

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Accessibility : Screen Reader Compatible

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68) Delgato Corporation, a manufacturing company, has provided data concerning its operations for September. The beginning balance in the Materials Inventory account was $47,000 and the ending balance was $39,000. Materials purchases during the month totaled $77,000. Manufacturing overhead cost incurred during the month was $112,000, of which $6,000 consisted of materials classified as indirect materials. The direct materials cost for November was: A) $79,000. B) $77,000. C) $85,000. D) $69,000.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Computing the Cost of a Job Bloom's : Apply Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

69) Delgato Corporation, a manufacturing company, has provided data concerning its operations for September. The beginning balance in the Materials Inventory account was $37,000 and the ending balance was $29,000. Materials purchases during the month totaled $57,000. Manufacturing overhead cost incurred during the month was $102,000, of which $2,000 consisted of materials classified as indirect materials. The direct materials cost for November was: A) $63,000. B) $57,000. C) $65,000. D) $49,000.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Computing the Cost of a Job Bloom's : Apply Difficulty : 3 Hard Accessibility : Screen Reader Compatible

70) Under Lamar Company's job costing system, manufacturing overhead is applied to Work-in-Process 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

$ 90,100 8,100 125,100 113,100 107,100

Lamar Company had no beginning or ending inventories. What was the cost of goods manufactured for June? (CMA adapted) A) $302,300. B) $310,300. C) $322,300. D) $330,300.

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71) Under Lamar Company's job costing system, manufacturing overhead is applied to Work-in-Process 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.

72) Demur Incorporated, a manufacturing company, has provided the following data for the month of April. The balance in the Work-in-Process Inventory account was $10,100 at the beginning of the month and $22,100 at the end of the month. During the month, the company incurred direct materials cost of $63,100 and direct labor cost of $39,100. The actual manufacturing overhead cost incurred was $40,100. The manufacturing overhead cost applied to Work-in-Process was $43,100. The cost of goods manufactured for April was:

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A) $133,300. B) $142,300. C) $145,300. D) $130,300.

73) Demur Incorporated, 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.

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74) 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

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Understand Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium AACSB : Reflective Thinking Accessibility : Screen Reader Compatible

75) Carson Incorporated 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.

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Direct materials Direct labor Manufacturing overhead applied Total

Work-inProcess $ 6,510 3,930 3,380

Finished Goods $ 13,000 12,000 7,605

$ 13,820

$ 32,605

Cost of Goods Total Sold $ 112,820 $ 132,330 103,140 119,070 73,515 84,500 $ 289,475

$ 335,900

Manufacturing overhead for the month was underapplied by $11,500. 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 $1,035. B) debit to Finished Goods Inventory of $33,700. C) credit to Finished Goods Inventory of $33,700. D) debit to Finished Goods Inventory of $1,035.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

76) Carson Incorporated 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

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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

Manufacturing overhead applied Total

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.

77) 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, $8,800. Job 406, material X, $4,800; material Y, $7,800. Job 407, material X, $8,800; material Y, $5,000. For general factory use: materials A, B, and C, $4,100. (2) Time tickets for the month were chargeable as follows: Job 405 Job 406

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$ 23,000 15,800

4,800 hours 5,400 hours 61

Job 407 Indirect labor

9,800 5,500

3,700 hours

(3) Other information: Factory paychecks for $38,500 were issued during the month. Various factory overhead charges of $21,200 were incurred on account. Depreciation of factory equipment for the month was $7,200. Factory overhead was applied to jobs at the rate of $5.00 per direct labor hour. Job orders completed during the month: Job 405 and Job 406. Selling and administrative costs were $3,900. Factory overhead is closed out only at the end of the year. What is the total cost of Job 406? A) $4,100 B) $2,600 C) $29,300 D) $55,400

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78) 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

3,000 hours 3,600 hours 1,900 hours

(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. What is the total cost of Job 406? A) $9,000 B) $12,600 C) $23,000 D) $35,600

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79) 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, $7,800. Job 406, material X, $3,800; material Y, $6,800. Job 407, material X, $7,800; material Y, $4,000. For general factory use: materials A, B, and C, $3,100. (2) Time tickets for the month were chargeable as follows: Job 405 Job 406 Job 407 Indirect labor

$ 14,100 $ 14,800 $ 8,800 $ 4,500

3,800 hours 4,400 hours 2,700 hours

(3) Other information: Factory paychecks for $37,500 were issued during the month. Various factory overhead charges of $20,200 were incurred on account. Depreciation of factory equipment for the month was $6,200. Factory overhead was applied to jobs at the rate of $4.00 per direct labor hour. Job orders completed during the month: Job 405 and Job 406. Selling and administrative costs were $2,900. Factory overhead is closed out only at the end of the year. The end of the month Work-in-Process Inventory balance would be: A) $24,000. B) $31,400. C) $66,500. D) $97,900.

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80) 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

3,000 hours 3,600 hours 1,900 hours

(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 end of the month Work-in-Process Inventory balance would be:

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A) $18,200. B) $24,850. C) $64,100. D) $88,950.

81) 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, $7,300. Job 406, material X, $3,300; material Y, $6,300. Job 407, material X, $7,300; material Y, $3,500. For general factory use: materials A, B, and C, $2,600. (2) Time tickets for the month were chargeable as follows: Job 405 Job 406 Job 407 Indirect labor

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$ 11,300 $ 14,300 $ 8,300 $ 4,000

3,000 hours 3,600 hours 1,900 hours

(3) Other information: Factory paychecks for $37,000 were issued during the month. Various factory overhead charges of $21,200 were incurred on account. Depreciation of factory equipment for the month was $7,200. Factory overhead was applied to jobs at the rate of $3.80 per direct labor hour. Job orders completed during the month: Job 405 and Job 406. Selling and administrative costs were $2,400. 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) $2,700 underapplied. B) $8,200 underapplied. C) $3,300 overapplied. D) $11,200 overapplied.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

82) 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

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$ 11,000 14,000

3,000 hours 3,600 hours

Job 407 Indirect labor

8,000 3,700

1,900 hours

(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.

83)

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.

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84) 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.

85) Which of the following events or transactions will not result in manufacturing overhead being applied to production?

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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.

86)

The journal entry to record the completion of a job in a job costing system is:

Finished Goods Inventory

xxx

Materials Inventory B.

Work-In-Process Inventory

xxx xxx

Applied Manufacturing Overhead C.

Manufacturing Overhead Control

xxx xxx

Finished Goods Inventory D.

Finished Goods Inventory Work-In-Process Inventory

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xxx xxx xxx

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

87)

Which of the following is false regarding predetermined overhead rates?

A) Predetermined overhead rates are computed in advance so that the cost of jobs can be calculated as they are completed. B) Estimates are used in the calculation of predetermined overhead rates. C) Predetermined overhead rates are used to assign manufacturing overhead to jobs. D) Predetermined overhead rates can only be calculated at the end of the period.

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88) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Accessibility : Screen Reader Compatible

89) Which of the following statements is false regarding the application of manufacturing overhead? A) Overapplied overhead occurs when the actual overhead costs incurred during a period are greater than the overhead costs applied during the period. B) Manufacturing overhead is recorded on the job cost sheets when financial statements are prepared. C) Manufacturing overhead is recorded on the job cost sheets when a job is completed. D) Job shops use predetermined rates to assign manufacturing overhead to jobs.

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90) The journal entry to write off an underapplied overhead balance at the end of an accounting period is: A.

Applied Manufacturing Overhead

xxx

Cost of Goods Sold

xxx

Manufacturing Overhead Control B.

Applied Manufacturing Overhead

xxx xxx

Cost of Goods Sold

xxx

Manufacturing Overhead Control

xxx

Manufacturing Overhead Control

xxx

Work-In-Process Inventory

xxx

Finished Goods Inventory

xxx

Cost of Goods Sold

xxx

Applied Manufacturing Overhead D.

Applied Manufacturing Overhead

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xxx xxx

Work-In-Process Inventory

xxx

Finished Goods Inventory

xxx

Cost of Goods Sold

xxx

Manufacturing Overhead Control

xxx

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Accessibility : Screen Reader Compatible

91) The journal entry to write off an underapplied overhead balance at the end of an accounting period is: A.

Manufacturing Overhead Control

xxx

Cost of Goods Sold

xxx

Applied Manufacturing Overhead B.

Applied Manufacturing Overhead

xxx xxx

Cost of Goods Sold

xxx

Manufacturing Overhead Control

xxx

Applied Manufacturing Overhead

xxx

Work-In-Process Inventory

xxx

Finished Goods Inventory

xxx

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Cost of Goods Sold

xxx

Manufacturing Overhead Control D.

Applied Manufacturing Overhead

xxx xxx

Work-In-Process Inventory

xxx

Finished Goods Inventory

xxx

Cost of Goods Sold

xxx

Manufacturing Overhead Control

xxx

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Accessibility : Screen Reader Compatible

92) 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.

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93) 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.

94) The journal entry to write off an overapplied overhead balance at the end of an accounting period for a service firm is: A.

Applied Manufacturing Overhead

xxx

Cost of Services Billed

xxx

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Manufacturing Overhead Control B.

Applied Manufacturing Overhead

xxx xxx

Cost of Services Billed

xxx

Manufacturing Overhead Control

xxx

Applied Manufacturing Overhead

xxx

Work-In-Process Inventory

xxx

Finished Goods Inventory

xxx

Cost of Services Billed

xxx

Manufacturing Overhead Control D.

Manufacturing Overhead Control

xxx xxx

Work-In-Process Inventory

xxx

Finished Goods Inventory

xxx

Cost of Services Billed

xxx

Applied Manufacturing Overhead

xxx

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Accessibility : Screen Reader Compatible

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95) Manufacturing overhead applied on the basis of direct labor-hours was $121,200, while actual manufacturing overhead incurred was $126,400 for the month of April. Which of the following is always true given this statement? A) Overhead was overapplied by $5,200. B) Overhead was underapplied by $5,200. C) Actual direct labor-hours exceeded budgeted direct labor-hours. D) Actual direct labor-hours were less than budgeted direct labor-hours.

96) 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 this statement? 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.

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97) Travis Company's records show that overhead was overapplied by $11,200 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 $6,800 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 $18,000 for the year. B) The company's net income is understated by $6,800 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 $6,800 in depreciation should have been charged to Work-in-Process rather than to administrative expense.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Bloom's : Analyze AICPA : BB Critical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

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98) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Bloom's : Analyze AICPA : BB Critical Thinking Accessibility : Screen Reader Compatible

99) The actual manufacturing overhead incurred at Liberty Industries during May was $61,400, while the manufacturing overhead applied to Work-in-Process was $75,600. The company's Cost of Goods Sold was $290,600 prior to closing out the Manufacturing Overhead account. The company closes out the Manufacturing Overhead account to Cost of Goods Sold. Which of the following statements is true?

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A) Manufacturing overhead was overapplied by $14,200; Cost of Goods Sold after closing out the Manufacturing Overhead account is $276,400. B) Manufacturing overhead was underapplied by $14,200; Cost of Goods Sold after closing out the Manufacturing Overhead account is $276,400. C) Manufacturing overhead was overapplied by $14,200; Cost of Goods Sold after closing out the Manufacturing Overhead account is $304,800. D) Manufacturing overhead was underapplied by $14,200; Cost of Goods Sold after closing out the Manufacturing Overhead account is $304,800.

100) 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 the Manufacturing Overhead account. The company closes out the 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.

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101) The predetermined overhead rate for manufacturing overhead for 2023 is $5.00 per direct labor hour. Employees are expected to earn $8.00 per hour and the company is planning on paying its employees $160,000 during the year. However, only 80% of the employees are classified as "direct labor." What was the estimated manufacturing overhead for 2023? A) $80,000 B) $128,000 C) $100,000 D) $153,600

102) The predetermined overhead rate for manufacturing overhead for 2023 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 2023? Version 1

A) $60,000 B) $75,000 C) $80,000 D) $93,750

103) Before prorating the manufacturing overhead costs at the end of 2023, the Cost of Goods Sold and Finished Goods Inventory accounts had applied overhead costs of $58,400 and $29,000 in them, respectively. There was no Work-in-Process at the beginning or end of 2023. During the year, manufacturing overhead costs of $83,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $87,400 at the end of 2023. 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? Note: Rounded to the nearest whole dollar. A) $1,460 B) $2,185 C) $2,235 D) $2,940

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

104) Before prorating the manufacturing overhead costs at the end of 2023, 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 2023. 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 2023. 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? Note: Rounded to the nearest whole dollar. A) $903 B) $1,217 C) $1,283 D) $2,597

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105) Before prorating the manufacturing overhead costs at the end of 2023, the Cost of Goods Sold and Finished Goods Inventory accounts had applied overhead costs of $59,100 and $36,000 in them, respectively. There was no Work-in-Process at the beginning or end of 2023. During the year, manufacturing overhead costs of $90,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $95,100 at the end of 2023. 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? Note: Rounded to the nearest whole dollar. A) $61,031 B) $57,169 C) $59,190 D) $55,931

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

106) Before prorating the manufacturing overhead costs at the end of 2023, 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 2023. 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 2023. 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? Note: Rounded to the nearest whole dollar.

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A) $58,403 B) $56,597 C) $60,197 D) $54,903

107) 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.

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108)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 07-05 Identify ethical issues in job costing and know how to respond to them. Topic : Ethical Issues and Job Costing Accessibility : Screen Reader Compatible

109) Which of the following approaches applies overhead by multiplying a predetermined overhead rate by actual activity? A) Actual costing B) Normal costing C) Regression costing D) Standard costing

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Accessibility : Screen Reader Compatible

110) Which of the following approaches applies overhead by multiplying an actual overhead rate by actual activity? A) Actual costing B) Normal costing C) Regression costing D) Standard costing

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Accessibility : Screen Reader Compatible

111) Which of the following approaches applies overhead by multiplying a predetermined rate by standard activity?

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A) Actual costing B) Normal costing C) Regression costing D) Standard costing

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Accessibility : Screen Reader Compatible

112) Reyes Corporation applies overhead using a normal costing approach based on machinehours. Budgeted factory overhead was $307,320, and budgeted machine-hours were 19,700. Actual factory overhead was $299,920, and actual machine-hours were 20,250. How much overhead would be applied to production? A) $307,320 B) $315,900 C) $291,774 D) $299,920

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

113) Reyes Corporation applies overhead using a normal costing approach based on machinehours. 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. How much overhead would be applied to production? A) $266,400 B) $274,320 C) $279,607 D) $287,920

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114) Reyes Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $268,128, and budgeted machine-hours were 18,620. Actual factory overhead was $288,520, and actual machine-hours were 19,170. How much is the over- or underapplied overhead? A) $19,736 underapplied B) $12,472 underapplied C) $7,264 overapplied D) $0

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

115) Reyes Corporation applies overhead using a normal costing approach 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. How much is the over- or underapplied overhead? A) $21,520 underapplied B) $13,600 underapplied C) $7,920 overapplied D) $0

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116) Reyes Corporation applies overhead using an actual costing approach. Budgeted factory overhead was $271,296, and budgeted machine-hours were 18,840. Actual factory overhead was $289,620, and actual machine-hours were 19,390. How much overhead would be applied to production? A) $271,296 B) $276,020 C) $281,256 D) $289,620

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

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117) Reyes Corporation applies overhead using an actual costing approach. 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. How much overhead would be applied to production? A) $266,400 B) $274,320 C) $279,607 D) $287,920

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Accessibility : Screen Reader Compatible

118) Reyes Corporation applies overhead using an actual costing approach. Budgeted factory overhead was $267,840, and budgeted machine-hours were 18,600. Actual factory overhead was $288,420, and actual machine-hours were 19,150. How much is the over- or underapplied overhead? A) $20,580 underapplied B) $12,660 underapplied C) $7,920 overapplied D) $0

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119) Reyes Corporation applies overhead using an actual costing approach. 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. How much is the over- or underapplied overhead? A) $21,520 underapplied B) $13,600 underapplied C) $7,920 overapplied D) $0

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Accessibility : Screen Reader Compatible

120) Reyes Corporation applies overhead using a normal costing approach based on machinehours. Budgeted factory overhead was $267,840, and budgeted machine-hours were 18,600. Actual factory overhead was $238,830, and actual machine-hours were 17,250. How much overhead would be applied to production? Version 1

A) $248,400 B) $238,830 C) $267,840 D) $257,521

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

121) Reyes Corporation applies overhead using a normal costing approach based on machinehours. Budgeted factory overhead was $232,750, and budgeted machine-hours were 17,500. Actual factory overhead was $227,830, and 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

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122) Reyes Corporation applies overhead using a normal costing approach based on machinehours. Budgeted factory overhead was $237,538, and budgeted machine-hours were 17,860. Actual factory overhead was $229,630, and actual machine-hours were 16,510. How much is the over- or underapplied overhead? A) $10,047 overapplied B) $10,047 underapplied C) $7,908 overapplied D) $7,908 underapplied

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

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123) Reyes Corporation applies overhead using a normal costing approach based on machinehours. Budgeted factory overhead was $232,750, and budgeted machine-hours were 17,500. Actual factory overhead was $227,830, and 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

124) Which terms will make the following statement true? When manufacturing overhead is overapplied, the Manufacturing Overhead Control account has a _________blank balance and applied manufacturing overhead is greater than _________blankmanufacturing overhead. A) debit, actual B) credit, actual C) debit, estimated D) credit, estimated

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 2 Medium Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs AACSB : Reflective Thinking Accessibility : Screen Reader Compatible

125) Which of the following is true with respect to writing off an overapplied manufacturing overhead to Cost of Goods Sold? A) Work-in-Process Inventory will be lower after writing off the overapplied manufacturing overhead. B) Finished Goods Inventory will be higher after writing off the overapplied manufacturing overhead. C) Cost of Goods Sold will be lower after writing off the overapplied manufacturing overhead. D) Operating income will be lower after writing off the overapplied manufacturing overhead.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Bloom's : Analyze AACSB : Reflective Thinking Accessibility : Screen Reader Compatible

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126) Duran Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the total estimated manufacturing overhead was $264,550. At the end of the year, actual direct labor-hours for the year were 19,200 hours, manufacturing overhead for the year was underapplied by $13,100, and the actual manufacturing overhead was $251,180. The predetermined overhead rate for the year must have been closest to: A) $12.40. B) $13.78. C) $13.08. D) $11.96.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

127) 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.

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128) 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 $1,422,400, and estimated level of activity was 50,800 direct labor-hours. The company's direct labor wage rate is $12 per hour. Actual manufacturing overhead amounted to $1,686,000, and actual direct labor cost was $750,000. For the year, manufacturing overhead was: A) overapplied by $64,000. B) underapplied by $64,000. C) overapplied by $42,800. D) underapplied by $46,800.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

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100

129) 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 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, and actual direct labor cost was $650,000. For the year, manufacturing overhead was: Note: Do not round intermediate calculations and round the final answer to the nearest dollar. A) overapplied by $60,000. B) underapplied by $60,000. C) overapplied by $40,000. D) underapplied by $44,000.

130) Perion Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 11,560 hours and the total estimated manufacturing overhead was $278,596. At the end of the year, actual direct labor-hours for the year were 11,160 hours, and the actual manufacturing overhead for the year was $273,596. Overhead at the end of the year was: A) $4,640 overapplied. B) $9,640 overapplied. C) $9,640 underapplied. D) $4,640 underapplied.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

131) 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.

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132) At the beginning of the year, manufacturing overhead for the year was estimated to be $286,778. At the end of the year, actual direct labor-hours for the year were 31,000 hours, the actual manufacturing overhead for the year was $380,410, and manufacturing overhead for the year was overapplied by $18,250. 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) 31,000 direct labor-hours. B) 20,800 direct labor-hours. C) 21,900 direct labor-hours. D) 22,300 direct labor-hours.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

133) 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.

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134) Golden Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 23,200 hours. At the end of the year, actual direct labor-hours for the year were 22,000 hours, the actual manufacturing overhead for the year was $581,640, and manufacturing overhead for the year was underapplied by $25,040. The estimated manufacturing overhead at the beginning of the year used to calculate the predetermined overhead rate must have been: A) $576,320. B) $607,766. C) $556,600. D) $586,960.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs AICPA : BB Critical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

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135) 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.

136) 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

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$ 24,876 13,820

$ 42,700 20,800 105

The cost records for October will show: A) Overapplied overhead of 3,260. B) Underapplied overhead of 3,260. C) Overapplied overhead of $5,260. D) Underapplied overhead of $5,260.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

137) 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.

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138) The Work-in-Process inventory account of a manufacturing firm shows a balance of $4,090 at the end of an accounting period. The job cost sheets of two uncompleted jobs show charges of $570 and $370 for materials, and charges of $600 and $800 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) 80%. B) 125%. C) 43%. D) 292%.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Type : Algorithmic Accessibility : Screen Reader Compatible

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139) 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%.

140) Faucette Corporation has provided the following data concerning manufacturing overhead for January: Actual manufacturing overhead incurred Manufacturing overhead applied to Work-in-Process

$ 84,000 $ 123,000

The company's Cost of Goods Sold was $401,000 prior to writing off any over- or underapplied overhead. The company writes off the over- or underapplied overhead to Cost of Goods Sold. Which of the following statements is true?

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A) Manufacturing overhead was underapplied by $39,000; after writing off the underapplied amount, the Cost of Goods Sold balance is $440,000. B) Manufacturing overhead was underapplied by $39,000; after writing off the underapplied amount, the Cost of Goods Sold balance is $362,000. C) Manufacturing overhead was overapplied by $39,000; after writing off the overapplied amount, the Cost of Goods Sold balance is $362,000. D) Manufacturing overhead was overapplied by $39,000; after writing off the overapplied amount, the Cost of Goods Sold balance is $440,000.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs AICPA : BB Critical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

141) 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 writing off any over- or underapplied overhead. The company writes off the over- or underapplied overhead to Cost of Goods Sold. Which of the following statements is true?

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A) Manufacturing overhead was underapplied by $23,000; after writing off the underapplied amount, the Cost of Goods Sold balance is $392,000. B) Manufacturing overhead was underapplied by $23,000; after writing off the underapplied amount, the Cost of Goods Sold balance is $346,000. C) Manufacturing overhead was overapplied by $23,000; after writing off the overapplied amount, the Cost of Goods Sold balance is $346,000. D) Manufacturing overhead was overapplied by $23,000; after writing off the overapplied amount, the Cost of Goods Sold balance is $392,000.

142) 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Difficulty : 3 Hard Bloom's : Analyze AACSB : Reflective Thinking Accessibility : Screen Reader Compatible

143) rate?

Which of the following is the correct formula to compute the predetermined overhead

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Difficulty : 1 Easy Gradable : automatic Topic : Computing the Cost of a Job Bloom's : Remember Learning Objective : 07-02 Account for overhead using predetermined rates. AACSB : Reflective Thinking Accessibility : Screen Reader Compatible

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144) The Work-in-Process Inventory account of a manufacturing firm has a balance of $3,400 at the end of an accounting period. The job cost sheets of two uncompleted jobs show charges of $450 and $250 for materials used, and charges of $450 and $750 for direct labor used. Overhead is applied as a percentage of direct labor costs. The predetermined rate is: A) 44.1%. B) 80.0%. C) 125.0%. D) 226.7%.

145) 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%.

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146) Midwest Corporation has provided the following data concerning manufacturing overhead for 2023: Estimated manufacturing overhead for the year Estimated direct labor hours for the year

$ 34,680 2,040

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 1,220 and 1,400, respectively. The actual manufacturing overhead was $41,400. What is the predetermined manufacturing overhead rate per direct labor hour for the year? A) $17 B) $22 C) $29 D) $34

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Difficulty : 2 Medium Type : Algorithmic Accessibility : Screen Reader Compatible

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147) Midwest Corporation has provided the following data concerning manufacturing overhead for 2023: 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

148) Midwest Corporation has provided the following data concerning manufacturing overhead for 2023: Estimated manufacturing overhead for the year Estimated direct labor hours for the year

$ 44,520 2,120

Midwest applies manufacturing overhead on the basis of direct labor hours. 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 1,260 and 2,200, respectively. The actual manufacturing overhead was $50,200. What was the amount of manufacturing overhead applied to Job A-101?

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A) $23,500 B) $26,460 C) $35,200 D) $64,700

149) Midwest Corporation has provided the following data concerning manufacturing overhead for 2023: Estimated manufacturing overhead for the year Estimated direct labor hours for the year

$ 30,000 2,000

Midwest applies manufacturing overhead on the basis of direct labor hours. 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

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150) Midwest Corporation has provided the following data concerning manufacturing overhead for 2023: Estimated manufacturing overhead for the year Estimated direct labor hours for the year

$ 52,320 2,180

Midwest applies manufacturing overhead on the basis of direct labor hours. 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 1,290 and 2,800, respectively. The actual manufacturing overhead was $128,440. What is the amount of the under- or overapplied manufacturing overhead? A) $8,000 underapplied B) $23,000 overapplied C) $30,280 underapplied D) $53,200 overapplied

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151) Midwest Corporation has provided the following data concerning manufacturing overhead for 2023: Estimated manufacturing overhead for the year Estimated direct labor hours for the year

$ 30,000 2,000

Midwest applies manufacturing overhead on the basis of direct labor hours. 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

152) 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.

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153) 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) do not use a Work in Process account.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 07-04 Apply job costing in service organizations. Topic : Using Job Costing in Service Organizations Accessibility : Screen Reader Compatible

154) Which of the following is not a difference between job costing for service firms and job costing for manufacturing companies?

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 07-04 Apply job costing in service organizations. Topic : Using Job Costing in Service Organizations Accessibility : Screen Reader Compatible

155) 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

xxx

Wages Payable B.

Work in Process

xxx xxx

Wages Payable C.

Cost of Services Billed

xxx xxx

Work in Process D.

Finished Goods Inventory Work in Process

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xxx xxx xxx

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Gradable : automatic Difficulty : 2 Medium Learning Objective : 07-04 Apply job costing in service organizations. Topic : Using Job Costing in Service Organizations Accessibility : Screen Reader Compatible

156) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 1 Easy Gradable : automatic Bloom's : Remember Learning Objective : 07-06 Describe the difference between projects and jobs and understand the impli Topic : Managing Projects Accessibility : Screen Reader Compatible

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ESSAY. Write your answer in the space provided or on a separate sheet of paper. 157) 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 Direct materials Work-in-process Finished goods Other information:

$ 8,000 7,500 ???

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

Ending $ 6,400 ??? 4,200

Required: Compute the following: (a) Direct materials purchased. (b) Ending work-in-process inventory. (c) Beginning finished goods inventory. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

158) 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 _________blank. 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 following: (a) Overhead rate (b) Ending balance for Materials Inventory (c) Ending balance for Work-in-Process Inventory (d) Ending balance for Finished Goods Inventory

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

159) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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160) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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161) 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:

$ 353,000

Raw materials, beginning Raw materials, ending Work-in-Process, beginning Work-in-Process, ending

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

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162) 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

300 hours 360 hours 190 hours

(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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

163) Required: 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

164) 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 ? ?

Manufacturing Overhead $ 8,750 11,500

Finished Goods Cards Job Number Cost B80 B82

$ 5,200 ?

$ 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

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Materials Requisitions $ 8,000 5,100 8,600 19,900 12,750

Time Tickets $ 4,000 1,700 10,500 16,750 ?

128

General Use

4,500

$ 58,250

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

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165) 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 _________blank. 6.Goods costing $976,000 were completed during the period. 7.Goods costing $513,200 were sold on account for $776,000. Required: (a) Calculate the overhead rate. (b) Prepare the journal entries to record the transactions for the year. (c) Prepare the journal entry to prorate the over- or underapplied overhead to the appropriate accounts. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

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166) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

167) 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. (1) Jobs in process on August 1: Job No. W12 X13

Materials $ 800 1,000

Labor $ 1,200 1,620

Overhead ?? ??

1. (2) Jobs completed during August: W12, X13, Y14. 2. (3) Material requisitions and labor time tickets indicated the following: Job No. W12

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Material Requisitions $ 610

Time Tickets $ 760

131

X13 Y14 Z15 General use

370 2,780 4,050 390

1,420 3,100 1,080 540

1. (4) Jobs sold during August: W12, X13. 2. (5) Fisher applies overhead to production based upon labor costs. 3. (6) Selected account balances on August 1 were:

Overhead Materials

$ 1,400 overapplied 5,175

Work in process

9,555

Finished goods

1. (7) Various overhead incurred (excluding indirect materials and indirect labor) during August, $13,500. 2. (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 manufacturing overhead 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

168) 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 Direct Materials Direct Labor Machine Hours $ 118,600 $ 4,000 $ 8,400 150 121,450 2,500 12,160 300 21,800 86,400 36,650 3,100 34,350 71,800 32,175 2,700 18,990 21,845 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.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

169) 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 adapted) Production Departments Department 1 Department 2 Department 3

Beginning Work-inProcess Direct materials: Department 1 Department 2

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Direct Labor Rate

Manufacturing Overhead Application Rates $ 12.00 50% of direct materials 18.00 $ 8.00 per machine hour 15.00 75% of direct labor cost Job 101 Job 102 Job 103 $ 25,500

$ 32,400

$ -0-

$ 40,000 $ 3,000

$ 26,000 $ 5,000

$ 58,000 $ 14,000

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Department 3 Direct labor hours:

$ -0-

Department 1 Department 2 Department 3 Machine hours:

500 200 1,500

400 250 1,800

300 350 2,500

Department 1 Department 2 Department 3

-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 balance in Work-in-Process Inventory at the end of the month. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

170) 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: Job No. CBSI02 PLP086

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Items Cribs Playpens

Units 20,000 15,000

Accumulated Cost $ 900,000 420,000

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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: Materials Purchased Requisitions: Job CBS102 Job PLP086 Job DRS114 Job STR077 (10,000 strollers) Job CRG096 (5,000 carriages)

Purchased Parts

$ 242,000

$ 396,000

51,000 3,000 124,000 62,000 65,000

104,000 10,800 87,000 81,000 187,000

During the month of May, Kid's World factory payroll consisted of the following: Hours Job CBS102 Job PLP086 Job DRS114 Job STR077 Job CRG096 Indirect supervision

12,000 4,400 19,500 3,500 14,000

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.

Items

CBS102 PLP086 STR077 CRG096

Cribs Playpens Strollers Carriages

Quantity Completed 20,000 15,000 10,000 5,000

Required: (a) Compute the balance of Work-in-Process Inventory on May 31. (b) Compute the cost of goods manufactured for May. Version 1

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

171) Halston Manufacturing uses actual costing. The following events took place during the current year: 1. (1) Purchased $95,000 in direct materials. 2. (2) Incurred labor costs as follows: (a) direct, $56,000 and (b) indirect, $13,600. 3. (3) Other manufacturing overhead was $107,000, excluding indirect labor. 4. (4) Transferred 80% of the materials to the manufacturing assembly line. 5. (5) Completed 65% of the Work-in-Process during the year. 6. (6) Sold 85% of the completed goods. 7. (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. Version 1

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

172) 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

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$ 24,000 9,000 22,000 33,000 12,000

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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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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173) 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 adapted) Production Department Cutting Machining Assembly

Beginning Work-In-Process Direct materials:

Direct Manufacturing Overhead Labor Rate Application Rate $ 14.00 40% of direct materials $ 20.00 $ 10.00 per machine hour $ 22.00 80% of direct labor cost Job 611 Job 612 Job 613 $ 52,500

$ 16,200

$ -0-

Cutting Machining Assembly Direct labor hours:

50,000 4,000 -0-

32,000 7,000 -0-

76,000 19,000 -0-

Cutting Machining Assembly Machine hours:

500 800 1,100

400 750 1,200

600 850 3,500

Cutting Machining Assembly

-02,200 500

-01,800 800

-03,400 750

Required: (a) Compute the total cost of completed Jobs 611 and 613. (b) Compute the value of the Work-in-Process Inventory at the end of the month. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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174) 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 Work-in-process 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- or underapplied overhead using the write-off to cost of goods sold approach. (c) Prepare the journal entry to dispose of the over- or underapplied overhead using the proration approach. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

175) 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

$ 45,000 630 labor-hours $ 13 per labor-hour 390 machine-hours 3,000 units

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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176) Job 5432 was recently completed. The following data have been recorded on its job cost sheet: Direct materials

40,610

Direct labor-hours Direct labor wage rate Number of units completed

1,147 DLHs $11 per DLH 3,100 units

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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177) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

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178) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

179) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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180) 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: Work-in-process Finished goods Total

$ 150,000 375,000 $ 525,000

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181) Harkin Corporation bases its predetermined overhead rate on the estimated machinehours 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 $ 3.49 per machine-hour $ 838,770

Required: Compute the company’s predetermined overhead rate. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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182) Hsu 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 32,000 machine-hours. The estimated variable manufacturing overhead was $7.17 per machine-hour and the estimated total fixed manufacturing overhead was $584,320. The actual machine-hours for the year turned out to be 33,300 machine-hours. Required: Compute the company's predetermined overhead rate for the recently completed year. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

183) 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

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24,000 $ 6.86 per labor-hour $ 394,560 24,500

148

Required: Compute the company's predetermined overhead rate for the recently completed year. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

184) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

185) 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 Corporation. 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Learning Objective : 07-04 Apply job costing in service organizations. Gradable : manual Topic : Using Job Costing in Service Organizations Accessibility : Screen Reader Compatible

186) 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 and 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 per hour. 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?

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Learning Objective : 07-04 Apply job costing in service organizations. Gradable : manual Topic : Using Job Costing in Service Organizations Accessibility : Screen Reader Compatible

187) 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 $10 million. Other budgeted data for year 2 include: Client 1 Machine Hours (thousands) Direct Labor Costs ($ 000’s)

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4,000 $ 5,000

Client 2 4,000 $ 15,000

152

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Learning Objective : 07-05 Identify ethical issues in job costing and know how to respond to them. Topic : Ethical Issues and Job Costing Gradable : manual Accessibility : Screen Reader Compatible

188) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Defining a Job Difficulty : 2 Medium Gradable : manual Accessibility : Screen Reader Compatible

189) Why is control of materials important from a managerial planning perspective? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Difficulty : 2 Medium Gradable : manual Accessibility : Screen Reader Compatible

190) Describe two alternative approaches to the handling of over- or underapplied overhead. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Difficulty : 2 Medium Gradable : manual Accessibility : Screen Reader Compatible

191) Why might a company use a predetermined rate for applying overhead rather than just apply actual overhead? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Difficulty : 2 Medium Gradable : manual Accessibility : Screen Reader Compatible

192) Describe the difference between normal costing, actual costing, and standard costing. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Topic : Computing the Cost of a Job Difficulty : 2 Medium Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

193) How does job costing for a service organization differ from job costing for a manufacturer? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Difficulty : 2 Medium Learning Objective : 07-04 Apply job costing in service organizations. Gradable : manual Topic : Using Job Costing in Service Organizations Accessibility : Screen Reader Compatible

194) Describe three possible unethical actions that can cause impropriety in job costing and give examples. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Difficulty : 2 Medium Learning Objective : 07-05 Identify ethical issues in job costing and know how to respond to them. Topic : Ethical Issues and Job Costing Gradable : manual Accessibility : Screen Reader Compatible

195) ProBuild Contractors sells to government agencies using a cost-plus contract and to pri-vate 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Difficulty : 2 Medium Learning Objective : 07-05 Identify ethical issues in job costing and know how to respond to them. Topic : Ethical Issues and Job Costing Gradable : manual Accessibility : Screen Reader Compatible

196) 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?

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197) In the context of job costing, what are projects? What additional costing issues are there with projects? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Understand Difficulty : 2 Medium Learning Objective : 07-06 Describe the difference between projects and jobs and understand the impli Topic : Managing Projects Gradable : manual Accessibility : Screen Reader Compatible

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198) 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.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

199) 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: Beginning Balance Ending Balance Raw materials Work-in-process Finished goods

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$ 11,000 32,000 108,000

$ 15,000 14,000 123,000

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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.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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

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200)

Dickerson Corporation has provided the following data for the month of April:

Inventories: Raw materials Work-in-process Finished goods 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-inprocess

Beginning $ 21,000 17,000 46,000

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 07-01 Describe what job and job shop mean and compute product costs in a job cos Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

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201) Townley Incorporated 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 8,320

Finished Goods $ 19,200 24,000 15,600

Cost of Goods Sold $ 35,280 44,100 28,080

Total $ 62,050 76,910 52,000

$ 24,700

$ 58,800

$ 107,460

$ 190,960

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Computing the Cost of a Job Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

202) Aardvark Incorporated 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

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Cost of Goods Sold

Total

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Direct materials Direct labor Manufacturing overhead applied

$ 3,500 3,260 3,840

$ 11,200 14,400 7,680

$ 51,800 66,600 36,480

$ 66,500 84,260 48,000

Total

$ 10,600

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

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203) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

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204) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

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205) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

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206) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

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207) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Computing the Cost of a Job Learning Objective : 07-02 Account for overhead using predetermined rates. Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-03 Reconcile and account for the difference between overhead applied to jobs Gradable : manual Accessibility : Screen Reader Compatible

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Answer Key Test name: Lanen7e_ch07 1) TRUE 2) TRUE Job cost sheets contain the details of the unfinished work, and constitute the subsidiary ledger for Work-in-Process. 3) TRUE 4) FALSE This describes the costs in the Work-in-Process Inventory account. 5) TRUE 6) TRUE Indirect materials and indirect labor are included in overhead because they are considered to be insignificant in cost (materials) and not directly related to the job (labor). 7) FALSE The credit is to Materials Inventory. 8) FALSE The credit is to Wages Payable. 9) TRUE Two common events that lead to manufacturing overhead being recorded are preparing financial statements (transfer to Work-inProcess) and completing a job whose costs need to be recorded (transfer to Finished Goods Inventory). 10) TRUE Predetermined overhead rate = Estimated manufacturing overhead ÷ Estimated activity of the allocation base. 11) TRUE

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The credit can be made to either account depending on the organization’s chart of accounts. 12) TRUE 13) FALSE Overapplied overhead results because the amount of overhead applied during a period is greater than the actual overhead costs incurred during the period. 14) TRUE 15) TRUE 16) TRUE The application rate is based on the actual overhead incurred during the period and an actual allocation base. 17) FALSE A service may take several accounting periods to complete, so there may be a balance in Work in Process. 18) TRUE The difference is that service firms generally use fewer direct materials than manufacturing firms do. 19) TRUE It is unethical and could be illegal if it constitutes fraud. 20) TRUE 21) C A job cost sheet is a record of the cost of the job in the accounting system. Work-in-Process is a control account. 22) A An auto repair shop is a service organization and provides easily distinguishable, discrete services which would be appropriate for job costing. The other choices are continuous manufacturing settings which are more appropriate for process costing. 23) B Version 1

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Production of identical units on an ongoing basis is a characteristic of process costing. 24) D Advertising clients have different requirements and each job is distinguishable. 25) D When a job is complete, it is transferred from Work-in-Process to Finished Goods. 26) A When materials enter production, they are moved from the Materials Inventory account to Work-in-Process. 27) B Material requisitions move inventory from raw materials (materials inventory) to work-in-process. 28) D Direct labor is recorded in the Work-in-Process account as it is incurred and the accounting document that records this cost is the time card. 29) C Actual overhead incurred, including indirect materials and indirect labor, are usually accumulated in the Manufacturing Overhead Control account. 30) C BB + TI − TO = EB $340 + ($265 + $440 + $390) − TO = $315 TO = $340 + ($265 + $440 + $390) − $315 = $1,120 31) C BB + TI − TO = EB $200 + ($125 + $300 + $250) − TO = $175 TO = $200 + ($125 + $300 + $250) − $175 = $700 32) B Version 1

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[$0 + (80% × $102,000) + $63,000 + ($114,000 + $20,600)] × 60% = $164,460; $164,460 × 80% = $131,568 33) B [$0 + (80% × $95,000) + $56,000 + ($107,000 + $13,600)] × 65% = $164,190; $164,190 × 85% = $139,561.50 34) C [$0 + (80% × $95,400) + $56,400 + ($107,400 + $14,000)] × (100% − 65%) = $88,942.00 35) C [$0 + (80% × $95,000) + $56,000 + ($107,000 + $13,600)] × (100% − 65%) = $88,410.00 36) B Direct labor costs are traced to Work-in-Process; any indirect labor would go to Manufacturing Overhead Control. 37) B [$0 + (80% × $95,600) + $56,600 + ($107,600 + $14,200)] × 65% = $165,672 $165,672 × (100% − 85%) = $24,850.80 38) B [$0 + (80% × $95,000) + $56,000 + ($107,000 + $13,600)] × 65% = $164,190 $164,190 × (100% − 85%) = $24,628.50 39) A The materials are removed from the Materials Inventory account and put into the Manufacturing Overhead Control account. 40) C $6,750 + $5,200 + $6,025 + $3,970 = $21,945 to Work-in-Process Inventory The $875 for general factory use would be indirect materials, not direct. 41) C Version 1

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$5,250 + $3,700 + $4,525 + $2,470 = $15,945 to Work-in-Process Inventory The $725 for general factory use would be indirect materials, not direct. 42) B $9,600 + Purchases − $21,200 (transferred out to WIP) = $8,000; Purchases = $19,600 43) B $8,000 + Purchases − $18,000 (transferred out to WIP) = $6,400; Purchases = $16,400 44) C $9,000 + $21,000 + $15,000 + $9,500 − $41,000 (Transferred to FG) = $13,500 45) C $7,500 + $18,000 + $13,500 + $8,000 − $39,500 (Transferred to FG) = $7,500 46) D Beginning FGI + $40,900 − $71,000 (Transferred to COGS) = $5,600; Beginning FGI = $35,700 47) D Beginning FGI + $39,500 − $57,000 (Transferred to COGS) = $4,200; Beginning FGI = $21,700 48) B $5,800 + $28,800 + $30,400 + $14,600 − $49,800 = $29,800 (ending WIP) $29,800 − $3,800(direct labor) − $3,040(overhead = $3,800 × 80%) = $22,960 (direct materials). 49) B

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$4,000 + $24,000 + $16,000 + $12,800 − $48,000 = $8,800 (ending WIP) $8,800 − $2,000 (direct labor) − $1,600 (overhead = $2,000 × 80%) = $5,200 (direct materials). 50) B DM ($109,000) + DL ($99,000) = $208,000 51) B DM ($100,000) + DL ($90,000) = $190,000 52) B DM ($100,000) + DL ($117,000) + OH applied ($123,000) = $340,000 53) B DM ($90,000) + DL ($107,000) + OH applied ($113,000) = $310,000 54) D [($607,500 ÷ $202,500) × $13,500] + $26,000 + $13,500 = $80,000. 55) D [($600,000 ÷ $200,000) × $12,000] + $25,000 + $12,000 = $73,000. 56) B $244,000 ÷ 61,000 = $4.00 per DLH $2,700 + (310 × $5.00) + (310 × $4.00) = $5,490 57) B $180,000 ÷ 60,000 = $3.00 per DLH $2,600 + (300 × $6.00) + (300 × $3.00) = $5,300 58) C $6,500 + Materials Purchased − $45,000 = $8,500; Materials Purchased = $47,000. 59) C $6,000 + Materials Purchased − $40,000 = $8,000; Materials Purchased = $42,000. 60) A

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There is no “store” for direct labor, so the cost is recorded in the Workin-Process account as it is incurred. The accounting document that records this cost is the time card. 61) A Beginning FG + COGM − Ending FG = COGS $12,800 + COGM − $17,600 = $92,000 COGM = $96,800 62) A Beginning FG + COGM − Ending FG = COGS $11,000 + COGM − $16,000 = $84,000 COGM = $89,000 63) D Direct material requisitions are ordinarily debited to Work-in-Process Inventory. 64) A The Work-in-Process Inventory account is debited when direct labor is recorded. 65) C The job cost sheet is a subsidiary ledger account that provides the detail for the Work-in-Process account. 66) D Adjusted COGS = Beginning FGI + COGM + Actual MOH − Applied MOH − Ending FGI = $58,000 + $235,000 + $83,000 − $79,000 − $54,000 = $243,000 Adjusted COGS 67) D Adjusted COGS = Beginning FGI + COGM + Actual MOH − Applied MOH − Ending FGI = $49,000 + $226,000 + $74,000 − $70,000 − $45,000 = $234,000 Adjusted COGS Version 1

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68) A Beginning MI + TI − TO = Ending MI Beginning MI + MI Purchases − Direct Materials − Indirect Materials = Ending MI $47,000 + $77,000 − Direct Materials − $6,000 = $39,000 Direct Materials= $79,000 69) A Beginning MI + TI − TO = Ending MI Beginning MI + MI Purchases − Direct Materials − Indirect Materials = Ending MI $37,000 + $57,000 − Direct Materials − $2,000 = $29,000 Direct Materials = $63,000 70) B Beginning WIP Inventory + DM + DL + Applied MOH − COGM = Ending WIP Inventory $0 + $90,100 + $107,100 + $113,100 − COGM = $0 COGM = $310,300 71) B Beginning WIP Inventory + DM + DL + Applied MOH − COGM = Ending WIP Inventory $0 + $90,000 + $107,000 + $113,000 − COGM = $0 COGM = $310,000 72) A Beginning WIP Inventory + DM + DL + Applied MOH − COGM = Ending WIP Inventory $10,100 + $63,100 + $39,100 + $43,100 − COGM = $22,100 COGM = $133,300 73) A

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Beginning WIP Inventory + DM + DL + Applied MOH − COGM = Ending WIP Inventory $10,000 + $63,000 + $39,000 + $43,000 − COGM = $22,000 COGM = $133,000 74) B The costs associated with the job not completed would be located in Work-in-Process Inventory. 75) D $3,380 ÷ $84,500 = 4%; $7,605 ÷ $84,500 = 9%; $73,515 ÷ $84,500 = 87% Work-in-Process (4% × $11,500)

460

Finished Goods (9% × $11,500)

1,035

Cost of Goods Sold (87% × $11,500)

10,005

Underapplied Manufacturing Overhead

11,500

76) D $3,200 ÷ $80,000 = 4%; $7,200 ÷ $80,000 = 9%; $69,600 ÷ $80,000 = 87% Work-in-Process (4% × $ 10,000)

400

Finished Goods (9% × $ 10,000)

900

Cost of Goods Sold (87% × $10,000) Underapplied Manufacturing Overhead

8,700 10,000

77) D Direct materials + Direct labor + Manufacturing overhead = Total cost ($4,800 + $7,800) + $15,800 + ($5.00 × 5,400) = $55,400 78) D Direct material + Direct labor + Manufacturing overhead = Total cost ($3,000 + $6,000) + $14,000 + ($3.50 × 3,600) = $35,600 79) B Version 1

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The only job still in progress at the end of the month is Job 407. The balance in Work-in-Process Inventory will be the total cost of Job 407. Direct material + Direct labor + Manufacturing overhead = Total cost of Job 407 ($7,800 + $4,000) + $8,800 + ($4.00 × 2,700) = $31,400 80) B The only job still in progress at the end of the month is Job 407. The balance in Work-in-Process Inventory will be the total cost of Job 407.Direct material + Direct labor + Manufacturing overhead = Total cost of Job 407 ($7,000 + $3,200) + $8,000 + ($3.50 × 1,900) = $24,850 81) A Manufacturing Overhead Control = $2,600 + $4,000 + $21,200 + $7,200 = $35,000; Applied Manufacturing Overhead = (3,000 + 3,600 + 1,900) × $3.80 = $32,300; $35,000 − $32,300 = $2,700 Underapplied 82) A Manufacturing Overhead Control = $2,300 + $3,700 + $19,400 + $5,400 = $30,800; Applied Manufacturing Overhead = (3,000 + 3,600 + 1,900) × $3.50 = $29,750; $30,800 − $29,750 = $1,050 Underapplied 83) D When items are sold, they are moved from Finished Goods Inventory to Cost of Goods Sold. 84) B When jobs are completed, the costs of those jobs are moved from Workin-Process Inventory to Finished Goods Inventory. 85) D Version 1

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The absence of work-in-process at the end of the period results in no overhead being applied. 86) D Completed jobs are transferred from Work-in-Process Inventory to Finished Goods Inventory. 87) D Predetermined overhead rates are computed in advance so that the cost of jobs can be calculated as they are completed. This means that the firm does not have to wait until the end of the period. 88) A Underapplied occurs when the actual overhead incurred exceeds the overhead applied to jobs. 89) A When the actual overhead costs incurred during a period are greater than the overhead costs applied during the period, overhead is underapplied (not overapplied). 90) A One option to deal with over- and underapplied overhead is to write it off directly to Cost of Goods Sold. 91) C One option to deal with over- and underapplied overhead is to allocate, or prorate, it between the various accounts that contain the cost of the products manufactured during the period. 92) B Normal costing is composed of actual direct costs plus overhead applied using a predetermined rate to the actual volume of the allocation base. 93) C Actual cost is composed of actual direct cost plus overhead applied using a rate based on actual overhead and an actual allocation base. 94) B Version 1

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One option to deal with over- and underapplied overhead is to write it off directly to Cost of Services Billed. 95) B Actual overhead $126,400 − Applied overhead $121,200 = $5,200 Underapplied overhead 96) B Actual overhead $124,000 − Applied overhead $120,000 = $4,000 Underapplied overhead 97) C If the entry for factory equipment depreciation had been correctly recorded, overhead would have been overapplied by $4,400 rather than $11,200. Recording factory equipment depreciation as administrative depreciation, while in error, has the same impact on operating income as recording the entry correctly. 98) C If the entry for factory equipment depreciation had been correctly recorded, overhead would have been overapplied by $4,000 rather than $10,000. Recording factory equipment depreciation as administrative depreciation, while in error, has the same impact on operating income as recording the entry correctly. 99) A Actual manufacturing overhead incurred Manufacturing overhead applied to Work-in-Process Overapplied manufacturing overhead

$ 61,400 75,600 $ (14,200)

The closing entry would reduce the balance in Cost of Goods Sold by $14,200. Cost of goods sold after closing out the Manufacturing Overhead account would be $276,400 ($290,600 − $14,200). 100) A Actual manufacturing overhead incurred Manufacturing overhead applied to Work-in-Process Overapplied manufacturing overhead

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The closing entry would reduce the balance in Cost of Goods Sold by $15,000. Cost of goods sold after closing out the Manufacturing Overhead account would be $274,000 ($289,000 − $15,000). 101) A ($160,000 × 80%) ÷ $8.00 = 16,000 hours; 16,000 × $5.00 = $80,000 102) A ($100,000 × 75%) ÷ $5.00 = 15,000 hours; 15,000 × $4.00 = $60,000. 103) A $87,400 − $83,000 = $4,400 overapplied overhead; ($29,000 ÷ $87,400) × $4,400 = $1,460 104) A $77,500 − $74,000 = $3,500 overapplied overhead; ($20,000 ÷ $77,500) × $3,500 = $903 105) D $95,100 − $90,000 = $5,100 overapplied overhead; ($59,100 ÷ $95,100) × $5,100 = $3,169; $59,100 − $3,169 = $55,931 106) D $77,500 − $74,000 = $3,500 overapplied overhead; ($57,500 ÷ $77,500) × $3,500 = $2,597; $57,500 − $2,597 = $54,903 107) C The cost of indirect labor used in production is overhead, and it increases Manufacturing Overhead Control. 108) B The choice between normal costing and actual costing is not an ethical issue. 109) B Normal costing allocates overhead by multiplying a predetermined overhead rate by actual activity. 110) A

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Actual costing applies overhead using an actual overhead rate and an actual allocation base. 111) D Standard costing applies overhead using a predetermined overhead rate and a standard (budgeted) allocation base. 112) B $307,320 ÷ 19,700 = $15.60 per hour × 20,250 hours = $315,900 113) B $266,400 ÷ 18,500 = $14.40 per hour × 19,050 hours = $274,320 114) B $288,520 − [($268,128 ÷ 18,620) × 19,170] = $12,472 underapplied 115) B $287,920 − [($266,400 ÷ 18,500) × 19,050] = $13,600 underapplied 116) D Actual costing applies the actual overhead incurred. 117) D Actual costing applies the actual overhead incurred. 118) D There is no over- or underapplied overhead using actual costing. 119) D There is no over- or underapplied overhead using actual costing. 120) A $267,840 ÷ 18,600 = $14.40 per hour × 17,250 hours = $248,400 121) A $232,750 ÷ 17,500 = $13.30 per hour × 16,150 hours = $214,795 122) B $229,630 − [($237,538 ÷ 17,860) × 16,510] = $10,047 underapplied 123) B $227,830 − [($232,750 ÷ 17,500) × 16,150] = $13,035 underapplied 124) B Version 1

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When manufacturing overhead is overapplied, the Manufacturing Overhead Control account has a credit balance and applied manufacturing overhead is greater than actual manufacturing overhead. 125) C Writing off an overapplied overhead balance to Cost of Goods Sold decreases Cost of Goods Sold (the balance will be lower). Work-inProcess Inventory and Finished Goods Inventory are unaffected by writing off overapplied overhead to Cost of Goods Sold. By decreasing Cost of Goods Sold, operating income will be higher (not lower). 126) A Manufacturing overhead applied = Actual overhead − Underapplied overhead. = $251,180 − $13,100 = $238,080 manufacturing overhead applied. Predetermined overhead rate = Manufacturing overhead applied ÷ Actual direct labor-hours = $238,080 ÷ 19,200 direct labor-hours = $12.40 per direct labor-hour 127) A Manufacturing overhead applied = Actual overhead − Underapplied overhead. = $219,580 − $12,100 = $207,480 manufacturing overhead applied. Predetermined overhead rate = Manufacturing overhead applied ÷ Actual direct labor-hours = $207,480 ÷ 18,200 direct labor-hours = $11.40 per direct labor-hour 128) A Estimated total manufacturing overhead ÷ Estimated total direct laborhours = Predetermined overhead rate

Version 1

$ 1,422,400 50,800 direct labor-hours $ 28 per direct laborhour

184

Actual direct labor-hours = Actual direct labor cost ÷ wage rate per hour = $750,000 ÷ $12 per direct labor-hour = 62,500 direct labor-hours. Actual direct labor-hours × Predetermined overhead rate = Manufacturing overhead applied Less: Manufacturing overhead incurred

62,500 $ 28 $ 1,750,000 1,686,000

Manufacturing overhead overapplied

$ 64,000

129) A Estimated total manufacturing overhead ÷ Estimated total direct labor-hours = Predetermined overhead rate

$ 1,200,000 50,000 direct labor-hours $ 24.00 per direct laborhour

Actual direct labor-hours = Actual direct labor cost ÷ wage rate per hour = $650,000 ÷ $12.00 per direct labor-hour = 54,166.67 direct labor-hours. Actual direct labor-hours × Predetermined overhead rate = Manufacturing overhead applied Less: Manufacturing overhead incurred

54,166.67 $ 24.00 $ 1,300,000 1,240,000

Manufacturing overhead overapplied

$ 60,000

130) D Estimated total manufacturing overhead ÷ Estimated total direct labor-hours = Predetermined overhead rate Actual direct labor-hours × Predetermined overhead rate = Manufacturing overhead applied Less: Manufacturing overhead incurred Manufacturing overhead underapplied

$ 278,596 11,560 direct labor-hours $ 24.10 per direct laborhour 11,160 $ 24.10 $ 268,956 273,596 $ 4,640

131) D Estimated total manufacturing overhead

Version 1

$ 259,840

185

÷ Estimated total direct labor-hours = Predetermined overhead rate Actual direct labor-hours × Predetermined overhead rate = Manufacturing overhead applied Less: Manufacturing overhead incurred Manufacturing overhead underapplied

11,200 direct labor-hours $ 23.20 per direct laborhour 10,800 $ 23.20 $ 250,560 254,840 $ 4,280

132) D Manufacturing overhead applied = Actual overhead + Overapplied overhead = $380,410 + $18,250 = $398,660 manufacturing overhead applied Predetermined overhead rate = Manufacturing overhead applied ÷ Actual direct labor-hours = $398,660 ÷ 31,000 direct labor-hours = $12.86 per direct labor-hour Estimated direct labor-hours = Estimated manufacturing overhead ÷ Predetermined overhead rate = $286,778 ÷ $12.86 per direct labor-hour = 22,300 direct labor-hours 133) D

Version 1

186

Manufacturing overhead applied = Actual overhead + Overapplied overhead = $262,500 + $13,750 = $276,250 manufacturing overhead applied Predetermined overhead rate = Manufacturing overhead applied ÷ Actual direct labor-hours = $276,250 ÷ 22,100 direct labor-hours = $12.50 per direct labor-hour Estimated direct labor-hours = Estimated manufacturing overhead ÷ Predetermined overhead rate = $267,500 ÷ $12.50 per direct labor-hour = 21,400 direct labor-hours 134) D Manufacturing overhead applied = Actual overhead − Underapplied overhead = $581,640 − $25,040 = $556,600 manufacturing overhead applied Predetermined overhead rate = Manufacturing overhead applied ÷ Actual direct labor-hours = $556,600 ÷ 22,000 direct labor-hours = $25.30 per direct labor-hour Estimated manufacturing overhead = Estimated direct labor-hours × Predetermined overhead rate = 23,200 direct labor-hours × $25.30 per direct labor-hour = $586,960 estimated manufacturing overhead 135) D

Version 1

187

Manufacturing overhead applied = Actual overhead − Underapplied overhead = $506,920 − $23,440 = $483,480 manufacturing overhead applied Predetermined overhead rate = Manufacturing overhead applied ÷ Actual direct labor-hours = $483,480 ÷ 20,400 direct labor-hours = $23.70 per direct labor-hour. Estimated manufacturing overhead = Estimated direct labor-hours × Predetermined overhead rate = 21,600 direct labor-hours × $23.70 per direct labor-hour = $511,920 estimated manufacturing overhead 136) D Predetermined overhead rate = Estimated manufacturing overhead ÷ Estimated direct labor hours = $24,876 ÷ 13,820 direct labor-hours = $1.80 per direct labor-hour Applied overhead = Actual direct labor-hours × Predetermined overhead rate = 20,800 × $1.80 per direct labor-hour = $37,440 applied overhead Over- or underapplied = Actual overhead − Applied overhead = $42,700 − $37,440 = $5,260 underapplied overhead 137) D

Version 1

188

Predetermined overhead rate = Estimated manufacturing overhead ÷ Estimated direct labor hours = $17,000 ÷ 13,600 direct labor-hours = $1.25 per direct labor-hour Applied overhead = Actual direct labor-hours × Predetermined overhead rate = 12,000 × $1.25 per direct labor-hour = $15,000 applied overhead Over- or underapplied = Actual overhead − Applied overhead = $18,500 − $15,000 = $3,500 underapplied overhead 138) B Work-in-Process = Materials + Direct labor + Manufacturing overhead $4,090 = ($570 + $370) + ($600 + $800) + Manufacturing overhead $1,750 = Manufacturing overhead Predetermined overhead rate = Manufacturing overhead ÷ Direct labor cost = $1,750 ÷ $1,400 direct labor cost = 125% predetermined overhead rate 139) B Work-in-Process = Materials + Direct labor + Manufacturing overhead $3,000 = ($500 + $300) + ($400 + $600) + Manufacturing overhead $1,200 = Manufacturing overhead Predetermined overhead rate = Manufacturing overhead ÷ Direct labor cost = $1,200 ÷ $1,000 direct labor cost = 120% predetermined overhead rate 140) C Actual manufacturing overhead incurred Manufacturing overhead applied to Work-in-Process

Version 1

$ 84,000 123,000

189

Overapplied manufacturing overhead

$ 39,000

The journal entry to write off the overapplied manufacturing overhead would reduce the balance in Cost of Goods Sold by $39,000. The Cost of Goods balance would be $362,000 ($401,000 − $39,000). 141) C Actual manufacturing overhead incurred Manufacturing overhead applied to Work-in-Process

$ 52,000 75,000

Overapplied manufacturing overhead

$ 23,000

The journal entry to write off the overapplied manufacturing overhead would reduce the balance in Cost of Goods Sold by $23,000. The Cost of Goods balance would be $346,000 ($369,000 − $23,000). 142) B Not including indirect labor in the Manufacturing Overhead total will result in a lower predetermined overhead rate, causing a lower amount of overhead to be applied to production. 143) B Estimated total manufacturing overhead costs divided by estimated total units in the allocation base is the formula used to compute the predetermined overhead rate. 144) C Work-in-Process = Direct materials + Direct labor + Manufacturing overhead applied $3,400 = ($450 + $250) + ($450 + $750) + Manufacturing overhead applied Manufacturing overhead applied = $1,500 Overhead rate = $1,500 ÷ ($450 + $750) = 125.0% 145) C

Version 1

190

Work-in-Process = Direct materials + Direct labor + Manufacturing overhead applied $2,400 = ($400 + $200) + ($300 + $500) + Manufacturing overhead applied Manufacturing overhead applied = $1,000 Overhead rate = $1,000 ÷ ($300 + $500) = 125.0% 146) A $34,680 ÷ 2,040 direct labor-hours = $17 per DLH 147) A $30,000 ÷ 2,000 direct labor-hours = $15 per DLH 148) B Predetermined overhead rate = $44,520 ÷ 2,120 = $21 per DLH $21 per DLH × 1,260 direct labor-hours = $26,460 149) B Predetermined overhead rate = $30,000 ÷ 2,000 = $15 per DLH $15 per DLH × 1,200 direct labor-hours = $18,000 150) C Predetermined overhead rate = $52,320 ÷ 2,180 = $24 per DLH $128,440 − [$24 per DLH × (1,290 hours + 2,800 hours)] = $30,280 underapplied 151) C Predetermined overhead rate = $30,000 ÷ 2,000 = $15 per DLH $37,000 − [$15 per DLH × (1,200 hours + 1,000 hours)] = $4,000 underapplied 152) C The cost of indirect materials issued to production is overhead and increases Manufacturing Overhead Control. 153) A Service firms generally use fewer direct materials than manufacturing firms do. Version 1

191

154) D Not all service jobs are completed in a period. There may very well be work in process. 155) C As there is no Finished Goods Inventory in a service firm, a job moves from Work in Process to the Cost of Services Billed when it is completed. 156) B This description is a basic definition of a project. 157)(a) $8,000 + Purchases − $18,000 = $6,400; Purchases = $16,400 (b) $7,500 + $18,000 + $13,500 + $8,000 − $39,500 = $7,500 (c) Beginning FGI + $39,500 − $57,000 = $4,200; Beginning FGI = $21,700 158)(a) Overhead rate = $770,000 ÷ $350,000 = 220% (b) $0 + $567,000 − ($567,000 × 85%) − ($567,000 × 12%) = $17,010 (c) $0 + ($567,000 × 85%) + $331,000 + ($331,000 × 220%) − $976,000 = $565,150 (d) $0 + $976,000 − $513,200 = $462,800 159) a.

Materials Inventory

Version 1

60,000

192

Accounts Payable

60,000

Work-In-Process Inventory

42,000

Manufacturing Overhead

9,000

Materials Inventory

51,000

Work-in-Process Inventory

81,000

Manufacturing Overhead

11,000

Cash

Manufacturing Overhead

92,000

155,000

Accounts Payable

155,000

160) Manufacturing Overhead Control

64,000

Various accounts Work-in-Process Inventory Applied Manufacturing Overhead

64,000 66,000 66,000

161)a. Actual manufacturing overhead cost Applied manufacturing overhead cost ($15 × 23,000 machine-hours) Underapplied overhead

$ 353,000 345,000 $ 8,000

b. Schedule of Cost of Goods Manufactured Raw materials inventory, beginning Add: Purchases of raw materials Total raw materials available

Version 1

$ 10,000 250,000 $ 260,000

193

Deduct: Raw materials inventory, ending Raw materials used in production Less: indirect materials Direct materials Direct labor Manufacturing overhead applied Total manufacturing costs Add: Beginning Work-in-Process inventory Deduct: Ending Work-in-Process inventory

15,000 $ 245,000 15,000 $ 230,000 135,000 345,000 $ 710,000 20,000 35,000

Cost of goods manufactured

$ 695,000

162)a) Job 407: $7,000 + $3,200 + $8,000 + (190 × $35) = $24,850 (b) Jobs 405 & 406: $28,500 + $35,600 = $64,100 Job 405: $7,000 + $11,000 + (300 × $35) = $28,500 Job 406: $3,000 + $6,000 + $14,000 + (360 × $35) = $35,600 (c) Actual OH: $2,300 + $3,700 + $19,400 + $5,400 = $30,800; Applied: (300 + 360 + 190) × $35 = $29,750; $30,800 − $29,750 = $1,050 underapplied 163) a.

Materials Inventory

56,700

Accounts Payable b.

WlP Inventory (80% × $56,700)

45,360

Manufacturing OH Control (15% × $56,700) Materials Inventory

8,505

WlP Inventory

33,100

Manufacturing OH Control

12,500

Wages Payable (Cash)

Version 1

56,700

53,865

45,600

194

Manufacturing OH Control

52,900

Various Accounts e.

52,900

WlP Inventory ($33,100 × 220%)

72,820

Applied Manufacturing OH f.

72,820

Finished Goods Inventory

97,600

WIP Inventory g.

97,600

Cost of goods sold

51,320

Finished Goods Inventory

51,320

Accounts Receivable

77,600

Sales Revenue h.

77,600

Applied Manufacturing OH

72,820

Cost of Goods Sold

1,085

Manufacturing OH Control

73,905

(h): Actual OH: $8,505 + $12,500 + $52,900 = $73,905 − Applied $72,820 = $1,085 underapplied 164) Materials Inventory Debit Credit Beginning Balance

19,200

Purchases

46,500

Ending Balance

7,450

58,250 Used

Work-in-Process Inventory Debit Credit

Version 1

195

Beginning Balance

48,750

Direct Materials

54,350

Direct Labor Overhead Applied

44,500 55,625

Ending Balance

96,325

106,900 COGM

Finished Goods Inventory Debit Credit Beginning Balance

8,100

COGM

106,900

Ending Balance

32,225

82,775 COGS

Manufacturing OH Control Debit Credit 2,000 Beginning Balance Indirect Materials

3,900

Indirect Labor Incurred

4,500 56,350

Ending Balance

7,125

Version 1

55,625 Applied

196

Overhead rate: B81: $8,750 ÷ $7,000 = 125% Labor B83: $11,500 ÷ 125% = $9,200 Job B83 Beg. WIP: $4,300 + $9,200 + $11,500 = $25,000 Job B81 Beg. WIP: $48,750 − $25,000 = $23,750 Direct Labor: $49,000 − $4,500 indirect = $44,500 Direct Materials: $8,000 + $5,100 + $8,600 + $19,900 + $12,750 = $54,350 Indirect Materials: $58,250 − $54,350 = $3,900 Applied OH: $44,500 × 125% = $55,625 Job B86 Labor: $44,500 − ($4,000 + $1,700 + $10,500 + $16,750) = $11,550 Cost of Jobs: B80: $5,200. B81: $23,750 + $8,000 + $4,000 + $5,000 = $40,750 B82: Beg. FG $8,100 − $5,200 = $2,900 B83: $25,000 + $5,100 + $1,700 + $2,125 = $33,925 B84: $8,600 + $10,500 + $13,125 = $32,225 B85: $19,900 + $16,750 + $20,937.50 = $57,587.50 B86: $12,750 + $11,550 + $14,437.50 = $38,737.50 COGM: B81 + B83 + B84 = $40,750 + $33,925 + $32,225 = $106,900 COGS: B80 + B81 + B82 + B83 = $5,200 + $40,750 + $2,900 + $33,925 = $82,775 165)(a): Overhead rate: $770,000 ÷ $350,000 = 220%. (b): (1)

Materials Inventory

$ 567,000

Accounts Payable

(2)

WIP Inventory (85% × 567,000)

Version 1

$ 567,000

481,950

197

Manufacturing OH (12%)

68,040

Materials Inventory

(3)

549,990

WIP Inventory

331,000

Manufacturing OH

125,000

Wages Payable (Cash)

(4)

Manufacturing OH

456,000

529,000

Various Accounts

(5)

WIP Inventory ($331,000 × 220%)

529,000

728,200

Manufacturing OH

(6)

Finished Goods Inventory

728,200

976,000

WIP Inventory

(7)

Cost of Goods Sold

976,000

513,200

Finished Goods Inventory Accounts Receivable

513,200 776,000

Sales Revenue

776,000

(c): Manufacturing OH

6,160

WIP Inventory

2,259

Finished Goods Inventory

1,850

Version 1

198

Cost of Goods Sold

2,051

Actual OH: $68,040 + $125,000 + $529,000 = $722,040 − Applied $728,200 = $6,160 overapplied WIP: $0 + ($567,000 × 85%) + $331,000 + ($331,000 × 220%) − $976,000 = $565,150 FG: $0 + $976,000 − $513,200 = $462,800 Account WIP FG COGS

Balance $ 565,150 462,800 513,200

% 36.67 30.03 33.30

Allocate $ 2,259 1,850 2,051

$ 1,541,150

100.00

$ 6,160

166) Materials Inventory

76,000

Accounts Payable

76,000

Work-in-Process Inventory

76,000

Manufacturing Overhead

5,000

Materials Inventory

Version 1

81,000

199

167)(a) $5,175 + $10,905 − ($610 + $370 + $2,780 + $4,050 + $390) = Ending balance = $7,880 (b) Overhead in Work-in-Process Inventory, August 1: $9,555 − ($800 + $1,000) − ($1,200 + $1,620) = $4,935; Overhead rate = $4,935 ÷ $2,820 = 175% of direct labor costs Manufacturing Overhead debits: Indirect material $390 + Indirect labor $540 + incurred $13,500 = $14,430 Manufacturing Overhead credits: Beginning balance $1,400 + Applied [($760 + $1,420 + $3,100 + $1,080) × 175%] = $12,530 Ending Manufacturing Overhead: $14,430 − $12,530 = $1,900 debit (underapplied) balance (c) Job W12 X13 Y14 Cost of goods manufactured

Beginning Direct Direct Overhead Total Balance Materials Labor $ 4,100 $ 610 $ 760 $ 1,330 $ 6,800 5,455 370 1,420 2,485 9,730 2,780 3,100 5,425 11,305 $ 27,835

(d) W12 + X13: $6,800 + $9,730 = $16,530. (e) Job Z15: Material ($4,050) + Labor ($1,080) + Overhead ($1,890) = $7,020.

Version 1

200

168)Overhead rate = $1,960,000 ÷ 98,000 hours = $20 per hour (a) Only SL-205 is in inventory: $34,350 + $71,800 + $32,175 + (2,700 × $20) = $192,325 (b) XJ-107 + ST-211 + XD-108 + SL-205: Cost of goods manufactured = $675,285 XJ-107: $118,600 + $4,000 + $8,400 + (150 × $20) = $134,000 ST-211: $121,450 + $2,500 + $12,160 + (300 × $20) = $142,110 XD-108: $21,800 + $86,400 + $36,650 + (3,100 × $20) = $206,850 SL-205: $34,350 + $71,800 + $32,175 + (2,700 × $20) = $192,325 (c) $675,285 − $192,325 = $482,960 (d) Only RX-115: $18,990 + $21,845 + (1,400 × $20) = $68,835 169) (a)

(b)

Job 101

Job 102

$ 25,500

$ 32,400

$ 0

Department 1 Department 2 Labor:

40,000 3,000

26,000 5,000

58,000 14,000

Department 1 Department 2 Department 3 Overhead:

6,000 3,600 22,500

4,800 4,500 27,000

3,600 6,300 37,500

Department 1 Department 2 Department 3

20,000 9,600 16,875

13,000 12,000 20,250

29,000 21,600 28,125

$ 147,075

$ 144,950

Beginning Work-in-Process Materials:

Total

Version 1

Job 103

$ 198,125

201

170)Overhead rate: $4,500,000 ÷ 600,000 hours = $7.50 per hour (a) WIP 5/31: Job DRS114: $250,000 (beginning bal) + $124,000 (materials) + $87,000 (purchased parts) + $200,500 (labor) + (19,500 × $7.50) (overhead) = $807,750 (b) COGM: $1,267,400 (CBS102) + $510,000 (PLP086) + $199,250 (STR077) + $495,000 (CRG096) = $2,471,650 CBS102: $900,000 + $51,000 + $104,000 + $122,400 + (12,000 × $7.50) = $1,267,400 PLP086: $420,000 + $3,000 + $10,800 + $43,200 + (4,400 × $7.50) = $510,000 STR077: $0 + $62,000 + $81,000 + $30,000 + (3,500 × $7.50) = $199,250 CRG096: $0 + $65,000 + $187,000 + $138,000 + (14,000 × $7.50) = $495,000 171)(a) $0 + $95,000 − ($95,000 × 80%) = $19,000 (b) Costs added: ($95,000 × 80%) + $56,000 + ($107,000 + $13,600) = $252,600; WIP: $0 + $252,600 − ($252,600 × 65%) = $88,410 (c) $0 + $164,190 − ($164,190 × 85%) = $24,628.50 (d) $252,600 × 65% = $164,190

Version 1

202

172)Overhead rate = $360,000 ÷ 60,000 = $6 per hour (a) COGM: (Beginning FG) $22,000 + COGM − (COGS) $168,000 = (Ending FG) $32,000; COGM = $178,000 (b) Ending WIP: $5,200 (DM) + (300 × $12) (DL) + (300 × $6) (MOH) = $10,600 (c) Ending DM: Beginning + Purchases − Used = Ending DM AP: $12,000 + Purchases − $80,000 = $16,000: Purchases = $84,000 WIP: $9,000 + DM used + (5,200 × $12) + (5,200 × $6) − $178,000 = $10,600: DM used = $86,000 Ending DM: $24,000 + $84,000 − $86,000 = $22,000 173) (a)

(b)

(a)

Job 611

Job 612

Job 613

$ 52,500

$ 16,200

$ 0

Cutting Machining Labor:

50,000 4,000

32,000 7,000

76,000 19,000

Cutting Machining Assembly Overhead:

7,000 16,000 24,200

5,600 15,000 26,400

8,400 17,000 77,000

Cutting Machining Assembly

20,000 22,000 19,360

12,800 18,000 21,120

30,400 34,000 61,600

$ 215,060

$ 154,120

$ 323,400

Beginning Work-in-Process Materials:

Total

Version 1

203

174)(a) $274,320 Overhead rate = $266,400 ÷ 18,500 = $14.40 per hour; 19,050 hours × $14.40 = $274,320 overhead applied (b) Cost of Goods Sold

13,600

Manufacturing Overhead

13,600

Actual − Applied = $287,920 − $274,320 = $13,600 underapplied (c) WIP Inventory

2,584

Finished Goods Inventory

3,400

Cost of Goods Sold

7,616

Manufacturing Overhead WIP FG COGS

13,600 $ 190,000 250,000 560,000 $ 1,000,000

0.19 0.25 0.56

$ 2,584 3,400 7,616 $ 13,600

175)Cost Summary: Direct materials Direct labor $13 per DLH × 630 DLHs Manufacturing overhead $12 per MH × 390 MHs

$ 45,000 8,190 4,680

Total cost

$ 57,870

Unit product cost

$ 19.29

176)Cost Summary: Direct materials Direct labor $11 per DLH × 1,147 DLHs Manufacturing overhead $20 per DLH × 1,147 DLHs

$ 40,610 12,617 22,940

Total cost

$ 76,167

Unit product cost

$ 24.57

Version 1

204

177)a.Overhead Rate = $375,000 ÷ 12,500 hours = $30 per hour b.13,150 × $30 = $394,500 c.$387,920 actual − $394,500 applied = $6,580 overapplied 178)a.Overhead Rate = $910,000 ÷ 32,500 hours = $28 per hour b.31,560 × $28 = $883,680 c.$893,675 actual − $883,680 applied = $9,995 underapplied 179)(a) 25,000 hrs × $26 per hour = $650,000. (b) Applied OH = (25,000 + 1,600) × $26 = $691,600; Applied − Overapplied = Actual OH: $691,600 − $3,758 = $687,842. 180)(a) $316,500 Overhead rate = $325,000 ÷ 13,000 = $25 per hour; 12,660 hours × $25 = $316,500 (b) Manufacturing Overhead

4,170

Cost of Goods Sold

4,170

Actual − Applied = $312,330 − $316,500 = $4,170 overapplied (c) Manufacturing Overhead

4,170

Work-In-Process Inventory

500

Finished Goods Inventory

1,251

Cost of Goods Sold

2,419

WIP FG COGS

$ 150,000 375,000 725,000 $ 1,250,000

Version 1

0.12 0.30 0.58

$ 500 1,251 2,419 $ 4,170

205

181)Estimated total manufacturing overhead = $838,770 + ($3.49 per machine-hour × 73,000 machine-hours) = $1,093,540 Predetermined overhead rate = $1,093,540 ÷ 73,000 machine-hours = $14.98 per machine-hour 182)Estimated total manufacturing overhead = $584,320 + ($7.17 per machine-hour × 32,000 machine-hours) = $813,760 Predetermined overhead rate = $813,760 ÷ 32,000 machine-hours = $25.43 per machine-hours 183)Estimated total manufacturing overhead = $394,560 + ($6.86 per labor-hour × 24,000 labor-hours) = $559,200 Predetermined overhead rate = $559,200 ÷ 24,000 labor-hours = $23.30 per labor-hour 184)Estimated total manufacturing overhead = $156,130 + ($2.35 per labor-hour × 13,000 labor-hours) = $186,680 Predetermined overhead rate = $186,680 ÷ 13,000 labor-hours = $14.36 per labor-hour 185)a. Labor

Overhead

Total

Tico Navel Lutron

$ 54,000 49,500 153,000

$ 66,000 60,500 187,000

$ 120,000 110,000 340,000

Total

$ 256,500

$ 313,500

$ 570,000

b.Indirect labor: [(6,000 hours − 5,700 hours) × $45] = $13,500; actual overhead = $13,500 + $325,000 = $338,500. $338,500 actual − $313,500 applied = $25,000 underapplied. c.

Services Billed

Version 1

Tico

Navel

Lutron

Total

$ 180,000

$ 165,000

$ 510,000

$ 855,000

206

Cost of Services Provided Gross Margin

120,000 $ 60,000

110,000 $ 55,000

340,000 $ 170,000

570,000 $ 285,000

Marketing & Admin.

243,000

Operating Profit

$ 42,000

186)(a) (1)

Materials Inventory

126,000

Accounts Payable (2)

126,000

WIP Inventory

110,880

Shop Overhead

9,500

Materials Inventory (3)

120,380

WIP Inventory

165,000

Shop Overhead

22,200

Wages Payable (Cash) (4)

Shop Overhead

187,200 139,600

Various accounts (5)

WIP Inventory (5,500 hours × $29.1667)

139,600 160,417

Shop Overhead (6)

Cost of Repair Jobs

160,417 434,321

WIP Inventory (7)

Accounts Receivable Sales Revenue

Version 1

434,321 476,000 476,000

207

a(5) DLHs: $165,000 ÷ $30 per hour = 5,500 hours. Overhead rate: $175,000 ÷ 6,000 hours = $29.1667 per hour. a(6)WIP: $-0- + $110,880 + $165,000 + (5,500 × $29.1667) − $1,976 = $434,321 (completed jobs). (b) (2)

Cost of Repair Jobs Shop Overhead

10,883 10,883

Actual OH: $9,500 + $22,200 + $139,600 = $171,300; $171,300 − Applied $160,417 = $10,883 underapplied. (c) $476,000 − ($434,321 + $10,883) = $30,796. 187)a.Application rate: $10,000 / (4,000 + 4,000) hours = $1.25 per machine hour b.Application rate: $10,000 / ($5,000 + $15,000) = 50% of direct-labor cost c.Using direct-labor cost as the base for applying overhead will lead to a higher income for Music Master Components. Since Client 2 pays on a cost-plus basis, they will be charged for 150 percent ($15,000 ÷ $10,000) of the manufacturing overhead. Using machine hours as the base, Client 2 would be charged for 50 percent (4,000 ÷ 8,000). d.This is a difficult question. In general, the result of the allocation process should not be the justification for the allocation base. Ideally, the choice would be made based on which of the two methods better reflected the "use" of the overhead. This is often not possible. Perhaps a better resolution would be a more detailed allocation, using a two-stage allocation system, for example. 188)Companies using a job costing system are likely to be performing services or manufacturing products according to specific customer orders and product specifications. Construction contractors, manufacturers of special equipment, aircraft manufacturers, CPA firms, attorneys, and hospitals all employ job costing systems. Version 1

208

189)If material costs are not properly assigned to jobs, management may later be misled in estimating the actual costs to complete similar jobs in the future. Thus, profit planning may be in error. Profitable jobs may be rejected because errors in cost assignments have made the jobs look unprofitable or less profitable. If the company prepares bids on jobs, the bids may be in error if they are based on the wrong costs. 190)The over- or underapplied overhead can be written off directly to Cost of Goods Sold, or it can be prorated between Work-in-Process, Finished Goods, and Cost of Goods Sold. 191)Students may provide a number of reasons, including: 1) costs can be computed for a job immediately upon completion without waiting until the end of the month (or quarter or year) for actual overhead to be known, 2) anticipated irregularities may be considered when determining the predetermined rate, but not known due to timing using actual overhead, and 3) seasonal swings in production will not cause jobs to cost differently at different times of the year using a predetermined rate. 192)Normal costing assigns actual direct costs to a job and applies overhead based on a predetermined rate times the actual activity. Actual costing assigns actual direct costs to a job and applies overhead based on an actual rate times the actual activity. Standard costing assigns a standard amount of direct costs to a job and applies overhead using a standard rate times standard activity. 193)The only real difference, beside different account titles, is a service organization has fewer direct materials than a manufacturer. 194)Students should expand on each of these three. 1) Misstating the stage of completion; 2) charging costs to wrong jobs; 3) misrepresenting the cost of jobs.

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209

195)ProBuild has choices to make about the allocation base and the cost pools used to accumulate the overhead. This does not mean ProBuild can choose to do whatever it wants. The government has a set of contracting rules and an audit agency to enforce the rules. However, some interpretation is always required when classifying costs. 196)In general, the answer is that this is not ethical. Although the "correct" allocation basis is subjective, it is difficult to justify the choice by the outcome. There might be other reasons, such as more valuable employees or other resources are used on jobs for the larger company or that the larger company, being more complex, requires more overhead resources. However, the larger company might require fewer resources, because of economies of scale. 197)Projects are complex jobs that often take months or years to complete. The status (costs and progress) have to be evaluated at intervals during the project (before it is completed). Jobs typically take less time. 198) a.

Materials Inventory

416,000

Cash

416,000

Work-in-Process Inventory

380,000

Manufacturing Overhead

40,000

Materials Inventory

420,000

Work-in-Process Inventory

414,000

Manufacturing Overhead

60,000

Administrative Salary Expense

212,000

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210

Cash

Selling Expenses

686,000

141,000

Cash

Manufacturing Overhead

141,000

20,000

Cash

20,000

Manufacturing Overhead

73,000

Depreciation Expense

8,000

Accumulated Depreciation

Work-in-Process Inventory (48,000 hours. × $4) Manufacturing Overhead

Finished Goods Inventory

81,000

192,000 192,000

1,004,000

Work-in-Process Inventory

Cash

1,004,000

1,416,000

Sales Cost of Goods Sold Finished Goods Inventory

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1,416,000 989,000 989,000

211

Cost of Goods Sold

1,000

Manufacturing Overhead

1,000

199)a.Schedule of cost of goods manufactured: Estimated total manufacturing overhead (a) $ 272,000 Estimated total machine-hours (b) 17,000 Predetermined overhead rate (a) ÷ (b) $ 16.00 Actual total machine-hours (a) 15,000 Predetermined overhead rate (b) $ 16.00 Overhead applied (a) × (b) $ 240,000 Cherry Company Schedule of Cost of Goods Manufactured For the Year Ended XXX Direct materials: Raw materials inventory, beginning Add: purchases of raw materials Total raw materials available Deduct: raw materials inventory, ending Raw materials used in production Less: indirect materials Direct materials Direct labor Manufacturing overhead applied Total manufacturing costs Add: Beginning Work-in-Process inventory Deduct: Ending Work-in-Process inventory

$ 11,000 416,000 427,000 15,000 412,000 36,000 376,000 330,000 240,000 946,000 32,000 14,000

Cost of goods manufactured

$ 964,000

b.Overhead underapplied or overapplied: Actual manufacturing overhead costs incurred: Indirect materials Indirect labor Factory utilities Factory depreciation Manufacturing overhead costs incurred Manufacturing overhead applied

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$ 36,000 69,000 29,000 114,000 248,000 240,000

212

Underapplied overhead

$ 8,000

c.Income Statement Beginning finished goods inventory Cost of goods manufactured Cost of goods available for sale Ending finished goods inventory Unadjusted cost of goods sold Add: underapplied overhead

$ 108,000 964,000 1,072,000 123,000 949,000 8,000

Adjusted cost of goods sold

$ 957,000

Cherry Company Income Statement For the Year Ended XXX Sales

$ 1,282,000

Cost of goods sold (adjusted)

957,000

Gross margin

325,000

Selling and administrative expenses: Administrative salaries

$ 157,000

Selling costs

113,000

Depreciation

7,000

Operating income

277,000 $ 48,000

200) Dickerson Corporation Schedule of Cost of Goods Manufactured For the Month Ended April 30 Direct materials: Beginning raw materials inventory

$ 21,000

Add: Purchases of raw materials

76,000

Raw materials available for use

97,000

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213

Deduct: Ending raw materials inventory

35,000

Raw materials used in production

62,000

Less: Indirect materials included in manufacturing overhead applied Direct labor

6,000

$ 56,000 81,000

Manufacturing overhead applied to Work-inprocess Total manufacturing costs

44,000 181,000

Add: Beginning Work-in-process inventory

17,000

Deduct: Ending Work-in-process inventory

19,000

Cost of goods manufactured

$ 179,000

Dickerson Corporation Schedule of Cost of Goods Sold For the Month Ended April 30 Beginning finished goods inventory $ 46,000 Add: Cost of goods manufactured 179,000 Cost of goods available for sale 225,000 Deduct: Ending finished goods inventory 38,000 Unadjusted cost of goods sold 187,000 Deduct: Overapplied overhead ($44,000 − 2,000 $42,000) Adjusted cost of goods sold

$ 185,000

201) Overhead applied in work-in-process Overhead applied in finished goods Overhead applied in cost of goods sold

$ 8,320 15,600 28,080

16% 30% 54%

Total overhead applied

$ 52,000

100%

Manufacturing Overhead

3,000

Work-in-Process Inventory (16% × $3,000)

480

Finished Goods Inventory (30% × $3,000)

900

Cost of Goods Sold (54% × $3,000)

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1,620

214

202) Work-in- Finished Process Goods Total cost before allocation of underapplied overhead Allocation percentage based on overhead applied during the month Allocation of underapplied overhead Total cost after allocation of underapplied overhead

16%

Cost of Goods Sold $ 154,880 76%

$ 480

$ 960

$ 4,560

$ 6,000

$ 11,080 $ 34,240

$ 159,440

$ 204,760

$ 10,600 $ 33,280

Total

$ 198,760 100%

203)a. Calculation of the predetermined overhead rate: Estimated total manufacturing overhead at capacity

$ 29,120

Total amount of the allocation base at capacity Predetermined overhead rate

16,000 MHs $ 1.82 per MH

b. Calculation of overhead underapplied or overapplied: Actual manufacturing overhead cost incurred

$ 29,120

Manufacturing overhead applied to jobs: Predetermined overhead rate Actual hours Manufacturing overhead applied to jobs

$ 1.82 per MH 12,900 MHs $ 23,478

Underapplied (overapplied) manufacturing overhead

$ 5,642 Underapplied

204)a. Calculation of the predetermined overhead rate: Estimated total manufacturing overhead

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$ 71,820

215

Estimated total amount of the allocation base Predetermined overhead rate

19,000 MHs $ 3.78 per MH

b. Calculation of overhead underapplied or overapplied: Actual manufacturing overhead cost

$ 71,820

Manufacturing overhead applied to jobs: Predetermined overhead rate Actual hours Manufacturing overhead applied to jobs

$ 3.78 per MH 18,200 MHs $ 68,796

Underapplied (overapplied) manufacturing overhead

$ 3,024 Underapplied

c. Calculation of the predetermined overhead rate: Estimated total manufacturing overhead at capacity

$ 71,820

Total amount of the allocation base at capacity Predetermined overhead rate

21,000 MHs $ 3.42 per MH

d. Calculation of overhead underapplied or overapplied: Actual manufacturing overhead cost incurred

$ 71,820

Manufacturing overhead applied to jobs: Predetermined overhead rate Actual hours Manufacturing overhead applied to jobs

$ 3.42 per MH 18,200 MHs $ 62,244

Underapplied (overapplied) manufacturing overhead

$ 9,576 Underapplied

205)a. Version 1

216

Calculation of the predetermined overhead rate: Estimated total manufacturing overhead

$ 1,144,800

Estimated total amount of the allocation base Predetermined overhead rate

48,000 MHs $ 23.85 per MH

b. Manufacturing overhead applied to Job SUA-600: Number of hours for the job Predetermined overhead rate Manufacturing overhead applied to the job

40 MHs $ 23.85 per MH $ 954.00

c. Calculation of overhead underapplied or overapplied: Actual manufacturing overhead cost

$ 1,144,800

Manufacturing overhead applied to jobs: Predetermined overhead rate Actual hours Manufacturing overhead applied to jobs

$ 23.85 per MH 47,700 MHs $ 1,137,645

Underapplied (overapplied) manufacturing overhead

$ 7,155 Underapplied

d. Calculation of the predetermined overhead rate: Estimated total manufacturing overhead at capacity Total amount of the allocation base at capacity Predetermined overhead rate

$ 1,144,800 53,000 MHs $ 21.60 per MH

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217

Manufacturing overhead applied to Job SUA-600: Number of hours for the job Predetermined overhead rate Manufacturing overhead applied to the job

40 MHs $ 21.60 per MH $ 864.00

f. Calculation of overhead underapplied or overapplied: Actual manufacturing overhead cost incurred

$ 1,144,800

Manufacturing overhead applied to jobs: Predetermined overhead rate Actual hours Manufacturing overhead applied to jobs

$ 21.60 per MH 47,700 MHs $ 1,030,320

Underapplied (overapplied) manufacturing overhead

$ 114,480 Underapplied

206)a. Calculation of the predetermined overhead rate: Estimated total manufacturing overhead at capacity Total amount of the allocation base at capacity Predetermined overhead rate

$ 4,132,800 82,000 MHs $ 50.40 per MH

b. Manufacturing overhead applied to Job 706H: Number of hours for the job Predetermined overhead rate Manufacturing overhead applied to the job

300 MHs $ 50.40 per MH $ 15,120

c. Calculation of overhead underapplied or overapplied:

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218

Actual manufacturing overhead cost incurred Manufacturing overhead applied to jobs:

$ 4,132,800

Predetermined overhead rate Actual hours Manufacturing overhead applied to jobs

$ 50.40 72,900 $ 3,674,160

Underapplied (overapplied) manufacturing overhead

$ 458,640

per MH MHs

Underapplied

207)a. Calculation of the predetermined overhead rate: Estimated total manufacturing overhead Estimated total amount of the allocation base Predetermined overhead rate Calculation of overhead underapplied or overapplied: Actual manufacturing overhead cost

$ 697,820 37,000 MHs $ 18.86 per MH

$ 697,820

Manufacturing overhead applied to jobs: Predetermined overhead rate Actual hours Manufacturing overhead applied to jobs Underapplied (overapplied) manufacturing overhead

$ 18.86 per MH 36,900 MHs $ 695,934 $ 1,886 Underapplied

b. Calculation of the predetermined overhead rate: Estimated total manufacturing overhead at capacity Total amount of the allocation base at capacity Predetermined overhead rate Calculation of overhead underapplied or overapplied:

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$ 697,820 46,000 MHs $ 15.17 per MH

219

Actual manufacturing overhead cost incurred

$ 697,820

Manufacturing overhead applied to jobs: Predetermined overhead rate Actual hours Manufacturing overhead applied to jobs

$ 15.17 per MH 36,900 MHs $ 559,773

Underapplied (overapplied) manufacturing overhead

$ 138,047 Underapplied

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220

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Process costing assumes all units are homogeneous and follow the same path through the production process. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Learning Objective : 08-01 Explain the concept and purpose of equivalent units. Topic : Determining Equivalent Units Gradable : automatic Accessibility : Screen Reader Compatible

2) The equivalent unit concept refers to the actual amount of work done to date stated in terms of how complete the units in work in process are relative to a fully complete unit. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Learning Objective : 08-01 Explain the concept and purpose of equivalent units. Topic : Determining Equivalent Units Gradable : automatic Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 08-02 Assign costs to products using a five-step process. Topic : Using Product Costing in a Process Industry Bloom's : Understand Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 08-02 Assign costs to products using a five-step process. Topic : Using Product Costing in a Process Industry Bloom's : Understand Accessibility : Screen Reader Compatible

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%. ⊚ true ⊚ false

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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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 08-02 Assign costs to products using a five-step process. Topic : Using Product Costing in a Process Industry Bloom's : Understand Accessibility : Screen Reader Compatible

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%. ⊚ true ⊚ false

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8) In the weighted-average approach, the number of physical units transferred out cannot be greater than the equivalent number of units produced (EUP) during the period. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 08-02 Assign costs to products using a five-step process. Topic : Using Product Costing in a Process Industry Bloom's : Understand Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Topic : Using Product Costing in a Process Industry Learning Objective : 08-03 Assign costs to products using weighted-average costing. Accessibility : Screen Reader Compatible

10) In a weighted-average process costing system, the costs in the beginning Work-inProcess Inventory are not used to compute the costs transferred-out. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Topic : Using Product Costing in a Process Industry Learning Objective : 08-03 Assign costs to products using weighted-average costing. Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

12) If the beginning Work-in-Process inventory is zero, first-in, first-out (FIFO) and weighted-average process costing will assign the same amount to the units transferred out. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Topic : Using Product Costing in a Process Industry Bloom's : Understand Learning Objective : 08-03 Assign costs to products using weighted-average costing. Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Topic : Using Product Costing in a Process Industry Bloom's : Understand Learning Objective : 08-03 Assign costs to products using weighted-average costing. Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

14) It is possible for units in the beginning Work-in-Process Inventory to also be part of the ending Work-in-Process Inventory. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Topic : Using Product Costing in a Process Industry Bloom's : Understand Learning Objective : 08-03 Assign costs to products using weighted-average costing. Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

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). ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-06 Analyze the accounting choice between FIFO and weighted-average costing. Topic : Determining Which Is Better: FIFO or Weighted Average? Accessibility : Screen Reader Compatible

16) In general, weighted-average costing is simpler to use while first-in, first-out (FIFO) costing provides greater decision-making benefits to managers. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-06 Analyze the accounting choice between FIFO and weighted-average costing. Topic : Determining Which Is Better: FIFO or Weighted Average? Accessibility : Screen Reader Compatible

17)

The degree of completion associated with prior department costs is always 100%. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-06 Analyze the accounting choice between FIFO and weighted-average costing. Topic : Using Costs Transferred in from Prior Departments Accessibility : Screen Reader Compatible

18)

Job costing requires more detailed record keeping than process costing. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 08-07 Know when to use process or job costing. Bloom's : Understand Accessibility : Screen Reader Compatible Topic : Choosing between Job and Process Costing

19) Operations costing is used in manufacturing goods that have some common characteristics and some individual characteristics. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-08 Compare and contrast operation costing with job costing and process costin Topic : Operations Costing Accessibility : Screen Reader Compatible

20) Operations costing accounts for material costs like job costing and conversion costs like process costing. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-08 Compare and contrast operation costing with job costing and process costin Topic : Operations Costing Accessibility : Screen Reader Compatible

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 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.

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Yes No No Yes

Material G No Yes No Yes 10

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 08-01 Explain the concept and purpose of equivalent units. Topic : Determining Equivalent Units Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Accessibility : Screen Reader Compatible

22) The following examples briefly describe the manufacture of two different products. Which costing method (job or process) would be the best method to use for each project? 1.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." 2.Northridge Spacetronics is manufacturing three space shuttles for the country of Xanadu. Each shuttle is slightly different, and production will last approximately two years. A. B. C. D.

Process Job-Order Process Job-Order

Process Job-Order Job-Order Process

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-07 Know when to use process or job costing. Accessibility : Screen Reader Compatible Topic : Choosing between Job and Process Costing

23) Which of the following is an example of a company that would likely use process costing? A) CPA firm B) Cereal manufacturer C) Custom home builder D) Airplane manufacturer

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 08-07 Know when to use process or job costing. Bloom's : Understand Accessibility : Screen Reader Compatible Topic : Choosing between Job and Process Costing

24)

A company should use process costing, rather than job costing, if:

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 08-07 Know when to use process or job costing. AACSB : Reflective Thinking Bloom's : Understand Accessibility : Screen Reader Compatible Topic : Choosing between Job and Process Costing

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

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 08-01 Explain the concept and purpose of equivalent units. Topic : Determining Equivalent Units Gradable : automatic Difficulty : 2 Medium Bloom's : Understand AACSB : Reflective Thinking Accessibility : Screen Reader Compatible

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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 workin-process 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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 08-01 Explain the concept and purpose of equivalent units. Gradable : automatic Difficulty : 2 Medium Topic : Using Product Costing in a Process Industry Bloom's : Understand AACSB : Reflective Thinking Accessibility : Screen Reader Compatible

27) The Fremont Company uses the weighted-average method in its process costing system. The company recorded 47,775 equivalent units for conversion costs for November in a particular department. There were 7,700 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 9,700 units, 50% complete with respect to conversion costs. A total of 42,000 units were completed and transferred out of the department during the month. The number of units started during November in the department was: A) 41,160 units. B) 40,000 units. C) 44,000 units. D) 37,150 units.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Learning Objective : 08-02 Assign costs to products using a five-step process. Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Bloom's : Apply Type : Algorithmic Accessibility : Screen Reader Compatible

28) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Learning Objective : 08-02 Assign costs to products using a five-step process. Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Bloom's : Apply Accessibility : Screen Reader Compatible

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29) In a process costing system, the application of factory overhead usually would be recorded as an increase in: (CPA adapted) A) Finished Goods Inventory. B) Factory Overhead. C) Cost of Goods Sold. D) Work-in-Process Inventory.

30) Sigman Company's inventories in process were at the following stages of completion at April 30: Number of Units 280 230 380

Percent Complete 90 80 10

Equivalent units of production in ending inventory amounted to: (CPA adapted) A) 474. B) 342. C) 852. D) 890.

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31) Sigman Company's inventories in process were at the following stages of completion at April 30: Number 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.

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32) 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

33)

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 08-07 Know when to use process or job costing. Bloom's : Understand Accessibility : Screen Reader Compatible Topic : Choosing between Job and Process Costing

34) 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.

35)

Of the following process costing steps, which must be done last?

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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.

36) The Phantom Corporation started 6,300 units during February. Phantom started the month with 850 units in process (45% complete) and ended the month with 550 units in process (45% complete). How many units were transferred to the Finished Goods Inventory during February? A) 7,150 units B) 6,983 units C) 6,600 units D) 5,750 units

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37) 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

38) 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.

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39) 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, first-out (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.

40)

Which of the following statements concerning a process cost accounting system is false?

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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 started 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 started during the month should equal the units in the ending inventory plus the units transferred out during the month.

41) The weighted-average method of process costing differs from the FIFO method of process costing in that the weighted-average method: A) bases unit costs on current period activity only. B) ending work in process comes from the work started during the current month. 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-06 Analyze the accounting choice between FIFO and weighted-average costing. AACSB : Reflective Thinking Topic : Determining Which Is Better: FIFO or Weighted Average? Accessibility : Screen Reader Compatible

42) The Miracle Company had 24,000 units in process on December 31, 2023 which was 80% complete as to materials but only 30% complete as to conversion costs. The company's records show 44,000 units were transferred to the Finished Goods Inventory during January 2024. On January 31, 2024, 19,000 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) 44,800 EUPs B) 43,000 EUPs C) 42,500 EUPs D) 47,500 EUPs

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Type : Algorithmic Accessibility : Screen Reader Compatible

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43) The Miracle Company had 20,000 units in process on December 31, 2023 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 2024. On January 31, 2024, 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

44) The Townson Manufacturing Company has gathered the following information for the month of September: ● 11,700 units in the beginning Work-in-Process Inventory (80% complete as to materials, 1/3 complete with respect to the conversion costs). ● 79,000 units were started into production. ● 69,000 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?

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A) 72,900 EUPs B) 88,360 EUPs C) 90,700 EUPs D) 81,340 EUPs

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Learning Objective : 08-03 Assign costs to products using weighted-average costing. Bloom's : Apply Type : Algorithmic Accessibility : Screen Reader Compatible

45) 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Learning Objective : 08-03 Assign costs to products using weighted-average costing. Bloom's : Apply Accessibility : Screen Reader Compatible

46) The Townson Manufacturing Company has gathered the following information for the month of September: ● 9,000 units in the beginning Work-in-Process Inventory (75% complete as to materials, 1/3 complete with respect to the conversion costs). ● 90,000 units were started into production. ● 63,000 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) 88,500 EUPs B) 76,500 EUPs C) 84,500 EUPs D) 74,000 EUPs

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47) 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

48) Haberdashery Company has a beginning Work-in-Process Inventory of 39,000 units (40% complete). During the period, 124,000 units were started, and the ending Work-in-Process Inventory consisted of 34,000 units (80% complete). What are the equivalent units for conversion costs using weighted-average process costing?

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A) 124,000 B) 129,000 C) 140,600 D) 156,200

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Topic : Using Product Costing in a Process Industry Bloom's : Understand Learning Objective : 08-03 Assign costs to products using weighted-average costing. Type : Algorithmic Accessibility : Screen Reader Compatible

49) 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 B) 115,000 C) 121,000 D) 131,000

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50) Seaside Company uses the weighted-average method in its process costing system. The Sanding Department started the month with 19,000 units in its beginning work-in-process inventory that were 80% complete with respect to conversion costs. An additional 80,000 units were transferred in from the prior department during the month to begin processing in the Sanding Department. There were 16,000 units in the ending work-in-process inventory of the Sanding Department that were 10% 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) 69,400 EUPs B) 84,600 EUPs C) 83,000 EUPs D) 77,000 EUPs

51) 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?

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A) 67,400 EUPs B) 73,000 EUPs C) 72,000 EUPs D) 66,000 EUPs

52) 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 59,000 units were started; 5,900 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) 47,200. B) 53,100. C) 56,640. D) 59,000.

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53) 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.

54) 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 51,000 units were started; 5,100 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) 40,800. B) 43,860. C) 48,960. D) 51,000.

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55) 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.

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56) Department B had a beginning inventory of 700 units, 1/4 completed; an ending inventory of 600 units, 2/3 completed, and received 1,000 units during the period from Department A. What were the equivalent units of production of Department B, assuming weighted-average process costing? A) 1,000 equivalent units. B) 1,100 equivalent units. C) 1,400 equivalent units. D) 1,500 equivalent units.

57) 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.

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58) Madison Corporation's production cycle starts in the Processing Department. The following information is available for April: Units Work-in-process, April 1 (25% complete) Total units in process during April Work-in-process, April 30 (60% complete)

52,000 292,000 31,000

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? A. B. C. D.

Materials

Conversion Costs

250,200 265,800 292,000 328,800

269,000 243,400 279,600 295,200

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

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59) Madison Corporation's production cycle starts in the Processing Department. The following information is available for April: Units Work-in-process, April 1 (25% complete) Total units in process during April Work-in-process, April 30 (60% complete)

40,000 280,000 25,000

Materials

Conversion Costs

240,000 255,000 280,000 315,000

260,000 235,000 270,000 285,000

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

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60) Department A had no Work-in-Process at the beginning of the period, 4,000 units were completed during the period, 500 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 (4,500 at $10) Direct labor Factory overhead

$ 45,000 28,335 22,665

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) $10,060 B) $8,000 C) $5,000 D) $5,030

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61) 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

62) DriveTrain, Incorporated instituted a new process in October 2023. During October, 12,600 units were started in Department A. Of the units started, 8,650 were transferred to Department B, and 3,950 remained in Work-in-Process at October 31, 2023. The Work-inProcess at October 31, 2023, was 100% complete as to material costs and 50% complete as to conversion costs. Material costs of $34,020 and conversion costs of $42,500 were charged to Department A in October. What were the total costs transferred to Department B assuming Department A uses weighted-average process costing?

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A) $50,670 B) $57,955 C) $61,200 D) $62,300

63) DriveTrain, Incorporated instituted a new process in October 2023. 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, 2023. The Work-inProcess at October 31, 2023, 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

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64)

Which of the following is false regarding the production cost report? A) It summarizes the production and cost results for a period. B) It can only be prepared when the weighted-average method is used. C) It can be used by managers to determine whether inventory levels are getting too high. D) It is important for managers who monitor the flow of production and costs.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Bloom's : Understand AACSB : Reflective Thinking Learning Objective : 08-04 Prepare and analyze a production cost report. Topic : Reporting This Information to Managers: The Production Cost Report Accessibility : Screen Reader Compatible

65) 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)

0 21,000 16,800 4,200

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Cost of materials used Labor and overhead costs

$ 36,800 $ 38,600

Equivalent units of production for materials are: A) 16,800. B) 17,800. C) 20,000. D) 21,000.

66) 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

0 20,000 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.

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67) 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

0 27,500 22,000 5,500 $ 47,200 $ 46,400

Equivalent units of production for labor and overhead are: A) 22,000. B) 23,375. C) 26,500. D) 27,500.

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68) 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

0 20,000 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.

69) 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)

0 23,800 17,900 5,900

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Cost of materials used Labor and overhead costs

$ 59,130 $ 61,110

Cost per equivalent unit of materials is: A) $3.15. B) $2.82. C) $2.57. D) $2.48.

70) 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

0 20,000 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.

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71) 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

0 22,600 17,200 5,400 $ 51,120 $ 39,165

Cost per equivalent unit of labor and overhead is: A) $2.28. B) $2.11. C) $1.83. D) $1.73.

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72) 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

0 20,000 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.

73) 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

0 22,400 17,100 5,300

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overhead) Cost of materials used Labor and overhead costs

$ 49,820 $ 51,870

Total cost of the 17,100 units finished is: A) $86,172. B) $92,849. C) $101,724. D) $90,799.

74) 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

0 20,000 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.

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75) 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

0 20,500 16,400 4,100 $ 36,900 $ 38,000

Total cost of the 4,100 units of the ending inventory: Note: Round costs per equivalent unit to two decimal places. A) $16,236. B) $14,883. C) $9,615. D) $9,133.

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76) 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

0 20,000 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.

77) The following information pertains to Oklahoma Company's Tulsa Division for the month of April: Units Beginning Work-in-Process Started in April Units completed

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22,500 43,000 50,000

Materials $ 20,500 $ 21,000

Ending Work-in-Process

15,500

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) Note: Round your answer to 2 decimal places. A) $0.84. B) $0.80. C) $0.65. D) $0.63.

78) The following information pertains to Oklahoma Company's Tulsa Division for the month of April: Units Beginning Work-in-Process Started in April Units completed

15,000 40,000 42,500

Ending Work-in-Process

12,500

Materials $ 5,500 $ 18,000

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) Note: Round your answer to 2 decimal places.

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A) $0.59. B) $0.55. C) $0.45. D) $0.43.

79) Nebraska Company uses the weighted-average method in its process costing system. The first processing department, the Welding Department, started the month with 20,000 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 $46,820. An additional 92,000 units were started into production during the month. There were 23,000 units in the ending work-in-process inventory of the Welding Department that were 20% complete with respect to conversion costs. A total of $697,970 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? A) $7.957 B) $8.360 C) $7.587 D) $5.886

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80) 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? A) $8.112 B) $8.300 C) $7.533 D) $6.108

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81) 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: Units

Beginning work-in-process inventory Started into production during June

Percent Complete with Respect to Conversion 11,800 50% 100,000

Ending work-in-process inventory

22,600

80%

According to the company's records, the conversion cost in beginning work-in-process inventory was $50,115 at the beginning of June. Additional conversion costs of $827,583 were incurred in the department during the month. What was the cost per equivalent unit for conversion costs for the month? A) $8.476 B) $6.978 C) $8.586 D) $8.181

82) 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: Units

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Percent Complete with Respect to 53

Beginning work-in-process inventory Started into production during June

11,000 98,000

Ending work-in-process inventory

21,000

Conversion 50%

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? A) $8.420 B) $6.934 C) $8.530 D) $8.322

83) Fanciful Structures Company uses the weighted-average method in its process costing system. The first processing department, the Welding Department, started the month with 28,800 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 $31,820. An additional 103,800 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 31,600 units in the ending work-in-process inventory of the Welding Department that were 40% complete with respect to conversion costs. A total of $537,880 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?

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A) $5.205 B) $5.363 C) $4.518 D) $5.013

84) 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? A) $5.300 B) $5.458 C) $4.603 D) $5.108

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85) 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. Units

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

5,000 54,500

Percent Complete with Respect to Conversion 90%

52,500 30%

The accounting records indicate that the conversion cost that had been assigned to beginning work-in-process inventory was $5,696 and a total of $89,168 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? A) $1.639 B) $1.737 C) $1.478 D) $1.487

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86) 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. Units

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

3,800 53,000

Percent Complete with Respect to Conversion 90%

51,300 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? A) $1.654 B) $1.752 C) $1.490 D) $1.499

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87) 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.

88) 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:

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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.

89) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

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90) Parkway Company incurred $133,000 in material costs during July. Additionally, the 12,700 units in the Work-in-Process Inventory on July 1 had materials assigned to them of $39,000, even though they were only 10% 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) $10.47 B) $11.40 C) $13.54 D) $20.47

91) 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

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92) Cranford Company completed and transferred out 4,000 units in May 2023. There were 100 units in the Work-in-Process Inventory on May 31, 2023, 30% complete as to conversion costs and 100% complete as to materials. The month's charges for conversion costs and material costs were $24,180 and $16,400, respectively. There was no beginning inventory on May 1, 2023. What is the cost of the work transferred-out during May, assuming that Cranford uses weighted-average process costing? A) $18,820 B) $40,000 C) $40,580 D) $26,400

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93) Cranford Company completed and transferred out 2,300 units in May 2023. There were 200 units in the Work-in-Process Inventory on May 31, 2023, 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, 2023. 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

94) 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-04 Prepare and analyze a production cost report. Topic : Reporting This Information to Managers: The Production Cost Report Accessibility : Screen Reader Compatible

95)

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-inprocess inventories.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. AACSB : Reflective Thinking Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

96)

The computation of equivalent units under the FIFO method:

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. AACSB : Reflective Thinking Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

97) Tori Company uses the FIFO method in its process costing system. The first processing department, the Soldering Department, started the month with 22,000 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 $106,150. An additional 73,500 units were started into production during the month. There were 28,000 units in the ending workin-process inventory of the Soldering Department that were 80% complete with respect to conversion costs. A total of $570,125 in conversion costs were incurred in the department during the month. What would be the cost per equivalent unit for conversion costs? A) $7.950 B) $7.757 C) $7.653 D) $7.187

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98) 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? A) $8.500 B) $8.311 C) $8.250 D) $7.839

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

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99) 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

16,400 92,500 26,800

Percent Complete with Respect to Conversion 20%

90%

According to the company's records, the conversion cost in beginning work-in-process inventory was $21,260 at the beginning of September. Additional conversion costs of $530,724 were incurred in the department during the month. What would be the cost per equivalent unit for conversion costs for September? A) $5.711 B) $5.156 C) $5.043 D) $5.036

100) 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

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Percent Complete with

Beginning work-in-process inventory Transferred in from the prior department during September Ending work-in-process inventory

15,000 89,000

Respect to Conversion 20%

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? A) $5.916 B) $5.340 C) $5.220 D) $5.213

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

101) 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

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690 $ 7,500 $ 40,710 60% 10% 8,800 $ 104,000

Conversion costs added during the month Ending work-in-process inventory:

$ 261,000

Units in ending work-in-process inventory Percent complete with respect to materials Percent complete with respect to conversion

2,400 55% 10%

How many units were started AND completed during the month in the first processing department? A) 7,090 B) 6,400 C) 8,860 D) 7,900

102) 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:

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600 $ 6,600 $ 2,700 60% 10% 7,000 $ 102,200 $ 259,200

Units in ending work-in-process inventory Percent complete with respect to materials Percent complete with respect to conversion

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

103) 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

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770 $ 8,300 $ 45,430 60% 10% 10,400 $ 105,600 $ 262,600

3,200 55%

Percent complete with respect to conversion

10%

The cost per equivalent unit for conversion costs for the first department for the month is closest to: A) $32.42 B) $33.57 C) $33.00 D) $31.97

104) 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

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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: A) $42.49 B) $43.96 C) $45.00 D) $41.87

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

105) 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

1,900 $ 36,100 $ 20,900 70% 25% 9,300 8,100 $ 156,200 $ 255,500

3,100 80% 35%

What are the equivalent units for materials for the month in the first processing department?

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A) 2,180 B) 9,250 C) 10,200 D) 7,200

106) 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?

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A) 1,680 B) 7,150 C) 8,200 D) 5,200

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

107) 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

1,500 $ 28,500 $ 16,500 70% 25% 8,500 7,300 $ 153,000 $ 252,300

2,700 80% 35%

The cost per equivalent unit for conversion costs for the first department for the month is closest to:

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A) $34.74 B) $38.82 C) $33.00 D) $32.06

108) 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:

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A) $40.57 B) $45.33 C) $39.31 D) $37.44

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

109) Which of the following statements regarding first-in, first-out (FIFO) process costing is false? A) A disadvantage of FIFO is that it mixes current period costs with the costs of products in beginning inventory. B) FIFO assumes that the first units worked on are the first units transferred out of a production department. C) FIFO transfers out the costs in beginning inventory in a lump sum. D) FIFO gives managers better information about the work done in the current period.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

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110) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

111) The Finishing Department had 6,100 incomplete units in its beginning Work-in-Process Inventory which were 100% complete as to materials and 40% complete as to conversion costs. 17,000 units were received from the previous department. The ending Work-in-Process Inventory consisted of 3,000 units which were 50% complete as to materials and 40% 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) 13,900 B) 14,000 C) 20,100 D) 23,100

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112) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

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113) The Finishing Department had 5,400 incomplete units in its beginning Work-in-Process Inventory which were 100% complete as to materials and 30% complete as to conversion costs. 15,800 units were received from the previous department. The ending Work-in-Process Inventory consisted of 2,400 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) 12,800 B) 13,400 C) 18,800 D) 21,200

114) 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

115) The Finishing Department had 5,600 incomplete units in its beginning Work-in-Process Inventory which were 100% complete as to materials and 40% complete as to conversion costs. 16,200 units were received from the previous department. The ending Work-in-Process Inventory consisted of 2,600 units which were 50% complete as to materials and 40% 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) 13,200 B) 13,600 C) 14,900 D) 16,200

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116) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

117) The Finishing Department had 6,900 incomplete units in its beginning Work-in-Process Inventory which were 100% complete as to materials and 30% complete as to conversion costs. 18,800 units were received from the previous department. The ending Work-in-Process Inventory consisted of 3,900 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) 16,970 B) 17,000 C) 20,870 D) 20,900

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118) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

119) In computing the current period's manufacturing cost per equivalent unit, the FIFO method of process costing considers: (CPA adapted) Version 1

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

120) 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 2,500 in process at the beginning of the period. Department #2 uses FIFO costing. Work-in-Process − Department #2 Debit 2,500 units, ¼ completed

$ 2,500

From Department 1, 8,600 units Direct Labor

5,160

Factory OH

7,400

2,300 units, ½ complete

????

Product X, 8,800 units

Credit ????

9,300

What are the total costs to be accounted for on the production cost report for Department #2 for the period?

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A) $22,640 B) $24,360 C) $15,500 D) $17,800

121) 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 Debit 1,200 units, ¼ completed From Department 1, 6,000 units Direct Labor

$ 1,200 3,600

Product X, 6,200 units

Credit ????

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?

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A) $16,400. B) $17,600. C) $11,600. D) $12,660.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

122) 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 2,200 in process at the beginning of the period. Department #2 uses FIFO costing. Work-in-Process – Department Debit 2,200 units, ¼ completed From Department 1, 8,000 units Direct Labor

$ 2,200 4,800

Product X, 8,200 units

Credit ????

9,000

Factory OH

6,800

2,000 units, ½ complete

????

What are the equivalent units of production for conversion costs?

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A) 700 B) 7,500 C) 7,900 D) 8,650

123) 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 Debit 1,200 units, ¼ completed From Department 1, 6,000 units Direct Labor

$ 1,200 3,600

Product X, 6,200 units

Credit ????

8,000

Factory OH

4,800

1,000 units, ½ complete

????

What are the equivalent units of production for conversion costs?

Version 1

A) 500 B) 5,500 C) 5,900 D) 6,400

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

124) 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 2,400 in process at the beginning of the period. Department #2 uses FIFO costing. Work-in-Process – Department #2 Debit 2,400 units, ¼ completed From Department 1, 8,400 units Direct Labor

$ 2,400 5,040

Product X, 8,600 units

Credit ????

9,200

Factory OH

7,200

2,200 units, ½ complete

????

The conversion costs per equivalent unit is:

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A) $0.90. B) $1.35. C) $1.80. D) $2.27.

125) 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 Debit 1,200 units, ¼ completed From Department 1, 6,000 units Direct Labor

$ 1,200 3,600

Product X, 6,200 units

Credit ????

8,000

Factory OH

4,800

1,000 units, ½ complete

????

The conversion costs per equivalent unit is:

Version 1

A) $1.00 B) $1.50 C) $2.00 D) $2.55

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

126) 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 2,220 in process at the beginning of the period. Department #2 uses FIFO costing. Work-in-Process – Department #2 Debit 2,220 units, ¼ completed From Department 1, 11,100 units Direct Labor

$ 2,220 6,660

Product X, 7,050 units

Credit ????

8,850

Factory OH

7,520

2,020 units, ½ complete

????

The unit cost of Product X started in the prior period and completed in the current period is: Note: Round costs per equivalent unit to two decimal places.

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A) $1.64. B) $2.04. C) $2.07. D) $2.84.

127) 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 Debit 1,200 units, ¼ completed From Department 1, 6,000 units Direct Labor

$ 1,200 3,600

Product X, 6,200 units

Credit ????

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:

Version 1

A) $2.00 B) $2.50 C) $2.55 D) $3.45

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

128) 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 2,500 in process at the beginning of the period. Department #2 uses FIFO costing. Work-in-Process – Department #2 Debit 2,500 units, ¼ completed

$ 2,500

From Department 1, 8,600 units Direct Labor

5,160

Factory OH

7,400

2,300 units, ½ complete

????

Product X, 8,800 units

Credit ????

9,300

The unit cost of Product X started and completed in the current period is:

Version 1

A) $1.79. B) $2.29. C) $2.34. D) $2.39.

129) 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 Debit 1,200 units, ¼ completed From Department 1, 6,000 units Direct Labor

$ 1,200 3,600

Product X, 6,200 units

Credit ????

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:

Version 1

A) $2.00. B) $2.50. C) $2.55. D) $2.60.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

130) 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 1,700 in process at the beginning of the period. Department #2 uses FIFO costing. Work-in-Process – Department #2 Debit 1,700 units, ¼ completed

$ 1,700

From Department 1, 7,000 units Direct Labor

4,200

Factory OH

5,800

1,500 units, ½ complete

????

Product X, 7,200 units

Credit ????

8,500

The cost of goods transferred to finished goods is: Note: Round costs per equivalent unit to two decimal places.

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A) $19,720. B) $17,873. C) $14,520. D) $14,300.

131) 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 Debit 1,200 units, ¼ completed From Department 1, 6,000 units Direct Labor

$ 1,200 3,600

Product X, 6,200 units

Credit ????

8,000

Factory OH

4,800

1,000 units, ½ complete

????

The cost of goods transferred to finished goods is:

Version 1

A) $17,660. B) $16,000. C) $13,000. D) $12,800.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

132) 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 3,200 in process at the beginning of the period. Department #2 uses FIFO costing. Work-in-Process – Department #2 Debit 3,200 units, ¼ completed

$ 3,200

From Department 1, 10,000 units Direct Labor

6,000 10,000

Factory OH

8,800

3,000 units, ½ complete

????

Product X, 10,200 units

Credit ????

The cost of the ending Work-in-Process Inventory is: Note: Round costs per equivalent unit to two decimal places.

Version 1

A) $7,130. B) $4,380. C) $1,640. D) $3,000.

133) 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 Debit 1,200 units, ¼ completed From Department 1, 6,000 units Direct Labor

$ 1,200 3,600

Product X, 6,200 units

Credit ????

8,000

Factory OH

4,800

1,000 units, ½ complete

????

The cost of the ending Work-in-Process Inventory is:

Version 1

A) $2,600. B) $1,600. C) $600. D) $1,000.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

134)

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.

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135) A process costing system was used for a department that began operations in January 2023. 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. B. C. D.

Same Greater Greater Same

Same Same Greater Greater

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-06 Analyze the accounting choice between FIFO and weighted-average costing. Bloom's : Analyze Topic : Determining Which Is Better: FIFO or Weighted Average? Accessibility : Screen Reader Compatible

136) 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 adapted) Units Work in process, November 1st Started in production during November Work in process, November 30th

Version 1

16,400 104,000 24,400

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, $54,960; direct labor, $20,720; manufacturing overhead, $15,640. Costs incurred during the month: direct materials, $472,000; direct labor, $186,880; manufacturing overhead, $395,160. What is the equivalent unit cost for materials assuming Bentley uses first-in, first-out (FIFO) process costing? A) $3.97 B) $4.37 C) $4.47 D) $4.67

137) 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 1st Started in production during November Work in process, November 30th

Version 1

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

138) 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 adapted) Units Work in process, November 1st Started in production during November Work in process, November 30th

Version 1

16,700 107,000 24,700

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, $55,260; direct labor, $21,020; manufacturing overhead, $15,940. Costs incurred during the month: direct materials, $475,000; direct labor, $189,880; manufacturing overhead, $398,160. What is the equivalent unit cost for the conversion costs assuming Bentley uses first-in, first-out (FIFO) process costing? A) $5.25 B) $5.57 C) $5.62 D) $5.82

139) 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 adapted) Units Work in process, November 1st Started in production during November Work in process, November 30th

Version 1

16,000 100,000 24,000

100

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

140) 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 adapted) Units Work in process, November 1st Started in production during November Work in process, November 30th

Version 1

17,000 102,000 26,000

101

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, $56,560; direct labor, $21,320; manufacturing overhead, $16,240. Costs incurred during the month: direct materials, $477,900; direct labor, $209,080; manufacturing overhead, $417,560. What are the total costs in the ending Work-in-Process Inventory assuming Bentley uses first-in, first-out (FIFO) process costing? Note: Round costs per equivalent unit to two decimal places. A) $170,508 B) $172,330 C) $170,950 D) $174,700

141) 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 adapted) Units Work in process, November 1st Started in production during November Work in process, November 30th

Version 1

16,000 100,000 24,000

102

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? Note: Round costs per equivalent unit to two decimal places. A) $153,168 B) $154,800 C) $155,328 D) $156,960

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

142) 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 adapted) Units Work in process, November 1st Started in production during November Work in process, November 30th

Version 1

16,300 103,000 24,300

103

The beginning inventory was 70% complete as to materials and 10% complete as to conversion costs. The ending inventory was 80% complete as to materials and 30% complete as to conversion costs. Costs pertaining to November are as follows: Beginning inventory: direct materials, $54,860; direct labor, $20,620; manufacturing overhead, $15,540. Costs incurred during the month: direct materials, $471,000; direct labor, $185,880; manufacturing overhead, $394,160. What is the equivalent unit cost for materials assuming Bentley uses weighted-average process costing? A) $3.91 B) $4.57 C) $4.60 D) $4.70

143) 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 1st Started in production during November Work in process, November 30th

Version 1

16,000 100,000 24,000

104

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

144) 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 adapted) Units Work in process, November 1st Started in production during November Work in process, November 30th

Version 1

16,500 105,000 24,500

105

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, $55,060; direct labor, $20,820; manufacturing overhead, $15,740. Costs incurred during the month: direct materials, $473,000; direct labor, $187,880; manufacturing overhead, $396,160. What is the equivalent unit cost for the conversion costs assuming Bentley uses weightedaverage process costing? A) $5.36 B) $5.64 C) $5.81 D) $6.01

145) 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 adapted) Units Work in process, November 1st Started in production during November Work in process, November 30th

Version 1

16,000 100,000 24,000

106

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

146) 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 adapted) Units Work in process, November 1st Started in production during November Work in process, November 30th

Version 1

16,800 108,000 24,800

107

The beginning inventory was 70% complete as to materials and 10% complete as to conversion costs. The ending inventory was 80% complete as to materials and 30% complete as to conversion costs. Costs pertaining to November are as follows: Beginning inventory: direct materials, $55,360; direct labor, $21,120; manufacturing overhead, $16,040. Costs incurred during the month: direct materials, $476,000; direct labor, $190,880; manufacturing overhead, $399,160. What are the total costs in the ending Work-in-Process Inventory assuming Bentley uses weighted-average process costing? Note: Round costs per equivalent unit to two decimal places. A) $96,160 B) $130,801 C) $130,349 D) $131,341

147) 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 adapted) Units Work in process, November 1st Started in production during November Work in process, November 30th

Version 1

16,000 100,000 24,000

108

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

148)

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.

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109

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 08-02 Assign costs to products using a five-step process. Topic : Using Product Costing in a Process Industry Bloom's : Understand AACSB : Reflective Thinking Accessibility : Screen Reader Compatible

149) 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.

150) Under which of the following conditions will the FIFO method produce the same cost of goods manufactured as the weighted-average method?

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110

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.

151)

Which of the following statements is false?

A) FIFO costing bases unit costs on prior period activity only. B) Weighted-average costing does not separate beginning inventory from current period activity. C) The FIFO method results in unit costs that better reflect current costs. D) The difference in costs from weighted-average and FIFO will be larger when price changes from period to period are large.

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111

152)

Which of the following statements is 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. C) Operations costing combines aspects of job and process costing. D) A custom furniture maker is more likely to use a process costing system than a job costing system.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-08 Compare and contrast operation costing with job costing and process costin Topic : Comparing Job, Process, and Operations Costing Accessibility : Screen Reader Compatible

153)

Operations 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.

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112

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-08 Compare and contrast operation costing with job costing and process costin Topic : Operations Costing Accessibility : Screen Reader Compatible

154)

An operations costing system: A) assigns materials equally to each operation. B) assigns conversion costs equally to each operation. C) assigns conversion costs separately to jobs. D) assigns materials and conversion costs in the same manner.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-08 Compare and contrast operation costing with job costing and process costin Topic : Comparing Job, Process, and Operations Costing Accessibility : Screen Reader Compatible

155)

Operations costing would likely be used by: A) a beverage manufacturer. B) a custom home builder. C) a real estate developer. D) a laptop computer manufacturer.

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113

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 08-08 Compare and contrast operation costing with job costing and process costin Bloom's : Analyze Topic : Comparing Job, Process, and Operations Costing Accessibility : Screen Reader Compatible

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 156) 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 and 45% complete as to conversion). Required:1. (a) Calculate the equivalent units of production (EUP) for each input, assuming Cordon uses weighted-average. 2. (b) Calculate the equivalent units of production (EUP) for each input, assuming Cordon uses FIFO. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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114

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Learning Objective : 08-03 Assign costs to products using weighted-average costing. Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

157) 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:1. (a) Calculate the equivalent units of production (EUP) for each input, assuming Ralston uses weighted-average. 2. (b) Calculate the equivalent units of production (EUP) for each input, assuming Ralston uses FIFO. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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115

158) Manning Corporation uses the weighted-average method in its process costing. The following data pertain to its Processing Department for September. Percent Complete Units 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

700 8,300

Materials Conversion 65%

45%

90%

40%

7,300 1,700

Required:Compute the equivalent units of production for both materials and conversion costs for the Processing Department for September using the weighted-average method. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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116

159) The following data have been provided by Florrisant Corporation, which uses the weighted-average method in its process costing. The data are for the company's Assembly Department for October. Percent Complete

Work-in-process, October 1 Units started into production during October Units completed during October and transferred to the next department Work-in-process, October 31

Units

Materials

Conversion

900 8,200

55%

50%

85%

35%

7,100 2,000

Required:Compute the equivalent units of production for both materials and conversion costs for the Assembly Department for October using the weighted-average method. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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117

160) Markov Incorporated 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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118

161) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Learning Objective : 08-03 Assign costs to products using weighted-average costing. Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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119

162) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Learning Objective : 08-03 Assign costs to products using weighted-average costing. Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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120

163) 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 and 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:Note: Use 4 decimal places in your calculations. a. Compute the equivalent units of production (EUP) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Learning Objective : 08-03 Assign costs to products using weighted-average costing. Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

164) 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:

Beginning Work In Process (WIP)

Version 1

Chemical Mix $ 5,000

Additional Chemical -0-

Conversion Cost $ 3,000

Gallons 10,000

121

Added

65,000

15,000

35,000

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:Note: 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Learning Objective : 08-03 Assign costs to products using weighted-average costing. Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

165) 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 (WIP) Units transferred in from Department #1 Units completed Ending work-in-process (WIP) Beginning WIP (transferred-in costs)

Version 1

20,000 units 40,000 units 50,000 units 10,000 units $ 50,000

122

Beginning WIP (direct materials)

$ 12,000

Beginning WIP (direct labor)

$ 3,200

Beginning WIP (overhead)

$ 1,600

Costs transferred in from Department #1

$ 100,000

Direct materials added during month

$ 60,000

Direct labor during month

$ 20,000

Manufacturing overhead applied

???

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% of direct labor. Ending WIP was 60% complete. Tracker Sports uses weighted-average costing. Required:Note: Use 4 decimal places in your calculations. a. Compute the equivalent units of production (EUP) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Learning Objective : 08-03 Assign costs to products using weighted-average costing. Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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166) 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 Department

$ 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:Note: Use 4 decimal places for computations. 1. (a) What would be the Cracking Department’s inventory balance on July 31? 2. (b) What would be the cost transferred to the Blending Department in July? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Learning Objective : 08-03 Assign costs to products using weighted-average costing. Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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167) 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 per unit in costs transferred in from the Refining Department. Work-in-Process: Blending Beginning balance (8,000 gallon, 60% complete) Costs transferred in from Refining (29,000 gallon) Materials Direct labor Overhead Ending balance (4,000 gallon, 40% complete)

$ 22,850 48,200 20,810 5,748 11,600 ??

The Safety Chemical Company uses weighted-average costing. Required:Note: Use 4 decimal places for computations. 1. (a) Compute the equivalent units of production (EUP) for Blending. 2. (b) Compute the unit costs in the Blending Department for the month of July. 3. (c) Compute the costs transferred out to the Mixing Department for July. 4. (d) Compute the July 31 Work-in-Process Inventory balance. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Learning Objective : 08-03 Assign costs to products using weighted-average costing. Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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168) 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 gallon, 80% complete) Materials (30,000 gallon) Direct labor Overhead Ending balance (6,000 gallon, 2/3 complete)

$ 6,500 12,300 14,500 21,750 ??

The Safety Chemical Company uses weighted-average costing. Required:Note: Use 4 decimal places for computations. 1. (a) Compute the equivalent units of production (EUP) for Refining for July. 2. (b) Compute the material cost per unit and the conversion cost per unit for July. 3. (c) Compute the costs transferred to the Blending Department for July. 4. (d) Compute the July 31 Work-in-Process Inventory balance. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Learning Objective : 08-03 Assign costs to products using weighted-average costing. Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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169) 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

$ 1,682 ($ 600 is materials) 5,325

Labor

10,863

Overhead

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:Note: Use 4 decimal places for computations. 1. (a) Compute the equivalent units of production (EUP) for materials and conversion costs in April. 2. (b) Compute the unit material costs and unit conversion costs for April. 3. (c) Compute the total cost transferred out of the Work-in-Process inventory during the month of April. 4. (d) Compute the cost of the ending Work-in-Process inventory for April. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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170) Pattern Corporation uses the FIFO method in its process costing. The following data pertain to its Cutting Department for August. Percent Complete

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

Materials

Conversion

500 8,100

50%

45%

75%

30%

7,200 1,400

Required:Compute the equivalent units of production for both materials and conversion costs for the Cutting Department for August using the FIFO method. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

171) The following data pertain to the Grinding Department of Dancer Corporation for July. The company uses the FIFO method in its process costing. Percent Complete

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

Materials

Conversion

900 6,700

60%

25%

70%

30%

5,700 1,900

Required:Compute the equivalent units of production for both materials and conversion costs for the Grinding Department for July using the FIFO method. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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172) Mobility, Incorporated 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:

500 70% 40% 28,000

Units in process Percent complete with respect to materials Percent complete with respect to conversion

100 50% 30%

Required:Using the FIFO method, determine the equivalent units of production for materials and conversion costs. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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173) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

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174) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

175) 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 (WIP) Inventory account on April 30 includes the following information: Beginning balance Material Labor

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$ 1,382 5,325 10,863

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Overhead

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:1. (a) Compute the equivalent units of production (EUP) for materials and conversion costs in April. 2. (b) Compute the unit material costs and unit conversion costs for April. 3. (c) Compute the total cost transferred out of the Work-in-Process Inventory during the month of April. 4. (d) Compute the cost of the ending inventory for April. Note: Use 4 decimal places for computations. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

176) 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 (WIP) 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. Version 1

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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)

$ 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 per unit in costs transferred in from the Refining Department. Work-in-Process: Blending Beginning balance (8,000 gallons, 60% complete) Costs transferred in from Refining Materials Direct labor (725 hours) Overhead Ending balance (4,000 gallons, 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:Note: Use 4 decimal places for computations. Part 1: Refining Department 1. (a) Compute the equivalent units of production (EUP) for July. 2. (b) Compute the material cost per unit and the conversion cost per unit for July. 3. (c) Compute the costs transferred to the Blending Department for July. 4. (d) Compute the July 31 Work-in-Process Inventory balance. Part 2: Blending Department 1. (e) Compute the equivalent units of production (EUP). 2. (f) Compute the unit costs in the Blending Department for the month of July. 3. (g) Compute the costs transferred out for July. 4. (h) Compute the July 31 Work-in-Process Inventory balance.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Learning Objective : 08-03 Assign costs to products using weighted-average costing. Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

177) 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)

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$ 7,500 12,300 14,500 21,750

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The Safety Chemical Company uses first-in, first-out (FIFO) costing. Required:Note: Use 4 decimal places for computations. 1. (a) Compute the equivalent units of production (EUP) for Refining for July. 2. (b) Compute the material cost per unit and the conversion cost per unit for July. 3. (c) Compute the costs transferred to the Blending Department for July. 4. (d) Compute the July 31 Work-in-Process (WIP) Inventory balance. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

178) 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 per unit in costs transferred in from the Refining Department. Work-in-Process: Blending Beginning balance (8,000 gallons, 30% complete) Costs transferred in from Refining (29,000 gallons) Materials

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$ 22,850 48,200 20,810

136

Direct labor Overhead Ending balance (4,000 gallons, 40% complete)

5,748 11,600 ??

The Safety Chemical Company uses first-in, first-out (FIFO) costing. Required:Note: Use 4 decimal places for computations. 1. (a) Compute the equivalent units of production (EUP) for Blending. 2. (b) Compute the unit costs in the Blending Department for the month of July. 3. (c) Compute the costs transferred out to the Mixing Department for July. 4. (d) Compute the July 31 Work-in-Process (WIP) Inventory balance. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

179) 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

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20,000 units 40,000 units 50,000 units 10,000 units $ 50,000

137

Beginning WIP direct materials

$ 12,000

Beginning WIP direct labor

$ 3,200

Beginning WIP overhead

$ 1,600

Costs transferred in from Department #1

$ 100,000

Direct material added during month

$ 60,000

Direct labor during month

$ 20,000

Manufacturing overhead applied

???

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% of direct labor. Ending WIP was 60% complete. Tracker Sports uses first-in, first-out (FIFO) costing. Required:Note: Use 4 decimal places for computations. a. Compute the equivalent units of production (EUP) 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 (WIP) inventory balance. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

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180) 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 (WIP) inventory account for the cracking department for July contains the following information: Work-in-Process Inventory (Cracking Department) Balance, July 1 (35,000 pounds, 4/5 done) Direct materials (280,000 pounds) Conversion costs Balance, July 31 (45,000 pounds, 2/3 done) Costs transferred to Blending Department

$ 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:Note: Use 4 decimal places for computations. 1. (a) What would be the Cracking Department’s inventory balance on July 31? 2. (b) What would be the cost transferred to the Blending Department in July? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

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181) 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: Note: Use 4 decimal places for computations. a. Compute the equivalent units of production (EUP) 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 (WIP) inventory balance. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

182) 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:

Beginning WIP Added

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Chemical Mix $ 5,000 65,000

Additional Chemical 0 15,000

Conversion Cost $ 3,000 35,000

Gallons 10,000 100,000

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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: Note: Use 4 decimal places for computations. 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 (WIP) inventory balance. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

183) 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). Work order #286 Work order #354 Direct materials:

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Operation 1 Operation 2 Operation 3 Conversion costs: Operation 1 Operation 2 Operation 3

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Bloom's : Apply Learning Objective : 08-08 Compare and contrast operation costing with job costing and process costin Topic : Operations Costing Gradable : manual Accessibility : Screen Reader Compatible

184) Martin Enterprises uses three operations in sequence to manufacture an assortment of flowerpots. 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:

$ 4,450 3,600

Clay Pots

$ 1,200

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Porcelain Pots

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Bloom's : Apply Learning Objective : 08-08 Compare and contrast operation costing with job costing and process costin Topic : Operations Costing Gradable : manual Accessibility : Screen Reader Compatible

185) 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 Units Materials

$ 97,500

Basic

Super

Premium

Deluxe

1,000

500

250

$ 40,000

$ 30,000

$ 20,000

$ 7,500

Conversion costs: Assembly

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$ 54,000

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Buffing

32,000

Special Polishing

3,000

Packaging

9,000

Total

$ 98,000

Required:What is the cost per unit of each of the completed guitars? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Bloom's : Apply Learning Objective : 08-08 Compare and contrast operation costing with job costing and process costin Topic : Operations Costing Gradable : manual Accessibility : Screen Reader Compatible

186) Required:Sparkle Incorporated 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 presi-dent's control objectives? Explain. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-07 Know when to use process or job costing. Gradable : manual Accessibility : Screen Reader Compatible Topic : Choosing between Job and Process Costing

187) Required: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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 08-02 Assign costs to products using a five-step process. Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

188) Required:Describe the five steps in preparing a production cost report. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Learning Objective : 08-04 Prepare and analyze a production cost report. Gradable : manual Topic : Reporting This Information to Managers: The Production Cost Report Accessibility : Screen Reader Compatible

189) Required:Explain the major differences between weighted-average costing and FIFO costing. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Learning Objective : 08-06 Analyze the accounting choice between FIFO and weighted-average costing. Gradable : manual Topic : Determining Which Is Better: FIFO or Weighted Average? Bloom's : Understand Accessibility : Screen Reader Compatible

190) Required:Is cost accumulation easier under a process costing system or a job costing system? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-07 Know when to use process or job costing. Gradable : manual Accessibility : Screen Reader Compatible Topic : Choosing between Job and Process Costing

191) Required:What characteristics of the production process would lead a company to use process costing rather than job costing? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-07 Know when to use process or job costing. Gradable : manual Accessibility : Screen Reader Compatible Topic : Choosing between Job and Process Costing

192) Required: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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 08-01 Explain the concept and purpose of equivalent units. Topic : Determining Equivalent Units Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-07 Know when to use process or job costing. Gradable : manual Accessibility : Screen Reader Compatible Topic : Choosing between Job and Process Costing

193) 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. Required:Explain why operations costing might be a consideration for Carlton. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Bloom's : Understand Learning Objective : 08-08 Compare and contrast operation costing with job costing and process costin Topic : Operations Costing Gradable : manual Accessibility : Screen Reader Compatible

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194) 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:

2,000

Materials Conversion Costs incurred in February:

$ 600 $ 100

Materials issued Conversion

8,000 7,000 3,000

$ 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. Note: Round your intermediate calculations to 3 decimal places. b. Determine the cost transferred to finished goods. c. Determine the amount of cost that should be assigned to the ending work-in-process. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Learning Objective : 08-03 Assign costs to products using weighted-average costing. Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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195) Tiny Villages Incorporated 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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196) Paradise Incorporated 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.

