Managerial Accounting, 3E Karen W BraunWendy M Tietz Test Bank

Managerial Accounting, 3E

BY Karen W. BraunWendy M Tietz

Email: richard@qwconsultancy.com

Managerial Accounting, 3e (Braun/Tietz) Chapter 1 Introduction to Managerial Accounting 1) Evaluating operations by comparing actual results to budgeted results is a part of the controlling responsibility of management. Answer: TRUE Diff: 1 LO: 1-1 EOC: QC1-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 2) Controlling means overseeing the company's day-to-day operations. Answer: FALSE Diff: 1 LO: 1-1 EOC: QC1-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 3) The purpose of managerial accounting is to gather, summarize, and report the cost and revenue data relevant to each decision that is made. Answer: TRUE Diff: 1 LO: 1-1 EOC: QC1-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 4) Budgeting is the process of evaluating the results of business operations against a plan and then making adjustments to that plan. Answer: FALSE Diff: 1 LO: 1-1 EOC: QC1-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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5) Planning, directing, and controlling are a manager's three primary responsibilities. Answer: TRUE Diff: 1 LO: 1-1 EOC: QC1-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 6) Managerial accounting develops reports that help internal parties effectively and efficiently run the company. Answer: TRUE Diff: 1 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 7) Directing means setting goals and objectives for the company and determining how to achieve them. Answer: FALSE Diff: 1 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 8) Budgets are the quantitative expression of management's plans. Answer: TRUE Diff: 1 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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9) ________ gathers, summarizes, and reports on the financial impact of changes to business operations. A) Managerial accounting B) Planning C) Directing D) Controlling Answer: A Diff: 2 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 10) Creating budgets are part of which primary management responsibility? A) Controlling B) Planning C) Managerial accounting D) Directing Answer: B Diff: 2 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 11) Which of the following is not one of the primary responsibilities of management? A) Adhering to GAAP B) Planning C) Directing D) Controlling Answer: A Diff: 2 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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12) Planning involves which of the following activities? A) Evaluating the results of operations B) Overseeing the company's day-to-day operations C) Setting goals and objectives for the company D) None of the above Answer: C Diff: 1 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 13) Which of the following is being fulfilled when management compares the budget to actual results? A) Directing B) Planning C) Adjusting D) Controlling Answer: D Diff: 2 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 14) When management uses feedback to take corrective action on the budgets, which of the following management responsibilities are being fulfilled? A) Controlling B) Adjusting C) Directing D) Planning Answer: A Diff: 2 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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15) When management analyzes whether to move production to another country or to keep the production located where it currently is, which of the following management responsibilities is being performed? A) Adjusting B) Controlling C) Planning D) Directing Answer: C Diff: 3 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 16) Which one of the following items is not one of the three primary manager responsibilities? A) Controlling B) Planning C) Feedback D) Adjusting Answer: D Diff: 2 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 17) Using product cost information to determine sales prices is an example of A) directing and planning. B) directing and controlling. C) controlling, directing, and planning. D) controlling and planning. Answer: A Diff: 3 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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18) When management reviews hourly sales reports to determine the level of staffing needed to service customers, which of management's three primary responsibilities is fulfilled? A) Controlling and planning B) Directing and planning C) Directing, controlling, and planning D) Analyzing, directing, and planning Answer: B Diff: 3 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 19) Budgets are a way for managers to communicate their A) control. B) decision-making. C) hiring practices. D) plans. Answer: D Diff: 1 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 20) Comparing actual results to budgets is an example of which of the following management functions? A) Analyzing B) Planning C) Controlling D) Directing Answer: C Diff: 1 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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21) Overseeing the day-to-day operations of a company is an example of which of the following management functions? A) Directing B) Planning C) Analyzing D) Controlling Answer: A Diff: 1 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 22) Preparing budgets is an example of which of the following management functions? A) Planning B) Directing C) Analyzing D) Controlling Answer: A Diff: 1 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 23) Evaluating results against the plan is an example of which of the following management functions? A) Planning B) Controlling C) Analyzing D) Directing Answer: B Diff: 1 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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24) What are the three primary responsibilities of managers as described in the chapter? Give an example of each type of responsibility. Answer: The following are managers' three primary responsibilities: a. Planning: An example of planning is when the manager of a local McDonald's restaurant makes the schedule of employee work hours for the upcoming week. b. Directing: An example of directing is when the manager of the local McDonald's adjusts the menu to reflect local tastes and preferences. c. Controlling: An example of controlling is when the manager of the local McDonald's compares the actual number of hamburger patties used over the past week to the budgeted number of hamburger patties. Note that student examples of each type of responsibility may vary. Diff: 2 LO: 1-1 EOC: E1-8 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 25) The SEC requires that reports generated by the managerial accounting system must be audited by an independent certified public accountant (CPA). Answer: FALSE Diff: 2 LO: 1-2 EOC: E1-9 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 26) The design of a management accounting system should consider how reports affect employees' behavior. Answer: TRUE Diff: 2 LO: 1-2 EOC: E1-9 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 27) GAAP must be followed when preparing managerial accounting reports. Answer: FALSE Diff: 1 LO: 1-2 EOC: QC1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 8 .

28) Management accounting requires independent audits of the firm's books. Answer: FALSE Diff: 1 LO: 1-2 EOC: E1-19 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 29) The primary purpose of managerial accounting information is to help external users make investing and lending decisions. Answer: FALSE Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 30) Internal users such as managers are the primary users of managerial accounting information. Answer: TRUE Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 31) The primary managerial accounting product is the company's audited financial statements. Answer: FALSE Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 32) Managerial accounting information emphasizes relevance over reliability and objectivity. Answer: TRUE Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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33) Managerial accounting information tends to report on segments of the business. Answer: TRUE Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 34) Managerial accounting reports are always prepared on a quarterly and annual basis. Answer: FALSE Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 35) Managerial information is always based on historical transactions with external parties. Answer: FALSE Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 36) What is one constraint placed on the information provided by a managerial accounting system? A) Generally Accepted Accounting Principles (GAAP) B) SEC Regulations C) Cost - Benefit D) International Financial Reporting Standards (IFRS) Answer: C Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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37) How often should managerial accounting reports be prepared? A) Annually B) Quarterly C) Monthly D) As often as necessary Answer: D Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 38) Which of the following statements is true regarding managerial accounting information? A) It is audited by CPAs. B) It emphasizes relevance. C) It is prepared annually and quarterly. D) It must be prepared in conformity with generally accepted accounting principles (GAAP). Answer: A Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 39) The focus of management accounting is on A) tax preparation. B) external reporting. C) internal reporting. D) auditing. Answer: C Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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40) Which of the following people is most likely to only use financial accounting information? A) Vice president of plant operations B) Product manager C) Plant manager D) Bank loan officer Answer: D Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 41) Managerial accounting would use which of the following types of information? A) Forecasts of future earnings B) Financial information C) Nonfinancial information D) All of the above Answer: D Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 42) Which of the following persons or groups would be least likely to receive detailed managerial accounting reports? A) CEO B) Plant managers C) Current shareholders D) Sales territory managers Answer: C Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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43) ________ is designed to meet the needs of internal decision makers. A) Tax accounting B) Managerial accounting C) Financial accounting D) Audit accounting Answer: B Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 44) The primary goal of managerial accounting is to provide information to A) internal decision-makers. B) shareholders. C) creditors. D) both shareholders and creditors. Answer: A Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 45) The primary goal of financial accounting is to provide information for A) governmental regulators. B) creditors. C) potential investors. D) all of the above. Answer: D Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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46) Which of following statements is true? A) Managerial accounting focuses on historical transactions. B) Financial accounting focuses on future data. C) Management accounting focuses on relevant data. D) Managerial accounting uses the cash basis for recording transactions. Answer: C Diff: 2 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 47) Which statement is true? A) Management uses financial information to analyze costs. B) Management uses financial information to plan internal operations. C) Management uses reports created for internal parties. D) All of the above are true. Answer: D Diff: 2 LO: 1-2 EOC: S1-2 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 48) Which of the following statements is false? A) Financial accounting helps investors make decisions. B) Financial accounting provides sufficient information for managers to effectively plan and control operations. C) Financial accounting reports help creditors make decisions. D) Financial accounting provides external reports. Answer: B Diff: 2 LO: 1-2 EOC: S1-2 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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49) Which of the following statements is true? A) Managerial accounting reports aid potential investors. B) Managerial accounting reports must follow GAAP. C) Managerial accounting reports are audited by CPAs. D) Managerial accounting reports provide detailed internal information. Answer: D Diff: 2 LO: 1-2 EOC: S1-2 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 50) Which of the following are the internal decision-makers of a company? A) Vendors B) Managers C) Shareholders D) Customers Answer: B Diff: 1 LO: 1-2 EOC: E1-19 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 51) Which one of the following reports is most likely to be required to be audited by an outside entity? A) Monthly financial statements B) Annual financial budgets C) Annual financial statements D) All of the above Answer: C Diff: 2 LO: 1-2 EOC: E1-19 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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52) Which of the following groups are external users of financial information? A) Customers of the company B) Potential investors of the company C) Vendors of the company D) All of the above Answer: D Diff: 1 LO: 1-2 EOC: E1-19 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 53) A company's budget information is most likely to be used by which of the following groups? A) Suppliers B) Creditors C) Customers D) Managers Answer: D Diff: 1 LO: 1-2 EOC: E1-19 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 54) ________ are a company's decision makers. A) Shareholders B) Managers C) Customers D) Creditors Answer: B Diff: 1 LO: 1-2 EOC: E1-19 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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55) ________ are owners of a company. A) Customers B) Shareholders C) Creditors D) Managers Answer: B Diff: 1 LO: 1-2 EOC: E1-19 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 56) External parties receive information about past performance from A) planning reports. B) budget reports. C) financial accounting reports. D) managerial accounting reports. Answer: C Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 57) Internal parties receive information about past performance from A) audit reports. B) budget reports. C) planning reports. D) managerial accounting reports. Answer: D Diff: 1 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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58) Discuss at least four differences between financial accounting and managerial accounting. Answer: Item Managerial accounting Financial accounting Primary users Internal External Purpose of information To help managers make To help investors and decisions creditors make decisions Focus Segments Entire organization as a whole Frequency As needed Quarterly and annually Auditing Not subject to audit Publicly held companies are audited Required? No Required by GAAP, SEC, IRS, and others Time frame focus Future Past (historical transactions) Diff: 2 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 59) Is financial accounting or managerial accounting more useful to a plant (factory) manager? Explain your answer. Answer: Managerial accounting is likely to be much more useful to a plant manager than financial accounting. Financial accounting typically gives financial information for the company as a whole; the plant manager would find very little information in the financial accounting reports which relate directly to the plant environment and the performance of the plant itself. Managerial accounting, on the other hand, could provide the plant manager with information relating to just the plant. Examples of some types of information provided by managerial accounting are: a. a comparison of budgeted costs versus actual costs. b. tracking of safety incidents. c. quality costs. d. product line profitability. e. profitability by shift. (Student examples may vary.) Diff: 2 LO: 1-2 EOC: S1-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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60) Management accountants rarely interact with employees from other business functions such as marketing and customer service. Answer: FALSE Diff: 1 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 61) The CFO is the person responsible for the day-to-day operations of the company. Answer: FALSE Diff: 1 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 62) The treasurer and the controller report directly to the CFO. Answer: TRUE Diff: 1 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 63) The internal audit department reports directly to the audit committee, a subcommittee of the board of directors. Answer: TRUE Diff: 1 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 64) Managerial accountants no longer perform routine mechanical accounting tasks in most companies. Answer: TRUE Diff: 1 LO: 1-3 EOC: E1-10 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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65) Managerial accountants are now considered to be similar to advisors and business analysts. Answer: TRUE Diff: 1 LO: 1-3 EOC: E1-10 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 66) Oral and written communications skills are considered among the most valuable skills a management accountant can possess. Answer: TRUE Diff: 1 LO: 1-3 EOC: E1-10 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 67) Technology has been a driving factor in the changing roles of management accountants. Answer: TRUE Diff: 1 LO: 1-3 EOC: S1-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 68) Management accountants spend more time planning, analyzing and interpreting accounting data and less time recording routine accounting transactions than they have in the past. Answer: TRUE Diff: 1 LO: 1-3 EOC: S1-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 69) The only skill required of managerial accountants is that they have a solid knowledge of both financial and managerial accounting. Answer: FALSE Diff: 1 LO: 1-3 EOC: S1-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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70) Managerial accountants only need a solid understanding of managerial accounting, and not financial accounting. Answer: FALSE Diff: 1 LO: 1-3 EOC: S1-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 71) What position is typically responsible for financial accounting, managerial accounting, and tax reporting? A) Controller B) Treasurer C) CFO D) Audit committee Answer: A Diff: 1 LO: 1-3 EOC: S1-4 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 72) Despite the proliferation of technology, managerial accountants are still needed to provide professional judgment in which of the following areas? A) Recording non-routine transactions B) Adjusting the financial records C) Designing computer information systems D) All of the about activities require professional judgment Answer: D Diff: 1 LO: 1-3 EOC: S1-4 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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73) The IMA issues which of the following certifications? A) CMA B) CIA C) CFP D) CPA Answer: A Diff: 1 LO: 1-3 EOC: S1-4 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 74) A CFO would have all of the following responsibilities except A) investing in new production equipment. B) managing corporate financing. C) preparing all corporate tax returns. D) providing reports to creditors as required. Answer: A Diff: 2 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 75) Which of the following positions typically manages the daily operations of a company? A) The controller B) The CEO C) The board of directors D) The stockholders Answer: B Diff: 1 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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76) Oversight and strategy formulation and guidance for a large corporation are typically provided by which of the following positions? A) The CEO B) The company president C) The stockholders D) The Board of Directors Answer: D Diff: 1 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 77) To whom would the vice-president of operations typically directly report? A) The COO B) The Board of Directors C) The CFO D) The CEO Answer: A Diff: 1 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 78) The COO is responsible for managing which of the following aspect(s) of the company? A) The annual audit B) Internal controls C) Research and development, production, and distribution D) Financial accounting, managerial accounting, and tax accounting Answer: C Diff: 2 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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79) Which of the following positions report to the audit committee of the Board of Directors? A) The CFO and internal audit department B) The internal audit department and the independent CPA firm C) The CFO and the independent CPA firm D) The treasurer and controller Answer: B Diff: 2 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 80) Which of the following positions is primarily responsible for raising capital and investing funds? A) The treasurer B) The COO C) The CFO D) The CEO Answer: A Diff: 2 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 81) What factor has changed the way that we now view managerial accountants? A) Stricter GAAP standards B) Technology C) Stricter audit standards D) None of the above Answer: B Diff: 2 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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82) Which of the following tasks are performed by management accountants? A) Help design information systems B) Provide decision support C) Ensure financial records are correct D) All of the above Answer: D Diff: 2 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 83) Managerial accountants may be responsible for A) providing decision support. B) communicating results. C) analyzing data. D) all of the above. Answer: D Diff: 2 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 84) Managerial accountants are required to possess which of the following skills? A) Analytical skills B) Oral and written communication skills C) The ability to work on a team D) All of the above Answer: D Diff: 2 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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85) The ________ is a subgroup of the Board of Directors. A) managerial committee B) stockholders' committee C) audit committee D) financial committee Answer: C Diff: 1 LO: 1-3 EOC: E1-10 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 86) Which person or group is not an employee of the corporation? A) A member of the audit committee B) The treasurer C) The VP of manufacturing D) The CFO Answer: A Diff: 2 LO: 1-3 EOC: S1-4 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 87) Which person is hired directly by the board of directors to manage the daily operations of the company? A) The CFO B) The Treasurer C) The COO D) The CEO Answer: D Diff: 1 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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88) According to the textbook, managerial accountants often work on A) cross-functional teams. B) workgroups. C) audit teams. D) multi-functional teams. Answer: A Diff: 1 LO: 1-3 EOC: S1-4 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 89) A company's Board of Directors meets A) quarterly. B) periodically, as needs dictate. C) monthly. D) annually. Answer: B Diff: 1 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 90) Companies listed on the New York Stock Exchange (NYSE) are required to have an internal audit function by A) The NYSE. B) The Internal Revenue Service (IRS). C) The stockholders. D) The Board of Directors. Answer: A Diff: 2 LO: 1-3 EOC: S1-4 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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91) The person who is directly responsible for all financial functions is the A) Treasurer. B) CEO. C) CFO. D) COO. Answer: C Diff: 1 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 92) The person who is directly responsible for the company's operations, such as research and development, production and distribution is the A) CFO. B) Treasurer. C) CEO. D) COO. Answer: D Diff: 2 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 93) Describe the position of the CFO, the treasurer, and the controller within the organization. Describe the main functions of the treasurer and the controller. Answer: The treasurer and controller both report to the CFO. The treasurer is responsible for the investing functions of the organization (i.e., obtaining financing, paying down debt, issuing stock, etc.). The controller is responsible for the financial accounting system and the managerial accounting system of the organization. Diff: 2 LO: 1-3 EOC: E1-11 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 94) The IMA suggests that members discuss ethical dilemmas with the company's board of directors. Answer: FALSE Diff: 1 LO: 1-4 EOC: E1-12 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 28 .

95) The IMA is the professional association for managerial accountants. Answer: TRUE Diff: 1 LO: 1-4 EOC: E1-12 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 96) The IMA issues the CMA designation. Answer: TRUE Diff: 1 LO: 1-4 EOC: E1-12 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 97) Your company sends you to a conference to update your skills. It is a violation of the professional competency and integrity standards if you decide to skip the afternoon session and go sightseeing. Answer: TRUE Diff: 2 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 98) The ethical principles and standards of the IMA always give clear guidance for every ethical situation. Answer: FALSE Diff: 2 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 99) The "Ethics Hotline" provides specific resolutions (answers) to IMA members who face ethical dilemmas. Answer: FALSE Diff: 1 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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100) Just because a behavior is legal does not always mean it is ethical. Answer: TRUE Diff: 2 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 101) The IMA's overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility. Answer: TRUE Diff: 1 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 102) The IMA suggests that, when faced with an ethical dilemma, the first thing management accountants should do is call the IMA's ethics hotline. Answer: FALSE Diff: 1 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 103) To resolve ethical dilemmas, the IMA suggests that management accountants should first A) consult an attorney. B) call the IMA "Ethics Hotline". C) follow their company's established policies for reporting unethical behavior. D) discuss the unethical situation with their immediate supervisor. Answer: C Diff: 1 LO: 1-4 EOC: S1-5 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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104) Which of the following is not one of the IMA's overarching ethical principles? A) Fairness B) Responsibility C) Honesty D) Creativity Answer: D Diff: 1 LO: 1-4 EOC: S1-5 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 105) The standards in the IMA Statement of Ethical Professional Practice include A) Competence, Confidentiality, Integrity, and Credibility. B) Competence, Objectivity, Credibility, and Honesty. C) Competence, Confidence, Integrity, and Credibility. D) Competence, Confidentiality, Integrity, and Objectivity. Answer: A Diff: 1 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 106) All of the following are overarching principles in the IMA Statement of Ethical Professional Practice except A) responsibility. B) objectivity. C) integrity. D) fairness. Answer: C Diff: 1 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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107) The standards of the IMA Statement of Ethical Professional Practice include which of the following? A) Objectivity B) Fairness C) Honesty D) Integrity Answer: D Diff: 1 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 108) Preparing financial statements in accordance with GAAP is an example of A) integrity. B) competence. C) credibility. D) objectivity. Answer: B Diff: 1 LO: 1-4 EOC: S1-5 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 109) Communicating information fairly and objectively is an example of which ethical standard? A) Credibility B) Integrity C) Competence D) Confidentiality Answer: A Diff: 1 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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110) Performing duties in accordance with relevant laws, regulations, and technical standards comprise the IMA professional ethics standard of A) credibility. B) competence. C) integrity. D) confidentiality. Answer: B Diff: 1 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 111) Inflating your expenses for a company-sponsored conference is a violation of what ethical standard? A) Credibility B) Integrity C) Competence D) Confidentiality Answer: B Diff: 1 LO: 1-4 EOC: E1-14 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 112) To ensure a profit in the current year a company ships out pre-ordered merchandise the last week of December, instead of in mid-January as the customer instructed. This early shipment could be a violation of which ethical standard? A) Confidentiality B) Integrity C) Competence D) All of the above Answer: B Diff: 1 LO: 1-4 EOC: E1-14 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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113) What ethical standard is being violated when you tell a friend that the company you work for is going to report lower than expected earnings next week? A) Credibility B) Integrity C) Confidentiality D) Competence Answer: C Diff: 1 LO: 1-4 EOC: E1-14 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 114) An accountant who does not understand "accrual accounting" fails which ethical standard? A) Credibility B) Competence C) Integrity D) Confidentiality Answer: B Diff: 1 LO: 1-4 EOC: E1-14 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 115) What ethical standard would you violate if you take pens home from work for personal use? A) Integrity B) Competence C) Confidentiality D) Credibility Answer: A Diff: 1 LO: 1-4 EOC: E1-14 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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116) What is the name of the professional association for managerial accountants? A) Institute of Professional Accountants B) Professional Accountants Association C) Association of Management Accountants D) Institute of Management Accountants Answer: D Diff: 2 LO: 1-4 EOC: E1-14 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 117) Which of the following certifications is issued by the IMA? A) CISA B) CFP C) CMA D) CPA Answer: C Diff: 1 LO: 1-4 EOC: E1-12 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 118) Which of the following is an example of the IMA's competence standard? A) Provide decision support that is accurate, clear, concise and timely. B) Keep information confidential, except when disclosure is legally required. C) Communicate information fairly and objectively. D) Abstain from engaging in or supporting any activity that might discredit the profession. Answer: A Diff: 2 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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119) Which of the following is an example of the IMA's credibility standard? A) Provide decision support that is accurate, clear, concise and timely. B) Keep information confidential, except when disclosure is legally required. C) Communicate information fairly and objectively. D) Abstain from engaging in or supporting any activity that might discredit the profession. Answer: C Diff: 2 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 120) Which of the following is an example of the IMA's integrity standard? A) Provide decision support that is accurate, clear, concise and timely. B) Keep information confidential, except when disclosure is legally required. C) Communicate information fairly and objectively. D) Abstain from engaging in or supporting any activity that might discredit the profession. Answer: D Diff: 2 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 121) Which of the following is an example of the IMA's confidentiality standard? A) Provide decision support that is accurate, clear, concise and timely. B) Keep information confidential, except when disclosure is legally required. C) Communicate information fairly and objectively. D) Abstain from engaging in or supporting any activity that might discredit the profession. Answer: B Diff: 2 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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122) Which of the following is not one of the IMA's credibility standards? A) To disclose all relevant information B) To disclose deficiencies in internal control C) To communicate information fairly and objectively D) All of the above are part of IMA's credibility standard. Answer: D Diff: 2 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 123) Which ethical standard is demonstrated when you attend a class to maintain your professional knowledge? A) Credibility B) Integrity C) Competence D) Confidentiality Answer: C Diff: 2 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 124) Not disclosing sensitive information is an example of which ethical standard? A) Credibility B) Integrity C) Competence D) Confidentiality Answer: D Diff: 2 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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125) Refusing gifts or favors that could be perceived to influence your actions is an example of which ethical standard? A) Credibility B) Integrity C) Confidentiality D) Competence Answer: B Diff: 2 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 126) Accepting a job that you know can be better performed by someone else with the required skills would violate the ethical conduct standard of A) credibility. B) integrity. C) competency. D) confidentiality. Answer: C Diff: 2 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 127) It would be a violation of which ethical standard to withhold relevant information? A) Confidentiality B) Competency C) Integrity D) Credibility Answer: D Diff: 2 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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128) Failure to mitigate a conflict of interest would violate which ethical standard of conduct? A) Credibility B) Integrity C) Competency D) Confidentiality Answer: B Diff: 2 LO: 1-4 EOC: S1-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 129) Managerial accounting is becoming less relevant as the U.S. economy shifts away from the manufacturing industry towards the service industry. Answer: FALSE Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 130) The Sarbanes-Oxley Act was designed to hold corporations accountable for internal control and financial reporting functions. Answer: TRUE Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 131) The Sarbanes-Oxley Act has significantly impacted the responsibility for financial reporting by publicly traded corporations. Answer: TRUE Diff: 2 LO: 1-5 EOC: S1-7 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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132) CPA firms cannot provide consulting services for their current audit clients. Answer: TRUE Diff: 2 LO: 1-5 EOC: S1-7 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 133) Trends in the modern business environment include a shift to a service economy and the rise of the global marketplace. Answer: TRUE Diff: 2 LO: 1-5 EOC: S1-7 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 134) The concept of the lean thinking philosophy is generally credited to General Motors. Answer: FALSE Diff: 1 LO: 1-5 EOC: S1-7 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 135) Implementing a program to bill customers electronically, therefore saving paper, is a green initiative that would reduce not only waste, but also company costs. Answer: TRUE Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 136) Lean production cuts the throughput time of a manufacturing concern. Answer: TRUE Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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137) ISO 9001:2008 is a certification program for companies that adhere to an international set of quality management standards and guidelines. Answer: TRUE Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 138) According to SOX, at least one member of the audit committee should be a financial expert. Answer: TRUE Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 139) IFRS stands for "important financial reporting standards." Answer: FALSE Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 140) XBRL will be required of both public and private companies. Answer: FALSE Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 141) Managerial accounting has its roots in the industrial age of manufacturing. Answer: TRUE Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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142) Lean thinking is both a philosophy and a business strategy of manufacturing without waste. Answer: TRUE Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 143) The American Institute of Certified Public Accountants was the first professional membership organization in the United States to earn the ISO 9001 certification. Answer: TRUE Diff: 1 LO: 1-5 EOC: S1-7 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 144) Sustainability is generally described as the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs. Answer: TRUE Diff: 1 LO: 1-5 EOC: S1-7 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 145) Company initiatives to address sustainability and corporate responsibility not only "do the right thing," but also can lead to economic profits by increasing demand for the company's products and services. Answer: TRUE Diff: 2 LO: 1-5 EOC: S1-7 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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146) A wave of accounting scandals around the turn of the 21st century prompted which of the following? A) XBRL B) IFRS C) SOX D) ISO Answer: C Diff: 1 LO: 1-5 EOC: E1-16 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 147) Increased competition with foreign companies and the rise of the global marketplace is mainly due to which of the following? A) Globalization B) The Sarbanes-Oxley Act of 2002 C) Decreased barriers to international trade D) International financial reporting standards Answer: C Diff: 2 LO: 1-5 EOC: E1-16 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 148) Which type of system integrates ALL of the company's departments, functions, and data? A) TQM System B) ERP System C) ISO System D) QuickBooks Answer: B Diff: 2 LO: 1-5 EOC: E1-16 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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149) According to the Sarbanes-Oxley Act, who is responsible for establishing and maintaining internal controls over financial reporting? A) The CEO and CFO B) The internal auditors C) The external auditors D) The SEC Answer: A Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 150) The Sarbanes-Oxley Act requires the CPA firm to rotate the audit partner off of the audit engagement every ________ year(s). A) three B) four C) five D) one Answer: C Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 151) Which of the following is not an advantage of an ERP system? A) Streamlining operations B) Allowing faster response to changes C) Eliminating separate software systems across the company D) Lower initial cost than traditional systems Answer: D Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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152) The ability to meet the needs of the present without compromising the needs of the future is often referred to as A) the bottom line. B) total quality management. C) sustainability. D) just-in-time. Answer: C Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 153) The "triple bottom line" focuses on these three factors that influence a firm's ability to survive and thrive in the long run: A) people, places, things B) profit, people, planet C) profit, people, place D) planet, profit, place Answer: B Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 154) Under SOX, a CPA firm is permitted to perform which of the following services for an audit client with pre-approval from the client's audit committee? A) Tax B) Financial information design C) Bookkeeping D) Consulting Answer: A Diff: 1 LO: 1-5 EOC: E1-16 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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155) According to SOX, a company's financial statements must be certified by the company's A) CEO. B) CFO. C) Controller. D) CFO and CEO. Answer: D Diff: 2 LO: 1-5 EOC: E1-16 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 156) A requirement of SOX is that publicly traded companies must have which of the following assessed annually? A) Financial reporting system B) Internal control system C) Internal control system and financial reporting system D) There is no annual assessment required under SOX. Answer: C Diff: 2 LO: 1-5 EOC: E1-16 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 157) The SEC is considering the move to adopt IFRS for which types of companies? A) All U.S. companies B) All U.S. publicly traded companies C) All U.S. private companies D) Only foreign companies operating in the U.S. Answer: B Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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158) IFRS stands for A) Important Foreign Registering Systems. B) International and Foreign Registering Standards. C) International and Foreign Reporting Systems. D) International Financial Reporting Standards. Answer: D Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 159) XBRL stands for A) eXtensive Business Registering Location. B) eXtractable Business Reporting Location. C) eXtensible Business Reporting Language. D) eXisting Business Responsibility Language. Answer: C Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 160) In what year will XBRL be required for all publicly traded companies? A) 2017 B) 2015 C) 2011 D) 2010 Answer: C Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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161) XBRL can best be described as a A) new set of auditing standards. B) new set of accounting standards. C) new set of ethical standards. D) a tagging system for financial statement data. Answer: D Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 162) Which of the following statements about XBRL is false? A) XBRL is only required for publicly traded companies. B) XBRL will decrease the need for manual financial information searches. C) The US is the first country to mandate use of XBRL. D) XBRL should decrease the time companies spend converting their financial information into various government-prescribed formats. Answer: C Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 163) ________ is the business philosophy and a strategy of manufacturing without waste. A) ISO 9001 B) Lean thinking C) TQM D) Thin manufacturing Answer: B Diff: 1 LO: 1-5 EOC: E1-17 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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164) Companies may adopt which of the following in an attempt to increase their competitive edge? A) TQM B) Green initiatives C) Lean thinking D) All of the above Answer: D Diff: 2 LO: 1-5 EOC: E1-17 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 165) Movements toward sustainability and corporate responsibility often A) result in increased demand for the company's product or service. B) include monetary support of local schools and charities. C) include green initiatives. D) All of the above are correct. Answer: D Diff: 2 LO: 1-5 EOC: E1-17 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 166) The Sarbanes-Oxley Act was enacted A) to prevent accounting scandals like Enron. B) to restore trust in publicly traded companies. C) to hire better qualified managerial accountants. D) none of the above Answer: A Diff: 1 LO: 1-5 EOC: E1-16 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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167) Which of the following was not a result of the Sarbanes-Oxley Act? A) The COO assumes financial statement responsibility. B) There are new requirements for CPA firms. C) There are stiffer consequences for white-collar crimes. D) Audit committees must be independent. Answer: A Diff: 1 LO: 1-5 EOC: E1-16 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 168) The Sarbanes-Oxley Act requires companies to have their internal audit procedures assessed at least A) monthly. B) quarterly. C) annually. D) at any time they choose. Answer: C Diff: 1 LO: 1-5 EOC: E1-16 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 169) The Sarbanes-Oxley Act allows for a maximum of ________ years of imprisonment for knowingly destroying or creating documents to obstruct any federal investigation. A) 20 B) 15 C) 10 D) 5 Answer: A Diff: 1 LO: 1-5 EOC: E1-16 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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170) What is a business philosophy that focuses on providing customers with superior products and services? A) IFRS B) TQM C) ERP D) XBRL Answer: B Diff: 1 LO: 1-5 EOC: E1-16 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 171) What is a system that requires suppliers to deliver materials at the exact time the materials are needed? A) JIT B) TQM C) ISO D) ERP Answer: A Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 172) ISO 9001:2008 is a(n) A) effective exchange of information between vendors and customers. B) system where production occurs only when needed. C) software system which integrates all departments. D) certification that a company complies with international quality standards. Answer: D Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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173) Which of the following is a software system that integrates all of a company's departments? A) ERP B) Total Integrated Software C) JIT D) TQM Answer: A Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 174) Companies that wish to demonstrate their commitment to international quality standards may become certified by what organization? A) SEC B) IFRS C) IMA D) ISO Answer: D Diff: 2 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 175) Which of the following methods cuts throughput time? A) XBRL B) IFRS C) JIT D) ISO Answer: C Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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176) Which type of company utilizes managerial accounting? A) Service B) Manufacturers C) Retailers D) All of the above Answer: D Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 177) CPA firms are permitted to provide which of the following services to audit clients? A) Tax preparation B) Information systems design C) Consulting D) Bookkeeping Answer: A Diff: 2 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 178) The philosophy that centers on production as needed is known as A) Supply-chain management. B) TQM. C) ERP. D) JIT. Answer: D Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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179) What is the business philosophy of providing superior goods and services? A) TQM B) Supply-chain management C) ERP D) JIT Answer: A Diff: 1 LO: 1-5 EOC: E1-15 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 180) What would a company need to conduct when considering whether to install an ERP system or not? A) TQM survey B) cost-benefit analysis C) JIT survey D) ISO 9001:2000 survey Answer: B Diff: 2 LO: 1-5 EOC: P1-30 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 181) Which of the following would have the least effect on a cost-benefit analysis? A) Steadily rising prices B) Rapidly declining prices C) Constant prices D) None of the above Answer: C Diff: 2 LO: 1-5 EOC: P1-30 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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182) Which of the following is not used in a cost-benefit analysis? A) Future benefits to be received from project B) Amounts for future costs of project C) Book value of past investment in equipment D) Amount needed to invest in project initially Answer: C Diff: 2 LO: 1-5 EOC: P1-30 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 183) Torque Engine Company is considering opening a plant in China. It will cost $3,500,000 to set up the plant and $750,000 to train employees. An additional $100,000 will be spent to build relationships with the local suppliers. The company anticipates gross profit of $4,400,000 from this new plant. Do the benefits outweigh the costs or do the costs outweigh the benefits, and by how much? A) Costs outweigh benefits by $150,000. B) Benefits outweigh costs by $150,000. C) Costs outweigh benefits by $50,000. D) Benefits outweigh costs by $50,000. Answer: D Diff: 3 LO: 1-5 EOC: P1-30 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 184) Country Western Clothing Outfitters is considering investing in an inventory tracking system. It will have $10,000 in software costs and $8,000 in employee training costs. Computer hardware also needs to be upgraded for the system; the hardware upgrades are expected to be $12,000. The expected benefits from the inventory tracking system should be $28,000. Do the benefits outweigh the costs or do the costs outweigh the benefits, and by how much? A) Costs outweigh benefits by $2,000. B) Benefits outweigh costs by $2,000. C) Costs outweigh benefits by $10,000. D) Benefits outweigh costs by $10,000. Answer: A Diff: 3 LO: 1-5 EOC: P1-30 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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185) Pete's Cola Company is investigating the possibility of adopting a lean thinking philosophy throughout their organization. Estimated costs to set up the computer system are $1,650,000; training employees in lean operations is estimated to cost $175,000; and the general expenses of establishing the program are estimated at $315,000. The estimated value of the potential savings is $1,975,000. Do the benefits outweigh the costs or do the costs outweigh the benefits, and by how much? A) Costs outweigh benefits by $150,000. B) Benefits outweigh costs by $150,000. C) Costs outweigh benefits by $165,000. D) Benefits outweigh costs by $165,000. Answer: C Diff: 3 LO: 1-5 EOC: P1-30 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 186) Gilmore Corporation is investigating the possibility of adopting a lean thinking philosophy in its manufacturing facilities. The plant manager has done a cost-benefit analysis and has found that the costs of the lean production program exceed the benefits by $115,000. You analyze the situation and make some adjustments to the cost estimates. After doing your analysis, you find that costs still outweigh benefits by less than 5%. Which might be a sound course of action? A) Consider dropping the plan. B) Look for ways to lessen costs. C) Re-evaluate the value of benefits. D) All of the above should be considered. Answer: D Diff: 2 LO: 1-5 EOC: P1-30 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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187) Johnson Scooter Company is considering whether or not to expand into a new area of the US. They produce high-performance gas scooters with moderate gas mileage, but have developed a new battery technology that combines a small amount of electrical energy with the existing gas power. This new technology will significantly increase the fuel economy of their bikes. They will need to spend $5,075,000 to retrofit a building to incorporate the new fuel-saving technology. New worker training will cost $1,984,000. Other expenses involved in getting the new plant up and running amount to $332,000. The CEO anticipates that, with gas price increases, the profit potential of this expansion is $7,588,000. Do the benefits outweigh the costs or do the costs outweigh the benefits, and by how much? Answer: Sales from expansion $ 7,588,000 Less costs: Cost to retrofit a building $ (5,075,000) New worker training $ (1,984,000) Other plant expenses $ (332,000) Benefits outweigh costs by $ 197,000 Diff: 2 LO: 1-5 EOC: P1-30 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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188) Match the appropriate terms with the correct definitions.

Answer:

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Diff: 2 LO: 1-5 EOC: P1-30 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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Managerial Accounting, 3e (Braun/Tietz) Chapter 2 Building Blocks of Managerial Accounting 1) Service companies must carry a large amount of inventory to meet consumer demand. Answer: FALSE Diff: 1 LO: 2-1 EOC: E2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 2) Manufacturing companies usually have three types of inventory. Answer: TRUE Diff: 1 LO: 2-1 EOC: E2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 3) Retailers sell their products to consumers. Answer: TRUE Diff: 1 LO: 2-1 EOC: E2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 4) Merchandising companies include both wholesalers and retailers. Answer: TRUE Diff: 1 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 5) All companies have the same types of inventories. Answer: FALSE Diff: 1 LO: 2-1 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 1 .

6) Only manufacturing companies have finished goods inventory. Answer: TRUE Diff: 2 LO: 2-1 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 7) Which of the following are merchandising companies? A) Manufacturers B) Retailers C) Wholesalers D) Both retailers and wholesalers Answer: D Diff: 1 LO: 2-1 EOC: E2-15A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 8) Which of the following types of companies has raw materials, work in process and finished goods inventory? A) Retailers B) Manufacturers C) Wholesalers D) Service companies Answer: B Diff: 1 LO: 2-1 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 9) Which type of company makes up the largest sector of the United States economy? A) Manufacturers B) Merchandising C) Wholesalers D) Service companies Answer: D Diff: 1 LO: 2-1 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 2 .

10) The balance sheet of a service company has A) raw materials inventory. B) little or no inventory. C) three categories of inventory. D) two categories of inventory. Answer: B Diff: 1 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 11) Schlabig & Associates, a public accounting firm, is what type of company? A) Manufacturer B) Retailer C) Service D) Wholesaler Answer: C Diff: 1 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 12) Jiffy Lube, an automotive maintenance company, is primarily what type of company? A) Manufacturer B) Retailer C) Wholesaler D) Service Answer: D Diff: 1 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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13) Among other products, Nabisco makes Oreo cookies. Which type of company is Nabisco? A) Service B) Manufacturer C) Retailer D) Wholesaler Answer: B Diff: 1 LO: 2-1 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 14) Which type of company typically produces its own inventory? A) Manufacturer B) Service company C) Retailer D) Wholesaler Answer: A Diff: 1 LO: 2-1 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 15) What type of company resells products it purchases ready-made from suppliers? A) Merchandiser B) Retailer C) Wholesaler D) All of the above Answer: D Diff: 1 LO: 2-1 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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16) Before these materials are used to manufacture its cars, Toyota classifies steel, glass, and plastic as A) raw materials inventory. B) finished goods inventory. C) work in process inventory. D) merchandise inventory. Answer: A Diff: 1 LO: 2-1 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 17) Before these materials are used to manufacture cabinets, a woodworker classifies lumber, paint, and glue as A) finished goods inventory. B) work in process inventory. C) raw materials inventory. D) merchandise inventory. Answer: C Diff: 1 LO: 2-1 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 18) Macy's (the department store chain) classifies its clothing held for sale as A) merchandise inventory. B) raw materials inventory. C) work in process inventory. D) finished goods inventory. Answer: A Diff: 1 LO: 2-1 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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19) American Eagle Outfitters classifies the denim jeans on the shelves at its retail locations as A) finished goods inventory. B) work in process inventory. C) merchandise inventory. D) raw materials inventory. Answer: C Diff: 1 LO: 2-1 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 20) How would Chevrolet classify its partially completed vehicles? A) Finished goods B) Raw materials C) Work in process D) Supplies Answer: C Diff: 1 LO: 2-1 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 21) In the United States, the fastest growing type of company is A) merchandising. B) service. C) manufacturing. D) none of the above. Answer: B Diff: 1 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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22) Which of the following is a characteristic of a service company? A) Service companies make a product. B) Service companies have a single category of inventory. C) Service companies generally have no tangible products to sell. D) Service companies transform raw materials into finished goods. Answer: C Diff: 1 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 23) A snow removal business would be classified as a A) manufacturing company. B) merchandising company. C) simple company. D) service company. Answer: D Diff: 1 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 24) An accounting firm would be classified as a A) manufacturing company. B) merchandising company. C) simple company. D) service company. Answer: D Diff: 1 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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25) Toshiba Corporation makes computer chips. Toshiba Corporation would be classified as a A) merchandising company. B) manufacturing company. C) service company. D) simple company. Answer: B Diff: 1 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 26) Which type of company has three types of inventory? A) A manufacturing company B) A merchandising company C) A service company D) All of these companies Answer: A Diff: 1 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 27) For a ________, inventory consists of freight-in and the cost of the product which is to be resold. A) service company B) manufacturing company C) merchandising company D) all of these companies Answer: C Diff: 1 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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28) A ________ company has the highest percentage of labor costs as compared to the other types of companies. A) merchandising B) service C) manufacturing D) All companies have a high percentage of labor costs. Answer: B Diff: 1 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 29) Which type(s) of companies prepare income statements and balance sheets? A) Service company B) Merchandising company C) Manufacturing company D) All of these types of companies Answer: D Diff: 1 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 30) All of the following items would be found in raw materials inventory for a furniture manufacturer except A) wood. B) fabric. C) steel framing. D) assembly worker wages. Answer: D Diff: 1 LO: 2-1 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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31) Which of the following costs could be found in work in process inventory for a candy bar manufacturer? A) Assembly worker wages B) Utilities for administrative offices C) Depreciation on sales office D) Customer order forms Answer: A Diff: 1 LO: 2-1 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 32) Enter the letter of the type of company on the line in front of each statement. Letters may be used more than once or not at all. A) service company B) merchandising company C) manufacturing company ____ generally has no inventory ____ has three types of inventory ____ inventory consists of freight-in and the cost of the product ____ has the highest percentage of labor costs ____ Wal-Mart is this type of company Answer: A, C, B, A, B Diff: 1 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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33) On the line in front of each statement, enter the letter corresponding to the term that best fits that statement. You may use a letter more than once and some letters may not be used at all. A. B. C. D.

Materials inventory Service companies Merchandise inventory Finished goods inventory

E. F. G.

Work in process inventory Manufacturing companies Merchandising companies

____ typically have a single category of inventory ____ resell products they previously purchased ready-made from suppliers ____ do not have inventory for resale ____ produce its own inventory ____ transform raw materials into new finished products ____ ready to sell inventory of manufacturers ____ partially completed items of manufacturers Answer: G typically have a single category of inventory G resell products they previously purchased ready-made from suppliers B do not have inventory for resale F produce its own inventory F transform raw materials into new finished products D ready to sell inventory of manufacturers E partially completed items of manufacturers Diff: 2 LO: 2-1 EOC: E2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 34) Describe service, merchandising, and manufacturing companies. Answer: Service companies sell intangible services such as insurance, consulting and healthcare. Salaries and wages often are the largest part of their costs. They usually do not have inventory or cost of goods sold accounts, although some service companies will have a small amount of supplies inventory which is used for their own use and not for sale to customers. Merchandising companies resell tangible products they buy from suppliers. Retailers and wholesalers are both types of merchandising companies. Merchandisers have inventory. Manufacturing companies use labor, plant and equipment to convert raw materials into finished products which they sell to other companies. They have three types of inventory— raw materials, work in process, and finished goods. Diff: 2 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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35) Explain the difference between raw materials inventory, work in process inventory, and finished goods inventory. Answer: Raw materials inventory includes all materials used to make a product including materials that become a part of the product as well as other physical materials used in a plant such as machine lubricants and janitorial supplies. Work in process inventory includes goods that are partway through the manufacturing process but not yet complete. Finished goods inventory includes completed goods that have not yet been sold. Diff: 1 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 36) Describe a company that has some elements of all three types of companies. It is part service company, part manufacturer, and part merchandiser. Answer: Many restaurants fall into this category. They are a service company since they serve hungry customers. They are a manufacturer since they convert raw ingredients into finished meals and they are a merchandiser since they sell ready-to-serve bottles of beer and wine. Diff: 2 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 37) Why do service firms not have inventory costs pertaining to items to be sold? What type of costs do they have? Answer: Service firms do not have inventory costs because services cannot be produced today and stored up to sell later. They do not have inventory. They only have period costs that are expensed. Diff: 2 LO: 2-1 EOC: S2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 38) Controlling costs across the entire value chain often requires a trade-off between the individual elements of the value chain. Answer: TRUE Diff: 1 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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39) All of the components of manufacturing–from research and development through customer service after the sale–are part of a firm's value chain. Answer: TRUE Diff: 1 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 40) The activities in the value chain must take place in a specific order. Answer: FALSE Diff: 1 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 41) The value chain concept helps companies control costs over the value chain as a whole. Answer: TRUE Diff: 1 LO: 2-2 EOC: S2-3 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 42) Research and development is needed to improve products and to design new products. Answer: TRUE Diff: 1 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 43) Receipt of materials is part of the firm's value chain. Answer: TRUE Diff: 1 LO: 2-2 EOC: S2-3 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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44) A company's distribution system is an important part of the value chain. Answer: TRUE Diff: 1 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 45) For a merchandising company, the costs of shipping inventory to the retail outlet is associated with which element of the value chain? A) Design B) Distribution C) Production and Purchases D) Customer Service Answer: B Diff: 1 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 46) All of the following are part of a company's value chain except A) design. B) distribution. C) administration. D) marketing. Answer: C Diff: 1 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 47) Which of the following activities is not included in the value chain? A) Reporting B) Design C) Production D) Customer service Answer: A Diff: 1 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 14 .