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197) 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 the “costs to be accounted for” and the “costs accounted for” sections of the production cost report for the department for the month of October. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Bloom's : Apply Learning Objective : 08-04 Prepare and analyze a production cost report. Gradable : manual Topic : Reporting This Information to Managers: The Production Cost Report Accessibility : Screen Reader Compatible

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198) 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 the “costs to be accounted for” and the “costs accounted for” sections of the production cost report for the department for the month of May. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Bloom's : Apply Learning Objective : 08-04 Prepare and analyze a production cost report. Gradable : manual Topic : Reporting This Information to Managers: The Production Cost Report Accessibility : Screen Reader Compatible

199) Dickerson Company uses a process costing system. The following information relates to one month's activity in the company's Mixing Department. Units

Beginning work-in-process inventory Units started

10,000 21,000

Units completed and transferred out

26,000

Ending work-in-process inventory

5,000

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Conversion Percent Complete 20%

80%

153

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 (EUP) for conversion for the month. 2.The cost per equivalent unit (EUs) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Using Product Costing in a Process Industry Difficulty : 3 Hard Learning Objective : 08-03 Assign costs to products using weighted-average costing. Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

200) Vacumatic, Incorporated 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

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700 50% 10%

154

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

$ 595 $ 2,093 14,000 14,600

$ 21,465 $ 440,618

100 60% 60%

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

201) Emerson, Incorporated 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. Version 1

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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%

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202) 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 (EU) 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

Conversion

$ 17.80 180

$ 34.50 160

120

Required:Determine the cost of units transferred out of the department and the cost of ending work-in-process inventory during August using the FIFO method. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

203) The following data has been provided by Radiotronics Incorporated, 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

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$ 2,260 4,650 Materials

Conversion

157

Cost per equivalent unit Equivalent units (EU) required to complete the units in beginning work-in-process inventory Equivalent units in ending work-in-process inventory

$ 33.30 300

$ 21.20 230

380

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 3 Hard Learning Objective : 08-05 Assign costs to products using first-in, first-out (FIFO) costing. Bloom's : Apply Gradable : manual Topic : Assigning Costs Using First-In, First-Out (FIFO) Process Costing Accessibility : Screen Reader Compatible

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Answer Key Test name: Lanen7e_ch08 1) TRUE 2) TRUE This statement is a definition of equivalent units. 3) FALSE Beginning WIP + Started (Transferred in) = Transferred out (Completed) + Ending WIP 4) TRUE Conversion costs are added continuously; if materials are added continuously as well, there is no need to separately compute equivalent units since they would be the same. 5) TRUE 100% of the materials would have been added at the beginning. This is the most likely scenario in process costing. 6) FALSE If materials are only added at the beginning of the production process, the degree of completion for materials in the ending Work-in-Process Inventory will always be 100%. 7) TRUE If materials are only added at the end of the production process, the degree of completion for materials in the ending Work-in-Process Inventory will always be 0%. 8) TRUE EUP = transferred out + (% completed × ending inventory). The number transferred out can equal EUP but cannot be greater. 9) TRUE This statement is the basic concept of the weighted-average approach. Version 1

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10) FALSE Using weighted-average, the beginning WIP costs are combined with the current period costs to determine cost per unit. 11) TRUE This statement is a basic concept of FIFO. 12) TRUE 13) FALSE The ending Work-in-Process Inventory value will generally be different between the two methods because FIFO separates current period costs from those in beginning inventory while weighted-average combines them. 14) TRUE 15) TRUE 16) TRUE 17) TRUE 18) TRUE 19) TRUE 20) TRUE 21) A The addition point for the material has not yet been reached, so material G is 0% in ending WIP. 22) C Steven's product is homogenous and Northridge's product is heterogeneous. 23) B Process costing assumes that all units are homogeneous and follow the same path through the production process. 24) C Process costing has homogenous output and job costing has heterogeneous output. Version 1

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25) B Calculating equivalent units is a unique and necessary condition of process costing. 26) D Weighted-average combines the beginning inventory for the period and the units started during the period. This is equivalent to the units completed during the period and the ending inventory. 27) B Units in beginning work-in-process + Units started = Units completed and transferred out + Units in ending work-in-process 9,700 + Units started = 42,000 + 7,700 Units started = 42,000 + 7,700 − 9,700 Units started = 40,000 28) B Units in beginning work-in-process + Units started = Units completed and transferred out + Units in ending work-in-process 8,000 + Units started = 25,000 + 6,000 Units started = 25,000 + 6,000 − 8,000 Units started = 23,000 29) D As with job costing, the application of overhead increases the WIP account with process costing. 30) A (280 × 90%) + (230 × 80%) + (380 × 10%) = 474. 31) A (100 × 90%) + (50 × 80%) + (200 × 10%) = 150. 32) D The cost per equivalent unit will be overstated since the denominator will be too small. Since the cost per unit is overstated, the cost of goods completed will be overstated as well. Version 1

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33) A The automobile retailer is not a manufacturing firm; airplane manufacturer and public accounting firm would use job costing. 34) B This is a basic definition of equivalent units. 35) B One needs to know the costs and the equivalent units before you can calculate cost per unit. 36) C Beginning WIP + Units started = Transferred out + Ending WIP 850 + 6,300 = Transferred out + 550 850 + 6,300 − 550 = 6,600 units 37) C Beginning WIP + Units started = Transferred out + Ending WIP 700 + 4,800 = Transferred out + 400 700 + 4,800 − 400 = 5,100 units 38) A BWIP + TI − TO = EWIP; BWIP − EWIP = TO − TI. If BWIP > EWIP then TO > TI 39) C Beginning WIP has all the materials. The equivalent units will be started & completed plus the ending WIP = units started. 40) A Beginning WIP + Units started = TO + Ending WIP. 41) D Weighted-average adds equivalent units to the current month product and calculating average unit and total cost allocations. 42) C Beginning inventory (24,000 × 60%) + started and completed (20,000) + ending inventory (19,000 × 30%) = 42,500 EUPs Version 1

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43) C Beginning inventory (20,000 × 60%) + started and completed (20,000) + ending inventory (15,000 × 30%) = 36,500 EUPs 44) C 11,700 (BI) + 79,000 (TI) = 90,700 (Available) − 21,700 (EI) = 69,000 (TO) EUPs for materials (weighted-average) TO 69,000 × 100% = EI 21,700 × 100% = EUPs =

69,000 21,700 90,700

45) C 6,000 (BI) + 60,000 (TI) = 66,000 (Available) − 16,000 (EI) = 50,000 (TO) EUPs for materials (weighted-average) TO 50,000 × 100% = 50,000 EI 16,000 × 100% = 16,000 EUPs = 66,000

46) B 9,000 (BI) + 90,000 (TI) = 99,000 (Available) − 36,000 (EI) = 63,000 (TO) EUPs for conversion costs (weighted-average) TO 63,000 × 100% = EI 36,000 × 37.5% = EUPs =

63,000 13,500 76,500

47) B 6,000 (BI) + 60,000 (TI) = 66,000 (Available) − 16,000 (EI) = 50,000 (TO) EUPs for conversion costs (weighted-average) TO 50,000 × 100% = 50,000 EI 16,000 × 37.5% = 6,000 EUPs = 56,000

48) D Started and completed (129,000) + Ending inventory (34,000 × 80%) = 156,200 Version 1

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49) D Started and completed (115,000) + Ending inventory (20,000 × 80%) = 131,000 50) B Total

Conversion

Transferred to next department* Ending work-in-process

83,000

Conversion 16,000 units × 10%

16,000

1,600

Equivalent units of production

99,000

84,600

*Units transferred to the next department = Units in beginning work-inprocess + Units started into production − Units in ending work-inprocess = 19,000 + 80,000 − 16,000 = 83,000 units transferred to next department 51) B Total

Conversion

Transferred to next department* Ending work-in-process

72,000

Conversion 5,000 units × 20%

5,000

1,000

Equivalent units of production

77,000

73,000

*Units transferred to the next department = Units in beginning work-inprocess + Units started into production − Units in ending work-inprocess = 8,000 + 69,000 − 5,000 = 72,000 units transferred to next department 52) D Started and completed (59,000 − 5,900) + ending WIP 5,900 = 59,000 EUPs 53) D

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Started and completed (50,000 − 5,000) + ending WIP 5,000 = 50,000 EUPs 54) C Started and completed (51,000 − 5,100) + ending inventory (5,100 × 3/5) = 48,960 equivalent units 55) C Started and completed (50,000 − 5,000) + ending inventory (5,000 × 3/5) = 48,000 equivalent units 56) D (700 + 1,000 − 600) + (600 × 2/3) = 1,500 equivalent units 57) D (400 + 900 − 300) + (300 × 2/3) = 1,200 equivalent units 58) C Materials: 261,000 (completed and transferred out) + 31,000 (ending inventory) = 292,000 Conversion costs: 261,000 + (31,000 × 60%) = 279,600 59) C Materials: 255,000 (completed and transferred out) + 25,000 (ending inventory) = 280,000 Conversion costs: 255,000 + (25,000 × 60%) = 270,000 60) B Materials: $45,000 ÷ 4,500 = $10.00 per unit Conversion costs: ($28,335 + $22,665) ÷ 4,250 = $12.00 Ending inventory: (500 × $10.00) + (250 × $12.00) = $8,000 61) B Materials: $12,000 ÷ 1,200 = $10.00 per unit Conversion costs: ($5,500 + 4,400) ÷ 1,100 = $9.00 Ending inventory: (200 × $10.00) + (100 × $9.00) = $2,900 62) B

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[($34,020 ÷ 12,600) × 8,650] + [($42,500 ÷ 10,625) × 8,650] = $23,355 + $34,600 = $57,955 63) B [($27,000 ÷ 10,000) × 8,000] + [($36,000 ÷ 9,000) × 8,000] = $21,600 + $32,000 = $53,600 64) B The production cost report can be used with either the weighted-average or FIFO method. 65) D 16,800 + 4,200 = 21,000 66) D 16,000 + 4,000 = 20,000 67) B 22,000 + (5,500 × ¼) = 23,375 68) B 16,000 + (4,000 × ¼) = 17,000 69) D 17,900 + 5,900 = 23,800 EU; $59,130 ÷ 23,800 = $2.48 cost per EU 70) D 16,000 + 4,000 = 20,000 EU; $35,200 ÷ 20,000 = $1.76 cost per EU 71) B 17,200 + (5,400 × ¼) = 18,550 EU; $39,165 ÷ 18,550 = $2.11 cost per EU 72) B 16,000 + (4,000 × ¼) = 17,000 EU; $37,400 ÷ 17,000 = $2.20 cost per EU 73) A

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17,100 + 5,300 = 22,400 EU; $49,820 ÷ 22,400 = $2.22 materials cost per EU 17,100 + (5,300 × ¼) = 18,425 EU; $51,870 ÷ 18,425 = $2.82 labor and overhead cost per EU 17,100 × ($2.22 + $2.82) = $86,172 74) A 16,000 + 4,000 = 20,000 EU; $35,200 ÷ 20,000 = $1.76 materials cost per EU 16,000 + (4,000 × ¼) = 17,000 EU; $37,400 ÷ 17,000 = $2.20 labor and overhead cost per EU 16,000 × ($1.76 + $2.20) = $63,360 75) C 16,400 + 4,100 = 20,500 EU; $36,900 ÷ 20,500 = $1.80 materials cost per EU 16,400 + 4,100(0.25) = 17,425 EU; $38,000 ÷ 17,425 = $2.18 labor and overhead cost per EU 4,100 units complete as to materials; 1,025 units complete as to labor and overhead (4,100 × ¼; (4,100 × $1.80) + (1,025 × $2.18) = $9,615 76) C 16,000 + 4,000 = 20,000 EU; $35,200 ÷ 20,000 = $1.76 materials cost per EU 16,000 + 4,000(0.25) = 17,000 EU; $37,400 ÷ 17,000 = $2.20 labor and overhead cost per EU 4,000 units complete as to materials; 1,000 units complete as to labor and overhead (4,000 × ¼); (4,000 × $1.76) + (1,000 × $2.20) = $9,240 77) D ($20,500 + $21,000) ÷ (50,000 + 15,500) = $0.63 (rounded) 78) D ($5,500 + $18,000) ÷ (42,500 + 12,500) = $0.43 (rounded) 79) A Version 1

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Total

Conversion

Transferred to next department* Ending work-in-process

89,000

Conversion 23,000 units × 20%

23,000

4,600

Equivalent units of production

112,000

93,600

*Units transferred to the next department = Units in beginning work-inprocess + Units started into production − Units in ending work-inprocess. = (20,000 + 92,000 − 23,000) = 89,000 units transferred to next department. Beginning work-in-process inventory Cost added during the period Total cost (a) Equivalent units of production (b) Cost per equivalent unit, (a) ÷ (b)

$ 46,820 697,970 $ 744,790 93,600 $ 7.957

80) A Total

Conversion

Transferred to next department* Ending work-in-process

87,000

Conversion 21,000 units × 10%

21,000

2,100

Equivalent units of production

108,000

89,100

*Units transferred to the next department = Units in beginning work-inprocess + Units started into production − Units in ending work-inprocess. = (18,000 + 90,000 − 21,000) = 87,000 units transferred to next department. Beginning work-in-process inventory Cost added during the period Total cost (a) Equivalent units of production (b) Cost per equivalent unit, (a) ÷ (b)

$ 44,820 677,970 $ 722,790 89,100 $ 8.112

81) D

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Total

Conversion

Transferred to next department* Ending work-in-process

89,200

Conversion 22,600 units × 80%

22,600

18,080

Equivalent units of production

111,800

107,280

*Units transferred to the next department = Units in beginning work-inprocess + Units started into production − Units in ending work-inprocess. = (11,800 + 100,000 − 22,600) = 89,200 units transferred to next department. Beginning work-in-process inventory Cost added during the period Total cost (a) Equivalent units of production (b) Cost per equivalent unit, (a) ÷ (b)

$ 50,115 827,583 $ 877,698 107,280 $ 8.181

82) D Total

Conversion

Transferred to next department* Ending work-in-process

88,000

Conversion 21,000 units × 80%

21,000

16,800

Equivalent units of production

109,000

104,800

*Units transferred to the next department = Units in beginning work-inprocess + Units started into production − Units in ending work-inprocess. = (11,000 + 98,000 − 21,000) = 88,000 units transferred to next department. Beginning work-in-process inventory Cost added during the period Total cost (a) Equivalent units of production (b) Cost per equivalent unit, (a) ÷ (b)

$ 46,915 825,183 $ 872,098 104,800 $ 8.322

83) D

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Total

Conversion

Transferred to next department Ending work-in-process

101,000

Conversion 31,600 units × 40%

31,600

12,640

Equivalent units of production

132,600

113,640

Beginning work-in-process inventory Cost added during the period Total cost (a) Equivalent units of production (b) Cost per equivalent unit, (a) ÷ (b)

$ 31,820 537,880 $ 569,700 113,640 $ 5.013

84) D Total

Conversion

Transferred to next department Ending work-in-process

101,000

Conversion 18,000 units × 40%

18,000

7,200

Equivalent units of production

119,000

108,200

Beginning work-in-process inventory Cost added during the period Total cost (a) Equivalent units of production (b) Cost per equivalent unit, (a) ÷ (b)

$ 23,320 529,380 $ 552,700 108,200 $ 5.108

85) B Total

Conversion

Transferred to next department Ending work-in-process

52,500

Conversion 7,000 units × 30%

7,000

2,100

Equivalent units of production

59,500

54,600

Beginning work-in-process inventory Cost added during the period Total cost (a) Equivalent units of production (b) Cost per equivalent unit, (a) ÷ (b)

$ 5,696 89,168 $ 94,864 54,600 $ 1.737

86) B Total

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Conversion

170

Transferred to next department Ending work-in-process

51,300

Conversion 5,500 units × 30%

5,500

1,650

Equivalent units of production

56,800

52,950

Beginning work-in-process inventory Cost added during the period Total cost (a) Equivalent units of production (b) Cost per equivalent unit, (a) ÷ (b)

$ 5,096 87,668 $ 92,764 52,950 $ 1.752

87) B Weighted-average considers current costs + cost of beginning WIP. FIFO considers current costs only. 88) D When all the materials are added at the start of the process, it doesn't matter when the units were started or where they are, they all contain 100% of the materials even if they are spoiled. 89) B When all the materials are added at the start of the process, it doesn't matter when the units were started or where they are, they all contain 100% of the materials even if they are spoiled. 90) C ($133,000 + $39,000) ÷ 12,700 = $13.54 91) C ($126,000 + $32,000) ÷ 12,000 = $13.17 92) B Started and completed units = 4,000; EUP (materials) = 4,000 + 100 = 4,100; EUP (conversion costs) = 4,000 + 30 = 4,030; EUP cost (materials) = $16,400 ÷ 4,100 = $4.00; EUP cost (conversion) = $24,180 ÷ 4,030 = $6.00; 4,000 ($4.00 + $6.00) = $40,000 93) B

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Started and completed units = 2,300; EUP (materials) = 2,300 + 200 = 2,500; EUP (conversion costs) = 2,300 + 60 = 2,360; EUP cost (materials) = $6,250 ÷ 2,500 = $2.50; EUP cost (conversion) = $9,440 ÷ 2,360 = $4.00; 2,300 ($2.50 + $4.00) = $14,950 94) B This is the description of a production cost report. A job order cost sheet is used in job costing and contains mostly tracing rather than allocation. 95) C FIFO ignores beginning inventory and focuses on the production of the current period. 96) B Under FIFO, beginning units form a separate pool from the current month's production. 97) C Quantity Schedule Units to be accounted for: Work-in-process beginning Started into production Total units to be accounted for

22,000 73,500 95,500 Conversion

To complete beginning work-in-process: Conversion 22,000 units × 30% Units started and completed Ending work-in-process:

6,600 45,500

Conversion 28,000 units × 80%

22,400

Equivalent units of production

74,500

EU cost (conversion): $570,125 ÷ 74,500 = $7.653 98) C Quantity Schedule

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Units to be accounted for: Work-in-process beginning Started into production

17,000 68,000

Total units to be accounted for

85,000 Conversion

To complete beginning work-in-process: Conversion 17,000 units × 30% Units started and completed Ending work-in-process:

5,100 45,000

Conversion 23,000 units × 80%

18,400

Equivalent units of production

68,500

EU cost (conversion): $565,125 ÷ 68,500 = $8.250 99) B Quantity Schedule Units to be accounted for: Work-in-process beginning Transferred in from the prior department

16,400 92,500

Total units to be accounted for

108,900 Conversion

To complete beginning work-in-process: Conversion 16,400 units × 80% Units started and completed Ending work-in-process:

13,120 65,700

Conversion 26,800 units × 90%

24,120

Equivalent units of production

102,940 Conversion

Cost added during the period Equivalent units of production (b) Cost per equivalent unit (a) ÷ (b)

$ 530,724 102,940 $ 5.156

100) B

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Quantity Schedule Units to be accounted for: Work-in-process beginning Transferred in from the prior department

15,000 89,000

Total units to be accounted for

104,000 Conversion

To complete beginning work-in-process: Conversion 15,000 units × 80% Units started and completed Ending work-in-process:

12,000 65,000

Conversion 24,000 units × 90%

21,600

Equivalent units of production

98,600 Conversion

Cost added during the period Equivalent units of production (b) Cost per equivalent unit (a) ÷ (b)

$ 526,524 98,600 $ 5.340

101) B Quantity Schedule Units to be accounted for: Work-in-process beginning Started into production

690 8,800

Total units to be accounted for

9,490

Complete beginning work-in-process Units started and completed Ending work-in-process

690 6,400 2,400

Total units accounted for

9,490

102) B Quantity Schedule Units to be accounted for: Work-in-process beginning Started into production

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600 7,000

174

Total units to be accounted for

7,600

Complete beginning work-in-process Units started and completed Ending work-in-process

600 5,500 1,500

Total units accounted for

7,600

103) D Conversion To complete beginning work-in-process: Conversion 770 units × 90% Units started and completed Ending work-in-process:

693 7,200

Conversion 3,200 units × 10%

320

Equivalent units of production

8,213 Conversion

Cost added during the period Equivalent units of production Cost per equivalent unit

$ 262,600 8,213 $ 31.97

104) D Conversion To complete beginning work-in-process: Conversion 600 units × 90% Units started and completed Ending work-in-process:

540 5,500

Conversion 1,500 units × 10%

150

Equivalent units of production

6,190 Conversion

Cost added during the period Equivalent units of production Cost per equivalent unit

$ 259,200 6,190 $ 41.87

105) B Quantity Schedule

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175

Units to be accounted for: Work-in-process beginning Started into production Total units to be accounted for

1,900 9,300 11,200 Materials

To complete beginning work-in-process: Material 1,900 units × 30% Units started and completed Ending work-in-process

570 6,200

Material 3,100 units × 80%

2,480

Equivalent units of production

9,250

106) B Quantity Schedule Units to be accounted for: Work-in-process beginning Started into production Total units to be accounted for

900 7,300 8,200 Materials

To complete beginning work-in-process: Material 900 units × 30% Units started and completed Ending work-in-process

270 5,200

Material 2,100 units × 80%

1,680

Equivalent units of production

7,150

107) D Conversion To complete beginning work-in-process: Conversion 1,500 units × 75% Units started and completed Ending work-in-process

Version 1

1,125 5,800

176

Conversion 2,700 units × 35%

945

Equivalent units of production

7,870 Conversion

Cost added during the period Equivalent units of production Cost per equivalent unit

$ 252,300 7,870 $ 32.06

108) D Conversion To complete beginning work-in-process: Conversion 900 units × 75% Units started and completed Ending work-in-process

675 5,200

Conversion 2,100 units × 35%

735

Equivalent units of production

6,610 Conversion

Cost added during the period Equivalent units of production Cost per equivalent unit

$ 247,500 6,610 $ 37.44

109) A FIFO does not mix current period costs with beginning inventory costs. 110) C In theory, the physical flow dictates the cost flow: (1) complete the units in beginning inventory, (2) start and complete new units, and (3) start, but don't complete, the balance of new units. 111) C 6,100 + 17,000 − 3,000 = 20,100 112) C 5,000 + 15,000 − 2,000 = 18,000 113) B 15,800 − 2,400 = 13,400 114) B

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15,000 − 2,000 = 13,000 115) C Beginning inventory (0) + started and completed (16,200 − 2,600) + ending inventory (2,600 × 50%) = 14,900 116) C Beginning inventory (0) + started and completed (15,000 − 2,000) + ending inventory (2,000 × 50%) = 14,000 117) D (6,900 × 70%) + (18,800 − 3,900) + (3,900 × 30%) = 20,900 118) D (5,000 × 70%) + (15,000 − 2,000) + (2,000 × 30%) = 17,100 119) A FIFO includes only the current period costs. Beginning WIP is segregated. 120) B $2,500 + $5,160 + $9,300 + $7,400 = $24,360 121) B $1,200 + $3,600 + $8,000 + $4,800 = $17,600 122) D (2,200 × 75%) + (8,000 − 2,000) + (2,000 × 50%) = 8,650 123) D (1,200 × 75%) + (6,000 − 1,000) + (1,000 × 50%) = 6,400 124) C EU (conversion): (2,400 × 75%) + (8,400 − 2,200) + (2,200 × 50%) = 9,100; Conversion costs per EU: ($9,200 + $7,200) ÷ 9,100 = $1.80 125) C EU (conversion): (1,200 × 75%) + (6,000 − 1,000) + (1,000 × 50%) = 6,400; Conversion costs per EU: ($8,000 + $4,800) ÷ 6,400 = $2.00 126) B

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EU (conversion): (2,220 × 75%) + 9,080 + (2,020 × 50%) = 11,755; Conversion cost per EU: ($8,850 + $7,520) ÷ 11,755 EU = $1.39 $2,220 + (2,220 × 75% × $1.39) = $4,534/2,220 units = $2.04 127) B EU (conversion): (1,200 × 75%) + 5,000 + (1,000 × 50%) = 6,400; Conversion cost per EU: ($8,000 + $4,800) ÷ 6,400 EU = $2.00 $1,200 + (1,200 × 75% × $2.00) = $3,000/1,200 units = $2.50 128) D EU (conversion): (2,500 × 75%) + 6,300 + (2,300 × 50%) = 9,325; Conversion cost per EU: ($9,300 + $7,400) ÷ 9,325 EU = $1.79; ($5,160 ÷ 8,600) + $1.79 = $2.39 129) D EU (conversion): (1,200 × 75%) + 5,000 + (1,000 × 50%) = 6,400; Conversion cost per EU: ($8,000 + $4,800) ÷ 6,400 EU = $2.00; ($3,600 ÷ 6,000) + $2.00 = $2.60 130) B EU (conversion): (1,700 × 75%) + 5,500 + (1,500 × 50%) = 7,525; Conversion cost per EU: ($8,500 + $5,800) ÷ 7,525 EU = $1.90; ($4,200÷ 7,000) + $1.90 = $2.50; $1,700 + [(1,700 × 0.75) × ($1.90)] + ((7,000 – 1,500) × $2.50) = $17,873 131) B EU (conversion): (1,200 × 75%) + 5,000 + (1,000 × 50%) = 6,400; Conversion cost per EU: ($8,000 + $4,800) ÷ 6,400 EU = $2.00; ($3,600 ÷ 6,000) + $2.00 = $2.60; $1,200 + [(1,200 × 0.75) × ($2.00)] + (5,000 × $2.60) = $16,000 132) B EU (conversion): (3,200 × 75%) + 7,000 + (3,000 × 50%) = 10,900; Conversion cost per EU: ($10,000 + $8,800) ÷ 10,900 EU = $1.72; $6,000 ÷ 10,000 = $0.60; (3,000 × $0.60) + (1,500 × $1.72) = $4,380 133) B Version 1

179

EU (conversion): (1,200 × 75%) + 5,000 + (1,000 × 50%) = 6,400; Conversion cost per EU: ($8,000 + $4,800) ÷ 6,400 EU = $2.00; $3,600 ÷ 6,000 = $0.60; (1,000 × $0.60) + (500 × $2.00) = $1,600 134) A Transferred-in costs are most similar to material added at the start of the process; all costs of the transferred-in units are there at the start. 135) D January would be the same since there is no beginning WIP; Weightedaverage would be greater in February since the work already in the February 1 inventory is included in the equivalent units (but excluded for FIFO). 136) B $472,000 ÷ [(16,400 × 0.40) + (104,000 − 24,400) + (24,400 × 0.90)] = $4.37 137) B $468,000 ÷ [(16,000 × 0.40) + (100,000 − 24,000) + (24,000 × 0.90)] = $4.50 138) B ($189,880 + $398,160) ÷ [(16,700 × 0.80) + (107,000 − 24,700) + (24,700 × 0.40)] = $5.57 139) B ($182,880 + $391,160) ÷ [(16,000 × 0.80) + (100,000 − 24,000) + (24,000 × 0.40)] = $5.83 140) A $477,900 ÷ [(17,000 × 0.40) + (102,000 − 26,000) + (26,000 × 0.90)] = $4.50; ($209,080 + $417,560) ÷ [(17,000 × 0.80) + (102,000 − 26,000) + (26,000 × 0.40)] = $6.27; [(26,000 × 0.90) × ($4.50)] + [(26,000 × 0.40) × ($6.27)] = $170,508 141) A

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$468,000 ÷ [(16,000 × 0.40) + (100,000 − 24,000) + (24,000 × 0.90)] = $4.50; ($182,880 + $391,160) ÷ [(16,000 × 0.80) + (100,000 − 24,000) + (24,000 × 0.40)] = $5.83; [(24,000 × 0.90) × ($4.50)] + [(24,000 × 0.40) × ($5.83)] = $153,168 142) C ($54,860 + $471,000) ÷ [(16,300 + 103,000 − 24,300) + (24,300 × 0.80)] = $4.60 143) C ($54,560 + $468,000) ÷ [(16,000 + 100,000 − 24,000) + (24,000 × 0.90)] = $4.60 144) C ($20,820 + $15,740 + $187,880 + $396,160) ÷ [(16,500 + 105,000 − 24,500) + (24,500 × 0.40)] = $5.81 145) C ($20,320 + $15,240 + $182,880 + $391,160) ÷ [(16,000 + 100,000 − 24,000) + (24,000 × 0.40)] = $6.00 146) D ($55,360 + $476,000) ÷ [(108,000 + 16,800 − 24,800) + (24,800 × 0.80)] = $4.43; ($21,120 + $16,040 + $190,880 + $399,160) ÷ [(108,000 + 16,800 + 24,800) + (24,800 × 0.30)] = $5.84; [(24,800 × 0.80) × ($4.43)] + [(24,800 × 0.30) × ($5.84)] = $131,341 147) D ($54,560 + $468,000) ÷ [(16,000 + 100,000 − 24,000) + (24,000 × 0.90)] = $4.60; ($20,320 + $15,240 + $182,880 + $391,160) ÷ [(16,000 + 100,000 − 24,000) + (24,000 × 0.40)] = $6.00; [(24,000 × 0.90) × ($4.60)] + [(24,000 × 0.40) × ($6.00)] = $156,960 148) A

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181

Utilizing separate production (WIP) departments is a basic tenant of process costing (e.g., department production report). 149) B If the materials are increased but not the number of units, total cost per unit and total costs to account for would. 150) B Weighted-average and FIFO are the same when there is no beginning WIP. 151) A FIFO costing bases unit costs on current period activity only. 152) D A custom furniture maker is more likely to use a job costing system. 153) D Operations costing is a hybrid of job and process costing and is used in manufacturing goods that have some common characteristics plus some individual characteristics. 154) B An operations costing system assigns materials separately to jobs and conversion costs equally to each operation. 155) D A beverage manufacturer would use process costing and a custom home builder and real estate developer will both use job costing. A laptop computer manufacturer will likely use operations costing because the materials that are used in the varieties of laptops will differ but the process used to put them together will be the same.

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182

156)Transferred out: 14,000 + 213,000 − 18,000 = 209,000; Started & completed: 213,000 − 18,000 = 195,000 1. (a) EUP Materials: 209,000 + (60% × 18,000) = 219,800 EUP Conversion: 209,000 + (45% × 18,000) = 217,100 2. (b) EUP Materials: (20% × 14,000) + 195,000 + (60% × 18,000) = 208,600 EUP Conversion: (45% × 14,000) + 195,000 + (45% × 18,000) = 209,400 157)Transferred out: 4,000 + 132,000 − 10,000 = 126,000; Started & completed: 132,000 − 10,000 = 122,000 1. (a) EUP Materials: 126,000 + (100% × 10,000) = 136,000 EUP Conversion: 126,000 + (22% × 10,000) = 128,200 2. (b) EUP Materials: (0% × 4,000) + 122,000 + (100% × 10,000) = 132,000 EUP Conversion: (65% × 4,000) + 122,000 + (22% × 10,000) = 126,800 158)Weighted-average method: Materials Units transferred to the next department Work-in-process, September 30: 1,700 units × 90%

7,300

1,530

1,700 units × 40% Equivalent units of production

Conversion

680 8,830

7,980

159)Weighted-average method:

Version 1

183

Units transferred to the next department Work-in-process, October 31: 2,000 units × 85%

Materials

Conversion

7,100

1,700

2,000 units × 35% Equivalent units of production

700 8,800

7,800

Materials

Conversion

160)Weighted-average method: Transferred to next department Work-in-process, ending: Materials: 500 units × 80%

10,700

400

Conversion: 500 units × 10% Equivalent units of production

10,700

50 11,100

10,750

Materials

Conversion

Transferred to next department Work-in-process, ending:

6,200

Materials: 1,200 units × 50%

600

161)Weighted-average method:

Conversion: 1,200 units × 20% Equivalent units of production

240 6,800

6,440

Materials

Conversion

Transferred to next department Work-in-process, ending:

4,700

Materials: 1,500 units × 70%

1,050

162)Weighted-average method:

Conversion: 1,500 units × 25% Equivalent units of production

Version 1

375 5,750

5,075

184

163)Transferred out: 5,000 + 58,000 − 6,000 = 57,000 1. (a) Materials EUP: 57,000 + (100% × 6,000) = 63,000 Conversion EUP: 57,000 + (40% × 6,000) = 59,400 2. (b) Materials: ($124,800 + $1,537,000) ÷ 63,000 = $26.3778 Conversion: ($104,500 + $2,124,375) ÷ 59,400 = $37.5231 3. (c) Transferred out: 57,000 × ($26.3778 + $37.5231) = $3,642,351 4. (d) Ending work-in-process: Materials: [(6,000 × 100%) × $26.3778] Conversion: [(6,000 × 40%) × $37.5231]

$ 158,267 $ 90,055

Total EWIP

$ 248,322

164)1. (a) Chemical Mix: (100% × 98,000) + (100% × 12,000) = 110,000 Added Chemical: (100% × 98,000) + (0% × 12,000) = 98,000 Conversion: (100% × 98,000) + (70% × 12,000) = 106,400 2. (b) Chemical Mix: ($5,000 + $65,000) ÷ 110,000 = $0.6363 Added Chemical: $15,000 ÷ 98,000 = $0.1531 Conversion: ($3,000 + $35,000) ÷ 106,400 = $0.3571 3. (c) 98,000 × ($0.6363 + $0.1531 + $0.3571) = $112,357 4. (d) (12,000 × $0.6363) + [(12,000 × 70%) × $0.3571] = $10,635

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185

165)Overhead applied = 50% × $20,000 = $10,000 1. (a) Transferred in EUP: 50,000 + (100% × 10,000) = 60,000 Materials EUP: 50,000 + (100% × 10,000) = 60,000 Conversion EUP: 50,000 + (60% × 10,000) = 56,000 2. (b) Transferred in: ($50,000 + $100,000) ÷ 60,000 = $2.5000 Materials: ($12,000 + $60,000) ÷ 60,000 = $1.2000 Conversion: ($3,200 + $1,600 + $20,000 + $10,000) ÷ 56,000 = $0.6214 3. (c) Transferred out: 50,000 × ($2.5000 + $1.2000 + $0.6214) = $216,070 4. (d) Ending WIP: Transferred-in: (10,000 × $2.50) Materials: (10,000 × $1.20) Conversion: (6,000 × $ 0.6214)

$ 25,000 12,000 3,728

Total Ending WIP

$ 40,728

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186

166)Transferred-out = 35,000 + 280,000 − 45,000 = 270,000 Equivalent units of production: Materials: 270,000 + (100% × 45,000) = 315,000; Conversion: 270,000 + (2/3 × 45,000) = 300,000 Unit costs: Materials: ($43,400 + $397,600) ÷ 315,000 = $1.40 Conversion: [($63,700 − $43,400) + $189,700] ÷ 300,000 = $0.70 1. (a) Ending work in process: Materials (45,000 × $1.40) + Conversion [(45,000 × 2/3) × $0.70] = $84,000 2. (b) 270,000 × ($1.40 + $0.70) = $567,000 167)Transferred out: 8,000 + 29,000 − 4,000 = 33,000 1. (a) Transferred-in EUP: (100% × 33,000) + (100% × 4,000) = 37,000 Materials EUP: (100% × 33,000) + (0% × 4,000) = 33,000 Conversion EUP: (100% × 33,000) + (40% × 4,000) = 34,600 2. (b) Transferred-in: [($1.56 × 8,000) + $48,200] ÷ 37,000 = $1.64 Materials: ($5,920 + $20,810) ÷ 33,000 = $0.81 Conversion: [$22,850 – $5,920 – ($1.56 × 8,000) + $5,748 + $11,600] ÷ 34,600 = $0.63 3. (c) 33,000 × ($1.64 + $0.81 + $0.63) = $101,640 4. (d) Ending work in process: Transferred-in: (4,000 × $1.64)

Version 1

$ 6,560

187

Materials: Conversion: [(4,000 × 40%) × $0.63]

−0− 1,008

$ 7,568

168)Transferred out: 5,000 + 30,000 − 6,000 = 29,000 1. (a) Materials EUP = (100% × 29,000) + (100% × 6,000) = 35,000 Conversion EUP: (100% × 29,000) + (2/3 × 6,000) = 33,000 2. (b) Materials: ($1,500 + $12,300) ÷ 35,000 = $0.3943; Conversion: [($6,500 − $1,500) + $14,500 + $21,750] ÷ 33,000 = $1.25 3. (c) 29,000 × ($0.3943 + $1.25) = $47,685 4. (d) Ending WIP Materials: (6,000 × $0.3943) Conversion: [(6,000 × 2/3) × $1.25]

$ 2,366 5,000

$ 7,366

169)1. (a) EUP Materials: 72,000 + (100% × 8,000) = 80,000. EUP Conversion: 72,000 + (70% × 8,000) = 77,600. 2. (b) Materials: ($600 + $5,325) ÷ 80,000 = $0.0741 Conversion: [($1,682 − $600) + $10,863 + $15,012] ÷ 77,600 = $0.3474 3. (c) Transferred out: 72,000 × ($0.0741 + $0.3474) = $30,348 4. (d) Ending WIP Version 1

188

Materials: 8,000 × $0.0741 Conversion: [(8,000 × 70%) × $0.3474]

$ 593 1,945

Ending WIP

$ 2,538

170)FIFO method: Materials

Conversion

Work-in-process, August 1: 500 units × (100% − 50%)

250

500 units × (100% − 45%) Units started and completed in August (7,200 − 500) Work-in-process, August 31: 1,400 units × 75%

275 6,700

1,050

1,400 units × 30% Equivalent units of production

6,700

420 8,000

7,395

Materials

Conversion

171)FIFO method: Work-in-process, July 1: 900 units × (100% − 60%)

360

900 units × (100% − 25%) Units started and completed in July (5,700 − 900) Work-in-process, July 31: 1,900 units × 70%

675 4,800

1,330

1,900 units × 30% Equivalent units of production

4,800

570 6,490

6,045

Materials

Conversion

172)FIFO method:

Version 1

189

To complete the beginning work-in-process: Materials: 500 units × (100% − 70%)

150

Conversion: 500 units × (100% − 40%) Units started and completed (28,000 − 100) Ending work-in-process: Materials: 100 units × 50%

300 27,900

Conversion: 100 units × 30% Equivalent units of production

27,900

30 28,100

28,230

Materials

Conversion

173)FIFO method: To complete the beginning work-in-process: Materials: 800 units × (100% − 55%)

360

Conversion: 800 units × (100% − 15%) Units started and completed (4,300 − 800) Ending work-in-process: Materials: 1,700 units × 50%

680 3,500

850

Conversion: 1,700 units × 40% Equivalent units of production

3,500

680 4,710

4,860

Materials

Conversion

174)FIFO method: To complete the beginning work-in-process: Materials: 900 units × (100% − 60%)

360

Conversion: 900 units × (100% − 30%) Units started and completed Ending work-in-process: Materials: 1,900 units × 65%

Version 1

630 6,500

6,500

1,235

190

Conversion: 1,900 units × 25% Equivalent units of production

475 8,095

7,605

175)1. (a) EUP Materials: Beginning WIP (0% × 9,000) + Started and completed [100% × (72,000 − 9,000)] + Ending WIP (100% × 8,000) = 71,000 EUP Conversion: Beginning WIP (60% × 9,000) + Started and completed [100% × (72,000 − 9,000)] + Ending WIP (70% × 8,000) = 74,000 2. (b) Materials: $5,325 ÷ 71,000 = $0.075; Conversion: ($10,863 + $15,012) ÷ 74,000 = $0.3497 3. (c) Beginning Inventory To complete beg WIP: [9,000 × (100% − 40%)] × 0.3497 Started and completed: 63,000 × ($0.075 + $0.3497) Total transferred out

$ 1,382 1,888

$ 3,270 26,756 $ 30,026

4. (d) Materials: 8,000 × $0.075 Conversion: (8,000 × 70%) × $0.3497 Ending WIP

Version 1

$ 600 1,958 $ 2,558

191

176)Refining started & completed: 30,000 − 6,000 = 24,000; Refining transferred out: 5,000 + 30,000 − 6,000 = 29,000; Blending transferred out: 8,000 + (5,000 + 30,000 − 6,000) − 4,000 = 33,000 1. (a) Materials EUP = (0% × 5,000) + (100% × 24,000) + (100% × 6,000) = 30,000 Conversion EUP = (20% × 5,000) + (100% × 24,000) + (2/3 × 6,000) = 29,000 2. (b) Materials: $12,300 ÷ 30,000 = $0.41; Conversion: ($14,500 + $21,750) ÷ 29,000 = $1.25 3. (c) Beginning WIP Conversion cost to complete [(5,000 × 20%) × $1.25] Started & completed 24,000 × ($0.41 + $1.25) Total transferred out

$ 6,500 1,250

$ 7,750 39,840 $ 47,590

4. (d) Ending WIP: Materials (6,000 × $0.41) Conversion: (6,000 × 2/3) × $1.25

Version 1

$ 2,460 5,000

$ 7,460

192

5. (e) Transferred-in EUP: (100% × 33,000) + (100% × 4,000) = 37,000 Materials EUP: (100% × 33,000) + (0% × 4,000) = 33,000 Conversion EUP: (100% × 33,000) + (40% × 4,000) = 34,600 6. (f) Transferred-in: [($1.56 × 8,000) + $47,590 (see (c) above)] ÷ 37,000 = $1.6235 Materials: ($5,920 + $20,810) ÷ 33,000 = $0.81 Conversion: [($22,850 − $5,920 − ($1.56 × 8,000)) + $5,748 + $11,600] ÷ 34,600 = $0.63 7. (g) 33,000 × ($1.6235 + $0.81 + $0.63) = $101,096 8. (h) Ending WIP: Transferred-in: (4,000 × $1.6235) Materials: Conversion: (4,000 × 40%) × $0.63

Version 1

$ 6,494 −0− 1,008

$ 7,502

193

177)Started & completed: 30,000 − 6,000 = 24,000; transferred out: 5,000 + 30,000 − 6,000 = 29,000 1. (a) Materials EUP = (0% × 5,000) + (100% × 24,000) + (100% × 6,000) = 30,000 Conversion EUP: (20% × 5,000) + (100% × 24,000) + (2/3 × 6,000) = 29,000 2. (b) Materials: $12,300 ÷ 30,000 = $0.41; Conversion: ($14,500 + $21,750) ÷ 29,000 = $1.25 3. (c) Beginning WIP Conversion cost to complete (5,000 × 20%) × $1.25 Started and completed 24,000 × ($0.41 + $1.25) Total transferred out

$ 7,500 1,250

$ 8,750 39,840 $ 48,590

4. (d) Ending WIP Materials (6,000 × $0.41) Conversion: (6,000 × 2/3) × $1.25

Version 1

$ 2,460 5,000

$ 7,460

194

178)Blending started & completed: 29,000 − 4,000 = 25,000; transferred out: 8,000 + 29,000 − 4,000 = 33,000 1. (a) Transferred-in EUP = (0% × 8,000) + (100% × 25,000) + (100% × 4,000) = 29,000 Materials EUP = (100% × 8,000) + (100% × 25,000) + (0% × 4,000) = 33,000 Conversion EUP: (70% × 8,000) + (100% × 25,000) + (40% × 4,000) = 32,200 2. (b) Transferred-in: $48,200 ÷ 29,000 = $1.6621; Materials: $20,810 ÷ 33,000 = $0.6306; Conversion: ($5,748 + $11,600) ÷ 32,200 = $0.5388 3. (c) Beginning WIP Materials to complete (8,000 × $0.6306) Conversion cost to complete (8,000 × 70%) × $0.5388 Started & completed 25,000 × ($1.6621 + $0.6306 + $0.5388) Total transferred out

$ 22,850 5,045 3,017

$ 30,912 70,788 $ 101,700

4. (d) Ending WIP: Transferred-in (4,000 × $1.6621) Conversion: (4,000 × 40%) × $0.5388

Version 1

$ 6,648 862

$ 7,510

195

179)Overhead applied = 50% × $20,000 = $10,000; Started & completed: 40,000 − 10,000 = 30,000 1. (a) Transferred in EUP: (0% × 20,000) + 30,000 + (100% × 10,000) = 40,000 Materials EUP: (0% × 20,000) + 30,000 + (100% × 10,000) = 40,000 Conversion EUP: (50% × 20,000) + 30,000 + (60% × 10,000) = 46,000 2. (b) Transferred in: $100,000 ÷ 40,000 = $2.5000. Materials: $60,000 ÷ 40,000 = $1.5000; Conversion: ($20,000 + $10,000) ÷ 46,000 = $0.6522 3. (c) Beginning WIP Conversion to complete: (20,000 × 50%) × $0.6522

$ 66,800 6,522 $ 73,322

Started and completed: 30,000 × ($2.50 + $1.50 + $0.6522) Total

$ 212,888

4. (d) Ending WIP: Transferred-in: 10,000 × $2.50 = Materials: 10,000 × $1.50 = Conversion: (10,000 × 60%) × $0.6522

$ 25,000 15,000 3,913

Total EWIP

$ 43,913

Version 1

196

180)Started & completed: 280,000 − 45,000 = 235,000. EUP: Materials: (0% × 35,000) + (100% × 235,000) + (100% × 45,000) = 280,000; Conversion: (1/5 × 35,000) + (100% × 235,000) + (2/3 × 45,000) = 272,000 Unit costs: Materials: $397,600 ÷ 280,000 = $1.42 Conversion: $189,700 ÷ 272,000 = $0.6974 1. (a) Ending WIP: Materials (45,000 × $1.42) + Conversion [(45,000 × 2/3) × $0.6974] = $84,822 2. (b) Beginning WIP + Conversion to complete $63,700 + [(35,000 × 1/5) × $0.6974] Started and completed [235,000 × ($1.42 + $0.6974)] Transferred Out

$ 68,582 497,589 $ 566,171

181)Started & completed: 58,000 − 6,000 = 52,000 1. (a) Materials EUP: (0% × 5,000) + 52,000 + (100% × 6,000) = 58,000 Conversion EUP: (45% × 5,000) + 52,000 + (40% × 6,000) = 56,650 2. (b) Materials: $1,537,000 ÷ 58,000 = $26.50 Conversion: $2,124,375 ÷ 56,650 = $37.50 3. (c) Beginning WIP Conversion to complete: (5,000 × 45%) × $37.50

$ 229,300 84,375 $ 313,675

Started & Completed: 52,000 × ($26.50 + $ 37.50)

3,328,000

Total

$ 3,641,675

4. (d) Version 1

197

Ending WIP: Materials: 6,000 × $26.50 Conversion: (6,000 × 40%) × $37.50

$ 159,000 90,000

Total Ending WIP

$ 249,000

182)Started & completed: 100,000 started − 12,000 Ending WIP = 88,000 1. (a) Chemical Mix: (0% × 10,000) + (100% × 88,000) + (100% × 12,000) = 100,000 Added Chemical: (100% × 10,000) + (100% × 88,000) + (0% × 12,000) = 98,000 Conversion: (60% × 10,000) + (100% × 88,000) + (70% × 12,000) = 102,400 2. (b) Chemical Mix: $65,000 ÷ 100,000 = $0.6500 Added Chemical: $15,000 ÷ 98,000 = $0.1531 Conversion: $35,000 ÷ 102,400 = $0.3418 3. (c) Beginning WIP $8,000 + Added (10,000 × $0.1531) + [(10,000 × 60%) × $0.3418] + (88,000 × $1.1449) = $112,333 4. (d) (12,000 × $0.65) + [(12,000 × 70%) × $0.3418] = $10,671

Version 1

198

183)Job 286: Materials: ($120,000 + 45,000) ÷ 30,000 = $5.50 per unit Equivalent units of production (EUP): (30,000 − 3,000) + (3,000 × 45%) = 27,000 + 1,350 = 28,350 Conversion cost: ($30,000 + 14,793) ÷ 28,350 = $1.58 per unit Ending Inventory: (3,000 × $5.50) + [(3,000 × 45%) × $1.58] = $16,500 + 2,133 = $18,633 Job 354: Materials: ($80,000 + 20,000 + 30,000) ÷ 8,000 = $16.25 per unit EUP: (8,000 − 2,000) + (2,000 × 65%) = 6,000 + 1,300 = 7,300 Conversion cost: ($15,000 + $25,000 + $14,896) ÷ 7,300 = $7.52 per unit Ending Inventory: (2,000 × $16.25) + [(2,000 × 65%) × $7.52] = $32,500 + 9,776 = $42,276 184)Clay: $450 + Porcelain: $1,440 = $1,890. Equivalent units of production (EUP) Clay: 400 + [(500 − 400) × 30%] = 400 + 30 = 430 EUP Porcelain: 600 + [(800 − 600) × 60%] = 600 + 120 = 720 Conversion cost: ($4,450 + $3,600) ÷ (430 + 720) = $7.00 Clay: Materials: $1,200 ÷ 500 = $2.40 per unit Ending Inventory: (100 × $2.40) + (30 × $7) = $240 + 210 = $450 Porcelain: Materials: $2,400 ÷ 800 = $3 per unit Ending Inventory: (200 × $3) + (120 × $7) = $600 + 840 = $1,440

Version 1

199

185)Assembly: $54,000 ÷ (1,000 + 500 + 250 + 50) = $30 per unit Buffing: $32,000 ÷ (500 + 250 + 50) = $40 per unit Special Polish: $3,000 ÷ 50 = $60 per unit Packaging: $9,000 ÷ 1,800 = $5 per unit Basic: $40,000 ÷ 1,000 + $30 + $5 = $75 per unit Super: $30,000 ÷ 500 + $30 + $40 + $5 = $135 per unit Premium: $20,000 ÷ 250 + $30 + $40 + $5 = $155 per unit Deluxe: $7,500 ÷ 50 + $30 + $40 + $60 + $5 = $285 per unit 186)Assignment of costs to specific barrels of liquid cleaning products or similarly mass-produced items requires a considerable amount of record keeping. However, assuming products are all the same, a process costing system provides sufficient information for control purposes. Record keeping is simplified since all costs in a given month are accumulated in one account and assigned at the end of the period. 187)If the degree of completion of ending inventory were underestimated, the equivalent units would be understated. Since equivalent units are the denominator for the cost per unit, this would be overstated since the denominator is too small. Since the cost per unit is overstated, the costs transferred out would also be overstated. Although it is not requested, the ending inventory cost would be understated due to the understatement of the equivalent units in ending inventory. 188)Step 1: Measure the physical flow of the resources. Step 2: Compute the equivalent units of production. Step 3: Identify the product costs for which to account. Step 4: Compute the cost per equivalent unit. Step 5: Assign the product cost to batches of work.

Version 1

200

189)Weighted-average combines the effort that is present in the beginning work-in-process with the effort added this period. FIFO keeps the beginning costs and efforts segregated from the current period. This results in differences in the equivalent units, the costs included in the unit cost calculations, and the computation of costs transferred out to the next department. 190)Job costing requires more recordkeeping (e.g., detailed subsidiary ledgers for each individual job) while process costing requires more estimates (e.g., degree of completion, cost flow assumption, and equivalent units of production). 191)Process costing assumes that each unit produced is relatively uniform or is essentially identical. This implies that the inputs (materials, labor, and overhead) are relatively uniform and the production process is consistent. 192)Student answers may vary, but they should disagree with this concept; this is because the more important individual unit costs are for decisions, the more likely it is that a company will want to use a costing system that separates costs by units. Job costing allows a company to treat every unit as a separate job. 193)Operations costing is a hybrid of job and process costing. Essentially, the costs of resources that are applied to products in a roughly uniform way are assigned to products using process costing methods. The costs of resources that are applied in a unique way to products (differing components and contract specifications) are assigned to the individual products as in job costing. Operations costing is used in manufacturing goods that have some common characteristics plus some individual characteristics, as do Carlton's product lines. 194)a. Equivalent units:

Version 1

201

Materials: Completed Work-in-process, February 28 Equivalent units of production Conversion:

7,000 3,000 10,000

Completed Work-in-process, February 28 (3,000 × 1/3)

7,000 1,000

Equivalent units of production

8,000 Materials

Conversion

Work-in-process, February 1 Cost added in February Total cost Equivalent units of production

$ 600 2,560 $ 3,160 10,000

$ 100 1,500 $ 1,600 8,000

Cost per equivalent unit

$ 0.316

$ 0.20

b. Units completed and transferred out: 7,000 × $0.516 = $3,612 c. Work-in-process inventory, February 28: Materials cost: (3,000 units × 100%) × $0.316 Conversion cost: (3,000 units × 1/3) × $0.20

$ 948 200

Total

$ 1,148

195)Weighted-average method: a.

Units transferred to next department Ending work-in-process: Materials: 300 units × 80%

Materials

Conversion

11,000

240

Conversion: 300 units × 10% Equivalent units of production

Version 1

30 11,240

11,030

202

b. Materials Cost of beginning work-in-process Cost added during the month Total cost Equivalent units Cost per equivalent unit

Conversion

$ 1,368 64,948 $ 66,316 11,240 $ 5.90

$ 8,064 412,179 $ 420,243 11,030 $ 38.10

c. Materials

Conversion

240

Cost per equivalent unit

$ 5.90

$ 38.10

Cost of ending work-in-process inventory

$ 1,416

$ 1,143

Total

Ending work-in-process: Equivalent units of production

$ 2,559

d. Materials

Conversion

Units completed and transferred out Cost per equivalent unit

11,000

$ 5.90

$ 38.10

Cost of units transferred out

$ 64,900

$ 419,100

Total

$ 484,000

196)Weighted-average method: a.

Units transferred to next department Ending work-in-process: Materials: 400 units × 50%

Version 1

Materials

Conversion

10,700

200

203

Conversion: 400 units × 20%

Equivalent units of production

10,900

10,780

Materials

Conversion

$ 525 83,405 $ 83,930 10,900 $ 7.70

$ 1,696 223,606 $ 225,302 10,780 $ 20.90

Cost of beginning work-in-process Cost added during the month Total cost Equivalent units Cost per equivalent unit

Units completed and transferred out Cost per equivalent unit Cost of units transferred out

Materials

Conversion

10,700

$ 7.70

$ 20.90

$ 82,390

$ 223,630

Total

$ 306,020

d. Materials

Conversion

200

Cost per equivalent unit

$ 7.70

$ 20.90

Cost of ending work-in-process inventory

$ 1,540

$ 1,672

Total

Ending work-in-process: Equivalent units of production

$ 3,212

197) Costs to be accounted for: Cost of beginning work-in-process inventory Costs added to production during the month* Total cost to be accounted for

Version 1

$ 29,000 305,000 $ 334,000

204

Costs accounted for as follows: Cost of ending work-in-process inventory Cost of units transferred out Total cost accounted for

$ 23,000 311,000 $ 334,000

* Plug figure 198) Costs to be accounted for: Cost of beginning work-in-process inventory Costs added to production during the month Total cost to be accounted for

$ 31,000 369,000 $ 400,000

Costs accounted for as follows: Cost of ending work-in-process inventory* Cost of units transferred out Total cost accounted for

$ 32,000 368,000 $ 400,000

* Plug figure 199)a. FIFO method: 1. To complete beginning WIP [10,000 × (100% − 20%)] Units started and completed (26,000 − 10,000) Ending WIP (5,000 × 80%)

8,000 16,000 4,000

Equivalent units of production

28,000

2. $112,000 ÷ 28,000 EUs = $4 per EU 3. Beginning inventory: Cost in the beginning inventory Completion of the units in the beginning inventory: $4 × (10,000 × 80%) Units started and completed during the period: $4 × 16,000 units Total cost transferred out

Version 1

$ 6,500 32,000 64,000 $ 102,500

205

4. (5,000 × 80%) × $4 per EU = $16,000 b. Weighted-average method: 1. Units transferred out Add: equivalent units in the ending inventory 5,000 × 80%

26,000 4,000

Equivalent units of production

30,000

2. Cost in the beginning inventory Cost incurred during the period

$ 6,500 112,000

Total cost

$ 118,500

Equivalent units of production

30,000

Cost per equivalent unit

$ 3.95

3. 26,000 units × $3.95 per EU = $102,700 4. (5,000 × 80%) × $3.95 per EU = $15,800 200)FIFO method: a. Materials

Conversion

To complete the beginning work-in-process: Materials: 700 units × (100% − 50%)

350

Conversion: 700 units × (100% − 10%) Units started and completed (14,600 − 700) Ending work-in-process: Materials: 100 units × 60% Conversion: 100 units × 60%

Version 1

630 13,900

13,900

60 60

206

Equivalent units of production

14,310

14,590

b. Materials Cost added during the month Equivalent units of production Cost per equivalent unit

Conversion

$ 21,465 14,310 $ 1.50

$ 440,618 14,590 $ 30.20

c. Materials

Conversion

$ 1.50

$ 30.20

$ 90

$ 1,812

Materials

Conversion

Cost from the beginning inventory Cost to complete the units in beginning inventory: Equivalent units to complete

$ 595

$ 2,093

350

630

Cost per equivalent unit

$ 1.50

$ 30.20

Cost to complete Cost of units started and completed: Units started and completed

$ 525

$ 19,026

13,900

Cost per equivalent unit

$ 1.50

$ 30.20

Cost of units started and completed

$ 20,850

$ 419,780

Total

Ending work-in-process: Equivalent units of production Cost per equivalent unit Cost of ending work-in-process

$ 1,902

Version 1

Total $ 2,688

$ 19,551

$ 440,630

207

Total cost of units transferred out

$ 462,869

201)FIFO method: a. Materials

Conversion

To complete the beginning work-in-process: Materials: 500 units × (100% − 70%)

150

Conversion: 500 units × (100% − 30%)

350

Units started and completed (16,000 − 500) Ending work-in-process:

15,500

Materials: 500 units × 50%

15,500

250

Conversion: 500 units × 20%

100

Equivalent units of production

15,900

15,950

b. Materials Cost added during the month Equivalent units of production Cost per equivalent unit

Conversion

$ 98,580 15,900 $ 6.20

$ 468,930 15,950 $ 29.40

c. Materials

Conversion

250

100

Cost per equivalent unit

$ 6.20

$ 29.40

Cost of ending work-in-process

$ 1,550

$ 2,940

Total

Ending work-in-process: Equivalent units of production

$ 4,490

d. Version 1

208

Materials

Conversion

$ 2,240

$ 4,365

150

350

Cost per equivalent unit

$ 6.20

$ 29.40

Cost to complete Cost of units started and completed: Units started and completed

$ 930

$ 10,290

15,500

Cost per equivalent unit

$ 6.20

$ 29.40

Cost of units started and completed

$ 96,100

$ 455,700

Cost from the beginning inventory Cost to complete the units in beginning inventory: Equivalent units to complete

Total cost of units transferred out

Total $ 6,605

$ 11,220

$ 551,800 $ 569,625

202)FIFO method: Transferred to the next department: From the beginning work-in-process inventory: Cost in beginning work-in-process inventory Cost to complete these units: Materials, 180 EUs at $17.80 per EU Conversion, 160 EUs at $34.50 per EU Total cost from beginning inventory Units started and completed this month, 2,670 units at $52.30 per unit Total cost transferred to the next department

$ 1,090

3,204 5,520 9,814 139,641 $ 149,455

Work-in-process, August 31: Materials, 120 EUs at $17.80 per EU Conversion, 99 EUs at $34.50 per EU Total work-in-process, August 31

$ 2,136 3,416 $ 5,552

203)FIFO method: Transferred to the next department:

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209

From the beginning work-in-process inventory: Cost in beginning work-in-process inventory Cost to complete these units: Materials, 300 EUs at $33.30 per EU Conversion, 230 EUs at $21.20 per EU Total cost from beginning inventory Units started and completed this month, 4,650 units at $54.50 per unit Total cost transferred to the next department

$ 2,260

9,990 4,876 17,126 253,425 $ 270,551

Work-in-process, March 31: Materials, 380 EUs at $33.30 per EU Conversion, 297 EUs at $21.20 per EU Total work-in-process, March 31

Version 1

$ 12,654 6,296 $ 18,950

210

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The death spiral can occur even in firms with increasing demand. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Learning Objective : 09-01 Understand the potential effects of using reported product costs for decis Topic : Reported Product Costs and Decision Making Gradable : automatic Difficulty : 1 Easy Accessibility : Screen Reader Compatible

2) The death spiral concept refers to the process of continually decreasing selling prices to meet foreign competition. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Learning Objective : 09-01 Understand the potential effects of using reported product costs for decis Topic : Reported Product Costs and Decision Making Gradable : automatic Difficulty : 1 Easy Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 09-02 Explain how a two-stage product costing system works. Topic : Two-Stage Cost Allocation Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-02 Explain how a two-stage product costing system works. Topic : Two-Stage Cost Allocation Bloom's : Understand Accessibility : Screen Reader Compatible

5) Predetermined overhead rates are not used in first-stage cost allocations but are used in second-stage cost allocations. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-02 Explain how a two-stage product costing system works. Topic : Two-Stage Cost Allocation Bloom's : Understand Accessibility : Screen Reader Compatible

The plantwide allocation concept cannot be used in nonmanufacturing organizations. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Topic : Two-Stage Cost Allocation Learning Objective : 09-03 Compare and contrast plantwide and department allocation methods. Bloom's : Understand Accessibility : Screen Reader Compatible

7) The single-stage cost allocation system uses a plantwide rate because the cost pool is the entire plant. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Topic : Two-Stage Cost Allocation Learning Objective : 09-03 Compare and contrast plantwide and department allocation methods. Accessibility : Screen Reader Compatible

8) The department cost allocation method provides more accurate product cost information for managerial decision making than the plantwide cost allocation method. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Topic : Two-Stage Cost Allocation Learning Objective : 09-03 Compare and contrast plantwide and department allocation methods. Bloom's : Understand Accessibility : Screen Reader Compatible

9) Companies that manufacture products that are similar and use the same resources should use the plantwide cost allocation method. ⊚ true ⊚ false

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10) Using the department allocation method, a company establishes a separate overhead allocation rate for each department. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Topic : Two-Stage Cost Allocation Learning Objective : 09-03 Compare and contrast plantwide and department allocation methods. Accessibility : Screen Reader Compatible

11) If a company manufactures diverse products using different sets of resources in a plant, it is best to use a plantwide allocation rate. ⊚ true ⊚ false

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12) Activity-based costing (ABC) is a two-stage cost allocation system that first assigns costs to activities and then to products based on each product’s use of the activities. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Activity-Based Costing Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Activity-Based Costing Bloom's : Understand Accessibility : Screen Reader Compatible

14) Direct labor cost and direct labor hours are examples of volume related cost drivers in the cost hierarchy. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Cost Hierarchies Bloom's : Understand Accessibility : Screen Reader Compatible

15) Any discrete task that an organization undertakes to make or deliver a product or service is known as a stage. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Activity-Based Costing Accessibility : Screen Reader Compatible

16) Activity-based costing is based on the concept that products produce activities and activities produce resources. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Activity-Based Costing Bloom's : Understand Accessibility : Screen Reader Compatible

17) The number of products produced is an example of a facility related cost driver in the cost hierarchy. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Cost Hierarchies Bloom's : Understand Accessibility : Screen Reader Compatible

18)

A cost hierarchy classifies cost drivers by general dimensions or levels of activity. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Cost Hierarchies Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Cost Hierarchies Bloom's : Understand Accessibility : Screen Reader Compatible

20) When applying activity-based costing, the first step would be to compute the cost driver rates. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Activity-Based Costing Accessibility : Screen Reader Compatible

21) Activity-based costing (ABC) provides more detailed measures of costs than do plantwide or department allocation methods. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

22) Activity-based costing is beneficial because it provides more information about product costs but requires less recordkeeping. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Bloom's : Understand Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

23) Installing activity-based costing requires teamwork among employees and departments within an organization. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Bloom's : Understand Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

24) Before using activity-based costing (ABC), managers must apply the cost-benefit principle to the additional recordkeeping costs associated with ABC. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Bloom's : Understand Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

25) In general, traditional product costing methods allocate less costs to low-volume products and more costs to high-volume products than activity-based costing. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-07 Demonstrate the flow of costs through accounts using activity-based costin Topic : Choice of Activity Bases in Modern Production Settings Bloom's : Understand Accessibility : Screen Reader Compatible

26) Using direct labor costs to allocate overhead costs in an activity-based costing system will encourage management to reduce labor costs. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-07 Demonstrate the flow of costs through accounts using activity-based costin Topic : Choice of Activity Bases in Modern Production Settings Bloom's : Understand Accessibility : Screen Reader Compatible

27) In general, low-volume products (and services) have a lower degree of complexity associated with them. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-07 Demonstrate the flow of costs through accounts using activity-based costin Topic : Choice of Activity Bases in Modern Production Settings Bloom's : Understand Accessibility : Screen Reader Compatible

28) When overhead is applied based on the volume of output, high-volume products tend to "subsidize" low-volume products. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-07 Demonstrate the flow of costs through accounts using activity-based costin Topic : Choice of Activity Bases in Modern Production Settings Bloom's : Understand Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-07 Demonstrate the flow of costs through accounts using activity-based costin Bloom's : Understand Topic : Cost Flows through Accounts Accessibility : Screen Reader Compatible

30)

Activity-based costs are a function of both volume and complexity. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-07 Demonstrate the flow of costs through accounts using activity-based costin Topic : Choice of Activity Bases in Modern Production Settings Bloom's : Understand Accessibility : Screen Reader Compatible

31) Activity-based costing can be applied to administrative activities (e.g., purchasing) but not to marketing activities. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Topic : Activity-Based Costing in Administration Learning Objective : 09-08 Apply activity-based costing to marketing and administrative services. Accessibility : Screen Reader Compatible

32) Within a purchasing department, the number of vendors would be the best possible cost driver used to determine the cost of placing orders. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Topic : Activity-Based Costing in Administration Bloom's : Understand Learning Objective : 09-08 Apply activity-based costing to marketing and administrative services. Accessibility : Screen Reader Compatible

33) Individual activity-based costing (ABC) systems do not vary because there is only one ABC method. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Topic : Who Uses ABC? Learning Objective : 09-08 Apply activity-based costing to marketing and administrative services. Accessibility : Screen Reader Compatible

34) It is possible to apply activity-based costing to segments of an organization without applying it to the entire organization. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Topic : Who Uses ABC? Learning Objective : 09-08 Apply activity-based costing to marketing and administrative services. Accessibility : Screen Reader Compatible

35) Time-driven activity-based costing is more costly to implement and maintain than an unmodified activity-based costing system. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 09-09 Explain how time-driven activity-based costing works. Topic : Time-Driven Activity-Based Costing Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 09-09 Explain how time-driven activity-based costing works. Topic : Time-Driven Activity-Based Costing Accessibility : Screen Reader Compatible

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 37) When product costs are used for decision making, what assumption is most likely to distort the decisions?

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Learning Objective : 09-01 Understand the potential effects of using reported product costs for decis Topic : Reported Product Costs and Decision Making Gradable : automatic Bloom's : Understand Accessibility : Screen Reader Compatible

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.

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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.

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41)

First-stage cost objects do not include: A) supplies. B) depreciation. C) maintenance and repair costs. D) direct materials.

42) The basic difference between a first-stage cost allocation and a second-stage cost allocation is that:

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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 secondstage 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-02 Explain how a two-stage product costing system works. Topic : Two-Stage Cost Allocation Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Activity-Based Costing Bloom's : Understand Accessibility : Screen Reader Compatible

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 on each product’s use of the activities. B) The costs are assigned to departments, and then to the products based upon their use of activity resources. C) Direct costs are allocated to the production departments based on a predetermined overhead rate. D) Indirect costs are assigned to activities, and then to the products based upon the direct cost resources used by the activities.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Activity-Based Costing Bloom's : Understand Accessibility : Screen Reader Compatible

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.

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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) Production runs C) Direct material cost D) Direct labor-hours

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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-andeffect 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Cost Hierarchies Accessibility : Screen Reader Compatible

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Activity-Based Costing Bloom's : Understand Accessibility : Screen Reader Compatible

50)

The electricity used for production machinery would be classified as a:

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A) volume related activity. B) batch related activity. C) product related activity. D) facility related activity.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Cost Hierarchies Bloom's : Understand Accessibility : Screen Reader Compatible

51)

The number of services provided by an accounting firm would be classified as a: A) volume related activity. B) batch related activity. C) product related activity. D) facility related activity.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Cost Hierarchies Bloom's : Understand Accessibility : Screen Reader Compatible

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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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Cost Hierarchies Bloom's : Understand Accessibility : Screen Reader Compatible

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Cost Hierarchies Bloom's : Understand Accessibility : Screen Reader Compatible

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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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Cost Hierarchies Bloom's : Understand Accessibility : Screen Reader Compatible

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Cost Hierarchies Bloom's : Understand Accessibility : Screen Reader Compatible

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 A. B. C. D.

No effect Increase No effect Increase

Cost Assignment Bases No effect No effect Increase Increase

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Activity-Based Costing Bloom's : Understand Accessibility : Screen Reader Compatible

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57)

Plant administration is an example of a: A) volume related activity. B) batch related activity. C) product related activity. D) facility related activity.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Cost Hierarchies AACSB : Reflective Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

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

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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 Volume Batch Product Product

A. B. C. D.

Shipping orders to grocery stores Volume Batch Volume 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.

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-05 Compute product costs using activity-based costing. Bloom's : Understand Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

62)

Which of the following is not a step involved in activity-based costing?

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-05 Compute product costs using activity-based costing. Bloom's : Understand Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Bloom's : Analyze Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

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 volume-based costing _________blank the cost of high-volume products and _________blank the cost of low-volume products. High-Volume Products A. B. C. D.

Overstates Overstates Understates Understates

Low-Volume Products Overstates Understates Overstates Understates

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 09-07 Demonstrate the flow of costs through accounts using activity-based costin Topic : Choice of Activity Bases in Modern Production Settings Bloom's : Analyze Accessibility : Screen Reader Compatible

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65)

Companies using activity-based costing (ABC) have learned that costs are a function of: A) volume and complexity. B) time and complexity. C) volume and time. D) resources and time.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-07 Demonstrate the flow of costs through accounts using activity-based costin Topic : Choice of Activity Bases in Modern Production Settings Bloom's : Understand Accessibility : Screen Reader Compatible

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Bloom's : Understand Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-07 Demonstrate the flow of costs through accounts using activity-based costin Bloom's : Understand Topic : Cost Flows through Accounts Accessibility : Screen Reader Compatible

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?

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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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Difficulty : 3 Hard Learning Objective : 09-07 Demonstrate the flow of costs through accounts using activity-based costin Topic : Choice of Activity Bases in Modern Production Settings Bloom's : Analyze Accessibility : Screen Reader Compatible

69) Which of the following statements is true regarding activity-based costing (ABC) 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) ABC for administrative services follows the same four-step procedure described for manufacturing.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Topic : Activity-Based Costing in Administration Bloom's : Understand Learning Objective : 09-08 Apply activity-based costing to marketing and administrative services. Accessibility : Screen Reader Compatible

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70) Which of the following would be the most appropriate activity and cost drivers pairing for a Purchasing Department? A) Activity: Placing orders; Cost Driver: Number of orders B) Activity: Placing orders; Cost Driver: Number of new hires C) Activity: Placing orders; Cost Driver: Frequency of audits D) Activity: Placing orders; 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-09 Explain how time-driven activity-based costing works. Topic : Time-Driven Activity-Based Costing Bloom's : Understand Accessibility : Screen Reader Compatible

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-09 Explain how time-driven activity-based costing works. Topic : Time-Driven Activity-Based Costing Bloom's : Understand Accessibility : Screen Reader Compatible

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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 $6 per direct labor-hour. Loren is the department manager of the Makeup Department that produces Concealer (C) and Glow Cream (GC). Jennifer is the department manager of the Hair Care Department that manufactures Shampoo (S). The product costs (per case of 24 bottles) and other information are as follows: Products

Direct materials Direct labor Overhead

Machine-hours Number of cases (per year)

$ 115.00 42.00 28.00 $ 185.00

$ 74.00 33.50 20.00 $ 127.50

$ 52.00 9.00 18.00 $ 79.00

4 300

2 500

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) $20.00 D) $7.30

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Two-Stage Cost Allocation Learning Objective : 09-03 Compare and contrast plantwide and department allocation methods. Bloom's : Apply Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

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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 Concealer (C) and Glow Cream (GC). Jennifer is the department manager of the Hair Care Department that manufactures Shampoo (S). The product costs (per case of 24 bottles) and other information are as follows: Products

Direct materials Direct labor Overhead

Machine-hours Number of cases (per year)

$ 100.00 42.00 28.00 $ 170.00

$ 72.00 31.50 21.00 $ 124.50

$ 48.00 12.00 14.00 $ 74.00

4 300

2 500

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Two-Stage Cost Allocation Learning Objective : 09-03 Compare and contrast plantwide and department allocation methods. Bloom's : Apply Difficulty : 3 Hard Accessibility : Screen Reader Compatible

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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 $5 per direct labor-hour. Loren is the department manager of the Makeup Department that produces Concealer (C) and Glow Cream (GC). Jennifer is the department manager of the Hair Care Department that manufactures Shampoo (S). The product costs (per case of 24 bottles) and other information are as follows: Products C Direct materials Direct labor Overhead

Machine-hours Number of cases (per year)

$ 125.00 48.00 28.00 $ 201.00

$ 75.00 34.50 17.00 $ 126.50

$ 45.00 10.00 14.00 $ 69.00

4 300

2 500

3 600

If Flawless changes its allocation basis to machine-hours, what is the total product cost per case for Product GC? Note: Do not round intermediate calculations. A) $151.80 B) $145.48 C) $139.15 D) $122.15

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Topic : Two-Stage Cost Allocation Learning Objective : 09-03 Compare and contrast plantwide and department allocation methods. Difficulty : 3 Hard Bloom's : Analyze Type : Algorithmic Accessibility : Screen Reader Compatible

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76) 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 Concealer (C) and Glow Cream (GC). Jennifer is the department manager of the Hair Care Department that manufactures Shampoo (S). The product costs (per case of 24 bottles) and other information are as follows: Products

Direct materials Direct labor Overhead

Machine-hours Number of cases (per year)

$ 100.00 42.00 28.00 $ 170.00

$ 72.00 31.50 21.00 $ 124.50

$ 48.00 12.00 14.00 $ 74.00

4 300

2 500

3 600

If Flawless changes its allocation basis to machine-hours, what is the total product cost per case for Product GC? Note: Do not round intermediate calculations. A) $163.50 B) $144.00 C) $138.15 D) $117.15

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77) Flawless Cosmetic Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $8 per direct labor-hour. Loren is the department manager of the Makeup Department that produces Concealer (C) and Glow Cream (GC). Jennifer is the department manager of the Hair Care Department that manufactures Shampoo (S). The product costs (per case of 24 bottles) and other information are as follows: Products C Direct materials Direct labor Overhead

Machine-hours Number of cases (per year)

$ 90.00 44.00 26.00 $ 160.00

$ 74.00 33.50 22.00 $ 129.50

$ 47.00 12.00 14.00 $ 73.00

5 350

3 550

4 650

If Flawless changes its allocation basis to machine-hours, what is the total product cost per case for Product C? Note: Do not round intermediate calculations. A) $154.05 B) $159.25 C) $166.50 D) $181.25

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78) 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 Concealer (C) and Glow Cream (GC). Jennifer is the department manager of the Hair Care Department that manufactures Shampoo (S). The product costs (per case of 24 bottles) and other information are as follows: Products C Direct materials Direct labor Overhead

Machine-hours Number of cases (per year)

$ 100.00 42.00 28.00 $ 170.00

$ 72.00 31.50 21.00 $ 124.50

$ 48.00 12.00 14.00 $ 74.00

4 300

2 500

3 600

If Flawless changes its allocation basis to machine-hours, what is the total product cost per case for Product C? Note: Do not round intermediate calculations. A) $161.50 B) $169.30 C) $182.44 D) $183.36

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79) Banc Corporation Trust is considering either a bank-wide overhead rate or department overhead rates to allocate $357,000 of indirect costs. The bank-wide 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 7,000

Loans Processed 650 350

Direct Costs $ 250,000 $ 130,000

If Banc Corporation Trust uses a bank-wide rate based on direct labor-hours, what would be the indirect costs allocated to the Consumer Department? A) $51,000 B) $238,000 C) $178,500 D) $357,000

80) Banc Corporation Trust is considering either a bank-wide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bank-wide 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

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DLH 14,000 8,000

Loans Processed 700 300

Direct Costs $ 280,000 $ 180,000

If Banc Corporation Trust uses a bank-wide 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

81) Banc Corporation Trust is considering either a bank-wide overhead rate or department overhead rates to allocate $567,000 of indirect costs. The bank-wide 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

DLH

Consumer Commercial

18,000 9,000

Loans Processed 800 200

Direct Costs $ 370,000 $ 270,000

If Banc Corporation Trust uses a bank-wide rate based on direct labor-hours, what would be the indirect costs allocated to the Commercial Department? A) $189,000 B) $184,800 C) $270,000 D) $193,200

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82) Banc Corporation Trust is considering either a bank-wide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bank-wide 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 Corporation Trust uses a bank-wide 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

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83) Banc Corporation Trust is considering either a bank-wide overhead rate or department overhead rates to allocate $405,000 of indirect costs. The bank-wide 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 13,000 8,000

Loans Processed Direct Costs 800 $ 310,000 200 $ 210,000

If Banc Corporation Trust uses a bank-wide rate based on the number of loans processed, what would be the total costs for the Commercial Department? A) $81,000 B) $210,000 C) $291,000 D) $272,600

84) Banc Corporation Trust is considering either a bank-wide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bank-wide 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

Version 1

DLH

Loans Processed

Direct Costs

Consumer Commercial

14,000 8,000

700 300

$ 280,000 $ 180,000

If Banc Corporation Trust uses a bank-wide 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

85) Banc Corporation Trust is considering either a bank-wide overhead rate or department overhead rates to allocate $409,500 of indirect costs. The bank-wide 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 11,000 6,000

Loans Processed 800 250

Direct Costs $ 240,000 $ 120,000

If Banc Corporation Trust uses a bank-wide rate based on the number of loans processed, what would be the total costs for the Consumer Department? A) $240,000 B) $221,950 C) $529,500 D) $552,000

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86) Banc Corporation Trust is considering either a bank-wide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bank-wide 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 Corporation Trust uses a bank-wide 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

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87) Banc Corporation Trust is considering either a bank-wide overhead rate or department overhead rates to allocate $392,000 of indirect costs. The bank-wide 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 15,000 6,000

Loans Processed 700 300

Direct Costs $ 340,000 $ 240,000

How much of the $392,000 indirect costs should be allocated to the Commercial Department, if Banc Corporation Trust uses a bank-wide rate based on the number of loans processed? A) $392,000 B) $272,000 C) $117,600 D) $152,000

88) Banc Corporation Trust is considering either a bank-wide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bank-wide 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

Version 1

DLH

Loans Processed

Direct Costs

Consumer Commercial

14,000 8,000

700 300

$ 280,000 $ 180,000

How much of the $396,000 indirect costs should be allocated to the Commercial Department, if Banc Corporation Trust uses a bank-wide rate based on the number of loans processed? A) $277,200 B) $252,000 C) $118,800 D) $144,000

89) Banc Corporation Trust is considering either a bank-wide overhead rate or department overhead rates to allocate $392,000 of indirect costs. The bank-wide 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 15,000 6,000

Loans Processed 700 300

Direct Costs $ 340,000 $ 240,000

How much of the $392,000 indirect costs should be allocated to the Consumer Department, if Banc Corporation Trust uses a bank-wide rate based on the number of loans processed? Note: Round the bank-wide rate to the nearest dollar.

Version 1

A) $272,000 B) $340,000 C) $274,400 D) $52,000

90) Banc Corporation Trust is considering either a bank-wide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bank-wide 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

How much of the $396,000 indirect costs should be allocated to the Consumer Department, if Banc Corporation Trust uses a bank-wide rate based on the number of loans processed? A) $252,000 B) $144,000 C) $277,200 D) $118,800

Version 1

91) Banc Corporation Trust is considering either a bank-wide overhead rate or department overhead rates to allocate $450,000 of indirect costs. The bank-wide 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 16,000 9,000

Loans Processed 700 300

Direct Costs $ 280,000 $ 180,000

What is the overhead rate if Banc Corporation Trust allocates the indirect costs using direct labor-hours? A) $18 per hour B) $404 per loan C) $500 per loan D) $29 per hour

Version 1

92) Banc Corporation Trust is considering either a bank-wide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bank-wide 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

What is the overhead rate if Banc Corporation Trust allocates the indirect costs using direct labor-hours? A) $18 per hour B) $396 per loan C) $460 per loan D) $20.91 per hour

93) Vanguard Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Assembly Processing orders Inspection

Version 1

Total Cost $ 1,111,120 $ 86,210 $ 134,232

Total Activity 76,000 machine-hours 1,850 orders 1,880 inspection-hours

The company makes 420 units of product O37W a year, requiring a total of 650 machine-hours, 40 orders, and 20 inspection-hours per year. The product's direct materials cost is $37.08 per unit and its direct labor cost is $30.14 per unit. According to the activity-based costing system, the average cost of product O37W is closest to: A) $97.68 per unit. B) $93.25 per unit. C) $67.22 per unit. D) $94.28 per unit.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-05 Compute product costs using activity-based costing. Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

94) 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 66,000 machine-hours 1,800 orders 1,820 inspection-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.

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-05 Compute product costs using activity-based costing. Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

95) Pinnocle Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Assembly Processing orders Inspection

Total Cost $ 1,300,200 55,587 147,340

Total Activity 66,000 machine-hours 2,100 orders 2,120 inspection-hours

The company makes 460 units of product S78N a year, requiring a total of 710 machine-hours, 30 orders, and 15 inspection-hours per year. The product's direct materials cost is $50.37 per unit and its direct labor cost is $12.62 per unit. The product sells for $118.80 per unit. According to the activity-based costing system, the product margin for product S78N is: A) $9,849.00. B) $25,672.60. C) $10,891.50. D) $10,643.10.

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96) Pinnocle Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Assembly Processing orders Inspection

Total Cost $ 1,114,920 $ 47,016 $ 107,328

Total Activity 57,000 machine-hours 1,800 orders 1,560 inspection-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.

97) Donnati Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Assembly Processing orders Inspection

Total Cost $ 390,224 $ 55,608 $ 110,390

Total Activity 23,200 machine-hours 1,200 orders 1,660 inspection-hours

Data concerning one of the company's products, Product A43V, appear below: Selling price per unit

Version 1

$ 125.00

Direct materials cost per unit Direct labor cost per unit Annual unit production and sales Annual machine-hours Annual orders Annual inspection-hours

$ 22.12 $ 45.83 230 340 90 14

According to the activity-based costing system, the product margin for Product A43V is: A) $2,974.90. B) $6,101.60. C) $12,259.50. D) $2,301.10.

98) 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 23,000 machine-hours 1,100 orders 1,620 inspection-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

Version 1

$ 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.

99) 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 $ 73,000

XY 12

42,000

153,750

75,000

50,000

$ 268,750

What is the total overhead allocated to Product M using the current system? A) $121,000 B) $153,750 C) $147,750 D) $161,250

Version 1

100) 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

8 56 80,000

12 24 50,000

$ 260,000

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

Version 1

101) 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 $ 75,000 51,000 219,000

XY 20

49 90,000

21 60,000

$ 345,000

What is the total overhead per unit allocated to Product M using activity-based costing (ABC)? Note: Do not round intermediate calculations; round your final answer to the nearest cent. A) $2.10 B) $2.47 C) $2.30 D) $2.19

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Topic : Activity-Based Costing Learning Objective : 09-05 Compute product costs using activity-based costing. Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

102) 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

Version 1

Cost Driver

Amount

Production setups Material handling Packaging costs

Number of setups Number of parts Number of units

$ 82,000 48,000 130,000

8 56 80,000

12 24 50,000

$ 260,000

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

103) 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 $ 84,000 42,000 211,500

8 56 90,000

12 24 60,000

$ 337,500

What is the total overhead allocated to Product XY using the current system?

Version 1

A) $147,600 B) $135,000 C) $189,900 D) $202,500

104) 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

XY 8

48,000 130,000

56 80,000

24 50,000

$ 260,000

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

Version 1

105) 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 $ 73,000

XY 12

42,000 153,750

72 75,000

18 50,000

$ 268,750

What is the total overhead per unit allocated to Product XY using activity-based costing (ABC)? Note: Do not round intermediate calculations; round your final answer to the nearest cent. A) $2.30 B) $2.42 C) $2.15 D) $1.97

Version 1

106) 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

8 56 80,000

12 24 50,000

$ 260,000

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

Version 1

107) 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 3,850 25 400

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 $875,000 for the month. How much overhead costs were applied to the Work-in-Process Inventory during April using activity-based costing? A) $590,600 B) $720,000 C) $735,600 D) $875,000

108) 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: Version 1

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

109) 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

Version 1

Cost Drivers Tons of material handled Number of production runs Machine-hours Number of inspections

Rate $ 85 3,500 25 500

During April, Mega purchased and used $130,000 of direct materials at $20 per ton. There were 8 production runs using a total of 15,000 machine-hours in April. The manager of the Finishing Department needed 12 inspections. Actual overhead costs totaled $850,000 for the month. How much overhead costs were applied to the Work-in-Process Inventory during April using traditional costing? A) $536,500 B) $900,000 C) $961,500 D) $850,000

110) 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?

Version 1

A) $536,000 B) $720,000 C) $736,000 D) $820,000

111) Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 2,400 units of Basic Product and 2,000 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 $99,385. 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: Activity Cost Pool Activity 1 Activity 2 General Factory Total

Estimated

Expected Activity

Overhead Costs $ 30,672 17,565 51,148 $ 99,385

Basic Product Deluxe Product Total 1,600 2,200 720

800 400 1,200

2,400 2,600 1,920

(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:

Version 1

A) $6.76. B) $26.64. C) $51.76. D) $12.78.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Unit Costs Compared Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

112) 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

Overhead Costs $ 30,528 17,385 50,872

Total

$ 98,785

Expected Activity Basic Product 1,000 1,700 510

Deluxe Product 600 200 660

Total 1,600 1,900 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:

Version 1

A) $9.15. B) $43.48. C) $84.43. D) $19.08.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

113) Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,900 units of Basic Product and 1,500 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 0.4 direct labor-hours per unit and Deluxe Product requires 0.8 direct labor-hours per unit. The total estimated overhead for next period is $99,635. 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 $ 30,732 17,640 51,263

Expected Activity Basic Product 1,400 2,000 760

Deluxe Product 700 300 1,200

Total 2,100 2,300 1,960

$ 99,635

The overhead cost per unit of Deluxe Product under the traditional costing system is closest to:

Version 1

A) $40.66. B) $6.14. C) $20.92. D) $11.71.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

114) 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

Expected Activity Basic Product 1,000 1,700 510

Deluxe Product 600 200 660

Total 1,600 1,900 1,170

$ 98,785

The overhead cost per unit of Deluxe Product under the traditional costing system is closest to:

Version 1

A) $50.66. B) $5.49. C) $26.09. D) $11.45.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

115) Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 2,200 units of Basic Product and 1,800 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 $99,685. 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: Activity Cost Pool

Activity 1 Activity 2 General Factory Total

Estimated Overhead Costs $ 30,744 17,655 51,286

Expected Activity Basic Deluxe Total Product Product 1,500 800 2,300 2,100 350 2,450 660 1,080 1,740

$ 99,685

(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:

Version 1

A) $7.21. B) $40.69. C) $57.29. D) $8.03.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

116) 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: Activity Cost Pool

Activity 1 Activity 2 General Factory Total

Estimated Overhead Costs $ 30,528 17,385 50,872

Expected Activity Basic Deluxe Total Product Product 1,000 600 1,600 1,700 200 1,900 510 660 1,170

$ 98,785

Version 1

A) $9.15. B) $51.99. C) $86.93. D) $10.23.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

117) Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,900 units of Basic Product and 1,500 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 $99,085. 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: Activity Cost Pool

Activity 1 Activity 2 General Factory Total

Estimated Overhead Costs $ 30,600 17,475 51,010

Expected Activity Basic Deluxe Total Product Product 1,000 600 1,600 1,600 400 2,000 570 900 1,470

$ 99,085

(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: Note: Round your intermediate values to 2 decimal places. Version 1

A) $49.54. B) $20.82. C) $28.47. D) $30.80.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

118) 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: Activity Cost Pool

Activity 1 Activity 2 General Factory Total

Estimated Overhead Costs $ 30,528 17,385 50,872

Expected Activity Basic Deluxe Total Product Product 1,000 600 1,600 1,700 200 1,900 510 660 1,170

$ 98,785

(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:

Version 1

A) $50.66. B) $26.09. C) $35.28. D) $38.16.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

119) 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

Fancy

$ 26.40 $ 4.80 0.20 35,000

$ 61.20 $ 24.00 1.00 25,000

The company's estimated total manufacturing overhead for the year is $1,040,000 and the company's estimated total direct labor-hours for the year is 32,000. 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

Version 1

Estimated Overhead Cost $ 384,000 249,200 406,800 $ 1,040,000

Expected Activity Plain DLHs Setups Part types

7,000 1,555 700

Fancy

Total

25,000 937 430

32,000 2,492 1,130

The manufacturing overhead that would be applied to a unit of Plain under the company's traditional costing system is closest to: A) $6.50. B) $2.40. C) $13.37. D) $19.87.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

120) 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

Version 1

Plain

Fancy

$ 24.50 $ 5.00 0.20 45,000

$ 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

Estimated Overhead Cost $ 384,000 255,840 345,600 $ 985,440 Expected Activity Plain

DLHs Setups Part types

9,000 1,032 624

Fancy

Total

15,000 936 240

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

Version 1

121) 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

Fancy

$ 25.20 $ 5.70 0.20 30,000

$ 60.00 $ 28.50 1.00 25,000

The company's estimated total manufacturing overhead for the year is $1,178,000 and the company's estimated total direct labor-hours for the year is 31,000. 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 $ 558,000 268,870 351,130 $ 1,178,000 Expected Activity Plain

DLHs Setups Part types

6,000 1,393 652

Fancy

Total

25,000 945 310

31,000 2,338 962

The manufacturing overhead that would be applied to a unit of product Fancy under the activitybased costing system is closest to: A) $66.30. B) $38.00. C) $7.60. D) $26.87.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

122) 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

Fancy

$ 24.50 $ 5.00 0.20 45,000

$ 59.30 $ 25.00 1.00 15,000

Estimated Overhead Cost $ 384,000 255,840 345,600 $ 985,440 Expected Activity Plain

DLHs Setups Part types

Version 1

9,000 1,032 624

Fancy

Total

15,000 936 240

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

123) 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: Slow Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

$ 14.10 $ 3.20 0.20 35,000

Fast $ 43.40 $ 25.60 1.60 20,000

The company's estimated total manufacturing overhead for the year is $1,626,700 and the company's estimated total direct labor-hours for the year is 39,000. 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)

Version 1

Estimated Overhead Cost $ 770,000 387,700

Product support (product variations) Total

469,000 $ 1,626,700 Expected Activity Slow

DLHs Batches Product variations

7,000 1,480 720

Fast

Total

32,000 1,510 690

39,000 2,990 1,410

The manufacturing overhead that would be applied to a unit of product Slow under the company's traditional costing system is closest to: A) $15.06. B) $23.40. C) $8.34. D) $3.94.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

124) 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

Version 1

Slow

Fast

$ 14.10 $ 3.20 0.20 30,000

$ 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

Estimated Overhead Cost Assembling products (DLHs) $ 720,000 Preparing batches (batches) 362,700 Product support (product variations) 444,000 Total

$ 1,526,700 Expected Activity Slow

DLHs Batches Product variations

6,000 1,380 570

Fast

Total

24,000 1,410 540

30,000 2,790 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

Version 1

125) 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: Slow

Fast

$ 14.10 $ 3.20 0.20 48,000

$ 43.40 $ 25.60 1.60 33,000

Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

The company's estimated total manufacturing overhead for the year is $2,967,600 and the company's estimated total direct labor-hours for the year is 62,400. 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

Estimated Overhead Cost $ 1,584,000 487,890 895,710 $ 2,967,600 Expected Activity Slow

DLHs Batches Product variations

9,600 1,740 1,110

Fast

Total

52,800 1,770 1,080

62,400 3,510 2,190

The manufacturing overhead that would be applied to a unit of product Fast under the activitybased costing system is closest to: A) $76.98. B) $61.46. C) $138.44. D) $11.55.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

126) 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

Fast

$ 14.10 $ 3.20 0.20 30,000

$ 43.40 $ 25.60 1.60 15,000

Estimated Overhead Cost $ 720,000 362,700 444,000 $ 1,526,700 Expected Activity Slow

DLHs Batches

Version 1

6,000 1,380

Fast

Total

24,000 1,410

30,000 2,790

Product variations

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

127) 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

Short

$ 14.80 $ 17.40 0.80 30,000

$ 48.60 $ 51.00 2.40 20,000

The company's estimated total manufacturing overhead for the year is $4,020,480 and the company's estimated total direct labor-hours for the year is 72,000. 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)

Version 1

Estimated Overhead Cost $ 2,563,680

Setting up machines (setups) Part administration (part types) Total

436,800 1,020,000 $ 4,020,480 Expected Activity Long

DLHs Setups Part types

Short

Total

48,000 1,800 2,760

72,000 3,000 3,720

24,000 1,200 960

The unit product cost of product Long under the company's traditional costing system is closest to: A) $60.69. B) $76.87. C) $85.46. D) $32.20.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

128) 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

Version 1

Long

Short

$ 14.20 $ 16.80 0.80

$ 48.30 $ 50.40 2.40

Annual production

45,000

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

Estimated Overhead Cost $ 1,740,000 422,400 1,008,000 $ 3,170,400 Expected Activity Long

DLHs Setups Part types

36,000 1,140 900

Short

Total

24,000 1,500 2,460

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

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129) 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

Short

$ 14.20 $ 16.80 0.80 51,000

$ 48.30 $ 50.40 2.40 11,200

The company's estimated total manufacturing overhead for the year is $3,168,960 and the company's estimated total direct labor-hours for the year is 67,680. 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)

Estimated Overhead Cost $ 1,716,000 426,240 1,026,720

Total

$ 3,168,960

DLHs Setups Part types

Expected Activity Long Short 40,800 26,880 1,260 1,620 1,080 2,640

Total 67,680 2,880 3,720

Unit overhead cost of Product Short under the activity-based costing system is closest to: A) $234.15. B) $86.85. C) $147.30. D) $198.44.

Version 1

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

130) 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

Short

$ 14.20 $ 16.80 0.80 45,000

$ 48.30 $ 50.40 2.40 10,000

Estimated Overhead Cost $ 1,740,000 422,400 1,008,000

Total

$ 3,170,400

DLHs Setups Part types

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:

Version 1

A) $266.10. B) $98.70. C) $167.40. D) $225.52.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

131) 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: VIP Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

$ 27.50 $ 15.60 0.60 43,800

Kommander $ 62.10 $ 52.00 2.00 18,800

The company's estimated total manufacturing overhead for the year is $2,563,440 and the company's estimated total direct labor-hours for the year is 63,880. 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)

Version 1

Estimated Overhead Cost $ 956,000 435,440 1,172,000

Total

$ 2,563,440

DLHs Batches Product variations

Expected Activity VIP Kommander 26,280 37,600 1,838 1,406 3,162 1,758

Total 63,880 3,244 4,920

The unit product cost of Product VIP under the company's traditional costing system is closest to: A) $50.91. B) $67.18. C) $41.17. D) $75.05.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

132) 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: VIP Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

Version 1

$ 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

Estimated Overhead Cost $ 918,000 397,440 1,134,000 $ 2,449,440

DLHs Batches Product variations

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

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133) 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: VIP Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

Kommander

$ 27.50 $ 15.60 0.60 40,200

$ 62.10 $ 52.00 2.00 15,200

The company's estimated total manufacturing overhead for the year is $2,558,568 and the company's estimated total direct labor-hours for the year is 54,520. 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

Estimated Overhead Cost $ 990,000 408,888 1,159,680 $ 2,558,568

DLHs Batches Product variations

Expected Activity VIP Kommander 24,120 30,400 1,478 1,046 2,622 1,218

Total 54,520 2,524 3,840

Unit overhead cost of Product Kommander under the activity-based costing system is closest to: A) $213.67. B) $71.67. C) $190.70. D) $119.03.

Version 1

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

134) 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: VIP Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

Kommander

$ 27.50 $ 15.60 0.60 40,000

$ 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: Version 1

A) $204.82. B) $68.70. C) $182.80. D) $114.10.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

135) 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 $ 810,000 $ 214,360

Estimated branch data for next year is as follows: % of time Portland Dallas Miami

30% 60% 10%

Computer time 222,000 minutes 172,000 minutes 72,000 minutes

How much of the headquarters cost allocation should the Dallas office expect to receive next year? A) $335,000 B) $489,800 C) $565,120 D) $603,000

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Difficulty : 3 Hard Topic : Activity-Based Costing in Administration Learning Objective : 09-08 Apply activity-based costing to marketing and administrative services. Type : Algorithmic Accessibility : Screen Reader Compatible

136) 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

Computer time

30% 60% 10%

200,000 minutes 150,000 minutes 50,000 minutes

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Difficulty : 3 Hard Topic : Activity-Based Costing in Administration Learning Objective : 09-08 Apply activity-based costing to marketing and administrative services. Accessibility : Screen Reader Compatible

137)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Remember Learning Objective : 09-01 Understand the potential effects of using reported product costs for decis Topic : Reported Product Costs and Decision Making Gradable : automatic Difficulty : 1 Easy Accessibility : Screen Reader Compatible

138) In an activity-based costing (ABC) system, what should be used to assign departmental manufacturing overhead costs to products produced in varying lot sizes?

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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

139) 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 adapted) Wall Mirrors Units produced 120 Material moves per product line 5 Direct labor-hours per product 600 line Budgeted material handling costs: $234,000

Specialty Windows 20 35 700

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) $900. C) $3,600. D) $13,000.

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140) 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 adapted) Wall Mirrors Units produced Material moves per product line Direct labor-hours per product line Budgeted material handling costs: $50,000

40 5 200

Specialty Windows 20 15 300

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

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141) 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 adapted) Wall Mirrors Units produced 200 Material moves per product 5 line Direct labor-hours per 1,000 product line Budgeted material handling costs: $546,000

Specialty Windows 20 55 1,100

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) $14,300. B) $12,000. C) $19,300. D) $46,800.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

142) 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 adapted) Units produced

Version 1

Wall Mirrors

Specialty Windows

20 105

Material moves per product line 5 Direct labor-hours per product 200 line Budgeted material handling costs: $50,000

15 300

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

143) 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 adapted) Wall Mirrors Units produced 130 Material moves per product 5 line Direct labor-hours per product 650 line Budgeted material handling costs: $119,000

Specialty Windows 25 30 750

Under an activity-based costing (ABC) system, the materials handling costs allocated to one unit of Wall Mirrors would be:

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A) $261.54. B) $130.77. C) $348.71. D) $418.46.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

144) 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 adapted) Wall Mirrors Units produced 40 Material moves per product line 5 Direct labor-hours per product 200 line Budgeted material handling costs: $50,000

Specialty Windows 20 15 300

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

145) 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 adapted) Wall Mirrors Units produced 80 Material moves per product 5 line Direct labor-hours per product 400 line Budgeted material handling costs: $87,000

Specialty Windows 20 25 500

Under an activity-based costing (ABC) system, the materials handling costs allocated to one unit of Specialty Windows would be: A) $3,625.00. B) $1,812.50. C) $609.97. D) $2,900.00.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Type : Algorithmic Accessibility : Screen Reader Compatible

146) 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 adapted) Wall Mirrors Units produced 40 Material moves per product line 5 Direct labor-hours per product 200 line Budgeted material handling costs: $50,000

Specialty Windows 20 15 300

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 147) Falcon Company manufactures and sells two models of 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:

Sales revenue Direct materials Direct labor

Basic Model

Explorer Model

(20,000 units)

(3,000 units)

$ 6,600,000 3,200,000 1,600,000

$ 3,645,000 450,000 675,000

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 09-01 Understand the potential effects of using reported product costs for decis Topic : Reported Product Costs and Decision Making Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

148) 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 to: Volume related

Batch related

Product related

Facility related

A. Bread for burger buns B. Take-out bags assuming one per 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. Advertising and coupons for Brenda’s Colossal Burger I. Utilities J. Brenda’s "Buy Any One Burger and Get One Free Burger" promotion

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149) 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. (1) Salaries and wages of laboratory techs are $600,000 based on 45% to S testing and 55% to PR testing. 2. (2) Equipment related overhead like maintenance and utilities amounts to $150,000, with a cost driver of number of test hours. 3. (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. (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.

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150) 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

$ 10.00 per purchase order 6.50 per metric ton 23.50 per direct labor-hour 0.25 per 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: a.Calculate the overhead cost of the order. b.Calculate total cost of the order. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Activity-Based Costing Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

151) 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

Products 102Y $ 58.00 31.50 30.00 $ 119.50

103Z $ 46.00 12.00 20.00 $ 78.00

4 3,000

2 5,000

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Topic : Two-Stage Cost Allocation Learning Objective : 09-03 Compare and contrast plantwide and department allocation methods. Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

152) 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. (1) Salaries and wages of laboratory techs are $600,000 (based on 45% for S and 55% for PR testing). 2. (2) Equipment related overhead like depreciation, maintenance, utilities, and insurance amounts to $150,000, with a cost driver of number of test hours. 3. (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. (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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 09-05 Compute product costs using activity-based costing. Difficulty : 3 Hard Gradable : manual Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

153) 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 3 7 $ 30,000

Number of Components 30 50 $ 50,000

Number of Direct LaborHours 650 150

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 activitybased 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Gradable : manual Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

154) 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: Products X Direct materials Direct labor Overhead

Machine-hours (per unit) Number of units (per year)

$ 85.00 42.00 40.00 $ 167.00

$ 74.00 31.50 30.00 $ 135.50

$ 66.00 22.00 20.00 $ 108.00

4 6,000

2 10,000

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? Note: Round your answers to four decimal places. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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155)

Cameron Company has two major segments with the following information:

Annual revenue Annual salesperson salaries Number of customers Miles driven

East

West

Total

$ 400,000 300,000 60 180,000

$ 1,200,000 450,000 90 120,000

$ 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 Cost Driver $ 72,000 Number of miles driven 288,000 Number of customers 289,000 Salaries $ 649,000

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. Note: Round percentages to four decimal places. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Topic : Activity-Based Costing in Administration Gradable : manual Learning Objective : 09-08 Apply activity-based costing to marketing and administrative services. Accessibility : Screen Reader Compatible

156) 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

Total Activity 16,200 hours 1,800 jobs 320 clients Not applicable

$ 239,770

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. Note: 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. Note: Round all calculations to the nearest whole cent. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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157) 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: Total Activity Activity Cost Pool Machine setups Purchase orders General factory

Total Cost

Product F

Product G

Total

$ 10,800

80 setups

100 setups

180 setups

$ 77,520

510 orders

1,010 orders

1,520 orders

$ 75,920

2,240 hours

3,600 hours

5,840 hours

Required: Using the activity-based costing approach, determine the overhead cost per unit for each product. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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158) Barnard Corporation has provided the following data from its activity-based costing system: Activity Cost Pools Designing products Batch setup Assembling products

Total Cost $ 806,715 23,660 42,240

Total Activity 6,895 product design hours 910 batch setups 3,520 assembly hours

Required: Compute the activity rates for each of the three cost pools. Show your work. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Activity-Based Costing Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

159)

Data concerning three of Parkeman Corporation's activity cost pools appear below:

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Activity Cost Pools Assembling products Designing products Batch setup

Total Cost $ 49,830 557,220 38,180

Total Activity 4,530 assembly hours 3,012 product design hours 830 batch set-ups

160) 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 $ 62.52 per batch $ 19.58 per customer order $ 8.71 per assembly hour

Data concerning two products appear below: Number of batches Number of customer orders Number of assembly hours

Product C

Product E

66 46 419

53 31 162

Required: How much overhead cost would be assigned to each of the products using the company's activity-based costing system?

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161) Work Horse Corporation uses the following activity rates from its activity-based costing system to assign overhead costs to products. Activity Cost Pools Batch setup Assembling products Processing customer orders

Activity Rate $ 83.75 per batch $ 2.88 per assembly hour $ 50.41 per customer order

Data concerning two products appear below: Number of batches Number of assembly hours Number of customer orders

Product J

Product S

34 105 17

41 824 38

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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162) Maximum Corporation uses the following activity rates from its activity-based costing system to assign overhead costs to products. Activity Cost Pools Batch setup Processing customer orders Assembling products

Activity Rate $ 74.76 per batch $ 55.40 per customer order $ 1.36 per 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Activity-Based Costing Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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163) Sarno Corporation has an activity-based costing system with three activity cost pools— Processing, 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

$ 3,000 9,800 9,200 MHs

Batches

Product #1 Product #2

5,800 4,200

700 300

Total

10,000

1,000

Sales Direct materials Direct labor

Product #1

Product #2

$ 45,300 19,600 15,900

$ 48,400 16,900 24,200

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164) Market Corporation has an activity-based costing system with three activity cost pools— Processing, 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 $ 39,000 Indirect labor $ 3,000 Distribution of Resource Consumption Across Activity Cost Pools Processing Batch Setup Other Factory utilities Indirect labor

0.10 0.30

0.60 0.10

0.30 0.60

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165) Vargus Corporation has an activity-based costing system with three activity cost pools— Processing, 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: Equipment depreciation Indirect labor

Processing

Batch Setup

Other

0.20 0.20

0.40 0.30

0.40 0.50

Required: Assign overhead costs to activity cost pools using activity-based costing. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Activity-Based Costing Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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166) Yang Corporation has an activity-based costing system with three activity cost pools— Machining, 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. Activity Cost Pools Machining

Setting Up

Other

Total

Equipment depreciation Indirect labor

$ 27,200 2,500

$ 6,800 1,000

$ 34,000 1,500

$ 68,000 5,000

Total

$ 29,700

$ 7,800

$ 35,500

$ 73,000

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. Data concerning the company’s two products and the company's costs appear below: MHs

Batches

Product Z Product Q

4,400 5,600

400 1,600

Total

10,000

2,000

Product Z Sales Direct materials Direct labor

$ 137,900 59,700 57,500

Product Q $ 173,300 43,400 96,000

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167) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 09-01 Understand the potential effects of using reported product costs for decis Topic : Reported Product Costs and Decision Making Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

168) Required: How can activity-based systems help managers in a global marketplace? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 09-01 Understand the potential effects of using reported product costs for decis Topic : Reported Product Costs and Decision Making Learning Objective : 09-02 Explain how a two-stage product costing system works. Topic : Two-Stage Cost Allocation Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

169) Brenda's Big Burgers, a small hamburger restaurant and take-out drive-through, has identified the resources below that it uses in its business. Required: Suggest a proper cost driver for each of the following items:

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Resource

Bread for burger buns

B. C.

Take-out bags assuming one per drive-through customer order Ground sirloin

Mayonnaise, catsup, pickles, and onions

Salary of the restaurant manager

Restaurant rent

Workers hourly wages

Coupons for Brenda’s Colossal Burger

Utilities

Brenda’s "Buy Any One Burger and Get One Free Burger" promotion

Cost Driver Example

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170) 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

Building utilities

Computer operations

Quality control

Material handling

Material storage

Factory depreciation

Set up costs

Engineering changes

Advertising expense

Driver and why appropriate

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171) Required: Why is a plantwide allocation method often considered to be a single-stage allocation approach? Explain. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Learning Objective : 09-02 Explain how a two-stage product costing system works. Topic : Two-Stage Cost Allocation Learning Objective : 09-03 Compare and contrast plantwide and department allocation methods. Gradable : manual Bloom's : Understand Accessibility : Screen Reader Compatible

172) Required: Describe the four steps involved in activity-based costing. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Activity-Based Costing Gradable : manual Bloom's : Understand Accessibility : Screen Reader Compatible

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173) Required: Describe four classifications of cost drivers. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Cost Hierarchies Gradable : manual Bloom's : Understand Accessibility : Screen Reader Compatible

174) Required: 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 09-04 Explain how activity-based costing and a two-stage product system are rela Topic : Cost Hierarchies Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

175) Required: "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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Difficulty : 2 Medium Gradable : manual Bloom's : Understand Topic : Who Uses ABC? Learning Objective : 09-08 Apply activity-based costing to marketing and administrative services. Accessibility : Screen Reader Compatible

176) Required: Explain how activity-based costing provides a more detailed measure of costs than do plantwide or department allocation methods.

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177) Required: 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 09-02 Explain how a two-stage product costing system works. Topic : Two-Stage Cost Allocation Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

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178) 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

Product L43

$ 11 6

$ 24 12

Required: Total Activity 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

Product K9 Product L43 800 1,600 500 100 7,000 10,500 650 850

Total 2,400 600 17,500 1,500

$ 510,000

Using the data above, determine the unit product cost of each product for the current year. 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: 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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179) 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

Total Activity 44,900 hours 5,700 jobs 270 clients Not applicable

$ 564,213

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. Note: Round all calculations to the nearest whole cent. b.Using the activity-based costing system, compute the customer margin for the Layton family. Note: 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. Note: Round all calculations to the nearest whole cent.

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180) Harrison Industries has an activity-based costing system with three activity cost pools— Processing, 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 $ 29,000 Indirect labor 7,000 Distribution of Resource Consumption Across Activity Cost Pools Processing Setting Up Other Factory utilities Indirect labor

0.40 0.50 MHs

0.10 0.20 Batches

0.50 0.30

Product #1 Product #2

2,900 7,100

700 300

Total

10,000

1,000

Sales

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Product #1

Product #2

$ 54,000

$ 85,100

139

Direct materials Direct labor

19,100 26,300

33,500 35,000

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 09-05 Compute product costs using activity-based costing. Difficulty : 3 Hard Gradable : manual Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

181) Excel Manufacturing has an activity-based costing system with three activity cost pools— Machining, 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

Batches

Product A Product B

5,200 14,800

500 500

Total

20,000

1,000

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Product A Sales Direct materials Direct labor

Product B

$ 124,300 53,100 54,000

$ 166,000 71,500 56,600

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 09-05 Compute product costs using activity-based costing. Difficulty : 3 Hard Gradable : manual Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

182) Sebastian Corporation's activity-based costing system has three activity cost pools— Machining, 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 $ 27,000 Indirect labor 7,000 Distribution of Resource Consumption Across Activity Cost Pools Machining Batch Setup Other Equipment depreciation Indirect labor

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0.40 0.20

0.30 0.30

0.30 0.50

141

Batches

Product Snorkel Product Fin

8,100 1,900

400 1,600

Total

10,000

2,000

Additional data concerning the company's products appear below: Sales Direct materials Direct labor

Product Snorkel

Product Fin

$ 71,400 21,900 33,700

$ 57,600 19,900 25,100

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183) 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: MHs

Batches

Product Sea Product Air

2,000 8,000

800 200

Total

10,000

1,000

Additional data concerning the company's products appears below: Product Sea Sales Direct materials Direct labor

$ 220,700 78,600 89,600

Product Air $ 165,500 83,100 58,000

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184) 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: Product A

Product B

Estimated volume Direct labor-hours per unit Direct materials cost per unit

3,400 units 1.40 hour $ 7.40

4,800 units 1.90 hours $ 12.70

Direct labor cost per unit

$ 14.00

$ 19.00

Required: Expected Activity Activity Cost Pool Machine setups Purchase orders General factory

Estimated Overhead Costs $ 12,190 79,200 69,400

Product A

Product B

Total

80 730 4,760

150 920 9,120

230 1,650 13,880

$ 160,790

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Determine the unit product cost of each product for the current period using the activity-based costing approach. 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: ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 09-05 Compute product costs using activity-based costing. Difficulty : 3 Hard Gradable : manual Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

185) 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: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

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Large

Small

$ 17.80 $ 16.10 0.70 30,000

$ 55.40 $ 55.20 2.40 15,000

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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 Activities Supporting direct labor Setting up machines Parts administration

Estimated Overhead Cost $ 285,000 437,190 1,071,600 $ 1,793,790 Large 21,000 798 1,539

Small 36,000 2,565 1,140

Total 57,000 3,363 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 the activity-based costing system. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Gradable : manual Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

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186) 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: Boom

Wow

$ 14.90 $ 4.20 0.20 40,000

$ 44.30 $ 25.20 1.20 15,000

Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

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) Engraving (MHs) Total Activities Assembling products Preparing batches Engraving

Estimated Overhead Cost $ 702,000 132,600 975,000 $ 1,809,600 Boom 8,000 884 702

Wow 18,000 442 1,248

Total 26,000 1,326 1,950

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187) 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: Manual Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

$ 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

Supporting direct labor Setting up machines Parts administration

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24,000 2,346 1,122

Power

Total

27,000 510 663

51,000 2,856 1,785

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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 the activity-based costing system. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 09-06 Compare activity-based product costing to traditional department product c Difficulty : 3 Hard Gradable : manual Topic : Activity-Based Costing Illustrated Accessibility : Screen Reader Compatible

188) 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: Utility Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production

$ 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

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Estimated Overhead Cost

149

Assembling products (DLHs) Preparing batches (batches) Axial milling (MHs) Total

$ 608,000 197,600 722,000 $ 1,527,600 Utility

Assembling products Preparing batches Axial milling

21,000 456 570

Super

Total

17,000 1,520 874

38,000 1,976 1,444

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189) The manager of the Personnel Department at King Enterprises has been reading about time-driven 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Topic : Activity-Based Costing in Administration Learning Objective : 09-09 Explain how time-driven activity-based costing works. Topic : Time-Driven Activity-Based Costing Gradable : manual Learning Objective : 09-08 Apply activity-based costing to marketing and administrative services. Accessibility : Screen Reader Compatible

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Answer Key Test name: Lanen7e_ch09 1) TRUE 2) FALSE The death spiral concept refers to the process that begins by attempting to increase price to meet reported product costs, losing market, reporting still higher costs, and so on, until the firm is out of business. 3) TRUE 4) FALSE Both stages use cost pools. The first-stage uses intermediate cost pools and the second-stage allocates to products. 5) FALSE Predetermined overhead rates can be used in both stages of cost allocations. 6) FALSE Although it is called plantwide allocation, this allocation concept can be used in both manufacturing and nonmanufacturing organizations. 7) TRUE 8) TRUE 9) TRUE Since the products are similar and use the same resources, all of the products should cost roughly the same. 10) TRUE 11) FALSE Diverse products with different sets of resources need a more refined allocation rate than that used in a plantwide allocation method, where allocations are roughly the same. 12) TRUE Version 1

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13) FALSE Like the department allocation method, ABC is a two-stage product costing method. 14) TRUE 15) FALSE An activity is any discrete task that an organization undertakes to make or deliver a product or service. 16) FALSE Activity-based costing is based on the concept that products consume activities and activities consume resources. 17) FALSE The number of products produced is an example of a product related cost driver. 18) TRUE 19) FALSE Number of shipments would be an appropriate cost driver for shipping costs, not assembling. 20) FALSE The first step in activity-based costing is to identify the activities. Computing the cost driver rates is step 3. 21) TRUE 22) FALSE Activity-based costing provides more information about product costs but requires more recordkeeping. 23) TRUE 24) TRUE 25) TRUE 26) TRUE 27) FALSE

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Low-volume products often add complexity to operations by disrupting the production flow of high-volume items. 28) TRUE 29) TRUE 30) TRUE 31) FALSE Activity-based costing can be applied to both administrative and marketing services. 32) FALSE A likely cost driver for the cost of placing orders would be the number of orders placed. 33) FALSE ABC means different things to different observers because there is no one ABC method. 34) TRUE 35) FALSE Time-driven activity-based costing is less costly to implement and maintain than unmodified activity-based costing. 36) TRUE 37) A When product costs are used for making decisions, the assumption about proportionality of the cost and output can distort decisions. 38) C When a department or product line is dropped, the common fixed costs that had been allocated to that department are allocated to the remaining departments or product lines. 39) C Traditional product costing systems (e.g., job and process costing) are designed primarily for developing inventory balances and cost of goods sold amounts for financial reporting. Version 1

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40) D A two-stage system first allocates costs to departments or activities and then allocates costs from the departments or activities to the products or services. 41) D The first-stage cost objects are the overhead accounts. Direct materials are traced directly to the products. 42) D Activity-based costing is a two-stage product costing method that assigns costs to activities and then to products based on each product’s use of activities. 43) A Costs are assigned to activities first; activity usage is then used to allocate the activity costs. 44) D Cost pools are used with both plantwide and departmental rates. 45) A Sales volume is not related to production, while all the others are. 46) B Companies using a single plantwide rate generally use an allocation base related to the volume of output, such as machine-hours, direct material cost, and direct labor-hours. Less common is the use of batch related allocation bases such as production runs. 47) B If multiple products use the manufacturing facilities in many different ways, departmental rates provide a better picture of the use of manufacturing resources by the different products. 48) C The classification of cost drivers into general levels of activity, volume, batch, product, and so on is known as a cost hierarchy. Version 1

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49) C ABC does require more recordkeeping than other methods. Costs are a function of activities rather than volume, and allocations are of indirect costs rather than direct costs. 50) A The more units are produced, the more the machines run and the more electricity is consumed. 51) C The services provided are the products, so product related is the best category. 52) D Compliance costs are more likely a product related activity. 53) B Performing 100% inspection would be a volume related activity. 54) A Traditional costing uses volume related activities exclusively 55) D Need related activities are not an allocation base for allocating overhead costs to units produced. 56) D There are typically more cost pools under ABC and more bases as well. 57) D Facility related activities are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made. 58) A Batch level activities are activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in the batch. The amount of resource consumed depends on the number of batches run rather than on the number of units in the batch. Version 1

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59) D Product related includes activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run. Batch related activities are performed each time a batch of goods is handled or processed regardless of how many units are in the batch. The amount of resource consumed depends on the number of batches run rather than on the number of units in the batch. 60) D Facility related activities are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made. 61) B Product costs are computed by multiplying the cost driver rate by the number of units of the cost driver in each product. 62) B Determining how to reduce the costs of making products by cutting activities is not a step involved in activity-based costing. 63) B Activity-based costs are typically greater for the low-volume products but not for high-volume. 64) B High-volume products have too much overhead allocated because they have more of the volume activity. The opposite is true for low-volume. 65) A Volume still affects costs since there are volume related activities. 66) A Activity-based costing provides more detailed measures of costs than do plantwide or department allocation methods. 67) D Version 1

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“Allocations Incurred” is not an account. ABC uses the same accounts that are used in a traditional costing system. The difference is that overhead accounts are classified by activity. 68) B Material handling would logically be related to the amount of material in a product. 69) D ABC for administrative services follows the same four-step procedure described for manufacturing. 70) A The most appropriate pairing of activities with cost drivers in a Purchasing Department would be Activity: Placing orders; Cost Driver: Number of orders. 71) D This approach only requires the cost of departmental resources and the time it takes to complete various activities in the department. 72) B Time equations allow managers to adjust the times for orders with different characteristics using the TDABC system. 73) D Total overhead = ($28.00 × 300) + ($20.00 × 500) + ($18.00 × 600) = $29,200; Total machine-hours = (4 × 300) + (2 × 500) + (3 × 600) = 4,000; Overhead rate = $29,200 ÷ 4,000 = $7.30 per machine-hour 74) D Total overhead = ($28 × 300) + ($21 × 500) + ($14 × 600) = $27,300; Total machine-hours = (4 × 300) + (2 × 500) + (3 × 600) = 4,000; Overhead rate = $27,300 ÷ 4,000 = $6.825 per machine-hour 75) D

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Total overhead = ($28.00 × 300) + ($17.00 × 500) + ($14.00 × 600) = $25,300; Total machine-hours = (4 × 300) + (2 × 500) + (3 × 600) = 4,000; Overhead rate = $25,300 ÷ 4,000 = $6.325 per machine-hour; Product cost for GC: $75.00 + $34.50 + ($6.325 × 2) = $122.15 76) D Total overhead = ($28 × 300) + ($21 × 500) + ($14 × 600) = $27,300; Total machine-hours = (4 × 300) + (2 × 500) + (3 × 600) = 4,000; Overhead rate = $27,300 ÷ 4,000 = $6.825 per machine-hour; Product cost for GC: $72.00 + $31.50 + ($6.825 × 2) = $117.15 77) B Total overhead = ( $26.00 × 350) + ($22.00 × 550) + ($14.00 × 650) = $30,300; Total machine-hours = (5 × 350) + (3 × 550) + (4 × 650) = 6,000; Overhead rate = $30,300 ÷ 6,000 = $5.050 per machine-hour; Product cost for C: $90.00 + $44.00 + ($5.050 × 5) = $159.25 78) B Total overhead = ($28 × 300) + ($21 × 500) + ($14 × 600) = $27,300; Total machine-hours = (4 × 300) + (2 × 500) + (3 × 600) = 4,000; Overhead rate = $27,300 ÷ 4,000 = $6.825 per machine-hour; Product cost for C: $100.00 + $42.00 + ($6.825 × 4) = $169.30 79) B $357,000 ÷ (14,000 + 7,000) = $17 per DLH; 14,000 × $17 = $238,000 80) B $396,000 ÷ (14,000 + 8,000) = $18.00 per DLH; 14,000 × $18.00 = $252,000 81) A $567,000 ÷ (18,000 + 9,000) = $21 per DLH; 9,000 × $21 = $189,000 82) A $396,000 ÷ (14,000 + 8,000) = $18.00 per DLH; 8,000 × $18.00 = $144,000 83) C Version 1

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$405,000 ÷ (800 + 200) = $405 per loan; 200 × $405 = $81,000; $81,000 + $210,000 = $291,000 84) C $396,000 ÷ (700 + 300) = $396 per loan; 300 × $396 = $118,800; $118,800 + $180,000 = $298,800 85) D $409,500 ÷ (800 + 250) = $390 per loan; 800 × $390 = $312,000; $312,000 + $240,000 = $552,000 86) D $396,000 ÷ (700 + 300) = $396 per loan; 700 × $396 = $277,200; $277,200 + $280,000 = $557,200 87) C $392,000 ÷ (300 + 700) = $392 per loan; $392 × 300 = $117,600 88) C $396,000 ÷ (300 + 700) = $396 per loan; $396 × 300 = $118,800 89) C $392,000 ÷ (300 + 700) = $392 per loan; $392 × 700 = $274,400 90) C $396,000 ÷ (300 + 700) = $396 per loan; $396 × 700 = $277,200 91) A $450,000 ÷ (16,000 + 9,000) = $18 per hour 92) A $396,000 ÷ (14,000 + 8,000) = $18 per hour 93) A The activity rates for each activity cost pool are computed as follows: Total Cost Assembly Processing orders Inspection

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Total Activity

$ 1,111,120 $ 86,210

76,000 machine-hours

$ 134,232

1,880 inspectionhours

1,850 orders

Activity Rate $ per machine14.62 hour $ per order 46.60 $ per 71.40 inspection160

hour

The overhead cost charged to Product O37W is: Activity Rate Assembly Processing orders Inspection

Activity

ABC Cost

$ 14.62 per machinehour $ 46.60 per order

650 machinehours 40 orders

$ 9,503.00

$ 71.40 per inspectionhour

20 inspectionhours

Total overhead cost

1,864.00 1,428.00

$ 12,795.00

Direct materials (420 units × $37.08 per unit) Direct labor (420 units × $30.14 per unit) Overhead

$ 15,573.60 12,658.80

12,795.00

Cost per unit (420 units)

$ 41,027.40 $ 97.68

94) A The activity rates for each activity cost pool are computed as follows: Total Cost Assembly Processing orders Inspection

$ 942,480 $ 85,050

Total Activity 66,000 machine-hours 1,800 orders

Activity Rate $ 14.28 per machine-hour $ 47.25 per order

$ 126,854

1,820 inspection-hours

$ 69.70 per inspection-ho

The overhead cost charged to Product O37W is: Activity Rate Assembly Processing orders Inspection

$ 14.28 per machinehour $ 47.25 per order $ 69.70 per inspectionhour

Activity

ABC Cost

690 machinehours 40 orders 10 inspectionhours

$ 9,853.20 1,890.00 697.00

Total overhead

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cost

12,440.20

Direct materials $ (430 units × 15,359.60 $35.72 per unit) Direct labor (430 12,667.80 units × $29.46 per unit) Overhead 12,440.20 Cost per unit (430 units)

$ 40,467.60 $ 94.11

95) A The activity rates for each activity cost pool are computed as follows: Total Cost Assembly Processing orders Inspection

Total Activity

Activity Rate

$ 1,300,200 $ 55,587

66,000 machine-hours 2,100 orders

$ 19.70 per machine-hour $ 26.47 per order

$ 147,340

2,120 inspectionhours

$ 69.50 per inspectionhour

The overhead cost charged to Product S78N is: Assembly Processing orders Inspection

Activity Activity Rate $ 19.70 per machine710 Machine-hours hour $ 26.47 per order 30 Orders $ 69.50 per inspectionhour

Total overhead cost Sales (460 units × $118.80 per unit) Direct materials (460 units × $50.37 per unit)

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15 Inspectionhours

ABC Cost $ 13,987.00 794.10 1,042.50

$ 15,823.60 $ 54,648.00

$ 23,170.20

162

Direct labor (460 units × $12.62 per unit) Overhead

5,805.20

15,823.60

44,799.00

Product margin

$ 9,849.00

96) A The activity rates for each activity cost pool are computed as follows: Assembly Processing orders Inspection

Total Cost

Total Activity

Activity Rate

$ 1,114,920 $ 47,016

57,000 machine-hours

$ 107,328

1,560 inspectionhours

1,800 orders

$ per machine19.56 hour $ per order 26.12 $ per 68.80 inspectionhour

The overhead cost charged to Product S78N is: Assembly Processing orders Inspection

Activity Rate $ 19.56 per machinehour $ 26.12 per order $ 68.80 per inspectionhour

Total overhead cost Sales (430 units × $129.90 per unit) Direct materials (430 units × $49.81 per unit) Direct labor (430 units × $12.34 per unit) Overhead

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Activity

ABC Cost

1,120 machinehours 40 orders

$ 21,907.20 1,044.80

30 inspectionhours

2,064.00

$ 25,016.00 $ 55,857.00

$ 21,418.30 5,306.20

25,016.00

51,740.50

163

Product margin

$ 4,116.50

97) D The activity rates for each activity cost pool are computed as follows: Total Cost Assembly Processing orders Inspection

Total Activity

Activity Rate

$ 23,200 machine-hours 390,224 $ 55,608 1,200 orders $ 110,390

$ per machine16.82 hour $ per order 46.34 $ per inspection66.50 hour

1,660 inspectionhours

The overhead cost charged to Product A43V is: Activity Rate Assembly Processing orders Inspection

Activity

ABC Cost

$ 16.82 per machinehour $ 46.34 per order

340 machinehours 90 orders

$ 5,718.80

$ 66.50 per inspectionhour

14 inspectionhours

Total overhead cost

4,170.60 931.00

$ 10,820.40

Sales (230 units × $125.00 per unit) Direct materials $ (230 units × 5,087.60 $22.12 per unit) Direct labor 10,540.90 (230 units × $45.83 per unit) Overhead 10,820.40

$ 28,750.00

Product margin

$ 2,301.10

26,448.90

98) D The activity rates for each activity cost pool are computed as follows: Total Cost

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Total Activity

Activity Rate

164

Assembly Processing orders Inspection

$ 383,180 $ 50,798

23,000 machine-hours $ 16.66 per machinehour 1,100 orders $ 46.18 per order

$ 106,110

1,620 inspectionhours

$ 65.50 per inspectionhour

The overhead cost charged to Product A43V is: Activity Rate Assembly Processing orders Inspection

Activity

$ 16.66 per machinehour $ 46.18 per order

320 machine-hours

$ 65.50 per inspectionhour

10 inspection-hours

Total overhead cost

80 orders

ABC Cost $ 5,331.20 3,694.40 655.00

$ 9,680.60

Sales (210 units × $124.60 per unit) Direct $ materials (210 4,636.80 units × $22.08 per unit) Direct labor 9,611.70 (210 units × $45.77 per unit) Overhead 9,680.60

$ 26,166.00

Product margin

$ 2,236.90

23,929.10

99) D $268,750 ÷ 125,000 = $2.15 per unit; $2.15 × 75,000 = $161,250 100) D $260,000 ÷ 130,000 = $2 per unit; $2 × 80,000 = $160,000 101) D

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[($75,000 ÷ 50) × 20] + [($51,000 ÷ 70) × 49] + [($219,000 ÷ 150,000) × 90,000] = $197,100; $197,100 ÷ 90,000 = $2.19 102) D [($82,000 ÷ 20) × 8] + [($48,000 ÷ 80) × 56] + [($130,000 ÷ 130,000) × 80,000] = $146,400; $146,400 ÷ 80,000 = $1.83 103) B $337,500 ÷ 150,000 = $2.25 per unit; $2.25 × 60,000 = $135,000 104) B $260,000 ÷ 130,000 = $2 per unit; $2 × 50,000 = $100,000 105) B [($73,000 ÷ 40) × 28] + [($42,000 ÷ 90) × 18] + [($153,750 ÷ 125,000) × 50,000] = $121,000; $121,000 ÷ 50,000 = $2.42. 106) B [($82,000 ÷ 20) × 12] + [($48,000 ÷ 80) × 24] + [($130,000 ÷ 130,000) × 50,000] = $113,600; $113,600 ÷ 50,000 = $2.27. 107) C [($100,000 ÷ $20) × $80] + (8 × $3,850) + ($25 × 12,000) + ($400 × 12) = $735,600 108) C [($100,000 ÷ $20) × $80] + ($3,750 × 8) + ($25 × 12,000) + ($500 × 12) = $736,000 109) B $60 × 15,000 = $900,000 110) B $60 × 12,000 = $720,000 111) C Direct labor-hour calculation: Basic Product (2,400 units × 0.3 direct labor-hours) Deluxe Product (2,000 units × 0.6 direct labor-hours)

720 1,200

Total direct labor-hours

1,920

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$99,385 total overhead ÷ 1,920 direct labor-hours = $51.76 per direct labor-hour 112) C Direct labor-hour calculation: Basic Product (1,700 units × 0.3 direct labor-hours) Deluxe Product (1,100 units × 0.6 direct labor-hours) Total direct labor-hours

510 660 1,170

$98,785 total overhead ÷ 1,170 direct labor-hours = $84.43 per direct labor-hour 113) A Total direct labor-hours = (1,900 × 0.4 hours) + (1,500 × 0.8 hours) = 1,960 total direct labor-hours; $99,635 total overhead ÷ 1,960 direct labor-hours = $50.83 per direct labor-hour; $50.83 × 0.8 direct labor-hours = $40.66 per unit. 114) A Total direct labor-hours = (1,700 × 0.3 hours) + (1,100 × 0.6 hours) = 1,170 total direct labor-hours; $98,785 total overhead ÷ 1,170 direct labor-hours = $84.43 per direct labor-hour; $84.43 × 0.6 direct labor-hours = $50.66 per unit. 115) A The activity rates for each activity cost pool are computed as follows: Total Cost Activity 1 Activity 2 General Factory

$ 30,744 17,655 51,286

Total Activity 2,300 2,450 1,740

Activity Rate $ 13.37 $ 7.21 $ 29.47

$ 99,685

116) A The activity rates for each activity cost pool are computed as follows:

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167

Activity 1 Activity 2 General Factory

Total Cost

Total Activity

Activity Rate

$ 30,528 17,385 50,872

1,600 1,900 1,170

$ 19.08 $ 9.15 $ 43.48

$ 98,785

117) D The activity rates for each activity cost pool are computed as follows: Total Cost Activity 1 Activity 2 General Factory

Total Activity Activity Rate

$ 30,600 17,475 51,010

1,600 2,000 1,470

$ 19.13 8.74 34.70

Activity

ABC Cost

$ 99,085

The overhead cost charged to Deluxe Product is: Activity 1 Activity 2 General Factory

Activity Rate $ 19.13 $ 8.74 $ 34.70

× × ×

600 400 900

$ 11,478.00 3,496.00 31,230.00 $ 46,204.00

# of units

1,500

Per unit

$ 30.80

118) D The activity rates for each activity cost pool are computed as follows: Total Cost Activity 1 Activity 2 General Factory

Total Activity Activity Rate

$ 30,528 17,385 50,872

1,600 1,900 1,170

$ 19.08 9.15 43.48

Activity

ABC Cost

$ 98,785

The overhead cost charged to Deluxe Product is: Activity Rate

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168

Activity 1 Activity 2 General Factory

$ 19.08 $ 9.15 $ 43.48

× × ×

600 200 660

$ 11,448.00 1,830.00 28,696.80 $ 41,974.80

# of units

1,100

Per unit

$ 38.16

119) A Direct labor-hour calculation: Product Plain 35,000 units × 0.2 direct labor-hours Product Fancy 25,000 units × 1.0 direct labor-hour

7,000 25,000

Total direct labor-hours

32,000

$1,040,000 total overhead ÷ 32,000 direct labor-hours = $32.50 per direct labor-hour $32.50 per direct labor-hour × 0.20 direct labor-hours = $6.50 per unit 120) A Direct labor-hour calculation: Product Plain 45,000 units × 0.2 direct labor-hours Product Fancy 15,000 units × 1.0 direct labor-hour

9,000 15,000

Total direct labor-hours

24,000

$985,440 total overhead ÷ 24,000 direct labor-hours = $41.06 per direct labor-hour $41.06 per direct labor-hour × 0.2 direct labor-hours = $8.21 per unit 121) D The activity rates for each activity cost pool are computed as follows: Total Cost Supporting direct labor (DLHs) Setting up machines (setups) Parts administration (part types)

$ 558,000 268,870 351,130

Total Activity 31,000 DLHs

Activity Rate $ 18.00 per DLH

2,338 Setups

$ 115.00 per Setup

962 Part types

$ 365.00 per Part Type

$ 1,178,000

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169

The overhead cost charged to Product Fancy is: Activity Rate Supporting direct labor $ 18.00 (DLHs) Setting up machines $ 115.00 (setups) Parts administration $ 365.00 (part types)

per DLH

Activity

ABC Cost

25,000 DLHs

$ 450,000

per Setup

945 Setups

108,675

per Part Type

310 Part types

113,150 $ 671,825

# of units

25,000

Per unit

$ 26.87

122) D The activity rates for each activity cost pool are computed as follows: Supporting direct labor (DLHs) Setting up machines (setups) Parts administration (part types)

Total Cost $ 384,000 255,840

Total Activity 24,000 DLHs

$ 16.00 per DLH

1,968 Setups

$ 130.00 per Setup

345,600

Activity Rate

864 Part types

$ 400.00 per Part Type

$ 985,440

The overhead cost charged to Product Fancy is: Activity Rate Supporting direct labor $ 16.00 (DLHs) Setting up machines $ 130.00 (setups) Parts administration $ 400.00 (part types)

per DLH

Activity

ABC Cost

15,000 DLHs

$ 240,000

per Setup

936 Setups

121,680

per Part Type

240 Part types

96,000 $ 457,680

Version 1

# of units

15,000

Per unit

$ 30.51

170

123) C Direct labor-hour calculation: Product Slow 35,000 units × 0.2 direct labor-hours Product Fast 20,000 units × 1.6 direct labor-hours

7,000 32,000

Total direct labor-hours

39,000

$1,626,700 total overhead ÷ 39,000 direct labor-hours = $41.71 per direct labor-hour $41.71 per direct labor-hour × 0.20 direct labor-hours = $8.34 per unit 124) C Direct labor-hour calculation: Product Slow 30,000 units × 0.2 direct labor-hours Product Fast 15,000 units × 1.6 direct labor-hours

6,000 24,000

Total direct labor-hours

30,000

$1,526,700 total overhead ÷ 30,000 direct labor-hours = $50.89 per direct labor-hour $50.89 per direct labor-hour × 0.2 direct labor-hours = $10.18 per unit 125) B The activity rates for each activity cost pool are computed as follows: Assembling products (DLHs) Preparing batches (batches) Product support (product variations)

Total Cost

Total Activity

$ 1,584,000 487,890

62,400 Direct LaborHour 3,510 Batches

895,710

2,190 Product Variations

Activity Rate $ 25.38 per Direct Labor-Hour $ per Batch 139.00 $ per Product 409.00 Variation

$ 2,967,600

The overhead cost charged to Product Fast is: Activity Rate Assembling products (DLHs) Preparing batches (batches)

Version 1

$ 25.38 per Direct Labor-Hour $ per Batch 139.00

Activity

ABC Cost

52,800 Direct Labor$ Hour 1,340,308 1,770 Batches 246,030

171

Product support (product variations)

$ per Product 409.00 Variation

1,080 Product Variations

441,720

$ 2,028,058 # of units

33,000

Per unit

$ 61.46

126) B The activity rates for each activity cost pool are computed as follows: Total Cost Assembling products (DLHs) Preparing batches (batches) Product support (product variations)

$ 720,000 362,700 444,000

Total Activity 30,000 Direct LaborHour 2,790 Batches 1,110 Product Variations

Activity Rate $ 24.00 per Direct Labor-Hour $ per Batch 130.00 $ per Product 400.00 Variation

$ 1,526,700

The overhead cost charged to Product Fast is: Assembling products (DLHs) Preparing batches (batches) Product support (product variations)

Activity Rate

Activity

ABC Cost

$ 24.00 per Direct Labor-Hour $ per Batch 130.00 $ per Product 400.00 Variation

24,000 Direct LaborHour 1,410 Batches

$ 576,000 183,300

540 Product Variations

216,000

$ 975,300 # of units

15,000

Per unit

$ 65.02

127) B Direct labor-hour calculation: Product Long 30,000 units × 0.80 direct labor-hours

24,000

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172

Product Short 20,000 units × 2.40 direct labor-hours

48,000

Total direct labor-hours

72,000

$4,020,480 total overhead ÷ 72,000 direct labor-hours = $55.84 per direct labor-hour. $55.84 per direct labor-hour × 0.80 direct labor-hours = $44.67 per unit. Direct materials

$ 14.80

Direct labor

17.40

Manufacturing overhead

44.67

Unit product cost

$ 76.87

128) B Direct labor-hour calculation: Product Long 45,000 units × 0.8 direct labor-hours Product Short 10,000 units × 2.4 direct labor-hours

36,000 24,000

Total direct labor-hours

60,000

$3,170,400 total overhead ÷ 60,000 direct labor-hours = $52.84 per direct labor-hour. $52.84 per direct labor-hour × 0.8 direct labor-hours = $42.27 per unit. Direct materials

$ 14.20

Direct labor

16.80

Manufacturing overhead

42.27

Unit product cost

$ 73.27

129) C The activity rates for each activity cost pool are computed as follows: Total Cost Direct labor support (DLHs)

$ 1,716,000

Setting up machines (setups) Part administration

426,240

Total Activity 67,680 Direct LaborHours 2,880 Setups

1,026,720

3,720 Part

Version 1

Activity Rate $ 25.35 per Direct Labor-Hour $ per Setup 148.00 $ per Part 173

(part types)

Types

276.00 Type

$ 3,168,960

The overhead cost charged to Product Short is: Activity Rate Direct labor support (DLHs)

$ 25.35 per Direct Labor-Hour

Setting up machines (setups) Part administration (part types)

$ per Setup 148.00 $ per Part 276.00 Type

Activity

ABC Cost

26,880 Direct LaborHours 1,620 Setups

$ 681,408

239,760

2,640 Part Types

728,640 $ 1,649,808

# of units

11,200

per unit

$ 147.30

130) C The activity rates for each activity cost pool are computed as follows: Total Cost Direct labor support (DLHs) Setting up machines (setups) Part administration (part types)

$ 1,740,000 422,400 1,008,000

Total Activity 60,000 Direct LaborHours 2,640 Setups 3,360 Part Types

Activity Rate $ 29.00 per Direct Labor-Hour $ per Setup 160.00 $ per Part 300.00 Type

$ 3,170,400

The overhead cost charged to Product Short is: Activity Rate Direct labor support $ 29.00 per Direct (DLHs) Labor-Hour Setting up machines (setups) Part administration

Version 1

$ per Setup 160.00 $ per Part

Activity

ABC Cost

24,000 Direct LaborHours 1,500 Setups

$ 696,000

2,460 Part Types

240,080 738,000

174

(part types)

300.00 Type $ 1,674,000 # of units

10,000

per unit

$ 167.40

Product VIP 43,800 units × 0.60 direct labor-hours Product Kommander 18,800 units × 2.00 direct labor-hours

26,280 37,600

Total direct labor-hours

63,880

131) B Direct labor-hour calculation:

$2,563,440 total overhead ÷ 63,880 direct labor-hours = $40.13 per direct labor-hour. $40.13 per direct labor-hour × 0.60 direct labor-hours = $24.08 per unit. Direct materials

$ 27.50

Direct labor

15.60

Manufacturing overhead

24.08

Unit product cost

$ 67.18

132) B Direct labor-hour calculation: Product VIP 40,000 units × 0.6 direct labor-hours Product Kommander 15,000 units × 2.0 direct labor-hours

24,000 30,000

Total direct labor-hours

54,000

$2,449,440 total overhead ÷ 54,000 direct labor-hours = $45.36 per direct labor-hour. $45.36 per direct labor-hour × 0.6 direct labor-hours = $27.22 per unit. Direct materials

$ 27.50

Direct labor

15.60

Manufacturing overhead

27.22

Unit product cost

Version 1

$ 70.32

175

133) B The activity rates for each activity cost pool are computed as follows: Total Cost Assembling products (DLH) Preparing batches (batches) Product support (product variations)

Total Activity

Activity Rate

$ 990,000 54,520 Direct Labor-Hours 408,888 2,524 Batches

$ 18.16 per Direct Labor-Hour $ per Batch 162.00 $ per Product 302.00 Variation

1,159,680

3,840 Product Variations

$ 2,558,568

The overhead cost charged to Product Kommander is: Activity Rate Assembling $ 18.16 per Direct products (DLHs) Labor-Hour Preparing batches $ per Batch (batches) 162.00 Product support $ per Product (product 302.00 Variation variations)

Activity

ABC Cost

30,400 Direct Labor-Hours 1,046 Batches

$ 552,064

1,218 Product Variations

367,836

169,452

$ 1,089,352 # of units

15,200

per unit

$ 71.67

134) B The activity rates for each activity cost pool are computed as follows: Total Cost Assembling products (DLH) Preparing batches (batches) Product support (product variations)

Version 1

Total Activity

Activity Rate

$ 918,000 54,000 Direct Labor-Hours 397,440 2,484 Batches

$ 17.00 per Direct Labor-Hour $ per Batch 160.00 $ per Product 300.00 Variation

1,134,000

3,780 Product Variations

176

$ 2,449,440

The overhead cost charged to Product Kommander is: Activity Rate Assembling $ 17.00 per Direct products (DLHs) Labor-Hour Preparing batches $ per Batch (batches) 160.00 Product support $ per Product (product 300.00 Variation variations)

Activity

ABC Cost

30,000 Direct Labor-Hours 1,026 Batches

$ 510,000

1,188 Product Variations

356,400

164,160

$ 1,030,560 # of units

15,000

per unit

$ 68.70

135) C Allocations to the Dallas office: General service (60% × $810,000) Research service*

$ 486,000 79,120

Total

$ 565,120

*($214,360 ÷ 466,000 minutes) = $0.46 × 172,000 minutes = $79,120 136) C Allocations to the Dallas office: General service (60% × $700,000) Research service*

$ 420,000 52,500

Total

$ 472,500

*($140,000 ÷ 400,000 minutes) = $0.35 × 150,000 minutes = $52,500 137) B ABC identifies activities needed to provide products and services, assigns costs to activities, and then reassigns them to products or services based on their consumption of resources. 138) C

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177

An ABC system determines the multiple activities associated with costs incurred and accumulates a cost pool for each activity using a cost driver. 139) B $234,000 ÷ (600 + 700) = $180; ($180 × 600) ÷ 120 = $900 140) B $50,000 ÷ (200 + 300) = $100; ($100 × 200) ÷ 40 = $500 141) A $546,000 ÷ (1,000 + 1,100) = $260; ($260 × 1,100) ÷ 20 = $14,300 142) A $50,000 ÷ (200 + 300) = $100; ($100 × 300) ÷ 20 = $1,500 143) B $119,000 ÷ (5 + 30) = $3,400; ($3,400 × 5) ÷ 130 = $130.77 144) B $50,000 ÷ (5 + 15) = $2,500; ($2,500 × 5) ÷ 40 = $312.50 145) A $87,000 ÷ (5 + 25) = $2,900; ($2,900 × 25) ÷ 20 = $3,625.00 146) A $50,000 ÷ (5 + 15) = $2,500; ($2,500 × 15) ÷ 20 = $1,875.00 147)a. Basic

Explorer

Sales revenue Direct materials Direct labor Overhead @150%(1) Product cost

$ 6,600,000 3,200,000 1,600,000 2,400,000(2) $ 7,200,000

$ 3,645,000 450,000 675,000 1,012,500(3) $ 2,137,500

Profit

$ (600,000)

$ 1,507,500

Version 1

Total $ 10,245,000 3,650,000 2,275,000 3,412,000 $ 9,337,500 $ 907,500

178

(1)

150% = ($3,412,500 overhead ÷ $2,275,000 direct labor) (2) $2,400,000 = $1,600,000 direct labor × 150% (3) $1,012,500 = $675,000 direct labors × 150%

b.After dropping the Basic Model, the profit on the Explorer Model (and for the company) becomes negative. Explorer

Total

Sales revenue Direct Labor Direct materials Overhead Product cost

$ 3,645,000 450,000 675,000 2,750,000(1) $ 3,875,000

$ 3,645,000 450,000 675,000 2,750,000 $ 3,875,000

Profit

$ (230,000)

148)

A. Bread for burger buns B. Take-out bags assuming one per customer order C. Ground sirloin

Volume related X

Batch related

Facility related

X X

D. Mayonnaise, catsup, pickles, and onions E. Salary of the restaurant manager F. Restaurant rent

G. Workers hourly wages

X X

H. Advertising and coupons for Brenda’s Colossal Burger I. Utilities

J. Brenda’s "Buy Any One Burger and Get One Free Burger" promotion

Version 1

Product related

179

149)Volume related costs: 1. Salaries and wages of lab technicians $600,000. 2. Equipment related costs $150,000. These costs are likely to vary with the number of test-hours, which is a function of the volume of tests. Batch related costs: 3. Setup costs $120,000. Setup costs are incurred each time a batch of tests is setup for either S or PR, regardless of the number of hours of the tests. Product related costs: 4. Costs of test designs $180,000. These costs are incurred in designing S and PR tests, regardless of the number of test-hours or number of batches tested. 150)a.Computation of overhead cost of the order: Activity

Cost driver

Level of utilization of activity Materials management Purchase orders 5 Chemical processing Metric tons 6 Molding Direct labor 12 hours Packaging Number of units 5,000

Cost driver rate $ 10.00 $ 6.50 $ 23.50

Cost allocated

$ 0.25

$ 1,250.00

Total overhead cost

$ 50.00 $ 39.00 $ 282.00

$ 1,621.00

b.Calculation of total cost of the order: Direct material Direct labor Overhead cost Total production cost

Version 1

$ 775.00 125.00 1,621.00 $ 2,521.00

180

151)a. Overhead rate: ($262,000 + $128,000) ÷ [(4 × 3,000) + (2 × 5,000) + (3 × 6,000)] = $9.75 per MH; 101X: $9.75 × 4 MH = $39.00; 102Y: $9.75 × 2 MH = $19.50; 103Z: $9.75 × 3 MH = $29.25 b. Labor time: 101X: OH $40 ÷ $10 rate = 4 hours; 102Y: $30 ÷ $10 = 3 hours; 103Z: $20 ÷ $10 = 2 hours Department A: $262,000 ÷ [(4 × 3,000) + (3 × 5,000)] = $9.7037 per DLH; 101X: $9.7037 × 4 DLH = $38.8148; 102Y: $9.7037 × 3 DLH = $29.1111 Department B: $128,000 ÷ (3 × 6,000) = $7.1111 per MH; 103Z: $7.1111 × 3 MH = $21.3333 152)a.Solution: (a) Test hours Salaries and wages: S ($600,000 × 45%)

Soil (S) TOTAL Per Hour 5,000 $ 270,000 270,000

$ 54.00 54.00

PR ($600,000 × 55%)

Pesticide (PR) TOTAL Per Hour 10,000 $ 330,000

$ 33.00

300,000

33.00

100,000

10.00

69,600

6.96

Equipment-related costs: S ($150,000 ÷ 15,000) × 5,000 PR ($150,000 ÷ 15,000) × 10,000 Setup costs:

50,000

S ($120,000 ÷ 10,000) × 4,200 PR ($120,000 ÷ 10,000) × 5,800 Test design costs:

50,400

Version 1

10.00

10.08

181

S ($180,000 ÷ 5,000) × 3,250 PR ($180,000 ÷ 5,000) × 1,750 TOTAL

117,000

$ 487,400

23.40

$ 97.48

63,000

6.30

$ 562,600

$ 56.26

b.The current costing system undercosts the soil analyses (S) [$70.00 − $97.48] and overcosts the pesticide residues analyses (PR) [$70.00 − $56.26]. Soil analyses use more setup costs and test design costs per hour than pesticide residue analyses, even though S has less test hours than PR. On average, S tests take longer to setup (0.84 versus 0.58 setup hour per test hour) and it is more difficult to design the test (0.65 versus 0.175 design hours per test hour). Test-Hours

S PR

5,000 10,000

Setup Hours Total Per TestHour 4,200 0.84 5,800 0.58

Test Design Hours Total Per Test-Hour 3,250 1,750

0.65 0.175

153)a.Overhead rate: ($30,000 + $50,000) ÷ (650 + 150) = $100 per DLH: Standard: $100 × 650 = $65,000 b.Deluxe: $100 × 150 = $15,000 c.Setups: $30,000 ÷ (3 + 7) = $3,000 per setup; Components: $50,000 ÷ (30 + 50) = $625 per component; Standard: ($3,000 × 3) + ($625 × 30) = $27,750 d.Deluxe: ($3,000 × 7) + ($625 × 50) = $52,250

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182

154)a. X: $39.00; Y: $19.50; Z: $29.25 b. X: $42.6667; Y: $18.7142; Z: $28.0714 a. Overhead rate: $256,000 + $524,000 ÷ [(4 × 6,000) + (2 × 10,000) + (3 × 12,000)] = $9.75 per MH; X: $9.75 × 4 MHs = $39.00; Y: $9.75 × 2 MHs = $19.50; Z: $9.75 × 3 MHs = $29.25 b. Labor time: X: $40 ÷ $20 = 2 hours; Y: $30 ÷ $20 = 1.5 hours; Z: $20 ÷ $20 = 1 hour Department 1: $256,000 ÷ (2 × 6,000) = $21.3333 per DLH; X: $21.3333 × 2 DLH = $42.6667; Department 2: $524,000 ÷ [(2 × 10,000) + (3 × 12,000)] = $9.3571 per MH; Y: $9.3571 × 2 MHs = $18.7142; Z: $9.3571 × 3 MHs = $28.0714 155)a. East: $(62,250); West: $263,250 b. East: $(174,000); West: $375,000 a. $649,000 ÷ $1,600,000 = 40.5625%; East: 40.5625% × $400,000 = $162,250; West: 40.5625% × $1,200,000 = $486,750. East

West

Total

Annual revenue Annual salesperson salaries Overhead

$ 400,000 300,000 162,250

$ 1,200,000 450,000 486,750

$ 1,600,000 750,000 649,000

Income

$ (62,250)

$ 263,250

$ 201,000

b. Travel: $72,000 ÷ 300,000 = $0.24 per mile; East: $0.24 × 180,000 = $43,200; West: $0.24 × 120,000 = $28,800; Entertainment: $288,000 ÷ 150 = $1,920 per customer; East: $1,920 × 60 = $115,200; West: $1,920 × 90 = $172,800; Administrative: $289,000 ÷ $750,000 = 38.5333%; East: 38.5333% × $300,000 = $115,600; West: 38.5333% × 450,000 = $173,400 Annual revenue Annual salesperson salaries

Version 1

East

West

Total

$ 400,000 300,000

$ 1,200,000 450,000

$ 1,600,000 750,000

183

Travel Entertainment Administrative Income

43,200 115,200 115,600

28,800 172,800 173,400

72,000 288,000 289,000

$ (174,000)

$ 375,000

$ 201,000

156)a.The first step is to compute activity rates:

Cleaning Job support Client support

Total Cost

Total Activity

Activity Rate

$ 101,574 $ 32,724 $ 5,472

16,200 hours 1,800 jobs 320 clients

$ 6.27 per hour $ 18.18 per job $ 17.10 per client

The overhead cost charged to the family is: Activity Rate Cleaning Job support Client support

$ 6.27 per hour $ 18.18 per job $ 17.10 per client

Activity

ABC Cost

192 hours 32 jobs 1 client

$ 1,203.84 581.76 17.10

Total overhead cost

$ 1,802.70

The client margin for the family is computed as follows: Client charges

$ 2,200.00

Costs: Cleaning

$ 1,203.84

Job support

581.76

Client support

17.10

Client margin

1,802.70 $ 397.30

b.The margin if all costs are allocated on the basis of cleaning hours: Predetermined overhead rate = Estimated total overhead cost ÷ Estimated total amount of the allocation base = $239,770 ÷ 16,200 hours = $14.80 per hour Client charges Allocated costs (192 hours × $14.80 per hour)

$ 2,200.00 2,841.60

Client margin

$ (641.60)

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157)The activity rates for each activity cost pool are computed as follows: Machine setups Purchase orders General factory

Total Cost

Total Activity

Activity Rate

$ 10,800 77,520 75,920

180 setups 1,520 orders 5,840 hours

$ 60.00 per setup $ 51.00 per order $ 13.00 per hour

The overhead cost charged to Product F is: Machine setups Purchase orders General factory

Activity Rate

Activity

ABC Cost

$ 60.00 per setup $ 51.00 per order $ 13.00 hours

80 setups 510 orders 2,240 per hour

$ 4,800 26,010 29,120

Total overhead cost

$ 59,930

The overhead cost charged to Product G is: Machine setups Purchase orders General factory

Activity Rate

Activity

$ 60.00 per setup $ 51.00 per order $ 13.00 hours

100 setups 1,010 orders 3,600 per hour

Total overhead cost

ABC Cost $ 6,000 51,510 46,800 $ 104,310

Overhead cost per unit: Product F: $59,930 ÷ 1,400 units = $42.81 per unit Product G: $104,310 ÷ 1,800 units = $57.95 per unit 158)

Designing products Batch setup Assembling products

Total Cost

Total Activity

Activity Rate

$ 806,715 23,660 42,240

6,895 product design hours 910 batch setups 3,520 assembly hours

Total Cost

Total Activity

Activity Rate

$ 49,830

4,530 assembly hours

$ 11 per assembly

$ per product 117 design hour 26 per batch setup 12 per assembly hour

159)

Assembling

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185

products Designing products Batch setup

$ 557,220 $ 38,180

3,012 product design hours 830 batch set-ups

hour $ per product 185 design hour $ 46 per batch setup

160)The overhead cost charged to Product C is: Batch setup Processing customer orders Assembling products

Activity Rate

Activity

ABC Cost

$ 62.52 per batch $ 19.58 per customer order $ 8.71 per assembly hour

66 batch 46 customer orders 419 assembly hour

$ 4,126.32 900.68

Total overhead cost

3,649.49 $ 8,676.49

The overhead cost charged to Product E is: Activity Rate Batch setup $ 62.52 per batch Processing customer $ 19.58 per customer orders order Assembling products $ 8.71 per assembly hour

Activity

ABC Cost

53 batches 31 customer orders 162 assembly hour

$ 3,313.56 606.98

Total overhead cost

1,411.02 $ 5,331.56

161)a.Product J: Batch setup (34 batches × $83.75 per batch) Assembling products (105 assembly hours × $2.88 per assembly hour) Processing customer orders (17 customer orders × $50.41 per customer order)

$ 2,847.50 302.40

Total overhead cost

$ 4,006.87

856.97

b.Product S: Batch setup (41 batches × $83.75 per batch) Assembling products (824 assembly hours × $2.88 per assembly hour) Processing customer orders (38 customer orders × $50.41 per customer order)

Version 1

$ 3,433.75 2,373.12 1,915.58

186

Total overhead cost

$ 7,722.45

162) Batch setup (33 batches × $74.76 per batch) Processing customer orders (1 customer order × $55.40 per customer order) Assembling products (368 assembly hours × $1.36 per assembly hour)

$ 2,467.08 55.40

Total overhead cost

$ 3,022.96

500.48

163)a.The activity rates for each activity cost pool are computed as follows: Total Cost

Total Activity

Activity Rate

$ 3,000 $ 9,800

10,000 MHs 1,000 batches

$ 0.30 per MH $ 9.80 per batch

Processing Batch setup

b.The overhead cost charged to Product #1 is: Activity Rate Processing Batch setup

$ 0.30 per MH $ 9.80 per batch

Activity

ABC Cost

5,800 MHs 700 batches

$ 1,740 6,860

Total overhead cost

$ 8,600

The overhead cost charged to Product #2 is: Processing Batch setup

Activity Rate

Activity

ABC Cost

$ 0.30 per MH $ 9.80 per batch

4,200 MHs 300 batches

$ 1,260 2,940

Total overhead cost

$ 4,200

c.Product margins are: Product #1 Sales Direct materials

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Product #2

$ 45,300 $ 19,600

$ 48,400 $ 16,900

187

Direct labor

15,900

24,200

processing

1,740

1,260

Batch setup

6,860

44,100

Product margin

2,940

$ 1,200

45,300 $ 3,100

164)Assign overhead costs to activity cost pools by applying the percentages in the table above to the respective costs. For example, the first entry in the table below is computed as follows: $39,000 × 0.10 = $3,900. Activity Cost Pools Processing

Batch Setup

Other

Total

Factory utilities Indirect labor

$ 3,900 900

$ 23,400 300

$ 11,700 1,800

$ 39,000 3,000

Total

$ 4,800

$ 23,700

$ 13,500

$ 42,000

165)Assign overhead costs to activity cost pools by applying the percentages in the above table to the respective costs. For example, the first entry in the table below is computed as follows: $72,000 × 0.20 = $14,400. Activity Cost Pools Processing

Batch Setup

Other

Total

Equipment depreciation Indirect labor

$ 14,400 1,600

$ 28,800 2,400

$ 28,800 4,000

$ 72,000 8,000

Total

$ 16,000

$ 31,200

$ 32,800

$ 80,000

166)a.Computation of activity rates: Activity Cost Pools Machining Batch setup

Total Cost $ 29,700 $ 7,800

Total Activity 10,000 MHs 2,000 batches

Activity Rate $ 2.97 per MH $ 3.90 per batch

b.Assign overhead costs to products: Overhead cost for Product Z: Activity Rate

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Activity

ABC Cost

188

Machining Batch setup

$ 2.97 per MH $ 3.90 per batch

4,400 MHs 400 batches

$ 13,068 1,560

Total

$ 14,628

Overhead cost for Product Q: Activity Rate Machining Batch setup

$ 2.97 per MH $ 3.90 per batch

Activity

ABC Cost

5,600 MHs 1,600 batches

$ 16,632 6,240

Total

$ 22,872

c.Determine product margins: Product Z Sales Direct materials

Product Q

$ 137,900

$ 173,300

$ 59,700

$ 43,400

Direct labor

57,500

96,000

Machining

13,068

16,632

Batch setup

1,560

Product margin

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131,828 $ 6,072

6,240

162,272 $ 11,028

189

167)1.It is possible that as variety in products increases, costs will also increase. Therefore, the shift to small special orders will increase costs in purchasing (more orders, more calls to get prices, more space required for catalogs, etc.), receiving (more orders and receipts to handle and account for), storage (different products must be grouped together and differentiated from other products for easy accessibility), accounting (more inventory to account for, potentially more suppliers to pay), customer service (new larger catalogs, possible complaints from customers receiving wrong or slightly wrong orders, more time for sales calls), production scheduling (variety in setups, increase in movement of materials depending on production run), and laboratory work (research and development tests incurred to make certain that the products meet the appropriate environmental and technical requirements). 2.It is definitely possible that management is correct because total overhead costs are typically allocated to products based on some single allocation base such as direct labor-hours or machine-hours. These single allocation bases do not reflect the actual cause-and-effect relationships between cost drivers and overhead costs. 3.Student submissions will vary. However, the memo should suggest that management consider the use of multiple overhead allocation bases and activity-based costing. This method of overhead allocation attempts to more fairly attach costs to the products and/or services that actually caused the costs to be incurred. 168)Activity-based systems are information systems that provide cost data about the activities within the organization. With this information, managers can make better decisions about their products and product lines as well as about pricing their products or services and remain competitive in the global marketplace. 169)

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190

Resource A. B. C. D. E. F. G. H. I. J.

Cost Driver Example

Bread for burger buns Take-out bags assuming one per drive-through customer order Ground sirloin Mayonnaise, catsup, pickles, and onions Salary of the restaurant manager

Number of burgers served Number of customers in drivethrough Number of burgers served and/or size of burgers sold Number of burgers served

Number of hours restaurant is open Restaurant rent Square feet of restaurant Workers hourly wages Number of hours worked Coupons for Brenda’s Colossal Burger Number of coupons distributed Utilities Square feet of restaurant Brenda’s "Buy Any One Burger and Get Number of multiple burger One Free Burger" promotion orders

(Student examples may differ.) 170) Manufacturing Costs

Driver and why appropriate

A. Equipment maintenance ● machine-hours (for maintenance related to the volume of usage of machinery),

● average age of equipment (for obsolescence and age-related maintenance)

B. Building utilities

● machine-hours (for machine-driven usage),

● outside air temperature (for weatherrelated usage)

C. Computer operations

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● number of transactions processed (valid

191

volume measure)

D. Quality control

● number of product defects (volume of quality defects),

● pounds of scrap and waste (volume of quality defects),

● number of quality inspections (number of batches)

E. Material handling

● pounds of material processed (volume of work processed),

● number of different types of material handled (complexity of material handling),

● number of purchase orders (volume of work processed by staff and number of suppliers used)

F. Material storage

● average amount of material inventory (volume of material stored),

● square footage of storage area (storage capacity)

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192

G. Factory depreciation

● amount of investment in factory machinery and buildings (total cost basis for depreciation)

H. Set up costs

● number of setups (volume driver),

● total time of setups (alternative volume measure)

I. Engineering changes

● number of engineering changes (volume of engineering changes),

● number of process changes (volume of changes to the manufacturing processes),

● number of engineering change orders (number of requests for changes to products and processes)

J. Advertising expense

● number of print ads (volume measure),

● seconds of air time (cost measure),

● number of new ads developed (measure of professional time)

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193

(Student examples may differ.) 171)A plantwide allocation method uses only a single cost pool and a single allocation base. There is no distinction made as to the department or activity that drives the costs. 172)1.Identify the activities that consume resources and assign costs to them. 2.Identify the cost driver(s) associated with each activity. 3.Compute a cost rate per cost driver unit or transaction. 4.Assign costs to products by multiplying the cost driver rate by the volume of cost driver units consumed by the product. 173)Volume related drivers are proportional to production volume. Batch related drivers are related to the number of production runs or batches. Product related drivers are related to the number of products and facility related drivers are related to the overall manufacturing capacity. 174)Jasmine has learned that customer value means revenue generated. The money spent on advertising did bring customers into the store, but it was not a value-adding activity as far as the customers were concerned. An attractive storefront and in-store displays would decrease the cost of this non-value-adding activity. Jasmine should also examine her product lines and find suppliers who can make faster deliveries to meet customer requests. She will improve her business if she listens to her customers' requests and offers quality goods at reasonable prices in a timely manner. 175)Activity-based costing is not used just in a production setting. Service organizations, not-for-profits, and government agencies also uses activity-based costing. ABC can also be used for administrative activities.

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176)Activity-based costing first allocates costs to activities rather than departments. This means costs are grouped by what causes them rather than the location of the cost. Second, different types of cost drivers are used. Plantwide or department rates are normally based on volume related drivers while activity-based costing also recognizes batch related and product related drivers. This more closely relates the costs with their causal factors. 177)When cost systems were first being developed in industry, companies were far more labor intensive than they are today. Much of the overhead cost was incurred to support labor, so it made sense to allocate overhead to products based on the amount of labor in the products. Labor is still a major product cost in many companies, especially service organizations such as consulting, law, and public accounting firms. In those cases, overhead is often allocated to products (called jobs) on the basis of the amount of labor in the product. Despite automation, some companies stubbornly continue to allocate overhead to products based on direct labor and are experiencing rates as high as 500 percent or more. When labor is such a small part of product costs, there is little, if any, relation between labor and overhead. In addition, small errors in assigning labor to products are magnified many times when overhead rates are several hundred percent or more of labor costs. Finally, allocating overhead on the basis of direct labor sends signals that direct labor is more expensive than it really is. 178)a.The company expects to work 60,000 direct labor-hours during the current year, computed as follows: Product K9: 40,000 units × 1 hour Product L43: 10,000 units × 2 hours Total direct labor-hours

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40,000 hours 20,000 hours 60,000 hours

195

Using these hours as a base, the predetermined overhead using direct labor-hours would be: Predetermined overhead rate = Estimated overhead cost ÷ Estimated direct labor-hours = $510,000 ÷ 60,000 hours = $8.50 per hour. Using this overhead rate, the unit product cost of each product would be: Product K9

Product L43

$ 11.00 6.00

$ 24.00 12.00

Direct materials Direct labor Manufacturing overhead: Product K9, 1.0 hour

8.50

Product L43, 2.0 hours

17.00

Total unit product cost

$ 25.50

$ 53.00

b.The activity rates for each activity cost pool are as follows:

Machine setups Purchase orders Machine-hours Maintenance requests

Total Cost

Total Activity

Activity Rate

$ 204,000 $ 43,500 $ 105,000 $ 157,500

2,400 setups 600 orders 17,500 hours 1,500 requests

$ 85.00 per setup $ 72.50 per order $ 6.00 per hour $ 105.00 per request

The overhead cost charged to Product K9 is: Activity Rate Machine setups Purchase orders Machine-hours Maintenance requests

$ 85.00 per setup $ 72.50 per order $ 6.00 per hour $ 105.00 per request

Activity

ABC Cost

800 setups 500 orders 7,000 hours 650 requests

$ 68,000 36,250 42,000 68,250

Total overhead cost

$ 214,500

The overhead cost charged to Product L43 is: Version 1

196

Machine setups Purchase orders Machine-hours Maintenance requests

Activity Rate

Activity

ABC Cost

$ 85.00 per setup $ 72.50 per order $ 6.00 per hour $ 105.00 per request

1,600 setups 100 orders 10,500 hours 850 requests

$ 136,000 7,250 63,000 89,250

Total overhead cost

$ 295,500

Overhead cost per unit: Product K9: $214,500 ÷ 40,000 units = $5.3625 per unit. Product L43: $295,500 ÷ 10,000 units = $29.5500 per unit, Using activity-based costing, the unit product cost of each product would be: Product K9

Product L43

Direct material Direct labor Manufacturing overhead

$ 11.0000 6.0000 5.3625

$ 24.0000 12.0000 29.5500

Total unit product cost

$ 22.3625

$ 65.5500

c.Product L43 accounts for 20% of the company's total product but requires two-thirds of the total machine set-ups, sixty percent of the machine-hours worked, more than half of the maintenance requests. These factors are concealed when direct labor-hours are used to assign overhead cost to product. Activity-based costing, however, assigns a larger amount of overhead cost to Product L43. Indeed, Product L43 may be less profitable than the company has been led to believe under the traditional direct labor approach. 179) a.The computation of the activity rates follows:

Cleaning Job support

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Total Cost

Total Activity

$ 252,787 $ 73,758

44,900 hours 5,700 jobs

Activity Rate $ 5.63 per hour $ 12.94 per job

197

Client support

$ 7,668

270 clients

$ 28.40 per client

b.The overhead cost charged to the Layton family is: Activity Rate Cleaning Job support Client support

Activity

$ 5.63 per hour $ 12.94 per job $ 28.40 per client

245 hours 49 jobs 1 client

Total overhead cost

ABC Cost $ 1,379.35 634.06 28.40 $ 2,041.81

The customer margin for the Layton family is computed as follows: Client charges

$ 2,500.00

Costs: Cleaning

$ 1,379.35

Job support

634.06

Client support

28.40

Customer margin

2,041.81 $ 458.19

c.The margin if all costs are allocated on the basis of cleaning hours: Predetermined overhead rate = Estimated total overhead cost ÷ Estimated total amount of the allocation base = $564,213 ÷ 44,900 hours = $12.57 per hour. Client charges Allocated costs (245 hours × $12.57 per hour)

$ 2,500.00 3,079.65

Customer margin

$ (579.65)

180)a.Assign overhead costs to activity cost pools by applying the percentages in the Distribution of Resource Consumption Across Activity Cost Pools table to the respective costs. For example, the first entry in the table below is computed as follows: 0.40 × $29,000 = $11,600. Activity Cost Pools

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198

Processing

Setting Up

Other

Total

Factory utilities Indirect labor

$ 11,600 3,500

$ 2,900 1,400

$ 14,500 2,100

$ 29,000 7,000

Total

$ 15,100

$ 4,300

$ 16,600

$ 36,000

b.The activity rates for each activity cost pool are computed as follows: Total Cost

Total Activity

Activity Rate

$ 15,100 $ 4,300

10,000 MHs 1,000 batches

$ 1.51 per MH $ 4.30 per batch

Processing Batch setup

c.The overhead cost charged to Product #1 is:

Processing Batch setup

Activity Rate

Activity

ABC Cost

$ 1.51 per MH $ 4.30 per batch

2,900 MHs 700 batches

$ 4,379 3,010

Total overhead cost

$ 7,389

The overhead cost charged to Product #2 is: Activity Rate Processing Batch setup

$ 1.51 per MH $ 4.30 per batch

Activity

ABC Cost

7,100 MHs 300 batches

$ 10,721 1,290

Total overhead cost

$ 12,011

d.Determine product margins: Product #1 Sales Direct materials

Product #2

$ 54,000

$ 85,100

$ 19,100

$ 33,500

Direct labor

26,300

35,000

Processing

4,379

10,721

Batch setup

3,010

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52,789

1,290

80,511

199

Product margin

$ 1,211

$ 4,589

181)a.Computation of activity rates: Activity Cost Pools Machining Batch setup

Total Cost

Total Activity

Activity Rate

$ 28,000 $ 13,800

20,000 MHs 1,000 batches

$ 1.40 per MH $ 13.80 per batch

b.Assign overhead costs to products: Overhead cost for Product A: Activity Rate Machining Batch setup

$ 1.40 per MH $ 13.80 per batch

Activity

ABC Cost

5,200 MHs 500 batches

$ 7,280 6,900

Total

$ 14,180

Overhead cost for Product B: Machining Batch setup

Activity Rate

Activity

ABC Cost

$ 1.40 per MH $ 13.80 per batch

14,800 MHs 500 batches

$ 20,720 6,900

Total

$ 27,620

c.Determine product margins: Product A Sales Direct materials

Product B

$ 124,300

$ 166,000

$ 53,100

$ 71,500

Direct labor

54,000

56,600

Machining

7,280

20,720

Batch setup

6,900

Product margin

Version 1

121,280 $ 3,020

6,900

155,720 $ 10,280

200

182)a.Assign overhead costs to activity cost pools by applying the percentages in the Distribution of Resource Consumption Across Activity Cost Pools table to the respective costs. For example, the first entry in the table below is computed as follows: 0.40 × $27,000 = $10,800. Activity Cost Pools

Equipment depreciation Indirect labor

Machining $ 10,800 1,400

Batch Setup $ 8,100 2,100

Other $ 8,100 3,500

Total $ 27,000 7,000

$ 12,200

$ 10,200

$ 11,600

$ 34,000

Total

b.Computation of activity rates: Activity Cost Pools Machining Batch setup

Total Cost

Total Activity

Activity Rate

$ 12,200 $ 10,200

10,000 MHs 2,000 batches

$ 1.22 per MH $ 5.10 per batch

c.Assign overhead costs to products: Overhead cost for Product Snorkel: Machining Batch setup

Activity Rate

Activity

$ 1.22 per MH $ 5.10 per batch

8,100 MHs 400 batches

Total

ABC Cost $ 9,882 2,040 $ 11,922

Overhead cost for Product Fin: Machining Batch setup

Activity Rate

Activity

$ 1.22 per MH $ 5.10 per batch

1,900 MHs 1,600 batches

Total

ABC Cost $ 2,318 8,160 $ 10,478

d.Determine product margins: Product Snorkel

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Product Fin

201

Sales Direct materials

$ 71,400

$ 57,600

$ 21,900

$ 19,900

Direct labor

33,700

25,100

Machining

9,882

2,318

Batch setup

2,040

67,522

Product margin

8,160

$ 3,878

55,478 $ 2,122

183)a.Computation of activity rates: Activity Cost Pools Machining Batch setup

Total Cost $ 15,200 $ 44,800

Total Activity

Activity Rate

10,000 MHs 1,000 batches

$ 1.52 per MH $ 44.80 per batch

b.Assign overhead costs to products: Overhead cost for Product Sea: Activity Rate Machining Batch setup

$ 1.52 per MH $ 44.80 per batch

Activity

ABC Cost

2,000 MHs 800 batches

$ 3,040 35,840

Total

$ 38,880

Overhead cost for Product Air: Activity Rate Machining Batch setup

$ 1.52 per MH $ 44.80 per batch

Activity

ABC Cost

8,000 MHs 200 batches

$ 12,160 8,960

Total

$ 21,120

c.Determine product margins: Product Sea Sales Direct materials Direct labor

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Product Air

$ 220,700

$ 165,500

$ 78,600

$ 83,100

89,600

58,000

202

Machining

3,040

Batch setup

35,840

Product margin

12,160 207,080

8,960

162,220

$ 13,620

$ 3,280

184)a.The expected total direct labor-hours during the period are computed as follows: Product A: 3,400 units × 1.4 hours per unit Product B: 4,800 units × 1.9 hours per unit

4,760 hours 9,120 hours

Total direct labor-hours

13,880 hours

Using these hours as a base, the predetermined overhead using direct labor-hours would be: Predetermined overhead rate = Estimated total overhead cost ÷ Estimated total direct labor-hours = $160,790 ÷ 13,880 DLHs = $11.58 per DLH. Using this overhead rate, the unit product costs are: Product A

Product B

Direct materials Direct labor Manufacturing overhead

$ 7.40 14.00 16.21

$ 12.70 19.00 22.01

Total unit product cost

$ 37.61

$ 53.71

b.The activity rates for each activity cost pool are computed as follows:

Machine setups Purchase orders General factory

Estimated Overhead Cost $ 12,190 $ 79,200 $ 69,400

Expected Activity

230 setups 1,650 orders 13,880 DLHs

Activity Rate

$ 53.00 per setup $ 48.00 per order $ 5.00 per DLH

The overhead cost charged to Product A is: Activity Rate Machine setups Purchase orders General factory

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$ 53.00 per setup $ 48.00 per order $ 5.00 per DLH

Activity

Amount

80 setups 730 orders 4,760 DLHs

$ 4,240 35,040 23,800

203

Total overhead cost

$ 63,080

The overhead cost charged to Product B is: Machine setups Purchase orders General factory

Activity Rate

Activity

Amount

$ 53.00 per setup $ 48.00 per order $ 5.00 per DLH

150 setups 920 orders 9,120 DLHs

$ 7,950 44,160 45,600

Total overhead cost

$ 97,710

Overhead cost per unit: Product A: $63,080 ÷ 3,400 units = $18.55 per unit. Product B: $97,710 ÷ 4,800 units = $20.36 per unit. Using activity-based costing, the unit product cost of each product would be: Product A

Product B

Direct materials Direct labor Manufacturing overhead

$ 7.40 14.00 18.55

$ 12.70 19.00 20.36

Total unit product cost

$ 39.95

$ 52.06

185)a.Traditional Unit Product Costs: Predetermined overhead rate = $1,793,790 ÷ 57,000 DLHs = $31.47 per DLH. Large

Small

Direct materials Direct labor Manufacturing overhead (0.7 DLHs × $31.47 per DLH; 2.4 DLHs × $31.47 per DLH)

$ 17.80 16.10 22.03

$ 55.40 55.20 75.53

Unit product cost

$ 55.93

$ 186.13

b.ABC Unit Product Costs:

Supporting direct labor

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Estimated Overhead Cost $ 285,000

Total Expected Activity

Activity Rate

57,000 DLHs

$ 5 per DLH

204

Setting up machines Parts administration

$ 437,190 $ 1,071,600

3,363 setups 2,679 part types

$ 130 per setup $ 400 per part type

Overhead cost for Large: Activity Rate Supporting direct labor Setting up machines Parts administration

$ 5 per DLH $ 130 per setup $ 400 per part type

Activity

ABC Cost

21,000 DLHs

$ 105,000

798 setups 1,539 part types

Total

103,740 615,600 $ 824,340

Overhead cost for Small: Activity Rate Supporting direct labor Setting up machines Parts administration

$ 5 per DLH

Activity

ABC Cost

36,000 DLHs

$ 130 per setup

2,565 setups

$ 180,000 333,450

$ 400 per part type

1,140 part types

456,000

Total

Direct materials Direct labor Manufacturing overhead ($824,300 ÷ 30,000 units; $969,450 ÷ 15,000 units) Unit product cost

$ 969,450 Large

Small

$ 17.80 16.10 27.48

$ 55.40

$ 61.38

$ 175.23

55.20 64.63

186)a.Traditional Unit Product Costs: Predetermined overhead rate = $1,809,600 ÷ 26,000 DLHs = $69.60 per DLH. Direct materials Direct labor Manufacturing overhead (0.2 DLHs × $69.60

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Boom

Wow

$ 14.90 4.20 13.92

$ 44.30 25.20 83.52

205

per DLH; 1.2 DLHs × $69.60 per DLH) Unit product cost

$ 33.02

$ 153.02

b. ABC Unit Product Costs:

Assembling products Preparing batches Engraving

Estimated Overhead Cost $ 702,000

Total Expected Activity 26,000 DLHs

Activity Rate $ 27 per DLH

$ 132,600 $ 975,000

1,326 batches 1,950 MHs

$ 100 per setup $ 500 per MH

Overhead cost for Boom: Assembling products Preparing batches Engraving

Activity Rate

Activity

ABC Cost

$ 27 per DLH

8,000 DLHs

$ 216,000

$ 100 per setup $ 500 per MH

884 batches 702 MHs

Total

88,400 351,000 $ 655,400

Overhead cost for Wow: Activity Rate Assembling products Preparing batches Engraving

$ 27 per DLH

Activity

ABC Cost

18,000 DLHs

$ 486,000

$ 100 per setup $ 500 per MH

442 batches 1,248 MHs

Total

624,000 $ 1,154,200

Boom Direct materials $ 14.90 Direct labor 4.20 Manufacturing overhead 16.39 ($655,400 ÷ 40,000 units; $1,154,200 ÷ 15,000 units) Unit product cost

44,200

Wow $ 44.30 25.20 76.95

$ 35.49 $ 146.45

187)a.Traditional Manufacturing Overhead Costs: Predetermined overhead rate = $2,675,460 ÷ 51,000 DLHs = $52.46 per DLH. Version 1

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Manual

Power

0.60 $ 52.46 $ 31.48

1.80 $ 52.46 $ 94.43

Direct labor-hours Predetermined overhead rate per DLH Manufacturing overhead cost per unit

b.ABC Manufacturing Overhead Costs:

Supporting direct labor Setting up machines Parts administration

Estimated Overhead Cost $ 1,326,000 $ 456,960 $ 892,500

Total Expected Activity 51,000 DLHs

Activity Rate $ 26 per DLH

2,856 setups $ 160 per setup 1,785 part types $ 500 per part type

Overhead cost for Product Manual: Activity Rate Supporting direct labor Setting up machines Parts administration

$ 26 per DLH $ 160 per setup $ 500 per part type

Activity

ABC Cost

24,000 DLHs 2,346 setups 1,122 part types

$ 624,000 375,360 561,000

Total

$ 1,560,360

Annual production

40,000

Manufacturing overhead cost per unit

$ 39.01

Overhead cost for Product Power: Activity Rate Supporting direct labor $ 26 per DLH Setting up machines $ 160 per setup Parts administration $ 500 per part type Total

Activity

ABC Cost

27,000 DLHs 510 setups 663 part types

$ 702,000 81,600 331,500 $ 1,115,100

Annual production

15,000

Manufacturing overhead cost per unit

$ 74.34

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188)a. Traditional Manufacturing Overhead Costs: Predetermined overhead rate = $1,527,600 ÷ 38,000 DLHs = $40.20 per DLH. Utility Direct labor-hours Predetermined overhead rate per DLH Manufacturing overhead cost per unit

Super

0.70 $ 40.20 $ 28.14

1.70 $ 40.20 $ 68.34

b.ABC Manufacturing Overhead Costs: Estimated Overhead Cost Assembling products $ 608,000 Preparing batches $ 197,600

Total Expected Activity 38,000 DLHs 1,976 batches

Axial milling

1,444 MHs

$ 722,000

Activity Rate $ 16 per DLH $ per batch 100 $ per MH 500

Overhead Cost for Product Utility: Activity Rate Assembling products Preparing batches Axial milling

$ 16 per DLH $ 100 per batch $ 500 per MH

Activity

ABC Cost

21,000 DLHs 456 batches 570 MHs

$ 336,000 45,600 285,000

Total

$ 666,600

Annual production

30,000

Manufacturing overhead cost per unit

$ 22.22

Overhead Cost for Product Super: Activity Rate Assembling products Preparing batches Axial milling Total

$ 16 per DLH $ 100 per batch $ 500 per MH

Activity

ABC Cost

17,000 DLHs 1,520 batches 874 MHs

$ 272,000 152,000 437,000 $ 861,000

Annual production

10,000

Manufacturing overhead cost per unit

$ 86.10

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189)a.$3.25 Total cost in Personnel

$ 1,404,000

Total minutes availablea

432,000

Cost per minute

$ 3.25 (= $ 1,404,000 ÷ 432,000)

5 employees × 48 weeks × 30 hours per week × 60 minutes per hour b.$325.00 Interviewing Minutes per activity Cost per minute

Hiring +

Total =

100 $ 3.25

Total costs

$ 325.00

c.95,125 minutes Interviewing Total minutes available Minutes per activity Number of activities Minutes used

Hiring

Assessment

Separation Process

Total 432,000

1,200

405

2,850

235

48,000 + 24,300 +

242,250 +

Unused minutes

22,325 336,875 95,125

d. $309,156.25 (= 95,125 minutes × $3.25 per minute)

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Activity-based cost management (ABCM) uses the information provided by activitybased costing (ABC) to identify ways to improve operations. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 10-01 Describe how activity-based cost management can be used to improve operati Topic : Using Activity-Based Cost Management to Add Value Gradable : automatic Type : Static Accessibility : Screen Reader Compatible

2) Activity-based cost management (ABCM) can be used for managerial decision making in service, merchandising, and manufacturing companies. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 10-01 Describe how activity-based cost management can be used to improve operati Topic : Using Activity-Based Cost Management to Add Value Gradable : automatic Type : Static Accessibility : Screen Reader Compatible

3) Storing materials, work-in-process items, and finished goods in inventory are essential, value-added activities in most companies. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 10-01 Describe how activity-based cost management can be used to improve operati Topic : Using Activity-Based Cost Management to Add Value Gradable : automatic Type : Static Difficulty : 2 Medium Bloom's : Understand Accessibility : Screen Reader Compatible

4) In general, decreasing (or eliminating) the resources committed to nonvalue-added activities will decrease customer response time. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 10-01 Describe how activity-based cost management can be used to improve operati Topic : Using Activity-Based Cost Management to Add Value Gradable : automatic Type : Static Accessibility : Screen Reader Compatible

5) In general, the unit-level (or volume-related) costs in an activity-based costing (ABC) system are variable costs. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Topic : Using Activity-Based Cost Management to Add Value Gradable : automatic Type : Static Difficulty : 2 Medium Learning Objective : 10-02 Use the hierarchy of costs to manage costs. Bloom's : Understand Accessibility : Screen Reader Compatible

6) In general, the capacity-related costs in an activity-based costing (ABC) system are variable costs. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Topic : Using Activity-Based Cost Management to Add Value Gradable : automatic Type : Static Difficulty : 2 Medium Learning Objective : 10-02 Use the hierarchy of costs to manage costs. Bloom's : Understand Accessibility : Screen Reader Compatible

7) Managerial decisions based on activity-based costing (ABC) information can only affect volume-related, batch-related, and product-related costs. ⊚ true ⊚ false

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8) The basic concepts involved in activity-based costing (ABC) can be used to determine customer profitability as well as product costs. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Type : Static Learning Objective : 10-03 Describe how the actions of customers and suppliers affect a firm’s Topic : Managing the Cost of Customers and Suppliers Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Type : Static Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Accessibility : Screen Reader Compatible

10) Activity-based costing (ABC) techniques used to evaluate customer profitability can also be applied to evaluating suppliers. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Type : Static Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Type : Static Learning Objective : 10-05 Distinguish between resources used and resources supplied. Topic : Managing the Cost of Capacity Accessibility : Screen Reader Compatible

12) Unused resource capacity plus the amount of the resources used is equal to the amount of resources supplied. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Difficulty : 2 Medium Learning Objective : 10-05 Distinguish between resources used and resources supplied. Topic : Managing the Cost of Capacity Bloom's : Understand Accessibility : Screen Reader Compatible

13) Theoretical capacity is the amount of production possible assuming expected downtime for scheduled maintenance, normal breaks, and vacations. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Type : Static Topic : Managing the Cost of Capacity Learning Objective : 10-06 Design cost management systems to assign capacity costs. Accessibility : Screen Reader Compatible

14) Theoretical capacity is the long-run expected volume based on reasonably attainable working conditions. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Type : Static Topic : Managing the Cost of Capacity Learning Objective : 10-06 Design cost management systems to assign capacity costs. Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Capacity Learning Objective : 10-06 Design cost management systems to assign capacity costs. Bloom's : Understand Accessibility : Screen Reader Compatible

16) In general, managerial decisions affecting capacity-related costs and activities also affect volume-level, batch-level, and product-level costs and activities. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Topic : Using Activity-Based Cost Management to Add Value Gradable : automatic Type : Static Difficulty : 2 Medium Learning Objective : 10-02 Use the hierarchy of costs to manage costs. Bloom's : Understand Accessibility : Screen Reader Compatible

17) Tangible customer expectations include how the product's salespeople treat customers and the time required to deliver the product to the customer. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Type : Static Learning Objective : 10-07 Describe how activities that influence quality affect costs and profitabil Topic : Managing the Cost of Quality Accessibility : Screen Reader Compatible

18) Quality can be defined as the degree to which a product or service performs as it was designed (or specified). ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Type : Static Learning Objective : 10-07 Describe how activities that influence quality affect costs and profitabil Topic : Managing the Cost of Quality Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Type : Static Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Accessibility : Screen Reader Compatible

20) Internal failure costs include materials wasted in the production process and correcting products before they are sold. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Type : Static Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Accessibility : Screen Reader Compatible

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 21) Which of the following statements about activity-based costing (ABC) is not true? (CIA adapted)

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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.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 10-01 Describe how activity-based cost management can be used to improve operati Topic : Using Activity-Based Cost Management to Add Value Gradable : automatic Type : Static Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible

22) In an activity-based costing (ABC) system, cost reduction is accomplished by identifying and eliminating which of the following? (CPA adapted) All Cost Drivers A. B. C. D.

No Yes No Yes

Nonvalue-added Activities No Yes Yes No

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

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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?

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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.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy Learning Objective : 10-01 Describe how activity-based cost management can be used to improve operati Topic : Using Activity-Based Cost Management to Add Value Gradable : automatic Type : Static AICPA : FN Measurement Accessibility : Screen Reader Compatible

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.

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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?

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A) Storing items B) Moving items C) Waiting for work D) Assembling items

Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Learning Objective : 10-01 Describe how activity-based cost management can be used to improve operati Topic : Using Activity-Based Cost Management to Add Value Gradable : automatic Type : Static Difficulty : 2 Medium AACSB : Reflective Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

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

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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 activity-based costing (ABC) information to improve operations. C) a quality-control system focusing on eliminating errors and mistakes. D) an incentive system for a company's key decision makers.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 10-01 Describe how activity-based cost management can be used to improve operati Topic : Using Activity-Based Cost Management to Add Value Gradable : automatic Type : Static Accessibility : Screen Reader Compatible

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 activitybased cost management (ABCM) system?

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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

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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, capacity-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.

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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:

Item #B200 60 $ 42,000 72,000 $ 114,000

Item #C440 100 $ 100,000 300,000 $ 400,000

Indirect manufacturing costs Indirect operating costs

163,200 255,000

272,000 425,000

Total indirect costs

418,200

697,000

$ 532,200

$ 1,097,000

Total costs

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.

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Question Details Accessibility : Keyboard Navigation Topic : Using Activity-Based Cost Management to Add Value Gradable : automatic Type : Static Learning Objective : 10-02 Use the hierarchy of costs to manage costs. AACSB : Reflective Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible

37) Fence Industries is preparing its annual profit plan. As part of its analysis of the profitability of its customers, management estimates that the $11,000 for sales support should be assigned to the individual customers from the information given as follows:

Units purchased Purchase orders (annually)

Customer A

Customer B

170,000 5

270,000 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? Note: Do not round intermediate calculations. A) $2,200 B) $4,250 C) $6,750 D) $8,800

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. AICPA : FN Measurement AACSB : Reflective Thinking Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

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 (annually)

Customer A

Customer B

100,000 5

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? Note: Do not round intermediate calculations. A) $2,400 B) $4,000 C) $8,000 D) $9,600

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Accessibility : Screen Reader Compatible

39) Fence Industries is preparing its annual profit plan. As part of its analysis of the profitability of its customers, management estimates that the $15,500 for sales support should be assigned to the individual customers from the information given as follows:

Units purchased Purchase orders (annually)

Customer A

Customer B

105,000 4

205,000 16

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? Note: Do not round intermediate calculations. A) $3,100 B) $5,250 C) $10,250 D) $12,400

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

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 (annually)

Customer A

Customer B

100,000 5

200,000 20

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41) Fence Industries is preparing its annual profit plan. As part of its analysis of the profitability of its customers, management estimates that the $13,500 for sales support should be assigned to the individual customers from the information given as follows:

Units purchased Purchase orders (annually)

Customer A

Customer B

175,000 6

275,000 24

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) $2,700 B) $5,250 C) $8,250 D) $10,800

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

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42) 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 (annually)

Customer A

Customer B

100,000 5

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

43) Fence Industries is preparing its annual profit plan. As part of its analysis of the profitability of its customers, management estimates that the $19,500 for sales support should be assigned to the individual customers from the information given as follows:

Units purchased

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Customer A

Customer B

145,000

245,000

Purchase orders (annually)

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) $3,900 B) $7,250 C) $12,250 D) $15,600

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

44) 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 (annually)

Customer A

Customer B

100,000 5

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

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45) 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, 3% of annual order value for general delivery costs, $1.45 per item, and $25 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 20 10 2,600 $ 140,000

Customer D 8 10 5,200 $ 95,000

What are the total delivery costs charged to Customer D during the year? A) $8,380 B) $7,854 C) $10,640 D) $10,704

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

46) 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

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47) 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 $7 per order, 2% of annual order value for general delivery costs, $1.40 per item, and $20 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 19 10 2,500 $ 135,000

Customer D 7 10 5,000 $ 90,000

What are the total delivery costs charged to Customer C during the year? A) $6,533 B) $7,249 C) $9,000 D) $9,049

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

48) 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

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49) 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: Vendor A Units purchased Purchase orders (annually) Number of shipments received

190,000 6 18

Vendor B 290,000 24 72

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? Note: Do not round intermediate calculations. A) $9,600 B) $19,000 C) $29,000 D) $38,400

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

50) 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: Vendor A Units purchased Purchase orders (annually) Number of shipments received

100,000 6 12

Vendor B 200,000 24 52

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51) Benton Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $44,000 for purchasing support should be assigned to the individual vendors from the information given as follows: Vendor A Units purchased Purchase orders (annually) Number of shipments received

170,000 8 24

Vendor B 270,000 32 96

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? Note: Do not round intermediate calculations. A) $8,800 B) $17,000 C) $27,000 D) $35,200

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

52) 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: Vendor A Units purchased Purchase orders (annually) Number of shipments received

100,000 6 12

Vendor B 200,000 24 52

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53) Benton Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $42,500 for purchasing support should be assigned to the individual vendors from the information given as follows:

Units purchased Purchase orders (annually) Number of shipments received

Vendor A

Vendor B

120,000 6 18

220,000 24 72

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) $8,500 B) $15,000 C) $27,500 D) $34,000

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

54) 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: Vendor A Units purchased Purchase orders (annually) Number of shipments received

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

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55) Benton Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $46,000 for purchasing support should be assigned to the individual vendors from the information given as follows:

Units purchased Purchase orders (annually) Number of shipments received

Vendor A

Vendor B

180,000 5 15

280,000 20 60

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) $9,200 B) $18,000 C) $28,000 D) $36,800

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

56) 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: Vendor A Units purchased Purchase orders (annually) Number of shipments received

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

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57) Benton Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $58,500 for purchasing support should be assigned to the individual vendors from the information given as follows: Vendor A Units purchased Purchase orders (annually) Number of shipments received

145,000 6 18

Vendor B 245,000 24 72

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) $11,700 B) $21,750 C) $36,750 D) $46,800

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

58) 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: Vendor A Units purchased Purchase orders (annually) Number of shipments received

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? Note: Do not round intermediate calculations. A) $9,000 B) $16,000 C) $32,000 D) $39,000

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59) Benton Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $47,500 for purchasing support should be assigned to the individual vendors from the information given as follows: Vendor A Units purchased Purchase orders (annually) Number of shipments received

140,000 8 24

Vendor B 240,000 32 96

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) $9,500 B) $17,500 C) $30,000 D) $38,000

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

60) 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: Vendor A Units purchased Purchase orders (annually) Number of shipments received

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? Note: Do not round intermediate calculations. A) $9,000 B) $16,000 C) $32,000 D) $39,000

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61) Express Travel decides to price delivery services according to the results of a recent activity-based costing (ABC) study. The study indicates Express Travel should charge $18 per order, 2% of annual order value for general delivery costs, $2.60 per item, and $40 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 19 20 1,000 $ 121,000

Customer B 9 20 3,000 $ 81,000

Customer C 13 30 11,000 $ 101,000

What are the total delivery costs charged to Customer A during the year? A) $5,612 B) $4,850 C) $6,162 D) $16,440

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

62) Express Travel decides to price delivery services according to the results of a recent activity-based 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

Version 1

63) Express Travel decides to price delivery services according to the results of a recent activity-based costing (ABC) study. The study indicates Express Travel should charge $20 per order, 1% of annual order value for general delivery costs, $2.00 per item, and $35 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 35 10 3,000 $ 137,000

Customer B 25 10 5,000 $ 97,000

Customer C 29 25 13,000 $ 117,000

What are the total delivery costs charged to Customer B during the year? A) $15,585 B) $11,820 C) $11,700 D) $9,320

Version 1

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

64) Express Travel decides to price delivery services according to the results of a recent activity-based 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

Version 1

65) Express Travel decides to price delivery service according to the results of a recent activity-based costing (ABC) study. The study indicates Express Travel should charge $20 per order, 1% of annual order value for general delivery costs, $1.50 per item, and $40 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 30 10 1,000 $ 132,000

Customer B 20 10 3,000 $ 92,000

Customer C 24 25 12,000 $ 112,000

What are the total delivery costs charged to Customer C during the year? A) $17,070 B) $17,000 C) $18,500 D) $20,600

Version 1

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

66) Express Travel decides to price delivery service according to the results of a recent activity-based 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

Version 1

67) Activity-based costing (ABC) information cannot be used by managerial decision makers to evaluate: A) the profitability of a customer. B) the market potential of a product. C) the cost of using a particular supplier. D) whether to continue providing a service.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Bloom's : Understand Accessibility : Screen Reader Compatible

68) 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?

Version 1

A) Number of different items ordered B) Value of each order C) Total number of items in each order D) Number of deliveries made

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Bloom's : Understand Accessibility : Screen Reader Compatible

69) The unused resource capacity is the difference between the resources supplied and the resources: A) purchased. B) wasted. C) used. D) on hand.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Type : Static Learning Objective : 10-05 Distinguish between resources used and resources supplied. Topic : Managing the Cost of Capacity Accessibility : Screen Reader Compatible

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70) 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.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Difficulty : 2 Medium Learning Objective : 10-05 Distinguish between resources used and resources supplied. Topic : Managing the Cost of Capacity Bloom's : Understand Accessibility : Screen Reader Compatible

71) South Beach Industries reports the following information about resources. At the beginning of the year, South Beach estimated it would spend $219,800 for materials, $46,000 for purchasing, $39,000 for setups, and $40,000 for repairs. Cost Driver Rate

Volume

Resources used: Materials Purchasing Setups Repairs Resources supplied:

Version 1

$ 12 per pound $ 260 per purchase order $ 440 per setup $ 38 per job

18,550 pounds 180 purchase orders 85 setups 650 jobs

Materials

$ 231,900

Purchasing

$ 51,500

Setups

$ 39,100

Repairs

$ 30,300

The unused resource capacity for materials for South Beach is: A) $12,100. B) $2,800. C) $19,325. D) $9,300.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Learning Objective : 10-05 Distinguish between resources used and resources supplied. Topic : Managing the Cost of Capacity Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

72) 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 Rate

Volume

Resources used: Materials Purchasing

Version 1

$ 10 per pound $ 250 per purchase order

18,350 pounds 160 purchase orders

Setups Repairs Resources supplied:

$ 450 per setup $ 36 per job

Materials

$ 192,700

Purchasing

$ 44,300

Setups

$ 37,500

Repairs

$ 30,000

80 setups 700 jobs

The unused resource capacity for materials for South Beach is: A) $12,700. B) $3,500. C) $19,270. D) $9,200.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Bloom's : Apply Learning Objective : 10-05 Distinguish between resources used and resources supplied. Topic : Managing the Cost of Capacity Difficulty : 3 Hard Accessibility : Screen Reader Compatible

73) South Beach Industries reports the following information about resources. At the beginning of the year, South Beach estimated it would spend $217,600 for materials, $32,000 for purchasing, $36,000 for setups, and $37,000 for repairs. Cost Driver Rate

Version 1

Volume

Resources used: Materials Purchasing Setups Repairs Resources supplied:

$ 12 per pound $ 200 per purchase order $ 460 per setup $ 32 per job

Materials

$ 229,800

Purchasing

$ 34,400

Setups

$ 33,750

Repairs

$ 26,200

18,400 pounds 150 purchase orders 70 setups 600 jobs

The unused resource capacity for purchasing for South Beach is: A) $6,017. B) $2,000. C) $4,400. D) $2,400.

74) 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.

Version 1

Cost Driver Rate

Volume

Resources used: Materials Purchasing Setups Repairs Resources supplied:

$ 10 per pound $ 250 per purchase order $ 450 per setup $ 36 per job

Materials

$ 192,700

Purchasing

$ 44,300

Setups

$ 37,500

Repairs

$ 30,000

18,350 pounds 160 purchase orders 80 setups 700 jobs

The unused resource capacity for purchasing for South Beach is: A) $5,538. B) $2,000. C) $4,300. D) $2,300.

Version 1

75) South Beach Industries reports the following information about resources. At the beginning of the year, South Beach estimated it would spend $181,400 for materials, $54,500 for purchasing, $32,500 for setups, and $39,000 for repairs. Cost Driver Rate

Volume

Resources used: Materials Purchasing Setups Repairs Resources supplied:

$ 10 per pound $ 300 per purchase order $ 420 per setup $ 36 per job

Materials

$ 194,500

Purchasing

$ 55,600

Setups

$ 35,250

Repairs

$ 35,400

18,500 pounds 170 purchase orders 80 setups 800 jobs

The unused resource capacity for setups for South Beach is: A) $2,750. B) $1,180. C) $1,650. D) $1,100.

Version 1

76) 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 Rate

Volume

Resources used: Materials Purchasing Setups Repairs Resources supplied:

$ 10 per pound $ 250 per purchase order $ 450 per setup $ 36 per job

Materials

$ 192,700

Purchasing

$ 44,300

Setups

$ 37,500

Repairs

$ 30,000

18,350 pounds 160 purchase orders 80 setups 700 jobs

The unused resource capacity for setups for South Beach is:

Version 1

A) $2,500. B) $1,080. C) $1,500. D) $1,000.

77) South Beach Industries reports the following information about resources. At the beginning of the year, South Beach estimated it would spend $278,350 for materials, $51,500 for purchasing, $36,500 for setups, and $46,000 for repairs. Cost Driver Rate

Volume

Resources used: Materials Purchasing Setups Repairs Resources supplied:

$ 15 per pound $ 280 per purchase order $ 420 per setup $ 46 per job

Materials

$ 292,650

Purchasing

$ 55,700

Setups

$ 38,800

Version 1

18,850 pounds 180 purchase orders 90 setups 500 jobs

Repairs

$ 28,000

The unused resource capacity for repairs for South Beach is: A) $5,000. B) $23,000. C) $18,000. D) $4,000.

78) 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 Rate

Volume

Resources used: Materials Purchasing Setups Repairs Resources supplied: Materials

Version 1

$ 10 per pound $ 250 per purchase order $ 450 per setup $ 36 per job

18,350 pounds 160 purchase orders 80 setups 700 jobs

$ 192,700

Purchasing

$ 44,300

Setups

$ 37,500

Repairs

$ 30,000

The unused resource capacity for repairs for South Beach is: A) $4,800. B) $10,800. C) $6,000. D) $3,600.

79) Macon Publishing reports the following information about resources. At the beginning of the year, Macon estimated it would spend $52,475 for setups and $49,000 for clerical. Cost Driver Rate

Volume

Resources used: Setups Clerical Resources supplied: Setups

Version 1

$ 310 per run $ 50 per page

175 runs 800 pages typed

$ 55,475

Clerical

48,000

The unused resource capacity for setups for Macon Publishing is: A) $1,225. B) $3,250. C) $2,025. D) $8,000.

80) 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. Cost Driver Rate

Volume

Resources used: Setups Clerical Resources supplied:

$ 250 per run $ 30 per page

Setups

$ 45,000

Clerical

20,000

175 runs 500 pages typed

The unused resource capacity for setups for Macon Publishing is: Version 1

A) $1,250. B) $3,000. C) $1,750. D) $5,000.

81) Macon Publishing reports the following information about resources. At the beginning of the year, Macon estimated it would spend $49,190 for setups and $38,500 for clerical. Cost Driver Rate

Volume

Resources used: Setups Clerical Resources supplied:

$ 300 per run $ 40 per page

Setups

$ 52,190

Clerical

37,500

170 runs 750 pages typed

The unused resource capacity for clerical for Macon Publishing is:

Version 1

A) $7,500. B) $1,500. C) $9,000. D) $2,000.

82) 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. Cost Driver Rate

Volume

Resources used: Setups Clerical Resources supplied:

$ 250 per run $ 30 per page

Setups

$ 45,000

Clerical

20,000

175 runs 500 pages typed

The unused resource capacity for clerical for Macon Publishing is:

Version 1

A) $5,000. B) $1,000. C) $6,000. D) $1,260.

83) Denim Products reports the following information about resources. At the beginning of the year, Denim estimated it would spend $103,000 for setups and $62,000 for quality testing. Cost Driver Rate

Volume

Resources used: Setups Quality testing Resources supplied:

$ 440 per run $ 50 per test

Setups

$ 108,000

Quality testing

$ 59,000

240 runs 1,090 tests

The unused resource capacity for setups for Denim Products is:

Version 1

A) $5,000. B) $2,400. C) $3,000. D) $2,600.

84) 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 Rate

Volume

Resources used: Setups Quality testing Resources supplied:

$ 250 per run $ 40 per test

Setups

$ 90,000

Quality testing

$ 40,000

350 runs 900 tests

The unused resource capacity for setups for Denim Products is:

Version 1

A) $6,000. B) $2,500. C) $1,000. D) $3,500.

85) Denim Products reports the following information about resources. At the beginning of the year, Denim estimated it would spend $86,000 for setups and $44,000 for quality testing. Cost Driver Rate

Volume

Resources used: Setups Quality testing Resources supplied:

$ 270 per run $ 40 per test

Setups

$ 93,000

Quality testing

$ 42,000

330 runs 920 tests

The unused resource capacity for quality testing for Denim Products is:

Version 1

A) $5,200. B) $1,800. C) $2,000. D) $7,200.

86) 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 Rate

Volume

Resources used: Setups Quality testing Resources supplied: Setups Quality testing

$ 250 per run 40 per test

350 runs 900 tests

$ 90,000 40,000

The unused resource capacity for quality testing for Denim Products is:

Version 1

A) $4,000. B) $2,000. C) $1,000. D) $5,000.

87) Scallon Products reports the following information about resources. At the beginning of the year, Scallon estimated it would spend $7,400 for energy and $12,800 for repairs. Cost Driver Rate

Volume

Resources used: Energy Repairs Resources supplied:

$ 0.80 per MH $ 24 per job

Energy

$ 11,300

Repairs

$ 18,800

12,100 MH 680 jobs

The unused resource capacity for energy for Scallon Products is:

Version 1

A) $7,400. B) $2,280. C) $1,620. D) $3,900.

88) 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 Rate

Volume

Resources used: Energy Repairs Resources supplied:

$ 0.80 per MH $ 24 per job

Energy

$ 10,500

Repairs

$ 18,000

11,350 MH 600 jobs

The unused resource capacity for energy for Scallon Products is:

Version 1

A) $8,000. B) $1,080. C) $1,420. D) $2,500.

89) Scallon Products reports the following information about resources. At the beginning of the year, Scallon estimated it would spend $7,200 for energy and $12,600 for repairs. Cost Driver Rate

Volume

Resources used: Energy Repairs Resources supplied:

$ 0.80 per MH $ 24 per job

Energy

$ 11,100

Repairs

$ 18,600

11,900 MH 660 jobs

The unused resource capacity for repairs for Scallon Products is:

Version 1

A) $3,240. B) $12,600. C) $6,000. D) $2,760.

90) 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 Rate

Volume

Resources used: Energy Repairs Resources supplied:

$ 0.80 per MH $ 24 per job

Energy

$ 10,500

Repairs

$ 18,000

11,350 MH 600 jobs

The unused resource capacity for repairs for Scallon Products is:

Version 1

A) $2,400. B) $12,000. C) $6,000. D) $3,600.

91) 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.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Type : Static Topic : Managing the Cost of Capacity Learning Objective : 10-06 Design cost management systems to assign capacity costs. Accessibility : Screen Reader Compatible

Version 1

92)

Which of the following statements is 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. C) Practical capacity is the long-run expected volume produced. D) The cost of unused capacity is not important for decision making.

93)

Which of the following statement is false?

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. C) Allocating the costs of unused capacity is important because pricing decisions are based solely on costs. D) The problem with using theoretical capacity as the allocation base for unused capacity is that it is unattainable and can result in costs not being recovered.

Version 1

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Topic : Using Activity-Based Cost Management to Add Value Gradable : automatic Type : Static Difficulty : 2 Medium Learning Objective : 10-02 Use the hierarchy of costs to manage costs. Topic : Managing the Cost of Capacity Learning Objective : 10-06 Design cost management systems to assign capacity costs. Bloom's : Understand Accessibility : Screen Reader Compatible

94) A company has high winter demand and low summer demand for its services. The cost of the unused summer capacity would most appropriately 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.

95) Which of the following is not an explanation of why a company would operate at less than theoretical capacity?

Version 1

A) Scheduled maintenance of equipment. B) Breakdowns in equipment. C) Customer demand is less than anticipated. D) Customer demand is more than anticipated.

Question Details Accessibility : Keyboard Navigation Gradable : automatic Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Capacity Learning Objective : 10-06 Design cost management systems to assign capacity costs. AACSB : Reflective Thinking AICPA : BB Critical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

96)

The degree to which a good or service meets specifications is called: A) conformance to specification. B) customer expectations of quality. C) a conformance cost. D) a compliance cost.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Type : Static Learning Objective : 10-07 Describe how activities that influence quality affect costs and profitabil Topic : Managing the Cost of Quality Accessibility : Screen Reader Compatible

Version 1

97)

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 prevent defects in the products or services being produced. C) Appraisal costs are incurred to detect individual units of products that do not conform to specifications. D) External failure costs are costs associated with delivering low-quality or defective units to the customer.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Bloom's : Understand Accessibility : Screen Reader Compatible

98)

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

Version 1

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Bloom's : Understand Accessibility : Screen Reader Compatible

99)

Which of the following is an example of a prevention cost? A) Machine inspection B) Warranty repairs C) Field testing D) Marketing costs

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Bloom's : Understand Accessibility : Screen Reader Compatible

100)

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

Version 1

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Bloom's : Understand Accessibility : Screen Reader Compatible

101)

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

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Bloom's : Understand Accessibility : Screen Reader Compatible

102) Which of the following statements regarding conformance and nonconformance costs is false?

Version 1

A) There is an inverse relationship between the amount spent on conformance costs and the level of quality achieved. B) There is an inverse relationship between the amount spent on nonconformance costs and the level of quality achieved. C) Conformance costs include prevention and appraisal costs. D) Nonconformance costs include internal and external failure costs.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Bloom's : Understand Accessibility : Screen Reader Compatible

103)

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

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Type : Static Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Accessibility : Screen Reader Compatible

Version 1

104)

Water Industries' quality control report for August contains the following items:

Gathering, analyzing, 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

$ 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

What would be the total of the prevention costs on the August quality control report for Water Industries? A) $6,000 B) $8,000 C) $15,000 D) $19,000

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

105)

Water Industries' quality control report for August contains the following items:

Gathering, analyzing, and reporting quality data Inspecting raw materials received from vendors Testing and inspecting finished products

Version 1

$ 1,000 2,000 3,000

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

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

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Difficulty : 3 Hard Accessibility : Screen Reader Compatible

106)

Water Industries' quality control report for August contains the following items:

Gathering, analyzing, 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

Version 1

$ 1,200 2,200 3,200 4,200 5,200 6,200 7,200 8,200

What would be the total of the appraisal costs on the August quality control report for Water Industries? A) $7,400 B) $11,400 C) $12,600 D) $16,000

107)

Water Industries' quality control report for August contains the following items:

Gathering, analyzing, 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?

Version 1

A) $7,000 B) $11,000 C) $12,000 D) $15,000

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Difficulty : 3 Hard Accessibility : Screen Reader Compatible

108)

Water Industries' quality control report for August contains the following items:

Gathering, analyzing, 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

$ 1,600 2,600 3,600 4,600 5,600 6,600 7,600 8,600

What would be the total of the internal failure costs on the August quality control report for Water Industries? A) $8,600 B) $14,200 C) $15,200 D) $17,800

Version 1

109)

Water Industries' quality control report for August contains the following items:

Gathering, analyzing, 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

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Difficulty : 3 Hard Accessibility : Screen Reader Compatible

110)

Water Industries' quality control report for August contains the following items:

Gathering, analyzing, 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

$ 1,900 2,900 3,900 4,900 5,900 6,900 7,900 8,900

What would be the total of the external failure costs on the August quality control report for Water Industries? A) $4,900 B) $6,900 C) $7,900 D) $15,800

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111)

Water Industries' quality control report for August contains the following items:

Gathering, analyzing, 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

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Difficulty : 3 Hard Accessibility : Screen Reader Compatible

112)

Water Industries' quality control report for August contains the following items:

Gathering, analyzing, 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

$ 1,600 2,600 3,600 4,600 5,600 6,600 7,600 8,600

What would be the total of the conformance costs on the August quality control report for Water Industries? A) $25,600 B) $23,000 C) $16,200 D) $14,200

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113)

Water Industries' quality control report for August contains the following items:

Gathering, analyzing, 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

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Difficulty : 3 Hard Accessibility : Screen Reader Compatible

114)

Water Industries' quality control report for August contains the following items:

Gathering, analyzing, 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

$ 1,800 2,800 3,800 4,800 5,800 6,080 7,800 8,800

What would be the total of the nonconformance costs on the August quality control report for Water Industries? A) $26,800 B) $25,000 C) $14,880 D) $15,400

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115)

Water Industries' quality control report for August contains the following items:

Gathering, analyzing, 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

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Difficulty : 3 Hard Accessibility : Screen Reader Compatible

116)

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

$ 11,000 21,000 31,000 41,000 51,000 61,000 71,000 81,000

What would be the total of the conformance costs on the August quality control report for Glory Enterprises? A) $204,000 B) $174,000 C) $153,000 D) $92,000

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117)

Glory Enterprises’ quality control report for August contains the following items:

$ 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

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Difficulty : 3 Hard Accessibility : Screen Reader Compatible

118)

Glory Enterprises’ quality control report for August contains the following items:

$ 19,000 29,000 39,000 49,000 59,000 69,000 79,000 89,000

What would be the total of the nonconformance costs on the August quality control report for Glory Enterprises? A) $138,000 B) $177,000 C) $207,000 D) $255,000

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119)

Glory Enterprises’ quality control report for August contains the following items:

$ 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

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Difficulty : 3 Hard Accessibility : Screen Reader Compatible

120)

Glory Enterprises’ quality control report for August contains the following items:

$ 25,000 35,000 45,000 55,000 65,000 75,000 85,000 95,000

What would be the total of the prevention costs on the August quality control report for Glory Enterprises? A) $225,000 B) $150,000 C) $120,000 D) $100,000

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121)

Glory Enterprises’ quality control report for August contains the following items:

$ 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

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Difficulty : 3 Hard Accessibility : Screen Reader Compatible

122)

Glory Enterprises’ quality control report for August contains the following items:

$ 14,000 24,000 34,000 44,000 54,000 64,000 74,000 84,000

What would be the total of the appraisal costs on the August quality control report for Glory Enterprises? A) $34,000 B) $74,000 C) $84,000 D) $98,000

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123)

Glory Enterprises’ quality control report for August contains the following items:

$ 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

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Difficulty : 3 Hard Accessibility : Screen Reader Compatible

124)

Glory Enterprises’ quality control report for August contains the following items:

$ 13,000 23,000 33,000 43,000 53,000 63,000 73,000 83,000

What would be the total of the internal failure costs on the August quality control report for Glory Enterprises? A) $63,000 B) $96,000 C) $106,000 D) $129,000

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125)

Glory Enterprises’ quality control report for August contains the following items:

$ 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

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Difficulty : 3 Hard Accessibility : Screen Reader Compatible

126)

Glory Enterprises’ quality control report for August contains the following items:

$ 21,000 31,000 41,000 51,000 61,000 71,000 81,000 91,000

What would be the total of the external failure costs on the August quality control report for Glory Enterprises? A) $92,000 B) $132,000 C) $153,000 D) $173,000

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127)

Glory Enterprises’ quality control report for August contains the following items:

$ 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

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Type : Static Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Difficulty : 3 Hard Accessibility : Screen Reader Compatible

128)

Which of the following is not a prevention activity in controlling quality? A) Certifying suppliers B) Field testing C) Quality training D) Process improvement

Question Details Accessibility : Keyboard Navigation Gradable : automatic Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu AACSB : Reflective Thinking AICPA : BB Critical Thinking Bloom's : Understand Topic : What is the Cost of Quality? Accessibility : Screen Reader Compatible

129)

Which of the following is a prevention activity in controlling quality?

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A) Designing products for manufacturability B) Inspecting machines C) Statistical process control D) Field testing

130)

Which of the following is an appraisal activity? A) Quality evaluations B) Statistical process control C) Warranty repairs D) Field replacements

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131)

Which of the following is a prevention activity? A) Field replacements B) Warranty repairs C) Supplier certification D) Statistical process control

132)

Which of the following is an internal failure activity? A) Quality evaluations B) Inspecting materials C) Inspecting machines D) Delaying processes

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133)

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.

134)

External failure activities:

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135)

Prevention activities:

136)

Appraisal activities:

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137) 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

$ 5,690,000 $ 3,414,000 $ 244,200 $ 93,000 $ 289,000 $ 79,000 $ 40,920 $ 149,000

The total cost of prevention activities for Forensic Specialists is: A) $321,000. B) $242,000. C) $486,200. D) $531,000.

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Question Details Accessibility : Keyboard Navigation Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu AICPA : FN Measurement AACSB : Reflective Thinking Difficulty : 3 Hard Topic : What is the Cost of Quality? Type : Algorithmic Accessibility : Screen Reader Compatible

138) 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.

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Question Details Accessibility : Keyboard Navigation Gradable : automatic Type : Static Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu AICPA : FN Measurement AACSB : Reflective Thinking Difficulty : 3 Hard Topic : What is the Cost of Quality? Accessibility : Screen Reader Compatible

139) 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

$ 5,710,000 $ 3,426,000 $ 302,630 $ 95,000 $ 291,000 $ 81,000 $ 42,920 $ 151,000

The relevant percentage to be used to express internal failure activities at Forensic Specialists is: A) 34.55%. B) 6.05%. C) 5.30%. D) 16.87%.

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Question Details Accessibility : Keyboard Navigation Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu AICPA : FN Measurement AACSB : Reflective Thinking Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

140) 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%.

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141) 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

$ 5,730,000 $ 3,438,000 $ 248,200 $ 97,000 $ 293,000 $ 83,000 $ 44,920 $ 166,000

The total cost of external failure activities at Forensic Specialists is: A) $420,560. B) $44,920. C) $124,100. D) $207,500.

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Question Details Accessibility : Keyboard Navigation Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu AICPA : FN Measurement AACSB : Reflective Thinking Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

142) 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.

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143) 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

$ 5,760,000 $ 3,456,000 $ 251,200 $ 100,000 $ 296,000 $ 77,760 $ 47,920 $ 172,000

The relevant percentage to be used to express appraisal activities at Forensic Specialists is: A) 8.09%. B) 43.00%. C) 3.25%. D) 1.35%.

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Question Details Accessibility : Keyboard Navigation Gradable : automatic Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu AICPA : FN Measurement AACSB : Reflective Thinking Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

144) 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%.

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145) Tabor Detective Services is evaluating its system. The company gathered the information below: Process Interviews Research Pursuit Travel

Available Hours per Week 50 110 99 170

Value-Added Time (hours per client) 2 3 0.6 4

Average Demand 10 20 140 25

Practical capacity is 80% for each process. Which process is most likely to be a current bottleneck? A) Interviews B) Research C) Pursuit D) Travel

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Learning Objective : 10-06 Design cost management systems to assign capacity costs. Topic : Managing the Cost of Quality AICPA : BB Critical Thinking Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

146) Tabor Detective Services is evaluating its system. The company gathered the information below: Process Interviews Research Pursuit Travel

Available Hours Value-Added Time Average Demand per Week (hours per client) 70 2 20 130 3 30 75 0.5 120 200 4 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

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic Type : Static Bloom's : Apply Learning Objective : 10-06 Design cost management systems to assign capacity costs. Topic : Managing the Cost of Quality AICPA : BB Critical Thinking Difficulty : 3 Hard Accessibility : Screen Reader Compatible

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 147) Windom Corporation manufactures small airplane propellers. Sales for April totaled $850,000. Information regarding resources for the month follows: Resources Used Parts management Energy Quality inspections Long-term labor Temporary labor Setups Materials Depreciation Marketing Customer service Administrative

$ 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.

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148) Rock Island Manufacturing makes motor brackets. Information regarding resources for the month follows: Resources Used Resources Supplied Parts management Energy Quality inspections Long-term labor Temporary labor Setups Materials Depreciation Marketing Customer service Administrative

$ 60,000 100,000 90,000 50,000 40,000 140,000 300,000 120,000 140,000 20,000 100,000

$ 70,000 100,000 100,000 70,000 48,000 200,000 300,000 200,000 150,000 40,000 140,000

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.

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149) Mirror Industries manufactures electric trolling motors. Sales for the month totaled $1,700,000. Information regarding resources for the month follows: Resources Used Administrative Customer service Depreciation Energy Engineering Long-term labor Marketing Materials Parts management Quality inspections Setups Temporary labor

$ 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.

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150) Miracle Mile Corporation manufactures electric scooters. Information regarding resources for the month follows: Resources Used Administrative Customer service Depreciation Energy Engineering Long-term labor Marketing Materials Parts management Quality inspections Setups Temporary labor

$ 100,000 25,000 130,000 90,000 50,000 60,000 120,000 250,000 65,000 100,000 150,000 50,000

Resources Supplied $ 145,000 50,000 200,000 90,000 52,000 80,000 130,000 250,000 75,000 120,000 200,000 56,000

Required: a. Prepare an analysis of the unused resource capacity for the month.

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151) 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

Cost Driver number of orders Load truck number of items Deliver merchandise number of orders Process invoice Total overhead

number of invoices

Cost $ 25,000

Driver Volume 4,000 orders

50,000

80,000 items

30,000

4,000 orders

24,000

6,000 invoices

$ 129,000

Two of Taylor’s customers are City Diner and Le ChienChaud. Below are data on orders and deliveries to these two customers: City Diner

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Le ChienChaud

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Order value Number of orders Number of items Number of invoices

$ 24,000 50 550 12

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

152) 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 Process transaction

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Cost Driver number of uses number of visits number of transactions

Cost $ 2,000,000 6,000,000 4,000,000

Driver Volume 10,000,000 uses 750,000 visits 40,000,000 transactions

124

General bank overhead

total deposits

Total overhead

8,000,000

450,000,000

$ 20,000,000

Data on two representative customers are shown below:

ATM uses Branch visits Number of transactions Average deposit

Customer A

Customer B

300 5 60 $ 450

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

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153) 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 (annually) Number of shipments received

Vendor A

Vendor B

Vendor C

100,000 6 12

200,000 24 52

200,000 100 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 purchase 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

154) 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:

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Units purchased Purchase orders (annually) Number of shipments received

Vendor A

Vendor B

Vendor C

100,000 12 12

100,000 24 52

500,000 50 100

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 purchase 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

155) 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: Large Customer Units purchased

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200,000

Five Small Customers 300,000

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Orders placed Number of sales calls Manufacturing cost

10 20 $ 600,000

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

156) 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: Large Customer Units purchased Orders placed Number of sales calls Manufacturing cost

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300,000 12 20 $ 900,000

Ten Small Customers 200,000 420 230 $ 600,000

128

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

157) 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: Large Customer Units purchased Orders placed Number of sales calls Manufacturing cost Sales

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300,000 12 20 $ 900,000 $ 1,800,000

Ten Small Customers 200,000 420 230 $ 600,000 $ 1,200,000

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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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

158) 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

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Cost Driver number of orders number of items number of orders number of invoices

Cost $ 50,000 100,000 60,000 48,000

Driver Volume 4,000 orders 80,000 items 4,000 orders 6,000 invoices

$ 258,000

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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

Katy’s

Amy’s

$ 48,000 50 550 12

$ 64,000 100 1,600 120

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Bloom's : Apply Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

159)

Gruber Industries provides the following information about resources: Cost Driver Rate

Cost Driver Volume

Resources used

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Materials Energy Setups Purchasing Customer service Long-term labor Administrative Resources supplied

$ 12 48 300 240 160 80 60

Materials Energy Setups Purchasing Customer service Long-term labor Administrative

15,000 pounds 675 machine hours 150 setups 160 purchase orders 175 returns 640 labor hours 840 administrative 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Bloom's : Apply Learning Objective : 10-05 Distinguish between resources used and resources supplied. Topic : Managing the Cost of Capacity Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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160)

Jones Industries provides the following information about resources: Cost Driver Rate

Cost Driver Volume

Resources used Materials Energy Setups Purchasing Customer service Long-term labor Administrative Resources supplied Materials Energy Setups Purchasing Customer service Long-term labor Administrative

$ 24 90 450 350 210 80 75

25,000 gallons 870 machine hours 130 setups 170 purchase orders 85 returns 1,600 labor hours 2,200 administrative 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Bloom's : Apply Learning Objective : 10-05 Distinguish between resources used and resources supplied. Topic : Managing the Cost of Capacity Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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161)

Morrison Supply provides the following information about resources: Cost Driver Rate

Cost Driver Volume

$ 50 310 80 90 12 145 450

1,200 administrative hours 65 returns 770 machine hours 1,600 labor hours 50,000 units 120 purchase orders 115 setups

Resources used Administrative Customer service Energy Long-term labor Materials Purchasing Setups Resources used Administrative Customer service Energy Long-term labor Materials Purchasing Setups

$ 68,000 31,200 66,480 163,000 625,000 34,000 60,400

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Bloom's : Apply Learning Objective : 10-05 Distinguish between resources used and resources supplied. Topic : Managing the Cost of Capacity Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

162) 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

April

$ 539,000

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

163) Categorize each of the following quality activities by placing an X in the appropriate column. Required: Prevention Appraisal Internal External Failure 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

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Gradable : manual Bloom's : Understand Accessibility : Screen Reader Compatible

164) Categorize each of the following quality activities by placing an X in the appropriate column. Required: Prevention Appraisal Internal External Failure Failure 1. Lost sales 2. Materials inspection 3. End-of-process 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

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165) The following represents the financial information of Madison Tool Corporation, a manufacturer of testing equipment: May Customer complaints Field testing Materials inspection Preventive maintenance Process inspection Quality training Rework Scrap Testing equipment Warranty repairs

$ 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.

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166)

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.

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167) 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

$ 55

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

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22 5 10 6 2

2,000

140

Sales price per bottle

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Learning Objective : 10-05 Distinguish between resources used and resources supplied. Topic : Managing the Cost of Capacity AICPA : FN Measurement Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

168) 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: No Frills Selling price Direct materials Direct labor ($ 15 per hour) Variable Overhead Fixed Overhead

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$ 35.00 10.00 7.50 4.00 3.00

Standard Options $ 45.00 12.00 12.00 6.40 5.00

Super $ 65.00 14.00 21.00 11.20 5.00

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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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Bloom's : Apply Learning Objective : 10-05 Distinguish between resources used and resources supplied. Topic : Managing the Cost of Quality AICPA : FN Measurement Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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169) Smooth, Incorporated 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 Incorporated accept the proposal from Price-Mart? Why or why not? (Include strategic considerations) ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Learning Objective : 10-05 Distinguish between resources used and resources supplied. Topic : Managing the Cost of Quality AICPA : FN Measurement Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

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170) Stonehouse Corporation developed the following information regarding quality for the first quarter of the year 2023: Sales Wasted time Training Inspecting finished goods Performance reviews Resolving customer complaints Certifying suppliers

$ 6,800,000 285,600 102,000 340,000 85,000 38,760 170,000

Total

$ 1,021,360

Required: Prepare a cost of quality report sorting costs by quality activity and expressing in relevant percentage terms. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Apply Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu AICPA : FN Measurement AACSB : Reflective Thinking Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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171) Identify each of the following as Prevention Activities (P), Appraisal Activities (A), Internal Failure Activities (I) or External Failure Activities (E): 1. (1) Field testing 2. (2) Statistical process control 3. (3) Sampling at the end of process 4. (4) Disposing of scrap 5. (5) Quality evaluations 6. (6) Retesting 7. (7) Settling product liability 8. (8) Resolving customer complaints 9. (9) Lost sales 10. (10) Restoring reputation ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static Difficulty : 2 Medium Learning Objective : 10-07 Describe how activities that influence quality affect costs and profitabil Topic : Managing the Cost of Quality AICPA : FN Measurement AACSB : Reflective Thinking Gradable : manual Bloom's : Understand Accessibility : Screen Reader Compatible

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172) For each of the following products or services, indicate the most important customer quality attributes and the most important customer quality tradeoffs. 1. (a) Personal computer 2. (b) Legal representation in divorce court 3. (c) New home purchase 4. (d) Meals in a fast food restaurant 5. (e) Airline travel 6. (f) Prom dress 7. (g) Cruise ship vacation 8. (h) Auto repair ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu AICPA : FN Measurement AACSB : Reflective Thinking Gradable : manual Bloom's : Understand Accessibility : Screen Reader Compatible

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173) Describe the six steps that are taken in an activity analysis. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 10-01 Describe how activity-based cost management can be used to improve operati Topic : Using Activity-Based Cost Management to Add Value Type : Static Gradable : manual Accessibility : Screen Reader Compatible

174) 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?

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu AACSB : Reflective Thinking Gradable : manual Bloom's : Understand Accessibility : Screen Reader Compatible

175) What is the relationship between customer profitability analysis and ABC? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AICPA : FN Decision Making Topic : Using Activity-Based Cost Management to Add Value Type : Static Difficulty : 2 Medium Learning Objective : 10-02 Use the hierarchy of costs to manage costs. Learning Objective : 10-03 Describe how the actions of customers and suppliers affect a firm’s Topic : Managing the Cost of Customers and Suppliers AACSB : Reflective Thinking Gradable : manual Bloom's : Understand Accessibility : Screen Reader Compatible

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176) 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 ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static Topic : Managing the Cost of Customers and Suppliers Learning Objective : 10-04 Use activity-based costing methods to assess customer and supplier costs. AICPA : FN Measurement AACSB : Reflective Thinking Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

177) Explain the differences between resources used, resources supplied, and unused resource capacity. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Difficulty : 2 Medium Learning Objective : 10-05 Distinguish between resources used and resources supplied. Topic : Managing the Cost of Capacity Gradable : manual Bloom's : Understand Accessibility : Screen Reader Compatible

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178) 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 160,000 units and annual output is 135,000 units. All engines sold internally to the LMAD are priced at cost plus 20% markup. In January 2023, 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 Materials Labor Special equipment Quality inspection Other manufacturing costs Total costs

Per unit

$ 300,000 400,000 36,000 24,000 350,000

$ 15.00 20.00 1.80 1.20 17.50

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Bloom's : Apply Learning Objective : 10-05 Distinguish between resources used and resources supplied. Difficulty : 3 Hard Gradable : manual Topic : Using and Supplying Resources Accessibility : Screen Reader Compatible

179) Quality costs can be divided into two categories: conformance and nonconformance. Explain the difference between the two and give two examples of each. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Gradable : manual Bloom's : Understand Accessibility : Screen Reader Compatible

180) Describe the four types of quality costs and give an example of each. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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181) Explain the difference between actual activity, theoretical capacity, practical capacity, and normal activity. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Difficulty : 2 Medium Topic : Managing the Cost of Capacity Learning Objective : 10-06 Design cost management systems to assign capacity costs. Gradable : manual Bloom's : Understand Accessibility : Screen Reader Compatible

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182) 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:

$ 132 per unit

Direct materials

Direct labor

Variable overhead

Variable marketing costs

Fixed overhead

Reworking costs: Materials

$ 25

Labor

All other variable

Gates observes that reworking a defective product consumes more labor time than making a unit from scratch. She also notes that because there is no excess capacity, 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?

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183) 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.) ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Type : Static Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

184) 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:

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$ 29.60 13.00 19.50 (@150% of direct labor cost) 26.00 (@200% of direct labor cost) $ 88.10

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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 manufacturing 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 manufacturing 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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185) Mulvey Corporation manufactures large kitchen appliances. The following represents financial information for two years: 2023 Sales Costs: Process Inspection Scrap Quality Training Warranty Repairs Testing Equipment Resolving Customer Complaints Rework Preventative Maintenance Material Inspection Field Testing Total costs

2024

$ 7,840,000

$ 7,040,000

52,800 57,600 610,000 140,000 230,000 89,000 544,000 440,000 210,000 300,000

60,000 60,200 440,000 150,000 230,000 108,400 390,000 304,000 150,000 400,000

$ 2,673,400

$ 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 2023 and 2024. (c) Prepare a cost of quality report for 2023.

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186) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static Topic : Managing the Cost of Quality Learning Objective : 10-08 Compare the costs of quality control to the costs of failing to control qu AICPA : FN Measurement AACSB : Reflective Thinking AICPA : BB Critical Thinking Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

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Answer Key Test name: Lanen7e_ch10 1) TRUE ABCM is the managerial use of ABC information. 2) TRUE ABCM is not limited to just manufacturing companies. 3) FALSE Storing items (materials, work-in-process, and finished goods), moving items, and waiting for work are nonvalue-added activities. 4) TRUE 5) TRUE Unit-level (or volume-related) costs are affected by the volume of units produced—this is the definition of a variable cost. 6) FALSE Capacity-related costs are normally fixed with respect to volume. 7) FALSE If managers make decisions that affect capacity, costs in all levels of the hierarchy will likely be affected, including capacity-related costs. 8) TRUE The basic concepts involved in activity-based costing (ABC) can be used to determine customer profitability as well as product costs. 9) FALSE The cost driver rate is computed by dividing the total activity cost by the cost driver volume. 10) TRUE 11) TRUE 12) TRUE

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Resources supplied − Resources used = Unused resource capacity; Unused resource capacity + Resources used = Resources supplied 13) FALSE Theoretical capacity is the amount of production possible under ideal conditions with no time for any downtime, whether planned or unplanned. 14) FALSE Theoretical capacity is the amount of production possible under ideal conditions with no time for maintenance, breakdowns, or absenteeism. Normal capacity is the long-run expected volume. 15) TRUE 16) TRUE 17) FALSE Tangible features include performance, taste, and functionality. Intangible features include how the product’s salespeople treat customers and the time required to deliver the product to the customer after it is ordered. 18) TRUE 19) TRUE 20) TRUE 21) D In order for ABC to reflect a maximum benefit, there must be more than one product. 22) C A full range of cost drivers is necessary, coupled with the elimination of nonvalue-added activities. 23) D Raw materials storage is nonvalue-added as it creates nothing compared to the other three alternatives which create value. 24) C Version 1

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The first step in activity analysis is to identify what the customer wants or expects from the firm’s products or services, including key features, price, and quality. 25) D Activity analysis has six steps, and computing the activity rates is not one of them. 26) C Identifying what the customer wants or expects from the firm’s product or services is the first step of ABCM activity analysis. Process reengineering is the sixth, and final, step of ABCM activity analysis. 27) D Storing items, moving items, and waiting for work are all nonvalueadded activities. 28) D Storing, ordering, and inspecting are all nonvalue-added. 29) A Waiting, receiving, and setting up are all nonvalue-added. 30) B ABCM is the use of activity-based costing data to evaluate the cost of value-chain activities and to identify opportunities for improvement. 31) A The production supervisor's salary and depreciation on the factory building are both capacity-related; research and development is productrelated. 32) D Indirect labor is volume-related; the production supervisor's salary and depreciation on the factory building are both capacity-related. 33) A Material moves would be batch-related; lease payments and insurance/taxes on the building are capacity-related. Version 1

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34) D Square footage is not related to the volume of production, it is related to the size of the building. 35) B Capacity-related costs are related to the overall facility. 36) D Indirect costs are always allocated as part of overhead. 37) B 170,000 ÷ (170,000 + 270,000) × $11,000 = $4,250 38) B 100,000 ÷ (100,000 + 200,000) × $12,000 = $4,000 39) C 205,000 ÷ (105,000 + 205,000) × $15,500 = $10,250 40) C 200,000 ÷ (100,000 + 200,000) × $12,000 = $8,000 41) A 6 ÷ (6 + 24) × $13,500 = $2,700 42) A 5 ÷ (5 + 20) × $12,000 = $2,400 43) D 32 ÷ (8 + 32) × $19,500 = $15,600 44) D 20 ÷ (5 + 20) × $12,000 = $9,600 45) D ($8 × 8) + (0.03 × $95,000) + ($1.45 × 5,200) + ($25 × 10) = $10,704 46) D ($8 × 8) + (0.02 × $80,000) + ($1.25 × 4,000) + ($30 × 10) = $6,964 47) A ($7 × 19) + (0.02 × $135,000) + ($1.40 × 2,500) + ($20 × 10) = $6,533 48) A Version 1

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($8 × 18) + (0.02 × $120,000) + ($1.25 × 2,000) + ($30 × 10) = $5,344 49) B 190,000 ÷ (190,000 + 290,000) × $48,000 = $19,000 50) B $100,000 ÷ ($100,000 + 200,000) × $48,000 = $16,000 51) C 270,000 ÷ (170,000 + 270,000) × $44,000 = $27,000 52) C 200,000 ÷ (100,000 + 200,000) × $48,000 = $32,000 53) A 6 ÷ (6 + 24) × $42,500 = $8,500 54) A 6 ÷ (6 + 24) × $48,000 = $9,600 55) D 20 ÷ (5 + 20) × $46,000 = $36,800 56) D 24 ÷ (6 + 24) × $48,000 = $38,400 57) A 18 ÷ (18 + 72) × $58,500 = $11,700 58) A 12 ÷ (12 + 52) × $48,000 = $9,000 59) D 96 ÷ (24 + 96) × $47,500 = $38,000 60) D 52 ÷ (12 + 52) × $48,000 = $39,000 61) C ($18 × 19) + (0.02 × $121,000) + ($2.60 × 1,000) + ($40 × 20) = $6,162 62) C ($16 × 18) + (0.01 × $120,000) + ($2.50 × 2,000) + ($45 × 10) = $6,938 63) B Version 1

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($20 × 25) + (0.01 × $97,000) + ($2.00 × 5,000) + ($35 × 10) = $11,820 64) B ($16 × 8) + (0.01 × $80,000) + ($2.50 × 4,000) + ($45 × 10) = $11,378 65) D ($20 × 24) + (0.01 × $112,000) + ($1.50 × 12,000) + ($40 × 25) = $20,600 66) D ($16 × 12) + (0.01 × $100,000) + ($2.50 × 12,000) + ($45 × 24) = $32,272 67) B Market potential is not based on cost information, it is based on external marketing data. 68) D The size of the administration of the delivery department would be related to the number of deliveries. 69) C Unused resource capacity is the difference between resources used and resources supplied. 70) A Resources used would be related to the actual level of activity, so the actual cost driver volume should be used. Cost driver rate should be used since this is a measure of the resources being supplied. 71) D $231,900 − ($12 × 18,550) = $9,300 72) D $192,700 − ($10 × 18,350) = $9,200 73) C $34,400 − ($200 × 150) = $4,400 74) C $44,300 − ($250 × 160) = $4,300 Version 1

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75) C $35,250 − ($420 × 80) = $1,650 76) C $37,500 − ($450 × 80) = $1,500 77) A $28,000 − ($46 × 500) = $5,000 78) A $30,000 − ($36 × 700) = $4,800 79) A $55,475 − ($310 × 175) = $1,225 80) A $45,000 − ($250 × 175) = $1,250 81) A $37,500 − ($40 × 750) = $7,500 82) A $20,000 − ($30 × 500) = $5,000 83) B $108,000 − ($440 × 240) = $2,400 84) B $90,000 − ($250 × 350) = $2,500 85) A $42,000 − ($40 × 920) = $5,200 86) A $40,000 − ($40 × 900) = $4,000 87) C $11,300 − ($0.80 × 12,100) = $1,620 88) C $10,500 − ($0.80 × 11,350) = $1,420 89) D $18,600 − ($24 × 660) = $2,760 Version 1

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90) D $18,000 − ($24 × 600) = $3,600 91) C The given statement is the definition of practical capacity. 92) B Theoretical capacity is based on ideal conditions and practical capacity is based on expected breaks, maintenance, and downtime. The cost of unused capacity is important for decision making and its importance increases with the relative proportion of these costs in an organization’s cost structure. 93) C Allocating the costs of unused capacity is important for several reasons. However, pricing decisions are not based solely on costs. They also depend on market conditions. 94) C The excess capacity exists so the winter customers' demand can be satisfied. Since it is purchased to ensure supply for the winter customers, they should be charged. 95) D More than anticipated customer demand would cause the company to want to operate at theoretical capacity. 96) A Quality can be defined as conformance to specification, the degree to which a product or service performs as designed (or specified). 97) A Failure costs are nonconformance costs. 98) C Correcting defects is an internal failure cost. The problems were not prevented. 99) A Version 1

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Field testing is an appraisal cost; warranty repairs and marketing costs are external failure costs. 100) C Training and design are prevention costs; inspection is an appraisal cost. 101) D Testing products at a customer's site is an appraisal cost. 102) A There is a direct relationship between the amount spent on conformance costs and the level of quality achieved. 103) B Almost every system includes planning; not all include waiting time, inventory problems, or overtime. 104) D $2,000 (Gathering, analyzing, and reporting quality data) + $3,000 (Inspecting raw materials received from vendors) + $6,000 (Designing product to reduce production problems) + $8,000 (Maintaining the equipment used to gather quality data) = $19,000 105) D $1,000 (Gathering, analyzing, and reporting quality data) + $2,000 (Inspecting raw materials received from vendors) + $5,000 (Designing product to reduce production problems) + $7,000 (Maintaining the equipment used to gather quality data) = $15,000 106) A $3,200 (Testing and inspecting finished products) + $4,200 (Visiting customer sites to test product) = $7,400 107) A $3,000 (Testing and inspecting finished products) + $4,000 (Visiting customer sites to test product) = $7,000 108) A $8,600 (Cost (net) of materials wasted during production) Version 1

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109) A $8,000 (Cost (net) of materials wasted during production) 110) B $6,900 (Repairing and/or replacing products under warranty) 111) B $6,000 (Repairing and/or replacing products under warranty) 112) A $1,600 (Gathering, analyzing, and reporting quality data) + $2,600 (Inspecting raw materials received from vendors) + $5,600 (Designing product to reduce production problems) + $7,600 (Maintaining the equipment used to gather quality data) + $3,600 (Testing and inspecting finished products) + $4,600 (Visiting customer sites to test product) = $25,600 113) A $1,000 (Gathering, analyzing, and reporting quality data) + $2,000 (Inspecting raw materials received from vendors) + $5,000 (Designing product to reduce production problems) + $7,000 (Maintaining the equipment used to gather quality data) + $3,000 (Testing and inspecting finished products) + $4,000 (Visiting customer sites to test product) = $22,000 114) C $8,800 (Cost (net) of materials wasted during production) + $6,080 (Repairing and/or replacing products under warranty) = $14,880 115) C $8,000 (Cost (net) of materials wasted during production) + $6,000 (Repairing and/or replacing products under warranty) = $14,000 116) C $31,000 (Disposal costs of raw materials failing inspection) + $41,000 (Quality training provided to workers) + $81,000 (Testing and inspecting a sample of finished goods) = $153,000 Version 1

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117) C $30,000 (Disposal costs of raw materials failing inspection) + $40,000 (Quality training provided to workers) + $80,000 (Testing and inspecting a sample of finished goods) = $150,000 118) D $19,000 (Liability costs associated with defective products) + $29,000 (Disposal costs of defective products failing inspection) + $59,000 (Lost sales due to poor quality and defective products) + $69,000 (Advertising costs to offset perception of poor product quality) + $79,000 (Raw materials used to correct defects before product was sold) = $255,000 119) D $10,000 (Liability costs associated with defective products) + $20,000 (Disposal costs of defective products failing inspection) + $50,000 (Lost sales due to poor quality and defective products) + $60,000 (Advertising costs to offset perception of poor product quality) + $70,000 (Raw materials used to correct defects before product was sold) = $210,000 120) D $45,000 (Disposal costs of raw materials failing inspection) + $55,000 (Quality training provided to workers) = $100,000 121) D $30,000 (Disposal costs of raw materials failing inspection) + $40,000 (Quality training provided to workers) = $70,000 122) C $84,000 (Testing and inspecting a sample of finished goods) 123) C $80,000 (Testing and inspecting a sample of finished goods) 124) B $23,000 (Disposal costs of defective products failing inspection) + $73,000 (Raw materials used to correct defects before product was sold) = $96,000 Version 1

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125) B $20,000 (Disposal costs of defective products failing inspection) + $70,000 (Raw materials used to correct defects before product was sold) = $90,000 126) C $21,000 (Liability costs associated with defective products) + $61,000 (Lost sales due to poor quality and defective products) + $71,000 (Advertising costs to offset perception of poor product quality) = $153,000 127) C $10,000 (Liability costs associated with defective products) + $50,000 (Lost sales due to poor quality and defective products) + $60,000 (Advertising costs to offset perception of poor product quality) = $120,000 128) B Field testing is an appraisal activity. 129) A Designing products for manufacturability is prevention, while the other choices are appraisal. 130) B The use of statistical process control is an appraisal activity, while the other activities are in different quality areas. 131) C Supplier certification is prevention, while the other choices are further down the quality line. 132) D Delaying processes is an internal failure activity, while the other choices are prevention activities. 133) C

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Seeking to prevent defects is prevention; inspecting inputs and attributes is appraisal; activities required after defects are delivered is external failure; correcting defects before delivery is internal failure. 134) D Seeking to prevent defects is prevention; Inspecting inputs and attributes is appraisal; correcting defects before delivery is internal failure; activities required after defects are delivered is external failure. 135) A Seeking to prevent defects is prevention; inspecting inputs and attributes is appraisal; correcting defects before delivery is internal failure; activities required after defects are delivered is external failure. 136) B Seeking to prevent defects is prevention; inspecting inputs and attributes is appraisal; correcting defects before delivery is internal failure; activities required after defects are delivered is external failure. 137) D $93,000 (Quality training) + $289,000 (Inspecting materials on delivery) + $149,000 (Certifying suppliers) = $531,000 138) D $84,000 (Quality training) + $280,000 (Inspecting materials on delivery) + $140,000 (Certifying suppliers) = $504,000 139) C Disposing of scrap is an internal failure activity. $302,630 internal failure ÷ $5,710,000 sales = 5.30% 140) C Disposing of scrap is an internal failure activity. $235,200 internal failure ÷ $5,600,000 sales = 4.2% 141) B $44,920 (Resolving customer complaints) 142) B Version 1

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$31,920 (Resolving customer complaints) 143) D Performance reviews is an appraisal activity. $77,760 appraisal ÷ $5,760,000 sales = 1.35% 144) D Performance reviews is an appraisal activity. $70,000 appraisal ÷ $5,600,000 sales = 1.25% 145) C Available hours for Pursuit of 99 × 80% = 79.20 hours of practical capacity. The hours needed to meet average demand of 140 × 0.6 hours = 84 and exceeds practical capacity. 146) C Available hours for Pursuit of 75 × 75% = 56.25 hours of practical capacity. The hours needed to meet average demand of 120 × 0.5 hours = 60 and exceeds practical capacity. 147)a. Sales Parts management

$ 850,000 $ 35,000

Energy

50,000

Quality inspections

50,000

Long-term labor

35,000

Temporary labor

24,000

Setups

100,000

Materials

150,000

Depreciation

100,000

Marketing

75,000

Customer service

20,000

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Administrative

70,000

Engineering changes

25,000

Outside contracts

30,000

Total costs

764,000

Operating profit

$ 86,000

b. Resources Used

Unused Resource Capacity

Resource Supplied

Sales

$ 850,000

Costs: Volume-related: Parts management

$ 30,000

$ 5,000

$ 35,000

Energy

50,000

Materials

150,000

Temporary labor

20,000

4,000

24,000

Outside contracts*

30,000

280,000

9,000

289,000

Quality inspections

45,000

5,000

50,000

Setups

70,000

30,000

100,000

115,000

35,000

150,000

Marketing

70,000

5,000

75,000

Customer service

10,000

20,000

Total volume-related Batch-related:

Total batch-related Product-related:

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Engineering changes**

25,000

105,000

15,000

120,000

Long-term labor

25,000

10,000

35,000

Depreciation

60,000

40,000

100,000

Administrative

50,000

20,000

70,000

135,000

70,000

205,000

635,000

129,000

764,000

Total product-related Facility-related:

Total facility-related Total costs

764,000

Operating profit

$ 86,000

*Outside contracts [resources used]: (8 × $3,750) = $30,000 **Engineering changes [resources used]: (50 × $500) = $25,000 148)a. Resources Used

Unused Resource Capacity

Resource Supplied

Costs: Volume-related: Parts management Energy Materials Temporary labor Total volume-related Batch-related:

$ 60,000 100,000 300,000 40,000 500,000

$ 10,000 0 0 8,000 18,000

$ 70,000 100,000 300,000 48,000 518,000

Quality inspections Setups Total batch-related Product-related:

90,000 140,000 230,000

10,000 60,000 70,000

100,000 200,000 300,000

Marketing Customer service Engineering changes* Total product--related

140,000 20,000 24,000 184,000

10,000 20,000 1,000 31,000

150,000 40,000 25,000 215,000

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Facility-related: Long-term labor Depreciation Administrative Total facility-related Total costs

50,000 120,000 100,000

20,000 80,000 40,000

70,000 200,000 140,000

270,000

140,000

410,000

$ 1,184,000

$ 259,000

$ 1,443,000

Engineering changes [resources used]: $24,000 = (40 × $600) 149)a. Sales

$ 1,700,000

Administrative

$ 140,000

Customer service

40,000

Depreciation

200,000

Energy

100,000

Engineering

52,000

Long-term labor

70,000

Marketing

150,000

Materials

300,000

Parts management

70,000

Quality inspections

100,000

Setups

200,000

Temporary labor

48,000

Total costs

1,470,000

Operating profits

$ 230,000 Resources Used

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Unused Resource Capacity

Resource Supplied

178

Sales

$ 1,700,000

Costs: Volume-related: Energy

$ 100,000

$ 0

$ 100,000

Materials

300,000

Parts management

60,000

10,000

70,000

Temporary labor

40,000

8,000

48,000

500,000

18,000

518,000

Quality inspections

90,000

10,000

100,000

Setups

140,000

60,000

200,000

230,000

70,000

300,000

Customer service

20,000

40,000

Engineering

50,000

2,000

52,000

Marketing

140,000

10,000

150,000

Total productrelated Facility-related:

210,000

32,000

242,000

Administrative

100,000

40,000

140,000

Depreciation

120,000

80,000

200,000

Long-term labor

50,000

20,000

70,000

270,000

140,000

410,000

1,210,000

260,000

1,470,000

Total volume-related Batch-related:

Total batch-related Product-related:

Total facilityrelated Total costs

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1,470,000

179

Operating profit

$ 230,000

150) Resources Used

Unused Resource Capacity

Resource Supplied

Costs: Volume-related: Energy Materials Parts management Temporary labor Total volume-related Batch-related:

$ 90,000 250,000 65,000 50,000 455,000

$ 0 0 10,000 6,000 16,000

$ 90,000 250,000 75,000 56,000 471,000

Quality inspections Setups Total batch-related Product-related:

100,000 150,000 250,000

20,000 50,000 70,000

120,000 200,000 320,000

Customer service Engineering Marketing Total product-related Facility-related:

25,000 50,000 120,000 195,000

25,000 2,000 10,000 37,000

50,000 52,000 130,000 232,000

Administrative Depreciation Long-term labor

100,000 130,000 60,000

45,000 70,000 20,000

145,000 200,000 80,000

290,000

135,000

425,000

$ 1,190,000

$ 258,000

$ 1,448,000

Total facility-related Total costs

151)(a) City Diner: $24,000 × 0.04 = $960; Le ChienChaud: $32,000 × 0.04 = $1,280 (b) Cost driver rates: Activity

Cost Driver

Cost

Driver Volume

Process order

number of orders

$ ÷ 25,000

4,000 orders

= $ 6.25 per order

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Rate

180

Load truck Deliver merchandise Process invoice

number of items number of orders number of invoices

50,000 ÷ 80,000 items 30,000 ÷

4,000 order

24,000 ÷

6,000 invoices

$ per item 0.625 = $ 7.50 per order = $ 4.00 per invoice

Cost of delivery: City Diner Activity Process order Load truck Deliver merchandise

Volume 50 orders 550 items 50 orders

Process invoice

12 invoices

Total cost

Le ChienChaud Cost $ 312.50 343.75 375.00 48.00

Volume 100 orders 1,600 items 100 orders 120 invoices

$ 1,079.25

Cost $ 625.00 1,000.00 750.00 480.00 $ 2,855.00

Process order: (City Diner) $312.50 = (50 orders × $6.25 per order); (Le ChienChaud) $625 = (100 orders × $6.25). Load truck: (City Diner) $343.75 = (550 items × $0.625 per item); (Le ChienChaud) $1,000 = (1,600 items × $0.625). Deliver merchandise: (City Diner) $375.00 = (50 orders × $7.50 per order); (Le ChienChaud) $750 = (100 orders × $7.50). Process invoice: (City Diner) $48.00 = (12 invoices × $4.00 per invoice); (Le ChienChaud) $480 = (120 invoices × $4.00). 152)a. Revenues: $ 450,000,000 × 6%

$ 27,000,000

Interest on deposits: $45,000,000 × 1%

4,500,000

Costs as given

20,000,000

Total costs

24,500,000

Operating profit

$ 2,500,000

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b. Customer A

Customer B

Revenue A: $ 450 × 6%

$ 27.00

B: $ 10,000 × 6%

$ 600.00

Costs: Interest on deposits A: $ 450 × 1%

4.50

B: $ 10,000 × 1%

100.00

Operating costs A: $ 450 × 4.4444%*

20.00

B: $ 10,000 × 4.4444%

444.44

Profit

$ 2.50

$ 55.56

* $20,000,000 (operating costs) ÷ $450,000,000 (deposits) = 4.4444%. c. Activity Use ATM Visit branch Process transaction General bank overhead

Cost $ 2,000,000 6,000,000 4,000,000 8,000,000

Driver Volume 10,000,000 uses 750,000 visits 40,000,000 transactions $ 450,000,000 Customer A

Rate $ per use 0.20 $ 8 per visits $ per 0.10 transaction $ % 1.778 Customer B

Revenue: A: $ 450 × 6% B: $ 10,000 × 6%

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$ 27.00 $ 600.00

182

Costs: Interest on deposits A: $ 450 × 1%

4.50

B: $ 10,000 × 1%

100.00

Operating costs Use ATM A: 300 × $ 0.20

60.00

B. 50 × $ 0.20

10.00

Visit branch A: 5 × $ 8

40.00

B: 20 × $ 8

160.00

Process transactions A: 60 × $ 0.10

6.00

B: 1,200 × $ 0.10

120.00

General overhead A: $ 450 × 1.778%

8.00

B: $ 10,000 × 1.7778% Profit

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177.78 $ (91.50 )

$ 32.22

183

153)a. Vendor A: [100,000 ÷ (100,000 + 200,000 + 200,000)] × $125,000 = $25,000 Vendor B: [200,000 ÷ (100,000 + 200,000 + 200,000)] × $125,000 = $50,000 Vendor C: [200,000 ÷ (100,000 + 200,000 + 200,000)] × $125,000 = $50,000 b. Vendor A: [6 ÷ (6 + 24 + 100)] × $125,000 = $5,769 Vendor B: [24 ÷ (6 + 24 + 100)] × $125,000 = $23,077 Vendor C: [100 ÷ (6 + 24 + 100)] × $125,000 = $96,154 c. Vendor A: [12 ÷ (12 + 52 + 25)] × $125,000 = $16,854 Vendor B: [52 ÷ (12 + 52 + 25)] × $125,000 = $73,034 Vendor C: [25 ÷ (12 + 52 + 25)] × $125,000 = $35,112

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154)a. Vendor A: [100,000 ÷ (100,000 + 100,000 + 500,000)] × $250,000 = $35,714 Vendor B: [100,000 ÷ (100,000 + 100,000 + 500,000)] × $250,000 = $35,714 Vendor C: [500,000 ÷ (100,000 + 100,000 + 500,000)] × $250,000 = $178,572 b. Vendor A: [12 ÷ (12 + 24 + 50)] × $250,000 = $34,884 Vendor B: [24 ÷ (12 + 24 + 50)] × $250,000 = $69,767 Vendor C: [50 ÷ (12 + 24 + 50)] × $250,000 = $145,349 c. Vendor A: [12 ÷ (12 + 52 + 100)] × $250,000 = $18,293 Vendor B: [52 ÷ (12 + 52 + 100)] × $250,000 = $79,268 Vendor C: [100 ÷ (12 + 52 + 100)] × $250,000 = $152,439 155)a. Large: 200,000 ÷ (200,000 + 300,000) × ($180,000 + $275,000) = $182,000 Small: 300,000 ÷ (200,000 + 300,000) × ($180,000 + $275,000) = $273,000 b. Order-filling: Large: 10 ÷ (10 + 350) × $180,000 = $5,000; Small: 350 ÷ (10 + 350) × $180,000 = $175,000 Sales-force: Large: 20 ÷ (20 + 230) × $275,000 = $22,000; Small: 230 ÷ (20 + 230) × $275,000 = $253,000 Large: $5,000 + $22,000 = $27,000; Small: $175,000 + $253,000 = $428,000

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156)a. Large: 300,000 ÷ (300,000 + 200,000) × ($360,000 + $300,000) = $396,000; Small: 200,000 ÷ (300,000 + 200,000) × ($360,000 + $300,000) = $264,000 b. Order-filling: Large: 12 ÷ (12 + 420) × $360,000 = $10,000; Small: 420 ÷ (12 + 420) × $360,000 = $350,000 Sales-force: Large: 20 ÷ (20 + 230) × $300,000 = $24,000; Small: 230 ÷ (20 + 230) × $300,000 = $276,000 Large: $10,000 + $24,000 = $34,000; Small: $350,000 + $276,000 = $626,000 157)a. Large: 300,000 ÷ (300,000 + 200,000) × ($360,000 + $300,000) = $396,000; Small: 200,000 ÷ (300,000 + 200,000) × ($360,000 + 300,000) = $264,000 Large Customer Revenues Manufacturing cost Order-filing & sales-force costs Operating profit

$ 1,800,000 $ 900,000 $ 396,000

Ten Small Customers $ 1,200,000 $ 600,000 $ 264,000

$ 504,000

$ 336,000

b. Order-filling: Large: 12 ÷ (12 + 420) × $360,000 = $10,000; Small: 420 ÷ (12 + 420) × $360,000 = $350,000 Sales-force: Large: 20 ÷ (20 + 230) × $300,000 = $24,000; Small: 230 ÷ (20 + 230) × $300,000 = $276,000 Large Customer

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Ten Small Customers

186

Revenues

$ 1,800,000

$ 1,200,000

Manufacturing cost

$ 900,000

$ 600,000

Order-filing costs

$ 10,000

$ 350,000

Sales-force costs

$ 24,000

$ 276,000

Operating profit

$ 866,000

$ (26,000 )

158)a. Rosy's: ($48,000 × 0.05) = $2,400; Katy's: ($64,000 × 0.05) = $3,200; Amy's: ($120,000 × 0.05) = $6,000 b. Delivery cost based on activity-based costing: Cost driver rates: Activity

Cost Driver

Cost

Driver Volume

Process order

number of orders number of items number of orders number of invoices

$ 50,000 ÷

4,000 orders

Load truck Deliver merchandise Process invoice

Rate

100,000 ÷ 80,000 items

$ per order 12.50 = $ 1.25 per item

60,000 ÷

4,000 orders

48,000 ÷

6,000 invoices

$ per order 15.50 = $ 8.00 per invoice

Cost of delivery: Activity Process order: R: $ 12.50 × 50

Rosy’s

Katy’s

Amy’s

$ 625.00

K: $ 12.50 × 100

$ 1,250.00

A: $ 12.50 × 25

$ 312.50

Load truck: R: $ 1.25 × 550

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687.50

187

K: $ 1.25 × 1,600

2,000.00

A: $ 1.25 × 1,750

2,187.50

Deliver merchandise: R: $ 15 × 50

750.00

K: $ 15 × 100

1,500.00

A: $ 15 × 25

375.00

Process invoice: R: $ 8 × 12

96.00

K: $ 8 × 120

960.00

A: $ 8 × 18

144.00 $ 2,158.50

$ 5,710

$ 3,019.00

Resources Used $ 180,000

Resources Supplied $ 192,000

Unused Capacity $ 12,000

32,400 45,000 38,400 28,000 51,200 50,400

36,480 50,400 44,000 35,200 53,000 54,000

4,080 5,400 5,600 7,200 1,800 3,600

Resources Used $ 600,000

Resources Supplied $ 625,000

Unused Capacity $ 25,000

78,300 58,500 59,500 17,850

86,480 60,400 74,000 35,200

8,180 1,900 14,500 17,350

159)

Materials Energy Setups Purchasing Customer service Long-term labor Administrative

$ 12 × 15,000 48 × 675 300 × 150 240 × 160 160 × 175 80 × 640 60 × 840

160)

Materials Energy Setups Purchasing Customer service

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$ 24 × 25,000 90 × 870 450 × 130 350 × 170 210 × 85

188

Long-term labor Administrative

80 × 1,600 75 × 2,200

128,000 165,000

153,000 188,000

25,000 23,000

Resources Used $ 60,000

Resources Supplied $ 68,000

Unused Capacity $ 8,000

20,150 61,600 144,000 600,000 17,400 51,750

31,200 66,480 163,000 625,000 34,000 60,400

11,050 4,880 19,000 25,000 16,600 8,650

161)

Administrative Customer service Energy Long-term labor Materials Purchasing Setups

$ 50 × 1,200 310 × 65 80 × 770 90 × 1,600 12 × 50,000 145 × 120 450 × 115

162)a. Prevention: Process inspection, quality training, testing equipment, preventive maintenance, materials inspection. Appraisal: Field testing. Internal failure: Scrap, rework. External failure: Customer complaints, warranty repairs. b. Prevention: Appraisal: Internal failure External failure

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March

April

17.6 % 3.5 % 7.0 % 2.6 %

14.6 % 5.0 % 8.3 % 3.3 %

189

Prevention: March: $3,300 + $37,600 + $14,000 + $27,000 + $13,000 = $94,900 ÷ $539,000 = 17.6% April: $3,760 + $26,000 + $14,000 + $19,000 + $9,600 = $72,360 ÷ $495,000 = 14.6% Appraisal: March: $18,800 ÷ $539,000 = 3.5% April: $24,800 ÷ $495,000 = 5.0% Internal failure: March: $3,700 + $34,000 = $37,700 ÷ $539,000 = 7.0% April: $3,860 + $37,000 = $40,860 ÷ $495,000 = 8.3% External failure: March: $5,600 + $8,600 = $14,200 ÷ $539,000 = 2.6% April: $6,800 + $9,600 = $16,400 ÷ $495,000 = 3.3% 163)

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

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Prevention Appraisal Internal External Failure Failure X X X X X X X

190

8. Designing product to reduce production problems

164) Prevention Appraisal Internal External Failure Failure X

1. Lost sales 2. Materials inspection

3. End-of-process sampling 4. Process inspection

X X

5. Warranty repairs

6. Product design

7. Rework

8. Field testing

9. Scrap

10. Product liability

11. Reinspection/retesting 12. Quality training

X X

165)a. Prevention: $6,600 (process inspection) + $75,200 (quality training) + $28,000 (testing equipment) + $54,000 (preventive maintenance) + $26,000 (materials inspection) = $189,800 Appraisal: Field testing = $37,600 Internal failure: Scrap, rework = $75,400 External failure: $11,200 + (customer complaints) + $17,200 (warranty repairs) = $28,400 May

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Prevention Appraisal Internal Failure

External Failure

191

Customer complaints Field testing

$ 11,200

37,600

$ 37,600

Materials inspection Preventive maintenance Process inspection

26,000

$ 26,000

54,000

6,600

Quality training

75,200

Rework

68,000

$ 68,000

Scrap

7,400

Testing equipment

28,000

Warranty repairs

17,200 331,200

28,000 17,200 189,800

37,600

75,400

28,400

166)a. Prevention: $37,000 (materials inspection) + $54,000 (preventive maintenance) + $46,900 (process inspection), + $96,700 (product design) + $75,200 (quality training) + $36,000 (testing equipment) = $345,800 Appraisal: $67,100 (field testing) + $48,700 (finished goods inspection) = $115,800 Internal failure: $17,400 (scrap) + $68,000 (rework) = $85,400 External failure: $48,000 (product liability insurance) + $77,200 (warranty repairs) = $125,200 May Field testing

67,100

Finished goods inspection

48,700

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Prevention Appraisal Internal Failure 67,100

External Failure

48,700

192

Materials inspection Preventive maintenance Process inspection Product design

37,000

54,000

46,900

96,700

Product liability insurance Quality training

48,000

Rework

68,000

Scrap

17,400

Testing equipment

36,000

Warranty repairs

77,200

75,200

672,200

48,000 75,200

36,000 77,200 345,800

115,800

85,400

125,200

167)(1) Assuming capacity is available and no other uses for the plant capacity are expected: Total relevant manufacturing costs (variable manufacturing costs per unit plus batch costs per unit) = $22.00 + [($5 × 1,000) ÷ 2,000] = $24.50 The $39 price is greater than $24.50, so the special order will increase operating income by $29,000. [($39 − $24.50) × 2,000] (2) If Fine Grape is at full capacity, accepting the special order would result in a loss of regular sales. Assuming that a total of 10,000 bottles will be produced (full capacity) and that 10 batches will be used, as before, batch-related costs will be the same (with or without the special order), so they are irrelevant and can be ignored. Contribution of special order 2,000 × ($ 39 – $ 22)

$ 34,000

Less: Lost contribution on loss of regular sales:

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193

2,000 × ($ 55 – $ 22 – $ 10)

46,000

Net loss on the special order under full capacity

$ (12,000 )

Note that the cost of trying to get the expected order ($2,500) is sunk and irrelevant in this decision. (3) If special orders such as this can be planned and scheduled carefully, the production rate at Fine Grape can be increased to lower overall costs per unit. Lower overall costs can help Fine Grape to become more cost competitive. Also, increased production levels will help to more efficiently utilize the plant and thus minimize fixed plant costs. Moreover, special orders can help Fine Grape grow the business by developing new customers. Special orders, such as the one to Culinary Delights, can lead to additional orders for existing and new products. 168)(1) When there is no limit on production capacity, the super model should be manufactured since it has the highest contribution margin per unit. No Frills Selling price Direct materials Direct labor ($ 15 per hour) Variable Overhead

$ 35.00 10.00 7.50 4.00

Standard Options $ 45.00 12.00 12.00 6.40

Super

Total Variable Cost

$ 21.50

$ 30.40

$ 46.20

Contribution Margin

$ 13.50

$ 14.60

$ 18.80

$ 65.00 14.00 21.00 11.20

(2) When labor is in short supply, the No Frills Model should be manufactured since it has the highest contribution margin per direct labor hour. No Frills Contribution Margin (excluding direct labor) Labor Hours Required*

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$ 21.00

Standard Options $ 26.60

Super $ 39.80

0.5

0.80

1.4

194

Contribution Margin per hour *No Frills: ($7.50 ÷ $15 per hour) Std. Options ($12 ÷ $15 per hour) Super ($21 ÷ $15 per hour)

$ 42.00

$ 33.25

$ 28.43

169)To begin the analysis, the Smooth CFO should recognize that the $2.50 full cost for its product includes $1.50 of irrelevant fixed overhead. Only the variable costs of $1.00 per unit are relevant. From this standpoint, the sales to Price-Mart makes good sense, since there would be a contribution of $1.00 ($2.00 price less $1.00 relevant cost) per unit sold. Moreover, sales to Price-Mart would utilize Smooth's available capacity. If these sales were to continue for the long term, then average fixed costs would be reduced and Smooth's profitability would be improved in the long term as well. However, the sales to Price-Mart could be a potentially serious strategic mistake for Smooth. Smooth's reputation is built upon quality and product excellence, features which give it a clear differentiation in the market. To sell its products in a supermarket, even under another brand name, would cheapen the image of all Smooth products, and cause it to lose market share in its usual distribution channels, the pharmacies and department stores. This is especially true given that Price-Mart has the limited right to market the product as manufactured by Smooth. How limited is that right? Smooth could be trading a short-term gain for a potential long-term disaster in the deal with Price-Mart. It should look for business partners that are more in line with its strategy. 170) Stonehouse Corporation Cost of Quality Report First Quarter, 2023 Amounts Sales

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$ 6,800,000

Percent of Sales 100 %

195

Prevention Activities Certifying Suppliers

$ 170,000

Training Appraisal Activities

$ 102,000

Inspecting Finished Goods

$ 340,000

Performance Reviews Internal Failure Activities

$ 272,000

4.00 %

$ 85,000

425,000

6.25 %

Wasted Time External Failure Activities

$ 285,600

285,600

4.20 %

Resolving Customer Complaints

$ 38,760

38,760

0.57 %

$ 1,021,360

15.02 %

Total

171)(1) A, (2) A, (3) A, (4) I, (5) P, (6) I, (7) E, (8) E, (9) E, (10) E

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172)Attributes 1. (a) Speed, memory, storage, reliability, customer service 2. (b) Effectiveness, timeliness, understanding of emotional issues 3. (c) Location 4. (d) Speed, flavor of food, location, existence of drive-through windows 5. (e) Comfort, services, in-flight entertainment, reliability 6. (f) Style, cost, accessibility, material 7. (g) Food, entertainment, destination 8. (h) Knowledge, cost, speed, accessibility of garage Quality tradeoffs 1. (a) Speed, memory, storage, performance, reliability, customer service, cost 2. (b) Cost, knowledge of specialty, accessibility 3. (c) Appearance, cost, distance to job, repairs needed 4. (d) Flavor of food, comfort, and nutritional value of food 5. (e) Convenience of flight, time required to get to destination, comfort 6. (f) Style, functionality, cost 7. (g) Time of year traveled (on versus off season), location of cabin, Version 1

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types of services and food 8. (h) Time, cost, convenience 173)1.Identify what the customer wants or expects from the firm’s products or services, including key features, price, and quality. 2.Chart, from start to finish, the company’s activities for completing the product. 3.Develop activity-based costing data for each activity, based on the resources used in each activity. 4.Classify all activities as value-added or nonvalue-added. 5.Compare the costs of each activity with the value that customers assign to it. (The value of nonvalue-added activities would be zero.) 6.Continuously improve the efficiency of all value-added activities. Eliminate or reduce nonvalue-added activities.

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174)(a) A low-price supplier can be a high-cost supplier if: ● They offer low prices only when they can deliver large volumes of materials. This requires the purchasing company to incur costs of storage for materials. ● The company must check items in through a receiving dock and incur excessive paperwork costs. ● The quality of the product shipped is poor, resulting in production defects and excessive quality control activities related to materials. ● Costs of inspection increase as defective items shipped must be inspected. ● Poor quality materials lead to product breakdowns, leading to external failure costs such as warranty replacements and product repairs. ● Delivery time may be unpredictable, leading to costs of expediting, rescheduling, unexpected plant downtime, and great increases in confusion. ● Costs of scrap, rework, and obsolescence increase due to defective items. ● Downtime increases due to poor quality materials. (b) Prevention activities can include certifying suppliers or by using only suppliers of materials that can guarantee high quality. Appraisal activities can include providing regular evaluation of suppliers so that they will know how well they are meeting a company's quality needs.

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175)ABC relies on a cost hierarchy of volume-, batch-, product-, customer-, and facility-related costs. In customer profitability analysis, the focus is on the customer-related costs. To use ABC, the traditional steps of determining the customer-related activities, the appropriate cost drivers, and then the costs per unit of activity still exist. Once the costs are developed for the activities, key customers can be analyzed. The first step in such an analysis is developing an income statement for each customer that shows not only the revenue from the customer and the cost of the products sold but also the costs related to each customer-related activity used. Those with losses are problems. A second analysis showing each of the key customer-related costs as a percent of gross margin for each customer being analyzed and comparing these percentages against a company norm for each customer-related cost can be prepared. These relative measures are more effective than the dollar figures since significant deviations from the norm are more obvious, e.g., the norm for one item is 2 percent and a customer's percentage is 10 percent. This analysis can be expanded to look for trends in usage—was this a one-time aberration or has the problem continued for a while and it is growing.

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176)(a) Using a single cost allocation base to assign costs does not take into account the level of resources consumed by the cost objects. Some courses may require the use of more resources, such as computer and lab time. No distinction is made between fixed costs and variable costs. This method assumes that all courses consume the same activities in the same proportions; in reality, some programs may be subsidizing others. (b) Computer use - number of computer hours Facility use - square footage Student services - number of students Course design - number of courses Class meeting time - number of classroom hours Grading assignments - number of assignments 177)Resources used is a calculated amount, computed by taking the cost driver rate multiplied by the cost driver volume. Resources supplied are the expenditures or the amounts spent on an activity. Unused resource capacity is the difference between resources used and resources supplied. 178)(a) The costs that are explicitly associated with the manufacturing of engines required by the SBAD are as follows: Materials:

$ 300,000

Special equipment:

36,000

Inspection:

24,000

Other manufacturing costs:

175,000

Total

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$ 535,000

$ 26.75 per unit

201

Therefore, the minimum price at which the ED should 'sell' to the SBAD would be $32.10 ($26.75 × 1.20). It is important to note that excess capacity exists; therefore, the ED does not have any opportunity costs associated with the SBAD order. (b) The pros of internal sourcing are as follows: ● Productive use of excess capacity. ● Potential cost savings. ● Protection of proprietary knowledge. The cons of internal sourcing are as follows: ● Setting internal pricing policies and refereeing disputes. ● Supporting inefficient operations with artificially high internal prices. It is important to note that any policy stated as "cost plus 20 percent" is asking for trouble, because "cost" is undefined. If market prices are available, the company probably should use these for internal sales, with a policy of sourcing internally at the market price. Using cost-based internal prices may be necessary, but it creates the complications of creating the price that motivates managers to benefit themselves and the company as a whole. 179)Conformance costs ensure that quality conforms to the firm’s requirements. Conformance costs are made up of prevention costs and appraisal costs. Nonconformance costs are the cost of failing to control quality. These include internal failure costs and external failure costs.

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180)The four types of quality costs are prevention, appraisal, internal failure, and external failure. Prevention costs are incurred to prevent defects in the products or services being produced. Examples include materials inspection, process inspection, equipment inspection, quality training, machine inspection, and product design. Appraisal costs are incurred to detect individual units of product that do not conform to specifications. Examples include end-of-process sampling and field testing. Internal failure costs are incurred when nonconforming products are detected before delivery to the customer. Examples include scrap, rework, and reinspection/retesting. External failure costs are incurred when nonconforming products are detected after delivery to the customer. Examples include warranty repairs, product liability, marketing costs, and lost sales. Many different examples are possible here. 181)Actual activity is the volume actually produced during a period. Theoretical capacity is the amount that could be produced under ideal or perfect conditions. Theoretical capacity does not make allowances for normal maintenance and downtime. Practical capacity is the volume that could be produced allowing for expected breaks, normal maintenance, and downtime. Normal activity is the long-run expected volume produced. 182)(a) The costs of scrapping versus reworking can be determined as follows: Scrap

Rework

Sales revenue

$ 0

$ 132

Relevant costs Contribution margin lost Net benefit (loss)

0 0 $ 0

(108 ) (26 ) $ (2 )

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1 2

203

Given in the problem ($25 + $48 + $35) 2 Contribution margin per unit is $39 ($132 − $27 − $32 − $24 − $10). Opportunity cost is $26 as follows: $39 × 2 = $78 ÷ 3 = $26. From the computations, it is clear that scrapping is cheaper. Jessica Long is therefore correct. (b) The cost information generated by Gates can be useful in reducing the number of defectives in several ways. First, it gets the attention of management by quantifying the impact of poor quality on profits (senior managers like to see the financial implications of nonfinancial indicators). Next, it focuses the attention of managers, engineers, and even operators to the sources of these costs. Once the magnitude of the problem is understood and the sources of costs identified, the next step is to find ways to identify the sources of the quality problem (i.e., why are these defectives being produced). Then the company can use total quality management principles to improve processes that cause defective products.

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183)There is more than one right answer to this problem. The response to this problem should show estimates for: 1) lost revenue from repeat business and referrals from satisfied customers and 2) cost associated with re-work and lost production. Students may experience a level of frustration in completing this problem. However, this is part of the process in learning how difficult it may be to make financial estimates regarding opportunity costs. Also, it should show that purchasing a higher quality product at a greater cost saves money in the long run. Annual costs of the seat are as follows: If purchased from supplier A, $165 × 2,000 seats = $330,000. If purchased from supplier B, $135 × 2,000 seats = $270,000. The difference in purchase costs is $60,000 in favor of supplier B. However, this analysis does not include opportunity costs of purchasing from supplier B. These costs are as follows: Lost customers from repeat business and referrals (5 customers × $5,000 contribution margin) = $25,000. Lost production time (1% × 250 days × 8 hours × $4,000 per hour) = $80,000. The above analysis shows that the company could experience an increase in costs (due to lost opportunities) of $45,000 ($25,000 + $80,000 − $60,000). Note: Some students may analyze the costs associated with lost production time as the contribution margin lost because of not producing motorcycles. Lost time = 1% × 250 days × 8 hours = 20 hours. Assuming that it takes one hour to assemble a motorcycle, the company loses contribution margin of $100,000 from the possible sale of 20 Version 1

205

additional motorcycles ($5,000 × 20 motorcycles). In this situation, the total cost associated with purchasing from supplier B increases to $65,000 ($25,000 + $100,000 − $60,000).

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184)(a) Several costs are likely to be incurred to manufacture the component. Examples include: ● direct and indirect materials ● direct and indirect labor ● machining ● inspecting ● reworking ● packaging ● procurement of materials ● design and engineering The current costing system appears to capture direct materials and direct labor costs separately and lump all other costs into overhead. It is also not clear as to what items are included as part of overhead. The current costing system seems to assume that all products consume overhead resources in a fixed ratio, thereby ignoring that the manufacturing of complex components would likely consume more resources than the level of resources consumed by simple components. Moreover, the current costing system fails to identify the additional costs due to the quality problems associated with this component. (b) The most important change to the costing system is better tracing of costs and identification of cost drivers. By separating the costs of machining, inspection, reworking, packaging, procurement, design and engineering costs, TMC will be able to attach costs to products (or components) based on their consumption of the different resources. Such a system will allow managers to more clearly identify all costs and benefits associated with buying the component from an outside supplier versus continuing to manufacture it internally. (c) Factors such as quality and on-time delivery are becoming important Version 1

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sources of competitive advantage. Unfortunately, very few organizations are attempting to "quantify" these benefits. The costs associated with poor quality can be tracked by recording the costs of additional inspection, reworking, scrap, and warranty. The notion of Cost of Quality (COQ) has been adopted by several companies and is providing valuable information for managers to make process improvements. Similarly, costs associated with late delivery because of poor processes can be tracked. These would include expediting costs in order to meet delivery schedules and potential lost sales due to poor on-time delivery performance. 185)(a) Costs: Process Inspection Scrap Quality Training Warranty Repairs Testing Equipment Resolving Customer Complaints Rework Preventative Maintenance Material Inspection Field Testing

P I P E P E I P P A

(b)

Sales Prevention Activities Preventative Maintenance Quality Training Process Inspection Testing Equipment

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Mulvey Corporation Cost of Quality Report Year 2023 Percent Year 2024 of Sales $ 7,840,000 100 % $ 7,040,000

Percent of Sales 100 %

$ 440,000

5.61 %

$ 304,000

4.32 %

610,000 $ 52,800 230,000

7.78 % 0.67 % 2.93 %

440,000 $ 60,000 230,000

6.25 % 0.85 % 3.27 %

208

Material Inspection Appraisal Activities

210,000

2.68 %

150,000

2.13 %

Field Testing Internal Failure Activities Scrap Rework External Failure Activities Resolving Customer Complaints Warranty Repairs

300,000

3.83 %

400,000

5.68 %

$ 57,600 544,000

0.73 % 6.94 %

$ 60,200 390,000

0.86 % 5.54 %

$ 89,000

1.14 %

$ 108,400

1.54 %

140,000

1.79 %

150,000

2.13 %

34.09 % $ 2,292,400

32.57 %

Total

$ 2,673,400

Sales

Percent of Sales

$ 7,840,000

100 %

$ 1,542,800

19.68 %

Prevention Activities Material Inspection

$ 210,000

Preventative Maintenance

440,000

Process Inspection

52,800

Testing Equipment

230,000

Quality Training

610,000

Appraisal Activities

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209

Field Testing

$ 300,000

3.83 %

$ 601,600

7.67 %

$ 229,000

2.92 %

$ 2,673,400

34.10 %

Internal Failure Activities Scrap

$ 57,600

Rework

544,000

External Failure Activities Resolving Customer Complaints

$ 89,000

Warranty Repairs

140,000

Total

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210

186)(a) Cost of scrap, if properly measured, is certainly not free. It is obvious that many non-value added activities are using resources at Scranton Extruded Plastics, including inspection, checking line work, handling returns from customers, and grinding and reprocessing scrapped extruders. (b) Internal failure activities: Rework of scrapped units Grinding of scrapped units Delay in process due to handling returns External failure activities: Replacing defective products Resolving customer complaints Opportunity cost of lost production on machines used for rework Restoring reputation when customers are unhappy with product Possible lost sales due to poor quality products received by customers (c) Prevention activities: The company could design products to be made without defects. Evaluate the machines that are producing defective extruders for possible redesign. Evaluate processes to remove causes of defects. Quality control training so that machine operators can spot defective units and stop machines before excessive defective units are produced. The company should make sure that materials used conform to specifications and examine materials upon delivery. The company should ensure that machines are operating properly within specifications. The company could employ manual inspection of the production process and give QC inspectors the authority to shut down any machine Version 1

211

that is malfunctioning. The company could use equipment to monitor the production process. Appraisal activities: Sampling at the end of the production process could be employed to ensure quality before defective units are shipped to customers.

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The human resource department in a manufacturing company would be considered a service department. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Service Department Cost Allocation Gradable : automatic Difficulty : 2 Medium AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Service Department Cost Allocation Gradable : automatic Difficulty : 2 Medium AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

The direct method makes no cost allocations between or among service departments. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

The direct method allocates costs directly to the intermediate users of a service. ⊚ true ⊚ false

5) The step method allocates some, but not all, service department costs to other service departments. ⊚ true ⊚ false

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6) One advantage of the step method is that all reciprocal services are recognized between service departments. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

7) With the reciprocal method, the total service department costs less the direct costs of the service department equal the costs allocated to the service department. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Difficulty : 2 Medium Topic : Methods of Allocating Service Department Costs AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

8) One potential disadvantage of the reciprocal method is it could understate the cost of running the organization's service departments. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Difficulty : 2 Medium Topic : Methods of Allocating Service Department Costs AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

9) In deciding whether to outsource a service department, the cost of the service department should be estimated using the step method of allocation. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static Gradable : automatic Difficulty : 2 Medium AICPA : FN Decision Making Learning Objective : 11-02 Use the reciprocal method approach for outsourcing decisions. AACSB : Analytical Thinking Bloom's : Understand Topic : The Reciprocal Method and Decision Making Accessibility : Screen Reader Compatible

10)

Joint products are outputs from common inputs and a common production process. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Topic : Allocation of Joint Costs AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

11) Joint costs are processing costs incurred after the split-off point in a common production process. ⊚ true ⊚ false

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12) The estimated net realizable value for a product is its estimated selling price after processing the product beyond the split-off point. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Topic : Joint Cost Allocation Methods AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Topic : Joint Cost Allocation Methods AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Topic : Joint Cost Allocation Methods AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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16) The physical quantities method of allocating joint costs is often used when the output sales prices are highly volatile. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Topic : Joint Cost Allocation Methods AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

17) The physical quantities method allocates joint costs so that each joint product has the same gross margin as a percentage of sales. ⊚ true ⊚ false

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18) In a sell-or-process-further decision, the additional costs incurred after the split-off point are irrelevant. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-04 Use cost data to make the decision whether to sell or process further. AICPA : FN Decision Making Topic : Deciding Whether to Sell Goods Now or Process Them Further AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

19) In a sell-or-process-further decision, the common costs incurred prior to the spilt-off point are irrelevant. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static Gradable : automatic Difficulty : 2 Medium Learning Objective : 11-04 Use cost data to make the decision whether to sell or process further. AICPA : FN Decision Making Topic : Deciding Whether to Sell Goods Now or Process Them Further AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

20) Since by-products have minor sales value, alternative methods of accounting for them will not have a material effect on the financial statements. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-05 Account for by-products. Topic : Deciding What to Do with By-Products AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Service Department Cost Allocation Gradable : automatic AACSB : Reflective Thinking Accessibility : Screen Reader Compatible

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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Service Department Cost Allocation Gradable : automatic AACSB : Reflective Thinking Accessibility : Screen Reader Compatible

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Service Department Cost Allocation Gradable : automatic AACSB : Reflective Thinking Accessibility : Screen Reader Compatible

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

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Difficulty : 2 Medium Topic : Methods of Allocating Service Department Costs AACSB : Reflective Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

25) Which of the following is the least practical reason for allocating service department costs to user departments?

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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

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Service Department Cost Allocation Gradable : automatic Difficulty : 2 Medium AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Service Department Cost Allocation Gradable : automatic Difficulty : 2 Medium AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

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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

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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

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Service Department Cost Allocation Gradable : automatic Difficulty : 2 Medium AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

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.

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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

Testing Services

Service User User Service

Service Service User User

A. B. C. D.

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

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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

Question Details Accessibility : Keyboard Navigation Type : Static Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Service Department Cost Allocation Gradable : automatic Difficulty : 2 Medium AICPA : FN Decision Making AACSB : Reflective Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

33) Which of the following statements is false regarding the direct method of allocating service department costs? A) The selection of an allocation base is easier under the direct method than under 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. C) The direct method allocates costs directly to the final user of a service. D) The direct method does not make allocations between or among service departments.

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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

1,100 feet 3,100 feet 8,100 feet 8,100 feet 20,400 feet

The department costs of Custodial Services are allocated on a basis of square footage of space. If Custodial Services costs are budgeted at $39,000, the amount of cost allocated to General Administration under the direct method would be: A) $0. B) $7,449. C) $6,200. D) $5,926.

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Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Topic : Direct Method Type : Algorithmic Accessibility : Screen Reader Compatible

35) 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

1,000 feet 3,000 feet 8,000 feet 8,000 feet 20,000 feet

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

36) 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 25 346 179 560

The department costs of the Personnel Department are allocated on a basis of the number of employees. If these costs are budgeted at $45,360 during a given period, the amount of cost allocated to Department B under the direct method would be: Note: Do not round intermediate calculations. A) $0. B) $28,026.00. C) $14,499.00. D) $15,465.60.

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Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

37) 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 to Department B under the direct method would be: Note: Do not round intermediate calculations. A) $0. B) $17,187.50. C) $16,875.00. D) $18,021.84.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

38)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Service Department Cost Allocation Gradable : automatic Difficulty : 2 Medium AACSB : Reflective Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

39) Tenet Engineering, Incorporated 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

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$ 347,000 674,000 174,000

Total common costs

$ 1,195,000

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

Division B

26,900 $ 436,000 280 4,400 $ 205,000 $ 767,500

53,800 $ 236,000 300 0 $ 255,000 $ 707,500

If common computer service costs are allocated using computer time as the allocation basis, what is the computer cost allocated to Division B? Note: Do not round intermediate calculations. A) $179,483 B) $180,939 C) $187,736 D) $216,625

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

40) Tenet Engineering, Incorporated 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

Version 1

$ 260,000 600,000 110,000

Total common costs

$ 970,000

Division A

Division B

20,000 $ 380,000 200 4,050 $ 200,000 $ 555,000

40,000 $ 180,000 220 0 $ 250,000 $ 495,000

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

41) Tenet Engineering, Incorporated 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

Version 1

$ 313,000 677,000 126,000

Total common costs

$ 1,116,000

The following information is available concerning various activity measures and service usages by each of the divisions: Division A Area occupied (square feet) Payroll Computer time (hours) Computer storage (megabytes) Equipment value Operating profit (pre-allocations)

27,500 $ 460,000 370 5,100 $ 244,000 $ 567,500

Division B 55,000 $ 260,000 390 0 $ 294,000 $ 507,500

Using the most appropriate allocation basis, what is the personnel cost allocated to Division A? Note: Do not round intermediate calculations. A) $64,000 B) $80,500 C) $82,320 D) $126,000

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

42) Tenet Engineering, Incorporated 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

$ 260,000 600,000 110,000

Total common costs

$ 970,000

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Division A

Division B

20,000 $ 380,000 200 4,050 $ 200,000 $ 555,000

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? Note: Do not round intermediate calculations. A) $58,143 B) $74,643 C) $76,463 D) $110,000

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

43) Tenet Engineering, Incorporated 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

$ 329,000 692,000 124,000 $ 1,145,000

The following information is available concerning various activity measures and service usages by each of the divisions: Version 1

Division A Area occupied (square feet) Payroll Computer time (hours) Computer storage (megabytes) Equipment value Operating profit (pre-allocations)

25,700 $ 400,000 400 8,650 $ 239,000 $ 627,500

Division B 51,400 $ 200,000 420 0 $ 289,000 $ 567,500

If all common costs are allocated using operating profit as the allocation basis, what is the total cost allocated to Division B? Note: Do not round intermediate calculations. A) $543,755 B) $601,245 C) $627,500 D) $1,246,545

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

44) Tenet Engineering, Incorporated 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

$ 260,000 600,000 110,000

Total common costs

$ 970,000

The following information is available concerning various activity measures and service usages by each of the divisions:

Version 1

Area occupied (square feet) Payroll Computer time (hours) Computer storage (megabytes) Equipment value Operating profit (pre-allocations)

Division A

Division B

20,000 $ 380,000 200 4,050 $ 200,000 $ 555,000

40,000 $ 180,000 220 0 $ 250,000 $ 495,000

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

45) 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) The Direct, Step, and Reciprocal Methods all provide data for monitoring costs.

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46) The Maryville Construction Company occupies 92,800 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: Allocation Department S1 S2 S3 S4 Finishing Assembly

Area used 17,600 4,550 9,100 4,550 25,650 31,350

S1 ----0.20 0.20 -----

S2 0.10 --0.20 0.10 -----

S3 0.20 0.30 --0.20 -----

S4 --0.30 0.30 -------

Finishing 0.20 --0.20 0.30 -----

Assembly 0.50 0.40 0.10 0.20 -----

Rent paid for the area used is $726,000. How much rent is allocable to the assembly department using the direct method of allocation? A) $399,300 B) $350,398 C) $326,700 D) $245,260

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Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

47) 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: Allocation Department S1 S2 S3 S4 Finishing Assembly

Area used 17,000 4,250 8,500 4,250 21,250 29,750

S1 ----0.20 0.30 -----

S2 0.10 --0.20 0.10 -----

S3 0.20 0.30 --0.30 -----

S4 --0.30 0.30 -------

Finishing 0.20 --0.20 0.20 -----

Assembly 0.50 0.40 0.10 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? Note: Do not round intermediate calculations. A) $420,000 B) $332,500 C) $300,000 D) $252,000

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

48) The Maryville Construction Company occupies 108,400 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: Allocation Department S1 S2 S3 S4 Finishing Assembly

Area used S1 19,290 --4,905 --10,300 0.20 4,905 0.20 31,050 --37,950 ---

S2 0.20 --0.20 0.10 -----

S3 0.10 0.30 --0.20 -----

S4 --0.30 0.30 -------

Finishing 0.10 --0.20 0.30 -----

Assembly 0.10 0.40 0.10 0.20 -----

Rent paid for the area used is $738,000. How much rent would be charged to S4 using the direct method of allocation? A) $33,394 B) $36,900 C) $53,430 D) $126,835 E) $0

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Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

49) 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: Allocation 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 -----

S3 0.20 0.30 --0.30 -----

S4 --0.30 0.30 -------

Finishing 0.20 --0.20 0.20 -----

Assembly 0.50 0.40 0.10 0.10 -----

Rent paid for the area used is $720,000. How much rent would be charged to S4 using the direct method of allocation? A) $36,000 B) $40,000 C) $54,000 D) $90,000 E) $0

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

50) 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

51)

Which of the following is a weakness of the step method of service cost allocations?

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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.

52) The Hsu Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $449,500 are allocated on the basis of machine hours. The Accounting Department's costs of $138,000 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $350,000 and $550,000, respectively. Machine hours Number of employees

Maintenance

Accounting

675 2

45 2

2,850 8

250 4

What is the Maintenance Department's cost allocated to Department A using the direct method? Note: Do not round intermediate calculations. A) $229,250 B) $367,250 C) $413,250 D) $523,650

Version 1

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

53) 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 2

20 2

2,300 8

200 4

What is the Maintenance Department's cost allocated to Department A using the direct method? Note: Do not round intermediate calculations. A) $92,000 B) $230,000 C) $276,000 D) $386,400

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

Version 1

54) The Hsu Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $489,600 are allocated on the basis of machine hours. The Accounting Department's costs of $122,400 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $210,000 and $410,000, respectively. Maintenance Machine hours Number of employees

895 2

Accounting 80 2

2,400 8

320 4

What is the Accounting Department's cost allocated to Department B using the direct method? Note: Do not round intermediate calculations. A) $40,800 B) $81,600 C) $20,400 D) $10,200

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

55) 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.

Version 1

Maintenance Machine hours Number of employees

480 2

Accounting 20 2

2,300 8

200 4

What is the Accounting Department's cost allocated to Department B using the direct method? Note: Do not round intermediate calculations. A) $40,000 B) $80,000 C) $20,000 D) $10,000

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

56) The Hsu Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $867,300 are allocated on the basis of machine hours. The Accounting Department's costs of $135,600 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $270,000 and $470,000, respectively. Machine hours Number of employees

Maintenance

Accounting

655 2

110 2

3,750 8

380 4

What is the Maintenance Department's cost allocated to Department B using the step method and assuming the Maintenance Department's costs are allocated first? Note: Do not round intermediate calculations.

Version 1

A) $787,500 B) $741,500 C) $833,500 D) $77,730

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

57) 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 2

20 2

2,300 8

200 4

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

58) The Hsu Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $658,000 are allocated on the basis of machine hours. The Accounting Department's costs of $231,600 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $200,000 and $400,000, respectively. Maintenance Machine hours Number of employees

940 2

Accounting

75 2

3,450 8

310 4

What is the cost of the Accounting Department's cost allocated to Department A using the step method and assuming the Maintenance Department's costs are allocated first? Note: Do not round intermediate calculations. A) $162,725 B) $162,979 C) $154,400 D) $140,102

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Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

59) 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 2

20 2

2,300 8

200 4

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

60) 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: Number of Work Orders

Septic Service Legal advice Clerical Janitorial

Expected

Average

50 30 15 5

75 25 15 25

Labor Hours 640 920 480 280

Square Footage 1,880 2,280 1,680 1,080

Expected costs in the service departments for June are as follows: Clerical Variable costs Fixed costs

$ 13,600 $ 9,200

Janitorial $ 5,000 $ 880

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.).