48) All of the following activities are included in the value chain except A) customer service. B) design. C) safety. D) production. Answer: C Diff: 1 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 49) Which of the following would not be included in the value chain? A) Website development costs B) Costs to deliver product to retail outlets C) Costs of print advertisements D) All of these costs would be included as part of the value chain. Answer: D Diff: 2 LO: 2-3 EOC: S2-4 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 50) The value chain is used by A) service, manufacturing and merchandising businesses. B) only service and manufacturing businesses. C) only service and merchandising businesses. D) only manufacturing and merchandising businesses. Answer: A Diff: 2 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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51) Collectively, all costs such as distribution, marketing, and design are part of A) downstream activities. B) fixed costs. C) the value chain. D) manufacturing costs. Answer: C Diff: 21 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 52) What is the promotion of products and services known as? A) Customer service B) Marketing C) Distribution D) Design Answer: B Diff: 1 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 53) All of the following relate to part of the value chain for a clothing company except A) cost of advertising the new products. B) administrative costs. C) cost of shipping to retailers. D) salaries of clothing designers. Answer: B Diff: 2 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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54) Which part of the value chain would depreciation on a factory be classified as? A) Design B) Distribution C) Research and development D) Production Answer: D Diff: 1 LO: 2-2 EOC: E2-23A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 55) Testing ways to increase the strength of your product would be classified as which part of the value chain? A) Design B) Distribution C) Production D) Research and development Answer: D Diff: 1 LO: 2-2 EOC: E2-23A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 56) Which part of the value chain would a technical support hotline for customers be considered? A) Design B) Customer service C) Distribution D) Marketing Answer: B Diff: 21 LO: 2-2 EOC: E2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

17 .

57) Advertising expenses would be considered which part of the value chain? A) Customer service B) Marketing C) Production D) Research and development Answer: B Diff: 2 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 58) The costs associated with reengineering machinery and its location within the factory to increase efficiency would be considered which part of the value chain? A) Customer service B) Marketing C) Research and development D) Design Answer: D Diff: 2 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 59) The costs incurred to get merchandise to a company's retail store would be considered to be what part of the value chain? A) Marketing B) Customer service C) Production or purchases D) Research and development Answer: C Diff: 2 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

18 .

60) Lucky Cow Dairy provided the following expense information for May: Assembly-line workers' wages Caps for milk bottles Reconfiguring the assembly line Customer support hotline Delivery expenses Depreciation on factory equipment Plastic milk bottles Salaries of salespeople Salaries of research scientists Customer toll-free order line

$ 72,000 3,000 125,000 10,000 20,000 75,000 52,000 63,000 70,000 6,000

What is the total cost of research and development? A) $73,000 B) $70,000 C) $55,000 D) $195,000 Answer: B Diff: 21 LO: 2-2 EOC: E2-33B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

19 .

61) Lucky Cow Dairy provided the following expense information for May: Assembly-line workers' wages Caps for milk bottles Reconfiguring the assembly line Customer support hotline Delivery expenses Depreciation on factory equipment Plastic milk bottles Salaries of salespeople Salaries of research scientists Customer toll-free order line

$ 72,000 3,000 125,000 10,000 20,000 75,000 52,000 63,000 70,000 6,000

What is the total cost for the production category of the value chain? A) $496,000 B) $202,000 C) $180,000 D) $330,000 Answer: B Explanation: B) Calculations: $ 72,000 + 3,000 + 75,000 + 52,000 = $202,000 Diff: 2 LO: 2-2 EOC: E2-23A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

20 .

62) Lucky Cow Dairy provided the following expense information for May: Assembly-line workers' wages Caps for milk bottles Reconfiguring the assembly line Customer support hotline Delivery expenses Depreciation on factory equipment Plastic milk bottles Salaries of salespeople Salaries of research scientists Customer toll-free order line

$ 72,000 3,000 125,000 10,000 20,000 75,000 52,000 63,000 70,000 6,000

What is the total cost for the design category of the value chain? A) $267,000 B) $188,000 C) $197,000 D) $125,000 Answer: D Diff: 2 LO: 2-2 EOC: E2-33B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

21 .

63) Lucky Cow Dairy provided the following expense information for May: Assembly-line workers' wages Caps for milk bottles Reconfiguring the assembly line Customer support hotline Delivery expenses Depreciation on factory equipment Plastic milk bottles Salaries of salespeople Salaries of research scientists Customer toll-free order line

$ 72,000 3,000 125,000 10,000 20,000 75,000 52,000 63,000 70,000 6,000

What is the total cost for the distribution category of the value chain? A) $217,000 B) $23,000 C) $20,000 D) $151,000 Answer: C Diff: 2 LO: 2-2 EOC: E2-34B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

22 .

64) Lucky Cow Dairy provided the following expense information for May: Assembly-line workers' wages Caps for milk bottles Reconfiguring the assembly line Customer support hotline Delivery expenses Depreciation on factory equipment Plastic milk bottles Salaries of salespeople Salaries of research scientists Customer toll-free order line

$ 72,000 3,000 125,000 10,000 20,000 75,000 52,000 63,000 70,000 6,000

What is the total cost for the marketing category of the value chain? A) $69,000 B) $188,000 C) $197,000 D) $267,000 Answer: A Explanation: A) Calculations: $63,000 + 6,000 = $69,000 Diff: 2 LO: 2-2 EOC: E2-34B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

23 .

65) Lucky Cow Dairy provided the following expense information for May: Assembly-line workers' wages Caps for milk bottles Reconfiguring the assembly line Customer support hotline Delivery expenses Depreciation on factory equipment Plastic milk bottles Salaries of salespeople Salaries of research scientists Customer toll-free order line

$ 72,000 3,000 125,000 10,000 20,000 75,000 52,000 63,000 70,000 6,000

What is the total cost for the customer service category of the value chain? A) $82,000 B) $16,000 C) $73,000 D) $10,000 Answer: D Diff: 2 LO: 2-2 EOC: E2-34B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

24 .

66) Joe's Bottling Company provided the following expense information for July: Assembly-line workers' wages Depreciation on factory equipment Caps for bottles Plastic bottles Reconfiguring the assembly line Salaries of salespeople Customer support hotline Salaries of research scientists Delivery expenses Customer toll-free order line

$ 56,000 $ 35,000 $ 3,000 $ 52,000 $123,000 $ 63,000 $ 12,000 $ 65,000 $ 40,000 $ 8,000

What is the total cost of research and development? A) $55,000 B) $68,000 C) $65,000 D) $188,000 Answer: C Diff: 21 LO: 2-2 EOC: E2-34B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

25 .

67) Joe's Bottling Company provided the following expense information for July: Assembly-line workers' wages Depreciation on factory equipment Caps for bottles Plastic bottles Reconfiguring the assembly line Salaries of salespeople Customer support hotline Salaries of research scientists Delivery expenses Customer toll-free order line

$ 56,000 $ 35,000 $ 3,000 $ 52,000 $123,000 $ 63,000 $ 12,000 $ 65,000 $ 40,000 $ 8,000

What is the total cost for the production category of the value chain? A) $457,000 B) $307,000 C) $148,000 D) $146,000 Answer: D Explanation: D) Calculations: $ 56,000 + 35,000 + 3,000 + 52,000 = $146,000 Diff: 2 LO: 2-2 EOC: E2-23A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

26 .

68) Joe's Bottling Company provided the following expense information for July: Assembly-line workers' wages Depreciation on factory equipment Caps for bottles Plastic bottles Reconfiguring the assembly line Salaries of salespeople Customer support hotline Salaries of research scientists Delivery expenses Customer toll-free order line

$ 56,000 $ 35,000 $ 3,000 $ 52,000 $123,000 $ 63,000 $ 12,000 $ 65,000 $ 40,000 $ 8,000

What is the total cost for the design category of the value chain? A) $244,000 B) $186,000 C) $179,000 D) $123,000 Answer: D Diff: 2 LO: 2-2 EOC: E2-33B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

27 .

69) Joe's Bottling Company provided the following expense information for July: Assembly-line workers' wages Depreciation on factory equipment Caps for bottles Plastic bottles Reconfiguring the assembly line Salaries of salespeople Customer support hotline Salaries of research scientists Delivery expenses Customer toll-free order line

$ 56,000 $ 35,000 $ 3,000 $ 52,000 $123,000 $ 63,000 $ 12,000 $ 65,000 $ 40,000 $ 8,000

What is the total cost for the distribution category of the value chain? A) $40,000 B) $43,000 C) $219,000 D) $171,000 Answer: A Diff: 2 LO: 2-2 EOC: E2-34B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

28 .

70) Joe's Bottling Company provided the following expense information for July: Assembly-line workers' wages Depreciation on factory equipment Caps for bottles Plastic bottles Reconfiguring the assembly line Salaries of salespeople Customer support hotline Salaries of research scientists Delivery expenses Customer toll-free order line

$ 56,000 $ 35,000 $ 3,000 $ 52,000 $123,000 $ 63,000 $ 12,000 $ 65,000 $ 40,000 $ 8,000

What is the total cost for the marketing category of the value chain? A) $71,000 B) $179,000 C) $186,000 D) $244,000 Answer: A Explanation: A) Calculations: $63,000 + 8,000 = $71,000 Diff: 2 LO: 2-2 EOC: E2-34B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

29 .

71) Joe's Bottling Company provided the following expense information for July: Assembly-line workers' wages Depreciation on factory equipment Caps for bottles Plastic bottles Reconfiguring the assembly line Salaries of salespeople Customer support hotline Salaries of research scientists Delivery expenses Customer toll-free order line

$ 56,000 $ 35,000 $ 3,000 $ 52,000 $123,000 $ 63,000 $ 12,000 $ 65,000 $ 40,000 $ 8,000

What is the total cost for the customer service category of the value chain? A) $68,000 B) $12,000 C) $20,000 D) $75,000 Answer: B Diff: 2 LO: 2-2 EOC: E2-34B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

30 .

72) Sneider Family Orange Groves processes a variety of fresh juices. The company has the following expenses for July: Depreciation expense on bottling machines Glass juice bottles Commissions for salespeople Salaries of nutrition researchers Costs of maintaining website used for customer orders Wages of factory workers Freshness seals/caps for juice bottles Reconfiguring the factory layout Customer help line Costs of refrigerated trucks used to deliver juice

$ 63,000 $ 60,000 $ 30,000 $ 75,000 $ 4,000 $ 75,000 $ 3,000 $122,000 $ 5,000 $ 25,000

What is the total cost for the research and development category of the value chain? A) $75,000 B) $78,000 C) $63,000 D) $197,000 Answer: A Diff: 2 LO: 2-2 EOC: E2-34B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

31 .

73) Sneider Family Orange Groves processes a variety of fresh juices. The company has the following expenses for July: Depreciation expense on bottling machines Glass juice bottles Commissions for salespeople Salaries of nutrition researchers Costs of maintaining website used for customer orders Wages of factory workers Freshness seals/caps for juice bottles Reconfiguring the factory layout Customer help line Costs of refrigerated trucks used to deliver juice

$ 63,000 $ 60,000 $ 30,000 $ 75,000 $ 4,000 $ 75,000 $ 3,000 $122,000 $ 5,000 $ 25,000

What is the total cost for the production category of the value chain? A) $462,000 B) $60,000 C) $302,000 D) $201,000 Answer: D Explanation: D) Calculations: $ 75,000 + 3,000 + 63,000 + 60,000 = $ 201,000 Diff: 2 LO: 2-2 EOC: E2-33B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

32 .

74) Sneider Family Orange Groves processes a variety of fresh juices. The company has the following expenses for July: Depreciation expense on bottling machines Glass juice bottles Commissions for salespeople Salaries of nutrition researchers Costs of maintaining website used for customer orders Wages of factory workers Freshness seals/caps for juice bottles Reconfiguring the factory layout Customer help line Costs of refrigerated trucks used to deliver juice

$ 63,000 $ 60,000 $ 30,000 $ 75,000 $ 4,000 $ 75,000 $ 3,000 $122,000 $ 5,000 $ 25,000

What is the total cost for the design category of the value chain? A) $122,000 B) $197,000 C) $152,000 D) $272,000 Answer: A Diff: 2 LO: 2-2 EOC: E2-33B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

33 .

75) Sneider Family Orange Groves processes a variety of fresh juices. The company has the following expenses for July: Depreciation expense on bottling machines Glass juice bottles Commissions for salespeople Salaries of nutrition researchers Costs of maintaining website used for customer orders Wages of factory workers Freshness seals/caps for juice bottles Reconfiguring the factory layout Customer help line Costs of refrigerated trucks used to deliver juice

$ 63,000 $ 60,000 $ 30,000 $ 75,000 $ 4,000 $ 75,000 $ 3,000 $122,000 $ 5,000 $ 25,000

What is the total cost for the distribution category of the value chain? A) $28,000 B) $29,000 C) $222,000 D) $151,000 Answer: B Explanation: B) $4,000 + 25,000 = $29,000 Diff: 2 LO: 2-2 EOC: E2-34B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

34 .

76) Sneider Family Orange Groves processes a variety of fresh juices. The company has the following expenses for July: Depreciation expense on bottling machines Glass juice bottles Commissions for salespeople Salaries of nutrition researchers Costs of maintaining website used for customer orders Wages of factory workers Freshness seals/caps for juice bottles Reconfiguring the factory layout Customer help line Costs of refrigerated trucks used to deliver juice

$ 63,000 $ 60,000 $ 30,000 $ 75,000 $ 4,000 $ 75,000 $ 3,000 $122,000 $ 5,000 $ 25,000

What is the total cost for the marketing category of the value chain? A) $272,000 B) $34,000 C) $152,000 D) $197,000 Answer: B Explanation: B) Calculations: $ 30,000 + 4,000 = $ 34,000 Diff: 2 LO: 2-2 EOC: E2-34B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

35 .

77) Lucas Family Orange Groves processes a variety of fresh juices. The company has the following expenses for July: Wages of factory workers Freshness seals/caps for juice bottles Reconfiguring the factory layout Customer help line Costs of refrigerated trucks used to deliver juice Depreciation expense on bottling machines Glass juice bottles Commissions for salespeople Salaries of nutrition researchers Costs of maintaining website used for customer orders

$ 75,000 $ 3,000 $102,000 $ 2,000 $ 17,000 $ 63,000 $ 54,000 $ 27,000 $ 89,000 $ 4,000

What is the total cost for the customer service category of the value chain? A) $2,000 B) $35,000 C) $80,000 D) $ 9,000 Answer: A Diff: 2 LO: 2-2 EOC: E2-33B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 78) Delivery expenses are charged to which of the following areas? A) Distribution B) Customer service C) Production or purchases D) Marketing Answer: A Diff: 2 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

36 .

79) A product support hot line would be considered A) marketing. B) distribution. C) production or purchases. D) customer service. Answer: D Diff: 2 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 80) Place the value chain elements in the correct order by numbering them from 1 to 6. ___ Design ___ Customer Service ___ Marketing ___ Research and Development ___ Distribution ___ Production or Purchases Answer: 2, 6, 4, 1, 5, 3 Diff: 2 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 81) Place the letter for the appropriate value chain activity on the line in front of each item. Letters may be used more than once or not at all. Assume a manufacturer. A. B. C.

research and development design production or purchases

D. E. F.

marketing distribution customer service

____ depreciation expense on equipment in factory ____ delivery expense ____ toll free line for customer orders ____ customer support hot line ____ assembly line workers' wages Answer: C, E, D, F, C Diff: 2 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 37 .

82) Name and briefly describe the activities that make up the value chain. Answer: The value chain consists of research and development, design, production or purchase, marketing, distribution, and customer service. Research and development refers to researching and developing new or improved products or services and the processes for producing them. Design involves the detailed engineering of products and services and the processes for producing them. Production or purchases refers to the resources used to produce a product or service or to purchase finished merchandise intended for resale. Marketing is the promotion and advertising of products or services. Distribution is the delivery of products or services to customers and customer service provides support for customers after the sale. Diff: 2 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 83) Classify each of the following business costs into one of the six value chain elements. A. cost of a commercial during a TV program B. cost of shipping goods to customers C. costs associated with repairing products under warranty D. costs of developing a new product E. cost of making a prototype of a new product F. cost of labor for machine operator in factory Answer: A. marketing B. distribution C. customer service D. research and development E. design F. production Diff: 3 LO: 2-2 EOC: S2-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 84) The total cost of a cost object can only include the direct costs that are directly traced to that cost object. Answer: FALSE Diff: 2 LO: 2-3 EOC: E2-20 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

38 .

85) If a company wants to determine a product's cost, it must assign both direct and indirect costs. Answer: TRUE Diff: 2 LO: 2-3 EOC: E2-20A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 86) Costs can be either direct or indirect, depending upon the cost object. Answer: TRUE Diff: 1 LO: 2-3 EOC: E2-20A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 87) Direct costs can be traced to specific units. Answer: TRUE Diff: 1 LO: 2-3 EOC: E2-21A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 88) Indirect costs cannot be traced to the cost objects, so they are allocated. Answer: TRUE Diff: 1 LO: 2-3 EOC: E2-21A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 89) Which of the following items could be an example of a cost object? A) A manufacturing plant B) An international plant C) The accounting department D) All of the above are examples of potential cost objects. Answer: D Diff: 2 LO: 2-3 EOC: S2-4 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 39 .

90) Which of the following is not an example of an indirect cost incurred in manufacturing automobiles? A) Plant supervisor salary B) Machinery depreciation in the factory C) Plant utilities D) Cost of the automobile engines Answer: D Diff: 2 LO: 2-3 EOC: S2-4 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 91) A factory janitor's wages would be classified as ________ when determining the cost of a manufactured product. A) an indirect cost B) a direct cost C) a period cost D) none of the above Answer: A Diff: 1 LO: 2-3 EOC: S2-4 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 92) A salesperson's salary would be classified as ________ when determining the cost of a manufactured product. A) a direct cost B) a period cost C) an indirect cost D) none of the above Answer: B Diff: 1 LO: 2-3 EOC: S2-5 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

40 .

93) The cost of lighting the factory would be classified as ________ when determining the cost of a manufactured product. A) an indirect cost B) a direct cost C) a period cost D) none of the above Answer: A Diff: 1 LO: 2-3 EOC: S2-4 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 94) Which of the following would not be considered a direct material for a mattress? A) Fabric B) Lumber C) Glue D) Steel Answer: C Diff: 1 LO: 2-3 EOC: S2-4 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 95) All of the following would be considered a direct material for a kitchen cabinet except A) wood. B) stain. C) sand paper. D) hinges. Answer: C Diff: 1 LO: 2-3 EOC: S2-4 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

41 .

96) Prime costs consist of A) direct materials and direct labor. B) direct labor and manufacturing overhead. C) direct materials and manufacturing overhead. D) direct materials, direct labor and manufacturing overhead. Answer: A Diff: 1 LO: 2-3 EOC: E2-20A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 97) Conversion costs consist of A) direct materials and direct labor. B) direct labor and manufacturing overhead. C) direct materials and manufacturing overhead. D) direct materials, direct labor and manufacturing overhead. Answer: B Diff: 1 LO: 2-3 EOC: E2-20A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 98) An example of direct labor would be which of the following? A) Salary of a production manager B) Salary of the vice-president of operations C) Wages of factory security D) Wages of assembly line personnel Answer: D Diff: 1 LO: 2-3 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

42 .

99) Which of the following is an example of direct labor? A) Wages of a managerial accountant B) Wages of a machine operator C) Salary of the vice-president of operations D) Wages of the CFO Answer: B Diff: 1 LO: 2-3 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 100) Which statement describes direct materials in a manufacturing setting? A) Direct materials are used to determine total manufacturing overhead. B) Direct materials are used to determine total inventoriable product costs. C) Direct materials cannot be separately and conveniently traced. D) Direct materials do not become part of the finished product. Answer: B Diff: 2 LO: 2-3 EOC: S2-4 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 101) Which of the following is an example of indirect labor in a manufacturing plant? A) Chief operating officer B) Machine operators C) Salespersons D) Plant managers Answer: D Diff: 1 LO: 2-3 EOC: S2-4 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

43 .

102) Which of the following are classified as manufacturing overhead? A) Indirect labor and indirect materials B) Direct materials and direct labor C) All materials D) Factory rent and direct labor Answer: A Diff: 2 LO: 2-3 EOC: S2-5 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 103) Which of the following is an example of overhead in a factory? A) Wages of machine operators B) Wages of administrators in the corporate office C) Wages of factory maintenance personnel D) Salaries of salespersons Answer: C Diff: 2 LO: 2-3 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

44 .

104) Country Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs from the past year include: Depreciation on sales office Depreciation on factory equipment Factory supervisor salary Sales commissions Lubricants used in factory equipment Insurance costs for factory Wages paid to maintenance workers Fabric used to upholster furniture Freight-in (on raw materials) Costs of delivery to customers Wages paid to assembly-line workers Lumber used to build product Utilities in factory Utilities in sales office

$

9,000 16,000 50,500 23,000 3,000 21,000 115,000 10,000 3,000 9,000 155,500 82,000 54,500 26,500

Prime costs for Country Furniture Company totaled A) $92,000. B) $247,500. C) $250,500. D) $368,500. Answer: C Explanation: C) Calculations: $ 3,000 + 10,000 + 155,500 + 82,000 = $ 250,500 Diff: 2 LO: 2-3 EOC: E2-21A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

45 .

105) Country Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs from the past year include: Depreciation on sales office Depreciation on factory equipment Factory supervisor salary Sales commissions Lubricants used in factory equipment Insurance costs for factory Wages paid to maintenance workers Fabric used to upholster furniture Freight-in (on raw materials) Costs of delivery to customers Wages paid to assembly-line workers Lumber used to build product Utilities in factory Utilities in sales office

$

9,000 16,000 50,500 23,000 3,000 21,000 115,000 10,000 3,000 9,000 155,500 82,000 54,500 26,500

Conversion costs for Country Furniture Company totaled A) $415,500. B) $250,500. C) $504,500. D) $352,500. Answer: A Explanation: A) Calculations: $ 16,000 + 50,500 + 3,000 + 21,000 + 115,000 + 155,500 + 54,500 = $415,500 Diff: 2 LO: 2-3 EOC: E2-21A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

46 .

106) Country Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs from the past year include: Depreciation on sales office Depreciation on factory equipment Factory supervisor salary Sales commissions Lubricants used in factory equipment Insurance costs for factory Wages paid to maintenance workers Fabric used to upholster furniture Freight-in (on raw materials) Costs of delivery to customers Wages paid to assembly-line workers Lumber used to build product Utilities in factory Utilities in sales office

$

9,000 16,000 50,500 23,000 3,000 21,000 115,000 10,000 3,000 9,000 155,500 82,000 54,500 26,500

Direct material costs for Country Furniture Company totaled A) $82,000. B) $10,000. C) $95,000. D) $92,000. Answer: C Explanation: C) Calculations: $ 10,000 + 3,000 + 82,000 = $ 95,000 Diff: 2 LO: 2-3 EOC: E2-21A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

47 .

107) Country Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs from the past year include: Depreciation on sales office Depreciation on factory equipment Factory supervisor salary Sales commissions Lubricants used in factory equipment Insurance costs for factory Wages paid to maintenance workers Fabric used to upholster furniture Freight-in (on raw materials) Costs of delivery to customers Wages paid to assembly-line workers Lumber used to build product Utilities in factory Utilities in sales office

$

9,000 16,000 50,500 23,000 3,000 21,000 115,000 10,000 3,000 9,000 155,500 82,000 54,500 26,500

Direct labor costs for Country Furniture Company totaled A) $344,000. B) $115,000. C) $155,500. D) $321,000. Answer: C Diff: 2 LO: 2-3 EOC: E2-21A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

48 .

108) Country Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs from the past year include: Depreciation on sales office Depreciation on factory equipment Factory supervisor salary Sales commissions Lubricants used in factory equipment Insurance costs for factory Wages paid to maintenance workers Fabric used to upholster furniture Freight-in (on raw materials) Costs of delivery to customers Wages paid to assembly-line workers Lumber used to build product Utilities in factory Utilities in sales office

$

9,000 16,000 50,500 23,000 3,000 21,000 115,000 10,000 3,000 9,000 155,500 82,000 54,500 26,500

Manufacturing overhead costs for Country Furniture Company totaled A) $130,000. B) $260,000. C) $236,000. D) $330,500. Answer: B Explanation: B) Calculations: $16,000 + $50,500 + $3,000 + $21,000 + $115,000 + $54,500 = $260,000 Diff: 2 LO: 2-3 EOC: E2-21A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

49 .

109) Rustic Living Furniture Company manufactures furniture at its central Kentucky factory. Some of its costs from the past year include: Wages paid to maintenance workers Fabric used to upholster furniture Wages paid to assembly-line workers Lumber used to build product Sales commissions Insurance costs for factory Freight-in (on raw materials) Utilities in factory Factory supervisor salary Depreciation on factory equipment Utilities in sales office Costs of delivery to customers Depreciation on sales office Lubricants used in factory equipment

$ 60,000 $ 8,000 $ 100,000 $ 15,000 $ 7,500 $ 21,000 $ 3,000 $ 12,000 $ 60,000 $ 18,000 $ 26,500 $ 8,000 $ 1,000 $ 500

Prime costs for Rustic Living Furniture Company totaled A) $126,000. B) $23,000. C) $123,000. D) $168,500. Answer: A Explanation: A) Calculations: $ 15,000 + 8,000 + 3,000 + 100,000 = 126,000 Diff: 2 LO: 2-3 EOC: E2-21A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

50 .

110) Rustic Living Furniture Company manufactures furniture at its central Kentucky factory. Some of its costs from the past year include: Wages paid to maintenance workers Fabric used to upholster furniture Wages paid to assembly-line workers Lumber used to build product Sales commissions Insurance costs for factory Freight-in (on raw materials) Utilities in factory Factory supervisor salary Depreciation on factory equipment Utilities in sales office Costs of delivery to customers Depreciation on sales office Lubricants used in factory equipment

$ 60,000 $ 8,000 $ 100,000 $ 15,000 $ 7,500 $ 21,000 $ 3,000 $ 12,000 $ 60,000 $ 18,000 $ 26,500 $ 8,000 $ 1,000 $ 500

Conversion costs for Rustic Living Furniture Company totaled A) $126,000. B) $175,000. C) $294,000. D) $271,500. Answer: D Explanation: D) Calculations: $ 18,000 + 60,000 + 500 + 21,000 + 60,000 + 12,000 + 100,000 = 271,500 Diff: 2 LO: 2-3 EOC: E2-21A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

51 .

111) Rustic Living Furniture Company manufactures furniture at its central Kentucky factory. Some of its costs from the past year include: Wages paid to maintenance workers Fabric used to upholster furniture Wages paid to assembly-line workers Lumber used to build product Sales commissions Insurance costs for factory Freight-in (on raw materials) Utilities in factory Factory supervisor salary Depreciation on factory equipment Utilities in sales office Costs of delivery to customers Depreciation on sales office Lubricants used in factory equipment

$ 60,000 $ 8,000 $ 100,000 $ 15,000 $ 7,500 $ 21,000 $ 3,000 $ 12,000 $ 60,000 $ 18,000 $ 26,500 $ 8,000 $ 1,000 $ 500

Direct material costs for Rustic Living Furniture Company totaled A) $15,000. B) $26,000. C) $23,000. D) $8,000. Answer: B Explanation: B) Calculations: $ 8,000 + 3,000 + 15,000 = $ 26,000 Diff: 2 LO: 2-3 EOC: E2-21A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

52 .

112) Rustic Living Furniture Company manufactures furniture at its central Kentucky factory. Some of its costs from the past year include: Wages paid to maintenance workers Fabric used to upholster furniture Wages paid to assembly-line workers Lumber used to build product Sales commissions Insurance costs for factory Freight-in (on raw materials) Utilities in factory Factory supervisor salary Depreciation on factory equipment Utilities in sales office Costs of delivery to customers Depreciation on sales office Lubricants used in factory equipment

$ 60,000 $ 8,000 $ 100,000 $ 15,000 $ 7,500 $ 21,000 $ 3,000 $ 12,000 $ 60,000 $ 18,000 $ 26,500 $ 8,000 $ 1,000 $ 500

Direct labor costs for Rustic Living Furniture Company totaled A) $227,500. B) $220,000. C) $100,000. D) $60,000. Answer: C Diff: 2 LO: 2-3 EOC: E2-21A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

53 .

113) Rustic Living Furniture Company manufactures furniture at its central Kentucky factory. Some of its costs from the past year include: Wages paid to maintenance workers Fabric used to upholster furniture Wages paid to assembly-line workers Lumber used to build product Sales commissions Insurance costs for factory Freight-in (on raw materials) Utilities in factory Factory supervisor salary Depreciation on factory equipment Utilities in sales office Costs of delivery to customers Depreciation on sales office Lubricants used in factory equipment

$ 60,000 $ 8,000 $ 100,000 $ 15,000 $ 7,500 $ 21,000 $ 3,000 $ 12,000 $ 60,000 $ 18,000 $ 26,500 $ 8,000 $ 1,000 $ 500

Manufacturing overhead costs for Rustic Living Furniture Company totaled A) $171,500. B) $79,000. C) $150,000. D) $217,500. Answer: A Explanation: A) Calculations: $18,000 + $60,000 + $500 + $21,000 + $60,000 + $12,000 = $171,500 Diff: 2 LO: 2-3 EOC: E2-21A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

54 .

114) Use the correct number to designate each item below. Assume a manufacturer. 1. 2. 3. 4.

direct materials selling and general expenses manufacturing overhead direct labor

A) ____ rent expense on factory building B) ____ sales supplies used C) ____ factory supplies used D) ____ indirect materials used E) ____ wages of assembly line personnel F) ____ cost of primary material used to make product G) ____ depreciation expense on office equipment H) ____ rent expense on office facilities I) ____ insurance expired on factory equipment J) ____ utilities incurred in the office K) ____ advertising expense L) ____ taxes paid on factory building Answer: A) 3, B) 2, C) 3, D) 3, E) 4, F) 1, G) 2, H) 2, I) 3, J) 2, K) 2, L) 3 Diff: 2 LO: 2-3 EOC: E2-17A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

55 .

115) Differentiate between: A. direct materials versus indirect materials B. direct labor versus indirect labor Answer: Student responses will vary but should include the following points: A. Direct materials must become a physical part of the finished product and their costs must be separately and conveniently traceable through the manufacturing process to specific units of the finished product. Examples for a furniture manufacturer include wood, leather, steel, etc. Indirect materials become part of the finished product, but their minor costs cannot conveniently be traced directly to individual units of the finished products. They are included as part of manufacturing overhead. Examples for a furniture manufacturer include thread, glue, snaps, etc. B. Direct labor cost is the compensation of employees who physically convert raw materials into the company's products and whose efforts can be traced directly to specific units of finished goods. Examples for a furniture manufacturer include machine operators and assemblers. Indirect labor is factory labor that is difficult to trace to individual units of specific products. Instead, the cost is included in manufacturing overhead. Examples for a furniture manufacturer include costs for forklift operators, janitors, and plant managers. Diff: 2 LO: 2-3 EOC: E2-21A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 116) Indirect manufacturing costs should be included in manufacturing overhead. Answer: TRUE Diff: 2 LO: 2-4 EOC: S2-7 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 117) An inventoriable cost could be the cost of the marketing and distribution of a product. Answer: FALSE Diff: 2 LO: 2-4 EOC: S2-7 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

56 .

118) Inventoriable product costs consist of manufacturing overhead, direct labor and direct materials. Answer: TRUE Diff: 2 LO: 2-4 EOC: S2-7 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 119) Indirect materials, indirect labor, and indirect manufacturing costs are what type of manufacturing cost? A) Direct labor B) Direct materials C) Manufacturing overhead D) Prime costs Answer: C Diff: 2 LO: 2-4 EOC: S2-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 120) Which of the following would not be considered a product cost for a manufacturer? A) Direct labor B) Direct materials C) Manufacturing overhead D) Freight out Answer: D Diff: 2 LO: 2-4 EOC: S2-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 121) Period costs are A) always recorded as an expense. B) always considered part of the inventory. C) expensed only when the inventory is sold. D) none of the above. Answer: A Diff: 2 LO: 2-4 EOC: S2-7 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 57 .

122) All of the following are period costs except A) distribution expenses. B) direct labor expenses. C) marketing expenses. D) research and development expenses. Answer: B Diff: 2 LO: 2-4 EOC: S2-7 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 123) Inventoriable product costs for a product are described by which of the following? A) Inventoriable product costs are narrower in scope than total costs. B) Inventoriable product costs include all costs of the value chain. C) Inventoriable product costs consist of direct materials, direct labor and manufacturing overhead. D) Both A and C are correct. Answer: B Diff: 2 LO: 2-4 EOC: S2-7 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 124) Inventoriable product costs for a manufactured product include A) the costs of direct materials, direct labor and manufacturing overhead. B) marketing and research and development costs. C) the costs of direct materials and direct labor only. D) none of the above. Answer: A Diff: 2 LO: 2-4 EOC: S2-3 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

58 .

125) Inventoriable product costs are best described by which of the following statements? A) They are expensed on the income statement when incurred. B) They include marketing and distribution costs. C) They are used for external reporting purposes. D) Both A and C are correct. Answer: C Diff: 2 LO: 2-4 EOC: E2-22A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 126) Where would period costs be found on the financial statements? A) Under current assets on the balance sheet B) Under current liabilities on the balance sheet C) As operating expenses on the income statement in the period incurred D) As operating expenses on the income statement for a previous period Answer: C Diff: 2 LO: 2-4 EOC: E2-22A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 127) Which of the following statements is correct concerning product costs? A) Product costs are expensed in the period the related product is sold. B) Product costs are expensed in the period incurred. C) Product costs are shown with operating expenses on the income statement. D) Product costs are shown with current liabilities on the balance sheet. Answer: A Diff: 2 LO: 2-4 EOC: E2-22A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

59 .

128) Which of the following costs include all of the costs associated with production of a product? A) Inventoriable B) Direct C) Mixed D) Overhead Answer: A Diff: 2 LO: 2-4 EOC: E2-22A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 129) Manufacturing overhead costs for a product include A) direct material. B) operating expenses. C) indirect manufacturing costs. D) prime costs. Answer: C Diff: 2 LO: 2-4 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 130) When do inventoriable costs become expenses? A) When direct materials are purchased B) When the manufacturing process begins C) When the manufacturing process is completed D) None of the above Answer: D Diff: 2 LO: 2-4 EOC: E2-22A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

60 .

131) Indirect materials and indirect labor are ________ for a manufactured product. A) overhead and period costs B) operating and period costs C) overhead and product costs D) operating and product costs Answer: C Diff: 2 LO: 2-4 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 132) Manufacturers consider selling and administrative costs to be A) period costs. B) conversion costs. C) inventoriable costs. D) prime costs. Answer: A Diff: 2 LO: 2-4 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 133) Which of the following is an example of a period cost when manufacturing products? A) Depreciation expense on factory equipment B) Advertising expense C) Indirect materials used in the factory D) Property taxes on the plant Answer: B Diff: 2 LO: 2-4 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

61 .

134) Which of the following is an example of an inventoriable cost when manufacturing products? A) Depreciation on office equipment B) Depreciation on store building C) Sales salaries expenses D) Depreciation on factory equipment Answer: D Diff: 2 LO: 2-4 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 135) When manufacturing products, direct labor and direct materials are classified as A) period costs and expensed when incurred. B) product costs and expensed when the goods are sold. C) product costs and expensed when incurred. D) period costs and expensed when the goods are sold. Answer: B Diff: 2 LO: 2-4 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 136) Certain materials used in a manufacturing plant cannot be traced to a specific unit. What are these materials called? A) General materials B) Direct materials C) Indirect materials D) Finished materials Answer: C Diff: 2 LO: 2-4 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

62 .

137) Rent on a factory building would be considered to be a ________ cost. A) product B) period C) direct D) none of the above Answer: A Diff: 2 LO: 2-4 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 138) The ________ element in the value chain would contain inventoriable costs for a manufacturer. A) research and development B) production C) design D) distribution Answer: B Diff: 2 LO: 2-4 EOC: E2-18A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 139) Pink Ribbon Shoppe, a clothing retailer, had the following total costs as grouped by value chain element: Research and development Design Purchases Marketing Distribution Customer service

$ 53,000 $ 17,000 $ 72,000 $ 42,000 $ 58,000 $ 35,000

What were the company's inventoriable costs? A) $142,000 B) $17,000 C) $72,000 D) $89,000 Answer: C Diff: 2 LO: 2-4 EOC: E2-18 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 63 .

140) Pink Ribbon Shoppe, a clothing retailer, had the following total costs as grouped by value chain element: Research and development Design Purchases Marketing Distribution Customer service

$ 53,000 $ 17,000 $ 72,000 $ 42,000 $ 58,000 $ 35,000

What were the company's period costs? A) $205,000 B) $277,000 C) $100,000 D) $135,000 Answer: A Explanation: A) Calculations: $ 53,000 + 17,000 + 42,000 + 58,000 + 35,000 = $205,000 Diff: 2 LO: 2-4 EOC: E2-18 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

64 .

141) Country Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs from the past year include: Depreciation on sales office Depreciation on factory equipment Factory supervisor salary Sales commissions Lubricants used in factory equipment Insurance costs for factory Wages paid to maintenance workers Fabric used to upholster furniture Freight-in (on raw materials) Costs of delivery to customers Wages paid to assembly-line workers Lumber used to build product Utilities in factory Utilities in sales office

$

9,000 16,000 50,500 23,000 3,000 21,000 115,000 10,000 3,000 9,000 155,500 82,000 54,500 26,500

Product costs for Country Furniture Company totaled A) $510,500. B) $486,500. C) $370,000. D) $526,500. Answer: A Explanation: A) Calculations: $ 16,000 + 50,500 + 3,000 + 21,000 + 115,000 + 10,000 + 3,000 + 155,500 + 82,000 + 54,500 = $ 510,500 Diff: 2 LO: 2-4 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

65 .

142) Country Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs from the past year include: Depreciation on sales office Depreciation on factory equipment Factory supervisor salary Sales commissions Lubricants used in factory equipment Insurance costs for factory Wages paid to maintenance workers Fabric used to upholster furniture Freight-in (on raw materials) Costs of delivery to customers Wages paid to assembly-line workers Lumber used to build product Utilities in factory Utilities in sales office

$

9,000 16,000 50,500 23,000 3,000 21,000 115,000 10,000 3,000 9,000 155,500 82,000 54,500 26,500

Period costs for Country Furniture Company totaled A) $41,000. B) $129,000. C) $44,500. D) $67,500. Answer: D Explanation: D) Calculations: $ 9,000 + 23,000 + 9,000 + 26,500 = $ 67,500 Diff: 2 LO: 2-4 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

66 .

143) Rustic Living Furniture Company manufactures furniture at its central Kentucky factory. Some of its costs from the past year include: Wages paid to maintenance workers Fabric used to upholster furniture Wages paid to assembly-line workers Lumber used to build product Sales commissions Insurance costs for factory Freight-in (on raw materials) Utilities in factory Factory supervisor salary Depreciation on factory equipment Utilities in sales office Costs of delivery to customers Depreciation on sales office Lubricants used in factory equipment

$ 60,000 $ 8,000 $ 100,000 $ 15,000 $ 7,500 $ 21,000 $ 3,000 $ 12,000 $ 60,000 $ 18,000 $ 26,500 $ 8,000 $ 1,000 $ 500

Product costs for Rustic Living Furniture Company totaled A) $203,500. B) $273,500. C) $297,500. D) $295,000. Answer: C Explanation: C) Calculations: $ 18,000 + 60,000 + 500 + 21,000 + 12,000 + 60,000 + 8,000 + 3,000 + 100,000 + 15,000 = $ 297,500 Diff: 2 LO: 2-4 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

67 .

144) Rustic Living Furniture Company manufactures furniture at its central Kentucky factory. Some of its costs from the past year include: Wages paid to maintenance workers Fabric used to upholster furniture Wages paid to assembly-line workers Lumber used to build product Sales commissions Insurance costs for factory Freight-in (on raw materials) Utilities in factory Factory supervisor salary Depreciation on factory equipment Utilities in sales office Costs of delivery to customers Depreciation on sales office Lubricants used in factory equipment

$ 60,000 $ 8,000 $ 100,000 $ 15,000 $ 7,500 $ 21,000 $ 3,000 $ 12,000 $ 60,000 $ 18,000 $ 26,500 $ 8,000 $ 1,000 $ 500

Period costs for Rustic Living Furniture Company totaled A) $43,000. B) $35,500. C) $16,500. D) $65,000. Answer: A Explanation: A) Calculations: $ 1,000 + 7,500 + 8,000 + 26,500 = $ 43,000 Diff: 2 LO: 2-4 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

68 .

145) Winner's Sporting Equipment manufactures sporting goods. Selected costs from the past year include: Plastics used to make products Heating and lighting costs for factory Factory janitor wages Costs of shipping to customers Lubricants used in factory equipment Lighting costs for sales office Depreciation on factory equipment Office supplies for sales office Insurance costs for factory Maintenance worker wages Freight-in (on plastics) Aluminum used to make products Assembly-line worker wages Salaries of salespeople

$ 151,000 $ 65,000 $ 67,000 $ 11,000 $ 2,000 $ 20,000 $ 23,000 $ 6,000 $ 13,000 $ 99,000 $ 7,500 $ 175,000 $ 142,000 $ 74,000

Product costs for Winner's Sporting Equipment totaled A) $724,000. B) $744,500. C) $612,000. D) $806,500. Answer: B Explanation: B) Calculations: $ 23,000 + 67,000 + 2,000 + 13,000 + 99,000 + 151,000 + 7,500 + 142,000 + 175,000 + 65,000 = $ 744,500 Diff: 3 LO: 2-4 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

69 .

146) Winner's Sporting Equipment manufactures sporting goods. Selected costs from the past year include: Plastics used to make products Heating and lighting costs for factory Factory janitor wages Costs of shipping to customers Lubricants used in factory equipment Lighting costs for sales office Depreciation on factory equipment Office supplies for sales office Insurance costs for factory Maintenance worker wages Freight-in (on plastics) Aluminum used to make products Assembly-line worker wages Salaries of salespeople

$ 151,000 $ 65,000 $ 67,000 $ 11,000 $ 2,000 $ 20,000 $ 23,000 $ 6,000 $ 13,000 $ 99,000 $ 7,500 $ 175,000 $ 142,000 $ 74,000

Period costs for Winner's Sporting Equipment totaled A) $91,000. B) $37,000. C) $188,000. D) $111,000. Answer: D Explanation: D) Calculations: $ 11,000 + 20,000 + 6,000 + 74,000 = $ 111,000 Diff: 23 LO: 2-4 EOC: E2-21A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

70 .

147) ABC Company makes wooden furniture. Identify each of the following as either an inventoriable product cost or a period cost. If it is an inventoriable product cost, classify it as direct materials, direct labor, or manufacturing overhead. A. ________ Insurance on the plant building B. ________ Cost of shipping the furniture to the customers C. ________ Assembly line workers' wages D. ________ Depreciation on plant equipment E. ________ Salesmen's salaries F. ________ Cost of various types of wood G. ________ Insurance on delivery trucks H. ________ Plant forklift operator's salary Answer: A. Inventoriable product cost, manufacturing overhead B. Period cost C. Inventoriable product cost, direct labor D. Inventoriable product cost, manufacturing overhead E. Period cost F. Inventoriable product cost, direct materials G. Period cost H. Inventoriable product cost, manufacturing overhead Diff: 3 LO: 2-4 EOC: S2-7 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

71 .

148) Indicate whether each of the following costs is a product cost or a period cost. Assume a manufacturer. A) ________ direct materials used in factory B) ________ factory utilities C) ________ salespersons' commissions D) ________ salary of plant manager E) ________ indirect materials used in factory F) ________ depreciation expense on store equipment G) ________ indirect labor incurred in factory H) ________ advertising expense I) ________ direct labor incurred in factory J) ________ factory machinery repairs and maintenance K) ________ depreciation expense on factory machinery L) ________ supplies used in store M) ________ plant insurance expired Answer: A) product B) product C) period D) product E) product F) period G) product H) period I) product J) product K) product L) period M) product Diff: 2 LO: 2-4 EOC: S2-6 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 149) Product costs and period costs receive similar treatment when presented in the financial statements. Answer: FALSE Diff: 2 LO: 2-5 EOC: S2-12 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

72 .

150) The income statements of manufacturing companies are more complex than those of service or merchandising companies. Answer: TRUE Diff: 2 LO: 2-5 EOC: S2-12 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 151) The financial statements of a merchandiser are more complex than those of a manufacturer. Answer: FALSE Diff: 2 LO: 2-5 EOC: E2-22A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 152) Service companies have the most complex accounting with regard to the income statement. Answer: FALSE Diff: 2 LO: 2-5 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 153) Cost of goods sold is a major expense of service companies. Answer: FALSE Diff: 1 LO: 2-5 EOC: S2-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 154) The schedule of cost of goods manufactured is prepared before the income statement for a manufacturing company. Answer: TRUE Diff: 2 LO: 2-5 EOC: E2-25A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

73 .

155) Which of the following items is not used when calculating the cost of goods manufactured? A) Direct materials used B) Direct labor C) Salesperson salaries D) Manufacturing overhead Answer: C Diff: 2 LO: 2-5 EOC: E2-24A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 156) Before operating income can be determined for a manufacturer, which of the following is calculated? A) Cost of goods available for sale B) Cost of goods sold C) Cost of goods manufactured D) All of the above Answer: D Diff: 2 LO: 2-5 EOC: E2-24A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 157) The only difference in the balance sheets of various types of businesses (for example, manufacturing vs. service) is A) current liabilities. B) current assets. C) investments. D) equity. Answer: B Diff: 2 LO: 2-5 EOC: E2-25A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

74 .

158) The balance sheet of a service company would include which of the following? A) Factory equipment depreciation B) Cost of goods manufactured C) Accounts receivable D) Cost of goods sold Answer: C Diff: 1 LO: 2-5 EOC: S2-1 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 159) The income statement of a retailer would include which of the following? A) Cost of goods sold B) Value of inventory C) Accounts payable D) Accounts receivable Answer: A Diff: 1 LO: 2-5 EOC: E2-22A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 160) The income statements for both a merchandiser and manufacturer would include which of the following? A) Operating expenses B) Direct labor incurred C) Direct materials used D) Cost of goods manufactured Answer: A Diff: 2 LO: 2-5 EOC: E2-24A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

75 .

161) A merchandiser's purchases are equivalent to a manufacturer's A) cost of goods sold. B) cost of goods manufactured. C) raw materials inventory. D) work in process inventory. Answer: B Diff: 2 LO: 2-5 EOC: E2-25A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 162) Tuity Fruity Beverage Company's operating activities for the year are listed below. Purchases Operating expenses Beginning inventory Ending inventory Sales revenue

$140,000 80,000 12,000 18,000 300,000

What is the cost of goods available for sale? A) $140,000 B) $152,000 C) $80,000 D) $134,000 Answer: B Explanation: B) Calculations: Beginning Inventory $ 12,000 + Purchases 140,000 = Goods Available $152,000 Diff: 2 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

76 .