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A) $14,454 B) $13,520 C) $14,130 D) $17,837

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

61) 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: Number of Work Orders

Septic Service Legal advice Clerical Janitorial

Expected

Average

50 25 20 5

80 20 20 20

Labor Hours 560 840 400 200

Square Footage 1,800 2,200 1,600 1,000

Expected costs in the service departments for June are as follows:

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Clerical Variable costs Fixed costs

$ 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.). A) $12,689 B) $13,100 C) $13,620 D) $15,596

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

62) 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: Number of Work Orders Expected

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Average

Labor Hours

Square Footage

Septic Service Legal advice Clerical Janitorial

50 25 20 5

80 20 20 20

1,200 1,800 560 360

2,520 3,080 1,760 1,160

Expected costs in the service departments for June are as follows: Clerical Variable costs Fixed costs

$ 16,800 $ 10,200

Janitorial $ 5,800 $ 1,120

Under the direct method of allocation, what is the total amount of service cost allocated to the Legal Advice operation for June? A) $9,751 B) $11,160 C) $11,736 D) $12,746

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

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63) 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: Number of Work Orders Expected Septic Service Legal advice Clerical Janitorial

50 25 20 5

Average 80 20 20 20

Labor Hours 560 840 400 200

Square Footage 1,800 2,200 1,600 1,000

Expected costs in the service departments for June are as follows: Clerical Variable costs Fixed costs

$ 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? A) $6,231 B) $7,720 C) $8,640 D) $9,330

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

64) 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: Proportion of Services Used by: Department S1

Direct costs $ 74,000

$ 114,000

0.20

$ 174,000

$ 154,000

S2 0.70

P1 0.20

P2 0.10

0.20

0.60

Under the direct method of cost allocation, the amount of S1 costs allocated to S2 would be: A) $51,800. B) $22,800. C) $0. D) $4,560.

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Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply AACSB : Reflective Thinking Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

65) 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: Proportion of Services Used by: Department S1

Direct costs $ 60,000

$ 100,000

0.20

$ 160,000

$ 140,000

S2 0.70

P1 0.10

P2 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply AACSB : Reflective Thinking Difficulty : 3 Hard Accessibility : Screen Reader Compatible

66) 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: Proportion of Services Used by: Department S1

Direct costs $ 139,200

$ 192,000

0.20

$ 161,000

$ 235,000

S2 0.70

P1 0.10

P2 0.20

0.30

0.50

Under the direct method of cost allocation, the amount of S1 costs allocated to P1 would be: Note: Do not round intermediate calculations. A) $46,400. B) $13,920. C) $56,400. D) $141,700.

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Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply AACSB : Reflective Thinking Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

67) 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: Proportion of Services Used by: Department S1

Direct costs $ 60,000

$ 100,000

0.20

$ 160,000

$ 140,000

S2 0.70

P1 0.10

P2 0.20

0.30

0.50

Under the direct method of cost allocation, the amount of S1 costs allocated to P1 would be: Note: Do not round intermediate calculations. A) $20,000. B) $6,000. C) $30,000. D) $62,500.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply AACSB : Reflective Thinking Difficulty : 3 Hard Accessibility : Screen Reader Compatible

68) 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: Proportion of Services Used by: Department S1

Direct costs $ 96,000

$ 103,000

0.20

$ 207,000

$ 200,000

S2 0.70

P1 0.10

P2 0.20

0.30

0.50

Under the step method of cost allocation, the amount of S2 costs allocated to S1 would be: A) $41,200. B) $20,600. C) $0. D) $43,200.

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Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply AACSB : Reflective Thinking Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

69) 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: Proportion of Services Used by: Department S1

Direct costs $ 60,000

$ 100,000

0.20

$ 160,000

$ 140,000

S2 0.70

P1 0.10

P2 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply AACSB : Reflective Thinking Difficulty : 3 Hard Accessibility : Screen Reader Compatible

70) 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: Proportion of Services Used by: Department S1

Direct costs $ 96,000

$ 103,000

0.20

$ 207,000

$ 200,000

S2 0.70

P1 0.10

P2 0.20

0.30

0.50

Under the step method of cost allocation, the amount of costs allocated from S2 to P2 would be: Note: Do not round intermediate calculations. A) $106,375. B) $51,500. C) $64,000. D) $54,750.

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Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply AACSB : Reflective Thinking Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

71) 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: Proportion of Services Used by: Department S1

Direct costs $ 60,000

$ 100,000

0.20

$ 160,000

$ 140,000

S2 0.70

P1 0.10

P2 0.20

0.30

0.50

Under the step method of cost allocation, the amount of costs allocated from S2 to P2 would be: Note: Do not round intermediate calculations. A) $88,750. B) $50,000. C) $62,500. D) $53,250.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply AACSB : Reflective Thinking Difficulty : 3 Hard Accessibility : Screen Reader Compatible

72) 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: Proportion of Services Used by: Department S1

Direct costs $ 120,000

$ 133,000

0.20

$ 183,000

$ 176,000

S2 0.70

P1 0.10

P2 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) $169,000. B) $253,000. C) $176,000. D) $76,000.

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Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply AACSB : Reflective Thinking Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

73) 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: Proportion of Services Used by: Department S1

Direct costs $ 60,000

$ 100,000

0.20

$ 160,000

$ 140,000

S2 0.70

P1 0.10

P2 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply AACSB : Reflective Thinking Difficulty : 3 Hard Accessibility : Screen Reader Compatible

74) 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 25 430 265 730

The fixed costs of the Personnel Department are allocated on a basis of the number of employees. If these costs are budgeted at $98,550 during a given period, the amount of cost allocated to the Cafeteria under the step method would be: Note: Do not round intermediate calculations. A) $0. B) $3,421.88. C) $3,577.50. D) $3,757.66.

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Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

75) 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: Note: Do not round intermediate calculations. A) $0. B) $1,718.75. C) $1,687.50. D) $1,802.18.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

76) 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.

77) 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)

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A) direct method. B) variable method. C) linear method. D) reciprocal method.

78)

The following information relates to Osceola Corporation for the past accounting period. Direct costs

Service Department A $ 99,600 Service Department B 70,200 Producing Department C 19,400 Producing Department D 31,000 Proportion of service by A to: B 10% C 60% D 30% Proportion of service by B to: A 30% C 20% D 50%

Using the reciprocal (simultaneous solution) method, Department A's cost allocated to Department C is:

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A) $59,760. B) $70,560. C) $74,635. D) $109,760.

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

79)

The following information relates to Osceola Corporation for the past accounting period. Direct costs

Service Department A $ 80,000 Service Department B 60,000 Producing Department C 15,000 Producing Department D 20,000 Proportion of service by A to: B 10% C 60% D 30% Proportion of service by B to: A 30% C 20% D 50%

Using the reciprocal (simultaneous solution) method, Department A's cost allocated to Department C is:

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A) $48,000. B) $58,800. C) $60,619. D) $98,000.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

80)

The following information relates to Osceola Corporation for the past accounting period. Direct costs

Service Department A $ 106,400 Service Department B 74,000 Producing Department C 27,200 Producing Department D 20,800 Proportion of service by A to: B 10% C 60% D 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 is:

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A) $44,652. B) $17,452. C) $16,623. D) $11,225.

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

81)

The following information relates to Osceola Corporation for the past accounting period. Direct costs

Using the reciprocal (simultaneous solution) method, Department B's cost allocated to Department C is:

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A) $29,021. B) $14,021. C) $13,192. D) $7,794.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

82) 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 and development Supervision

Direct Costs $ 555,000 780,000 290,000 90,000 125,000 50,000

Label P1 P2 P3 S1 S2 S3

Use of services by other departments is as follows. User Departments Service Cost Center Building occupancy R&D Supervision

SubFinal Marketing Building R&D Supervision assemblies Assembly Occupancy 0.30 0.25 0.20 --0.10 0.15 0.50 0.30

0.50 0.20

--0.10

--0.20

-----

The equation for department P1 (subassemblies) is:

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A) P1 = $555,000 + 0.25P2 + 0.20P3 + 0.10S2 + 0.15S3. B) P1 = $555,000 + 0.30S1 + 0.50S2 + 0.30S3. C) P1 = 0.30S1 + 0.50S2 + 0.30S3. D) P1 = 0.30S1 + 0.50S.

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

83) 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 and 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. User Departments Service Cost Center Building occupancy R&D Supervision

SubFinal Marketing Building R&D Supervision assemblies Assembly Occupancy 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:

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

84) 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 and development Supervision

Direct Costs $ 567,000 792,000 302,000 102,000 137,000 62,000

Label P1 P2 P3 S1 S2 S3

Use of services by other departments is as follows. User Departments Service Cost SubFinal Marketing Building R&D Supervision Center assemblies Assembly Occupancy Building 0.30 0.20 0.20 --0.20 0.10 occupancy R&D 0.50 0.50 --------Supervision 0.30 0.30 0.10 0.10 0.20 ---

The equation for department P2 (final assembly) is:

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A) P2 = 0.20S1 + 0.50S2 + 0.30S3. B) P2 = $792,000 + 0.20P2 + 0.20P3 + 0.20S2 + 0.10S3. C) P2 = $792,000 + 0.30S1 + 0.50S2 + 0.20S3. D) P2 = $792,000 + 0.20S1 + 0.50S2 + 0.30S3.

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

85) 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 and 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. User Departments Service Cost SubFinal Marketing Building R&D Supervision Center assemblies Assembly Occupancy Building 0.30 0.25 0.20 --0.15 0.10 occupancy R&D 0.50 0.50 --------Supervision 0.20 0.30 0.20 0.10 0.20 ---

The equation for department P2 (final assembly) is:

Version 1

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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

86) 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 $ 562,000 787,000 297,000 97,000 132,000 57,000

Label P1 P2 P3 S1 S2 S3

Use of services by other departments is as follows. User Departments Service Cost SubFinal Marketing Building R&D Supervision Center assemblies Assembly Occupancy Building 0.30 0.20 0.15 --0.20 0.15 occupancy R&D 0.50 0.50 --------Supervision 0.20 0.30 0.20 0.10 0.20 ---

The equation for department P3 (marketing) is:

Version 1

A) P3 = $297,000 + 0.15S1 + 0.20S3. B) P3 = $297,000 + 0.15S1 + 0.60S2 + 0.20S3. C) P3 = $297,000 + 0.15S1 + 0.20S2 + 0.60S3. D) P3 = $297,000 + 0.50S1 + 0.50S3.

Question Details Accessibility : Keyboard Navigation Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply AICPA : FN Decision Making Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

87) 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. User Departments Service Cost SubFinal Marketing Building R&D Supervision Center assemblies Assembly Occupancy Building 0.30 0.25 0.20 --0.15 0.10 occupancy R&D 0.50 0.50 --------Supervision 0.20 0.30 0.20 0.10 0.20 ---

The equation for department P3 (marketing) is:

Version 1

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.

Question Details Accessibility : Keyboard Navigation Type : Static Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply AICPA : FN Decision Making Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

88) 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 $ 564,000 789,000 299,000 99,000 134,000 59,000

Label P1 P2 P3 S1 S2 S3

Use of services by other departments is as follows. User Departments Service Cost SubFinal Marketing Building R&D Supervision Center assemblies Assembly Occupancy Building 0.30 0.25 0.20 --0.10 0.15 occupancy R&D 0.50 0.50 --------Supervision 0.30 0.20 0.30 0.10 0.10 ---

The equation for department S1 (building occupancy) is:

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A) S1 = 0.10S3. B) S1 = $99,000 + 1.00S3. C) S1 = $99,000 + 0.10S3. D) S1 = $99,000 + 0.90S2 + 0.10S3.

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

89) 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. User Departments Service Cost SubFinal Marketing Building R&D Supervision Center assemblies Assembly Occupancy Building 0.30 0.25 0.20 --0.15 0.10 occupancy R&D 0.50 0.50 --------Supervision 0.20 0.30 0.20 0.10 0.20 ---

The equation for department S1 (building occupancy) is:

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A) S1 = 0.10S3. B) S1 = $85,000 + 1.00S3. C) S1 = $85,000 + 0.10S3. D) S1 = $85,000 + 0.90S2 + 0.10S3.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

90) 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 $ 555,000 780,000 290,000 90,000 125,000 50,000

Label P1 P2 P3 S1 S2 S3

Use of services by other departments is as follows. User Departments Service Cost SubFinal Marketing Building R&D Supervision Center assemblies Assembly Occupancy Building 0.30 0.25 0.20 --0.10 0.15 occupancy R&D 0.50 0.50 --------Supervision 0.30 0.20 0.10 0.20 0.20 ---

The equation for department S2 (research and development) is:

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A) S2 = $125,000 + 0.10S1 + 0.60S2 + 0.20S3. B) S2 = 0.10S1 + 0.20S3. C) S2 = $125,000 + 0.10S1 + 0.20S3. D) S2 = $125,000 + 0.45S1 + 0.50S3.

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

91) 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. User Departments Service Cost SubFinal Marketing Building R&D Supervision Center assemblies Assembly Occupancy Building 0.30 0.25 0.20 --0.15 0.10 occupancy R&D 0.50 0.50 --------Supervision 0.20 0.30 0.20 0.10 0.20 ---

The equation for department S2 (research and development) is:

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

92) 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 $ 566,000 791,000 301,000 101,000 136,000 61,000

Label P1 P2 P3 S1 S2 S3

Use of services by other departments is as follows. User Departments Service Cost SubFinal Marketing Building R&D Supervision Center assemblies Assembly Occupancy Building 0.30 0.25 0.15 --0.15 0.15 occupancy R&D 0.50 0.50 --------Supervision 0.20 0.30 0.20 0.20 0.10 ---

The equation for department S3 (supervision) is:

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A) S3 = $61,000 + 0.85S1 + 0.15S2. B) S3 = $61,000 + 0.15S1. C) S3 = $61,000 + 1.00S1. D) S3 = 0.15S1.

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

93) 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. User Departments Service Cost SubFinal Marketing Building R&D Supervision Center assemblies Assembly Occupancy Building 0.30 0.25 0.20 --0.15 0.10 occupancy R&D 0.50 0.50 --------Supervision 0.20 0.30 0.20 0.10 0.20 ---

The equation for department S3 (supervision) is:

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A) S3 = $45,000 + 0.90S1 + 0.10S2. B) S3 = $45,000 + 0.10S1. C) S3 = $45,000 + 1.00S1. D) S3 = 0.10S1.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

94) Advanced Computer Solutions, Incorporated 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 --25% 75%

P 40% --60%

In a typical period, the operation department (Op) spends $4,600 and the programming department (P) spends $2,600. Under the step method (Op first), what is the cost of the computer time and the computer programs for sale? Time A. B. C. D.

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$ 4,600 $ 3,450 $ 1,150 $ 2,760

Programs $ 2,600 $ 3,750 $ 6,050 $ 4,440

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

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

95) Advanced Computer Solutions, Incorporated 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? Time A. B. C. D.

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$ 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

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Topic : Step Method Accessibility : Screen Reader Compatible

96) Advanced Computer Solutions, Incorporated 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 --35% 65%

P 45% --55%

In a typical period, the operation department (Op) spends $4,900 and the programming department (P) spends $2,900. Under the reciprocal method what is the algebraic solution to the cost allocation problem? A) Op = $4,900 + 0.45P; P = $2,900 + 0.35Op B) Op = $4,900 + 0.65P; P = $2,900 + 0.55Op C) Op = $2,900 + 0.45P; P = $4,900 + 0.35Op D) Op = $2,900 + 0.65P; P = $4,900 + 0.55Op

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Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Topic : Reciprocal Method Type : Algorithmic Accessibility : Screen Reader Compatible

97) Advanced Computer Solutions, Incorporated 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

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Gradable : automatic Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

98)

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

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Topic : Allocation of Joint Costs AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

99)

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Topic : Allocation of Joint Costs AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

100) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Topic : Joint Cost Allocation Methods AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

101) 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?

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A) Direct materials B) Variable overhead C) Direct labor D) Freight-out

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Topic : Allocation of Joint Costs AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

102)

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

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Topic : Allocation of Joint Costs AACSB : Reflective Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

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103) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Topic : Allocation of Joint Costs AACSB : Reflective Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

104) 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Topic : Joint Cost Allocation Methods AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

105) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Topic : Joint Cost Allocation Methods AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

106)

Which of the following statements is false?

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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.

107)

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

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108) Products X, Y, and Z are produced from the same process at a cost of $5,920. Five thousand pounds of raw material yields 1,800 X, 2,800 Y, and 1,300 Z. Selling prices are: X $2 per unit, Y $4 per unit, and Z valueless. The ending inventory of X is 56 units. What is the value of the ending inventory if joint costs are allocated using net realizable value? A) $26.47 B) $36.00 C) $44.80 D) $46.80

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Gradable : automatic Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Bloom's : Apply Topic : Joint Cost Allocation Methods Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

109) 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? Version 1

A) $21.67 B) $31.20 C) $40.00 D) $42.00

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Bloom's : Apply Topic : Joint Cost Allocation Methods Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

110) Bonanza Corporation manufactures products X and Y from a joint process that also yields a by-product, Z. Revenue from sales of Z is treated as a reduction of joint costs. Additional information is as follows: PRODUCTS

Units produced Joint costs Sales value at split-off

TOTAL

32,000 ? $ 480,000

32,000 ? $ 240,000

16,000 ? $ 16,000

80,000 $ 322,000 $ 736,000

Joint costs were allocated using the net realizable value method at the split-off point. The joint costs allocated to product X were: Note: Do not round intermediate calculations. A) $120,000. B) $136,800. C) $240,000. D) $204,000.

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111) Bonanza Corporation manufactures products X and Y from a joint process that also yields a by-product, Z. Revenue from sales of Z is treated as a reduction of joint costs. Additional information is as follows: PRODUCTS

Units produced Joint costs Sales value at split-off

TOTAL

20,000 ? $ 300,000

20,000 ? $ 150,000

10,000 ? $ 10,000

50,000 $ 262,000 $ 460,000

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112) 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

Mittens

Total

$ 9,900 ?

$ 6,990 ?

$ 16,890 $ 8,232

$ 3,300

$ 6,600

What are the joint costs allocated to Gloves and Mittens assuming Great Falls uses the estimated net realizable value approach? Gloves A. B. C. D.

$ 4,116 $ 4,840 $ 5,280 $ 5,440

Mittens $ 4,116 $ 3,392 $ 2,952 $ 2,792

Note: Do not round intermediate calculations. A) Option A B) Option B C) Option C D) Option D

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113) 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

Mittens

Total

$ 9,000 ?

$ 6,000 ?

$ 15,000 $ 6,600

$ 3,000

$ 6,000

What are the joint costs allocated to Gloves and Mittens assuming Great Falls uses the estimated net realizable value approach? Gloves A. B. C. D.

$ 3,300 $ 3,960 $ 4,400 $ 4,560

Mittens $ 3,300 $ 2,640 $ 2,200 $ 2,040

Note: Do not round intermediate calculations. A) Option A B) Option B C) Option C D) Option D

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114) Atkinson, Incorporated, manufactures products A, B, and C from a common process. Joint costs were $65,400. Additional information is as follows: If Processed Further Product Units Produced

Sales Value

9,000 4,900 2,450

Sales Value at Split-Off $ 58,000 42,875 29,400

$ 80,500 55,125 36,750

$ 6,000 7,350 9,800

16,350

$ 130,275

$ 172,375

$ 23,150

A B C

Additional Costs

Assuming that joint production costs are allocated using the physical quantities method (units produced), what were the costs allocated to Product A? Note: Do not round intermediate calculations. A) $33,000 B) $35,000 C) $39,000 D) $36,000

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115) Atkinson, Incorporated, manufactures products A, B, and C from a common process. Joint costs were $60,000. Additional information is as follows: If Processed Further Product A B C

Units Produced Sales Value at Sales Value Additional Costs Split-Off 6,000 $ 40,000 $ 55,000 $ 4,000 4,000 35,000 45,000 6,000 2,000 25,000 30,000 8,000 12,000

$ 100,000

$ 130,000

$ 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

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116) Atkinson, Incorporated, manufactures products A, B, and C from a common process. Joint costs were $153,270. Additional information is as follows: If Processed Further Product

Units Produced

A B C

Sales Value

7,500 8,100 4,050

Sales Value at SplitOff $ 49,000 70,875 48,600

Additional Costs

$ 67,750 91,125 60,750

$ 5,000 12,150 16,200

19,650

$ 168,475

$ 219,625

$ 33,350

Assuming that joint product costs are allocated using the net realizable value method, what were the total costs assigned to Product B? Note: Do not round intermediate calculations. A) $75,628 B) $76,424 C) $76,628 D) $77,914

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117) Atkinson, Incorporated, manufactures products A, B, and C from a common process. Joint costs were $60,000. Additional information is as follows: If Processed Further Product A B C

Units Produced 6,000 4,000 2,000

Sales Value at Split-Off $ 40,000 35,000 25,000

12,000

$ 100,000

Sales Value

Additional Costs

$ 55,000 45,000 30,000

$ 4,000 6,000 8,000

$ 130,000

$ 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

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118) Tanner Corporation produced 5,185 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 $428,000 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 assuming Tanner uses the physical quantities method of allocation? Note: Do not round intermediate calculations. A) $112,262 B) $115,652 C) $140,131 D) $142,454

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119) 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 assuming Tanner uses the physical quantities method of allocation? Note: Do not round intermediate calculations. A) $111,475 B) $114,865 C) $139,344 D) $141,667

120) Cariboo Manufacturing Company incurred a joint cost of $510,000 in the production of X and Y in a joint process. Presently, 1,900 of X and 1,500 of Y are being produced each month. Management plans to decrease X's production by 350 units in order to increase the production of Y by 560 units. Additionally, this change will require minor modifications, which will add $34,000 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? Note: Do not round intermediate calculations. Product X A. B. C. D.

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$ 225,000 $ 212,206 $ 221,029 $ 285,000

Product Y $ 285,000 $ 298,424 $ 288,971 $ 225,000

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

121) 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? Note: Do not round intermediate calculations. Product X A. B. C. D.

$ 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

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122) 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 $2,785,680. 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 94,800 $ 38 $ 568,800

Second Main Product 156,000 $ 18 $ 686,400

By-Product 63,600 $ 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: Note: Do not round intermediate calculations. A) $1,353,600. B) $1,413,600. C) $1,653,600. D) $1,732,720.

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123) 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: Note: Do not round intermediate calculations. A) $1,200,000. B) $1,260,000. C) $1,500,000. D) $1,575,000.

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124) The Mallak Company produced three joint products at a joint cost of $219,400. Two of these products were processed further. Production and sales were: Product

Weight

P Q R

480,000 pounds 222,000 pounds 222,000 pounds

Sales $ 384,000 66,600 388,500

Additional Processing Costs $ 288,000 0 222,000

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? Note: Do not round intermediate calculations. A) $99,889 B) $102,667 C) $111,000 D) $123,500

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125) 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

Weight

P Q R

300,000 pounds 100,000 pounds 100,000 pounds

Sales $ 245,000 30,000 175,000

Additional Processing Costs $ 200,000 0 100,000

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

126) The Mallak Company produced three joint products at a joint cost of $134,000. Two of these products were processed further. Production and sales were: Product

Weight

P Q R

317,000 pounds 117,000 pounds 117,000 pounds

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Sales $ 274,750 47,000 213,250

Additional Processing Costs $ 217,000 0 117,000

100

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? Note: Do not round intermediate calculations. A) $48,333 B) $54,375 C) $67,000 D) $83,750

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Gradable : automatic Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Bloom's : Apply Topic : Joint Cost Allocation Methods Learning Objective : 11-05 Account for by-products. Topic : Deciding What to Do with By-Products Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

127) 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

Weight

P Q R

300,000 pounds 100,000 pounds 100,000 pounds

Sales $ 245,000 30,000 175,000

Additional Processing Costs $ 200,000 0 100,000

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A) $38,889 B) $43,750 C) $50,000 D) $62,500

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Bloom's : Apply Topic : Joint Cost Allocation Methods Learning Objective : 11-05 Account for by-products. Topic : Deciding What to Do with By-Products Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

128) The Mallak Company produced three joint products at a joint cost of $154,600. Two of these products were processed further. Production and sales were: Product

Weight

P Q R

372,000 pounds 150,000 pounds 150,000 pounds

Sales $ 297,600 45,000 262,500

Additional Processing Costs $ 223,200 0 150,000

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? Note: Do not round intermediate calculations. A) $69,332 B) $75,582 C) $85,582 D) $88,082

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102

129) 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

Weight

P Q R

300,000 pounds 100,000 pounds 100,000 pounds

Sales $ 245,000 30,000 175,000

Additional Processing Costs $ 200,000 0 100,000

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

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130) The Mallak Company produced three joint products at a joint cost of $130,000. Two of these products were processed further. Production and sales were: Product

Weight

P Q R

315,000 pounds 115,000 pounds 115,000 pounds

Sales $ 271,250 45,000 208,750

Additional Processing Costs $ 215,000 0 115,000

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) $65,000 C) $195,000 D) $395,000

131) 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

Weight

P Q R

300,000 pounds 100,000 pounds 100,000 pounds

Sales $ 245,000 30,000 175,000

Additional Processing Costs $ 200,000 0 100,000

What is the net income of Mallak Company if the estimated net realizable value method of joint cost allocation is used?

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A) $20,000 B) $50,000 C) $150,000 D) $350,000

132) 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

Total

67,000 ? $ 430,000 $ 98,000

50,000 ? $ 280,000 $ 40,000

13,000 ? $ 70,000 $ 22,000

130,000 $ 460,000 $ 780,000 $ 160,000

$ 548,000

$ 330,000

$ 88,000

$ 966,000

Assuming that the 13,000 units of N were processed further and sold for $88,000, what was Cambridge's gross profit from this sale? Assume the physical quantities method of allocation is used. A) $20,000 B) $37,938 C) $40,000 D) $81,338

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Question Details Accessibility : Keyboard Navigation Gradable : automatic Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Bloom's : Apply AICPA : FN Decision Making Topic : Joint Cost Allocation Methods Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

133) 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

Total

50,000 ? $ 420,000 $ 88,000

40,000 ? $ 270,000 $ 30,000

10,000 ? $ 60,000 $ 12,000

100,000 $ 450,000 $ 750,000 $ 130,000

$ 538,000

$ 320,000

$ 78,000

$ 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

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Question Details Accessibility : Keyboard Navigation Type : Static Gradable : automatic Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Bloom's : Apply AICPA : FN Decision Making Topic : Joint Cost Allocation Methods Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

134) 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

135) 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)

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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

136) 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 $620,000 of joint processing costs monthly, which are allocated based on pounds produced. Information concerning this process for a recent month appears below: Candy type

Number of pounds

Sweet Meats Chocolate Delight Minty Wonders

62,000 112,000 37,000

Price per pound at split-off $ 7 $ 9 $ 4

Further processing costs $ 87,000 $ 42,000 $ 32,000

Price after processing further $ 9.00 $ 9.50 $ 4.70

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

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108

Question Details Accessibility : Keyboard Navigation AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 11-04 Use cost data to make the decision whether to sell or process further. Topic : Deciding Whether to Sell Goods Now or Process Them Further Difficulty : 3 Hard AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

137) 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

Number of pounds

Sweet Meats Chocolate Delight Minty Wonders

50,000 100,000 25,000

Price per pound at split-off $ 8 $ 10 $ 5

Further processing costs $ 75,000 $ 30,000 $ 20,000

Price after processing further $ 10.00 $ 10.50 $ 5.50

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109

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Bloom's : Apply Learning Objective : 11-04 Use cost data to make the decision whether to sell or process further. Topic : Deciding Whether to Sell Goods Now or Process Them Further Difficulty : 3 Hard AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

138) 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 $510,000 of joint processing costs monthly, which are allocated based on pounds produced. Information concerning this process for a recent month appears below: Candy type

Number of pounds

Sweet Meats Chocolate Delight Minty Wonders

51,000 101,000 26,000

Price per pound at split-off $ 9 $ 12 $ 6

Further processing costs $ 132,000 $ 31,000 $ 21,000

Price after processing further $ 12.00 $ 12.60 $ 6.40

The net advantage (disadvantage) of processing Sweet Meats further is: A) a $21,000 disadvantage to process further. B) a $36,476 advantage to process further. C) a $21,000 advantage to process further. D) a $346,476 disadvantage to process further.

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139) 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

Number of pounds

Sweet Meats Chocolate Delight Minty Wonders

50,000 100,000 25,000

Price per pound at split-off $ 8 $ 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.

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111

140) 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

Number of pounds

Sweet Meats Chocolate Delight Minty Wonders

50,000 100,000 25,000

Price per pound at split-off $ 8 $ 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.

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112

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 11-04 Use cost data to make the decision whether to sell or process further. Topic : Deciding Whether to Sell Goods Now or Process Them Further AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

141) 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 $700,000 of joint processing costs monthly, which are allocated based on pounds produced. Information concerning this process for a recent month appears below: Candy type

Number of pounds

Sweet Meats Chocolate Delight Minty Wonders

70,000 120,000 45,000

Price per pound at split-off $ 10 $ 12 $ 7

Further processing costs $ 95,000 $ 55,000 $ 30,000

Price after processing further $ 12.00 $ 12.70 $ 7.40

If Chocolate Delight is processed further, the gross profit margin that will appear in a product line income statement for Chocolate Delight would be: Note: Do not round intermediate calculations. A) $1,111,553. B) $730,000. C) $1,469,000. D) $990,037.

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113

142) 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

Number of pounds

Sweet Meats Chocolate Delight Minty Wonders

50,000 100,000 25,000

Price per pound at split-off $ 8 $ 10 $ 5

Further processing costs $ 75,000 $ 30,000 $ 20,000

Price after processing further $ 10.00 $ 10.50 $ 5.50

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114

143) 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 $60,000 or it can be processed further at a total cost of $27,000 and then sold for $90,000. 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 $30,000 if processed further and then sold. C) would increase the company's overall net income by $90,000 if processed further and then sold. D) would increase the company's overall net income by $3,000 if processed further and then sold.

Question Details Accessibility : Keyboard Navigation Gradable : automatic Learning Objective : 11-04 Use cost data to make the decision whether to sell or process further. AICPA : FN Decision Making Topic : Deciding Whether to Sell Goods Now or Process Them Further Difficulty : 3 Hard Bloom's : Analyze AACSB : Analytical Thinking Type : Algorithmic Accessibility : Screen Reader Compatible

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115

144) 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.

Question Details Accessibility : Keyboard Navigation Type : Static Gradable : automatic Learning Objective : 11-04 Use cost data to make the decision whether to sell or process further. AICPA : FN Decision Making Topic : Deciding Whether to Sell Goods Now or Process Them Further Difficulty : 3 Hard Bloom's : Analyze AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

145) 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.

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116

146) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-05 Account for by-products. Topic : Deciding What to Do with By-Products AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

147) If by-product revenue is treated as other revenue instead of deducted from the netrealizable-value of the main products:

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117

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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Gradable : automatic Difficulty : 2 Medium Learning Objective : 11-05 Account for by-products. Topic : Deciding What to Do with By-Products AACSB : Reflective Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

148)

Products with a relatively minor sales value are called: A) scrap. B) spoilage. C) by-products. D) main products.

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118

149) 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.

150)

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 net-realizable-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.

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119

151) 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.

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 152) Required:For each of the support service costs listed below, name an appropriate cost allocation base: (1.)

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Building rental cost

120

(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

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121

153) 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, 2023 are as follows: Proportion of Services Used by: Department

Personnel

Direct costs $ 30,000

Cafeteria

$ 50,000

0.20

Machining

$ 80,000

Assembly

$ 70,000

Cafeteria

Machining

Assembly

0.40

0.30

0.50

0.30

Required:Compute the allocation of service department costs to producing departments for July 2023 using the direct method. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

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154) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Service Department Cost Allocation Bloom's : Apply Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

155) 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

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User Departments

123

Budgeted Overhead Info Systems (hours) Facilities (Square feet)

Info Facilities Computer Consulting Training Total Systems Program $ $ 25,000 $ $ $ $ 345,000 50,000 75,000 110,000 85,000 400 1,100 600 900 3,000

200,000

400,000

600,000

800,000 2,000,000

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.) ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

156) 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.

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124

Service Departments

User Departments

Info Facilities Computer Consult Training Total Systems Program Budgeted $ $ 25,000 $ $ $ $ 345,000 Overhead 50,000 75,000 110,000 85,000 Info Systems 400 1,100 600 900 3,000 (hours) Facilities 200,000 400,000 600,000 800,000 2,000,000 (Square feet)

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

157) Yellville Regional Hospital is a small hospital with two service departments and three revenue areas: Service Department

Direct Costs

Housekeeping (HK) Laundry

$ 80,000 $ 132,000

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Square Feet − 500

Laundry Pounds 16,000

125

Revenue Areas: Surgery Semiprivate rooms Maternity

$ 400,000 $ 200,000 $ 150,000

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 direct method. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

158) Yellville Regional Hospital is a small hospital with two service departments and three revenue areas: Service Department

Direct Costs

Square Feet

Housekeeping (HK) Laundry

$ 80,000 $ 132,000

500

$ 400,000 $ 200,000 $ 150,000

1,500 2,000 1,000

Laundry Pounds 16,000

Revenue Areas: Surgery Semiprivate rooms Maternity

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48,000 24,000 12,000

126

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

159) 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

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Numbers of Transactions 50 25

Square Footage

Expected Costs

1,800 2,200 1,600

$ 40,000

127

Custodial

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

160) 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

Number of Transactions 50 25

Clerical Custodial

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Square Footage 1,800 2,200 1,600

Expected Costs

40,000 10,000

128

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

161) Aardvark Industries has two production departments, Assembly and Finishing, and three Service Departments, Personnel, Maintenance, and Cafeteria. Data relevant to Aardvark are: Department

Direct Cost Personnel $ 500,000 Maintenance 420,000 Cafeteria

200,000

Assembly

380,000

Finishing

150,000

Personnel Maintenance Cafeteria Assembly Finishing 0.10

0.20

0.70

0.20

0.80

0.20

0.30

Required:Allocate the service department costs of Aardvark Industries using the step method of cost allocation.

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162) Mena Corporation has two production departments, Assembly and Finishing, and three service departments, Personnel, Maintenance, and Cafeteria. Data relevant to Mena are: Department

Direct cost Personnel $ 500,000 Maintenance 420,000

Personnel Maintenance Cafeteria Assembly Finishing

Cafeteria

200,000

0.20

Assembly

380,000

Finishing

150,000

0.10

0.20

0.70

0.20

0.80

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

Labor Hours Machine Hours

200 1,000

800 200

Job 101

Labor Hours

100

900

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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.) ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

163) 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, 2023 are as follows: Proportion of Services Used by: Department Personnel

Direct costs Personnel $ 30,000

Cafeteria

$ 50,000

Machining

$ 80,000

Assembly

$ 70,000

0.20

Cafeteria 0.40

Machining 0.30

Assembly 0.30

0.50

0.30

Required:Compute the allocation of service department costs to producing departments for July 2023 using the step method.

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164) 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.

Budgeted Overhead Info Systems (hours) Facilities (Square feet)

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Service Departments Info Facilities Computer Systems Program $ $ 25,000 $ 50,000 75,000 400 1,100

200,000

400,000

User Departments Consulting Training Total $ 110,000 600

$ 85,000 900

$ 345,000

600,000

800,000

2,000,000

3,000

132

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 reciprocal method. Round to the nearest whole dollar. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

165) 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

Number of Transactions 50 25

Clerical Custodial

Square Footage 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.

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166) Yellville Regional Hospital is a small hospital with two service departments and three revenue areas: Service Department

Direct Costs

Square Feet

Housekeeping (HK) Laundry

$ 80,000 $ 132,000

500

$ 400,000 $ 200,000 $ 150,000

1,500 2,000 1,000

Laundry Pounds 16,000

Revenue Areas: Surgery Semiprivate Rooms Maternity

48,000 24,000 12,000

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Methods of Allocating Service Department Costs Bloom's : Apply Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

167) Franklin Corporation has three operating departments (Fabricating, Assembly, and Finishing) and two service departments (Custodial and Administrative). The following information has been provided: Department Costs

Custodial

Admin

$ 250,000

$ 400,000 -15,000

# employees 10 Square feet -Allocations are based on the following: Custodial: Square feet Administrative: Number of employees

Fabricating Assembly Finishing --

80 30,000

100 35,000

60 20,000

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Methods of Allocating Service Department Costs Bloom's : Apply AICPA : FN Decision Making Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

168) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Bloom's : Apply Topic : Joint Cost Allocation Methods Learning Objective : 11-05 Account for by-products. Topic : Deciding What to Do with By-Products Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

169) 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

T 7,500

$ 100 $ 150 $ 150,000

$ 80 $ 115 $ 150,000

$ 20 $ 30 $ 100,000

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Bloom's : Apply Topic : Joint Cost Allocation Methods Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

170) Clean-Burn, Incorporated is a small petroleum company that acquires high-grade crude oil from low-volume 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Bloom's : Apply Topic : Joint Cost Allocation Methods Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

171) 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: Department 1

Cost of liquid charcoal

$ 104,000

Direct labor Manufacturing overhead

$ 16,000 $ 10,000

$ 45,000 $ 27,000 Products

$ 65,000 $ 49,000

20,000 15,000 $ 30,000

30,000 0 $ 96,000

50,000 15,000 $ 142,000

Gallons sold Gallons on hand end of period Sales in dollars

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.

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172) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Bloom's : Apply Topic : Joint Cost Allocation Methods Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

173) 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 Selling Price Zylon Qytol By-Product

200,000 400,000 5,000

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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174) 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 $ 3.00 per case 5.00 per case 2.50 per case

Selling Price $ 28 per case 25 per case 10 per 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Bloom's : Apply Topic : Joint Cost Allocation Methods Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

175) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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176) Highlands, Incorporated 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 cubic foot. Normally, sales revenue from the sawdust is $21,200 per month. The sawdust is charged to inventory at $2.20 per cubic foot, 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static Learning Objective : 11-04 Use cost data to make the decision whether to sell or process further. AICPA : FN Decision Making Topic : Deciding Whether to Sell Goods Now or Process Them Further Difficulty : 3 Hard Bloom's : Analyze Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

177) 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

O 42,000 $ 250,000 $ 18,000

P 50,000 $ 50,000 $ 30,000

Q 8,000 $ 20,000 $ 10,000

Total 100,000 $ 320,000 $ 58,000

$ 290,000

$ 70,000

$ 25,000

$ 385,000

Product weights in pounds

84,000

$ 300,000 150,000

8,000

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-04 Use cost data to make the decision whether to sell or process further. Topic : Deciding Whether to Sell Goods Now or Process Them Further Difficulty : 3 Hard Bloom's : Analyze Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

178) Ridgeline Enterprises produces three products in a joint process. Products A and B are processed further. Additional information is as follows: A

Total

Sales value at split-off Additional costs if processed further Sales value if processed further Joint Costs

$ 250,000 $ 18,000

$ 30,000 $ 30,000

$ 20,000 $ 0

$ 300,000 $ 48,000

$ 290,000

$ 70,000

$ 0

$ 360,000

Product Weight in pounds

168,000

$ 200,000 300,000

32,000

500,000

Required:(a) Allocate the joint costs, assuming that all products are joint products and jointcosts 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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179) 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

Number of Pounds

Cosmetic Powder Medicated Powder Baby Powder

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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180) Required: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

(k)

Costs of chopping onions to be used in spaghetti sauce and soup in a food manufacturer Cost of processing rejected meat parts into hot dogs in a meat processing plant Cost of processing wood and sawdust into particle board in a sawmill Ingredients and packaging added to batches of spaghetti in (g) above 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

(h) (i) (j)

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static Difficulty : 2 Medium Learning Objective : 11-04 Use cost data to make the decision whether to sell or process further. AICPA : FN Decision Making Topic : Deciding Whether to Sell Goods Now or Process Them Further AACSB : Reflective Thinking Gradable : manual Bloom's : Understand Accessibility : Screen Reader Compatible

181) The Macon Industries started the production of K1 (its main product) and S2 (its byproduct) on January 2, 2023. During 2023, 7,500 units of K1 and 1,500 units of S2 were produced. In 2023, 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 2023 and the inventory was sold in 2024 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 2023 and $12,000 in 2024. Required:a.Prepare an income statement for 2023 and 2024 assuming the "other revenue" method of accounting for by-products is used. b.Prepare an income statement for 2023 and 2024, 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Apply Learning Objective : 11-05 Account for by-products. Topic : Deciding What to Do with By-Products Difficulty : 3 Hard Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

182) Required:What is the difference between an intermediate cost center and a final cost center? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Service Department Cost Allocation Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

183) Required:Describe the difference between the direct method of service department allocation, the step method, and the reciprocal method. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Difficulty : 2 Medium Topic : Methods of Allocating Service Department Costs Gradable : manual AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

184) Required: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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Difficulty : 2 Medium Topic : Methods of Allocating Service Department Costs Gradable : manual AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

185) Required:Which of the three service department allocation methods should be used for decision making? Explain your reasoning. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

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Question Details Accessibility : Keyboard Navigation Type : Static Difficulty : 2 Medium Topic : Methods of Allocating Service Department Costs AICPA : FN Decision Making Learning Objective : 11-02 Use the reciprocal method approach for outsourcing decisions. Gradable : manual AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

186) Required:What are some of the reasons that joint costs are allocated? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static Difficulty : 2 Medium Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val AICPA : FN Decision Making Topic : Allocation of Joint Costs Gradable : manual AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

187) Required:Explain the difference between the net realizable value method for joint cost allocation and the netback (or workback) method. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Bloom's : Remember Difficulty : 1 Easy Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Topic : Joint Cost Allocation Methods Gradable : manual AACSB : Analytical Thinking Accessibility : Screen Reader Compatible

188) Required: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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Difficulty : 2 Medium Learning Objective : 11-04 Use cost data to make the decision whether to sell or process further. Topic : Deciding Whether to Sell Goods Now or Process Them Further Gradable : manual AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

189) Required: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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Difficulty : 2 Medium Learning Objective : 11-05 Account for by-products. Topic : Deciding What to Do with By-Products Gradable : manual AACSB : Analytical Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

190) 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

0.30

Costs

0.10

0.20

0.40

0.30

0.20

0.40

0.10

$ 200,000 $ 100,000 $ 600,000 $ 800,000

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Methods of Allocating Service Department Costs AACSB : Reflective Thinking Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

191) 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. Type of space Office

Computer

Warehouse

Weighting

Division 1 Division 2 Division 3 Division 4 Division 5 Total

10,000 31,000 15,000 15,000 30,000 101,000

0 10,000 12,000 10,000 30,000 62,000

0 5,000 32,000 50,000 0 87,000

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10,000 46,000 59,000 75,000 60,000 250,000

155

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Methods of Allocating Service Department Costs AACSB : Reflective Thinking Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

192) 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?

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193) Liberty Credit Checks 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

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-01 Explain why and how service costs are allocated using the direct method, t Topic : Methods of Allocating Service Department Costs AACSB : Reflective Thinking Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

194) 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

K 4,000 $ 100,000 $ 20,000

L 2,000 $ 20,000 $ 6,000

Total 22,000 $ 420,000 $ 74,000

$ 340,000

$ 160,000

$ 40,000

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-04 Use cost data to make the decision whether to sell or process further. AICPA : FN Decision Making Topic : Deciding Whether to Sell Goods Now or Process Them Further AACSB : Reflective Thinking Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

195) 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 (prior to adjustments for Spotter) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement AICPA : FN Decision Making Learning Objective : 11-05 Account for by-products. Topic : Deciding What to Do with By-Products AACSB : Reflective Thinking Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

196) 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). ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val AICPA : FN Decision Making Topic : Joint Cost Allocation Methods Learning Objective : 11-05 Account for by-products. Topic : Deciding What to Do with By-Products AACSB : Reflective Thinking Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

197) 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 Units produced Joint costs Sales value at split-off Additional Processing Costs Sales value if Processed Further

One-X 16,000 $ 60,000 (c) $ 14,000

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

$ 140,000

$ 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) ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-04 Use cost data to make the decision whether to sell or process further. AICPA : FN Decision Making Topic : Deciding Whether to Sell Goods Now or Process Them Further AACSB : Reflective Thinking Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

198) 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

Units produced 900,000 cans

Separable costs $ 600,000

Final selling price per unit $ 3.00 per can

Sliced pineapple Pineapple juice Mash

400,000 bottles 500,000 pounds

$ 150,000 $ 120,000

$ 1.75 per bottle $ 0.50 per 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. They would be willing to pay $0.30 per pound for these materials. What advice would you give Penny? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Learning Objective : 11-04 Use cost data to make the decision whether to sell or process further. AICPA : FN Decision Making Topic : Joint Cost Allocation Methods Topic : Deciding Whether to Sell Goods Now or Process Them Further AACSB : Reflective Thinking Difficulty : 3 Hard Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

199) 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

Item 2

Item 3

Total

20,000 $ 150,000 $ 10,000

25,000 $ 50,000 $ 30,000

10,000 $ 20,000 $ 5,000

55,000 $ 220,000 $ 45,000

$ 170,000

$ 90,000

$ 28,000

$ 288,000 $ 100,000

Required:Allocate the joint costs using the net realizable value method. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Measurement Learning Objective : 11-03 Explain why and how joint costs are allocated using the net realizable val Bloom's : Apply Topic : Joint Cost Allocation Methods AACSB : Reflective Thinking Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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Answer Key Test name: Lanen7e_ch11 1) TRUE Human resources would be considered a support department for the manufacturing activities of the firm, and therefore, a service department. 2) TRUE 3) TRUE 4) FALSE The direct method allocates costs directly to the final user of a service. 5) TRUE 6) FALSE The step method does not recognize reciprocal services. 7) TRUE Total service department costs = Direct costs of the service department + Costs allocated to the service department. 8) FALSE The step method and direct method could understate the cost of running service departments, not the reciprocal method. 9) FALSE The reciprocal method should be used for outsourcing decisions. 10) TRUE This statement is the definition of joint products. 11) FALSE Joint costs are processing costs incurred before the split-off point. 12) FALSE The estimated net realizable value is its estimated selling price before further processing. 13) TRUE Version 1

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14) TRUE This statement is the definition of estimated net realizable value. 15) FALSE Whether joint products can be sold at split-off or not, the joint costs should be allocated to the joint products for a number of reasons, including evaluating performance, calculating compensation, and determining inventory value. 16) TRUE 17) FALSE Each product has the same cost per pound (or foot, or gallon, etc.). 18) FALSE In a sell-or-process-further decision, both additional revenue and additional costs of processing further are relevant. 19) TRUE 20) TRUE 21) C User departments use the functions of service departments. 22) D An intermediate cost center is a cost center whose costs are charged to other departments in the organization. 23) A A final cost center is a cost center whose costs are not allocated to another cost center. 24) C The number of meals served would be an appropriate cost allocation base because it likely drives the costs in the cafeteria. 25) D Allocation of services does not provide incentives for service levels. 26) C

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Service department costs are considered product costs since they are part of the production process. 27) A Manufacturing companies must allocate joint costs to determine the inventory value of the products that result from the joint process. 28) C Custodial Services cleans space, so space occupied would be logical. 29) A Assembly is a producing department, not a service department. 30) D Revenues are never a good base for allocating service costs. 31) B COI interacts directly with the consumer, while Testing Services serves producing departments, not consumers. 32) C 33) A The selection of an allocation base is no easier for the direct method than it is for the step method. 34) A $0. There are no allocations between service departments when using the direct method. 35) A $0. There are no allocations between service departments when using the direct method. 36) D [179 ÷ (346 + 179)] × $45,360 = $15,465.60 37) D [250 ÷ (265 + 250)] × $37,125 = $18,021.84 38) D 39) A Version 1

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[$347,000 × (300 ÷ 580)] = $179,483 40) A [$260,000 × (220 ÷ 420)] = $136,190 41) B [$126,000 × ($460,000 ÷ $720,000)] = $80,500 42) B [$110,000 × ($380,000 ÷ $560,000)] = $74,643 43) A $1,145,000 × ($567,500 ÷ $1,195,000) = $543,755 44) A $970,000 × ($495,000 ÷ $1,050,000) = $457,286 45) A No reciprocal services are recognized using the direct method. 46) A [31,350 ÷ (25,650 + 31,350)] × $726,000 = $399,300 47) A [29,750 ÷ (21,250 + 29,750)] × $720,000 = $420,000 48) E Under the direct method of allocation, service departments are not allocated any costs. 49) E Under the direct method of allocation, service departments are not allocated any costs. 50) A This will minimize the percentage of services ignored in the allocation process. 51) D Computations are easier than the reciprocal method and some services are ignored. 52) C Version 1

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[$449,500 ÷ (2,850 + 250)] × 2,850 = $413,250 53) C [$300,000 ÷ (2,300 + 200)] × 2,300 = $276,000 54) A [$122,400 ÷ (8 + 4)] × 4 = $40,800 55) A [$120,000 ÷ (8 + 4)] × 4 = $40,000 56) D [380 ÷ (110 + 3,750 + 380)] × $867,300 = $77,730 57) D [200 ÷ (20 + 2,300 + 200)] × $300,000 = $23,810 58) B ($658,000 ÷ 3,835) × 75 = $12,868; [($231,600 + $12,868) ÷ (8 + 4)] × 8 = $162,979 59) B ($300,000 ÷ 2,520) × 20 = $2,381; [($120,000 + 2,381) ÷ (8 + 4)] × 8 = $81,587 60) B [(50 ÷ 85) × $13,600] + [(75 ÷ 125) × $9,200] = $13,520 61) B [(50 ÷ 80) × $12,000] + [(80 ÷ 120) × $8,400] = $13,100 62) C [(25 ÷ 75) × $16,800] + [(20 ÷ 100) × $10,200] + [(1,800 ÷ 3,000) × $5,800] + [(3,080 ÷ 5,600) × $1,120] = $11,736 63) C [(25 ÷ 75) × $12,000] + [(20 ÷ 100) × $8,400] + [(840 ÷ 1,400) × $4,200] + [(2,200 ÷ 4,000) × $800] = $8,640 64) C Under the direct method, service department costs are not allocated to another service department, only production departments. Version 1

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65) C Under the direct method, service department costs are not allocated to another service department, only production departments. 66) A (0.10 ÷ 0.30) × $139,200 = $46,400 67) A (0.10 ÷ 0.30) × $60,000 = $20,000 68) C The correct order of allocation is S1 to S2 and then to P1 and P2. Using the step method, once a service department’s costs have been allocated to other departments, no costs can be allocated back to it. 69) C The correct order of allocation is S1 to S2 and then to P1 and P2. Using the step method, once a service department’s costs have been allocated to other departments, no costs can be allocated back to it. 70) A S1’s $96,000 is allocated 70% to S2 or $67,200. S2’s total is $103,000 + $67,200 = $170,200. S2’s $170,200 is allocated 62.5% to P2 or $106,375. 71) A S1’s $60,000 is allocated 70% to S2 or $42,000. S2’s total is $100,000 + $42,000 = $142,000. S2’s $142,000 is allocated 62.5% to P2 or $88,750. 72) B The total costs of $120,000 and $133,000 ($253,000) will be allocated to the producing departments. 73) B The total costs of $60,000 and $100,000 ($160,000) will be allocated to the producing departments. 74) B Version 1

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[25 ÷ (25 + 430 + 265)] × $98,550 = $3,421.88 75) B [25 ÷ (25 + 265 + 250)] × $37,125 = $1,718.75 76) D The step method recognizes that one service department can provide services to others and allocates some service department costs to other service departments. Once an allocation is made from a service department, no further allocations are made back to that department. 77) D Reciprocal method is considered most accurate because it includes all reciprocal services. 78) C A = $99,600 + 0.30B; B = $70,200 + 0.10A A = $124,392; B = $82,639 C's portion of A = 0.60 × $124,392 = $74,635 79) C A = $80,000 + 0.30B; B = $60,000 + 0.10A A = $101,031; B = $70,103 C's portion of A = 0.60 × $101,031 = $60,619 80) B A = $106,400 + 0.30B; B = $74,000 + 0.10A A = $132,577; B = $87,258 C's portion of B = 0.20 × $87,258 = $17,452 81) B A = $80,000 + 0.30B; B = $60,000 + 0.10A A = $101,031; B = $70,103 C's portion of B = 0.20 × $70,103 = $14,021 82) B The direct cost for subassemblies is $555,000 and it uses 30% of Building Occupancy, 50% of R&D, and 30% of Supervision. Version 1

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83) B The direct cost for subassemblies is $550,000 and it uses 30% of Building Occupancy, 50% of R&D, and 20% of Supervision. 84) D The direct cost for final assembly is $792,000 and it uses 20% of Building Occupancy, 50% of R&D, and 30% of Supervision. 85) D The direct cost for final assembly is $775,000 and it uses 25% of Building Occupancy, 50% of R&D, and 30% of Supervision. 86) A The direct cost for marketing is $297,000 and it uses 15% of Building Occupancy and 20% of Supervision. There is no R&D usage by marketing. 87) A The direct cost for marketing is $285,000 and it uses 20% of Building Occupancy and 20% of Supervision. There is no R&D usage by marketing. 88) C Building Occupancy has direct costs of $99,000 and only uses 10% of Supervision. 89) C Building Occupancy has direct costs of $85,000 and only uses 10% of Supervision. 90) C R&D has direct costs of $125,000 and uses 10% of Building Occupancy and 20% of Supervision. 91) C R&D has direct costs of $120,000 and uses 15% of Building Occupancy and 20% of Supervision. 92) B Version 1

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Supervision has $61,000 in direct costs and 15% of Building Occupancy. 93) B Supervision has $45,000 in direct costs and 10% of Building Occupancy. 94) B Time = 0.75 × $4,600 = $3,450; Programs = $2,600 + (0.25 × $4,600) = $3,750 95) B Time = 0.70 × $4,500 = $3,150; Programs = $2,500 + (0.30 × $4,500) = $3,850 96) A Op direct cost is $4,900 and uses 45% of P. 97) A Op direct cost is $4,500 and uses 40% of P. 98) A Joint cost allocation generally does not provide good decision-making support; it is used primarily to account for cost allocation between inventory and cost of goods sold. 99) D Joint cost allocation generally does not provide good decision-making support; it is used primarily to account for cost allocation between inventory and cost of goods sold. 100) D This is an estimate of the sales value at split-off, also known as “relative sales value” at split-off. 101) D Freight-out would occur after the split-off point and would be a separable cost, not a joint cost. 102) C Version 1

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Allocating profits under joint costing changes based on the method used, but cannot be said to maximize as it is a closed set. 103) D Both revenues and costs incurred after the split-off point are relevant. 104) A This is the definition of estimated net realizable value. 105) C Under net realizable value, the cost allocated is a constant percentage of the sales value so each product will have the same gross margin percentage. 106) A It is the final selling price minus the additional processing costs. 107) B The net realizable value method is used to allocate joint costs. 108) C [(1,800 × $2) ÷ ($3,600 + $11,200)] × $5,920 = $1,440; ($1,440 ÷ 1,800) × 56 = $44.80 109) C [(1,500 × $2) ÷ ($3,000 + $10,000)] × $5,200 = $1,200; ($1,200 ÷ 1,500) × 50 = $40.00 110) D ($480,000 ÷ $720,000) × ($322,000 − $16,000) = $204,000 111) D ($300,000 ÷ $450,000) × ($262,000 − $10,000) = $168,000 112) C Gloves: [($9,900 − $3,300) ÷ ($6,600 + $3,690)] × $8,232 = $5,280 Mittens: [($6,990 − $3,300) ÷ ($6,600 + $3,690)] × $8,232 = $2,952 113) C Gloves: [($9,000 − $3,000) ÷ ($6,000 + $3,000)] × $6,600 = $4,400 Mittens: [($6,000 − $3,000) ÷ ($6,000 + $3,000)] × $6,600 = $2,200 Version 1

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114) D (9,000 ÷ 16,350) × $65,400 = $36,000 115) D (6,000 ÷ 12,000) × $60,000 = $30,000 116) C $12,150 + [($70,875 ÷ $168,475) × $153,270] = $76,628 117) C $6,000 + [($35,000 ÷ 100,000) × $60,000] = $27,000 118) A X = 0.8Y; Z = 1.25Y; Y + 0.8Y + 1.25Y = 5,185 units; Y = 1,700, X = 1,360, Z = 2,125; (1,360 ÷ 5,185) × $428,000 = $112,262 119) A X = 0.8Y; Z = 1.25Y; Y + 0.8Y + 1.25Y = 3,660 units; Y = 1,200, X = 960, Z = 1,500; (960 ÷ 3,660) × $425,000 = $111,475 120) D X: (1,900 ÷ 3,400) × $510,000 = $285,000; Y: (1,500 ÷ 3,400) × $510,000 = $225,000 121) D X: (1,800 ÷ 3,200) × $600,000 = $337,500; Y: (1,400 ÷ 3,200) × $600,000 = $262,500 122) C $2,785,680 − ($2 × 63,600) = $2,658,480; (156,000 ÷ 250,800) × $2,658,480 = $1,653,600 123) C $2,520,000 − ($2 × 60,000) = $2,400,000; (150,000 ÷ 240,000) × $2,400,000 = $1,500,000 124) C [($388,500 − $222,000) ÷ ($166,500 + $66,600 + $96,000)] × $219,400 = $111,000 125) C Version 1

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[($175,000 − $100,000) ÷ ($75,000 + $30,000 + $45,000)] × $100,000 = $50,000 126) B [($213,250 − $117,000) ÷ ($96,250 + $57,750)] × ($134,000 − $47,000) = $54,375 127) B [($175,000 − $100,000) ÷ ($75,000 + $45,000)] × ($100,000 − $30,000) = $43,750 128) C [372,000 ÷ (372,000 + 150,000 + 150,000)] × $154,600 = $85,582 129) C [300,000 ÷ (300,000 + 100,000 + 100,000)] × $100,000 = $60,000 130) B ($271,250 + $315,000 + $208,750) − ($215,000 + $115,000) − $130,000 = $65,000 131) B ($245,000 + $30,000 + $175,000) − ($200,000 + $100,000) − $100,000 = $50,000 132) A [13,000 ÷ (67,000 + 50,000 + 13,000)] × $460,000 = $46,000; $88,000 − ($46,000 + $22,000) = $20,000 133) A [10,000 ÷ (50,000 + 40,000 + 10,000)] × $450,000 = $45,000; $78,000 − ($45,000 + $12,000) = $21,000 134) C Dollars of labor is not a physical measurement, it is a value measurement. 135) A Only the separable costs after the split-off point are relevant when deciding the point at which a product should be sold to maximize profits. Version 1

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136) B Sweet Meats: ($9 − $7) = $2 × 62,000 pounds = $124,000 − costs of $87,000 = $37,000 profit Chocolate Delight ($9.50 − $9.00) = $0.50 × 112,000 pounds = $56,000 − costs of $42,000 = $14,000 profit Minty Wonders ($4.70 − $4.00) = $0.70 × 37,000 pounds = $25,900 − costs of $32,000 = $6,100 loss 137) B Sweet Meats: ($10 − $8) = $2 × 50,000 pounds = $100,000 − costs of $75,000 = $25,000 profit Chocolate Delight ($10.50 − $10.00) = $0.50 × 100,000 pounds = $50,000 − costs of $30,000 = $20,000 profit Minty Wonders ($5.50 − $5.00) = $0.50 × 25,000 pounds = $12,500 − costs of $20,000 = $7,500 loss 138) C Sweet Meats: ($12 − $9) = $3 × 51,000 pounds = $153,000 − costs of $132,000 = $21,000 profit. 139) C Sweet Meats: ($10 − $8) = $2 × 50,000 pounds = $100,000 − costs of $75,000 = $25,000 profit 140) B The allocated joint costs are irrelevant. 141) A (120,000 × $12.70) − $55,000 = $1,469,000; $1,469,000 − [$700,000 × (120,000 ÷ 235,000)] = $1,111,553 142) A (100,000 × $10.50) − $30,000 = $1,020,000; $1,020,000 − [$500,000 × (100,000 ÷ 175,000)] = $734,286 143) D Process further: $90,000 − $27,000 = $63,000 vs. $60,000 sell now. Version 1

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144) D Process further: $68,000 − $16,000 = $52,000 vs. $50,000 sell now. 145) A The decision should not depend upon allocations. The joint costs are irrelevant. 146) A A by-product has minimal value relative to the main products. 147) D Costs are allocated to joint products or joint products and by-products, but costs do not change; therefore, gross margin is the same under all alternatives. 148) C This is a definition of a by-product. 149) C By-products can be recognized either at time of production or time of sale. 150) D This is the result of using the Net Realizable Value Method. 151) C By-products can be recognized either at time of production or time of sale.

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152)(Answers may vary) (1) Square footage; space occupied (2) Number of employees (3) Number of meals served (4) Number of employees (5) Number of documents (6) Hours of use (7) Hours of use (8) Hours of use; miles traveled (9) Number of employees (10) Number of uniforms; weight of laundry processed (11) Number of employees (12) Number of machines; hours of use (13) Number of employees (14) Square footage; space occupied (15) Miles driven 153) Personnel Cafeteria Machining Assembly

Total costs

$ 30,000

$ 230,000

Direct department Costs Allocation of Personnel: M (0.30/0.60); A (0.30/0.60) Allocation of Cafeteria: M (0.50/0.80); A (0.30/0.80)

$ 50,000

(30,000)

15,000

31,250

18,750

$ 0 $ 126,250

$ 103,750

(50,000) $ 0

$ 80,000 $ 70,000

$ 230,000

154) Version 1

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Allocation base Data purchased Research hours Interview hours Number of reports

Individual $ 40,000 24,000 1,000 16,000

Allocation base Data purchased Research hours Interview hours Number of reports

Individual $ 1,066,560 $ 1,422,080 $ 290,880 $ 2,694,720

Percent Corporate 33.33% $ 80,000 44.44% 30,000 9.09% 10,000 84.21% 3,000 Costs allocated Corporate $ 2,133,440 $ 1,777,920 $ 2,909,120 $ 505,280

Percent 66.67% 55.56% 90.91% 15.79%

Total costs $ 3,200,000 $ 3,200,000 $ 3,200,000 $ 3,200,000

155)Computer programming $101,710; Consulting: $129,871; Training: $113,419. Departmen t

Allocation

IS to CP

1,100/2,600

IS to 600/2,600 Consultin g IS to 900/2,600 Training Facilitie 400,000/1,800,0 s to CP 00 Facilitie 600,000/1,800,0 s to 00 Consultin g Facilitie 800,000/1,800,0 s to 00 Training

Facilitie CP s $ $ $ 50,000 25,000 75,000 (21,154 21,154 ) (11,538 )

Consultin Trainin g g $ $ 110,000 85,000

11,538

(17,308 )

17,308 (5,556)

5,556

(8,333)

8,333

(11,111 ) $ 0

$ 0

11,111

$ 101,71 0

$ 129,871

$ 113,41 9

156)Computer Programming: $100,370; Consulting: $130,556; Training: $114,074. Departmen

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Facilitie

Consultin Trainin

180

IS to Facilitie s IS to CP

400/3,000

1,100/3,000

IS to 600/3,000 Consultin g IS to 900/3,000 Training Facilitie 400,000/1,800,0 s to CP 00 Facilitie 600,000/1,800,0 s to 00 Consultin g Facilitie 800,000/1,800,0 s to 00 Training

$ 50,000 (6,667)

$ 25,000 6,667

(18,333 ) (10,000 )

$ 75,000

$ 110,000

$ 85,000

18,333 10,000

(15,000 )

15,000 (7,037)

7,037

(10,556 )

10,556

(14,074 ) $ 0

$ 0

14,074

$ 100,37 0

$ 130,556

$ 114,07 4

157)Surgery: $2,510.48 per hour; Semiprivate rooms: $455.45 per day; Maternity: $933.18 per day Departmen t

HK to Surgery HK to Semipriva te HK to Maternity Laundry to Surgery

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Allocation

1,500/4,500

(26,667)

Surgery Semiprivat Maternit e y $ $ $ 400,00 200,000 150,000 0 26,667

2,000/4,500

(35,555)

35,555

1,000/4,500

(17,778)

48,000/84,0 00

Housekeepi ng $ 80,000

Laundry $ 132,00 0

17,778 (75,429 )

75,429

181

Laundry 24,000/84,0 to 00 Semipriva te Laundry 12,000/84,0 to 00 Maternity

(37,714 )

37,714

(18,857 ) 0

18,857

$ 502,09 6

$ 273,269

$ 186,635

Surgery: $502,096 ÷ 200 hours = $2,510.48 per hour Semiprivate Rooms: $273,269 ÷ 600 patient days = $455.45 per day Maternity: $186,635 ÷ 200 patient days = $933.18 per day 158)Surgery: $2,485.34 per hour; Semiprivate rooms: $461.04 per day; Maternity: $941.56 per day Departmen t

Allocation

Laundry 16,000/100,0 to HK 00 Laundry 48,000/100,0 to 00 Surgery Laundry 24,000/100,0 to 00 Semipriva te Laundry 12,000/100,0 to 00 Maternity HK to 1,500/4,500 Surgery HK to 2,000/4,500 Semipriva te HK to 1,000/4,500 Maternity

Housekeepi Laundry Surgery Semipriva Maternit ng te y $ 80,000 $ $ $ $ 132,00 400,00 200,000 150,000 0 0 21,120 (21,120 ) (63,360 63,360 ) (31,680 )

(15,840 ) (33,707)

15,840

33,707

(44,942)

44,942

(22,471) $ 0

Version 1

31,680

22,471 $ 0

182

497,06 7

276,622

188,311

Surgery: $497,067 ÷ 200 hours = $2,485.34 per hour Semiprivate Rooms: $276,622 ÷ 600 patient days = $461.04 per day Maternity: $188,311 ÷ 200 patient days = $941.56 per day 159)Abstract: $31,167; Close: $18,833 Department

Clerical to Abstract Clerical to Closing Custodial to Abstract Custodial to Closing

Allocation

Clerical $ 40,000

Custodial Abstract $ 10,000

50/75

(26,667)

26,667

25/75

(13,333)

13,333

1,800/4,000

(4,500)

2,200/4,000

(5,500) $ 0

Closing

4,500 5,500

$ 0

$ 31,167

$ 18,833

Abstract

Closing

160)a.Abstract: $30,625; Closing: $19,375 b.Abstract: $31,785; Closing: $18,215 a. Department

Clerical to Custodial Clerical to Abstract Clerical to Closing Custodial to Abstract Custodial to Closing

Allocation

Clerical $ 40,000

Custodia $ 10,000

5/80

(2,500)

2,500

50/80

(25,000)

25/80

(12,500)

12,500

1,800/4,000

(5,625)

2,200/4,000

(6,875) $ 0

Version 1

25,000

$ 0

5,625 6,875 $ 30,625

$ 19,375

183

b. Department

Allocation

Clerical $ 40,000

Custodial $ 10,000

Custodial to Clerical Custodial to Abstract Custodial to Closing Clerical to Abstract Clerical to Closing

1,600/5,600

2,857

(2,857)

1,800/5,600

(3,214)

2,200/5,600

(3,929)

50/75

(28,571)

25/75

(14,286) $ 0

Abstract

Closing

3,214 3,929 28,571 14,286

$ 0

$ 31,785

$ 18,215

161)Since the Cafeteria provides the largest percentage of service to other service departments, it should be allocated first in the step method of allocation. Cafeteria Personnel Maintenance Assembly Finishing Direct $ $ cost 200,000 500,000 1st (200,000) 40,000 step (0.20, 0.20, 0.30, 0.30) 2nd (540,000) step (0.10, 0.70, 0.20) 3rd step (0.80, 0.20) Total $ 0 $ 0

Version 1

Total

$ 420,000

$ 380,000

40,000

60,000

$ $ 150,000 1,650,000 60,000

54,000

378,000

108,000

(514,000) $ 411,200

$ 102,800

$ 0

$ 1,229,200

$ $ 420,800 1,650,000

184

162)First, Allocate the Service Department costs to the Production Departments: Direct costs

Personnel Maintenance Cafeteria

Assembly

$ 500,000

$ 380,000 $ 150,000

(7/9; 2/9) (0.8; 0.2) (3/6; 3/6) TOTAL

$ 420,000

$ 200,000

(500,000) (420,000) (200,000) 0

Finishing

388,889

111,111

336,000

84,000

100,000

$ 1,650,000

$ $ 445,111 $ 1,204,889 1,650,000

Then, allocate the production department costs to Jobs 100 and 101: Assembly

Finishing

200 100 300

800 900 1700

Total

Labor hours Job 100 Job 101 Total Machine hours Job 100 Job 101 Total

1000 500 1500 Assembly

Total Service Department Costs Allocated: Machine hours

$ 824,889

$ 295,111

1200 600 1800

$ 1,120,000

1,500

Labor hours Cost per hour

200 100 300 Finishing

1000 1000 2000

1,700 $ 549.9260

$ 173.5947

Job 100

Job 101

Total

$ 549,926

$ 274,963

$ 824,889

Machince hours (1,000 × $549.9260); (500 × $549.9260)

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185

Labor hours: (800 × $173.5947); (900 × $173.5947) Total cost allocated

$ 138,876

$ 156,235

$ 295,111

$ 688,802

$ 431,198

$ 1,120,000

163)Since the Personnel department provides the largest percentage of service to other service departments, it should be allocated first in the step method of allocation. Personnel

Cafeteria

Machining

Assembly

Total

Direct cost

$ 30,000

$ 50,000

$ 80,000

$ 70,000

$ 230,000

Step 1 (0.40, 0.30, 0.30) Step 2 (5/8, 3/8)

(30,000)

12,000

9,000

(62,000)

38,750

23,250

$ 0

$ 127,750

$ 102,250

Total

$ 0

$ 230,000

164)Computer Programming: $100,929; Consulting: $130,271; Training: $113,800 IS = $50,000 + [(200,000 ÷ 2,000,000) × Facilities] Facilities = $25,000 + [(400 ÷ 3,000) × IS] IS = $53,209; Facilities = $32,095 Departme nt

Allocation

IS $ 50,000

IS to Faciliti es IS to CP IS to Consulti ng IS to Training Faciliti es to IS

Version 1

400/3,000

(7,095)

1,100/3,000

(19,510 ) (10,642 )

600/3,000

900/3,000 200,000/2,000, 000

(15,962 ) (3,209)

Facilitie CP s $ $ 25,000 75,000

Consultin Training g $ $ 110,00 85,000 0

7,095

19,510 10,642

15,962 (3,209)

186

Faciliti es to CP Faciliti es to Consulti ng Faciliti es to Training

400,000/2,000, 000 600,000/2,000, 000

(6,419)

800,000/2,000, 000

(12,838 )

6,419

(9,629)

9,629

12,838

$ 100,92 9

$ 130,27 1

$ 113,80 0

Abstract

Closing

165)Abstract: $31,364; Closing: $18,636 Clerical = $40,000 + (1,600/5,600 × Custodial) Custodial = $10,000 + (5/80 × Clerical) Clerical = $43,636.36; Custodial = $12,727.27 Department

Clerical to Custodial Clerical to Abstract Clerical to Closing Custodial to Clerical Custodial to Abstract Custodial to Closing

Allocation

Clerical $ 40,000

5/80

(2,727)

50/80

(27,273)

25/80

(13,636)

1,600/5,600

3,636

Custodial $ 10,000 2,727

27,273 13,636 (3,636)

1,800/5,600

(4,091)

2,200/5,600

(5,000) $ 0

$ 0

4,091 5,000 $ 31,364

$ 18,636

166)Surgery: $2,495.61 per hour; Semiprivate rooms: $458.75 per day; Maternity: $938.13 per day HK = $80,000 + (16,000/100,000 × Laundry) Laundry = $132,000 + (500/5,000 × HK) HK = $102,764; Laundry = $142,276 Version 1

187

Departmen t

Allocation

HK to Laundry HK to Surgery HK to Semipriva te HK to Maternity Laundry to HK Laundry to Surgery Laundry to Semipriva te Laundry to Maternity

500/5,000

Housekeepi Laundry Surgery Semiprivat Maternit ng e y $ $ $ $ $ 80,000 132,00 400,00 200,000 150,00 0 0 0 (10,276) 10,276

1,500/5,000

(30,829)

2,000/5,000

(41,106)

1,000/5,000

(20,553)

16,000/100,0 00 48,000/100,0 00

22,764

30,829 41,106

20,553 (22,764 ) (68,293 )

24,000/100,0 00

(34,146 )

12,000/100,0 00

(17,073 ) $ 0

$ 0

68,293

34,146

17,073

$ 499,12 2

$ 275,252

$ 187,62 6

Surgery: $499,122 ÷ 200 hours = $2,495.61 per hour Semiprivate Rooms: $275,252 ÷ 600 patient days = $458.75 per day Maternity: $187,626 ÷ 200 patient days = $938.13 per day

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188

167)Custodial = $250,000 + [10/250 × Admin] = $250,000 + 0.04 Admin Admin = $400,000 + [15,000/100,000 × Custodial] = $400,000 + 0.15 Custodial Custodial = $250,000 + [0.04 ($400,000 + 0.15 Custodial)] = $250,000 + $16,000 + 0.15 Custodial Custodial: $266,000 168) Product A

Units (pounds) 25,000

K H

75,000 10,000

Sales value $ 300,000 562,500 15,000

Added Costs $ 150,000 60,000 3,000

NRV $ 150,000 502,500 12,000

Allocated Costs $ 93,793 314,207 12,000

Total Costs $ 243,793 374,207 15,000

Unit Costs $ 9.75 4.99 1.50

Allocated Costs: A: [$150,000 ÷ ($150,000 + $502,500)] × ($420,000 − $12,000) = $93,793 K: [$502,500 ÷ ($150,000 + $502,500)] × ($420,000 − $12,000) = $314,207 H: $15,000 − $3,000 = $12,000

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189

169)a.R: $225,000; S: $360,000; T: $135,000 b.R: $120,000; S: $240,000; T: $360,000 a. R: At the split-off: 2,500 × $100 = $250,000 S: At the split-off: 5,000 × $80 = $400,000 T: At the split-off: 7,500 × $20 = $150,000 Joint cost allocation: R: [$250,000 ÷ ($250,000 + 400,000 + 150,000)] × $720,000 = $225,000 S: [$400,000 ÷ ($250,000 + 400,000 + 150,000)] × $720,000 = $360,000 T: [$150,000 ÷ ($250,000 + 400,000 + 150,000)] × $720,000 = $135,000 b. R: [2,500 ÷ (2,500 + 5,000 + 7,500)] × $720,000 = $120,000 S: [5,000 ÷ (2,500 + 5,000 + 7,500)] × $720,000 = $240,000 T: [7,500 ÷ (2,500 + 5,000 + 7,500)] × $720,000 = $360,000

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190

170)a.Two Oil: $4,545,455; Six Oil: $3,636,364; Distillates: $1,818,181 b.Two Oil: $4,000,000; Six Oil: $4,800,000; Distillates: $1,200,000 Total joint cost: $5,000,000 + 2,000,000 + 3,000,000 = $10,000,000 a. Two Oil: [300,000 ÷ (300,000 + 240,000 + 120,000)] × $10,000,000 = $4,545,455 Six Oil: [240,000 ÷ (300,000 + 240,000 + 120,000)] × $10,000,000 = $3,636,364 Distillates: [120,000 ÷ (300,000 + 240,000 + 120,000)] × $10,000,000 = $1,818,181 b. Net realizable values: Two Oil: 300,000 × $20 = $6,000,000; Six Oil: 240,000 × $30 = $7,200,000; Distillates: 120,000 × $15 = $1,800,000; Total = $15,000,000 Two Oil: ($6,000,000 ÷ $15,000,000) × $10,000,000 = $4,000,000 Six Oil: ($7,200,000 ÷ $15,000,000) × $10,000,000 = $4,800,000 Distillates: ($1,800,000 ÷ $15,000,000) × $10,000,000 = $1,200,000

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191

171)a.U: $35,000; V: $30,000; W: $65,000 b.U: $20,489; V: $37,466; W: $72,045 Joint Cost = $104,000 + $16,000 + $10,000 = $130,000 U: [(20,000 + 15,000) ÷ (20,000 + 15,000 + 30,000 + 50,000 + 15,000)] × $130,000 = $35,000 V: [30,000 ÷ (20,000 + 15,000 + 30,000 + 50,000 + 15,000)] × $130,000 = $30,000 W: [(50,000 + 15,000) ÷ (20,000 + 15,000 + 30,000 + 50,000 + 15,000)] × $130,000 = $65,000 b. Selling Prices (per gallon): U: $30,000 ÷ 20,000 = $1.50; V: $96,000 ÷ 30,000 = $3.20; W: $142,000 ÷ 50,000 = $2.84; Net realizable values: U: (20,000 + 15,000) × $1.50 = $52,500; V: $96,000 − $45,000 − $27,000 = $24,000; W: [(50,000 + 15,000) × $2.84] − $65,000 − $49,000 = $70,600; Total NRV = $147,100 U: ($52,500 ÷ $147,100) × $130,000 = $46,397 V: ($24,000 ÷ $147,100) × $130,000 = $21,210 W: ($70,600 ÷ $147,100) × $130,000 = $62,393 172)a.A: $140,361; B: $204,693; C: $194,946 b.A: $90,000; B: $270,000; C: $180,000 a. Estimated net realizable values: A: 25,000 × $12 = $300,000 − $120,000 = $180,000; B: 75,000 × $7.50 = $562,500 − $300,000 = $262,500; C: 50,000 × $5 = $250,000; Total NRV: $180,000 + 262,500 + 250,000 = $692,500 A: ($180,000 ÷ $692,500) × $540,000 = $140,361 B: ($262,500 ÷ $692,500) × $540,000 = $204,693 C: ($250,000 ÷ $692,500) × $540,000 = $194,946 b. A: [25,000 ÷ (25,000 + 75,000 + 50,000)] × $540,000 = $90,000 B: [75,000 ÷ (25,000 + 75,000 + 50,000)] × $540,000 = $270,000 C: [50,000 ÷ (25,000 + 75,000 + 50,000)] × $540,000 = $180,000

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192

173)a.Zylon: $187,500; Qytol: $375,000 b.Zylon: $281,250; Qytol: $281,250 a. Joint costs to allocate: $565,000 − (5,000 × $0.50) = $562,500 Zylon: [200,000 ÷ (200,000 + 400,000)] × $562,500 = $187,500 Qytol: [400,000 ÷ (200,000 + 400,000)] × $562,500 = $375,000 b. Estimated net realizable values: Zylon: 200,000 × $2 = $400,000; Qytol: (400,000 × $1.10) − 40,000 = $400,000 Zylon: [$400,000 ÷ ($400,000 + 400,000)] × $562,500 = $281,250 Qytol: [$400,000 ÷ ($400,000 + 400,000)] × $562,500 = $281,250 174)a.Ketchup: $150,000; Juice: $180,000; Canned: $90,000. b.Ketchup: $93,333; Juice: $140,000; Canned: $186,667. a. Estimated net realizable value: Ketchup: 100,000 × ($28 − $3) = $2,500,000; Juice: 150,000 × ($25 − $5) = $3,000,000; Canned: 200,000 × ($10 − $2.50) = $1,500,000 Ketchup: [$2,500,000 ÷ ($2,500,000 + 3,000,000 + 1,500,000)] × $420,000 = $150,000 Juice: [$3,000,000 ÷ ($2,500,000 + 3,000,000 + 1,500,000)] × $420,000 = $180,000 Canned: [$1,500,000 ÷ ($2,500,000 + 3,000,000 + 1,500,000)] × $420,000 = $90,000 b. Ketchup: [100,000 ÷ (100,000 + 150,000 + 200,000)] × $420,000 = $93,333 Juice: [150,000 ÷ (100,000 + 150,000 + 200,000)] × $420,000 = $140,000 Canned: [200,000 ÷ (100,000 + 150,000 + 200,000)] × $420,000 = $186,667 175) Version 1

193

Product

Units

Added Costs

A K

25,000 75,000

$ 150,000 60,000

Allocated Costs $ 105,000 315,000

Total Costs

Unit Costs

$ 255,000 375,000

$ 10.20 5.00

Joint costs: $420,000 − $0 = $420,000 Allocated costs: A: [25,000 ÷ (25,000 + 75,000)] × $420,000 = $105,000; K: [75,000 ÷ (25,000 + 75,000)] × $420,000 = $315,000 H: The proceeds from sale of the by-product are treated as other revenue. All joint costs are allocated to the main products. There are shipping costs of $0.30 per pound. 176)Process them further. Sell now at $1.00 per hundred cubic feet = $21,200 Process further = [$25 × ($21,200 ÷ $1.00) × (75 ÷ 100)] − $360,000 = $397,500 − $360,000 = $37,500 Decision: Process further for an incremental income of $37,500 − $21,200 = $16,300 177)(a) Only Product O should be processed further. It is the only product where the incremental processing costs are less than the incremental revenues. Product Sales value at split-off Sales value if processed further Additional processing cost Net revenue of processing further Net advantage (disadvantage of processing further)

O $ 250,000 $ 290,000 18,000 272,000 $ 22,000

P Q $ 50,000 $ 20,000 $ 70,000 $ 25,000 30,000 10,000 40,000 15,000 $ (10,000) $ (5,000)

(b) If Voorhees processes Product O further and sells Product P and Product Q at split-off, its gross margin will be $42,000. Sales ($290,000 + $50,000 + $20,000) Additional processing costs Joint costs

$ 360,000 18,000 300,000

Gross margin

$ 42,000

178)(a) Version 1

194

Product Weight in pounds Percent Cost allocated

Total

168,000

300,000

32,000

500,000

33.6% $ 67,200

60% $ 120,000

6.4% $ 12,800

100.00% $ 200,000

(b) Product Weight in pounds Percent Cost allocated

168,000 35.9% $ 64,620

300,000 64.1% $ 115,380

Total 468,000 100% $ 180,000

179)a. Product

Revenue at Split-Off

Cosmetic Powder $ 2,000,000 Medicated Powder $ 3,200,000 Baby Powder $ 250,000

Revenue to Process Further $ 2,300,000 $ 3,360,000 $ 275,000

Processing Costs $ 150,000 $ 60,000 $ 80,000

Net Revenue After Processing $ 2,150,000 $ 3,300,000 $ 195,000

The company should process the Cosmetic and Medicated Powders further since the net revenue after further processing exceeds the revenue at split-off. Baby Powder should be sold at the split-off point. (b) Geneva Powder would be economically indifferent at a selling price of $6.60 for the Baby Powder. There is currently an advantage of $55,000 for the company to sell Baby Powder at the split-off point ($250,000 − 195,000). With 50,000 pounds of Baby Powder produced, the additional selling price per pound needed to generate the same net revenues by processing further is $1.10 ($55,000/50,000). The current selling price after further processing is $5.50. The selling price to be economically indifferent would be $5.50 + $1.10 = $6.60. Sell at Split-Off Revenues

50,000 × $ 5

Process Further

$ 250,000 50,000 × $ 6.60 Processing costs Net Revenues

Version 1

$ 330,000 80,000 $ 250,000

195

180)(a) J, (b) S, (c) J, (d) J, (e) J, (f) S, (g) J, (h) S, (i) S, (j) S, (k) S, (l) S, (m) J 181)a. The Macon Industries Income Statement For the Years Ended 2023 and 2024 2023 Sales

($ 57 × 6,000)

$ 342,000

($ 57 × 1,500) Cost of goods sold

[($ 240,000 ÷ 7,500) × 6,000] + ($ 2.60 × 6,000) [($ 240,000 ÷ 7,500) × 1,500] + ($ 2.60 × 1,500)

2024

$ 85,500 207,600 51,900

Gross Margin

134,400

33,600

Operating expenses

60,000

12,000

Other income

($ 1.10 − $ 0.45) × 1,000

650

($ 1.10 − $ 0.45) × 500 Net income

325 $ 75,050

$ 21,925

2023

2024

b. The Macon Industries Income Statement For the Years Ended 2023 and 2024

Sales

($ 57 × 6,000)

$ 342,000

($ 57 × 1,500) Cost of goods sold

Version 1

[($ 240,000 − $ 975) ÷ 7,500 × 6,000] + ($ 2.60 × 6,000)

$ 85,500 206,820

196

[($ 240,000 − $ 975) ÷ 7,500 × 1,500] + ($ 2.60 × 1,500)

51,705

Gross Margin

135,180

33,795

Operating expenses

60,000

12,000

Net income

$ 75,180 $ 21,795

182)Any cost center whose costs are charged to other departments in the organization is called an intermediate cost center, whereas, a final cost center is one whose costs are not allocated to another cost center. 183)The direct method allocates the service department costs only to the producing or operating departments. The step method allocates service department costs to other service departments as well as the producing departments, but once a service department has been allocated, no further allocations are made back to that department. The step method recognizes only some of the services provided to a department. The reciprocal method recognizes all of the services provided to a department. 184)The sequence makes a difference when using the step method because once a service department's costs have been allocated, no costs are allocated back to that department. The departments that are among the first to be allocated will not be charged for service department costs of departments that are later in the sequence. The sequence does not matter when using the reciprocal method because the costs are allocated simultaneously. 185)The only method that is appropriate to use for decision making is the reciprocal method. The reciprocal method attempts to determine all of the costs of a service department. The step method includes only some of the services from other service departments; the direct method ignores all of the services from other service departments.

Version 1

197

186)Cost allocations are often used to deter-mine departmental or division costs for evaluating executive performance and compensation. Manufacturing companies must allocate joint costs to determine the inventory value of the products that result from the joint process. Companies subject to rate regulation may need to use these allocations when determin-ing the regulated rates and negotiating contracts. 187)The net realizable value method is used when products are salable at the split-off point. The netback, also called workback or estimated net realizable value, method is used when some or all of the products must be go through additional processing before they are salable. In this case, an estimate of the net realizable value is computed by taking the final sales value minus the additional processing costs. 188)(a) As an application of the differential analysis approach, the relevant data to be considered are (1) the additional revenue after further processing and (2) the additional costs of processing further. (b) We can summarize the sell-or-process-further decision as: Sell at split-off if: Sales Sales value after processing, less value at split-off > additional processing costs Process further if: Sales value Sales value after processing, less at split-off < additional processing costs

189)One method is to assign a value to the by-products equal to the net realizable value of the by-product. This method reduces the joint cost by the amount assigned to the by-products. The second method is to assign no value to the by-products, but to treat the proceeds of the sale of the by-product as other revenue. In this method there is no reduction in the joint cost. 190)(a) Equations:

Version 1

S1 = $ 200,000 + 0.30S2 S2 = $ 100.000 + 0.10S1

198

S1 = $200,000 + 0.30(100,000 + 0.10S1) S1 = $200,000 + 30,000 + 0.03(S1) 0.97S1 = 230,000 S1 = $ 237,113 Allocation Cost before allocation: Allocate S1: Subtotal

S2 = $100,000 + 0.10(200,000 + 0.30S2) S2 = $100,000 + 20,000 + 0.03(S2) 0.97S2 = $ 120,000 S2 = $ 123,711 S1 $ 200,000

Allocate S2: Balance after allocation

37,113

$ 100,000 23,711 $ 123,711 (123,711)

$ 600,000 47,423 $ 647,423 24,742

$ 800,000 94,845 $ 894,845 49,485

$ 1,000,000 71,134 $ 1,071,134 12,371

$ 0

$ 672,165

$ 944,330

$ 1,083,505

(237,113) $ (37,113)

(b) While there is no difference in the total amount of cost that would be allocated, the difference lies in the treatment of inter-service departmental costs. The direct method ignores any service provided from one service department to another; allocations begin from the service department that has provided the greatest proportion of its services to other departments, or that services the greatest number of other service departments. The step method makes a partial recognition but does not allocate back to service departments on higher "steps." The reciprocal method fully recognizes inter-service department activities. 191)(a) First, determine the number of weighted square feet for each division. Type of space Office Weighting

Version 1

Computer

Warehouse

Total

199

Division 1 Division 2 Division 3 Division 4 Division 5 Totals

30,000 93,000 45,000 45,000 90,000 303,000

0 50,000 60,000 50,000 150,000 310,000

0 5,000 32,000 50,000 0 87,000

30,000 148,000 137,000 145,000 240,000 700,000

Allocation rate = $ 6,000,000 ÷ 700,000 = $8.571429 per weighted square foot Then, allocate according to the allocation rate per weighted square foot: Division 1 Division 2 Division 3 Division 4 Division 5 Totals

Office

Computer

Warehouse

Total

$ 257,143 797,143 385,714 385,714 771,429

$ 0 428,571 514,286 428,572 1,285,714

$ 0 42,857 274,286 428,571 $ 0

$ 257,143 1,268,571 1,174,286 1,242,857 2,057,143

$ 2,597,143

$ 2,657,143

$ 745,714

$ 6,000,000

(b) The manager of Division 5 may find the allocations unfair. Because the division uses more computer and office space, but no warehouse space, its allocation is 62% more than the next highest allocation and eight times more than Division 1. The manager may argue that the division is being penalized for its rapid growth, while the manufacturing divisions receive a much lower allocation, because most of their space is warehouse space. All divisions, except Division 1, may complain about that division's low allocation. Managers receiving higher allocations may argue that computer space is not 5 times more expensive than warehouse space. This problem underscores the arbitrary nature of allocations and the motivational issues that may arise from them. 192)(a) Based on the budget, the allocations would be: Budget ÷ Number of employees = $2,400,000 ÷ 300 = $8,000 per employee Department 1:

Version 1

100 × $ 8,000 =

$ 800,000

200

Department 2: Department 3:

50 × $ 8,000 = 150 × $ 8,000 =

Total

$ 400,000 $ 1,200,000 $ 2,400,000

(b) Based on the actual number of employees at year end, the allocations would be: Budget ÷ Number of employees = $2,400,000 ÷ 350 = $6,857.14 per employee. Department 1: Department 2: Department 3: Total

100 × $ 6,857.14 100 × $ 6,857.14 150 × $ 6,857.14

$ 685,714 $ 685,714 $ 1,028,572 $ 2,400,000

(c) The managers of Departments 1 and 3 both have a budget reduction, even though they took no actions. The manager of Department 2 has a 71 percent increase in allocated cost with a 100 percent increase in the number of employees. The managers of Departments 1 and 3 both benefit from the actions of the manager in Department 2, even though they took no action. Furthermore, Department 2 is being penalized for strong growth, which may cause a morale problem with Department 2's manager. This problem could be created because the cost allocation base is inappropriate. If the number of employees were an appropriate allocation base, one would expect the costs in the service department to increase with such a large increase in the base.

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201

193)(a) This question underscores the arbitrary nature of cost allocation and underscores the fact that no allocation base will please all of the recipients of allocated costs. In this case, the manager of the individual department would most favor interview hours, where their total percentage of the allocation is only 9%. This manager would least favor number of reports, where the department would receive a total of 84% of the allocation. The manager of the corporate department would most favor number of reports, with a 16% total allocation and least favor interview hours, where over 90% of the cost would be allocated to the corporate department. (b) Arguments for: Number of reports: The corporate manager would argue that the final output represents the cost effort of each department. Since corporate provided far fewer total reports, that department would receive a relatively small allocation. Interview hours: The individual manager would argue that interview hours are the most valuable source of information and that they reflect an appropriate use of their department resources. Arguments Against: Number of reports: The individual manager would argue that just because there are more individual customers generating the reports, the number of reports does not reflect the work done and cost incurred by each department. The number of reports reflects great productivity and the department should not be penalized for being productive. Interview hours: The corporate manager would argue that while their department does more interviewing, that is not a fair reflection of the resources consumed, since the number of interviews is relatively small, but the hours put into them are extensive. The manager would argue that Version 1

202

other methods of gathering information more appropriately reflect the resource use of the department. 194)a) Product Sales value at split-off Percent Allocation

J $ 300,000 71.43% $ 85,716

K $ 100,000 23.81% $ 28,572

L $ 20,000 4.76% $ 5,712

Total $ 420,000 100.00% $ 120,000

K $ 100,000 $ 160,000

L $ 20,000 $ 40,000

Total $ 420,000 $ 540,000

$ 48,000 $ 20,000 $ 292,000 $ 140,000 $ (8,000) $ 40,000

$ 6,000 $ 34,000 $ 14,000

$ 74,000 $ 466,000 $ 46,000

b) Product Sales value at split-off Sales value if processed further Processing costs NRV of processing Net benefit of further processing

J $ 300,000 $ 340,000

Only Products K and L should be processed further. Product J should be sold at split-off. 195)(a) Net Realizable Value of Spotter [($8 − $4) × 9,600] Cost of Goods Sold of Blocker ($800,000 − $38,400) Gross Margin of Blocker ($1,600,000 − $761,600)

$ 38,400 $ 761,600 $ 838,400

(b) Sales Other Revenue Total Revenue Cost of Goods Sold Gross Margin

Version 1

$ 1,600,000 38,400 $ 1,638,400 800,000 $ 838,400

203

(c) While either method will result in the same gross margin for the company, treating the net realizable value as other revenue is the simpler method. Technically, the matching principle is violated if all products are not sold in the accounting period. However, because the effect is normally considered immaterial, many companies use it. Deducting the net realizable value from the cost of the main products can be more complicated if all main products are not sold. If all the main products produced in the period have not been sold, the net realizable value of byproducts should be prorated to the main product inventories and cost of goods sold. 196)(a) Pounds produced Selling price per pound Total sales Calories per pound Total calories Processing costs per pound

Bulkup

Bodybuilder

Quicksnack

20,000 $ 8 $ 160,000 6,000 120,000,000 $ 2

10,000 $ 10 $ 100,000 12,500 125,000,000 $ 2

2,000 $ 6 $ 12,000 2,000 4,000,000

Assumption 1: By-product revenue deducted from the costs of the main products. Costs allocated according to net realizable value. Total costs to be allocated = $186,000 − $12,000 = $174,000. Product

Sales Value

Separable Costs

Bulkup

$ 160,000 $ 100,000 $ 260,000

(20,000 × $ 2) = $ 40,000 (10,000 × $ 2) = $ 20,000 $ 60,000

Bodybuilder

Version 1

Net realizable Value $ 120,000

Percent

Allocated

60%

$ 80,000

40%

$ 104,400 $ 69,600

$ 200,000

100%

$ 174,000

204

(b) By-product revenue recorded as "other revenue." Product Bulkup Bodybuilder

Total Calories 120,000,000 125,000,000

Percent 48.98% 51.02%

Allocated $ 91,103 $ 94,897

245,000,000

100.00%

$ 186,000

Total

(c) Regardless of the method chosen, the gross margin will remain the same. Requirement (a): Sales revenue: Main products Cost of goods sold: Main products: $186,000 (joint costs) + $60,000 (separable costs) − $12,000 (NRV of by-product) Gross margin Requirement (b):

$ 260,000

234,000 $ 26,000

Sales revenue: Main products By-product Total revenue: Cost of main products sold: $186,000 (joint costs) + $60,000 (separable costs) Gross margin

Version 1

$ 260,000 12,000 $ 272,000 246,000 $ 26,000

205

197)The ratio of sales value at split-off to total sales value at split-off equals the joint cost ratio. First, allocate costs to Three-Z: Sales value at split-off divided by total sales value at split-off × joint costs = $30,000/$200,000 × $120,000 = $18,000. b = $18,000. Joint costs allocated to Two-Y: $120,000 (total) − $60,000 (One-X) − $18,000 (Three-Z) = $42,000. a = $42,000. One-X sales value at split-off: [(c)/$200,000] × $120,000 = $60,000. c = $100,000. Two-Y sales value at split-off: [(d)/$200,000] × $120,000 = $42,000; (d) = 35% of $200,000. d = $70,000. 198)(a) Product

Final Sales Value

Separable Costs

Sliced Pineapple Pineapple Juice Mash

$ 2,700,000 $ 700,000

$ 600,000 $ 150,000 $ 120,000

Total

$ 3,650,000

$ 250,000

$ 870,000

Net Realizable Value $ 2,100,000 $ 550,000

Percent

Costs Allocated

75.54%

$ 755,400

19.78%

$ 197,800

$ 130,000

4.68%

$ 46,800

$ 2,780,000

100.00%

$ 1,000,000

(b) Sliced Pineapple Pineapple Juice Mash

Allocated

Separable

$ 755,400

$ 600,000 $ 1,355,400

Number of Per unit units 900,000 $ 1.51

$ 197,800

$ 150,000

$ 347,800

400,000

$ 0.87

$ 46,800

$ 120,000

$ 166,800

500,000

$ 0.33

$ 1,000,000

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Total

$ 870,000 $ 1,870,000

206

(c) Product Selling price Cost per unit Gross profit Sliced Pineapple $ 3.00 $ 1.51 $ 1.49 Pineapple Juice $ 1.75 $ 0.87 $ 0.88 Mash $ 0.50 $ 0.33 $ 0.17

Percentage 49.67% 50.29% 34.00%

(d) Penny should sell the product to the fertilizer manufacturer. Company profits will increase $20,000: Revenue at split-off (500,000 × $0.30) Revenue to process further (500,000 × $0.50) Processing costs Net profit of processing further Net benefit to sell at split-off

$ 150,000 $ 250,000 $ 120,000 $ 130,000 $ 20,000

199)

Units Produced Sales Value at Split-off Percentage Joint Costs Allocated

Version 1

Item 1

Item 2

Item 3

Total

20,000 $ 150,000 68.2% $ 68,200

25,000 $ 50,000 22.7% $ 22,700

10,000 $ 20,000 9.1% $ 9,100

55,000 $ 220,000 100% $ 100,000

207

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The design and use of management control systems affect how an individual makes and implements decisions. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 12-01 Explain the role of a management control system. Topic : Why a Management Control System? Gradable : automatic Bloom's : Understand Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 12-01 Explain the role of a management control system. Topic : Why a Management Control System? Gradable : automatic Bloom's : Understand Accessibility : Screen Reader Compatible

3) Rational managers will always make decisions that are in the best interest of the organization employing them. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Learning Objective : 12-01 Explain the role of a management control system. Topic : Why a Management Control System? Gradable : automatic Difficulty : 1 Easy Accessibility : Screen Reader Compatible

4) Decentralization is the delegation of the authority to make decisions in the organization's name to subordinates. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-02 Identify the advantages and disadvantages of decentralization. Topic : Decentralized Organizations Accessibility : Screen Reader Compatible

5) In general, organizations are more centralized in the early stages of their existence and more decentralized as they grow. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-02 Identify the advantages and disadvantages of decentralization. Topic : Decentralized Organizations Accessibility : Screen Reader Compatible

6) One advantage of decentralization is faster response time to changes in the organization's environment by local managers. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-02 Identify the advantages and disadvantages of decentralization. Topic : Decentralized Organizations Accessibility : Screen Reader Compatible

7) One advantage of centralization is better use of top management's time on strategic decisions. ⊚ true ⊚ false

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8) Properly developed and implemented management control systems influence subordinates to act in the organization's best interest. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Framework for Evaluating Management Control Systems Accessibility : Screen Reader Compatible

9) Delegated decision authority is the specification of what decisions a subordinate can make in the organization. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Framework for Evaluating Management Control Systems Accessibility : Screen Reader Compatible

10) It is important to not consider an organization's compensation and reward system when designing its performance evaluation system. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Framework for Evaluating Management Control Systems Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting Accessibility : Screen Reader Compatible

12) In general, profit centers are found at higher levels in an organization than investment centers. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting Accessibility : Screen Reader Compatible

13) Properly designed management control systems can completely eliminate the inherent conflict between individual behavior and organizational goals. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting Accessibility : Screen Reader Compatible

14) There is no single accounting measure that can fully measure the performance of a profit or investment center. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting Accessibility : Screen Reader Compatible

15) Fixed compensation is generally not linked to measured performance; i.e., it is independent of measured performance. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Compensation Systems Accessibility : Screen Reader Compatible

16) Properly designed management control systems have both fixed compensation and contingent compensation. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Compensation Systems Accessibility : Screen Reader Compatible

17) Cost allocations based on dual rates assume that a common cost can be separated into a fixed component and a variable component. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation Accessibility : Screen Reader Compatible

19) It is possible for performance evaluation systems and/or management control systems to contribute to unethical or fraudulent behavior. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-06 Understand the potential link between incentives and illegal or unethical Topic : Do Performance Evaluation Systems Create Incentives to Commit Fraud? Accessibility : Screen Reader Compatible

20) Properly designed management control systems will always eliminate fraudulent behavior by maximizing goal congruence within the organization. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-06 Understand the potential link between incentives and illegal or unethical Topic : Do Performance Evaluation Systems Create Incentives to Commit Fraud? Accessibility : Screen Reader Compatible

21)

One of the key internal controls for an organization is the separation of duties. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-07 Understand how internal controls can help protect assets. Topic : Internal Controls to Protect Assets and Provide Quality Information Accessibility : Screen Reader Compatible

22)

Internal controls are not legally required for publicly traded companies. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-07 Understand how internal controls can help protect assets. Topic : Internal Controls to Protect Assets and Provide Quality Information Accessibility : Screen Reader Compatible

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 23) The design and use of management con-trol systems use concepts from which of the following disciplines? A) Demography B) Economics C) Trigonometry D) Physics

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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

Version 1

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?

Version 1

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 false regarding managerial decisions?

A) Rational managers will always make decisions that are in the best interest of the organization employing them. B) The design and use of management control systems affect how an individual makes and implements decisions. C) The purpose of the management control system is to align more closely the interests of the manager and the interests of the organization. D) When managers are given better information, they make better decisions.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 12-01 Explain the role of a management control system. Topic : Why a Management Control System? Gradable : automatic Bloom's : Understand Accessibility : Screen Reader Compatible

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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

Version 1

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-02 Identify the advantages and disadvantages of decentralization. Topic : Decentralized Organizations Accessibility : Screen Reader Compatible

32)

Which of the following is not a cost of decentralization?

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-02 Identify the advantages and disadvantages of decentralization. Topic : Decentralized Organizations AACSB : Reflective Thinking Accessibility : Screen Reader Compatible

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 regarding 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-02 Identify the advantages and disadvantages of decentralization. Topic : Decentralized Organizations Accessibility : Screen Reader Compatible

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?

Version 1

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-02 Identify the advantages and disadvantages of decentralization. Topic : Decentralized Organizations AACSB : Reflective Thinking Accessibility : Screen Reader Compatible

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-02 Identify the advantages and disadvantages of decentralization. Topic : Decentralized Organizations AACSB : Reflective Thinking Accessibility : Screen Reader Compatible

37)

What does dysfunctional decision making refer to?

A) Administrative duplication B) Local managers making decisions in their interests, which can differ from the interests 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?

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A) Delegated decision authority B) Performance evaluation system C) Knowledge of local conditions D) Compensation and reward system

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Framework for Evaluating Management Control Systems Accessibility : Screen Reader Compatible

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting Accessibility : Screen Reader Compatible

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting Accessibility : Screen Reader Compatible

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting Accessibility : Screen Reader Compatible

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting Accessibility : Screen Reader Compatible

43) An operating unit that is responsible for both revenues and costs is commonly referred to as a(n): A) expense center. B) revenue center. C) profit center. D) asset center.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting Accessibility : Screen Reader Compatible

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting Accessibility : Screen Reader Compatible

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Cost Centers Accessibility : Screen Reader Compatible

46) When managers are held responsible for costs but the input-output relationship is not well specified, a(n) _________blank is established. A) standard cost center B) revenue center C) discretionary cost center D) asset center

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting Accessibility : Screen Reader Compatible

47) When managers are held responsible for costs and the input-output relationship is well specified, a(n) _________blank is established.

Version 1

A) standard cost center B) revenue center C) discretionary cost center D) asset center

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting Accessibility : Screen Reader Compatible

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Measuring Performance Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible

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49)

Controllable revenue is included in a performance report of a(n): 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Evaluating Performance Accessibility : Screen Reader Compatible

50)

Controllable revenue is included in a performance report of a: Revenue Center

A. B. C. D.

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Yes Yes No No

Cost Center No Yes No Yes

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Evaluating Performance Accessibility : Screen Reader Compatible

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

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Evaluating Performance Accessibility : Screen Reader Compatible

52)

Assets invested in a responsibility center are included in a performance report of a(n): 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Evaluating Performance Accessibility : Screen Reader Compatible

53)

Assets invested in a responsibility center are included in a performance report of a(n):

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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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Evaluating Performance Accessibility : Screen Reader Compatible

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Measuring Performance Accessibility : Screen Reader Compatible

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting Accessibility : Screen Reader Compatible

56) The least complex segment or area of responsibility for which costs are allocated is a(n): (CMA adapted)

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A) profit center. B) investment center. C) contribution center. D) cost center.

57) Which of the following statements is(are) correct? 1. A profit center has control over both costs and revenues. 2. An investment center has control over invested funds, but not over costs and revenues. 3. A cost center has no control over sales.

A) Only I. B) Only II. C) Only I and III. D) Only I and II.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Difficulty : 3 Hard Topic : Delegated Decision Authority: Responsibility Accounting Bloom's : Analyze Accessibility : Screen Reader Compatible

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?

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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

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Difficulty : 3 Hard Topic : Delegated Decision Authority: Responsibility Accounting Bloom's : Analyze Accessibility : Screen Reader Compatible

62) The following is a summarized income statement for McClaron Manor Company's profit center 12608 for April: Contribution Margin

$ 194,000

Period Expenses

$ 30,000

Manager' s Salary

$ 3,900

Corporate Expense Allocation

$ 9,900

Net Income

$ (43,800) $ 150,200

Which of the following amounts is most likely subject to the control of the profit center's manager? (CMA adapted) A) Contribution Margin of $194,000 B) Contribution Margin of $194,000 and Period Expenses of $30,000 C) Contribution Margin of $194,000 and Period Expenses of $33,900 D) Contribution Margin of $194,000 and Period Expenses of $43,800

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Difficulty : 3 Hard Topic : Delegated Decision Authority: Responsibility Accounting AICPA : FN Measurement Bloom's : Analyze Type : Algorithmic Accessibility : Screen Reader Compatible

63) The following is a summarized income statement for McClaron Manor Company's profit center 12608 for April: Contribution Margin

$ 175,000

Period Expenses

$ 11,000

Manager' s Salary

$ 2,000

Corporate Expense Allocation

$ 8,000

Net Income

$ (21,000) $ 154,000

Which of the following amounts is most likely subject to the control of the profit center's manager? (CMA 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Difficulty : 3 Hard Topic : Delegated Decision Authority: Responsibility Accounting AICPA : FN Measurement AICPA : FN Reporting Bloom's : Analyze Accessibility : Screen Reader Compatible

64)

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.

65)

Which of the following subunits is most likely to be considered an investment center?

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A) Accounting department B) Assembly department C) Petrochemical division D) Research and development department

66)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Evaluating Performance Accessibility : Screen Reader Compatible

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67)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Evaluating Performance Accessibility : Screen Reader Compatible

68)

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Compensation Systems Accessibility : Screen Reader Compatible

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69)

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Compensation Systems Accessibility : Screen Reader Compatible

70)

Which of the following statements is false regarding compensation?

A) Properly designed management control systems have contingent compensation items but not fixed compensation items. B) Fixed compensation is generally not linked to measured performance; i.e., it is independent of measured performance. C) Contingent compensation is based on measured performance. D) A compensation system can be used to better align the risk preferences of the manager and the firm.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Compensation Systems Accessibility : Screen Reader Compatible

71) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Evaluating Performance Accessibility : Screen Reader Compatible

72) 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)

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A) Direct labor B) Materials C) Repairs and maintenance D) Depreciation on the manufacturing facility

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Evaluating Performance Accessibility : Screen Reader Compatible

73) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 3 Hard Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Evaluating Performance Bloom's : Analyze Accessibility : Screen Reader Compatible

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74)

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Evaluating Performance Accessibility : Screen Reader Compatible

75)

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation Accessibility : Screen Reader Compatible

76) Which of the following statements is 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. C) Dual-rate allocation can shield managers from decisions outside their direct control. D) Under a dual-rate method, fixed and variable costs are allocated using the same allocation bases to ensure comparability.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation Accessibility : Screen Reader Compatible

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: Version 1

Calls Large Small

160,000 140,000

Time on Network (hours) 166,000 209,000

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) $12.00 B) $14.23 C) $95.10 D) $15.00

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Type : Algorithmic Accessibility : Screen Reader Compatible

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: Calls Large Small

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

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Accessibility : Screen Reader Compatible

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 $4,510,000. You have been provided with the following information for the upcoming year: Calls Large Small

119,000 86,000

Time on Network (hours) 125,000 285,000

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) $12.16 B) $11.00 C) $8.22 D) $7.33

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80) 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: Calls Large Small

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

81) 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: Calls Large Small

Version 1

160,000 140,000

Time on Network (hours) 166,000 209,000

The cost accountant determined $2,730,000 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) $2,730,000 B) $2,260,480 C) $2,239,520 D) $1,304,000

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AACSB : Reflective Thinking AICPA : FN Measurement Type : Algorithmic Accessibility : Screen Reader Compatible

82) 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: Calls Large Small

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?

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A) $2,700,000 B) $2,520,000 C) $1,980,000 D) $1,500,000

83) 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 $4,200,000. You have been provided with the following information for the upcoming year: Calls Large Small

118,000 82,000

Time on Network (hours) 120,000 280,000

The cost accountant determined $2,780,000 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 total communication network costs allocated to the Small Box Division, assuming the company uses dual-rates to allocate common costs? A) $2,133,800 B) $1,420,000 C) $1,281,800 D) $852,000

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84) 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: Calls Large Small

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 total communication network costs allocated to the Small Box Division, assuming the company uses dual-rates to allocate common costs? A) $2,520,000 B) $1,800,000 C) $1,320,000 D) $1,200,000

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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

6,500,000 pages

4,100,000 pages 2,050,000 pages $ 135,000 + $ 0.050 per 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) $147,500 B) $205,000 C) $325,000 D) $295,000

86) 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

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6,000,000

pages

3,600,000

pages

Economics Cost equation

1,800,000 $ 120,000 + $ 0.025

pages per 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

87) 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

6,600,000 pages

4,200,000 pages 2,100,000 pages $138,000 + $0.055 per 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) $161,500 B) $231,000 C) $247,500 D) $138,000

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88) 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

6,000,000 pages

3,600,000 pages 1,800,000 pages $120,000 + $0.025 per 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

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89) 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

6,800,000 pages

4,400,000 pages 2,200,000 pages $144,000 + $0.065 per 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 2,900,000 copies during the year? A) $191,000 B) $236,500 C) $267,045 D) $260,500

90) 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:

Version 1

6,000,000 pages

Marketing Economics Cost equation

3,600,000 pages 1,800,000 pages $120,000 + $0.025 per 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

91) 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

6,100,000 pages

3,700,000 pages 1,850,000 pages $123,000 + $0.030 per 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 3,100,000 copies during the year?

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A) $154,500 B) $183,000 C) $175,000 D) $203,500

92) 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

6,000,000

3,600,000 1,800,000 $120,000 + $0.025

pages

pages pages per page

Version 1

93) 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

7,850,000 pages

5,200,000 pages 2,600,000 pages $168,000 + $0.045 per 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 3,100,000 copies during the year? A) $195,500 B) $197,750 C) $253,750 D) $213,750

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94) 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

6,000,000 pages

3,600,000 pages 1,800,000 pages $120,000 + $0.025 per 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

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95) 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

8,150,000 pages

5,400,000 pages 2,700,000 pages $174,000 + $0.055 per 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 5,600,000 copies during the year? A) $366,000 B) $448,250 C) $395,000 D) $424,000

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96) 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

6,000,000 pages

3,600,000 pages 1,800,000 pages $120,000 + $0.025 per page

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97) 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 $2,860,000. You have been provided with the following information for the upcoming year: Connections Commercial Retail Consumer

50,000 65,000 105,000

Time on Network (hours) 150,000 180,000 385,000

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) $13.00 B) $18.45 C) $19.07 D) $57.20

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98) 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: Connections Commercial Retail Consumer

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

99) 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 $2,760,000. You have been provided with the following information for the upcoming year: Connections Commercial Retail Consumer

Version 1

56,000 66,000 108,000

Time on Network (hours) 125,000 150,000 325,000

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) $513,393 B) $501,646 C) $672,000 D) $1,500,000

100) 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: Connections Commercial Retail Consumer

60,000 80,000 100,000

Time on Network (hours) 120,000 150,000 330,000

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. AICPA : FN Measurement Topic : Effective Corporate Cost Allocation System Accessibility : Screen Reader Compatible

101) 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 $2,760,000. You have been provided with the following information for the upcoming year: Connections Commercial Retail Consumer

55,000 61,000 114,000

Time on Network (hours) 110,000 130,000 335,000

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) $25.09 B) $23.04 C) $4.80 D) $3.43

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102) 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: Connections Commercial Retail Consumer

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

103) 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 $2,940,000. You have been provided with the following information for the upcoming year: Connections Commercial Retail Consumer

Version 1

62,000 62,000 121,000

Time on Network (hours) 132,000 182,000 386,000

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) $566,020 B) $764,400 C) $824,150 D) $3,704,400

104) 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: Connections Commercial Retail Consumer

60,000 80,000 100,000

Time on Network (hours) 120,000 150,000 330,000

Version 1

105) 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 $3,300,000. You have been provided with the following information for the upcoming year: Connections Commercial Retail Consumer

72,000 62,000 154,000

Time on Network (hours) 160,000 250,000 390,000

The cost accountant determined $2,340,000 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 cost allocated to the Commercial Division, assuming the company uses dual-rates to allocate common costs? Note: Do not round intermediate calculations. A) $734,093 B) $640,000 C) $800,000 D) $777,000

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106) 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: Connections Commercial Retail Consumer

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 cost allocated to the Commercial Division, assuming the company uses dual-rates to allocate common costs? Note: Do not round intermediate calculations. A) $514,286 B) $480,000 C) $600,000 D) $565,000

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107) 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 $3,150,000. You have been provided with the following information for the upcoming year: Connections Commercial Retail Consumer

44,000 46,000 130,000

Time on Network (hours) 124,000 154,000 397,000

The cost accountant determined $2,340,000 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 cost allocated to the Retail Division, assuming the company uses dual-rates to allocate common costs? Note: Do not round intermediate calculations. Round your final answer to the nearest whole dollar. A) $674,073 B) $515,200 C) $520,800 D) $264,073

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108) 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: Connections Commercial Retail Consumer

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 cost allocated to the Retail Division, assuming the company uses dual-rates to allocate common costs? Note: Do not round intermediate calculations. Round your final answer to the nearest whole dollar. A) $741,667 B) $657,143 C) $425,000 D) $211,765

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109) 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: Connections Commercial Retail Consumer

69,000 59,000 148,000

Time on Network (hours) 129,000 159,000 352,000

The cost accountant determined $1,600,000 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 cost allocated to the Consumer Division, assuming the company uses dual-rates to allocate common costs? Note: Do not round intermediate calculations. Round your final answer to the nearest whole dollar. A) $1,292,000 B) $1,297,971 C) $782,029 D) $811,000

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110) 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: Connections Commercial Retail Consumer

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 cost allocated to the Consumer Division, assuming the company uses dual-rates to allocate common costs? Note: Do not round intermediate calculations. Round your final answer to the nearest whole dollar. A) $1,200,000 B) $1,093,333 C) $954,896 D) $750,000

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111) The Document Creation Center (DCC) for Arlington Corporation 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

12,450,000 pages

3,320,000 pages 4,700,000 pages 4,100,000 pages $331,000 + $0.03 per 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? Note: Do not round intermediate calculations. Round your final answer to the nearest whole dollar. A) $129,330 B) $161,840 C) $173,670 D) $311,250

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112) The Document Creation Center (DCC) for Arlington Corporation 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

8,000,000 pages

1,600,000 pages 3,000,000 pages 2,400,000 pages $280,000 + $0.03 per page

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113) The Document Creation Center (DCC) for Arlington Corporation 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

9,300,000 pages

2,400,000 pages 3,584,000 pages 2,976,000 pages $312,000 + $0.06 per page

If DCC uses a dual-rate for allocating its costs based on usage, how much cost will be allocated to the Training Department? Note: Do not round intermediate calculations. A) $122,568 B) $339,840 C) $135,654 D) $364,693

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114) The Document Creation Center (DCC) for Arlington Corporation 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

8,000,000 pages

1,600,000 pages 3,000,000 pages 2,400,000 pages $280,000 + $0.03 per page

If DCC uses a dual-rate for allocating its costs based on usage, how much cost will be allocated to the Training Department? Note: Do not round intermediate calculations. A) $183,750 B) $210,000 C) $195,000 D) $222,857

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115) The Document Creation Center (DCC) for Arlington Corporation 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

8,000,000 pages

1,776,000 pages 3,330,000 pages 2,664,000 pages $310,800 + $0.03 per page

If DCC uses a dual-rate for allocating its costs based on usage, how much cost will be allocated to the Management Department? Note: Do not round intermediate calculations. Round your final answer to the nearest whole dollar. A) $186,480 B) $174,480 C) $196,766 D) $165,480

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116) The Document Creation Center (DCC) for Arlington Corporation 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

8,000,000 pages

1,600,000 pages 3,000,000 pages 2,400,000 pages $280,000 + $0.03 per page

If DCC uses a dual-rate for allocating its costs based on usage, how much cost will be allocated to the Management Department? Note: Do not round intermediate calculations. A) $168,000 B) $156,000 C) $178,286 D) $147,000

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117) The Document Creation Center (DCC) for Arlington Corporation 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

8,050,000 pages

1,650,000 pages 3,355,000 pages 2,145,000 pages $330,000 + $0.02 per 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 2,150,000 copies during the year? A) $84,450 B) $87,686 C) $142,000 D) $86,610

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118) The Document Creation Center (DCC) for Arlington Corporation 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

8,000,000 pages

1,600,000 pages 3,000,000 pages 2,400,000 pages $280,000 + $0.03 per 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? Note: Do not round intermediate calculations. A) $147,000 B) $136,500 C) $159,000 D) $150,761

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : BB Resource Management Accessibility : Screen Reader Compatible

119) The Document Creation Center (DCC) for Arlington Corporation 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

8,130,000 pages

1,730,000 pages 3,443,000 pages 2,217,000 pages $410,000 + $0.02 per 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 3,080,000 copies during the year? A) $184,600 B) $187,896 C) $148,635 D) $146,310

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120) The Document Creation Center (DCC) for Arlington Corporation 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

8,000,000 pages

1,600,000 pages 3,000,000 pages 2,400,000 pages $280,000 + $0.03 per 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? Note: Do not round intermediate calculations. A) $184,500 B) $191,750 C) $211,783 D) $206,500

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121) The Document Creation Center (DCC) for Arlington Corporation 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

8,060,000 pages

1,660,000 pages 3,590,000 pages 1,930,000 pages $340,000 + $0.02 per 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 3,310,000 copies during the year? A) $227,800 B) $144,362 C) $236,200 D) $238,508

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122) The Document Creation Center (DCC) for Arlington Corporation 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

8,000,000 pages

1,600,000 pages 3,000,000 pages 2,400,000 pages $280,000 + $0.03 per 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? Note: Do not round intermediate calculations. A) $227,500 B) $211,250 C) $217,500 D) $223,017

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123) The Document Creation Center (DCC) for Arlington Corporation 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

8,090,000 pages

1,690,000 pages 3,635,000 pages 1,945,000 pages $370,000 + $0.04 per 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 2,860,000 copies during the year? A) $290,829 B) $145,631 C) $260,650 D) $299,400

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124) The Document Creation Center (DCC) for Arlington Corporation 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

8,000,000 pages

1,600,000 pages 3,000,000 pages 2,400,000 pages $280,000 + $0.03 per 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? Note: Do not round intermediate calculations. A) $180,050 B) $190,079 C) $193,900 D) $203,100

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125) The Document Creation Center (DCC) for Arlington Corporation 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

8,010,000 pages

1,406,000 pages 3,214,000 pages 2,410,000 pages $290,000 + $0.02 per 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 1,170,000 copies during the year? A) $50,136 B) $81,400 C) $58,998 D) $74,891

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126) The Document Creation Center (DCC) for Arlington Corporation 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

8,000,000 pages

1,600,000 pages 3,000,000 pages 2,400,000 pages $280,000 + $0.03 per 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? Note: Do not round intermediate calculations. A) $75,400 B) $98,800 C) $81,200 D) $84,312

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127) The Document Creation Center (DCC) for Arlington Corporation 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

8,180,000 pages

1,508,000 pages 3,452,000 pages 2,580,000 pages $460,000 + $0.02 per 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 1,960,000 copies during the year? A) $131,200 B) $133,743 C) $134,472 D) $139,855

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128) The Document Creation Center (DCC) for Arlington Corporation 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

8,000,000 pages

1,600,000 pages 3,000,000 pages 2,400,000 pages $280,000 + $0.03 per 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 1,780,000 copies during the year? A) $117,400 B) $115,700 C) $124,600 D) $129,376

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129) 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

$ 3 $ 850,000

per case

Paints Division: Percentage of peak period capacity required Actual cases

30% 31,000

Stains Division: Percentage of peak period capacity required Actual cases

70% 74,000

For performance evaluation purposes, how much Maintenance Department cost should be charged to the Paints Division at the end of the year? A) $298,000 B) $459,000 C) $348,000 D) $480,500

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130) 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

$ 2 $ 830,000

per case

Paints Division: Percentage of peak period capacity required Actual cases

30% 20,000

Stains Division: Percentage of peak period capacity required Actual cases

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

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131) 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

Direct labor-hours — Long-run average Direct labor-hours — Actual

32,000 27,000

27,000 23,000

The fixed costs of the personnel department are budgeted at $88,500 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? Note: Do not round intermediate calculations. A) $86,000 B) $48,000 C) $31,167 D) $40,500

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132) 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

Direct labor-hours — Long-run average Direct labor-hours — Actual

15,000 10,000

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

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133) 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

$ 5 $ 573,000

Actual total variable cost

$ 337,504

Actual total fixed cost

$ 576,490

per case

Paints Division: Percentage of peak period capacity required

20%

Budgeted cases

30,000

Actual cases

30,040

Stains Division: Percentage of peak period capacity required

80%

Budgeted cases

62,000

Actual cases

61,980

For performance evaluation purposes, how much Maintenance Department cost should be charged to the Stains Division at the end of the year? A) $771,192 B) $771,092 C) $768,300 D) $768,400

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134) 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

$ 5 $ 558,000

Actual total variable cost

$ 322,504

Actual total fixed cost

$ 561,490

per case

Paints Division: Percentage of peak period capacity required

30%

Budgeted cases

15,000

Actual cases

15,040

Stains Division: Percentage of peak period capacity required

70%

Budgeted cases

47,000

Actual cases

46,980

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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

135) Waterford Company maintains a cafeteria for its employees. For June, variable food costs were budgeted at $52 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 $10,650. How much food cost should be charged to the other departments at the end of the month for performance evaluation purposes? A) $10,400 B) $10,650 C) $9,880 D) $11,211

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. AICPA : FN Measurement Topic : Effective Corporate Cost Allocation System Type : Algorithmic Accessibility : Screen Reader Compatible

136) 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

137) Which of the following is not a reason identified by executives that corporate costs are allocated?

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A) To provide information on the cost of service B) To discourage use of corporate services C) To provide information on the cost of service D) To facilitate awareness of cost control

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation Accessibility : Screen Reader Compatible

138) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation Accessibility : Screen Reader Compatible

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139)

Which of the following is not true of the dual-rate allocation method?

A) Fixed costs can be allocated in any way as long as it is consistent between target and actual computation of operating profit. B) There can be unallocated costs left in the corporate department’s account. C) The costs allocated from the corporate department usually are not the same as the actual costs incurred. D) The system allocates the actual, corporate fixed costs.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation Accessibility : Screen Reader Compatible

140)

The concept of cost centers 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.

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100

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting Accessibility : Screen Reader Compatible

141)

Which of the following is not one of the reasons for cost allocation? A) Required for compliance B) Motivate managers to manage costs C) Identify production constraints D) Encourage decisions that relate to the units’ revenues and costs

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation Accessibility : Screen Reader Compatible

142)

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.

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101

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-06 Understand the potential link between incentives and illegal or unethical Topic : Do Performance Evaluation Systems Create Incentives to Commit Fraud? Accessibility : Screen Reader Compatible

143) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Learning Objective : 12-02 Identify the advantages and disadvantages of decentralization. Topic : Decentralized Organizations Difficulty : 3 Hard Bloom's : Analyze Accessibility : Screen Reader Compatible

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144)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Gradable : automatic Difficulty : 1 Easy Learning Objective : 12-07 Understand how internal controls can help protect assets. Topic : Internal Controls to Protect Assets and Provide Quality Information AICPA : FN Risk Analysis Accessibility : Screen Reader Compatible

145)

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

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103

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Learning Objective : 12-07 Understand how internal controls can help protect assets. Topic : Internal Controls to Protect Assets and Provide Quality Information AICPA : FN Risk Analysis Accessibility : Screen Reader Compatible

146)

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.

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104

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 147) Maryland Hotels operates a centralized call center for the reservation needs of its timeshare 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 750,000 1,250,000 2,000,000 1,500,000

Number of Reservations 50,000 100,000 300,000 250,000

During this period, the cost of the call 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: Note: 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). ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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105

148) Atlantic Resorts operates a centralized call center for the reservation needs of its timeshare 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

Time Usage

Luxury Standard Budget

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

Number of Reservations 50,000 300,000 250,000

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: Note: 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). ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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106

149) Seaside Resorts operates a centralized call center for the reservation needs of its timeshare 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

Time Usage

Luxury Standard

500,000 2,000,000

Number of Reservations 50,000 300,000

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: Note: 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). ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

150) The Document Creation Center (DCC) for Atlas Corporation provides document services for three departments in the St. Louis office. The following budget has been prepared for the month.

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107

Budgeted usage: Software Development Training Management Cost equation

160,000 pages 300,000 pages 340,000 pages $ 31,000 + $ 0.03 per 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? Note: Use three decimal places in your calculations. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

151) 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

160 200 300 340 $167,500 + $50

contracts contracts contracts contracts per 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? Note: Use three decimal places in your calculations.

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152) The Human Resources Department for Vargis Corporation 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

860 employees 140 employees $46,500 + $20 per 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? Note: Use three decimal places in your calculations. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

153) The Document Creation Center (DCC) for Atlas Corporation 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 Training Management Costs:

320,000 600,000 480,000

Fixed

$ 63,000

Variable

$ 35,000

2,500 4,500 5,500

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? Note: Use three decimal places in your calculations. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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154) The legal department for Basil 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 Costs:

Contracts 160 200 300 240

Fixed

$ 267,000

Variable

$ 105,000

Pages Reviewed 3,200 7,200 9,000 2,400

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? Note: Round fixed cost percentages to three decimal places and variable rate to four decimal places. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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155) 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: Connections Commercial Retail Consumer

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? Note: 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? Note: Round immediate calculations to three decimal places. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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156) 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: Connections Commercial Retail Research Consumer

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 singlerate method and allocates common costs based on the number of connections? Calculate the allocated amount for each division. Note: Do not round rate - carry out six decimal places. 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? Calculate the allocated amount for each division. Note: Do not round rate - carry out six decimal places. 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? Note: Round immediate calculations to three decimal places. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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157) 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: Connections Commercial Retail Consumer

60,000 80,000 100,000

Time on Network (hours) 120,000 150,000 330,000

Required:Note: 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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158) 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: Connections Commercial Retail Consumer

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? Note: Use three decimal places in your calculations. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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159) 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: Connections Commercial Retail Research Consumer

70,000 90,000 20,000 100,000

Time on Network (hours) 120,000 150,000 100,000 330,000

Required:Note: 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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160) 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: Connections Commercial Retail Research Consumer

60,000 70,000 20,000 100,000

Time on Network (hours) 100,000 150,000 70,000 330,000

Required: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? Note: Use three decimal places in your calculations. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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161) 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: Calls Production Support

200,000 160,000

Time on Network (hours) 240,000 660,000

Required:Note: 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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162) 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: Calls Marketing Finance

50,000 40,000

Time on Network (hours) 120,000 330,000

Required:Note: 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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163) 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 Research Sales

50,000 40,000

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? Note: Use three decimal places in your calculations. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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164) 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 per 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:Note: 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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165) 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 per 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:Note: 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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166) 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 per 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:Note: 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

167) 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. Version 1

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Inland Division Coast Division

Percentage of Peak Budgeted Orders Period Capacity Required 25% 1,500 75% 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

168) 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: Operating Department

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Long-term storage needs in cubic feet Actual storage space used

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

169) Terrain, Incorporated 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

Budgeted maintenance hours

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1,000

2,000 125

Actual maintenance hours

1,100

1,700

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

170) 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: Budgeted Variable costs Fixed costs

$ 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

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Assembly

Total

300 200 400

500 400 600

800 600 1,000

126

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

171) 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 Variable operating costs Budgeted long-run usage per year: Flashlight Division Night Light Division Practical capacity

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$ 900,000 $ 1,200 per hour

2,000 hours 500 hours 3,000 hours

127

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:a.If a single-rate cost-allocation method is used, what amount of operating cost will be allocated to the Flashlight Division? b.If a dual-rate cost-allocation method is used, what amount of operating costs will be budgeted for the Night Light Division? c.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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

172) 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

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Hot Dogs

4,000 6,400

2,400 2,400

128

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

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173) 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 ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static Difficulty : 2 Medium Bloom's : Understand Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AACSB : Reflective Thinking AICPA : FN Measurement Gradable : manual AICPA : BB Critical Thinking Accessibility : Screen Reader Compatible

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174) Affordable Credit Checks 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:(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 their preferred allocation base. How would each manager argue against their least preferred allocation base? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AACSB : Reflective Thinking AICPA : FN Measurement Bloom's : Analyze Gradable : manual AICPA : BB Resource Management Accessibility : Screen Reader Compatible

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175) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

176) 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

$ 4 per case $ 870,000

Actual total variable cost

$ 382,756

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Actual total fixed cost

$ 871,590

Paints Division: Percentage of peak period capacity required

40%

Budgeted cases

26,000

Actual cases

26,010

Stains Division: Percentage of peak period capacity required

60%

Budgeted cases

61,000

Actual cases

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 12-05 Analyze the effect of dual- versus single-rate allocation systems. Topic : Illustration: Corporate Cost Allocation AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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177) 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. Required:Explain what this relationship is and give examples. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 12-02 Identify the advantages and disadvantages of decentralization. Topic : Decentralized Organizations Gradable : manual Accessibility : Screen Reader Compatible

178) Required:Describe five advantages of decentralization. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 12-02 Identify the advantages and disadvantages of decentralization. Topic : Decentralized Organizations Gradable : manual Accessibility : Screen Reader Compatible

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179) Required:Describe two disadvantages of decentralization. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 12-02 Identify the advantages and disadvantages of decentralization. Topic : Decentralized Organizations Gradable : manual Accessibility : Screen Reader Compatible

180) 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.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 2 Medium Bloom's : Understand Learning Objective : 12-02 Identify the advantages and disadvantages of decentralization. Topic : Decentralized Organizations AACSB : Reflective Thinking AICPA : FN Reporting Gradable : manual AICPA : BB Critical Thinking AICPA : BB Resource Management Accessibility : Screen Reader Compatible

181) Langsam, Incorporated 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 2 Medium Bloom's : Understand Learning Objective : 12-02 Identify the advantages and disadvantages of decentralization. Topic : Decentralized Organizations AACSB : Reflective Thinking Gradable : manual AICPA : BB Critical Thinking AICPA : BB Resource Management Accessibility : Screen Reader Compatible

182) Required:Describe the three main elements of a management control system. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Framework for Evaluating Management Control Systems Gradable : manual Accessibility : Screen Reader Compatible

183) Required:Describe the five basic types of decentralized units in responsibility accounting.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting Gradable : manual Accessibility : Screen Reader Compatible

184) 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 ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 2 Medium Bloom's : Understand Learning Objective : 12-03 Describe and explain the basic framework for management control systems, i Topic : Delegated Decision Authority: Responsibility Accounting AACSB : Reflective Thinking Gradable : manual AICPA : BB Critical Thinking AICPA : BB Resource Management Accessibility : Screen Reader Compatible

185) Required:Explain the difference between fixed compensation and contingent compensation. Give an example of each. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 12-04 Understand how managers evaluate performance. Topic : Compensation Systems Gradable : manual Accessibility : Screen Reader Compatible

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186) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 12-04 Understand how managers evaluate performance. AACSB : Reflective Thinking AICPA : FN Measurement Topic : Evaluating Performance Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

187) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 12-06 Understand the potential link between incentives and illegal or unethical Topic : Do Performance Evaluation Systems Create Incentives to Commit Fraud? Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

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188) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 12-06 Understand the potential link between incentives and illegal or unethical Topic : Do Performance Evaluation Systems Create Incentives to Commit Fraud? Bloom's : Analyze Gradable : manual Accessibility : Screen Reader Compatible

189) Required:How does the separation of duties help prevent financial fraud? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 12-06 Understand the potential link between incentives and illegal or unethical Topic : Do Performance Evaluation Systems Create Incentives to Commit Fraud? Learning Objective : 12-07 Understand how internal controls can help protect assets. Topic : Internal Controls to Protect Assets and Provide Quality Information Gradable : manual Accessibility : Screen Reader Compatible

190) 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: Budgeted hours Actual hours Building and grounds Operating and emergency Patient care Administration

10,000 8,000 21,000 1,000

12,000 8,000 22,000 1,200

Total

40,000

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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191) 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 $ 240,000 year Variable operating costs $ 10 per hour Practical capacity 20,000 hours per year Budgeted long-run usage per year: Lamp Division 800 hours × 12 9,600 hours per months = year Flashlight Division 450 hours × 12 5,400 hours per months = 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?

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Answer Key Test name: Lanen7e_ch12 1) TRUE 2) TRUE 3) FALSE 4) TRUE 5) TRUE 6) TRUE 7) FALSE 8) TRUE 9) TRUE 10) FALSE 11) TRUE 12) FALSE 13) FALSE 14) TRUE 15) TRUE 16) TRUE 17) TRUE 18) TRUE 19) TRUE 20) FALSE 21) TRUE 22) FALSE 23) B The design and use of management con-trol systems use concepts from human and organizational behavior, as well as accounting and economics. Version 1

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24) A The purpose of a management control system is to align more closely the interests of the manager and the interests of the organization. 25) A The principal-agent relationship is defined as the relationship between a superior and a subordinate. 26) C The primary managerial responsibility in an organization is decision making. 27) D The principal is the superior; in these choices, the employer hiring an employee is the superior offering a job to an agent or employee. 28) A Rational managers will often make decisions that are in their best personal interest. 29) D Delegation is to the subordinates; delegation is from the superiors and top management. 30) D Decisions are made by more individuals, not fewer, under decentralization. 31) A The U.S. military is a centralized organization. 32) C Local managers can react to a changing environment more quickly than top management can and this is an advantage, not cost, of decentralization. 33) D Decentralization implies fewer approvals. 34) C Version 1

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Delegation of decision making is a basic tenant of decentralization. 35) B Some duplication is a basic disadvantage of decentralization. 36) D Decentralization allows managers to receive on-the-job training in decision making. 37) B Dysfunctional decision making refers to decisions made in the interests of local managers that are not in the interests of the organization. 38) C Knowledge of local conditions is an advantage of a decentralized organization, not an element of management control. 39) A Cost centers are responsible only for costs. 40) D Investment centers are responsible for profits and investments in assets. 41) B Revenue centers are responsible for revenues and, typically, marketing costs. 42) C Managers of profit centers are held accountable for profits. They manage both revenues and costs. 43) C Revenues − Costs = Profit. 44) B This statement is the definition of a revenue center. 45) A This statement is the definition of a cost center. 46) C

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The clue in this statement is “input-output relationship is not well specified.” 47) A The clue in this statement is “input-output relationship is well specified.” 48) C An investment center has authority over profits and can make asset decisions, just like an independent business. The key is "asset decisions." 49) B Both are responsible for revenues and costs. 50) A Cost centers do not have authority over revenues. 51) D Profit centers have revenue authority, cost centers do not. 52) D Only investment centers have asset authority. 53) C Neither have asset authority. 54) A 55) A Revenues and costs = profit center. 56) D Less complex implies less responsibility. Cost centers have the least responsibility. 57) C Investment centers combine both a measure of profit and a measure of asset usage. 58) A A data center creates expenses, not revenues. 59) B Version 1

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A University book store is a profit center. 60) C A legal department is a cost center, generating only expenses. 61) C A successful responsibility accounting system is tailored to an organizational structure so that costs and revenues are reported at the level within the organization having the related responsibility. 62) A A profit center manager is responsible for revenues and expenses of the product or service, but not for all the period costs. 63) A A profit center manager is responsible for revenues and expenses of the product or service, but not for all the period costs. 64) C A revenue center, by definition, would only be responsible for revenue. 65) C 66) A The controllability concept states that managers should be held responsible for costs and profits over which they have decision-making authority. 67) D Goals are not restated. RPE defines what is being compared against. 68) A Salaries are fixed amounts, the other three vary. 69) A Salaries are fixed amounts, the other three vary. 70) A Both fixed and contingent compensation should be included. 71) B A controllable cost is one that can be influenced. Version 1

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72) D An assembly line would be a cost center with no control over assets. 73) D Top management reports are less detailed, for a longer time period, and more financial oriented. Lower-level management reports are more detailed, for a shorter time, and more operational. 74) D The purpose of RPE is to go beyond setting internal targets and compare managers or divisions to other comparable divisions. 75) A Dual allocation needs the fixed and variable breakdown. 76) D Under a dual-rate method, fixed and variable costs are allocated using different allocation bases. 77) D [$4,500,000 ÷ (160,000 + 140,000)] = $15.00 78) D [$4,500,000 ÷ (100,000 + 80,000)] = $25.00 79) B [$4,510,000 ÷ (125,000 + 285,000)] = $11.00 80) B [$4,500,000 ÷ (120,000 + 330,000)] = $10.00 81) C (160,000 ÷ 300,000 × $2,730,000) + (166,000 ÷ 375,000 × $1,770,000) = $2,239,520 82) C (100,000 ÷ 180,000 × $2,700,000) + (120,000 ÷ 450,000 × $1,800,000) = $1,980,000 83) A

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(82,000 ÷ 200,000 × $2,780,000) + (280,000 ÷ 400,000 × $1,420,000) = $2,133,800 84) A (80,000 ÷ 180,000 × $2,700,000) + (330,000 ÷ 450,000 × $1,800,000) = $2,520,000 85) D (4,100,000 ÷ 6,150,000 × $135,000) + ($0.050 × 4,100,000) = $295,000 86) D (3,600,000 ÷ 5,400,000 × $120,000) + ($.025 × 3,600,000) = $170,000 87) A (2,100,000 ÷ 6,300,000 × $138,000) + ($0.055 × 2,100,000) = $161,500 88) A (1,800,000 ÷ 5,400,000 × $120,000) + ($.025 × 1,800,000) = $85,000 89) B (2,200,000 ÷ 6,600,000 × $144,000) + ($0.065 × 2,900,000) = $236,500 90) B (1,800,000 ÷ 5,400,000 × $120,000) + ($.025 × 2,100,000) = $92,500 91) C (3,700,000 ÷ 5,550,000 × $123,000) + ($0.030 × 3,100,000) = $175,000 92) C (3,600,000 ÷ 5,400,000 × $120,000) + ($.025 × 3,000,000) = $155,000 93) A (2,600,000÷ 7,800,000 × $168,000) + ($0.045 × 3,100,000) = $195,500 94) A (1,800,000 ÷ 5,400,000 × $120,000) + ($.025 × 1,500,000) = $77,500 95) D (5,400,000 ÷ 8,100,000 × $174,000) + ($0.055 × 5,600,000) = $424,000 96) D (3,600,000 ÷ 5,400,000 × $120,000) + ($.025 × 3,800,000) = $175,000 97) A Version 1

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[$2,860,000 ÷ (50,000 + 65,000 + 105,000)] = $13.00 98) A [$2,400,000 ÷ (60,000 + 80,000 + 100,000)] = $10.00 99) C [$2,760,000 ÷ (56,000 + 66,000 + 108,000)] = $12.00; $12.00 × 56,000 = $672,000 100) C [$2,400,000 ÷ (60,000 + 80,000 + 100,000)] = $10.00; $10.00 × 60,000 = $600,000 101) C [$2,760,000 ÷ (110,000 + 130,000 + 335,000)] = $4.80 102) C [$2,400,000 ÷ (120,000 + 150,000 + 330,000)] = $4.00 103) B [$2,940,000 ÷ (132,000 + 182,000 + 386,000)] = $4.20; $4.20 × 182,000 = $764,400 104) B [$2,400,000 ÷ (120,000 + 150,000 + 330,000)] = $4.00; $4.00 × 150,000 = $600,000 105) D (72,000 ÷ 288,000 × $2,340,000) + [160,000 × ($960,000 ÷ 800,000)] = $777,000 106) D (60,000 ÷ 240,000 × $1,700,000) + [120,000 × ($700,000 ÷ 600,000)] = $565,000 107) A (46,000 ÷ 220,000 × $2,340,000) + [154,000 × ($810,000 ÷ 675,000)] = $674,073 108) A

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(80,000 ÷ 240,000 × $1,700,000) + [150,000 × ($700,000 ÷ 600,000)] = $741,667 109) B (148,000 ÷ 276,000 × $1,600,000) + [352,000 × ($800,000 ÷ 640,000)] = $1,297,971 110) B (100,000 ÷ 240,000 × $1,700,000) + [330,000 × ($700,000 ÷ 600,000)] = $1,093,333 111) C (3,320,000 ÷ 12,120,000 × $331,000) + [$0.03 × 3,320,000] = $173,670 112) C (1,600,000 ÷ 7,000,000 × $280,000) + ($0.03 × 1,600,000) = $112,000 113) B (3,584,000 ÷ 8,960,000 × $312,000) + [$0.06 × 3,584,000] = $339,840 114) B (3,000,000 ÷ 7,000,000 × $280,000) + ($0.03 × 3,000,000) = $210,000 115) A (2,664,000 ÷ 7,770,000 × $310,800) + [$0.03 × 2,664,000] = $186,480 116) A (2,400,000 ÷ 7,000,000 × $280,000) + ($0.03 × 2,400,000) = $168,000 117) C (2,145,000 ÷ 7,150,000 × $330,000) + ($0.02 × 2,150,000) = $142,000 118) C (2,400,000 ÷ 7,000,000 × $280,000) + ($0.03 × 2,100,000) = $159,000 119) A (2,217,000 ÷ 7,390,000 × $410,000) + ($0.02 × 3,080,000) = $184,600 120) A (2,400,000 ÷ 7,000,000 × $280,000) + ($0.03 × 2,950,000) = $184,500 121) C (3,590,000 ÷ 7,180,000 × $340,000) + ($0.02 × 3,310,000) = $236,200 Version 1

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122) C (3,000,000 ÷ 7,000,000 × $280,000) + ($0.03 × 3,250,000) = $217,500 123) D (3,635,000 ÷ 7,270,000 × $370,000) + ($0.04 × 2,860,000) = $299,400 124) D (3,000,000 ÷ 7,000,000 × $280,000) + ($0.03 × 2,770,000) = $203,100 125) B (1,406,000 ÷ 7,030,000 × $290,000) + ($0.02 × 1,170,000) = $81,400 126) B (1,600,000 ÷ 7,000,000 × $280,000) + ($0.03 × 1,160,000) = $98,800 127) A (1,508,000 ÷ 7,540,000 × $460,000) + ($0.02 × 1,960,000) = $131,200 128) A (1,600,000 ÷ 7,000,000 × $280,000) + ($0.03 × 1,780,000) = $117,400 129) C Paints Division Variable cost charges: $3 per case × 31,000 cases Fixed cost charges: 30% × $850,000 Total Maintenance Department charges

$ 93,000

255,000 $ 348,000

130) C Paints Division Variable cost charges: $2 per case × 20,000 cases Fixed cost charges: 30% × $830,000 Total Maintenance Department charges

$ 40,000

249,000 $ 289,000

131) B ($88,500 ÷ 59,000) × 32,000 = $48,000 Version 1

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132) B ($56,000 ÷ 25,000) × 15,000 = $33,600 133) C Stains Division Variable cost charges: $ 5 per case × 61,980 cases Fixed cost charges: 80% × $ 573,000 Total Maintenance Department charges

$ 309,900

458,400 $ 768,300

134) C Stains Division Variable cost charges: $ 5 per case × 46,980 cases Fixed cost charges: 70% × $ 558,000 Total Maintenance Department charges

$ 234,900

390,600 $ 625,500

135) C 190 employees × $52 per employee = $9,880 136) C 190 employees × $45 per employee = $8,550 137) B The goal is to encourage proper use of corporate services. 138) D The dual-rate method separates a common cost into fixed and variable components and then allocates each component using a different allocation base. 139) D The system allocates the target, and not the actual, corporate fixed costs. 140) A

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The concept can be applied in nonmanufacturing settings including service and not-for-profit industries. 141) C Cost allocation is not used for identifying production constraints, while the other three choices represent reasons for cost allocation. 142) C An overemphasis on long-term results does not generally lead to financial fraud. 143) B Allocating on the basis of sales revenue often creates dysfunctional behavior. 144) B 145) D 146) A Internal controls do not address contingent or fixed compensation. 147)a.Total cost allocated: $2,410,000 + $1,240,000 = $3,650,000. Division

Time Usage

Proportion

Allocation

Luxury Resort

750,000 1,250,000

0.136 0.227

$ 496,400 828,550

0.136 × $ 3,650,000 0.227 × $ 3,650,000

Standard Budget

2,000,000 1,500,000

0.364 0.273

1,328,600 996,450

0.364 × $ 3,650,000 0.273 × $ 3,650,000

5,500,000

$ 3,650,000

b.Personnel costs Division

Time Usage

Proportion

Allocation

Luxury

750,000

0.136

$ 327,760

0.136 ×

Resort

1,250,000

0.227

547,070

0.227 ×

Standard

2,000,000

0.364

877,240

0.364 ×

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$ 2,410,000 $ 2,410,000 $ 2,410,000

157

Budget

1,500,000

0.273

657,930

5,500,000

0.273 ×

$ 2,410,000

Equipment and other costs Division

Reservations

Proportion

Allocation

Luxury Resort Standard Budget

50,000 100,000 300,000 250,000

0.071 0.143 0.429 0.357

$ 88,040 177,320 531,960 442,680

700,000

0.071 × $ 1,240,000 0.143 × $ 1,240,000 0.429 × $ 1,240,000 0.357 × $ 1,240,000

$ 1,240,000

Totals: Luxury: $327,760 + $88,040 = $415,800 Resort: $547,070 + $177,320 = $724,390 Standard: $877,240 + $531,960 = $1,409,200 Budget: $657,930 + $442,680 = $1,100,610 148)a.Total cost allocated: $1,760,000 + 1,240,000 = $3,000,000 Division

Time Usage

Proportion

Allocation

Luxury Standard Budget

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

0.125 0.500 0.375

$ 375,000 1,500,000 1,125,000

4,000,000

0.125 × $ 3,000,000 0.500 × $ 3,000,000 0.375 × $ 3,000,000

$ 3,000,000

b.Personnel costs Division

Time Usage

Proportion

Allocation

Luxury

500,000

0.125

$ 220,000

0.125 ×

Standard

2,000,000

0.500

880,000

0.500 ×

Budget

1,500,000

0.375

660,000

0.375 ×

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$ 1,760,000 $ 1,760,000 $ 1,760,000

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4,000,000

$ 1,760,000

Equipment and other costs Division

Reservations

Proportion

Allocation

Luxury Standard Budget

50,000 300,000 250,000

0.083 0.500 0.417

$ 102,920 620,000 517,080

600,000

0.083 × $ 1,240,000 0.500 × $ 1,240,000 0.417 × $ 1,240,000

$ 1,240,000

Totals: Luxury: $220,000 + $102,920 = $322,920 Standard: $880,000 + $620,000 = $1,500,000 Budget: $660,000 + $517,080 = $1,177,080 149)a.Total cost allocated: $1,220,000 + 960,000 = $2,180,000. Division

Time Usage

Proportion

Allocation

Luxury Standard

500,000 2,000,000

0.200 0.800

$ 436,000 1,744,000

2,500,000

0.200 × $ 2,180,000 0.800 × $ 2,180,000

$ 2,180,000

b.Personnel costs Division

Time Usage

Proportion

Allocation

Luxury

500,000

0.200

$ 244,000

0.200 ×

Standard

2,000,000

0.800

976,000

0.800 ×

2,500,000

$ 1,220,000 $ 1,220,000

$ 1,220,000

Equipment and other costs Division

Reservations

Proportion

Allocation

Luxury Standard

50,000 300,000

0.143 0.857

$ 137,280 $ 822,720

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0.143 × $ 960,000 0.857 × $ 960,000

159

350,000

$ 960,000

Totals: Luxury: $244,000 + $137,280 = $381,280 Standard: $976,000 + $822,720 = $1,798,720 150)Software Development: $11,000; Training: $20,625; Management: $23,375 Fixed costs allocated: Division

Pages

Proportion

Allocation

Software Development Training

160,000

0.200

$ 6,200

0.200 × $ 31,000

300,000

0.375

11,625

0.375 × $ 31,000

Management

340,000

0.425

13,175

0.425 × $ 31,000

800,000

$ 31,000

Total costs: Division

Total

Fixed

Variable

Software Development Training

$ 11,000

$ 6,200

$ 4,800

160,000 ×

0.03

20,625

11,625

9,000

300,000 ×

0.03

Management

23,375

13,175

10,200

340,000 ×

0.03

$ 55,000

$ 31,000

$ 24,000

151)Purchasing: $34,800; Marketing: $43,500; Training: $65,250; Management: $73,950 a. Fixed costs allocated Division Purchasing Marketing Training Management

Contracts 160 200 300 340 1,000

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Proportion 0.16 0.20 0.30 0.34

Allocation $ 26,800 33,500 50,250 56,950

0.16 × 0.20 × 0.30 × 0.34 ×

$ 167,500 $ 167,500 $ 167,500 $ 167,500

$ 167,500

160

Total costs: Division

Total

Fixed

Variable

Purchasing Marketing Training Management

$ 34,800 43,500 65,250 73,950

$ 26,800 33,500 50,250 56,950

$ 8,000 10,000 15,000 17,000

$ 217,500

$ 167,500

$ 50,000

160 200 300 340

× × × ×

$ 50 $ 50 $ 50 $ 50

152)Production: $57,190; Management: $9,310 a. Fixed costs allocated: Division

Employees

Proportion

Allocation

Production Management

860 140

0.86 0.14

$ 39,990 6,510

1000

0.86 × $ 46,500 0.14 × $ 46,500

$ 46,500

Total costs: Division

Total

Fixed

Variable

Production Management

$ 57,190 9,310

$ 39,990 6,510

$ 17,200 2,800

$ 66,500

$ 46,500

$ 20,000

860 × 140 ×

$ 20 $ 20

153)Software Development: $20,600; Training: $37,680; Management: $39,720. Division

Documents

Proportion Allocation

Software Development Training

2,500

0.200

$ 12,600

0.200 ×

4,500

0.360

22,680

0.360 ×

Management

5,500

0.440

27,720

0.440 ×

12,500

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$ 63,000 $ 63,000 $ 63,000

$ 63,000

161

Variable rate: $35,000 ÷ (320,000 + 600,000 + 480,000) = $0.025 per page Total costs: Division

Total

Fixed

Variable

Software Development Training

$ 20,600

$ 12,600

$ 8,000

320,000 × $ 0.025

37,680

22,680

15,000

600,000 × $ 0.025

Management

39,720

27,720

12,000

480,000 × $ 0.025

$ 98,000

$ 63,000

$ 35,000

154)Purchasing: $62,939; Marketing: $93,953; Training: $132,259; Management: $82,849 Division

Contracts

Proportion

Allocation

Purchasing Marketing

160 200

0.178 0.222

$ 47,526 59,274

0.178 × $ 267,000 0.222 × $ 267,000

Training Management

300 240

0.333 0.267

88,911 71,289

0.333 × $ 267,000 0.267 × $ 267,000

900

$ 267,000

Variable rate: $105,000 ÷ (3,200 + 7,200 + 9,000 + 2,400) = $4.8165 Total costs: Division

Total

Fixed

Variable

Purchasing Marketing

$ 62,939 93,953

$ 47,526 59,274

$ 15,413 34,679

3,200 × $ 4.8165 7,200 × $ 4.8165

Training Management

132,259 82,849

88,911 71,289

43,348 11,560

9,000 × $ 4.8165 2,400 × $ 4.8165

$ 372,000

$ 267,000

$ 105,000

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155)a.Rate: $1,200,000 ÷ (30,000 + 40,000 + 50,000) = $10 per connection Commercial: 30,000 × $10 = $300,000; Retail: 40,000 × $10 = $400,000; Consumer: 50,000 × $10 = $500,000 b.Rate: $1,200,000 ÷ (120,000 + 150,000 + 290,000) = $2.142857 per hour Commercial: 120,000 × $2.142857 = $257,143; Retail: 150,000 × $2.142857 = $321,429; Consumer: 290,000 × $2.142857 = $621,428 c. Division

Connections

Proportion

Allocation

Commercial

30,000

0.250

$ 212,500

0.250 ×

Retail

40,000

0.333

283,050

0.333 ×

Consumer

50,000

0.417

354,450

0.417 ×

120,000

$ 850,000 $ 850,000 $ 850,000

$ 850,000

Variable rate: ($1,200,000 − 850,000) ÷ (120,000 + 150,000 + 290,000) = $0.625 per hour Total costs: Division

Total

Fixed

Variable

Commercial Retail

$ 287,500 376,800

$ 212,500 283,050

$ 75,000 93,750

$ 0.625 × $ 0.625 ×

120,000 150,000

Consumer

535,700

354,450

181,250

$ 0.625 ×

290,000

$ 1,200,000

$ 850,000

$ 350,000

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156)a.Rate: $2,400,000 ÷ (60,000 + 80,000 + 40,000 + 120,000) = $8 per connection Commercial: 60,000 × $8 = $480,000; Retail: 80,000 × $8 = $640,000; Research: 40,000 × $8 = $320,000; Consumer: 120,000 × $8 = $960,000 b.Rate: $2,400,000 ÷ (120,000 + 150,000 + 100,000 + 330,000) = $3.428571 per hour Commercial: 120,000 × $3.428571 = $411,428; Retail: 150,000 × $3.428571 = $514,286; Research: 100,000 × $3.428571 = $342,857; Consumer: 330,000 × $3.428571 = $1,131,429 c. Division

Connections

Proportion Allocation

Commercial

60,000

0.214

$ 363,800

0.214 ×

Retail

80,000

0.286

486,200

0.286 ×

Research

40,000

0.143

243,100

0.143 ×

Consumer

100,000

0.357

606,900

0.357 ×

280,000

$ 1,700,000 $ 1,700,000 $ 1,700,000 $ 1,700,000

$ 1,700,000

Variable rate: ($2,400,000 − 1,700,000) ÷ (120,000 + 150,000 + 100,000 + 330,000) = $1 per hour Total costs: Division

Total

Fixed

Variable

Commercial Retail

$ 483,800 636,200

$ 363,800 486,200

$ 120,000 150,000

$1 $1

× ×

120,000 150,000

Research Consumer

343,100 936,900

243,100 606,900

100,000 330,000

$1 $1

× ×

100,000 330,000

$ 2,400,000

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$ 1,700,000 $ 700,000

164

157)a.Rate: $2,400,000 ÷ (60,000 + 80,000 + 100,000) = $10 per connection Commercial: 60,000 × $10 = $600,000; Retail: 80,000 × $10 = $800,000; Consumer: 100,000 × $10 = $1,000,000 b.Rate: $2,400,000 ÷ (120,000 + 150,000 + 330,000) = $4 per hour Commercial: 120,000 × $4 = $480,000; Retail: 150,000 × $4 = $600,000; Consumer: 330,000 × $4 = $1,320,000 158)Commercial: $570,000; Retail: $749,400; Consumer: $1,080,600 Division

Connections

Proportion

Allocation

Commercial

60,000

0.250

$ 450,000

0.250 ×

Retail

80,000

0.333

599,400

0.333 ×

Consumer

100,000

0.417

750,600

0.417 ×

240,000

$ 1,800,000 $ 1,800,000 $ 1,800,000

$ 1,800,000

Variable rate: ($2,400,000 − $1,800,000) ÷ (120,000 + 150,000 + 330,000) = $1 per hour Total costs: Division

Total

Fixed

Variable

Commercial Retail

$ 570,000 749,400

$ 450,000 599,400

$ 120,000 150,000

$ 1 × $ 1 ×

120,000 150,000

Consumer

1,080,600

750,600

330,000

$ 1 ×

330,000

$ 2,400,000

$ 1,800,000

$ 600,000

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159)a.Rate: $3,500,000 ÷ (70,000 + 90,000 + 20,000 + 100,000) = $12.50 per connection Commercial: 70,000 × $12.50 = $875,000; Retail: 90,000 × $12.50 = $1,125,000; Research: 20,000 × $12.50 = $250,000; Consumer: 100,000 × $12.50 = $1,250,000 b.Rate: $3,500,000 ÷ (120,000 + 150,000 + 100,000 + 330,000) = $5 per hour Commercial: 120,000 × $5 = $600,000; Retail: 150,000 × $5 = $750,000; Research: 100,000 × $5 = $500,000; Consumer: 330,000 × $5 = $1,650,000 160)Commercial: $752,000; Retail: $944,000; Research: $324,000; Consumer: $1,580,000 Division

Connections

Proportion

Allocation

Commercial

60,000

0.240

$ 552,000

Retail

70,000

0.280

644,000

Research

20,000

0.080

184,000

Consumer

100,000

0.400

920,000

250,000

0.240 × $ 2,300,000 0.280 × $ 2,300,000 0.080 × $ 2,300,000 0.400 × $ 2,300,000

$ 2,300,000

Variable rate: ($3,600,000 − 2,300,000) ÷ (1100,000 + 150,000 + 70,000 + 330,000) = $2 per hour Total costs: Division

Total

Fixed

Variable

Commercial Retail Research Consumer

$ 752,000 944,000 324,000 1,580,000

$ 552,000 644,000 184,000 920,000

$ 200,000 300,000 140,000 660,000

$ 3,600,000

$ 2,300,000

$ 1,300,000

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$ 2 × 100,000 $ 2 × 150,000 $ 2 × 70,000 $ 2 × 330,000

166

161)a.Rate: $4,500,000 ÷ (200,000 + 160,000) = $12.50 per call Production: 200,000 × $12.50 = $2,500,000; Support: 160,000 × $12.50 = $2,000,000 b.Rate: $4,500,000 ÷ (240,000 + 660,000) = $5 per hour Production: 240,000 × $5 = $1,200,000; Support: 660,000 × $5 = $3,300,000 c. Division

Calls

Proportion

Allocation

Production

200,000

0.556

$ 1,501,200

Support

160,000

0.444

1,198,800

360,000

0.556 × $ 2,700,000 0.444 × $ 2,700,000

$ 2,700,000

Variable rate: ($4,500,000 − $2,700,000) ÷ (240,000 + 660,000) = $2 per hour Total costs: Division

Total

Fixed

Variable

Production Support

$ 1,981,200 2,518,800

$ 1,501,200 1,198,800

$ 480,000 1,320,000

$ 4,500,000

$ 2,700,000

$ 1,800,000

$ 2 × 240,000 $ 2 × 660,000

162)a.Rate: $2,250,000 ÷ (50,000 + 40,000) = $25 per call Marketing: 50,000 × $25 = $1,250,000; Finance: 40,000 × $25 = $1,000,000 b.Rate: $2,250,000 ÷ (120,000 + 330,000) = $5 per hour Marketing: 120,000 × $5 = $600,000; Finance: 330,000 × $5 = $1,650,000 163)Research: $990,600; Sales: $1,259,400 Division

Calls

Proportion

Allocation

Research

50,000

0.556

$ 750,600

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0.556 × $ 1,350,000

167

Sales

40,000

0.444

599,400

90,000

0.444 × $ 1,350,000

$ 1,350,000

Variable rate: ($2,250,000 − $1,350,000) ÷ (60,000 + 165,000) = $4 per hour Total costs: Division

Total

Fixed

Variable

Research Sales

$ 990,600 1,259,400

$ 750,600 599,400

$ 240,000 660,000

$ 2,250,000

$ 1,350,000

$ 900,000

$ 4 × 60,000 $ 4 × 165,000

164)a.Rate = $300,000 + [$10 × (300 + 500 + 700)] ÷ (300 + 500 + 700) = $210 per contract Market Research: 315 × $210 = $66,150; Branding: 450 × $210 = $94,500; Promotion: 720 × $210 = $151,200 b. Division

Contracts

Proportion

Allocation

Market Research

300

0.200

$ 60,000

Branding

500

0.333

99,900

Promotion

700

0.467

140,100

1,500

0.200 × $ 300,000 0.333 × $ 300,000 0.467 × $ 300,000

$ 300,000

Total costs: Division

Total

Fixed

Market Research Branding Promotion

$ 63,150 104,400 147,300

$ 60,000 99,900 140,100

$ 3,150 4,500 7,200

$ 314,850

$ 300,000

$ 14,850

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Variable $ 10 × 315 $ 10 × 450 $ 10 × 720

168

165)a.Rate = $200,000 + [$7.50 × (300 + 500 + 700)] ÷ (300 + 500 + 700) = $140.833 per contract Market Research: 286 × $140.833 = $40,278; Branding: 450 × $140.833 = $63,375; Promotion: 675 × $140.833 = $95,062 b. Division

Contracts

Proportion

Allocation

Market Research

300

0.200

$ 40,000

Branding

500

0.333

66,600

Promotion

700

0.467

93,400

1,500

0.200 × $ 200,000 0.333 × $ 200,000 0.467 × $ 200,000

$ 200,000

Total costs: Division

Total

Fixed

Variable

Market Research Branding Promotion

$ 42,145 69,975 98,463

$ 40,000 66,600 93,400

$ 2,145 3,375 5,063

$ 210,583

$ 200,000

$ 10,583

$ 7.50 × 286 $ 7.50 × 450 $ 7.50 × 675

166)a.Rate = $400,000 + [$15 × (200 + 400 + 800)] ÷ (200 + 400 + 800) = $300.7143 per contract Market Research: 207 × $300.7143 = $62,248; Branding: 512 × $300.7143 = $153,966; Promotion: 820 × $300.7143 = $246,586 b. Division

Contracts

Proportion

Allocation

Market Research

200

0.1429

$ 57,160

Branding

400

0.2857

114,280

Promotion

800

0.5714

228,560

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0.1429 × $ 400,000 0.2857 × $ 400,000 0.5714 × $

169

400,000 1,400

$ 400,000

Total costs: Division

Total

Fixed

Variable

Market Research Branding Promotion

$ 60,265 121,960 240,860

$ 57,160 114,280 228,560

$ 3,105 7,680 12,300

$ 423,085

$ 400,000

$ 23,085

$ 15 × 207 $ 15 × 512 $ 15 × 820

167)a.The operating divisions would be charged the following amounts at the end of the year: Inland Division

Coast Division

Variable cost charges: $29 per order × 1,520 orders

$ 44,080

$29 per order × 5,690 orders

$ 165,010

Fixed cost charges: 25% × $381,600

95,400

75% × $381,600 Total charges

286,200 $ 139,480

$ 451,210

b.The uncharged costs are: Variable

Fixed

Total actual costs incurred Costs charged

$ 219,905 209,090

$ 383,860 381,600

Spending variance

$ 10,815

$ 2,260

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The spending variance represents the difference between the Customer Service Department’s actual costs and what those costs should have been, given the actual level of activity. This difference is probably the responsibility of the Customer Service Department and should not be charged to the operating divisions. 168)a. Dept X: 160,000 cubic feet × $0.15 per cubic foot = $24,000 Dept Y: 590,000 cubic feet × $0.15 per cubic foot = $88,500 Dept Z: 750,000 cubic feet × $0.15 per cubic foot = $112,500 b. Dept X: 200/1,600 × $120,000 = $15,000 Dept Y: 600/1,600 × $120,000 = $45,000 Dept Z: 800/1,600 × $120,000 = $60,000 169)a. Charges to Operating Department A: 1,100 hours × $8.60 per hour Charges to Operating Department B: 1,700 hours × $8.60 per hour

$ 9,460

$ 14,620

b. Total actual variable cost incurred: (1,100 hours + 1,700 hours) × $8.75 per hour Total charges:

$ 24,500

(1,100 hours + 1,700 hours) × $8.60 per hour

24,080

Spending variance—uncharged

$ 420

170)a.Variable costs are charged at the budgeted rate of $625 ($500,000/800) per employee. Fixed costs are charged in predetermined lump-sum amounts.

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Machining

Assembly

Variable cost charges: Machining: 200 employees × $625 per employee Assembly: 400 employees × $625 per employee Fixed cost charges: Machining: 40% × $340,000 Assembly: 60% × $340,000

$ 125,000 $ 250,000

$ 136,000 $ 204,000

b.The remaining amounts of variable and fixed costs are variances that should not be charged: Actual variable cost incurred Amount of variable cost charged

$ 436,000 375,000

Spending variance-not charged

$ 61,000

Actual fixed cost incurred Amount of fixed cost charged

$ 352,000 340,000

Spending variance-not charged

$ 12,000

171)1.[($900,000 + (3,000 × $1,200)) ÷ 3,000] × 1,400 = $2,100,000 2.[(500 ÷ 3,000) × $900,000] + (500 × $1,200) = $750,000 3.[(500 ÷ 3,000) × $900,000] + (600 × $1,200) = $870,000

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172)a.January sales: Burgers $5,000 × [4,000 ÷ (4,000 + 2,400)] = $3,125 Hot dogs $5,000 × [2,400 ÷ (4,000 + 2,400)] = $1,875 February sales: Burgers $5,000 × [6,400 ÷ (6,400 + 2,400)] = $3,636.36 Hot dogs $5,000 × [2,400 ÷ (6,400 + 2,400]) = $1,363.64 b.Even though hot dog sales remained constant for both months, the allocation of fixed operating costs decreased by more than $500. The reason is that fixed overhead costs are allocated based on actual sales. The dollar amount is fixed, and since burger sales increased, more of the fixed costs were allocated to the burgers. Another observation is that burger sales increased by more than 50% from January to February, while the fixed operating costs assigned to burgers increased by only 16%. 173)(a) Using a single cost allocation base to assign costs does not take into account the level of resources consumed by the cost objects. Some courses may require the use of more resources, such as computer and lab time. No distinction is made between fixed costs and variable costs. This method assumes that all courses consume the same activities in the same proportions; in reality, some programs may be subsidizing others. (b) Computer use - number of computer hours Facility use - square footage Student services - number of students Course design - number of courses Class meeting time - number of classroom hours Grading assignments - number of assignments

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174)(a) This case points out the arbitrary nature of cost allocation and underscores the fact that no method will please all of the recipients of allocated costs. In this case, the manager of the Individual Department would most favor interview hours, where their total percentage of the allocation is only 9%. This manager would least favor number of reports, where the department would receive a total of 84% of the allocation. The manager of the Corporate Department would most favor number of reports, with a 16% total allocation and least favor interview hours, where over 90% of the cost would be allocated to the Corporate Department. (b) Arguments for: Number of reports: The corporate manager would argue that the final output represents the cost effort of each department. Since corporate provided far fewer total reports, that department would receive a relatively small allocation. Interview hours: The individual manager would argue that interview hours are the most valuable source of information and that they reflect an appropriate use of department resources. Arguments Against: Number of reports: The individual manager would argue that just because there are more individual customers generating the reports, the number of reports does not reflect the work done and cost incurred by each department. The number of reports reflects great productivity and the department should not be penalized for being productive. Interview hours: The corporate manager would argue that while their department does more interviewing, that is not a fair reflection of the resources consumed, since the number of interviews is relatively small, but the hours put into them are extensive. The manager would argue that Version 1

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other methods of gathering information more appropriately reflect the resource use of the department. 175) Carbondale

Peoria

Variable cost charges: 1,800 purchase orders × $8.00 per purchase order 2,700 purchase orders × $8.00 per purchase order Fixed cost charges: 40% x $55,000

$ 14,400 $ 21,600

22,000

60% x $55,000 Total charges

33,000 $ 36,400

$ 54,600

176)a.The operating divisions would be charged the following amounts at the end of the year: Paints Division

Stains Division

Variable cost charges: $4 per case × 26,010 cases

$ 104,040

$4 per case × 60,980 cases

$ 243,920

Fixed cost charges: 40% × $870,000

348,000

60% × $870,000 Total charges

522,000 $ 452,040

$ 765,920

b.The uncharged costs are: Variable Total actual costs incurred

Version 1

$ 382,756

Fixed $ 871,590

175

Total charges

347,960

870,000

Spending variance

$ 34,796

$ 1,590

The spending variance represents the difference between the Maintenance Department's actual costs and what those costs should have been, given the actual level of activity. This difference is the responsibility of the Maintenance Department and should not be charged to the operating divisions. 177)The principal-agent relationship is a relationship between a superior, referred to as the principal, and a subordinate, called the agent. When authority is decentralized, a superior (principal) delegates duties to a subordinate (agent). These relationships exist in many settings and examples include: Principals eBay stockholders Corporate General Electric (GE) managers The President of the United States You (as an investor or apartment seeker)

Agents Top eBay management Business unit managers (e.g., the GE Transportation Business) Cabinet officers (e.g., the Secretary of the Interior) Your stockbroker or real estate agent

178)(1) Better use of local knowledge; (2) faster response; (3) wiser use of top management's time; (4) reduction of problems to manageable size; and (5) training, evaluation, and motivation of local managers. 179)One disadvantage is that local managers can make decisions that are not in the best interests of the organization as a whole. Second, decentralization can create administrative duplication.

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180)1. (a) Managers of the organization's subunits are specialists. They have specialized information that enables them to manage their departments most effectively. 2. (b) Allowing managers some autonomy in decision-making provides managerial training for future higher-level managers. 3. (c) Managers with some decision-making authority usually exhibit greater motivation than those who merely execute the decisions of others. 4. (d) Delegating some decisions to lower-level managers provides timerelief to upper-level managers, enabling them to devote time to strategic planning. 5. (e) Empowering employees to make decisions draws on the knowledge and expertise of those closest to day-to-day operations. 6. (f) Delegating decision making to the lowest level possible enables an organization to give a timely response to opportunities and problems as they arise. 181)(1) Managers in a decentralized organization sometimes have a narrow focus on their unit's performance, rather than the attainment of their organization's overall goals. (2) As a result of this narrow focus, managers may tend to ignore the consequences of their actions on the organization's other subunits. (3) In a decentralized organization, some tasks or services may be duplicated unnecessarily.

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182)(1) Delegated decision authority—what decisions a subordinate manager can make in the name of the organization. (2) Performance evaluation and measurement system—how the performance of the subordinate manager is to be measured and how the results of the measurement will be used in evaluation. (3) Compensation and reward systems—how the subordinate manager will be paid for their performance. 183)(1) Cost Center: responsible for the cost of the activity of a center with a well-defined input-output relationship; (2) Discretionary Cost Center: responsible for the cost of the activity of a center where the input-output relationship is not well specified; (3) Revenue Center: responsible for selling a product; (4) Profit Center: responsible for both costs and revenues; (5) Investment Center: responsible for costs and revenues (profits) and also the investment in assets.

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184)(a) Cost Center: an organizational subunit whose manager is responsible for the cost of an activity for which a well-defined relationship exists between inputs and outputs. Production department in a manufacturing firm; check processing department in a bank; laundry, laboratory, food service department in a hospital. (b) Discretionary Cost Center: an organizational subunit whose manager is held accountable for costs, but the subunit's input-output relationship is not well specified. Administrative and marketing departments such as legal, accounting, research and development, advertising. (c) Revenue Center: an organizational subunit whose manager is held accountable for the revenue attributed to the subunit. Reservations department of an airline; sales department of a manufacturer. (d) Profit Center: an organizational subunit whose manager is held accountable for profit—both revenues and expenses attributed to the subunit. Company-owned restaurant in a fast-food chain. (e) Investment Center: an organizational subunit whose manager is held accountable for the subunit's profit and the invested capital used by the subunit to generate its profit. Divisions of a large corporation. 185)Fixed compensation is paid to the manager independent of measured performance. A manager's salary is an example. Contingent compensation is the amount of compensation that is paid based on measured performance. Sales commissions would be an example of this.

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186)(a) Ramos could use several indicators to assess the quality of the order entry process in this company. Examples include: number of errors, percentage of errors (number of order acknowledgements with errors divided by total number of order acknowledgements), number of change orders, change order costs, total quality costs. (b) Errors that can be found on either of the two output documents: ● Incorrect part number(s) ● More than one part number when only one is required ● Missing part number(s) ● Incorrect sales tax calculation ● Incorrect business unit code ● Freight terms missing ● Incorrect shipping or billing address ● Credit approval missing ● Incomplete/incorrect information provided by the sales representative ● Order entry staff not having updated information from marketing regarding prices, discounts, etc. (c) Causes of delays and quality problems include: The primary cause is poor communication: ● Incomplete/incorrect information provided by the sales representative ● Order entry staff not having updated information from marketing regarding prices, discounts, etc. ● Incorrect entry of order by staff

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187)Each of the manager's actions needs to be considered separately: ● Liberal credit terms - OK, a business strategy that should be judged on how it affects the firm's operations and profits. ● Attempt to pull sales from one period to another - may not be OK. If the purpose of the change in credit terms is simply to move sales from one period to another, then the result is misleading financial reports and fraudulent; if the objective is to increase sales through management of credit policies, then OK. ● Sale of equipment - may be OK, a business decision that should be judged on how it affects the firm's operations and profits; may not be OK if done just to show a short-term gain that would improve current period profit. 188)Since the actions contemplated by the controller are not in the best interests of the company, these actions are probably not ethical, and are in conflict with the ethical standard of integrity. The situation displays both conflict of interests and an attempt to subvert the firm's performance incentive system. Both the incentive system and the controller are to blame in this case. While it is not reasonable to expect that the firm can design a bias-free incentive system, it appears that the firm has not done an acceptable job of developing a system that will reward performance based upon the firm's critical success factors, instead of short-term profits only. Improvements in the incentive scheme are possible and necessary. On the other hand, the controller cannot be excused for taking advantage of the opportunity to manipulate profits. The standards are clear on the required professional behavior in this case, and the controller has ignored them for self-serving purposes.

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189)Separation of duties helps prevent financial fraud because it limits the opportunity to commit the fraud. When a separation of duties exists, two or more individuals must engage in collusion to commit fraud. While collusion can and does occur, it increases the risk that someone will "blow the whistle" on the fraud. The increased risk of revealing fraud makes it less likely that fraud will occur. Thus, one manager might have the decision authority to authorize purchases and another manager has the decision authority to issue the payment. 190)a. Total costs = $4,500,000 + ($30 × 40,000) = $5,700,000 Single rate = $5,700,000 ÷ 40,000 hrs. = $142.50 per maintenance hour Single-rate budgeted amounts: Building and grounds: $142.50 × 10,000 = $1,425,000 Operating and emergency: $142.50 × 8,000 = $1,140,000 Patient care: $142.50 × 21,000 = $2,992,500 Administration: $142.50 × 1,000 = $142,500 b. Total costs = $4,500,000 + ($30 × 40,000) = $5,700,000 Single rate = $5,700,000 ÷ 40,000 hrs. = $142.50 per maintenance hour Single-rate allocated amounts: Building and grounds: $142.50 × 12,000 = $1,710,000 Operating and emergency: $142.50 × 8,000 = $1,140,000 Patient care: $142.50 × 22,000 = $3,135,000 Patient care: $142.50 × 22,000 = $3,135,000 c. Dual-rate budgeted amounts: Building and grounds: Fixed [$4,500,000 × (10,000 ÷ 40,000)] Variable ($30 × 10,000)

$ 1,125,000 300,000

Total

$ 1,425,000

Operating and emergency: Fixed [$4,500,000 × (8,000 ÷ 40,000)]

Version 1

$ 900,000

182

Variable ($30 × 8,000) Total

240,000 $ 1,140,000

Patient care: Fixed [$4,500,000 × (21,000 ÷ 40,000)] Variable ($30 × 21,000)

$ 2,362,000 630,000

Total

$ 2,992,500

Administration: Fixed [$4,500,000 × (1,000 ÷ 40,000)] Variable ($30 × 1,000)

$ 112,500 30,000

Total

$ 142,500

d. Dual-rate allocated amounts: Building and grounds: Fixed [$4,500,000 × (10 ÷ 40)] Variable ($30 × 12,000)

$ 1,125,000 360,000

Total

$ 1,485,000

Operating and emergency: Fixed [$4,500,000 × (8,000 ÷ 40,000)] Variable ($30 × 8,000) Total

$ 900,000 240,000 $ 1,140,000

Patient care: Fixed [$4,500,000 × (21,000 ÷ 40,000)] Variable ($30 × 22,000)

$ 2,362,500 660,000

Total

$ 3,022,500

Administration: Fixed [$4,500,000 × (1 ÷ 40)] Variable ($30 × 1,200)

$ 112,500 36,000

Total

$ 148,500

191)a. Fixed costs $240,000 ÷ 20,000 practical capacity hours = $12 per hour Single-rate cost allocation = $12 + $10 = $22 per hour. Lamp Division 800 × $ 22 per hour = $ 17,600 per month Flashlight Division 450 × $ 22 per hour = $ 9,900 per month

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b. Lamp Division Flashlight Division

700 × $ 22 per hour = 400 × $ 22 per hour =

$ 15,400 per month $ 8,800 per month

c. Fixed costs $240,000 ÷ 20,000 practical capacity hours = $12 per hour Lamp Division: (800 × $12 per hour) + (800 × $10 per hour) Flashlight Division:

$ 17,600 per month

(450 × $12 per hour) + (450 × $10 per hour)

$ 9,900 per month

(800 × $12 per hour) + (700 × $10 per hour) Flashlight Division:

$ 16,600 per month

(450 × $12 per hour) + (400 × $10 per hour)

$ 9,400 per month

d. Allocated costs for June: Lamp Division:

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184

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) A budget is the plan, stated in financial terms, of how an organization expects to carry out its activities and meet its goals. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Gradable : automatic Accessibility : Screen Reader Compatible Topic : How Strategic Planning Increases Competitiveness

2) A master budget consists of (a) the organization goals, (b) the strategic long-range profit plan, and (c) the tactical short-range profit plan. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Topic : Overall Plan Gradable : automatic Accessibility : Screen Reader Compatible

3) Participative budgeting streamlines the budgeting process by reducing budget development time. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Gradable : automatic Topic : Human Element in Budgeting Difficulty : 2 Medium Bloom's : Understand Accessibility : Screen Reader Compatible

4) Individual managers' beliefs and expectations are often incorporated into the budgeting process using grass roots budgeting procedures. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Gradable : automatic Topic : Human Element in Budgeting Accessibility : Screen Reader Compatible

5) Sales projections are often the most difficult part of the budgeting process because they involve a considerable amount of subjectivity. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-02 Estimate sales. Topic : Where to Start? Accessibility : Screen Reader Compatible

6) An organization's sales staff is more likely to provide a lower sales forecast than a forecast provided by market researchers. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Learning Objective : 13-02 Estimate sales. Difficulty : 2 Medium Bloom's : Understand Topic : Where to Start? Accessibility : Screen Reader Compatible

7) The Delphi technique uses highly sophisticated computerized time series analysis to reduce the subjectivity surrounding the sales forecast. ⊚ true ⊚ false

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8) Both variable and fixed manufacturing overhead costs are included in the manufacturing overhead budget. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Remember Difficulty : 1 Easy Gradable : automatic AACSB : Reflective Thinking AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Topic : Comprehensive Illustration Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-03 Develop production and cost budgets. Topic : Comprehensive Illustration Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Difficulty : 3 Hard Topic : Comprehensive Illustration Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Difficulty : 3 Hard Topic : Comprehensive Illustration Accessibility : Screen Reader Compatible

12) The production budget must be prepared before the direct materials, direct labor, and overhead budgets can be prepared. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Difficulty : 2 Medium AICPA : FN Measurement Bloom's : Understand Learning Objective : 13-03 Develop production and cost budgets. Topic : Comprehensive Illustration Accessibility : Screen Reader Compatible

13) Estimates for direct labor costs can be obtained from the engineering and production management. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-03 Develop production and cost budgets. Topic : Comprehensive Illustration Accessibility : Screen Reader Compatible

14) Bottlenecks in the production process can be discovered by the budgeting process before they occur. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-03 Develop production and cost budgets. Topic : Comprehensive Illustration Accessibility : Screen Reader Compatible

15)

In effect, the cash budget restates the budgeted income statement to the cash basis. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Accessibility : Screen Reader Compatible

16)

The cash budget is normally prepared before the budgeted income statement. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Accessibility : Screen Reader Compatible

17) When assembling the master budget, the budgeted balance sheet is the last budget prepared in the process. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-05 Develop budgeted financial statements. Topic : Planning for the Assets and Liabilities on the Budgeted Balance Sheets Accessibility : Screen Reader Compatible

18) The sales budget drives the rest of the budgeting process for both manufacturers and merchandisers. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Accessibility : Screen Reader Compatible

19)

A production budget is not needed for a service organization. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Service Organizations Accessibility : Screen Reader Compatible

20) Ethical conflicts can occur in the budgeting process since managers supply information for the budgets that are then used to evaluate their performance. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-07 Identify common ethical dilemmas associated with budgeting. Topic : Ethical Problems in Budgeting Accessibility : Screen Reader Compatible

21) The use of sensitivity analysis techniques allows managers to ask "what-if" questions regarding budget assumptions and estimates. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-08 Explain how to use sensitivity analysis to budget under uncertainty. Topic : Budgeting under Uncertainty Accessibility : Screen Reader Compatible

22) Sensitivity analysis is more likely to be used for sales forecasts than for fixed overhead costs. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 13-08 Explain how to use sensitivity analysis to budget under uncertainty. Topic : Budgeting under Uncertainty Accessibility : Screen Reader Compatible

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 23) The major objectives of any budget system are to: (CIA adapted)

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Accessibility : Screen Reader Compatible Topic : How Strategic Planning Increases Competitiveness

24)

Which of the following describes critical success factors? A) Broad objectives established by management that employees work to achieve B) Statements detailing steps to take to achieve a company’s organization goals C) Statistical methods of forecasting economic data using regression models D) Strengths of a company that enable it to outperform competitors

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Gradable : automatic Accessibility : Screen Reader Compatible Topic : How Strategic Planning Increases Competitiveness

25)

Establishing organization 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Topic : Overall Plan Gradable : automatic Accessibility : Screen Reader Compatible

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Topic : Overall Plan Gradable : automatic Accessibility : Screen Reader Compatible

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Topic : Overall Plan Gradable : automatic Accessibility : Screen Reader Compatible

28) Which of the following is not a component of an overall organization plan for an organization?

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A) Organization goals B) Strategic long-range profit plan C) Tactical short-range profit plan D) Profit plans of competitors

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Topic : Overall Plan Gradable : automatic Accessibility : Screen Reader Compatible

29)

Which of the following is not a benefit of participative budgeting? A) It reduces or eliminates the need for tracking actual cost activity. B) It enhances employee motivation and acceptance of goals. C) It provides information that employees know but managers do not. D) It serves as training or development for managers.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Gradable : automatic Topic : Human Element in Budgeting Difficulty : 2 Medium AACSB : Reflective Thinking Bloom's : Understand Accessibility : Screen Reader Compatible

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30) Which of the following statements is false regarding the benefits associated with participative budgeting? A) Employee motivation and acceptance of goals is enhanced. B) Goal congruence by divisions means top management need not be concerned with overall profitability. C) It provides information that enables employees to associate rewards and penalties with performance. D) It can yield information that employees know but managers do not.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Gradable : automatic Topic : Human Element in Budgeting Accessibility : Screen Reader Compatible

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

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-02 Estimate sales. AACSB : Reflective Thinking Topic : Where to Start? Accessibility : Screen Reader Compatible

33)

In general, the first budget prepared is the:

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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

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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 1,140,000 hammers at a price of $5.40 per unit last year. The company estimates that this volume represents a 24% share of the current hammers market. The market is expected to increase by 6%. 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 30%. Due to changes in prices, the new price for the hammer will be $5.70 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) $8,156,700 B) $8,122,500 C) $8,609,850 D) $9,126,541

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37) The Variable Speed Company manufactures a line of high-quality tools. The company sold 1,000,000 hammers at a price of $4.00 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

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38)

The statistical method of forecasting that relies heavily on regression models is called: A) econometric models. B) the Delphi technique. C) the scattergraph method. D) participative budgeting.

39) Acutron is a large securities dealer. Last year, the company made 230,000 trades with an average commission of $230. Because of the general economic climate, Acutron expects trade volume to decline by 25%. Fortunately, the average commission per trade is likely to increase by 15% 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) $42,981,250 B) $45,626,250 C) $52,526,250 D) $52,986,250

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic Learning Objective : 13-02 Estimate sales. AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Service Organizations Topic : Where to Start? Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

40) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Learning Objective : 13-02 Estimate sales. AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Service Organizations Topic : Where to Start? Difficulty : 3 Hard Accessibility : Screen Reader Compatible

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41) Adair Credit, Incorporated has $43.0 million in consumer loans with an average interest rate of 14.0%. The company has $38.0 million in home equity loans with an average interest rate of 10.0%, and owns $5.0 million in corporate securities with an average interest rate of 8%. Next year, consumer loans are estimated to increase to $48.0 million because of a rate decrease to 12.0%, while home equity loans are estimated to increase to $40.0 million at an average interest rate of 8.5%. Unfortunately, the investment in corporate securities is estimated to decrease by 24% and the average interest rate is estimated to be 11.0%. What is Adair's estimated change in revenues next year? A) $642,000 decrease B) $642,000 increase C) $962,000 increase D) $962,000 decrease

42) Adair Credit, Incorporated 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?

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A) $460,000 decrease B) $460,000 increase C) $700,000 increase D) $700,000 decrease

43)

The master budget process usually begins with the: (CMA adapted) A) production budget. B) operating budget. C) financial budget. D) sales budget.

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44)

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

60,000 units 90,000 units 50,000 units $ 15 per unit $ 25 per unit $ 4 per unit $ 2 per unit $ 100,000

What are total budgeted production costs for the year? (CIA adapted) A) $3,520,000 B) $3,620,000 C) $3,700,000 D) $3,800,000

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Difficulty : 3 Hard Topic : Comprehensive Illustration Type : Algorithmic Accessibility : Screen Reader Compatible

45)

A company has the following annual budget data:

Beginning finished goods inventory Sales Ending finished goods inventory Direct materials Direct labor Variable factory overhead

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40,000 units 70,000 units 30,000 units $ 10 per unit $ 20 per unit $ 5 per unit

Selling costs Fixed factory overhead

$ 2 per unit $ 80,000

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

46) Rerun Manufacturing Company is in the process of preparing its 2023 budget and is anticipating the following changes: 25% increase in the number of units sold 15% increase in the direct material unit cost 10% increase in the direct labor cost per unit 7% increase in the manufacturing overhead cost per unit 11% increase in the sales price 5% increase in the administrative expenses Rerun does not keep any units in inventory. The composition of the cost of finished products during 2022 for direct materials, direct labor, and factory overhead, respectively, was in the ratio of 3:2:1. The condensed income statement for 2022 is as follows: Sales (40,000 units)

$ 520,000

Less sales returns

(20,800)

Net sales

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499,200

Cost of goods sold

316,000

Gross profit Selling expenses Administrative expenses Net income

$ 183,200 $ 70,000 40,000

110,000 $ 73,200

What are estimated net sales for 2023, assuming the sales return/gross sales relationship remains constant? A) $692,640 B) $580,000 C) $684,686 D) $599,000

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Learning Objective : 13-02 Estimate sales. Bloom's : Apply Topic : Where to Start? Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

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47) Rerun Manufacturing Company is in the process of preparing its 2023 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 2022 for direct materials, direct labor, and factory overhead, respectively, was in the ratio of 3:2:1. The condensed income statement for 2022 is as follows: Sales (30,000 units)

$ 450,000

Less sales returns

(13,500)

Net sales

436,500

Cost of goods sold

306,000

Gross profit Selling expenses Administrative expenses Net income

$ 130,500 $ 60,000 30,000

90,000 $ 40,500

What are estimated net sales for 2023, assuming the sales return/gross sales relationship remains constant? A) $646,893 B) $585,000 C) $571,500 D) $567,450

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Learning Objective : 13-02 Estimate sales. Bloom's : Apply Topic : Where to Start? Difficulty : 3 Hard Accessibility : Screen Reader Compatible

48) Rerun Manufacturing Company is in the process of preparing its 2023 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 12% increase in the manufacturing overhead cost per unit 16% increase in the sales price 5% increase in the administrative expenses Rerun does not keep any units in inventory. The composition of the cost of finished products during 2022 for materials, direct labor, and factory overhead, respectively, was in the ratio of 3:2:1. The condensed income statement for 2022 is as follows: Sales (35,000 units)

$ 525,000

Less sales returns

(21,000)

Net sales

504,000

Cost of goods sold

321,000

Gross profit Selling expenses Administrative expenses Net income

$ 183,000 $ 65,000 35,000

100,000 $ 83,000

What is the estimated cost of goods sold for 2020 assuming the number of units sold does not change?

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A) $488,990 B) $422,650 C) $419,440 D) $375,570

49) Rerun Manufacturing Company is in the process of preparing its 2023 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 2022 for materials, direct labor, and factory overhead, respectively, was in the ratio of 3:2:1. The condensed income statement for 2022 is as follows: Sales (30,000 units)

$ 450,000

Less sales returns

(13,500)

Net sales

436,500

Cost of goods sold

306,000

Gross profit

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$ 130,500

Selling expenses Administrative expenses Net income

$ 60,000 30,000

90,000 $ 40,500

What is the estimated cost of goods sold for 2023 assuming the number of units sold does not change? A) $464,100 B) $402,900 C) $397,800 D) $357,000

50) Trevor Company expects sales of Product W to be 78,000 units in April, 93,000 units in May, and 88,000 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 43,000 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) 78,000 units. B) 72,200 units. C) 93,000 units. D) 84,000 units.

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51) 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.

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52) Vermicelli Company plans to sell 320,000 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 270,000 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) 1,107,153 units. B) 1,008,800 units. C) 1,092,400 units. D) 1,035,152 units.

53) 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.

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54) The Pizza Merchandise Company has budgeted $51,000 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 $29,000 in merchandise during December, then the budgeted change in inventory levels over the month of December is: A) $13,700 increase. B) $6,700 decrease. C) $22,000 decrease. D) $17,310 increase.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

55) 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: Version 1

A) $6,000 increase. B) $10,000 decrease. C) $22,000 decrease. D) $15,000 increase.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Difficulty : 3 Hard Accessibility : Screen Reader Compatible

56)

Pablo Company has budgeted production for next year as follows: Quarter

Production in units

First

Second

Third

Fourth

59,000

99,000

109,000

89,000

Four 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 30% of the next quarter's production needs for material A. A total of 49,000 pounds of material A are on hand to start the year. Budgeted purchases of material A for the second quarter would be: A) 91,700 pounds. B) 408,000 pounds. C) 514,800 pounds. D) 526,800 pounds.

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57)

Pablo Company has budgeted production for next year as follows: Quarter First

Production in units

60,000

Second 80,000

Third

Fourth

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.

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58) Vargas Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.79 direct labor-hours. The direct labor rate is $11.40 per direct laborhour. The production budget calls for producing 7,300 units in October and 7,100 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 5,800 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) $132,240.00 B) $129,686.40 C) $130,062.60 D) $131,863.80

59) 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 laborhour. 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?

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A) $122,752.00 B) $120,736.00 C) $120,881.60 D) $122,606.40

60) Pouch Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.79 direct labor-hours. The direct labor rate is $11.00 per direct laborhour. The production budget calls for producing 3,700 units in June and 3,500 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) $31,284.00 B) $30,415.00 C) $32,153.00 D) $62,568.00

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61) 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 laborhour. 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

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62) Trini Incorporated bases its manufacturing overhead budget on budgeted direct laborhours. The direct labor budget indicates that 9,800 direct labor-hours will be required in May. The variable overhead rate is $3.10 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $117,440 per month, which includes depreciation of $10,610. 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) $137,210. B) $30,380. C) $106,830. D) $147,820.

63) Trini Incorporated bases its manufacturing overhead budget on budgeted direct laborhours. 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.

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64) The manufacturing overhead budget at Levetron Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 7,200 direct labor-hours will be required in August. The variable overhead rate is $8.70 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $134,640 per month, which includes depreciation of $25,130. 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) $8.70. B) $27.40. C) $23.91. D) $18.70.

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65) 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.

66) Rack Incorporated bases its manufacturing overhead budget on budgeted direct laborhours. The direct labor budget indicates that 4,400 direct labor-hours will be required in September. The variable overhead rate is $6.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $57,200 per month, which includes depreciation of $6,250. 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) $6.40. B) $13.00. C) $19.40. D) $17.98.

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67) Rack Incorporated bases its manufacturing overhead budget on budgeted direct laborhours. 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.

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68) The manufacturing overhead budget at Rost Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 3,100 direct labor-hours will be required in September. The variable overhead rate is $7.30 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $46,120 per month, which includes depreciation of $3,940. 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) $64,810. B) $68,750. C) $22,630. D) $42,180.

69) The manufacturing overhead budget at Rost Corporation is based on budgeted direct labor-hours. 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.

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70) The marketing and administrative expense budget of Frazier Corporation is based on budgeted unit sales, which are 5,600 units for June. The variable marketing and administrative expense is $1.10 per unit. The budgeted fixed marketing and administrative expense is $103,040 per month, which includes depreciation of $6,150 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) $103,050. B) $109,200. C) $6,160. D) $96,890.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Difficulty : 3 Hard Topic : Marketing and Administrative Budget Type : Algorithmic Accessibility : Screen Reader Compatible

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71) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Difficulty : 3 Hard Topic : Marketing and Administrative Budget Accessibility : Screen Reader Compatible

72) Bentonville Incorporated bases its marketing and administrative expense budget on budgeted unit sales. The sales budget shows 5,100 units are planned to be sold in December. The variable marketing and administrative expense is $5.00 per unit. The budgeted fixed marketing and administrative expense is $96,900 per month, which includes depreciation of $8,620 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) $122,400. B) $88,280. C) $113,780. D) $25,500.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Difficulty : 3 Hard Topic : Marketing and Administrative Budget Type : Algorithmic Accessibility : Screen Reader Compatible

73) Bentonville Incorporated 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Difficulty : 3 Hard Topic : Marketing and Administrative Budget Accessibility : Screen Reader Compatible

74)

The Colson Company has budgeted sales for the year as follows:

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Quarter Sales in units

1 12,200

2 14,200

3 18,100

4 16,200

The ending inventory of finished goods for each quarter should equal 20% of the next quarter's budgeted sales in units. The finished goods inventory at the start of the year is 3,200 units. Scheduled production for the third quarter is: A) 17,720 units. B) 18,480 units. C) 18,100 units. D) 13,320 units.

75)

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: A) 17,500 units. B) 18,500 units. C) 18,000 units. D) 16,500 units.

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76)

The Colson Company has budgeted sales for the year as follows:

Quarter Sales in units

1 13,600

2 15,600

3 19,500

4 17,600

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 4,600 units. Scheduled production for the second quarter is: A) 19,025 units. B) 18,050 units. C) 16,575 units. D) 14,625 units.

77)

The Colson Company has budgeted sales for the year as follows:

Quarter

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Sales in units

12,000

14,000

18,000

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: A) 17,500 units. B) 16,500 units. C) 15,000 units. D) 13,000 units.

78)

The Tori Company had budgeted production for the year as follows:

Quarter Production in units

1 10,100

2 12,100

3 18,000

4 14,100

Three pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,100 pounds. The raw materials inventory at the end of each quarter should equal 15% of the next quarter's production needs in materials. Budgeted purchases of raw materials in the third quarter would be: A) 52,245 pounds. B) 52,200 pounds. C) 44,555 pounds. D) 39,010 pounds.

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79)

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

Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,000 pounds. 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 third quarter would be: A) 63,200 pounds. B) 62,400 pounds. C) 56,800 pounds. D) 50,400 pounds.

80)

The Molson Company had budgeted production for the year as follows:

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Quarter Production in units

1 11,000

2 13,000

3 18,900

4 15,000

Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 5,000 pounds. 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) 52,000 pounds. B) 50,400 pounds. C) 54,360 pounds. D) 60,400 pounds.

81)

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 pounds. 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 pounds. B) 46,400 pounds. C) 49,600 pounds. D) 54,400 pounds.

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82) Krier Industries has just completed its sales forecasts and its marketing department estimates that the company will sell 41,400 units during the upcoming year. In the past, management has maintained inventories of finished goods at approximately 3 months' sales. However, the estimated inventory at the start of the year of the budget period is only 6,900 units. Sales occur evenly throughout the year. What is the estimated production level (units) for the first month of the upcoming budget year? A) 13,800 B) 10,350 C) 6,900 D) 3,450

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83) 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

84) The Ralston Company manufactures a special line of graphic tubing items. The company estimates it will sell 94,000 units of this item during the upcoming year. The beginning finished goods inventory contains 39,000 units. The target for each year's ending inventory is 29,000 units. Each unit requires five feet of plastic tubing. The tubing inventory currently includes 98,500 feet of the required tubing. Materials on hand are targeted to equal 3 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 the upcoming year? A) 69,500 B) 84,000 C) 94,000 D) 123,000

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85) The Ralston Company manufactures a special line of graphic tubing items. The company estimates it will sell 75,000 units of this item during the upcoming year. 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 the upcoming year? A) 60,000 B) 65,000 C) 75,000 D) 85,000

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86) The Ralston Company manufactures a special line of graphic tubing items. The company estimates it will sell 87,000 units of this item during the upcoming year. The beginning finished goods inventory contains 32,000 units. The target for each year's ending inventory is 22,000 units. Each unit requires five feet of plastic tubing. The tubing inventory currently includes 88,000 feet of the required tubing. Materials on hand are targeted to equal 3 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 the upcoming year? A) 376,750 B) 393,250 C) 503,250 D) 486,750

87) The Ralston Company manufactures a special line of graphic tubing items. The company estimates it will sell 75,000 units of this item during the upcoming year. 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 the upcoming year? Version 1

A) 313,750 B) 336,250 C) 363,750 D) 386,250

88)

The following budgeted information is provided:

Month Sales in units Production in units

1 25,000 26,000

2 30,000 32,000

3 28,000 25,000

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 5,200 pounds of materials on hand. Purchases of raw materials for Month 1 would be (in pounds): A) 35,000. B) 37,400. C) 27,200. D) 32,000.

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89)

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 pounds 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.

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90) 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

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic AACSB : Reflective Thinking Learning Objective : 13-05 Develop budgeted financial statements. Topic : Big Picture: How It All Fits Together Accessibility : Screen Reader Compatible

91) 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Learning Objective : 13-02 Estimate sales. Difficulty : 2 Medium Bloom's : Understand Topic : Where to Start? Accessibility : Screen Reader Compatible

92) 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 25 minutes of labor to assemble a table. The company follows a policy of producing enough tables to ensure that 30% 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 70% 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

4,100 4,300 3,900

Merriweather's ending inventories in units for June 30 are: Finished goods Raw materials (legs)

3,700 5,800

The number of tables to be produced during August is: A) 1,677 tables. B) 4,180 tables. C) 1,707 tables. D) 3,700 tables.

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93) 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.

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94) 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 15 minutes of labor to assemble a table. The company follows a policy of producing enough tables to ensure that 30% 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 70% 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

3,100 3,300 2,900

Merriweather's ending inventories in units for June 30 are: Finished goods Raw materials (legs)

2,700 4,800

Assume the required production for August and September is 2,400 units and 2,600 units, respectively, and the July 31 raw materials (legs) inventory is 5,000 units. The number of table legs to be purchased in August is: A) 11,880 legs. B) 12,600 legs. C) 7,320 legs. D) 9,600 legs.

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95) 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.

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96)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Difficulty : 2 Medium AICPA : FN Measurement Bloom's : Understand Learning Objective : 13-03 Develop production and cost budgets. Topic : Comprehensive Illustration Accessibility : Screen Reader Compatible

97)

Which of the following is not correct regarding the manufacturing overhead budget?

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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.

98)

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.

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99)

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.

100) Which of the following budgets does not require prior preparation of the production budget?

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A) Direct materials B) Direct labor C) Manufacturing overhead D) Marketing and administrative expenses

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 13-03 Develop production and cost budgets. Topic : Comprehensive Illustration Accessibility : Screen Reader Compatible

101) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 13-03 Develop production and cost budgets. Topic : Marketing and Administrative Budget Accessibility : Screen Reader Compatible

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102) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 13-03 Develop production and cost budgets. Topic : Marketing and Administrative Budget Accessibility : Screen Reader Compatible

103) Which of the following types of accounts would not be included on a budgeted balance sheet? A) Cash B) Assets C) Liabilities D) Revenues

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-05 Develop budgeted financial statements. Topic : Planning for the Assets and Liabilities on the Budgeted Balance Sheets Accessibility : Screen Reader Compatible

104) The Arkansas Company makes and sells a product called Product K. Each unit of Product K sells for $27 and has a unit variable cost of $20. The company has the following budgeted data for November: ● Sales of $1,168,200, all in cash. ● A cash balance on November 1 of $32,000. ● Cash disbursements (other than interest) during November of $1,176,000. ● A minimum cash balance on November 30 of $36,000. 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: Note: Round up your answer to nearest multiple of $1,000. A) $12,000. B) $13,000. C) $31,000. D) $32,000.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

105) 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.

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106) Riff, Incorporated is working on its cash budget for June. The budgeted beginning cash balance is $19,000. Budgeted cash receipts total $191,000 and budgeted cash disbursements total $190,000. The desired ending cash balance is $46,000. The excess (deficiency) of cash available over disbursements for June will be: A) $18,000. B) $1,000. C) $20,000. D) $210,000.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

107) Riff, Incorporated 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: Version 1

A) $15,000. B) $1,000. C) $17,000. D) $204,000.

108) Center Company makes collections on sales according to the following schedule: 40% in the month of sale 50% in the month following sale 7% in the second month following sale The following sales are expected: Expected Sales January $ 111,000 February $ 147,000 March $ 130,000

Cash collections in March should be budgeted to be: A) $130,000. B) $131,330. C) $125,500. D) $133,270.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

109) 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: Expected Sales January $ 100,000 February $ 120,000 March $ 110,000

Cash collections in March should be budgeted to be: A) $110,000. B) $110,800. C) $105,000. D) $113,000.

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110) Ari, Incorporated is working on its cash budget for December. The budgeted beginning cash balance is $28,000. Budgeted cash receipts total $141,000 and budgeted cash disbursements total $140,000. The desired ending cash balance is $68,000. 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) $39,000. B) $0. C) $97,000. D) $68,000.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

111) Ari, Incorporated 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.

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112) 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

113)

Cash disbursements would not include payments for:

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A) dividends. B) income taxes. C) accounts receivable. D) capital budget expenditures.

114)

Tennison Corporation had the following transactions in its first year of operations:

Sales (80% 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

$ 1,980,000 77,000 1,370,000 107,000 570,000 97,000 670,000 117,000 67,000

What is the cash balance at year-end? A) $214,000 B) $234,000 C) $257,000 D) $344,000

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

115)

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

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116) The Model Company is to begin operations in April. It has budgeted April sales of $34,000, May sales of $38,000, June sales of $44,000, July sales of $46,000, and August sales of $42,000. 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) $37,536 B) $41,950 C) $46,000 D) $41,460

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

117) 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

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118) The Model Company is to begin operations in April. It has budgeted April sales of $46,000, May sales of $50,000, June sales of $56,000, July sales of $58,000, and August sales of $54,000. 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) $55,818 B) $56,140 C) $52,938 D) $61,430

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

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119) 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

120) The Model Company is to begin operations in April. It has budgeted April sales of $36,000, May sales of $40,000, June sales of $46,000, July sales of $48,000, and August sales of $44,000. 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?

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A) $45,198 B) $40,716 C) $44,037 D) $41,788

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

121) 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 1.5% 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? A) $39,199 B) $35,312 C) $38,193 D) $36,242

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122) Page Company makes 40% of its sales for cash and 60% on account. 70% of the credit sales are collected in the month of sale, 20% in the month following sale, and 8% in the second month following sale. The remainder is uncollectible. The following information has been gathered for the current year: Month Total sales

1 $71,000

2 $85,000

3 $61,000

4 $41,000

Total cash receipts in Month 4 will be: A) $46,700. B) $45,600. C) $28,620. D) $45,020.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

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123) 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

1 $ 60,000

2 $ 70,000

3 $ 50,000

4 $ 30,000

Total cash receipts in Month 4 will be: A) $38,000. B) $47,900. C) $27,230. D) $36,230.

124) 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 $ 88,000

2 $ 98,000

3 $ 78,000

4 $ 58,000

Total cash receipts in Month 3 will be: A) $79,100. B) $80,702. C) $76,000. D) $78,010.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

125) 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.

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126) The Beatrice Manufacturing Company increased its merchandise inventory by $34,000 over the year. The company also granted its customers more liberal credit terms which increased the accounts receivable by $63,000. Sales were $1,060,000 and the accounts payable decreased by $61,500. The gross profit on sales is 45%. Marketing and administrative expenses were $179,000; this included depreciation expense of $38,000. What were the cash disbursements for the year? A) $819,500 B) $802,200 C) $783,000 D) $680,980

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

127) 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

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128) 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

$ 80,500 356,000 363,500 82,250 41,000 80%

What are the estimated cash disbursements for inventories in June? A) $321,000 B) $389,790 C) $408,050 D) $415,350

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

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129) 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

130) 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

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$ 334,000 259,000 25% 65% $ 52,000 46,000

sales Estimated provision for bad debts in June for credit sales in June

44,000

What are the estimated cash receipts from accounts receivable collections in June? A) $280,990 B) $288,610 C) $291,150 D) $303,850

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

131) 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?

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A) $221,250 B) $227,250 C) $229,250 D) $239,250

132) 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

$ 154,000 $ 139,000 $ 124,000 $ 149,000

What are the estimated collections in July?

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A) $128,910 B) $135,090 C) $137,150 D) $141,270

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

133) 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?

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A) $125,250 B) $131,250 C) $133,250 D) $137,250

134) 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 $11,000, accounts receivable of $459,000, inventories of $468,250, and accounts payable of $155,055. 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 $26. Marketing, general, and administrative expenses, of which $25,000 is depreciation, are equal to 15% of the current month's sales. Actual and projected sales are as shown below: March

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Dollars

Units

$ 494,000

14,000

April May June July August

$ 506,000 $ 498,000 $ 478,000 $ 502,000 $ 502,000

14,300 14,100 13,600 14,200 14,400

What are the budgeted merchandise purchases (in dollars) for May? A) $350,350 B) $368,200 C) $370,000 D) $389,190

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135) 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

Units

$ 472,000 $ 484,000 $ 476,000 $ 456,000 $ 480,000 $ 480,000

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

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136) 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 $15,500, accounts receivable of $477,000, inventories of $486,250, and accounts payable of $173,055. 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 $23. Marketing, general, and administrative expenses, of which $43,000 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

Units

$ 512,000 $ 524,000 $ 516,000 $ 496,000 $ 520,000 $ 520,000

15,800 16,100 15,900 15,400 16,000 16,200

What are the budgeted merchandise purchases (in dollars) for June?

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A) $325,600 B) $349,000 C) $371,450 D) $382,000

137) 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

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Dollars

Units

$ 472,000

11,800

April May June July August

$ 484,000 $ 476,000 $ 456,000 $ 480,000 $ 480,000

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

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138) 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 $13,000, accounts receivable of $467,000, inventories of $476,250, and accounts payable of $163,055. 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 $24. Marketing, general, and administrative expenses, of which $33,000 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

Units

$ 502,000 $ 514,000 $ 506,000 $ 486,000 $ 510,000 $ 510,000

14,800 15,100 14,900 14,400 15,000 15,200

What are the budgeted cash disbursements during the month of June? A) $383,910 B) $395,100 C) $397,500 D) $409,120

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

139) 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: Dollars March April May June July August

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$ 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Difficulty : 3 Hard Accessibility : Screen Reader Compatible

140) 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 $8,000, accounts receivable of $447,000, inventories of $456,250, and accounts payable of $143,055. 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 $28. Marketing, general, and administrative expenses, of which $13,000 is depreciation, are equal to 15% of the current month's sales. Actual and projected sales are as shown below:

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March April May June July August

Dollars

Units

$ 482,000 $ 494,000 $ 486,000 $ 466,000 $ 490,000 $ 490,000

12,800 13,100 12,900 12,400 13,000 13,200

What are the budgeted cash collections during the month of May? A) $455,129 B) $463,280 C) $481,892 D) $484,771

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

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100

141) 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: Dollars March April May June July August

$ 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Difficulty : 3 Hard Accessibility : Screen Reader Compatible

142) 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 $8,500, accounts receivable of $449,000, inventories of $458,250, and accounts payable of $145,055. 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 $27. Marketing, general, and administrative expenses, of which $15,000 is depreciation, are equal to 15% of the current month's sales. Actual and projected sales are as shown below: Dollars March April May June July August

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$ 484,000 $ 496,000 $ 488,000 $ 468,000 $ 492,000 $ 492,000

Units 13,000 13,300 13,100 12,600 13,200 13,400

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What are the budgeted number of inventory units that need to be purchased in July? A) 12,900 B) 16,500 C) 13,450 D) 13,200

143) 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: Dollars

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103

March April May June July August

$ 472,000 $ 484,000 $ 476,000 $ 456,000 $ 480,000 $ 480,000

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

144)

Jackson Company has developed the following sales projections for the calendar year:

May June July August September October

$ 122,000 142,000 162,000 182,000 172,000 152,000

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)

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A) $518,000. B) $507,000. C) $476,700. D) $415,000.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

145)

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

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146) A company is preparing its cash budget for the coming month. All sales are on account. Given the following: Beginning Balances $ 170,000

Cash Accounts Receivable Sales

Budget Amounts

200,000 $ 900,000

Cash disbursements

980,000

Depreciation

35,000

Ending accounts receivable balance

230,000

What is the expected cash balance of the company at the end of the coming month? (CIA adapted) A) $22,500 B) $60,000 C) $68,000 D) $105,000

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

147) A company is preparing its cash budget for the coming month. All sales are on account. Given the following: Beginning Balances $ 50,000

Cash Accounts Receivable Sales

Budget Amounts

180,000 $ 800,000

Cash disbursements

780,000

Depreciation

25,000

Ending accounts receivable balance

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

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148) 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: Collections on Account In the month of sale In the month following the sale Uncollectible

Percentage 40% 58% 2%

Sales for the first 5 months of the coming year are forecast as follows: January February March April May

$ 3,660,000 3,960,000 3,760,000 4,160,000 4,360,000

For the month of April, the total cash receipts from sales and collections on accounts would be: (CIA adapted) A) $3,885,576. B) $3,939,360. C) $4,193,100. D) $4,592,000.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

149) 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: Collections on Account In the month of sale In the month following the sale Uncollectible

Percentage 40% 58% 2%

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.

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150) Shown below is the sales forecast for Kalin Incorporated for the first four months of the coming year. Cash sales Credit sales

January

February

March

April

$ 21,000 $ 220,000

$ 30,000 $ 240,000

$ 24,000 $ 210,000

$ 20,000 $ 190,000

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) $284,000. B) $251,000. C) $245,000. D) $222,000.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

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151) Shown below is the sales forecast for Kalin Incorporated for the first four months of the coming year. Cash sales Credit sales

January

February

March

April

$ 15,000 $ 100,000

$ 24,000 $ 120,000

$ 18,000 $ 90,000

$ 14,000 $ 70,000

152)

Budgeted sales in Washburn Company over the next four months are given below:

Budgeted sales

September

October

November

December

$ 250,000

$ 310,000

$ 330,000

$ 270,000

25% 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:

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A) $322,000. B) $277,875. C) $250,000. D) $215,400.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

153)

Budgeted sales in Washburn Company over the next four months are given below:

Budgeted sales

September

October

November

December

$ 100,000

$ 160,000

$ 180,000

$ 120,000

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154) The following data have been taken from the budget reports of Kenyon Company, a merchandising company. Purchases January February March April May June

$ 192,000 $ 192,000 $ 192,000 $ 172,000 $ 172,000 $ 152,000

Sales $ 132,000 $ 232,000 $ 272,000 $ 332,000 $ 292,000 $ 272,000

40% 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 $182,000 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 $252,000.) Interest payments of $52,000 are paid quarterly in January and April. Kenyon's cash disbursements for the month of April would be: (CMA adapted) A) $181,000. B) $327,600. C) $257,953. D) $319,861.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Difficulty : 3 Hard Type : Algorithmic Accessibility : Screen Reader Compatible

155) The following data have been taken from the budget reports of Kenyon Company, a merchandising company. Purchases January February March April May June

$ 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

40% 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Difficulty : 3 Hard Accessibility : Screen Reader Compatible

156)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Gradable : automatic Difficulty : 2 Medium AICPA : FN Measurement Bloom's : Understand Learning Objective : 13-05 Develop budgeted financial statements. Topic : Planning for the Assets and Liabilities on the Budgeted Balance Sheets Accessibility : Screen Reader Compatible

157) Serene Corporation, an auto parts retailer, had 27,000 units of brake calipers on hand at the end of 2022. The company's inventory policy is to maintain an ending inventory equal to 10% of the current year's sales. During 2023, Serene sold 310,000 units of calipers. How many units did Serene purchase in 2023?

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A) 314,000 B) 310,000 C) 286,100 D) 285,700

158) Serene Corporation, an auto parts retailer, had 17,000 units of brake calipers on hand at the end of 2022. The company's inventory policy is to maintain an ending inventory equal to 15% of the current year's sales. During 2023, Serene sold 210,000 units of calipers. How many units did Serene purchase in 2023? A) 224,500 B) 210,000 C) 196,150 D) 194,700

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159) Virginia Company, a merchandising firm, operated 5 sales offices last year at a total cost of $510,000, of which $71,000 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 6 sales offices? (CPA adapted) A) $710,000 B) $597,800 C) $526,800 D) $510,000

160) 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

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161)

Which of the following budgets is not required in a wholesale organization? A) Cash B) Sales C) Production D) Cost of goods sold

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Accessibility : Screen Reader Compatible

162)

Which of the following budgets is not required in a service organization? A) Cash B) Sales C) Labor D) Cost of goods sold

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Service Organizations Accessibility : Screen Reader Compatible

163) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Gradable : automatic Difficulty : 2 Medium Bloom's : Understand Learning Objective : 13-07 Identify common ethical dilemmas associated with budgeting. Topic : Ethical Problems in Budgeting Accessibility : Screen Reader Compatible

164)

Sensitivity analysis can best be used in the budgeting process to:

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-08 Explain how to use sensitivity analysis to budget under uncertainty. Topic : Budgeting under Uncertainty Accessibility : Screen Reader Compatible

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 165) Dalley Incorporated 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

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$ 2,900,000

$ 168,000 142,400 327,600 999,000

422,400 149,600 509,200 74,800 $ 2,793,000 $ 107,000

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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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible Topic : Pulling It Together into the Income Statement

166)

Oregon Incorporated 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)

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$ 3,730,000

$ 665,000 904,000 360,000 445,000

475,000 113,000 450,550

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Administrative depreciation Total costs Operating profits

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible Topic : Pulling It Together into the Income Statement

167)

A sales budget is given below for one of the products manufactured by Trumpet, Limited.

Month July August September October November December

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Sales Budget in Units 28,000 30,000 34,000 36,000 29,000 26,000

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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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Difficulty : 3 Hard Topic : Comprehensive Illustration Gradable : manual Accessibility : Screen Reader Compatible

168)

A sales budget is given below for one of the products manufactured by Reyes, Limited.

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. Version 1

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169) 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 laborhour. 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Difficulty : 3 Hard Topic : Comprehensive Illustration Gradable : manual Accessibility : Screen Reader Compatible

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170) 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 laborhour. 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Difficulty : 3 Hard Topic : Comprehensive Illustration Gradable : manual Accessibility : Screen Reader Compatible

171) Endpoint Incorporated bases its manufacturing overhead budget on budgeted direct laborhours. 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.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Topic : Comprehensive Illustration Gradable : manual Accessibility : Screen Reader Compatible

172) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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173) Ng Incorporated 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Topic : Marketing and Administrative Budget Gradable : manual Accessibility : Screen Reader Compatible

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174) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Topic : Marketing and Administrative Budget Gradable : manual Accessibility : Screen Reader Compatible

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175) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Difficulty : 3 Hard Topic : Comprehensive Illustration Gradable : manual Accessibility : Screen Reader Compatible

176)

A sales budget is given below for one of the products manufactured by Dance, Limited

Month July August September October

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Sales Budget in Units 18,000 20,000 24,000 26,000

129

November December

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Difficulty : 3 Hard Topic : Comprehensive Illustration Gradable : manual Accessibility : Screen Reader Compatible

177) 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.

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178) 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 31 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

179) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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180)

Folkes, Incorporated has prepared a sales budget for the second quarter as shown below: Budgeted Sales

April May June

$ 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 second quarter. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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181)

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

182)

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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183) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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184) year.

Roman Company, a merchandising firm, has the following sales budget for the coming

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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185) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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186) Things Incorporated 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

187) Wings Incorporated 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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188) The Boxer Company, a merchandising firm, has budgeted its activity for December according to the following information: ● Sales are 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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189) James, Incorporated 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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190)

Davis Company has forecast its sales as follows:

August September October

$ 180,000 (actual) $ 280,000 (actual) $ 360,000

November

$ 400,000

December

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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191)

Parker Company has forecast its sales as follows:

November December January

$ 190,000 (actual) $ 240,000 (actual) $ 280,000

February

$ 300,000

March

$ 350,000

April

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

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192) 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

Units

March April May June

30,000 50,000 80,000 40,000

Selling Price $ 5.20 5.20 5.60 5.60

Required:Prepare a schedule of cash receipts for May and June. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

193)

Falcon Enterprises expects the following unit sales over the next five months:

Month April May June July August

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Unit Sales 400,000 480,000 540,000 600,000 560,000

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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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

194)

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 ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

195) What are the differences between strategic planning and the tactical planning process? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Topic : Overall Plan Difficulty : 2 Medium Bloom's : Understand Gradable : manual Accessibility : Screen Reader Compatible

196) Describe what is meant by participative budgeting and give an example of a benefit and a drawback. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Topic : Human Element in Budgeting Difficulty : 2 Medium Bloom's : Understand Gradable : manual Accessibility : Screen Reader Compatible

197) Describe the difference between the following sales forecasting techniques: the Delphi technique, trend analysis, and econometric models. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 13-02 Estimate sales. Difficulty : 2 Medium Bloom's : Understand Topic : Where to Start? Gradable : manual Accessibility : Screen Reader Compatible

198) Why is it more difficult to prepare a marketing and administrative budget than it is to prepare a production budget? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 13-03 Develop production and cost budgets. Topic : Marketing and Administrative Budget Gradable : manual Accessibility : Screen Reader Compatible

199) Why does a service organization not need to prepare a production budget or a cost of goods sold budget? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Service Organizations Gradable : manual Accessibility : Screen Reader Compatible

200) Why does budgeting create serious ethical issues for many people? Give an example. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 13-07 Identify common ethical dilemmas associated with budgeting. Topic : Ethical Problems in Budgeting Gradable : manual Accessibility : Screen Reader Compatible

201) What does the phrase, "use it or lose it," mean in the context of budgeting? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 13-07 Identify common ethical dilemmas associated with budgeting. Topic : Ethical Problems in Budgeting Gradable : manual Accessibility : Screen Reader Compatible

202) 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?

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203) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Difficulty : 2 Medium AACSB : Reflective Thinking Bloom's : Understand Gradable : manual Accessibility : Screen Reader Compatible Topic : How Strategic Planning Increases Competitiveness

204) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 13-01 Understand the role of budgets in overall organization planning and the im Topic : Human Element in Budgeting Difficulty : 2 Medium Bloom's : Understand Gradable : manual AICPA : BB Critical Thinking Accessibility : Screen Reader Compatible

205) 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

Variable Cost Per Security Surge Sold $ 1.50

Shipping

$ 2.30

Advertising Executive salaries

$ 4.50

Depreciation on office equipment Other

Monthly Fixed Cost

$ 36,000 $ 146,000 $ 13,000

$ 0.60

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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206) 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 60,000 60,000 10,000

10,000 70,000 70,000 10,000

10,000 35,000 40,000 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.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

207) Marino Company has projected sales and production in units for the second quarter of the year as follows: Sales Production

April

May

June

30,000 25,000

20,000 25,000

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.

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208) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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209) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Difficulty : 2 Medium AACSB : Reflective Thinking Bloom's : Understand Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Gradable : manual Accessibility : Screen Reader Compatible

210) 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

$ 13,000 82,000 153,000 1,138,000 $ 1,386,000

Liabilities and Stockholders’ Equity: Accounts payable

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$ 257,000

157

Common stock Retained earnings Total liabilities and stockholders’ equity

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Learning Objective : 13-05 Develop budgeted financial statements. Topic : Planning for the Assets and Liabilities on the Budgeted Balance Sheets Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Difficulty : 3 Hard Topic : Comprehensive Illustration Gradable : manual Accessibility : Screen Reader Compatible

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211) 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

$ 22,000 82,000 166,400 1,170,000 $ 1,440,400

Liabilities and Stockholders’ Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders’ equity

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Measurement Learning Objective : 13-03 Develop production and cost budgets. Bloom's : Apply Learning Objective : 13-04 Estimate cash flows. Topic : Using Cash Flow Budgets to Estimate Cash Needs Learning Objective : 13-05 Develop budgeted financial statements. Topic : Planning for the Assets and Liabilities on the Budgeted Balance Sheets Learning Objective : 13-06 Explain budgeting in merchandising and service organizations. Topic : Budgeting in Retail and Wholesale Organizations Difficulty : 3 Hard Topic : Comprehensive Illustration Gradable : manual Accessibility : Screen Reader Compatible

212) How does zero-based budgeting differ from the traditional budgeting approach? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Gradable : manual Accessibility : Screen Reader Compatible Learning Objective : 13-09 (Appendix) Describe zero-based budgeting and illustrate its use. Topic : Appendix: Zero-Based Budgeting

213)

What are some advantages and disadvantages of zero-based budgeting?

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Answer Key Test name: Lanen7e_ch13 1) TRUE 2) TRUE 3) FALSE Participative budgeting includes the use of input from lower and middle managers in budgeting and is time-consuming. 4) TRUE 5) TRUE 6) TRUE 7) FALSE 8) TRUE 9) TRUE 10) FALSE 11) TRUE 12) TRUE 13) TRUE 14) TRUE 15) FALSE 16) FALSE 17) TRUE 18) TRUE 19) TRUE 20) TRUE 21) TRUE 22) TRUE 23) C

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Budgeting is not related to defining responsibility centers nor should it be used to "fix" the blame. 24) D Critical success factors are strengths of a company that enable it to outperform competitors. 25) A Top managers establish broad objectives, which serve as organization goals that company employees work to achieve. 26) C The profit plan is the income statement portion of the master budget. 27) C A master budget indicates the level of sales, production, and cost, as well as income and cash flows anticipated for the coming year. 28) D An overall organization plan for the coming year is made up of three components: the organizational goals, the strategic long-range profit plan, and the tactical short-range profit plan. 29) A Tracking actual costs is always necessary. 30) B Benefits of participative budgeting include: enhancing employee motivation and acceptance of goals, providing information that enables employees to associate rewards and penalties with performance, serving as a training or development role for managers, and yielding information that employees know but managers do not. 31) A Implementing a change quickly does not allow enough time for acceptance by employees. 32) D

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For most organizations, the sales budget is the starting point and prepared prior to the cash budget. 33) C The sales budget is the basis for the production budget and sets the level of activity for the entire organization. 34) A The sales budget is the basis for the production budget and sets the level of activity for the entire organization. 35) C This statement is the definition of the Delphi technique. 36) C 1,140,000 ÷ 0.24 = 4,750,000; 4,750,000 × 1.06 = 5,035,000 new market size; 5,035,000 × 0.30 = 1,510,500 sales (units); 1,510,500 × $5.70 = $8,609,850 sales revenues. 37) C 1,000,000 ÷ 0.20 = 5,000,000; 5,000,000 × 1.05 = 5,250,000 new market size; 5,250,000 × 0.24 = 1,260,000 sales (units); 1,260,000 × $4.30 = $5,418,000 sales revenues 38) A Econometric models are statistical methods of forecasting economic data using regression models. 39) B [(230,000 × 0.75) × ($230 × 1.15)] = $45,626,250 40) B [(120,000 × 0.80) × ($120 × 1.10)] = $12,672,000 41) A [($43.0 million × 0.14) + ($38.0 million × 0.10) + ($5.0 million × 0.08)] − [($48.0 million × 0.12) + ($40.0 million × 0.085) + ($3.8 million × 0.11)] = $10,220,000 − $9,578,000 = $642,000 decrease 42) A Version 1

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[($35.0 million × 0.12) + ($30.0 million × 0.08) + ($5.0 million × 0.06)] − [($40.0 million × 0.10) + ($32.0 million × 0.065) + ($4.0 million × 0.09)] = $6,900,000 − $6,440,000 = $460,000 decrease. 43) D The sales budget is the starting point of the master budget. 44) B 90,000 + 50,000 − 60,000 = 80,000 budgeted units of production; [80,000 × ($15 + $25 + $4)] + $100,000 = $3,620,000 45) B 70,000 + 30,000 − 40,000 = 60,000 budgeted units of production; [60,000 × ($10 + $20 + $5)] + $80,000 = $2,180,000 46) A Current sales price = $520,000 ÷ 40,000 = $13 per unit; New sales price = $13 × 1.11 = $14.43; New sales in units = 40,000 × 1.25 = 50,000 units; $14.43 × 50,000 = $721,500; Sales returns ratio = $20,800 ÷ $520,000 = 0.04; New sales returns = $721,500 × 0.04 = $28,860; Estimated net sales = $721,500 − $28,860 = $692,640 47) A Current sales price = $450,000 ÷ 30,000 = $15 per unit; New sales price = $15 ×1.14 = $17.10; New sales in units = 30,000 ×1.30 = 39,000 units; $17.10 × 39,000 = $666,900; Sales returns ratio = $13,500 ÷ $450,000 = 0.03; New sales returns = $666,900 × 0.03 = $20,007; Estimated net sales = $666,900 − $20,007 = $646,893 48) D

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$321,000 ÷ 6 = $53,500 overhead (from the DM, DL, FOH ratio: 3 + 2 + 1 = 6); $53,500 × $2 = $107,000 labor; $53,500 × $3 = $160,500 materials; Overhead: $53,500 × 1.12 = $59,920; Labor: $107,000 × 1.15 = $123,050; Materials: $160,500 × 1.20 = $192,600; $59,920 + $123,050 + $192,600 = $375,570 Cost of Goods Sold 49) D $306,000 ÷ 6 = $51,000 overhead (from the DM, DL, FOH ratio: 3 + 2 + 1 = 6); $51,000 × 2 = $102,000 labor; $51,000 × 3 = $153,000 materials; Overhead: $51,000 × 1.10 = $56,100; Labor: $102,000 × 1.15 = $117,300; Materials: $153,000 ×1.20 = $183,600; $56,100 + $117,300 + $183,600 = $357,000 Cost of Goods Sold 50) B April Budgeted unit sales Add desired ending finished goods inventory1 Total needs Less beginning finished goods inventory Required production in units

78,000 37,200 115,200 (43,000) 72,200

May sales of 93,000 units × 40% = 37,200 units 51) B April Budgeted unit sales Add desired ending finished goods inventory1 Total needs Less beginning finished goods inventory Required production in units

60,000 30,000 90,000 (25,000) 65,000

May sales of 75,000 units × 40% = 30,000 units 52) D Budgeted unit sales Add desired ending finished goods inventory Total needs

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July

August

September

Quarter

320,000 268,8003

336,0001 282,2404

352,8002 296,3525

1,008,800 296,352

588,800

618,240

649,152

1,305,152

166

Less beginning finished goods inventory

(270,000)

(268,800)

(282,240)

(270,000)

Required production in units

318,800

349,440

366,912

1,035,152

Unit sales of 320,000 × 105% = 336,000 Unit sales of 336,000 × 105% = 352,800 3 Unit sales of 336,000 × 80% = 268,800 4 Unit sales of 352,800 × 80% = 282,240 5 Unit sales of (352,800 × 105%) × 80% = 296,352 53) D 2

Budgeted unit sales Add desired ending finished goods inventory Total needs Less beginning finished goods inventory Required production in units

July

August

September

Quarter

200,000 168,0003

210,0001 176,4004

220,5002 185,2205

630,500 185,220

368,000 (150,000)

386,400 (168,000)

405,720 (176,400)

815,720 (150,000)

218,000

218,400

229,320

665,720

Unit sales of 200,000 × 105% = 210,000 2 Unit sales of 210,000 × 105% = 220,500 3 Unit sales of 210,000 × 80% = 168,000 4 Unit sales of 220,500 × 80% = 176,400 5 Unit sales of (220,500 × 105%) × 80% = 185,220 54) A Beginning Inventory $0 + Purchases $29,000 − COGS (30% × $51,000) = $13,700 Ending Inventory 55) A Beginning Inventory $0 + Purchases $18,000 − COGS (30% × $40,000) = $6,000 Ending Inventory 56) B Production in units

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Second Quarter 99,000 167

Pounds per unit of production Pounds of raw material for production Add: Ending inventory (109,000 units × 4 × 30%)

4 396,000 130,800 526,800

Less: Beginning inventory (99,000 units × 4 × 30%)

(118,800)

Budgeted purchase of material A

408,000

57) B Second Quarter 80,000 2 160,000 45,000 205,000

Production in units Pounds per unit of production Pounds of raw material for production Add: Ending inventory (90,000 units × 2 × 25%)

Less: Beginning inventory (80,000 units × 2 × 25%)

(40,000)

Budgeted purchase of material A

165,000

58) A October

November

Total

Required production in units

7,300

7,100

Direct labor-hours per unit

0.79

Total direct labor-hours needed

5,767

5,609

Minimum guaranteed paid labor-hours

5,800

Direct labor cost per hour

$ 11.40

Total direct labor cost

$ 66,120

$ 132,240

October

November

Total

Required production in units

7,100

6,900

Direct labor-hours per unit

0.77

Total direct labor-hours needed

5,467

5,313

Minimum guaranteed paid labor-hours

5,480

59) A

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Direct labor cost per hour

$ 11.20

Total direct labor cost

$ 61,376

$ 122,752

July

Total

60) D June Required production in units

3,700

3,500

Direct labor-hours per unit

0.79

Total direct labor-hours needed

2,923

2,765

Direct labor cost per hour

$ 11.00

Total direct labor cost

$ 32,153

$ 30,415

June

July

$ 62,568

61) D Required production in units

2,100

1,900

Direct labor-hours per unit

0.84

Total direct labor-hours needed

1,764

1,596

Direct labor cost per hour

$ 9.40

$ 16,581.60

$ 15,002.40

Total direct labor cost

Total

$ 31,584

62) A May Budgeted direct labor-hours Variable manufacturing overhead rate Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing overhead Less depreciation

9,800 $ 3.10 $ 30,380 117,440 147,820 (10,610)

Cash disbursement for manufacturing overhead

$ 137,210

63) A May Budgeted direct labor-hours Variable manufacturing overhead rate Variable manufacturing overhead

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8,100 $ 1.40 $ 11,340 169

Fixed manufacturing overhead Total manufacturing overhead Less depreciation Cash disbursement for manufacturing overhead

100,440 111,780 (8,910) $ 102,870

64) B August Budgeted direct labor-hours Variable manufacturing overhead rate Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing overhead Divided by: Direct labor-hours

7,200 $ 8.70 $ 62,640 134,640 197,280 7,200

Predetermined overhead rate

$ 27.40

65) B August Budgeted direct labor-hours Variable manufacturing overhead rate Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing overhead Divided by: Direct labor-hours

7,100 $ 8.60 $ 61,060 132,770 193,830 7,100

Predetermined overhead rate

$ 27.30

66) C September Budgeted direct labor-hours Variable manufacturing overhead rate Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing overhead Divided by: Direct labor-hours

4,400 $ 6.40 $ 28,160 57,200 85,360 4,400

Predetermined overhead rate

$ 19.40

67) C September Budgeted direct labor-hours Variable manufacturing overhead rate

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3,700 $ 5.70

170

Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing overhead Divided by: Direct labor-hours

$ 21,090 48,100 69,190 3,700

Predetermined overhead rate

$ 18.70

68) A September Budgeted direct labor-hours Variable manufacturing overhead rate Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing overhead Less depreciation

3,100 $ 7.3 $ 22,630 46,120 68,750 (3,940)

Cash disbursement for manufacturing overhead

$ 64,810

69) A September Budgeted direct labor-hours Variable manufacturing overhead rate Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing overhead Less depreciation

2,800 $ 7.00 $ 19,600 43,120 62,720 (3,640)

Cash disbursement for manufacturing overhead

$ 59,080

70) A June Budgeted unit sales Variable marketing and administrative expense per unit Variable marketing and administrative expense Fixed marketing and administrative expense Total marketing and administrative expense Less depreciation Cash disbursements for marketing and administrative expenses

5,600 $ 1.10 $ 6,160 103,040 109,200 (6,150) $ 103,050

71) A June

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Budgeted unit sales Variable marketing and administrative expense per unit Variable marketing and administrative expense Fixed marketing and administrative expense Total marketing and administrative expense Less depreciation Cash disbursements for marketing and administrative expenses

5,500 $ 1.00 $ 5,500 101,200 106,700 (6,050) $ 100,650

72) C December Budgeted unit sales Variable marketing and administrative expense per unit Variable marketing and administrative expense Fixed marketing and administrative expense Total marketing and administrative expense Less depreciation

5,100 $ 5.00 $ 25,500 96,900 122,400 (8,620)

Cash disbursements for marketing and administrative expenses

$ 113,780

73) C December Budgeted unit sales Variable marketing and administrative expense per unit Variable marketing and administrative expense Fixed marketing and administrative expense Total marketing and administrative expense Less depreciation

3,200 $ 3.10 $ 9,920 60,800 70,720 (6,720)

Cash disbursements for marketing and administrative expenses

$ 64,000

74) A 18,100 + (16,200 × 0.20) − (18,100 × 0.20) = 17,720 units 75) A 18,000 + (16,000 × 0.25) − (18,000 × 0.25) = 17,500 units 76) C 15,600 + (19,500 × 0.25) − (15,600 × 0.25) = 16,575 units 77) C Version 1

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14,000 + (18,000 × 0.25) − (14,000 × 0.25) = 15,000 units 78) A (18,000 × 3) = 54,000; 54,000 + (14,100 × 3 × 0.15) − (18,000 × 3 × 0.15) = 52,245 79) A (16,000 × 4) = 64,000; 64,000 + (14,000 × 4 × 0.10) − (16,000 × 4 × 0.10) = 63,200 80) C (13,000 × 4) = 52,000; 52,000 + (18,900 × 4 × 0.10) − (13,000 × 4 × 0.10) = 54,360 81) C (12,000 × 4) = 48,000; 48,000 + (16,000 × 4 × 0.10) − (12,000 × 4 × 0.10) = 49,600 82) C 41,400 ÷ 12 = 3,450 sales per month; 3,450 + (3 × 3,450) − 6,900 = 6,900 83) C 36,000 ÷ 12 = 3,000 sales per month; 3,000 + (3 × 3,000) − 6,000 = 6,000 84) B 94,000 + 29,000 − 39,000 = 84,000 85) B 75,000 + 10,000 − 20,000 = 65,000 86) B Production budget in units = 87,000 + 22,000 − 32,000 = 77,000; 77,000 units × 5 feet = 385,000 feet; 385,000 + (385,000/12 × 3) − 88,000 = 393,250 87) B

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Production budget in units = 75,000 + 10,000 − 20,000 = 65,000; 65,000 units × 5 feet = 325,000 feet; 325,000 + (325,000/12 × 3) − 70,000 = 336,250 88) C 26,000 + (32,000 × 0.20) − 5,200 = 27,200 89) C 16,000 + (22,000 × 0.20) − 3,200 = 17,200 90) D Of the budget ordering indicated, this list is the prescribed order of budget development. 91) B Since capacity is the limiting factor, the estimate of capacity is most important. 92) B 4,300 + (3,900 × 0.30) − (4,300 × 0.30) = 4,180 93) B 2,500 + (2,100 × 0.40) − (2,500 × 0.40) = 2,340 94) A 2,400 × 4 = 9,600 legs needed for production; 9,600 + (2,600 × 4 × 0.70) − 5,000 = 11,880 95) A 1,600 × 4 = 6,400 legs needed for production; 6,400 + (1,800 × 4 × 0.60) − 4,200 = 6,520 96) A Required production (units) = Budgeted sales (units) + Units in ending inventory − Units in beginning inventory 97) A Depreciation and amortization are included in overhead and their cash outlays are in other periods. 98) B Version 1

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Required production (units) = Budgeted sales (units) + Units in ending inventory − Units in beginning inventory 99) B Required materials purchases = Materials to be used in production + Estimated ending materials inventory − Estimated beginning materials inventory 100) D Materials, labor, and overhead are production inputs; whereas, marketing and administrative expenses are based on sales. 101) D Labor and materials are not divided into fixed and variable, and cost of goods sold is based on labor, materials, and overhead. 102) D A shorter time horizon does not present as much difficulty as longerrange horizons. 103) D Revenues are not found on a balance sheet; they are found on the income statement. 104) B Cash balance, beginning Add cash receipts from sales Total cash available Less cash disbursements Excess (deficiency) of cash available over disbursements Financing ($36,000 − $24,200 + interest) rounded up to nearest multiple of $1,000 Interest ($13,000 × 2%) Cash balance, ending

$ 32,000 1,168,200 1,200,200 (1,176,000) 24,200 13,000 260 $ 36,940

105) B Cash balance, beginning Add cash receipts from sales Total cash available Less cash disbursements

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$ 48,000 1,152,200 1,200,200 (1,160,000)

175

Excess (deficiency) of cash available over disbursements Financing ($60,000 − $40,200 + interest) rounded up to nearest multiple of $1,000 Interest ($21,000 × 2%) Cash balance, ending

40,200 21,000 420 $ 60,780

106) C Cash balance, beginning Add cash receipts from sales Total cash available Less cash disbursements Excess (deficiency) of cash available over disbursements

$ 19,000 191,000 210,000 (190,000) 20,000

107) C Cash balance, beginning Add cash receipts from sales Total cash available Less cash disbursements Excess (deficiency) of cash available over disbursements

$ 16,000 188,000 204,000 (187,000) 17,000

108) D March sales collected in March ($130,000× 40%) February sales collected in March ($147,000 × 50%) January sales collected in March ($111,000 × 7%)

$ 52,000 73,500 7,770

Total cash collections in March

$ 133,270

109) D March sales collected in March ($110,000 × 30%) February sales collected in March ($120,000 × 60%) January sales collected in March ($100,000 × 8%)

$ 33,000 72,000 8,000

Total cash collections in March

$ 113,000

110) A Cash balance, beginning Add cash receipts from sales Total cash available Less cash disbursements Excess (deficiency) of cash available over disbursements Financing

$ 28,000 141,000 169,000 (140,000) 29,000 39,000

Cash balance, ending

$ 68,000

111) A Cash balance, beginning

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$ 14,000 176

Add cash receipts from sales Total cash available Less cash disbursements Excess (deficiency) of cash available over disbursements Financing

127,000 141,000 (126,000) 15,000 25,000

Cash balance, ending

$ 40,000

112) D All of the other budgets listed are needed to prepare the cash budget. 113) C Accounts receivable are cash receipts. 114) C ($1,980,000 × 0.80) − $1,370,000 − $107,000 − $570,000 + $670,000 + $117,000 − $67,000 = $257,000 115) C ($1,500,000 × 0.90) − $1,200,000 − $90,000 − $400,000 + $500,000 + $100,000 − $50,000 = $210,000 116) B ($46,000 × 0.10) + ($44,000 × 0.90 × 0.75) + ($38,000 × 0.90 × 0.17) + ($34,000 × 0.90 × 0.06) = $41,950 117) B ($42,000 × 0.10) + ($40,000 × 0.90 × 0.75) + ($34,000 × 0.90 × 0.17) + ($30,000 × 0.90 × 0.06) = $38,022 118) A ($54,000 × 0.10) + ($58,000 × 0.90 × 0.75) + ($56,000 × 0.90 × 0.17) + ($50,000 × 0.90 × 0.06) = $55,818 119) A ($38,000 × 0.10) + ($42,000 × 0.90 × 0.75) + ($40,000 × 0.90 × 0.17) + ($34,000 × 0.90 × 0.06) = $40,106 120) D

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$48,000 × 0.93 = $44,640; $46,000 × 0.93 = $42,780; $40,000 × 0.93 = $37,200; $36,000 × 0.93 = $33,480; ($44,640 × 0.15) + ($42,780 × 0.85 × 0.80) + ($37,200 × 0.85 × 0.16 × 1.015) + ($33,480 × 0.85 × 0.03 × 1.015) = $41,788 121) D $42,000 × 0.93 = $39,060; $40,000 × 0.93 = $37,200; $34,000 × 0.93 = $31,620; $30,000 × 0.93 = $27,900; ($39,060 × 0.15) + ($37,200 × 0.85 × 0.80) + ($31,620 × 0.85 × 0.16 × 1.015) + ($27,900 × 0.85 × 0.03 × 1.015) = $36,242 122) D ($41,000 × 0.40) + ($41,000 × 0.60 × 0.70) + ($61,000 × 0.60 × 0.20) + ($85,000 × 0.60 × 0.08) = $45,020 123) D ($30,000 × 0.30) + ($30,000 × 0.70 × 0.60) + ($50,000 × 0.70 × 0.25) + ($70,000 × 0.70 × 0.12) = $36,230 124) B ($78,000 × 0.30) + ($78,000 × 0.70 × 0.60) + ($98,000 × 0.70 × 0.25) + ($88,000 × 0.70 × 0.12) = $80,702 125) B ($50,000 × 0.30) + ($50,000 × 0.70 × 0.60) + ($70,000 × 0.70 × 0.25) + ($60,000 × 0.70 × 0.12) = $53,290 126) A COGS: $1,060,000 × (1 − 0.45) = $583,000; inventory purchases = COGS + increase in inventory = $583,000 + $34,000 = $617,000; cash paid on payables = purchases + decrease in payables = $617,000 + $61,500 = $678,500; cash disbursements = cash paid on payables + cash paid for expenses = $678,500 + ($179,000 − $38,000) = $819,500 127) A

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COGS: $975,000 × (1 − 0.45) = $536,250; inventory purchases = COGS + increase in inventory = $536,250 + $17,000 = $553,250; cash paid on payables = purchases + decrease in payables = $553,250 + $27,500 = $580,750; cash disbursements = cash paid on payables + cash paid for expenses = $580,750 + ($145,000 − $4,000) = $721,750. 128) C ($356,000 × 0.80) + $82,250 + $41,000 = $408,050 129) C ($330,000 × 0.80) + $56,250 + $15,000 = $335,250 130) D ($334,000 × 0.25) + ($259,000 × 0.65) + $52,000 = $303,850 131) D ($300,000 × 0.25) + ($225,000 × 0.65) + $18,000 = $239,250 132) B ($154,000 × 0.15) + ($139,000 × 0.72) + ($124,000 × 0.06) + ($149,000 × 0.03) = $135,090 133) B ($150,000 × 0.15) + ($135,000 × 0.72) + ($120,000 × 0.06) + ($145,000 × 0.03) = $131,250 134) A [14,100 + (1.25 × 13,600) − (1.25 × 14,100)] × $26 = $350,350. 135) A [11,900 + (1.25 × 11,400) − (1.25 × 11,900)] × $30 = $338,250 136) C [15,400 + (1.25 × 16,000) − (1.25 × 15,400)] × $23 = $371,450 137) C [11,400 + (1.25 × 12,000) − (1.25 × 11,400)] × $30 = $364,500 138) B

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June Purchases: [14,400 + (1.25 × 15,000) − (1.25 × 14,400)] × $24 = $363,600 May Purchases: [14,900 + (1.25 × 14,400) − (1.25 × 14,900)] × $24 = $342,600 ($363,600 × 0.60) + ($342,600 × 0.40) + ($486,000 × 0.15) − $33,000 = $395,100 139) B June Purchases: [11,400 + (1.25 × 12,000) − (1.25 × 11,400)] × $30 = $364,500 May Purchases: [11,900 + (1.25 × 11,400) − (1.25 × 11,900)] × $30 = $338,250 ($364,500 × 0.60) + ($338,250 × 0.40) + ($456,000 × 0.15) − $3,000 = $419,400 140) A ($494,000 × 0.55 × 0.97) + ($494,000 × 0.30) + ($482,000 × 0.09) = $455,129 141) A ($484,000 × 0.55 × 0.97) + ($484,000 × 0.30) + ($472,000 × 0.09) = $445,894 142) C 13,200 + (13,400 × 1.25) − (13,200 × 1.25) = 13,450 143) C 12,000 + (12,200 × 1.25) × (12,000 × 1.25) = 12,250 144) C ($142,000 × 0.45) + ($162,000 × 0.95) + ($182,000 × 0.95) + ($172,000 × 0.50) = $476,700 145) C ($120,000 × 0.45) + ($140,000 × 0.95) + ($160,000 × 0.95) + ($150,000 × 0.50) = $414,000 146) B Version 1

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$170,000 + ($200,000 + $900,000 − $230,000) − $980,000 = $60,000 147) B $50,000 + ($180,000 + $800,000 − $210,000) − $780,000 = $40,000 148) B ($4,160,000 × 0.30) + [($4,160,000 × 0.70) × 0.40] + [($3,760,000 × 0.70) × 0.58] = $3,939,360 149) B ($4,000,000 × 0.30) + [($4,000,000 × 0.70) × 0.40] + [($3,600,000 × 0.70) × 0.58] = $3,781,600 150) C March cash sales March credit sales collected in March ($210,000 × 50%) February credit sales collected in March ($240,000 × 30%) January credit sales collected in March ($220,000 × 20%)

$ 24,000 105,000 72,000 44,000

Total cash inflow in March

$ 245,000

151) C March cash sales March credit sales collected in March ($90,000 × 50%) February credit sales collected in March ($120,000 × 30%) January credit sales collected in March ($100,000 × 20%)

$ 18,000 45,000 36,000 20,000

Total cash inflow in March

$ 119,000

152) B December cash sales ($270,000 × 25%) December credit sales collected in December ($270,000 × 75% × 50%) November credit sales collected in December ($330,000 × 75% × 30%) October credit sales collected in December ($310,000 × 75% × 15%)

$ 67,500 101,250

Total cash collections in December

$ 277,875

74,250 34,875

153) B December cash sales ($120,000 × 25%) December credit sales collected in December ($120,000 × 75% × 50%) November credit sales collected in December ($180,000 × 75% × 30%)

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$ 30,000 45,000 40,500

181

October credit sales collected in December ($160,000 × 75% × 15%) Total cash collections in December

18,000 $ 133,500

154) B Purchases Purchases in April ($172,000 × 40%) Purchases in March ($192,000 × 30%) Purchases in February ($192,000 × 30%) Employee wages:

$ 68,800 57,600 57,600

Employee wages in April ($332,000 × 10%) Marketing and administrative expenses:

33,200

Marketing and administrative expenses ($292,000 × 20%) Interest

58,400 52,000

Total cash disbursements for April

$ 327,600

155) B Purchases Purchases in April ($140,000 × 40%) Purchases in March ($160,000 × 30%) Purchases in February ($160,000 × 30%) Employee wages:

$ 56,000 48,000 48,000

Employee wages in April ($300,000 × 10%) Marketing and administrative expenses:

30,000

Marketing and administrative expenses ($260,000 × 20%) Interest

52,000 20,000

Total cash disbursements for April

$ 254,000

156) D Budgeted balance sheets, or statements of financial position, combine an estimate of financial position at the beginning of the budget period with the estimated results of operations for the period (from the income statements) and estimated changes in assets and liabilities. 157) A 310,000 + (310,000 × 0.10) − 27,000 = 314,000 Version 1

182

158) A 210,000 + (210,000 × 0.15) − 17,000 = 224,500 159) B ($510,000 − $71,000) ÷ 5 = $87,800; ($87,800 × 6 sales offices) + $71,000 = $597,800 160) B ($500,000 − $70,000) ÷ 5 = $86,000; ($86,000 × 7 sales offices) + $70,000 = $672,000 161) C Production is only used in a manufacturing organization. 162) D Service organizations do not manufacture or sell goods. The cost of goods sold budget is needed when there are inventories. 163) D If budget targets are difficult to meet, employees could turn to fraudulent financial reporting. 164) C Sensitivity analysis emphasizes "what if" questions. 165) Revenues ($2,900,000 × 115% × 96%) Manufacturing costs: Materials ($168,000 × 115% × 94%) Variable cash costs ($142,400 × 115% × 97.5%) Fixed cash costs ($327,600 × 106%) Depreciation Marketing administrative costs: Variable marketing ($422,400 × 115%) Marketing depreciation Fixed administrative ($509,200 × 110%) Administrative depreciation Total costs Operating profits

Version 1

$ 3,201,600

181,608 159,666 347,256 999,000

485,760 149,600 560,120 74,800 $ 2,957,810 $ 243,790

183

166) Revenues ($3,730,000 × 113% × 104%) Manufacturing costs:

$ 4,383,496

Materials ($665,000 × 113% × 108%) Variable cash costs ($904,000 × 113% × 110%) Fixed cash costs ($360,000 × 106%) Depreciation Marketing & administrative costs:

811,566 1,123,672 381,600 445,000

Variable marketing ($475,000 × 113%) Marketing depreciation Fixed administrative ($450,550 × 112%) Administrative depreciation Total costs

536,750 113,000 504,616 42,000 $ 3,958,204

Operating profits

$ 425,292

167) October

November

Sales (units) Add desired ending inventory

36,800 5,800 41,800

29,000 5,200 34,200

Less estimated beginning inventory Production requirements AQ-12 in one finished unit (ounces) AQ-12 to meet production Add desired ending inventory

(7,200) 34,600 × 10 346,000 213,000

(5,800) 28,400 × 10 284,000

559,000 Less estimated beginning inventory AQ-12 to be purchased

Version 1

(259,500) 299,500

184

Ending finished goods inventory, October: 29,000 × 20% = 5,800; November: 26,000 × 20% = 5,200. Beginning finished goods inventory, October: 36,000 × 20% = 7,200. Ending raw materials inventory, October: 284,000 × 75% = 213,000. Beginning raw materials inventory, October: 346,000 × 75% = 259,500. 168) August Sales Add desired ending inventory

Less estimated beginning inventory Production requirements Material in one finished unit Materials to meet production Add desired ending inventory

September

40,000 14,400 54,400

48,000 15,600 63,600

(12,000) 42,400 × 4 169,600 49,200

(14,400) 49,200 × 4 196,800

218,800 Less estimated beginning inventory

(42,400)

Materials to be purchased

176,400

Ending finished goods inventory, August: 48,000 × 30% = 14,400; September: 52,000 × 30% = 15,600. Beginning finished goods inventory, August: 40,000 × 30% = 12,000. Ending raw materials inventory, August: 196,800 × 25% = 49,200. Beginning raw materials inventory, August: 169,600 × 25% = 42,400. 169) June Required production in units Direct labor-hours per unit Total direct labor-hours needed Direct labor cost per hour Total direct labor cost

Version 1

4,800 0.07 336 $ 8.50 $ 2,856.00

July 5,300 0.07 371 $ 8.50 $ 3,153.50

185

170)

Required production in units Direct labor-hours per unit Total direct labor-hours needed Total direct labor-hours paid Direct labor cost per hour Total direct labor cost

June

July

2,300 0.41 943 960 $ 8.50 $ 8,160

2,200 0.41 902 960 $ 8.50 $ 8,160

171)a. September Budgeted direct labor-hours Variable manufacturing overhead rate Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing overhead Less depreciation

8,600 $ 1.30 $ 11,180 98,900 110,080 (19,780)

Cash disbursement for manufacturing overhead

$ 90,300

b. Total manufacturing overhead (a) Budgeted direct labor-hours (b) Predetermined overhead rate for the month (a) ÷ (b)

$ 110,080 8,600 $ 12.80

172)a. June Budgeted direct labor-hours Variable manufacturing overhead rate Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing overhead Less depreciation Cash disbursement for manufacturing overhead

5,800 $ 7.70 44,660 111,360 156,020 (17,400) $ 138,620

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186

Total manufacturing overhead (a) Budgeted direct labor-hours (b) Predetermined overhead rate for the month(a)/(b)

$ 156,020 5,800 $ 26.90

173) April Budgeted unit sales Variable marketing and administrative expense per unit Variable marketing and administrative expense Fixed marketing and administrative expense Total marketing and administrative expense Less depreciation

2,700 $ 4.30 $ 11,610 30,240 41,850 (3,510)

Cash disbursements for marketing and administrative expenses

$ 38,340

174) January Budgeted unit sales Variable marketing and administrative expense per unit Variable marketing and administrative expense Fixed marketing and administrative expense Total marketing and administrative expense Less depreciation

2,500 $ 4.40 $ 11,000 35,750 46,750 (4,000)

Cash disbursements for marketing and administrative expenses

$ 42,750

175)a. Production Budget: Sales Plus desired ending inventory

120,000 12,000 132,000

Less estimated beginning inventory

(10,000)

Production requirements

122,000

b. Direct Materials Budget: Materials Production requirements Materials in one finished unit Materials to meet production

Version 1

A 122,000 × 4 488,000

B 122,000 × 2 244,000

187

Plus desired ending inventory

12,000 500,000

6,000 250,000

Less estimated beginning inventory Materials to be purchased Cost per material unit

(10,000) 490,000 × $ 0.30

(5,000) 245,000 × $ 0.40

Materials purchases

$ 147,000

$ 98,000

c. Direct Labor Budget: Production requirements Hours per unit Hours required for production Rate per hour

122,000 × 0.25 30,500 × $ 8

Labor costs

$ 244,000

d. Manufacturing Overhead Budget: Variable overhead ($0.50 × 30,500 hours) Fixed overhead

$ 15,250 140,000

Total overhead

$ 155,250

176)74,250 ounces of SV-6 September

October

Sales Add desired ending inventory

24,000 7,600 31,600

26,000 6,900 32,900

Less estimated beginning inventory Production requirements SV-6 in one finished unit SV-6 to meet production Add desired ending inventory

(7,400) 24,200 × 3 72,600 37,950

(7,600) 25,300 × 3 75,900

110,550 Less estimated beginning inventory SV-6 to be purchased

Version 1

(36,300) 74,250

188

Ending finished goods inventory, September: [5,000 + (26,000 × 10%)] = 7,600; October: [5,000 + (19,000 × 10%)] = 6,900. Beginning finished goods inventory, September [5,000 + 24,000 × 10%)] = 7,400. Ending raw materials inventory: 75,900 × 0.5 = 37,950; Beginning raw materials: 72,600 × 0.5 = 36,300. 177) April Sales (units) Plus desired ending inventory Total needs Less estimated beginning inventory

May

50,000 120,000 170,000 (75,000)

80,000 60,000 140,000 (120,000)

95,000

20,000

Production

April Beginning Inventory: 50,000 × 150% = 75,000; April Ending Inventory: 80,000 × 150% = 120,000; May Ending Inventory: 40,000 × 150% = 60,000. 178)

Sales + Ending Inventory − Beginning Inventory Purchases

April

May

June

July

August

200,000 24,000

240,000 27,000

270,000 30,000

300,000 28,000

280,000

(18,000)

(24,000)

(27,000)

(30,000)

206,000

243,000

273,000

298,000

Ending Inventories: April: 240,000 × 10% = 24,000; May: 270,000 × 10% = 27,000; June: 300,000 × 10% = 30,000; July: 280,000 × 10% = 28,000; August: cannot be determined. 179)a. Production Budget: Sales (units) Plus desired ending inventory

Version 1

90,000 8,625 98,625

189

Less estimated beginning inventory

(7,500)

Production requirements

91,125

Desired ending inventory: 7,500 × 115% = 8,625. b. Direct Materials Budget: Materials Production requirements Materials in one finished unit Materials to meet production Plus desired ending inventory

A 91,125 × 3 273,375 11,000 284,375

B 91,125 × 2 182,250 5,500 187,750

Less estimated beginning inventory Materials to be purchased Cost per material unit

(10,000) 274,375 × $ 0.40

(5,000) 182,750 × $ 0.36

Material purchases

$ 109,750

$ 65,790

Desired ending inventories: A: 10,000 × 110% = 11,000; B: 5,000 × 110% = 5,500. c. Direct Labor Budget: Production requirements Hours per unit Hours required for production Rate per hour

91,125 × 1/3 30,375 × $ 12

Labor costs

$ 364,500

d. Manufacturing Overhead Budget: Variable overhead ($2.60 × 30,375 hours) Fixed overhead

$ 78,975 175,000

Total overhead

$ 253,975

180) April Collected in month of sale $400,000 × 0.70 × 0.99 $ 277,200

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May

June

Second quarter

$ 277,200

190

$500,000 × 0.70 × 0.99

$ 346,500

$600,000 × 0.70 × 0.99 Collected month following sale $360,000 × 0.25

$ 415,800

90,000 100,000

$500,000 × 0.25

100,000 125,000

125,000

17,000

$360,000 × 0.05

18,000

$400,000 × 0.05 Total

415,800

90,000

$400,000 × 0.25

Collected in second month $340,000 × 0.05

346,500

18,000 20,000

20,000 $ 1,409,500

$ 384,200

$ 464,500

$ 560,800

January

February

March

April

18,000 38,000

19,000 42,000

21,000 46,000

23,000

(29,200)

(38,000)

(42,000)

Purchase

26,800

23,000

25,000

Cost per Unit

× $ 7

Total Cost of Purchases

$ 187,600

$ 161,000

$ 175,000

181)a.

Sales (units) + Ending Inventory − Beginning Inventory

b. January

February

March

Month of purchase $187,600 × 0.65

Version 1

$ 121,940

191

$161,000 × 0.65

$ 104,650

$175,000 × 0.65

$ 113,750

Month after purchase: Accounts Payable

43,000

$187,600 × 0.35

65,660

$161,000 × 0.35 Total

56,350 $ 164,940

$ 170,310

$ 170,100

Units sold: January: $180,000/$10 = 18,000; February: $190,000/$10 = 19,000; March: $210,000/$10 = 21,000; April: $230,000/$10 = 23,000. Ending Inventory: January: 2 × 19,000 = 38,000; February: 2 × 21,000 = 42,000; March: 2 × 23,000 = 46,000 Beginning Inventory: January: $204,400/$7 = 29,200. 182)a. April

May

June

Collected in month of sale $80,000 × 0.20

$ 16,000

$95,000 × 0.20

$ 19,000

$90,000 × 0.20

$ 18,000

Collected month following sale $75,000 × 0.45

33,750

$80,000 × 0.45

36,000

$95,000 × 0.45

42,750

Collected in second month $68,000 × 0.35

Version 1

23,800

192

$75,000 × 0.35

26,250

$80,000 × 0.35

28,000

Total

$ 73,550

$ 81,250

$ 88,750

b.May: $95,000 × 0.35 = $33,250; June: $90,000 × 0.80 = $72,000; Total AR = $33,250 + $72,000 = $105,250. 183)a. March

April

21,000 23,000

23,000 24,500

24,500

(19,200)

(21,000)

(23,000)

Purchase

21,800

23,000

24,500

Cost per Unit

× $ 9

Total cost of Purchases

$ 196,200

$ 207,000

$ 220,500

Sales (units) + Ending Inventory − Beginning Inventory

January

February

20,000 21,000

b. January

February

March

Month of purchase $196,200 × 0.55

$ 107,910

$207,000 × 0.55

$ 113,850

$220,500 × 0.55

$ 121,275

Month after purchase: Accounts Payable $196,200 × 0.45 $207,000 × 0.45

Version 1

83,000 88,290 93,150

193

Total

$ 190,910

$ 202,140

$ 214,425

Units sold: January: $300,000/$15 = $20,000; February: $315,000/$15 = $21,000; March: $345,000/$15 = $23,000; April: $367,500/$15 = $24,500. Purchase price per unit: $15 × 60% = $9. Beginning Inventory January: $172,800/$9 = $19,200. c. March: $220,500 × 45% = $99,225. 184)a. July

August

September

October 16,500

Sales (units) + Ending Inventory

13,500 7,200

14,400 7,800

15,600 8,250

− Beginning Inventory

(6,500)

(7,200)

(7,800)

Purchase

14,200

15,000

16,050

Cost per Unit

× $ 12

$ 170,400

$ 180,000

$ 192,600

Total Cost of Purchases

b. July

August

September

Month of purchase: $170,400 × 0.35

$ 59,640

$180,000 × 0.35

$ 63,000

$192,600 × 0.35

$ 67,410

Month after purchase: Accounts Payable

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100,750

194

$170,400 × 0.65

110,760

$180,000 × 0.65 Total

117,000 $ 160,390

$ 173,760

$ 184,410

Purchase price per unit: $20 × 60% = $12. Units sold: July: $270,000/$20 = 13,500; August: $288,000/$20 = 14,400; September: $312,000/$20 = 15,600; October: $330,000/$20 = 16,500. Ending Inventory: July: 50% × 14,400 = 7,200; August: 50% × 15,600 = 7,800; September: 50% × 16,500 = 8,250. Beginning Inventory: July: $78,000/$12 = 6,500. 185) Cash balance, beginning Add cash receipts Total cash available Less cash disbursements Excess (deficiency) of cash available over disbursements Borrowings

$ 31,000 135,000 166,000 (141,000) 25,000 25,000

Cash balance, ending

$ 50,000

186) Cash balance, beginning Add cash receipts Total cash available Less cash disbursements Excess (deficiency) of cash available over disbursements Borrowings

$ 19,000 105,000 124,000 (98,000) 26,000 24,000

Cash balance, ending

$ 50,000

187)a. November excess (deficiency) of cash available over disbursements Cash balance, beginning Add cash receipts Total cash available Less cash disbursements

Version 1

$ 10,000 100,000 110,000 (104,000)

195

Excess (deficiency) of cash available over disbursements

$ 6,000

b. November borrowing: Excess (deficiency) of cash available over disbursements Borrowings

$ 6,000 24,000

Cash balance, ending

$ 30,000

188)a. Sales were all for cash $500,000 b. December cash disbursements: Cost of goods sold ($500,000 × 75%) Marketing and administrative expenses Increase in ending merchandise inventory

$ 375,000 50,000 10,000

Total cash disbursements in December

$ 435,000

189) July

August

September

Collected in month of sale: $ 200,000 × 0.60 × 0.97

$ 116,400

$ 400,000 × 0.60 × 0.97

$ 232,800

$ 600,000 × 0.60 × 0.97

$ 349,200

Collected month following sale: $ 115,000/0.4 × 0.25

71,875

$ 200,000 × 0.25

50,000

$ 400,000 × 0.25 Collected in second month following sale: $ 35,000/0.15 × 0.15 × 1.02

100,000

35,700

$ 115,000/0.4 × 0.15 × 1.02

43,988

$ 200,000 × 0.15 × 1.02 Total

Version 1

30,600 $ 223,975

$ 326,788

$ 479,800

196

190)a. October

November

December

Collected in month of sale: $ 360,000 × 0.40

$ 144,000

$ 400,000 × 0.40

$ 160,000

$ 450,000 × 0.40

$ 180,000

Collected month following sale: $ 280,000 × 0.50

140,000

$ 360,000 × 0.50

180,000

$ 400,000 × 0.50

200,000

Collected in second month following sale: $ 180,000 × 0.10

18,000

$ 280,000 × 0.10

28,000

$ 360,000 × 0.10

36,000

Total cash receipts

$ 302,000

$ 368,000

$ 416,000

b. November: $400,000 × 10% = $40,000; December: $450,000 × 60% = $270,000; Total AR = $40,000 + $270,000 = $310,000. 191)a. January

February

March

April

Collected in month of sale: $ 280,000 × 0.55 $ 300,000 × 0.55 $ 350,000 × 0.55

Version 1

$ 154,000 $ 165,000 $ 192,500

197

$ 320,000 × 0.55 Collected month following sale: $ 240,000 × 0.38

$ 176,000

91,200

$ 280,000 × 0.38

106,400

$ 300,000 × 0.38

114,000

$ 350,000 × 0.38 Collected in second month following sale $ 190,000 × 0.07

133,000

13,300

$ 240,000 × 0.07

16,800

$ 280,000 × 0.07

19,600

$ 300,000 × 0.07 Total cash receipts

21,000 $ 258,500

$ 288,200 $ 326,100

$ 330,000

b. March: $350,000 × 0.07 = $24,500; April: $320,000 × 0.45 = $144,000; Total AR = $24,500 + $144,000 = $168,500. 192) May

June

Collected in month: Discounted: $448,000 × 0.55 × 0.65 × 0.97

$ 155,355.20

$224,000 × 0.55 × 0.65 × 0.97

$ 77,677.60

Nondiscounted $448,000 × 0.55 × 0.35 $224,000 × 0.55 × 0.35

Version 1

86,240.00 43,120.00

198

Month following sale: $260,000 × 0.35

91,000.00

$448,000 × 0.35

156,800.00

2nd month following sale: $156,000 × 0.09

14,040.00

$260,000 × 0.09

23,400.00

Total cash receipts

$ 346,635.20

$ 300,997.60

Sales: March: 30,000 × $5.20 = $156,000; April: 50,000 × $5.20 = $260,000; May: 80,000 × $5.60 = $448,000; June: 40,000 × $5.60 = $224,000. 193)

Sales (units) + Ending Inventory − Beginning Inventory

April

May

June

July

August

400,000 96,000

480,000 108,000

540,000 120,000

600,000 112,000

560,000

(70,000)

(96,000)

(108,000)

(120,000)

426,000

492,000

552,000

592,000

Purchases

Ending Inventories: April: 480,000 × 20% = 96,000; May: 540,000 × 20% = 108,000; June: 600,000 × 20% = 120,000; July: 560,000 × 20% = 112,000; August: cannot be determined. 194) June

July

Sales (units) 100,000 120,000 + Ending 24,000 27,000 Inventory − Beginning (18,000) (24,000) Inventory Purchases

Version 1

106,000

123,000

August

September October

November

135,000 30,000

150,000 28,000

140,000 25,000

125,000

(27,000) (30,000)

(28,000)

138,000

137,000

148,000

199

6-day supply = 6/30 = 20%. Ending Inventories: June: 120,000 × 20% = 24,000; July: 135,000 × 20% = 27,000; August: 150,000 × 20% = 30,000; Sept: 140,000 × 20% = 28,000; Oct: 125,000 × 20% = 25,000; Nov: cannot be determined. 195)Strategic planning is long-range planning that looks into the intermediate and distant future and is stated in rather broad terms. The long-range plans are achieved in year-by-year steps. Tactical planning is budgeting for the coming year. The plan describes the level of sales, production, and costs for the coming year as well as income and cash flows. 196)Participative budgeting is the use of input from lower- and middlemanagement employees. Benefits may include: 1) enhancing employee motivation, 2) enhancing acceptance of goals, 3) providing information that enables employees to associate rewards and penalties with performance, and 4) yielding information that employees know but managers do not. Drawbacks of participative budgeting include: 1) managers often give inaccurate data when asked to give budget estimates, and 2) managers may build in extra expenses or understate revenue. 197)The Delphi technique is a qualitative technique that has members of the forecasting group submit individually prepared forecasts anonymously. Each group member receives copies of all of the forecasts, discusses them, and reconciles them. Each member prepares a new forecast based on this discussion. The process is repeated until a single estimate is agreed upon. Trend analysis is a statistical technique that prepares a forecast based on past sales data only. Econometric models are statistical models that use a variety of economic data in a regression analysis to prepare a sales forecast.

Version 1

200

198)Marketing and administrative budgets are harder to prepare because managers have discretion about how much money they spend and the timing of these expenditures. There is also not as precise of an inputoutput relationship in marketing and administrative as there is in production. 199)A service organization doesn't carry a product in inventory—the service is consumed immediately. A production budget isn't needed since there are no beginning or ending inventories, although labor and overhead budgets would be necessary. A cost of goods sold budget is not needed for the same reason—there is no product in inventory. 200)Student answers will vary but should be similar to the explanation in the text. Managers and employees provide much of the information for the budget; their performance then is compared to the budget they helped develop. For example, as a manager, suppose that you believe that although it is possible to achieve a 10 percent increase in your department's sales, a 2 percent increase is almost certain. If you tell upper management that a 10 percent increase is an appropriate budget but you fall short of it, you will lose opportunities for merit pay increases and a promotion. Management could assume that you fell short of 10 percent not because of market circumstances beyond your control but because you did not perform well in making sales. On the other hand, if you report that only a 2 percent increase is possible, the company will not provide enough production capacity to fill the sales orders if the 10 percent increase comes through. Should you do what is in your best interest or give your best estimate of reality? 201)"Use it or lose it" in the context of budgeting refers to the incentive managers have to spend any unused funds prior to the end of the budget year. If they fail to do this, they will lose the money and, possibly, see reduced budgets in the future.

Version 1

201

202)Student answers may vary but should include the use of sensitivity analysis using spreadsheets to link various what-if contingencies. Uncertainty is an important part of preparing budgets and plans. In addition to many formal models, managers use sensitivity analyses to better understand the range of outcomes likely to occur. Spreadsheet software has made sensitivity analysis much easier to perform.

Version 1

202

203)Most companies have a set of goals which involve periodic exercises of strategic planning. Goodnight, Jr. needs to have a few of these in mind, e.g., market share, new products. Once the long-range strategic plans have been developed, more detailed plans are necessary for the current period. The most common of these is the master budget, which is the quantification of the strategic plan for the current period. It specifies how the organization will acquire and use resources during a particular time period. Since this is an expanding business, the importance of the budget needs to be stressed and participation in the process by at least the top-level managers. A budget system has five main purposes: 1. (a) Planning—the individuals in the organization are forced to plan ahead. 2. (b) Facilitating communication and coordination—each manager must be aware of the plans made by other managers and the budgeting process will pull together each of the individual plans. 3. (c) Allocating resources—the budget helps allocate the scarce resources of the organization among the competing uses. 4. (d) Managing financial and operational performance—although plans change, the budget acts as a benchmark against which to compare actual results. 5. (e) Evaluating performance and providing incentives—comparing actual results with budgeted results helps manager evaluate the performance of individuals, departments, divisions, sales territories, or entire companies.

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203

204)a. There will be improved communication and coordination between departments; problems might be identified sooner since the managers are closer to the action; and accountability and performance evaluation should be easier to do. b. Departmental managers will more likely be motivated to work with a budget they had a hand in developing. They also should accept the results of the performance evaluation and accountability more readily. Unfortunately, there may be tendencies to pad the budget before the fact or manipulate the figures after the fact in order to look better for the evaluation, especially if there are monetary rewards involved. Production workers will have some similar reactions depending on the degree of their involvement in the process. If they consider the budget fair, they will work with it; if not, they might sabotage it. c. If there is a perception that the process has worked well, all involved will be motivated to continue with the process. If there is a feeling that things have not worked well or evaluations have been unfair, they will not work with the process. 205)a. Marketing and administrative expenses budget: November Budgeted unit sales Variable marketing and administrative expenses per unit Variable marketing and administrative Fixed marketing and administrative

22,000 $ 8.90 $ 195,800 231,000

Total marketing and administrative

$ 426,800

b. Marketing and administrative expenses budget: December Budgeted unit sales Variable marketing and administrative expenses per unit

Version 1

19,000 $ 8.90

204

Variable marketing and administrative Fixed marketing and administrative Total marketing and administrative Less depreciation

$ 169,100 231,000 400,100 (13,000)

Cash disbursement for marketing and administrative

$ 387,100

c. October Total marketing and administrative Fixed marketing and administrative

$ 409,000 231,000

Variable marketing and administrative

$ 178,000

Variable marketing and administrative expenses per unit Budgeted unit sales

$ 8.90 20,000

206)a.

Sales ($12 per unit) September accounts receivable October sales

October

November

December

$ 720,000 $ 450,000

$ 840,000

$ 480,000

180,000

$ 540,000

November sales

210,000

December sales Total cash collections

$ 630,000 120,000

$ 630,000

$ 750,000

October

November

December

Merchandise purchases ($7 per unit) Marketing and administrative expenses Total cost incurred

$ 420,000

$ 490,000

$ 245,000

120,000

$ 540,000

$ 610,000

$ 365,000

Disbursements, previous month Disbursements, current month Total

$ 290,000 270,000 $ 560,000

$ 270,000 305,000 $ 575,000

$ 305,000 182,500 $ 487,500

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205

Beginning cash balance Add cash receipts Total cash available

October

November

December

$ 80,000 $ 630,000 710,000

$ 150,000 $ 750,000 900,000

$ 25,000 $ 750,000 775,000

$ 560,000

$ 575,000

$ 487,500

Disbursements: Accounts payable Payment for equipment

300,000

Payment of dividend

200,000

Total disbursements

560,000

875,000

687,500

Ending cash balance

$ 150,000

$ 25,000

$ 87,500

May

June

25,000 × $ 6

30,000 × $ 6

$ 150,000

$ 180,000

Production this month (40%) Production prior month (60%) Marketing and administration

$ 60,000 96,000* 60,000

$ 60,000 90,000 60,000

$ 72,000 90,000 60,000

Total disbursements

$ 216,000

$ 210,000

$ 222,000

April

May

June

30,000 × $ 15

20,000 × $ 15

25,000 × $ 15

$ 450,000

$ 300,000

$ 375,000

207)a. April Production units Cash required per unit Production costs Cash disbursements:

*Beginning balance of accounts payable. b.

Budgeted unit sales Sales price per unit Total sales Cash receipts:

Version 1

206

February sales

$ 45,000

March sales ($210,000 ÷ 0.4 = $525,000) April sales May sales

157,500

$ 52,500

270,000

135,000 180,000

June sales Total receipts

$ 45,000 90,000 225,000

$ 472,500

$ 367,500

$ 360,000

November

December

Sales Schedule of Expected Cash Collections:

$ 350,000

$ 360,000

Accounts receivable

$ 70,000

November sales December sales

210,000

$ 136,500 216,000

$ 280,000

$ 352,500

208)a.

Cost of goods sold Add desired ending merchandise inventory Total needs Less beginning merchandise inventory Required purchases

November

December

$ 262,500 108,000 370,500 (105,000) $ 265,500

$ 270,000 102,000* 372,000 (108,000) $ 264,000

($340,000 [January sales] × 0.75) = $255,000 COGS; ($255,000 × 0.40) = $102,000.

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207

209)In any firm, but especially a rapidly expanding firm, there are timing differences between payments of cash and receipts of cash. This is especially true for increasing product purchases which precede the increasing sales and are paid for frequently before the cash has been received from the sales. If trends in receipts and disbursements are not monitored, the firm could find itself with a growing short-term debt to both meet bills and the minimum desired cash balance. 210)a. Budgeted Income Statement Sales Cost of goods sold Gross margin Marketing and administrative expense Depreciation Bad debt expense

$ 350,000 262,500 87,500 21,100 19,000 3,500

Net income

$ 43,900

b. Cash Budget Cash balance, October 31 Add: accounts receivable collected Add: November credit sales collected ($340,000 × 55%) Cash available Less: accounts payable paid Less: November expenses paid Cash balance, November 30 Add: November credit sales collected ($340,000 × 44%) Add: December credit sales collected ($350,000 × 55%) Cash available Less: Cash disbursements for November purchases [($340,000 × 0.75) × 0.40] + [($350,000 × 0.75) × 0.60] Less: December expenses paid

$ 13,000 82,000 187,000 282,000 (257,000) (21,100) $ 3,900 149,600 192,500 346,000 (259,500)

Cash balance, end of December

$ 65,400

(21,100)

c. December accounts receivable balance: December sales not collected (45% × $350,000) December allowance for uncollectibles (1% × $350,000)

$ 157,500 3,500

December net accounts receivable

$ 154,000

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208

d. December accounts payable balance: December purchases for December unpaid ($350,000 × 75% × 40%) December purchases for January unpaid ($370,000 × 75% × 60%)

$ 105,000

December accounts payable

$ 271,500

166,500

e. Budgeted Income Statement Retained Earnings 10/31

November

December

Sales

340,000

Cost of Goods Sold

255,000

$ 350,000 262,500

Gross Margin

85,000

87,500

Marketing and administrative expenses Depreciation

21,100

19,000

Bade debt expense

3,400

3,500

Net income

$ 529,000

$ 41,500

Retained Earnings 12/31

$ 43,900 $ 614,400

211)a. November

December

Sales Schedule of Expected Cash Collections:

$ 320,000

$ 340,000

Accounts receivable

$ 82,000

November sales December sales

240,000

$ 64,000 255,000

$ 322,000

$ 319,000

Total cash collections

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209

November

December

Budgeted cost of goods sold Add desired ending merchandising inventory Total needs Less beginning merchandise inventory

$ 208,000 176,800 384,800 (166,400)

$ 221,000 171,600 392,600 (176,800)

Required purchases

$ 218,400

$ 215,800

Cash receipts Cash disbursements: Disbursements for merchandise Other monthly expenses Total cash disbursements Excess (deficiency) of cash receipts over disbursements

November

December

$ 322,000

$ 319,000

199,000 21,000 220,000

218,400 21,000 239,400

$ 102,000

$ 79,600

d. Budgeted Income Statement November

December

Sales Cost of goods sold Gross margin Other monthly expenses Depreciation Bad debt expense

$ 320,000 208,000 112,000 21,000 16,000 16,000

$ 340,000 221,000 119,000 21,000 16,000 17,000

Net operating income

$ 59,000

$ 65,000

e. Budgeted Balance Sheet December 31 Assets Cash

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$ 203,600

210

Accounts receivable (net of allowance for uncollectible accounts) Inventory Property, plant, and equipment (net of $690,000 accumulated depreciation) Total assets

68,000 171,600 1,138,000 $ 1,581,200

Liabilities and Stockholders’ Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders’ equity

$ 215,800 840,000 525,400 $ 1,581,200

212)The traditional budgeting approach often uses the current period’s results as a starting point for the next period’s budget. Zero-based budgeting (ZBB) begins each budget period from scratch. 213)Zero-based budgeting (ZBB) is a management tool designed to focus management attention on the most important issues. It helps avoid “baked in” inefficiencies or unnecessary activities. One disadvantage of ZBB is that it is resource intensive, requiring managers to develop the analysis for their operations each period. In addition, the biggest benefit of ZBB is in those areas where the link between effort or inputs and outputs is the most difficult to determine.

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211

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Divisional income statements donot have to follow generally accepted accounting principles (GAAP) since they are internal reports. ⊚ ⊚

true false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-01 Evaluate divisional accounting income as a performance measure. Topic : Accounting Income Gradable : automatic Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-01 Evaluate divisional accounting income as a performance measure. Topic : Accounting Income Gradable : automatic Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-01 Evaluate divisional accounting income as a performance measure. Topic : Accounting Income Gradable : automatic Accessibility : Screen Reader Compatible

The profit margin ratio is computed by dividing after-tax income by sales. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-01 Evaluate divisional accounting income as a performance measure. Topic : Accounting Income Gradable : automatic Accessibility : Screen Reader Compatible

In general, it is better to have a higher return on investment (ROI) than a lower one. ⊚ true ⊚ false

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6) One problem associated with using accounting measures to evaluate divisional performance is that the measures are based on historical information. ⊚ ⊚

true false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Gradable : automatic Accessibility : Screen Reader Compatible

7) A problem with ratio-based measures is that managers can make decisions that improve divisional income but lower organizational performance. ⊚ true ⊚ false

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8) It isnot possible for a manager to accept an unacceptable project when their performance is evaluated using ROI. ⊚ ⊚

true false

9) Residual income is the difference between the divisional income and the cost of invested capital required to operate the division. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Gradable : automatic Accessibility : Screen Reader Compatible

10)

The use of residual income reduces, but does not eliminate, the suboptimization problem. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Gradable : automatic Accessibility : Screen Reader Compatible

11) Managerial myopia is the distortion in incentives that results from using accounting measures to evaluate performance. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Gradable : automatic Accessibility : Screen Reader Compatible

12) Most organizations use residual income instead of return on investment (ROI) as a performance measure. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Gradable : automatic Bloom's : Understand Accessibility : Screen Reader Compatible

13) Economic value added (EVA) adjustments are made to both the after-tax income and the capital employed. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-04 Interpret and use economic value added (EVA). Topic : Economic Value Added (EVA) Gradable : automatic Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 14-04 Interpret and use economic value added (EVA). Topic : Economic Value Added (EVA) Gradable : automatic Bloom's : Understand Accessibility : Screen Reader Compatible

15) One problem with economic value added (EVA) adjustments is determining the appropriate life for expenditures that benefit multiple periods. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 14-04 Interpret and use economic value added (EVA). Topic : Economic Value Added (EVA) Gradable : automatic Bloom's : Understand Accessibility : Screen Reader Compatible

16) Like residual income, economic value added (EVA) adjustments fail to sufficiently address the suboptimization problem. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 14-04 Interpret and use economic value added (EVA). Topic : Economic Value Added (EVA) Gradable : automatic Bloom's : Understand Accessibility : Screen Reader Compatible

17)

In general, a division's investment base must include historical cost. ⊚ ⊚

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true false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Topic : Measuring the Investment Base Gradable : automatic Learning Objective : 14-05 Explain how historical cost and net book value–based accounting meas Accessibility : Screen Reader Compatible

18) Using net book values instead of gross book values to compute return on investment (ROI) might encourage an investment center manager to delay replacing inefficient assets until they are fully depreciated. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Measuring the Investment Base Gradable : automatic Learning Objective : 14-05 Explain how historical cost and net book value–based accounting meas Bloom's : Understand Accessibility : Screen Reader Compatible

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). ⊚ true ⊚ false

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MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 20) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-01 Evaluate divisional accounting income as a performance measure. Topic : Accounting Income Difficulty : 2 Medium Gradable : automatic Bloom's : Understand Accessibility : Screen Reader Compatible

21)

Which of the following statements is true?

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A) Divisional income statements do not include allocated common costs. B) The gross margin ratio is computed by dividing operating income by sales. C) Divisional income makes comparison of divisions difficult because the divisions use different measures. D) Divisional income does not fully reflect the manager’s decision authority.

22)

After-tax income divided by sales is the:

A) gross margin ratio. B) profit margin ratio. C) operating margin ratio. D) contribution margin ratio.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-01 Evaluate divisional accounting income as a performance measure. Topic : Accounting Income Gradable : automatic Accessibility : Screen Reader Compatible

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23) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-01 Evaluate divisional accounting income as a performance measure. Topic : Accounting Income Gradable : automatic Accessibility : Screen Reader Compatible

24)

Which measure is calculated as after-tax income divided by divisional assets?

A) Operating margin ratio B) Residual income C) Return on investment D) Profit margin ratio

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Gradable : automatic Accessibility : Screen Reader Compatible

25)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Gradable : automatic Accessibility : Screen Reader Compatible

26)

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Gradable : automatic Accessibility : Screen Reader Compatible

27) 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.

28)

How will increases in the following items affect return on investment (ROI)? Increase in Expenses A. Decrease ROI B. Decrease ROI

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Increase in Inventory Decrease ROI Increase ROI

C. Increase ROI D. Increase ROI

Decrease ROI Increase ROI

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Difficulty : 3 Hard Bloom's : Analyze Gradable : automatic Accessibility : Screen Reader Compatible

29)

A manager can increase the return on investment (ROI) by:

A) reducing the asset turnover. B) decreasing residual income. C) increasing the profit margin. D) expanding divisional assets while holding sales and expenses constant.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Difficulty : 3 Hard Bloom's : Analyze Gradable : automatic Accessibility : Screen Reader Compatible

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30) The Maxim Corporation reported the following operating results for its three divisions: South, West, and East.

Sales After-tax income Divisional assets

South Division

West Division

East Division

$ 399,000 $ 39,000 $ 325,000

$ 1,890,000 $ 64,800 $ 720,000

$ 2,190,000 $ 141,570 $ 990,000

Which division has the smallest return on investment (ROI)? A) South B) West C) East D) All three divisions have the same ROI.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible null : Chapter - Chapter 14

31) The Maxim Corporation reported the following operating results for its three divisions: South, West, and East.

Sales After-tax income Divisional assets

Version 1

South Division

West Division

East Division

$ 380,000 $ 20,000 $ 200,000

$ 1,700,000 $ 50,000 $ 625,000

$ 2,000,000 $ 100,000 $ 800,000 16

Which division has the smallest return on investment (ROI)? A) South B) West C) East D) All three divisions have the same ROI.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic Accessibility : Screen Reader Compatible

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

West Division

East Division

$ 392,000 $ 22,000 $ 200,000

$ 1,820,000 $ 62,335 $ 685,000

$ 2,120,000 $ 125,120 $ 920,000

Which division has the largest asset turnover? A) South B) West C) East D) All three divisions have the same asset turnover.

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33) The Maxim Corporation reported the following operating results for its three divisions: South, West, and East. South Division Sales After-tax income Divisional assets

$ 380,000 $ 20,000 $ 200,000

West Division

East Division

$ 1,700,000 $ 50,000 $ 625,000

$ 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.

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34) The Maxim Corporation reported the following operating results for its three divisions: South, West, and East.

Sales After-tax income Divisional assets

South Division

West Division

East Division

$ 400,000 $ 21,200 $ 220,000

$ 1,720,000 $ 52,460 $ 645,000

$ 2,020,000 $ 103,020 $ 820,000

Which division has the highest profit margin? A) South B) West C) East D) All three divisions have the same profit margin.

35) The Maxim Corporation reported the following operating results for its three divisions: South, West, and East. South Division Sales After-tax income Divisional assets

Version 1

$ 380,000 $ 20,000 $ 200,000

West Division $ 1,700,000 $ 50,000 $ 625,000

East Division $ 2,000,000 $ 100,000 $ 800,000 19

Which division has the highest profit margin? A) South B) West C) East D) All three divisions have the same profit margin.

36) 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

$ 30,000

Useful life of the asset Annual operating profit, including depreciation

10 years $ 8,000

Salvage value

$ 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) 26.7% C) 29.6% D) 36.4%

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37) 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

$ 20,000

Useful life of the asset Annual operating profit, including depreciation

10 years $ 4,000

Salvage value

$ -0-

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38) 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

$ 25,000

Useful life of the asset Cash flow annual operating profit

10 years $ 5,100

Salvage value

$ 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) 11.6% B) 20.4% C) 10.0% D) 22.7%

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39) 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

$ 20,000

Useful life of the asset Cash flow annual operating profit

10 years $ 4,000

Salvage value

$ -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%

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40) 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

$ 31,000

Useful life of the asset Cash flow annual operating profit

10 years $ 6,300

Salvage value

$ 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) 21.47% B) 20.32% C) 22.58% D) 12.14%

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41) 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

$ 20,000

Useful life of the asset Cash flow annual operating profit

10 years $ 4,000

Salvage value

$ -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%

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42) Garage Corporation's return on investment (ROI) on some new equipment was 24% using beginning-of-year net book value. The gross book value of the equipment is $300,000. Accumulated depreciation at the beginning of the year was $12,000. This represents one-half year's straight-line depreciation. What is the annual before-tax cash flow from the new equipment? A) $93,120 B) $62,000 C) $69,120 D) $24,000

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43) 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

44) Madrigal Corporation purchased a new machine for $123,000. The machine has an estimated useful life of 15-years with no salvage value and a return on investment (ROI) of 10%. ROI is computed using annual cash flows and straight-line depreciation. What is the annual cash flow using the gross book value method? A) $16,400 B) $12,300 C) $8,200 D) $20,500

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45) 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

46) The Nacho Division of the Tex-Mex Company has a return on investment (ROI) of 12%, sales of $203,000, and an asset turnover of 2. What was Nacho's after-tax income?

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A) $6,090 B) $12,180 C) $24,360 D) $48,720

47) 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 after-tax income?

A) $6,000 B) $12,000 C) $24,000 D) $48,000

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48)

The following information is available for Sweet Dreams Company:

Sales Operating expenses Divisional assets Stockholders’ equity Cost of capital

$ 185,000 $ 177,000 $ 40,000 $ 46,250 9%

What is Sweet Dreams Company's return on investment (ROI)? A) 4.3% B) 9.0% C) 20.0% D) 17.3%

49)

The following information is available for Sweet Dreams Company:

Sales Operating expenses Operating assets Stockholder’s equity Cost of capital

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$ 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%

50) The Gallop Company has an asset turnover of 4.0 times, using assets of $50,000. The company also has a return on investment (ROI) of 20%. What was Gallop's profit margin ratio? A) 5.0% B) 6.0% C) 5.0% D) 15.0%

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51) 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 profit margin ratio?

A) 5.0% B) 6.0% C) 6.7% D) 8.3%

52)

How will decreases in the following items affect return on investment (ROI)?