163) Tuity Fruity Beverage Company's operating activities for the year are listed below. Purchases Operating expenses Beginning inventory Ending inventory Sales revenue

$140,000 80,000 12,000 18,000 300,000

What is the cost of goods sold for the year? A) $152,000 B) $134,000 C) $140,000 D) $80,000 Answer: B Explanation: B) Calculations: Beginning Inventory $ 12,000 + Purchases 140,000 = Goods Available $ 152,000 - Ending Inventory 18,000 = 134,000 Diff: 2 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 164) Tuity Fruity Beverage Company's operating activities for the year are listed below. Purchases Operating expenses Beginning inventory Ending inventory Sales revenue

$140,000 80,000 12,000 18,000 300,000

What is the gross profit for the year? A) $160,000 B) $300,000 C) $80,000 D) $166,000 Answer: D Explanation: D) Calculations: Beg Inv $ 12,000 + Purchases 140,000 = Goods available 152,000 - ending inventory 18,000 = Cost of Goods Sold $134,000. Now Sales 300,000 - CGS 134,000 = Gross Profit $ 166,000 Diff: 3 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

77 .

165) Chicago Steel's operating activities for the year are listed below. Beginning inventory Ending inventory Purchases Sales revenue Operating expenses

$ 1,000,000 $ 350,000 $ 750,000 $ 1,500,000 $ 700,000

What is the cost of goods available for sale? A) $1,400,000 B) $750,000 C) $50,000 D) $1,750,000 Answer: D Diff: 2 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 166) Chicago Steel's operating activities for the year are listed below. Beginning inventory Ending inventory Purchases Sales revenue Operating expenses

$ 1,000,000 $ 350,000 $ 750,000 $ 1,500,000 $ 700,000

What is the cost of goods sold for the year? A) $1,400,000 B) $750,000 C) $50,000 D) $1,750,000 Answer: A Explanation: A) Calculations: Beginning Inventory $ 1,000,000 + Purchases 750,000 = Goods Available $1,750,000 - Ending Inventory 350,000 = 1,400,000 Diff: 2 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

78 .

167) Chicago Steel's operating activities for the year are listed below. Beginning inventory Ending inventory Purchases Sales revenue Operating expenses

$ 1,000,000 $ 350,000 $ 750,000 $ 1,500,000 $ 700,000

What is the gross profit for the year? A) $50,000 B) $750,000 C) $1,500,000 D) $100,000 Answer: D Explanation: D) Calculations: Beginning Inventory $ 1,000,000 + Purchases 750,000 = Goods Available $1,750,000 - Ending Inventory 350,000 = CGS 1,400,000. Now Sales 1,500,000 - CGS 1,400,000 = Gross Profit $100,000 Diff: 3 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 168) Challenge Tennis & Recreation's operating activities for the year are listed below. Purchases Operating expenses Beginning inventory Ending inventory Sales revenue

$174,000 62,000 27,000 37,000 333,000

What is the cost of goods available for sale? A) $164,000 B) $201,000 C) $97,000 D) $174,000 Answer: B Explanation: B) Calculations: $ 27,000 + 174,000 = $201,000 Diff: 2 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

79 .

169) Challenge Tennis & Recreation's operating activities for the year are listed below. Purchases Operating expenses Beginning inventory Ending inventory Sales revenue

$174,000 62,000 27,000 37,000 333,000

What is the cost of goods sold for the year? A) $201,000 B) $164,000 C) $174,000 D) $97,000 Answer: B Explanation: B) Calculations: $ 27,000 + 174,000 = 201,000 - 37,000 = $164,000 Diff: 2 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 170) Challenge Tennis & Recreation's operating activities for the year are listed below. Purchases Operating expenses Beginning inventory Ending inventory Sales revenue

$174,000 62,000 27,000 37,000 333,000

What is the gross profit for the year? A) $159,000 B) $333,000 C) $97,000 D) $169,000 Answer: D Explanation: D) Calculations: $ 27,000 + 174,000 = 201,000 - 37,000 = $164,000. Then $ 333,000 - 164,000 = $ 169,000 Diff: 3 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

80 .

171) In addition to cost of goods manufactured, which of the following is needed to compute the cost of goods sold for a manufacturer? A) Beginning work in process inventory less ending work in process inventory B) Ending work in process inventory less beginning work in process inventory C) Ending finished goods less beginning finished goods D) Beginning finished goods less ending finished goods Answer: D Diff: 23 LO: 2-5 EOC: E2-25A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 172) For a manufacturer, beginning work in process would be equal to A) manufacturing costs incurred in the period - ending work in process inventory. B) cost of goods manufactured - ending work in process inventory + manufacturing costs incurred in the period. C) ending work in process inventory + manufacturing costs incurred in the period. D) cost of goods manufactured + ending work in process inventory - manufacturing costs incurred in the period. Answer: D Diff: 3 LO: 2-5 EOC: E2-25A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

81 .

173) Lots of Stuff Company reports the following data for its first year of operation. Cost of goods manufactured Work in process inventory, beginning Work in process inventory, ending Direct materials used Manufacturing overhead Finished goods inventory, beginning Finished goods inventory, ending

$455,000 0 140,000 110,000 185,000 0 90,000

What are the total manufacturing costs? A) $455,000 B) $595,000 C) $750,000 D) $520,000 Answer: B Explanation: B) Calculations: $455,000 + 140,000 = $595,000 Diff: 3 LO: 2-5 EOC: E2-25A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 174) Lots of Stuff Company reports the following data for its first year of operation. Cost of goods manufactured Work in process inventory, beginning Work in process inventory, ending Direct materials used Manufacturing overhead Finished goods inventory, beginning Finished goods inventory, ending

$455,000 0 140,000 110,000 185,000 0 90,000

What is the cost of goods sold? A) $365,000 B) $455,000 C) $750,000 D) $505,000 Answer: A Explanation: A) Calculations: $455,000 - 90,000 = $365,000 Diff: 3 LO: 2-5 EOC: E2-25A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 82 .

175) Youngstown Rubber reports the following data for its first year of operation. Direct materials used Cost of goods manufactured Finished goods inventory, ending Finished goods inventory, beginning Manufacturing overhead Work in process inventory, beginning Work in process inventory, ending

$710,000 455,000 190,000 0 100,000 0 130,000

What are the total manufacturing costs? A) $945,000 B) $585,000 C) $1,265,000 D) $455,000 Answer: B Explanation: B) Calculations: $455,000 + 130,000 = $585,000 Diff: 3 LO: 2-5 EOC: E2-25A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 176) Youngstown Rubber reports the following data for its first year of operation. Direct materials used Cost of goods manufactured Finished goods inventory, ending Manufacturing overhead Finished goods inventory, beginning Work in process inventory, beginning Work in process inventory, ending

$710,000 455,000 190,000 100,000 0 0 130,000

What is the cost of goods sold? A) $395,000 B) $455,000 C) $265,000 D) $1,265,000 Answer: C Explanation: C) Calculations: $455,000 - 190,000 = $265,000 Diff: 3 LO: 2-5 EOC: E2-25A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 83 .

177) Fit Apparel Company reports the following data for its first year of operation. Cost of goods manufactured Work in process inventory, beginning Work in process inventory, ending Direct materials used Manufacturing overhead Finished goods inventory, beginning Finished goods inventory, ending

$650,000 0 90,000 85,000 100,000 0 70,000

What are the total manufacturing costs? A) $650,000 B) $835,000 C) $740,000 D) $675,000 Answer: C Explanation: C) Calculations: $ 650,000 + 90,000 = $740,000 Diff: 3 LO: 2-5 EOC: E2-25A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 178) Fit Apparel Company reports the following data for its first year of operation. Cost of goods manufactured Work in process inventory, beginning Work in process inventory, ending Direct materials used Manufacturing overhead Finished goods inventory, beginning Finished goods inventory, ending

$650,000 0 90,000 85,000 100,000 0 70,000

What is the cost of goods sold? A) $650,000 B) $835,000 C) $580,000 D) $670,000 Answer: C Explanation: C) Calculations: $650,000 - 70,000 = $580,000 Diff: 3 LO: 2-5 EOC: E2-25A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 84 .

179) Tall Timbers reports the following data for its first year of operation. Work in process inventory, beginning Work in process inventory, ending Manufacturing overhead Direct materials used Finished goods inventory, beginning Finished goods inventory, ending Cost of goods manufactured

$

0 50,000 25,000 7,000 0 20,000 85,000

What are the total manufacturing costs? A) $47,000 B) $135,000 C) $85,000 D) $117,000 Answer: B Explanation: B) Calculations: $85,000 + 50,000 = $135,000 Diff: 3 LO: 2-5 EOC: E2-25A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 180) Tall Timbers reports the following data for its first year of operation. Work in process inventory, beginning Work in process inventory, ending Manufacturing overhead Direct materials used Finished goods inventory, beginning Finished goods inventory, ending Cost of goods manufactured

$

0 50,000 25,000 7,000 0 20,000 85,000

What is the cost of goods sold? A) $65,000 B) $85,000 C) $117,000 D) $115,000 Answer: A Explanation: A) Calculations: $85,000 - 20,000 = $65,000 Diff: 3 LO: 2-5 EOC: E2-25A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 85 .

181) Direct labor for a company was $145,000; manufacturing overhead was $300,000; and direct materials were $270,000. Conversion costs would total A) $570,000. B) $715,000. C) $415,000. D) $445,000. Answer: D Explanation: D) Calculations: $ 300,000 + 145,000 = $445,000 Diff: 2 LO: 2-5 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 182) Direct materials for a company were $500,000; manufacturing overhead was $250,000; and direct labor was $770,000. Conversion costs would total A) $1,020,000. B) $1,270,000. C) $1,520,000. D) $750,000. Answer: A Explanation: A) Calculations: $ 770,000 + 250,000 = $1,020,000 Diff: 2 LO: 2-5 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 183) Direct labor for a company was $145,000; manufacturing overhead was $300,000; and direct materials were $270,000. Prime costs would total A) $715,000. B) $445,000. C) $415,000. D) $570,000. Answer: C Explanation: C) Calculations: $ 145,000 + 270,000 = $415,000 Diff: 2 LO: 2-5 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

86 .

184) Direct materials for a company were $500,000; manufacturing overhead was $250,000; and direct labor was $770,000. Prime costs would total A) $1,020,000. B) $1,270,000. C) $1,520,000. D) $750,000. Answer: B Explanation: B) Calculations: $ 500,000 + 770,000 = $1,270,000 Diff: 2 LO: 2-5 EOC: E2-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 185) Page's sells books. The following information summarizes the company's operating expenses for the year: Purchases Operating expenses Beginning merchandise inventory Ending merchandise inventory Sales revenue

$ 105,000 $ 53,000 $ 14,000 $ 11,000 $ 170,000

What is cost of goods available for sale? A) $116,000 B) $65,000 C) $119,000 D) $108,000 Answer: C Explanation: C) Calculations: $ 105,000 + 14,000 = $119,000 Diff: 32 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

87 .

186) Page's sells books. The following information summarizes the company's operating expenses for the year: Purchases Operating expenses Beginning merchandise inventory Ending merchandise inventory Sales revenue

$ 105,000 $ 53,000 $ 14,000 $ 11,000 $ 170,000

What is operating income? A) $12,000 B) $102,000 C) $108,000 D) $9,000 Answer: D Explanation: D) Calculations: $105,000 + 14,000 = 119,000 - 11,000 = 108,000; next $ 170,000 - 108,000 = 62,000 - 53,000 = $ 9,000 Diff: 3 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 187) Page's sells books. The following information summarizes the company's operating expenses for the year: Purchases Operating expenses Beginning merchandise inventory Ending merchandise inventory Sales revenue

$ 105,000 $ 53,000 $ 14,000 $ 11,000 $ 170,000

What is gross profit? A) $62,000 B) $9,000 C) $65,000 D) $117,000 Answer: A Explanation: A) Calculations: $105,000 + 14,000 = 119,000 - 11,000 = $108,000. Next $ 170,000 - 108,000 = 62,000 Diff: 3 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 88 .

188) Paper Clip Company sells office supplies. The following information summarizes the company's operating activities for the year: Utilities for the store Sales commissions Sales revenue Purchases of merchandise January 1 inventory Rent for store December 31 inventory

$ 9,500 10,000 164,000 85,000 27,000 13,500 23,000

What is cost of goods sold? A) $85,000 B) $89,000 C) $108,000 D) $112,000 Answer: B Explanation: B) Calculations: $27,000 + 85,000 = 112,000 - 23,000 = $89,000 Diff: 3 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

89 .

189) Paper Clip Company sells office supplies. The following information summarizes the company's operating activities for the year: Utilities for the store Sales commissions Sales revenue Purchases of merchandise January 1 inventory Rent for store December 31 inventory

$ 9,500 10,000 164,000 85,000 27,000 13,500 23,000

What is operating income? A) $154,500 B) $56,000 C) $42,000 D) $46,000 Answer: C Explanation: C) Calculations: $ 164,000 - 89,000 = 75,000 - 9,500 - 10,000 - 13,500 = 42,000 Diff: 3 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

90 .

190) Paper Clip Company sells office supplies. The following information summarizes the company's operating activities for the year: Utilities for the store Sales commissions Sales revenue Purchases of merchandise January 1 inventory Rent for store December 31 inventory

$ 9,500 10,000 164,000 85,000 27,000 13,500 23,000

What is gross profit? A) $75,000 B) $42,000 C) $83,000 D) $56,000 Answer: A Explanation: A) Calculations: $ 164,000 - 89,000 = 75,000 Diff: 3 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

91 .

191) Paper Clip Company sells office supplies. The following information summarizes the company's operating activities for the year: Utilities for the store Sales commissions Sales revenue Purchases of merchandise January 1 inventory Rent for store December 31 inventory

$ 9,500 10,000 164,000 85,000 27,000 13,500 23,000

What is total operating expense? A) $33,000 B) $19,500 C) $23,500 D) $23,000 Answer: A Explanation: A) Calculations: $ 9,500 + 10,000 + 13,500 = $33,000 Diff: 2 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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192) Company X sells widgets. The following information summarizes the company's operating activities for the year: Beginning inventory Sales revenue Sales commissions Rent for office Utilities for the office Purchases Ending inventory

$ 7,000 $ 25,000 $ 1,000 $ 2,000 $ 1,500 $ 6,000 $ 5,000

What is cost of goods sold? A) $9,500 B) $6,000 C) $8,000 D) $13,000 Answer: C Explanation: C) Calculations: $7,000 + 6,000 = 13,000 - 5,000 = $8,000 Diff: 3 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

93 .

193) Company X sells widgets. The following information summarizes the company's operating activities for the year: Beginning inventory Sales revenue Sales commissions Rent for office Utilities for the office Purchases Ending inventory

$ 7,000 $ 25,000 $ 1,000 $ 2,000 $ 1,500 $ 6,000 $ 5,000

What is operating income? A) $12,500 B) $ 23,500 C) $ 15,500 D) $ 14,500 Answer: A Explanation: A) Calculations: $ 25,000 - 8,000 = 13,000 - 1,500 - 1,000 - 2,000 = 12,500 Diff: 3 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 194) Company X sells widgets. The following information summarizes the company's operating activities for the year: Beginning inventory Sales revenue Sales commissions Rent for office Utilities for the office Purchases Ending inventory

$ 7,000 $ 25,000 $ 1,000 $ 2,000 $ 1,500 $ 6,000 $ 5,000

What is gross profit? A) $15,500 B) $21,000 C) $17,000 D) $12,500 Answer: C Diff: 3 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 94 .

195) Company X sells widgets. The following information summarizes the company's operating activities for the year: Beginning inventory Sales revenue Sales commissions Rent for office Utilities for the office Purchases Ending inventory

$ 7,000 $ 25,000 $ 1,000 $ 2,000 $ 1,500 $ 6,000 $ 5,000

What is total operating expense? A) $3,000 B) $2,500 C) $3,500 D) $4,500 Answer: D Explanation: D) Calculations: $1,000 + 2,000 + 1,500 = $4,500 Diff: 2 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 196) Porches, Inc., sells lawn furniture. Selected financial information for the most recent year follows. Beginning merchandise inventory on January 1 was $33,000. Ending merchandise inventory on December 31 was $35,000. Purchases during the year were $92,000. Selling and administrative expenses were $75,000. Sales for year were $262,000. What was cost of goods sold? A) $160,000 B) $ 94,000 C) $ 90,000 D) $ 95,000 Answer: C Explanation: C) Calculations: $ 92,000 + 33,000 = 125,000 - 35,000 = $90,000 Diff: 2 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

95 .

197) Porches, Inc., sells lawn furniture. Selected financial information for the most recent year follows. Beginning merchandise inventory on January 1 was $33,000. Ending merchandise inventory on December 31 was $35,000. Purchases during the year were $92,000. Selling and administrative expenses were $75,000. Sales for year were $262,000. What was gross profit? A) $(165,000) B) $170,000 C) $187,000 D) $172,000 Answer: D Explanation: D) Calculations: $ 92,000 + 33,000 = 125,000 - 35,000 = $90,000. Next $ 262,000 - 90,000 = $172,000 Diff: 2 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 198) Porches, Inc., sells lawn furniture. Selected financial information for the most recent year follows: Beginning merchandise inventory on January 1 was $33,000. Ending merchandise inventory on December 31 was $35,000. Purchases during the year were $92,000. Selling and administrative expenses were $75,000. Sales for year were $262,000. What was operating income for the year? A) $90,000 B) $97,000 C) $95,000 D) $93,000 Answer: B Explanation: B) Calculations: $ 92,000 + 33,000 = 125,000 - 35,000 = $90,000. Next $ 262,000 - 90,000 = $172,000 - 75,000 = $97,000 Diff: 2 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

96 .

199) Porches, Inc., sells lawn furniture. Selected financial information for the most recent year follows. Beginning merchandise inventory on January 1 was $33,000. Ending merchandise inventory on December 31 was $35,000. Purchases during the year were $92,000. Selling and administrative expenses were $75,000. Sales for year were $262,000. What was the value of goods available for sale? A) $125,000 B) $127,000 C) $170,000 D) $ 90,000 Answer: A Explanation: A) Calculations: $ 92,000 + 33,000 = $125,000 Diff: 2 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

97 .

200) Selected financial information for Brookeville Manufacturing is presented in the following table (000s omitted). Sales revenue Purchases of direct materials Direct labor Manufacturing overhead Operating expenses Beginning raw materials inventory Ending raw materials inventory Beginning work in process inventory Ending work in process inventory Beginning finished goods inventory Ending finished goods inventory

$ 4,000 $ 400 $ 450 $ 620 $ 650 $ 200 $ 180 $ 320 $ 410 $ 250 $ 200

What was direct materials used? A) $600 B) $380 C) $420 D) $400 Answer: C Explanation: C) Calculations: $ 200 + 400 = 600 - 180 = $420 Diff: 2 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

98 .

201) Selected financial information for Brookeville Manufacturing is presented in the following table (000s omitted). Sales revenue Purchases of direct materials Direct labor Manufacturing overhead Operating expenses Beginning raw materials inventory Ending raw materials inventory Beginning work in process inventory Ending work in process inventory Beginning finished goods inventory Ending finished goods inventory

$ 4,000 $ 400 $ 450 $ 620 $ 650 $ 200 $ 180 $ 320 $ 410 $ 250 $ 200

What was cost of goods manufactured? A) $1,580 B) $1,380 C) $1,400 D) $1,490 Answer: C Explanation: C) Calculations: $ 420 + 450 + 620 = 1,490 + 320 - 410 = $ 1,400 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

99 .

202) Selected financial information for Brookeville Manufacturing is presented in the following table (000s omitted). Sales revenue Purchases of direct materials Direct labor Manufacturing overhead Operating expenses Beginning raw materials inventory Ending raw materials inventory Beginning work in process inventory Ending work in process inventory Beginning finished goods inventory Ending finished goods inventory

$ 4,000 $ 400 $ 450 $ 620 $ 650 $ 200 $ 180 $ 320 $ 410 $ 250 $ 200

What was cost of goods sold? A) $1,450 B) $1,350 C) $1,470 D) $ 790 Answer: A Explanation: A) Calculations: $ 250 + 1,400 - 200 = $1,450 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

100 .

203) Selected financial information for Brookeville Manufacturing is presented in the following table (000s omitted). Sales revenue Purchases of direct materials Direct labor Manufacturing overhead Operating expenses Beginning raw materials inventory Ending raw materials inventory Beginning work in process inventory Ending work in process inventory Beginning finished goods inventory Ending finished goods inventory

$ 4,000 $ 400 $ 450 $ 620 $ 650 $ 200 $ 180 $ 320 $ 410 $ 250 $ 200

What was operating income? A) $2,530 B) $4,000 C) $3,350 D) $1,900 Answer: D Explanation: D) Calculations: $ 4,000 - 1,450 = 2,550 - 650 = $ 1,900 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

101 .

204) Selected financial information for Greek Food Producers is presented in the following table (000s omitted). Beginning raw materials inventory Ending raw materials inventory Direct labor Operating expenses Purchases of direct materials Beginning work in process inventory Ending work in process inventory Sales revenue Manufacturing overhead Beginning finished goods inventory Ending finished goods inventory

$ 300 $ 180 $ 250 $ 650 $ 350 $ 320 $ 600 $ 4,500 $ 720 $ 250 $ 250

What was direct materials used? A) $650 B) $470 C) $230 D) $350 Answer: B Explanation: B) Calculations: $ 300 + 350 = 650 - 180 = $470 Diff: 2 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

102 .

205) Selected financial information for Greek Food Producers is presented in the following table (000s omitted). Beginning raw materials inventory Ending raw materials inventory Direct labor Operating expenses Purchases of direct materials Beginning work in process inventory Ending work in process inventory Sales revenue Manufacturing overhead Beginning finished goods inventory Ending finished goods inventory

$ 300 $ 180 $ 250 $ 650 $ 350 $ 320 $ 600 $ 4,500 $ 720 $ 250 $ 250

What was cost of goods manufactured? A) $1,440 B) $1,040 C) $1,720 D) $1,160 Answer: D Explanation: D) Calculations: $300 + 350 - 180 = $470 + 320 + 250 + 720 - 600 = $ 1,160 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

103 .

206) Selected financial information for Greek Food Producers is presented in the following table (000s omitted). Beginning raw materials inventory Ending raw materials inventory Direct labor Operating expenses Purchases of direct materials Beginning work in process inventory Ending work in process inventory Sales revenue Manufacturing overhead Beginning finished goods inventory Ending finished goods inventory

$ 300 $ 180 $ 250 $ 650 $ 350 $ 320 $ 600 $ 4,500 $ 720 $ 250 $ 250

What was cost of goods sold? A) $1,030 B) $1,160 C) $ 790 D) $1,320 Answer: B Explanation: B) Calculations: $ 250 + 1,160 - 250 = $1,160 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

104 .

207) Selected financial information for Greek Food Producers is presented in the following table (000s omitted). Beginning raw materials inventory Ending raw materials inventory Direct labor Operating expenses Purchases of direct materials Beginning work in process inventory Ending work in process inventory Sales revenue Manufacturing overhead Beginning finished goods inventory Ending finished goods inventory

$ 300 $ 180 $ 250 $ 650 $ 350 $ 320 $ 600 $ 4,500 $ 720 $ 250 $ 250

What was operating income? A) $3,850 B) $4,500 C) $3,180 D) $2,690 Answer: D Explanation: D) Calculations: $ 4,500 - 1,160 = 3,340 - 650 = $ 2,690 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

105 .

208) Selected information regarding a company's most recent quarter follows (all data in thousands). Beginning work in process inventory Cost of goods manufactured Direct materials used Direct labor Ending work in process inventory

$ 240 $ 400 $ 170 $ 90 $ 140

What was manufacturing overhead for the quarter? A) $260 B) $ 40 C) $500 D) $140 Answer: B Explanation: B) Calculations: $400 + 140 = 540 - 240 - 90 - 170 = 40 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 209) Selected information regarding a company's most recent quarter follows (all data in thousands). Direct labor Beginning work in process inventory Ending work in process inventory Cost of goods manufactured Manufacturing overhead

$ 500 $ 320 $ 330 $ 1,560 $ 820

What was direct materials used for the quarter? A) $ 250 B) $ 490 C) $ 1,550 D) $ 820 Answer: A Explanation: A) Calculations: $ 1,560 + 330 - 320 = 1,570 - 500 - 820 = $250 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

106 .

210) Selected information regarding a company's most recent quarter follows (all data in thousands). Operating expenses Gross profit Sales revenue Ending finished goods inventory Cost of goods manufactured

$ 600 $ 2,390 $ 3,000 $ 200 $ 1,560

What was cost of goods sold? A) $ 1,160 B) $ 610 C) $ 960 D) $ 840 Answer: B Explanation: B) Calculations: $ 3,000 - 2,390 = $610 Diff: 2 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 211) Selected information regarding a company's most recent quarter follows (all data in thousands). Operating expenses Gross profit Sales revenue Ending finished goods inventory Cost of goods manufactured

$ 700 $ 2,390 $ 4,000 $ 300 $ 1,200

What was the beginning finished goods inventory? A) $ 2,100 B) $ 500 C) $ 710 D) $ 800 Answer: C Explanation: C) Calculations: $ 4,000 - 2,390 = $ 1,610 + 300 = 1,910 - 1200 = $710 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

107 .

212) Selected information regarding a company's most recent quarter follows (all data in thousands). Sales revenue Beginning raw materials inventory Direct materials used Purchases of direct materials Direct labor Manufacturing overhead

$ 4,000 $ 200 $ 400 $ 350 $ 450 $ 620

What was the ending raw materials inventory? A) $ 400 B) $ 770 C) $ 150 D) $ 750 Answer: C Explanation: C) Calculations: $ 200 + 350 = 550 - 400 = 150 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 213) Selected information regarding a company's most recent quarter follows (all data in thousands). Ending work in process inventory Cost of goods manufactured Direct labor Direct materials used Beginning work in process inventory

$ 650 $ 800 $ 400 $ 170 $ 300

What was manufacturing overhead for the quarter? A) $230 B) $450 C) $570 D) $580 Answer: D Explanation: D) Calculations: $800 + 650 = 1,450 - 300 - 400 - 170 = 580 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

108 .

214) Selected information regarding a company's most recent quarter follows (all data in thousands). Ending work in process inventory Manufacturing overhead Cost of goods manufactured Beginning work in process inventory Direct labor

$ 400 $ 800 $1,350 $ 330 $ 460

What was direct materials used for the quarter? A) $790 B) $1,280 C) $390 D) $140 Answer: D Explanation: D) Calculations: $ 1,350 + 400 - 330 = 1420 - 460 - 820 = $140 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 215) Selected information regarding a company's most recent quarter follows (all data in thousands). Cost of goods manufactured Gross profit Operating expenses Ending finished goods inventory Sales revenue

$ 1,600 $ 3,000 $ 500 $ 350 $ 4,000

What was cost of goods sold? A) $1,100 B) $1,900 C) $1,450 D) $1,000 Answer: D Explanation: D) Calculations: $ 4,000 - 3,000 = $1,000 Diff: 2 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

109 .

216) Selected information regarding a company's most recent quarter follows (all data in thousands). Cost of goods manufactured Gross profit Operating expenses Ending finished goods inventory Sales revenue

$ 1,500 $ 2,600 $ 4,000 $ 400 $ 6,000

What was the beginning finished goods inventory? A) $2,300 B) $500 C) $2,100 D) $2,500 Answer: A Explanation: A) Calculations: $6,000 - 2,600 = $ 3,400 + 400 = 3,800 - 1,500 = $2,300 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 217) Selected information regarding a company's most recent quarter follows (all data in thousands). Purchases of direct materials Sales revenue Manufacturing overhead Direct materials used Direct labor Beginning raw materials inventory

$ 250 $ 3,500 $ 430 $ 350 $ 200 $ 190

What was the ending raw materials inventory? A) $600 B) $350 C) $90 D) $490 Answer: C Explanation: C) Calculations: $ 190 + 250 = 440 - 350 = 90 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

110 .

218) Use the appropriate letter(s) to indicate if the following costs would be found on the income statement of a A. service company B. merchandising company C. manufacturing company You may use more than one letter for each answer. ____ Revenue ____ Salaries expense ____ Customer service expense ____ Cost of goods manufactured ____ Cost of goods sold Answer: A, B, C Revenue A, B, C Salaries expense A, B, C Customer service expense C Cost of goods manufactured B, C Cost of goods sold Diff: 2 LO: 2-5 EOC: E2-22A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

111 .

219) Compute the missing amounts.

Sales Cost of Goods Sold Beginning Inventory Purchases and Freight-In Cost of goods available for sale Ending inventory Cost of goods sold Gross Margin Selling and Administrative Expenses Operating Income

Miami Company $ 300,000

Orlando Company (D)

(A) 119,000 (B) 5,000 115,000 185,000 (C) 32,000

65,000 (E) 192,000 3,000 (F) 124,000 90,000 (G)

Answer: A) 120,000 - 119,000 = 1,000 B) 115,000 + 5,000 = 120,000 C) 185,000 - 32,000 = 153,000 D) 124,000 + 189,000 = 313,000 E) 192,000 - 65,000 = 127,000 F) 192,000 - 3,000 = 189,000 G) 124,000 - 90,000 = 34,000 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

112 .

220) Kitch Company sells collectibles. The following information summarizes Dino's operating activities for the most recent year: Merchandise inventory, beginning Merchandise inventory, ending Purchases Operating expenses Sales revenue

$ 12,000 6,000 97,000 62,000 195,000

Required: Prepare an income statement for the most recent year. Answer:

Diff: 3 LO: 2-5 EOC: E2-26A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

113 .

221) Eschenbach Company sells office supplies. The following information summarizes Swirzoff's operating activities for the past year: Utilities for store Rent for store Sales commissions Purchases of merchandise Inventory, ending Inventory, beginning Sales revenue

7,000 6,500 2,500 65,000 21,500 28,000 120,000

Required: Prepare an income statement for Swirzoff Company, a merchandiser, for the year ended December 31. Answer:

Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

114 .

222) North Pacific Company used $65,000 of direct materials and incurred $43,000 of direct labor costs during 2011. Indirect labor amounted to $1,700 while indirect materials used totaled $1,800. Other operating costs pertaining to the factory included utilities of $4,300; maintenance of $6,800; supplies of $1,500; depreciation expense of $8,900; and property taxes of $2,400. There was no beginning or ending finished goods inventory, but work in process inventory began the year with a $6,400 balance and ended the year with a $7800 balance. Required: Prepare a schedule of cost of goods manufactured for South State Company for the year ended December 31. Answer:

Diff: 3 LO: 2-5 EOC: E2-25A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

115 .

223) The following information is available for the Bower Corporation for last year: ∙ Raw materials inventory decreased $4,000 from the beginning of the year to the end of the year. ∙ Raw materials inventory on December 31 (end of year) was 50% of raw materials inventory on January 1 (beginning of year). ∙ Beginning work in process inventory was $145,000. ∙ Ending finished goods inventory was $65,000. ∙ Purchases of direct materials were $154,700. ∙ Manufacturing overhead was 50% of the cost of direct labor. ∙ Total manufacturing costs incurred were $246,400, 80% of cost of goods manufactured and $156,000 less than cost of goods sold. Compute: a) b) c) d) e) f) g)

finished goods inventory on January 1 (beginning of year) work in process inventory on December 31 (end of year) direct labor incurred manufacturing overhead incurred direct materials used raw materials inventory on January 1 (beginning of year) raw materials inventory on December 31 (end of year)

Note to students: The solutions to this problem are not necessarily calculated in alphabetical order. Answer: a) cost of goods sold = $246,400 + $156,000 = $402,400 $402,400 + $65,000 - $308,000 = $159,400 b) cost of goods manufactured = $246,400/.80 = $308,000 $246,400 + $145,000 - $308,000 = $83,400 c) $158,700 + x + 0.5x = $246,400 1.5x = $877,700 x = $58,467 d) $58,467 × .5 = $29,233 e) $8,000 + $154,700 - $4,000 = $158,700 f) X = January 1 materials inventory $4,000 = .5X X = $8,000 g) $8,000 - $4,000 = $4,000 Diff: 3 LO: 2-5 EOC: E2-27A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 116 .

224) The following amounts were taken from the general ledger of the Excellent Manufacturing Company. Compute the cost of goods manufactured and the cost of goods sold for the company for the year. Raw materials inventory — beg. of year $52,000 Raw materials inventory — end of year 46,000 Work in process inv. — beg. of year 110,000 Work in process inv. — end of year 85,000 Finished goods inv. — beg. of year 26,000 Finished goods inv. — end of year 54,000 Purchase of direct materials 37,000

Depreciation — plant & equipment

$28,000

Repairs and maintenance — plant

4,000

Insurance on plant

12,000

General and administration exp.

29,000

Indirect labor Direct labor Marketing expenses

27,000 178,000 62,000

Answer:

Diff: 3 LO: 2-5 117 .

EOC: E2-24A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 225) Over the long-term all costs are uncontrollable. Answer: FALSE Diff: 1 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 226) Differential cost is the difference in cost between two alternatives. Answer: TRUE Diff: 1 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 227) Decision making is guided only by differential costs. Answer: FALSE Diff: 2 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 228) Irrelevant factors should not be considered when making decisions. Answer: TRUE Diff: 1 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

118 .

229) You are trying to decide whether or not to sell back your accounting textbook at the end of the class. The cost you paid for the book is not relevant to your decision. Answer: TRUE Diff: 2 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 230) Sunk costs are irrelevant to the decision making process. Answer: TRUE Diff: 1 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 231) Costs that remain the same among alternatives are A) sunk costs. B) irrelevant costs. C) controllable costs. D) uncontrollable costs. Answer: B Diff: 1 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 232) Which of the following types of information differs between alternatives and can affect the future? A) Historical B) Irrelevant C) Relevant D) Predictable Answer: C Diff: 1 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

119 .

233) Which of the following represents a sunk cost? A) A historical cost that is always relevant B) A historical cost that is never relevant C) An outlay expected to be incurred in the future D) A cost that is relevant to any decision Answer: B Diff: 2 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 234) Subtracting the costs of one alternative from the costs of the other alternative would be called the ________ cost. A) sunk B) imported C) alternative D) differential Answer: D Diff: 2 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 235) When deciding to buy a new computer, all of the following should be considered except for the A) cost of the new computer. B) cost of the old computer. C) games that come with the new computer. D) warranty on the new computer. Answer: B Diff: 2 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

120 .

236) When making a decision to buy a new computer, all of the following should be considered except A) differential costs. B) relevant costs. C) qualitative characteristics. D) sunk costs. Answer: D Diff: 2 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 237) A company is deciding whether to purchase production equipment which can produce units more quickly than the current equipment. Which of the following costs would be relevant to its decision? A) The cost of the new equipment B) The salary of the factory manager C) The cost of raw materials D) The original purchase price of the current machinery Answer: A Diff: 1 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 238) A company is deciding whether to purchase production equipment which can produce units more quickly than the current equipment. Which of the following costs would be relevant to its decision? A) The original purchase price of the current machinery B) The additional labor required to run the new equipment C) The accumulative repairs costs of the current machinery over the years D) The cost of raw materials Answer: B Diff: 1 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

121 .

239) A restaurant is facing a decision about whether it should bake its own apple pies or whether it should continue to purchase the pies from a local bakery. Which of the following costs would be relevant to its decision? A) The salary of the restaurant manager B) The price the restaurant sells the apple pies for C) The purchase price of the apple pies purchased from the local bakery D) The original purchase price of the current machinery Answer: C Diff: 1 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 240) A company is deciding whether to purchase hybrid cars for its salespeople or gasoline-engine cars. All of the following costs would be relevant to its decision except A) the cost per gallon of gasoline. B) the purchase price of the hybrid model. C) the book value of the current fleet of sales vehicles. D) the purchase price of the gasoline-engine model. Answer: C Diff: 1 LO: 2-6 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

122 .

241) Label each item below as relevant or irrelevant in making a decision. A. ____ cost of insurance on a new vehicle when evaluating purchase of new vehicle B. ____ cost of roof repair made on rental property last year when evaluating sale of rental property C. ____ original cost of old equipment that is being evaluated for replacement D. ____ cost of new equipment that is under evaluation to replace used equipment E. ____ accumulated depreciation on old equipment being evaluated for replacement F. ____ cost of previous year's insurance policy on old equipment being evaluated for replacement Answer: A. relevant B. irrelevant C. irrelevant D. relevant E. irrelevant F. irrelevant Diff: 2 LO: 2-6 EOC: E2-28A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 242) Differentiate between relevant and irrelevant costs and give an example using both. Answer: When making a decision, those costs that differ between alternatives are relevant costs. Costs that do not differ between alternatives are irrelevant. For example, when deciding to buy a new car, the cost of the cars under consideration is relevant as is the insurance cost for each car. If they both have the same fuel economy ratings, then the cost of gasoline is irrelevant to the decision. Diff: 2 LO: 2-6 EOC: E2-28A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

123 .

243) On the line in front of each statement, enter the letter corresponding to the term that best fits that statement. You may use a letter more than once and some letters may not be used at all. A. B. C. D. E.

Direct costs Marginal cost Average cost Conversion costs Prime costs

F. G. H. I.

Variable costs Indirect cost Sunk cost Differential cost

___ The combination of direct materials and direct labor. ___ Costs that change in total in direct proportion to changes in volume. ___ A cost that relates to the cost object, but cannot be traced to it. ___ A cost that has already been incurred. Answer: E, F, G, H Diff: 2 LO: 2-1 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 244) Variable costs per unit decrease as production volume increases. Answer: FALSE Diff: 1 LO: 2-7 EOC: S2-14 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 245) Fixed costs vary in total over a wide range of activity levels. Answer: FALSE Diff: 1 LO: 2-7 EOC: S2-14 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 246) All costs contain both a fixed and a variable portion. Answer: FALSE Diff: 2 LO: 2-7 EOC: S2-14 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 124 .

247) The total cost of a product equals the total fixed costs plus the total variable costs. Answer: TRUE Diff: 2 LO: 2-7 EOC: S2-14 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 248) A marginal cost is the cost of making one more unit of a product. Answer: TRUE Diff: 2 LO: 2-7 EOC: S2-14 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 249) To forecast total costs at a given level of production, management would use which of the following calculations? A) Average cost × total units predicted B) Total fixed cost × total units predicted C) Total fixed cost + (variable cost per unit × total units predicted) D) Total fixed cost + variable cost per unit Answer: C Diff: 1 LO: 2-7 EOC: P2-46 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 250) Average variable costs A) remain the same as production decreases. B) remain the same as production increases. C) remain the same no matter if production increases or decreases. D) go down as production decreases. Answer: C Diff: 1 LO: 2-7 EOC: E2-47B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

125 .

251) What is the cost of making one more unit called? A) Unit cost B) Marginal cost C) Variable cost D) None of the above Answer: B Diff: 1 LO: 2-7 EOC: E2-46B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 252) Plowin' Supply plans to make 15,000 tractors at its plant. Fixed costs are $600,000 and variable costs are $200 per tractor. What is the average cost per tractor? A) $200 B) $75 C) $240 D) $40 Answer: C Diff: 1 LO: 2-7 EOC: E2-47B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 253) A(n) ________ cost is one whose total amount changes in direct proportion to a change in volume. A) fixed B) irrelevant C) variable D) mixed Answer: C Diff: 1 LO: 2-7 EOC: E2-47B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

126 .

254) An example of a fixed cost for a manufacturer would be which of the following? A) Sales commissions B) Salary of plant manager C) Direct materials D) Delivery costs Answer: B Diff: 1 LO: 2-7 EOC: E2-47B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 255) Which of the following is an example of a fixed cost for a manufacturer? A) Income Taxes B) Machine Repair Expense C) Fire Insurance on buildings D) Delivery Fuel Expense Answer: C Diff: 1 LO: 2-7 EOC: E2-47B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 256) How do variable costs per unit behave? A) They decrease as production increases. B) They increase as production decreases. C) They decrease as production decreases. D) They remain the same throughout production levels within the relevant range. Answer: D Diff: 3 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

127 .

257) How do total variable costs behave? A) They decrease as production decreases. B) They remain the same throughout production levels within the relevant range. C) They decrease as production increases. D) They increase as production decreases. Answer: A Diff: 3 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 258) Which of the following describes the way in which total fixed costs behave? A) They will decrease as production increases. B) They will decrease as production decreases. C) They will remain the same throughout production levels within the relevant range. D) They will increase as production decreases. Answer: C Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 259) How do fixed costs per unit behave? A) They remain the same throughout production levels within the relevant range. B) They decrease as production decreases. C) They increase as production decreases. D) They increase as production increases. Answer: C Diff: 3 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

128 .

260) Variable costs A) are fixed per unit and vary in total as production levels change. B) are fixed in total as production levels change. C) decrease per unit as production volume increases. D) vary per unit of output as production levels change. Answer: A Diff: 3 LO: 2-7 EOC: E2-48B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 261) A company has monthly fixed costs of $112,500. The variable costs are $6.00 per unit. If the sales price of a unit is $19.00 and we sell 7,500 units, the company's average fixed costs per unit will be A) $13.00 per unit. B) $6.00 per unit. C) $21.00 per unit. D) $15.00 per unit. Answer: D Explanation: D) Calculations: 112,500 / 7,500 = 15 Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 262) A company has monthly fixed costs of $112,500. The variable costs are $6.00 per unit. If the sales price of a unit is $19.00 and we sell 7,500 units, the company's total variable costs will be A) $112,500. B) $45,000. C) $142,500. D) $97,500. Answer: B Explanation: B) Calculations: 7,500 × $6.00 = $ 45,000 Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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263) A company has monthly fixed costs of $112,500. The variable costs are $6.00 per unit. If the sales price of a unit is $19.00 and we sell 7,500 units, the total sales revenue will be A) $97,500. B) $112,500. C) $142,500. D) $(15,000). Answer: C Explanation: C) Calculations: $ 19.00 × 7,500 = $142,500 Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 264) The sales price of a particular unit is $19.00. The company plans to sell 7,500 units. The variable costs are $6.00 per unit and monthly fixed costs are $112,500. Given this information what is the average fixed cost per unit? A) $6.00 per unit B) $21.00 per unit C) $13.00 per unit D) $15.00 per unit Answer: D Explanation: D) Calculations: 112,500 / 7,500 = 15 Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 265) The sales price of a particular unit is $19.00. The company plans to sell 7,500 units. The variable costs are $6.00 per unit and monthly fixed costs are $112,500. Given this information what is the company's total variable cost? A) $45,000 B) $112,500 C) $142,500 D) $97,500 Answer: A Explanation: A) Calculations: 7,500 × $6.00 = $ 45,000 Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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266) The sales price of a particular unit is $19.00. The company plans to sell 7,500 units. The variable costs are $6.00 per unit and monthly fixed costs are $112,500. Given this information what is the company's total sales revenue? A) $(15,000) B) $142,500 C) $112,500 D) $97,500 Answer: B Explanation: B) Calculations: $ 19.00 × 7,500 = $142,500 Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 267) London Plastics has monthly fixed costs of $84,000, while its variable costs are $4.00 per unit. If the sales price of a unit is $15.00 and London Plastics sell 14,000 units, the company's average fixed costs per unit will be A) $6.00 per unit. B) $10.00 per unit. C) $4.00 per unit. D) $11.00 per unit. Answer: A Explanation: A) Calculations: 84,000 / 14,000 = $ 6.00 Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 268) London Plastics has monthly fixed costs of $84,000, while its variable costs are $4.00 per unit. If the sales price of a unit is $15.00 and London Plastics sell 14,000 units, the company's total variable costs will be A) $154,000. B) $56,000. C) $210,000. D) $84,000. Answer: B Explanation: B) Calculations: $4.00 × 14,000 = $ 56,000 Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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269) London Plastics has monthly fixed costs of $84,000, while its variable costs are $4.00 per unit. If the sales price of a unit is $15.00 and London Plastics sell 14,000 units, the company's total sales revenue will be A) $154,000. B) $210,000. C) $84,000. D) $70,000. Answer: B Explanation: B) Calculations: 14,000 × $15.00 = $210,000 Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 270) London Plastics sells a product for $15.00 per unit. The product requires $4.00 per unit in variable costs to produce it. The company plans on selling 12,000 units of this product. If the monthly fixed costs are $84,000, the company's average fixed costs per unit will be A) $4.00 per unit. B) $7.00 per unit. C) $10.00 per unit. D) $11.00 per unit. Answer: B Explanation: B) Calculations: 84,000 / 12,000 = $ 7.00 Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 271) London Plastics sells a product for $15.00 per unit. The product requires $4.00 per unit in variable costs to produce it. The company plans on selling 12,000 units of this product. If the monthly fixed costs are $84,000, the company's total variable costs will be A) $184,000. B) $154,000. C) $210,000. D) $48,000. Answer: D Explanation: D) Calculations: $4.00 × 12,000 = $ 48,000 Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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272) London Plastics sells a product for $15.00 per unit. The product requires $4.00 per unit in variable costs to produce it. The company plans on selling 12,000 units of this product. If the monthly fixed costs are $84,000, the total sales revenue will be A) $70,000. B) $84,000. C) $154,000. D) $180,000. Answer: D Explanation: D) Calculations: 12,000 × $15.00 = $180,000 Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 273) A company has fixed costs of $60,000 per month. If sales double from 6,000 to 12,000 units during the month, fixed costs in total will A) double. B) remain the same. C) be cut in half. D) be none of the above. Answer: B Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 274) A company produces toy airplanes at a variable cost of $23 per toy. If 7,000 toys are produced at a total variable cost of $161,000, the total variable cost at 4,500 toys will be A) $161,000. B) $23. C) $103,500. D) $264,500. Answer: C Explanation: C) Calculations: 4,500 × $ 23.00 = $103,500 Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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275) Kramer Manufacturing produces blenders. Its total fixed costs are $30,000. Its variable costs are $55.00 per blender. As production of blenders increases (within the relevant range), fixed costs will A) stay the same per unit. B) decrease as production increases. C) decrease per unit as production increases. D) increase as production decreases. Answer: C Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 276) A company's total costs are calculated by A) subtracting total fixed costs from total variable costs. B) subtracting total variable costs from total fixed costs. C) subtracting total fixed costs and total variable costs from sales. D) adding total fixed costs to total variable costs. Answer: D Diff: 1 LO: 2-7 EOC: E2-48B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 277) On the line in front of each statement, enter the letter corresponding to the term that best fits that statement. You may use a letter more than once and some letters may not be used at all. A. B. C. D.