Decrease in Sales

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Decrease in Equipment

A. Decrease ROI B. Decrease ROI C. Increase ROI D. Increase ROI

Decrease ROI Increase ROI Decrease ROI Increase ROI

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Difficulty : 3 Hard Bloom's : Analyze Gradable : automatic Accessibility : Screen Reader Compatible

53)

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Difficulty : 3 Hard Bloom's : Analyze Gradable : automatic Accessibility : Screen Reader Compatible

54) 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 A. Increase B. Decrease C. Increase D. Increase

Equipment Decrease Decrease Increase Decrease

Investment Increase Decrease Increase Decrease

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Difficulty : 3 Hard Bloom's : Analyze Gradable : automatic Accessibility : Screen Reader Compatible

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55) The following information pertains to Artemis Company for the year ended December 31: (CPA adapted) Sales Income Capital investment

$ 510,000 $ 102,000 $ 408,000

Which of the following equations should be used to compute Artemis' return on investment (ROI)? A) (4/5) × (5/1) = ROI B) (1/5) × (5/4) = ROI C) (4/5) × (1/5) = ROI D) (5/4) × (5/1) = ROI

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Difficulty : 3 Hard Bloom's : Analyze Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible null : Chapter - Chapter 14

56) The following information pertains to Artemis Company for the year ended December 31: (CPA adapted)

Sales Income Capital investment

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$ 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Difficulty : 3 Hard Bloom's : Analyze Gradable : automatic Accessibility : Screen Reader Compatible

57) The following information pertains to Zootime Company's Shelter Division for the current year: (CPA adapted)

Sales Variable cost Traceable fixed costs Average invested capital Imputed interest rate

$ 338,000 $ 259,000 $ 64,790 $ 49,000 12%

Zootime's return on investment was: A) 12.00%. B) 15.13%. C) 29.00%. D) 37.02%.

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58) The following information pertains to Zootime Company'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%.

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59) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Difficulty : 3 Hard Bloom's : Analyze Gradable : automatic Accessibility : Screen Reader Compatible

60) In computing the profit margin ratio for use in the ROI analysis, which of the following is used? A) Sales in the denominator B) Net operating income in the denominator C) Average divisional assets in the denominator D) Residual income in the denominator

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Question Details Accessibility : Keyboard Navigation Type : Static Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment AACSB : Reflective Thinking AICPA : FN Measurement Gradable : automatic Accessibility : Screen Reader Compatible

61) In determining the dollar amount to use for divisional 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 isnot an argument for the use of net book value rather than gross book value?

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.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Topic : Measuring the Investment Base AACSB : Reflective Thinking Gradable : automatic Learning Objective : 14-05 Explain how historical cost and net book value–based accounting meas Bloom's : Understand Accessibility : Screen Reader Compatible

62) Average divisional assets are $129,000 and after-tax income is $42,100. The company invests $44,000 in new assets for a project that will increase after-tax income by $7,920. What is the return on investment (ROI) of the new project?

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A) 33% B) 18% C) 28.0% D) 32%

63) Average divisional assets are $110,000 and after-tax income is $23,100. The company invests $25,000 in new assets for a project that will increase after-tax income by $4,750. What is the return on investment (ROI) of the new project?

A) 21% B) 19% C) 18.5% D) 20%

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64) Last year, a company had stockholders' equity of $178,000, after-tax income of $52,000, and sales of $100,000. The asset turnover was 0.5 and the return on investment (ROI) was: A) 28%. B) 27%. C) 26%. D) 25%.

65) Last year, a company had stockholders' equity of $160,000, after-tax 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%.

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66) Sales and average operating assets for Wyeth Company and Genesis Company are given below: Sales Wyeth Company Genesis Company

$ 20,050 $ 50,100

Average Divisional Assets $ 8,020 $ 10,020

What is the margin that each company will have to earn in order to generate a return on investment of 25.0%? A) 14% and 17% B) 50% and 100% C) 10% and 5% D) 2.5% and 5%

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67) Sales and average operating assets for Wyeth Company and Genesis Company are given below: Sales Wyeth Company Genesis Company

$ 20,000 $ 50,000

Average Divisional Assets $ 8,000 $ 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%

68) Rex Company's sales last year totaled $154,000 and its return on investment (ROI) was 12%. If the company's asset turnover was 3, then its after-tax income for the year must have been:

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A) $6,160. B) $2,053. C) $18,480. D) It is impossible to determine from the data given.

69) Rex Company's sales last year totaled $150,000 and its return on investment (ROI) was 12%. If the company's asset turnover was 3, then its after-tax 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.

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70)

The Dry Wall Division reports the following operating data for the past two years:

Profit margin ratio Asset turnover Divisional assets After-tax income Stockholders’ equity Sales

Year 1

Year 2

22% 3.5 ? $ 41,900 $ 83,800 ?

? 2 $ 159,500 ? $ 134,500 ?

The return on investment at the Dry Wall Division was exactly the same in Year 1 and Year 2. The profit margin ratio in Year 2 was: A) 77%. B) 44%. C) 38%. D) 19%.

71)

The Dry Wall Division reports the following operating data for the past two years:

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Year 1 Profit margin ratio Asset turnover Divisional assets After-tax income Stockholders’ equity Sales

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 profit margin ratio in Year 2 was: A) 48%. B) 32%. C) 20%. D) 10%.

72)

The Dry Wall Division reports the following operating data for the past two years:

Profit margin ratio Asset turnover Divisional assets After-tax income Stockholders’ equity

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Year 1

Year 2

10% 3.9 ? $ 47,000 $ 87,000

? 4 $ 157,000 ? $ 132,000

Sales

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) $289,000. B) $628,000. C) $614,051. D) $679,480.

73)

The Dry Wall Division reports the following operating data for the past two years: Year 1

Profit margin ratio Asset turnover Divisional assets After-tax income Stockholders’ equity Sales

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:

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A) $250,000. B) $300,000. C) $325,000. D) $350,000.

74)

The Dry Wall Division reports the following operating data for the past two years:

Profit margin ratio Asset turnover Divisional assets After-tax income Stockholders’ equity Sales

Year 1

Year 2

15% 3.0 ? $ 49,500 $ 88,000 ?

? 2 $ 158,000 ? $ 133,000 ?

The return on investment at the Dry Wall Division was exactly the same in Year 1 and Year 2. Divisional assets in Year 1 were: A) $187,000. B) $158,000. C) $133,000. D) $110,000.

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75)

The Dry Wall Division reports the following operating data for the past two years: Year 1

Profit margin ratio Asset turnover Divisional assets After-tax income Stockholders’ equity Sales

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. Divisional assets in Year 1 were: A) $160,000. B) $150,000. C) $125,000. D) $100,000.

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76)

The Dry Wall Division reports the following operating data for the past two years:

Profit margin ratio Asset turnover Divisional assets After-tax income Stockholders’ equity Sales

Year 1

Year 2

10% 3.0 ? $ 45,400 $ 86,000 ?

? 3 $ 156,000 ? $ 119,000 ?

The return on investment at the Dry Wall Division was exactly the same in Year 1 and Year 2. After-tax income in Year 2 amounted to: A) $46,800. B) $46,800. C) $45,400. D) $37,000.

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77)

The Dry Wall Division reports the following operating data for the past two years: Year 1

Profit margin ratio Asset turnover Divisional assets After-tax income Stockholders’ equity Sales

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. After-tax income in Year 2 amounted to: A) $60,000. B) $50,000. C) $40,000. D) $35,000.

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78) The following data are available for the South Division of Manhattan Products, Incorporated and the single product it makes: Asset turnover ROI Divisional assets

1.5 15% $ 155,000

What is South’s profit margin ratio? A) 23.00%. B) 6.25%. C) 15.00%. D) 10.00%.

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79) The following data are available for the South Division of Manhattan Products, Incorporated and the single product it makes: Asset turnover ROI Divisional assets

1.5 12% $ 1,500,000

What is South’s profit margin ratio? A) 18.0% B) 1.25% C) 12.5% D) 8.0%

80) The Country Garden Company's current after-tax income is $19,205 and its average assets are $83,500. The Country Garden's cost of capital is 20%. A new project being considered would require an investment of $11,500 and would generate annual after-tax income of $2,530. What is the residual income of the new project? A) 22.88% B) 22.00% C) $(115) D) $230

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible null : Chapter - Chapter 14

81) The Country Garden Company's current after-tax income is $16,800 and its average assets are $80,000. The Country Garden's cost of capital is 18%. A new project being considered would require an investment of $15,000 and would generate annual after-tax income of $3,000. What is the residual income of the new project?

A) 20.8% B) 20% C) $(150) D) $300

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic Accessibility : Screen Reader Compatible

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82) Imagination Corporation uses residual income to evaluate the performance of its divisions. Imagination's cost of capital is 10%. In April, the Commercial Products Division had divisional assets of $114,000 and after-tax income of $10,900. What was the Commercial Products Division's residual income in April? A) $(500) B) $500 C) $1,090 D) $(1,090)

83) Imagination Corporation uses residual income to evaluate the performance of its divisions. Imagination's cost of capital is 11%. In April, the Commercial Products Division had divisional assets of $100,000 and after-tax 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)

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84) Division B had an ROI last year of 10%. The division's cost of capital is 6%. If the divisional assets last year were $467,000, then the division's residual income for last year was: A) $46,700. B) $18,680. C) $33,680. D) $28,020.

85) Division B had an ROI last year of 15%. The division's cost of capital is 10%. If the divisional assets last year were $450,000, then the division's residual income for last year was:

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A) $67,500. B) $22,500. C) $37,500. D) $45,000.

86) Which of the following willnot result in an increase in the residual income, assuming other factors remain constant?

A) An increase in sales B) An increase in cost of capital C) A decrease in expenses D) A decrease in divisional assets

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures AACSB : Reflective Thinking Gradable : automatic Bloom's : Understand Accessibility : Screen Reader Compatible

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87)

All other things constant, which of the following would increase residual income? A) Increase in divisional assets B) Decrease in divisional assets C) Increase in cost of capital D) Decrease in after-tax income

88)

Which of the following statements isfalse?

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. C) Residual income as a performance measure eliminates the suboptimization problem. D) One advantage of residual income is that it is not a ratio.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Gradable : automatic Bloom's : Understand Accessibility : Screen Reader Compatible

89) 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

90)

Which of the following statements is true?

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A) Residual income can be used to compare divisions that are cost centers. B) Residual income can be used to compare divisions that are profit centers. C) Residual income is similar to the economist’s notion of profit as being the amount left over after all costs, including the cost of capital. D) Residual income ignores the cost of capital.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Difficulty : 3 Hard Bloom's : Analyze Gradable : automatic Accessibility : Screen Reader Compatible

91) 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-onsales percentage.

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92)

How will decreases in the following items affect residual income? Decrease in Expenses A. Decrease RI B. Decrease RI C. Increase RI D. 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

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93) 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.

94) 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.

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95) 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 $ 2,700,000 39,000,000 26,200,000

If the cost of capital is 15% and Thomas wants to achieve a residual income target of $2,090,000, what will costs have to be in order to achieve the target? A) $11,700,000 B) $14,400,000 C) $32,575,000 D) $33,385,000

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96) 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 $ 1,800,000 30,000,000 17,200,000

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

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97) Bella Vista Service Company is a computer service center. For the month of May, Bella Vista Service Company had the following operating statistics: (CMA adapted) Sales Operating income After-tax income Divisional assets Stockholder’s equity Cost of capital

$ 452,000 27,000 7,210 515,000 144,200 7%

Based on the above information, which one of the following statements is correct? A) Bella Vista Service Company has a return on investment of 5%. B) Bella Vista Service Company has a residual income of $(3,090). C) Bella Vista Service Company has a return on investment of 6.4%. D) Bella Vista Service Company has a residual income of $(28,840).

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible null : Chapter - Chapter 14

98) Bella Vista Service Company is a computer service center. For the month of May, Bella Vista Service Company had the following operating statistics: (CMA adapted)

Sales Operating income After-tax income Divisional 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 Company has a return on investment of 4%. B) Bella Vista Service Company has a residual income of $(2,000). C) Bella Vista Service Company has a return on investment of 5.6%. D) Bella Vista Service Company has a residual income of $(22,000).

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic Accessibility : Screen Reader Compatible

99)

How will increases in the following items affect residual income? Increase in Sales A. Decrease RI B. Decrease RI C. Increase RI D. 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

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100) 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)

101) 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 corporation for the potential additional of a new division 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

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102) The Pathways Company has an asset turnover of 3 times, using assets of $46,000. The company also has a return on investment (ROI) of 20%. If the residual income was $3,450, what was the company's cost of capital? A) 7.5%. B) 5.0%. C) 12.5%. D) 20.0%.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible null : Chapter - Chapter 14

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103) 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%

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic Accessibility : Screen Reader Compatible

104) In 2023, Evans Corporation had an operating profit of $780,000 and a residual income of $315,000. If Evans' cost of capital is 15%, what is the amount of the invested capital? A) $5,200,000 B) $3,100,000 C) $2,100,000 D) $1,635,000

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105) In 2023, 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

106)

The following information is available for Kiss Company:

After-tax income Operating assets

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$ 9,900 $ 42,600

Stockholders’ equity Cost of capital

$ 31,500 12%

What is Kiss Company's residual income? A) $4,788 B) $3,800 C) $4,800 D) $5,300

107)

The following information is available for Kiss Company:

After-tax income Operating assets Stockholders’ equity Cost of capital

$ 6,000 $ 40,000 $ 25,000 10%

What is Kiss Company's residual income? A) $2,000 B) $2,500 C) $3,500 D) $4,000

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108)

The following information has been gathered for the Door Division:

Return on investment (ROI) Sales Divisional assets Cost of Capital Profit margin ratio

12% $ 129,500 $ 79,000 10% 9.0%

What is the Door Division's residual income? A) $3,755 B) $11,655 C) $10,360 D) $1,295

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109)

The following information has been gathered for the Door Division:

Return on investment (ROI) Sales Divisional 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

110)

The following information has been gathered for the Brake Division:

Sales Operating income Cost of capital Return on investment

$ 427,000 $ 71,500 8% 10%

What is the Brake Division’s residual income? Version 1

A) $14,300 B) $28,600 C) $14,800 D) $32,420

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible null : Chapter - Chapter 14

111)

The following information has been gathered for the Brake Division:

Sales After-tax income Cost of capital Return on investment

$ 420,000 $ 75,000 12% 15%

What is the Brake Division’s residual income? A) $15,000 B) $22,500 C) $18,750 D) $48,000

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic Accessibility : Screen Reader Compatible

112) The Labrador Falls Company has three divisions: A Division, B Division, and C Division.

Sales After-tax income Residual income Average divisional assets Cost of Capital Profit margin ratio Asset Turnover Return on investment

$ 325,000 $ 62,500 ? ? 8% 18% ? 10%

$ 545,000 ? 38,500 ? 15% 2% 3 ?

? $ 24,500 14,900 82,500 ? ? ? ?

What was A Division's residual income last year? A) $12,500 B) $37,250 C) $20,200 D) $50,000

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible null : Chapter - Chapter 14

113) The Labrador Falls Company has three divisions: A Division, B Division, and C Division. A Sales After-tax income Residual income Average divisional assets Cost of capital Profit margin ratio Asset turnover Return on investment

$ 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic Accessibility : Screen Reader Compatible

114) The Labrador Falls Company has three divisions: A Division, B Division, and C Division.

Sales After-tax income Residual income Average divisional assets Cost of capital Profit margin ratio Asset turnover Return on investment

$ 490,000 98,000 ? ? 8% 18% ? 10%

$ 557,000 ? 44,500 ? 15% 5% 5.0 ?

? $ 27,400 17,500 55,000 ? ? ? ?

What was B Division's return on investment (ROI) last year? A) 15.00% B) 25.00% C) 46.67% D) 30.00%

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115) The Labrador Falls Company has three divisions: A Division, B Division, and C Division. A Sales After-tax income Residual income Average divisional assets Cost of capital Profit margin ratio Asset turnover Return on investment

$ 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%

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116) The Labrador Falls Company has three divisions: A Division, B Division, and C Division.

Sales After-tax income Residual income Average divisional assets Cost of capital Profit margin ratio Asset turnover Return on investment

$ 430,000 98,900 ? ? 8% 18% ? 10%

$ 551,000 ? 41,500 ? 10% 5% 5.0 ?

? $ 26,200 17,000 80,000 ? ? ? ?

What was C Division's cost of capital? A) 10.0% B) 11.5% C) 23.0% D) 21.5%

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117) The Labrador Falls Company has three divisions: A Division, B Division, and C Division. A Sales After-tax income Residual income Average divisional assets Cost of capital Profit margin ratio Asset turnover Return on investment

$ 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 C Division's cost of capital? A) 8% B) 12% C) 18% D) 20%

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118) Which of the following items wouldnot 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

119) Which of the following items wouldnot require an adjustment to capital employed when using economic value added (EVA)?

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A) Research & development costs B) Advertising expenditures C) Preferred stock D) Accounts Payable

120) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-04 Interpret and use economic value added (EVA). Topic : Economic Value Added (EVA) Gradable : automatic Accessibility : Screen Reader Compatible

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121) 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

122) Which of the following statements regarding the use of historical costs and current costs to compute return on investment (ROI) isfalse?

A) Historical costs are based on the original costs to acquire a 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. C) Current costs are always the superior measure of ROI. D) Current costs represent the costs to replace the long-term asset.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Measuring the Investment Base Gradable : automatic Learning Objective : 14-05 Explain how historical cost and net book value–based accounting meas Bloom's : Understand Accessibility : Screen Reader Compatible

123) 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.

124) Using ending balances for the investment base in computing return on investment (ROI) might encourage managers to acquire assets:

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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.

125) Using beginning balances for the investment base in computing return on investment (ROI) might encourage managers to acquire assets:

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126) One division of the Marvin Educational Enterprises has depreciable assets costing $4,600,000. The cash flows from these assets for the past three years have been: Year 1 2 3

Cash flows $ 1,656,000 $ 1,886,000 $ 2,001,000

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

Year 2

26.0% 31.0% 24.0% 36.0%

31.0% 34.0% 32.5% 41.0%

Year 3 33.5% 35.0% 31.0% 43.5%

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

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Topic : Measuring the Investment Base Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic Learning Objective : 14-05 Explain how historical cost and net book value–based accounting meas Type : Algorithmic Accessibility : Screen Reader Compatible null : Chapter - Chapter 14

127) 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? Year 1 A. 20.0% B. 25.0% C. 18.0% D. 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Topic : Measuring the Investment Base Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic Learning Objective : 14-05 Explain how historical cost and net book value–based accounting meas Accessibility : Screen Reader Compatible

128) One division of the Marvin Educational Enterprises has depreciable assets costing $5,900,000. The cash flows from these assets for the past three years have been: Year 1 2 3

Cash flows $ 1,947,000 $ 2,242,000 $ 2,419,000

The current (i.e., replacement) costs of these assets were expected to increase 20% 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

Year 2

47.8% 25.6% 36.7% 33.0%

60.0% 35.0% 47.5% 38.0%

Year 3 72.9% 44.3% 58.6% 41.0%

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

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129) 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? Year 1 A. 21.5% B. 22.2% C. 23.0% D. 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

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130) One division of the Marvin Educational Enterprises has depreciable assets costing $5,000,000. The cash flows from these assets for the past three years have been: Year 1 2 3

Cash flows $ 2,000,000 $ 2,250,000 $ 2,275,000

A. B. C. D.

Year 1

Year 2

33.3% 25.0% 28.0% 23.3%

31.3% 22.2% 30.6% 21.3%

Year 3 26.3% 22.0% 28.2% 16.3%

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

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131) 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

A. B. C. D.

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Year 1

Year 2

Year 3

14.0% 13.0% 12.0% 14.0%

18.0% 14.0% 10.1% 12.4%

22.4% 14.0% 9.5% 10.7%

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

132) One division of the Marvin Educational Enterprises has depreciable assets costing $5,400,000. The cash flows from these assets for the past three years have been: Year 1 2 3

Cash flows $ 1,512,000 $ 1,782,000 $ 1,998,000

A. B. C. D.

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Year 1

Year 2

18.2% 15.5% 14.8% 14.8%

23.9% 17.9% 16.1% 28.6%

Year 3 28.4% 18.5% 16.3% 30.6%

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

133) 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

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14.6% 15.8%

Year 2

Year 3

15.9% 15.9%

16.0% 14.9%

C. D.

15.6% 15.6%

15.5% 15.8%

15.3% 11.9%

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

134) One division of the Marvin Educational Enterprises has depreciable assets costing $4,080,000. The cash flows from these assets for the past three years have been: Year 1 2 3

Cash flows $ 1,320,000 $ 1,432,000 $ 1,628,000

The current (i.e., replacement) costs of these assets were expected to increase 15% 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?

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Year 1

Year 2

Year 3

$ 300,000

$ 412,000

$ 608,000

B. C. D.

$ 204,000 $ 198,000 $ 198,000

$ 204,000 $ 214,800 $ 412,000

$ 204,000 $ 244,200 $ 244,200

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

135) 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?

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Year 1 A. B. C. D.

$ 200,000 $ 200,000 $ 250,000 $ 250,000

Year 2

Year 3

$ 400,000 $ 200,000 $ 200,000 $ 400,000

$ 620,000 $ 200,000 $ 450,000 $ 375,000

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

136) One division of the Marvin Educational Enterprises has depreciable assets costing $4,060,000. The cash flows from these assets for the past three years have been: Year 1 2 3

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Cash flows $ 1,290,000 $ 1,424,000 $ 1,626,000

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 11% and Marvin uses historical costs and net book values to compute residual income?

A. B. C. D.

Year 1

Year 2

Year 3

$ 141,900 $ 482,060 $ 322,500 $ 482,060

$ 156,640 $ 660,720 $ 356,000 $ 526,720

$ 178,860 $ 907,380 $ 406,500 $ 571,380

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

137) 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

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Cash flows

1 2 3

$ 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? Year 1 A. B. C. D.

$ 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

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138) The Jones Company purchased assets costing $270,000 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 $270,000. It is estimated that in 5 years, the value of these assets will be unchanged. Assume that annual cash profits are $122,000 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? Year 1 A. B. C. D.

14.0% 12.6% 12.6% 14.0%

Year 2 15.7% 12.6% 11.2% 11.5%

Year 3

Year 4

18.0% 12.6% 7.0% 15.7%

21.0% 12.6% 7.2% 12.0%

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

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139) 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? Year 1 A. B. C. D.

11.1% 10.0% 10.0% 11.1%

Year 2

Year 3

Year 4

12.5% 10.0% 8.9% 11.5%

14.3% 10.0% 7.3% 12.5%

16.7% 10.0% 6.5% 12.3%

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

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140) The Jones Company purchased assets costing $240,000 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 $240,000. It is estimated that in 5 years, the value of these assets will be unchanged. Assume that annual cash profits are $104,000 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? Year 1 A. B. C. D.

11.7% 11.7% 14.9% 11.7%

Year 2 11.2% 11.7% 12.7% 14.9%

Year 3

Year 4

8.7% 11.7% 14.4% 15.5%

8.6% 11.7% 13.1% 18.3%

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

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141) 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? Year 1 A. B. C. D.

10.0% 10.0% 12.5% 10.0%

Year 2 9.5% 10.0% 11.0% 12.5%

Year 3

Year 4

8.0% 10.0% 12.0% 14.0%

7.9% 10.0% 15.0% 17.0%

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

142) The Jones Company purchased assets costing $212,000 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 $212,000. It is estimated that in 5 years, the value of these assets will be unchanged. Assume that annual cash profits are $116,000 and, for return on investment (ROI) calculations, the company uses end-of-year asset values. If sales each year average $932,800, what will be the asset turnover using gross book value?

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A) 2.6 B) 2.5 C) 2.2 D) 2.0

143) 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

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ESSAY. Write your answer in the space provided or on a separate sheet of paper. 144) Seaside Enterprises has the following data for its three divisions for the year:

Revenues Cost of sales Allocated corporate overhead Other general & administration

$ 1,200,000 769,500 72,000 158,500

$ 3,800,000 1,900,000 228,000 1,100,000

$ 2,800,000 1,400,000 210,000 1,100,000

Required: a. Compute net 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-01 Evaluate divisional accounting income as a performance measure. Topic : Accounting Income Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

145)

La Mesa Foods has the following data for its two divisions for the year:

Revenues Cost of sales Allocated corporate overhead Other general & administration

Uno

Dos

$ 600,000 384,750 36,000 79,250

$ 1,900,000 950,000 114,000 550,000

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146)

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

Zwei

Drei

$ 12,000,000 7,695,000 720,000

$ 38,000,000 19,000,000 2,280,000

$ 28,000,000 14,000,000 2,100,000

1,585,000

11,000,000

15%

12%

Required: a. Compute net 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-01 Evaluate divisional accounting income as a performance measure. Topic : Accounting Income Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Accessibility : Screen Reader Compatible

147)

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

Dos

$ 6,000,000 3,769,500 400,000 772,000 14%

$ 18,000,000 9,400,000 1,200,000 5,700,000 12%

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-01 Evaluate divisional accounting income as a performance measure. Topic : Accounting Income Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

148) The Calculating Fashion Company has two operating divisions: North and South. The following information was collected from its financial statements.

After-tax income Sales Divisional assets

North

South

$ 15,375 90,100 47,620

$ 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) ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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149) The Calculating Fashion Company has two operating divisions: North and South. The following information was collected from its financial statements.

After-tax income Sales Divisional assets

North

South

$ 15,375 90,100 47,620

$ 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. Divisional assets b. Total costs c. Sales ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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150) 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:

$ 8,000,000

Variable Fixed Depreciation

1,000,000 3,750,000 1,375,000

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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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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151) 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 After-tax income Divisional assets Sales Profit margin ratio

Division X

Division Y

Division Z

$ 98,400 188,600 820,000 1,640,000 11.5%

$ 27,200 115,600 680,000 1,445,000 8.0%

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Difficulty : 3 Hard Bloom's : Analyze AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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152) 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 Divisional profit Divisional sales

$ 200,000 $ 70,000 $ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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153) 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 Divisional profit Divisional sales

$ 1,500,000 $ 550,000 $ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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154) Radner Industries is a division of a major corporation. Last year the division had total sales of $23,380,000, after-tax income of $2,828,980, and divisional assets of $7,000,000. The company's cost of capital is 12%. Required: a. What is the division's profit margin ratio? b. What is the division's asset turnover? c. What is the division's return on investment (ROI)? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

155) Danali Fabrication is a division of a major corporation. Last year the division had total sales of $21,120,000, after-tax income of $2,006,400, and divisional assets of $6,000,000. The company's cost of capital is 12%. Required: What is the division's return on investment (ROI)? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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156) The following information is available about the Appliance Division of Rainier Company. Rainier’s cost of capital is 9% for 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard Gradable : manual Accessibility : Screen Reader Compatible

157) Bleu Stone is a division of a major corporation. The following data are for the latest year of operations: Sales After-tax income Divisional assets The company’s cost of capital

$ 30,000,000 $ 1,170,000 $ 8,000,000 18%

Required: a. What is the division's profit margin ratio? b. What is the division's asset turnover? c. What is the division's return on investment (ROI)? d. What is the division's residual income? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

158) Bleu Stone is a division of a major corporation. The following data are for the latest year of operations: Sales After-tax income Divisional assets The company’s cost of capital

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

159) Edmonson Corporation had after-tax income of $150,000 and divisional assets of $500,000. The company’s cost of capital is 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 after-tax 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Difficulty : 3 Hard Bloom's : Analyze AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

160) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

161) 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 Divisional profit Divisional sales

$ 100,000 $ 35,000 $ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

162) 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 Divisional profit Divisional sales

$ 750,000 $ 275,000 $ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

163) Big Sky Industries is a division of a major corporation. The following data are for the latest year of operations: Sales After-tax income Divisional assets The company’s cost of capital

$ 24,900,000 $ 1,319,700 $ 6,000,000 12%

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

164) Big Sky Industries is a division of a major corporation. The following data are for the latest year of operations: Sales After-tax income Divisional assets The company’s cost of capital

$ 12,700,000 $ 1,054,100 $ 5,000,000 16%

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

165) Raisin Corporation uses residual income to evaluate the performance of its divisions. The cost of capital is 19%. The Processed Foods Division had divisional assets of $410,000 and aftertax income of $86,000 in June. Required: What was the Processed Foods Division's residual income in June? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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166) The Parts Division of the Stein Corporation had divisional assets of $150,000 and aftertax income of $27,800 in March. The company uses residual income to evaluate the performance of its divisions, with a cost of capital of 17%. Required: What was the Parts Division's residual income in March? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

167) Edinger Industries is a division of a major corporation. The following data are for the latest year of operations: Sales After-tax income Divisional assets The company’s cost of capital

$ 20,760,000 $ 2,553,480 $ 6,000,000 16%

Required: What is the division's residual income?

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168) 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 Divisional profit Divisional sales

$ 100,000 $ 17,500 $ 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.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

169) 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 Divisional profit Divisional sales

$ 1,500,000 $ 550,000 $ 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.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

170) 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

Division Y

Division Z

$ 98,400 188,600 820,000 1,640,000 11.5%

$ 27,200 115,600 680,000 1,445,000 8.0%

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

171) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Topic : Measuring the Investment Base Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Learning Objective : 14-05 Explain how historical cost and net book value–based accounting meas Accessibility : Screen Reader Compatible

172) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Topic : Measuring the Investment Base Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Learning Objective : 14-05 Explain how historical cost and net book value–based accounting meas Accessibility : Screen Reader Compatible

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173) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Topic : Measuring the Investment Base Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Learning Objective : 14-05 Explain how historical cost and net book value–based accounting meas Accessibility : Screen Reader Compatible

174) Explain the difference between the gross margin ratio, the operating margin ratio, and the profit margin ratio.

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175)

What are two disadvantages of using divisional income as a performance measure?

176)

Describe the two main limitations of return on investment.

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177) How does the use of residual income overcome the limitations of using return on investment? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Gradable : manual Bloom's : Understand Accessibility : Screen Reader Compatible

178)

How does EVA differ from residual income?

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179) "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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 14-04 Interpret and use economic value added (EVA). Topic : Economic Value Added (EVA) Gradable : manual Bloom's : Understand Accessibility : Screen Reader Compatible

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180) Explain how using gross book value to measure assets gives different results than using net book value. What happens to ROI over time under each of the two measures? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Measuring the Investment Base Gradable : manual Learning Objective : 14-05 Explain how historical cost and net book value–based accounting meas Bloom's : Understand Accessibility : Screen Reader Compatible

181) What is the problem with choosing a beginning, ending, or average balance when measuring the investment base for performance evaluation? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Measuring the Investment Base Gradable : manual Learning Objective : 14-05 Explain how historical cost and net book value–based accounting meas Bloom's : Understand Accessibility : Screen Reader Compatible

182)

Financial data for Windsor, Incorporated for last year appear below: Windsor, Incorporated Statements of Financial Position Beginning Balance Ending Balance

Assets: Cash Accounts receivable Inventory Plant and equipment (net) Total assets Liabilities and stockholders' equity: Accounts payable Long-term debt Stockholders’ equity Total liabilities and stockholders’ equity

$ 250,000 120,000 230,000 420,000

$ 260,000 135,000 205,000 380,000

$ 1,020,000

$ 980,000

$ 160,000 400,000 460,000

$ 140,000 350,000 490,000

$ 1,020,000

$ 980,000

Windsor, Incorporated Income Statement Sales Less operating expenses Net operating income

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$ 1,750,000 1,470,000 280,000

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Less interest and taxes: Interest expense

$ 96,000

Tax expense Net income

44,000

140,000 $ 140,000

The company paid dividends of $84,000 last year. Required: a. Compute the company's profit margin ratio, asset turnover, and return on investment for last year. b. Windsor’s cost of capital is 25%. What was the company's residual income last year? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

183)

Financial data for Beaker Company for last year appear below: Beaker Company Statements of Financial Position Beginning Balance Ending Balance

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Assets: Cash Accounts receivable Inventory Plant and equipment (net)

$ 50,000 20,000 30,000 120,000

$ 70,000 25,000 35,000 110,000

Total assets

$ 220,000

$ 240,000

Liabilities and stockholders' equity: Accounts payable Long-term debt Stockholders' equity

$ 70,000 50,000 100,000

$ 90,000 30,000 120,000

$ 220,000

$ 240,000

Total liabilities and stockholders' equity Beaker Company Income Statement Sales

$ 414,000

Less operating expenses

311,900

Net operating income

102,100

Less interest and taxes: Interest expense Tax expense Net income

$ 30,000 10,000

40,000 $ 62,100

The company paid dividends of $2,100 last year. Required: a. Compute the company's profit margin ratio, asset turnover, and return on investment for last year. b. Beaker’s cost of capital is 20%. What was the company's residual income last year?

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

184) Xi, Incorporated 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Learning Objective : 14-04 Interpret and use economic value added (EVA). Topic : Economic Value Added (EVA) AACSB : Reflective Thinking Gradable : manual Bloom's : Understand Accessibility : Screen Reader Compatible

185) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Difficulty : 3 Hard Bloom's : Analyze AACSB : Reflective Thinking Gradable : manual AICPA : BB Critical Thinking Accessibility : Screen Reader Compatible

186) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Learning Objective : 14-04 Interpret and use economic value added (EVA). Topic : Economic Value Added (EVA) Difficulty : 3 Hard Bloom's : Analyze AACSB : Reflective Thinking Gradable : manual Accessibility : Screen Reader Compatible

187) year:

Mallory, Incorporated has the following data available for two of its divisions for last

Asian Division Sales Contribution Margin Operating income Average operating assets Weighted average cost of capital

$ 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, Incorporated is 18%. Required: (1) Compute the following for each division: (a) Profit margin ratio (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?

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Learning Objective : 14-04 Interpret and use economic value added (EVA). Topic : Economic Value Added (EVA) Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

188) Roxie, Incorporated 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Difficulty : 3 Hard Bloom's : Analyze AACSB : Reflective Thinking Gradable : manual Accessibility : Screen Reader Compatible

189) Suade Incorporated 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

2023 $ 8,000 4,500 8,800

2024 $ 15,000 3,600 7,600

2025 $ 16,000 2,400 6,600

Dining Room Living Room Bedroom Invested Assets

$ 2,500 450 1,200

$ 3,100 900 1,500

$ 1,800 600 1,600

Dining Room Living Room Bedroom

$ 12,000 2,500 4,500

$ 12,500 2,400 4,700

$ 12,500 2,200 4,900

The following table shows the number of managers covered by the current compensation package of Suade Incorporated: Number of Managers Dinning Room Living Room Bedroom

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2023 300 40 120

2024 350 40 140

2025 375 37 175

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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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 14-01 Evaluate divisional accounting income as a performance measure. Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Topic : Economic Value Added (EVA) Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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190) The High Seas, Incorporated 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

2023

2024

2025

$ 2,000 5,000 8,000

$ 3,000 5,000 7,000

$ 4,000 4,000 8,000

Jet Skis Fishing Boats Yachts Invested Assets

$ 500 3,000 4,000

$ 700 2,500 3,000

$ 1,000 2,000 3,500

Jet Skis Fishing Boats Yachts

$ 1,200 $ 2,000 3,000

$ 1,500 $ 1,500 2,500

$ 2,000 $ 1,500 3,000

The following table shows the number of managers covered by the current compensation package of The High Seas, Incorporated: Number of Managers Jet Skis Fishing Boats Yachts

2023 50 200 250

2024 60 180 200

2025 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?

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 14-01 Evaluate divisional accounting income as a performance measure. Topic : Accounting Income Learning Objective : 14-02 Interpret and use return on investment (ROI). Topic : Return on Investment Learning Objective : 14-03 Interpret and use residual income (RI). Topic : Residual Income Measures Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual Accessibility : Screen Reader Compatible

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Answer Key Test name: Lanen7e_ch14 1) TRUE 2) TRUE 3) TRUE 4) TRUE 5) TRUE 6) TRUE 7) TRUE 8) FALSE 9) TRUE 10) TRUE 11) TRUE 12) FALSE 13) TRUE 14) TRUE 15) TRUE 16) TRUE The main reason EVA does not address the suboptimization problem is that it uses accounting income, not the present value of cash flows (which investments are based on). 17) FALSE 18) TRUE 19) FALSE 20) D After-tax income as a performance measure is easy to understand because it is financial accounting income computed in the same way that income for the firm is computed. Version 1

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21) D Divisional statements do include allocations, the gross margin ratio is gross margin divided by sales, and divisional income makes comparison of divisions easy because they use the same measure. 22) B This is the formula for the profit margin ratio. 23) A Gross margin = Sales − Cost of goods sold. 24) C Return on investment is the ratio of profits to investment in the asset that generates those profits and is calculated as after-tax income divided by divisional assets. 25) B Asset turnover × Profit margin ratio = ROI. 26) B The asset turnover ratio is a measure of the investment center’s ability to generate sales for each dollar of assets invested in the center. 27) B ROI can be used to compare different sized divisions—this is an advantage of ROI. 28) A Increasing expenses decreases income (the numerator) and will decrease ROI. An increase in inventory will increase assets (the denominator) which will decrease ROI. 29) C Increasing the profit margin is accomplished by increasing the numerator (income) which would increase ROI, or by decreasing the denominator (sales) which would increase asset turnover and yield an increased ROI. Version 1

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30) B South: $39,000 ÷ $325,000 = 12.0% West: $64,800 ÷ $720,000 = 9.0% East: $141,570 ÷ $990,000 = 14.3% 31) B South: $20,000 ÷ $200,000 = 10.0% West: $50,000 ÷ $625,000 = 8.0% East: $100,000 ÷ $800,000 = 12.5% 32) B South: $392,000 ÷ $200,000 = 1.96 West: $1,820,000 ÷ $685,000 = 2.66 East: $2,120,000 ÷ $920,000 = 2.30 33) B South: $380,000 ÷ $200,000 = 1.90 West: $1,700,000 ÷ $625,000 = 2.72 East: $2,000,000 ÷ $800,000 = 2.50 34) A South: $21,200 ÷ $400,000 = 5.30% West: $52,460 ÷ $1,720,000 = 3.05% East: $103,020 ÷ $2,020,000 = 5.10% 35) A South: $20,000 ÷ $380,000 = 5.26% West: $50,000 ÷ $1,700,000 = 2.94% East: $100,000 ÷ $2,000,000 = 5.00% 36) C Previous year depreciation: ($30,000 − 0) ÷ 10 = $3,000 $8,000 ÷ ($30,000 − $3,000) = 29.6% 37) C

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Previous year depreciation: ($20,000 − $0) ÷ 10 = $2,000 $4,000 ÷ ($20,000 − $2,000) = 22.2% 38) A Previous year depreciation: ($25,000 − $0) ÷ 10 = $2,500 ($5,100 − $2,500) ÷ ($25,000 − $2,500) = 11.6% 39) A Previous year depreciation: ($20,000 − $0) ÷ 10 = $2,000 ($4,000 − $2,000) ÷ ($20,000 − $2,000) = 11.1% 40) D Previous year depreciation: ($31,000 − $0) ÷ 10 = $3,100 Average net book value this year = ($27,900 beginning net book value + $24,800 ending net book value) ÷ 2 = $26,350 ($6,300 − $3,100) ÷ $26,350 = 12.14% 41) D Previous year depreciation: ($20,000 − $0) ÷ 10 = $2,000 Average net book value this year = ($18,000 beginning net book value + $16,000 ending net book value) ÷ 2 = $17,000 ($4,000 − $2,000) ÷ $17,000 = 11.76% 42) A ROI = (Cash Flow − annual depreciation) ÷ (net book value) = 24%; (Cash Flow − $24,000) ÷ ($300,000 − $12,000) = 0.24; Cash Flow = $93,120 43) A ROI = (Cash Flow − annual depreciation) ÷ (net book value) = 20%; (Cash Flow − $20,000) ÷ ($250,000 − $10,000) = 0.20; Cash Flow = $68,000 44) D

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ROI = (Cash Flow − annual depreciation) ÷ (gross book value) = 10%; (Cash Flow − $8,200) ÷ $123,000 = 0.10; Cash Flow = $20,500 45) D ROI = (Cash Flow − annual depreciation) ÷ (gross book value) = 15%; (Cash Flow − $12,000) ÷ ($120,000) = 0.15; Cash Flow = $30,000 46) B Assets = $203,000 ÷ 2 = $101,500; After-tax income = 0.12 × $101,500 = $12,180 47) B Assets = $200,000 ÷ 2.0 = $100,000; After-tax income = 0.12 × $100,000 = $12,000 48) C ROI = ($185,000 − $177,000) ÷ $40,000 = $8,000 ÷ $40,000 = 20.0% 49) C ROI = ($100,000 − $94,000) ÷ $40,000 = $6,000 ÷ $40,000 = 15.0% 50) C ROI = Profit margin ratio × Asset turnover; 20% = Profit margin ratio × 4; Profit margin ratio = 20% ÷ 4 = 5.0% 51) C ROI = Profit margin ratio × Asset turnover; 20% = Profit margin ratio × 3; Profit margin ratio = 20% ÷ 3 = 6.7% 52) B Decreasing sales decreases income (the numerator) which will decrease ROI. Decreasing equipment will decrease assets (the denominator) which will increase ROI. 53) D

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Changing factors by the same dollar amount will yield zero change. Increasing revenues and expenses by the same percentage will increase profits by that percentage. 54) D The key word is "always" increase. To guarantee this, both the numerator would have to increase and the denominator decrease. Decreasing revenues and costs both may lead to an increase in ROI, but only if the decrease in costs is larger than the decrease in revenues. Increasing revenue and decreasing costs guarantees the numerator increases. 55) B ROI = (After-tax income ÷ Sales) × (Sales ÷ Assets) = ($102,000 ÷ $510,000) × ($510,000 ÷ $408,000) = (1/5) × (5/4) 56) B ROI = (After-tax income ÷ Sales) × (Sales ÷ Assets) = ($100,000 ÷ $600,000) × ($600,000 ÷ $400,000) = (1/6) × (6/4) 57) C ($338,000 − $259,000 − $64,790) ÷ $49,000 = 29.00% 58) C ($311,000 − $250,000 − $50,000) ÷ $40,000 = 27.5% 59) B Increasing investment (along with increasing expenses) will decrease ROI. Increasing expenses and sales by the same dollar amount will not change the numerator, so ROI is unchanged. Increasing expenses and sales by the same percentage will increase profit and thus ROI. 60) A

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The formula for the profit margin ratio is after-tax income divided by sales. 61) D In the absence of operating changes, ROI will increase each year under the net book value. 62) B ROI of new project = After-tax income of new project ÷ Divisional assets of new project = $7,920 ÷ $44,000 = 18% 63) B ROI of new project = After-tax income of new project ÷ Divisional assets of new project = $4,750 ÷ $25,000 = 19% 64) C Profit margin ratio = After-tax income ÷ Sales = $52,000 ÷ $100,000 = 52% ROI = Profit margin ratio × Asset turnover = 52% × 0.5 = 26.0% 65) C Profit margin ratio = After-tax income ÷ Sales = $16,000 ÷ $100,000 = 16% ROI = Profit margin ratio × Asset turnover = 16% × 0.5 = 8% 66) C Wyeth: Asset Turnover = Sales ÷ Divisional assets = $20,050 ÷ $8,020 = 2.5ROI = Profit margin ratio × Asset turnover; 25.0 = Profit margin ratio × 2.5; Profit margin ratio = 25.0 ÷ 2.5 = 0.1 Genesis: Asset Turnover = Sales ÷ Divisional assets = $50,100 ÷ $10,020 = 5.0 ROI = Profit margin ratio × Asset turnover; 25.0 = Profit margin ratio × 5.0; Profit margin ratio = 25.0 ÷ 5.0 = 0.05 Version 1

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67) C Wyeth: Asset Turnover = Sales ÷ Divisional assets = $20,000 ÷ $8,000 = 2.5 ROI = Profit margin ratio × Asset turnover; 20% = Profit margin ratio × 2.5; Profit margin ratio = 20% ÷ 2.5 = 8% Genesis: Asset Turnover = Sales ÷ Divisional assets = $50,000 ÷ $10,000 = 5 ROI = Profit margin ratio × Asset turnover; 20% = Profit margin ratio × 5; Profit margin ratio = 20% ÷ 5 = 4% 68) A ROI ÷ Asset Turnover = Profit margin ratio = 12% ÷ 3 = 4% Profit margin ratio × Sales = After-tax income = 4% × $154,000 = $6,160 69) A ROI ÷ Asset Turnover = Profit margin ratio = 12% ÷ 3 = 4% Profit margin ratio × Sales = After-tax income = 4% × $150,000 = $6,000 70) C Year 1: ROI = Profit margin ratio × Asset turnover = 22% × 3.5 = 1% Year 2: ROI ÷ Asset turnover = Profit margin ratio = 1% ÷ 2 = 38% 71) C Year 1: ROI = Profit margin ratio × Asset turnover = 16% × 2.5 = 40% Year 2: ROI ÷ Asset turnover = Profit margin ratio = 40% ÷ 2.0 = 20% 72) B

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Year 1: ROI = Profit margin ratio × Asset turnover; ROI = 10% × 3.9 = 39% (same for Year 2) After-tax income = ROI × Divisional assets = 39% × $157,000 = $61,230 Sales = After-tax income ÷ Profit margin ratio; Sales = $61,230 ÷ 9.75% = $628,000 73) B Year 1: ROI = Profit margin ratio × Asset turnover; ROI = 16% × 2.5 = 40% (same for Year 2) After-tax income = ROI × Divisional assets = 40% × $150,000 = $60,000 Sales = After-tax income ÷ Profit margin ratio; Sales = $60,000 ÷ 20% = $300,000 74) D Sales = After-tax income ÷ Profit margin ratio = $49,500 ÷ 15% = $330,000 Divisional assets = Sales ÷ Asset turnover = $330,000 ÷ 3.0 = $110,000 75) D Sales = After-tax income ÷ Profit margin ratio = $40,000 ÷ 16% = $250,000 Divisional assets = Sales ÷ Asset turnover = $250,000 ÷ 2.5 = $100,000 76) A

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Year 1: ROI = 10% × 3.0 = 30% (same for Year 2) Year 2: ROI = Profit margin ratio × Asset turnover; 30% = Profit margin ratio × 3; Profit margin ratio = 10% Asset turnover = Sales ÷ Divisional assets; 3 = Sales ÷ $156,000; Sales = $468,000 After-tax income = Sales × Profit margin ratio; After-tax income = $468,000 × 10% = $46,800 77) A Year 1: ROI = 16% × 2.5 = 40% (same for Year 2) Year 2: ROI = Profit margin ratio × Asset turnover; 40% = Profit margin ratio × 2; Profit margin ratio = 20% Asset turnover = Sales ÷ Divisional assets; 2 = Sales ÷ $150,000; Sales = $300,000 After-tax income = Sales × Profit margin ratio; After-tax income = $300,000 × 20% = $60,000 78) D ROI = Profit margin ratio × Asset turnover; 15% = Profit margin ratio × 1.5; Profit margin ratio = 15% ÷ 1.5 = 10.00% 79) D ROI = Profit margin ratio × Asset turnover; 12% = Profit margin ratio × 1.5; Profit margin ratio = 12% ÷ 1.5 = 8.0% 80) D Residual income = After-tax income − (Cost of capital × Divisional assets) Residual income = $2,530 − (20% × $11,500) = $2,530 − $2,300 = $230 81) D

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Residual income = After-tax income − (Cost of capital × Divisional assets) Residual income = $3,000 − (18% × $15,000) = $3,000 − $2,700 = $300 82) A Residual income = After-tax income − (Cost of capital × Divisional assets) Residual income = $10,900 − (10% × $114,000) = $10,900 − $11,400 = $(500) 83) A Residual income = After-tax income − (Cost of capital × Divisional assets) Residual income = $9,400 − (11% × $100,000) = $9,400 − $11,000 = $(1,600) 84) B Residual income = After-tax income − (Cost of capital × Divisional assets) Residual income = ($467,000 × 10%) − (6% × $467,000) = $46,700 − $28,020 = $18,680 85) B Residual income = After-tax income − (Cost of capital × Divisional assets) Residual income = ($450,000 × 15%) − (10% × $450,000) = $67,500 − $45,000 = $22,500 86) B An increase in the cost of capital would decrease residual income. 87) B

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A decrease in divisional assets is a factor that would increase residual income, while the other options would decrease residual income. 88) C Residual income reduces but does not eliminate the suboptimization problem. 89) D Economists consider profits to include a charge for the cost of capital. 90) C Cost centers are responsible for costs only. Profit centers have no control over investments and are evaluated based on profit. Residual income is similar to the economist’s notion of profit as being the amount left over after all costs, including the cost of capital. 91) B Residual income increases the likelihood of goal congruence since the target return (cost of capital) is set by top management. 92) D Decreasing expenses increases income and will increase residual income. A decrease in inventory will decrease assets which will increase residual income. 93) B The suboptimization problem with using a ratio measure is reduced. 94) B Problems in measuring the asset base, gross versus net book values, and implicit cost of interest are present in both residual income and ROI. Residual income reduces the suboptimization problem with high-return divisions. 95) C Version 1

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Residual income = After-tax income − (Cost of capital × Divisional assets) $2,090,000 = ($39,000,000 − Costs) – [15% × ($2,700,000 + $26,200,000)]; Costs = $32,575,000 96) C Residual income = After-tax income − (Cost of capital × Divisional assets) $2,000,000 = ($30,000,000 − Costs) – [15% × ($1,800,000 + $17,200,000)]; Costs = $25,150,000 97) D ROI = $7,210 ÷ $515,000 = 1.4% Residual income = $7,210 − (0.07 × $515,000) = $(28,840) 98) D ROI = $8,000 ÷ $500,000 = 1.6% Residual income = $8,000 − (0.06 × $500,000) = $(22,000) 99) C An increase in sales increases income which increases residual income. An increase in equipment increases assets which will decrease residual income. 100) D Return on investment should not be used because it is not a measure of the cost of capital, it is a measure of performance. 101) A The land is not controlled by the division management or used by the division. 102) C

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ROI = After-tax income ÷ Divisional assets; 20% = After-tax income ÷ $46,000; After-tax income = $9,200 RI = After-tax income − (Cost of capital × Divisional assets); $3,450 = $9,200 − (Cost of capital × $46,000); Cost of capital = 12.5 % 103) C ROI = After-tax income ÷ Divisional assets; 20% = After-tax income ÷ $45,000; After-tax income = $9,000 RI = After-tax income − (Cost of capital × Divisional assets); $2,250 = $9,000 − (Cost of capital × $45,000); Cost of capital = 15.0% 104) B RI = After-tax income − (Cost of capital × Divisional assets or Invested capital) $3,100,000 = $780,000 − (0.15 × Invested capital); Invested capital = $3,100,000 105) B RI = After-tax income − (Cost of capital × Divisional assets or Invested capital) $3,000,000 = $750,000 − (0.15 × Invested capital); Invested capital = $3,000,000 106) A RI = After-tax income − (Cost of capital × Divisional assets) = ($9,900 – (0.12 × $42,600) = $4,788 107) A RI = After-tax income − (Cost of capital × Divisional assets) = $6,000 − (0.10 × $40,000) = $2,000 108) A

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Profit margin ratio = After-tax income ÷ Sales; 0.090 = After-tax income ÷ $129,500; After-tax income = $11,655 Residual income = After-tax income − (Cost of capital × Divisional assets) = $11,655 − (0.10 × $79,000) = $3,755 109) A Profit margin ratio = After-tax income ÷ Sales; 0.075 = After-tax income ÷ $120,000; After-tax income = $9,000 Residual income = After-tax income − (Cost of capital × Divisional assets) = $9,000 − (0.12 × $60,000) = $1,800 110) A ROI = Operating income ÷ Divisional assets; 10% = $71,500 ÷ Divisional assets; Divisional assets = $715,000 RI = After-tax income − (Cost of capital × Divisional assets) = $71,500 − (0.08 × $715,000) = $14,300 111) A ROI = Operating income ÷ Divisional assets; 15% = $75,000 ÷ Divisional assets; Divisional assets = $500,000 RI = After-tax income − (Cost of capital × Divisional assets) = $75,000 − (0.12 × $500,000) = $15,000 112) A ROI = Operating income ÷ Divisional assets; $10% = $62,500 ÷ Divisional assets; Divisional assets = $625,000 RI = After-tax income − (Cost of capital × Divisional assets) = $62,500 − (0.08 × $625,000) = $12,500 113) A ROI = Operating income ÷ Divisional assets; 15% = $60,000 ÷ Divisional assets; Divisional assets = $400,000 RI = After-tax income − (Cost of capital × Divisional assets) = $60,000 − (0.12 × $400,000) = $12,000 Version 1

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114) B ROI = Profit margin ratio × Asset turnover = 5% × 5.0 = 25.00% 115) B ROI = Profit margin ratio × Asset turnover = 5% × 4 = 20% 116) B RI = After-tax income − (Cost of capital × Divisional assets) = $17,000 = $26,200 − (Cost of Capital × $80,000); $9,200 = (Cost of Capital × $80,000); Cost of Capital = 11.5% 117) B RI = After-tax income − (Cost of capital × Divisional assets) = $14,400 = $24,000 − (Cost of Capital × $80,000); $9,600 = (Cost of Capital × $80,000); Cost of Capital = 12% 118) D Stock does not distort the accounting. R&D, advertising, and patents are expensed under GAAP and would need to be capitalized under EVA. 119) C Stock does not require an adjustment to capital employed. R&D and advertising are expensed under GAAP and would need to be capitalized under EVA. Current liabilities (AP) would require an adjustment because they do not carry explicit costs of capital. 120) A Economic value added (EVA) is the annual after-tax (adjusted) divisional income minus the total annual cost of (adjusted) capital. 121) B Process versus job costing does not cause a distortion in computing economic performance.

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122) C There is no single right or wrong measure. In general, how a performance measure is used is more important than how it is calculated. 123) D Under historical costs, ROI decreases because prices are rising. Net book values cause ROI to increase. Current costs and gross book value is most likely to result in level ROI. 124) A Acquiring early in the year and disposing before year-end would result in profits being generated, but the asset never appears in the asset base since it is disposed of before year-end. Managers would have use of the asset for the longest period of time. 125) A Acquiring early in the year and disposing before year-end would result in profits being generated, but the asset never appears in the asset base since it is acquired after the base is measured. Managers would have use of the asset for the longest period of time. 126) A Depreciation: ($4,600,000 − $0) ÷ 10 = $460,000 per year Year 1: ($1,656,000 − $460,000) ÷ $4,600,000 = 26.0% Year 2: ($1,886,000 − $460,000) ÷ $4,600,000 = 31.0% Year 3: ($2,001,000 − $460,000) ÷ $4,600,000 = 33.5% 127) A Depreciation: ($4,000,000 − $0) ÷ 10 = $400,000 per year Year 1: ($1,200,000 − $400,000) ÷ $4,000,000 = 20.0% Year 2: ($1,400,000 − $400,000) ÷ $4,000,000 = 25.0% Year 3: ($1,620,000 − $400,000) ÷ $4,000,000 = 30.5% 128) B

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Depreciation: ($5,900,000 − $0) ÷ 10 = $590,000 per year Year 1: ($1,947,000 − $590,000) ÷ ($5,900,000 − $590,000) = 25.6% Year 2: ($2,242,000 − $590,000) ÷ ($5,900,000 − $1,180,000) = 35.0% Year 3: ($2,419,000 − $590,000) ÷ ($5,900,000 − $1,770,000) = 44.3% 129) B Depreciation: ($4,000,000 − $0) ÷ 10 = $400,000 per year Year 1: ($1,200,000 − $400,000) ÷ ($4,000,000 − $400,000) = 22.2% Year 2: ($1,400,000 − $400,000) ÷ ($4,000,000 − $800,000) = 31.3% Year 3: ($1,620,000 − $400,000) ÷ ($4,000,000 − $1,200,000) = 43.6% 130) D Depreciation: ($5,000,000 − $0) ÷ 10 = $500,000 per year Year 1: [$2,000,000 − ($500,000 × 1.20)] ÷ [($5,000,000 × 1.20)] = 23.3% Year 2: [$2,250,000 − ($500,000 × 1.20 × 1.20)] ÷ [($5,000,000 × 1.20 × 1.20)] = 21.3% Year 3: [$2,275,000 − ($500,000 × 1.20 × 1.20 × 1.20)] ÷ [($5,000,000 × 1.20 × 1.20 × 1.20)] = 16.3% 131) D Depreciation: ($4,000,000 − $0) ÷ 10 = $400,000 per year Year 1: [$1,200,000 − ($400,000 × 1.25)] ÷ [($4,000,000 × 1.25)] = 14.0% Year 2: [$1,400,000 − ($400,000 × 1.25 × 1.25)] ÷ [($4,000,000 × 1.25 × 1.25)] = 12.4% Year 3: [$1,620,000 − ($400,000 × 1.25 × 1.25 × 1.25)] ÷ [($4,000,000 × 1.25 × 1.25 × 1.25)] = 10.7% 132) C

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Depreciation: ($5,400,000 − $0) ÷ 10 = $540,000 per year Year 1: [$1,512,000 − ($540,000 × 1.20)] ÷ [($5,400,000 × 1.20) − ($540,000 × 1.20)] = 14.8% Year 2: [$1,782,000 − ($540,000 × 1.20 × 1.20)] ÷ [($5,400,000 − ($1,080,000 × 1.20 × 1.20)] = 16.1% Year 3: [$1,998,000 − ($540,000 × 1.20 × 1.20 × 1.20)] ÷ [($5,400,000 − ($1,620,000 × 1.20)(1.20)(1.20)] = 16.3% 133) C Depreciation: ($4,000,000 − $0) ÷ 10 = $400,000 per year Year 1: [$1,200,000 − ($400,000 × 1.25)] ÷ [($4,000,000 × 1.25) − ($400,000 × 1.25)] = 15.6% Year 2: [$1,400,000 − ($400,000 × 1.25 × 1.25)] ÷ [($4,000,000 × 1.25 × 1.25) − ($800,000 × 1.25 × 1.25)] = 15.5% Year 3: [$1,620,000 − ($400,000 × 1.25 × 1.25 × 1.25)] ÷ [($4,000,000 × 1.25 × 1.25 × 1.25) − $1,200,000 × 1.25 × 1.25 × 1.25)] = 15.3% 134) A Depreciation: ($4,080,000 − $0) ÷ 10 = $408,000 per year Year 1: ($1,320,000 − $408,000) − ($4,080,000 × 0.15) = $300,000 Year 2: ($1,432,000 − $408,000) − ($4,080,000 × 0.15) = $412,000 Year 3: ($1,628,000 − $408,000) − ($4,080,000 × 0.15) = $608,000 135) A Depreciation: ($4,000,000 − $0) ÷ 10 = $400,000 per year Year 1: ($1,200,000 − $400,000) − ($4,000,000 × 0.15) = $200,000 Year 2: ($1,400,000 − $400,000) − ($4,000,000 × 0.15) = $400,000 Year 3: ($1,620,000 − $400,000) − ($4,000,000 × 0.15) = $620,000 136) B

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Depreciation: ($4,060,000 – $0) ÷ 10 = $406,000 per year Year 1: ($1,290,000 – $406,000) – [($4,060,000 – $406,000) × 0.11] = $482,060 Year 2: ($1,424,000 – $406,000) – [($4,060,000 – $812,000) × 0.11] = $660,720 Year 3: ($1,626,000 – $406,000) – [($4,060,000 – $1,218,000) × 0.11] = $907,380 137) B Depreciation: ($4,000,000 − $0) ÷ 10 = $400,000 per year Year 1: ($1,200,000 − $400,000) − [($4,000,000 − $400,000) × 0.15] = $260,000 Year 2: ($1,400,000 − $400,000) − [($4,000,000 − $800,000) × 0.15] = $520,000 Year 3: ($1,620,000 − $400,000) − [($4,000,000 − $1,200,000) × 0.15] = $800,000 138) A Depreciation: ($270,000 − $0) ÷ 5 = $54,000 per year Year 1: ($122,000 − $54,000) ÷ ($270,000 − $54,000 + $270,000) = 14.0% Year 2: ($122,000 − $54,000) ÷ ($270,000 − $108,000 + $270,000) = 15.7% Year 3: ($122,000 − $54,000) ÷ ($270,000 − $162,000 + $270,000) = 18.0% Year 4: ($122,000 − $54,000) ÷ ($270,000 − $216,000 + $270,000) = 21.0% 139) A

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Depreciation: ($200,000 − $0) ÷ 5 = $40,000 per year Year 1: ($80,000 − $40,000) ÷ ($200,000 − $40,000 + $200,000) = 11.1% Year 2: ($80,000 − $40,000) ÷ ($200,000 − $80,000 + $200,000) = 12.5% Year 3: ($80,000 − $40,000) ÷ ($200,000 − $120,000 + $200,000) = 14.3% Year 4: ($80,000 − $40,000) ÷ ($200,000 − $160,000 + $200,000) = 16.7% 140) B Depreciation: ($240,000 − $0) ÷ 5 = $48,000 per year. Year 1: ($104,000 − $48,000) ÷ ($240,000 + $240,000) = 11.7% Year 2: ($104,000 − $48,000) ÷ ($240,000 + $240,000) = 11.7% Year 3: ($104,000 − $48,000) ÷ ($240,000 + $240,000) = 11.7% Year 4: ($104,000 − $48,000) ÷ ($240,000 + $240,000) = 11.7% 141) B Depreciation: ($200,000 − $0) ÷ 5 = $40,000 per year Year 1: ($80,000 − $40,000) ÷ ($200,000 + $200,000) = 10.0% Year 2: ($80,000 − $40,000) ÷ ($200,000 + $200,000) = 10.0% Year 3: ($80,000 − $40,000) ÷ ($200,000 + $200,000) = 10.0% Year 4: ($80,000 − $40,000) ÷ ($200,000 + $200,000) = 10.0% 142) C $932,800 ÷ ($212,000 + $212,000) = 2.2 143) C $840,000 ÷ ($200,000 + $200,000) = 2.1 144)a. Revenues Cost of sales

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$ 1,200,000 769,500

$ 3,800,000 1,900,000

$ 2,800,000 1,400,000

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Gross Margin Allocated corporate overhead Other general & administration Operating income Taxes

430,500 72,000 1,58,500

1,900,000 228,000 1,100,000

1,400,000 210,000 1,100,000

200,000 60,000

572,000 171,600

90,000 27,000

Net income

$ 140,000

$ 400,400

$ 63,000

b. SB: $430,500 ÷ $1,200,000 = 35.88%; TH: $1,900,000 ÷ $3,800,000 = 50%; GM: $1,400,000 ÷ $2,800,000 = 50% c. SB: $200,000 ÷ $1,200,000 = 16.67%; TH: $572,000 ÷ $3,800,000 = 15.05%; GM: $90,000 ÷ $2,800,000 = 3.21% d. SB: $140,000 ÷ $1,200,000 = 11.67%; TH: $400,400 ÷ $3,800,000 = 10.54%; GM: $63,000 ÷ $2,800,000 = 2.25% 145)a. Uno

Dos

Revenues Cost of sales Gross Margin Allocated corporate overhead Other general & administration Operating income Taxes

$ 600,000 384,750 215,250 36,000 79,250 100,000 30,000

$ 1,900,000 950,000 950,000 114,000 550,000 286,000 85,800

Net income

$ 70,000

$ 200,200

b. Uno: $215,250 ÷ $600,000 = 35.88%; Dos: $950,000 ÷ $1,900,000 = 50% c. Uno: $100,000 ÷ $600,000 = 16.67%; Dos: $286,000 ÷ $1,900,000 = 15.05% d. Uno: $70,000 ÷ $600,000 = 11.67%; Dos: $200,200 ÷ $1,900,000 = 10.54% 146)a. Revenues

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Zwei

Drei

$ 12,000,000

$ 38,000,000

$ 28,000,000

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Cost of sales Gross margin Allocated corporate overhead Other general & administration Operating income Taxes

7,695,000 $ 4,305,000 720,000

19,000,000 $ 19,000,000 2,280,000

14,000,000 $ 14,000,000 2,100,000

1,585,000

11,000,000

$ 2,000,000 700,000

$ 5,720,000 2,002,000

$ 900,000 315,000

Net income

$ 1,300,000

$ 3,718,000

$ 585,000

b. Ein: $1,300,000 ÷ $12,000,000 = 10.83%; Zwei: $3,718,000 ÷ $38,000,000 = 9.78%; Drei: $585,000 ÷ $28,000,000 = 2.09% c. Asset turnover = ROI ÷ Profit margin ratio Ein: 15% ÷ 10.83% = 1.39; Zwei: 12% ÷ 9.78% = 1.23; Drei: 9% ÷ 2.09% = 4.31 147)a. Revenues Cost of sales Gross margin Allocated corporate overhead Other general & administration Operating income Taxes Net income

Uno

Dos

$ 6,000,000 3,769,500 $ 2,230,500 400,000 772,000 $ 1,058,500 370,475

$ 18,000,000 9,400,000 $ 8,600,000 1,200,000 5,700,000 $ 1,700,000 595,000

$ 688,025

$ 1,105,000

b. Uno: $688,025 ÷ $6,000,000 = 11.47%; Dos: $1,105,000 ÷ $18,000,000 = 6.14% c. Asset turnover = ROI ÷ Profit margin ratio Uno: 14% ÷ 11.47% = 1.22; Dos: 12% ÷ 6.14% = 1.95

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148)a. Profit margin: North: $15,375 ÷ $90,100 = 17.1%; South: $9,160 ÷ $128,445 = 7.1% b. Asset turnover: North: $90,100 ÷ $47,620 = 1.89; South: $128,445 ÷ $37,690 = 3.41 c. Return on investment: North: $15,375 ÷ $47,620 = 32.3%; South: $9,160 ÷ $37,690 = 24.3% 149)a. ROI = 30% = $9,160 ÷ assets; assets = $30,533, which is a decrease of $7,157 or 19.0% b. ROI = 30% = ($128,445 − Total cost) ÷ $37,690; Total cost = $117,138, which is a decrease of $2,147 or 1.8% c. ROI = 30% = (Sales − $119,285) ÷ $37,690; Sales = $130,592, which is an increase of $2,147 or 1.7% 150)a. Operating Income: $8,000,000 − $1,000,000 − $3,750,000 − $1,375,000 = $1,875,000; ROI = $1,875,000 ÷ $4,500,000 = 41.67% b. Loss on disposal: Purchase price (old machine) Less depreciation Net book value Salvage value Loss on disposal

$ 2,500,000 750,000 $ 1,750,000 0 $ 1,750,000

Operating Income = $1,875,000 − $1,750,000 = $125,000 Assets: $4,500,000 − $2,500,000 + $3,250,000 = $5,250,000 ROI = $125,000 ÷ $5,250,000 = 2.38% c. Next year's income Revenues ($8,000,000 × 110%) Variable cash ($1,000,000 × 110%) Fixed cash ($3,750,000 × 95%) Depreciation: Income

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$ 8,800,000 1,100,000 3,562,500 1,625,000 $ 2,512,500

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Depreciation: $1,375,000 − $750,000 + [($3,250,000 − $250,000) ÷ 3] = $1,625,000 Assets: $4,500,000 − $2,500,000 + $3,250,000 = $5,250,000 ROI = $2,512,500 ÷ $5,250,000 = 47.86% 151)a. ROI for new investment = $35,000 ÷ $246,000 = 14.23% Operating income: X: $1,640,000 × 0.115 = $188,600 Y: $1,445,000 × 0.080 = $115,600 Z: $1,040,000 × 0.050 = $52,000 Divisional ROI: X: $188,600 ÷ $820,000 = 23.0% (reject) Y: $115,600 ÷ $680,000 = 17.0% (reject) Z: $52,000 ÷ $400,000 = 13.0% (accept) b. Divisional cost of capital: X: $188,600 − (cost of capital × $820,000) = $98,400; Cost of capital = 11.0% Y: $115,600 − (cost of capital × $680,000) = $27,200; Cost of capital = 13.0% Z: $52,000 − (cost of capital × $400,000) = $2,000; Cost of capital = 12.5% Divisional residual income for new investment X: $35,000 − (0.11 × $246,000) = $7,940 (accept) Y: $35,000 − (0.13 × $246,000) = $3,020 (accept) Z: $35,000 − (0.125 × $246,000) = $4,250 (accept) 152)a. $70,000 ÷ $200,000 = 35% b. ($70,000 + $16,000) ÷ ($200,000 + $60,000) = 33.08% c. Current profit margin: $70,000 ÷ $400,000 = 17.5%; Asset turnover: $400,000 ÷ $200,000 = 2 times; New ROI = (17.5% + 1%) × 2 = 37% d. New ROI = 17.5% × (2 + 1) = 52.5% Version 1

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153)a. $550,000 ÷ $1,500,000 = 36.67% b. ($550,000 + $25,000) ÷ ($1,500,000 + $100,000) = 35.94% c. Current profit margin: $550,000 ÷ $3,600,000 = 15.28%; Asset turnover: $3,600,000 ÷ $1,500,000 = 2.4 times; New ROI = (15.28% + 1%) × 2.4 = 39.07% d. New ROI = 15.28% × (2.4 + 1) = 51.95% 154)a. Profit margin ratio = After-tax income ÷ Sales = $2,828,980 ÷ $23,380,000 = 12.1% b. Asset turnover = Sales ÷ Divisional assets = $23,380,000 ÷ $7,000,000 = 3.3 c. ROI = After-tax income ÷ Divisional assets = $2,828,980 ÷ $7,000,000 = 40.4% 155) ROI = After-tax income ÷ Divisional assets = $2,006,400 ÷ $6,000,000 = 33.4% 156)a. ROI = $18,462,000 ÷ $173,700,000 = 10.63% b. $18,462,000 − (9% × $173,700,000) = $2,829,000 157)a. Profit margin ratio = After-tax income ÷ Sales = $1,170,000 ÷ $30,000,000 = 3.9% b. Asset turnover = Sales ÷ Divisional assets = $30,000,000 ÷ $8,000,000 = 3.8 c. ROI = After-tax income ÷ Divisional assets = $1,170,000 ÷ $8,000,000 = 14.6% d. Residual income = After-tax income − (Cost of capital × Divisional assets) = $1,170,000 − (18% × $8,000,000) = $(270,000) 158)a. ROI = After-tax income ÷ Divisional assets = $1,453,760 ÷ $8,000,000 = 18.2% b. Residual income = After-tax income − (Cost of capital × Divisional assets) = $1,453,760 − (18% × $8,000,000) = $13,760

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159)a. Return on investment = After-tax income ÷ Divisional assets = $150,000 ÷ $500,000 = 30% Residual income = After-tax income − (Cost of capital × Divisional assets) = $150,000 − ($500,000 × 0.19) = $55,000 b. Return on investment = After-tax income ÷ Divisional assets = $78,000 ÷ $400,000 = 19.5% Residual income = After-tax income − (Cost of capital × Divisional assets) = $78,000 − (0.19 × $400,000) = $2,000 Investment Decision: It depends on whether they evaluate on ROI or Residual Income. If they use Residual Income, the company should invest in this project since its rate of return exceeds the minimum required rate of return. In other words, its residual income is positive. On the other hand, its ROI is lower and will bring down the company's ROI to 25.3%. So, it really depends on the evaluation criteria. 160)a. ROI = $12,854,000 ÷ $156,000,000 = 8.24% b. RI = $12,854,000 − (8% × $156,000,000) = $374,000 161)a. $35,000 ÷ $100,000 = 35% b. $35,000 − (20% × $100,000) = $15,000 c. ($35,000 + $8,000) − [20% × ($100,000 + $30,000)] = $17,000 d. Current profit margin: $35,000 ÷ $200,000 = 17.5%; asset turnover: $200,000 ÷ $100,000 = 2 times; New ROI = (17.5% + 1%) × 2 = 37% e. New ROI = 17.5% × (2 + 1) = 52.5%

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162)a. $275,000 ÷ $750,000 = 36.67% b. $275,000 − (20% × $750,000) = $125,000 c. ($275,000 + $10,000) − [20% × ($750,000 + $40,000)] = $127,000 d. Current profit margin: $275,000 ÷ $1,800,000 = 15.28; Asset turnover: $1,800,000 ÷ $750,000 = 2.4 times; New ROI = (15.28% + 1%) × 2.4 = 39.07% e. New ROI = 15.28% × (2.4 + 1) = 51.95% 163)a. Profit margin ratio = After-tax income ÷ Sales = $1,319,700 ÷ $24,900,000 = 5.3% b. Asset turnover = Sales ÷ Divisional assets = $24,900,000 ÷ $6,000,000 = 4.2 c. ROI = After-tax income ÷ Divisional assets = $1,319,700 ÷ $6,000,000 = 22.0% d. Residual income = After-tax income − (Cost of capital × Divisional assets) = $1,319,700 − (12% × $6,000,000) = $1,319,700 − $720,000 = $599,700 164)a. ROI = After-tax income ÷ Divisional assets = $1,054,100 ÷ $5,000,000 = 21.1% b. Residual income = After-tax income − (Cost of capital × Divisional assets) = $1,054,100 − (16% × $5,000,000) = $1,054,100 − $800,000 = $254,100 165) After-tax income Cost of capital ($410,000 × 19%) Residual income

$ 86,000 77,900 $ 8,100

166) After-tax income Cost of capital ($150,000 × 17%) Residual income

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$ 27,800 25,500 $ 2,300

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167)Residual income = After-tax income − (Cost of capital × Divisional assets) = $2,553,480 − (16% × $6,000,000) = $2,553,480 − $960,000 = $1,593,480 168)a. $17,500 – (10% × $100,000) = $7,500. b. ($17,500 + $4,000) − [10% × ($100,000 + 30,000)] = $8,500 c. Current profit margin: $17,500 ÷ $200,000 = 8.75%; New profit margin = 8.75% + 1% = 9.75%; 9.75% = New profit ÷ $200,000; New profit = $19,500; Residual income = $19,500 − (10% × $100,000) = $9,500 d. Current asset turnover: $200,000 ÷ $100,000 = 2 times; New asset turnover = 2 + 1 = 3; 3 = $200,000 ÷ New investment; New investment = $66,667; Residual income = $17,500 − (10% × $66,667) = $10,833 169)a. $550,000 – (20% × $1,500,000) = $250,000 b. ($550,000 + $25,000) − [20% × ($1,500,000 + $100,000)] = $255,000 c. Current profit margin: $550,000 ÷ $3,600,000 = 15.278%; New profit margin = 15.278% + 1% = 16.278%; 16.278% = New profit ÷ $3,600,000; New profit = $586,008; Residual income = $586,008 − (20% × $1,500,000) = $286,008 d. Current asset turnover: $3,600,000 ÷ $1,500,000 = 2.4 times; New turnover = 2.4 + 1 = 3.4; 3.4 = $3,600,000 ÷ New investment; New investment = $1,058,824; Residual income = $550,000 − (20% × $1,058,824) = $338,235

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170)a. X: $188,600 ÷ $820,000 = 23.0% Y: $115,600 ÷ $680,000 = 17.0% Z: $76,000 ÷ $400,000 = 19.0% b. X: $188,600 − (Cost of capital × $820,000) = $98,400; Cost of capital = 11.0% Y: $115,600 − (Cost of capital × $680,000) = $27,200; Cost of capital = 13.0% Z: $76,000 − (Cost of capital × $400,000) = $12,000; Cost of capital = 16.0% 171)a. Depreciation expense = ($2,500,000 − $400,000) ÷ 5 yrs = $420,000; Operating income = $1,300,000 − $420,000 = $880,000 Year 1 2 3 4 5

Depreciation expense $ 420,000 420,000 420,000 420,000 420,000

Operating Income $ 880,000 880,000 880,000 880,000 880,000

BV beginning of Year $ 2,500,000 2,080,000 1,660,000 1,240,000 820,000

ROI 35.2% 42.3% 53.0% 71.0% 107.3%

Depreciation expense $ 420,000 420,000 420,000 420,000 420,000

Operating Income $ 880,000 880,000 880,000 880,000 880,000

BV end of Year

ROI

b. Year 1 2 3 4 5

2,080,000 1,660,000 1,240,000 820,000 400,000

42.3% 53.0% 71.0% 107.3% 220.0%

172)Depreciation expense = ($2,500,000 – $400,000) ÷ 5 yrs = $420,000. Operating income year 1 = $1,300,000 – $420,000 = $880,000. Operating income year 2 = $880,000 × 112.5% = $990,000. Operating income year 3 = $990,000 × 112.5% = $1,113,750. Book Values: Year

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GBV

Accumulated

NBV EoY

Price

Current 179

1 2 3

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

Year 1 2 3

Depreciation $ 420,000 $ 2,080,000 840,000 1,660,000 1,260,000 1,240,000

× 1 $ 2,080,000 × 1.125 1,867,500 × 1.125 × 1,569,375 1.125 Price Current Gross Book Value × 1 $ 2,500,000 × 1.125 2,812,500 × 1.125 × 1.125 3,164,063

GBV $ 2,500,000 2,500,000 2,500,000

a. Year 1 2 3 Year 1 2 3

Operating Income $ 880,000 990,000 1,113,750 Operating Income $ 880,000 990,000 1,113,750

Current NBV $ 2,080,000 1,867,500 1,569,375 Current GBV $ 2,500,000 2,812,500 3,164,063

ROI 42.3% 53.0% 71.0% ROI 35.2% 35.2% 35.2%

173)Depreciation: $2,000,000 ÷ 10 = $200,000 per year a. Year

Cash Flow

Depreciation

1 2 3

$ 600,000 700,000 810,000

$ 200,000 200,000 200,000

Operating Income $ 400,000 500,000 610,000

GBV

ROI

$ 2,000,000 2,000,000 2,000,000

20.0% 25.0% 30.5%

b. Year Cash Flow Depreciation Operating Income 1 $ 600,000 $ 200,000 $ 400,000 2 3

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700,000 810,000

200,000 200,000

500,000 610,000

GBV

NBV

ROI

$ 2,000,000 2,000,000 2,000,000

1,800,000

22.2%

1,600,000 1,400,000

31.3% 43.6%

180

174) Gross margin ratio is defined as the gross margin (sales minus cost of goods sold) divided by sales. The operating margin ratio is operating income (gross margin minus operating costs) divided by sales. The profit margin ratio is after-tax income (operating profits less taxes) divided by sales. All three measures have sales as the denominator. The numerators are all different measures of income. 175) First, there may be size differences between divisions. Second, not all of the costs are controllable by the manager. There may be allocated corporate costs included in the costs of the division. 176)First, the accounting income and the asset base tend to focus on current activities. This can cause a short-term focus or myopia. Second, using ROI can give incentives for the manager to concentrate on the divisional performance and take actions that lead to lower organizational performance. This is called suboptimization. 177) One advantage of residual income over ROI is that it is not a ratio. Managers evaluated using residual income invest only in projects that increase residual income. Therefore, there is no incentive for managers in divisions with low residual incomes to invest in projects with negative residual incomes. The reason is that the residual income for the division is the sum, not the weighted average, of the residual income for the project and the residual income for the division prior to the investment in the project.

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178)While residual income and economic value-added measures (EVA) have some similarities, EVA makes adjustments to income and investments to correct accounting calculations that do not reflect the economics of the transaction. Typical examples are capitalizing expenditures that common accounting practice would expense, such as advertising or R&D expenditures. Residual income, on the other hand, is the difference between profits and the cost of the assets that generate those profits. When comparing their calculations, residual income (RI) is defined as follows: ● Investment center operating profit − (Cost of capital × Investment center assets). However, economic value added (EVA) is defined as follows: ● After-tax (adjusted) operating profits − (Cost of capital × Capital employed (adjusted)). 179) The problem with using the same measure of performance for managers at all levels in an organization is that managers' responsibilities and decision rights differ. For example, a plant manager might not have the authority to choose where to produce or what equipment to use. EVA, however, evaluates the manager on how well they use assets. 180) Gross book value results in a constant denominator in the ROI calculation unless assets are acquired or disposed. This will result in a constant ROI unless there are changing prices. Net book value is computed by taking depreciation into account in the asset base. The asset base will constantly be decreasing (unless there are acquisitions and disposals) resulting in a constantly increasing ROI. It could be the case that the increasing ROI leads to a conclusion that performance is increasing when in fact no changes are occurring and the asset base is just depreciating. Version 1

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181) Using the beginning balance could encourage asset acquisitions early in the year to increase income for the entire year. Asset dispositions would be encouraged at the end of the year to reduce the investment base for next year. If end-of-year bal¬ances are used, similar incentives to manipulate purchases and dispositions exist. Average investments would tend to minimize this problem, although computing average investments could be more difficult. In choosing an investment base, management must balance the costs of the additional computations required for average investment against the potential negative consequences of using the begin¬ning or ending balances. In general, how a performance measure is used is more important than how it is calculated. 182)a. Cash Accounts receivable Inventory Plant and equipment (net) Total operating assets

Beginning Balance $ 250,000 120,000 230,000 420,000 $ 1,020,000

Ending Balance $ 260,000 135,000 205,000 380,000 $ 980,000

Average operating assets = ($1,020,000 + $980,000) ÷ 2 = $1,000,000 Profit margin ratio = After-tax income ÷ Sales = $140,000 ÷ $1,750,000 = 8% Asset turnover = Sales ÷ Average operating assets = $1,750,000 ÷ $1,000,000 = 1.75 ROI = Profit margin ratio × Asset turnover = 8% × 1.75 = 14% b. Residual income = After-tax income − (Cost of capital × Average operating assets ) = $140,000 − (25% × $1,000,000) = $140,000 − $250,000 = $(110,000)

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183)a. Operating assets do not include investments in other companies or in undeveloped land. Beginning Balance

Ending Balance

Cash Accounts receivable Inventory Plant and equipment (net)

$ 50,000 20,000 30,000 120,000

$ 70,000 25,000 35,000 110,000

Total operating assets

$ 220,000

$ 240,000

Average operating assets = ($220,000 + $240,000) ÷ 2 = $230,000 Profit margin ratio = After-tax income ÷ Sales = $62,100 ÷ $414,000 = 15%. Asset turnover = Sales ÷ Average operating assets = $414,000 ÷ $230,000 = 1.8 ROI = Profit margin ratio × Asset turnover = 15% × 1.8 = 27% b. After-tax income Cost of capital (20% × $230,000)

$ 62,100 46,000

Residual income

$ 16,100

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184)Formulas: ROI = divisional after-tax income ÷ divisional assets (invested capital). ROI can be decomposed into two ratios: profit margin ratio (divisional after-tax income ÷ divisional sales revenue), and asset turnover (divisional sales revenue ÷ divisional assets). Residual income = divisional after-tax income − (divisional cost of capital × divisional assets) where the cost of capital is the minimum desired rate of return on invested capital. EVA = divisional after-tax operating income (adjusted) − total cost of (adjusted) capital. All three approaches use invested capital and divisional profit. Invested capital may be calculated using total assets or total productive assets (which are total assets less current liabilities). A second issue relates to the method of measuring the invested capital: gross book value or net book value. One might say that net book value has some advantages because it is the approach used on the balance sheet and the income statement but it uses depreciation methods that are somewhat arbitrary and as time passes the ROI can increase just because the net book value of the assets declines. Common, centrally controlled assets need to be allocated to the investment centers, e.g., cash, accounts receivable. Divisional income is measured using the concept of controllability; deciding which items are controlled by the division manager may not be clear cut. Alternative approaches include flexible budgets, variance analysis, and post audits of major investment decisions. While these are more complicated approaches, they help avoid the myopic problems of the single-period measures such as ROI, RI, and EVA.

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185)ROI = after-tax income ÷ divisional assets = (after-tax income ÷ sales revenue) × (sales revenue ÷ divisional assets) = profit margin × asset turnover. Looking at the formula shows that there are two components that might be looked at for improving the end result, asset turnover and profit margin. If the asset turnover is held constant, the profit margin can be improved either by decreasing unit sales by increasing the selling price (the idea being to hold the total sales revenue constant or increase it a bit) or decreasing costs. The first approach would work to decrease total variable costs related to units sold because fewer units would be involved which would raise the income. The problem here would be that raising the selling price might actually lead to lower total sales revenue because the company would lose more sales than it wanted. Decreasing costs while holding everything else constant would work to increase income. Depending on which costs were decreased, the company might lose sales due to poor quality products or less customer service. If the profit margin is held constant, the asset turnover can be improved by either increasing sales revenue or reducing the division's assets. Divisional assets can be reduced in the short-run by reducing inventories. The idea of reducing inventories ties in with JIT but there could be problems if the reductions lead to stockouts and lost sales. Sales revenue can be increased by using the store space more effectively, e.g., pack more displays into the existing space. This could turn customers away because the overall store atmosphere has deteriorated; customers may become unhappy with the more crowded Version 1

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layout.

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186)Advantages include: ● When individuals are given decision-making opportunities and autonomy, they take ownership of their decisions, hopefully, leading to better decisions. ● When decision making is delegated to the lowest possible level in the organization, individuals can react quickly to opportunities and threats and take advantage of their expertise. ● Giving the individual with the most knowledge and specialization in an area, often individuals at lower levels, more decision-making authority should lead to better decisions and greater levels of motivation. ● Allowing individuals to make decisions and manage autonomously will provide training for the future. ● When people are given ownership of their decisions, they make better decisions and devote the highest and best level of managerial effort. ● Allowing lower-level managers to make decisions frees up time from upper management to devote to strategic decisions. Disadvantages: ● A lack of goal congruence can result from decentralization. If individuals are making decisions in their own best interest, they may not be making them in the overall company best interest. ● Decentralization may mean the duplication of decision making – which can result in an inefficient use of resources and a lack of consistency in decision making. ● Individuals making decisions at lower levels might have a narrow focus and be unable to see the "big picture." ROI, Residual Income and EVA can be used as management evaluation tools. Bonuses and rewards are often based upon maintaining or increasing ROI, Residual Income, and EVA. ● Their use can enhance a focus on the individual department, but may further the problems of decentralization. Version 1

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● Their use allows managers to focus on profit, but not a balanced scorecard. ● Their use allows comparisons among managers and subunits with different levels of resources. ● Their use can encourage investment or inhibit investment if used improperly. ● When the overall company ROI, Residual Income, and EVA are used as well as those of the individual department, some decentralization problems are reduced. 187)(1) (a) Asian Profit margin ratio = [$92,000 × (1 − 0.18)] ÷ $460,000 = 16.4% European Profit margin ratio = [$90,000 × (1 − 0.18)] ÷ $900,000 = 8.2% (b) Asian Asset turnover = $460,000 ÷ $368,000 = 1.25 European Asset turnover = $900,000 ÷ $750,000 = 1.20 (c) Asian ROI = [$92,000 × (1 − 0.18)] ÷ $368,000 = 20.5% European ROI = [$90,000 × (1 − 0.18] ÷ $750,000 = 9.8% (d) Asian Residual income = [$92,000 × (1 − 0.18)] − (0.14 × $368,000) = $23,920 European Residual income = [$90,000 × (1 − 0.18)] − (0.14 × $750,000) = $(31,200) (e) Asian EVA = [$92,000 × (1 − 0.18)] − [0.14 × ($368,000 − 0)] = $23,920 European EVA = [$90,000 × (1 − 0.18)] − [0.14 × ($750,000 − 0)] = $(31,200) (2) The Asian Division has exceeded the target ROI, has a positive residual income and a higher EVA. Using these single point estimates, Asian Division appears to be the better division. Version 1

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188)(1) ● Managers in a decentralized organization sometimes have a narrow focus on their unit's performance, rather than the attainment of their organization's overall goals. ● As a result of this narrow focus, managers may tend to ignore the consequences of their actions on the organization's other subunits. ● In a decentralized organization, some tasks or services may be duplicated unnecessarily. (2) The divisions with the high ROI and low replacements of fixed assets are comparing the returns on potential replacements to their own high ROI and rejecting the replacements because they do not meet this number. Their fear is that these replacements would reduce their ROI, a valid concern because the invested capital component of the ROI formula would increase. The suboptimization occurs if these replacements meet the company's minimum desired rate of return on invested capital; it would have been to the overall benefit of the company to acquire the assets. This is the type of issue addressed by residual income. 189)(1) Profit Margin Ratio Dining Room Living Room Bedroom Asset Turnover

2023 0.313 0.100 0.136

2024 0.207 0.250 0.197

2025 0.113 0.250 0.242

Dining Room Living Room Bedroom Return on Investment

0.667 1.800 1.956

1.200 1.500 1.617

1.280 1.091 1.347

Dining Room Living Room

0.208 0.180

0.248 0.375

0.144 0.273

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Bedroom

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0.267

0.319

0.327

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(2) (Operating Income − (0.15 × Invested Assets)) × 0.12 = Bonus Amount. Suade Inc.: (multiply each bonus by 1,000 since all amounts in the information above are in thousands) 2023: [$4,150 − (0.15 × $19,000)] × 0.12 × 1,000 = $156,000 2024: [$5,500 − (0.15 × $19,600)] × 0.12 × 1,000 = $307,200 2025: [$4,000 − (0.15 × $19,600)] × 0.12 × 1,000 = $127,200 Bonus Amount ÷ Number of Executives = Average Bonus 2023: $156,000 ÷ 460 = $339 2024: $307,200 ÷ 530 = $580 2025: $127,200 ÷ 587 = $217 (3) Dining Room: 2023: [$2,500 − (0.15 × $12,000)] × 0.12 × 1,000 = $84,000 2024: [$3,100 − (0.15 × $12,500)] × 0.12 × 1,000 = $147,000 2025: [1,800 − (0.15 × $12,500)] × 0.12 × 1,000 = $(9,000) Living room: 2023: [$450 − (0.15 × $2,500)] × 0.12 × 1,000 = $9,000 2024: [$900 − (0.15 × $2,400)] × 0.12 × 1,000 = $64,800 2025: [$600 − (0.15 × $2,200)] × 0.12 × 1,000 = $32,400 Bedroom: 2023: [$1,200 − (0.15 × $4,500)] × 0.12 × 1,000 = $63,000 2024: [$1,500 − (0.15 × $4,700)] × 0.12 × 1,000 = $95,400 2025: [$1,600 − (0.15 × $4,900)] × 0.12 × 1,000 = $103,800 (4) Pros: The company–wide bonus plan promotes the sharing of corporate– wide assets. The bonus plan also helps to keep talented managers that are running divisions that are not able to perform up to expectations. Version 1

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Cons: The company–wide bonus plan includes many factors not under the control of each divisional managers. The bonus plan also penalizes executives of profitable divisions that do not receive the total benefit because of unprofitable divisions. 190)(1) The High Seas, Incorporated: (multiply each bonus by 1,000 since all amounts above are in thousands) [Operating Income − (0.14 × Invested Assets)] × 0.10 = Bonus Amount 2023: [$7,500 − (0.14 × $6,200)] × 0.10 × 1,000 = $663,200 2024: [$6,200 − (0.14 × $5,500)] × 0.10 × 1,000 = $543,000 2025: [$6,500 − (0.14 × $6,500)] × 0.10 × 1,000 = $559,000 Bonus Amount ÷ Number of Executives = Average Bonus 2023: $663,200 ÷ 500 = $1,326.40 2024: $543,000 ÷ 440 = $1,234.09 2025: $559,000 ÷ 480 = $1,164.58 (2) Jet Skis: 2023: [$500 − (0.14 × $1,200)] × 0.10 × 1,000 = $33,200 2024: [$700 − (0.14 × $1,500)] × 0.10 × 1,000 = $49,000 2025: [$1,000 − (0.14 × $2,000)] × 0.10 × 1,000 = $72,000 Fishing Boats 2023: [$3,000 − (0.14 × $2,000)] × 0.10 × 1,000 = $272,000 2024: [$2,500 − (0.14 × $1,500)] × 0.10 × 1,000 = $229,000 2025: [$2,000 − (0.14 × $1,500)] × 0.10 × 1,000 = $179,000 Yachts 2023: [$4,000 − (0.14 × $3,000)] × 0.10 × 1,000 = $358,000 2024: [$3,000 − (0.14 × $2,500)] × 0.10 × 1,000 = $265,000 2025: [$3,500 − (0.14 × $3,000)] × 0.10 × 1,000 = $308,000

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) A transfer price is the value assigned to the transfer of goods or services between divisions within the same organization. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-01 Explain the basic issues associated with transfer pricing. Gradable : automatic Topic : What Is Transfer Pricing and Why Is It Important? Accessibility : Screen Reader Compatible

2) Transfer prices are not used to record the exchange between two cost centers within the same organization. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-01 Explain the basic issues associated with transfer pricing. Difficulty : 2 Medium Bloom's : Understand Gradable : automatic Topic : What Is Transfer Pricing and Why Is It Important? Accessibility : Screen Reader Compatible

3) Transfer prices cannot be used for decision making, product costing, or performance evaluation. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-01 Explain the basic issues associated with transfer pricing. Difficulty : 2 Medium Bloom's : Understand Gradable : automatic Topic : What Is Transfer Pricing and Why Is It Important? Accessibility : Screen Reader Compatible

4) From an organization's viewpoint, transfer prices have no effect on total profits assuming the transfer occurs between two responsibility centers. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-01 Explain the basic issues associated with transfer pricing. Difficulty : 2 Medium Bloom's : Understand Gradable : automatic Topic : What Is Transfer Pricing and Why Is It Important? Accessibility : Screen Reader Compatible

5) If a transfer has no effect on divisional profit, managers should be indifferent between making the transfer or not. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Bloom's : Understand Gradable : automatic Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Bloom's : Understand Gradable : automatic Accessibility : Screen Reader Compatible

7) A perfect intermediate market exists if buyers can buy and sellers can sell outside of the organization. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Gradable : automatic Accessibility : Screen Reader Compatible

8) When a perfect intermediate market exists, the optimal transfer price is the intermediate market price. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Gradable : automatic Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Optimal Transfer Price: A General Principle Gradable : automatic Accessibility : Screen Reader Compatible

10) The use of an optimal transfer price eliminates all potential conflicts between an organization's interests and the divisional manager's interest. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : How to Help Managers Achieve Their Goals While Achieving the Organization's Goals Bloom's : Understand Gradable : automatic Accessibility : Screen Reader Compatible

11) A market price-based transfer pricing policy allows the selling division to determine the price for transfers between divisions within the same organization. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Centrally Established Transfer Price Policies Gradable : automatic Accessibility : Screen Reader Compatible

12) A selling division at capacity is indifferent between selling to outsiders and transferring inside at the market price. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Centrally Established Transfer Price Policies Bloom's : Understand Gradable : automatic Accessibility : Screen Reader Compatible

13) When actual costs are used as the basis for a transfer, inefficiencies of the selling division are transferred to the buying division. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Centrally Established Transfer Price Policies Bloom's : Understand Gradable : automatic Accessibility : Screen Reader Compatible

14) A transfer made at cost does not motivate the selling division to transfer its goods or services internally. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Centrally Established Transfer Price Policies Bloom's : Understand Gradable : automatic Accessibility : Screen Reader Compatible

15) In general, negotiated transfer prices fall in a range between the selling division's differential costs and the buying division's market price. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Negotiating the Transfer Price Bloom's : Understand Gradable : automatic Accessibility : Screen Reader Compatible

16) In the United States, more companies use cost-based transfer prices than market-based transfer prices. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Global Practices Gradable : automatic Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-04 Explain the economic consequences of multinational transfer prices. Topic : Multinational Transfer Pricing Gradable : automatic Accessibility : Screen Reader Compatible

18) Tax avoidance is considered 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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 15-04 Explain the economic consequences of multinational transfer prices. Topic : Multinational Transfer Pricing Gradable : automatic Accessibility : Screen Reader Compatible

19) An organization that has significant foreign operations must disclose how its transfer prices are established between domestic and foreign divisions. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-05 Describe the role of transfer prices in segment reporting. Topic : Segment Reporting AICPA : FN Reporting Gradable : automatic Accessibility : Screen Reader Compatible

20) The GAAP financial reporting rules for segments require that all companies must use transfer prices based on market prices. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-05 Describe the role of transfer prices in segment reporting. Topic : Segment Reporting AICPA : FN Reporting Gradable : automatic Accessibility : Screen Reader Compatible

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MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 21) Which of the following statements is false? 1. (A) From an organization's viewpoint, transfer prices have no effect on total profits assuming the transfer occurs between two responsibility centers. 2. (B) A transfer price is the value assigned to the transfer of goods or services between divisions within the same organization. 3. (C) Transfer prices are used for decision making, product costing, and performance evaluation. 4. (D) The optimal transfer price is the price that leads the involved division managers to act in their own self interests.

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-01 Explain the basic issues associated with transfer pricing. Gradable : automatic Topic : What Is Transfer Pricing and Why Is It Important? Accessibility : Screen Reader Compatible

22) Which of the following responsibility centers is affected by the use of market-based transfer prices?

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-01 Explain the basic issues associated with transfer pricing. Gradable : automatic Topic : What Is Transfer Pricing and Why Is It Important? Accessibility : Screen Reader Compatible

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24) A division can sell externally for $69 per unit. Its variable manufacturing costs are $39 per unit, and its variable marketing costs are $16 per unit. What is the opportunity cost of transferring internally, assuming the division is operating at capacity? A) $14 B) $30 C) $39 D) $55

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible null : Chapter - Chapter 15

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 opportunity cost of transferring internally, assuming the division is operating at capacity? A) $13 B) $25 C) $35 D) $47

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : automatic Accessibility : Screen Reader Compatible

26) A division can sell externally for $77 per unit. Its variable manufacturing costs are $40 per unit, and its variable marketing costs are $24 per unit. What is the optimal transfer price for transferring internally, assuming the division is operating at capacity? A) $24 B) $40 C) $64 D) $77

27) 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?

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A) $12 B) $35 C) $47 D) $60

28) Division A has variable manufacturing costs of $56 per unit and fixed costs of $13 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) $26 B) $19 C) $56 D) $69

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29) 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

30) Division A has variable manufacturing costs of $70 per unit and fixed costs of $20 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 $95? A) $40 B) $25 C) $70 D) $95

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31) 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

32) Division A has variable manufacturing costs of $61 per unit and fixed costs of $14 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 $83?

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A) $28 B) $22 C) $61 D) $75

33) 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

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34) Division B has variable manufacturing costs of $65 per unit and fixed costs of $14 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 $82? A) $0 B) $17 C) $65 D) $79

35) 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

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36) 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 $40 per labor-hour, has a backlog of work for outside ships, and charges $82 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 $50 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) $42 B) $40 C) $50 D) $82

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37) 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 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 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 B) $37 C) $45 D) $70

38) 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 $40 per labor-hour, has a backlog of work for outside ships, and charges $82 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 $50 per hour, including leasing an adequate work area. What is the maximum transfer price per hour that the management division should pay?

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A) $42 B) $40 C) $50 D) $82

39) 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 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 per hour, including leasing an adequate work area. What is the maximum transfer price per hour that the management division should pay? A) $33 B) $37 C) $45 D) $70

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40) 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 $30 per labor-hour, has a backlog of work for outside ships, and charges $72 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 $40 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) $42 B) $30 C) $40 D) $72

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41) 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 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 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 B) $37 C) $45 D) $70

42) 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)

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$ 90 69 27 23,600 26,600

Division Y of the same company would like to purchase all of its units internally. Division Y needs 9,000 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 9,000 from a supplier.) A) $90 B) $84 C) $83 D) $69

43) 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.)

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A) $90 B) $84 C) $80 D) $66

44) 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.

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Question Details Accessibility : Keyboard Navigation Type : Static Difficulty : 2 Medium Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Bloom's : Understand AICPA : FN Measurement AACSB : Reflective Thinking Gradable : automatic Accessibility : Screen Reader Compatible

45) 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)

$ 82 $ 54 $ 480,000 32,000

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 $77 per unit and would substitute the part made by Division A. Division B requires 5,700 units of the part each period. Division A can already sell all of the units it can produce on the outside market. What should be the lowest acceptable transfer price from the perspective of Division A? A) $82 B) $69 C) $15 D) $54

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46) 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

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 $70 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A can already sell all of the units it can produce on the outside market. What should be the lowest acceptable transfer price from the perspective of Division A? A) $75 B) $66 C) $16 D) $50

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47) Part 43X costs the Southern Division of Norris Corporation $27 to produce. Making up that cost are direct materials of $9, direct labor of $5, variable manufacturing overhead of $10, and fixed manufacturing overhead of $3. Southern Division sells Part 43X to other companies for $34. 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) $34 B) $27 C) $24 D) $31

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48) 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

49) The Wheel Division of Frankov Corporation has the capacity for making 96,000 wheel sets per year and regularly sells 76,800 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 38,400 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 38,400 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) $768,000. B) $288,000. C) $960,000. D) $172,800.

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50) 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.

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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

$ 64 $ 52 $ 414,000 39,000

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 $63 per unit and would substitute the part made by Division X. Division Y requires 6,400 units of the part each period. Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without impacting outside sales. What is the lowest acceptable transfer price from the standpoint of the selling division? A) $64 B) $63 C) $68 D) $52

52) 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

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$ 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 has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without impacting outside sales. What is the lowest acceptable transfer price from the standpoint of the selling division? A) $50 B) $49 C) $46 D) $30

53) 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

$ 60 $ 49 $ 30,000 40,000

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 $58 per unit and would substitute the part made by Division A. Division B requires 7,000 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?

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A) $60 B) $58 C) $49 D) $48

54) 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

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55) The Raisin Division of Trail Mix Foods, Incorporated had the following operating results last year: Sales (157,000 pounds of raisins) Variable expenses Contribution margin Fixed expenses

$ 73,790 34,540 39,250 15,500

Profit

$ 23,750

Raisin expects identical operating results this year. The Raisin Division has the ability to produce and sell 207,000 pounds of raisins annually. Assume that the Peanut Division of Trail Mix Foods wants to purchase an additional 27,000 pounds of raisins from the Raisin Division. Raisin will be able to increase its profit by accepting any transfer price above: A) $0.22 per pound. B) $0.10 per pound. C) $0.25 per pound. D) $0.47 per pound.

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56) 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

$ 60,000 37,500 22,500 12,000

Profit

$ 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.

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57) The Raisin Division of Trail Mix Foods, Incorporated had the following operating results last year: Sales (158,000 pounds of raisins) Variable expenses Contribution margin Fixed expenses

$ 75,840 33,180 42,660 16,000

Profit

$ 26,660

Raisin expects identical operating results this year. Assume that the Raisin Division is currently operating at its capacity of 158,000 pounds of raisins. Also assume that the Peanut Division wants to purchase an additional 28,000 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) $0.48 per pound B) $0.10 per pound C) $0.27 per pound D) $0.21 per pound

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58) 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

$ 60,000 37,500 22,500 12,000

Profit

$ 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

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59)

The Gear Division makes a part with the following characteristics:

Production capacity Selling price to outside customers Variable cost per unit Fixed cost, total

44,000 units $ 37 $ 32 $ 119,000

The Motor Division of the same company would like to purchase 19,500 units each period from the Gear Division. The Motor Division now purchases the part from an outside supplier at a price of $36 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 $36 price internally and the Motor Division continues to buy from the outside supplier, the company as a whole will be: A) worse off by $97,500 each period. B) better off by $19,500 each period. C) worse off by $78,000 each period. D) worse off by $39,000 each period.

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60)

The Gear Division makes a part with the following characteristics:

Production capacity Selling price to outside customers Variable cost per unit Fixed cost, total

25,000 units $ 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.

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61)

The Gear Division makes a part with the following characteristics:

Production capacity Selling price to outside customers

40,000 units $ 33

Variable cost per unit Fixed cost, total

$ 28 $ 115,000

The Motor Division of the same company would like to purchase 17,500 units each period from the Gear Division. The Motor Division now purchases the part from an outside supplier at a price of $32 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 $32 per unit, the company as a whole will be: A) better off by $17,500 each period. B) worse off by $35,000 each period. C) worse off by $17,500 each period. D) There will be no change in the status of the company as a whole.

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62)

The Gear Division makes a part with the following characteristics:

Production capacity Selling price to outside customers

25,000 $ 18

Variable cost per unit Fixed cost, total

units

$ 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.

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63)

Division A produces a part with the following characteristics:

Capacity in units Selling price per unit Variable costs per unit Fixed costs per unit

51,000 $ 31 $ 12 $ 4

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 $29 per unit. If Division A sells to Division B, $1 in variable costs can be avoided. Suppose Division A is currently operating at capacity and can sell all of the units it produces on the outside market for its usual selling price. From the point of view of Division A, any sales to Division B should be priced no lower than: A) $28. B) $30. C) $15. D) $29.

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64)

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 Division A is currently operating at capacity and can sell all of the units it produces on the outside market for its usual selling price. From the point of view of Division A, any sales to Division B should be priced no lower than: A) $27. B) $29. C) $20. D) $28.

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65)

Division A produces a part with the following characteristics:

Capacity in units Selling price per unit Variable costs per unit Fixed costs per unit

70,000 $ 50 $ 34 $ 4

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 $48 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) $49. B) $50. C) $34. D) $33.

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66)

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.

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67) 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 30,000 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

375,000 pillars $ 2.70

Variable costs per pillar

$ 1.70

Fixed costs, total

$ 210,000

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) $1.70 B) $3.45 C) $1.75 D) $2.70

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68) 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

300,000 $ 1.75

Variable costs per pillar

$ 0.90

Fixed costs, total

pillars

$ 150,000

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69) 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 30,000 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

375,000 pillars $ 2.70

Variable costs per pillar

$ 1.70

Fixed costs, total

$ 210,000

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70) 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

300,000 $ 1.75

Variable costs per pillar

$ 0.90

Fixed costs, total

pillars

$ 150,000

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71) 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 30,000 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

360,000 pillars $ 2.40

Variable costs per pillar

$ 1.55

Fixed costs, total

$ 195,000

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 18,000 units. Further suppose that an outside supplier is willing to provide the Lantern Division with basic pillars at $2.14 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) $1,800 decrease. B) $11,100 increase. C) $2,400 decrease. D) $17,700 decrease.

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72) 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

300,000 pillars $ 1.75

Variable costs per pillar

$ 0.90

Fixed costs, total

$ 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.

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73) 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 82,000 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

440,000 stakes 358,000 stakes $ 3.80

Total variable costs per stake

$ 3.05

Fixed operating costs

$ 280,000

In order to sell 82,000 stakes to the Solar Light Division, the Stake Division had to give up sales of 49,200 stakes to outside customers. That is, the Stake Division could sell 407,200 stakes each year to outside customers (rather than only 358,000 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) $3.40 B) $3.05 C) $3.50 D) $3.80

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74) 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

400,000 stakes 350,000 stakes $ 3.00

Total variable costs per stake

$ 2.00

Fixed operating costs

$ 200,000

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75) 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 88,000 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

445,000 stakes 357,000 stakes $ 5.00

Total variable costs per stake

$ 4.25

Fixed operating costs

$ 400,000

In order to sell 88,000 stakes to the Solar Light Division, the Stake Division had to give up sales of 70,400 stakes to outside customers. That is, the Stake Division could sell 427,400 stakes each year to outside customers (rather than only 357,000 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 $4.35 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) $79,200 increase. B) $35,200 decrease. C) $35,200 increase. D) $44,000 increase.

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76) 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

400,000 350,000 $ 3.00

Total variable costs per stake

$ 2.00

Fixed operating costs

stakes stakes

$ 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.

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77) 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

$ 74 $ 42 $ 460,000 31,000

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 $73 per unit and would substitute the part made by Division X. Division Y requires 7,400 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) $74 B) $73 C) $70 D) $42

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78) 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

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79) Division X of Operandi Corporation makes and sells a single product which is used by manufacturers of fork lift trucks. Currently, it sells 22,200 units per year to outside customers at $41 per unit. The annual capacity is 28,500 units and the variable costs to make each unit is $33. 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) $41.00 B) $39.76 C) $35.96 D) $33.00

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80) 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

81) Division A of Chappelle Company has the capacity for making 5,400 motors per month and regularly sells 2,550 motors each month to outside customers at a contribution margin of $86 per motor. The variable cost per motor is $59.70. Division B of Chappelle Company would like to obtain 3,800 motors each month from Division A. What should be the lowest acceptable transfer price from the perspective of Division A? A) $56.57 B) $81.20 C) $59.70 D) $86.00

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82) 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

83)

Which of the following statements is false?

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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. C) A transfer price is a device to motivate managers to act in the best interests of the individual divisions. D) Economists call a market perfect if buyers can buy and sellers can sell any quantity without affecting the price.

84)

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.

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85)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Gradable : automatic Accessibility : Screen Reader Compatible

86)

When there is no intermediate market:

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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.

87) is:

The general principle on setting transfer prices that are in the organization's best interests

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Optimal Transfer Price: A General Principle Gradable : automatic Accessibility : Screen Reader Compatible

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88)

If the selling division has excess capacity, the transfer price should be set at its:

A) outlay costs. B) outlay costs plus fixed allocated costs. 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Optimal Transfer Price: A General Principle Bloom's : Understand Gradable : automatic Accessibility : Screen Reader Compatible

89) 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Centrally Established Transfer Price Policies Gradable : automatic Accessibility : Screen Reader Compatible

90) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Centrally Established Transfer Price Policies Gradable : automatic Accessibility : Screen Reader Compatible

91) A division can sell externally for $35 per unit. Its variable manufacturing costs are $18 per unit, and its variable marketing costs are $5 per unit. What is the opportunity cost of transferring internally, assuming the division is operating at capacity?

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A) $18 B) $12 C) $23 D) $17

92) 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

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93) Division A has variable manufacturing costs of $35 per unit and fixed costs of $6 per unit. Division A is operating at capacity. What is the opportunity cost of an internal transfer when the market price is $63? A) $6 B) $28 C) $35 D) $57

94) 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

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95) Lock Division of Morgantown Corporation sells 118,000 units of part Z-25 to the outside market. Part Z-25 sells for $78, has a variable cost of $60, and a fixed cost per unit of $48. The Lock Division has a capacity to produce 195,000 units per period. The Cabinet Division currently purchases 48,000 units of part Z-25 from the Lock Division for $78. The Cabinet Division has been approached by an outside supplier willing to supply the parts for $74. 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) $672,000 decrease in Morgantown's profits C) $118,000 decrease in Morgantown's profits D) $59,000 increase in Morgantown's profits

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96) 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

97) The Lock Division of Morgantown Corporation sells 98,000 units of part Z-25 to the outside market. Part Z-25 sells for $58, has a variable cost of $40, and a fixed cost per unit of $28. The Lock Division has a capacity to produce 145,000 units per period. The Cabinet Division currently purchases 28,000 units of part Z-25 from the Lock Division for $58. The Cabinet Division has been approached by an outside supplier willing to supply the parts for $54. 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) $392,000 decrease in Morgantown's profits C) $98,000 decrease in Morgantown's profits D) $49,000 increase in Morgantown's profits

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Analyze Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible null : Chapter - Chapter 15

98) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Analyze Gradable : automatic Accessibility : Screen Reader Compatible

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99) Concrete Corporation has two producing centers, Contractor and Retailer. The Contractor Division has a variable cost of $11 for its products and a total fixed cost of $129,000. The Contractor Division also has idle capacity for up to 59,000 units per month. The Retailer Division would like to purchase 29,000 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 $14 per unit. The Contractor Division has consistently argued that the market price of $18 is nonnegotiable. What is the Contractor Division's opportunity cost of not transferring units to the Retailer Division? A) $18 B) $11 C) $7 D) $3

100) 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?

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A) $20 B) $12 C) $8 D) $4

101) 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)

$ 62 $ 50 $ 46 56,500 59,000

The Blanket Division would like to purchase all of its units internally. The Blanket Division needs 6,000 units each period and currently pays $76 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) $62 B) $76 C) $57 D) $72

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102) 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

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103)

Given the following data for Keyboard Division:

Selling price to outside customers Variable cost per unit Total fixed cost Capacity (in units)

$ 25 $ 14 $ 63,000 120,000

The Computer Division would like to purchase 14,000 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 $19. If the Keyboard Division refuses to accept an $17 price internally, the company, as a whole, will be worse off by: A) $28,000. B) $84,000. C) $42,000. D) $70,000.

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104)

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.

105)

Given the following data for Electrical Cord Division:

Selling price to outside customers Variable cost per unit Total fixed cost Capacity (in units)

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$ 44 $ 34 $ 14,000 6,000

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 $42 per unit. From the point of view of the company as a whole, any sales to the Appliance Division should be priced at: A) $44. B) $43. C) $42. D) $41.

106)

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) $37.

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107)

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)

$ 145 $ 70 $ 40 52,000

The Cabinet Division would like to purchase 10,200 units from the Handle Division at a price of $120 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 $130. If the Handle Division accepts a $120 price internally, the company, as a whole, will be better or worse off by: A) $612,000. B) $(153,000). C) $102,000. D) $255,000.

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108)

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.

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109) 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, $22 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 (28,000 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 28,000 hinges it needs from the outside vendor for $45? A) No change in profit to Altoona B) $140,000 increase in profits C) $140,000 decrease in profits D) $644,000 decrease in profits

110) 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?

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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

111) 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 $47, $28 of which are variable. The Hinge Division is operating significantly below capacity and sells the hinges for $62. The Door Division has received an offer from an outsider vendor to supply all the hinges it needs (34,000 hinges) at a cost of $57. 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) $28 B) $47 C) $57 D) $62

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112) 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

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113) 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 $48, $30 of which are variable. The Hinge Division is operating significantly below capacity and sells the hinges for $63. The Door Division has received an offer from an outsider vendor to supply all the hinges it needs (24,000 hinges) at a cost of $58. 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) $48 B) $30 C) $58 D) $63

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114) 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

115) 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 $30.50 per labor-hour and has a backlog of work for automobile restoration. They charge $50.00 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 $32.00 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?

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A) $30.50 B) $32.00 C) $41.00 D) $50.00

116) 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

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117) 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 $34.50 per labor-hour and has a backlog of work for automobile restoration. They charge $54.00 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 $36.00 per hour, including leasing an adequate work area. What is the maximum transfer price per hour that the Management Division should pay? A) $34.50 B) $36.00 C) $45.00 D) $58.50

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard Bloom's : Apply Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible null : Chapter - Chapter 15

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118) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard Bloom's : Apply Gradable : automatic Accessibility : Screen Reader Compatible

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119) 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 $62.50 per labor-hour and has a backlog of work for automobile restoration. They charge $82.00 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 $64.00 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) $64.00 B) $73.00 C) $80.50 D) $62.50

120) 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?

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A) $28.50 B) $30.00 C) $39.00 D) $46.50

121) Frocks and Gowns, Incorporated, has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $700,000 and produces and sells 101,000 units of Collars at a market price of $10.50 per unit. Variable costs for the Collars total $3.60 per unit, and fixed charges are $4.10 per unit (based on a capacity of 121,000 units). The Night Wear Division wants to purchase 24,000 units of Collars from the Day Wear Division. However, the Night Wear Division is only willing to pay $7.20 per unit. What is the contribution margin for the Day Wear Division without the transfer to the Night Wear Division? A) $282,800 B) $696,900 C) $727,200 D) $982,800

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122) 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

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123) Frocks and Gowns, Incorporated, has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $760,000 and produces (and sells) 107,000 units of Collars at a market price of $13.50 per unit. Variable costs for the Collars total $7.00 per unit, and fixed charges are $4.70 per unit (based on a capacity of 127,000 units). The Night Wear Division wants to purchase 26,000 units of Collars from The Day Wear Division. However, the Night Wear Division is only willing to pay $9.90 per unit. What is the contribution margin for the Day Wear Division if it transfers 26,000 units to the Night Wear Division at $9.90 per unit? A) $192,600 B) $695,500 C) $1,059,300 D) $731,900

124) 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?

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A) $250,000 B) $650,000 C) $675,000 D) $698,750

125) Frocks and Gowns, Incorporated, has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $710,000 and produces and sells 104,000 units of Collars at a market price of $11.00 per unit. Variable costs for the Collars total $3.50 per unit and fixed costs are $4.20 per unit (based on a capacity of 122,000 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 $7.65 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) $4.20 C) $5.60 D) $6.80

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126) 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 costs 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

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127) 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 $153 per unit. At the current level of production, the fixed cost of producing this component is $44 per unit and the variable cost is $67 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) $67. B) $71. C) $153. D) $75.

128) 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:

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A) $7. B) $11. C) $13. D) $15.

129) A company has two divisions, Softwoods and Hardwoods, each operating as a profit center. The Softwood Division charges the Hardwood Division $41 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

$ 36 $ 16,000 8,000 units 80,000 units

The Softwood Division is planning to raise its transfer price to $56 per unit. The Hardwood Division can purchase units at $46 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?

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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

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard Bloom's : Analyze Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible null : Chapter - Chapter 15

130) 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 5,000 units 50,000 units

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?

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard Bloom's : Analyze Gradable : automatic Accessibility : Screen Reader Compatible

131)

The following information is given for Camping Division:

Selling price to outside customers Variable cost per unit Total fixed costs Capacity in units

$ 45 $ 30 $ 456,000 38,000

The Lantern Division would like to purchase internally from the Camping Division. The Lantern Division now purchases 6,500 units each period from outside suppliers at $43 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) $45 B) $43 C) $42 D) $30

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132)

The following information is given 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 B) $49 C) $46 D) $30

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133) 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.

134) 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 121,000 units with the following unit cost: Direct materials Direct labor Variable overhead Fixed overhead

$ 0.62 0.41 0.13 0.21

Total unit cost

$ 1.37

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The Polishing Division purchases 21,000 handles from the Extruding Division and completes the hand tools. An outside supplier, Venture Steel, has offered to supply 21,000 units of the handle to the Polishing Division for $1.33 per unit. The Extruding Division currently has idle capacity that cannot be used. What is the cost impact to Martin Company as a whole of purchasing from Venture Steel? (CMA adapted) A) Increase the handle unit cost by $0.04 B) Increase the handle unit cost by $0.17 C) Decrease the handle unit cost by $0.17 D) Decrease the handle unit cost by $0.30

135) 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

$ 0.60 0.40 0.10 0.20

Total unit cost

$ 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. What is the cost impact to Martin Company as a whole of purchasing from Venture Steel? (CMA adapted) Version 1

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A) Increase the handle unit cost by $0.05 B) Increase the handle unit cost by $0.15 C) Decrease the handle unit cost by $0.15 D) Decrease the handle unit cost by $0.25

136) 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 121,000 units with the following unit cost: Direct materials Direct labor Variable overhead Fixed overhead

$ 0.62 0.41 0.13 0.21

Total unit cost

$ 1.37

The Polishing Division purchases 21,000 handles from the Extruding Division and completes the hand tools. An outside supplier, Venture Steel, has offered to supply 21,000 units of the handle to the Polishing Division for $1.33 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) $1.03 B) $1.16 C) $1.33 D) $1.37

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137) 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

$ 0.60 0.40 0.10 0.20

Total unit cost

$ 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

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138) 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 128,000 units with the following unit cost: Direct materials Direct labor Variable overhead Fixed overhead

$ 0.76 0.48 0.34 0.36

Total unit cost

$ 1.94

The Polishing Division purchases 28,000 handles from the Extruding Division and completes the hand tools. An outside supplier, Venture Steel, has offered to supply 28,000 units of the handle to the Polishing Division for $1.89 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 minimum transfer price that the Extruding Division would be willing to accept? A) $1.24 B) $1.58 C) $1.89 D) $1.94

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139) 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

$ 0.60 0.40 0.10 0.20

Total unit cost

$ 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 minimum transfer price that the Extruding Division would be willing to accept? A) $1.00 B) $1.10 C) $1.25 D) $1.30

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140) The Alpha Division of a company, which is operating at capacity, produces and sells 2,000 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

$ 120,000 78,000 34,000

The minimum transfer price that should be charged to the Beta Division of the same company for each component is: A) $17. B) $39. C) $56. D) $60.

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141) 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.

142) The Hinges Division of Altoona Corporation sells 116,000 units of part Z-25 to the outside market. Part Z-25 sells for $112 and has a variable cost per unit of $58 and a fixed cost per unit of $10. The Hinges Division has a capacity to produce 190,000 units per period. The Door Division currently purchases 46,000 units of part Z-25 from the Hinges Division for $76. The Door Division has been approached by an outside supplier willing to supply the parts for $72. If Altoona uses a negotiated transfer pricing system, what is the maximum transfer price that should be charged for this transaction?

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A) $76 B) $72 C) $68 D) $58

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Difficulty : 3 Hard Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Negotiating the Transfer Price AICPA : FN Measurement Bloom's : Apply Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible null : Chapter - Chapter 15

143) 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 3 Hard Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Negotiating the Transfer Price AICPA : FN Measurement Bloom's : Apply Gradable : automatic Accessibility : Screen Reader Compatible

144) The Hinges Division of Altoona Corporation sells 118,000 units of part Z-25 to the outside market. Part Z-25 sells for $116 and has a variable cost per unit of $60 and a fixed cost per unit of $10. The Hinges Division has a capacity to produce 195,000 units per period. The Door Division currently purchases 48,000 units of part Z-25 from the Hinges Division for $78. The Door Division has been approached by an outside supplier willing to supply the parts for $74. If Altoona uses a negotiated transfer pricing system, what is the minimum transfer price that should be charged for this transaction? A) $78 B) $74 C) $70 D) $60

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145) 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

146) 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.

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147) Which of the following is the most significant disadvantage of a cost-based transfer price? (CIA adapted) A) It requires internally developed information. B) It imposes market effects on company operations. C) It requires externally developed information. D) It may not promote long-term efficiencies.

148) 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

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$ 80 $ 50

110

Excess capacity (in units) Assembling Division

4,000

Number of units needed

2,400

What is the natural bargaining range for the two divisions? A) Between $50 and $80 B) Between $80 and $130 C) Any amount less than $80 D) $80 is the only acceptable transfer price

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Negotiating the Transfer Price Bloom's : Apply Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible null : Chapter - Chapter 15

149) 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?

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A) Between $20 and $50 B) Between $50 and $70 C) Any amount less than $50 D) $50 is the only acceptable transfer price

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Negotiating the Transfer Price Bloom's : Apply Gradable : automatic Accessibility : Screen Reader Compatible

150)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Centrally Established Transfer Price Policies Gradable : automatic Accessibility : Screen Reader Compatible

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151)

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Centrally Established Transfer Price Policies Gradable : automatic Accessibility : Screen Reader Compatible

152) 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Optimal Transfer Price: A General Principle Bloom's : Understand Gradable : automatic Accessibility : Screen Reader Compatible

153) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Bloom's : Understand Topic : Top-Management Intervention in Transfer Pricing Gradable : automatic Accessibility : Screen Reader Compatible

154) 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:

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Centrally Established Transfer Price Policies Gradable : automatic Accessibility : Screen Reader Compatible

155) Some managers prefer to use cost rather than market price in controlling transfers between divisions. If cost is used, then it should be: A) full cost. B) direct cost. C) variable cost. D) standard variable cost.

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156) for:

Cost-based transfer prices that include a normal markup to the costs act as a surrogate

A) negotiated market prices. B) opportunity costs. C) differential costs. D) market prices.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Centrally Established Transfer Price Policies Gradable : automatic Accessibility : Screen Reader Compatible

157) 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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 15-04 Explain the economic consequences of multinational transfer prices. Topic : Multinational Transfer Pricing Gradable : automatic Accessibility : Screen Reader Compatible

158) 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

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ESSAY. Write your answer in the space provided or on a separate sheet of paper. 159) 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 at which 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 at which 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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160) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

161) 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

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$ 1,000,000 600,000 $ 400,000 250,000 $ 150,000

119

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 they 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

162) 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

$ 1,000,000 600,000 $ 400,000 250,000

Profit

$ 150,000

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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 they 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

163) 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

$ 640,000 320,000 260,000

Income

$ 60,000

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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 they 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

164)

Division A of Spangler Company expects the following results:

Sales (5,000 × $ 60)

To Division B $ 300,000

(25,000 × $ 72)

To Outsiders

$ 1,800,000

Variable costs at $ 36 Contribution margin Fixed costs, all common, allocated on the basis of relative units

180,000 $ 120,000 60,000

900,000 $ 900,000 300,000

Profit

$ 60,000

$ 600,000

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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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

165) 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

$ 2,700,000 1,800,000 700,000

Income

$ 200,000

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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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

166)

Division A of Spangler Company expects the following results:

Sales (5,000 × $ 60)

To Division B $ 300,000

(25,000 × $ 60)

To Outsiders

$ 1,500,000

Variable costs at $ 36 Contribution margin Fixed costs, all common, allocated on the basis of relative units

180,000 $ 120,000 60,000

900,000 $ 600,000 300,000

Profit

$ 60,000

$ 300,000

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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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Difficulty : 3 Hard Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Negotiating the Transfer Price AICPA : FN Measurement Topic : Applying the General Principle Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

167) 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?

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168) 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 as 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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169) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

170)

Salamander Company expects the following results in the coming period: Division A

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Division B

127

Sales A: (10,000 × $ 160)

$ 1,600,000

B: (25,000 × $ 72)

$ 1,800,000

Variable costs Contribution margin Fixed costs

1,360,000 $ 240,000 160,000

900,000 $ 900,000 360,000

Profit

$ 80,000

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

171) The following segment reporting statement includes Salamander Company’s expected results for the coming period: Salamander Company Segment Reporting Statement Division A Sales A: (10,000 × $ 160)

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Division B

$ 1,600,000

128

B: (25,000 × $ 72)

$ 1,800,000

Variable costs Contribution margin Fixed costs

1,360,000 $ 240,000 160,000

900,000 $ 900,000 360,000

Profit

$ 80,000

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 3 Hard Learning Objective : 15-05 Describe the role of transfer prices in segment reporting. Topic : Segment Reporting Bloom's : Apply AICPA : FN Reporting Gradable : manual Accessibility : Screen Reader Compatible

172) Thai Company has two divisions organized as profit centers: Redmon and Tomlin. Thai expects the following results in the coming period: Redmon

Tomlin

Sales Redmon: (100,000 × $ 16) Tomlin: (250,000 × $ 7.20)

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$ 1,600,000 $ 1,800,000

129

Variable costs Contribution margin Fixed costs

1,360,000 $ 240,000 160,000

1,000,000 $ 800,000 460,000

Profit

$ 80,000

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

173) 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:

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Direct materials Direct labor Variable overhead Fixed overhead

$ 8 4 2 2

Total cost

$ 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. They then have 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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174) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Centrally Established Transfer Price Policies Topic : Negotiating the Transfer Price Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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175) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

176) 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

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100 units $ 2,400 per unit $ 600 per unit

133

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

177) 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. Division L's manager would like to continue buying from Division P, but Division P's manager does not want to match the $30 price because they think 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: Version 1

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Sales to L Sales Variable costs Fixed costs

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

178) 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

$ 12 3

Total

$ 15

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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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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179) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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180) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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181) 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 Materials Labor Special equipment Quality inspection Other manufacturing costs Total costs

Per unit

$ 300,000 400,000 36,000 24,000 350,000

$ 15.00 20.00 1.80 1.20 17.50

$ 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Centrally Established Transfer Price Policies Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

182) 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 Other variable expenses Fixed selling and administrative expenses Total costs Desired return

$ 25.00 18.00 6.00 3.50 4.00 8.50 $ 65.00 14.00

Sales price

$ 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?

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement AACSB : Reflective Thinking Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

183)

The following costs exist for the Wiring Division of Coriander Corporation:

Direct materials

$ 67,500

Direct labor

45,000

Manufacturing overhead (25% variable)

45,000

Operating expenses (30% variable)

75,000

Output

30,000 units

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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 cost plus 30%. c) absorption cost plus 25%. d) variable cost. e) total cost plus 10%. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

184) 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

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Variable overhead Fixed overhead

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard Topic : Multinational Transfer Pricing AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

185)

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:

$ 55 35

Selling price of finished product Standard unit-level costs

$ 95 25

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Division A routinely sells its product internally to Division B and 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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186) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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187) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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188) Randolph Company has two divisions organized as profit centers: Redmon and Tomlin. Randolph expects the following results in the coming period: Redmon

Tomlin

Sales Redmon: (100,000 × $ 16)

$ 1,600,000

Tomlin: (250,000 × $ 7.20)

$ 1,800,000

Variable costs Contribution margin Fixed costs

1,360,000 $ 240,000 160,000

1,000,000 $ 800,000 460,000

Profit

$ 80,000

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Difficulty : 3 Hard Topic : Segment Reporting AICPA : FN Measurement Bloom's : Apply AICPA : FN Reporting Gradable : manual Accessibility : Screen Reader Compatible

189) Why is transfer pricing only a concern for profit or investment centers and not for cost or revenue centers? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 15-01 Explain the basic issues associated with transfer pricing. Difficulty : 2 Medium Bloom's : Understand Gradable : manual Topic : What Is Transfer Pricing and Why Is It Important? Accessibility : Screen Reader Compatible

190)

Explain the general principle for determining the optimal transfer price.

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191) What is meant by a dual transfer pricing system? What are some advantages and disadvantages of it? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Centrally Established Transfer Price Policies Bloom's : Understand Gradable : manual Accessibility : Screen Reader Compatible

192)

What are the limitations of market-based transfer prices?

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Centrally Established Transfer Price Policies Bloom's : Understand Gradable : manual Accessibility : Screen Reader Compatible

193) What are the advantages and disadvantages of using a negotiated transfer price? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Negotiating the Transfer Price Bloom's : Understand Gradable : manual Accessibility : Screen Reader Compatible

194)

Why is transfer pricing important in tax accounting?

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195) What are the principal items that must be disclosed about each segment and how does this differ if a company has significant foreign operations? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-05 Describe the role of transfer prices in segment reporting. Topic : Segment Reporting AICPA : FN Reporting Gradable : manual Accessibility : Screen Reader Compatible

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196) 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 distressed market prices and possible solutions to the problems. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Bloom's : Understand AACSB : Reflective Thinking Gradable : manual Accessibility : Screen Reader Compatible

197) 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

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-03 Identify the behavioral issues and incentive effects of negotiated transfe Topic : Centrally Established Transfer Price Policies Bloom's : Understand AACSB : Reflective Thinking Gradable : manual Accessibility : Screen Reader Compatible

198) 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.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Bloom's : Understand AICPA : FN Measurement AACSB : Reflective Thinking Gradable : manual Accessibility : Screen Reader Compatible

199) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 15-02 Explain the general transfer pricing rules and understand the underlying b Topic : Determining the Optimal Transfer Price Bloom's : Understand AACSB : Reflective Thinking Gradable : manual Accessibility : Screen Reader Compatible

200) Briefly discuss some of the general issues of multinational transfer pricing. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 15-04 Explain the economic consequences of multinational transfer prices. Topic : Multinational Transfer Pricing AACSB : Reflective Thinking Gradable : manual Accessibility : Screen Reader Compatible

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201) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 15-04 Explain the economic consequences of multinational transfer prices. Topic : Multinational Transfer Pricing AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

202) How do import duties affect transfer pricing? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 15-04 Explain the economic consequences of multinational transfer prices. Topic : Multinational Transfer Pricing AICPA : FN Measurement Bloom's : Analyze AACSB : Reflective Thinking Gradable : manual Accessibility : Screen Reader Compatible

203) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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204) Briefly discuss transfer prices in relation to external segment reporting under GAAP. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Difficulty : 2 Medium Bloom's : Understand Learning Objective : 15-05 Describe the role of transfer prices in segment reporting. Topic : Segment Reporting AICPA : FN Measurement AICPA : FN Reporting Gradable : manual Accessibility : Screen Reader Compatible

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Answer Key Test name: Lanen7e_ch15 1) TRUE 2) TRUE 3) FALSE 4) TRUE 5) TRUE 6) TRUE 7) FALSE 8) TRUE 9) FALSE 10) FALSE 11) FALSE 12) TRUE 13) TRUE 14) TRUE 15) TRUE 16) TRUE 17) TRUE 18) TRUE 19) TRUE 20) FALSE 21) D The optimal transfer price is the transfer price that leads division managers to make decisions that are in the firm’s best interests. 22) B Transfer prices affect only profit or investment centers. 23) D Version 1

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The transfer price does not affect corporate profit when transfers occur. 24) A ($69 − $39 − $16) = $14. 25) A ($60 − $35 − $12) = $13. 26) D When operating at capacity, the optimal transfer price is the market price of $77. 27) D When operating at capacity, the optimal transfer price is the market price of $60. 28) B $75 − $56 = $19. 29) B $75 − $50 = $25. 30) D When operating at capacity, the optimal transfer price is the market price of $95. 31) D When operating at capacity, the optimal transfer price is the market price of $75. 32) C When operating below capacity, the optimal transfer price is the outlay cost (variable cost) of $61. 33) C When operating below capacity, the optimal transfer price is the outlay cost (variable cost) of $50. 34) A There are no opportunity costs when operating below capacity. 35) A Version 1

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There are no opportunity costs when operating below capacity. 36) D When at capacity, the market price of $82 is the appropriate transfer price. 37) D When at capacity, the market price of $70 is the appropriate transfer price. 38) C The optimal transfer price for the management division is the market price of $50 per hour. 39) C The optimal transfer price for the management division is the market price of $45 per hour. 40) B When operating below capacity, the optimal transfer price for the repair division is the outlay cost (variable cost) of $30 per hour. 41) B When operating below capacity, the optimal transfer price for the repair division is the outlay cost (variable cost) of $37 per hour. 42) C (Cost of units from idle capacity plus the cost of units when at capacity) ÷ Total units = [($69 × 3,000) + ($90 × 6,000)] ÷ 9,000 = $83 43) C (Cost of units from idle capacity plus the cost of units when at capacity) ÷ Total units = [($66 × 2,500) + ($90 × 3,500)] ÷ 6,000 = $80 44) C When operating at capacity, the optimal transfer price is the market price reduced by cost savings. 45) A

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Since Division A can sell all of the units it can produce on the outside market ($82 per unit), the lowest acceptable transfer price is the market price. 46) A Since Division A can sell all of the units it can produce on the outside market ($75 per unit), the lowest acceptable transfer price is the market price. 47) C Because there is idle capacity, the lowest transfer price that Southern Division should be willing to sell Part 43X is the outlay cost (variable cost) of $24 ($9 + $5 + $10). 48) C Because there is idle capacity, the lowest transfer price that Southern Division should be willing to sell Part 43X is the outlay cost (variable cost) of $23 ($10 + $4 + $9). 49) B Price currently paid by the Retail Division for 38,400 wheel sets (38,400 sets × $90 per set) Less: Cost for Wheel Division to produce (38,400 sets × $65 per set) Less: Lost profit for the Wheel Division to cut back production [($100 - $65) × 19,200 sets]

$ 3,456,000

Change in net annual operating income for the company as a whole

$ 288,000

(2,496,000) (672,000)

50) B Price currently paid by the Retail Division for 30,000 wheel sets (30,000 sets × $90 per set) Less: Cost for Wheel Division to produce (30,000 sets × $65 per set) Less: Lost profit for the Wheel Division to cut back production [($100 − $65) × 15,000 sets]

$ 2,700,000

Change in net annual operating income for the company as a whole

$ 225,000

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51) D Since Division X has ample excess capacity, the lowest price the part should be sold for is the total amount of outlay costs (variable costs) that would be incurred, or $52 per unit. 52) D Since Division X has ample excess capacity, the lowest price the part should be sold for is the total amount of outlay costs (variable costs) that would be incurred, or $30 per unit. 53) D Since Division X has ample excess capacity, the lowest price the part should be sold for is the total amount of outlay costs (variable costs) that would be incurred, or $48 per unit ($49 − $1). 54) D Since Division X has ample excess capacity, the lowest price the part should be sold for is the total amount of outlay costs (variable costs) that would be incurred, or $29 per unit ($30 − $1). 55) A Variable expenses ÷ pounds produced = $34,540 ÷ 157,000 pounds = $0.22 per pound. 56) A Variable expenses ÷ pounds produced = $37,500 ÷ 150,000 pounds = $0.25 per pound. 57) A Because the Raisin Division is operating at capacity, it would need to charge the Peanut Division $0.48 ($75,840 ÷ 158,000) per pound to maintain its current profit. 58) A Because the Raisin Division is operating at capacity, it would need to charge the Peanut Division $0.40 ($60,000 ÷ 150,000) per pound to maintain its current profit. Version 1

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59) C 19,500 units × outside supplier price of $36 = $702,000 19,500 units × variable cost of $32 = $624,000 Differential = $702,000 − $624,000 = $78,000 worse off each period 60) C 10,000 units × outside supplier price of $17 = $170,000 10,000 units × variable cost of $11 = $110,000 Differential = $170,000 − $110,000 = $60,000 worse off each period 61) C 17,500 units × selling price to outside customers of $33 = $577,500 17,500 units × transfer price to Motor Division of $32 = $560,000 Differential = $577,500 − $560,000 = $17,500 worse off each period 62) C 10,000 units × selling price to outside customers of $18 = $180,000 10,000 units × transfer price to Motor Division of $17 = $170,000 Differential = $180,000 − $170,000 = $10,000 worse off each period 63) B Because Division A is operating at capacity, the optimal transfer price to Division B would be $30 per unit ($31 less the $1 avoidable variable cost). 64) B Because Division A is operating at capacity, the optimal transfer price to Division B would be $29 per unit ($30 less the $1 avoidable variable cost). 65) D Because Division A has excess operating capacity, it should charge Division B $33 per unit ($34 variable cost per unit less the $1 avoidable variable cost). 66) D

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Because Division A has excess operating capacity, it should charge Division B $17 per unit ($18 variable cost per unit less the $1 avoidable variable cost). 67) A Since the Pillar Division has excess operating capacity, the lowest transfer price that would not reduce profits of the Pillar Division is the variable cost of $1.70 per unit. 68) A Since the Pillar Division has excess operating capacity, the lowest transfer price that would not reduce profits of the Pillar Division is the variable cost of $0.90 per unit. 69) C Transfer price = Outlay cost + Opportunity cost at the point of transfer Loss of existing outside sales at a contribution margin of ($2.70 − $1.70) × 18,000 units ÷ Units to be supplied to the Lantern Division = Opportunity cost per unit at point of transfer Outlay cost ($1.70) + Opportunity cost ($0.60)

$ 18,000 30,000 $ 0.60 $ 2.30

70) C Transfer price = Outlay cost + Opportunity cost at the point of transfer Loss of existing outside sales at a contribution margin of $0.85($1.75 - $0.90) × 15,000 units ÷ Units to be supplied to the Lantern Division = Opportunity cost per unit at point of transfer Outlay cost ($0.90) + Opportunity cost ($0.51)

$ 12,750 25,000 $ 0.51 $ 1.41

71) C Cost to buy from the Pillar Division: Loss of existing outside sales at a contribution margin of ($2.40 − $1.55) × 18,000 units ÷ Units to be supplied to the Lantern Division = Opportunity cost per unit at point of transfer Outlay cost ($1.55) + Opportunity cost ($0.51)

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$ 15,300

30,000 $ .51 $ 2.06

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The change in net operating income for the company as a whole would be: [30,000 units × ($2.14 − $2.06)] = $2,400 in decreased profits. 72) C Cost to buy from the Pillar Division: Loss of existing outside sales at a contribution margin of ($1.75 − $0.90) × 15,000 units ÷ Units to be supplied to the Lantern Division = Opportunity cost per unit at point of transfer Outlay cost ($0.90) + Opportunity cost ($0.51)

$ 12,750 25,000 $ 0.51 $ 1.41

The change in net operating income for the company as a whole would be: [25,000 units × ($1.45 − $1.41)] = $1,000 in decreased profits. 73) C Transfer price = Outlay cost + Opportunity cost at the point of transfer Loss of existing outside sales at a contribution margin of ($3.80 − $3.05) × 49,200 units ÷ Units to be supplied to the Solar Light Division Opportunity cost per unit for the Solar Light Division Outlay cost ($3.05) + Opportunity cost ($0.45)

$ 36,900 82,000 $ 0.45 $ 3.50

74) C Transfer price = Outlay cost + Opportunity cost at the point of transfer Loss of existing outside sales at a contribution margin of ($3.00 − $2.00) × 30,000 units ÷ Units to be supplied to the Solar Light Division Opportunity cost per unit for the Solar Light Division Outlay cost ($2.00) + Opportunity cost ($0.60)

$ 30,000 50,000 $ 0.60 $ 2.60

75) D Cost to buy from the Stake Division: Loss of existing outside sales at a contribution margin of ($5.00 − $4.25) × 70,400 given up sale units ÷ Units to be supplied to the Solar Light Division Opportunity cost per unit for the Solar Light Division Outlay cost ($4.25) + Opportunity cost ($0.60)

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$ 52,800

88,000 $ 0.60 $ 4.85

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The change in net operating income for the company as a whole would be: [88,000 units × ($4.85 − $4.35)] = $44,000.00 in increased profits. 76) D Cost to buy from the Stake Division: Loss of existing outside sales at a contribution margin of ($3.00 − $2.00) × 30,000 given up sale units ÷ Units to be supplied to the Lantern Division = Opportunity cost per unit at point of transfer Outlay cost ($2.00) + Opportunity cost ($0.60)

$ 30,000 50,000 $ 0.60 $ 2.60

The change in net operating income for the company as a whole would be: [50,000 units × ($2.60 − $2.10)] = $25,000 in increased profits. 77) A Because Division X is operating at capacity, the optimal transfer price would be the market price of $74. 78) A Because Division X is operating at capacity, the optimal transfer price would be the market price of $50. 79) C

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Division X could sell 6,300 units (28,500 capacity − 22,200 units sold to outside customers) without impacting current sales and operating profit. For this idle capacity, the optimal transfer price would be the outlay cost of $33 per unit. The additional 3,700 units that Division Y would need would cause a reduction in current sales to outside customers. The optimal transfer price would be the outlay cost of $33 per unit plus the opportunity cost of $8 per unit ($41 price to outside customers − $33 variable cost) for a total of $41. Lowest acceptable transfer price = [(6,300 units × $33) + (3,700 units × $41)] ÷ 10,000 units = ($207,900 + $151,700) ÷ 10,000 units = $35.96 per unit. 80) C Division X could sell 8,000 units (20,000 capacity − 12,000 units sold to outside customers) without impacting current sales and operating profit. For this idle capacity, the optimal transfer price would be the outlay cost of $16 per unit. The additional 2,000 units that Division Y would need would cause a reduction in current sales to outside customers. The optimal transfer price would be the outlay cost of $16 per unit plus the opportunity cost of $8 per unit ($24 price to outside customers − $16 variable cost) for a total of $24. Lowest acceptable transfer price = [(8,000 units × $16) + (2,000 units × $24)] ÷ 10,000 units = ($128,000 + $48,000) ÷ 10,000 units = $17.60 per unit. 81) B

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Division A has idle capacity of 2,850 units (5,400 capacity − 2,550 sold to outside customers). For this idle capacity, the optimal transfer price would be the outlay cost $59.70. The additional 950 units (3,800 − 2,850) that Division B would need would cause a reduction in sales to outside customers. The optimal transfer price for these units would be the outlay cost of $59.70 plus the opportunity cost of $86.00 for a total of $145.70. Lowest acceptable transfer price = [(2,850 units × $59.70) + (950 units × $145.70)] ÷ 3,800 units = ($170,145 + $138,415) ÷ 3,800 units = $81.20 per unit. 82) B Division A has idle capacity of 1,050 units (3,000 capacity − 1,950 sold to outside customers). For this idle capacity, the optimal transfer price would be the outlay cost $35.70. The additional 350 units (1,400 − 1,050) that Division B would need would cause a reduction in sales to outside customers. The optimal transfer price for these units would be the outlay cost of $35.70 plus the opportunity cost of $62.00 for a total of $97.70. Lowest acceptable transfer price = [(1,050 units × $35.70) + (350 units × $97.70)] ÷ 1,400 units = ($37,485 + $34,195) ÷ 1,400 units = $51.20 per unit. 83) C A transfer price is a device to motivate managers to act in the best interests of the company. 84) B Managers are motivated by the profits of their division. If there is no effect, managers will be indifferent. 85) C A perfect market is when buyers can buy and sellers can sell any quantity without affecting the price. Version 1

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86) C An intermediate market is an external market for the goods. 87) A Incremental fixed costs may also occur and would be included in outlay costs. 88) A Outlay costs only because the opportunity cost would be zero. 89) B The best price is the market price if it exists. 90) D If markets exist, the market price is generally the optimal transfer price. One exception is if the seller is prohibited from selling to outside customers. 91) B ($35 − $18 − $5) = $12 92) B ($40 − $15 − $6) = $19 93) B $63 − $35 = $28 94) B $35 − $25 = $10 95) B ($74 − $60) × 48,000 = $672,000 decrease in profits 96) B ($36 − $22) × 10,000 = $140,000 decrease in profits 97) A No change to Morgantown’s overall profits because costs have not changed for the Lock Division. 98) A

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No change to Morgantown’s overall profits because costs have not changed for the Lock Division. 99) D $14 – $11 = $3 100) D $16 − $12 = $4 101) C [(Variable cost per unit × excess capacity) + (market price × outside sales not realized)] ÷ total units to Blanket Division = Lowest price acceptable [($50 × 2,500) + ($62 × 3,500)] ÷ 6,000 = $57 102) C [(Variable cost per unit × excess capacity) + (market price × outside sales not realized)] ÷ total units to Blanket Division = Lowest price acceptable [($33 × 2,500) + ($45 × 3,500)] ÷ 6,000 = $40 103) D ($19 − $14) × 14,000 = $70,000 104) D ($20 − $12) × 15,000 = $120,000 105) B Because the Electrical Cord Division is operating at capacity, the transfer price would be the $44 current selling price less the $1 that can be avoided in variable cost per unit. 106) B Because the Electrical Cord Division is operating at capacity, the transfer price would be the $40 current selling price less the $1 that can be avoided in variable cost per unit. 107) B ($145 − $130) × 10,200 = $(153,000) Version 1

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108) B ($150 − 140) × 10,000 = $(100,000). 109) D Outside price $45 − Selling division's variable costs $22 = $23 higher costs × 28,000 units = $644,000 increase in costs which leads to a $644,000 decrease in profits. 110) D Outside price $45 − Selling division's variable costs $20 = $25 higher costs × 20,000 units = $500,000 increase in costs which leads to a $500,000 decrease in profits. 111) A Selling division's variable costs = $28. 112) A Selling division's variable costs = $20. 113) C Maximum price would be the $58 market price. 114) C Maximum price would be the $45 market price. 115) D When at capacity, the market price of $50 is the appropriate transfer price. 116) D When at capacity, the market price of $48 is the appropriate transfer price. 117) B The maximum transfer price for the Management Division is the cost to hire their own workers of $36. 118) B The maximum transfer price for the Management Division is the cost to hire their own workers of $30. Version 1

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119) D The Repair Division's variable cost of $62.50 is the minimum transfer price. 120) A The Repair Division's variable cost of $28.50 is the minimum transfer price. 121) B 101,000 units × ($10.50 − $3.60) = $696,900 122) B 100,000 units × ($10 − $3.50) = $650,000 123) D [(127,000 − 26,000) × ($13.50 − $7.00)] + [26,000 × ($9.90 − $7.00)] = $731,900 124) D [(120,000 − 25,000) × ($10.00 − $3.50)] + [25,000 × ($6.75 − $3.50)] = $698,750 125) C Idle capacity = 122,000 − 104,000 = 18,000 units; Transfer price of 18,000 units = $3.50 (outlay costs). Transfer price of additional 7,000 units = $3.50 (outlay costs) + $7.50 (opportunity cost) = $11.00; Transfer price to maintain contribution margin = [(18,000 × $3.50) + (7,000 × $11.00)] ÷ 25,000 units = $5.60. 126) C Idle capacity = 120,000 − 100,000 = 20,000 units; Transfer price of 20,000 units = $3.50 (outlay costs). Transfer price of additional 5,000 units = $3.50 (outlay costs) + $6.50 (opportunity cost) = $10; Transfer price to maintain contribution margin = [(20,000 × $3.50) + (5,000 × $10)] ÷ 25,000 units = $4.80. 127) C

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Since the Cutting Division is operating at capacity, the appropriate transfer price is the market price of $153. 128) C Since the Cutting Division is operating at capacity, the appropriate transfer price is the market price of $13. 129) D The company as a whole only incurs $36 variable cost which is less than the $46 outside price. The overall company would be better off with the internal transfer. 130) D The company as a whole only incurs $30 variable cost which is less than the $40 outside price. The overall company would be better off with the internal transfer. 131) D The minimum transfer price is the variable costs of the selling division when the selling division has excess capacity. 132) D The minimum transfer price is the variable costs of the selling division when the selling division has excess capacity. 133) D Since the market is perfect, market price is the best. 134) B Make: ($0.62 + $0.41 + $0.13) = $1.16; Buy: $1.33; Differential: Buy $1.33 − Make $1.16 = $0.17 more cost if purchased outside. 135) B Make: ($0.60 + $0.40 + $0.10) = $1.10; Buy: $1.25; Differential: Buy $1.25 − Make $1.10 = $0.15 more cost if purchased outside. 136) C Maximum price would be the market price of $1.33. 137) C Version 1

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Maximum price would be the market price of $1.25. 138) B The minimum price would be variable costs plus any opportunity costs: ($0.76 + $0.48 + $0.34) = $1.58. 139) B The minimum price would be variable costs plus any opportunity costs: ($0.60 + $0.40 + $0.10) = $1.10. 140) D Since it is a perfect market and Alpha operates at capacity, the minimum transfer price is the market price: $120,000 ÷ 2,000 = $60. 141) D Since it is a perfect market and Alpha operates at capacity, the minimum transfer price is the market price: $50,000 ÷ 1,000 = $50. 142) B The maximum price is the outside market price of $72 for the buying division. 143) B The maximum price is the outside market price of $36 for the buying division. 144) D The minimum price is the outlay cost plus any opportunity costs: $60. 145) D The minimum price is the outlay cost plus any opportunity costs: $22. 146) A Since the market is perfect, market price is the best. 147) D Cost-based transfer prices pass on inefficiencies from the selling division so there is no incentive for improvement. 148) A

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The minimum is the variable cost, while the maximum is the market price. 149) A The minimum is the variable cost, while the maximum is the market price. 150) B There is no motivation for the supplier to work on efficiency since all costs are passed on. 151) C Transfer pricing does not play a role in standard costs. Instead, standard costs are generally used as a basis for transfer pricing in cost-based systems. 152) B If the variable cost plus opportunity cost is less than the external price, the company will show a higher profit. 153) C Intervention removes authority from the decentralized units and should be avoided unless, for example, there is an extraordinarily large order or if internal transfers are rare. 154) D If there is an open market, that price should be used. 155) D A standard variable cost will not pass along inefficiencies. 156) D The goal is to approximate market prices. 157) A Taxes are avoided when profits are reduced in a high tax country (and by extension profits would be higher in a low tax country). 158) D This is a GAAP requirement. Version 1

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159)(a) Since the City Division is operating at less than full capacity, the lowest price is the variable cost of $15. (b) Opportunity cost: $25 sales price for RD35 − $15 variable cost − $4 additional processing = $6. Optimal transfer price = outlay cost of $15 + opportunity cost of $6 = $21. (c) Contribution margin is higher for outside sales [($25 − $15 − $4) = $6] than it is for internal [($20 − $15) = $5]. Therefore, sell as much outside as possible. Open market (300,000 × $6) = $1,800,000; internal (500,000 − 300,000) = [200,000 × ($20 − $15)] = $1,000,000. 160)(a) North is at capacity, so appropriate transfer price is the market price = $185. (b) North is at less than capacity. Minimum price = variable cost of North = $85; Maximum price = incoming market price to South, but this is unknown. The most South will pay is the selling price of the final product of $310 less incremental variable costs of $65 = $245. 161)(a) 50,000 units × ($6 transfer price − $4 variable cost) = 50,000 × $2 = $100,000 increase in profit. (b) 50,000 units × ($7 old price − $6 new price) = 50,000 × $1 savings = $50,000 increase in profit. (c) 50,000 units × ($7 outside price − $4 variable cost) = 50,000 × $3 savings = $150,000 increase.

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162)(a) Lost sales [300,000 − (330,000 − 50,000)] × ($8 − $4) = $80,000 opportunity cost; [50,000 × ($6 − $4) − $80,000 opportunity cost] = $20,000 increase in profit. (b) [50,000 × ($7 outside price − $4 variable cost)] = 50,000 × $3 savings = $150,000 − $80,000 opportunity cost = $70,000 increase. 163)(a) 50,000 units × ($4 current price − $3.50 new price) = 50,000 × $0.50 = $25,000 increase in profit. (b) Lost sales [(160,000 + 50,000) − 200,000] × ($4 − $2) = $20,000 opportunity cost; 50,000 units × [$3.50 − ($2.00 + $0.50)] − $20,000 increase in fixed − $20,000 opportunity cost = $10,000 increase in profit. (c) $25,000 + $10,000 = $35,000 increase. 164)(a) 5,000 units × ($45 outside price − $36 variable cost) = $45,000 decrease. (b) No change. Division A will show less profit, but B will show an equal amount of increased profit.

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165)(a) 20,000 units × (old price $32 − new price $26) = $120,000 increase. (b) Lost sales by Veritron: [10,000 units × ($30 − $20)] = $100,000 opportunity cost; [20,000 units × ($26 − ($20 + $5))] − added fixed of $80,000 − opportunity cost $100,000 = $160,000 decrease. (c) Argos = Magnatron + Veritron = $120,000 − $160,000 = $40,000 decrease. 166)(a) Division A is operating at less than capacity, so optimal transfer price = variable cost $36. (b) Maximum price is the outside vendor price of $45. (c) The minimum price would be the outlay cost to Division A: variable costs = $36. 167)(a) Springfield is operating at capacity, so the appropriate transfer price is the market price of $285. (b) Springfield is not operating at capacity, so the minimum price is the variable cost of Springfield of $150; The maximum price is the incoming market price to Monnett, but this is unknown. The most Monnett will pay is the selling price of the final product of $300 less incremental variable costs of $75 = $225.

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168)(a) Because the Repair Division is operating at capacity, the minimum transfer price is equal to the market price of $125 per hour. (b) The maximum transfer price that the Recreational Division will pay is the $85 per hour it can obtain externally. It is in the best interest of the company profits for the Recreational Division to buy outside and the Repair Division to continue with its higher rates selling to outsiders. (c) If the Repair Division has idle capacity, the minimum transfer price is the variable cost of $45. 169)(a) When operating at capacity, the optimal transfer price is the market price of $60. (b) When operating below capacity, the optimal transfer price is the outlay cost of $35. Fixed costs are not outlay costs. 170)(a) Division B variable cost = $900,000 ÷ 25,000 = $36 per unit. Internal purchase total cost = 10,000 units × $36 per unit = $360,000; Outside purchase total cost = 10,000 units × $45 per unit = $450,000. Salamander would prefer the subcomponent be purchased internally. (b) The minimum transfer price is the variable cost of $36. The maximum transfer price is the incoming market price of $45. 171)(a) Salamander Company Segment Reporting Statement Division A Sales A: (10,000 × $ 160)

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Division B

$ 1,600,000

180

B: (25,000 × $ 72)

$ 1,800,000

B transfer (10,000 × $ 45)

450,000

Variable costs Contribution margin Fixed costs

1,360,000 $ 240,000 160,000

1,260,000 $ 990,000 360,000

Profit

$ 80,000

$ 630,000

(b) Salamander Company Segment Reporting Statement Division A Sales A: (10,000 × $ 160)

Division B

$ 1,600,000

B: (25,000 × $ 72)

$ 1,800,000

B transfer (10,000 × $ 36)

360,000

Variable costs Contribution margin Fixed costs

1,270,000 $ 330,000 160,000

1,260,000 $ 900,000 360,000

Profit

$ 170,000

$ 540,000

(a) Maximum transfer price = $45; new variable costs for B: ($900,000 ÷ 25,000) × 35,000 = $1,260,000; no change in variable cost to A. (b) Minimum transfer price = variable cost = $36; new variable costs for A: [$1,360,000 − old cost (10,000 × $45) + new cost (10,000 × $36)] = $1,360,000 − $90,000 = $1,270,000.

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172)(a) The internal cost is the variable cost of $4 per unit ($1,000,000 ÷ 250,000 units). The external price is $4.50 per unit. Thai Company would prefer that the subcomponent be purchased internally. The profit impact of purchasing internally would be an increase of $50,000 [(100,000 units × ($4.50 − $4)]. (b) The maximum transfer price is the market (outside) price of $4.50 per unit. The minimum transfer price is the variable cost of $4 per unit. 173)(a) Any price between the selling division's variable cost ($14 per unit) and the buying division's external market price ($18) would be appropriate. (b) The transfer price would be $20 because there would be no excess capacity. (c) [($17.50 − $14) × 1,500,000] = [($20 − $14) × 800,000] + [($X − $14) × 300,000]; X = $15.50. (Note: The increased fixed costs of $1,200,000 are irrelevant to this decision.) 174)(a) Cost Plus Sales Cost of Goods Sold Other Costs Operating Profit

Chattanooga Incorporated Income Statement Stamp Division $ 231,000 180,000 40,000

Finish Division $ 500,000 351,000 80,000

$ 11,000

$ 69,000

The Stamp Division Sales = The Finish Division COGS $351,000 − $120,000 added costs = $231,000; $231,000 = 105% of the Stamp Division costs; The Stamp Division cost = $231,000/105% = $220,000; $220,000 − $40,000 other costs = $180,000 Stamp Division COGS. (b) Version 1

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Transfer = $ 2 Sales Cost of Goods Sold Other Costs Operating Profit

Chattanooga Incorporated Income Statement Stamp Division $ 240,000 180,000 40,000

Finish Division $ 500,000 360,000 80,000

$ 20,000

$ 60,000

Chattanooga Incorporated Income Statement Stamp Division $ 228,000 180,000 40,000

Finish Division $ 500,000 348,000 80,000

$ 8,000

$ 72,000

(d) In terms of total company income, transfer prices have no impact; i.e., the total profit is $80,000 regardless of how it is allocated between the two divisions. However, different pricing systems can provide managers with different incentives, which may have an impact on profits. 175)(a) The external cost is $21 and the internal cost is $8.50 ($7 variable cost + $1.50 shipping). Division B should purchase the units internally because it would result in cost savings of $125,000 [($21 − $8.50) × 10,000 units]. (b) If Division S can sell everything it produces to outside customers, Division B should purchase the units externally. The transfer price would be market because Division S is operating at capacity. Purchasing internally would cost $21.50 ($20 + $1.50) per unit while purchasing externally would cost $21 per unit.

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176)(a) External purchase: 100 × $3,000 = $300,000; Internal purchase: 100 × $2,400 variable cost = $240,000; Differential in profit = $60,000 decrease. No, the company as a whole will earn $60,000 less in profit if there is an external transfer. (b) External purchase: $300,000 − $40,000 usage of capacity = $260,000; Internal purchase = $240,000; Differential = $20,000 decrease. No, the company will still earn $20,000 less in profit with an external transfer. (c) External purchase: 100 × $2,700 = $270,000 − $40,000 = $230,000; Internal purchase = $240,000; Differential = $10,000 increase in profit. The company would prefer an external purchase as profits will increase by $10,000. 177)(a) If the internal price is dropped to match the outside supplier’s price of $30, the total operating profit would be $1,120,000. If the internal price is not dropped, all inside sales are lost, and outside sales are increased by 20,000, the total operating profit would be $1,020,000. Matching the outside supplier’s price of $30 would result in an additional $100,000 in total operating profit. Internal price = $ 30 Sales

Sales to L $ 3,600,000

External $ 2,000,000

Total

Variable costs

3,000,000

1,000,000

Contribution margin Fixed costs

$ 600,000 360,000

$ 1,000,000 120,000

$ 1,600,000 480,000

Operating Profit

$ 240,000

$ 880,000

$ 1,120,000

No internal sales, external increases by 20,000. External Sales

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Total

$ 3,000,000

184

Variable costs

1,500,000

Contribution margin Fixed costs

$ 1,500,000 480,000

Operating Profit

$ 1,020,000

(b) There needs to be $1,600,000 in contribution margin. The contribution margin per ton is $50 − $25 = $25. Volume needed is $1,600,000 ÷ $25 = 64,000 tons. 178)(a) Maximum transfer price = current market price being paid by the Sprinkler Division = $20 − (10% × $20) = $18; Minimum transfer price = outlay costs + opportunity cost = ($12 − $1) + $0 = $11; Price range would be between $11 and $18. (b) When operating at capacity, the appropriate transfer price = outlay costs + opportunity cost = ($12 − $1) + ($20 − $12) = $11 + $8 = $19.

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179)(a) In order for the profit of the Supply Division to increase as a result of the transfer, the transfer price must be greater than $24.00 per unit: Transfer price > [Outlay cost ($15 + $1) + Opportunity cost ($8)] = $24.00. The opportunity cost of the special part is the contribution margin on the lost sales divided by the number of units transferred = [($32.00 − $19.00 − $3.00) × (40,000 × 20%] ÷ 10,000 = $8.00. In order for the profit of the Custodial Products Division to increase as a result of the transfer, the transfer price must be less than the cost of buying the units from the outside supplier. Therefore, the transfer price must be less than $29.00. Combining the two requirements, the range of transfer prices is between $24.00 and $29.00. (b) Yes, the transfer should take place. From the perspective of the entire company, the cost of transferring the units within the company is $24.00, but the cost of purchasing the special parts from the outside supplier is $29.00. Therefore, the company's profits increase on average by $5.00 for each of the special parts that is transferred within the company, even though this would cut into production and sales of another product.

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180)(a) From the perspective of Division M, profits would increase as a result of the transfer if the transfer price is greater than $21.80 per unit: Transfer price > Outlay cost ($17) + Opportunity cost ($4.80) The opportunity cost is the contribution margin on the lost sales divided by the number of units transferred = [($26.00 − $17.00 − $1.00) × (46,000 − (50,000 − 10,000))] ÷ 10,000 = $4.80. From the perspective of Division N, the transfer price must be less than the cost of buying the units from the outside supplier. Therefore, the transfer price must be less than $25. Combining the two requirements, the range of transfer prices is between $21.80 and $25.00. Demand from outside customers Units required by Division N Total requirements Capacity

46,000 10,000 56,000 50,000

Required reduction in sales to outside customers

6,000

Therefore, Transfer price > $17.00 + $4.80 = $21.80.

(b) Yes, the transfer should take place. From the perspective of the entire company, the cost of transferring the units within the company is $21.80, but the cost of purchasing them from the outside supplier is $25.00. Therefore, the company's profits would increase on average by $3.20 for each of the special parts that is transferred within the company. 181)(a) The costs that are explicitly associated with the manufacturing of engines required by the SBAD are as follows: Materials: Special equipment:

Version 1

$ 300,000 36,000

187

Inspection:

24,000

Other manufacturing costs:

175,000

Total

$ 535,000 $ 26.75

per unit

Therefore, the minimum price at which the ED can 'sell' to the SBAD would be $32.10 ($26.75 × 1.20). It is important to note that excess capacity exists; therefore, the ED does not have any opportunity costs associated with the SBAD's order. (b) The pros of internal sourcing are as follows: ● Productive use of excess capacity. ● Potential cost savings. ● Protection of proprietary knowledge. The cons of internal sourcing are as follows: ● Setting internal pricing policies and refereeing disputes. ● Supporting inefficient operations with artificially high internal prices. It is important to note that any policy stated as "cost plus 20 percent" is asking for trouble, because "cost" is undefined. If market prices are available, the company probably should use these for internal sales, with a policy of sourcing internally at the market price. Using cost-based internal prices may be necessary but creates complications of creating the price that motivates managers to benefit themselves and the company as a whole.

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188

182)a) The minimum transfer price should be $53 per unit, which is the outlay cost plus opportunity cost. Because there is excess capacity, the opportunity cost is zero. Outlay cost = total variable cost = ($25 + $18 + $6 + $4) = $53 per unit. b) The maximum transfer price Youngstown would be willing to pay is the market price of $73 per unit. c) The Allentown Division should reduce its price because it has excess capacity. Under the general rule, even though it doesn't work well with excess capacity, only costs incurred because of production necessitated by the internal transfer should be considered. Therefore, only variable costs should make up the transfer price. The price also does not reflect that actual fixed cost per unit will decrease as more units are produced and, with an internal sale, variable selling expense might be eliminated or, at least, reduced.

Version 1

189

183)a) $10 per unit. b) 1.30 × [$67,500 + $45,000 + (0.25 × $45,000) + (0.30 × $75,000)] ÷ 30,000 = (1.30 × $146,250) ÷ 30,000 = $160,875 ÷ 30,000 = $6.3375. c) 1.25 × ($67,500 + $45,000 + $45,000) ÷ 30,000 = (1.25 × $157,500) ÷ 30,000 = $196,875 ÷ 30,000 = $6.5625. d) [$67,500 + $45,000 + (0.25 × $45,000) + (0.30 × $75,000)] ÷ 30,000 = [($67,500 + $45,000 + $11,250 + $22,500)] ÷ 30,000 = $146,250 ÷ 30,000 = $4.875. e) 1.10 × ($67,500 + $45,000 + $45,000 + $75,000) ÷ 30,000 = (1.10 × $232,500) ÷ 30,000 = $255,750 ÷ 30,000 = $8.525. 184)a) Minimum transfer price = $32 + $12 + $6 = $50 variable production cost. b) Maximum transfer price = $75 market. c) A transfer price of $50 would be the best for SEMO, Incorporated. It would minimize U.S. income tax overall since less would be taxed at the 35% level and, while there would be more profit for the U.S. division, the U.S. tax rate is lower. 185)(a) Version 1

190

Division A Selling price

Company (after transfer to Division B) $ 55 Retail selling price $ 95

Standard unit-level cost

Contribution Margin

$ 20

Standard unit-level costs: Division A

$ 35

Division B

Contribution Margin

60 $ 35

The appropriate transfer price should be $55 which fits in with the transfer price from the general rule so it is goal congruent. This would be in the best interest of the company and would still encourage Division B to purchase internally. Division B's contribution margin would be $15 ($95 − $55 − $25). (b) Division B Selling price-special order Standard unit-level costs:

$ 70

Division A

$ 55

Division B

Contribution Margin

Version 1

Company (after transfer) $ 70

$ 35 80 $ (10)

60 $ 10

191

No. Division B would lose $10 per unit if the special order were accepted. The company will make more if Division A sells directly to the external market with a $20 contribution margin per unit. A decision to sell the part externally is still goal congruent under the general rule. (c) Under the general rule, the transfer price when there is excess capacity would be $35. The overall contribution would be $10 per unit and Division B's contribution would also be $10 per unit. It would be in the best interest of the company to accept the special order and, under the general rule, goal congruent behavior still continues. 186)a. From the perspective of Division K, profits would increase as a result of the transfer if the transfer price is more than $22.40 per unit: Transfer price > Outlay cost ($21) + Opportunity cost ($1.40) The opportunity cost is the contribution margin on the lost sales, divided by the number of units transferred = [($30.00 per unit − $21.00 per unit − $2.00 per unit) × (26,000 − (30,000 − 5,000))] ÷ 5,000 units = $1.40 per unit. Demand from outside customers Units required by Division X Total requirements Capacity

26,000 5,000 31,000 30,000

Required reduction in sales to outside customers

1,000

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192

From the perspective of Division X, profits would increase as a result of the transfer if the transfer price is less than $26 (the cost of buying the units from the outside supplier). Combining the two requirements, the range of transfer prices is between $22.40 and $26.00. b. Yes, the transfer should take place. From the perspective of the Easton Company, the cost of transferring the units within the company is $22.40, but the cost of purchasing them from the outside supplier is $26.00. Therefore, the company's profits increase on average by $3.60 for each of the special parts that is transferred within the Easton Company.

Version 1

193

187)a. From the perspective of the Motors Division, profits would increase as a result of the transfer if the transfer price is greater than $21.50 per unit. Transfer price > Outlay cost ($17 + $0.50) + Opportunity cost ($4). The opportunity cost is the contribution margin on the lost sales, divided by the number of units transferred = [($34.00 per unit − $22.00 per unit − $4.00 per unit) × (10,000 units × 10%)] ÷ 2,000 units = $4.00 per unit. From the perspective of the Equipment Division, profits would increase as a result of the transfer if the transfer price is less than the $28.00 cost of buying the units from the outside supplier. Combining the two requirements, the transfer price range is between $21.50 and $28.00. b. Yes, the transfer should take place. From the perspective of the entire company, the cost of transferring the units within the company is $21.50, but the cost of purchasing the special parts from the outside supplier is $28.00. Therefore, the company's profits increase on average by $6.50 for each of the special motors that is transferred within the company, even though this would cut into production and sales of another product. 188)a. Randolph Company Segment Reporting Statement Redmon

Tomlin

Sales Redmon: (100,000 × $ 16)

Version 1

$ 1,600,000

194

Tomlin: (250,000 × $ 7.20)

$ 1,800,000

Transfer (100,000 × $ 4.50)

450,000

Variable costs Contribution margin Fixed costs

1,360,000 $ 240,000 160,000

1,400,000 $ 850,000 460,000

Profit

$ 80,000

$ 340,000

b. Randolph Company Segment Reporting Statement Redmon

Tomlin

Sales Redmon: (100,000 × $ 16)

$ 1,600,000

Tomlin: (250,000 × $ 7.20)

$ 1,800,000

Transfer (100,000 × $ 4)

400,000

Variable costs Contribution margin Fixed costs

1,310,000 $ 290,000 160,000

1,400,000 $ 800,000 460,000

Profit

$ 130,000

$ 340,000

a. Maximum price = $4.50; new variable costs for Tomlin: ($1,000,000 ÷ 250,000) × 350,000 = $1,400,000; no change in variable costs to Redmon. b. Minimum price = $4.00 ($1,000,000 ÷ 250,000); new variable costs for Redmon: $1,360,000 − old cost (100,000 × $4.50) + new cost (100,000 × $4) = $1,360,000 − $50,000 = $1,310,000.

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195

189)A cost center is not concerned with making a profit, only with controlling costs. Similarly, a revenue center is not concerned with profits, only with revenues. Transfer prices consider the profit impact of making a decision as to the source of a product. 190)The general principle for an optimal transfer price is to set the price equal to the outlay cost for the supplier up to the point of transfer and opportunity cost of the resources of the supplier at the point of transfer. This principle should result in a transfer price that leads managers to make decisions in the firm's best interests. 191)A dual transfer pricing system is one where the selling division is awarded a price that includes profits while the buying division is charged only for costs. The advantage is this type of system encourages transfers. Disadvantages include the transfer price will not serve as a signal as to the value of the good to the firm. Performance evaluation is also more difficult under this system. 192)A perfect intermediate market may not exist, or there may be differences between the internal products and those available on the market with respect to distribution costs, quality, or product characteristics. 193)The major advantage of a negotiated transfer price is that it preserves the autonomy of the divisional managers. The disadvantages include 1) a great deal of management time may be consumed by the negotiating process and 2) the final price and its implications for performance measurement could depend more on the manager's ability to negotiate than on what is best for the company.

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196

194)Transfer pricing is important in tax accounting because transfers of goods or services often occur across different tax jurisdictions (countries, for example). The transfer price affects the revenue and cost that are reported in the different jurisdictions. If the different jurisdictions have different income tax rates, the total tax liability across all jurisdictions will depend on the transfer price. 195)The following are the principal items that must be disclosed about each segment: ● Segment revenue, from both internal and external customers. ● Interest revenue and expense. ● Segment operating profit or loss. ● Identifiable segment assets. ● Depreciation and amortization. ● Capital expenditures. ● Certain specialized items. In addition, if a company has significant foreign operations, it must disclose rev-enues, operating profits or losses, and identifiable assets by geographical region. 196)Under such extreme situations, basing transfer prices on market prices can lead to decisions that are not in the best interests of the overall company. Basing transfer prices on artificially low "distressed" prices can lead the producing division to sell or close the productive resources devoted to producing the product for transfer or to switch to a more profitable product. This might provide a short-run improvement in divisional profit but might not be in the best interests of the company overall. The company might be better off if no productive resources are sold off and it rides out the period of market distress. To encourage managers to act in this more appropriate way of transfer pricing, some companies set the transfer prices equal to a long-run average external market price rather than the current market price. Version 1

197

197)a) Standard cost: The selling division's contribution margin would be zero which would give no incentive to make the transfer. This problem can be avoided by using standard costs plus a markup to give the selling division a positive contribution margin. b) Full absorption cost: This is useful when market prices aren’t available but can lead to dysfunctional decision-making behavior. Full absorption cost-based transfer prices lead the buying division to view costs that are non-unit-level costs for the company as a whole as unit-level costs to the buying division which can cause problems with decision making. c) Actual cost: Actual cost-based transfer prices allow an inefficient producing division to pass the excess production costs on to the buying division via the transfer price. Also, the selling division has no incentives to control costs since the cost of inefficiency is passed on. Standard-based transfer prices avoid these problems.

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198

198)When there is no excess capacity, sales to third parties are given up in order to make the internal transfers so a transfer price equal to the outlay cost plus the opportunity cost of the resource at the point of transfer is appropriate. This usually is market price or very close to market price. The market-based transfer price allows both divisions to be no worse off with the transfer, inasmuch as the same dollar figures are involved, as if they each went to outside parties. Mr. Omsby, in charging a transfer price $38 instead of $33, is not operating in a goal congruent manner. It is in the company's best interests to have the internal transfer. The most he should be charging the Wheel Department is $33. Where there is excess capacity, the transfer price usually is set around variable cost. If one uses the results of the general rule in this situation, the opportunity cost would be equal to zero because no sales to third-parties would be given up and only the variable costs increase as more units are produced. 199)Under such extreme situations, basing transfer prices on market prices can lead to decisions that are not in the best interests of the overall company. Basing transfer prices on artificially low "distress" prices can lead the producing division to sell or close the productive resources devoted to producing the product for transfer or to switch to a more profitable product. This might provide a short-run improvement in divisional profit but might not be in the best interests of the company overall. The company might be better off if no productive resources are sold off and it rides out the period of market distress. To encourage managers to act in this more appropriate way of transfer pricing, some companies set the transfer price equal to a long-run average external market price rather than the current market price.

Version 1

199

200)In international transactions, transfer prices may affect tax liabilities, royalties, and other payments because of different laws in different countries (or states). Because tax rates vary among countries, companies have incentives to set transfer prices that will increase revenues (and profits) in low-tax countries and increase costs (thereby reducing profits) in high-tax countries. There is a feeling by some that the tax avoidance caused by foreign companies selling goods to their U.S. subsidiaries at inflated transfer prices artificially reduces the profits of the U.S. subsidiaries and reduces the taxes collected in the U.S. International taxing authorities look closely at transfer prices for companies engaged in related-party transactions that cross national boundaries and frequently companies have to support the transfer price they have chosen. 201)a) Division A

Division B

Revenue Third-party costs Transferred goods costs

$ 7,000,000 (4,000,000)

$ 30,000,000 (8,000,000) (7,000,000)

Taxable income Tax Rate

$ 3,000,000 × 40%

$ 15,000,000 × 70%

Tax Liability

$ 1,200,000

$ 10,500,000

Total Tax liability

$ 11,700,000

b) Division A

Division B

Revenue Third-party costs Transferred goods costs

$ 14,000,000 (4,000,000)

$ 30,000,000 (8,000,000) (14,000,000)

Taxable income Tax Rate

$ 10,000,000 × 40%

$ 8,000,000 × 70%

Tax Liability

$ 4,000,000

$ 5,600,000

Total Tax liability

Version 1

$ 9,600,000

200

202)Import duties, or tariffs, are fees charged to an importer, generally on the basis of reported value of the goods being imported. If a company has divisions in two countries and Country A imposes an import duty on goods transferred in from Country B, the company has an incentive to set a relatively low transfer price on the transferred goods. This will minimize the duty to be paid and maximize the overall profit for the company as a whole. Countries sometimes pass laws to limit a multinational firm’s ability in setting transfer prices for the purpose of maximizing import duties.

Version 1

201

203)In international transactions, transfer prices may affect tax liabilities, royalties, and other payments because of different laws in different countries (or states). Because tax rates vary among countries, companies have incentives to set transfer prices that will increase revenues (and profits) in low-tax countries and increase costs (thereby reducing profits) in high-tax countries. There is a feeling by some that the tax avoidance caused by foreign companies selling goods to their U.S. subsidiaries at inflated transfer prices artificially reduces the profits of the U.S. subsidiaries and reduces the taxes collected in the U.S. International taxing authorities look closely at transfer prices for companies engaged in related-party transactions that cross national boundaries and frequently companies have to support the transfer price they have chosen. Import duties, or tariffs, are fees charged to an importer, generally on the basis of reported value of the goods being imported. If a company has divisions in two countries and Country A imposes an import duty on goods transferred in from Country B, the company has an incentive to set a relatively low transfer price on the transferred goods. This will minimize the duty to be paid and maximize the overall profit for the company as a whole. Countries sometimes pass laws to limit a multinational firm's ability in setting transfer prices for the purpose of maximizing import duties.

Version 1

202

204)The FASB requires companies engaged in different lines of business to report certain information about segments that meet the FASB's technical requirements. This reporting requirement is intended to provide a measure of the performance of those segments of a business that are significant to the company as a whole. Among the principal items that must be reported are segment revenue and segment operating profits or loss. Negotiated transfer prices are not generally acceptable for external segment reporting. In general, the accounting profession has indicated a preference for market-based transfer prices because the purpose of the segment disclosure is to enable an investor to evaluate a company's divisional sales as though they were free-standing enterprises. While this is sound conceptually, in reality it may not work because the segments are interdependent and market prices may not really reflect the same risk in an intracompany sale that they do in third-party sales.

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203

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) In essence, the terms "master budget" and "operating budget" mean the same thing. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-01 Use budgets for performance evaluation. Gradable : automatic Topic : Using Budgets for Performance Evaluation Accessibility : Screen Reader Compatible

Variances are the difference between actual results and budgeted results. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-01 Use budgets for performance evaluation. Gradable : automatic Topic : Using Budgets for Performance Evaluation Accessibility : Screen Reader Compatible

3) In general, and holding all other things constant, an unfavorable variance decreases operating profits. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-01 Use budgets for performance evaluation. Topic : Profit Variance Gradable : automatic Accessibility : Screen Reader Compatible

4) A favorable variance is not necessarily good, and an unfavorable variance is not necessarily bad. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-01 Use budgets for performance evaluation. Topic : Profit Variance Gradable : automatic Accessibility : Screen Reader Compatible

5) The terms "master budget" and "flexible budget" mean the same thing and can be used interchangeably. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-02 Develop and use flexible budgets. Topic : Flexible Budgeting Gradable : automatic Accessibility : Screen Reader Compatible

6) A flexible budget adjusts the static budget to reflect the actual activity level achieved during the period. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-02 Develop and use flexible budgets. Topic : Flexible Budgeting Gradable : automatic Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 16-02 Develop and use flexible budgets. Topic : Flexible Budgeting Bloom's : Understand Gradable : automatic Accessibility : Screen Reader Compatible

8) The difference between operating profits in the master budget and operating profits in the flexible budget that arises because the actual number of units sold is different from the budgeted number is called a sales price variance. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-03 Compute and interpret the sales activity variance. Topic : Comparing Budgets and Results Gradable : automatic Accessibility : Screen Reader Compatible

9) The sales activity variance is the result of a difference between budgeted units sold and actual units sold. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-03 Compute and interpret the sales activity variance. Gradable : automatic Topic : Sales Activity Variance Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-04 Prepare and use a profit variance analysis. Topic : Profit Variance Analysis as a Key Tool for Managers Gradable : automatic Accessibility : Screen Reader Compatible

11) Profit variance analysis involves comparing the actual results of a period with both the flexible budget and master budget. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 16-04 Prepare and use a profit variance analysis. Topic : Profit Variance Analysis as a Key Tool for Managers Bloom's : Understand Gradable : automatic Accessibility : Screen Reader Compatible

12) The flexible and master budget amounts are the same for fixed marketing and administrative costs. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-04 Prepare and use a profit variance analysis. Topic : Profit Variance Analysis as a Key Tool for Managers Gradable : automatic Accessibility : Screen Reader Compatible

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 16-04 Prepare and use a profit variance analysis. Topic : Performance Measurement and Control in a Cost Center Bloom's : Understand Gradable : automatic Accessibility : Screen Reader Compatible

14) Both the actual material used and the standard quantity allowed for material are based on the actual output attained. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 16-05 Compute and use variable cost variances. Bloom's : Understand Topic : Variable Cost Variance Analysis Gradable : automatic Accessibility : Screen Reader Compatible

15) It is possible to have a favorable direct material price variance and an unfavorable direct material efficiency variance. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 16-05 Compute and use variable cost variances. Bloom's : Understand Topic : Variable Cost Variance Analysis Gradable : automatic Accessibility : Screen Reader Compatible

16) An unfavorable direct labor efficiency variance could be the result of poor supervision or poor scheduling by divisional managers. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 16-05 Compute and use variable cost variances. Bloom's : Understand Topic : Variable Cost Variance Analysis Gradable : automatic Accessibility : Screen Reader Compatible

17) Variance analysis for fixed production costs is virtually the same as for variable production costs. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Gradable : automatic Accessibility : Screen Reader Compatible

18) The budget (or spending) variance for fixed production costs is the difference between the actual fixed costs and the budgeted fixed costs. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Gradable : automatic Accessibility : Screen Reader Compatible

19) The production volume variance is the difference between fixed costs on the flexible budget and the fixed costs on the master budget. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Gradable : automatic Accessibility : Screen Reader Compatible

20) When using standard costing, costs are transferred through the production process at their standard costs. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-07 (Appendix) Understand how to record costs in a standard costing system. Topic : Recording Costs in a Standard Cost System (Appendix) Gradable : automatic Accessibility : Screen Reader Compatible

21)

Standards and budgets are the same thing. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 16-07 (Appendix) Understand how to record costs in a standard costing system. Topic : Recording Costs in a Standard Cost System (Appendix) Gradable : automatic Accessibility : Screen Reader Compatible

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 22) 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.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-07 (Appendix) Understand how to record costs in a standard costing system. Topic : Recording Costs in a Standard Cost System (Appendix) Gradable : automatic Accessibility : Screen Reader Compatible

23)

Which of the following statements is false?

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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). C) When evaluating costs, a favorable variance indicates that actual costs are greater than budgeted costs. D) Variance analysis uses variances to evaluate the performance of individuals and business units.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-01 Use budgets for performance evaluation. Topic : Profit Variance Gradable : automatic Topic : Using Budgets for Performance Evaluation Accessibility : Screen Reader Compatible

24)

An operating budget would not include a: A) cash budget. B) sales budget. C) labor budget. D) production budget.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Learning Objective : 16-01 Use budgets for performance evaluation. Difficulty : 2 Medium Bloom's : Understand Gradable : automatic Topic : Using Budgets for Performance Evaluation Accessibility : Screen Reader Compatible

25)

Variances are best 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.

26)

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.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-01 Use budgets for performance evaluation. Topic : Profit Variance Gradable : automatic Accessibility : Screen Reader Compatible

27) 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.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-01 Use budgets for performance evaluation. Topic : Profit Variance Gradable : automatic Accessibility : Screen Reader Compatible

28)

Which of the following statements regarding variances is false?

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A) In general and holding all other things constant, an unfavorable variance decreases operating profits. B) A favorable variance is always good. C) The simplest measure of performance is the variance between actual income and budgeted income. D) When discussing revenue, a favorable variance means that the actual result is greater than the budgeted result.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-01 Use budgets for performance evaluation. Topic : Profit Variance Gradable : automatic Accessibility : Screen Reader Compatible

29) Which of the following variances will always be favorable when actual unit sales exceed budgeted unit sales? A) Variable cost B) Fixed cost C) Sales activity D) Operating profit

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-03 Compute and interpret the sales activity variance. Topic : Comparing Budgets and Results Gradable : automatic Accessibility : Screen Reader Compatible

30) 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.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Learning Objective : 16-01 Use budgets for performance evaluation. Difficulty : 3 Hard Bloom's : Analyze Gradable : automatic Topic : Using Budgets for Performance Evaluation Accessibility : Screen Reader Compatible

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31) 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

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-02 Develop and use flexible budgets. Topic : Flexible Budgeting Gradable : automatic Accessibility : Screen Reader Compatible

32) Based on past experience, Moss Company has developed the following budget formula for estimating its shipping expenses: Shipping costs = $19,000 + ($0.60 × pounds shipped). The company's shipments average 15 pounds per shipment. The planned activity and actual activity regarding orders and shipments for the current month are given in the following schedule: Plan Sales orders Shipments Units shipped Sales

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Actual 860 860 8,600 $ 126,000

840 880 9,600 $ 150,000

Total pounds shipped

10,200

12,900

The actual shipping costs for the month amounted to $24,000. The appropriate monthly flexible budget allowance for shipping costs for the purpose of performance evaluation would be: (CMA adapted) A) $24,760. B) $30,120. C) $25,120. D) $26,740.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Learning Objective : 16-02 Develop and use flexible budgets. Topic : Flexible Budgeting Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible

33) Based on past experience, Moss Company has developed the following budget formula for estimating its shipping expenses: Shipping costs = $16,000 + ($0.50 × pounds shipped). The company's shipments average 12 pounds per shipment. The planned activity and actual activity regarding orders and shipments for the current month are given in the following schedule: Plan Sales orders Shipments Units shipped Sales Total pounds shipped

Actual 800 800 8,000 $ 120,000 9,600

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)

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A) $20,680. B) $20,920. C) $20,800. D) $22,150.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Learning Objective : 16-02 Develop and use flexible budgets. Topic : Flexible Budgeting Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : automatic Accessibility : Screen Reader Compatible

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.

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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.

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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.

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37)

The intercept of the flexible budget line is: A) sales. B) variable costs. C) fixed costs. D) contribution margin.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-02 Develop and use flexible budgets. Topic : Flexible Budgeting Gradable : automatic Accessibility : Screen Reader Compatible

38) When using a flexible budget, what will happen to variable costs on a per-unit basis as production increases within the relevant range?

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A) Decrease B) Increase C) Remain unchanged D) Variable costs are not considered in flexible budgeting.

39) The Valenti Company uses flexible budgeting for cost control. Valenti produced 11,500 units of product during October, incurring indirect material costs of $14,100. Valenti’s master budget reflected indirect material costs of $210,600 at a production volume of 156,000 units. What was the indirect material cost variance for October? A) $1,500 favorable B) $1,500 unfavorable C) $3,450 favorable D) $1,425 favorable

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible

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40) 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

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : automatic Accessibility : Screen Reader Compatible

41)

James Manufacturing has the following information available for July: Actual Results

Units Sales revenue

Flexible Budget Variance

15,000 ?

Flexible Budget ?

$ 15,000 F

Sales Activity Variance 11,000 U ?

Master Budget ? ?

Less: Variable manufacturing costs Variable

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$ 107,750 ?

$ 111,000 $

$ 231,000 $

$ 23

marketing and administrative Contribution margin

$ 56,000

4,250 U ?

5,000 F $ 7,000 U

32,000 ?

What was James’s actual sales revenue for July? A) $180,000 B) $195,000 C) $312,000 D) $324,000

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Difficulty : 3 Hard Learning Objective : 16-04 Prepare and use a profit variance analysis. Topic : Profit Variance Analysis as a Key Tool for Managers AICPA : FN Measurement Bloom's : Apply Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible

42)

James Manufacturing has the following information available for July: Actual Results

Units Sales revenue

Flexible Budget Variance

13,000 ?

Flexible Budget ?

$ 13,000 F

Sales Activity Variance 2,000 U ?

Master Budget ? ?

Less: Variable manufacturing costs Variable marketing and

Version 1

$ 87,750 ?

$ 91,000 $ 3,250 U

$ 105,000

$ 4,000

$ 30,000

administrative Contribution margin

$ 52,000

F $ 6,000 U

What was James’s actual sales revenue for July? A) $156,000 B) $169,000 C) $180,000 D) $191,000

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-04 Prepare and use a profit variance analysis. Topic : Profit Variance Analysis as a Key Tool for Managers AICPA : FN Measurement Bloom's : Apply Gradable : automatic Accessibility : Screen Reader Compatible

43)

James Manufacturing has the following information available for July: Actual Results

Units Sales revenue

Flexible Budget Variance

14,800 ?

Flexible Budget ?

$ 14,800 F

Sales Activity Variance 10,100 U ?

Master Budget ? ?

Less: Variable manufacturing costs Variable marketing and administrative

Version 1

$ 105,750 ?

$ 109,000 $ 4,150 U

$ 218,400

$ 4,900 F

$ 31,800

Contribution margin

$ 55,600

$ 6,900 U

What was James’s flexible budget sales revenue for July? A) $160,600 B) $177,600 C) $192,400 D) $298,800

44)

James Manufacturing has the following information available for July: Actual Results

Units Sales revenue

Flexible Budget Variance

13,000 ?

Flexible Budget ?

$ 13,000 F

Sales Activity Variance 2,000 U ?

Master Budget ? ?

Less: Variable $ manufacturing 87,750 costs Variable ? marketing and administrative Contribution margin $

Version 1

$ 91,000 $ 3,250 U ?

$ 105,000

$ 4,000 F $

$ 30,000 ?

52,000

6,000 U

What was James’s flexible budget sales revenue for July? A) $139,000 B) $156,000 C) $169,000 D) $180,000

45)

James Manufacturing had the following information available for July: Actual Results

Units Sales revenue

Flexible Budget Variance

13,500 ?

Flexible Budget ?

$ 13,500 F

Sales Activity Variance 4,250 U ?

Master Budget ? ?

Less: Variable $ manufacturing 92,750 costs Variable marketing ? and administrative Contribution margin

Version 1

$ 53,000

$ 96,000 $ 3,500 U ?

$ 136,500

$ 4,250 F $ 6,250

$ 30,500 ?

What was James’s flexible budget contribution margin for July? A) $39,750 B) $46,000 C) $53,000 D) $59,250

46)

James Manufacturing had the following information available for July: Actual Results

Units Sales revenue

Flexible Budget Variance

13,000 ?

Flexible Budget ?

$ 13,000 F

Sales Activity Variance 2,000 U ?

Master Budget ? ?

Less: Variable $ manufacturing 87,750 costs Variable ? marketing and administrative Contribution margin $ 52,000

Version 1

$ 91,000 $ 3,250 U ?

$ 105,000

$ 4,000 F $ 6,000 U

$ 30,000 ?

What was James’s flexible budget contribution margin for July? A) $39,000 B) $45,000 C) $52,000 D) $58,000

47)

James Manufacturing had the following information available for July: Actual Results

Units Sales revenue

Flexible Budget Variance

13,900 ?

Flexible Budget ?

$ 13,900 F

Sales Activity Variance 6,050 U ?

Master Budget ? ?

Less: Variable $ manufacturing 96,750 costs Variable ? marketing and administrative Contribution margin $ 53,800

$ 100,000 $ 3,700 U ?

$ 161,700

$ 4,450 F $ 6,450 U

$ 30,900 ?

What was James’s master budget sales revenue?

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A) $181,150 B) $206,500 C) $166,800 D) $239,400

48)

James Manufacturing had the following information available for July: Actual Results

Units Sales revenue

Flexible Budget Variance

13,000 ?

Flexible Budget ?

$ 13,000 F

Sales Activity Variance 2,000 U ?

Master Budget ? ?

Less: Variable $ manufacturing 87,750 costs Variable ? marketing and administrative Contribution margin $ 52,000

$ 91,000 $ 3,250 U ?

$ 105,000

$ 4,000 F $ 6,000 U

$ 30,000 ?

What was James’s master budget sales revenue?

Version 1

A) $124,000 B) $148,000 C) $156,000 D) $180,000

49)

James Manufacturing had the following information available for July: Actual Results

Units Sales revenue

Flexible Budget Variance

14,400 ?

Flexible Budget ?

$ 14,400 F

Sales Activity Variance 8,300 U ?

Master Budget ? ?

Less: Variable manufacturing costs Variable marketing and administrative Contribution margin

$ 101,750 ?

$ 54,800

$ 105,000 $ 3,950 U ?

$ 193,200

$ 4,700 F $ 6,700 U

$ 31,400 ?

What was James’s master budget contribution margin?

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A) $54,800 B) $57,300 C) $47,800 D) $41,100

50)

James Manufacturing had the following information available for July: Actual Results

Units Sales revenue

Flexible Budget Variance

13,000 ?

Flexible Budget ?

$ 13,000 F

Sales Activity Variance 2,000 U ?

Master Budget ? ?

Less: Variable $ manufacturing 87,750 costs Variable ? marketing and administrative Contribution margin $ 52,000

$ 91,000 $ 3,250 U ?

$ 105,000

$ 4,000 F $ 6,000 U

$ 30,000 ?

What was James’s master budget contribution margin?

Version 1

A) $52,000 B) $47,500 C) $45,000 D) $39,000

51)

James Manufacturing had the following information available for July: Actual Results

Units Sales revenue

Flexible Budget Variance

13,200 ?

Flexible Budget ?

$ 13,200 F

Sales Activity Variance 2,900 U ?

Master Budget ? ?

Less: Variable $ manufacturing 89,750 costs Variable ? marketing and administrative Contribution margin $ 52,400

Version 1

$ 93,000 $ 3,350 U ?

$ 117,600

$ 4,100 F $ 6,100 U

$ 30,200 ?

What was James’s activity variance for variable manufacturing costs? A) $3,250 B) $24,600 C) $34,800 D) $44,600

52)

James Manufacturing had the following information available for July: Actual Results

Units Sales revenue

Flexible Budget Variance

13,000 ?

Flexible Budget ?

$ 13,000 F

Sales Activity Variance 2,000 U ?

Master Budget ? ?

Less: Variable $ manufacturing 87,750 costs Variable ? marketing and administrative Contribution margin $ 52,000

Version 1

$ 91,000 $ 3,250 U ?

$ 105,000

$ 4,000 F $ 6,000

$ 30,000 ?

What was James’s activity variance for variable manufacturing costs? A) $4,000 B) $14,000 C) $24,000 D) $34,000

53)

James Manufacturing had the following information available for July: Actual Results

Units Sales revenue

Flexible Budget Variance

13,000 ?

Flexible Budget ?

$ 13,000 F

Sales Activity Variance 2,000 U ?

Master Budget ? ?

Less: Variable $ manufacturing 87,750 costs Variable ? marketing and administrative Contribution margin $ 52,000

Version 1

$ 91,000 $ 3,250 U ?

$ 105,000

$ 4,000 F $ 6,000

$ 30,000 ?

Was James’s activity variance for variable manufacturing costs favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 16-04 Prepare and use a profit variance analysis. Topic : Profit Variance Analysis as a Key Tool for Managers Bloom's : Apply Gradable : automatic Accessibility : Screen Reader Compatible

54) 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.

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55) 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.

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56)

Which of the following statements is false regarding the sales activity variance?

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A) If the sales activity variance for sales revenue is unfavorable, then the contribution margin sales activity variance will be unfavorable. B) The sales activity variance is the actual selling price per unit times the difference between the budgeted units and actual units. C) The sales activity variance is also known as sales volume variance. D) If the sales activity variance for sales revenue is unfavorable, the company had to have sold fewer units than planned.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 16-03 Compute and interpret the sales activity variance. Topic : Comparing Budgets and Results Bloom's : Analyze Gradable : automatic Accessibility : Screen Reader Compatible

57)

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.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-04 Prepare and use a profit variance analysis. Topic : Profit Variance Analysis as a Key Tool for Managers AICPA : FN Measurement Gradable : automatic Accessibility : Screen Reader Compatible

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58)

Which of the following statements is false regarding the fixed production cost variance? A) The fixed production cost variance is the difference between actual and bud-geted

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.

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59) 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

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60) 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.

61) Which department is customarily held responsible for an unfavorable materials quantity variance?

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A) Quality control B) Purchasing C) Engineering D) Production

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62)

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)

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63)

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)

64) 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

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65) 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 toward the use of higher paid experienced individuals. B) The mix of workers assigned to the particular job was heavily weighted toward 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.

66) Which variance will be unfavorable due to employees working more hours than allowed for the actual number of units produced?

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A) Price (rate) B) Efficiency C) Sales activity D) Production volume

67)

In general, the direct labor efficiency variance is the responsibility of the: A) purchasing agent. B) company president. C) production manager. D) industrial engineering.

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68)

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.

69) 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.

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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

Standard Price

8 pounds 0.25 hour

$ 3.50 per pound $ 11.40 per hour

Standard Cost $ 28.00 2.85 $ 30.85

During November, TaskMaster purchased 168,500 pounds of direct materials at a total cost of $572,900. The total factory wages for November were $59,000, 90% of which were for direct labor. TaskMaster manufactured 19,900 units of product during November using 149,250 pounds of direct materials and 5,170 direct labor hours. Is the direct materials price variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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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.

Version 1

Direct Materials Direct Labor

Standard Quantity

Standard Price

8 pounds 0.25 hour

$ 1.80 per pound $ 8.00 per 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. Is the direct materials price variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : automatic Accessibility : Screen Reader Compatible

72) 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

Standard Price

8 pounds 0.25 hour

$ 2.70 per pound $ 9.80 per hour

Standard Cost $ 21.60 2.45 $ 24.05

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During November, TaskMaster purchased 164,500 pounds of direct materials at a total cost of $427,700. The total factory wages for November were $51,000, 90% of which were for direct labor. TaskMaster manufactured 19,400 units of product during November using 145,500 pounds of direct materials and 5,090 direct labor-hours. What is the direct materials efficiency variance for November? A) $23,340 B) $23,490 C) $25,090 D) $26,190

73) 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. Standard Quantity Direct Materials Direct Labor

8 pounds 0.25 hour

Standard Price $ 1.80 per pound $ 8.00 per 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?

Version 1

A) $14,250 B) $14,400 C) $16,000 D) $17,100

74) 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

Standard Price

8 pounds 0.25 hour

$ 3.50 per pound $ 11.40 per hour

Standard Cost $ 28.00 2.85 $ 30.85

During November, TaskMaster purchased 168,500 pounds of direct materials at a total cost of $572,900. The total factory wages for November were $59,000, 90% of which were for direct labor. TaskMaster manufactured 19,900 units of product during November using 159,700 pounds of direct materials and 5,170 direct labor-hours. Is the direct materials efficiency variance favorable or unfavorable? A) Unfavorable B) Favorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Version 1

75) 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. Standard Quantity Direct Materials Direct Labor

8 0.25

pounds hour

Standard Price $ 1.80 $ 8.00

per pound per 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. Is the direct materials efficiency variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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76) 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

Standard Price

8 pounds 0.25 hour

$ 2.00 per pound $ 8.40 per hour

Standard Cost $ 16.00 2.10 $ 18.10

During November, TaskMaster purchased 161,000 pounds of direct materials at a total cost of $338,100. The total factory wages for November were $44,000, 90% of which were for direct labor. TaskMaster manufactured 19,100 units of product during November using 143,250 pounds of direct materials and 5,020 direct labor-hours. What is the direct labor rate variance for November? A) $1,000 B) $1,538 C) $1,600 D) $2,568

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77) 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

Standard Price

8 pounds 0.25 hour

$ 1.80 per pound $ 8.00 per 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

Version 1

78) 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

Standard Price

8 pounds 0.25 hour

$ 3.00 per pound $ 10.40 per hour

Standard Cost $ 24.00 2.60 $ 26.60

During November, TaskMaster purchased 166,000 pounds of direct materials at a total cost of $514,600. The total factory wages for November were $54,000, 90% of which were for direct labor. TaskMaster manufactured 19,600 units of product during November using 147,000 pounds of direct materials and 5,120 direct labor-hours. Is the direct labor rate variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Version 1

79) 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

Standard Price

8 pounds 0.25 hour

$ 1.80 per pound $ 8.00 per 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. Is the direct labor rate variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Version 1

80) 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

Standard Price

8 pounds 0.25 hour

$ 3.60 per pound $ 11.60 per hour

Standard Cost $ 28.80 2.90 $ 31.70

During November, TaskMaster purchased 169,000 pounds of direct materials at a total cost of $625,300. The total factory wages for November were $60,000, 90% of which were for direct labor. TaskMaster manufactured 19,900 units of product during November using 149,250 pounds of direct materials and 5,180 direct labor-hours. What is the direct labor efficiency variance for November? A) $5,480 B) $2,229 C) $2,378 D) $1,288

Version 1

81) 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. Standard Quantity Direct Materials Direct Labor

8 pounds 0.25 hour

Standard Price $ 1.80 per pound $ 8.00 per 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

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82) 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

Standard Price

8 pounds 0.25 hour

$ 2.70 per pound $ 9.80 per hour

Standard Cost $ 21.60 2.45 $ 24.05

During November, TaskMaster purchased 164,500 pounds of direct materials at a total cost of $427,700. The total factory wages for November were $51,000, 90% of which were for direct labor. TaskMaster manufactured 19,400 units of product during November using 145,500 pounds of direct materials and 5,090 direct labor-hours. Is the direct labor efficiency variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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83) 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

Standard Price

8 pounds 0.25 hour

$ 1.80 per pound $ 8.00 per 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. Is the direct labor efficiency variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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84) 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 (3 hours @ $2.00) Factory Overhead: Variable Fixed

Standard Cost Standard Monthly Per Unit Costs $ 7.00 $ 16,800 6.00 14,400

2.00 5.00

4,800 12,000

$ 20.00

$ 48,000

Variances: Material price Material quantity Labor rate Labor efficiency

$ 451.00 unfavorable $ 320.00 unfavorable $ 570.00 favorable $ 2,250.00 unfavorable

What were the actual direct labor-hours worked during the month? A) 8,325 B) 8,040 C) 7,200 D) 6,915

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85) 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 hours @ $ 2.60) Factory Overhead:

Standard Cost Standard Monthly Per Unit Costs $ 4.00 $ 8,400 5.20 10,920

Variable Fixed

1.80 5.00

3,780 10,500

$ 16.00

$ 33,600

Variances: Material price Material quantity Labor rate Labor efficiency

$ 244.75 unfavorable $ 500.00 unfavorable $ 520.00 favorable $ 2,080.00 unfavorable

What were the actual direct labor-hours worked during the month? A) 5,000 B) 4,800 C) 4,200 D) 4,000

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86) 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 hours @ $2.00) Factory Overhead:

Standard Cost Standard Monthly Per Unit Costs $ 8.00 $ 34,200 4.00 15,200

Variable Fixed

2.00 5.00

7,600 19,000

$ 20.00

$ 76,000

Variances: Material price Material quantity Labor rate Labor efficiency

$ 238.00 unfavorable $ 520.00 unfavorable $ 700.00 favorable $ 2,950.00 unfavorable

What was the actual quantity of materials used during the month? A) 4,305 B) 4,275 C) 4,340 D) 4,210

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87) 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 hours @ $ 2.60) Factory Overhead:

Standard Cost Per Unit $ 4.00 5.20

Standard Monthly Costs $ 8,400 10,920

1.80 5.00

3,780 10,500

$ 16.00

$ 33,600

Variable Fixed

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

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88) 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 hours @ $2.00) Factory Overhead: Variable Fixed

Standard Cost Standard Monthly Per Unit Costs $ 6.00 $ 21,000 4.00 14,000

2.00 5.00

7,000 17,500

$ 17.00

$ 59,500

Variances: Material price Material quantity Labor rate Labor efficiency

$ 460.00 unfavorable $ 450.00 unfavorable $ 700.00 favorable $ 2,800.00 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) $6.26 B) $6.13 C) $6.13 D) $6.00

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89) 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 hours @ $ 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

3,780 10,500

$ 16.00

$ 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

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90)

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

42,000 41,000 $ 3,500 $ 8,200 $ 135,300

What was Gantry's actual direct labor rate? A) $3.10 B) $3.30 C) $3.50 D) $8.20

91)

Data on Gantry Company's direct labor costs are given below:

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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

92)

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

45,000 44,000 $ 4,700 $ 8,800 $ 198,000

What was Gantry's standard direct labor rate? A) $4.30 B) $4.50 C) $4.70 D) $8.80

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93)

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

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94) Batson Company produces Trivets. Based on its master budget, the company should produce 2,000 Trivets each month, working 4,200 direct labor-hours. During May, only 1,900 Trivets were produced. The company worked 4,100 direct labor-hours. The standard hours allowed for May production would be: A) 4,200 hours. B) 4,100 hours. C) 3,990 hours. D) 3,895 hours.

95) 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.

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96) 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

35,600 37,200 $ 347,100 $ 13,760

What is Kimble's direct labor rate variance? A) $34,120 B) $40,940 C) $37,080 D) $42,000

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97) 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

98) 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

35,800 37,600 $ 307,880 $ 16,200

Is the direct labor rate variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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99) 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

100)

The following data pertains to the direct materials cost for the month of October:

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Standard costs Actual costs

5,100 units allowed at $21 each 5,150 units input at $20 each

What is the direct materials efficiency variance? A) $1,000 favorable B) $1,000 unfavorable C) $1,050 favorable D) $1,050 unfavorable

101)

The following data pertains to the direct materials cost for the month of October:

Standard costs Actual costs

5,000 units allowed at $ 20 each 5,050 units 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

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102) The Fellowes Company has developed standards for direct labor. During June, 80 units were scheduled and 105 were produced. Data related to direct labor are: Standard hours allowed Standard wages allowed Actual direct labor

4 hours per unit $ 5.00 per hour 430 hours (total cost $2,107)

What is the direct labor rate variance for June? A) $42 unfavorable B) $43 favorable C) $43 unfavorable D) $42 favorable

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103) 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

3 hours per unit $ 4.00 per hour 310 hours (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

104) 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.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 2 Medium Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Bloom's : Understand Topic : Variable Cost Variance Analysis Gradable : automatic Accessibility : Screen Reader Compatible

105) 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.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. Bloom's : Analyze Topic : Variable Cost Variance Analysis Gradable : automatic Accessibility : Screen Reader Compatible

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106) 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.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. Bloom's : Analyze Topic : Variable Cost Variance Analysis Gradable : automatic Accessibility : Screen Reader Compatible

107)

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.

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108) 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.

109)

Given the following information in standard costing:

Standard Actual

18,200 hours at $6.20 18,000 hours at $6.00

What is the direct labor rate variance?

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A) $3,600 Unfavorable B) $3,600 Favorable C) $2,680 Unfavorable D) $2,680 Favorable

110)

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

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111)

Information for Bonanza Company's direct labor cost for February is as follows:

Actual direct labor-hours

74,000

Total direct labor payroll

$ 481,000

Efficiency variance Rate variance

$ 5,933 F $ 62,900 U

What were the standard direct labor-hours for February? A) 75,050 B) 74,000 C) 77,050 D) 76,450

112)

Information for Bonanza Company's direct labor cost for February is as follows:

Actual direct labor-hours

69,000

Total direct labor payroll

$ 483,000

Efficiency variance Rate variance

$ 6,400 F $ 41,400 U

What were the standard direct labor-hours for February?

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A) 70,000 B) 69,000 C) 72,000 D) 71,400

113) The standard unit cost is used in the calculation of which of the following variances? (CPA adapted) Materials Price Variance Materials Usage Variance A. B. C. D.

No No Yes Yes

No Yes No Yes

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

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114) 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.

115) Excess direct labor wages resulting from overtime premium will be disclosed in which type of variance? (CPA adapted)

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A) Yield B) Quantity C) Labor efficiency D) Labor rate

116) The budget for the month of May was for 13,200 units at a direct materials cost of $24 per unit. Direct labor was budgeted at 33 minutes per unit for a total of $118,800. Actual output for the month was 9,400 units with $150,000 in direct materials and $86,775 in direct labor expense. The direct labor standard of 33 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 $8,400. B) favorable direct labor efficiency variance of $2,175. C) unfavorable direct labor efficiency variance of $2,175. D) unfavorable direct labor price (rate) variance of $2,175.

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117) 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.

118) Jackson Company uses a standard cost system. The following information pertains to direct labor for product B for the month of October:

Version 1

Standard hours allowed for actual production

2,400

Actual rate paid per hour

$ 8.20

Standard rate per hour

$ 7.80

Labor efficiency variance

$ 1,170 U

What were the actual hours worked for the month of October? A) 2,250 B) 2,257 C) 2,543 D) 2,550

119) 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

2,000

Actual rate paid per hour

$ 8.40

Standard rate per hour

$ 8.00

Labor efficiency variance

$ 1,600 U

What were the actual hours worked for the month of October?

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A) 1,800 B) 1,810 C) 2,190 D) 2,200

120) 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.

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121)

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 ($2 variable + $5 fixed)

925 1,070 1,200 $ 5,500 $ 6,000 $ 7

What is the fixed overhead price (spending) variance for April? A) $500 B) $650 C) $1,015 D) $725

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Difficulty : 3 Hard AICPA : FN Measurement Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Bloom's : Apply Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible

122)

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?

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A) $200 B) $400 C) $300 D) $240

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard AICPA : FN Measurement Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Bloom's : Apply Gradable : automatic Accessibility : Screen Reader Compatible

123)

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)

1,000 1,060 1,800 $ 7,000 $ 7,200 $ 5

Is the fixed overhead price (spending) variance for April favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Bloom's : Apply Gradable : automatic Type : Algorithmic Accessibility : Screen Reader Compatible

124)

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

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Bloom's : Apply Gradable : automatic Accessibility : Screen Reader Compatible

Version 1

125)

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 + $5 fixed)

940 1,080 1,180 $ 5,800 $ 5,900 $ 6

What is the production volume variance? A) $380 B) $500 C) $840 D) $700

126)

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?

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A) $200 B) $400 C) $300 D) $240

127)

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)

1,020 1,080 1,130 $ 7,400 $ 4,520 $ 5

Is the production volume variance for April favorable or unfavorable? A) Unfavorable B) Favorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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128)

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 C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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129)

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

23,000 22,000 20,000 $ 69,000 $ 73,600

Danske Company had total underapplied overhead of $23,000. Additional information is as follows: Variable Overhead: Applied based on standard direct labor-hours allowed Budgeted based on standard direct labor-hours Fixed Overhead:

$ 58,000 46,000

Applied based on standard direct labor-hours allowed Budgeted based on standard direct labor-hours

$ 46,000 35,000

What is the actual total overhead for the period? A) $58,000 B) $69,000 C) $104,000 D) $127,000

130)

The following information is available for the Danske Company:

Denominator hours for May Actual hours worked during May Standard hours allowed for May

15,000 14,000 12,000

Version 1

Flexible budget fixed overhead cost Actual fixed overhead costs for May

$ 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 Fixed Overhead:

$ 42,000 38,000

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

131)

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

16,500 15,200 12,600 $ 49,500 $ 52,800

Danske Company had total underapplied overhead of $16,500. Additional information is as follows:

Version 1

Variable Overhead: Applied based on standard direct labor-hours allowed Budgeted based on standard direct labor-hours Fixed Overhead:

$ 45,000 39,500

Applied based on standard direct labor-hours allowed Budgeted based on standard direct labor-hours

$ 33,000 28,500

What is the fixed overhead price (spending) variance for May? A) $1,300 unfavorable B) $3,300 unfavorable C) $2,600 unfavorable D) $2,600 favorable

132)

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

Version 1

$ 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.

133)

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

19,500 21,200 15,600 $ 135,000 $ 138,000

Danske Company had total underapplied overhead of $18,600. Additional information is as follows: Variable Overhead: Applied based on standard direct labor-hours allowed Budgeted based on standard direct labor-hours Fixed Overhead:

$ 78,000 41,600

Applied based on standard direct labor-hours allowed Budgeted based on standard direct labor-hours

$ 66,000 30,600

What is the production volume variance for May? Version 1

A) $5,600 B) $3,900 C) $16,800 D) $27,000

134)

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

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?

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A) $2,000 B) $3,000 C) $6,000 D) $9,000

135)

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

11,360 18,400 14,200 $ 100,000 $ 103,000

Danske Company had total underapplied overhead of $17,200. Additional information is as follows: Variable Overhead: Applied based on standard direct labor-hours allowed Budgeted based on standard direct labor-hours Fixed Overhead:

$ 64,000 40,200

Applied based on standard direct labor-hours allowed Budgeted based on standard direct labor-hours

$ 52,000 29,200

Is the production volume variance favorable or unfavorable?

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A) Unfavorable B) Favorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

136)

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

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?

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A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

137) 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%.

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138)

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.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 2 Medium AICPA : FN Measurement Bloom's : Understand Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Gradable : automatic Accessibility : Screen Reader Compatible

139)

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

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100

140)

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.

141)

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

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101

142)

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.

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Bloom's : Understand Learning Objective : 16-07 (Appendix) Understand how to record costs in a standard costing system. Topic : Recording Costs in a Standard Cost System (Appendix) Gradable : automatic Accessibility : Screen Reader Compatible

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 143) 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 they have 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

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$ 0.20 per machine-hour

102

Lubricants Utilities Indirect labor Depreciation

$ 1.00 per machine-hour plus $8,000 per month $ 0.70 per machine-hour $ 0.60 per machine-hour plus $20,000 per month $ 32,000 per 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Learning Objective : 16-02 Develop and use flexible budgets. Topic : Flexible Budgeting Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

144)

The Ornate Company has the following information pertaining to the month of March:

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Units of output, actual

21,000

Fixed costs, actual

$ 497,000

Operating profit, master budget

$ 220,000

Sales price variance Beginning and ending inventories

$ 84,000 0

Sales volume variance, revenue Budgeted selling price per unit

$ 300,000 $ 100

Variable costs, master budget

$ 1,680,000

Contribution margin, actual

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Learning Objective : 16-02 Develop and use flexible budgets. Topic : Flexible Budgeting Difficulty : 3 Hard AICPA : FN Measurement Bloom's : Apply Gradable : manual Accessibility : Screen Reader Compatible

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104

145) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

146) 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)

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6,000 $ 88,800 18,500 $ 75,400

105

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

147) 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 = 2 hours @ $ 5 =

$ 6 10 $ 16

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106

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

148)

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:

$ 12 per unit $ 45 per unit

Production Material purchased and used, 7,300 pounds

3,600 units $ 42,340

Labor, 10,360 hours

$ 160,580

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107

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

149)

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)

8,300 units 4.5 machine-hours $ 5.10 per machine-hour $ 2.90 per machine-hour 8,600 units 38,270 machine-hours $ 211,801

Actual supplies (total)

$ 107,566

Required:Compute the variable overhead rate variances for lubricants and for supplies. Indicate whether each of the variances is favorable or unfavorable. Show your work.

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108

150) 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

4,000 8.4 $ 9.40 $ 2.90 4,300 36,530 $ 362,756

Actual power

$ 97,693

drills machine-hours per machine-hour per machine-hour 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 or unfavorable. Show your work. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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109

151) 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

5 sheets @ $ 2.00 3 spools @ $ 3.00 4 hours @ $ 7.00 4 hours @ $ 3.00 4 hours @ $ 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:

purchased 5,000 sheets @ $2.00 per sheet Used: 3,900 sheets

Copper:

purchased 2,200 spools @ $3.10 per spool

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Used: 2,600 spools Direct labor:

3,400 hours Total payroll: $ 24,080

Overhead: Variable Fixed

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

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152) 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

3 spools @ $ 3.00 4 hours @ $ 7.00 4 hours @ $ 3.00 4 hours @ $ 2.00

Total

$ 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 per 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:

purchased 2,600 spools @ $3.08 per spool Used: 2,600 spools

Direct labor: Regular time Overtime

2,000 hours @ $ 7.00 per hour 1,400 hours @ $ 7.25 per hour

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

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$ 16,670 $ 8,800

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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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

153) 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

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6,000 $ 88,800 18,500 $ 6,380

113

Fixed overhead costs incurred Direct labor cost incurred ($6.50 per hour)

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

154) The condensed flexible budget of the Evergreen Company for the year is given below: Direct labor-hours Direct labor-hours Overhead costs: Variable costs Fixed costs

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30,000 $ 75,000 ?

40,000 ? ?

50,000 ? $ 320,000

114

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

$ 124,800 321,700

Total overhead costs

$ 446,500

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

155) The formula for computing overhead for 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 labor-hours 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

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$ 124,800 158,800

115

Total overhead costs

$ 283,600

156) 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

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 production volume variance?

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

157)

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 Actual results:

$ 45 $ 24 $ 140,000 4,000

per unit per unit per year units

Production Labor(10,360 hours)

3,600 $ 160,580

Units

Overhead incurred ($142,700 fixed)

$ 222,200

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

158) 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 = 2 hours @ $ 5 =

$ 6 10 $ 16

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118

159) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

160) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Learning Objective : 16-07 (Appendix) Understand how to record costs in a standard costing system. Topic : Recording Costs in a Standard Cost System (Appendix) Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

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161) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Learning Objective : 16-07 (Appendix) Understand how to record costs in a standard costing system. Topic : Recording Costs in a Standard Cost System (Appendix) Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

162) 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)

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6,000 $ 88,800 18,500

121

Direct labor cost incurred ($6.50/hour)

$ 75,400

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. Learning Objective : 16-07 (Appendix) Understand how to record costs in a standard costing system. Topic : Recording Costs in a Standard Cost System (Appendix) Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

163) 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

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

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5,600 6,000 50,000 $ 300,760

units units kilograms

36,500 $ 1,500 $ 750

hours unfavorable unfavorable

122

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Learning Objective : 16-07 (Appendix) Understand how to record costs in a standard costing system. Topic : Recording Costs in a Standard Cost System (Appendix) Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

164) 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 per hour)

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6,000 $ 88,800 18,500 $ 6,380 $ 20,400 $ 75,400

123

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Learning Objective : 16-07 (Appendix) Understand how to record costs in a standard costing system. Topic : Recording Costs in a Standard Cost System (Appendix) Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

165) 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 per hour)

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4,500 $ 61,600 13,300 $ 4,380 $ 20,400 $ 57,750

124

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Learning Objective : 16-07 (Appendix) Understand how to record costs in a standard costing system. Topic : Recording Costs in a Standard Cost System (Appendix) Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

166) Explain two reasons for preparing a variance analysis. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Learning Objective : 16-01 Use budgets for performance evaluation. Difficulty : 2 Medium Bloom's : Understand Gradable : manual Topic : Using Budgets for Performance Evaluation Accessibility : Screen Reader Compatible

167) Explain the difference between operating budgets, financial budgets, and flexible budgets. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Learning Objective : 16-01 Use budgets for performance evaluation. Difficulty : 2 Medium Bloom's : Understand Gradable : manual Topic : Using Budgets for Performance Evaluation Accessibility : Screen Reader Compatible

168) Explain the difference between the sales volume variance and the production volume variance. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Version 1

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 16-03 Compute and interpret the sales activity variance. Topic : Comparing Budgets and Results Bloom's : Understand Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Gradable : manual Accessibility : Screen Reader Compatible

169) Explain how standards and budgets are different. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 2 Medium Learning Objective : 16-03 Compute and interpret the sales activity variance. Topic : Comparing Budgets and Results Bloom's : Understand Gradable : manual Accessibility : Screen Reader Compatible

170) Explain two reasons why splitting production costs into price and efficiency variances is beneficial for management control.

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171) 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 laborhours (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)

$ 14 12 3 9

Standard cost per unit

$ 38

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128

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 fixed 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

172) 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

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$ 211,680

129

Actual fixed manufacturing overhead cost Actual machine-hours Units produced

$ 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Learning Objective : 16-06 Compute and use fixed cost variances. Topic : Fixed Cost Variances Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

173) 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 3.0 hours per unit

Standard price or rate $ ? per pound $ 10 per 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

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$ 1,375 U $ 375 F $ 4,000 F

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Required:1.For direct materials:2.Compute the standard price per pound of materials. 3.Compute the standard quantity allowed for materials for the month's production. 4.Compute the standard quantity of materials allowed per unit of product. 5.For direct labor:6.Compute the actual direct labor cost per hour for the month. 7.Compute the labor rate variance. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AICPA : FN Measurement Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

174) In the new cost management scheme of things, what are some of the disadvantages of the traditional standard cost system (list at least four)? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static Difficulty : 3 Hard Learning Objective : 16-04 Prepare and use a profit variance analysis. Topic : Profit Variance Analysis as a Key Tool for Managers AACSB : Reflective Thinking Bloom's : Analyze AICPA : BB Critical Thinking Gradable : manual Accessibility : Screen Reader Compatible

175) Megham Company manufactures a single product. The following standards have been developed for it: Direct Material Direct Labor

6 pounds 2 hours

$ 4 per pound $ 15 per 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Type : Static AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 16-05 Compute and use variable cost variances. AACSB : Reflective Thinking AICPA : FN Measurement Bloom's : Apply Topic : Variable Cost Variance Analysis Gradable : manual Accessibility : Screen Reader Compatible

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Answer Key Test name: Lanen7e_ch16 1) FALSE 2) TRUE 3) TRUE 4) TRUE 5) FALSE 6) TRUE 7) TRUE 8) FALSE 9) TRUE 10) FALSE 11) TRUE 12) TRUE 13) TRUE 14) TRUE 15) TRUE 16) TRUE 17) FALSE 18) TRUE 19) FALSE 20) TRUE 21) FALSE 22) B A standard cost system is an option in either. 23) C When evaluating costs, a favorable variance indicates that actual costs are less (not greater) than budgeted costs. Version 1

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24) A The cash budget is a financial budget. 25) B Variances are internal to a company and are useful for decision making as well as performance evaluation. The statement is a basic explanation of a variance. 26) D The simplest measure of performance is the variance, or difference, between actual income and budgeted income. 27) A A favorable variance increases operating profits and an unfavorable variance decreases operating profits, holding all other things constant. 28) B A favorable variance is not necessarily good, and an unfavorable variance is not necessarily bad. 29) C The sales activity variance (also known as the sales volume variance) arises because the actual number of units sold differs from the budgeted number of units. 30) B Operating plans need to be adjusted for actual output. Treating them as static contracts may cause managers to play games. 31) A Standard costing focuses on costs only. Flexible budgeting indicates budgeted revenues, costs, and profits for virtually all feasible levels of activity. 32) D $19,000 + ($0.60 × 12,900) = $26,740 33) D $16,000 + ($0.50 × 12,300) = $22,150 Version 1

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34) C The budget is restated to actual output level, along with the variable costs, to make the budget and actual results comparable. 35) D The master budget is a benchmark, calculated at one specific level of activity, which allows the flexible budget tool to be used, adjusting variable costs, to allow for a comparison of actual and budget amounts. 36) B The slope of the line indicates the additional variable cost per unit as additional units are sold. The line itself is considered the flexible budget line. 37) C This is a carryover from CVP. The fixed cost is the intercept on the y axis. Even at zero activity, fixed costs are incurred. 38) C The cost behavior of a variable unit cost is to remain constant within the relevant range. 39) D (AP × AQ) − (SP × AQ) = ($14,100) − [($210,600 ÷ 156,000) × 11,500] = $14,100 − $15,525 = $1,425 favorable. The variance is favorable because the actual costs were less than the budgeted cost. 40) D (AP × AQ) − (SP × AQ) = ($13,000) − [($180,000 ÷ 144,000) × 10,800] = $13,000 − $13,500 = $500 favorable. The variance is favorable because the actual costs were less than the budgeted cost. 41) B

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Solve for actual variable marketing & administrative costs: $32,000 − $5,000 + $4,250 = $31,250. Sales revenue − Variable manufacturing costs − Variable marketing and administrative = Contribution margin; Sales revenue − $107,750 − $31,250 = $56,000; Sales revenue = $195,000. 42) B Solve for actual variable marketing & administrative costs: $30,000 − $4,000 + $3,250 = $29,250. Sales revenue − Variable manufacturing costs − Variable marketing and administrative = Contribution margin; Sales revenue − $87,750 − $29,250 = $52,000; Sales revenue = $169,000. 43) B Solve for actual variable marketing & administrative costs: $31,800 − $4,900 + $4,150 = $31,050. Sales revenue − Variable manufacturing costs − Variable marketing and administrative = Contribution margin; Sales revenue − $105,750 − $31,050 = $55,600; Sales revenue = $192,400. $192,400 (actual sales revenue) − $14,800 (favorable flexible budget variance) = $177,600 flexible budget sales revenue. 44) B Solve for actual variable marketing & administrative costs: $30,000 − $4,000 + $3,250 = $29,250. Sales revenue − Variable manufacturing costs − Variable marketing and administrative = Contribution margin; Sales revenue − $87,750 − $29,250 = $52,000; Sales revenue = $169,000. $169,000 (actual sales revenue) − $13,000 (favorable flexible budget variance) = $156,000 flexible budget sales revenue. 45) A

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Solve for actual variable marketing & administrative costs: $30,500 − $4,250 + $3,500 = $29,750. Sales revenue − Variable manufacturing costs − Variable marketing and administrative = Contribution margin; Sales revenue − $92,750 − $29,750 = $53,000; Sales revenue = $175,500. $175,500 (actual sales revenue) − $13,500 (favorable flexible budget variance) = $162,000 flexible budget (FB) sales revenue. FB sales revenue − FB variable manufacturing costs − FB variable marketing & admin = FB contribution margin; $162,000 − $96,000 − ($29,750 − $3,500) = $39,750 flexible budget contribution margin. 46) A Solve for actual variable marketing & administrative costs: $30,000 − $4,000 + $3,250 = $29,250. Sales revenue − Variable manufacturing costs − Variable marketing and administrative = Contribution margin; Sales revenue − $87,750 − $29,250 = $52,000; Sales revenue = $169,000. $169,000 (actual sales revenue) − $13,000 (favorable flexible budget variance) = $156,000 flexible budget (FB) sales revenue. FB sales revenue − FB variable manufacturing costs − FB variable marketing & admin = FB contribution margin; $156,000 − $91,000 − ($29,250 − $3,250) = $39,000 flexible budget contribution margin. 47) D

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Solve for actual variable marketing & administrative costs: $30,900 − $4,450 + $3,700 = $30,150. Sales revenue − Variable manufacturing costs − Variable marketing and administrative = Contribution margin; Sales revenue − $96,750 − $30,150 = $53,800; Sales revenue = $180,700. $180,700 (actual sales revenue) − $13,900 (favorable flexible budget variance) = $166,800 flexible budget sales revenue. $166,800/13,900 = $12 sales price per unit; $12 × (13,900 units + 6,050 units) = $239,400 master budget sales revenue. 48) D Solve for actual variable marketing & administrative costs: $30,000 − $4,000 + $3,250 = $29,250. Sales revenue − Variable manufacturing costs − Variable marketing and administrative = Contribution margin; Sales revenue − $87,750 − $29,250 = $52,000; Sales revenue = $169,000. $169,000 (actual sales revenue) − $13,000 (favorable flexible budget variance) = $156,000 flexible budget sales revenue. $156,000 ÷ 13,000 = $12 sales price per unit; $12 × (13,000 units + 2,000 units) = $180,000 master budget sales revenue. 49) C

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Solve for actual variable marketing & administrative costs: $31,400 − $4,700 + $3,950 = $30,650. Sales revenue − Variable manufacturing costs − Variable marketing and administrative = Contribution margin; Sales revenue − $101,750 − $30,650 = $54,800; Sales revenue = $187,200. $187,200 (actual sales revenue) − $14,400 (favorable flexible budget variance) = $172,800 flexible budget sales revenue. $172,800 ÷ 14,400 = $12 sales price per unit; $12 × (14,400 units + 8,300 units) = $272,400 master budget (MB) sales revenue. MB sales revenue − MB variable manufacturing costs − MB marketing & admin = MB contribution margin; $272,400 − $193,200 − $31,400 = $47,800 master budget contribution margin. 50) C Solve for actual variable marketing & administrative costs: $30,000 − $4,000 + $3,250 = $29,250. Sales revenue − Variable manufacturing costs − Variable marketing and administrative = Contribution margin; Sales revenue − $87,750 − $29,250 = $52,000; Sales revenue = $169,000. $169,000 (actual sales revenue) − $13,000 (favorable flexible budget variance) = $156,000 flexible budget sales revenue. $156,000 ÷ 13,000 = $12 sales price per unit; $12 × (13,000 units + 2,000 units) = $180,000 master budget (MB) sales revenue. MB sales revenue − MB variable manufacturing costs − MB marketing & admin = MB contribution margin; $180,000 − $105,000 − $30,000 = $45,000 master budget contribution margin. 51) B $117,600 − $93,000 = $24,600 52) B $105,000 − $91,000 = $14,000 53) A Version 1

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Less was spent than was budgeted so the variance is favorable. 54) C Since the flexible budget is based on actual output, the variation could only come from the selling price. 55) A This is the definition of the sales activity variance. 56) B The sales activity variance uses the budgeted selling price, not the actual selling price. 57) B The sales price variance is derived from the difference between the actual revenue and the budgeted selling price multiplied by the actual number of units sold. 58) B With respect to the fixed production cost variance, fixed costs are not affected by activity levels within a relevant range. 59) B A standard cost sheet is the form providing standard quantities of inputs required to produce a unit of output and the standard prices for the inputs. 60) D A breakdown between price and usage is necessary because the remedies are different, and it's important to determine whether only one or both components need corrective action. 61) D The production department is generally responsible for materials quantity variances and will initially be looked at for correction of this variance. Further investigation may be needed because, for example, the cause of the variance might be a result of purchasing inferior materials. 62) C Version 1

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(AP × AQ) − (SP × AQ) or (AP − SP) × AQ 63) A (SP × AQ) − (SP × SQ) or SP × (AQ − SQ) 64) D The direct labor efficiency variance is derived by comparing the standard price multiplied by the actual quantity of input (SP × AQ) with the standard price multiplied by the standard quantity of direct labor allowed for actual output produced (SP × SQ). 65) A The average pay rate would be higher than standard, but more experienced workers would be more efficient because they have more experience and/or training. 66) B The efficiency variance is based on the difference between actual hours and standard hours. 67) C The production manager is usually responsible for direct labor efficiency variances. Further investigation could reveal that other managers have impacted this variance including the purchasing manager (inferior material) and the facilities manager (dangerous or hostile work environment). 68) C The main focus is the price of the actual items versus the budgeted price, but price can be indirectly impacted by efficiency. 69) A If labor and overhead are both measured in actual hours of labor the two efficiency variances move in the same direction. 70) A Actual price = $572,900 ÷ 168,500 = $3.40; The variance is Favorable because the actual price was lesser than the standard price. Version 1

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71) B Actual price = $304,000 ÷ 160,000 = $1.90; The variance is unfavorable because the actual price was greater than the standard price. 72) D SP × (AQ − SQ) = $2.70 × [$145,500 − (19,400 × 8)] = $26,190. 73) D SP × (AQ − SQ) = $1.80 × [142,500 − (19,000 × 8)] = $17,100 74) A Standard quantity allowed = 19,900 × 8 = 159,200 pounds. Because the actual materials used was more than the standard allowed, the variance was unfavorable. 75) A Standard quantity allowed = 19,000 × 8 = 152,000 pounds. Because the actual materials used was less than the standard allowed, the variance was favorable. 76) D DL rate variance = (AP × AQ) − (SP × AQ) = ($44,000 × 90%) − ($8.40 × 5,020) = $39,600 − $42,168 = $2,568. 77) D DL rate variance = (AP × AQ) − (SP × AQ) = ($42,000 × 90%) − ($8 × 5,000) = $37,800 − $40,000 = $2,200. 78) A Actual wage rate = (54,000 × 90%) ÷ 5,120 = $9.49 per hour. The variance is Favorable because the actual wage rate was less than the standard wage rate. 79) A Actual wage rate = (42,000 × 90%) ÷ 5,000 = $7.56 per hour. The variance is favorable because the actual wage rate was less than the standard wage rate. 80) C Version 1

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DL efficiency variance = SP × (AQ − SQ) = $11.60 × [5,180 − (19,900 × 0.25)] = $2,378. 81) C DL efficiency variance = SP × (AQ − SQ) = $8 × [5,000 − (19,000 × 0.25)] = $2,000. 82) A Standard hours = 19,400 × 0.25 = 4,850. Because the actual hours were lesser than the standard hours, the variance was Favorable. 83) B Standard hours = 19,000 × 0.25 = 4,750. Because the actual hours were greater than the standard hours, the variance was unfavorable. 84) A $14,400 + $2,250 = $16,650 ÷ $2.00 = 8,325 direct labor-hours. 85) A $10,920 + $2,080 = $13,000 ÷ $2.60 = 5,000 direct labor-hours 86) C $34,200 + $520 = $34,720 ÷ $8.00 = 4,340 87) C $8,400 + $500 = $8,900 ÷ $4.00 = 2,225 88) C Actual quantity of materials used = $21,000 + $450 = $21,450 ÷ $6 = 3,575; $21,000 + $450 + $460.00 = $21,910.00 ÷ 3,575 = $6.13 89) C Actual quantity of materials used = $8,400 + $500 = $8,900 ÷ $4.00 = 2,225; $8,400 + $500 + $244.75 = $9,144.75 ÷ 2,225 = $4.11 90) B $135,300 ÷ 41,000 = $3.30 91) B $110,200 ÷ 29,000 = $3.80 92) C Version 1

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(44,000 − 45,000) × SR = −$4,700; SR = $4.70 93) C (29,000 − 30,000) × SR = $4,000; SR = $4.00 94) C 4,200 ÷ 2,000 = 2.10 hours per unit; 2.10 × 1,900 = 3,990 95) C 2,500 ÷ 1,000 = 2.5 hours per unit; 2.5 × 900 = 2,250 96) B Actual rate = ($347,100 ÷ 35,600) = $9.75 per hour; (35,600 − 37,200) × SR = 13,760; SR = $8.60 per hour; ($9.75 − $8.60) × 35,600 = $40,940 97) B Actual rate = ($241,500 ÷ 34,500) = $7 per hour; (34,500 − 35,000) × SR = 3,200; SR = $6.40 per hour; ($7 − $6.40) × 34,500 = $20,700 98) A Because the actual wage rate was lesser than the standard wage rate, the variance is Favorable. Actual rate = ($307,880 ÷ 35,800) = $8.60 per hour; (35,800 − 37,600) × SR = 16,200; SR = $9.00 per hour; ($8.60 − $9.00) × 35,800 = $14,320 Favorable. 99) B Because the actual wage rate was higher than the standard wage rate, the variance is unfavorable. Actual rate = ($241,500 ÷ 34,500) = $7 per hour; (34,500 − 35,000) × SR = 3,200; SR = $6.40 per hour; ($7 − $6.40) × 34,500 = $20,700 unfavorable. 100) D (5,150 − 5,100) × $21 = $1,050 unfavorable 101) D (5,050 − 5,000) × $20 = $1,000 unfavorable 102) B [($2,107 ÷ 430) = $4.90 actual price per hour; ($4.90 − $5.00) × 430 = $43 favorable Version 1

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103) B ($1,209 ÷ 310) = $3.90 actual price per hour; ($3.90 − $4.00) × 310 = $31 favorable 104) C Price variance = (AP − SP) × AQ 105) C A favorable materials price variance indicates that the actual price paid was less than the standard price. Price variance = (AP − SP) × AQ. 106) C A favorable materials price variance indicates that the actual price paid was less than the standard price. Price variance = (AP − SP) × AQ. 107) A An unfavorable materials quantity variance could cause an unfavorable direct labor efficiency variance when more direct labor-hours are needed to process the additional material. 108) B Because both variances are based on direct labor-hours, the variable overhead variance will vary directly with direct labor-hours and the direct labor efficiency variance. 109) B DL rate variance = (AP − SP) × AQ = ($6.00 − $6.20) × 18,000 = $3,600 Favorable. 110) B DL rate variance = (AP − SP) × AQ = ($4.20 − $4.00) × 15,800 = $3,160 unfavorable. 111) A DL Rate variance = (AR − SR) × AQ = $62,900 U; [($481,000/74,000) − SR) × 74,000 = $62,900; SR = $5.65. DL Efficiency variance = SR × (AQ − SQ) = $5,933 F; $5.65 × (74,000 − SH) = $5,933 F; SH = 75,050. Version 1

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112) A DL Rate variance = (AR − SR) × AQ = $41,400 U; [($483,000/69,000) − SR) × 69,000 = $41,400; SR = $6.40. DL Efficiency variance = SR × (AQ − SQ) = $6,400 F; $6.40 × (69,000 − SH) = $6,400 F; SH = 70,000. 113) D The standard unit cost is used for both price and usage variances. The price variance emphasizes the standard price; the usage uses both standard usage and price. 114) D Lower material price may be due to lower quality, causing a higher quantity to be used. 115) D Overtime just changes the wage rate so it would be the labor rate. Workers are not necessarily more or less efficient when working overtime. 116) D The labor rate variance is: (AR × AQ) − (SR × AQ) = ($86,775) − ($118,800 ÷ 13,200 × 9,400) = $2,175 unfavorable. 117) D The labor rate variance is: (AR × AQ) − (SR × AQ) = ($77,775) − ($81,000 ÷ 9,000 × 8,500) = $1,275 unfavorable. 118) D DL efficiency variance = SR × (AH − SH) = $1,170 U; $7.80 × (AH − 2,400) = $1,170 U; AH = 2,550. 119) D DL efficiency variance = SR × (AH − SH) = $1,600 U; $8.00 × (AH − 2,000) = $1,600 U; AH = 2,200. 120) A There is no volume variance when output = planned. Version 1

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121) A $5,500 − $6,000 = $500 favorable 122) A $3,800 − $4,000 = $200 favorable 123) A Because the actual costs of fixed overhead were less than the budgeted fixed overhead costs, the variance is Favorable. 124) A Because the actual costs of fixed overhead were less than the budgeted fixed overhead costs, the variance is favorable. 125) B $5,900 − ($5 × 1,080) = $500 126) B $4,000 − ($4 × 900) = $400 127) A Because fewer units were produced than were budgeted, the production volume variance is Unfavorable. 128) B Because fewer units were produced than were budgeted, the production volume variance is unfavorable. 129) D ($46,000 + $58,000) + $23,000 = $127,000 130) D ($30,000 + $42,000) + $15,000 = $87,000 131) B $52,800 − $49,500 = $3,300 unfavorable 132) B $48,000 − $45,000 = $3,000 unfavorable 133) D $135,000 − [($135,000 ÷ 19,500) × 15,600] = $27,000. Version 1

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134) D $45,000 − [($45,000 ÷ 15,000) × 12,000] = $9,000 135) B Standard hours were less than denominator hours, so the volume variance is unfavorable. 136) B Standard hours were less than denominator hours, so the volume variance is unfavorable. 137) D Fixed production volume variances are affected by changes in production and in general are not controllable to the manager. 138) D Production volume = budget − applied. 139) D The production volume variance is not related to efficiency (volume flowing through the facility); it is related to the capacity of the facility. 140) D Full absorption costing treats fixed production overhead as a product cost and applies it to production. Variable costing treats fixed costs as period costs. 141) D The production volume variance is created when actual outputs do not match the planned outputs. This is less controllable than inputs. 142) B A debit balance would be an unfavorable variance. Since it is efficiency, actual hours must have exceeded standard hours. 143) Actual

Machine set-

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Flexible Flexible Budget Budget Variance 4,800 3,600 1,200 U

Master Budget

Sales Activity Variance 3,800 200 F

149

up Lubricants Utilities Indirect labor Depreciation

24,500 12,000 32,500

26,000 12,600 30,800

1,500 600 1,700

F F U

27,000 13,300 31,400

1,000 700 600

32,500

32,000

500

32,000

106,300

105,000

1,300

107,500

2,500

Master Variable Budget: Machine set- $ 0.20 × 3,800 up 19,000 Lubricants $ 1.00 × 19,000 19,000 Utilities $ 0.70 × 13,300 19,000 Indirect $ 0.60 × 11,400 labor 19,000 Depreciation 0

Fixed

Total

3,800

8,000

27,000

13,300

20,000

31,400

32,000

47,500

60,000

107,500

Flexible Variable Budget: Machine set- $ 0.20 × 3,600 up 18,000 Lubricants $ 1.00 × 18,000 18,000 Utilities $ 0.70 × 12,600 18,000 Indirect $ 0.60 × 10,800 labor 18,000 Depreciation 0

Fixed

Total

3,600

8,000

26,000

12,600

20,000

30,800

32,000

60,000

105,000

Total

45,000

F F F

144) Actual

Units

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21,000

Flexible Budget 21,000

Flexible Budget Variance 0

Master Budget 24,000

Sales Activity Variance 3,000 U

150

Sales

$ 2,016,000 Var Costs 1,500,000 Cont Margin 516,000 Fixed Costs 497,000 Operating Profit

19,000

$ 2,100,000 1,470,000 630,000 500,000

$ 84,000

130,000

$ 300,000 210,000 90,000 0

30,000 114,000 3,000

$ 2,400,000 U 1,680,000 U 720,000 F 500,000

111,000

90,000

220,000

F U

Budgeted sales volume = Actual volume + (Sales Activity Variance − Revenue/Selling price) = 21,000 + (300,000 ÷ 100) = 24,000 units. Master budget sales revenue = 24,000 × $100 = $2,400,000. Master budget fixed cost = $2,400,000 − $1,680,000 = CM $720,000 − $220,000 profit = $500,000. Flexible budget sales revenue = 21,000 × $100 = $2,100,000. Actual sales = $2,100,000 − $84,000 sales price variance = $2,016,000. Variable cost ÷ unit = $1,680,000 ÷ 24,000 = $70 × 21,000 units = $1,470,000. Actual variable costs = $2,016,000 revenue − $516,000 CM = $1,500,000. 145)Standard machine-hours allowed for the actual output = 6.1 × 6,400 = 39,040. Variable overhead rate variance = (AH × AR) − (AH × SR) = $350,628 − (38,730 hours × $8.80 per hour) = $350,628 − $340,824 = $9,804 unfavorable Variable overhead efficiency variance = SR × (AH − SH) = $8.80 per hour × (38,730 hours − 39,040 hours*) = $340,824 − $343,552 = $2,728 favorable *6,400 units × 6.1 hours = 39,040 hours

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146)a.$88,800 − [($13.20 ÷ 3) × 18,500] = $88,800 − [$4.40 × 18,500] = $7,400 unfavorable. b.[18,500 − (3 × 6,000)] × $4.40 = $2,200 unfavorable. c.$75,400 − [$6.00 × ($75,400 ÷ $6.50)] = $5,800 unfavorable. d.[11,600 − (2 × 6,000)] × $6.00 = $2,400 favorable. 147)a.$518,000 − ($3 × 165,000) = $23,000 unfavorable. b.($3 × 165,000) − ($3 × 2 × 80,000) = $15,000 unfavorable. 148)a.$42,340 − (7,300 × $6) = $1,460 favorable b.(7,300 × $6) − [(3,600 × 2) × $6] = $600 unfavorable c.$160,580 − (10,360 × $15) = $5,180 unfavorable d.(10,360 × $15) − [(3,600 × 3) × $15] = $6,600 favorable 149)Lubricants: Variable overhead rate variance = (AH × AR) − (AH × SR) = $211,801 − (38,270 hours × $5.10 per hour) = $211,801 − $195,177 = $16,624 unfavorable Supplies: Variable overhead rate variance = (AH × AR) − (AH × SR) = $107,566 − (38,270 hours × $2.90 per hour) = $107,566 − $110,983 = $3,417 favorable

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150)Indirect labor: Variable overhead rate variance = (AH × AR) − (AH × SR) = $362,756 − (36,530 hours × $9.40 per hour) = $362,756 − $343,382 = $19,374 unfavorable Power: Variable overhead rate variance = (AH × AR) − (AH × SR) = $97,693 − (36,530 hours × $2.90 per hour) = $97,693 − $105,937 = $8,244 favorable 151)a.$10,000 − ($3.00 × 3,400) = $200 favorable b.($3.00 × 3,400) − [$3.00 × (4 × 800)] = $600 unfavorable c.$8,800 − ($2.00 × 4,000) = $800 unfavorable d.($2.00 × 4,000) − ($2.00 × 3,200) = $1,600 unfavorable 152)a.($3.08 − $3.00) × 2,600 = $208 unfavorable b.[2,600 − (3 × 900)] × $3.00 = $300 favorable c.[($7.00 × 2,000) + ($7.25 × 1,400)] − ($7.00 × 3,400) = $350 unfavorable d.[3,400 − (4 × 900)] × $7.00 = $1,400 favorable e.$16,670 − ($3.00 × 3,400) = $6,470 unfavorable f.($3.00 × 3,400) − [$3.00 × (4 × 900)] = $600 favorable g.$8,800 − ($2.00 × 4,000) = $800 unfavorable h.($2.00 × 4,000) − [($2.00 × (4 × 900)] = $800 unfavorable

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153)a.$30.00 − $13.20 − $12.00 = $4.80 per unit or $2.40 per DLH. b.$4.80 × 60,000 = $288,000; Total OH; $0.50 × (2 × 60,000) = $60,000 Variable OH; Budgeted fixed OH = $288,000 − $60,000 = $228,000; per month $228,000 ÷ 12 = $19,000. c.$6,380 − [$0.50 × ($75,400 ÷ $6.50)] = $580 unfavorable. d.($0.50 × 11,600) − [$0.50 × (2 × 6,000)] = $200 favorable. e.$20,400 − ($228,000 ÷ 12) = $1,400 unfavorable. f.($228,000 ÷ 12) − [($228,000 ÷ 120,000) × (2 × 6,000)] = $3,800 favorable. 154)Variable OH rate = $75,000 ÷ 30,000 = $2.50 per DLH; Fixed OH rate = $320,000 ÷ 50,000 = $6.40 per DLH. a.$124,800 − ($2.50 × 48,000) = $4,800 unfavorable; ($2.50 × 48,000) − [$2.50 × (18,500 × 2.5)] = $4,375 unfavorable. b.$321,700 − $320,000 = $1,700 unfavorable; $320,000 − [$6.40 × (18,500 × 2.5)] = $24,000 unfavorable. 155)Fixed OH rate = $160,000 ÷ 100,000 = $1.60 per DLH a.$124,800 − ($1.25 × 96,000) = $4,800 unfavorable; ($1.25 × 96,000) − [$1.25 × (37,000 × 2.5)] = $4,375 unfavorable. b.$158,800 − $160,000 = $1,200 favorable; $160,000 − [$1.60 × (37,000 × 2.5)] = $12,000 unfavorable. 156)Fixed overhead rate: $4,500 ÷ 6,000 = $0.75 per DLH; Variable rate: $2.25 − $0.75 = $1.50. a.(7,000 × $1.50) − (7,500 × $1.50) = $750 favorable. b.Actual fixed overhead: $4,500 + $300 unfavorable spending variance = $4,800; actual variable overhead: $16,000 − $4,800 = $11,200; Price: $11,200 − ($1.50 × 7,000) = $700 unfavorable. c.$4,500 − (7,500 × $0.75) = $1,125 favorable.

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157)Actual variable overhead: $222,200 − $142,700 = $79,500. Fixed overhead rate: $140,000 ÷ 4,000 = $35 per unit. a.(10,360 × $8) − [(3,600 × 3) × $8] = $3,520 favorable. b.$79,500 − (10,360 × $8) = $3,380 favorable. c.$142,700 − $140,000 = $2,700 unfavorable. d.$140,000 − (3,600 × $35) = $14,000 unfavorable. 158)a.$860,000 − ($5 × 180,000) = $40,000 favorable. b.($5 × 180,000) − [$5 × (2 × 80,000)] = $100,000 unfavorable. 159)Fixed overhead rate: $9,000 ÷ 12,000 = $0.75 per DLH; Variable rate: $2.25 − $0.75 = $1.50. a.(14,000 × $1.50) − (15,000 × $1.50) = $1,500 favorable. b.Actual variable overhead: (14,000 × $1.50) + 1,400 unfavorable price variance = $22,400; actual fixed overhead: $32,000 − $22,400 = $9,600; spending: $9,600 − $9,000 = $600 unfavorable. c.$9,000 − (15,000 × $0.75) = $2,250 favorable. 160)a. Labor rate variance = (AH × AR) − (AH × SR) = $20,060 − (1,700 hours × $11.90) = $20,060 − $20,230 = $170 favorable b. Labor efficiency variance = SR (AH − SH) = $11.90 per hour × (1,700 hours − 1,640 hours*) = $20,230 − $19,516 = $714 unfavorable *8.2 hours × 200 units = 1,640 hours c. Journal entry to record the direct labor costs: Work-in-process inventory

19,516

Labor efficiency variance

714

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155

Labor rate variance

170

Wages payable

20,060

161) Work-in-process inventory ($14.70 × 6,240 DLHs*) Labor rate variance (5,990 DLHs × [$14.80 − $14.70]) Labor efficiency variance ($14.70 × [5,990 DLHs − 6,240 DLHs*]) Wages payable ($14.80 × 5,990 DLHs)

91,728 599 3,675 88,652

*2,600 units × 2.4 DLHs = 6,240 DLHs 162)a. Work-in process inventory (6,000 × $13.20)

79,200

Material price variance

7,400

Material efficiency variance

2,200

Accounts payable

88,800

DM Price: $88,800 − [($13.20 ÷ 3) × 18,500] = $88,800 − [$4.40 × 18,500] = $7,400 unfavorable; DM Efficiency: [18,500 − (3 × 6,000)] × $4.40 = $2,200 unfavorable b. Work-in Process inventory (6,000 × $12)

72,000

Direct labor rate variance

5,800

Direct labor efficiency variance

2,400

Wages payable

75,400

DL rate: $75,400 − [$6.00 × ($75,400 ÷ $6.50)] = $5,800 unfavorable, DL efficiency: [11,600 − (2 × 6,000)] × $6.00 = $2,400 favorable 163)a. Work-in process inventory (5,600 × $40.00)

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224,000

156

Material efficiency variance

1,500

Material price variance

750

Accounts payable

224,750

Total material variance $750 unfavorable − $1,500 efficiency = price $750 favorable b. Work-in process inventory (5,600 × $49.20) Direct labor rate variance

275,520

Direct labor efficiency variance

23,780

1,460

Wages payable

300,760

Price: ($300,760 ÷ 36,500 − $8.20) × 36,500 = $1,460 unfavorable; efficiency: [36,500 − (6 × 5,600)] × $8.20 = $23,780 unfavorable 164)a. Variable overhead (actual)

6,380

Fixed overhead (actual)

20,400

Miscellaneous accounts

26,780

b. Work-in process inventory (6,000 × $4.80)

28,800

Variable overhead (applied) (6,000 × 2 × $0.50)

6,000

Fixed overhead (applied) (6,000 × $3.80)

22,800

c. Variable overhead (applied) Variable overhead price variance Variable overhead efficiency variance Variable overhead (actual)

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6,000 580 200 6,380

157

Fixed overhead (applied)

22,800

Fixed overhead price variance

1,400

Fixed overhead production volume variance Fixed overhead (actual)

3,800 20,400

d. Finished goods inventory (6,000 × $30)

180,000

Work-in process inventory

180,000

165)a. Work-in process inventory (4,500 × $13.20)

59,400

Material price variance

3,080

Material efficiency variance

880

Accounts payable

61,600

DM Price: $61,600 − [($13.20 ÷ 3) × 13,300] = $3,080 unfavorable; DM Efficiency: [13,300 − (3 × 4,500)] × $4.40 = $880 favorable b. Work-in process inventory (4,500 × $12.00)

54,000

Direct labor rate variance

2,310

Direct labor efficiency variance

1,440

Wages payable

57,750

DL rate: $57,750 − [$6.00 × ($57,750 ÷ $6.25)] = $2,310 unfavorable, DL efficiency: [($57,750 ÷ $6.25) − (2 × 4,500)] × $6.00 = $1,440 unfavorable. c. Variable Overhead (actual)

4,380

Fixed Overhead (actual)

20,400

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158

Miscellaneous accounts

24,780

d. Work-in process inventory (4,500 × $4.80)

21,600

Variable Overhead (applied) (4,500 × 2 × $0.50)

4,500

Fixed Overhead (applied) (4,500 × $3.80)

17,100

Overhead rates: $30.00 − $13.20 − $12.00 = $4.80; Variable = 2 hour × $0.50 = $1; Fixed $3.80; Fixed overhead: $4.80 × 60,000 = $288,000; Total OH; $0.50 × (2 × 60,000) = $60,000 Variable OH; Budgeted Fixed OH = $288,000 − $60,000 = $228,000 ÷ 12 = $19,000 per month. e. Variable Overhead (applied) Variable Overhead efficiency variance

4,500 120

Variable Overhead price variance

240

Variable Overhead (actual)

4,380

Fixed Overhead (applied)

17,100

Fixed Overhead price variance

1,400

Fixed Overhead production volume variance

1,900

Fixed Overhead (actual)

20,400

Variable price: $4,380 − ($0.50 × 9,240) = $240 favorable; variable efficiency: ($0.50 × 9,240) − [$0.50 × (2 × 4,500)] = $120 unfavorable Fixed price: $20,400 − ($228,000 ÷ 12) = $1,400 unfavorable; fixed prod volume: ($228,000 ÷ 12) − [($228,000 ÷ 120,000) × (2 × 4,500)] = $1,900 unfavorable f. Finished goods inventory (4,500 × $30) Work-in process inventory

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135,000 135,000

159

166)Variance analysis is used to: (1) evaluate the performance of individuals and business units and (2) identify possible sources of deviations between budgeted and actual performance. 167)Operating budgets and financial budgets are part of the master budget and are prepared for a single activity level. The operating budgets include the budgeted income statement, the production budget, and the cost of goods sold budget and reflect the organization's operations. Financial budgets forecast the financial resources and needs due to the operating budget and include the cash budget and the budgeted balance sheet. A flexible budget on the other hand is an after the fact budget that is adjusted for the actual level of output. 168)The sales activity or sales volume variance measures the difference between budgeted profits on the master budget versus budgeted profits at the actual sales output level. The variance is due solely to the difference in the sales volume. The production volume variance is the difference between actual production in units and the capacity used to develop the fixed overhead rates. The production volume variance is due to production volume differences, not sales volume differences. Furthermore, the sales volume variance is measuring a difference in profits while the production volume variance is measuring a difference in fixed costs only. 169)Standards are an estimate of what a unit should cost to produce, given efficient operating conditions. Standards are normally developed on a per unit basis. Budgets are based on an expected level of activity and present the results of plans.

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170)One reason is there are different causes of a price variance than there are for an efficiency variance. By splitting the costs into the two separate variances, there is more information as to why the variance may have occurred. A second reason is different managers are responsible for the different variances. Purchasing is normally responsible for material price variances while the production manager is responsible for efficiency variances.

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161

171)a. Direct materials price and quantity variances: Materials price variance = AQ(AP − SP) = 70,200 yards ($3.75 per yard × $3.50 per yard) = $263,250 − $245,700 = $17,550 unfavorable Materials quantity variance = SP(AQ − SQ) = $3.50 per yard (70,200 yards − 72,000 yards*) = $245,700 − $252,000 = $6,300 favorable *18,000 units × 4 yards = 72,000 yards b. Direct labor rate and efficiency variances: Labor rate variance = AH(AR − SR) = 29,250 hours ($7.80 per hour − $8 per hour) = $228,150 − $234,000 = $5,850 favorable Labor efficiency variance = SR(AH − SH) = $8 per hour (29,250 hours − 27,000 hours*) = $234,000 − $216,000 = $18,000 unfavorable *18,000 units × 1.5 hours = 27,000 DLH c. Computation of variable overhead variances: Variable overhead rate variance = (AH × AR) − (AH × SR) = $61,425 − (29,250 hours × $2 per hour) = $61,425 − $58,500 = $2,925 unfavorable Variable overhead efficiency variance = SR(AH − SH) = $2 per hour (29,250 hours − 27,000 hours) = $58,500 − $54,000 = $4,500 unfavorable *18,000 units × 1.5 hours = 27,000 DLH Version 1

162

d. Computation of the fixed manufacturing overhead variances: Budget variance = Actual fixed overhead − Budgeted fixed overhead cost = $133,200 − $135,000 = $1,800 favorable Volume variance = Budgeted fixed overhead cost − Fixed overhead applied to work in process = $135,000 − (27,000 hours × $6 per MH*) = $135,000 − $162,000 = $27,000 favorable *18,000 units × 1.5 hours = 27,000 hours

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163

172)a. Predetermined variable overhead rate = $1.75 MH (given) Predetermined fixed overhead rate = $300,000 ÷ 150,000 MH = $2 hour b. Variable overhead rate variance = AH(AR − SR) = 126,000 ($1.68 per hour* − $1.75 per hour) = $211,680 − $220,500 = $8,820 favorable * $211,680 ÷ 126,000 MHs = $1.68 per machine hour Variable overhead efficiency variance = SR(AH − SH) = $1.75 per hour (126,000 hours − 120,000 hours*) = $220,500 − $210,000 = $10,500 unfavorable *120,000 units × 1 hour = 120,000 hours c. Budget variance = Actual fixed overhead − Budgeted fixed overhead cost = $315,000 − $300,000 = $15,000 favorable Volume variance = Budgeted fixed overhead cost − Fixed overhead applied to work in process = $2 per hour (150,000 hours − 120,000 hours) = $300,000 − $240,000 = $60,000 unfavorable

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173)1.2. Materials Price Variance = AQ(AP − SP) 7,000 pounds ($2.50** − SP) = $1,750 F* $17,500 − 7,000 pounds × SP = $(1,750) 7,000 pounds × SP = $19,250 SP = $2.75 * $1,375U + $375 F = $1,750 F ** 17,500 ÷ 7,000 pounds = $2.50 per pound 3. Materials Quantity Variance = SP (AQ − SQ) $2.75 (7,000 pounds − SQ) = $1,375 U $19,250 − $2.75 × SQ = $1,375 $2.75 × SQ = $17,875 SQ = 6,500 pounds 4. 6,500 pounds ÷ 1,300 units = 5 pounds per unit. 5.6. Labor Efficiency Variance = SR(AH − SH) $10 (AH − 3,900*) = $4,000 F $(4,000) = $10 × AH − $39,000; $10 × AH = $35,000 AH = 3,500 *1,300 units × 3 hours per unit = 3,900 hours. 7. Labor Rate Variance = AH(AR − SR) = 3,500 ($10.50* − $10.00) = $1,750 U. *$36,750 total labor cost ÷ 3,500 hours = $10.50 per hour.

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165

174)(1) The variances are too aggregated and are not timely enough to be useful. (2) The variances are too aggregated in that they are not tied to specific product lines, production batches, or flexible manufacturing system cells. (3) There is too much focus on the cost and efficiency of direct labor which is becoming a relatively insignificant factor of production. (4) Successful standard cost systems rely on stable production processes. Under flexible manufacturing systems this stability is reduced because of frequent switching among a variety of products on the same production line. (5) The standards are relevant for only a short time because of shorter product life cycles. (6) Traditional standard costing systems tend to focus too much on cost minimization, rather than on increasing product quality or customer service. (7) Variances from standards tend to be small or nonexistent under automated manufacturing processes. (8) Traditional standard costs are not defined broadly enough to capture various important aspects of performance, e.g., the costs of ownership for direct materials.

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175)1. 1. (a) $4,000 unfavorable = [$4 × (13,000 − (6 × 2,000))] 2. (b) $3,500 unfavorable = $56,000 − ($15 × 3,500) 3. (c) $7,500 favorable = [$15 × (3,500 − (2 × 2,000))] 2. 1. (a) Low quality materials, less efficient machinery, theft. 2. (b) Higher skilled workers, workers with greater seniority and higher wages. 3. (c) Higher skilled workers, workers with greater seniority (more experience), higher quality materials, more efficient machinery.

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167

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The variable production cost variances are computed using the units produced instead of the units sold. ⊚ true ⊚ false Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 17-01 Explain how to prorate variances to inventories and cost of goods sold. Topic : Profit Variance Analysis When Units Produced Do Not Equal Units Sold Gradable : automatic

2) If variances are not prorated at the end of the accounting period, they are closed to the Cost of Goods Sold account. ⊚ true ⊚ false Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 17-01 Explain how to prorate variances to inventories and cost of goods sold. Topic : Profit Variance Analysis When Units Produced Do Not Equal Units Sold Gradable : automatic

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. ⊚ true ⊚ false

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 17-01 Explain how to prorate variances to inventories and cost of goods sold. Topic : Profit Variance Analysis When Units Produced Do Not Equal Units Sold Difficulty : 2 Medium Gradable : automatic Bloom's : Understand

4) The direct materials purchase price variance is based on the quantity of materials purchased when the quantity purchased is different from the quantity used. ⊚ true ⊚ false Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq Gradable : automatic Topic : Materials Purchases Do Not Equal Materials Used

5) The market share variance is more controllable by the marketing department than the industry volume variance. ⊚ true ⊚ false

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Topic : Market Share Variance and Industry Volume Variance Learning Objective : 17-03 Use market share variances to evaluate marketing performance. Gradable : automatic

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. ⊚ true ⊚ false Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Topic : Market Share Variance and Industry Volume Variance Difficulty : 2 Medium Learning Objective : 17-03 Use market share variances to evaluate marketing performance. Gradable : automatic Bloom's : Understand

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. ⊚ true ⊚ false

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Topic : Market Share Variance and Industry Volume Variance Difficulty : 2 Medium Learning Objective : 17-03 Use market share variances to evaluate marketing performance. Gradable : automatic Bloom's : Understand

8) The general approach in variance analysis is to separate the variance into components based on a budgeting formula. ⊚ true ⊚ false Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Topic : Market Share Variance and Industry Volume Variance Difficulty : 2 Medium Learning Objective : 17-03 Use market share variances to evaluate marketing performance. Gradable : automatic Bloom's : Understand

9) If a company sells two products, it is possible for both products to have a favorable sales mix variance. ⊚ true ⊚ false

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. Gradable : automatic Bloom's : Understand

10) The sales quantity variance is the same as the sales activity variance on a flexible budget performance report. ⊚ true ⊚ false Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. Gradable : automatic Bloom's : Understand

11) If a company sells two products, it is possible for both products to have an unfavorable sales quantity variance. ⊚ true ⊚ false

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12)

The production yield variance is conceptually the same as the sales quantity variance. ⊚ true ⊚ false

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Gradable : automatic Bloom's : Understand

13) The production mix variance measures the impact of substituting one material for another material during the production process. ⊚ true ⊚ false

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Gradable : automatic

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. ⊚ true ⊚ false Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Bloom's : Analyze Gradable : automatic

15) The basic variance analysis framework used for manufacturing companies can also be used in service organizations. ⊚ true ⊚ false

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Topic : Variance Analysis in Nonmanufacturing Settings Learning Objective : 17-06 Apply the variance analysis model to nonmanufacturing costs. Gradable : automatic

16)

Labor variances are more important than material variances in service organizations. ⊚ true ⊚ false

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Variance Analysis in Nonmanufacturing Settings Learning Objective : 17-06 Apply the variance analysis model to nonmanufacturing costs. Gradable : automatic Bloom's : Understand

17) Professional accounting firms could not compute a labor mix and labor yield variance for their auditors because labor in accounting is not substitutable. ⊚ true ⊚ false

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Topic : Variance Analysis in Nonmanufacturing Settings Learning Objective : 17-06 Apply the variance analysis model to nonmanufacturing costs. Gradable : automatic

18) Output is usually defined as sales units in merchandising, but service organizations use measures of activity units, like patient days. ⊚ true ⊚ false Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Topic : Variance Analysis in Nonmanufacturing Settings Learning Objective : 17-06 Apply the variance analysis model to nonmanufacturing costs. Gradable : automatic

19) Two important characteristics to consider when deciding how many variances to review are the impact of the variance and the extent to which the variance can be controlled. ⊚ true ⊚ false

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Topic : Keeping an Eye on Variances and Standards Gradable : automatic Learning Objective : 17-07 Determine which variances to investigate.

20) The only variances that should be investigated are those for which the expected benefits of correction exceed the costs of investigating and correcting. ⊚ true ⊚ false Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Topic : Keeping an Eye on Variances and Standards Gradable : automatic Learning Objective : 17-07 Determine which variances to investigate.

21) Some variances are the result of accounting errors and omissions, including timing differences. ⊚ true ⊚ false

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Topic : Keeping an Eye on Variances and Standards Gradable : automatic Learning Objective : 17-07 Determine which variances to investigate.

22) Some variances are the result of standards that are inaccurate or do not reflect the current production process. ⊚ true ⊚ false Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Topic : Keeping an Eye on Variances and Standards Gradable : automatic Learning Objective : 17-07 Determine which variances to investigate.

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 23) Which of the following statements is false?

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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. C) Full absorption costing will not have a production volume variance because full absorption costing expenses all fixed costs. D) Variances that are not prorated are treated as period costs and expensed.

24)

Standards are estimates and should be based upon: A) perfect performance. B) an average of past conditions. C) the most likely level of performance. D) current conditions.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Topic : Keeping an Eye on Variances and Standards Gradable : automatic Learning Objective : 17-07 Determine which variances to investigate.

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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.

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Learning Objective : 17-01 Explain how to prorate variances to inventories and cost of goods sold. Gradable : automatic Topic : Materials Purchases Do Not Equal Materials Used

27)

Which of the following statements is true?

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. C) Variable production cost variances are calculated by multiplying units produced by the difference between actual variable cost and standard variable cost. D) The variable production cost variances are computed using the units sold instead of the units produced.

28) If raw materials are carried in Materials Inventory at standard cost, then it is reasonable to assume that the:

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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.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq Difficulty : 2 Medium Gradable : automatic Topic : Materials Purchases Do Not Equal Materials Used Bloom's : Understand

29) Ingredient A12H is a material used to make Calvin Corporation's major product. The standard cost of Ingredient A12H is $41.00 per ounce and the standard quantity is 21.8 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

$ 41.10 3,200 2,300 780

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) $131,200. B) $697,164. C) $94,300. D) $131,520.

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq AICPA : FN Measurement Gradable : automatic Topic : Materials Purchases Do Not Equal Materials Used Type : Algorithmic

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 debit to the Materials Inventory account for October would total: A) $52,900. B) $52,440. C) $48,760. D) $53,130.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq AICPA : FN Measurement Gradable : automatic Topic : Materials Purchases Do Not Equal Materials Used

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31) Ingredient A12H is a material used to make Calvin Corporation's major product. The standard cost of Ingredient A12H is $36.00 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

$ 36.10 2,950 2,250 730

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) $99,864. B) $81,000. C) $106,200. D) $106,495.

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 credit to the Materials Inventory account for October would total: Version 1

A) $52,440. B) $48,760. C) $52,900. D) $53,130.

33) Ingredient A12H is a material used to make Calvin Corporation's major product. The standard cost of Ingredient A12H is $35.00 per ounce and the standard quantity is 15.8 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

$ 35.10 2,900 2,240 720

per ounce ounces ounces units

The material was purchased on account and Calvin Corporation uses a standard costing system. The Materials Price Variance for October would be recorded as a: A) debit of $290. B) credit of $224. C) debit of $224. D) credit of $290.

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34) 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 Materials 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.

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35) Ingredient A12H is a material used to make Calvin Corporation's major product. The standard cost of Ingredient A12H is $30.00 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

$ 30.10 2,650 2,190 670

per ounce ounces ounces units

The material was purchased on account and Calvin Corporation uses a standard costing system. The Materials Efficiency Variance for October would be recorded as a: A) credit of $10,680. B) debit of $13,800. C) credit of $13,800. D) debit of $10,680.

36) 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 Materials Efficiency Variance for October would be recorded as a: Version 1

A) credit of $3,680. B) debit of $4,140. C) credit of $4,140. D) debit of $3,680.

37) Ingredient B4376 is used to make Razor Corporation's major product. The standard cost of Ingredient B4376 is $26.50 per ounce and the standard quantity is 10.1 ounces per unit of output. In the most recent month, 5,110 ounces of the compound were used to make 500 units of the output. When recording the use of materials in production under a standard costing system, Materials Inventory would be: A) credited for $135,415. B) debited for $135,415. C) debited for $133,825. D) credited for $133,825.

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38) 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.

39) Barium Corporation has provided the following data concerning its most important raw material, Compound XYY2: Standard cost

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$ 25.00 per liter

Standard quantity Material used in production in August Actual output in August

5.1 liters per unit of output 2,410 liters 460 units

When recording the use of materials in production under a standard costing system, Materials Inventory would be: A) debited for $60,250. B) debited for $58,650. C) credited for $60,250. D) credited for $58,650.

40) 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 per liter 5.7 liters per unit of output 2,350 liters 400 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.

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41) 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.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq Difficulty : 2 Medium AICPA : FN Measurement AACSB : Reflective Thinking Gradable : automatic Topic : Materials Purchases Do Not Equal Materials Used Bloom's : Understand

42) 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

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33,000 21,500

units units

You find a copy of the budget which shows that materials were budgeted at $0.50 per unit. You know that the materials 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: Materials price variance Materials efficiency variance

$ 330 F $ 1,250 F

What was the total actual cost of the direct materials purchased during May? A) $10,750 B) $16,170 C) $16,500 D) $16,830

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq AICPA : FN Measurement Bloom's : Analyze Gradable : automatic Topic : Materials Purchases Do Not Equal Materials Used Type : Algorithmic

43) 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

20,000 15,000

units units

You find a copy of the budget which shows that materials were budgeted at $0.60 per unit. You know that the materials 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: Materials price variance Materials efficiency variance

$ 200 F $ 600 F

What was the total actual cost of the direct materials purchased during May?

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A) $9,000 B) $11,800 C) $12,000 D) $12,200

44) 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 they did. In reviewing the records, you find the following information for May: Materials Purchased Materials Used

29,000 19,500

units units

$ 290 F $ 1,050 F

What was the total standard cost of direct materials purchased during May? A) $9,895 B) $14,210 C) $14,500 D) $14,790

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45) 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 they did. In reviewing the records, you find the following information for May: Materials Purchased Materials Used

20,000 15,000

units units

$ 200 $ 600

F F

What was the total standard cost of direct materials purchased during May? A) $9,150 B) $11,800 C) $12,000 D) $12,200

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46) 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

36,000 23,000

units units

$ 360 F $ 1,400 F

What was the total standard cost of direct materials allowed during May? A) $12,193 B) $12,400 C) $14,947 D) $15,200

47) 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

Version 1

23,000 16,500

units units

$ 230 $ 750

F F

What was the total standard cost of direct materials allowed during May? A) $7,350 B) $7,500 C) $8,820 D) $9,000

48) 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

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49)

Which of the following statements is 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. C) The industry volume variance is likely a better measure of marketing department performance than the market share variance. D) If the industry volume variance is favorable, the market share variance must also be favorable.

50)

The sales activity variance is equal to the sum of the market share variance and the:

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A) selling price variance. B) industry volume variance. C) sales quantity variance. D) sales mix variance.

51) Using the abbreviations listed below, what is the formula for the industry volume variance? AMS = actual market share BMS = budgeted market share SCM = standard 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 × SCM C) (AMS − BMS) × ATM × ACM D) (AMS − BMS) × ATM × SCM

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Topic : Market Share Variance and Industry Volume Variance Difficulty : 2 Medium Learning Objective : 17-03 Use market share variances to evaluate marketing performance. AICPA : FN Measurement Gradable : automatic Bloom's : Understand

52) Using the abbreviations listed below, what is the market share variance? AMS = actual market share BMS = budgeted market share SCM = standard 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 × SCM C) (AMS − BMS) × ATM × ACM D) (AMS − BMS) × ATM × SCM

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53) The budget for a given cost during a given period was $88,000. The actual cost for the period was $74,800. 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 85% of budgeted production. B) the cost is variable and actual production equals budgeted production. C) the cost is variable and actual production was 75% of budgeted production. D) the cost is a discretionary fixed cost and actual production equals budgeted production.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 17-01 Explain how to prorate variances to inventories and cost of goods sold. Topic : Profit Variance Analysis When Units Produced Do Not Equal Units Sold Difficulty : 3 Hard Bloom's : Analyze Gradable : automatic Type : Algorithmic

54) 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.

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55) 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) Actual Results Sales (units)

11,350

Revenue (sales) Variable costs Contribution margin Fixed costs

$ 215,700 125,900 $ 89,800

Operating Income

$ 13,600

76,200

Flexible Budget Variances 0 $ 11,300 U 12,400 U $ 23,700 U 0 $ 23,700 U

Flexible Budget 11,350

Static (Master) Budget 12,700

$ 227,000 113,500 $ 113,500

$ 254,000 127,000 $ 127,000

76,200

$ 37,300

$ 50,800

The sales activity variance is: A) $27,000 favorable. B) $27,000 unfavorable. C) $12,400 favorable. D) $11,300 unfavorable.

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking Learning Objective : 17-01 Explain how to prorate variances to inventories and cost of goods sold. Topic : Profit Variance Analysis When Units Produced Do Not Equal Units Sold Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic Type : Algorithmic

56) 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) Actual Results Sales (units)

Flexible Budget Variances

11,000

—0—

Revenue (sales) Variable costs Contribution margin Fixed costs

$ 208,000 121,000 $ 87,000

$ 12,000 11,000 $ 23,000

72,000

—0—

Operating Income

$ 15,000

$ 23,000

U U U

Flexible Budget 11,000

Static (Master) Budget 12,000

$ 220,000 110,000 $ 110,000

$ 240,000 120,000 $ 120,000

72,000

$ 38,000

$ 48,000

The sales activity variance is: A) $20,000 favorable. B) $20,000 unfavorable. C) $11,000 favorable. D) $12,000 unfavorable.

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 17-01 Explain how to prorate variances to inventories and cost of goods sold. Topic : Profit Variance Analysis When Units Produced Do Not Equal Units Sold Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : automatic

57) 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. Actual

Budget

Dresses sold Sales Variable costs Contribution margin Fixed Costs

2,750 $ 249,000 (152,000) $ 97,000 (86,800)

3,350 $ 328,000 (194,000) 134,000 (87,000)

Operating income

$ 10,200

$ 47,000

The effect of the sales activity variance on the contribution margin for November is: A) $37,000 unfavorable. B) $22,000 unfavorable. C) $24,000 unfavorable. D) $21,250 unfavorable.

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58) 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. Actual Dresses sold Sales Variable costs Contribution margin Fixed Costs Operating income

Budget

5,000 $ 235,000 (145,000) $ 90,000 (84,000)

6,000 $ 300,000 (180,000) 120,000 (80,000)

$ 6,000

$ 40,000

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.

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59) 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. Actual Dresses sold Sales Variable costs Contribution margin Fixed Costs Operating income

Budget

5,360 $ 251,920 (155,440) $ 96,480 (90,048)

6,432 $ 321,600 (192,960) 128,640 (85,400)

$ 6,432

$ 43,240

The sales price variance for November is: A) $32,160 unfavorable. B) $19,080 unfavorable. C) $21,080 unfavorable. D) $16,080 unfavorable.

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60) 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. Actual Dresses sold Sales Variable costs Contribution margin Fixed Costs Operating income

Budget

5,000 $ 235,000 (145,000) $ 90,000 (84,000)

6,000 $ 300,000 (180,000) 120,000 (80,000)

$ 6,000

$ 40,000

The sales price variance for November is: A) $30,000 unfavorable. B) $18,000 unfavorable. C) $20,000 unfavorable. D) $15,000 unfavorable.

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61) 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. Actual

Budget

Dresses sold Sales Variable costs Contribution margin Fixed Costs

5,700 $ 307,800 (165,300) $ 142,500 (105,000)

6,840 $ 437,760 (205,200) 232,560 (94,000)

Operating income

$ 37,500

$ 138,560

The variable costs flexible budget variance for November is: A) $5,700 favorable. B) $5,700 unfavorable. C) $4,700 favorable. D) $4,700 unfavorable.

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62) 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. Actual Dresses sold Sales Variable costs Contribution margin Fixed Costs Operating income

Budget

5,000 $ 235,000 (145,000) $ 90,000 (84,000)

6,000 $ 300,000 (180,000) 120,000 (80,000)

$ 6,000

$ 40,000

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.

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63) Danner Fashions sells a line of women's dresses. Danner's performance report for November is shown below: 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. Actual Dresses sold Sales Variable costs Contribution margin Fixed Costs Operating income

Budget

5,000 $ 235,000 (145,000) $ 90,000 (84,000)

6,000 $ 300,000 (180,000) 120,000 (80,000)

$ 6,000

$ 40,000

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.

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64) 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

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. Gradable : automatic

65) Actual and budgeted information about the sales of a product are presented below for June: (CIA adapted) Actual Units Sales Revenue

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8,900 $ 182,450

Budget 10,900 $ 212,550

The sales price variance for June was: A) $8,900 favorable. B) $8,900 unfavorable. C) $10,900 unfavorable. D) $11,400 unfavorable.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 17-01 Explain how to prorate variances to inventories and cost of goods sold. Topic : Profit Variance Analysis When Units Produced Do Not Equal Units Sold Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Type : Algorithmic

66) Actual and budgeted information about the sales of a product are presented below for June: (CIA adapted) Actual Units Sales Revenue

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.

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 17-01 Explain how to prorate variances to inventories and cost of goods sold. Topic : Profit Variance Analysis When Units Produced Do Not Equal Units Sold Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

67) 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

68)

The sales mix variance would be:

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A) favorable when a company sells relatively more of the products that have a lower standard contribution margin per unit. B) favorable when a company sells relatively more of the products that have a higher standard contribution margin per unit. C) unfavorable when a company sells relatively fewer of the products that have a lower standard contribution margin per unit. D) unfavorable when a company sells relatively more of the products that have a higher standard contribution margin per unit.

69)

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) fewer total units than budgeted, holding the sales mix constant.

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70)

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

Product R

40% $ 64

60% $ 52

$ 40

$ 32

Total 100%

130,000 60%

40%

100% $ 88,000

What is the total sales mix variance? A) $1,144,000 B) $624,000 C) $520,000 D) $104,000

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. AICPA : FN Measurement Gradable : automatic Type : Algorithmic

71)

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

Product R

40% $ 48

60% $ 36

$ 32

$ 24

Total 100%

126,000 60%

40%

100% $ 80,000

What is the total sales mix variance? A) $705,600 B) $403,200 C) $302,400 D) $100,800

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. AICPA : FN Measurement Gradable : automatic

72) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Deluxe

8,760 $ 9,900 $ 7,920

2,190 $ 13,900 $ 10,425

Actual sales were 7,665 basic models and 3,085 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) $1,772,100 B) $2,168,100 C) $15,176,700 D) $17,344,800

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73) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Deluxe

8,000 $ 8,000 $ 6,400

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 basic model? A) $1,280,000 B) $1,600,000 C) $11,200,000 D) $12,800,000

74) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

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9,600 $ 8,800 $ 7,680

Deluxe 2,400 $ 12,800 $ 9,600

Actual sales were 8,600 basic models and 3,200 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 C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. Bloom's : Analyze Gradable : automatic Type : Algorithmic

75) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

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 C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. Bloom's : Analyze Gradable : automatic

76) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Deluxe

8,280 $ 8,700 $ 6,960

2,070 $ 12,700 $ 9,525

Actual sales were 7,245 basic models and 2,905 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) $414,000 B) $864,225 C) $1,800,900 D) $2,651,125

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77) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Deluxe

8,000 $ 8,000 $ 6,400

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

78) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

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10,400 $ 8,060 $ 8,320

Deluxe 2,600 $ 12,060 $ 9,900

Actual sales were 9,400 basic models and 3,400 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 C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

79) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

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 C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. Bloom's : Analyze Gradable : automatic

80) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Deluxe

12,500 $ 9,800 $ 7,840

3,125 $ 13,800 $ 9,900

Actual sales were 11,500 basic models and 4,600 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? Note: Round your intermediate calculations to 2 decimal places. A) $515,000 B) $2,704,800 C) $3,220,000 D) $5,071,500

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81) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Deluxe

8,000 $ 8,000 $ 6,400

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

82) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Version 1

9,600 $ 8,800 $ 7,680

Deluxe 2,400 $ 12,800 $ 9,600

Actual sales were 8,600 basic models and 3,200 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 C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

83) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

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 C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Version 1

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. Bloom's : Analyze Gradable : automatic

84) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Deluxe

8,520 $ 9,300 $ 7,440

2,130 $ 13,300 $ 9,975

Actual sales were 7,455 basic models and 2,995 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) $133,000 B) $297,600 C) $1,683,300 D) $1,980,900

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85) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Deluxe

8,000 $ 8,000 $ 6,400

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

86) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Version 1

11,400 $ 9,700 $ 9,120

Deluxe 2,850 $ 13,700 $ 10,275

Actual sales were 12,400 basic models and 2,050 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) Unfavorable B) Favorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

87) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

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 C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Version 1

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. Bloom's : Analyze Gradable : automatic

88) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Deluxe

11,800 $ 9,900 $ 9,440

2,950 $ 13,900 $ 10,900

Actual sales were 8,900 basic models and 4,700 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) $2,772,000 B) $3,168,000 C) $5,657,000 D) $5,940,000

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89) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Deluxe

8,000 $ 8,000 $ 6,400

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

90) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Version 1

11,000 $ 9,500 $ 8,800

Deluxe 2,750 $ 13,500 $ 10,125

Actual sales were 12,000 basic models and 1,950 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) Unfavorable B) Favorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

91) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

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 C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Version 1

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. Bloom's : Analyze Gradable : automatic

92) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Deluxe

9,800 $ 8,900 $ 7,840

2,450 $ 12,900 $ 9,900

Actual sales were 7,900 basic models and 3,700 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) $390,000 B) $832,000 C) $4,368,000 D) $5,200,000

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93) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Deluxe

8,000 $ 8,000 $ 6,400

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

94) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

Version 1

8,600 $ 8,300 $ 6,880

Deluxe 2,150 $ 12,300 $ 9,225

Actual sales were 9,600 basic models and 1,350 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) Unfavorable B) Favorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

95) A machine distributor sells two models, basic and deluxe. The following information relates to its master budget. Basic Sales (units) Sales price per unit Variable costs per unit

8,000 $ 8,000 $ 6,400

Deluxe 2,000 $ 12,000 $ 9,000

Version 1

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. Bloom's : Analyze Gradable : automatic

96)

The Vargas Company had the following expectations for the year:

Budgeted results for the year were: Total market for the product Vargas' budgeted sales

195,000 units $ 2,085,525

Variable costs per unit

$ 19.75

Selling price per unit

$ 34.50

Actual results for the year were: Total market for the product Vargas’s actual sales

185,250 units 62,985

Total Variable costs

$ 1,196,715

Total sales

$ 1,952,535

What is Vargas' industry volume variance? Note: Do not round intermediate calculations. A) $44,581.88. B) $48,896.25. C) $39,780.00. D) $398,970.00.

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Market Share Variance and Industry Volume Variance Learning Objective : 17-03 Use market share variances to evaluate marketing performance. AICPA : FN Measurement Gradable : automatic Type : Algorithmic

97)

The Vargas Company had the following expectations for the year:

Budgeted results for the year were: Total market for the product Vargas' budgeted sales

175,000 $ 1,763,125

Variable costs per unit

$ 18.75

Selling price per unit

$ 32.50

Actual results for the year were: Total market for the product Vargas’s actual sales

166,250 56,525

Total Variable costs

$ 1,073,975

Total sales

$ 1,752,275

units

What is Vargas' industry volume variance? A) $37,296.88 B) $40,906.25 C) $35,700.00 D) $32,550.00

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Market Share Variance and Industry Volume Variance Learning Objective : 17-03 Use market share variances to evaluate marketing performance. AICPA : FN Measurement Gradable : automatic

98)

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

175,000 $ 1,763,125

Variable costs per unit

$ 18.75

Selling price per unit

$ 32.50

units

Actual results for the year were: Total market for the product Vargas’s actual sales Total Variable costs

166,250 units 56,525 units $ 1,073,975

Total sales

$ 1,752,275

Is the industry volume variance favorable or unfavorable? A) Unfavorable B) Favorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Version 1

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Market Share Variance and Industry Volume Variance Learning Objective : 17-03 Use market share variances to evaluate marketing performance. Bloom's : Analyze Gradable : automatic

99)

The next year's budget for Trend, Incorporated, a multi-product company, is given below: Product A

Sales Variable costs Fixed costs Net income

Product B

$ 1,896,000 929,100 506,000

$ 1,383,000 598,500 506,000

$ 460,900

$ 278,500

255,000

111,000

Units

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, Incorporated analyzes the effects its sales variances have on the profitability of the company. Product Lines A B

Units 259,230 114,970

Sales $ 1,854,579 $ 1,491,010

What is the total sales price variance? Note: Do not round intermediate calculations. A) $14,326.35 B) $58,545.95 C) $72,872.29 D) $131,418.24

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100)

The next year's budget for Trend, Incorporated, a multi-product company, is given below: Product A

Sales Variable costs Fixed costs Net income

Product B

$ 1,890,000 926,100 500,000

$ 1,377,000 596,700 500,000

$ 463,900

$ 280,300

252,000

108,000

Units

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

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101)

The next year's budget for Trend, Incorporated, a multi-product company, is given below: Product A

Sales Variable costs Fixed costs

Product B

$ 2,296,800 950,100 740,000

$ 1,602,000 620,700 740,000

Net income

606,700

241,300

Units

264,000

120,000

Units 271,230 131,770

Sales $ 2,305,455 $ 1,792,072

Is the total sales price variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 17-01 Explain how to prorate variances to inventories and cost of goods sold. Topic : Profit Variance Analysis When Units Produced Do Not Equal Units Sold Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Type : Algorithmic

102)

The next year's budget for Trend, Incorporated, a multi-product company, is given below: Product A

Sales Variable costs Fixed costs

Product B

$ 1,890,000 926,100 500,000

$ 1,377,000 596,700 500,000

Net income

463,900

280,300

Units

252,000

108,000

Units 253,230 113,770

Sales $ 1,848,579 $ 1,479,010

Version 1

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 17-01 Explain how to prorate variances to inventories and cost of goods sold. Topic : Profit Variance Analysis When Units Produced Do Not Equal Units Sold Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

103)

The next year's budget for Trend, Incorporated, a multi-product company, is given below: Product A

Sales Variable costs Fixed costs Net income

Product B

$ 1,953,000 956,970 512,000

$ 1,422,900 616,590 500,000

$ 484,030

$ 306,310

260,400

111,600

Units

Units 261,510 117,490

Sales $ 1,849,179 $ 1,479,610

What is the total sales mix variance? Note: Do not round intermediate calculations. A) $12,886.00 B) $26,877.00 C) $39,763.00 D) $41,879.50

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104)

The next year's budget for Trend, Incorporated, a multi-product company, is given below: Product A

Sales Variable costs Fixed costs

Product B

$ 1,890,000 926,100 500,000

$ 1,377,000 596,700 500,000

Net income

463,900

280,300

Units

252,000

108,000

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

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105)

The next year's budget for Trend, Incorporated, a multi-product company, is given below: Product A

Sales Variable costs Fixed costs

Product B

$ 1,963,500 962,115 514,000

$ 1,430,550 619,905 500,000

Net income

487,385

310,645

Units

261,800

112,200

Units 262,890 118,110

Sales $ 1,849,279 $ 1,479,710

Is the total sales mix variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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106)

The next year's budget for Trend, Incorporated, a multi-product company, is given below: Product A

Sales Variable costs Fixed costs

Product B

$ 1,890,000 926,100 500,000

$ 1,377,000 596,700 500,000

Net income

463,900

280,300

Units

252,000

108,000

Units 253,230 113,770

Sales $ 1,848,579 $ 1,479,010

Version 1

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. Bloom's : Analyze Gradable : automatic

107)

The next year's budget for Trend, Incorporated, a multi-product company, is given below: Product A

Sales Variable costs Fixed costs

Product B

$ 1,909,000 935,600 519,000

$ 1,396,000 602,400 519,000

Net income

454,400

274,600

Units

271,000

117,500

Units 272,230 119,370

Sales $ 1,867,579 $ 1,517,010

What is the total sales quantity variance? Note: Do not round intermediate calculations. A) $1,434.70 B) $9,201.85 C) $14,099.61 D) $9,646.74

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108)

The next year's budget for Trend, Incorporated, a multi-product company, is given below: Product A

Sales Variable costs Fixed costs

Product B

$ 1,890,000 926,100 500,000

$ 1,377,000 596,700 500,000

Net income

463,900

280,300

Units

252,000

108,000

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

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109)

The next year's budget for Trend, Incorporated, a multi-product company, is given below: Product A

Sales Variable costs Fixed costs

Product B

$ 1,890,000 926,100 500,000

$ 1,377,000 596,700 500,000

Net income

463,900

280,300

Units

252,000

108,000

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 C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Version 1

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. Bloom's : Analyze Gradable : automatic

110) 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:

3,500 DLHs

Variable overhead cost

$ 10,500

Fixed overhead cost

$ 44,625

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

4,600 DLHs 2,692 DLHs $ 11,100

Actual total fixed manufacturing overhead cost

$ 45,025

What is the predetermined overhead rate to the nearest cent? A) $12.20 B) $15.75 C) $11.98 D) $16.04

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. AICPA : FN Measurement Gradable : automatic Type : Algorithmic

111) 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

2,500

DLHs

$ 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

2,600 2,592 $ 9,100

DLHs DLHs

$ 35,025

What is the predetermined overhead rate to the nearest cent? A) $16.97 B) $17.25 C) $16.59 D) $17.65

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. AICPA : FN Measurement Gradable : automatic

112) 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:

2,650 DLHs

Variable overhead cost

$ 8,800

Fixed overhead cost

$ 36,125

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

2,900 DLHs 2,607 DLHs $ 9,400

Actual total fixed manufacturing overhead cost

$ 36,525

How much overhead was applied to products during the period to the nearest dollar? Note: Do not round intermediate calculations. A) $44,196 B) $45,925 C) $44,925 D) $45,325

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113) 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

2,500

DLHs

$ 8,500 $ 34,625

2,600 2,592 $ 9,100

DLHs DLHs

$ 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

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. AICPA : FN Measurement Gradable : automatic

114)

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.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Gradable : automatic Bloom's : Understand

115)

The labor mix variance is actual total hours at:

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Gradable : automatic Bloom's : Understand

116)

The computation of the materials yield variance does not require the: A) standard material mix. B) standard material price. C) standard output units. D) total material actually acquired.

Version 1

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Gradable : automatic Bloom's : Understand

117)

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.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Gradable : automatic Bloom's : Understand

118) 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?