Direct costs Marginal cost Average cost Conversion costs

E. F. G. H.

Variable costs Indirect cost Sunk cost Differential cost

___ The total cost divided by the total volume. ___ The difference in cost between two alternative courses of action. ___ The combination of direct labor and manufacturing overhead costs. ___ The cost of producing one more unit. ___ Costs that can be traced to the cost object. Answer: C, H, D, B, A Diff: 2 LO: 2-7 EOC: E2-29A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 134 .

278) Differentiate between fixed and variable costs and give an example of each. Answer: Fixed costs stay constant in total over a wide range of activity levels. For instance, the rent on a factory is the same whether 10,000 products are produced each month or 1,000 products are produced. Variable costs change in total in direct proportion to changes in volume. If the variable cost of producing one item is $1, and if 10,000 units are produced, the cost will be $10,000 and if only 1,000 units are produced, the cost will be only $1,000. Diff: 2 LO: 2-7 EOC: E2-30A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 279) Getting to school for your 8 a.m. class doesn't leave much time for breakfast, and you are quite hungry by the time class ends. It is a long walk to the cafeteria, the lines are long once you get there, and you find yourself having to decide between having breakfast and getting to your next class on time. Many of your friends have expressed the same problem. The administration has agreed to let you set up a table just outside the building where you will sell various snacks for $1 each. You have agreed to pay the administration $400 per month and salaries to your friends to run the business will be another $400 per month. It will cost you 60 cents each to buy the pre-packaged snacks. You believe you can sell 2,500 snack packs per month. a. What are the total fixed costs per month? b. What are the total variable costs per month? c. What is the fixed cost per snack pack? d. What is the variable cost per snack pack? e. What is the average cost per snack pack? f. What is the average profit margin per snack pack? g. Based on your analysis, should you start the snack pack business? Answer: a. $800 ($400 + $400) b. $1,500 (60 cents × 2,500 snack packs) c. 32 cents ($800/2,500 snack packs) d. 50 cents (given in the problem) e. $0.82 f. $0.18 ($1 - 50 cents - 32 cents) g. Yes, I will make 18 cents per snack pack and if I sell 2,500 I will make a profit of $450. Diff: 2 LO: 2-7 EOC: E2-48B AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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280) How are average cost and marginal cost computed? Answer: The average cost is the total cost divided by the number of units produced. Marginal cost is the cost of making one more unit. Diff: 1 LO: 2-7 EOC: E2-29A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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Managerial Accounting, 3e (Braun/Tietz) Chapter 3 Job Costing 1) A paper mill company like International Paper would most likely use job costing. Answer: FALSE Diff: 2 LO: 3-1 EOC: S3-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 2) A food and beverage company like Coca-Cola would most likely use job costing. Answer: FALSE Diff: 2 LO: 3-1 EOC: S3-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 3) Process costing is used by companies that produce large numbers of identical units of production in a continuous fashion. Answer: TRUE Diff: 1 LO: 3-1 EOC: S3-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 4) Job costing systems accumulate the costs for each individual job. Answer: TRUE Diff: 1 LO: 3-1 EOC: S3-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 5) Companies should always use job costing rather than process costing. Answer: FALSE Diff: 1 LO: 3-1 EOC: S3-1 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs. Discuss process costing systems and calculate product cost using process costing

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6) Generally Accepted Accounting Principles (GAAP) mandates the type of product costing system (job costing or process costing) that must be used by a manufacturer. Answer: FALSE Diff: 1 LO: 3-1 EOC: S3-1 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs. Discuss process costing systems and calculate product cost using process costing 7) Job costing should only be used by manufacturers. Answer: FALSE Diff: 1 LO: 3-1 EOC: S3-1 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 8) The end goal of process costing and job costing at a manufacturing company is the same: to find the cost of producing one unit of product. Answer: TRUE Diff: 1 LO: 3-1 EOC: S3-1 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs. Discuss process costing systems and calculate product cost using process costing 9) Job costing is often used by professional service providers, such as law firms. Answer: TRUE Diff: 1 LO: 3-1 EOC: S3-1 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 10) All manufacturers use either a pure process costing system or a pure job costing system. Answer: FALSE Diff: 1 LO: 3-1 EOC: S3-1 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs. Discuss process costing systems and calculate product cost using process costing

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11) Companies use job costing when their products or services vary in terms of materials needed, time required to complete the product, and/or the complexity of the production process. Answer: TRUE Diff: 1 LO: 3-1 EOC: S3-1 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 12) A receiving report is typically a duplicate of the purchase order but without the prices and quantities pre-listed on the form. Answer: TRUE Diff: 2 LO: 3-2 EOC: E3-15A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 13) Which product costing system would be better for custom-order products? A) Product costing system B) Company costing system C) Job costing system D) Overhead costing system Answer: C Diff: 1 LO: 3-1 EOC: S3-1 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 14) A job costing system can be used by which types of companies? A) Manufacturing and merchandising businesses B) Service and manufacturing businesses C) Service, manufacturing, and merchandising businesses D) Service and merchandising businesses Answer: C Diff: 1 LO: 3-1 EOC: S3-1 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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15) Which product costing system would better account for a unique product? A) Overhead costing system B) Job costing system C) Process costing system D) Product costing system Answer: B Diff: 1 LO: 3-1 EOC: E3-13A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 16) The two basic types of costing systems are A) product costing and materials inventory costing. B) periodic costing and perpetual costing. C) job costing and process costing. D) periodic costing and process costing. Answer: C Diff: 1 LO: 3-1 EOC: S3-1 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs. Discuss process costing systems and calculate product cost using process costing 17) Which of the following industries would be most likely to use a job costing system? A) Chemicals B) Food and beverage C) Commercial building construction D) Pharmaceuticals Answer: C Diff: 2 LO: 3-1 EOC: S3-1 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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18) Which of the following is an example of an industry that would use a process costing–rather than a job costing–system? A) Coca-Cola B) Boeing Jets C) Centex Custom Homes D) Snyder & Lewis, Attorneys at Law Answer: A Diff: 2 LO: 3-1 EOC: E3-13A AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 19) Which of the following is an example of an industry that would use a process costing–rather than a job costing–system? A) Brugman Custom Cabinetry B) Computer Repair C) Pepsi D) Smith & Zu Certified Public Accountants Answer: C Diff: 2 LO: 3-1 EOC: E3-13A AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 20) Which of the following is most likely NOT to use process costing? A) DuPont Chemical B) Exxon-Mobile (gasoline) C) Ashley Custom Furnishings D) General Mills (cereal) Answer: C Diff: 1 LO: 3-1 EOC: E3-13A AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing. Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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21) A manufacturer of plywood would use what type of product costing system? A) Process costing B) Job costing C) Either job or process D) Both job and process Answer: A Diff: 2 LO: 3-1 EOC: E3-13A AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 22) A manufacturer of luxury yachts would use which type of costing system? A) Process costing B) Job costing C) Either job or process D) Both job and process Answer: B Diff: 1 LO: 3-1 EOC: E3-13A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 23) An example of an industry that uses process costing might be a A) custom printer. B) homebuilder. C) shipbuilder. D) company that makes cement. Answer: D Diff: 1 LO: 3-1 EOC: E3-13A AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

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24) Job order costing might be used by a A) candy manufacturer. B) custom home builder. C) crude oil refinery. D) cereal maker. Answer: B Diff: 1 LO: 3-1 EOC: E3-13A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 25) ________ is the system for assigning costs to unique cost objects. A) Time costing B) Process costing C) Job costing D) Service costing Answer: C Diff: 1 LO: 3-1 EOC: E3-13A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 26) Which of the following types of costing is used for many similar products? A) Process costing B) Batch costing C) Service costing D) Job costing Answer: A Diff: 1 LO: 3-1 EOC: E3-13A AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

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27) State whether each company below would be more likely to use a job costing system or a process costing system. A) ________ custom home builder B) ________ paint manufacturer C) ________ carpet manufacturer D) ________ concrete manufacturer E) ________ jumbo jet manufacturer Answer: A) job costing B) process costing C) process costing D) process costing E) job costing Diff: 1 LO: 3-1 EOC: E3-13A AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing. Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 28) State whether each company below would be more likely to use a job costing system or a process costing system: A) ________ soft drink bottler B) ________ yacht builder C) ________ hospital D) ________ printing firm E) ________ flour mill Answer: A) process costing B) job costing C) job costing D) job costing E) process costing Diff: 1 LO: 3-1 EOC: E3-13A AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing. Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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29) Briefly explain the difference between job order and process costing and give examples of each. Answer: A job costing system will accumulate costs for each batch or job. It is appropriate for companies that manufacture unique products or provide specialized services. Examples of companies that might use job costing include building contractors, custom furniture makers, and law firms. Other companies produce a uniform number of identical units through a series of uniform production steps or processes. These companies would use process costing. Examples would include banks, food and beverage manufacturers, and pharmaceutical companies. Diff: 1 LO: 3-1 EOC: E3-21A AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing. Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 30) For a manufacturing system, inventory flows from raw materials inventory to work in process inventory to finished goods inventory. Answer: TRUE Diff: 3 LO: 3-2 EOC: E3-15A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 31) A job cost record is a document that accumulates direct materials costs, direct labor costs and manufacturing overhead costs assigned to each individual job. Answer: TRUE Diff: 3 LO: 3-2 EOC: E3-15A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 32) At a manufacturing company, inventory flows from work in process inventory, to raw materials inventory, to finished goods inventory. Answer: FALSE Diff: 1 LO: 3-2 EOC: S3-2 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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33) When raw materials are transferred out of the storeroom to the factory, their cost is transferred out of raw materials inventory and into work in process inventory. Answer: TRUE Diff: 1 LO: 3-2 EOC: S3-2 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 34) When the products are shipped to customers, the cost of manufacturing those products becomes Cost of Goods Sold (COGS) shown on the company's balance sheet. Answer: FALSE Diff: 1 LO: 3-2 EOC: S3-2 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 35) A production schedule indicates the quantity and types of inventory that are scheduled to be manufactured during the period. Answer: TRUE Diff: 1 LO: 3-2 EOC: E3-15A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 36) The bill of materials lists all of the raw materials needed to manufacture the job. Answer: TRUE Diff: 1 LO: 3-2 EOC: E3-15A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 37) A labor time record identifies the employee and the amount of time the employee spent on a particular job. Answer: TRUE Diff: 1 LO: 3-2 EOC: E3-15A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 10 .

38) A production schedule always covers a one-year period of time. Answer: FALSE Diff: 2 LO: 3-2 EOC: E3-15A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 39) A purchase order is used to order needed materials from suppliers. Answer: TRUE Diff: 2 LO: 3-2 EOC: E3-15A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 40) The quantities of incoming shipments of raw materials are counted and recorded on a purchase order. Answer: FALSE Diff: 2 LO: 3-2 EOC: E3-15A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 41) Which of these documents authorizes the purchase of specific raw materials from a specific supplier? A) Labor time record B) Materials inventory requisition form C) Job cost record D) Purchase order Answer: D Diff: 1 LO: 3-2 EOC: E3-15A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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42) A ________ is used to accumulate the costs of a job. A) labor time record B) materials inventory requisition form C) bill of materials D) job cost record Answer: D Diff: 1 LO: 3-2 EOC: E3-15A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 43) The ________ substantiates the balance of the raw materials inventory account shown on the company's balance sheet. A) bill of materials B) raw materials records C) materials requisition D) labor time record Answer: B Diff: 1 LO: 3-2 EOC: E3-15A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 44) Which of these documents informs the storeroom to send specific materials to the factory floor? A) Receiving report B) Bill of materials C) Purchase order D) Materials requisition Answer: D Diff: 1 LO: 3-2 EOC: E3-15A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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45) When direct materials are requisitioned, they flow directly into A) cost of goods sold. B) finished goods inventory. C) work in process inventory. D) manufacturing overhead. Answer: C Diff: 1 LO: 3-2 EOC: E3-30B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 46) The assignment of direct and indirect materials to cost objects reduces A) finished goods inventory. B) raw materials inventory. C) manufacturing overhead. D) work in process inventory. Answer: B Diff: 2 LO: 3-2 EOC: E3-31B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 47) A ________ is a source document for tracking employee hours. A) labor time record B) process costing C) job cost record D) job costing Answer: A Diff: 1 LO: 3-2 EOC: S3-1 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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48) What is a document that accumulates job costs called? A) Bill of materials B) A job cost record C) Labor time record D) Production schedule Answer: B Diff: 1 LO: 3-2 EOC: E3-21A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 49) In the flow of costs, which of the following comes first? A) Cost of goods sold B) Finished goods inventory C) Work in process inventory D) Raw materials inventory Answer: D Diff: 1 LO: 3-2 EOC: E3-14A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 50) In the flow of costs, which of the following comes second? A) Cost of goods sold B) Finished goods inventory C) Work in process inventory D) Raw materials inventory Answer: C Diff: 1 LO: 3-2 EOC: E3-14A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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51) In the flow of costs, which of the following comes third? A) Finished goods inventory B) Cost of goods sold C) Raw materials inventory D) Work in process inventory Answer: A Diff: 1 LO: 3-2 EOC: E3-14A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 52) In the flow of costs, which of the following comes last? A) Finished goods inventory B) Cost of goods sold C) Raw materials inventory D) Work in process inventory Answer: B Diff: 1 LO: 3-2 EOC: E3-14A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 53) A ________ is a document which is prepared by manufacturing personnel to request materials for the production process. A) cost ticket B) job cost record C) materials requisition D) manufacturing ticket Answer: C Diff: 1 LO: 3-2 EOC: E3-15A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

15 .

54) An internal request for raw materials calls for a ________ to be completed. A) materials requisition B) bill of materials C) purchase order D) labor time record Answer: A Diff: 1 LO: 3-2 EOC: E3-15A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 55) When used, raw materials A) would be classified as direct materials. B) would be classified as direct labor. C) would be classified as indirect materials. D) cannot be determined with the information provided. Answer: D Diff: 1 LO: 3-2 EOC: E3-15A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 56) Payroll costs for factory employees who do not work directly on the product are considered A) direct labor. B) selling expenses. C) manufacturing overhead. D) administrative costs. Answer: C Diff: 1 LO: 3-2 EOC: E3-16A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

16 .

57) On the line in front of each statement, enter the letter corresponding to the term that best fits that statement. You may use a letter more than once and some letters may not be used at all. A. B. C. D. E.

bill of materials cost driver materials requisition invoice purchase order

F. G. H. I. J.

job cost record process costing labor time record receiving report job costing

____ a bill from a supplier ____ a list of all of the raw materials needed to manufacture a job ____ system for assigning costs to a specific unit or to a small batch of products or services that pass through production steps as a distinct identifiable job ____ a written or electronic document authorizing the purchase of specific raw materials from a specific supplier ____ system for assigning costs to large numbers of identical units that usually proceed in a continuous fashion through a series of uniform production steps or processes ____ a written or electronic document that requests specific materials be transferred from the raw materials inventory storeroom to the production floor ____ a written or electronic document listing the quantity and type of raw materials received in an incoming shipment Answer: D, A, J, E, G, C, I Diff: 2 LO: 3-2 EOC: E3-15A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs. Discuss process costing systems and calculate product cost using process costing 58) For a manufacturer that uses job costing, show the order of the cost flow through the following accounts by numbering them from 1 to 4. ____ finished goods inventory ____ raw materials inventory ____ cost of goods sold ____ work in process inventory Answer: 3, 1, 4, 2 Diff: 1 LO: 3-2 EOC: E3-14A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

17 .

59) For each of the following items, determine whether it would be more appropriate to increase A) manufacturing overhead or B) work in process inventory. Enter either the letter A or the letter B on the line in front of each statement. ____ indirect materials used ____ direct materials used ____ indirect labor used ____ direct labor used ____ plant utilities Answer: A, B, A, B, A Diff: 2 LO: 3-2 EOC: E3-16A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 60) Briefly explain the cost flow of materials through a job costing system from the purchase to the sale. Answer: When materials are purchased, they increase raw materials inventory. As these materials are requisitioned, they are moved out of the raw materials inventory. Direct materials are moved to work in process inventory and indirect materials go to manufacturing overhead. A predetermined manufacturing overhead rate is used to allocate manufacturing overhead costs to work in process inventory. When a job is completed, the costs are moved from work in process inventory to finished goods inventory where they remain until the product is sold. At that point, the costs are transferred from finished goods inventory to cost of goods sold. Diff: 2 LO: 3-2 EOC: E3-15A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 61) Manufacturing overhead may include depreciation on the factory plant and equipment, utilities to run the plant, property taxes and insurance on the plant, and salaries of plant janitors. Answer: TRUE Diff: 1 LO: 3-3 EOC: S3-3 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

18 .

62) Generally accepted accounting principles (GAAP) mandate that manufacturing overhead must be treated as an inventoriable product cost for financial reporting purposes. Answer: TRUE Diff: 1 LO: 3-3 EOC: S3-3 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 63) Manufacturing overhead costs cannot be directly traced to jobs. Answer: TRUE Diff: 1 LO: 3-3 EOC: S3-3 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 64) The key to allocating indirect manufacturing costs to jobs is to identify an appropriate allocation base. Answer: TRUE Diff: 1 LO: 3-3 EOC: S3-3 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 65) Allocating manufacturing overhead to jobs simply means "splitting up" the total manufacturing overhead costs among the jobs produced during the year. Answer: TRUE Diff: 1 LO: 3-3 EOC: S3-3 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 66) An equal amount of manufacturing overhead should be allocated to each job. Answer: FALSE Diff: 1 LO: 3-3 EOC: S3-3 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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67) Manufacturers follow four steps to implement a manufacturing overhead allocation system. The first step is to estimate the total manufacturing overhead costs for the coming year. Answer: TRUE Diff: 1 LO: 3-3 EOC: S3-6 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 68) Manufacturers follow four steps to implement a manufacturing overhead allocation system. The last step is to allocate some manufacturing overhead to each individual job. Answer: TRUE Diff: 1 LO: 3-3 EOC: S3-6 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 69) Manufacturers follow four steps to implement a manufacturing overhead allocation system. The last step is to estimate the total amount of manufacturing overhead costs for the year. Answer: FALSE Diff: 1 LO: 3-3 EOC: S3-6 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 70) The predetermined manufacturing overhead rate is calculated by dividing the total estimated manufacturing overhead costs by the total estimated amount of the allocation base. Answer: TRUE Diff: 1 LO: 3-3 EOC: S3-6 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

20 .

71) The predetermined manufacturing overhead rate is calculated by multiplying the total estimated manufacturing overhead costs by the total estimated amount of the allocation base. Answer: FALSE Diff: 1 LO: 3-3 EOC: S3-6 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 72) The cost of wages paid to assembly-line workers should be treated as a manufacturing overhead cost. Answer: FALSE Diff: 1 LO: 3-3 EOC: E3-22A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 73) The overhead allocation base should be the cost driver of manufacturing overhead costs. Answer: TRUE Diff: 1 LO: 3-3 EOC: E3-23A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 74) The first three steps to allocating manufacturing overhead are taken before the year begins and include all of the following except A) estimating total manufacturing overhead costs for the coming year. B) selecting an allocation base and estimating the total amount that will be used during the year. C) allocating some manufacturing overhead to each individual job. D) calculating the predetermined manufacturing overhead rate. Answer: C Diff: 1 LO: 3-3 EOC: E3-17A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

21 .

75) What is the primary factor causing a "cost" called? A) Cost driver B) Cost allocation C) Materials requisition D) Predetermined manufacturing overhead rate Answer: A Diff: 1 LO: 3-3 EOC: E3-17A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 76) A(n) ________ is an estimated manufacturing overhead rate computed before the year begins. A) cost allocation B) cost driver C) predetermined manufacturing overhead rate D) actual manufacturing overhead rate Answer: C Diff: 1 LO: 3-3 EOC: E3-17A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 77) Assigning manufacturing overhead costs and other indirect costs is called A) cost driver. B) cost allocation. C) materials requisition. D) predetermined manufacturing overhead rate. Answer: B Diff: 1 LO: 3-3 EOC: E3-17A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

22 .

78) Manufacturers follow four steps to implement a manufacturing overhead allocation system. The last step is A) allocate some manufacturing overhead to each individual job. B) select an allocation base and estimate the total amount that will be used during the year. C) estimate total manufacturing overhead costs for the coming year. D) calculate a predetermined manufacturing overhead rate. Answer: A Diff: 1 LO: 3-3 EOC: S3-6 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 79) Manufacturers follow four steps to implement a manufacturing overhead allocation system. What is the first step? A) Select an allocation base and estimate the total amount that will be used during the year. B) Allocate some manufacturing overhead to each individual job. C) Calculate a predetermined manufacturing overhead rate. D) Estimate total manufacturing overhead costs for the coming year. Answer: D Diff: 1 LO: 3-3 EOC: S3-6 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 80) Manufacturers follow four steps to implement a manufacturing overhead allocation system. Which step is not performed before the year begins? A) Allocate some manufacturing overhead to each individual job. B) Select an allocation base and estimate the total amount that will be used during the year. C) Estimate total manufacturing overhead costs for the coming year. D) Calculate a predetermined manufacturing overhead rate. Answer: A Diff: 1 LO: 3-3 EOC: S3-6 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

23 .

81) Manufacturing overhead is allocated on the basis of A) machine hours. B) direct labor hours. C) direct labor costs. D) any of the listed choices. Answer: D Diff: 2 LO: 3-3 EOC: E3-23A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 82) Allocating manufacturing overhead costs is done A) during the period. B) before the period starts. C) at the end of the period. D) never. Answer: A Diff: 2 LO: 3-3 EOC: E3-23A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 83) When is the predetermined manufacturing overhead rate computed? A) During the period B) Before the period starts C) At the end of the period D) Can be done at any time Answer: B Diff: 1 LO: 3-3 EOC: E3-23A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

24 .

84) How do you calculate the predetermined manufacturing overhead rate used to allocate manufacturing overhead costs? A) By multiplying the total estimated manufacturing overhead costs by the total estimated amount of the allocation base B) By dividing the total estimated amount of the allocation base by the total estimated manufacturing overhead costs C) By dividing the total estimated manufacturing overhead costs by the total actual amount of the allocation base D) By dividing the total estimated manufacturing overhead costs by the total estimated amount of the allocation base Answer: D Diff: 1 LO: 3-3 EOC: E3-23A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 85) Which of the following would be an example of a typical manufacturing overhead cost? A) Direct materials B) Sales revenue C) Direct labor D) Depreciation on factory equipment Answer: D Diff: 1 LO: 3-2 EOC: E3-33B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 86) A typical manufacturing overhead cost would be A) direct labor. B) depreciation on the plant. C) net income. D) direct materials. Answer: B Diff: 1 LO: 3-2 EOC: E3-33B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

25 .

87) Manufacturing overhead would include A) all manufacturing costs except direct materials and direct labor. B) indirect labor costs only. C) all manufacturing costs. D) indirect materials only. Answer: A Diff: 1 LO: 3-2 EOC: E3-33B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 88) Here are selected data for Campbell Company: Cost of goods manufactured Work in process inventory, beginning Work in process inventory, ending Direct materials used

$320,000 109,000 104,000 73,000

Manufacturing overhead is allocated at 60% of direct labor cost. What was the amount of direct labor costs? A) $78,000 B) $162,581 C) $151,250 D) $242,000 Answer: C Explanation: C) $320,000 - 109,000 + 104,000 = $315,000 Total Manufacturing Cost $315,000 - 73,000 (direct materials) = $242,000 direct labor and MOH $242,000 = X (DL) + 60% X (MOH) X = $151,250 Diff: 3 LO: 3-3 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

26 .

89) Here are selected data for Bailey Company: Cost of goods manufactured Work in process inventory, beginning Work in process inventory, ending Direct materials used

$320,000 109,000 104,000 73,000

Manufacturing overhead is allocated at 50% of direct labor cost. What was the amount of direct labor costs? A) $78,000 B) $161,333 C) $168,000 D) $242,000 Answer: B Explanation: B) $320,000 - 109,000 + 104,000 = $315,000 Total Manufacturing Cost $315,000 - 73,000 (direct materials) = $242,000 direct labor and MOH $242,000 = X (DL) + 50% X (MOH) X = $161,333 Diff: 3 LO: 3-3 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 90) Greatwater Manufacturing uses job costing. In May, material requisitions were $44,000 ($39,000 of these were direct materials), and raw material purchases were $57,700. The end of month balance in raw materials inventory was $24,300. What was the beginning raw materials inventory balance? A) $10,600 B) $43,000 C) $72,400 D) $25,300 Answer: A Explanation: A) X + $57,700 - 44,000 = $24,300 X = $ 10,600 Diff: 3 LO: 3-3 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

27 .

91) Nemec Manufacturing uses job costing. In May, material requisitions were $44,000 ($39,000 of these were direct materials), and raw material purchases were $60,000. The end of month balance in raw materials inventory was $24,300. What was the beginning raw materials inventory balance? A) $74,700 B) $45,300 C) $8,300 D) $23,000 Answer: C Explanation: C) X + $60,000 - 44,000 = $24,300 X = $ 8,300 Diff: 3 LO: 3-3 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 92) Ryan's Paints allocates overhead based on machine hours. Selected data for the most recent year follow. Estimated manufacturing overhead cost Actual manufacturing overhead cost Estimated machine hours Actual machine hours

$235,000 $244,000 20,000 22,500

The estimates were made as of the beginning of the year, while the actual results were for the entire year. The predetermined manufacturing overhead rate per machine hour is closest to A) $10.44. B) $11.75. C) $10.84. D) $12.20. Answer: B Explanation: B) $ 235,000 / 20,000 = $ 11.75 Diff: 2 LO: 3-3 EOC: E3-17A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

28 .

93) Ryan's Paints allocates overhead based on machine hours. Selected data for the most recent year follow. Estimated manufacturing overhead cost Actual manufacturing overhead cost Estimated machine hours Actual machine hours

$235,000 $244,000 20,000 22,500

The estimates were made as of the beginning of the year, while the actual results were for the entire year. The amount of manufacturing overhead allocated for the year based on machine hours would have been A) $239,500. B) $264,375. C) $235,000. D) $244,000. Answer: B Explanation: B) $ 235,000 / 20,000 = $ 11.75 × 22,500 = $ 264,375 Diff: 2 LO: 3-3 EOC: E3-17A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 94) Poland's Paints allocates overhead based on machine hours. Selected data for the most recent year follow. Estimated manufacturing overhead cost Actual manufacturing overhead cost Estimated machine hours Actual machine hours

$238,000 $244,000 20,000 22,500

The estimates were made as of the beginning of the year, while the actual results were for the entire year. The predetermined manufacturing overhead rate per machine hour is closest to A) $10.58. B) $12.20. C) $10.84. D) $11.90. Answer: D Explanation: D) $ 238,000 / 20,000 = $ 11.90 Diff: 2 LO: 3-3 EOC: E3-17A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

29 .

95) Poland's Paints allocates overhead based on machine hours. Selected data for the most recent year follow. Estimated manufacturing overhead cost Actual manufacturing overhead cost Estimated machine hours Actual machine hours

$238,000 $244,000 20,000 22,500

The estimates were made as of the beginning of the year, while the actual results were for the entire year. The amount of manufacturing overhead allocated for the year based on machine hours would have been A) $244,000. B) $238,000. C) $267,750. D) $241,000. Answer: C Explanation: C) $ 238,000 / 20,000 = $ 11.90 × 22,500 = $ 267,750 Diff: 2 LO: 3-3 EOC: E3-17A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

30 .

96) Here are selected data for Tyler Corporation: Cost of materials purchases on account Cost of materials requisitioned (includes $4,500 of indirect) Direct labor costs incurred Manufacturing overhead costs incurred, including indirect materials Cost of goods manufactured Cost of goods sold Beginning raw materials inventory Beginning work in process inventory Beginning finished goods inventory Predetermined manufacturing overhead rate (as % of direct labor cost)

$ 68,000 51,000 77,000 97,500 223,000 151,000 14,500 29,700 32,800 130%

What is the balance in work in process inventory at the end of the year? A) $30,300 B) $27,700 C) $49,200 D) $23,800 Answer: A Explanation: A) MOH Allocated $77,000 × 130% = $100,100 Direct material $51,000 - 4,500 = 46,500 Direct Labor 77,000 Total cost added to WIP 223,600 Final step $ 223,600 - 223,000 + 29,700 = $ 30,300 Diff: 3 LO: 3-3 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

31 .

97) Davy Company had a beginning work in process inventory balance of $32,000. During the year, $54,500 of direct materials was placed into production. Direct labor was $63,400, and indirect labor was $19,500. Manufacturing overhead is allocated at 125% of direct labor costs. Actual manufacturing overhead was $86,500, and jobs costing $225,000 were completed during the year. What is the ending work in process inventory balance? A) $172,400 B) $11,400 C) $4,150 D) $79,250 Answer: C Explanation: C): $ 63,400 × 125% = $79,250 (MOH) $79,250 + 32,000 + 54,500 + 63,400 - 225,000 = $ 4,150 Diff: 3 LO: 3-3 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 98) Before the year began, Murphy Manufacturing estimated that manufacturing overhead for the year would be $175,500 and that 13,000 direct labor hours would be worked. Actual results for the year included the following: Actual manufacturing overhead cost Actual direct labor hours

$184,000 14,500

The predetermined manufacturing overhead rate per direct labor hour is closest to A) $12.10. B) $12.69. C) $13.50. D) $14.15. Answer: C Explanation: C) $175,500 / 13,000 = $13.50 Diff: 2 LO: 3-3 EOC: E3-23A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

32 .

99) Before the year began, Murphy Manufacturing estimated that manufacturing overhead for the year would be $175,500 and that 13,000 direct labor hours would be worked. Actual results for the year included the following: Actual manufacturing overhead cost Actual direct labor hours

$184,000 14,500

The amount of manufacturing overhead allocated for the year based on direct labor hours would have been A) $179,750. B) $195,750. C) $175,500. D) $184,000. Answer: B Explanation: B) $175,000 / 13,000 = $13.50 × 14,500 = $ 195,750 Diff: 2 LO: 3-3 EOC: E3-23A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 100) Here are selected basic data for Wilson Company: Estimated manufacturing overhead Estimated labor hours Actual direct labor hours Estimated direct labor cost Actual direct labor cost Factory depreciation

$ 243,750 35,000 36,000 $ 325,000 $ 320,000 $ 65,400

Factory utilities Indirect labor Sales commissions Factory rent Factory property taxes Indirect materials

$ 30,200 $ 22,400 $ 53,700 $ 47,700 $ 28,100 $ 33,000

If the company allocates overhead based on direct labor cost, what are the total actual manufacturing overhead costs? A) $280,500 B) $171,400 C) $258,100 D) $226,800 Answer: D Explanation: D) $ 65,400 + 30,200 + 22,400 + 47,700 + 28,100 + 33.000 = $226,800 Diff: 2 LO: 3-3 EOC: E3-26A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

33 .

101) Here are selected data for Wilson Company: Estimated manufacturing overhead Estimated labor hours Actual direct labor hours Estimated direct labor cost Actual direct labor cost Factory depreciation

$ 243,750 35,000 36,000 $ 325,000 $ 320,000 $ 65,400

Factory utilities Indirect labor Sales commissions Factory rent Factory property taxes Indirect materials

$ 30,200 $ 22,400 $ 53,700 $ 47,700 $ 28,100 $ 33,000

If the company allocates overhead based on direct labor cost, what is the predetermined manufacturing overhead rate? A) 76% of direct labor cost B) 133% of direct labor cost C) 75% of direct labor cost D) 102% of direct labor cost Answer: C Explanation: C) $ 243,750 /325,000 = 75% Diff: 2 LO: 3-3 EOC: E3-18A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 102) Here are selected data for Wilson Company: Estimated manufacturing overhead Estimated labor hours Actual direct labor hours Estimated direct labor cost Actual direct labor cost Factory depreciation

$ 243,750 35,000 36,000 $ 325,000 $ 320,000 $ 65,400

Factory utilities Indirect labor Sales commissions Factory rent Factory property taxes Indirect materials

$ 30,200 $ 22,400 $ 53,700 $ 47,700 $ 28,100 $ 33,000

If the company allocates manufacturing overhead based on direct labor cost, what are the allocated manufacturing overhead costs? A) $243,750 B) $226,800 C) $426,667 D) $240,000 Answer: D Explanation: D) $ 243,750 /325,000 = 75% × $320,000 = $ 240,000 Diff: 2 LO: 3-3 EOC: E3-18A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 34 .

103) Here are selected data for Sally Day Corporation: Beginning raw materials inventory Beginning finished goods inventory Cost of direct materials requisitioned Actual manufacturing overhead Cost of goods sold

$ 37,000 Beginning work in process inventory 56,300 Cost of materials purchased 91,300 Direct labor incurred 160,000 Cost of goods manufactured 265,000 Manufacturing overhead rate (% of direct labor)

61,500 151,000 125,000 287,000 125%

What is the ending work in process inventory balance? A) $147,050 B) $151,500 C) $211,200 D) $207,450 Answer: A Explanation: A) $ 125,000 × 125% = 156,250 MOH $ 156,250 + 61,500 + 91,300 + 125,000 - 287,000 = $ 147,050 Diff: 3 LO: 3-3 EOC: P3-49A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 104) Here are selected data for Sally Day Corporation: Beginning raw materials inventory Beginning finished goods inventory Cost of direct materials requisitioned Actual manufacturing overhead Cost of goods sold

$ 37,000 Beginning work in process inventory 56,300 Cost of materials purchased 91,300 Direct labor incurred 160,000 Cost of goods manufactured 265,000 Manufacturing overhead rate (% of direct labor)

61,500 151,000 125,000 287,000 125%

What is the finished goods ending inventory? A) $67,300 B) $287,000 C) $78,300 D) $495,700 Answer: C Explanation: C) $ 56,300 + 287,000 - 265,000 = 78,300 Diff: 2 LO: 3-3 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 35 .

105) Here are selected basic data for Stehli Company: Estimated manufacturing overhead Estimated labor hours Actual direct labor hours Estimated direct labor cost Actual direct labor cost Factory depreciation

$ 253,500 35,000 36,000 $ 325,000 $ 320,000 $ 66,000

Factory utilities Indirect labor Sales commissions Factory rent Factory property taxes Indirect materials

$ 30,200 $ 22,400 $ 53,700 $ 47,700 $ 28,100 $ 33,000

If the company allocates overhead based on direct labor cost, what are the total actual manufacturing overhead costs? A) $227,400 B) $281,100 C) $258,700 D) $172,000 Answer: A Explanation: A) $ 66,000 + 30,200 + 22,400 + 47,700 + 28,100 + 33,000 = $227,400 Diff: 2 LO: 3-3 EOC: E3-26A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 106) Here are selected data for Stehli Company: Estimated manufacturing overhead Estimated labor hours Actual direct labor hours Estimated direct labor cost Actual direct labor cost Factory depreciation

$ 253,500 35,000 36,000 $ 325,000 $ 320,000 $ 66,000

Factory utilities Indirect labor Sales commissions Factory rent Factory property taxes Indirect materials

$ 30,200 $ 22,400 $ 53,700 $ 47,700 $ 28,100 $ 33,000

If the company allocates overhead based on direct labor cost, what is the predetermined manufacturing overhead rate? A) 78% of direct labor cost B) 128% of direct labor cost C) 79% of direct labor cost D) 102% of direct labor cost Answer: A Explanation: A) $ 253,500 /325,000 = 78% Diff: 2 LO: 3-3 EOC: E3-18A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 36 .

107) Here are selected data for Stehli Company: Estimated manufacturing overhead Estimated labor hours Actual direct labor hours Estimated direct labor cost Actual direct labor cost Factory depreciation

$ 253,500 35,000 36,000 $ 325,000 $ 320,000 $ 66,000

Factory utilities Indirect labor Sales commissions Factory rent Factory property taxes Indirect materials

$ 30,200 $ 22,400 $ 53,700 $ 47,700 $ 28,100 $ 33,000

If the company allocates manufacturing overhead based on direct labor cost, what are the allocated manufacturing overhead costs? A) $410,256 B) $249,600 C) $227,400 D) $253,500 Answer: B Explanation: B) $ 253,500 /325,000 = 78% × $320,000 = $ 249,600 Diff: 2 LO: 3-3 EOC: E3-18A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 108) Here are selected data for Sunny Sky Corporation: Beginning raw materials inventory Beginning finished goods inventory Cost of direct materials requisitioned Actual manufacturing overhead Cost of goods sold

$ 37,000 Beginning work in process inventory 58,300 Cost of materials purchased 91,300 Direct labor incurred 160,000 Cost of goods manufactured Manufacturing overhead rate (% of 265,000 direct labor)

62,200 151,000 135,000 287,000 125%

What is the ending work in process inventory balance? A) $161,500 B) $170,250 C) $211,200 D) $229,950 Answer: B Explanation: B) $ 135,000 × 125% = 168,750 MOH $ 168,750 + 62,200 + 91,300 + 135,000 - 287,000 = $ 170,250 Diff: 3 LO: 3-3 EOC: E3-49A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 37 .

109) Here are selected data for Sunny Sky Corporation: Beginning raw materials inventory Beginning finished goods inventory Cost of direct materials requisitioned Actual manufacturing overhead Cost of goods sold

$ 37,000 Beginning work in process inventory 58,300 Cost of materials purchased 91,300 Direct labor incurred 160,000 Cost of goods manufactured Manufacturing overhead rate (% of 265,000 direct labor)

62,200 151,000 135,000 287,000 125%

What is the finished goods ending inventory? A) $80,300 B) $493,700 C) $79,300 D) $287,000 Answer: A Explanation: A) $ 58,300 + 287,000 - 265,000 = 80,300 Diff: 2 LO: 3-3 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 110) Job 140 requires $12,000 of direct materials, $6,700 of direct labor, 550 direct labor hours, and 270 machine hours. It also requires 9 hours of inspection at $40 per hour. Manufacturing overhead is computed at $28 per direct labor hour used and $42 per machine hour used. The total amount of overhead allocated is A) $34,100. B) $26,740. C) $45,440. D) $15,400. Answer: B Explanation: B) 28 × 550 = $15,400 42 × 270 = $11,340 $ 15,400 + 11,340 = $ 26,740 Diff: 3 LO: 3-3 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

38 .

111) Missy & Daughters allocates manufacturing overhead to jobs based on machine hours. The company has the following estimated costs for the upcoming year: Direct materials used Direct labor costs Wages of factory janitors Sales supervisor salary Utilities for factory Rent on factory building Advertising expense

$ 50,000 $ 70,000 $ 39,000 $ 51,000 $ 16,000 $ 13,000 $ 5,000

The company estimates that 1,360 direct labor hours will be worked in the upcoming year, while 1,000 machine hours will be used during the year. The predetermined manufacturing overhead rate per machine hour will be A) $29. B) $124. C) $244. D) $68. Answer: D Explanation: D) $ 39,000 + 16,000 + 13,000 = $68,000 / 1000 = $ 68 Diff: 2 LO: 3-3 EOC: E3-26A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

39 .

112) Missy & Daughters allocates manufacturing overhead to jobs based on direct labor hours. The company has the following estimated costs for the upcoming year: Direct materials used Direct labor costs Wages of factory janitors Sales supervisor salary Utilities for factory Rent on factory building Advertising expense

$ 50,000 $ 70,000 $ 39,000 $ 51,000 $ 16,000 $ 13,000 $ 5,000

The company estimates that 1,360 direct labor hours will be worked in the upcoming year, while 1,000 machine hours will be used during the year. The predetermined manufacturing overhead rate per direct labor hour will be A) $50. B) $91. C) $179. D) $59. Answer: A Explanation: A) $ 39,000 + 16,000 + 13,000 = $68,000 /1360 = $ 50 Diff: 2 LO: 3-3 EOC: E3-26A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 113) Job 123 requires $12,000 of direct materials, $5,500 of direct labor, 500 direct labor hours, and 300 machine hours. It also requires 6 hours of inspection at $40 per hour. Manufacturing overhead is computed at $30 per direct labor hour used and $40 per machine hour used. The total amount charged for inspection A) is $40. B) is $40 × budgeted hours. C) is $240. D) does not figure into the total cost of the job. Answer: C Diff: 3 LO: 3-3 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

40 .

114) Job 140 requires $12,000 of direct materials, $6,700 of direct labor, 550 direct labor hours, and 270 machine hours. It also requires 9 hours of inspection at $40 per hour. Manufacturing overhead is computed at $28 per direct labor hour used and $42 per machine hour used. The total dollars of conversion costs are A) $15,400. B) $26,740. C) $33,440. D) $45,440. Answer: C Explanation: C) $ 6,700 + ( $28 × 550 ) + ( $42 × 270 ) = $ 33,440 Diff: 3 LO: 3-3 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 115) Jason Company manufactures custom engines for use in the lawn and garden equipment industry. The company allocates manufacturing overhead based on machine hours. Selected data for costs incurred for Job 890 are as follows: Direct materials used Direct labor hours worked Machine hours used Direct labor rate per hour Predetermined overhead rate based on machine hours

$ 5,500 350 440 $ 18 $ 15

What amount of manufacturing overhead would be allocated to Job 612? A) $5,500 B) $6,300 C) $6,600 D) $5,250 Answer: C Explanation: C) $ 15 × 440 = $ 6,600 Diff: 1 LO: 3-3 EOC: S3-5 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

41 .

116) Peterson Company gathered the following information for the year ended December 31: Direct labor cost incurred for the year Estimated manufacturing overhead costs Estimated direct labor cost Work in process inventory, Dec, 31 Finished goods inventory, Dec. 31 Cost of goods sold Estimated direct labor hours

$180,000 $260,000 $200,000 $51,000 $68,800 $141,000 260,000

What would the predetermined manufacturing overhead rate for the year be using direct labor cost as the allocation base? A) 130% of direct labor cost B) 90% of direct labor cost C) 111% of direct labor cost D) 100% of direct labor cost Answer: A Explanation: A) $ 260,000 / $ 200,000 = 130% Diff: 1 LO: 3-3 EOC: S3-6 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

42 .

117) Peterson Company gathered the following information for the year ended December 31: Direct labor cost incurred for the year Estimated manufacturing overhead costs Estimated direct labor cost Work in process inventory, Dec, 31 Finished goods inventory, Dec. 31 Cost of goods sold Estimated direct labor hours

$180,000 $260,000 $200,000 $51,000 $68,800 $141,000 260,000

Peterson Company uses a job costing system. What would the predetermined manufacturing overhead rate for the year be using direct labor hours as the allocation base? A) $1.11 per direct labor hour B) $1.00 per direct labor hour C) $1.30 per direct labor hour D) $.90 per direct labor hour Answer: B Explanation: B) $ 260,000 / 260,000 = $1.00 Diff: 1 LO: 3-3 EOC: S3-3 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

43 .

118) Zanny Moldings has the following estimated costs for the upcoming year: Direct materials used Direct labor costs Salary of factory supervisor Advertising expense Heating and lighting costs for factory Depreciation on factory equipment Sales commissions

$ 25,000 $ 62,000 $ 37,000 $ 33,000 $ 22,000 $ 5,000 $ 8,000

The company estimates that 1,600 direct labor hours will be worked in the upcoming year, while 2,000 machine hours will be used during the year. The predetermined manufacturing overhead rate per machine hour is closest to A) $32. B) $96. C) $14. D) $53. Answer: A Explanation: A) $ 37,000 + 22,000 + 5,000 = $ 64,000 / 2000 = $ 32 Diff: 1 LO: 3-3 EOC: S3-3 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

44 .

119) Zanny Moldings has the following estimated costs for the upcoming year: Direct materials used Direct labor costs Salary of factory supervisor Advertising expense Heating and lighting costs for factory Depreciation on factory equipment Sales commissions

$ 25,000 $ 62,000 $ 37,000 $ 33,000 $ 22,000 $ 5,000 $ 8,000

The company estimates that 1,600 direct labor hours will be worked in the upcoming year, while 2,000 machine hours will be used during the year. The predetermined manufacturing overhead rate per direct labor hour is closest to A) $120. B) $66. C) $38. D) $40. Answer: D Explanation: D) $ 37,000 + 22,000 + 5,000 = $ 64,000 / 1600 = $ 40 Diff: 1 LO: 3-3 EOC: S3-3 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

45 .

120) Perry Moldings has the following estimated costs for the upcoming year: Direct labor costs Direct materials used Salary of factory supervisor Sales commissions Heating and lighting costs for factory Depreciation on factory equipment Advertising expense

$ 62,000 $ 25,000 $ 39,000 $ 8,000 $ 22,000 $ 5,000 $ 33,000

The company estimates that 1,200 direct labor hours will be worked in the upcoming year, while 2,000 machine hours will be used during the year. The predetermined manufacturing overhead rate per machine hour is closest to A) $52. B) $97. C) $14. D) $33. Answer: D Explanation: D) $ 39,000 + 22,000 + 5,000 = $ 66,000 / 2000 = $ 33 Diff: 1 LO: 3-3 EOC: S3-3 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

46 .

121) Perry Moldings has the following estimated costs for the upcoming year: Direct labor costs Direct materials used Salary of factory supervisor Sales commissions Heating and lighting costs for factory Depreciation on factory equipment Advertising expense

$ 62,000 $ 25,000 $ 39,000 $ 8,000 $ 22,000 $ 5,000 $ 33,000

The company estimates that 1,200 direct labor hours will be worked in the upcoming year, while 2,000 machine hours will be used during the year. The predetermined manufacturing overhead rate per direct labor hour is closest to A) $162. B) $55. C) $50. D) $89. Answer: B Explanation: B) $ 39,000 + 22,000 + 5,000 = $ 66,000 / 1200 = $ 55 Diff: 1 LO: 3-3 EOC: S3-3 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

47 .

122) To follow is selected financial data from Turtle Bay Manufacturing for the most recent year. Ending raw materials inventory Ending work in process inventory Ending finished goods inventory Amount of underallocated manufacturing overhead Cost of goods sold for year Cost of raw materials purchased during year Cost of direct materials requisitioned during year Cost of indirect materials requisitioned during year Cost of goods completed during year Manufacturing overhead allocated Manufacturing overhead % of direct labor cost

$ 21,000 $ 44,200 $ 53,200 $ 5,100 $ 85,000 $ 45,300 $ 43,800 $ 7,200 $ 120,000 $ 60,000 120%

What is the beginning raw materials inventory? A) $19,500 B) $ 5,700 C) $26,700 D) $72,000 Answer: C Explanation: C) X + $ 45,300 - 43,800 - 7,200 = $ 21,000 X = $ 26,700 Diff: 3 LO: 3-3 EOC: P3-45A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

48 .