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A) Account Work in Process Inventory

Debit XXX

Direct Materials Mix Variance

XXX

Direct Materials Inventory

Credit

XXX

B) Account Work in Process Inventory

Debit XXX

Credit

Direct Materials Mix Variance

XXX

Direct Materials Inventory

XXX

C) Account Finished Goods Inventory

Debit XXX

Direct Materials Mix Variance

XXX

Work in Process Inventory

Credit

XXX

D) Account Finished Goods Inventory

Debit XXX

Credit

Direct Materials Mix Variance

XXX

Work in Process Inventory

XXX

Version 1

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Gradable : automatic Bloom's : Understand

119) 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) Account Work in Process Inventory

Debit XXX

Direct labor yield variance

XXX

Direct labor mix variance

XXX

Wages Payable

Credit

XXX

B) Account Work in Process Inventory

Debit XXX

Credit

Direct labor yield variance

XXX

Direct labor mix variance

XXX

Wages Payable

XXX

C) Account Finished Goods Inventory

Version 1

Debit XXX

Credit

Direct labor mix variance

XXX

Direct labor yield variance

XXX

Work in Process Inventory

XXX

D) Account Finished Goods Inventory

Debit XXX

Credit

Direct labor yield variance

XXX

Direct labor mix variance

XXX

Work in Process Inventory

XXX

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Gradable : automatic Bloom's : Understand

120) The Shum Company makes a product, Z, from two materials: X and Y. The standard prices and quantities are as follows: X Price per pound Pounds per unit of product Z

Y $ 6 10

$ 9 5

In May, 21,800 units of Z were produced by Shum Company, with the following actual prices and quantities of materials used: Price per pound Pounds used

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$ 5.70 218,400

$ 8.40 116,400

What is the total direct materials mix variance for May? Note: Do not round intermediate calculations. A) $14,400 B) $28,800 C) $43,200 D) $72,000

121) The Shum Company makes a product, Z, from two materials: X and Y. The standard prices and quantities are as follows: X Price per pound Pounds per unit of product Z

Y $ 6 10

$ 9 5

In May, 21,000 units of Z were produced by Shum Company, with the following actual prices and quantities of materials used: 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

Version 1

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. AICPA : FN Measurement Gradable : automatic

122) The Shum Company makes a product, Z, from two materials: X and Y. The standard prices and quantities are as follows: Price per pound Pounds per unit of product Z

$ 21 10

$ 24 5

In May, 21,030 units of Z were produced by Shum Company, with the following actual prices and quantities of materials used: Price per pound Pounds used

$ 20.70 216,300

$ 23.40 117,000

Is the total direct materials mix variance favorable or unfavorable? A) Favorable B) Unfavorable C) There is not enough information to determine. D) The variance is zero and is neither favorable nor unfavorable.

Version 1

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Bloom's : Analyze Gradable : automatic Type : Algorithmic

123) The Shum Company makes a product, Z, from two materials: X and Y. The standard prices and quantities are as follows: X Price per pound Pounds per unit of product Z

Y $ 6 10

$ 9 5

In May, 21,000 units of Z were produced by Shum Company, with the following actual prices and quantities of materials used: Price per pound Pounds used

$ 5.70 216,000

$ 8.40 114,000

Is the total direct materials mix variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Version 1

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Bloom's : Analyze Gradable : automatic

124) The Shum Company makes a product, Z, from two materials: X and Y. The standard prices and quantities are as follows: X Price per pound Pounds per unit of product Z

Y $ 9 13

$ 14 7

In May, 16,950 units of Z were produced by Shum Company, with the following actual prices and quantities of materials used: Price per pound Pounds used

$ 14.70 220,500

$ 17.40 133,500

What is the total direct materials yield variance for May? A) $165,000 B) $180,000 C) $140,000 D) $161,250

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125) The Shum Company makes a product, Z, from two materials: X and Y. The standard prices and quantities are as follows: X Price per pound Pounds per unit of product Z

Y $ 5 13

$ 10 7

In May, 16,000 units of Z were produced by Shum Company, with the following actual prices and quantities of materials used: Price per pound Pounds used

$ 10.70 211,000

$ 13.40 124,000

What is the total direct materials yield variance for May? A) $105,000 B) $120,000 C) $80,000 D) $101,250

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126) The Shum Company makes a product, Z, from two materials: X and Y. The standard prices and quantities are as follows: X Price per pound Pounds per unit of product Z

Y $ 6 10

$ 9 5

In May, 21,800 units of Z were produced by Shum Company, with the following actual prices and quantities of materials used: Price per pound Pounds used

$ 5.70 220,000

$ 8.40 118,000

Is the total direct materials yield variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Bloom's : Analyze Gradable : automatic Type : Algorithmic

127) The Shum Company makes a product, Z, from two materials: X and Y. The standard prices and quantities are as follows: X Price per pound Pounds per unit of product Z

Version 1

Y $ 6 10

$ 9 5 96

In May, 21,000 units of Z were produced by Shum Company, with the following actual prices and quantities of materials used: Price per pound Pounds used

$ 5.70 216,000

$ 8.40 114,000

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Bloom's : Analyze Gradable : automatic

128) 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 $156.50. The standard materials mix and related standard cost of each chemical used in a 500-liter batch are: Chemical Echol Protex Benz CT-40

Version 1

Standard input quantity 220 120 270 70

Standard cost per liter $ 0.200 0.425 0.150 0.300

Total cost $ 44.00 51.00 40.50 21.00

680

$ 156.50

The quantities of chemicals purchased and used during the current production period are shown in the schedule below. A total of 160 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. Chemical Echol Protex Benz CT-40

Quantity Purchased 25,400 13,400 40,400 7,900 87,100

Total Cost $ 5,635 6,510 6,110 2,490

Quantity Used 27,000 13,280 38,200 7,540 86,020

If BE recognizes all variances at the earliest possible moment, what is the total materials price variance? A) $810 B) $1,190 C) $1,540 D) $1,920

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129) 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: Chemical Echol Protex Benz CT-40

Standard input Standard cost per quantity liter 200 $ 0.200 100 0.425 250 0.150 50 0.300 600

Total cost $ 40.00 42.50 37.50 15.00 $ 135.00

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. Chemical Echol Protex Benz CT-40

Quantity Purchased 25,000 13,000 40,000 7,500 85,500

Total Cost $ 5,365 6,240 5,840 2,220

Quantity Used 26,600 12,880 37,800 7,140 84,420

If BE recognizes all variances at the earliest possible moment, what is the total materials price variance? A) $160 B) $540 C) $890 D) $1,270

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130) 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 $350.00. The standard materials mix and related standard cost of each chemical used in a 500-liter batch are: Chemical Echol Protex Benz CT-40

Standard input quantity 400 300 450 250

Standard cost per liter $ 0.200 0.425 0.150 0.300

1,400

Total cost $ 80.00 127.50 67.50 75.00 $ 350.00

The quantities of chemicals purchased and used during the current production period are shown in the schedule below. A total of 340 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. Chemical Echol Protex Benz CT-40

Quantity Purchased 29,000 17,000 44,000 11,500

Total Cost $ 8,065 8,940 8,540 4,920

101,500

Quantity Used 30,600 16,880 41,800 11,140 100,420

Is the total materials price variance favorable or unfavorable?

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A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq Bloom's : Analyze Gradable : automatic Topic : Materials Purchases Do Not Equal Materials Used Type : Algorithmic

131) 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: Chemical Echol Protex Benz CT-40

Standard input Standard cost per quantity liter 200 $ 0.200 100 0.425 250 0.150 50 0.300 600

Total cost $ 40.00 42.50 37.50 15.00 $ 135.00

Version 1

Quantity Purchased

Total Cost

Quantity Used

101

Echol Protex Benz CT-40

25,000 13,000 40,000 7,500

$ 5,365 6,240 5,840 2,220

26,600 12,880 37,800 7,140

85,500

84,420

Is the total materials price variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq Bloom's : Analyze Gradable : automatic Topic : Materials Purchases Do Not Equal Materials Used

132) 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: Chemical Echol Protex Benz CT-40

Version 1

Standard input quantity 200 100 250 50

Standard cost per liter $ 0.200 0.425 0.150 0.300

Total cost $ 40.00 42.50 37.50 15.00

102

600

$ 135.00

The quantities of chemicals purchased and used during the current production period are shown in the schedule below. A total of 185 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. Chemical Echol Protex Benz CT-40

Quantity Purchased 26,000 14,000 41,000 8,500 89,500

Total Cost $ 6,040 6,915 6,515 2,895

Quantity Used 33,600 19,880 44,800 14,140 112,420

What is the total materials yield variance? A) $1,288.50 B) $969.50 C) $955.00 D) $319.50

133) 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: Version 1

103

Chemical Echol Protex Benz CT-40

Standard input Standard cost per quantity liter 200 $ 0.200 100 0.425 250 0.150 50 0.300 600

Total cost $ 40.00 42.50 37.50 15.00 $ 135.00

Quantity Purchased 25,000 13,000 40,000 7,500

Total Cost

Quantity Used

$ 5,365 6,240 5,840 2,220

85,500

26,600 12,880 37,800 7,140 84,420

What is the total materials yield variance? A) $388.50 B) $294.50 C) $280.00 D) $94.50

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. AICPA : FN Measurement Gradable : automatic

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134) 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: Chemical Echol Protex Benz CT-40

Standard input quantity 200 100 250 50

Standard cost per liter $ 0.200 0.425 0.150 0.300

600

Total cost $ 40.00 42.50 37.50 15.00 $ 135.00

The quantities of chemicals purchased and used during the current production period are shown in the schedule below. A total of 248 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. Chemical Echol Protex Benz CT-40

Quantity Purchased 27,400 15,400 42,400 9,900

Total Cost $ 6,985 7,860 7,460 3,840

95,100

Quantity Used 43,400 29,680 54,600 23,940 151,620

Is the materials yield variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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105

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Bloom's : Analyze Gradable : automatic Type : Algorithmic

135) 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: Chemical Echol Protex Benz CT-40

Standard input Standard cost per quantity liter 200 $ 0.200 100 0.425 250 0.150 50 0.300 600

Total cost $ 40.00 42.50 37.50 15.00 $ 135.00

Quantity Purchased 25,000 13,000 40,000 7,500

Total Cost

85,500

$ 5,365 6,240 5,840 2,220

Quantity Used 26,600 12,880 37,800 7,140 84,420

Is the materials yield variance favorable or unfavorable? Version 1

106

A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Bloom's : Analyze Gradable : automatic

136) 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: Chemical Echol Protex Benz CT-40

Standard input quantity 200 100 250 50

Standard cost per liter $ 0.200 0.425 0.150 0.300

600

Total cost $ 40.00 42.50 37.50 15.00 $ 135.00

The quantities of chemicals purchased and used during the current production period are shown in the schedule below. A total of 167 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. Chemical Echol

Version 1

Quantity Purchased 25,600

Total Cost $ 5,770

Quantity Used 27,100

107

Protex Benz CT-40

13,600 40,600 8,100

6,645 6,245 2,625

87,900

13,480 38,300 7,740 86,620

What is the total materials mix variance? A) $361.00 B) $305.00 C) $273.50 D) $203.33

137) 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: Chemical Echol Protex Benz CT-40

Standard input Standard cost per quantity liter 200 $ 0.200 100 0.425 250 0.150 50 0.300 600

Version 1

Total cost $ 40.00 42.50 37.50 15.00 $ 135.00

108

Quantity Purchased 25,000 13,000 40,000 7,500

Total Cost

Quantity Used

$ 5,365 6,240 5,840 2,220

26,600 12,880 37,800 7,140

85,500

84,420

What is the total materials mix variance? A) $476.00 B) $420.00 C) $388.50 D) $280.00

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. AICPA : FN Measurement Gradable : automatic

138) 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 insure 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: Chemical

Version 1

Standard input

Standard cost

Total cost

109

Echol Protex Benz CT-40

quantity 200 100 250 50

per liter $ 0.200 0.425 0.150 0.300

600

$ 40.00 42.50 37.50 15.00 $ 135.00

The quantities of chemicals purchased and used during the current production period are shown in the schedule below. A total of 149 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. Chemical Echol Protex Benz CT-40

Quantity Purchased 25,200 13,200 40,200 7,700

Total Cost $ 5,500 6,375 5,975 2,355

86,300

Quantity Used 26,700 13,080 37,900 7,340 85,020

Is the materials mix variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Bloom's : Analyze Gradable : automatic Type : Algorithmic

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139) 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: Chemical Echol Protex Benz CT-40

Standard input Standard cost per quantity liter 200 $ 0.200 100 0.425 250 0.150 50 0.300 600

Total cost $ 40.00 42.50 37.50 15.00 $ 135.00

Quantity Purchased 25,000 13,000 40,000 7,500

Total Cost $ 5,365 6,240 5,840 2,220

85,500

Quantity Used 26,600 12,880 37,800 7,140 84,420

Is the materials mix variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Bloom's : Analyze Gradable : automatic

140) 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 215 pounds of M and 390 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 (pounds) 0 155 45 200

Standard Cost per pound $ 0.10 0.08 0.02

Total Cost

$ 0 12.40 0.90 $ 13.30

What is the materials mix variance? A) $3.07 B) $4.39 C) $2.86 D) $1.54

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112

141) 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 Standard Cost per (pounds) pound 0 $ 0.10 80 0.08 120 0.02 200

Total Cost $ 0 6.40 2.40 $ 8.80

What is the materials mix variance? A) $1.68 B) $3.00 C) $1.32 D) $0.84

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. AICPA : FN Measurement Gradable : automatic

142) 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 225 pounds of M and 450 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 (pounds) 0 165 35

Standard Cost per pound

Total Cost

$ 0.10 0.08 0.02

200

$ 0 13.20 0.70 $ 13.90

Is the materials mix variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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114

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Bloom's : Analyze Gradable : automatic Type : Algorithmic

143) 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 Standard Cost per (pounds) pound 0 $ 0.10 80 0.08 120 0.02 200

Total Cost $ 0 6.40 2.40 $ 8.80

Is the materials mix variance favorable or unfavorable? A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

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115

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Bloom's : Analyze Gradable : automatic

144) 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 225 pounds of M and 175 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 (pounds) 0 165 35 200

Standard Cost per pound $ 0.10 0.08 0.02

Total Cost

$ 0 13.20 0.70 $ 13.90

What is the materials yield variance? A) $13.70 B) $14.26 C) $28.16 D) $13.90

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145) 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 Standard Cost per (pounds) pound 0 $ 0.10 80 0.08 120 0.02 200

Total Cost $ 0 6.40 2.40 $ 8.80

What is the materials yield variance? A) $1.12 B) $1.68 C) $3.00 D) $1.32

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. AICPA : FN Measurement Gradable : automatic

146) 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 210 pounds of M and 160 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 (pounds) 0 150 50

Standard Cost per pound

Total Cost

$ 0.10 0.08 0.02

200

$ 0 12.00 1.00 $ 13.00

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Bloom's : Analyze Gradable : automatic Type : Algorithmic

147) 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 Standard Cost per (pounds) pound 0 $ 0.10 80 0.08 120 0.02 200

Total Cost $ 0 6.40 2.40 $ 8.80

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119

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Bloom's : Analyze Gradable : automatic

148)

Bonner Company's direct labor cost for March was as follows:

Actual direct labor hours

39,000

Standard direct labor hours

40,500

Rate variance Total payroll

$ 20,200 U $ 295,150

Labor mix variance

$ 13,225 U

What was Bonner's direct labor yield variance? A) $23,800 B) $17,120 C) $16,325 D) $8,850

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120

149)

Bonner Company's direct labor cost for March was as follows:

Actual direct labor-hours

30,000

Standard direct labor-hours

31,500

Rate variance Total payroll

$ 4,500 $ 189,000

$ 4,225

Labor mix variance

What was Bonner's direct labor yield variance? A) $13,450 B) $9,675 C) $9,225 D) $5,000

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. AICPA : FN Measurement Gradable : automatic

150)

Bonner Company's direct labor cost for March was as follows:

Actual direct labor hours

30,000

Standard direct labor hours

31,500

Rate variance Total payroll Labor mix variance

$ 4,500 $ 189,000

$ 4,225

Is the direct labor yield variance favorable or unfavorable? Version 1

121

A) Favorable B) Unfavorable C) The variance is zero and is neither favorable nor unfavorable. D) There is not enough information to determine.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Bloom's : Analyze Gradable : automatic

151)

Prince Incorporated has the following information:

Total payroll Standard direct labor hours Labor rate variance Labor mix variance Labor yield variance

$ 276,000 49,000 $ 139,000 F $ 14,000 F $ 12,000 F

What was the standard direct labor rate? A) $7.88 B) $8.55 C) $9.00 D) $13.05

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Topic : Variance Analysis in Nonmanufacturing Settings Learning Objective : 17-06 Apply the variance analysis model to nonmanufacturing costs. AICPA : FN Measurement Gradable : automatic Type : Algorithmic

152)

Prince Incorporated has the following information:

Total payroll

$ 165,300

Standard direct labor-hours

45,000

Labor rate variance Labor mix variance Labor yield variance

$ 8,700 $ 4,000 $ 2,000

F F F

What was the standard direct labor rate? A) $3.50 B) $3.80 C) $4.00 D) $5.80

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Topic : Variance Analysis in Nonmanufacturing Settings Learning Objective : 17-06 Apply the variance analysis model to nonmanufacturing costs. AICPA : FN Measurement Gradable : automatic

153)

Prince Incorporated has the following information:

Total payroll Standard direct labor hours Labor rate variance Labor mix variance Labor yield variance

$ 270,000 48,800 $F 132,000 $ 13,500 F $ 11,500 F

What was Prince's actual direct labor rate? Note: Round your final answer to two decimal places. A) $5.29 B) $8.09 C) $5.88 D) $8.53

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Topic : Variance Analysis in Nonmanufacturing Settings Learning Objective : 17-06 Apply the variance analysis model to nonmanufacturing costs. AICPA : FN Measurement Gradable : automatic Type : Algorithmic

154)

Prince Incorporated has the following information:

Total payroll

$ 165,300

Standard direct labor hours

45,000

Labor rate variance Labor mix variance Labor yield variance

$ 8,700 $ 4,000 $ 2,000

F F F

What was Prince's actual direct labor rate? A) $3.60 B) $3.70 C) $3.80 D) $3.90

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Topic : Variance Analysis in Nonmanufacturing Settings Learning Objective : 17-06 Apply the variance analysis model to nonmanufacturing costs. AICPA : FN Measurement Gradable : automatic

155) 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.

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Variance Analysis in Nonmanufacturing Settings Learning Objective : 17-06 Apply the variance analysis model to nonmanufacturing costs. Gradable : automatic Bloom's : Understand

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156) 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

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Keeping an Eye on Variances and Standards Gradable : automatic Bloom's : Understand Learning Objective : 17-07 Determine which variances to investigate.

157) 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

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Keeping an Eye on Variances and Standards Gradable : automatic Bloom's : Understand Learning Objective : 17-07 Determine which variances to investigate.

158) 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

Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Keeping an Eye on Variances and Standards Gradable : automatic Bloom's : Understand Learning Objective : 17-07 Determine which variances to investigate.

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ESSAY. Write your answer in the space provided or on a separate sheet of paper. 159) Fremont, Incorporated, builds storage boxes to custom order. Materials include 20 board feet of lumber at $1.25 per 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 materials price variance. b.Compute the direct materials efficiency variance. c.Compute the direct labor rate variance. d.Compute the direct labor efficiency variance. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq AICPA : FN Measurement Gradable : manual Topic : Materials Purchases Do Not Equal Materials Used

160) 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

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$ 30.50 per liter 4.6 liters per unit of output $ 30.70 per liter 4,000 liters 3,580 liters 800 units

129

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 17-01 Explain how to prorate variances to inventories and cost of goods sold. Topic : Profit Variance Analysis When Units Produced Do Not Equal Units Sold Bloom's : Apply Difficulty : 3 Hard AICPA : FN Measurement Gradable : manual

161)

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:

$ 21 $ 72 2,000

Production Material purchases, 6,000 pounds

1,800 $ 48,230

Labor, 7,420 hours

$ 140,170

Material used in production

5,750

per unit per unit units

units

pounds

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162) 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

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq AICPA : FN Measurement Gradable : manual Topic : Materials Purchases Do Not Equal Materials Used

163) P62:

The following standards have been established for a raw material used to make product

Standard quantity of the material per unit of output Standard price of the material

6.3 $ 15.50

pounds per pound

The following data pertain to a recent month's operations: Actual material purchased Actual cost of material purchased

6,700 $ 100,500

Actual material used in production Actual output

6,400 920

pounds

pounds units of product P62

Required:a.What is the materials price variance for the month? b.What is the materials efficiency variance for the month? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq AICPA : FN Measurement Gradable : manual Topic : Materials Purchases Do Not Equal Materials Used

164) 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 materials price variance. b.Compute the direct materials efficiency variance. c.Compute the direct labor rate variance. d.Compute the direct labor efficiency variance. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq AICPA : FN Measurement Gradable : manual Topic : Materials Purchases Do Not Equal Materials Used

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165) 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

750

Direct materials used Direct materials purchased (4,500 pounds)

4,000 $ 14,400

Direct labor cost (2,000 hours)

$ 11,200

pounds

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq AICPA : FN Measurement Gradable : manual Topic : Materials Purchases Do Not Equal Materials Used

166)

The data below relate to a product of Bullfrog Company.

Standard costs: Materials, 2 pounds at $6 per pound

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$ 12

per unit

134

Labor, 3 hours at $ 15 per hour Budgeted production for the year Actual results were:

$ 45 4,000

Production Material purchases, 8,000 pounds

3,600 $ 46,400

Labor, 10,360 hours

$ 160,580

Material used in production

7,300

per unit units

units

pounds

Required:(Be sure to indicate whether the variance is favorable or unfavorable.) a.Compute the direct materials price variance. b.Compute the direct materials efficiency variance. c.Compute the direct labor rate variance. d.Compute the direct labor efficiency variance. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Difficulty : 3 Hard Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq Gradable : manual Topic : Materials Purchases Do Not Equal Materials Used

167)

Next year's budget for Howard, Incorporated, a multi-product company, is given below: Product A

Sales Variable costs Fixed costs Net income Units

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Product B

$ 1,890,000 919,800 500,000

$ 1,377,000 594,000 500,000

$ 470,200

283,000

252,000

108,000 135

Market share

12.5 %

20.0 %

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

Market 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Market Share Variance and Industry Volume Variance Learning Objective : 17-03 Use market share variances to evaluate marketing performance. AICPA : FN Measurement Gradable : manual

168)

The Buffett Company had the following expectations:

Total market for the product Buffett’s budgeted sales

175,000 54,250

Contribution margin per unit

$ 13.00

units

Actual results for the year were: Total market for the product Buffett’s actual sales

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166,250 56,525

units

136

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Market Share Variance and Industry Volume Variance Learning Objective : 17-03 Use market share variances to evaluate marketing performance. AICPA : FN Measurement Gradable : manual

169)

Next year's budget for Alton, Incorporated, is given below: Product 1

Product 2

Sales Variable costs Fixed costs

$ 945,000 459,900 300,000

$ 688,500 297,000 300,000

Net income

$ 185,100

91,500

Units Market share

126,000 12 %

54,000 20.0 %

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

Market share 16.0 % 14.2 %

137

170)

The Stangle Company had the following expectations:

Total market for the product Stangle’s budgeted sales

350,000 108,500

Contribution margin per unit

$ 12.00

units

Actual results for the year were: Total market for the product Stangle’s actual sales

332,500 113,050

units

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Market Share Variance and Industry Volume Variance Learning Objective : 17-03 Use market share variances to evaluate marketing performance. AICPA : FN Measurement Gradable : manual

171) Porcini Enterprises produces two products, AR and QT. Actual and budgeted information for the year ending April 30 is provided below: Product AR Budget Unit sales Sales Fixed costs Variable costs

2,000 $ 6,000 1,800 2,400

Actual 2,800 $ 7,560 1,900 2,800

Product QT Budget 6,000 $ 12,000 2,400 6,000

Actual 5,600 $ 11,760 2,800 5,880

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172)

Next year's budget for Canfield, Incorporated, a multi-product company, is given below: Product A

Sales Variable costs Fixed costs Net income

Product B

$ 1,890,000 919,800 500,000

$ 1,377,000 594,000 500,000

$ 470,200

$ 283,000

252,000

108,000

Units

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

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173) Virginia Enterprises produces two products, Standard and Deluxe. Actual and budgeted information for the year is provided below:

Unit sales Sales Variable costs

Standard Budget Actual 4,000 5,600 $ 6,000 $ 7,560 2,400 2,800

Deluxe Budget 12,000 $ 12,000 $ 6,000

Actual 11,200 $ 11,760 5,800

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. AICPA : FN Measurement Gradable : manual

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174)

Next year's budget for Temper, Incorporated, is given below: Product 1

Product 2

Sales Variable costs Fixed costs

$ 945,000 459,900 300,000

$ 688,500 297,000 300,000

Net income

$ 185,100

$ 91,500

126,000

54,000

Units

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

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175) 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 materials price variances for the three basic chemicals. b.Compute the direct materials efficiency variances for the three basic chemicals. c.Compute the direct materials mix variances for the three basic chemicals. d.Compute the direct materials yield variances for the three basic chemicals. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. AICPA : FN Measurement Gradable : manual Topic : Materials Purchases Do Not Equal Materials Used

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176) 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 milliliter @ $50 per liter Chemical 2: 200 milliliter @ $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 materials price variances for the two basic chemicals. b.Compute the direct materials efficiency variances for the two basic chemicals. c.Compute the direct materials mix variances for the two basic chemicals. d.Compute the direct materials yield variances for the two basic chemicals. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. AICPA : FN Measurement Gradable : manual Topic : Materials Purchases Do Not Equal Materials Used

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177) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. AICPA : FN Measurement Gradable : manual

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178) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Gradable : manual

179) 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: Chemical

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Standard input quantity

Standard cost per gallon

Total cost

146

A B C

30 20 10

$ 0.25 0.45 0.30

$ 7.50 9.00 3.00

$ 19.50

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: Chemical A B C

Quantity Purchased 17,800 13,000 5,500

Total Cost $ 4,365 6,240 1,520

Quantity Used 16,600 11,880 5,140

36,300

33,620

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 materials price variance (in total and for each ingredient)? b.What is the materials efficiency variance (in total and for each ingredient)? c.What is the materials yield variance (in total and for each ingredient)? d.What is the materials mix variance (in total and for each ingredient)? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. AICPA : FN Measurement Gradable : manual

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180) 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 per unit 60 minutes per unit 30 minutes per unit 120 minutes per 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. AICPA : FN Measurement Gradable : manual

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181) Tallon & Associates is a consulting firm specializing in business location studies. The results for last year, along with the budget, are as follows: Billable hours Revenue Professional salaries (variable) Other variable costs Fixed costs Office management salaries (fixed) Operating profit

Actual

Budget

25,200 $ 2,772,000 1,310,000 488,000 492,000 317,000

24,000 $ 2,400,000 1,200,000 400,000 450,000 225,000

$ 165,000

$ 125,000

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Variance Analysis in Nonmanufacturing Settings Learning Objective : 17-06 Apply the variance analysis model to nonmanufacturing costs. AICPA : FN Measurement Gradable : manual

182) What is the advantage of recognizing materials price variances at the time of purchase rather than at the time of use?

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 17-01 Explain how to prorate variances to inventories and cost of goods sold. Topic : Profit Variance Analysis When Units Produced Do Not Equal Units Sold Difficulty : 2 Medium Gradable : manual Bloom's : Understand

183) Explain the difference between the market share variance and the industry volume variance. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Topic : Market Share Variance and Industry Volume Variance Difficulty : 2 Medium Learning Objective : 17-03 Use market share variances to evaluate marketing performance. Gradable : manual Bloom's : Understand

184)

Explain the difference between the sales mix variance and the sales quantity variance.

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Sales Activity Variances with Multiple Products Learning Objective : 17-04 Use sales mix and quantity variances to evaluate marketing performance. Gradable : manual Bloom's : Understand

185) When deciding how many variances to calculate, what two items need to be considered? Be sure to define your terms. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Keeping an Eye on Variances and Standards Gradable : manual Bloom's : Understand Learning Objective : 17-07 Determine which variances to investigate.

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186) Explain what production mix and production yield variances measure. How do these variances relate to efficiency variances? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 2 Medium Topic : Production Mix and Yield Variances Learning Objective : 17-05 Evaluate production performance using production mix and yield variances. Gradable : manual Bloom's : Understand

187) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq Bloom's : Analyze AACSB : Ethics Gradable : manual Topic : Materials Purchases Do Not Equal Materials Used

188) Advantage Company 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

Actual Standard Specialty $ 52 70

$ 26 5,000

$ 30 1,000 $ 60,000

$ 28 4,500

28 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Apply Difficulty : 3 Hard Learning Objective : 17-02 Compute direct materials purchase variances when the amount used is not eq AICPA : FN Measurement Gradable : manual Topic : Materials Purchases Do Not Equal Materials Used

189) 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. 2023 standards: Direct materials - 4 parts @ $2 per part Direct labor - one half hour (0.5) @ $10 per hour Estimated production - 100,000 Actual results 2023: 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 materials and direct labor price and efficiency variances. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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190) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Screen Reader Compatible Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Difficulty : 3 Hard Topic : Keeping an Eye on Variances and Standards AACSB : Reflective Thinking Bloom's : Analyze Gradable : manual Learning Objective : 17-07 Determine which variances to investigate.

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Answer Key Test name: Lanen7e_ch17 1) TRUE 2) TRUE 3) FALSE 4) TRUE 5) TRUE 6) FALSE 7) FALSE 8) TRUE 9) FALSE 10) FALSE 11) TRUE 12) TRUE 13) TRUE 14) FALSE 15) TRUE 16) TRUE 17) FALSE 18) TRUE 19) TRUE 20) TRUE 21) TRUE 22) TRUE 23) C Variable costing expenses all fixed costs, not full absorption costing. 24) D Standards should not be too tight or too loose. Version 1

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25) D Standard costing uses standard hours, not actual or budgeted. 26) D An example is recording purchases at standard cost provides information on price variances earlier than if a company waits until the materials are used. 27) C It is not always necessary to prorate variances, they can be closed out to Cost of Goods Sold instead. If production is greater than sales, absorption profits are greater than variable costing profits. Variable production cost variances are computed using units produced. 28) A Under standard costing, the value of the materials inventory would be recorded at the standard price while the accounts payable for the purchase would be recorded at the actual price. The difference between the inventory account and accounts payable is recorded as the materials price variance when the material is purchased. 29) A Account Materials Inventory ($41 × 3,200 ounces) Materials Price Variance 3,200 ounces × ($41.10 − $41) Accounts Payable ($41.10 × 3,200 ounces)

Debit 131,200

Credit

320 131,520

30) A Account Materials Inventory ($23 × 2,300 ounces) Materials Price Variance 2,300 ounces × ($23.10 − $23) Accounts Payable ($23.10 × 2,300 ounces)

Debit 52,900

Credit

230 53,130

31) B Account

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Credit

158

Work-In-Process Inventory ($36.00 × 2,774 ounces*)

99,864

Materials Efficiency Variance [$36.00 × (2,250 ounces – 2,774 ounces*)] Materials Inventory ($36.00 × 2,250 ounces)

18,864 81,000

*730 units × 3.8 ounces = 2,774 ounces. 32) B Account Work-In-Process Inventory ($23 × 2,280 ounces*)

Debit 52,440

Materials Efficiency Variance [$23 × (2,120 ounces − 2,280 ounces*)] Materials Inventory ($23 × 2,120 ounces)

Credit

3,680 48,760

*600 units × 3.8 ounces = 2,280 ounces 33) A Account Materials Inventory ($35.00 × 2,900 ounces)

Debit 101,500

Materials Price Variance 2,900 ounces × ($35.10 – $35.00) Accounts Payable ($35.10 × 2,900 ounces)

Credit

290 101,790

34) A Account Materials Inventory ($23.00 × 2,300 ounces) Materials Price Variance 2,300 ounces × ($23.10 − $23) Accounts Payable ($23.10 × 2,300 ounces)

Debit 52,900

Credit

230 53,130

35) A Account Work-In-Process Inventory ($30.00 × 2,546 ounces*) Materials Efficiency Variance [$30.00 × (2,190 ounces − 2,546 ounces)] Materials Inventory ($30.00 × 2,190 ounces)

Debit 76,380

Credit

10,680 65,700

*670 units × 3.8 ounces = 2,546 ounces

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36) A Account Work-In-Process Inventory ($23 × 2,280 ounces*)

Debit 52,440

Materials Efficiency Variance [$23 × (2,120 ounces − 2,280 ounces)] Materials Inventory ($23 × 2,120 ounces)

Credit

3,680 48,760

*600 units × 3.8 ounces = 2,280 ounces. 37) A Account Work-In-Process Inventory ($26.50 × 5,050 ounces*) Materials Efficiency Variance [$26.50 × (5,050 ounces – 5,110 ounces*)] Materials Inventory ($26.50 × 5,110 ounces)

Debit 133,825

Credit

1,590 135,415

*500 units × 10.1 ounces = 5,050 ounces 38) A Account Work-In-Process Inventory ($24.50 × 4,270 ounces*) Materials Efficiency Variance [$24.50 × (5,030 ounces − 4,270 ounces*)] Materials Inventory ($24.50 × 5,030 ounces)

Debit 104,615

Credit

18,620 123,235

*700 units × 6.1 ounces = 4,270 ounces. 39) C Account Work-In-Process ($25.00 × 2,346 liters*) Materials Efficiency Variance ($25.00 × [2,410 liters − 2,346 liters*]) Materials Inventory ($25.00 × 2,410 liters)

Debit 58,650

Credit

1,600 60,250

*460 units × 5.1 liters = 2,346 liters. 40) C Account Work-In-Process ($23.80 × 2,280 liters*)

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Debit 54,264

Credit

160

Materials Efficiency Variance [$23.80 × (2,350 liters − 2,280 liters*)] Materials Inventory ($23.80 × 2,350 liters)

1,666 55,930

*400 units × 5.7 liters = 2,280 liters 41) D Account Work-In-Process Inventory Materials Efficiency Variance Materials Inventory

Debit X

Credit

X X

42) B (AP − $0.50) × 33,000 = $330 F; AP = $0.49; $0.49 × 33,000 = $16,170 43) B (AP − $0.60) × 20,000 = $200 F; AP = $0.59; $0.59 × 20,000 = $11,800 44) C 29,000 × $0.50 = $14,500 45) C 20,000 × $0.60 = $12,000 46) D (23,000 − SQ) × $0.60 = $1,400 F; SQ = 25,333; 25,333 × $0.60 = $15,200 47) D (16,500 − SQ) × $0.50 = $750 F; SQ = 18,000; 18,000 × $0.50 = $9,000 48) D The industry volume variance indicates how much of the sales activity variance is due to industry volume changes and the market share variance represents how much of the sales activity variance is due to market share changes. 49) A

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Market share is more controllable than the industry volume. Market share variance (not the industry volume variance) is related to the proportion of sales in markets and is a better measure of marketing department performance. It is possible for industry volume to increase (resulting in a favorable variance) while a firm’s market share sharply declines (resulting in an unfavorable variance). 50) B Market share variance + industry volume variance = sales activity variance. 51) B The difference between the actual and budgeted total market times the budgeted market share times the standard unit contribution margin equals the industry volume variance. 52) D The difference between the actual and budgeted market share times the actual total market times the standard unit contribution margin equals the market share variance. 53) B Since $74,800 ÷ $88,000 is 85%, the production would have to be greater than 85% for it to be better than expected. A reduction in discretionary fixed cost may be either good or bad. 54) B Since $72,000 ÷ $80,000 is 90%, the production would have to be greater than 90% for it to be better than expected. A reduction in discretionary fixed cost may be either good or bad. 55) B $254,000 − $227,000 = $27,000 U 56) B $240,000 − $220,000 = $20,000 U. 57) C Version 1

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(2,750 − 3,350) × ($134,000 ÷ 3,350) = $24,000 U 58) C (5,000 − 6,000) × ($120,000 ÷ 6,000) = $20,000 U 59) D [($321,600 ÷ 6,432) − ($251,920 ÷ 5,360)] × 5,360 = ($50 − $47) × 5,360 = $16,080 U 60) D [($300,000 ÷ 6,000) − ($235,000 ÷ 5,000)] × 5,000 = ($50 − $47) × 5,000 = $15,000 U 61) A $165,300 − [($205,200 ÷ 6,840) × 5,700] = $5,700 F 62) A $145,000 − [($180,000 ÷ 6,000) × 5,000] = $5,000 F 63) C Market share variance = Actual sales − (Budgeted share × actual market). Actual sales are provided. 64) D Activity variance = sales quantity variance + sales mix variance 65) A [($182,450 ÷ 8,900) − ($212,550 ÷ 10,900)] × 8,900 = $8,900 F 66) A [($92,000 ÷ 8,000) − ($105,000 ÷ 10,000)] × 8,000 = $8,000 F 67) D When sales change, variable costs will also change, so contribution margin is the appropriate focus. 68) B The sales mix variance is shifting toward higher profit products. 69) C Profits will be higher with more sales than budgeted. 70) D Version 1

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Budgeted units: Product K = 130,000 × 40% = 52,000; Product R = 130,000 × 60% = 78,000; Actual units: Product K = 130,000 × 60% = 78,000; Product R = 130,000 × 40% = 52,000; Sales mix variance = [(52,000 − 78,000) × ($64 − $40)] + [(78,000 − 52,000) × ($52 − $32)] = ($624,000 F) + ($520,000 U) = $104,000 71) D Budgeted units: Product K = 126,000 × 40% = 50,400; Product R = 126,000 × 60% = 75,600; Actual units: Product K = 126,000 × 60% = 75,600; Product R = 126,000 × 40% = 50,400; Sales mix variance = [(50,400 − 75,600) × ($48 − $32)] + [(75,600 − 50,400) × ($36 − $24)] = ($403,200 F) + ($302,400 U) = $100,800 72) B (7,665 − 8,760) × ($9,900 − $7,920) = $2,168,100 73) B (7,000 − 8,000) × ($8,000 − $6,400) = $1,600,000 74) B Unfavorable because sales are less than budgeted. 75) B Unfavorable because sales are less than budgeted. 76) D (2,905 − 2,070) × ($12,700 − $9,525) = $2,651,125 77) D (2,800 − 2,000) × ($12,000 − $9,000) = $2,400,000 78) A Favorable because sales are greater than budgeted. 79) A Favorable because sales are greater than budgeted. 80) B Version 1

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Basic model budgeted sales mix = 9,800 ÷ (9,800 + 3,125) = 80%; Sales mix variance = [11,500 − (80% × (11,500 + 4,600))] × ($9,800 − $7,840) = $2,704,800. 81) B Basic model budgeted sales mix = 8,000 ÷ (8,000 + 2,000) = 80%; Sales mix variance = [7,000 − (80% × (7,000 + 2,800))] × ($8,000 − $6,400) = $1,344,000. 82) B Unfavorable because actual sales were 8,600 units while budgeted sales at a constant mix would have been 9,440. 83) B Unfavorable because actual sales were 7,000 units while budgeted sales at a constant mix would have been 7,840. 84) B (10,450 − 10,650) × (8,520 ÷ 10,650) × ($9,300 − $7,440) = $297,600 85) B (9,800 − 10,000) × (8,000 ÷ 10,000) × ($8,000 − $6,400) = $256,000 86) B Favorable because actual sales were more than budgeted sales. 87) B Unfavorable because actual sales were less than budgeted sales. 88) D Deluxe model budgeted sales mix = 2,950 ÷ (11,800 + 2,950) = 20%; Sales mix variance = [4,700 − (20% × (8,900 + 4,700))] × ($13,900 − $10,900) = $5,940,000 89) D Deluxe model budgeted sales mix = 2,000 ÷ (8,000 + 2,000) = 20%; Sales mix variance = [2,800 − (20% × (7,000 + 2,800))] × ($12,000 − $9,000) = $2,520,000 90) A Version 1

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Unfavorable because actual sales were 1,950 units while budgeted sales at a constant mix would have been 2,790. 91) A Favorable because actual sales were 2,800 units while budgeted sales at a constant mix would have been 1,960. 92) A (11,600 − 12,250) × (2,450 ÷ 12,250) × ($12,900 − $9,900) = $390,000 93) A (9,800 − 10,000) × (2,000 ÷ 10,000) × ($12,000 − $9,000) = $120,000 94) B Favorable because actual sales were more than budgeted sales. 95) B Unfavorable because actual sales were less than budgeted sales. 96) A (185,250 − 195,000) × [($2,085,525 ÷ $34.50) ÷ 195,000] × ($34.50 − $19.75) = $44,581.88 97) A (166,250 − 175,000) × [($1,763,125 ÷ $32.50) ÷ 175,000] × ($32.50 − $18.75) = $37,296.88 98) A Unfavorable because the actual total market for the product was less than the budgeted total market for the product. 99) A Product A: Sales price per unit: Budgeted = $1,896,000 ÷ 255,000 = $7.44; Actual = $1,854,579 ÷ 259,230 = $7.15 Product B: Sales price per unit: Budgeted = $1,383,000 ÷ 111,000 = $12.46; Actual = $1,491,010 ÷ 114,970 = $12.97 Total sales price variance = [($7.15 − $7.44) × 259,230] + [($12.97 − $12.46 × 114,970] = $14,326.35 100) A Version 1

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Product A: Sales price per unit: Budgeted = $1,890,000 ÷ 252,000 = $7.50; Actual = $1,848,579 ÷ 253,230 = $7.30 Product B: Sales price per unit: Budgeted = $1,377,000 ÷ 108,000 = $12.75; Actual = $1,479,010 ÷ 113,770 = $13.00 Total sales price variance = [($7.30 − $7.50) × 253,230] + [($13.00 − $12.75) × 113,770] = $22,203.50 101) B Unfavorable because actual sales are less than the actual volume at the budgeted sales prices Product A: Sales price per unit: Budgeted = $2,296,800 ÷ 264,000 = $8.70; Actual = $2,305,455 ÷ 271,230 = $8.50 Product B: Sales price per unit: Budgeted = $1,602,000 ÷ 120,000 = $13.35; Actual = $1,792,072 ÷ 131,770 = $13.60 Total sales price variance = [($8.50 − $8.70) × 271,230] + [($13.60 − $13.35) × 131,770] = $21,303.50 Unfavorable 102) B Unfavorable because actual sales are less than the actual volume at the budgeted sales prices. Product A: Sales price per unit: Budgeted = $1,890,000 ÷ 252,000 = $7.50; Actual = $1,848,579 ÷ 253,230 = $7.30 Product B: Sales price per unit: Budgeted = $1,377,000 ÷ 108,000 = $12.75; Actual = $1,479,010 ÷ 113,770 = $13.00 Total sales price variance = [($7.30 − $7.50) × 253,230] + [($13.00 − $12.75) × 113,770] = $22,203.50 Unfavorable 103) A

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Product A: 260,400 ÷ 372,000 = 0.70; 261,510 ÷ 379,000 = 0.69 Product B: 111,600 ÷ 372,000 = 0.30; 117,490 ÷ 379,000 = 0.31 [(0.69 − 0.70) × 379,000 × $3.825*] + [(0.31 − 0.30) × 379,000 × $7.225**] = $12,886.00 *($1,953,000 − $956,970) ÷ 260,400 = $3.825 **($1,422,900 − $616,590) ÷ 111,600 = $7.225 104) A Product A: 252,000 ÷ 360,000 = 0.70; 253,230 ÷ 367,000 = 0.69 Product B: 108,000 ÷ 360,000 = 0.30; 113,770 ÷ 367,000 = 0.31 [(0.69 − 0.70) × 367,000 × $3.825*] + [(0.31 − 0.30) × 367,000 × $7.225**] = $12,478.00 *($1,890,000 − $926,100) ÷ 252,000 = $3.825 **($1,377,000 − $596,700) ÷ 108,000 = $7.225 105) A Favorable because a larger proportion of higher profit products were sold. Product A: 261,800 ÷ 374,000 = 0.70; 262,890 ÷ 2,112,169 = 0.12 Product B: 112,200 ÷ 374,000 = 0.30; 1,849,279 ÷ 2,112,169 = 0.88 [(0.12 − 0.70) × 2,112,169 × $3.825*] + [(0.88 − 0.30) × 2,112,169 × $7.225**] = $4,165,197.27 Favorable *($1,963,500 − $962,115) ÷ 261,800 = $3.825 **($1,430,550 − $619,905) ÷ 112,200 = $7.225 106) A

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Favorable because a larger proportion of higher profit products were sold Product A: 252,000 ÷ 360,000 = 0.70; 253,230 ÷ 367,000 = 0.69 Product B: 108,000 ÷ 360,000 = 0.30; 113,770 ÷ 367,000 = 0.31 [(0.69 − 0.70) × 367,000 × $3.825*] + [(0.31 − 0.30) × 367,000 × $7.225**] = $12,478.00 Favorable *($1,890,000 − $926,100) ÷ 252,000 = $3.825 **($1,377,000 − $596,700) ÷ 108,000 = $7.225 107) C Product A: 271,000 ÷ 388,500 = 0.70 Product B: 117,500 ÷ 388,500 = 0.30 [(391,600 − 388,500) × 0.70 × $3.592*] + [(391,600 − 388,500) × 0.30 × $6.754**] = $14,099.61 *($1,909,000 − $935,600) ÷ 271,000 = $3.592 **($1,396,000 − $602,400) ÷ 117,500 = $6.754 108) C Product A: 252,000 ÷ 360,000 = 0.70 Product B: 108,000 ÷ 360,000 = 0.30 [(367,000 − 360,000) × 0.70 × $3.825*] + [(367,000 − 360,000) × 0.30 × $7.225**] = $33,915 *($1,890,000 − $926,100) ÷ 252,000 = $3.825 **($1,377,000 − $596,700) ÷ 108,000 = $7.225 109) A Favorable because more total units were sold than were budgeted. 110) B Overhead ÷ Denominator level of activity = ($10,500 + $44,625) ÷ 3,500 DLH = $55,125 ÷ 3,500 hours = $15.75 111) B Version 1

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Overhead ÷ Denominator level of activity = ($8,500 + $34,625) ÷ 2,500 DLH = $43,125 ÷ 2,500 hours = $17.25 112) A Predetermined overhead rate × Standard hours allowed for the actual hours = [($8,800 + $36,125) ÷ 2,650 DLH] × 2,607 DLH = $16.95 × 2,607 DLH = $44,196 113) A Predetermined overhead rate × Standard hours allowed for the actual hours = [($8,500 + $34,625) ÷ 2,500 DLH] × 2,592 DLH = $17.25 × 2,592 DLH = $44,712 114) D 115) C 116) D Yield compares actual usage with budgeted usage. 117) C This would be a favorable variance. 118) B Favorable variance = credit. Because materials are being issued, the direct material inventory is being reduced. 119) B Favorable variances are credited to the variance accounts. Because actual hours are less than standard, the yield variance will also be favorable. Direct labor is being incurred so the credit is to wages payable. Version 1

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120) A X: (218,400 − [(10 ÷ 15) × (218,400 + 116,400)]) × $6 = $28,800 F; Y: (116,400 − [(5 ÷ 15) × (218,400 + 116,400)]) × $9 = $43,200 U; Total mix variance = $14,400 121) A X: {216,000 − [(10 ÷ 15) × (216,000 + 114,000)]} × $6 = $24,000 F; Y: {114,000 − [(5 ÷ 15) × (216,000 + 114,000)]} × $9 = $36,000 U; Total mix variance = $12,000 122) B Unfavorable because the mix shifted to higher cost materials: Standard Y mix = 5 ÷ 15 = 33.33%; Actual Y mix = 117,000 ÷ 333,300 = 35.10%. 123) B Unfavorable because the mix shifted to higher cost materials: Standard Y mix = 5 ÷ 15 = 33.33%; Actual Y mix = 114,000 ÷ 330,000 = 34.55% 124) D [((13 ÷ 20 × 354,000) − 220,350) × $9] + [((7 ÷ 20 × 354,000) − 118,650) × $14] = $161,250 125) D [((13 ÷ 20 ×335,000) − 208,000) × $5] + [((7 ÷ 20 ×335,000) − 112,000) × $10] = $101,250 126) B Unfavorable because it took more materials to achieve the same output: Standard material = [(21,800 × 10) + (21,800 × 5)] = 327,000; Actual material = 220,000 + 118,000 = 338,000 127) B Unfavorable because it took more materials to achieve the same output: Standard material = [(21,000 × 10) + (21,000 × 5)] = 315,000; Actual material = 216,000 + 114,000 = 330,000. 128) C Version 1

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($5,635 + $6,510 + $6,110 + $2,490) − [(25,400 × $0.200) + (13,400 × $0.425) + (40,400 × $0.150) + (7,900 × $0.300)] = $20,745 − $19,205 = $1,540 129) C ($5,365 + $6,240 + $5,840 + $2,220) − [(25,000 × $0.200) + (13,000 × $0.425) + (40,000 × $0.150) + (7,500 × $0.300)] = $19,665 − $18,775 = $890 130) B Unfavorable because the actual costs were higher than the standard costs at actual quantity purchased. ($8,065 + $8,940 + $8,540 + $4,920) − [(29,000 × $0.200) + (17,000 × $0.425) + (44,000 × $0.150) + (11,500 × $0.300)] = $30,465 − $23,075 = $7,390 Unfavorable 131) B Unfavorable because the actual costs were higher than the standard costs at actual quantity purchased. ($5,365 + $6,240 + $5,840 + $2,220) − [(25,000 × $0.200) + (13,000 × $0.425) + (40,000 × $0.150) + (7,500 × $0.300)] = $19,665 − $18,775 = $890 Unfavorable 132) D Average cost per liter = $135 ÷ 600 = $0.225; Used 112,420 × $0.225 = $25,294.50; Standard input: 600 liter × 185 batches × $0.225 = $24,975; Yield variance = $25,294.50 − $24,975 = $319.50 133) D Average cost per liter = $135 ÷ 600 = $0.225; Used 84,420 × $0.225 = $18,994.50; Standard input: 600 liter × 140 batches × $0.225 = $18,900; Yield variance = $18,994.50 − $18,900 = $94.50 134) B

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Unfavorable because actual inputs used is greater than standard inputs budgeted. Actual inputs = 151,620; Standard inputs = 600 × 248 = 148,800 135) B Unfavorable because actual inputs used is greater than standard inputs budgeted. Actual inputs = 84,420; Standard inputs = 600 × 140 = 84,000 136) C Cost of used: (27,100 × $0.200) + (13,480 × $0.425) + (38,300 × $0.150) + (7,740 × $0.300) = $19,216; Average cost per liter = $135 ÷ 600 = $0.225; Used 86,620 × $0.225 = $19,489.50; Materials mix variance: $19,216 − $19,489.50 = $273.50. 137) C Cost of used: (26,600 × $0.200) + (12,880 × $0.425) + (37,800 × $0.150) + (7,140 × $0.300) = $18,606; Average cost per liter = $135 ÷ 600 = $0.225; Used 84,420 × $0.225 = $18,994.50; Materials mix variance: $18,606 − $18,994.50 = $388.50. 138) A Favorable because the mix shifted to the lower cost material. Cost of used: (26,700 × $0.200) + (13,080 × $0.425) + (37,900 × $0.150) + (7,340 × $0.300) = $18,786; Average cost per liter = $135 ÷ 600 = $0.225; Used 85,020 × $0.225 = $19,129.50; Materials mix variance: $18,786 − $19,129.50 = $343.50 Favorable 139) A Favorable because the mix shifted to the lower cost material. Cost of used: (26,600 × $0.200) + (12,880 × $0.425) + (37,800 × $0.150) + (7,140 × $0.300) = $18,606; Average cost per liter = $135 ÷ 600 = $0.225; Used 84,420 × $0.225 = $18,994.50; Materials mix variance: $18,606 − $18,994.50 = $388.50 Favorable 140) A Version 1

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O: (390 pounds × $0.10) − [(0 ÷ 200 × 605 × $0.10] = $39.00 U H: (0 pounds × $0.08) − [(155 ÷ 200) × 605 × $0.08] = $37.51 F M: (215 pounds × $0.02) − [(45 ÷ 200) × 605 × $0.02] = $1.58 U Total materials mix variance = $39.00 U − $37.51 F + 1.58 U = $3.07. 141) A O: (90 pounds × $0.10) − [(0 ÷ 200) × 230 × $0.10] = $9.00 U H: (0 pounds × $0.08) − [(80 ÷ 200) × 230 × $0.08] = $7.36 F M: (140 pounds × $0.02) − [(120 ÷ 200) × 230 × $0.02] = $.04 U Total materials mix variance = $9.00 U − $7.36 F − 0.04 U = $1.68 142) B Unfavorable because the mix shifted to higher cost material. O: (450 pounds × $0.10) − [(0 ÷ 200 × 675 × $0.10] = $45.00 U H: (0 pounds × $0.08) − [(165 ÷ 200) × 675 × $0.08] = $44.55 F M: (225 pounds × $0.02) − [(35 ÷ 200) × 675 × $0.02] = $2.14 U Total materials mix variance = $45.00 U − $44.55 F + 2.14 U = $2.59 Unfavorable 143) B Unfavorable because the mix shifted to higher cost material. O: (90 pounds × $0.10) − [(0 ÷ 200) × 230 × $0.10] = $9.00 U H: (0 pounds × $0.08) − [(80 ÷ 200) × 230 × $0.08] = $7.36 F M: (140 pounds × $0.02) − [(120 ÷ 200) × 230 × $0.02] = $.04 U Total materials mix variance = $9.00 U − $7.36 F − 0.04 U = $1.68 Unfavorable 144) D [(225 + 175) − 200] × ($13.90 ÷ 200) = $13.90 145) D [(140 + 90) − 200] × ($8.80 ÷ 200) = $1.32 146) B Unfavorable because more inputs were used than was standard. [(210 + 160) − 200] × ($13.00/200) = $11.05 Unfavorable. Version 1

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147) B Unfavorable because more inputs were used than was standard. [(140 + 90) − 200] × ($8.80 ÷ 200) = $1.32 Unfavorable 148) A $20,200 = $295,150 − (39,000 × SR); SR = $7.05; Efficiency variance (EV) = (39,000 − 40,500) × $7.05 = $10,575 F; Efficiency variance = Mix Variance + Yield Variance; $10,575 F = $13,225 U + Yield variance; Yield variance = $23,800 149) A $4,500 = $189,000 − (30,000 × SR); SR = $6.15; Efficiency variance (EV) = (30,000 − 31,500) × $6.15 = $9,225 F; Efficiency variance = Mix Variance + Yield Variance; $9,225 F = $4,225 U + Yield variance; Yield variance = $13,450 150) A Favorable because fewer labor hours were needed than was standard. 151) C Efficiency variance = Mix variance + Yield variance = $14,000 F + $12,000 F = $26,000 F; Rate variance = Actual − (SR × AH) = $276,000 − (AH × SR) = $139,000 F; $276,000 + $139,000 = (AH × SR); $415,000 = (AH × SR); Efficiency variance = (AH − SH) × SR = (AH − 49,000) × SR = $26,000 F; (AH × SR) − 49,000SR = $(26,000); $415,000 − 49,000SR = $(26,000); $441,000 = 49,000SR; SR = $9.00 152) C

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Efficiency variance = Mix variance + Yield variance = $4,000 F + $2,000 F = $6,000 F; Rate variance = Actual − (SR × AH) = $165,300 − (AH × SR) = $8,700 F; $165,300 + $8,700 = (AH × SR); $174,000 = (AH × SR); Efficiency variance = (AH − SH) × SR = (AH − 45,000) × SR = $6,000 F; (AH × SR) − 45,000SR = $(6,000); $174,000 − 45,000SR = $(6,000); $180,000 = 45,000SR; SR = $4.00 153) C Efficiency variance = Mix variance + Yield variance = $13,500 F + $11,500 F = $25,000 F; Rate variance = Actual − (SR × AH) = $270,000 − (AH × SR) = $132,000 F; $270,000 + $132,000 = (AH × SR); $402,000 = (AH × SR); Efficiency variance = (AH − SH) × SR = (AH − 48,800) × SR = $25,000 F; (AH × SR) − 48,800SR = $(25,000); $402,000 − 48,800SR = $(25,000); $427,000 = 48,800SR; SR = $8.75; Rate variance = $270,000 − (AH × $8.75) = $132,000; AH = 45,943; Actual payroll = AR × AH; $270,000 = AR × 45,943; AR = $5.88 154) C Efficiency variance = Mix variance + Yield variance = $4,000 F + $2,000 F = $6,000 F; Rate variance = Actual − (SR × AH) = $165,300 − (AH × SR) = $8,700 F; $165,300 + $8,700 = (AH × SR); $174,000 = (AH × SR); Efficiency variance = (AH − SH) × SR = (AH − 45,000) × SR = $6,000 F; (AH × SR) − 45,000SR = $(6,000); $174,000 − 45,000SR = $(6,000); $180,000 = 45,000SR; SR = $4.00; Rate variance = $165,300 − (AH × $4.00) = $8,700; AH = 43,500; Actual payroll = AR × AH; $165,300 = AR × 43,500; AR = $3.80 155) D 156) B

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The share and industry volume would be the logical variances to look at in explaining a revenue shortfall. Of these two, market share is more controllable by the marketing department. 157) D Both favorable and unfavorable variances should be considered. 158) B Reporting does not affect the underlying circumstances that cause a variance. 159)a.$103,890 − (86,300 × $1.25) = $3,985 F b.(82,310 × $1.25) − (4,200 × 20 × $1.25) = $2,112.50 F c.$139,360 − (9,150 × $15) = $2,110 U d.(9,150 × $15) − (4,200 × 2 × $15) = $11,250 U 160)A. Entry to record purchase of materials at standard cost: Account Materials Inventory ($30.50 × 4,000 liters) Materials Price Variance [4,000 liters × ($30.70 − $30.50)] Accounts Payable ($30.70 × 4,000 liters)

Debit 122,000

Credit

800 122,800

B. Entry to record use of materials: Account Work-in-Process Inventory ($30.50 × 3,680 liters*) Materials Efficiency Variance [$30.50 × (3,580 liters − 3,680 liters*)] Materials Inventory ($30.50 × 3,580 liters)

Debit 112,240

Credit

3,050 109,190

*800 units × 4.6 liters = 3,680 161)a.$48,230 − (6,000 × $7) = $6,230 U b.(5,750 × $7) − (1,800 × 3 × $7) = $2,450 U c.$140,170 − (7,420 × $18) = $6,610 U d.(7,420 × $18) − (1,800 × 4 × $18) = $3,960 U Version 1

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162)A. Entry to record purchase of materials at standard cost: Account Materials Inventory ($38.70 × 2,800 ounces)

Debit 108,360

Materials Price Variance [2,800 ounces × ($39.20 − $38.70)] Accounts Payable ($39.20 × 2,800 ounces)

Credit

1,400 109,760

B. Entry to record use of materials: Account Work-in-Process ($38.70 × 2,300 ounces*)

Debit 89,010

Materials Efficiency Variance [$38.70 × (2,360 ounces – 2,300 ounces*)] Materials Inventory ($38.70 × 2,360 ounces)

Credit

2,322 91,332

*500 units at 4.6 ounces = 2,300 ounces 163)a. Materials price variance = (AQ × AP) − (AQ × SP); = $100,500 − (6,700 pounds × $15.50 per pound); = $100,500 − $103,850; = $3,350 F b. Materials quantity variance = SP (AQ − SQ); = $15.50 per pound (6,400 pounds − 5,796 pounds*); = $99,200 − $89,838; = $9,362 U *920 units × 6.3 pounds = 5,796 pounds 164)a.$113,650 − (51,100 × $2.25) = $1,325 F b.(51,069 × $2.25) − (3,121 × 15 × $2.25) = $9,571.50 U c.$248,000 − (9,500 × $25) = $10,500 U d.(9,500 × $25) − (3,121 × 3 × $25) = $3,425 U 165)a. Account

Version 1

Debit

Credit 178

Materials Inventory ($3.50 × 4,500 pounds)

15,750

Materials Price Variance [$14,400 − (4,500 pounds × $3.50)] Accounts Payable

1,350 14,400

b. Account Work-in-Process Inventory ($3.50 × 3,750 pounds*) Materials Efficiency Variance [$3.50 × (4,000 pounds − 3,750 pounds*)] Materials Inventory ($3.50 × 4,000 pounds)

Debit 13,125

Credit

875 14,000

*750 units × 5 pounds = 3,750 pounds. c. Account Work-in-Process Inventory ($5.50 × 2,250 hours*) Labor Rate Variance [2,000 hours × ($5.60 − $5.50)] Labor Efficiency Variance [$5.50 × (2,000 hours − 2,250 hours*)] Wages Payable

Debit 12,375

Credit

200 1,375 11,200

*750 units × 3 hours = 2,250 hours 166)a.$46,400 − (8,000 × $6) = $1,600 F b.(7,300 × $6) − (3,600 × 2 × $6) = $600 U c.$160,580 − (10,360 × $15) = $5,180 U d.(10,360 × $15) − (3,600 × 3 × $15) = $6,600 F

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167)Contribution margin per unit: Product A: ($1,890,000 − 919,800) ÷ 252,000 = $3.85; Product B: ($1,377,000 − $594,000) ÷ 108,000 = $7.25 Budgeted industry: Product A: 252,000 ÷ 12.5% = 2,016,000; Product B: 108,000 ÷ 20% = 540,000 Actual industry: Product A: 252,230 ÷ 15% = 1,681,533; Product B: 113,770 ÷ 17% = 669,235 a. Product A: (252,230 × $3.85) − (252,000 × $3.85) = $885.50 F; Product B: (113,770 × $7.25) − (108,000 × $7.25) = $41,832.50 F b. Product A: (252,230 × $3.85) − [(1,681,533 × 12.5%) × $3.85] = $161,847.74 F; Product B: (113,770 × $7.25) − [(669,235 × 20%) × $7.25] = $145,558.25 U c. Product A: [(1,681,533 × 12.5%) × $3.85] − (252,000 × $3.85) = $160,962.24 U; Product B: [(669,235 × 20%) × $7.25] − (108,000 × $7.25) = $187,390.75 F 168)Budgeted market share: 54,250 ÷ 175,000 = 31% a.(56,525 × $13) − (54,250 × $13) = $29,575 F b.(56,525 × $13) − [(166,250 × 31%) × $13] = $64,837.50 F c.[(166,250 × 31%) × 13] − (54,250 × $13) = $35,262.50 U

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169)Contribution margin per unit: Product 1: ($945,000 − 459,900) ÷ 126,000 = $3.85; Product 2: ($688,500 − $297,000) ÷ 54,000 = $7.25 Budgeted industry: Product 1: 126,000 ÷ 12% = 1,050,000; Product 2: 54,000 ÷ 20% = 270,000 Actual industry: Product 1: 126,200 ÷ 16% = 788,750; Product 2: 56,800 ÷ 14.2% = 400,000 a. Product 1: (126,200 × $3.85) − (126,000 × $3.85) = $770 F Product 2: (56,800 × $7.25) − (54,000 × $7.25) = $20,300 F b. Product 1: (126,200 × $3.85) − [(788,750 × 12%) × $3.85] = $121,467.50 F Product 2: (56,800 × $7.25) − [(400,000 × 20%) × $7.25] = $168,200 U c. Product 1: [(788,750 × 12%) × $3.85] − (126,000 × $3.85) = $120,697.50 U Product 2: [(400,000 × 20%) × $7.25] − (54,000 × $7.25) = $188,500 F 170)Budgeted market share: 108,500 ÷ 350,000 = 31% a.(113,050 × $12) − (108,500 × $12) = $54,600 F b.(113,050 × $12) − [(332,500 × 31%) × $12] = $119,700 F c.[(332,500 × 31%) × $12] − (108,500 × $12) = $65,100 U

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171)Contribution margin per unit: Product AR: ($6,000 − $2,400) ÷ 2,000 = $1.80; Product QT: ($12,000 − $6,000) ÷ 6,000 = $1.00 Budgeted sales mix: Product AR: 2,000 ÷ (2,000 + 6,000) = 25%; Product QT: = 75% a. Product AR: (2,800 × $1.80) − (2,000 × $1.80) = $1,440 F Product QT: (5,600 × $1) − (6,000 × $1) = $400 U b. Product AR: (2,800 × $1.80) − [(2,800 + 5,600) × 25% × $1.80] = $1,260 F Product QT: (5,600 × $1) − [(2,800 + 5,600) × 75% × $1] = $700 U c. Product AR: [(2,800 + 5,600) × 25% × $1.80] − (2,000 × $1.80) = $180 F Product QT: [(2,800 + 5,600) × 75% × $1] − (6,000 × $1) = $300 F 172)Contribution margin per unit: Product A: ($1,890,000 − 919,800) ÷ 252,000 = $3.85; Product B: ($1,377,000 − $594,000) ÷ 108,000 = $7.25 Budgeted sales mix: Product A: 252,000 ÷ (252,000 + 108,000) = 70%; Product B: = 30% a. Product A: (252,230 × $3.85) − (252,000 × $3.85) = $885.50 F Product B: (113,770 × $7.25) − (108,000 × $7.25) = $41,832.50 F b. Product A: (252,230 × $3.85) − [(252,230 + 113,770) × 70% × $3.85] = $15,284.50 U Product B: (113,770 × $7.25) − [(252,230 + 113,770) × 30% × $7.25] = $28,782.50 F c. Product A: [(252,230 + 113,770) × 70% × $3.85] − (252,000 × $3.85) = $16,170.00 F Product B: [(252,230 + 113,770) × 30% × $7.25] − (108,000 × $7.25) = $13,050.00 F

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173)Contribution margin per unit: Standard: ($6,000 − $2,400) ÷ 4,000 = $0.90; Deluxe: ($12,000 − $6,000) ÷ 12,000 = $0.50 Budgeted sales mix: Standard: 4,000 ÷ (4,000 + 12,000) = 25%; Deluxe: = 75% a. Standard: (5,600 × $0.90) − (4,000 × $0.90) = $1,440 F Deluxe: (11,200 × $0.50) − (12,000 × $0.50) = $400 U b. Standard: (5,600 × $0.90) − [(5,600 + 11,200) × 25% × $0.90] = $1,260 F Deluxe: (11,200 × $0.50) − [(5,600 + 11,200) × 75% × $0.50] = $700 U c. Standard: [(5,600 + 11,200) × 25% × $0.90] − (4,000 × $0.90) = $180 F Deluxe: [(5,600 + 11,200) × 75% × $0.50] − (12,000 × $0.50) = $300 F 174)Contribution margin per unit: Product 1: ($945,000 − 459,900) ÷ 126,000 = $3.85; Product 2: ($688,500 − $297,000) ÷ 54,000 = $7.25 Budgeted sales mix: Product 1: 126,000 ÷ (126,000 + 54,000) = 70%; Product 2: 30% a. Product 1: (126,200 × $3.85) − (126,000 × $3.85) = $770 F Product 2: (56,800 × $7.25) − (54,000 × $7.25) = $20,300 F b. Product 1: (126,200 × $3.85) − [(126,200 + 56,800) × 70% × $3.85] = $7,315 U Product 2: (56,800 × $7.25) − [(126,200 + 56,800) × 30% × $7.25] = $13,775 F c. Product 1: [(126,200 + 56,800) × 70% × $3.85] − (126,000 × $3.85) = $8,085 F Product 2: [(126,200 + 56,800) × 30% × $7.25] − (54,000 × $7.25) = $6,525 F

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175)a. Chemical A: 6,400 × ($9.00 − $10.00) = $6,400 F Chemical B: 900 × ($75 − $50) = $22,500 U Chemical C: 4,200 × ($20 − $20) = 0 b. Chemical A: [6,400 − (10,000 × 0.5)] × $10 = $14,000 U Chemical B: [900 − (10,000 × 0.1)] × $50 = $5,000 F Chemical C: [4,200 − (10,000 × 0.4)] × $20 = $4,000 U c. Actual inputs A 6,400 × $ 10 B

Cost

Standard Mix

Cost

Variance

$ 64,000

50% × 11,500 × $ 10 10% × 11,500 × $ 50 40% × 11,500 × $ 20

$ 57,500

$ 6,500 U

57,500

12,500 F

92,000

8,000 F

$ 207,000

$ 14,000 F

Cost

Variance

$ 50,000

$ 7,500 U

50,000

7,500 U

80,000

12,000 U

$ 180,000

$ 27,000 U

900 × $ 50

45,000

C 4,200 × $ 20

84,000 $ 193,000

d. Standard Mix @ Actual inputs A 50% × 11,500 × $ 10 B 10% × 11,500 × $ 50 C 40% × 11,500 × $ 20

Cost

Standard Mix @ Standard inputs $ 57,500 50% × 10,000 × $ 10 57,500 10% × 10,000 × $ 50 92,000 40% × 10,000 × $ 20 $ 207,000

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176)a. Chemical 1: 5,400 × ($59.00 − $50.00) = $48,600 U Chemical 2: 900 × ($225 − $200) = $22,500 U b. Chemical 1: [5,400 − (5,000 × 0.8)] × $50 = $70,000 U Chemical 2: [900 − (5,000 × 0.2)] × $200 = $20,000 F c. Actual inputs 1 5,400 × $ 50

Cost

Standard Mix

Cost

Variance

$ 270,000

$ 252,000

$ 18,000 U

2 900 × $ 200

180,000

80% × 6,300 × $ 50 20% × 6,300 × $ 200

252,000

72,000 F

$ 504,000

$ 54,000 F

Standard Mix @ Cost Standard Mix @ Cost Actual inputs Standard inputs 1 80% × 6,300 × $ 252,000 80% × 5,000 × $ $ 200,000 $ 50 50 2 20% × 6,300 × 252,000 20% × 5,000 × $ 200,000 $ 200 200

Variance

$ 450,000

$ 504,000

$ 400,000

$ 52,000 U 52,000 U $ 104,000 U

177)a. L1: (4,000 × $25) − (4,000 × $20) = $20,000 U L2: (6,800 × $15) − (6,800 × $15) = 0 b. L1: (4,000 × $20) − [(10,000 × 2 × 15 ÷ 60) × $20] = $20,000 F L2: (6,800 × $15) − [(10,000 × 3 × 10 ÷ 60) × $15] = $27,000 U c.

Actual inputs 4,000 × $ 20

Version 1

Cost

Standard Mix

Cost

Variance

$ 80,000

50% × 10,800 × $ 20

$ 108,000

$ 28,000 F

185

6,800 × $ 15

102,000

50% × 10,800 × $ 15

81,000

21,000 U

$ 189,000

$ 7,000 F

Standard Mix @ Cost Standard inputs $ 108,000 50% × 10,000 × $ 100,000 $ 20 81,000 50% × 10,000 × 75,000 $ 15

Variance

$ 182,000

d. Standard Mix @ Actual inputs 1 50% × 10,800 × $ 20 2 50% × 10,800 × $ 15

Cost

$ 189,000

$ 175,000

$ 8,000 U 6,000 U $ 14,000 U

178)a. Class A: $156,600 − (5,800 × $24) = $17,400 U Class B: $49,000 − (3,500 × $12) = $7,000 U b. Class A: (5,800 × $24) − [(6,000 × 3 × 20 ÷ 60) × $24] = $4,800 F Class B: (3,500 × $12) − [(6,000 × 2 × 15 ÷ 60) × $12] = $6,000 U c. Actual inputs A

5,800

3,500

× $ 24 × $ 12

9,300

Cost

Standard Mix

Cost

Variance

$ 139,200 2/3 × 9,300 × $ 24 42,000 1/3 × 9,300 × $ 12

$ 148,800

$ 9,600 F

37,200

4,800 U

$ 181,200

$ 186,000

$ 4,800 F

Cost

Variance

$ 144,000

$ 4,800 U

36,000

1,200 U

1 2

Standard Mix @ Actual inputs 2/3 × 9,300 × $ 24 1/3 × 9,300 × $ 12

Version 1

Cost

Standard Mix @ Standard inputs $ 148,800 2/3 × 9,000 × $ 24 37,200 1/3 × 9,000 × $ 12

186

$ 186,000

$ 180,000

$ 6,000 U

179)a. Chemical A B C

Actual Cost $ 4,365 6,240 1,520

Quantity purchased Standard Cost 17,800 × $ 0.25 $ 4,450 13,000 × $ 0.45 5,850 5,500 × $ 0.30 1,650

$ 12,125

36,300

Price Variance

$ 11,950

$ 85 F 390 U 130 F $ 175 U

b. Quantity used A 16,600 B

11,880

5,140

Cost

× $ 0.25 × $ 0.45 × $ 0.30

33,620

Standard usage $ 520 × 30 15,600 × $ 4,150 0.25 $ 520 × 20 10,400 × $ 5,346 0.45 $ 520 × 10 5,200 × $ 1,542 0.30

Standard Efficiency Cost Variance $ 3,900 $ 250 U

$ 11,038

31,200

4,680

666 U

1,560

18 F

$ 10,140

$ 898 U

c. Standard Mix at Actual inputs A 3/6 × 33,620 × $ 0.25 B 2/6 × 33,620 × $ 0.45 C 1/6 × 33,620 × $ 0.30

Cost

Standard Mix at Standard inputs $ 4,202.50 15,600 × $ 0.25

Cost

Variance

$ 3,900

$ 302.50 U

5,043.00 10,400 × $ 0.45

4,680

363.00 U

1,681.00

1,560

121.00 U

$ 10,140

$ 786.50 U

Cost

Variance

5,200 × $ 0.30

$ 10,926.50

d. Actual inputs

Version 1

Cost

Standard Mix

187

16,600

11,880

5,140

× $ 0.25 × $ 0.45 × $ 0.30

33,620

$ 4,150 3/6 × 33,620 × $ 0.25 5,346 2/6 × 33,620 × $ 0.45 1,542 1/6 × 33,620 × $ 0.30

$ 4,202.50

$ 52.50 F

5,043.00

303.00 U

1,681.00

139.00 F

$ 11,038

$ 10,926.50

$ 111.50 U

180)a. Advanced: (2,200 × $18) − [(4,000 × 1 × 30 ÷ 60) × $18] = $3,600 U Trained: (4,300 × $15) − [(4,000 × 3 × 20 ÷ 60) × $15] = $4,500 U Novice: (1,900 × $10) − [(4,000 × 2 × 15 ÷ 60) × $10] = $1,000 F b. Actual inputs Advanced

2,200

Trained

4,300

Novice

1,900

× $ 18 × $ 15 × $ 10

8,400

Cost

Standard Mix

Cost

Variance

$ 39,600

1/4 × 8,400 × $ 18 1/2 × 8,400 × $ 15 1/4 × 8,400 × $ 10

$ 37,800

$ 1,800 U

63,000

1,500 U

21,000

2,000 F

$ 121,800

$ 1,300 U

Standard Mix Cost @ Standard inputs $ 37,800 1/4 × 8,000 × $ 36,000 $ 18 63,000 1/2 × 8,000 × 60,000 $ 15 21,000 1/4 × 8,000 × 20,000 $ 10

Variance

64,500 19,000 $ 123,800

c. Standard Mix @ Actual inputs Advanced 1/4 × 8,400 × $ 18 Trained 1/2 × 8,400 × $ 15 Novice 1/4 × 8,400 × $ 10

Cost

$ 121,800

$ 116,000

$ 1,800 U 3,000 U 1,000 U $ 5,800 U

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188

Actual Billable hours Revenue Professional salaries (variable) Other variable costs Contribution margin Fixed costs Office management salaries (fixed) Operating profit

Master Budget

25,200 $ 2,772,000 1,310,000

Flexible Budget 25,200 $ 2,520,000 1,260,000

488,000 $ 974,000 492,000 317,000

420,000 $ 840,000 450,000 225,000

400,000 $ 800,000 450,000 225,000

$ 165,000

$ 125,000

$ 24,000 $ 2,400,000 1,200,000

Sales: $2,400,000 ÷ 24,000 = $100 per hour; Professional Salaries: $1,200,000 ÷ 24,000 = $50 per hour; Other Variable: $400,000 ÷ 24,000 = $16.667 per hour b. Flexible Budget Billable hours Revenue Professional salaries (variable) Other variable costs Contribution margin Fixed costs Office management salaries (fixed) Operating profit

$ 25,200

Sales Activity Variance $ 1,200

Master Budget

$ 2,520,000 1,260,000

$ 120,000 60,000

F $ 2,400,000 U 1,200,000

420,000 $ 840,000 450,000 225,000

20,000 $ 40,000 0 0

U F F

$ 165,000

$ 40,000

24,000

400,000 $ 800,000 450,000 225,000 $ 125,000

c. $2,772,000 − $2,520,000 = $252,000 F

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182)Recording the materials price variance at the time of purchase provides better and more timely information for the purchasing function sooner (when the goods are purchased) rather than delaying until the goods are used. 183)The market share variance tells how much of the sales activity is due to changes in the market share using the actual industry volume. The industry volume variance tells how much of the sales activity is due to changes in the overall size of the market. The industry volume variance uses the budgeted market share in its calculations. 184)The sales mix variance measures the impact of customers substituting one product for another. This is calculated using actual sales volume. The sales quantity variance measures the impact of selling more or less, in total, holding the sales mix constant. 185)The two considerations are the impact of the variance and its controllability. Impact means the likely monetary effect from an activity. Does the variance matter or is it too small? Controllability means the extent to which an item can be managed. If a variance is not controllable, computing it makes little sense even if it has a large impact. 186)The production mix and yield variances break an efficiency variance down into the impact of a change in material or labor mix and yield. The mix variance arises from changes in the relative proportions of inputs. The yield variance is the difference between expected output from a given level of inputs (holding the mix constant) and the actual outputs obtained.

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190

187)The stated responsibilities reduce the conflict but do not eliminate it. Purchasing is adversely affected when manufacturing puts through rush orders that cannot be obtained at the normal price—this is the responsibility of manufacturing. If purchasing acquires materials of a lower quality than normal, perhaps at a lower price, manufacturing might have higher quantity variances due to excess waste—this is the responsibility of the purchasing department. Even in the best of situations, a part of the quantity variance could be assigned to purchasing—thereby creating a joint variance. So, how can Mr. Becker resolve the problem? Try to investigate the cause of the variance carefully in order to charge it to the correct party and where it is a joint variance, explain the situation to both parties. The conflicts have arisen because, as the parties involved have surmised, the variances have been charged incorrectly. 188)(1) Flexible Budget

Static Budget

Sales revenue Variable cost Contribution margin Fixed cost

$ 330,000 168,000 $ 162,000 60,000

$ 320,000 160,000 $ 160,000 60,000

Income

$ 102,000

$ 100,000

(2) Sales activity variance = $162,000 − $160,000 = $2,000 F

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191

189)Direct materials price variance: AQ(AP − SP) AP = $1,462,500 ÷ 585,000 = $2.50 per part; [585,000 × ($2.50 − $2.00)] = $292,500 U Direct materials efficiency variance: SP(AQ − SQ) SQ = 130,000 × 4 = 520,000; [$2 × (585,000 − 520,000)] = $130,000 U Direct labor rate variance: AH(AR − SR) AR = $561,000 ÷ 51,000 = $11 per hour; [51,000 × ($11 − $10)] = $51,000 U Direct labor efficiency variance: SR(AH − SH) SH = 0.5 hours × 130,000; [$10 × (51,000 − 65,000)] = $140,000 F

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192

190)(a) Traditional advantages: (1) Standard costs and variances save management time by allowing the use of management by exception. (2) Standard costs provide a basis for sensible cost comparisons. (3) Variances provide a means of performance evaluation and rewards for employees. (4) Variances provide motivation for employees to adhere to standards through performance evaluation. (5) Standard costs as product costs result in more stable product costs than if actual costs were used. (6) Standard costing systems are less expensive to operate than actualand normal-costing systems. (a) Traditional disadvantages: (1) Traditional Standard Costing is not as useful as activity based management. (2) Focus is on the cost and efficiency of direct labor. (3) Shorter product life cycles mean that standard costs must be adjusted often to remain relevant. (b) The decision was imposed on the group by the CEO directly and the consultants indirectly, but top management's whole-hearted acceptance does not seem apparent. The team, while involved in the areas that will be affected by the standards, did not include other key personnel such as someone from accounting and an industrial engineer. Having the consultant set the standards will exacerbate the problem even more since no one will accept the imposed standards. There will be a feeling that the consultants have set the standards too high, they know nothing about the details of the business, etc.

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193

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) One reason financial measures are used to evaluate performance is that they are easily quantifiable. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-02 Explain why companies use nonfinancial performance measures. Gradable : automatic Topic : Beyond the Accounting Numbers

2) One disadvantage of using nonfinancial measures to evaluate performance is that they are only available on a monthly, quarterly, or annual basis. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-02 Explain why companies use nonfinancial performance measures. Gradable : automatic Topic : Beyond the Accounting Numbers

3) An organization’s value proposition tells why the organization exists, including its purpose and goals. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-01 Explain why management accountants should know the business strategy of th Gradable : automatic Topic : Strategy and Performance

4) In general, because all employees in a given organization are responsible to the same stakeholders, they should all be evaluated using the same financial and nonfinancial measures. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-03 Understand the reasons why performance measures differ across levels of th Gradable : automatic Topic : Responsibilities According to Level of Organization

5) In general, financial and nonfinancial performance measures should relate to what managers at different levels control. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-03 Understand the reasons why performance measures differ across levels of th Gradable : automatic Topic : Responsibilities According to Level of Organization

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. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-03 Understand the reasons why performance measures differ across levels of th Gradable : automatic Topic : Business Model

7) In general, the use of multiple measures to evaluate performance is better than the use of a single performance measure. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

8) At the middle levels in the organization, control and performance mea-surement focus on how people carry out the daily activities that create the organiza-tion's products. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-03 Understand the reasons why performance measures differ across levels of th Gradable : automatic Topic : Responsibilities According to Level of Organization

9) At the upper level of the orga-nization, performance measurement focuses on whether the organization is meeting its responsibilities and performing well from the stakeholders' perspective. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-03 Understand the reasons why performance measures differ across levels of th Gradable : automatic Topic : Responsibilities According to Level of Organization

10)

A balanced scorecard is essentially a balance sheet prepared using nonfinancial measures. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

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, the community, and other shareholders. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

12) A balanced scorecard uses only nonfinancial measures to determine how well the organization is doing in view of competing stakeholder concerns. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

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. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-05 Understand how to apply benchmarking to support continuous improvement. Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

14) An important guideline of benchmarking is not to benchmark everything at the best-inthe-business level since no organization can be the best at everything. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-05 Understand how to apply benchmarking to support continuous improvement. Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

15) The primary objective of benchmarking is to evaluate performance of an activity, operation, or organization relative to the performance by other companies. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-05 Understand how to apply benchmarking to support continuous improvement. Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

16) Manufacturing cycle time is the total time involved in processing, moving, storing, and inspecting a good or providing a service. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

17) Improving the efficiency of the manufacturing cycle involves decreasing the time spent processing a good. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

18)

The number of defective units is an example of a subjective performance measure. ⊚ true ⊚ false

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

19)

Partial productivity is the ratio of the value of output to the value of all key inputs. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

20) One advantage of nonfinancial measures is that managers directly involved in operations are likely to understand them. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Topic : Employee Involvement Learning Objective : 18-07 Explain why employee involvement is important for an effective performance

21) Employee involvement in real decision making is likely to increase the employee's commitment to the organization and its objectives. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Gradable : automatic Topic : Employee Involvement Learning Objective : 18-07 Explain why employee involvement is important for an effective performance

22) Employees empowered with real decision-making authority are more likely to be more responsive to customer concerns. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Gradable : automatic Topic : Employee Involvement Learning Objective : 18-07 Explain why employee involvement is important for an effective performance

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 23) 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 is known as: A) strategy. B) product differentiation. C) cost leadership. D) the balanced scorecard.

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Accessibility : Screen Reader Compatible Learning Objective : 18-01 Explain why management accountants should know the business strategy of th Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking Gradable : automatic Topic : The Foundation of a Successful Business Strategy

24) 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 is known as: A) strategy. B) product differentiation. C) cost leadership. D) the balanced scorecard.

Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Accessibility : Screen Reader Compatible Learning Objective : 18-01 Explain why management accountants should know the business strategy of th Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : BB Critical Thinking Gradable : automatic Topic : The Foundation of a Successful Business Strategy

25) Which of the following statements is false true regarding financial performance measures?

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A) One disadvantage of using financial performance 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. C) Financial performance measures are most useful in identifying operational problems. D) Financial performance measures can motivate employees to improve the company’s accounting profits.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Learning Objective : 18-02 Explain why companies use nonfinancial performance measures. Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Topic : Beyond the Accounting Numbers

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.

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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) Fulfillment of responsibilities to company shareholders

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-03 Understand the reasons why performance measures differ across levels of th Gradable : automatic Topic : Responsibilities According to Level of Organization

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?

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A) Gross margin ratio B) Retention of existing customers C) Hours of job-related training D) Process cycle time

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de AICPA : BB Critical Thinking AICPA : BB Resource Management AICPA : FN Measurement Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de AICPA : BB Critical Thinking AICPA : BB Resource Management AICPA : FN Measurement Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de AICPA : BB Critical Thinking AICPA : BB Resource Management AICPA : FN Measurement AICPA : BB Marketing Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

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31)

A business model attempts to minimize problems associated with: A) decentralization. B) divisional autonomy. C) goal congruence. D) maximizing profits.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-03 Understand the reasons why performance measures differ across levels of th Gradable : automatic Topic : Business Model

32)

Which of the following statements is 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 a single measure. C) The performance measures selected by a company communicate to its employees the areas that are important for achieving success. D) The balanced scorecard is one structured approach to implementing a system with a single measure.

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33)

A balanced scorecard is a set of: A) performance measures. B) financial statements. C) budget schedules. D) annual reports.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

35) One of the results in using balanced scorecards is a shift from a focus on financial results to a focus on: A) market share. B) budgetary slack. C) fraudulent behavior. D) customer service issues.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

36) Which of the following balanced scorecard perspectives focuses on quality and process improvement?

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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

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38) Which of the following balanced scorecard perspectives focuses on shareholders’ 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

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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?

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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?

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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.

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45) _________blank 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:

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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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

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48)

Manufacturing cycle efficiency is computed as: A) processing time times manufacturing cycle time. B) processing time divided by inspection time. C) processing time divided by manufacturing cycle time. D) moving time divided by storage time.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

49)

Which of the following is not included in manufacturing cycle time? A) Inspection time B) Storing time C) Moving time D) Marketing time

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50) Baxter 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

2.6 3.1 5.2 5.6

What is the manufacturing cycle time? A) 10.9 hours B) 33.0 hours C) 27.4 hours D) 16.5 hours

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Accessibility : Screen Reader Compatible Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Topic : Some Common Nonfinancial Performance Measures Type : Algorithmic

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51) Baxter 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

What is the manufacturing cycle time? A) 5.3 hours B) 20.7 hours C) 15.4 hours D) 9.5 hours

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

52) Archer 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

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0.8 0.3 2.7

Storing Time

7.6

What is the manufacturing cycle efficiency? Note: Round your answer to the nearest percentage A) 83% B) 7% C) 16% D) 2%

53) Archer 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

What is the manufacturing cycle efficiency? Note: Round your answer to the nearest percentage A) 73% B) 6% C) 15% D) 2%

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54) Buttercup 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

2.9 1.2 3.8 8.2

What is the manufacturing cycle time? A) 24.3 hours B) 32.2 hours C) 7.9 hours D) 16.1 hours

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55) Buttercup 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

What is the manufacturing cycle time? A) 20.3 hours B) 25.2 hours C) 4.9 hours D) 12.1 hours

56) Buttercup Corporation keeps track of the time required to fill orders. Data concerning a particular order appear below: Hours Processing time Inspection time Moving time

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3.4 0.2 1.3

Storing time

4.0

What is the manufacturing cycle efficiency? Note: Round your answer to the nearest percentage. A) 46% B) 38% C) 6% D) 15%

57) Buttercup 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

What is the manufacturing cycle efficiency? Note: Round your answer to the nearest percentage

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A) 24% B) 16% C) 92% D) 8%

58) Harley 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

2.2 0.7 3.2 7.8

What is the manufacturing cycle time? A) 6.1 hours B) 47.6 hours C) 25.0 hours D) 13.9 hours

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59) Harley 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

What is the manufacturing cycle time? A) 4.3 hours B) 31.6 hours C) 27.3 hours D) 11.5 hours

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60) Harley 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

2.3 0.5 2.4 5.6

What is the manufacturing cycle efficiency ? Note: Round your answer to the nearest percentage A) 12% B) 64% C) 21% D) 23%

Question Details Accessibility : Keyboard Navigation AACSB : Analytical Thinking Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Topic : Some Common Nonfinancial Performance Measures Type : Algorithmic

61) Harley Corporation keeps track of the time required to fill orders. The times recorded for a particular order appear below: Hours Processing time Inspection time

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1.6 0.1

Moving time Storing time

2.6 7.2

What is the manufacturing cycle efficiency? Note: Round your answer to the nearest percentage A) 5% B) 57% C) 14% D) 16%

62)

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-05 Understand how to apply benchmarking to support continuous improvement. Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

63) 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 most important. D) Use internal benchmarks for less important activities or operations.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-05 Understand how to apply benchmarking to support continuous improvement. Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

64)

Which of the following statements is false?

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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. C) Companies should not benchmark everything at the best-in-the-business level. D) Factor cost disparities can be a problem when benchmarking firms operate in different countries.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de Learning Objective : 18-05 Understand how to apply benchmarking to support continuous improvement. Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance?

65)

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

66) 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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

67)

Manufacturing cycle efficiency is computed by dividing process time by:

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

68)

Which of the following statements is false 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. C) Nonfinancial performance measures do not provide value to companies. D) A balanced scorecard is a structured approach to implementing a system with multiple measures.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Multiple Measures or a Single Measure of Performance? Topic : Some Common Nonfinancial Performance Measures

69)

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 conclusions.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

70)

A subjective performance measure is one in which:

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

71) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

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72) Which of the following performance measures would likely 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

73)

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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

74)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

75)

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.

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

76)

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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

77)

Which of the following is not a partial productivity measure? A) Tons of output ÷ tons of material used B) Sales value ÷ total cost C) Gallons of output ÷ direct labor-hours D) Units produced ÷ machine hours

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

78)

Which of the following is a total factor productivity measure? A) Tons of output ÷ tons of material used B) Units produced ÷ machine hours C) Sales value ÷ total cost D) Gallons of output ÷ direct labor-hours

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : automatic Topic : Some Common Nonfinancial Performance Measures

79)

The Shea Manufacturing Company collected the following information (in days): April

Transporting product Processing product Inspecting product

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3.7 15.7 3.9

Storing product

7.7

What is the manufacturing cycle efficiency? A) 67.4% B) 57.5% C) 50.6% D) 49.0%

80)

The Shea 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%

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81)

The Shea Manufacturing Company collected the following information (in days): April

Transporting product Processing product Inspecting product Storing product

3.0 15.0 2.5 7.0

What is the manufacturing cycle time? A) 15.0 days B) 18.0 days C) 25.0 days D) 27.5 days

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82)

The Shea 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

83)

The Rust Company collected the following information (in days):

Manufacturing product Storing product Transporting product Inspecting product

27 15 9 8

What is the manufacturing cycle efficiency?

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A) 25.4% B) 45.8% C) 64.3% D) 25.0%

84)

The Rust Company collected the following information (in days):

Manufacturing product Storing product Transporting product Inspecting product

20 8 2 1

What is the manufacturing cycle efficiency? A) 28.6% B) 64.5% C) 71.4% D) 90.9%

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85)

The Rust Company collected the following information (in days):

Manufacturing product Storing product Transporting product Inspecting product

34 22 16 15

What is the manufacturing cycle time? A) 38 days B) 87 days C) 56 days D) 50 days

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86)

The Rust Company collected the following information (in days):

Manufacturing product Storing product Transporting product Inspecting product

20 8 2 1

What is the manufacturing cycle time? A) 10 days B) 31 days C) 28 days D) 22 days

87)

The Charlie Company collected the following information (in days):

Inspecting product Transporting product Storing product Manufacturing product

6 8 17 42

What is the manufacturing cycle efficiency? A) 57.5% B) 68.5% C) 80.8% D) 31.5%

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88)

The Charlie 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%

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89)

The Charlie Company collected the following information (in days):

Inspecting product Transporting product Storing product Manufacturing product

14 26 25 50

What is the manufacturing cycle time? A) 51 days B) 115 days C) 75 days D) 66 days

90)

The Charlie 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?

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A) 21 days B) 65 days C) 55 days D) 46 days

91)

The Little Jack Company collected the following information (in days):

Inspecting product Transporting product Storing product Manufacturing product

17 27 7 117

What is the manufacturing cycle efficiency? A) 100.0% B) 88.7% C) 69.6% D) 83.0%

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92)

The Little Jack 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%

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93)

The Little Jack Company collected the following information (in days):

Inspecting product Transporting product Storing product Manufacturing product

24 34 40 85

What is the manufacturing cycle time? A) 85 days B) 74 days C) 183 days D) 125 days

94)

The Little Jack 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?

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A) 65 days B) 34 days C) 103 days D) 85 days

95)

The Max Company collected the following information (in days):

Transporting product Manufacturing product Inspecting product Storing product

8.0 32.0 5.5 10.0

What is the manufacturing cycle efficiency? A) 85.6% B) 82.0% C) 57.7% D) 27.9%

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96)

The Max 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%

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97)

The Max Company collected the following information (in days):

Transporting product Manufacturing product Inspecting product Storing product

24.0 48.0 21.5 26.0

What is the manufacturing cycle time? A) 119.5 days B) 74.0 days C) 72.0 days D) 50.0 days

98)

The Max 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?

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A) 39.5 days B) 34.0 days C) 32.0 days D) 10.0 days

99)

The Ellie Machining Company has the following information for last year:

Tons of metal input Labor hours Overhead costs Tons of output produced

32,500 10,900 $ 129,500 24,500

What is partial productivity for metal? A) 2.982 B) 1.327 C) 0.754 D) 0.335

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100)

The Ellie Machining Company 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

What is partial productivity for metal? A) 2.800 B) 1.400 C) 0.714 D) 0.526

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101)

The Ellie Machining Company has the following information for last year:

Tons of metal input Labor hours Overhead costs Tons of output produced

43,750 11,800 $ 129,500 36,875

What is partial productivity for labor? A) 3.708 B) 3.125 C) 0.346 D) 0.300

102)

The Ellie Machining Company 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

What is partial productivity for labor?

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A) 2.800 B) 2.000 C) 0.526 D) 0.500

103)

The California Machining Company has the following information for last year:

Feet of metal input Labor hours Tons of output produced

172,000 13,100 25,800

What is partial productivity for metal? A) 0.15 B) 0.30 C) 13.13 D) 26.26

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104)

The California Machining Company has the following information for last year:

Feet of metal input Labor hours Tons of output produced

150,000 12,000 6,000

What is partial productivity for metal? A) 0.04 B) 0.08 C) 12.50 D) 25.00

105)

The California Machining Company has the following information for last year:

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Feet of metal input Labor hours Tons of output produced

182,000 13,600 9,200

What is partial productivity for labor? A) 13.38 B) 1.48 C) 0.68 D) 0.30

106)

The California Machining Company has the following information for last year:

Feet of metal input Labor hours Tons of output produced

150,000 12,000 6,000

What is partial productivity for labor? A) 12.50 B) 2.00 C) 0.50 D) 0.12

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107)

The White-Hot Mining Company has the following information for last year:

Labor hours Tons of output produced

12,800 179,000

What is partial productivity for labor? A) 1.067 B) 0.072 C) 13.984 D) 12.800

108)

The White-Hot Mining Company has the following information for last year:

Labor hours

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12,000 68

Tons of output produced

175,000

What is partial productivity for labor? A) 1.000 B) 0.069 C) 14.583 D) 12.000

109)

The Trundle Pass Mining Company has the following information for last year:

Labor hours Tons of output produced

126,000 1,806,840

What is partial productivity for labor? A) 1.260 B) 0.070 C) 14.340 D) 126.000

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110)

The Trundle Pass Mining Company has the following information for last year:

Labor hours Tons of output produced

112,000 1,575,000

What is partial productivity for labor? A) 1.120 B) 0.071 C) 14.063 D) 112.000

111)

The Cave Springs Milling Company has the following information for last year:

Material input

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7,612,000 70

Labor hours Yards of output produced

148,000 2,125,000

What is partial productivity for materials? A) 0.28 B) 1.28 C) 3.58 D) 21.25

112)

The Cave Springs Milling Company has the following information for last year:

Material input Labor hours Yards of output produced

13,112,000 126,000 1,575,000

What is partial productivity for materials? A) 0.12 B) 1.31 C) 8.33 D) 15.75

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113)

The Alma Milling Company has the following information for last year:

Material input Labor hours Yards of output produced

6,976,000 104,000 1,381,000

What is partial productivity for materials? A) 0.138 B) 0.198 C) 0.693 D) 5.051

114)

The Alma Milling Company has the following information for last year:

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Material input Labor hours Yards of output produced

6,864,000 97,000 1,311,000

What is partial productivity for materials? A) 0.131 B) 0.191 C) 0.686 D) 5.236

115)

The Fort Smith Company has the following information for last year:

Material input Labor hours Yards of output produced

4,546,000 119,500 1,125,000

What is partial productivity for materials? A) 1.026 B) 0.274 C) 0.247 D) 4.041

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116)

The Fort Smith Company has the following information for last year:

Material input Labor hours Yards of output produced

4,396,000 112,000 1,155,000

what is partial productivity for materials? A) 1.136 B) 0.288 C) 0.263 D) 3.802

117)

The Fort Smith Company has the following information for last year:

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Material input Labor hours Yards of output produced

4,446,000 114,500 1,145,000

What is partial productivity for labor? A) 0.100 B) 0.258 C) 3.983 D) 10.000

118)

The Fort Smith Company has the following information for last year:

Material input Labor hours Yards of output produced

4,396,000 112,000 1,155,000

What is partial productivity for labor? A) 0.097 B) 0.256 C) 3.906 D) 10.313

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119)

Tungsten Forging Company has provided the following information for last year:

Tons of metal input Labor hours Overhead costs Tons of forging produced

17,500 @ $ 17.50 per ton 6,500 @ $ 31.50 per hour $ 147,500 9,500 @ selling price of $ 75 per ton

What is total factor productivity? A) $712,500 B) $658,500 C) 1.08 D) 0.92

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120)

Tungsten Forging Company has provided the following information for last year:

Tons of metal input Labor hours Overhead costs Tons of forging produced

10,000 @ $10 per ton 5,000 @ $30 per hour $ 125,000 8,000 @ selling price of $ 60 per ton

What is total factor productivity? A) $480,000 B) $375,000 C) 1.28 D) 0.78

121)

Toomey Toolworks Company has provided the following information for last year:

Tons of metal input Labor hours Overhead costs Tons of forging produced

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22,200 @ $ 15.00 per ton 17,200 @ $ 30.00 per hour $ 247,000 18,200 @ selling price of $ 75 per ton

What is total factor productivity? A) 1.245 B) 1.614 C) 2.195 D) 3.292

122)

Toomey Toolworks Company has provided the following information for last year:

Tons of metal input Labor hours Overhead costs Tons of forging produced

20,000 @ $ 15 per ton 15,000 @ $ 30 per hour $ 225,000 16,000 @ selling price of $ 75 per ton

What is total factor productivity? A) 1.231 B) 1.600 C) 2.167 D) 3.250

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123)

Prancing Products has provided the following information for last year:

Gallons of input Labor hours Overhead costs Gallons finished

10,600 @ $ 15.60 per gallon 5,600 @ $ 20.60 per hour $ 131,000 9,200 @ selling price of $ 55.60 per gallon

What is total factor productivity? A) 1.15 B) 1.73 C) 4.12 D) 1.24

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124)

Prancing Products has provided the following information for last year:

Gallons of input Labor hours Overhead costs Gallons finished

10,000 @ $ 15 per gallon 5,000 @ $ 20 per hour $ 125,000 8,000 @ selling price of $ 55 per gallon

What is total factor productivity? A) 1.25 B) 1.60 C) 15.63 D) 1.17

125)

Sojourn Enterprises has provided the following information for last year:

Material costs

$ 232,000

Labor costs

$ 88,500

Overhead costs

$ 318,000

Product produced

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32,700 @ selling price of $ 29 each

What is total factor productivity? A) 1.371 B) 1.485 C) 0.673 D) 0.429

126)

Sojourn Enterprises has provided the following information for last year:

Material costs

$ 225,000

Labor costs

$ 85,000

Overhead costs

$ 311,000

Product produced

32,000 @ selling price of $ 22 each

What is total factor productivity? A) 1.003 B) 1.134 C) 0.882 D) 0.362

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127)

Premier Products Company has provided the following information for last year:

Material costs

$ 167,000

Labor costs

$ 53,500

Overhead costs

$ 130,600

Product produced

9,700 @ selling price of $ 46.70 each

What is total factor productivity? A) $167,000 B) $351,100 C) 1.290 D) 0.775

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128)

Premier Products Company has provided the following information for last year:

Material costs

$ 150,000

Labor costs

$ 45,000

Overhead costs

$ 117,000

Product produced

8,000 @ selling price of $ 45 each

What is total factor productivity? A) $150,000 B) $312,000 C) 1.154 D) 0.832

129)

Moonlight Company has provided the following information for last year:

Material costs

$ 302,000

Labor costs

$ 91,000

Overhead costs

$ 236,000

Product produced

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16,200 units

Total factor productivity

1.154

What is the selling price of the product (rounded)? A) $44.81 B) $33.21 C) $38.83 D) $28.00

130)

Moonlight Company has provided the following information for last year:

Material costs

$ 300,000

Labor costs

$ 90,000

Overhead costs

$ 234,000

Product produced Total factor productivity

16,000 units 1.154

What is the selling price of the product (rounded)?

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A) $45.01 B) $33.80 C) $39.00 D) $28.13

131)

Magnum Company has provided the following information for last year:

Gallons of input Labor costs Overhead costs Gallons finished Total factor productivity

20,600 @ $ 15 per gallon ??? $ 265,000 16,600 @ selling price of $ 55 per gallon 1.1808

What is the total labor cost (rounded)? A) $292,509 B) $480,868 C) $467,118 D) $199,205

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132)

Magnum Company has provided the following information for last year:

Gallons of input Labor costs Overhead costs Gallons finished Total factor productivity

20,000 @ $ 15 per gallon ??? $ 250,000 16,000 @ selling price of $ 55 per gallon 1.1733

What is the total labor cost (rounded)? A) $293,325 B) $482,500 C) $468,750 D) $200,021

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133)

Walters Company has provided the following information for last year:

Material costs Labor hours Overhead costs

??? 13,200 @ $ 20 per hour $ 330,000

Gallons finished Total factor productivity

19,200 @ selling price of $ 55 per gallon 1.2133

What is the total material cost (rounded)? A) $269,658 B) $535,166 C) $276,354 D) $176,333

134)

Walters Company has provided the following information for last year:

Material costs

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???

Labor hours Overhead costs

10,000 @ $ 20 per hr $ 250,000

Gallons finished Total factor productivity

16,000 @ selling price of $ 55 per gallon 1.1733

What is total material cost (rounded)? A) $293,325 B) $582,500 C) $300,021 D) $200,000

135)

Harringer Company has provided the following information for last year:

Gallons of input Labor hours Overhead costs

11,100 @ $21.10 per gallon 6,100 @ $21.10 per hour ???

Gallons finished

10,200 @ selling price of $60.50 per gallon 1.1733

Total factor productivity

What is the total overhead cost (rounded)?

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A) $128,710 B) $163,032 C) $254,180 D) $234,210

136)

Harringer Company has provided the following information for last year:

Gallons of input Labor hours Overhead costs

10,000 @ $ 20 per gallon 5,000 @ $ 20 per hour ???

Gallons finished

8,000 @ selling price of $ 55 per gallon 1.0732

Total factor productivity

What is total overhead cost (rounded)? A) $172,200 B) $109,989 C) $140,000 D) $200,000

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137)

Cavanaugh Company has provided the following information for last year:

Gallons of input Labor hours Overhead costs Gallons finished Total factor productivity

??? @ $ 20 per gallon 5,650 @ $ 20 per hour $ 145,988 9,200 @ selling price of $55 per gallon 1.0882

What is the total number of gallons input (rounded)? A) 10,300 gallons B) 8,900 gallons C) 7,750 gallons D) 206,000 gallons

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138)

Cavanaugh Company has provided the following information for last year:

Gallons of input Labor hours Overhead costs Gallons finished Total factor productivity

??? @ $ 20 per gallon 5,000 @ $ 20 per hour $ 110,000 8,000 @ selling price of $ 55 per gallon 1.0732

What is the total number of gallons input (rounded)? A) 10,000 gallons B) 8,600 gallons C) 7,450 gallons D) 200,000 gallons

139) Employee involvement is important in an effective performance measurement system because it:

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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.

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Gradable : automatic Topic : Employee Involvement Learning Objective : 18-07 Explain why employee involvement is important for an effective performance

140) 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

Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Gradable : automatic Topic : Difficulties in Implementing Nonfinancial Performance Measurement Systems Learning Objective : 18-07 Explain why employee involvement is important for an effective performance

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ESSAY. Write your answer in the space provided or on a separate sheet of paper. 141) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

142) The Satin Manufacturing Company collected the following information (in days) for July and August:

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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

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

143) The Gantry Company collected the following information (in days) for November and December:

Transporting product Processing product Inspecting product Storing product

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November

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

144) 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 5.0 0.5 2.0

May 3.0 7.0 0.8 3.0

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145) 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 5.0 0.5 1.0

August 3.0 7.0 0.8 3.0

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

146) The Gantry Company collected the following information (in days) for November and December:

Transporting product Processing product Inspecting product Storing product

November

December

2.0 6.0 1.0 2.0

3.0 7.0 0.8 3.0

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

147)

The Everton Manufacturing Company collected the following information (in days): April

Transporting product Processing product Inspecting product Storing product

2.0 5.0 0.5 2.0

May

June

3.0 7.0 0.8 3.0

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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

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148) The Altoona Manufacturing Company collected the following information (in days) for July, August, and September: July Transporting product Processing product Inspecting product Storing product

2.0 5.0 0.5 1.0

August

September

3.0 7.0 0.8 3.0

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

149) The Gantry Company collected the following information (in days) for October, November, and December:

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Transporting product Processing product Inspecting product Storing product

October

November

December

1.0 6.0 2.0 4.0

2.0 6.0 1.0 2.0

3.0 7.0 0.8 3.0

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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

150)

Marion Forging Company has provided the following information for last year:

Tons of metal input Labor hours Overhead costs Tons of forging produced

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14,000 5,000 $ 125,000 10,000

100

Required: Calculate the partial productivity for: a. Metal. b. Labor. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

151)

Marion Forging Company has provided the following information for last year:

Tons of metal input Labor hours Overhead costs Tons of forging produced

14,000 @ $ 10 per ton 5,000 @ $ 30 per hour $ 125,000 10,000 @ selling price of $ 60 per ton

Required: Calculate the total factor productivity measure.

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152)

Pantipazole Products Company has provided the following information for last year:

Material costs

$ 150,000

Labor costs

$ 45,000

Overhead costs

$ 117,000

Tons of forging produced

8,000 @ selling price of $ 45 each

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

153)

Shuster Metalworks Company 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

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154)

Shuster Metalworks Company has provided the following information for last year:

Pounds of metal input Labor hours Overhead costs Pounds of output produced

21,000 @ $ 12 per pound 8,000 @ $ 25 per hour $ 165,000 12,000 @ selling price of $ 70 per pound

Required: Calculate the total factor productivity measure. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

155)

Cummings Company has provided the following information for last year:

Material costs

$ 225,000

Labor costs

$ 70,000

Overhead costs

$ 175,000

Product produced

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9,000 @ selling price of $ 60 each

104

156)

Maeve Company 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

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

157)

Colbyville Company has provided the following information for last year:

Pounds of input Labor hours Overhead costs Units of output produced

35,000 @ $ 17 per pound 8,000 @ $ 26 per hour $ 142,000 15,000 @ selling price of $85 per unit

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158)

Beach Company has provided the following information for last year:

Material costs

$ 160,000

Labor costs

$ 62,000

Overhead costs

$ 171,000

Product produced

11,000 @ selling price of $ 52 each

159)

Melbourne, Incorporated has provided the following information for last year:

Pounds of input Labor hours Overhead costs Units of output produced

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42,000 @ $ 18 per pound 11,000 @ $ 24 per hour $ 187,000 33,000 @ selling price of $85 per unit

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160)

Melbourne Incorporated, has provided the following information for last year:

Pounds of input Labor hours Overhead costs Units of output produced

42,000 @ $ 18 per pound 11,000 @ $ 24 per hour $ 187,000 33,000 @ selling price of $60 per unit

Required: Calculate the total factor productivity measure.

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161) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

162) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Accessibility : Screen Reader Compatible Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

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163) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking Accessibility : Screen Reader Compatible Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AICPA : FN Measurement Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

164) 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.

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165) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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166) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Learning Objective : 18-01 Explain why management accountants should know the business strategy of th Bloom's : Apply Difficulty : 3 Hard Gradable : manual Topic : The Foundation of a Successful Business Strategy

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167) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Learning Objective : 18-01 Explain why management accountants should know the business strategy of th AICPA : BB Critical Thinking Bloom's : Analyze Difficulty : 3 Hard Gradable : manual Topic : The Foundation of a Successful Business Strategy

168) Describe the difference between a company's mission statement and its business-level strategy. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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169) Levi Strauss and Company, 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 Wal-Mart. 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 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Learning Objective : 18-01 Explain why management accountants should know the business strategy of th Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de AICPA : BB Critical Thinking AICPA : FN Measurement Bloom's : Analyze Difficulty : 3 Hard Gradable : manual Topic : Multiple Measures or a Single Measure of Performance? Topic : The Foundation of a Successful Business Strategy

170) For each of the following jobs, identify a possible nonfinancial performance measure. 1. (a) Computer help desk worker at your university. 2. (b) Dental hygienist. 3. (c) Airline gate agent. 4. (d) City bus driver. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Accessibility : Screen Reader Compatible Learning Objective : 18-02 Explain why companies use nonfinancial performance measures. Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking Gradable : manual Topic : Beyond the Accounting Numbers

171) What is a business model? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-03 Understand the reasons why performance measures differ across levels of th AACSB : Reflective Thinking Gradable : manual Topic : Business Model

172) 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?

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Accessibility : Screen Reader Compatible Learning Objective : 18-01 Explain why management accountants should know the business strategy of th Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking AICPA : FN Measurement Gradable : manual Topic : Strategy and Performance

173) Describe the four common perspectives that are used in the balanced scorecard. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Bloom's : Remember Difficulty : 1 Easy Accessibility : Screen Reader Compatible Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de Gradable : manual Topic : Multiple Measures or a Single Measure of Performance?

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174) 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.

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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. 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de AICPA : BB Critical Thinking AICPA : FN Measurement Bloom's : Analyze Difficulty : 3 Hard Gradable : manual Topic : Multiple Measures or a Single Measure of Performance?

175) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-04 Understand how the balanced scorecard helps organizations recognize and de AACSB : Reflective Thinking AICPA : BB Critical Thinking AICPA : FN Measurement Gradable : manual Topic : Multiple Measures or a Single Measure of Performance?

176) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-05 Understand how to apply benchmarking to support continuous improvement. AACSB : Reflective Thinking AICPA : BB Critical Thinking AICPA : FN Measurement Gradable : manual Topic : Multiple Measures or a Single Measure of Performance?

177) What is the difference between continuous improvement and benchmarking? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-05 Understand how to apply benchmarking to support continuous improvement. Gradable : manual Topic : Multiple Measures or a Single Measure of Performance?

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178) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AACSB : Reflective Thinking AICPA : BB Critical Thinking AICPA : FN Measurement AACSB : Communication Gradable : manual Topic : Some Common Nonfinancial Performance Measures

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179) 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.

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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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Accessibility : Screen Reader Compatible Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AACSB : Reflective Thinking AICPA : BB Critical Thinking AICPA : FN Measurement Bloom's : Analyze Difficulty : 3 Hard AACSB : Communication Gradable : manual Topic : Some Common Nonfinancial Performance Measures

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180) 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? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AICPA : FN Decision Making Accessibility : Screen Reader Compatible Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot AACSB : Reflective Thinking AICPA : BB Critical Thinking AICPA : FN Measurement Bloom's : Analyze Difficulty : 3 Hard Gradable : manual Topic : Some Common Nonfinancial Performance Measures

181) What is productivity, and what are the differences between partial productivity measures and total factor productivity?

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______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : manual Topic : Some Common Nonfinancial Performance Measures

182) Explain how nonfinancial performance measures for customer satisfaction may differ from functional performance measures. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Learning Objective : 18-06 Identify examples of nonfinancial performance measures and discuss the pot Gradable : manual Topic : Some Common Nonfinancial Performance Measures

183)

Why is worker involvement important to an organization's success?

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184) 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. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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Question Details Accessibility : Keyboard Navigation Type : Static AACSB : Analytical Thinking AICPA : FN Decision Making Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : manual Topic : Employee Involvement Learning Objective : 18-07 Explain why employee involvement is important for an effective performance

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Answer Key Test name: Lanen7e_ch18 1) TRUE 2) FALSE 3) FALSE 4) FALSE 5) TRUE 6) TRUE 7) TRUE 8) FALSE 9) TRUE 10) FALSE 11) TRUE 12) FALSE 13) FALSE 14) TRUE 15) TRUE 16) TRUE 17) FALSE 18) FALSE 19) FALSE 20) TRUE 21) TRUE 22) TRUE 23) B This is a description of product differentiation. 24) C This is a description of cost leadership. Version 1

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25) C Financial measures are not useful in identifying operational problems. 26) B This is the definition of the mission statement. 27) D Middle managers normally do not interact with shareholders. 28) B Performance of customer value has to do with the retention of existing customers. 29) B The balanced scorecard has four views: financial, customer, internal business process, and learning and growth. 30) B Timeliness and improved relationships could be objectives related to the customer perspective. 31) C The business model describes how employees in the organization must perform for the organization to achieve its goals. 32) D The balanced scorecard is one structured approach to implementing a system with multiple measures. 33) A A balanced scorecard is more than financial statements, reports, or budgets. 34) B This statement is a definition of the balanced scorecard. 35) D The balanced scorecard helps organizations shift attention to customer service, quality and process improvement, and employees and their development. Version 1

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36) C Quality and process improvement are internal. 37) B Customer service is part of the customer focus. 38) A Shareholders are concerned with financial results. 39) D Employee development affects the future capabilities, so this is a learning and growth focus. 40) B Financial perspective takes the shareholders' viewpoint. 41) C Internal business processes result in financial and customer results. 42) A Growth looks at improvement and change. 43) D The customer viewpoint is an external view. 44) B The balanced scorecard does not measure organizational performance with respect to government. 45) D This is a description of the balanced scorecard. 46) A The first step to the successful implementation of a balanced scorecard is specifying the organization's vision and strategy. 47) D Process time is the only value-added time to the customer. 48) C Processing time divided by the manufacturing cycle time is the calculation for manufacturing cycle efficiency. Version 1

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49) D Manufacturing cycle time includes processing, moving, storing, and inspecting time. 50) D Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time = 2.6 hours + 5.2 hours + 5.6 hours + 3.1 hours = 16.5 hours 51) D Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time = 1.2 hours + 3.8 hours + 4.2 hours + 0.3 hours = 9.5 hours 52) B Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time = 0.8 hours + 2.7 hours + 7.6 hours + 0.3 hours = 11.4 hours; Manufacturing cycle efficiency = Processing time ÷ Manufacturing cycle time = 0.8 ÷ 11.4 = 7% (rounded). 53) B Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time = 0.7 hours + 2.9 hours + 8.7 hours + 0.3 hours = 12.6 hours; Manufacturing cycle efficiency = Processing time ÷ Manufacturing cycle time = 0.7 ÷ 12.6 = 6% (rounded) 54) D Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time = 2.9 hours + 3.8 hours + 8.2 hours + 1.2 hours = 16.1 hours 55) D Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time = 1.9 hours + 2.8 hours + 7.2 hours + 0.2 hours = 12.1 hours 56) B Version 1

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Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time = 3.4 hours + 1.3 hours + 4.0 hours + 0.2 hours = 8.9 hours; Manufacturing cycle efficiency = Processing time ÷ Manufacturing cycle time = 3.4 ÷ 8.9 = 38% (rounded) 57) B Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time = 1.9 hours + 2.8 hours + 7.2 hours + 0.2 hours = 12.1 hours; Manufacturing cycle efficiency = Processing time ÷ Manufacturing cycle time = 1.9 ÷ 12.1 = 16% (rounded) 58) D Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time = 2.2 + 3.2 + 7.8 + 0.7 = 13.9 hours 59) D Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time = 1.6 + 2.6 + 7.2 + 0.1 = 11.5 hours 60) C Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time = 2.3 + 2.4 + 5.6 + 0.5 = 10.8 hours; Manufacturing cycle efficiency = Processing time ÷ Manufacturing cycle time = 2.3 ÷ 10.8 = 21% (rounded). 61) C Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time = 1.6 + 2.6 + 7.2 + 0.1 = 11.5 hours; Manufacturing cycle efficiency = Processing time ÷ Manufacturing cycle time = 1.6 ÷ 11.5 = 14% (rounded) 62) D Accurate performance reports are not part of improvement for most managers. Version 1

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63) A Benchmarks can be either financial or nonfinancial. 64) A The internal, regional, and local benchmarks would be for the less important support activities. 65) D Quality control is normally addressing product quality rather than delivery quality. 66) A Most customer service measures focus on external relations while functional measures focus on internal operations. 67) D The denominator is total manufacturing cycle time or process time + moving time + storage time + inspection time. 68) C Organizations can find value in nonfinancial performance. 69) B Objective means different people will agree as to the method to calculate the measure. They may differ as to whether the measure is appropriate. 70) D A subjective performance measure is one in which different managers will view the facts and come to different conclusions. 71) A Managers often use both subjective and objective measures. 72) D Length of time to fill vacant positions is a performance measure that could be used to evaluate the personnel department performance. 73) C Partial productivity measures are most closely related to efficiency variances. Version 1

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74) A Total factor productivity is a ratio of the value of output to the value of all key inputs. 75) D Partial productivity measures include only one aspect of productivity while total factor productivity attempts to view the bigger picture. 76) C Partial productivity looks at single inputs; total factor productivity includes all key inputs rather than just one. 77) B Sales value ÷ total cost is a total factor productivity measure. 78) C Sales value ÷ total cost is a total factor productivity measure. All others are using a single input factor to compute a partial productivity. 79) C 15.7 ÷ (3.7 + 15.7 + 3.9 + 7.7) = 15.7 ÷ 31.0 = 50.6% 80) C 14.0 ÷ (2.0 + 14.0 + 0.5 + 6.0) = 14.0 ÷ 22.5 = 62.2% 81) D 3.0 + 15.0 + 2.5 + 7.0 = 27.5 days 82) D 2.0 + 14.0 + 0.5 + 6.0 = 22.5 days 83) B 27 ÷ (27 + 15 + 9 + 8) = 27 ÷ 59 = 45.8% 84) B 20 ÷ (20 + 8 + 2 + 1) = 20 ÷ 31 = 64.5% 85) B 34 + 22 + 16 + 15 = 87 days 86) B 20 + 8 + 2 + 1 = 31 days Version 1

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87) A 42 ÷ (6 + 8 + 17 + 42) = 42 ÷ 73 = 57.5% 88) A 40 ÷ (4 + 6 + 15 + 40) = 40 ÷ 65 = 61.5% 89) B 14 + 26 + 25 + 50 = 115 days 90) B 4 + 6 + 15 + 40 = 65 days 91) C 117 ÷ (17 + 27 + 7 + 117) = 117 ÷ 168 = 69.6% 92) C 65 ÷ (4 + 14 + 20 + 65) = 65 ÷ 103 = 63.1% 93) C 24 + 34 + 40 + 85 = 183 days 94) C 4 + 14 + 20 + 65 = 103 days 95) C 32.0 ÷ (8.0 + 32.0 + 5.5 + 10.0) = 32.0 ÷ 55.5 = 57.7% 96) C 28.0 ÷ (4.0 + 28.0 + 1.5 + 6.0) = 28.0 ÷ 39.5 = 70.9% 97) A 24.0 + 48.0 + 21.5 + 26.0 = 119.5 days 98) A 4.0 + 28.0 + 1.5 + 6.0 = 39.5 days 99) C 24,500 ÷ 32,500 = 0.754 100) C 20,000 ÷ 28,000 = 0.714 101) B 36,875 ÷ 11,800 = 3.125 Version 1

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102) B 20,000 ÷ 10,000 = 2.000 103) A 25,800 ÷ 172,000 = 0.15 104) A 6,000 ÷ 150,000 = 0.04 105) C 9,200 ÷ 13,600 = 0.68 106) C 6,000 ÷ 12,000 = 0.50 107) C 179,000 ÷ 12,800 = 13.984 108) C 175,000 ÷ 12,000 = 14.583 109) C 1,806,840 ÷ 126,000 = 14.340 110) C 1,575,000 ÷ 112,000 = 14.063 111) A 2,125,000 ÷ 7,612,000 = 0.28 112) A 1,575,000 ÷ 13,112,000 = 0.12 113) B 1,381,000 ÷ 6,976,000 = 0.198 114) B 1,311,000 ÷ 6,864,000 = 0.191 115) C 1,125,000 ÷ 4,546,000 = 0.247 116) C 1,155,000 ÷ 4,396,000 = 0.263 Version 1

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117) D 1,145,000 ÷ 114,500 = 10.000 118) D 1,155,000 ÷ 112,000 = 10.313 119) C Value of output: 9,500 × $75 = $712,500; Total value of inputs: (17,500 × $17.50) + (6,500 × $31.50) + $147,500 = $658,500; $712,500 ÷ $658,500 = 1.08 120) C Value of output: 8,000 × $60 = $480,000; Total value of inputs: (10,000 × $10) + (5,000 × $30) + $125,000 = $375,000; $480,000 ÷ $375,000 = 1.28 121) A Value of output: 18,200 × $75 = $1,365,000; Total value of inputs: (22,200 × $15) + (17,200 × $30) + $247,000 = $1,096,000; $1,365,000 ÷ $1,096,000 = 1.245 122) A Value of output: 16,000 × $75 = $1,200,000; Total value of inputs: (20,000 × $15) + (15,000 × $30) + $225,000 = $975,000; $1,200,000 ÷ $975,000 = 1.231 123) D Value of output: 9,200 × $55.60 = $511,520; Total value of inputs: (10,600 × $15.60) + (5,600 × $20.60) + $131,000 = $411,720; $511,520 ÷ $411,720 = 1.24 124) D Value of output: 8,000 × $55 = $440,000; Total value of inputs: (10,000 × $15) + (5,000 × $20) + $125,000 = $375,000; $440,000 ÷ $375,000 = 1.17 125) B

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Value of output: 32,700 × $29 = $948,300; Total value of inputs: $232,000 + $88,500 + $318,000 = $638,500; $948,300 ÷ $638,500 = 1.485 126) B Value of output: 32,000 × $22 = $704,000; Total value of inputs: $225,000 + $85,000 + $311,000 = $621,000; $704,000 ÷ $621,000 = 1.134 127) C Value of output: 9,700 × $46.70 = $452,990; Total value of inputs: $167,000 + $53,500 + $130,600 = $351,100; $452,990 ÷ $351,100 = 1.290 128) C Value of output: 8,000 × $45 = $360,000; Total value of inputs: $150,000 + $45,000 + $117,000 = $312,000; $360,000 ÷ $312,000 = 1.154 129) A Value of input: $302,000 + $91,000 + $236,000 = $629,000; X/$629,000 = 1.154; X = $725,866; $725,866 ÷ 16,200 = $44.81 130) A Value of input: $300,000 + $90,000 + $234,000 = $624,000; X ÷ $624,000 = 1.154; X = $720,096; $720,096 ÷ 16,000 = $45.01 131) D Value of output: 16,600 × $55 = $913,000; $913,000 ÷ X = 1.1808; X = $773,205; $773,205 − (20,600 × $15) − $265,000 = $199,205. 132) D Value of output: 16,000 × $55 = $880,000; $880,000 ÷ X = 1.1733; X = $750,021; $750,021 − (20,000 × $15) − $250,000 = $200,021. 133) C Value of output: 19,200 × $55 = $1,056,000; $1,056,000 ÷ X = 1.2133; X = $870,354; $870,354 − (13,200 × $20) − $330,000 = $276,354 Version 1

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134) C Value of output: 16,000 × $55 = $880,000; $880,000 ÷ X = 1.1733; X = $750,021; $750,021 − (10,000 × $20) − $250,000 = $300,021 135) B Value of output: 10,200 × $60.50 = $617,100; $617,100 ÷ X = 1.1733; X = $525,952; $525,952 − (11,100 × $21.10) − (6,100 × $21.10) = $163,032 136) B Value of output: 8,000 × $55 = $440,000; $440,000 ÷ X = 1.0732; X = $409,989; $409,989 − (10,000 × $20) − (5,000 × $20) = $109,989. 137) A Value of output: 9,200 × $55 = $506,000; $506,000 ÷ X = 1.0882; X = $464,988; $464,988 − (5,650 × $20) − $145,988 = $206,000; $206,000 ÷ $20 = 10,300 gallons 138) A Value of output: 8,000 × $55 = $440,000; $440,000 ÷ X = 1.0732; X = $409,989; $409,989 − (5,000 × $20) − $110,000 = $199,989; $199,989 ÷ $20 = 9,999 gallons, round to 10,000 139) A Involvement normally has a positive effect on commitment. 140) C Goal congruence is not related to financial versus nonfinancial measures. 141)a. April: [14.0 ÷ (2.0 + 14.0 + 0.5 + 8.0)] = 57.1% May: [16.0 ÷ (3.0 + 16.0 + 0.8 + 5.0)] = 64.5% b. [X ÷ (3.0 + X + 0.8 + 5.0)] = 0.571; X = 11.7

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142)a. July: [17.0 ÷ (2.0 + 17.0 + 0.5 + 7.0)] = 64.2% August: [18.0 ÷ (3.0 + 18.0 + 1.2 + 7.0)] = 61.6% b. 18.0 ÷ X = 0.65; X = 27.69 days 143)a. November: [15.0 ÷ (2.0 + 15.0 + 1.0 + 8.0)] = 57.7% December: [18.0 ÷ (3.0 + 18.0 + 1.2 + 7.0)] = 61.6% b. 18.0 ÷ (X + 18.0) = 0.65; 27.7 = X + 18.0; X = 9.7 days 144)a. April: [5.0 ÷ (2.0 + 5.0 + 0.5 + 2.0)] = 52.6% May: [7.0 ÷ (3.0 + 7.0 + 0.8 + 3.0)] = 50.7% b. [X ÷ (3.0 + X + 0.8 + 3.0)] = 0.526; X = 7.5 days 145)a. July: [5.0 ÷ (2.0 + 5.0 + 0.5 + 1.0)] = 58.8% August: [7.0 ÷ (3.0 + 7.0 + 0.8 + 3.0)] = 50.7% b. 7.0 ÷ X = 0.65; X = 10.77 days 146)a. November: [6.0 ÷ (2.0 + 6.0 + 1.0 + 2.0)] = 54.5% December: [7.0 ÷ (3.0 + 7.0 + 0.8 + 3.0)] = 50.7% b. 7.0 ÷ (X + 7.0) = 0.65; 10.77 = X + 7.0; X = 3.77 days

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147)a. April: [5.0 ÷ (2.0 + 5.0 + 0.5 + 2.0)] = 52.6% May: [7.0 ÷ (3.0 + 7.0 + 0.8 + 3.0)] = 50.7% June: [7.0 ÷ (2.0 + 7.0 + 1.0 + 4.0)] = 50.0% b. [X ÷ (2.0 + X + 1.0 + 4.0)] = 0.526; X = 7.77 days 148)a. July: [5.0 ÷ (2.0 + 5.0 + 0.5 + 1.0)] = 58.8% August: [7.0 ÷ (3.0 + 7.0 + 0.8 + 3.0)] = 50.7% September: [7.0 ÷ (2.0 + 7.0 + 1.0 + 4.0)] = 50.0% b. 7.0 ÷ X = 0.65; X = 10.77 days 149)a. October: [6.0 ÷ (1.0 + 6.0 + 2.0 + 4.0)] = 46.2% November: [6.0 ÷ (2.0 + 6.0 + 1.0 + 2.0)] = 54.5% December: [7.0 ÷ (3.0 + 7.0 + 0.8 + 3.0)] = 50.7% b. 7.0 ÷ (X + 7.0) = 0.60; 11.67 = X + 7.0; X = 4.67 days 150)a. 10,000 tons output ÷ 14,000 tons input = 0.714 b. 10,000 tons ÷ 5,000 hours = 2 tons per hour 151)Value of output: 10,000 × $60 = $600,000; Total value of inputs: (14,000 × $10) + (5,000 × $30) + $125,000 = $415,000; $600,000 ÷ $415,000 = 1.446

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152)Value of output: 8,000 × $45 = $360,000; Total value of inputs: $150,000 + $45,000 + $117,000 = $312,000; $360,000 ÷ $312,000 = 1.154 153)a. 12,000 pounds output ÷ 21,000 pounds input = 0.571 b. 12,000 pounds ÷ 8,000 hours = 1.5 pounds per hour 154)Value of output: 12,000 × $70 = $840,000; Total value of inputs: (21,000 × $12) + (8,000 × $25) + $165,000 = $617,000; $840,000 ÷ $617,000 = 1.361 155)Value of output: 9,000 × $60 = $540,000; Total value of inputs: $225,000 + $70,000 + $175,000 = $470,000; $540,000 ÷ $470,000 = 1.149 156)a. 15,000 units output ÷ 35,000 pounds input = 0.429 b. 15,000 units ÷ 8,000 hours = 1.875 units per hour 157)Value of output: 15,000 × $85 = $1,275,000; Total value of inputs: (35,000 × $17) + (8,000 × $26) + $142,000 = $945,000; $1,275,000 ÷ $945,000 = 1.349 158)Value of output: 11,000 × $52 = $572,000; Total value of inputs: $160,000 + $62,000 + $171,000 = $393,000; $572,000 ÷ $393,000 = 1.455 159)a. 33,000 units output ÷ 42,000 pounds input = 0.786 b. 33,000 units ÷ 11,000 hours = 3 units per hour

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160)Value of output: 33,000 × $60 = $1,980,000; Total value of inputs: (42,000 × $18) + (11,000 × $24) + $187,000 = $1,207,000; $1,980,000 ÷ $1,207,000 = 1.640 161)a. Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time; = 1.1 days + 0.8 days + 4.8 days + 0.4 days = 7.1 days b. Manufacturing cycle efficiency = Processing time ÷ Manufacturing cycle time; = 1.1 days ÷ 7.1 days = 0.15 c. Percentage of time spent on non-value-added activities = 100% − manufacturing cycle efficiency%; = 100% − 15% = 85% 162)a. Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time; = 2.8 days + 0.6 days + 3.0 days + 0.8 days = 7.2 days b. Manufacturing cycle efficiency = Processing time ÷ Manufacturing cycle time; = 2.8 days ÷ 7.2 days = 0.39 c. Percentage of time spent on non-value-added activities; = 100% − manufacturing cycle efficiency% = 100% − 39% = 61%

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163)a. Manufacturing cycle efficiency = Process time ÷ Manufacturing cycle time; 0.27 = Process time ÷ 6.3 days; Process time = 0.27 × 6.3 days = 1.7 days b. Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time = 6.3 days = 1.7 days + Inspection time + 0.1 days + 3.9 days; Inspection time = 6.3 days − 1.7 days − 0.1 days − 3.9 days; = 0.6 days 164)a. Manufacturing cycle time = Processing time + Moving time + Storing time + Inspection time; = 0.6 hours + 2.1 hours + 8.4 hours + 0.3 hours; = 11.4 hours b. Manufacturing cycle efficiency = Processing time ÷ Manufacturing cycle time = 0.6 hours ÷ 11.4 hours = 0.05

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165)a. The sequence order of activities is as follows: ● Choose the organization's long-term strategy. ● Define the organization's scale and scope of operations. ● Plan and organize the use of resources into efficient operations. ● Implement plans and organizational change. ● Measure and report results. It is important to carry out the above activities sequentially because managers must follow a logical step-by-step approach in successfully managing an organization. For example, selecting the long-term strategy provides direction to managers regarding how to achieve an organization's objectives. Without a clear definition of this direction, it would not make sense to try to define the scale and scope of operations. In the absence of a sequential approach, there is a significant chance of decisions being made in a haphazard manner resulting in chaos. b. An effective cost management system can provide useful support to managers in carrying out the above activities. First of all, a cost management system can provide information about an organization's objectives, which will help in determining strategy. The system can gather information about the cost implications of different levels of scale and scope of operations and the efficiencies associated with these levels. It can then help in planning and organizing the use of resources by reporting on the cost of alternative resources, products, and services. Finally, it can report the actual results of the actions taken by management in terms of how well individual and organizational objectives are achieved. This feedback can be used by management to modify strategies and/or actions as necessary.

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166)A discussion of the value proposition and the demands that these place on the organization should be included in the answer. For example: Local coffee shop: Porter Framework: Probably best considered a focused competitor focusing on regional or local coffee preferences while delivering a consistent product and service experience. Starbucks coffee shop: Porter Framework: At least at the outset, Starbucks was a product differentiation-based competitor delivering on a unique, branded coffee shop experience. More recently, they have to focus on delivering a consistent product and service experience and on ‘efficiency' as local and regional competitors have entered the market. This has resulted in the closure of many stores. Retail gas station convenience store: Porter Framework: The retail gas station is a focused competitor in the sale of coffee. It addresses a niche market of customers who seek a ‘one stop' shopping experience and who have an immediate need to be alert (i.e., drivers who consume coffee as a deterrent to drowsiness). The coffee is typically not of a quality to warrant ‘branding' (although collaborations with branded coffees such as Starbucks occur), and the price, while not high by branded coffee standards, can be set above cost because of the convenience that is offered.

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167)a. Studebaker attempted to achieve a distinctive quality image in its advertising as a way to differentiate itself from other auto company products. Presumably, by emphasizing the design and the way the car was made, the firm was trying to impress that Studebaker would be more desirable than competitive autos. Additionally, the advertisements tried to appeal to more than just the need for transportation and this clearly is not a cost leadership issue. (Its cars were competitively priced, but the company was not a cost leader, nor did it attempt to focus on a particular segment of the auto-buying public.) b. If differentiation was the chosen answer, it follows that the stress on quality eventually led to higher cost (and prices) that made the car less competitive. In fact, this was partly the reason the company failed, but futuristic design resulted in a look the public was not ready to accept. If the students chose cost leadership as the answer, their explanation would have to be evaluated on the basis of its logic and originality. 168)A mission statement is a description of the organization's values, a definition of its responsibilities to the stockholders, and an identification of the organization's strategies. Business-level strategies are the organization's plans to compete in each of its businesses.

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169)a. Recent annual reports show that sales and profits on the Signature line are doing well. Levi has a portion of its web site devoted to the Signature line (https://www.levistrausssignature.com). The risks of the new line are that it might pull the company from what has been a tradition of differentiated products (501, 505) to cost leadership (the Signature line), leaving consumers confused about the Levi brand. The risks of the new brand include: ● Could turn off department store customers of Levi's core jeans. ● Signature jeans could end up looking and feeling shoddy. ● After a period of buzz, may sink below the radar. ● Customers may get bored and want more variety. b. The firm's value chain will likely change little, as the manufacture of the jeans will continue to be produced in low-cost facilities worldwide. The largest difference in the jeans will be in the fabrics used, the design, and the variety of jeans offered. The balanced scorecard (BSC) for Levi is not likely to change much either, as noted above for the value chain. Levi Strauss uses the BSC in its shared services center in Eugene, Oregon. 170)Answer will vary, below are some examples. 1. (a) Complaints, time to answer, time to resolve. 2. (b) Adherence to schedule, repeat visits, satisfaction. 3. (c) Timely departures, complaints. 4. (d) Adherence to schedule, complaints, accidents, citations.

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171)A business model, also called a strategy map, is a depiction of the links among individual performance and the goals of the firm. It shows how different elements (units, individuals, levels) of the organization combine to deliver value to the stakeholders in the firm. 172)If a company is using absorption costing, some committed product costs will be allocated to units produced. If production levels exceed sales levels, some of these costs will be inventoried instead of expensed in the accounting period in question. Since services cannot be inventoried as products, this is not an issue in a service company. Continuously producing inventories for the sake of production rather than sales will ultimately lead to an unsustainable buildup in inventory levels, storage costs, or obsolete inventory. Ultimately the costs will either be written off or the units will be sold. At that time, the "hidden" costs will be released. 173)The four perspectives are: 1) financial perspective, or how the company appears to the stockholders; 2) customer perspective, or how the company appears to the customers; 3) internal business process perspective, or what business processes the company needs to excel at in order to satisfy the customers and stockholders; and 4) learning and growth perspective, or how the company will sustain its ability to improve and change.

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174)a. The internal value-chain of ATI can be illustrated as follows:

ATI must realize that interaction with the customers to understand their needs is very important because of the specialized nature of the products and their use. The enzymes will be used by research scientists in their laboratories for testing and other purposes or by pharmacists in developing new medicines. Therefore, a misunderstanding of these needs can quickly lead to that set of customers not wanting to buy the enzymes from ATI. Therefore, market analysis, R&D, and product design are extremely important processes in ATI's internal value-chain. b. Another important aspect that ATI must implement is the balanced scorecard, particularly to understand cause-effect relationships existing among the processes with the value-chain. This will clarify to Stevenson how upstream processes affect the downstream ones. It also appears that ATI lacks goals. It will be important for ATI to develop goals and corresponding measures as they pertain to the different perspectives under the balanced scorecard. The table below lists potential objectives and measures.

Balanced Scorecard Perspective Learning and growth

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Double the number of patents Be a leader in new products Reduce defects Decrease production cycle time Increase production efficiency Increase revenues from new customers Improve customer satisfaction

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Improve on-time deliveries Increase market share Financial

Increase return on assets

Percentage of one-time deliveries Market share (also growth %) ROA % (also growth in ROA)

c. A final aspect of importance to ATI is the differences among the senior managers responsible for individual functions. First of all, top management must stop referring to R&D, production, quality control, etc. as departments or functions; instead, these should be referred to as processes. Second, training is very important to educate managers that the processes are interrelated or interdependent, and that the actions taken by one manager in a process affect the actions to be taken in a different process. Third, representatives from each process must be put together in teams that have common goals. This teamwork will enable individuals to recognize other points of view and be in a position to appreciate different points of view.

175)The four perspectives are shown below, along with examples of CSFs in each perspective: Financial Sales, sales growth — by product line and customer Earnings, by product line and customer ABC-based product costs Return on investment, by product line New investment, by product line Internal Processes Measures of quality: number of defects, customer complaints… Waste of materials Cycle time, the time from the start to the finish of producing an order Productivity measures: hours per product, materials per product Inventory levels Customer Lead time - the time from when the order is received until it is delivered Retention of profitable customers Satisfaction, in specific categories, as measured by customer survey, number of referrals... Number of new customers Learning and Innovation Training hours

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Retention of key employees Employee satisfaction, as measured by survey or number of complaints New product development; number of new product ideas

176)Quality improvements often decrease waste and rejected units, thus decreasing the amount of input resources needed. More careful selection of quality raw materials (plastic, buckles, sole materials) will reduce rejected units caused by poor quality materials. Better training for cutters and assemblers will reduce the number of units rejected due to poor workmanship. Care in adjusting and maintaining equipment should help reduce waste that is machine-related. Process re-engineering can help re-define essential tasks and eliminate non-essential tasks. Reducing the number of times employees must handle material in the production process improves productivity and eliminates useless effort. Implementing a continuous improvement program should help develop a sensitivity among the employees to ways of changing their actions to improve both their process and products. A focus on both quality and cost is a common feature of cost leadership firms. Jackie's firm and its products appeal to a "value" driven customer that appreciates very good quality at a low cost. The focus on quality and productivity at the same time can help the firm achieve its strategy. 177)Continuous improvement is a philosophy of continuously reevaluating and improving the efficiency of the organization's activities. Continuous improvement is the search to 1) improve the activities in which the organization engages through documentation and understanding, 2) eliminate activities that are nonvalue-added, and 3) improve the efficiency of activities that are value-added. Benchmarking is the search for and implementation of the best way to do something as practiced by other organizations or in other parts of the organization itself.

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178)(a) Many of the outputs and required tasks of this organization cannot be measured precisely, for example, how does one define patient recovery? Do all patients require the same treatment? The same amount of each treatment? How does one account for cost differences in size variations of group treatment? Is the amount or intensity of treatment affected by the insurance benefits available? (b) Since health insurance providers probably pay for most of the patients' costs of care, some ratios of financial productivity can be used. An example is the ratio of average days' stay per patient divided into the "revenue" generated. This measure is effective if the relationship is fairly consistent. Some measures of the cost of providing different classes of service can be calculated, for example, the cost of psychotherapy on an individual basis versus the per patient cost of group therapy. Local, regional, and national data and measures for alcoholic rehabilitation centers should be available as another baseline standard against which one could judge productivity. As the center gathers its own data over time, trend analysis of cost changes would be useful for performance measurement.

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179)a. The proposed Achievement of Objectives System (AOS) would be an improvement over the current measure of divisional performance for the following reasons: ● There appears to be greater participation in the establishment of objectives by divisional managers. ● The use of multiple criteria for performance measures should be a more equitable standard of evaluation. This performance measure tends to reduce over-emphasis on single measurement criteria and may also balance extremes in performance in one area versus another. ● Realistic planning encourages accurate budget estimations and promotes intermediate and long-range planning objectives which enhances goal congruence. ● Static budgets established six months before the start of the year would be replaced by flexible budgets and would be subject to change as needed. ● The emphasis on performance is based upon factors controllable by and upon efforts actually directed by divisional managers. ● Divisional managers should have an increased sense of responsibility and control over activities within their divisions once they are not held responsible for uncontrollable factors. ● Top management support, along with timely and regular reviews of performance, will promote the division managers' feeling of self-worth. ● Programs which may be instituted to promote morale and provide incentives to divisional managers in conjunction with the achievement of objectives include the following:● Intrinsic motivators can be provided by allowing the manager to assess his/her own achievements and his/her own worth. ● Extrinsic motivators can be developed through a managers' competition against him/herself or with other divisions with recognition Version 1

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given to the successful participants in the form of awards or monetary incentives. b. Specific performance measures for the criteria "doing better than last year" could include total sales, contribution margin, controllable costs, net income, net income as a function of sales, return on investment, market share, and productivity. Measurement of these items should be compared in absolute terms or by percentages to the prior year. Specific performance measures for the criteria "planning realistically" could include an analysis of variance between actual and budget and the use of a flexible budget to determine sales, net income, net income as a function of sales, and return on investment. Specific performance measures for the criteria "managing current assets" could include accounts receivable turnover, inventory turnover, return on current assets, and year to year comparisons of current assets in total and by account classification. c. The motivational and behavioral aspects of the achievement of objectives system depend upon the level of acceptance of the system by top management and the divisional managers. Divisional managers could have a sense of participation in the role of goal setting and budget development which could encourage goal congruence. Multiple criteria enhance a sense of equity or fairness, and remove pressures to pursue measured goals, the achievement of which may conflict with corporate long-run objectives (i.e., promotes goal congruence). Increased morale can result in participation in budget setting and management level decisions as well as having positive feedback.

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180)(a) A low-price supplier can be a high-cost supplier if: ● They offer low prices only when they can deliver large volumes of materials. This requires the purchasing company to incur costs of storage for materials. ● The company must check items in through a receiving dock and incur excessive paperwork costs. ● The quality of the product shipped is poor, resulting in production defects and excessive quality control activities related to materials. ● Costs of inspection increase as defective items shipped must be inspected. ● Poor quality materials lead to product breakdowns, leading to external failure costs such as warranty replacements and product repairs. ● Delivery time may be unpredictable, leading to costs of expediting, rescheduling, unexpected plant downtime and great increases in confusion. ● Costs of scrap, rework, and obsolescence increase due to defective items. ● Downtime increases due to poor quality materials. (b) Prevention activities can include certifying suppliers or by using only suppliers of materials that can guarantee high quality. Appraisal activities can include inspecting materials upon delivery and providing regular evaluation of suppliers so that they will know how well they are meeting a company's quality needs.

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181)Productivity is the efficient conversion of inputs into outputs. In its simplest form, a productivity measure is output divided by input. Partial productivity measures consider output in relation to only one input. Total factor productivity tries to evaluate multiple inputs and is a ratio of the value of the output to the value of all key inputs. Total factor productivity makes it easier to compare different business units with differing strategies. 182)Customer satisfaction measures attempt to measure an organization's performance with respect to its external customers. Functional performance measures are internal focused and measure the level of efficiency of processing activities. Many internal performance measures do also relate to the organization's performance with respect to its customers, so a complete separation between the two is not always possible. 183)Worker involvement is important for three reasons: 1. 1) Increased worker involvement often translates to an increased commitment to the organization. 2) Workers are able to be responsive at all levels if empowered with decision-making responsibilities. 3) Workers are able to use their skills and knowledge to further develop and to improve the organization's performance.

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184)Answers will vary, but should include some of the following points. The advantages include: ● Increased employee motivation from being involved in the process ● Improved quality ● Lower cost because problems are identified earlier Disadvantages include: ● Higher costs from stopping lines when no problem exists ● Potentially varying quality from different assessments by different employees

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