123) To follow is selected financial data from Turtle Bay Manufacturing for the most recent year. Ending raw materials inventory Ending work in process inventory Ending finished goods inventory Amount of underallocated manufacturing overhead Cost of goods sold for year Cost of raw materials purchased during year Cost of direct materials requisitioned during year Cost of indirect materials requisitioned during year Cost of goods completed during year Manufacturing overhead allocated Manufacturing overhead % of direct labor cost

$ 21,000 $ 44,200 $ 53,200 $ 5,100 $ 85,000 $ 45,300 $ 43,800 $ 7,200 $ 120,000 $ 60,000 120%

What is the beginning work in process inventory? A) $10,400 B) $65,500 C) $32,200 D) $60,400 Answer: A Explanation: A) Direct Labor = 120 % X = $ 60,000 X = $ 50,000 Then: X + $ 50,000 + 43,800 + 60,000 - 120,000 = 44,200 X = $ 10,400 Diff: 3 LO: 3-3 EOC: P3-45A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

49 .

124) To follow is selected financial data from Turtle Bay Manufacturing for the most recent year. Ending raw materials inventory Ending work in process inventory Ending finished goods inventory Amount of underallocated manufacturing overhead Cost of goods sold for year Cost of raw materials purchased during year Cost of direct materials requisitioned during year Cost of indirect materials requisitioned during year Cost of goods completed during year Manufacturing overhead allocated Manufacturing overhead % of direct labor cost

$ 21,000 $ 44,200 $ 53,200 $ 5,100 $ 85,000 $ 45,300 $ 43,800 $ 7,200 $ 120,000 $ 60,000 120%

What is the beginning finished goods inventory? A) $138,200 B) $18,200 C) $78,200 D) $(2,800) Answer: B Explanation: B) X + $120,000 - 85,000 = $ 53,200 X = $ 18,200 Diff: 2 LO: 3-3 EOC: P3-47A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

50 .

125) To follow is selected financial data from Turtle Bay Manufacturing for the most recent year. Ending raw materials inventory Ending work in process inventory Ending finished goods inventory Amount of underallocated manufacturing overhead Cost of goods sold for year Cost of raw materials purchased during year Cost of direct materials requisitioned during year Cost of indirect materials requisitioned during year Cost of goods completed during year Manufacturing overhead allocated Manufacturing overhead % of direct labor cost

$ 21,000 $ 44,200 $ 53,200 $ 5,100 $ 85,000 $ 45,300 $ 43,800 $ 7,200 $ 120,000 $ 60,000 120%

What is the actual manufacturing overhead? A) $65,100 B) $54,900 C) $ 5,100 D) $60,000 Answer: A Explanation: A) X - $60,000 = $ 5,100 X = $ 65,100 Diff: 2 LO: 3-3 EOC: P3-47A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

51 .

126) Federer Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the most recent year: Estimated direct labor cost Actual direct labor cost Estimated manufacturing overhead costs Actual manufacturing overhead costs Estimated direct labor hours Actual direct labor hours

$500,000 $465,000 $425,000 $350,000 250,000 232,000

If Federer Company uses direct labor cost as the allocation base, what would the predetermined manufacturing overhead rate be? A) 70% B) 75% C) 91% D) 85% Answer: D Explanation: D) $425,000 / $500,000 = 85% Diff: 2 LO: 3-3 EOC: P3-47A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

52 .

127) Federer Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the most recent year: Estimated direct labor cost Actual direct labor cost Estimated manufacturing overhead costs Actual manufacturing overhead costs Estimated direct labor hours Actual direct labor hours

$500,000 $465,000 $425,000 $350,000 250,000 232,000

If Federer Company uses direct labor hours as the allocation base, what would the predetermined manufacturing overhead rate be? A) $1.51 per direct labor hour B) $1.70 per direct labor hour C) $1.40 per direct labor hour D) $1.83 per direct labor hour Answer: B Explanation: B) $ 425,000 / 250,000 = $ 1.70 Diff: 2 LO: 3-3 EOC: P3-47A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

53 .

128) Federer Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the most recent year: Estimated direct labor cost Actual direct labor cost Estimated manufacturing overhead costs Actual manufacturing overhead costs Estimated direct labor hours Actual direct labor hours

$500,000 $465,000 $425,000 $350,000 250,000 232,000

If Federer Company uses direct labor cost as the allocation base, what would the allocated manufacturing overhead be for the year? A) $701,509 B) $325,500 C) $395,250 D) $425,000 Answer: C Explanation: C) $425,000 / $500,000 = 85% 85% × $ 465,000 = $ 395,250 Diff: 2 LO: 3-3 EOC: P3-45A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

54 .

129) Federer Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the most recent year: Estimated direct labor cost Actual direct labor cost Estimated manufacturing overhead costs Actual manufacturing overhead costs Estimated direct labor hours Actual direct labor hours

$500,000 $465,000 $425,000 $350,000 250,000 232,000

If Federer Company uses direct labor hours as the allocation base, what would the allocated manufacturing overhead be for the year? A) $425,000 B) $350,000 C) $394,400 D) $324,800 Answer: C Explanation: C) $ 425,000 / 250,000 = $ 1.70 $ 1.70 × 232,000 = $ 394,000 Diff: 2 LO: 3-3 EOC: P3-47A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

55 .

130) Nadal Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the most recent year: Actual direct labor hours Estimated direct labor hours Actual manufacturing overhead costs Estimated manufacturing overhead costs Actual direct labor cost Estimated direct labor cost

232,000 250,000 $350,000 $400,000 $465,000 $500,000

If Nadal Company uses direct labor cost as the allocation base, what would the predetermined manufacturing overhead rate be? A) 80% B) 70% C) 75% D) 86% Answer: A Explanation: A) $400,000 / $500,000 = 80% Diff: 2 LO: 3-3 EOC: P3-45A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

56 .

131) Nadal Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the most recent year: Actual direct labor hours Estimated direct labor hours Actual manufacturing overhead costs Estimated manufacturing overhead costs Actual direct labor cost Estimated direct labor cost

232,000 250,000 $350,000 $400,000 $465,000 $500,000

If Nadal Company uses direct labor hours as the allocation base, what would the predetermined manufacturing overhead rate be? A) $1.51 per direct labor hour B) $1.40 per direct labor hour C) $1.60 per direct labor hour D) $1.72 per direct labor hour Answer: C Explanation: C) $ 400,000 / 250,000 = $ 1.60 Diff: 2 LO: 3-3 EOC: P3-45A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

57 .

132) Nadal Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the most recent year: Actual direct labor hours Estimated direct labor hours Actual manufacturing overhead costs Estimated manufacturing overhead costs Actual direct labor cost Estimated direct labor cost

232,000 250,000 $350,000 $400,000 $465,000 $500,000

If Nadal Company uses direct labor cost as the allocation base, what would the allocated manufacturing overhead be for the year? A) $325,500 B) $372,000 C) $701,509 D) $400,000 Answer: B Explanation: B) $400,000 / $500,000 = 80% 80% × $ 465,000 = $ 372,000 Diff: 2 LO: 3-3 EOC: P3-45A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

58 .

133) Nadal Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the most recent year: Actual direct labor hours Estimated direct labor hours Actual manufacturing overhead costs Estimated manufacturing overhead costs Actual direct labor cost Estimated direct labor cost

232,000 250,000 $350,000 $400,000 $465,000 $500,000

If Nadal Company uses direct labor hours as the allocation base, what would the allocated manufacturing overhead be for the year? A) $324,800 B) $350,000 C) $400,000 D) $371,200 Answer: D Explanation: D) $ 400,000 / 250,000 = $ 1.60 $ 1.60 × 232,000 = $ 371,200 Diff: 2 LO: 3-3 EOC: P3-47A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 134) Showboat Corporation had actual manufacturing overhead costs for the most recent year of $29,500. Manufacturing overhead is allocated using a predetermined manufacturing overhead rate of $1.50 per direct labor hour. Direct labor cost is $19 per hour. At the end of the year, Cabaret Corporation found it had overallocated manufacturing overhead by $1,250. How much manufacturing overhead was allocated in total during the year? A) $28,250 B) $29,500 C) $30,750 D) $1,250 Answer: C Explanation: C) $ 29,500 + 1,250 = $30,750 Diff: 3 LO: 3-3 EOC: P3-48A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

59 .

135) Showboat Corporation had actual manufacturing overhead costs for the most recent year of $29,500. Manufacturing overhead is allocated using a predetermined manufacturing overhead rate of $1.50 per direct labor hour. Direct labor cost is $19 per hour. At the end of the year, Cabaret Corporation found it had overallocated manufacturing overhead by $1,250. How many direct labor hours were worked in total during the year? A) 20,500 B) 18,833 C) 19,667 D) 833 Answer: A Explanation: A) $ 29,500 + 1,250 = $30,750 Then: $ 1.55 (X) = $ 30,750 X = 20,500 Diff: 3 LO: 3-3 EOC: E3-33B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 136) Stars and Stripes Corporation uses job costing. The following is selected financial data from the company for the most recent year. Ending raw materials inventory Ending work in process inventory Ending finished goods inventory Amount of underallocated manufacturing overhead Cost of goods sold for year Cost of raw materials purchased during year Cost of direct materials requisitioned during year Cost of indirect materials requisitioned during year Cost of goods completed during year Manufacturing overhead allocated MOH % of direct labor cost

$ 18,500 $ 57,300 $ 54,000 $ 3,200 $ 75,100 $ 49,000 $ 35,400 $ 5,800 $ 125,000 $ 80,000 125%

Compute: a) b) c) d)

Beginning raw materials inventory Beginning work in process inventory Beginning finished goods inventory Actual manufacturing overhead costs incurred during the year

60 .

Answer: Part a Ending raw materials inventory Cost of direct materials requisitioned during year Cost of indirect materials requisitioned during year Cost of raw materials purchased during year Beginning raw materials inventory

$ 18,500 $ 35,400 $ 5,800 $ (49,000) $ 10,700

Part b Manufacturing overhead allocated MOH % of direct labor cost Direct labor cost

$ 80,000 ×125% $ 64,000

Ending work in process inventory Cost of goods manufactured during year Cost of direct materials requisitioned during year Manufacturing overhead allocated Direct labor cost Beginning work in process inventory

$ 57,300 $ 125,000 $ (35,400) $ (80,000) $ (64,000) $ 2,900

Part c Ending finished goods inventory Cost of goods sold for year Cost of goods manufactured during year Beginning finished goods inventory

$ 54,000 $ 75,100 $ (125,000) $ 4,100

Part d Manufacturing overhead allocated Amount of underallocated manufacturing overhead Actual manufacturing overhead

$ 80,000 $ 3,200 $ 83,200

Diff: 2 LO: 3-3 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

61 .

137) Guys and Dolls Corporation uses job costing. The following selected financial data from the company is for the most recent year. Ending finished goods inventory Ending work in process inventory Ending raw materials inventory Amount of underallocated manufacturing overhead Cost of goods sold for year Cost of direct materials requisitioned during year Cost of raw materials purchased during year Cost of indirect materials requisitioned during year Cost of goods completed during year Manufacturing overhead allocated MOH % of direct labor cost

$ 54,500 $ 57,300 $ 15,500 $ 3,200 $ 75,100 $ 35,400 $ 49,000 $ 5,800 $ 125,000 $ 78,000 125%

Compute: a) b) c) d)

Beginning raw materials inventory Beginning work in process inventory Beginning finished goods inventory Actual manufacturing overhead costs incurred during the year

62 .

Answer: Part a Ending raw materials inventory Cost of direct materials requisitioned during year Cost of indirect materials requisitioned during year Cost of raw materials purchased during year Beginning raw materials inventory

$ 15,500 $ 35,400 $ 5,800 $ (49,000) $ 7,700

Part b Manufacturing overhead allocated MOH % of direct labor cost Direct labor cost

$ 78,000 ×125% $ 62,400

Ending work in process inventory Cost of goods manufactured during year Cost of direct materials requisitioned during year Manufacturing overhead allocated Direct labor cost Beginning work in process inventory

$ 57,300 $ 125,000 $ (35,400) $ (78,000) $ (62,400) $ 6,500

Part c Ending finished goods inventory Cost of goods sold for year Cost of goods manufactured during year Beginning finished goods inventory

$ 54,500 $ 75,100 $ (125,000) $ 4,600

Part d Manufacturing overhead allocated Amount of underallocated manufacturing overhead Actual manufacturing overhead

$ 78,000 $ 3,200 $ 81,200

Diff: 2 LO: 3-3 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

63 .

138) Oakland Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the most recent year: Estimated direct labor cost Actual direct labor cost Estimated manufacturing overhead costs Actual manufacturing overhead costs Estimated direct labor hours Actual direct labor hours

$560,000 $475,000 $420,000 $353,000 200,000 280,000

Determine the following: a) Predetermined manufacturing overhead rate using direct labor cost as the allocation base b) Predetermined manufacturing overhead rate using direct labor hours as the allocation base c) Allocated manufacturing overhead costs based on direct labor cost for the year d) Allocated manufacturing overhead costs based on direct labor hours for the year Answer: Part a Estimated manufacturing overhead costs divided by $420,000 Estimated direct labor cost $560,000 Predetermined manufacturing overhead rate based on direct labor cost 75% Part b Estimated manufacturing overhead costs divided by Estimated direct labor hours Predetermined manufacturing overhead rate based on direct labor hours

$ 420,000 $ 200,000 $ 2.10

Part c Estimated manufacturing overhead costs divided by Estimated direct labor cost Predetermined manufacturing overhead rate based on direct labor cost

$420,000 $560,000 75%

Actual direct labor cost Predetermined manufacturing overhead rate based on direct labor cost Allocated manufacturing overhead costs based on direct labor cost

$ 475,000 × 75% $ 356,250

Part d Estimated manufacturing overhead costs divided by Estimated direct labor hours Predetermined manufacturing overhead rate based on direct labor hours Actual direct labor hours Predetermined manufacturing overhead rate based on direct labor hours Allocated manufacturing overhead costs based on direct labor hours 64 .

$ 420,000 $ 200,000 $ 2.10 $ 280,000 $ × 2.10 $ 588,000

Diff: 2 LO: 3-3 EOC: S3-6 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 139) Grassland Corporation had actual manufacturing overhead costs of $32,500 for the past year. Direct labor cost is $12.00 per hour. Manufacturing overhead is allocated at a rate of $4.00 per direct labor hour. Manufacturing overhead was overallocated for the year by $2,500. Calculate: a) allocated manufacturing overhead costs for year b) actual number of direct labor hours worked in year Answer: Part a Actual manufacturing overhead costs for year Overallocated manufacturing overhead costs for year Allocated manufacturing overhead costs for year

$ 32,500 $ 2,500 $ 35,000

Part b Actual manufacturing overhead costs for year Overallocated manufacturing overhead costs for year Allocated manufacturing overhead costs for year

$ 32,500 $ 2,500 $ 35,000

Allocated manufacturing overhead costs for year divided by Manufacturing overhead allocation rate per direct labor hour Actual number of direct labor hours worked during year

$ 35,000 $ 4.00 8,750

Diff: 2 LO: 3-3 EOC: E3-18A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

65 .

140) Calculate the unknowns for the following independent situations. 1) Selected data for Lion Corporation: Actual manufacturing overhead costs Underallocated manufacturing overhead costs

$ 35,400 $ 3,000

Allocated manufacturing overhead is based on 50% of direct labor cost. a) Calculate the allocated manufacturing overhead cost. b) Calculate the direct labor cost. 2) Selected data for Tiger Corporation: Actual manufacturing overhead costs Overallocated manufacturing overhead costs

$ 24,300 $ 1,200

Manufacturing overhead is allocated at $15 per machine hour. a) Calculate the allocated manufacturing overhead cost. b) Calculate the number of machine hours incurred.

66 .

Answer: Part 1a Actual manufacturing overhead costs Underallocated manufacturing overhead costs Allocated manufacturing overhead costs

$ 35,400 $ (3,000) $ 32,400

Part 1b Actual manufacturing overhead costs Underallocated manufacturing overhead costs Allocated manufacturing overhead costs

$ 35,400 $ (3,000) $ 32,400

Allocated manufacturing overhead costs divided by Allocated manufacturing overhead rate based on direct labor cost Direct labor cost

$ 32,400 50% $ 64,800

Part 2a Actual manufacturing overhead costs Overallocated manufacturing overhead costs Allocated manufacturing overhead costs

$ 24,300 $ 1,200 $ 25,500

Part 2b Actual manufacturing overhead costs Overallocated manufacturing overhead costs Allocated manufacturing overhead costs

$ 24,300 $ 1,200 $ 25,500

Allocated manufacturing overhead costs divided by Allocated manufacturing overhead rate based on machine hours Machine hours

$ 25,500 $ 15 1,700

Diff: 2 LO: 3-3 EOC: E3-18A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

67 .

141) Krepes Manufacturing has two departments that produce small appliances. The Drilling Department allocates manufacturing overhead using machine hours as the allocation base while the Cutting Department allocates manufacturing overhead using direct labor cost as the allocation base. Data for April are shown below: Drilling Dept. $150,000 $60,000 40,000 $10,000 $4,200 2,500

Estimated annual manufacturing overhead costs Estimated annual direct labor cost Estimated annual machine hours Actual manufacturing overhead costs for April Actual direct labor cost for April Actual machine hours for April

Cutting Dept. $300,000 $600,000 10,000 $14,000 $34,000 1,000

a) Determine the predetermined manufacturing overhead rate for the Drilling Department. b) Determine the predetermined manufacturing overhead rate for the Cutting Department. c) Determine the balances of the manufacturing overhead accounts for each department as of April 30. Indicate whether the amounts represent overallocated or underallocated manufacturing overhead.

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Answer: Part a Drilling Dept. Estimated annual manufacturing overhead costs divided by Estimated annual machine hours Predetermined manufacturing overhead rate per machine hour

$ 150,000 $ 40,000 $ 3.75

Part b Cutting Dept. Estimated annual manufacturing overhead costs divided by Estimated annual direct labor cost Predetermined manufacturing overhead rate as % of direct labor cost

$ 300,000 $ 600,000 50%

Part c Drilling Dept. Actual machine hours for April Predetermined manufacturing overhead rate per machine hour Allocated manufacturing overhead for April

$ 2,500 $ × 3.75 $ 9,375

Actual manufacturing overhead costs for April Allocated manufacturing overhead for April Amount of underallocated manufacturing overhead for April

$ 10,000 $ (9,375) $ 625

Cutting Dept. Actual direct labor cost for April Predetermined manufacturing overhead rate as % of direct labor cost Allocated manufacturing overhead for April

$ 34,000 × 50% $ 17,000

Allocated manufacturing overhead for April Actual manufacturing overhead costs for April Amount of overallocated manufacturing overhead for April

$ 17,050 $ (14,000) $ 3,000

Diff: 2 LO: 3-3 EOC: E3-18A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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142) Management can use job cost information to help to determine how it will deal with pricing pressure from competitors. Answer: TRUE Diff: 1 LO: 3-4 EOC: E3-23A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 143) Management can use job cost information to control costs on future jobs. Answer: TRUE Diff: 1 LO: 3-4 EOC: E3-23A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 144) The total cost of a job shown on the job cost record is the sum of the direct materials and direct labor traced to the job and the manufacturing overhead allocated to the job. Answer: TRUE Diff: 1 LO: 3-4 EOC: E3-23A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 145) The total cost of a job shown on the job cost record is the sum of the direct materials traced to the job and the manufacturing overhead allocated to the job. Answer: FALSE Diff: 1 LO: 3-4 EOC: E3-23A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 146) If a job consists of a batch of identical units, managers find the unit cost by dividing the total job cost by the number of units in the job. Answer: TRUE Diff: 1 LO: 3-4 EOC: E3-23A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 70 .

147) The total cost of a job shown on the job cost record is the sum of the direct labor traced to the job and the manufacturing overhead allocated to the job. Answer: FALSE Diff: 1 LO: 3-4 EOC: E3-23A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 148) The total cost of a job shown on the job cost record is the sum of the direct materials and direct labor traced to the job divided by the manufacturing overhead allocated to the job. Answer: FALSE Diff: 1 LO: 3-4 EOC: E3-22A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 149) The gross profit on the sale of a job is the difference between the sales price and the total cost reported on the job cost record. Answer: TRUE Diff: 1 LO: 3-4 EOC: E3-23A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 150) ________ laws , or "take-back" laws, create future costs associated with each job and require manufacturers of electronic devices to take back their products at the end of their useful lives. A) Extended Producer Responsibility (EPR) B) Manufacturing Overhead (MOH) C) Work in Process (WIP) D) None of the above Answer: A Diff: 1 LO: 3-4 EOC: E3-23A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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151) If a job consists of a batch of identical units, how can managers find the unit cost? A) By tracing direct materials to each unit B) By multiplying the total job cost by the number of units in the job C) By dividing the total job cost by the number of units in the job D) By tracing direct labor to each unit Answer: C Diff: 1 LO: 3-4 EOC: E3-23A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 152) Management can use job cost information for each of the following except A) determining cost of goods sold. B) determining the profitability of different jobs. C) bidding on custom jobs. D) all of the listed choices are possible uses of job cost information. Answer: D Diff: 1 LO: 3-4 EOC: E3-23A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 153) Which of the following is not a way in which management can use job cost information? A) Assessing and comparing the profitability of each product type B) Using the cost information in determining the bid price for custom orders C) Preparing the financial statements D) Determining the balance in raw materials inventory Answer: D Diff: 2 LO: 3-4 EOC: E3-23A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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154) The difference between the sales price and the job cost is A) gross profit. B) cost of goods sold. C) net income. D) operating income. Answer: A Diff: 1 LO: 3-4 EOC: E3-20A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 155) How is the cost-plus price determined? A) Cost - markup on cost B) Cost + markup on cost C) Cost × markup on cost D) Cost ÷ markup on cost Answer: B Diff: 1 LO: 3-4 EOC: E3-20A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 156) When using cost-plus pricing, the markup is added to the job cost to help A) cover operating expenses. B) generate a profit. C) determine the price to charge for the job. D) all of the above. Answer: D Diff: 1 LO: 3-4 EOC: E3-20A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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157) Squire Corporation charged Job 110 with $13,400 of direct materials and $11,900 of direct labor. Allocation for manufacturing overhead is 75% of direct labor costs. What is the total cost of Job 110? A) $34,225 B) $ 8,925 C) $41,167 D) $25,300 Answer: A Explanation: A) $ 13,400 + 11,900 + 75% (11,900 ) = $ 34,225 Diff: 2 LO: 3-4 EOC: E3-22A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 158) Morgan Corporation uses estimated direct labor hours of 200,000 and estimated manufacturing overhead costs of $920,000 in establishing manufacturing overhead rates. Actual manufacturing overhead was $970,000, and allocated manufacturing overhead was $1,012,000. What were the number of actual direct hours worked? A) 200,000 B) 208,660 C) 189,691 D) 220,000 Answer: D Explanation: D) $ 920,000 / 200,000 = $ 4.60; $1,012,000 / $4.60 = 220,000 Diff: 2 LO: 3-4 EOC: E3-33B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 159) Serena Corporation uses estimated manufacturing overhead costs of $880,000 and estimated direct labor hours of 200,000 in establishing manufacturing overhead rates. Allocated manufacturing overhead was $1,012,000 and actual manufacturing overhead was $970,000. What were the number of actual direct hours worked? A) 230,000 B) 200,000 C) 181,443 D) 208,660 Answer: A Explanation: A) $ 880,000 / 200,000 = $ 4.40; $1,012,000 / $4.40 = 230,000 Diff: 2 LO: 3-4 EOC: E3-33B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 74 .

160) Job 590 has an ending balance of $28,500. It has been charged manufacturing overhead costs of $7,000. The rate is 70% of direct labor. What was the amount of direct materials charged to the job? A) $21,500 B) $11,500 C) $26,400 D) $19,950 Answer: B Explanation: B) 70% (X) = $7,000 X = $10,000 Then $ 28,500 - 7,000 - 10,000 = $ 11,500 Diff: 3 LO: 3-4 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 161) Job 365 has an ending balance of $28,500. The rate is 80% of direct labor. It has been charged manufacturing overhead costs of $7,000. What was the amount of direct materials charged to the job? A) $22,800 B) $27,100 C) $21,500 D) $12,750 Answer: D Explanation: D) 80% (X) = $7,000 X = $8,750 Then $ 28,500 - 7,000 - 8,750 = $ 12,750 Diff: 3 LO: 3-4 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 162) Sales revenue is $750,000; actual manufacturing overhead is $120,000; allocated manufacturing overhead is $95,000; and cost of goods sold before adjustment is $380,000. What is the actual gross profit? A) $395,000 B) $370,000 C) $345,000 D) $250,000 Answer: C Explanation: C) $ 120,000 - 95,000 = $25,000 Under allocated $ 750,000 - 380,000 - 25,000 = $345,000 Diff: 3 LO: 3-4 EOC: E3-33B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 75 .

163) Sales revenue is $725,000; allocated manufacturing overhead is $95,000; actual manufacturing overhead is $120,000; and cost of goods sold before adjustment is $380,000. What is the actual gross profit? A) $320,000 B) $370,000 C) $345,000 D) $225,000 Answer: A Explanation: A) $ 120,000 - 95,000 = $25,000 Under allocated $ 725,000 - 380,000 - 25,000 = $320,000 Diff: 3 LO: 3-4 EOC: E3-33B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 164) Sykes Company has sales revenue of $585,000. Cost of goods sold before adjustment is $335,000. The company's actual manufacturing overhead is $91,000, while allocated manufacturing overhead is $104,400. What is the actual gross profit? A) $159,000 B) $236,600 C) $250,000 D) $263,400 Answer: D Explanation: D) $91,000 - 104,400 = $ 13,400 Over allocated $ 585,000 - 335,000 + 13,400 = $ 263,400 Diff: 3 LO: 3-4 EOC: E3-33B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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165) Manufacturing overhead has an underallocated balance of $12,000; raw materials inventory balance is $145,000; work in process inventory is $122,000; finished goods inventory is $140,000; and cost of goods sold is $170,000. After adjusting for the underallocated manufacturing overhead, what is cost of goods sold? A) $170,000 B) $ 12,000 C) $182,000 D) $158,000 Answer: C Explanation: C) $170,000 + 12,000 = $ 182,000 Diff: 2 LO: 3-4 EOC: E3-33B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 166) Manufacturing overhead has an overallocated balance of $7,500; raw materials inventory balance is $62,000; work in process inventory is $34,000; finished goods inventory is $25,000; and cost of goods sold is $135,000. After adjusting for the overallocated manufacturing overhead, what is cost of goods sold? A) $127,500 B) $7,500 C) $142,500 D) $135,000 Answer: A Explanation: A) $ 135,000 - 7,500 = $ 127,500 Diff: 2 LO: 3-4 EOC: E3-33B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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167) Jasper Carts manufactures custom carts for a variety of uses. The following data have been recorded for Job 651, which was recently completed. Direct materials used cost $7,200. There were 175 direct labor hours worked on this job at a direct labor wage rate of $22 per hour. There were 82 machine hours used on this job. The predetermined overhead rate is $30 per machine hour used. What is the total manufacturing cost of Job 651? A) $3,850 B) $2,460 C) $13,510 D) $7,457 Answer: C Explanation: C) $ 7,200 + ( 175 × $ 22) + ( 82 × $30) = $ 13,510 Diff: 2 LO: 3-4 EOC: E3-19A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 168) Venus Crates manufactures custom crates for a variety of uses. The following data have been recorded for Job 551, which was recently completed. Direct materials used cost $7,200. There were 82 machine hours used on this job. The predetermined overhead rate is $30 per machine hour used. There were 175 direct labor hours worked on this job at a direct labor wage rate of $24 per hour. What is the total manufacturing cost of Job 551? A) $13,860 B) $4,200 C) $2,460 D) $7,457 Answer: A Explanation: A) $ 7,200 + ( 175 × $ 24) + ( 82 × $30) = $ 13,860 Diff: 2 LO: 3-4 EOC: E3-19A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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169) Job 450 requires $9,800 of direct materials, $6,400 of direct labor, 590 direct labor hours, and 400 machine hours. Manufacturing overhead is computed at $14 per direct labor hour used and $10 per machine hour used. The total cost of Job 450 is A) $12,260. B) $28,460. C) $16,200. D) $24,460. Answer: B Explanation: B) $ 9,800 + 6,400 + ($14 × 590 ) + ($10 × 400 ) = $ 28,460 Diff: 3 LO: 3-4 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 170) Cooper's Company manufactures custom engines for use in the lawn and garden equipment industry. The company allocates manufacturing overhead based on machine hours. Selected data for costs incurred for Job 798 are as follows: Direct materials used Direct labor hours worked Machine hours used Direct labor rate per hour Predetermined overhead rate based on machine hours

$ 4,200 280 425 $ 18 $ 20

What is the total manufacturing cost of Job 798? A) $17,740 B) $5,040 C) $8,500 D) $4,905 Answer: A Explanation: A) $ 4,200 + ($18 × 280 ) + ($ 20 × 425 ) = $ 17,740 Diff: 2 LO: 3-4 EOC: E3-19A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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171) Spruce Company uses a job costing system. Spruce Company's schedule of cost of goods manufactured showed the following amounts for the month ended August 31. Cost of goods manufactured Cost of direct materials used Cost of direct labor ($32 per hour) Work in process inventory, August 1

$124,000 42,000 76,000 14,500

Manufacturing overhead cost is allocated at the rate of $13 per direct labor hour. What is the amount of allocated manufacturing overhead costs for August? A) $30,875 B) $76,000 C) $124,000 D) $42,000 Answer: A Explanation: A) $ 76,000 / $ 32 = 2,375 hr. × $ 13 = $ 30,875 Diff: 3 LO: 3-4 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 172) Spruce Company uses a job costing system. Spruce Company's schedule of cost of goods manufactured showed the following amounts for the month ended August 31. Cost of goods manufactured Cost of direct materials used Cost of direct labor ($32 per hour) Work in process inventory, August 1

$124,000 42,000 76,000 14,500

Allocated manufacturing overhead costs for August amount to $44,000. What is the amount of work in process inventory (before any adjustment for overallocated or underallocated manufacturing overhead) on August 31? A) $29,500 B) $162,000 C) $52,500 D) $138,500 Answer: C Explanation: C) $ 14,500 + 42,000 + 76,000 + 44,000 - 124,000 = $ 52,500 Diff: 3 LO: 3-3 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 80 .

173) Maple Company uses a job costing system. Maple Company's schedule of cost of goods manufactured showed the following amounts for the month ended August 31. Cost of direct materials used Cost of goods manufactured Cost of direct labor ($25 per hour) Work in process inventory, August 1

$42,000 124,000 75,000 14,500

Manufacturing overhead cost is allocated at the rate of $13 per direct labor hour. What is the amount of allocated manufacturing overhead costs for August? A) $42,000 B) $75,000 C) $124,000 D) $39,000 Answer: D Explanation: D) $ 75,000 / $ 25 = 3,000 hr. × $ 13 = $ 39,000 Diff: 3 LO: 3-4 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 174) Maple Company uses a job costing system. Maple Company's schedule of cost of goods manufactured showed the following amounts for the month ended August 31. Cost of direct materials used Cost of goods manufactured Cost of direct labor ($25 per hour) Work in process inventory, August 1

$42,000 124,000 75,000 14,500

Allocated manufacturing overhead costs for August amount to $50,000. What is the amount of work in process inventory (before any adjustment for overallocated or underallocated manufacturing overhead) on August 31? A) $57,500 B) $167,000 C) $35,500 D) $138,500 Answer: A Explanation: A) $ 14,500 + 42,000 + 75,000 + 50,000 - 124,000 = $ 57,500 Diff: 3 LO: 3-3 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 81 .

175) Nadal Corporation manufactures custom molds for use in the extrusion industry. The company allocates manufacturing overhead based on machine hours. Selected data for costs incurred for Job 532 are as follows: Direct materials used Direct labor cost Predetermined manufacturing overhead rate based on machine hours Direct labor hours worked Machine hours used

$ 4,800 $ 36,000 $ 15 3000 220

What is the manufacturing cost of Job 532? A) $3,300 B) $40,800 C) $85,800 D) $44,100 Answer: D Explanation: D) $ 4,800 + 36,000 + (220 × $15) = $ 44,100 Diff: 2 LO: 3-4 EOC: E3-19A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 176) Deco Corporation uses a job costing system. On January 1, Deco Corporation's work in process inventory account had a balance of $75,000. During the year, materials requisitioned for use in production amounted to $120,000, of which $82,000 represented direct materials. Factory wages for the period were $231,000, of which $219,000 were for direct labor. Manufacturing overhead is allocated on the basis of 85% of direct labor cost. Actual overhead cost for the year was $125,000. Jobs costing $345,000 were completed during the year. The December 31 work in process inventory balance is A) $426,000. B) $217,150. C) $156,000. D) $168,000. Answer: B Explanation: B) $75,000 + 82,000 + 219,000 + (85 % × 219,000) - 345,000 = $ 217,150 Diff: 3 LO: 3-4 EOC: E3-22A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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177) Shiloh Company uses a job costing system. The company's schedule of cost of goods manufactured showed the following amounts for September. Cost of goods manufactured Cost of direct materials used Cost of direct labor ($17 per hour) Work in process inventory, September 1

$63,000 $24,000 $25,500 $3,000

Manufacturing overhead cost is allocated at the rate of $11 per direct labor hour. What is the amount of allocated manufacturing overhead costs for the month? A) $24,000 B) $63,000 C) $16,500 D) $25,500 Answer: C Explanation: C) $ 25,500 /17 = 1,500 Then $ 11 × 1500 = $ 16,500 Diff: 2 LO: 3-4 EOC: E3-23A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 178) Shiloh Company uses a job costing system. The company's schedule of cost of goods manufactured showed the following amounts for September. Cost of goods manufactured Cost of direct materials used Cost of direct labor ($17 per hour) Work in process inventory, September 1

$63,000 $24,000 $25,500 $3,000

Actual manufacturing overhead costs for September amount to $24,000. What is the amount of work in process inventory on September 30? A) $13,500 B) $66,000 C) $73,500 D) $21,000 Answer: A Explanation: A) $ 3,000 + 24,000 + 25,500 + 24,000 - 63,000 = $ 13,500 Diff: 3 LO: 3-4 EOC: E3-23A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 83 .

179) Denver Company uses a job costing system. The work in process inventory on December 31 consisted of Job No. 173 with a balance of $66,200. Job No. 173 has been charged with manufacturing overhead costs of $20,000. Denver allocates manufacturing overhead costs at a rate of 50% of direct labor cost. What was the amount of direct materials charged to Job No. 173? A) $10,000 B) $33,100 C) $6,200 D) $46,200 Answer: C Explanation: C) 50% (X) = $ 20,000 X = $ 40,000 Then $66,200 - 20,000 - 40,000 = $ 6,200 Diff: 3 LO: 3-4 EOC: E3-23A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 180) Ohio Steel uses a job costing system. Ohio Steel uses estimated direct labor hours of 100,000 and estimated manufacturing overhead costs of $320,000 in establishing its predetermined manufacturing overhead rate. Actual results for the year showed: Actual manufacturing overhead cost Allocated manufacturing overhead cost

350,000 326,400

The number of direct labor hours worked during the period was A) 109,375. B) 93,257. C) 100,000. D) 102,000. Answer: D Explanation: D) $ 320,000 / 100,000 = $ 3.2 Then $326,400 /3.2 = 102,000 Diff: 3 LO: 3-4 EOC: E3-23A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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181) Twinkle Ornaments Company uses job costing. Twinkle Ornaments Company has two departments, Trimming and Finishing. Manufacturing overhead is allocated based on direct labor cost in the Trimming Department and direct labor hours in the Finishing Department. The following additional information is available: Estimated amounts Direct labor cost Direct labor hours Manufacturing overhead costs

Trimming Dept $ 320,000 25,000 $ 400,000

Finishing Dept $ 400,000 40,000 $ 300,000

Actual data for completed Job No. 650 is as follows: Actual amounts Direct materials requisitioned Direct labor cost Direct labor hours

Trimming Dept $ 22,500 $ 35,400 5,400

Finishing Dept $ 52,500 $ 37,100 5,000

What is the predetermined manufacturing overhead rate for the Trimming Department? A) 80% of direct labor cost B) 125% of direct labor cost C) 103% of direct labor cost D) 100% of direct labor cost Answer: B Explanation: B) $400,000 /320,000 = 125% Diff: 2 LO: 3-4 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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182) Twinkle Ornaments Company uses job costing. Twinkle Ornaments Company has two departments, Trimming and Finishing. Manufacturing overhead is allocated based on direct labor cost in the Trimming Department and direct labor hours in the Finishing Department. The following additional information is available: Estimated amounts Direct labor cost Direct labor hours Manufacturing overhead costs

Trimming Dept $ 320,000 25,000 $ 400,000

Finishing Dept $ 400,000 40,000 $ 300,000

Actual data for completed Job No. 650 is as follows: Actual amounts Direct materials requisitioned Direct labor cost Direct labor hours

Trimming Dept $ 22,500 $ 35,400 5,400

Finishing Dept $ 52,500 $ 37,100 5,000

What is the predetermined manufacturing overhead rate for the Finishing Department? A) $10.00 per direct labor hour B) $12.00 per direct labor hour C) $7.50 per direct labor hour D) $60.00 per direct labor hour Answer: C Explanation: C) $300,000 / 40,000 = $7.50 Diff: 2 LO: 3-4 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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183) Twinkle Ornaments Company uses job costing. Twinkle Ornaments Company has two departments, Trimming and Finishing. Manufacturing overhead is allocated based on direct labor cost in the Trimming Department and direct labor hours in the Finishing Department. The following additional information is available: Estimated amounts Direct labor cost Direct labor hours Manufacturing overhead costs

Trimming Dept $ 320,000 25,000 $ 400,000

Finishing Dept $ 400,000 40,000 $ 300,000

Actual data for completed Job No. 650 is as follows: Actual amounts Direct materials requisitioned Direct labor cost Direct labor hours

Trimming Dept $ 22,500 $ 35,400 5,400

Finishing Dept $ 52,500 $ 37,100 5,000

What is the total manufacturing overhead cost for Job No. 650? A) $81,750 B) $89,600 C) $65,820 D) $72,500 Answer: A Explanation: A) $ 400,000 / 320,000 = 125% Trim rate $ 300,000 / 40,000 = $ 7.50 Finishing rate ($ 35,400 × 125 %) + (5,000 × $ 7.50) = $ 81,750 Diff: 2 LO: 3-4 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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184) Twinkle Ornaments Company uses job costing. Twinkle Ornaments Company has two departments, Trimming and Finishing. Manufacturing overhead is allocated based on direct labor cost in the Trimming Department and direct labor hours in the Finishing Department. The following additional information is available: Estimated amounts Direct labor cost Direct labor hours Manufacturing overhead costs

Trimming Dept $ 320,000 25,000 $ 400,000

Finishing Dept $ 400,000 40,000 $ 300,000

Actual data for completed Job No. 650 is as follows: Actual amounts Direct materials requisitioned Direct labor cost Direct labor hours

Trimming Dept $ 22,500 $ 35,400 5,400

Finishing Dept $ 52,500 $ 37,100 5,000

If Job No. 650 consists of 500 units of product, the average unit cost of this job is closest to: A) $426.64. B) $163.50. C) $458.50. D) $295.00. Answer: C Explanation: C) $ 400,000 / 320,000 = 125% Trim rate $ 300,000 / 40,000 = $ 7.50 Finishing rate ($ 35,400 × 125 %) + (5,000 × $ 7.50) = $ 81,750 Direct Materials = $ 22,500 + 52,500 = $ 75,000 Direct Labor = $ 35,400 + 37,100 = $72,500 Then $ 81,750 + 75,000 + 72,500 = 229,250 /500 = $458.50 Diff: 3 LO: 3-4 EOC: E3-16A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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185) Solid Oak Bureau Company uses job costing. Solid Oak Bureau Company has two departments, Trimming and Finishing. Manufacturing overhead is allocated based on direct labor cost in the Trimming Department and direct labor hours in the Finishing Department. The following additional information is available: Estimated amounts Direct labor cost Direct labor hours Manufacturing overhead costs

Trimming Dept $ 320,000 25,000 $ 416,000

Finishing Dept $ 400,000 40,000 $ 260,000

Actual data for completed Job No. 650 is as follows: Actual amounts Direct materials requisitioned Direct labor cost Direct labor hours

Trimming Dept $ 22,500 $ 35,400 5,400

Finishing Dept $ 52,500 $ 37,100 5,000

What is the predetermined manufacturing overhead rate for the Trimming Department? A) 77% of direct labor cost B) 107% of direct labor cost C) 130% of direct labor cost D) 100% of direct labor cost Answer: C Explanation: C) $416,000 /320,000 = 130 % Diff: 2 LO: 3-4 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

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186) Solid Oak Bureau Company uses job costing. Solid Oak Bureau Company has two departments, Trimming and Finishing. Manufacturing overhead is allocated based on direct labor cost in the Trimming Department and direct labor hours in the Finishing Department. The following additional information is available: Estimated amounts Direct labor cost Direct labor hours Manufacturing overhead costs

Trimming Dept $ 320,000 25,000 $ 416,000

Finishing Dept $ 400,000 40,000 $ 260,000

Actual data for completed Job No. 650 is as follows: Actual amounts Direct materials requisitioned Direct labor cost Direct labor hours

Trimming Dept $ 22,500 $ 35,400 5,400

Finishing Dept $ 52,500 $ 37,100 5,000

What is the predetermined manufacturing overhead rate for the Finishing Department? A) $6.50 per direct labor hour B) $52.00 per direct labor hour C) $10.00 per direct labor hour D) $10.40 per direct labor hour Answer: A Explanation: A) $260,000 / 40,000 = $6.50 Diff: 2 LO: 3-4 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

90 .

187) Solid Oak Bureau Company uses job costing. Solid Oak Bureau Company has two departments, Trimming and Finishing. Manufacturing overhead is allocated based on direct labor cost in the Trimming Department and direct labor hours in the Finishing Department. The following additional information is available: Estimated amounts Direct labor cost Direct labor hours Manufacturing overhead costs

Trimming Dept $ 320,000 25,000 $ 416,000

Finishing Dept $ 400,000 40,000 $ 260,000

Actual data for completed Job No. 650 is as follows: Actual amounts Direct materials requisitioned Direct labor cost Direct labor hours

Trimming Dept $ 22,500 $ 35,400 5,400

Finishing Dept $ 52,500 $ 37,100 5,000

What is the total manufacturing overhead cost for Job No. 650? A) $72,500 B) $89,600 C) $59,731 D) $78,520 Answer: D Explanation: D) $ 416,000 / 320,000 = 130% Trim rate $ 260,000 / 40,000 = $ 6.50 Finishing rate ($ 35,400 × 130 %) + (5,000 x $ 6.50) = $ 78,520 Diff: 2 LO: 3-4 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

91 .

188) Solid Oak Bureau uses job costing. Solid Oak Bureau Company has two departments, Trimming and Finishing. Manufacturing overhead is allocated based on direct labor cost in the Trimming Department and direct labor hours in the Finishing Department. The following additional information is available: Estimated amounts Direct labor cost Direct labor hours Manufacturing overhead costs

Trimming Dept $ 320,000 25,000 $ 416,000

Finishing Dept $ 400,000 40,000 $ 260,000

Actual data for completed Job No. 650 is as follows: Actual amounts Direct materials requisitioned Direct labor cost Direct labor hours

Trimming Dept $ 22,500 $ 35,400 5,400

Finishing Dept $ 52,500 $ 37,100 5,000

If Job No. 650 consists of 500 units of product, the average unit cost of this job is closest to A) $452.04. B) $414.46. C) $157.04. D) $295.00. Answer: A Explanation: A) $ 416,000 / 320,000 = 130% Trim rate $ 260,000 / 40,000 = $ 6.50 Finishing rate ($ 35,400 × 130 %) + (5,000 × $ 6.50) = $ 78,520 Direct Materials = $ 22,500 + 52,500 = $ 75,000 Direct Labor = $ 35,400 + 37,100 = $72,500 Then $ 78,520 + 75,000 + 72,500 = 226,020 /500 = $452.04 Diff: 3 LO: 3-4 EOC: E3-16A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

92 .

189) Wet N Wild Sports Equipment Company's work in process inventory on June 1 has a balance of $22,400 representing Job No. 265. During June, $50,000 of direct materials were requisitioned for Job No. 265 and $35,000 of direct labor cost was incurred on Job No. 265. Manufacturing overhead is allocated at 125% of direct labor cost. Actual manufacturing overhead costs incurred in June amounted to $41,000. No new jobs were started during June. Job No. 265 is completed on June 28. What is the total cost assigned to Job No. 265? A) $148,400 B) $135,400 C) $151,150 D) $ 43,750 Answer: C Explanation: C) $ 22,400 + 50,000 + 35,000 + (125% × 35,000 ) = $151,150 Diff: 2 LO: 3-4 EOC: E3-16A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 190) Wet N Wild Sports Equipment Company's work in process inventory on June 1 has a balance of $22,400 representing Job No. 265. During June, $50,000 of direct materials were requisitioned for Job No. 265 and $35,000 of direct labor cost was incurred on Job No. 265. Manufacturing overhead is allocated at 125% of direct labor cost. Actual manufacturing overhead costs incurred in June amounted to $41,000. No new jobs were started during June. Job No. 265 is completed on June 28. Is manufacturing overhead overallocated or underallocated for the month of June? By how much? A) $2,750 underallocated B) $13,000 overallocated C) $13,000 underallocated D) $2,750 overallocated Answer: D Explanation: D) 125% × $35,000 = $43,750 $ 43,750 - 41,000 = $ 2,750 Overerallocated Diff: 2 LO: 3-4 EOC: E3-16A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

93 .

191) London Ceramics makes custom ceramic tiles. During March, the company started and finished Job #266. Job #266 consists of 2,500 tiles; each tile sells for $12.00. The company's records show the following direct materials were requisitioned for Job #266. Basic terra cotta tiles: 2,500 units at $4.00 per unit Specialty paint: 5 quarts at $7.00 per quart High gloss glaze: 4 quarts at $12.00 per quart Labor time records show the following employees worked on Job #266: Alice Cooper: 18 hours at $24 per hour Matthew Kline: 20 hours at $13 per hour Sierra Ceramics allocates manufacturing overhead at a rate of $27 per direct labor hour. What is the total amount of direct materials, direct labor, and manufacturing overhead that should be shown on Job #266's job cost record? A) $10,775 B) $1,026 C) $30,000 D) $11,801 Answer: D Explanation: D) Direct Materials (2500 × $4) + (5 × $7) + (4 × $12) = $ 10,083 Direct Labor (18 × $ 24) + (20 × $ 13) = $ 692 MOH (20 + 18) ($ 27) = $1,026 Then $ 10,083 + 692 + 1,026 = $11,801 Diff: 2 LO: 3-4 EOC: E3-23A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

94 .

192) London Ceramics makes custom ceramic tiles. During March, the company started and finished Job #266. Job #266 consists of 2,500 tiles; each tile sells for $12.00. The company's records show the following direct materials were requisitioned for Job #266. Basic terra cotta tiles: 2,500 units at $4.00 per unit Specialty paint: 5 quarts at $7.00 per quart High gloss glaze: 4 quarts at $12.00 per quart Labor time records show the following employees worked on Job #266: Alice Cooper: 18 hours at $24 per hour Matthew Kline: 20 hours at $13 per hour Sierra Ceramics allocates manufacturing overhead at a rate of $27 per direct labor hour. What is the gross profit per tile on Job #266? A) $12.00 B) $7.28 C) $7.69 D) $11.59 Answer: B Explanation: B) Direct Materials (2,500 × $4) + (5 × $7) + (4 × $12) = $ 10,083 Direct Labor (18 × $ 24) + (20 × $ 13) = $ 692 MOH (20 + 18) ($ 27) = $1,026 Then $ 10,083 + 692 + 1,026 = $11,801 / 2,500 = $ 4.72 Final step $ 12.00 - 4.72 = $ 7.28 Diff: 3 LO: 3-4 EOC: E3-23A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

95 .

193) Hardrock Company uses job costing. Hardrock Company has two departments, Sanding and Finishing. Manufacturing overhead is allocated based on direct labor cost in the Sanding Department and direct labor hours in the Finishing Department. The following additional information is available:

Estimated amounts Direct labor cost Direct labor hours Manufacturing overhead costs

Sanding Dept. $ 250,000 32,000 $ 400,000

Finishing Dept. $ 500,000 50,000 $ 250,000

Actual data for completed Job No. 140 is as follows:

Actual amounts Direct materials requisitioned Direct labor cost Direct labor hours

Sanding Dept. $ 90,000 $ 50,000 7,000

Finishing Dept. $ 45,000 $ 40,000 5,000

a) Compute the predetermined manufacturing overhead rate for the Sanding Department. b) Compute the predetermined manufacturing overhead rate for the Finishing Department. c) What is the total manufacturing overhead cost for Job. No. 140? d) If Job No. 140 consists of 500 units of product, what is the average unit cost of this job? Answer: Part a Sanding Dept. Estimated manufacturing overhead costs divided by $ 400,000 Estimated direct labor cost $ 250,000 Predetermined manufacturing overhead rate 160% Part b Finishing Dept. Estimated manufacturing overhead costs divided by Estimated direct labor hours Predetermined manufacturing overhead rate per direct labor hour Part c Sanding Dept. Estimated manufacturing overhead costs divided by Estimated direct labor cost Predetermined manufacturing overhead rate Actual direct labor cost divided by Predetermined manufacturing overhead rate Allocated manufacturing overhead for dept. Finishing Dept. Estimated manufacturing overhead costs divided by 96 .

$ $

250,000 50,000 5.00

$ $

400,000 250,000 160%

$ $

50,000 160% 80,000

$

250,000

Estimated direct labor hours Predetermined manufacturing overhead rate per direct labor hour Actual direct labor hours Predetermined manufacturing overhead rate per direct labor hour Allocated manufacturing overhead for dept. Allocated manufacturing overhead by department: Sanding Dept. Finishing Dept. Total allocated manufacturing overhead Part d Sanding Dept. Estimated manufacturing overhead costs divided by Estimated direct labor cost Predetermined manufacturing overhead rate Actual direct labor cost Predetermined manufacturing overhead rate Allocated manufacturing overhead for dept.

$

$

5,000 × 5.00 $ 25,000

$ $ $

80,000 25,000 105,000

$ $

400,000 250,000 160%

$

50,000 ×160% 80,000

$

Finishing Dept. Estimated manufacturing overhead costs divided by Estimated direct labor hours Predetermined manufacturing overhead rate per direct labor hour

50,000 5.00

$ $

250,000 50,000 5.00

Actual direct labor hours Predetermined manufacturing overhead rate per direct labor hour Allocated manufacturing overhead for dept.

5,000 $ × 5.00 $ 25,000

Allocated manufacturing overhead by department: Sanding Dept. Finishing Dept. Total allocated manufacturing overhead

$ $ $

80,000 25,000 105,000

Direct materials by department: Sanding Dept. Finishing Dept. Total direct materials

$ $ $

90,000 45,000 135,000

$ $ $

50,000 40,000 90,000

Direct labor by department: Sanding Dept. Finishing Dept.

97 .

Total costs: Allocated manufacturing overhead Direct materials Direct labor Total cost for all units divided by Number of units produced Per unit cost (rounded)

$ $ $ $ $

105,000 135,000 90,000 330,000 500 660.00

Diff: 2 LO: 3-4 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 194) Records for Speedy's Custom Networks contained the following data.

Compute: a) Work in process inventory on June 30 b) Finished goods inventory on June 30 c) Cost of goods sold for June

98 .

Answer: Part a

Job 202 Job 204 Work in process inventory, June 30

Finish Date July 2 July 25

Total Cost of Job on June 30 $ 28,200 $ 29,700 $ 57,900

Sold Date July 7

Total Cost of Job on June 30 $ 16,700 $ 16,700

Sold Date June 25 June 27

Total Cost of Job on June 30 $ 27,800 $ 10,500 $ 38,300

Part b

Job 203 Finished goods inventory, June 30

Part c

Job 200 Job 201 Cost of goods sold for June

Diff: 2 LO: 3-4 EOC: P3-49A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

99 .

195) Alpha Technology's work in process inventory on June 1 has a balance of $27,200 representing Job No. 72. During June, $68,900 of direct materials were requisitioned for Job No. 72 and $5,500 of direct labor cost was incurred on Job No. 72. Manufacturing overhead is allocated at a rate of $16.00 per direct labor hour. Actual manufacturing overhead costs incurred in June amounted to $15,000. There were 700 actual direct labor hours worked in June. No new jobs were started during June. Job No. 72 is completed on June 28. a) Determine the total cost assigned to Job No. 72. b) Is manufacturing overhead overallocated or underallocated for the month of June? By how much? Answer: Part a Direct labor hours worked in June 700 Predetermined overhead rate based on number of direct labor hours $ 16.00 Allocated manufacturing overhead for June $ 11,200 Work in process, beginning balance Direct materials requisitioned in June Direct labor cost incurred in June Allocated manufacturing overhead for June Total cost assigned to job

$ 27,200 $ 68,900 $ 5,500 $ 11,200 $ 112,800

Part b Direct labor hours worked in June Predetermined overhead rate based on number of direct labor hours Allocated manufacturing overhead for June

$ 16.00 $ 11,200

Allocated manufacturing overhead for June Actual manufacturing overhead costs incurred in June Underallocated manufacturing overhead

$ 11,200 $ 15,000 $ 3,800

$ 700

Diff: 2 LO: 3-4 EOC: P3-49A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

100 .

196) Omega Technology's work in process inventory on June 1 has a balance of $27,200 representing Job No. 36. During June, $68,900 of direct materials were requisitioned for Job No. 36 and $5,500 of direct labor cost was incurred on Job No. 36. Manufacturing overhead is allocated at a rate of $16.00 per direct labor hour. Actual manufacturing overhead costs incurred in June amounted to $15,000. There were 825 actual direct labor hours worked in June. No new jobs were started during June. Job No. 36 is completed on June 28. a) Determine the total cost assigned to Job No. 36. b) Is manufacturing overhead overallocated or underallocated for the month of June? By how much? Answer: Part a Direct labor hours worked in June 825 Predetermined overhead rate based on number of direct labor hours $ 16.00 Allocated manufacturing overhead for June $ 13,200 Work in process, beginning balance Direct materials requisitioned in June Direct labor cost incurred in June Allocated manufacturing overhead for June Total cost assigned to job

$ 27,200 $ 68,900 $ 5,500 $ 13,200 $ 114,800

Part b Direct labor hours worked in June Predetermined overhead rate based on number of direct labor hours Allocated manufacturing overhead for June

$ 16.00 $ 13,200

Allocated manufacturing overhead for June Actual manufacturing overhead costs incurred in June Underallocated manufacturing overhead

$ 13,200 $ 15,000 $ 1,800

$ 825

Diff: 2 LO: 3-4 EOC: P3-49A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

101 .

197) Hollinger Ceramics makes custom ceramic tiles. During March, the company started and finished Job #755. The company's records show the following direct materials were requisitioned for Job #755. Plain white tiles: Specialty paint: High gloss glaze:

1,200 units at $5.00 per unit 9 quarts at $8.00 per quart 5 quarts at $12.00 per quart

Labor time records show the following employees worked on Job #755: Steven Hightop: Andy Pickering:

20 hours at $27 per hour 10 hours at $17 per hour

Hollinger Ceramics allocates manufacturing overhead at a rate of $14 per direct labor hour. A) Compute the total amount of direct materials, direct labor, and manufacturing overhead that should be shown on Job #755's job cost record. B) Job #755 consists of 1,200 tiles. If each tile sells for $12.00, what is the gross profit per tile? Answer: Part a Job #755 Direct materials: Plain white tiles Specialty paint High gloss glaze Total direct materials for job

Direct labor: Steven Hightop Andy Pickering Total direct labor for job

Quantity 1,200 9 5

Job #755 Total direct materials for job Total direct labor for job Total allocated manufacturing overhead for job Total job cost

Wage rate per hour 20 $ 27 10 $ 17 30

Hours

Manufacturing overhead: Total direct labor hours for job Predetermined manufacturing overhead rate per direct labor hour $ Total allocated manufacturing overhead for job $

Cost $ 5 $ 8 $ 12

30 14.00 420

$ $

6,132 710

$ $

420 7,262

102 .

Total cost $ 6,000 $ 72 $ 60 $ 6,132

Total cost $ 540 $ 170 $ 710

Part b Job #755 Direct materials: Plain white tiles Specialty paint High gloss glaze Total direct materials for job

Direct labor: Steven Hightop Andy Pickering Total direct labor for job

Quantity 1,200 9 5

Job #755 Total direct materials for job Total direct labor for job Total allocated manufacturing overhead for job Total job cost Number of units Cost per tile (rounded) Selling price per tile Cost per tile (rounded) Gross profit per tile (rounded)

Wage rate per hour 20 $ 27 10 $ 17 30

Hours

Manufacturing overhead: Total direct labor hours for job Predetermined manufacturing overhead rate per direct labor hour $ Total allocated manufacturing overhead for job $

Cost $ 5 $ 8 $ 12

Total cost $ 6,000 $ 72 $ 60 $ 6,132

Total cost $ 540 $ 170 $ 710

30 14.00 420

$ $

6,132 710

$ $ $

420 7,262 1,200 6.05

$ $ $

12.00 6.05 5.95

Diff: 2 LO: 3-4 EOC: E3-20A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 198) If manufacturing overhead allocated is less than the actual manufacturing overhead incurred, then jobs have been overcosted. Answer: FALSE Diff: 2 LO: 3-5 EOC: E3-24A 103 .

AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 199) Overallocated overhead costs occur when the overhead costs allocated are greater than the amount actually incurred. Answer: TRUE Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 200) If manufacturing overhead has been underallocated during the year, it means the jobs have been undercosted. Answer: TRUE Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 201) If manufacturing overhead has been overallocated during the year, it means the jobs have been overcosted. Answer: TRUE Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

104 .

202) If the actual amount of the manufacturing overhead allocation base is greater than the estimated amount of the allocation base used to calculate the predetermined rate, then manufacturing overhead must have been underallocated. Answer: FALSE Diff: 3 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 203) The underallocation or overallocation of overhead is a direct result of using a predetermined manufacturing overhead rate rather than the actual manufacturing overhead rate. Answer: TRUE Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 204) The amount of overallocation or underallocation is found by taking the difference between the amount of overhead allocated during the year and the amount of overhead estimated for the year. Answer: FALSE Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 205) The amount of overallocation or underallocation is found by taking the difference between the amount of overhead allocated during the year and the amount of overhead incurred during the year. Answer: TRUE Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

105 .

206) The amount of overallocation or underallocation is typically corrected by adjusting cost of goods sold. Answer: TRUE Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 207) An overallocation of manufacturing overhead is typically corrected by decreasing Cost of Goods Sold on the income statement. Answer: TRUE Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 208) An underallocation of manufacturing overhead is typically corrected by decreasing cost of goods sold on the income statement. Answer: FALSE Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 209) If jobs have been undercosted due to underallocation of manufacturing overhead, then cost of goods sold (COGS) is too low and which of the following corrections must be made? A) Decrease COGS for the amount of the underallocation B) Increase COGS for double the amount of the underallocation C) Decrease COGS for double the amount of the underallocation D) Increase COGS for the amount of the underallocation Answer: D Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

106 .

210) Underallocated manufacturing overhead results when A) production is greater than last year. B) actual overhead is greater than expected. C) actual overhead is greater than allocated overhead. D) estimated overhead is greater than actual overhead. Answer: C Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 211) Overallocated manufacturing overhead results when A) production is less than last year. B) estimated overhead is less than actual overhead. C) actual overhead is less than allocated overhead. D) actual overhead is less than expected. Answer: C Diff: 2 LO: 3-5 EOC: E3-25A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 212) When is the adjusting of cost of goods sold for the underallocation or overallocation of manufacturing overhead generally done? A) At the end of the period B) During the period C) Before the period starts D) Never Answer: A Diff: 1 LO: 3-5 EOC: E3-25A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

107 .

213) Determining how much manufacturing overhead is overallocated or underallocated A) is done before the period starts. B) is done during the period. C) can be done at any time. D) is done at the end of the period. Answer: D Diff: 1 LO: 3-5 EOC: E3-25A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 214) If manufacturing overhead has been overallocated during the period, then A) the jobs produced during the period have been undercosted. B) the jobs produced during the period have been overcosted. C) the jobs produced during the period have been costed correctly. D) none of the above. Answer: B Diff: 2 LO: 3-5 EOC: E3-25A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 215) If manufacturing overhead has been underallocated during the period, then which of the following is true? A) The jobs produced during the period have been overcosted. B) The jobs produced during the period have been costed correctly. C) The jobs produced during the period have been undercosted. D) None of the above Answer: C Diff: 2 LO: 3-5 EOC: E3-25A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

108 .

216) If manufacturing overhead has been overallocated during the period, and most of the jobs produced have been sold, then A) cost of goods sold should be increased. B) cost of goods sold should be decreased. C) finished goods inventory should be increased. D) work in process inventory should be decreased. Answer: B Diff: 2 LO: 3-5 EOC: E3-25A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 217) If manufacturing overhead has been underallocated during the period, and most of the jobs produced have been sold, then A) cost of goods sold should be increased. B) cost of goods sold should be decreased. C) finished goods inventory should be increased. D) work in process inventory should be decreased. Answer: A Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 218) Manufacturing overhead is underallocated if the amount A) estimated for the period is greater than the actual amount incurred. B) estimated for the period is less than the actual amount incurred. C) allocated during the period is less than the actual amount incurred. D) allocated during the period is greater than the actual amount incurred. Answer: C Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

109 .

219) Manufacturing overhead is overallocated if the amount A) estimated for the period is greater than the actual amount incurred. B) allocated during the period is greater than the actual amount incurred. C) amount estimated for the period is less than the actual amount incurred. D) allocated during the period is less than the actual amount incurred. Answer: B Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 220) Manufacturing overhead is underallocated if the amount A) estimated for the period is greater than the amount allocated. B) estimated for the period is less than the amount allocated. C) allocated during the period is less than the actual amount incurred. D) allocated during the period is greater than the actual amount incurred. Answer: C Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 221) Manufacturing overhead is overallocated if the amount A) allocated during the period is greater than the actual amount incurred. B) estimated for the period is less than the amount allocated. C) estimated for the period is greater than the amount allocated. D) allocated during the period is less than the actual amount incurred. Answer: A Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

110 .

222) The amount of overallocation or underallocation should be reflected as an adjustment to cost of goods sold under what circumstances? A) In all circumstances B) If most of the inventory produced during the period has not been sold C) If most of the inventory produced during the period has been sold D) Under no circumstance Answer: C Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 223) Hilltop Manufacturing uses a predetermined manufacturing overhead rate based on direct labor hours to allocate manufacturing overhead to jobs. Selected data about the company's operations follows: Actual manufacturing overhead cost Estimated manufacturing overhead cost Estimated direct labor cost Estimated direct labor hours Actual direct labor hours Estimated machine hours Actual machine hours

$500,000 $550,000 $175,000 50,000 60,000 40,000 35,000

By how much was manufacturing overhead overallocated or underallocated for the year? A) $50,000 underallocated B) $160,000 overallocated C) $100,000 underallocated D) $50,000 overallocated Answer: B Explanation: B) ($550,000 / 50,000)= $11.00; 60,000 × $11.00 = $660,000 $500,000 - $660,000 = $160,000 overallocated Diff: 1 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

111 .

224) Hilltop Manufacturing uses a predetermined manufacturing overhead rate based on machine hours to allocate manufacturing overhead to jobs. Selected data about the company's operations follows: Actual manufacturing overhead cost Estimated manufacturing overhead cost Estimated direct labor cost Estimated direct labor hours Actual direct labor hours Estimated machine hours Actual machine hours

$500,000 $550,000 $175,000 50,000 60,000 40,000 35,000

By how much was manufacturing overhead overallocated or underallocated for the year? A) $118,750 underallocated B) $118,750 overallocated C) $112,500 underallocated D) $112,500 overallocated Answer: C Explanation: C) $500,000/ 40,000 = $12.50; 35,000 × $12.50 = $437,500 $550,000 - $437,500 = $112,500 underallocated Diff: 1 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 225) Before the year began, Milkway Manufacturing estimated that manufacturing overhead for the year would be $175,000 and that 25,000 direct labor hours would be worked. Actual results for the year included the following: Actual manufacturing overhead cost Actual direct labor hours

$182,000 20,000

If the company allocates manufacturing overhead based on direct labor hours, the manufacturing overhead for the year would have been A) $42,000 overallocated. B) $ 7,000 underallocated. C) $ 7,000 overallocated. D) $42,000 underallocated. Answer: D Explanation: D) $ 175,000 / 25,000 = $ 7.00 × 20,000 = $ 140,000 $ 182,000 - 140,000 = 42,000 Underallocated Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 112 .

226) Before the year began, Coia Manufacturing estimated that manufacturing overhead for the year would be $200,000 and that 25,000 direct labor hours would be worked. Actual results for the year included the following: Actual manufacturing overhead cost Actual direct labor hours

$182,000 20,000

If the company allocates manufacturing overhead based on direct labor hours, the manufacturing overhead for the year would have been A) $18,000 overallocated. B) $22,000 underallocated. C) $22,000 overallocated. D) $18,000 underallocated. Answer: B Explanation: B) $ 200,000 / 25,000 = $ 8.00 × 20,000 = $ 160,000 $ 182,000 - 160,000 = 22,000 Underallocated Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 227) Stanley Company uses a job cost system. Manufacturing overhead has been overapplied by $5,600 for the year. Actual overhead incurred was $105,000. Other balances are: Raw materials inventory at end of year Work in process inventory at end of year Finished goods inventory at end of year Unadjusted cost of goods sold for the year

$ 14,000 $ 31,500 $ 41,500 $ 290,000

What will be adjusted cost of goods sold after closing manufacturing overhead? A) $295,600 B) $284,400 C) $226,500 D) $254,100 Answer: B Explanation: B) $ 290,000 - 5,600 = $ 284,400 Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

113 .

228) Before the year began, Plastics Manufacturing estimated that manufacturing overhead for the year would be $150,000 and that 25,000 direct labor hours would be worked. Actual results for the year included the following: Actual direct labor hours Actual manufacturing overhead cost

$20,000 182,000

If the company allocates manufacturing overhead based on direct labor hours, the manufacturing overhead for the year would have been A) $62,000 overallocated. B) $62,000 underallocated. C) $32,000 overallocated. D) $32,000 underallocated. Answer: B Explanation: B) $ 150,000 / 25,000 = $ 5.00 × 20,000 = $ 120,000 $ 182,000 - 120,000 = 62,000 underallocated Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 229) Ryan's Paints allocates overhead based on machine hours. Selected data for the most recent year follow. Estimated manufacturing overhead cost Actual manufacturing overhead cost Estimated machine hours Actual machine hours

$300,000 $290,000 20,000 22,000

The estimates were made as of the beginning of the year, while the actual results were for the entire year. The manufacturing overhead for the year would have been A) $10,000 overallocated. B) $10,000 underallocated. C) $40,000 overallocated. D) $40,000 underallocated. Answer: C Explanation: C) $300,000 / 20,000 = $ 15.00 × 22,000 = $ 330,000 Then $330,000 - 290,000 = $40,000 overallocated Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

114 .

230) Hurley Enterprises uses job costing. Actual overhead for the year was $494,500. The allocated overhead was $523,500. What is the balance in the manufacturing overhead account? A) $1,018,000 overallocated B) $ 29,000 underallocated C) $ 29,000 overallocated D) $ 494,500 underallocated Answer: C Explanation: C) $ 523,500 - 494,500 = $29,000 overallocated Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 231) Beta Company uses a predetermined overhead rate based on direct labor hours to allocate manufacturing overhead to jobs. The company estimated that it would incur $600,000 of manufacturing overhead during the year and that 150,000 direct labor hours would be worked. During the year, the company actually incurred manufacturing overhead costs of $582,000 and 135,000 direct labor hours were worked. By how much was manufacturing overhead overallocated or underallocated for the year? A) $18,000 underallocated B) $42,000 overallocated C) $42,000 underallocated D) $18,000 overallocated Answer: C Explanation: C) $ 600,000 / 150,000 = $ 4.00 × 135,000 = $ 540,000 allocated Then $ 582,000 - 540,000 = $ 42,000 underallocated Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

115 .

232) Beta Company uses a predetermined overhead rate based on machine hours to allocate manufacturing overhead to jobs. The company estimated that it would incur $600,000 of manufacturing overhead during the year and that 250,000 machine hours would be used. During the year, the company actually incurred manufacturing overhead costs of $582,000 and 240,000 machine hours were used. By how much was manufacturing overhead overallocated or underallocated for the year? A) $ 6,000 overallocated B) $ 6,000 undererallocated C) $18,000 underallocated D) $18,000 overallocated Answer: B Explanation: B) $ 600,000 / 250,000 = $2.40 × 240,000 = $576,000 allocated Then $ 582,000 - 576,000 = $6,000 underallocated Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 233) Morgan Company uses a job costing system. Morgan Company estimated manufacturing overhead costs for the year at $330,000, based on 60,000 estimated direct labor hours. Actual direct labor hours for the year totaled 75,000. Actual manufacturing overhead for the year was $384,700. By how much was manufacturing overhead overallocated or underallocated for the year? A) $27,800 overallocated B) $27,800 underallocated C) $54,700 overallocated D) $54,700 underallocated Answer: A Explanation: A) $ 330,000 / 60,000 = $ 5.50 × 75,000 = $ 412,500 Then $ 412,500 - 384,700 = $ 27,800 overallocated Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

116 .

234) Biltz Company uses a predetermined overhead rate based on direct labor hours to allocate manufacturing overhead to jobs. During the year, the company actually incurred manufacturing overhead costs of $582,000 and 135,000 direct labor hours were worked. The company estimated that it would incur $525,000 of manufacturing overhead during the year and that 150,000 direct labor hours would be worked. By how much was manufacturing overhead overallocated or underallocated for the year? A) $109,500 underallocated B) $57,000 overallocated C) $57,000 underallocated D) $109,500 overallocated Answer: A Explanation: A) $ 525,000 / 150,000 = $ 3.50 × 135,000 = $ 472,500 allocated Then $ 582,000 - 472,500 = $109,500 underallocated Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 235) Biltz Company uses a predetermined overhead rate based on machine hours to allocate manufacturing overhead to jobs. During the year, the company actually incurred manufacturing overhead costs of $582,000 and 135,000 direct labor hours were worked. The company estimated that it would incur $525,000 of manufacturing overhead during the year and that 150,000 direct labor hours would be worked. By how much was manufacturing overhead overallocated or underallocated for the year? A) $57,000 overallocated B) $57,000 undererallocated C) $109,500 underallocated D) $109,500 overallocated Answer: C Explanation: C) $ 525,000 / 150,000 = $3.50 × 135,000 = $472,500 allocated Then $ 582,000 - 472,500 = $109,500 underallocated Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

117 .

236) The following account balances at the beginning of January were selected from the general ledger of Ocean City Manufacturing Company: Work in process inventory Raw materials inventory Finished goods inventory

$0 $28,000 $40,000

Additional data: 1) Actual manufacturing overhead for January amounted to $62,000. 2) Total direct labor cost for January was $63,000. 3) The predetermined manufacturing overhead rate is based on direct labor cost. The budget for the year called for $250,000 of direct labor cost and $350,000 of manufacturing overhead costs. 4) The only job unfinished on January 31 was Job No. 151, for which total direct labor charges were $5,200 (800 direct labor hours) and total direct material charges were $14,000. 5) Cost of direct materials placed in production during January totaled $123,000. There were no indirect material requisitions during January. 6) January 31 balance in raw materials inventory was $35,000. 7) Finished goods inventory balance on January 31 was $34,500. What is the predetermined manufacturing overhead rate? A) 71% B) 140% C) 70% D) 99% Answer: B Explanation: B) 350,000/250,000 = 140% Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

118 .

237) The following account balances at the beginning of January were selected from the general ledger of Ocean City Manufacturing Company: Work in process inventory Raw materials inventory Finished goods inventory

$0 $28,000 $40,000

Additional data: 1) Actual manufacturing overhead for January amounted to $62,000. 2) Total direct labor cost for January was $63,000. 3) The predetermined manufacturing overhead rate is based on direct labor cost. The budget for the year called for $250,000 of direct labor cost and $350,000 of manufacturing overhead costs. 4) The only job unfinished on January 31 was Job No. 151, for which total direct labor charges were $5,200 (800 direct labor hours) and total direct material charges were $14,000. 5) Cost of direct materials placed in production during January totaled $123,000. There were no indirect material requisitions during January. 6) January 31 balance in raw materials inventory was $35,000. 7) Finished goods inventory balance on January 31 was $34,500. What is the amount of materials purchased during January? A) $123,000 B) $158,000 C) $ 60,000 D) $130,000 Answer: D Explanation: D) 123,000 + 35,000 - 28,000 = 130,000 Diff: 2 LO: 3-5 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

119 .

238) The following account balances at the beginning of January were selected from the general ledger of Ocean City Manufacturing Company: Work in process inventory Raw materials inventory Finished goods inventory

$0 $28,000 $40,000

Additional data: 1) Actual manufacturing overhead for January amounted to $62,000. 2) Total direct labor cost for January was $63,000. 3) The predetermined manufacturing overhead rate is based on direct labor cost. The budget for the year called for $250,000 of direct labor cost and $350,000 of manufacturing overhead costs. 4) The only job unfinished on January 31 was Job No. 151, for which total direct labor charges were $5,200 (800 direct labor hours) and total direct material charges were $14,000. 5) Cost of direct materials placed in production during January totaled $123,000. There were no indirect material requisitions during January. 6) January 31 balance in raw materials inventory was $35,000. 7) Finished goods inventory balance on January 31 was $34,500. What is the cost of goods manufactured for January? A) $274,200 B) $231,000 C) $247,720 D) $204,520 Answer: C Explanation: C) C$ 350,000 / 250,000 = 140% (63,000 × 140%) + 63,000 + 123,000 = $ 274,200 ($ 5,200 × 140%) + 14000 + 5,200 = $26,480 $274,200 - 26,480 = $ 247,720 Diff: 3 LO: 3-5 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

120 .

239) The following account balances at the beginning of January were selected from the general ledger of Ocean City Manufacturing Company: Work in process inventory Raw materials inventory Finished goods inventory

$0 $28,000 $40,000

Additional data: 1) Actual manufacturing overhead for January amounted to $62,000. 2) Total direct labor cost for January was $63,000. 3) The predetermined manufacturing overhead rate is based on direct labor cost. The budget for the year called for $250,000 of direct labor cost and $350,000 of manufacturing overhead costs. 4) The only job unfinished on January 31 was Job No. 151, for which total direct labor charges were $5,200 (800 direct labor hours) and total direct material charges were $14,000. 5) Cost of direct materials placed in production during January totaled $123,000. There were no indirect material requisitions during January. 6) January 31 balance in raw materials inventory was $35,000. 7) Finished goods inventory balance on January 31 was $34,500. What is the work in process inventory balance on January 31? A) $ 7,280 B) $ 22,914 C) $ 26,480 D) $ 50,914 Answer: C Explanation: C) $5,200 + 14,000 + (5,200 × 140%) = $ 26,480 Diff: 2 LO: 3-5 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

121 .

240) The following account balances at the beginning of January were selected from the general ledger of Ocean City Manufacturing Company: Work in process inventory Raw materials inventory Finished goods inventory

$0 $28,000 $40,000

Additional data: 1) Actual manufacturing overhead for January amounted to $62,000. 2) Total direct labor cost for January was $63,000. 3) The predetermined manufacturing overhead rate is based on direct labor cost. The budget for the year called for $250,000 of direct labor cost and $350,000 of manufacturing overhead costs. 4) The only job unfinished on January 31 was Job No. 151, for which total direct labor charges were $5,200 (800 direct labor hours) and total direct material charges were $14,000. 5) Cost of direct materials placed in production during January totaled $123,000. There were no indirect material requisitions during January. 6) January 31 balance in raw materials inventory was $35,000. 7) Finished goods inventory balance on January 31 was $34,500. What is the cost of goods sold for January? A) $253,220 B) $314,200 C) $213,586 D) $236,500 Answer: A Explanation: A) $ 350,000 / 250,000 = 140% (5,200 × 140%) + 5,200 + 14,000 = $ 26,480 ($ 63,000 × 140%) + 63,000 + 123,000 = $274,200 $274,200 - 26,480 = $ 247,720 Cost of Goods Mfg $40,000 + 247,720 - 34,500 = $ 253,220 Diff: 3 LO: 3-5 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

122 .

241) The following account balances at the beginning of January were selected from the general ledger of Ocean City Manufacturing Company: Work in process inventory Raw materials inventory Finished goods inventory

$0 $28,000 $40,000

Additional data: 1) Actual manufacturing overhead for January amounted to $62,000. 2) Total direct labor cost for January was $63,000. 3) The predetermined manufacturing overhead rate is based on direct labor cost. The budget for the year called for $250,000 of direct labor cost and $350,000 of manufacturing overhead costs. 4) The only job unfinished on January 31 was Job No. 151, for which total direct labor charges were $5,200 (800 direct labor hours) and total direct material charges were $14,000. 5) Cost of direct materials placed in production during January totaled $123,000. There were no indirect material requisitions during January. 6) January 31 balance in raw materials inventory was $35,000. 7) Finished goods inventory balance on January 31 was $34,500. Has manufacturing overhead been overallocated or underallocated and by what amount as of January 31? A) $26,200 overallocated B) $26,200 underallocated C) $17,000 overallocated D) $17,000 underallocated Answer: A Explanation: A) $350,000 / 250,000 = 140% $ 63,000 × 140% = 88,200 $ 88,200 - 62,000 = $ 26,200 Overallocated Diff: 2 LO: 3-5 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

123 .

242) The following information was gathered for the Wesley Corporation for the most recent year. Manufacturing overhead is allocated using direct labor hours. Estimated direct labor hours Actual direct labor hours Estimated manufacturing overhead costs Actual manufacturing overhead costs

40,000 51,000 $ 840,000 $ 985,000

What is the company's predetermined manufacturing overhead rate? A) $16.47 per direct labor hour B) $19.31 per direct labor hour C) $24.63 per direct labor hour D) $21.00 per direct labor hour Answer: D Explanation: D) $ 840,000 / 40,000 = $ 21.00 Diff: 2 LO: 3-5 EOC: E3-17A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 243) The following information was gathered for the Wesley Corporation for the most recent year. Manufacturing overhead is allocated using direct labor hours. Estimated direct labor hours Actual direct labor hours Estimated manufacturing overhead costs Actual manufacturing overhead costs

40,000 51,000 $ 840,000 $ 985,000

What amount of manufacturing overhead would be allocated for the year? A) $1,255,875 B) $1,071,000 C) $ 985,000 D) $ 840,000 Answer: B Explanation: B) $ 840,000 / 40,000 = $ 21.00 $ 21.00 × 51,000 = $ 1,071,000 Diff: 2 LO: 3-5 EOC: E3-17A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

124 .

244) The following information was gathered for the Wesley Corporation for the most recent year. Manufacturing overhead is allocated using direct labor hours. Estimated direct labor hours Actual direct labor hours Estimated manufacturing overhead costs Actual manufacturing overhead costs

40,000 51,000 $ 840,000 $ 985,000

What is the amount of overallocated or underallocated overhead for the year? A) $ 145,000 overallocated B) $ 145,000 underallocated C) $ 86,000 underallocated D) $ 86,00 overrallocated Answer: D Explanation: D) $ 840,000 / 40,000 = $ 21.0 $ 21.00 × 51,000 = $ 1,071,00 $ 1,071,000 - 985,000 = $86,000 Diff: 2 LO: 3-5 EOC: E3-17A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 245) For each of the following statements, determine if it would be handled: A) Before the period B) During the period C) At the end of the period Put the correct letter on the line in front of each statement. ____ Calculate the amount of overallocated or underallocated manufacturing overhead. ____ Compute the predetermined manufacturing overhead rate. ____ Adjust cost of goods sold for the amount of overallocated or underallocated manufacturing overhead. ____ Allocate the manufacturing overhead costs. Answer: C, A, C, B Diff: 1 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

125 .

246) For each of the following statements, determine if manufacturing overhead was: A) underallocated B) overallocated Put the correct letter on the line in front of each statement. ____ cost of goods sold is increased ____ actual manufacturing overhead is less than allocated manufacturing overhead ____ cost of goods sold is decreased ____ actual manufacturing overhead is more than allocated manufacturing overhead Answer: A, B, B, A Diff: 2 LO: 3-5 EOC: E3-24A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

126 .

247) The following account balances at the beginning of January were selected from the general ledger of Bluestone Industries: Work in process inventory Raw materials inventory Finished goods inventory

$0 $30,900 $54,800

Additional data: 1) Actual manufacturing overhead for January amounted to $80,500. 2) Total direct labor cost for January was $70,000; actual direct labor hours for January were 4,200. 3) The predetermined manufacturing overhead rate is based on direct labor hours. The budget for the year called for $350,000 of direct labor cost and $425,000 of manufacturing overhead costs. Estimated direct labor hours for the year were expected to be 20,000. 4) The only job unfinished on January 31 was Job No. 449, for which total direct labor charges were $22,000 (1,200 direct labor hours) and total direct material charges were $17,600. 5) Cost of direct materials placed in production during January totaled $129,500. There were no indirect material requisitions during January. 6) January 31 balance in raw materials inventory was $30,000. 7) Finished goods inventory balance on January 31 was $44,700. Required: a) Determine the predetermined manufacturing overhead rate. b) Determine the amount of materials purchased during January. c) Determine cost of goods manufactured for January. d) Determine the work in process inventory balance on January 31. e) Determine cost of goods sold for January. f) Determine whether manufacturing overhead is overallocated or underallocated and by what amount at Jan. 31. Answer:

127 .

128 .

Diff: 2 LO: 3-5 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 248) The following information was gathered for the Falsetto Corporation for the most recent year. Manufacturing overhead is allocated using direct labor hours. Estimated direct labor hours Actual direct labor hours Estimated manufacturing overhead costs Actual manufacturing overhead costs

75,000 82,000 $ 1,275,000 $ 1,335,000

Compute: a) b) c)

Predetermined manufacturing overhead rate Manufacturing overhead allocated for the year Amount of over/underallocated overhead at the end of the year

129 .

Answer: SOLUTION - Part a Estimated manufacturing overhead costs divided by Estimated direct labor hours Predetermined manufacturing overhead rate per DL hour SOLUTION - Part b Estimated manufacturing overhead costs divided by Estimated direct labor hours Predetermined manufacturing overhead rate per DL hour Actual direct labor hours Predetermined manufacturing overhead rate per DL hour Allocated manufacturing overhead for the year SOLUTION - Part c Estimated manufacturing overhead costs divided by Estimated direct labor hours Predetermined manufacturing overhead rate per DL hour

$ $

$

1,275,000 75,000 17.00

$

1,275,000 75,000 17.00

$ $

82,000 × 17.00 1,394,000

$

1,275,000 75,000 17.00

Actual direct labor hours Predetermined manufacturing overhead rate per DL hour Allocated manufacturing overhead for the year

$ $

82,000 × 17.00 1,394,000

Actual manufacturing overhead costs Allocated manufacturing overhead for the year Overallocated manufacturing overhead

$ $ $

1,335,000 1,394,000 59,000

130 .

$

Diff: 2 LO: 3-5 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 249) In job costing, the purchase of raw materials is recorded as a debit to raw materials inventory and a credit to accounts payable. Answer: TRUE Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 250) When an item is sold, finished goods inventory is credited and cost of goods sold is debited. Answer: TRUE Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 251) In job costing, when indirect materials are requisitioned for a job, the raw materials inventory account is credited. Answer: TRUE Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 252) In job costing, when raw materials are requisitioned for a job, the raw materials inventory is credited. Answer: TRUE Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

131 .

253) The work in process account is debited for the cost of direct labor in a job cost system. Answer: TRUE Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 254) Actual manufacturing overhead costs are accumulated as debits to a single general ledger account called manufacturing overhead. Answer: TRUE Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 255) The entry to allocate manufacturing overhead costs to work in process requires a debit to work in process. Answer: TRUE Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 256) The manufacturing overhead account is credited for actual manufacturing overhead costs incurred in the period. Answer: FALSE Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 257) The entry to transfer sold goods includes a debit to finished goods inventory. Answer: FALSE Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

132 .

258) Finished goods inventory is debited when the product is sold. Answer: FALSE Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 259) In job costing, the journal entry to record the use of direct materials on jobs is to debit work in process inventory and credit A) raw materials inventory. B) finished goods inventory. C) manufacturing overhead. D) wages payable. Answer: A Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 260) Cost of goods sold is debited and finished goods inventory is credited for A) purchase of goods on account. B) transfer of goods to the finished goods storeroom. C) transfer of materials into work in process inventory. D) the sale of goods to a customer. Answer: D Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

133 .

261) Under which of the following situations is finished goods inventory debited and work in process inventory credited? A) Transfer of goods to the finished goods storeroom B) Purchase of goods on account C) Transfer goods out of the factory D) Transfer of material to work in process inventory Answer: A Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 262) Under which of the following situations is raw materials inventory credited and work in process inventory debited? A) We ship goods to the customer. B) Material is transferred to the factory. C) We transfer goods to the storeroom. D) We purchase goods on account. Answer: B Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 263) The cost of direct materials used in production is debited to A) either manufacturing overhead or work in process inventory. B) finished goods inventory. C) work in process inventory. D) manufacturing overhead. Answer: C Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

134 .

264) The cost of direct labor used in production is recorded as a A) debit to work in process inventory. B) debit to manufacturing overhead. C) debit to wages expense. D) debit to wages payable. Answer: A Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 265) The cost of direct labor used in production is recorded as a A) credit to manufacturing overhead. B) credit to work in process inventory. C) credit to wages expense. D) credit to wages payable. Answer: D Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 266) The cost of indirect labor used in the factory is recorded as a A) credit to work in process inventory. B) debit to manufacturing overhead. C) credit to wages payable. D) debit to wages expense. Answer: B Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

135 .

267) How is the cost of indirect labor used in the factory recorded? A) Credit to manufacturing overhead B) Credit to wages payable C) Credit to work in process inventory D) Credit to wages expense Answer: B Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 268) How is the cost of direct materials used in production recorded? A) Debit to manufacturing overhead B) Debit to raw materials inventory C) Debit to work in process inventory D) Debit to direct materials expense Answer: C Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 269) How is the cost of direct materials used in production recorded? A) Credit to manufacturing overhead B) Credit to work in process inventory C) Credit to direct materials expense D) Credit to raw materials inventory Answer: D Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

136 .

270) How is the cost of indirect materials used in the factory recorded? A) Debit to work in process inventory B) Debit to manufacturing overhead C) Debit to raw materials inventory D) Debit to direct materials expense Answer: B Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 271) How is the cost of indirect materials used in the factory recorded? A) Credit to manufacturing overhead B) Credit to raw materials inventory C) Credit to work in process inventory D) Credit to direct materials expense Answer: B Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 272) The journal entry needed to record the receipt of a factory utility bill would include a A) debit to manufacturing overhead. B) credit to manufacturing overhead. C) debit to accounts payable. D) debit to utilities payable. Answer: A Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

137 .

273) To record depreciation on factory equipment, the needed journal entry would include a A) credit to manufacturing overhead. B) debit to work in process inventory. C) credit to accumulated depreciation. D) debit to depreciation expense. Answer: C Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 274) To record depreciation on the factory equipment, the journal entry would include a A) debit to work in process inventory. B) debit to manufacturing overhead. C) debit to depreciation expense. D) debit to accumulated depreciation. Answer: B Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 275) To allocate manufacturing overhead to specific jobs, the needed journal entry would include a A) credit to work in process inventory. B) debit to manufacturing overhead. C) debit to cost of goods sold. D) credit to manufacturing overhead. Answer: D Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

138 .

276) The journal entry needed to record the receipt of a bill from the company's marketing agency would include a A) debit to manufacturing overhead. B) debit to work in process inventory. C) debit to marketing expenses. D) credit to work in process inventory. Answer: C Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 277) The journal entry needed to record the completion of a job includes a A) credit to work in process inventory. B) credit to finished goods inventory. C) debit to work in process inventory. D) debit to cost of goods sold. Answer: A Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 278) The journal entry needed to record the completion of a job includes a A) debit to cost of goods sold. B) debit to work in process inventory. C) debit to finished goods inventory. D) debit to raw materials inventory. Answer: C Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

139 .

279) Under a perpetual inventory system, the journal entry needed to record the sale of a job includes a A) debit to finished goods inventory and credit to cost of goods sold. B) debit to cost of goods sold and credit to finished goods inventory. C) debit to sales revenue and credit to accounts receivable. D) debit to cost of goods sold and credit to sales revenue. Answer: B Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 280) Under a perpetual inventory system, the journal entry needed to record the sale of a job includes a A) debit to cost of goods sold and credit to sales revenue. B) debit to finished goods inventory and credit to cost of goods sold. C) debit to sales revenue and credit to accounts receivable. D) debit to accounts receivable and credit to sales revenue. Answer: D Diff: 1 LO: 3-6 EOC: S3-10 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

140 .

281) Wood Sculptor Company had the following labor-related transactions at their plant last month: Woodworkers' wages Staining tank workers' wages Maintenance personnel wages

$120,000 40,000 10,000

What is the journal entry to record the incurrence of direct labor? A) WIP Inventory

160,000 Manufacturing Wages

160,000

B) WIP Inventory

160,000 Wages Payable

160,000

C) WIP Inventory

170,000 Manufacturing Wages

170,000

D) WIP Inventory

170,000 Wages Payable

170,000

Answer: B Diff: 1 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

141 .

282) Which of the following entries would be made to record the purchase of $30,000 of raw materials? A) WIP Inventory 30,000 Accounts payable 30,000 B) Accounts payable

30,000 WIP Inventory

30,000

C) Accounts payable

30,000 Raw Materials Inventory

30,000

D) Raw Materials Inventory

30,000 Accounts payable

30,000

Answer: D Diff: 1 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

142 .

283) Here is some basic data for Shannon Company: Cost of materials purchases on account Cost of materials requisitioned (includes $2,000 of indirect) Direct labor costs incurred Manufacturing overhead costs incurred, including indirect materials Cost of goods completed Cost of goods sold Beginning raw materials inventory Beginning work in process inventory Beginning finished goods inventory Predetermined manufacturing overhead rate (as % of direct labor cost)

$ 72,000 53,000 79,000 87,000 256,750 167,000 17,000 33,000 35,000 125%

The journal entry to record the cost of raw materials placed into production involves a A) debit to overhead for $51,000. B) debit to work in process inventory for $53,000. C) debit to work in process inventory for $51,000. D) credit to manufacturing overhead for $2,000. Answer: C Diff: 2 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 284) The cost of indirect materials used in production is credited to A) finished goods inventory. B) manufacturing overhead. C) work in process inventory. D) raw materials inventory. Answer: D Diff: 1 LO: 3-6 EOC: S3-11 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

143 .

285) The journal entry to issue $600 of direct materials and $40 of indirect materials involves a debit to A) manufacturing overhead for $640. B) work in process inventory for $640. C) work in process inventory for $600 and a credit to manufacturing overhead for $40. D) work in process inventory for $600 and a debit to manufacturing overhead for $40. Answer: D Diff: 2 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 286) The journal entry to assign $1,700 of direct labor and $300 of indirect labor involves a debit to A) manufacturing overhead for $2,000. B) work in process inventory for $2,000. C) work in process inventory for $1,700 and a credit to manufacturing overhead for $300. D) work in process inventory for $1,700 and manufacturing overhead for $300. Answer: D Diff: 2 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

144 .

287) Which of the following entries would be made to record the requisition of $11,000 of direct materials and $6,000 of indirect materials? A) Manufacturing Overhead 17,000 Raw Materials Inventory 17,000 B) Raw Materials Inventory

17,000 WIP Inventory

17,000

C) WIP Inventory

17,000 Materials Inventory

17,000

D) WIP Inventory Manufacturing Overhead

11,000 6,000 Materials Inventory

17,000

Answer: D Diff: 2 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 288) To record the costs of indirect labor, which of the following would be debited? A) Work in process inventory B) Manufacturing overhead C) Finished goods inventory D) Wages payable Answer: B Diff: 1 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

145 .

289) To record direct labor costs incurred, which of the following would be debited? A) Finished goods inventory B) Manufacturing overhead C) Work in process inventory D) Wages payable Answer: C Diff: 1 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 290) To record the requisition of direct materials, which of the following would be debited? A) Finished goods inventory B) Work in process inventory C) Raw materials inventory D) Cost of goods manufactured Answer: B Diff: 1 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 291) The entry to record the purchase of raw materials on account using a job costing system would include a A) credit to work in process inventory. B) debit to accounts payable. C) debit to work in process inventory. D) debit to raw materials inventory. Answer: D Diff: 1 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

146 .

292) Which of the following entries would be made to record $20,000 of labor–80% of which is direct, and 20% of which is indirect– to jobs? A) Work in Process 16,000 Inventory Manufacturing 4,000 Overhead Wages Payable 20,000 B) Wages Payable

20,000 WIP Inventory Manufacturing Inventory

16,000 4,000

C) Work in Process Inventory

20,000 Wages Payable

20,000

D) Manufacturing Overhead

20,000 Manufacturing Wages

20,000

Answer: A Diff: 2 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

147 .

293) The journal entry to record $300 of depreciation expense on factory equipment involves a A) debit to accumulated depreciation for $300. B) debit to manufacturing overhead for $300. C) debit to depreciation expense for $300. D) credit to manufacturing overhead for $300. Answer: B Diff: 2 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 294) Here is some basic data for Morgenstern Company: Cost of goods manufactured for the period: Work in process inventory, beginning of period: Work in process inventory, end of period: Direct materials used:

$540,000 130,000 150,000 70,000

Manufacturing overhead is allocated at 70% of direct labor cost. What are the total costs debited to work in process inventory during the period? A) $560,000 B) $540,000 C) $690,000 D) $670,000 Answer: A Diff: 3 LO: 3-6 EOC: P3-50A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

148 .

295) Here is some basic data for Delta Manufacturing: Cost of materials purchases on account Cost of materials requisitioned (includes $2,000 of indirect) Direct labor costs incurred Manufacturing overhead costs incurred, including indirect materials Cost of goods completed Cost of goods sold Beginning raw materials inventory Beginning work in process inventory Beginning finished goods inventory Predetermined manufacturing overhead rate (as % of direct labor cost)

$ 77,000 45,000 80,000 98,000 276,600 149,000 19,000 35,000 25,000 120%

The journal entry to record actual manufacturing overhead costs includes a A) debit to manufacturing overhead for $98,000. B) debit to work in process inventory for $96,000. C) credit to work in process inventory for $98,000. D) credit to manufacturing overhead for $96,000. Answer: A Diff: 1 LO: 3-6 EOC: P3-50A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

149 .

296) Here is some basic data for Bella Company: Cost of materials purchases on account Cost of materials requisitioned (includes $2,000 of indirect) Direct labor costs incurred Manufacturing overhead costs incurred, including indirect materials Cost of goods completed Cost of goods sold Beginning raw materials inventory Beginning work in process inventory Beginning finished goods inventory Predetermined manufacturing overhead rate (as % of direct labor cost)

$ 80,000 55,000 95,000 93,500 252,000 137,000 19,000 33,000 35,500 125%

The journal entry to record the allocation of manufacturing overhead involves a debit to work in process inventory of A) $118,750. B) $93,500. C) $68,750. D) $76,000. Answer: A Explanation: A) 95,000 × 125% = 118,750 Diff: 2 LO: 3-6 EOC: P3-50A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

150 .

297) Here is some basic data for Honey Dukes Corporation: Beginning raw materials inventory Beginning finished goods inventory Cost of direct materials requisitioned Actual manufacturing overhead Cost of goods sold

$ 37,000 Beginning work in process inventory 59,000 Cost of materials purchased 87,000 Direct labor incurred 195,000 Completed goods Manufacturing overhead rate ( % of 255,000 direct labor)

68,000 188,000 195,000 287,000 125%

The entry to record the cost of goods completed would be a A) debit to finished goods inventory for $287,000. B) credit to work in process inventory for $255,000. C) debit to work in process inventory for $255,000. D) credit to finished goods inventory for $975,000. Answer: A Diff: 2 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 298) Here is some basic data for Honey Dukes Corporation: Beginning raw materials inventory Beginning finished goods inventory Cost of direct materials requisitioned Actual manufacturing overhead Cost of goods sold

$ 37,000 Beginning work in process inventory 59,000 Cost of materials purchased 87,000 Direct labor incurred 195,000 Completed goods Manufacturing overhead rate ( % of 255,000 direct labor)

68,000 188,000 195,000 287,000 125%

The journal entry to record the cost of jobs sold would include a A) debit to finished goods inventory for $255,000. B) credit to finished goods inventory for $287,000. C) debit to cost of goods sold for $287,000. D) credit to finished goods inventory for $255,000. Answer: D Diff: 1 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

151 .

299) Job 222 started on June 1 and finished on July 15. Total cost on July 1 was $12,400, and the costs added in July were $188,500. The entry for the sale at a price of $310,000 would be: A) Accounts receivable 310,000 Sales Revenue 310,000 B) Finished goods inv.

200,900 Cost of goods sold

200,900

C) Sales Revenue

310,000 Accounts receivable

310,000

D) Work in process inventory

200,900 Cost of goods sold

200,900

Answer: A Diff: 1 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 300) Job 543 started on June 1 and finished on July 15. Total cost on July 1 was $10,800, and the costs added in July were $164,300. The product was sold. What is the debit to cost of goods sold? A) $153,500 B) $ 10,800 C) $175,100 D) $164,300 Answer: C Explanation: C) 10,800 + 164,300 = 175,100 Diff: 2 LO: 3-6 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

152 .

301) When a job is completed, the journal entry involves a: A) debit to work in process inventory and a credit to finished goods inventory. B) debit to cost of goods sold and a credit to finished goods inventory. C) debit to finished goods inventory and a credit to work in process inventory. D) debit to finished goods and a credit to cost of goods sold. Answer: C Diff: 1 LO: 3-6 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 302) Here is selected data for Lori Corporation: Cost of raw material purchased Cost of requisitioned direct materials Cost of requisitioned indirect materials Direct labor Manufacturing overhead incurred Cost of goods completed Cost of goods sold Beginning raw materials inventory Beginning work in process inventory Beginning finished goods inventory Manufacturing overhead allocation rate (based on direct labor)

$ 77,000 43,000 3,000 80,000 100,000 233,500 142,000 17,000 32,000 35,000 130%

The journal entry to transfer completed goods to the finished goods inventory account would include a A) debit to work in process inventory for $233,500. B) debit to finished goods inventory for $237,500. C) credit to work in process inventory for $237,500. D) debit to finished goods for $233,500. Answer: D Diff: 1 LO: 3-6 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

153 .

303) Here is selected data for Lori Corporation: Cost of raw material purchased Cost of requisitioned direct materials Cost of requisitioned indirect materials Direct labor Manufacturing overhead incurred Cost of goods completed Cost of goods sold Beginning raw materials inventory Beginning work in process inventory Beginning finished goods inventory Manufacturing overhead allocation rate (based on direct labor)

$ 77,000 43,000 3,000 80,000 100,000 233,500 142,000 17,000 32,000 35,000 130%

The journal entry to close manufacturing overhead would include a A) credit to manufacturing overhead for $4,000. B) debit to work in process inventory for $4,000. C) debit to manufacturing overhead for $4,000. D) debit to cost of goods sold for $4,000. Answer: C Explanation: C) 130% × $80,000 = $ 104,000 $100,000 - 104,000 = $ 4,000 overerallocated Diff: 2 LO: 3-6 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

154 .

304) Here is selected data for Lori Corporation: Cost of raw material purchased Cost of requisitioned direct materials Cost of requisitioned indirect materials Direct labor Manufacturing overhead incurred Cost of goods completed Cost of goods sold Beginning raw materials inventory Beginning work in process inventory Beginning finished goods inventory Manufacturing overhead allocation rate (based on direct labor)

$ 77,000 43,000 3,000 80,000 100,000 233,500 142,000 17,000 32,000 35,000 130%

The journal entry to close manufacturing overhead would include a: A) credit to manufacturing overhead for $4,000. B) debit to work in process inventory for $4,000. C) credit to work in process inventory for $4,000. D) credit to cost of goods sold for $4,000. Answer: D Diff: 2 LO: 3-6 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

155 .

305) Matthew Company uses a job cost system. The overhead account shows a $5,000 overallocated balance at the end of the year. Actual overhead incurred was $100,000. Other balances are: Ending raw materials Work in process inventory at end of year Finished goods inventory at end of year Cost of goods sold for year

$ 15,000 32,000 47,000 $282,000

The entry to close manufacturing overhead would include a A) debit to manufacturing overhead for $5,000. B) debit to work in process inventory for $5,000. C) debit to cost of goods sold for $5,000. D) credit to work in process for $5,000. Answer: A Diff: 2 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 306) XYZ uses job costing. Actual manufacturing overhead for the period is $20,000 while allocated manufacturing overhead is $18,000. What entry will close the manufacturing overhead balance? A) Debit manufacturing overhead and credit work in process for $2,000 B) Debit manufacturing overhead and credit cost of goods sold for $2,000 C) Debit cost of goods sold and credit finished goods inventory for $2,000 D) Debit cost of goods sold and credit manufacturing overhead for $2,000 Answer: D Diff: 2 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 307) A company has overallocated manufacturing overhead by $1,500. The entry to close manufacturing overhead account would be to A) debit manufacturing overhead and credit cost of goods sold for $1,500. B) debit manufacturing overhead and credit work in process for $1,500. C) debit cost of goods sold and credit manufacturing overhead for $1,500. D) debit cost of goods sold and credit finished goods inventory for $15,000. Answer: A Diff: 2 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 156 .

308) Manufacturing overhead has an underallocated balance of $6,200; raw materials inventory balance is $50,000; work in process inventory is $30,000; finished goods inventory is $20,000; and cost of goods sold is $100,000. Which of these accounts would have an ending credit balance? A) Raw materials inventory B) Finished goods inventory C) Work in process inventory D) None of the above Answer: D Diff: 2 LO: 3-6 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 309) Manufacturing overhead has an underallocated balance of $6,200; raw materials inventory balance is $50,000; work in process inventory is $30,000; finished goods inventory is $20,000; and cost of goods sold is $100,000. Using this information, which account would have an opening credit balance? A) Raw materials inventory B) Finished goods inventory C) Work in process inventory D) None of the above Answer: D Diff: 1 LO: 3-6 EOC: E3-27A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 310) On the line in front of each statement, enter either a D for debit or a C for credit to indicate the normal entry that would be needed for each account named. ____ added purchases to raw materials inventory account ____ added indirect materials to manufacturing overhead account ____ requisitioned raw materials from raw materials inventory account ____ added direct raw materials to work in process inventory account Answer: D, D, C, D Diff: 1 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

157 .

311) On the line in front of each statement, enter either a D for debit or a C for credit to indicate the normal entry that would be needed for each account named. ____ direct labor was incurred on a job: work in process inventory account ____ indirect labor was incurred: wages payable ____ indirect labor was added to a job: manufacturing overhead account ____ direct labor was incurred: wages payable Answer: D, C, D, C Diff: 2 LO: 3-6 EOC: E3-41B AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

158 .

312) Anderson Enterprises uses a job costing system. Record the following transactions in Paulson Enterprises's general journal for the current month: a) b) c) d)

Purchased raw materials on account, $82,000. Requisitioned $41,300 of direct materials and $9,000 of indirect materials for use in production. Factory payroll incurred, $110,000; 75% direct labor, 25% indirect labor. Recorded depreciation expense factory equipment $15,000, and other manufacturing overhead of $56,200 (credit accounts payable). e) Allocated manufacturing overhead costs based on 125% of direct labor cost. f) Cost of completed production for the current month, $133,000. g) Cost of finished goods sold, $112,000; selling price, $162,000 (all sales on account). Answer: General Journal Date Accounts Debit Credit a) Raw Materials Inventory $ 82,000 Accounts Payable $ 82,000 b) Work in Process Inventory $ 41,300 Manufacturing Overhead $ 9,000 Raw Materials Inventory $ 50,300 c) Work in Process Inventory $ 82,500 Manufacturing Overhead $ 27,500 Wages Payable $ 110,000 d) Manufacturing Overhead $ 71,200 Accumulated Depreciation — Factory Equipment $ 15,000 Accounts Payable $ 56,200 e) Work in Process Inventory $ 103,125 Manufacturing Overhead $ 103,125 (Direct labor cost from c) × Allocation % based on direct labor cost) f) Finished Goods Inventory $ 133,000 Work in Process Inventory $ 133,000 g) Accounts Receivable $ 162,000 Sales Revenue $ 162,000 Cost of Goods Sold $ 112,000 Finished Goods Inventory $ 112,000 Diff: 2 LO: 3-6 EOC: P3-50A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 313) At Plastastic, Inc., the beginning balance of the work in process inventory account in April of the most recent year was $19,000. Direct materials used during April totaled $130,000. Total manufacturing labor incurred in April was $180,000, 75% of this amount represented direct labor. The predetermined manufacturing overhead rate is 130% of direct labor cost. Actual manufacturing overhead costs for April 159 .

amounted to $160,000. In April, two jobs were completed with total costs of $110,000 and $95,000, respectively. In April, the two jobs were sold on account for $187,000 and $124,000, respectively. a) Compute the balance in work in process inventory on April 30. b) Record the journal entry for direct materials used in April. c) Record the journal entry to record labor costs for April. d) Record the journal entry for allocated manufacturing overhead for April. e) Record the entry to move the completed jobs into finished goods inventory in April. f) Record the entry to sell the two completed jobs on account in April. Answer: SOLUTION Part a: Total manufacturing labor incurred during April Direct labor % of total manufacturing labor Direct labor for April

$ $

180,000 75% 135,000

Direct labor for April Predetermined manufacturing overhead rate based on % of direct labor cost Allocated manufacturing overhead for April

$

Work in process inventory, beginning (April 1) Direct materials used during April Direct labor for April Allocated manufacturing overhead for April Job 1 in April — total cost Job 2 in April — total cost

$ 19,000 $ 130,000 $ 135,000 $ 175,500 $ (110,000) $ (95,000)

Work in process inventory, ending (April 30)

160 .

$

135,000 130% 175,500

Date b) c)

d)

e)

f)

General Journal Debit

Accounts Work in Process Inventory Raw Materials Inventory Work in Process Inventory Manufacturing Overhead Wages Payable Work in Process Inventory Manufacturing Overhead (Direct labor cost from c) × Allocation % based on direct labor cost) Finished Goods Inventory Work in Process Inventory (Total cost of both jobs from April) Accounts Receivable 187,000 + 124,000 Sales Revenue (Total sales revenue received from sale of both jobs in April) Cost of Goods Sold 110,000 + 95,000 Finished Goods Inventory (Total cost of both jobs from April)

Credit $

$

130,000 $

130,000

$

180,000

$

175,500

$

205,000

$

311,000

$

205,000

$ 135,000 45,000 $

$

$

$

175,500

205,000

311,000

205,000

Diff: 3 LO: 3-6 EOC: P3-50A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 314) Job costing is not commonly used by service firms (such as law firms) or trades people (such as auto mechanics). Answer: FALSE Diff: 2 LO: 3-7 EOC: S3-12 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

161 .

315) Service firms follow the same approach for indirect costs as manufacturing companies because they develop a predetermined indirect cost allocation rate. Answer: TRUE Diff: 2 LO: 3-7 EOC: S3-12 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 316) A service firm's costs are comprised of direct materials, direct labor and manufacturing overhead. Answer: FALSE Diff: 1 LO: 3-7 EOC: E3-52 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 317) A labor time record is an essential component of accounting in a service firm. Answer: TRUE Diff: 1 LO: 3-7 EOC: E3-46A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 318) Since service firms do not carry large amounts of inventory, it is not necessary to know the costs related to the different jobs. Answer: FALSE Diff: 1 LO: 3-7 EOC: E3-46A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 319) The most significant cost for a service firm is direct labor cost. Answer: TRUE Diff: 1 LO: 3-7 EOC: E3-46A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

162 .

320) The main driver of indirect costs for service firms is usually labor hours. Answer: TRUE Diff: 2 LO: 3-7 EOC: E3-46A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 321) When job costing is used at a service company, direct costs of serving the client are traced to the job, whereas the indirect costs of serving the client are allocated to the job. Answer: TRUE Diff: 2 LO: 3-7 EOC: E3-46A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 322) At a service company, the indirect costs of serving the client consists of operating expenses. Answer: TRUE Diff: 2 LO: 3-7 EOC: E3-46A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 323) At a service company, the indirect costs of serving the client include manufacturing overhead. Answer: FALSE Diff: 2 LO: 3-7 EOC: E3-46A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

163 .

324) The predetermined indirect cost allocation rate is computed as A) total estimated indirect costs / total estimated amount of the allocation base. B) total amount of the allocation base / total estimated indirect costs. C) total estimated indirect costs + total estimated amount of the allocation base. D) total amount of the allocation base - total estimated indirect costs. Answer: A Diff: 1 LO: 3-7 EOC: E3-46A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 325) The most significant cost for a service company is A) labor. B) manufacturing overhead. C) supplies. D) indirect costs. Answer: A Diff: 1 LO: 3-7 EOC: E3-46A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 326) When job costing is used as a service firm A) indirect costs are traced to client jobs. B) direct costs are allocated to client jobs. C) indirect costs are allocated to client jobs. D) all costs are allocated to client jobs. Answer: C Diff: 1 LO: 3-7 EOC: P3-46A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

164 .

327) When job costing is used at a service firm, the bill to the client shows A) the billing rate and hours spent on the job. B) the allocation of indirect costs. C) the profit on the job. D) actual direct cost of providing the service. Answer: A Diff: 2 LO: 3-7 EOC: P3-46A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 328) The ________ is the hourly price charged to clients for professional labor. A) salary rate B) billing rate C) wage rate D) job rate Answer: B Diff: 1 LO: 3-7 EOC: P3-46A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 329) The journal entries needed for job costing at a service company A) are more complicated than those needed at a manufacturing company. B) are virtually the same as those needed at a manufacturing company. C) include the movement of inventory. D) are simpler than those needed at a manufacturing company. Answer: D Diff: 1 LO: 3-7 EOC: P3-46A AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

165 .

330) Service firms develop a predetermined rate for some costs. This rate is called the A) labor rate. B) direct cost rate. C) indirect cost allocation rate. D) hourly cost rate. Answer: C Diff: 1 LO: 3-7 EOC: S3-12 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 331) A graphic designer spends 35 hours working with client #130 during May. Her basic annual salary is $61,440, while her annual salary plus benefits totals $80,640 per year. She typically works 40 hours a week for 48 weeks each year. What is the hourly cost to the firm that employs her? A) $32 B) $1,470 C) $42 D) $39 Answer: C Explanation: C) 48 × 40 = 1,920 $80,640/1,920 = $42 Diff: 2 LO: 3-7 EOC: S3-12 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

166 .

332) Earnst & Earnst Consulting pays Amber Kelly $58,000 per year. The cost of her annual benefits is $17,000. Kelly works 2,500 hours per year. A) What is the hourly rate to Earnst & Earnst Consulting of employing Amber Kelly? B) If Amber works 30 hours for client 252, what is the direct labor cost associated with that client? Answer: SOLUTION: SOLUTION — Part A Annual salary $ 58,000 Cost of annual benefit Total salary and benefits divided by Hours worked per year

$

75,000 2,500

Hourly cost of employee SOLUTION -- Part B Hours worked on client Hourly cost of employee Direct labor cost associated with client

30 × 30

$ $

900

Diff: 2 LO: 3-7 EOC: S3-12 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

167 .

333) Tina's Interior Design expects its designers will work a total of 14,000 direct labor hours during the upcoming year. Tina's estimated total indirect costs are $170,000. The indirect cost allocation rate is based on direct labor hours. A) What is the indirect cost allocation rate? B) What indirect costs will be allocated to client 332, if one designer works 25 hours? Answer: SOLUTION for part A: Estimated total indirect costs divided by $ 170,000 Expected direct labor hours 14,000 Indirect cost allocation rate $ 12 SOLUTION for part B: Indirect cost allocation rate Hours worked on job Indirect costs allocated to client

$ $

12 × 25 304

Diff: 2 LO: 3-7 EOC: S3-12 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

168 .

334) The law firm of Lyons & Lyons uses a job costing system to accumulate client-related costs. The indirect cost allocation rate is 80% of direct labor cost. Staff time is charged at a rate of $65 per labor hour. A recent job for a client involved 30 staff labor hours by staff lawyers. Compute the cost of the job. Answer: SOLUTION: Staff engineer rate per hour Number of staff hours on recent job Staff labor costs

$

65 × 30. $ 1,950

Staff labor costs Indirect cost allocation rate % of direct labor cost Total indirect cost allocation

$

1,950 × 80% $ 1,560

Staff labor costs Total indirect cost allocation Total costs of the job

$ $ $

1,950 1,560 3,510

Diff: 1 LO: 3-4 EOC: S3-12 AACSB: Analytical Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

169 .

Managerial Accounting, 3e (Braun/Tietz) Chapter 4 Activity-Based Costing, Lean Operations, and the Costs of Quality 1) When overhead is allocated to every product using the same manufacturing overhead rate, this rate is called the departmental overhead rate. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-1 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 2) With increased competition, managers need more accurate estimates of product costs in order to set prices and to identify the most profitable products. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-1 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 3) The plantwide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs by the estimated total quantity of the cost allocation base. Answer: TRUE Diff: 2 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 4) To determine the amount of overhead allocated, the overhead rate is divided by the cost driver. Answer: FALSE Diff: 2 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 5) Using departmental overhead rates is generally less accurate than using a single plantwide overhead rate. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

1 .

6) Cost distortion occurs when some products are overcosted while other products are undercosted by the cost allocation system. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 7) As a result of cost distortion, some products will be overcosted while other products will be undercosted. Answer: TRUE Diff: 2 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 8) Companies often refine their cost allocation systems to minimize the amount of cost distortion caused by the simpler cost allocation systems. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 9) Companies that use departmental overhead rates trace direct materials and direct labor to cost objects just as they would in a traditional costing system. Answer: TRUE Diff: 2 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 10) Only manufacturers can use refined costing systems to allocate manufacturing overhead. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

2 .

11) Refined costing systems can be used to allocate any indirect costs to any cost objects. Answer: TRUE Diff: 2 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 12) Merchandising and service companies, as well as governmental agencies, can use refined cost allocation systems to provide their managers with better cost information. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 13) A plantwide overhead rate is calculated by dividing the estimated total manufacturing overhead costs for the year by estimated total amount of the allocation base for the year. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 14) A plantwide overhead rate is calculated by multiplying the estimated total manufacturing overhead costs for the year by estimated total amount of the allocation base for the year. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 15) If a company's plantwide overhead rate is allocated based on direct labor hours, then each job will be allocated manufacturing overhead based on the total direct labor hours incurred on the job, regardless of the manufacturing department in which those hours were incurred. Answer: TRUE Diff: 2 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

3 .

16) One condition that favors using a departmental overhead rate, rather than plantwide overhead rates, is that different departments incur different amounts and types of manufacturing overhead. Answer: TRUE Diff: 2 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 17) One condition that favors using plantwide overhead rates, rather than departmental overhead rates, is that different jobs or products use the departments to a different extent. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 18) The estimated total manufacturing overhead costs that will be incurred in each department in the coming year are often referred to as activity cost pools. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 19) A departmental overhead rate is calculated by dividing the total estimated departmental overhead cost pool by the estimated total amount of the department's cost allocation base. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 20) The plantwide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs of the department by the estimated total quantity of the department's cost allocation base. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

4 .

21) If a company uses departmental overhead allocation rates, then the amount of manufacturing overhead allocated to the job is equal to the plantwide overhead rate multiplied by the actual use of the cost allocation base. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 22) The allocation base selected for each department should be the cost driver of the costs in the departmental overhead pool. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 23) Direct labor hours would be the most appropriate cost allocation base for a Machining Department that uses machine robotics extensively. Answer: FALSE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 24) Departmental overhead rates typically do a better job of matching each department's overhead costs to the products that use the department's resources than do plantwide overhead rates. Answer: TRUE Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

5 .

25) When a company has established separate manufacturing overhead rates for each department, it is using: A) departmental overhead rates. B) cost distortion. C) a plantwide overhead rate. D) none of the above. Answer: A Diff: 1 LO: 4-1 EOC: S4-3 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 26) Which of the following is a result of cost distortion? A) Overcosting of all products B) Undercosting of all products C) Accurate costing of all products D) Overcosting of some products and undercosting of other products Answer: D Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 27) When calculating a departmental overhead rate, what should the numerator be? A) Total estimated amount of the departmental allocation base B) Total estimated departmental overhead cost pool C) Total estimated amount of manufacturing overhead for the factory D) Actual quantity of the departmental allocation base used by the job Answer: B Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

6 .

28) When calculating the total amount of manufacturing overhead to allocate to a particular job, the company would multiply each departmental overhead rate by ________ and then ________ together the allocated amounts from each department. A) the actual amount of the departmental allocation based used by the job; multiply B) the actual amount of the plantwide allocation based used by the job; add C) the actual amount of the departmental allocation based used by the job; add D) the actual amount of the plantwide allocation based used by the job; multiply Answer: C Diff: 2 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 29) Which of the following condition(s) favors using departmental overhead rates in place of a plantwide overhead rate? A) Different departments incur different amounts and types of manufacturing overhead. B) Different jobs or products use the departments to a different extent. C) Both of the above. D) Neither of the above. Answer: C Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 30) What will the use of departmental overhead rates generally result in? A) The use of a separate cost allocation base for each department in the factory B) The use of a single cost allocation base C) The use of a single overhead cost pool for the factory D) The use of separate cost allocation base for each activity in the factory Answer: A Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

7 .

31) James Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments: Assembly and Sanding. The Assembly Department uses a departmental overhead rate of $35 per machine hour, while the Sanding Department uses a departmental overhead rate of $20 per direct labor hour. Job 603 used the following direct labor hours and machine hours in the two departments:

Actual results Direct labor hours used Machine hours used

Assembly Department 8 10

Sanding Department 5 7

The cost for direct labor is $30 per direct labor hour and the cost of the direct materials used by Job 603 is $1,400. How much manufacturing overhead would be allocated to Job 603 using the departmental overhead rates? A) $450 B) $380 C) $715 D) $390 Answer: A Explanation: A) Assembly Dept $35 × 10 maching hrs = 350.00 Sanding Dept. $20 × 5 direct hrs = 100.00 Total 450.00 Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

8 .

32) James Industries uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments: Assembly and Sanding. The Assembly Department uses a departmental overhead rate of $35 per machine hour, while the Sanding Department uses a departmental overhead rate of $20 per direct labor hour. Job 603 used the following direct labor hours and machine hours in the two departments:

Actual results Direct labor hours used Machine hours used

Assembly Department 8 10

Sanding Department 5 7

The cost for direct labor is $30 per direct labor hour and the cost of the direct materials used by Job 542 is $1,400. What was the total cost of Job 542 if James Industries used the departmental overhead rates to allocate manufacturing overhead? A) $1,850 B) $2,170 C) $2,240 D) $1,790 Answer: C Explanation: C) Labor ($30 × 8 hrs) + ($30 × 5 hrs) = 390.00 Materials = 1,400.00 Overhead Assembly dept $35 × 10 hrs = 350.00 Sanding dep $20 × 5 hrs = 100.00 Total = 2,240.00 Diff: 2 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

9 .

33) Ryan Fabrication allocates manufacturing overhead to each job using departmental overhead rates. Ryan's operations are divided into a metal casting department and a metal finishing department. The casting department uses a departmental overhead rate of $52 per machine hour, while the finishing department uses a departmental overhead rate of $28 per direct labor hour. Job A216 used the following direct labor hours and machine hours in the two departments:

Actual results Direct labor hours used Machine hours used

Casting Department 5 4

Finishing Department 12 3

The cost for direct labor is $32 per direct labor hour and the cost of the direct materials used by Job A216 is $1,800. How much manufacturing overhead would be allocated to Job A216 using the departmental overhead rates? A) $544 B) $596 C) $1,360 D) $454 Answer: A Explanation: A) Casting Dept $52 × 4 machine hrs = 208.00 Finishing Dept. $28 × 12 direct hrs = 336.00 Total 544.00 Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

10 .

34) Ryan Fabrication allocates manufacturing overhead to each job using departmental overhead rates. Ryan's operations are divided into a metal casting department and a metal finishing department. The casting department uses a departmental overhead rate of $52 per machine hour, while the finishing department uses a departmental overhead rate of $28 per direct labor hour. Job A216 used the following direct labor hours and machine hours in the two departments:

Actual results Direct labor hours used Machine hours used

Casting Department 5 4

Finishing Department 12 3

The cost for direct labor is $32 per direct labor hour and the cost of the direct materials used by Job A216 is $1,800. What was the total cost of Job A216 if Ryan Fabrication used the departmental overhead rates to allocate manufacturing overhead? A) $2,434 B) $2,344 C) $2,888 D) $2,940 Answer: C Explanation: C)

Diff: 2 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

11 .

35) Cooper's Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers. Cooper's Bags Company sells the bags in cases of 1,000 bags. The bags come in three sizes: Large, Medium, and Small. Currently, Cooper's Bags Company uses a single plant-wide overhead rate to allocate its $8,088,000 of annual manufacturing overhead. Of this amount, $2,210,000 is associated with the Large Bag line, $3,418,800 is associated with the Medium Bag line, and $2,459,200 is associated with the Small Bag line. Cooper's Bags Company is currently running a total of 40,000 machine hours: 13,000 in the Large Bag line, 15,400 in the Medium Bag line, and 11,600 in the Small Bag line. Cooper's Bags Company uses machine hours as the cost driver for manufacturing overhead costs. The plant-wide manufacturing overhead rate would be closest to A) $ 55.25 per machine hour. B) $170.00 per machine hour. C) $222.00 per machine hour. D) $202.20 per machine hour. Answer: D Explanation: D) $8,088,000 / 40,000 hours = $202.20 per hr Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 36) Cooper's Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers. Cooper's Bags Company sells the bags in cases of 1,000 bags. The bags come in three sizes: Large, Medium, and Small. Currently, Cooper's Bags Company uses a single plantwide overhead rate to allocate its $8,088,000 of annual manufacturing overhead. Of this amount, $2,210,000 is associated with the Large Bag line, $3,418,800 is associated with the Medium Bag line, and $2,459,000 is associated with the Small Bag line. Cooper's Bags Company is currently running a total of 40,000 machine hours: 13,000 in the Large Bag line, 15,400 in the Medium Bag line, and 11,600 in the Small Bag line. Cooper's Bags Company uses machine hours as the cost driver for manufacturing overhead costs. The departmental manufacturing overhead rate for the Small Bag line would be closest to A) $202.20 per machine hour. B) $212.00 per machine hour. C) $170.00 per machine hour. D) $222.00 per machine hour. Answer: B Explanation: B) $2,459,000 / 11,600 hrs = 212.00 per hr Diff: 1 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

12 .

37) Cooper's Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers. Cooper's Bags Company sells the bags in cases of 1,000 bags. The bags come in three sizes: Large, Medium, and Small. Currently, Cooper's Bags Company uses a single plantwide overhead rate to allocate its $8,088,000 of annual manufacturing overhead. Of this amount, $2,210,000 is associated with the Large Bag line, $3,418,800 is associated with the Medium Bag line, and $2,459,000 is associated with the Small Bag line. Cooper's Bags Company is currently running a total of 40,000 machine hours: 13,000 in the Large Bag line, 15,400 in the Medium Bag line, and 11,600 in the Small Bag line. Cooper's Bags Company uses machine hours as the cost driver for manufacturing overhead costs. Which product line(s) have been overcosted or undercosted by using the plantwide manufacturing overhead rate? A) Large Bags has been undercosted; Medium and Small have been overcosted. B) Large, Medium, and Small Bags have all been overcosted. C) Large, Medium, and Small Bags have all been undercosted. D) Large Bags has been overcosted; Medium and Small have been undercosted. Answer: D Explanation: D) Large Bag Medium Bag Small Bag Depart. Allocation 170 222 212 Plantwide allocation 202 202 202 Diff. (32) 20 10 Overcosted Undercosted Undercosted Diff: 2 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

13 .

38) The Braveheart Corporation uses departmental overhead rates to allocate its manufacturing overhead to jobs. The company has two departments: cutting and painting. The Cutting Department uses a departmental overhead rate of $12 per machine hour, while the Painting Department uses a departmental overhead rate of $17 per direct labor hour. Job 422 used the following direct labor hours and machine hours in the two departments:

Actual results Direct labor hours used Machine hours used

Casting Department 12 14

Painting Department 10 12

The cost for direct labor is $20 per direct labor hour and the cost of the direct materials used by Job 422 is $800. Required: What was the total cost of Job 422 if the Braveheart Corporation used the departmental overhead rates to allocate manufacturing overhead? Answer: Job Number 422 Departmental overhead rate Machine hours incurred in the Cutting Department Direct labor hours incurred in the Painting Department Total manufacturing overhead allocated (Rate × hours)

Cutting Department $ 12

Painting Department $ 17

Total

14 10

Direct labor hours in the Cutting Department Direct labor hours in the Painting Department Total direct labor hours Direct labor rate per hour Total direct labor cost Cost of direct materials used Total direct labor cost Total manufacturing overhead allocated (Rate × hours) Total cost of job

$

168

$ $

12 10 22 20 440

$ $

800 440

$

170

$ 338

$ 338 $ 1,578

Diff: 2 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

14 .

39) High Rise Display Company manufactures display cases to be sold to retail stores. The cases come in three sizes: Large, Medium, and Small. Currently, High Rise Display Company uses a single plant-wide overhead rate to allocate its $3,357,800 of annual manufacturing overhead. Of this amount, $820,000 is associated with the Large Case line, $1,276,800 is associated with the Medium Case line, and $1,261,000 is associated with the Small Case line. Clearview Display Company is currently running a total of 33,000 machine hours: 10,000 in the Large Case line, 13,300 in the Medium Case line, and 9,700 in the Small Case line. High Rise Display Company uses machine hours as the cost driver for manufacturing overhead costs. Required: a. Calculate the plant-wide manufacturing overhead rate. b. Calculate the departmental overhead rate for each of the three departments listed. c. Which product line(s) have been overcosted by using the plant-wide manufacturing overhead rate? By how much per machine hour? Which product line(s) have been undercosted by using the plant-wide manufacturing overhead rate? By how much per machine hour? Answer: a. Departmental Manufacturing Production Department Overhead Large Cases $ 820,000 Medium Cases $ 1,276,800 Small Cases $ 1,261,000 Total overhead $ 3,357,800 Production Department Large Cases Medium Cases Small Cases Total machine hours

Machine Hours 10,000.0 13,300.0 9,700.0 33,000.0

Total overhead Total machine hours Plantwide overhead rate

$ 3,357,800.00 33,000 $ 101.75

b.

15 .

c.

Diff: 2 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 40) Bobke Technologies manufactures three types of computers for a well known national brand. The three types are: laptops, desktops, and tablets. Currently, Bobke uses a single plant-wide overhead rate to allocate its $1,667,250 of annual manufacturing overhead. Of this amount, $562,000 is associated with laptops, $492,000 is associated with desktops, and $612,750 is associated with tablets. Bobke is currently using a total of 22,150 machine hours: 7,500 for laptops, 8,200 for desktops, and 6,450 for tablets. Bobke uses machine hours to allocate overhead costs. Required: a. Calculate the plant-wide manufacturing overhead rate. b. Calculate the departmental overhead rate for each of the three departments listed. c. Which product line(s) have been overcosted by using the plant-wide manufacturing overhead rate? By how much per machine hour? Which product line(s) have been undercosted by using the plant-wide manufacturing overhead rate? By how much per machine hour? Answer: SOLUTION - part a

16 .

SOLUTION - part b

SOLUTION - part c

Diff: 2 LO: 4-1 EOC: E4-22A AACSB: Analytical Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system

17 .

41) As compared to traditional volume-based costing using a single plantwide overhead rate, activitybased costing (ABC) is a more refined costing system that reduces cost distortion. Answer: TRUE Diff: 1 LO: 4-2 EOC: S4-5 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 42) Traditional costing systems are generally more accurate than ABC costing. Answer: FALSE Diff: 1 LO: 4-2 EOC: S4-5 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 43) It is easier to allocate indirect costs to the products that actually caused those costs if an ABC system is used rather than a traditional costing system. Answer: TRUE Diff: 1 LO: 4-2 EOC: S4-5 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 44) Companies that use ABC trace direct materials and direct labor to cost objects just as would be done using traditional costing systems. Answer: TRUE Diff: 1 LO: 4-2 EOC: S4-5 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 45) Two main benefits of ABC are (1) more accurate product cost information and (2) more detailed information on the costs of activities and the drivers of those costs. Answer: TRUE Diff: 1 LO: 4-2 EOC: S4-5 AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system. Describe activity-based costing and calculate the cost of a job using ABC concepts.

18 .

46) The cost allocation rate for each activity is equal to the total estimated activity cost pool divided by the total estimated activity allocation base. Answer: TRUE Diff: 1 LO: 4-2 EOC: S4-5 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 47) Facility-level activities and costs are incurred for every individual unit. Answer: FALSE Diff: 1 LO: 4-2 EOC: S4-9 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 48) Unit-level activities and costs are incurred for every single unit. Answer: TRUE Diff: 2 LO: 4-2 EOC: S4-9 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 49) The cost of inspecting and packaging each unit the company produces would be considered a facilitylevel activity cost. Answer: FALSE Diff: 1 LO: 4-2 EOC: S4-9 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 50) Batch-level activities and costs are incurred again each time a batch is produced. Answer: TRUE Diff: 2 LO: 4-2 EOC: S4-9 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

19 .

51) Machine set-up would be considered a batch-level cost. Answer: TRUE Diff: 1 LO: 4-2 EOC: S4-9 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 52) Product-level activities and costs are incurred for a particular product, regardless of the number of units or batches of the product produced. Answer: TRUE Diff: 1 LO: 4-2 EOC: S4-9 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 53) The cost to research and develop, design and market new models would be considered a productlevel cost. Answer: TRUE Diff: 1 LO: 4-2 EOC: S4-9 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 54) The cost to design and market new models would be considered a facility-level cost. Answer: FALSE Diff: 1 LO: 4-2 EOC: S4-9 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 55) Facility—level activities and costs are incurred no matter how many units, batches, or products are produced in the plant. Answer: TRUE Diff: 1 LO: 4-2 EOC: S4-9 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

20 .

56) The cost of maintenance on the entire production plant would be considered a facility-level cost. Answer: TRUE Diff: 1 LO: 4-2 EOC: S4-9 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 57) The cost of depreciation, insurance, and property tax on the entire production plant would be considered a facility-level cost. Answer: TRUE Diff: 1 LO: 4-2 EOC: S4-9 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 58) ABC generally causes the least amount of cost distortion among products because indirect costs are allocated to the products based on A) types of activities used by the product . B) the extent to which the activities are used. C) both A and B. D) none of the above. Answer: C Diff: 1 LO: 4-2 EOC: S4-7 AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 59) The first step in developing an ABC system is A) calculate an activity cost allocation rate for each activity. B) allocate the costs to the cost object using the activity cost allocation rates. C) select an allocation base for each activity. D) identify the primary activities and estimate a total cost pool for each. Answer: D Diff: 1 LO: 4-2 EOC: S4-7 AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

21 .

60) In using an ABC system, all of the following steps are performed before the company's year begins except A) identify the primary activities and estimate a total cost pool for each. B) select an allocation base for each activity. C) allocate the costs to the cost object using the activity cost allocation rates. D) calculate an activity cost allocation rate for each activity. Answer: C Diff: 1 LO: 4-2 EOC: S4-7 AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 61) Four basic steps are used in an ABC system. List the proper order of these steps, which are currently scrambled below: a. Identify the primary activities and estimate a total cost pool for each. b. Allocate the costs to the cost object using the activity cost allocation rates. c. Select an allocation base for each activity. d. Calculate an activity cost allocation rate for each activity. A) c, a, b, d B) a, c, d, b C) b, a, c, d D) a, d, c, b Answer: B Diff: 2 LO: 4-2 EOC: S4-7 AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 62) The use of which of the following costing systems is most likely to reduce cost distortion to a minimum? A) Plantwide overhead rate B) Departmental overhead allocation rates C) Traditional costing system D) Activity-based costing Answer: D Diff: 1 LO: 4-2 EOC: S4-7 AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

22 .

63) Which of the following does ABC take into account? A) The types of manufacturing activities used by the product B) The extent to which the manufacturing activities are used by the product C) Both A and B D) Neither A nor B Answer: C Diff: 2 LO: 4-2 EOC: S4-7 AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 64) Machine set-up would most likely be classified as a ________ cost. A) batch-level B) unit-level C) product-level D) facility-level Answer: A Diff: 1 LO: 4-2 EOC: S4-8 AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 65) Research and development would most likely be classified as a ________ cost. A) unit-level B) batch-level C) facility-level D) product-level Answer: D Diff: 1 LO: 4-2 EOC: S4-8 AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 66) Using factory utilities would most likely be classified as a ________ cost. A) unit-level B) batch-level C) facility-level D) product-level Answer: C Diff: 1 LO: 4-2 EOC: S4-8 AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

23 .

67) Molding and sanding each unit of product would most likely be classified as a ________ cost. A) unit-level B) batch-level C) product-level D) facility-level Answer: A Diff: 1 LO: 4-2 EOC: S4-8 AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 68) All of the following are considered to be part of the cost hierarchy often used to implement ABC, with the exception of A) production-level activity. B) batch-level activity. C) product-level activity. D) unit-level activity. Answer: A Diff: 1 LO: 4-2 EOC: S4-8 AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 69) In ABC, how is the activity allocation rate computed? A) The total estimated activity allocation base is divided by the total estimated activity cost pool. B) The total estimated activity cost pool is divided by the total estimated activity allocation base. C) The total estimated activity allocation base is multiplied by the total estimated activity cost pool. D) You take the total estimated activity allocation base and subtract the total estimated total activity cost pool. Answer: B Diff: 2 LO: 4-2 EOC: S4-6 AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

24 .

70) In developing an ABC system, what is the last step? A) Identify the primary activities and estimate a total cost pool for each. B) Select an allocation base for each activity. C) Allocate the costs to the cost object using the activity cost allocation rates. D) Calculate an activity cost allocation rate for each activity. Answer: C Diff: 2 LO: 4-2 EOC: S4-6 AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 71) All of the following describe an ABC system except A) ABC systems may only be used by service companies. B) ABC systems can create more accurate product costs. C) ABC systems are more complex and costly than traditional costing systems. D) ABC systems are used in both manufacturing and nonmanufacturing companies. Answer: A Diff: 1 LO: 4-2 EOC: E4-23A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 72) Which of the following can be used in conjunction with activity-based costing? A) Job costing B) Process costing C) Both A and B D) Neither A nor B Answer: C Diff: 3 LO: 4-2 EOC: E4-23A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 73) Which of the following systems focuses on activities as the fundamental cost objects and uses the costs of those activities as building blocks for compiling the indirect costs of products and other cost objects? A) Job costing B) Activity-based costing C) Process costing D) Product costing Answer: B Diff: 1 LO: 4-2 EOC: E4-23A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 25 .

74) Using traditional costing instead of ABC costing might lead to all of the following except A) cutting back on high-volume products that appear unprofitable. B) expanding low-volume products that appear profitable. C) raising the selling price of low-volume products. D) raising the selling price of high-volume products. Answer: C Diff: 2 LO: 4-2 EOC: E4-23A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 75) Which of the following is not likely to be a cost driver of activities associated with determining product cost? A) Number of material requisitions B) Number of cost accountant's labor hours C) Number of product inspections D) Number of production orders Answer: B Diff: 1 LO: 4-2 EOC: E4-23A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 76) Which of the following is most likely to be the cost driver for the packaging and shipping activity? A) Number of setups B) Number of orders shipped C) Number of units produced D) Hours of testing Answer: B Diff: 1 LO: 4-2 EOC: E4-23A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

26 .

77) Which of the following is not an activity in an ABC system that determines the cost of a manufactured product? A) Machining B) Inspecting C) Accounting D) Materials handling Answer: C Diff: 1 LO: 4-2 EOC: E4-24A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 78) Regarding activity-based costing systems, which of the following statements is true? A) ABC systems accumulate overhead costs by departments. B) ABC costing systems are less complex and, therefore, less costly than traditional systems. C) ABC costing systems have separate indirect cost allocation rates for each activity. D) ABC costing systems can be used in manufacturing firms only. Answer: C Diff: 1 LO: 4-2 EOC: E4-24A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 79) Which of the following does activity-based costing consider to be the fundamental cost object? A) Direct labor hours B) Activities C) Direct materials D) Finished goods Answer: B Diff: 1 LO: 4-2 EOC: E4-24A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

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80) Kramer Company manufactures coffee tables and uses an activity-based costing system. Each coffee table consists of 20 separate parts totaling $240 in direct materials, and requires 5.0 hours of machine time to produce. Additional information follows: Activity Materials handling Machining Assembling Packaging

Allocation Base Number of parts Machine hours Number of parts Number of finished units

Cost Allocation Rate $2.00 per part $2.75 per machine hour $1.00 per part $3.00 per finished unit

What is the cost of materials handling per coffee table? A) $40.00 B) $20.00 C) $7.75 D) $15.00 Answer: A Explanation: A) 1 table = 20 parts × $2.00 per part = $40.00 Diff: 2 LO: 4-2 EOC: E4-24A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 81) Kramer Company manufactures coffee tables and uses an activity-based costing system to allocate all manufacturing conversion costs. Each coffee tables consists of 20 separate parts totaling $240 in direct materials, and requires 5.0 hours of machine time to produce. Additional information follows: Activity Materials handling Machining Assembling Packaging

Allocation Base Number of parts Machine hours Number of parts Number of finished units

Cost Allocation Rate $2.00 per part $2.75 per machine hour $1.00 per part $3.00 per finished unit

What is the cost of machining per coffee table? A) $15.00 B) $21.00 C) $13.75 D) $55.00 Answer: C Explanation: C) 5 machine hours × $2.75 = $13.75 Diff: 2 LO: 4-2 EOC: E4-24A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

28 .

82) Kramer Company manufactures coffee tables and uses an activity-based costing system to allocate all manufacturing conversion costs. Each coffee tables consists of 20 separate parts totaling $240 in direct materials, and requires 5.0 hours of machine time to produce. Additional information follows: Activity Materials handling Machining Assembling Packaging

Allocation Base Number of parts Machine hours Number of parts Number of finished units

Cost Allocation Rate $2.00 per part $2.75 per machine hour $1.00 per part $3.00 per finished unit

What is the cost of assembling per coffee table? A) $40.00 B) $15.00 C) $7.75 D) $20.00 Answer: D Explanation: D) 20 parts × $1.00 per part = $20.00 Diff: 2 LO: 4-2 EOC: E4-24A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 83) Kramer Company manufactures coffee tables and uses an activity-based costing system to allocate all manufacturing conversion costs. Each coffee table consists of 20 separate parts totaling $240 in direct materials, and requires 5.0 hours of machine time to produce. Additional information follows: Activity Materials handling Machining Assembling Packaging

Allocation Base Number of parts Machine hours Number of parts Number of finished units

Cost Allocation Rate $2.00 per part $2.75 per machine hour $1.00 per part $3.00 per finished unit

What is the number of finished coffee tables? A) 20 B) 100 C) 250 D) Cannot be determined from the information given Answer: D Diff: 2 LO: 4-2 EOC: E4-24A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

29 .

84) Kramer Company manufactures coffee tables and uses an activity-based costing system to allocate all manufacturing conversion costs. Each coffee table consists of 20 separate parts totaling $240 in direct materials, and requires 5.0 hours of machine time to produce. Additional information follows: Activity Materials handling Machining Assembling Packaging

Allocation Base Number of parts Machine hours Number of parts Number of finished units

Cost Allocation Rate $2.00 per part $2.75 per machine hour $1.00 per part $3.00 per finished unit

What is the total manufacturing cost per coffee table? A) $316.75 B) $ 76.75 C) $313.75 D) $ 55.00 Answer: A Explanation: A) Handling 20 parts × 2.00 = 40.00 Machining 5 hrs × 2.75 = 13.75 Assembly 20 parts × 1.00 = 20.00 Packaging = 3.00 Direct materials = 240.00 Total = 316.75 Diff: 2 LO: 4-2 EOC: E4-24A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

30 .

85) The Cosmo Corporation manufactures and assembles office chairs. Cosmo uses an activity-based costing system to allocate all manufacturing conversion costs. Each chair consists of 15 separate parts totaling $125 in direct materials, and requires 2.0 hours of machine time to produce. Additional information follows: Activity Materials handling Machining Assembling Packaging

Allocation Base Number of parts Machine hours Number of parts Number of finished units

Cost Allocation Rate $1.75 per part $2.00 per machine hour $0.50 per part $2.75 per finished unit

What is the cost of materials handling per chair? A) $26.25 B) $7.50 C) $5.50 D) $4.00 Answer: A Explanation: A) 1 chair = 15 parts × $1.75 per part = $26.25 Diff: 2 LO: 4-2 EOC: E4-24A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 86) The Cosmo Corporation manufactures and assembles office chairs. Cosmo uses an activity-based costing system to allocate all manufacturing conversion costs. Each chair consists of 15 separate parts totaling $125 in direct materials, and requires 2.0 hours of machine time to produce. Additional information follows: Activity Materials handling Machining Assembling Packaging

Allocation Base Number of parts Machine hours Number of parts Number of finished units

Cost Allocation Rate $1.75 per part $2.00 per machine hour $0.50 per part $2.75 per finished unit

What is the cost of machining per chair? A) $4.00 B) $30.00 C) $15.50 D) $5.50 Answer: A Explanation: A) 2 machine hours × $2.00 = $4.00 Diff: 2 LO: 4-2 EOC: E4-24A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 31 .

87) The Cosmo Corporation manufactures and assembles office chairs. Cosmo uses an activity-based costing system to allocate all manufacturing conversion costs. Each chair consists of 15 separate parts totaling $125 in direct materials, and requires 2.0 hours of machine time to produce. Additional information follows: Activity Materials handling Machining Assembling Packaging

Allocation Base Number of parts Machine hours Number of parts Number of finished units

Cost Allocation Rate $1.75 per part $2.00 per machine hour $0.50 per part $2.75 per finished unit

What is the cost of assembling per chair? A) $4.00 B) $5.50 C) $7.50 D) $26.25 Answer: C Explanation: C) 15 parts × $0.50 per part = $7.50 Diff: 2 LO: 4-2 EOC: E4-24A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 88) The Cosmo Corporation manufactures and assembles office chairs. Cosmo uses an activity-based costing system to allocate all manufacturing conversion costs. Each chair consists of 15 separate parts totaling $125 in direct materials, and requires 2.0 hours of machine time to produce. Additional information follows: Activity Materials handling Machining Assembling Packaging

Allocation Base Number of parts Machine hours Number of parts Number of finished units

Cost Allocation Rate $1.75 per part $2.00 per machine hour $0.50 per part $2.75 per finished unit

What is the number of finished coffee tables? A) 20 B) 100 C) 250 D) Cannot be determined from the information given Answer: D Diff: 2 LO: 4-2 EOC: E4-24A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

32 .

89) Garrett Company manufactures coffee tables and uses an activity-based costing system to allocate all manufacturing conversion costs. Each coffee table consists of 15 separate parts totaling $125 in direct materials, and requires 2.0 hours of machine time to produce. Additional information follows: Activity Materials handling Machining Assembling Packaging

Allocation Base Number of parts Machine hours Number of parts Number of finished units

Cost Allocation Rate $1.75 per part $2.00 per machine hour $0.50 per part $2.75 per finished unit

What is the total manufacturing cost per chair? A) $165.50 B) $40.50 C) $162.75 D) $30.00 Answer: A Explanation: A) Handling 15 parts × 1.75 = 26.25 Machining 2 hrs × 2.00 = 4.00 Assembly 15 parts × .50 = 7.50 Packaging = 2.75 Direct materials = 125.00 Total = 165.50 Diff: 2 LO: 4-2 EOC: E4-24A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

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90) Telecom uses activity-based costing to allocate all manufacturing conversion costs. Telecom produces cellular telephones; each phone has $40.00 of direct materials, includes 30 parts and requires 3 hours of machine time. Additional information follows: Activity Materials handling Machining Assembling Packaging

Allocation Base Number of parts Machine hours Number of parts Number of finished units

Cost Allocation Rate $0.50 per part $14.00 per machine hour $1.00 per part $2.00 per finished unit

What is the cost of materials handling per phone? A) $42.00 B) $ 6.00 C) $15.00 D) $30.00 Answer: C Explanation: C) 30 parts × .50 = $15.00 Diff: 2 LO: 4-2 EOC: E4-24A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 91) Telecom uses activity-based costing to allocate all manufacturing conversion costs. Telecom produces cellular telephones; each phone has $40.00 of direct materials, includes 30 parts and requires 3 hours of machine time. Additional information follows: Activity Materials handling Machining Assembling Packaging

Allocation Base Number of parts Machine hours Number of parts Number of finished units

Cost Allocation Rate $0.50 per part $14.00 per machine hour $1.00 per part $2.00 per finished unit

What is the cost of machining per phone? A) $42.00 B) $30.00 C) $6.00 D) $15.00 Answer: A Explanation: A) 3 hours × $14.00 = $42.00 Diff: 2 LO: 4-2 EOC: E4-24A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

34 .

92) Telecom uses activity-based costing to allocate all manufacturing conversion costs. Telecom produces cellular telephones; each phone has $40.00 of direct materials, includes 30 parts and requires 3 hours of machine time. Additional information follows: Activity Materials handling Machining Assembling Packaging

Allocation Base Number of parts Machine hours Number of parts Number of finished units

Cost Allocation Rate $0.50 per part $14.00 per machine hour $1.00 per part $2.00 per finished unit

What is the cost of assembling per phone? A) $6.00 B) $42.00 C) $15.00 D) $30.00 Answer: D Explanation: D) 30 parts × $1.00 = $30.00 Diff: 2 LO: 4-2 EOC: E4-23A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 93) Swiss Furniture Company manufactures bookshelves and uses an activity-based costing system. The following information is provided for the month of May:

Activity Materials handling Assembling Packaging

Estimated Indirect Estimated Quantity of Activity Costs Allocation Base Allocation Base $6,400 Number of parts 3,200 parts $11,200 Number of parts 3,200 parts $2,240 Number of units 800 bookshelves

Each bookshelf consists of 4 parts. The direct materials cost per bookshelf is $30.00. What is the cost of materials handling and assembling per bookshelf? A) $ 8.00 B) $24.80 C) $22.00 D) $14.00 Answer: C Explanation: C) Handling $6400 / 3200 parts × 4 parts = 8.00 Assembling $11,200 / 3200 parts × 4 parts = 14.00 Total 22.00 Diff: 2 LO: 4-2 EOC: E4-23A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 35 .

94) Swiss Furniture Company manufactures bookshelves and uses an activity-based costing system to allocate all manufacturing conversion costs. The following information is provided for the month of May:

Activity Materials handling Assembling Packaging

Estimated Indirect Estimated Quantity of Activity Costs Allocation Base Allocation Base $6,400 Number of parts 3,200 parts $11,200 Number of parts 3,200 parts $2,240 Number of bookshelves 800 bookshelves

Each bookshelf consists of 4 parts. The direct materials cost per bookshelf is $30.00. What is the total manufacturing cost per bookshelf? A) $24.80 B) $22.00 C) $54.80 D) $52.00 Answer: C Explanation: C) Direct materials = 30.00 Handling ($6,400 / 3,200 parts) × 4 parts = 8.00 Assembling ($11,200 / 3,200 parts) × 4 parts = 14.00 Packaging $2,240 / 800 = 2.80 Total 54.80 Diff: 2 LO: 4-2 EOC: E4-23A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

36 .

95) Back Porch Company manufactures lawn chairs using an activity-based costing system to allocate all manufacturing conversion costs. The following information is provided for the month of June:

Activity Materials handling Assembling Packaging

Estimated Indirect Estimated Quantity of Activity Costs Allocation Base Allocation Base $12,000 Number of parts 12,000 parts $16,800 Number of parts 12,000 parts $4,500 Number of lawn chairs 1,500 lawn chairs

Each lawn chair consists of 8 parts; the total direct materials cost per lawn chair is $10.00. What is the total cost of materials handling and assembling for each lawn chair? A) $32.20 B) $19.20 C) $21.20 D) $11.20 Answer: B Explanation: B) Handling $12,000 / 12,000 parts × 8 = 8.00 Assembling $16,800 / 12,000 parts × 8 = 11.20 Total = 19.20 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

37 .

96) Back Porch Company manufactures lawn chairs using an activity-based costing system to allocate all manufacturing conversion costs. The following information is provided for the month of June:

Activity Materials handling Assembling Packaging

Estimated Indirect Estimated Quantity of Activity Costs Allocation Base Allocation Base $12,000 Number of parts 12,000 parts $16,800 Number of parts 12,000 parts $4,500 Number of lawn chairs 1,500 lawn chairs

Each lawn chair consists of 8 parts; the total direct materials cost per lawn chair is $10.00. What is the total cost of packaging per lawn chair? A) $13.00 B) $11.20 C) $ 8.00 D) $ 3.00 Answer: D Explanation: D) Packaging $4,500 / 1,500 = $3.00 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

38 .

97) Back Porch Company manufactures lawn chairs using an activity-based costing system to allocate all manufacturing conversion costs. The following information is provided for the month of June:

Activity Materials handling Assembling Packaging

Estimated Indirect Estimated Quantity of Activity Costs Allocation Base Allocation Base $12,000 Number of parts 12,000 parts $16,800 Number of parts 12,000 parts $4,500 Number of lawn chairs 1,500 lawn chairs

Each lawn chair consists of 8 parts; the total direct materials cost per lawn chair is $10.00. What is the total manufacturing cost per lawn chair? A) $32.20 B) $19.20 C) $22.20 D) $29.20 Answer: A Explanation: A) Direct materials = $10.00 Handling $12,000 / 12,000 parts × 8 = 8.00 Assembling $16,800 / 12,000 parts × 8 = 11.20 Packaging $4,500 / 1,500 = 3.00 Total = 32.20 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

39 .

98) Back Porch Company manufactures lawn chairs using an activity-based costing system to allocate all manufacturing conversion costs. The following information is provided for the month of June:

Activity Materials handling Assembling Packaging

Estimated Indirect Estimated Quantity of Activity Costs Allocation Base Allocation Base $12,000 Number of parts 12,000 parts $16,800 Number of parts 12,000 parts $4,500 Number of lawn chairs 1,500 lawn chairs

Each lawn chair consists of 8 parts; the total direct materials cost per pillow is $10.00. If the cost to purchase the same lawn chair from a supplier is $35.00, what should Back Porch do to maximize profits? A) Purchase the lawn chair from the supplier. B) Continue to manufacture the lawn chair. C) Since the cost to manufacture the lawn chair is also $32.20, the company would make the same profit whether it bought the lawn chair or manufactured it. D) Close down the business. Answer: B Explanation: B) Purchase price = 35.00 Manufacture cost = 32.20 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

40 .

99) Potter & Weasley Company had the following activities, estimated indirect activity costs, and allocation bases: Activities Account inquiry (hours) Account billing (lines) Account verification (accounts) Correspondence (letters)

Indirect Activity Costs $86,400 $56,000 $38,250 $80,000

Allocation Base 2,700 32,000 25,500 10,000

Potter & Weasley uses activity based costing. The above activities are used by Departments P and Q as follows: Department P 400 10,000 6,000 1,000

Account inquiry (hours) Account billing (lines) Account verification (accounts) Correspondence (letters)

Department Q 800 4,000 7,000 2,000

What is the cost per driver unit for the account inquiry activity? A) $1.75 B) $8.64 C) $8.00 D) $32.00 Answer: D Explanation: D) $86,400 / 2,700 = 32.00 Diff: 1 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

41 .

100) Potter & Weasley Company had the following activities, estimated indirect activity costs, and allocation bases: Activities Account inquiry (hours) Account billing (lines) Account verification (accounts) Correspondence (letters)

Indirect Activity Costs $86,400 $56,000 $38,250 $80,000

Allocation Base 2,700 32,000 25,500 10,000

Potter & Weasley uses activity based costing. The above activities are used by Departments P and Q as follows: Department P 400 10,000 6,000 1,000

Account inquiry (hours) Account billing (lines) Account verification (accounts) Correspondence (letters)

Department Q 800 4,000 7,000 2,000

What is the cost per driver unit for the account billing activity? A) $8.00 B) $1.50 C) $14.00 D) $1.75 Answer: D Explanation: D) $56,000 / 32,000 = $1.75 Diff: 1 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

42 .

101) Potter & Weasley Company had the following activities, estimated indirect activity costs, and allocation bases: Activities Account inquiry (hours) Account billing (lines) Account verification (accounts) Correspondence (letters)

Indirect Activity Costs $86,400 $56,000 $38,250 $80,000

Allocation Base 2,700 32,000 25,500 10,000

Potter & Weasley uses activity based costing. The above activities are used by Departments P and Q as follows: Department P 400 10,000 6,000 1,000

Account inquiry (hours) Account billing (lines) Account verification (accounts) Correspondence (letters)

Department Q 800 4,000 7,000 2,000

What is the cost per driver unit for the account verification activity? A) $1.75 B) $1.50 C) $9.56 D) $8.00 Answer: B Explanation: B) $38,250 / 25,500 = $1.50 Diff: 1 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

43 .

102) Potter & Weasley Company had the following activities, estimated indirect activity costs, and allocation bases: Activities Account inquiry (hours) Account billing (lines) Account verification (accounts) Correspondence (letters)

Indirect Activity Costs $86,400 $56,000 $38,250 $80,000

Allocation Base 2,700 32,000 25,500 10,000

Potter & Weasley uses activity based costing. The above activities are used by Departments P and Q as follows: Department P 400 10,000 6,000 1,000

Account inquiry (hours) Account billing (lines) Account verification (accounts) Correspondence (letters)

Department Q 800 4,000 7,000 2,000

What is the cost per driver unit for the correspondence activity? A) $8.00 B) $1.75 C) $29.63 D) $32.00 Answer: A Explanation: A) $80,000 / 10,000 = $8.00 Diff: 1 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

44 .

103) Potter & Weasley Company had the following activities, estimated indirect activity costs, and allocation bases: Activities Account inquiry (hours) Account billing (lines) Account verification (accounts) Correspondence (letters)

Indirect Activity Costs $86,400 $56,000 $38,250 $80,000

Allocation Base 2,700 32,000 25,500 10,000

Potter & Weasley uses activity based costing. The above activities are used by Departments P and Q as follows: Department P 400 10,000 6,000 1,000

Account inquiry (hours) Account billing (lines) Account verification (accounts) Correspondence (letters)

Department Q 800 4,000 7,000 2,000

How much of the account inquiry cost will be assigned to Department Q? A) $6,400 B) $25,600 C) $12,800 D) $8,000 Answer: B Diff: 1 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

45 .

104) Potter & Weasley Company had the following activities, estimated indirect activity costs, and allocation bases: Activities Account inquiry (hours) Account billing (lines) Account verification (accounts) Correspondence (letters)

Indirect Activity Costs $86,400 $56,000 $38,250 $80,000

Allocation Base 2,700 32,000 25,500 10,000

Potter & Weasley uses activity based costing. The above activities are used by Departments P and Q as follows: Department P 400 10,000 6,000 1,000

Account inquiry (hours) Account billing (lines) Account verification (accounts) Correspondence (letters)

Department Q 800 4,000 7,000 2,000

How much of the correspondence cost will be assigned to Department P? A) $16,000 B) $9,000 C) $8,000 D) $1,500 Answer: C Explanation: C) $80,000 / 10,000 = $8.00 $8.00 × 1,000 = 8,000 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

46 .

105) Potter & Weasley Company had the following activities, estimated indirect activity costs, and allocation bases: Activities Account inquiry (hours) Account billing (lines) Account verification (accounts) Correspondence (letters)

Indirect Activity Costs $86,400 $56,000 $38,250 $80,000

Allocation Base 2,700 32,000 25,500 10,000

Potter & Weasley uses activity based costing. The above activities are used by Departments P and Q as follows: Department P 400 10,000 6,000 1,000

Account inquiry (hours) Account billing (lines) Account verification (accounts) Correspondence (letters)

Department Q 800 4,000 7,000 2,000

How much of the account verification costs will be assigned to Department P? A) $9,000 B) $8,000 C) $10,500 D) $3,000 Answer: A Explanation: A) $38,250 / 25,500 = $1.50 $1.50 × 6,000 = $9,000.00 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

47 .

106) Watson's Computer Company uses ABC to account for its manufacturing process.

Activities Materials handling Machine setup Assembling Packaging

Indirect activity budget $ 52,000 $ 30,000 $ 9,750 $ 15,300

Allocation base (cost driver) Based on number of parts Based on number of setups Based on number of parts Based on number of finished units

Watson's Computer Company expects to produce 2,250 computers. Watson's Computer Company also expects to use 13,000 parts and have 20 setups. The allocation rate for materials handling will be A) $4.00. B) $6.80. C) $23.11. D) $7.01. Answer: A Explanation: A) $52,000 / 13,000 = $4.00 Diff: 1 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

48 .

107) Watson's Computer Company uses ABC to account for its manufacturing process.

Activities Materials handling Machine setup Assembling Packaging

Indirect activity budget $ 52,000 $ 30,000 $ 9,750 $ 15,300

Allocation base (cost driver) Based on number of parts Based on number of setups Based on number of parts Based on number of finished units

Watson's Computer Company expects to produce 2,250 computers. Watson's Computer Company also expects to use 13,000 parts and have 20 setups. The allocation rate for machine setups is A) $7.01. B) $1,500. C) $488. D) $765. Answer: B Explanation: B) $30,000 / 20 = $1,500 Diff: 1 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

49 .

108) Watson's Computer Company uses ABC to account for its manufacturing process.

Activities Materials handling Machine setup Assembling Packaging

Indirect activity budget $ 52,000 $ 30,000 $ 9,750 $ 15,300

Allocation base (cost driver) Based on number of parts Based on number of setups Based on number of parts Based on number of finished units

Watson's Computer Company expects to produce 2,250 computers. Watson's Computer Company also expects to use 13,000 parts and have 20 setups. The allocation rate for packaging is A) $4.00. B) $13.33. C) $6.80. D) $7.01. Answer: C Explanation: C) $15,300 / 2,250 units = $6.80 Diff: 1 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

50 .

109) Hummingbird Manufacturing manufactures small parts and uses an activity-based costing system. Activity Materials Assembling Packaging

Est. Indirect Activity Allocation base Costs $75,000 Material moves $255,000 Direct labor hours $90,000 # of finished units

Cost allocation rate $3.00/move $10.00/dir. labor hour $1.00/finished unit

The following parts were produced in October with the following information: Part A B C

# Produced 2,250 4,000 4,750

Materials Costs $3,000 $6,500 $9,000

# Moves 900 1,700 2,500

Dir. Labor Hrs. 250 325 1,500

Total manufacturing costs for part A is A) $7,450. B) $5,200. C) $10,450. D) $8,200. Answer: C Explanation: C) Materials costs = $3,000 Overhead: Materials 900 moves × $3 = 2,700 Assembling 250 hr × $10 = 2,500 Packaging 2,250 units × $1.00 = 2,250 Total = $10,450 Diff: 3 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

51 .

110) Hummingbird Manufacturing manufactures small parts and uses an activity-based costing system. Activity Materials Assembling Packaging

Est. Indirect Activity Allocation base Costs $75,000 Material moves $255,000 Direct labor hours $90,000 # of finished units

Cost allocation rate $3.00/move $10.00/dir. labor hour $1.00/finished unit

The following parts were produced in October with the following information: Part A B C

# Produced 2,250 4,000 4,750

Materials Costs $3,000 $6,500 $9,000

# Moves 900 1,700 2,500

Dir. Labor Hrs. 250 325 1,500

Total manufacturing costs for part B is A) $8,350. B) $12,350. C) $14,850. D) $18,850. Answer: D Explanation: D) Direct Materials costs = $6,500 Overhead Materials 1,700 moves × $3 = 5,100 Assembling 325 hr × $10 = 3,250 Packaging 4,000 units × $1.00 = 4,000 Total = $18,850 Diff: 3 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

52 .

111) Hummingbird Manufacturing manufactures small parts and uses an activity-based costing system. Activity Materials Assembling Packaging

Est. Indirect Activity Allocation base Costs $75,000 Material moves $255,000 Direct labor hours $90,000 # of finished units

Cost allocation rate $3.00/move $10.00/dir. labor hour $1.00/finished unit

The following parts were produced in October with the following information: Part A B C

# Produced 2,250 4,000 4,750

Materials Costs $3,000 $6,500 $9,000

# Moves 900 1,700 2,500

Dir. Labor Hrs. 250 325 1,500

Total manufacturing costs for part C is A) $27,250. B) $31,500. C) $36,250. D) $22,500. Answer: C Explanation: C) Direct Materials costs = $9,000 Overhead Materials 2,500 moves × $3 = 7,500 Assembling 1,500 hr × $10 = 15,000 Packaging 4,750 units × $1.00 = 4,750 Total = $36,250 Diff: 3 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

53 .

112) Hummingbird Manufacturing manufactures small parts and uses an activity-based costing system. Activity Materials Assembling Packaging

Est. Indirect Activity Allocation base Costs $75,000 Material moves $255,000 Direct labor hours $90,000 # of finished units

Cost allocation rate $3.00/move $10.00/dir. labor hour $1.00/finished unit

The following parts were produced in October with the following information: Part A B C

# Produced 2,250 4,000 4,750

Materials Costs $3,000 $6,500 $9,000

# Moves 900 1,700 2,500

Dir. Labor Hrs. 250 325 1,500

Total unit costs for Part A is closest to (round to two decimal points) A) $4.64. B) $12.14. C) $7.63. D) $4.71. Answer: A Explanation: A) Part A # Produced Cost/part Materials costs = $3,000 Overhead Materials 900 moves × $3 = 2,700 Assembling 250 hr × $10 = 2,500 Packaging 2250 units × $1.00 = 2,250 Total = $10,450 / 2250 = 4.64 Diff: 3 LO: 5-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

54 .

113) Hummingbird Manufacturing manufactures small parts and uses an activity-based costing system. Activity Materials Assembling Packaging

Est. Indirect Activity Allocation base Costs $75,000 Material moves $255,000 Direct labor hours $90,000 # of finished units

Cost allocation rate $3.00/move $10.00/dir. labor hour $1.00/finished unit

The following parts were produced in October with the following information: Part A B C

# Produced 2,250 4,000 4,750

Materials Costs $3,000 $6,500 $9,000

# Moves 900 1,700 2,500

Dir. Labor Hrs. 250 325 1,500

Total unit cost for part B is closest to (rounded to two decimal places) A) $4.71. B) $4.64. C) $7.63. D) $3.09. Answer: A Explanation: A) Direct materials costs = $6,500 Overhead Materials 1,700 moves × $3 = 5,100 Assembling 325 hr × $10 = 3,250 Packaging 4,000 units × $1.00 = 4,000 Total = $18,850 / 4000 = 4.71 Diff: 3 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

55 .

114) Hummingbird Manufacturing manufactures small parts and uses an activity-based costing system. Activity Materials Assembling Packaging

Est. Indirect Activity Allocation base Costs $75,000 Material moves $255,000 Direct labor hours $90,000 # of finished units

Cost allocation rate $3.00/move $10.00/dir. labor hour $1.00/finished unit

The following parts were produced in October with the following information: Part A B C

# Produced 2,250 4,000 4,750

Materials Costs $3,000 $6,500 $9,000

# Moves 900 1,700 2,500

Dir. Labor Hrs. 250 325 1,500

Total assembly fees for part B is A) $ 2,500. B) $17,000. C) $ 3,250. D) $ 975. Answer: C Explanation: C) $10.00 × 325 hrs = $3,250 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

56 .

115) Hummingbird Manufacturing manufactures small parts and uses an activity-based costing system. Activity Materials Assembling Packaging

Est. Indirect Activity Allocation base Costs $75,000 Material moves $255,000 Direct labor hours $90,000 # of finished units

Cost allocation rate $3.00/move $10.00/dir. labor hour $1.00/finished unit

The following parts were produced in October with the following information: Part A B C

# Produced 2,250 4,000 4,750

Materials Costs $3,000 $6,500 $9,000

# Moves 900 1,700 2,500

Dir. Labor Hrs. 250 325 1,500

Total packaging fees for all three parts is A) $11,000. B) $33,000. C) $ 6,250. D) $ 5,100. Answer: A Explanation: A) $1.00 × (2,250 + 4,000 + 4,750) = $11,000 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

57 .

116) Beartowne Enterprises uses an activity-based costing system to assign costs in its auto-parts division. Activity Materials Assembling Packaging

Est. Indirect Activity Allocation base Costs $60,000 Material moves $175,000 Direct labor hours $70,000 # of finished units

Cost allocation rate $5.00/move $5.00/dir. labor hour $2.50/finished unit

The following units were produced in December with the following information: Part # Part 001 Part 002 Part 003

# Produced 1,250 3,500 3,750

Materials Costs $2,500 $6,000 $7,000

# Moves 100 500 2,500

Dir. Labor Hrs. 200 300 1,250

Total manufacturing costs for Part 001 is A) $4,625. B) $1,500. C) $7,125. D) $4,000. Answer: C Explanation: C) Materials costs = $2,500 Overhead Materials 100 moves × $5 = 500 Assembling 200 hr × $5 = 1,000 Packaging 1,250 units × $2.50 = 3,125 Total = $7,125 Diff: 3 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

58 .

117) Beartowne Enterprises uses an activity-based costing system to assign costs in its auto-parts division. Activity Materials Assembling Packaging

Est. Indirect Activity Allocation base Costs $60,000 Material moves $175,000 Direct labor hours $70,000 # of finished units

Cost allocation rate $5.00/move $5.00/dir. labor hour $2.50/finished unit

The following units were produced in December with the following information: Part # Part 001 Part 002 Part 003

# Produced 1,250 3,500 3,750

Materials Costs $2,500 $6,000 $7,000

# Moves 100 500 2,500

Dir. Labor Hrs. 200 300 1,250

Total manufacturing costs for Part 002 is A) $12,750. B) $4,000. C) $10,000. D) $18,750. Answer: D Explanation: D) Direct materials costs = $6,000 Overhead Materials 500 moves × $5 = 2,500 Assembling 300 hr × $5 = 1,500 Packaging 3,500 units × $2.50 = 8,750 Total = $18,750 Diff: 3 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

59 .

118) Beartowne Enterprises uses an activity-based costing system to assign costs in its auto-parts division. Activity Materials Assembling Packaging

Est. Indirect Activity Allocation base Costs $60,000 Material moves $175,000 Direct labor hours $70,000 # of finished units

Cost allocation rate $5.00/move $5.00/dir. labor hour $2.50/finished unit

The following units were produced in December with the following information: Part # Part 001 Part 002 Part 003

# Produced 1,250 3,500 3,750

Materials Costs $2,500 $6,000 $7,000

# Moves 100 500 2,500

Dir. Labor Hrs. 200 300 1,250

Total manufacturing costs for Part 003 is A) $28,125. B) $18,750. C) $35,125. D) $25,750. Answer: C Explanation: C) Materials costs = $7,000 Overhead Materials 2,500 moves × $5 = 12,500 Assembling 1,250 hr × $5 = 6,250 Packaging 3,750 units × $2.50 = 9,375 Total = $35,125 Diff: 3 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

60 .

119) Beartowne Enterprises uses an activity-based costing system to assign costs in its auto-parts division. Activity Materials Assembling Packaging

Est. Indirect Activity Allocation base Costs $60,000 Material moves $175,000 Direct labor hours $70,000 # of finished units

Cost allocation rate $5.00/move $5.00/dir. labor hour $2.50/finished unit

The following units were produced in December with the following information: Part # Part 001 Part 002 Part 003

# Produced 1,250 3,500 3,750

Materials Costs $2,500 $6,000 $7,000

# Moves 100 500 2,500

Dir. Labor Hrs. 200 300 1,250

Total unit costs for Part 001 is closest to (round to two decimal points) A) $5.70. B) $14.84. C) $9.37. D) $5.36. Answer: A Explanation: A) Part 001 # Produced Cost/part Materials costs = $2,500 Overhead Materials 100 moves × $5 = 500 Assembling 200 hr × $5 = 1,000 Packaging 1,250 units × $2.50 = 3,125 Total = $7,125 / 1,250 = 5.70 Diff: 3 LO: 5-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

61 .

120) Beartowne Enterprises uses an activity-based costing system to assign costs in its auto-parts division. Activity Materials Assembling Packaging

Est. Indirect Activity Allocation base Costs $60,000 Material moves $175,000 Direct labor hours $70,000 # of finished units

Cost allocation rate $5.00/move $5.00/dir. labor hour $2.50/finished unit

The following units were produced in December with the following information: Part # Part 001 Part 002 Part 003

# Produced 1,250 3,500 3,750

Materials Costs $2,500 $6,000 $7,000

# Moves 100 500 2,500

Dir. Labor Hrs. 200 300 1,250

Total unit cost for Part 002 is closest to (rounded): A) $5.36 B) $5.70. C) $9.37. D) $3.64. Answer: A Explanation: A) Direct materials costs = $6,000 Overhead Materials 500 moves × $5 = 2,500 Assembling 300 hr × $5 = 1,500 Packaging 3,500 units × $2.50 = 8,750 Total = $18,750 / 3,500 = 5.36 Diff: 3 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

62 .

121) Beartowne Enterprises uses an activity-based costing system to assign costs in its auto-parts division. Activity Materials Assembling Packaging

Est. Indirect Activity Allocation base Costs $60,000 Material moves $175,000 Direct labor hours $70,000 # of finished units

Cost allocation rate $5.00/move $5.00/dir. labor hour $2.50/finished unit

The following units were produced in December with the following information: Part # Part 001 Part 002 Part 003

# Produced 1,250 3,500 3,750

Materials Costs $2,500 $6,000 $7,000

# Moves 100 500 2,500

Dir. Labor Hrs. 200 300 1,250

Total assembly fees for Part 002 is A) $1,000. B) $1,250. C) $1,500. D) $2,500. Answer: C Explanation: C) $5 × 300 hrs = $1,500 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

63 .

122) Beartowne Enterprises uses an activity-based costing system to assign costs in its auto-parts division. Activity Materials Assembling Packaging

Est. Indirect Activity Allocation base Costs $60,000 Material moves $175,000 Direct labor hours $70,000 # of finished units

Cost allocation rate $5.00/move $5.00/dir. labor hour $2.50/finished unit

The following units were produced in December with the following information: Part # Part 001 Part 002 Part 003

# Produced 1,250 3,500 3,750

Materials Costs $2,500 $6,000 $7,000

# Moves 100 500 2,500

Dir. Labor Hrs. 200 300 1,250

Total packaging fees for all three parts is: A) $21,250. B) $42,500. C) $11,875. D) $7,750. Answer: A Explanation: A) $2.50 × (1,250 + 3,500 + 3,750) = $21,250 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

64 .

123) Bilingsly Limited, a manufacturer of a variety of products, uses an activity-based costing system. Information from its system for the year for all products follows:

Bilingsly Limited makes 450 of its product B63 a year, which requires a total of 53 machine hours, 13 inspection hours, and 19 orders. Product B63 requires $45.70 in direct materials per unit and $58.20 in direct labor per unit. Product B63 sells for $265 per unit. What is the product margin in total for Product B63? A) $80.20 B) $36,090.00 C) $116,986.60 D) $70,335.50 Answer: D Explanation: D)

Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 65 .

124) Wadsworth Industries manufactures small appliances and uses an activity-based costing system. Information from its system for the year for all products follows:

Wadsworth makes 775 of its stand mixers a year, which requires a total of 25 machine hours, 10 inspection hours, and 12 orders. The stand mixer requires $15.00 in direct materials per unit and $11.50 in direct labor per unit. The stand mixer sells for $120 per unit. What is the product margin in total for the stand mixer? A) $91,979.50 B) $26.50 C) $20,537.50 D) $71,468.50 Answer: D Explanation: D)

Diff: 2 LO: 4-2 EOC: P4-48A 66 .

AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 125) Platinum Company manufactures several different products and uses an activity-based costing system. Information from its system for the year for all products follows:

The annual production and sales of one of its products, the Zinger, are 800 units. The following data relate to the production and sales of Widgets in the most recent year: Annual machine hours Annual number of orders Annual number of inspections Direct materials cost per unit Direct labor cost per unit

720 130 85 $ 119.40 $ 63.80

What is the average cost of one Zinger? A) $ 25.01 B) $158.19 C) $236.70 D) $208.21 Answer: D Explanation: D)

Annual machine hours Annual number of orders Annual number of inspections Direct materials cost per unit Direct labor cost per unit Average cost per unit

720 130 85 $ 119.40 $ 63.80

/ 800 × 23 / 800 × 19 / 800 × 11.50

20.70 3.09 1.22 119.40 63.80 208.21

Diff: 3 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

67 .

126) Benjamin Company manufactures a wide variety of products and uses an activity-based costing system. Data from its activity-based costing system for all products follows:

What is the engineering cost pool rate per engineering hour? A) $12 B) $28 C) $47 D) $83 Answer: B Explanation: B) $154,000 / 5,500 hrs = 28.00 Diff: 1 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 127) Salvatore LLC provides a wide variety of legal services and uses an activity-based costing system. Data from its activity-based costing system for all services follows:

The cost pool activity rate for client meetings is A) $56 per meeting hour. B) $ 8 per meeting hour. C) $27 per meeting hour. D) $87 per meeting hour. Answer: D Explanation: D) $339,300 / 3,900 = 87.00 Diff: 1 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

68 .

128) Dursley & Marvolo, Attorneys at Law, provide a variety of legal services. The law firm uses an activity-based costing system and has developed the following activity pool cost rates:

Cost and activity data related to two clients is as follows:

Number of paralegal hours Number of cases filed Number of documents

Client 82 32 1 13

Client 122 76 3 33

How much overhead cost would be allocated to Client 82 using the activity-based costing system? A) $ 709 B) $ 9,626 C) $ 2,721 D) $ 32,614 Answer: C Explanation: C) Research $56 × 32 hrs = 1,792.00 Filing $630 × 1 = 630.00 Doc prep $23 × 13 = 299.00 Total = 2,721.00 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

69 .

129) Augustine Associates is a CPA firm that offers assurance and consulting services. The firm uses an activity-based costing system and has developed the following activity pool cost rates:

Cost and activity data related to two clients is as follows:

Number of staff hours Number of partner hours Number of reports

Client 867 20 15 10

Client 928 85 20 27

How much overhead cost would be allocated to Client 867 using the activity-based costing system? A) $370 B) $18,290 C) $5,700 D) $16,650 Answer: C Explanation: C) Audit $75 × 20 hrs = 1,500 Tax $250 × 15 = 3,750 Reports $45 × 10 = 450 Total = 5,700 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

70 .

130) Howard, Fine, & Howard is an advertising agency. The firm uses an activity-based costing system to allocate overhead costs to its services. Information about the firm's activity cost pool rates follows:

Stooge Company was a client of Howard, Fine, & Howard. Recently, 7 administrative assistant hours, 3 new ad campaigns, and 8 meeting hours were incurred for the Stooge Company account. Using the activity-based costing system, how much overhead cost would be allocated to the Stooge Company account? A) $917 B) $501 C) $195 D) $3,484 Answer: A Explanation: A) Clerical $18 × 7 hr = 126.00 Filing $125 × 3 ad = 375.00 Meeting $52 × 8 = 416.00 Total 917.00 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

71 .

131) Carrol Company, which uses an activity-based costing system, produces travel trailers and boat trailers. The company allocates batch setup costs to the two products using the following basic data: Travel trailers 2,250 340 40

Budgeted units to be produced Budgeted number of setups Budgeted number of direct labor hours per unit

Boat trailers 2,900 560 60

Total budgeted setup costs for the year are $158,400. If the setup costs are allocated using direct labor hours, how much of the total setup costs would be allocated to boat trailers? A) $158,400 B) $104,400 C) $240,331 D) $306,240 Answer: B Explanation: B) Total budgeted number of travel trailers to be produced 2,250 Budgeted number of direct labor hours per unit Travel trailers direct labor hours

90,000

Total budgeted number of boat trailers to be produced

2,900

Budgeted number of direct labor hours per unit Boat trailers direct labor hours

174,000

Travel trailers direct labor hours

90,000

Boat trailers direct labor hours Total direct labor hours

264,000

$158,400/264,000 × 174,000 = $104,400 Diff: 3 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

72 .

132) Carrol Company, which uses an activity-based costing system, produces travel trailers and boat trailers. The company allocates batch setup costs to the two products using the following basic data: Travel trailers 2,250 340 40

Budgeted units to be produced Budgeted number of setups Budgeted number of direct labor hours per unit

Boat trailers 2,900 560 60

Total budgeted setup costs for the year are $158,400. If the setup costs are allocated using number of setups, how much of the total setup costs would be allocated to boat trailers? A) $98,560 B) $59,840 C) $158,400 D) $419,294 Answer: A Explanation: A) 340 + 560 = 900 total setups $158,400 / 900 = 176.00 $176.00 × 560 = $98,560 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

73 .

133) Alexander Inc. uses activity-based costing. The company produces two products: Snaps and Pops. The expected annual production of Snaps is 1,500 units, while the expected annual production of Pops is 2,200 units. There are three activity cost pools: Assembly, Testing, and Packing. The estimated costs and activities for each of these three activity pools follows:

The cost pool activity rate for Testing would be A) $21.43 per activity. B) $13.90 per activity. C) $39.56 per activity. D) $6.95 per activity. Answer: B Explanation: B) $25,715 / 1850 = 13.90 Diff: 1 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

74 .

134) Alexander Inc. uses activity-based costing. The company produces two products: Snaps and Pops. The expected annual production of Snaps is 1,500 units, while the expected annual production of Pops is 2,200 units. There are three activity cost pools: Assembly, Testing, and Packing. The estimated costs and activities for each of these three activity pools follows:

The overhead cost per unit of Pops would be closest to A) $15.30. B) $5.32. C) $7.80. D) $31.00. Answer: B Explanation: B) Assembly $5,548 / 760 × 130 = 949.00 Testing $25,715 / 1,850 × 650 = 9,035.00 Packing $2,401 / 245 × 17 = 1,715.00 Total 11,699.00 / 2,200 units = $5.32 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

75 .

135) Vandalay Industries manufactures two products: toasters and blenders. The annual production and sales of toasters is 2,200 units, while 1,500 units of blenders are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Toasters require 1.25 direct labor hours per unit, while blenders require .75 direct labor hours per unit. The total estimated overhead for the period is $149,115. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools:

The predetermined overhead allocation rate using the traditional costing system would be closest to A) $40.30 per direct labor hour. B) $132.55 per direct labor hour. C) $54.22 per direct labor hour. D) $38.48 per direct labor hour. Answer: D Explanation: D) $149,115 / 3,875 hrs = $38.48 Diff: 1 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

76 .

136) Vandalay Industries manufactures two products: toasters and blenders. The annual production and sales of toasters is 2,200 units, while 1,500 units of blenders are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Toasters require 1.25 direct labor hours per unit, while blenders require 1 direct labor hours per unit. The total estimated overhead for the period is $149,115. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools:

The overhead cost per Blenders using the traditional costing system would be closest to A) $28.86. B) $38.48. C) $99.41. D) $21.55. Answer: A Explanation: A) $149,115 / 3875 hrs = 38.48 1,125 hours × 38.48 per hour = 43,290 / 1,500 = 28.86 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

77 .

137) Vandalay Industries manufactures two products: toasters and blenders. The annual production and sales of toasters is 2,200 units, while 1,500 units of blenders are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Toasters require 1.25 direct labor hours per unit, while blenders require 1 direct labor hours per unit. The total estimated overhead for the period is $149,115. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools:

The cost pool activity rate for Engineering Costs would be closest to A) $13.00 per engineering hour. B) $42.00 per engineering hour. C) $18.00 per engineering hour. D) $63.09 per engineering hour. Answer: B Explanation: B) $70,980 / 1690 hr = 42.00 Diff: 1 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

78 .

138) Vandalay Industries manufactures two products: toasters and blenders. The annual production and sales of toasters is 2,200 units, while 1,500 units of blenders are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Toasters require 1.25 direct labor hours per unit, while blenders require 1 direct labor hours per unit. The total estimated overhead for the period is $149,115. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools:

The overhead cost per blender using an activity-based costing system would be closest to A) $ 27.72. B) $ 73.00. C) $ 99.41. D) $ 40.66. Answer: D Explanation: D) Setup ($8385/645) × 420 = $5,460.00 Engineering ($70,980/1,690) × 840 = 35,280.00 Maintenance ($69,750/3,875) × 1,125 = 20,250.00 Total 60,990.00 / 1,500 = 40.66 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

79 .

139) Vintage Fun reproduces old-fashioned style roller skates and skateboards. The annual production and sales of roller skates is 950 units, while 1,750 skateboards are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Roller skates require 2.5 direct labor hours per unit, while skateboards require 1.25 direct labor hours per unit. The total estimated overhead for the period is $114,300. The company is looking at the possibility of changing to an activitybased costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools:

The predetermined overhead allocation rate using the traditional costing system would be closest to A) $52.25 per direct labor hour. B) $48.13 per direct labor hour. C) $42.33 per direct labor hour. D) $25.05 per direct labor hour. Answer: D Explanation: D) Total DLH = (950 × 2.5) + (1,750 × 1.25) = 4,562.5 $114,300 / 4,562.5 hrs = 25.05 Diff: 1 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

80 .

140) Vintage Fun reproduces old-fashioned style roller skates and skateboards. The annual production and sales of roller skates is 950 units, while 1,750 skateboards are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Roller skates require 2.5 direct labor hours per unit, while skateboards require 1.25 direct labor hours per unit. The total estimated overhead for the period is $114,300. The company is looking at the possibility of changing to an activitybased costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools:

The overhead cost per skateboard using the traditional costing system would be closest to: A) $31.32. B) $25.05. C) $65.31. D) $9.31. Answer: A Explanation: A) Roller skate DL hours: 950 × 2.5 = 2,375 Skateboard DL hours: 1,750 × 1.25 = 2,187.5 Predetermined OH rate: (6,550 + 16,500 + 91,250) / (2,375 + 2,187.5) = 25.05 Skateboard activity: 25.05 × 2,187.5 = 54,801.37 OH per unit: 54,801.37 / 1,750 = 31.32 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

81 .

141) Vintage Fun reproduces old-fashioned style roller skates and skateboards. The annual production and sales of roller skates is 950 units, while 1,750 skateboards are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Roller skates require 2.5 direct labor hours per unit, while skateboards require 1.25 direct labor hours per unit. The total estimated overhead for the period is $114,300. The company is looking at the possibility of changing to an activitybased costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools:

The cost pool activity rate for Engineering Costs would be closest to A) $15.00 per engineering hour. B) $10.00 per engineering hour. C) $20.00 per engineering hour. D) $7.54 per engineering hour. Answer: A Explanation: A) $16,500 / (450 + 650) = 15.00 Diff: 1 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

82 .

142) Vintage Fun reproduces old-fashioned style roller skates and skateboards. The annual production and sales of roller skates is 950 units, while 1,750 skateboards are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Roller skates require 2.5 direct labor hours per unit, while skateboards require 1.25 direct labor hours per unit. The total estimated overhead for the period is $114,300. The company is looking at the possibility of changing to an activitybased costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools:

The overhead cost per skateboard using an activity-based costing system would be closest to A) $45.00. B) $65.31. C) $59.26. D) $32.17. Answer: D Explanation: D)

Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

83 .

143) Kepple Manufacturing currently uses a traditional costing system. The company allocates overhead to its two products, Zips and Dees, using a predetermined manufacturing overhead rate based on direct labor hours. Here is data related to the company's two products:

Direct materials per unit Direct labor per unit Direct labor hours per unit Annual production

Zips $ 140.00 $ 55.00 2.0 25,000

Dees $ 100.00 $ 50.00 1.5 40,000

Information about the company's estimated manufacturing overhead for the year follows:

Total estimated direct labor hours for the company for the year are 110,000 hours. The company is evaluating whether it should use an activity-based costing system in place of its traditional costing system. Additional information about production needed for the activity-based costing system follows:

The amount of manufacturing overhead that would be allocated to one unit of Zips using the traditional costing system would be closest to A) $35.35. B) $23.57. C) $47.14. D) $32.86. Answer: C Explanation: C) Total overhead 2,592,500/110000 hrs = 23.57 # hours per unit 2 = 47.14 Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 84 .

144) Cross Roads Manufacturing currently uses a traditional costing system. The company allocates overhead to its two products, Zips and Dees, using a predetermined manufacturing overhead rate based on direct labor hours. Here is data related to the company's two products:

Direct materials per unit Direct labor per unit Direct labor hours per unit Annual production

Zips $ 152.00 $ 57.00 2.5 25,500

Dees $ 115.00 $ 48.00 2.0 38,000

Information about the company's estimated manufacturing overhead for the year follows:

Total estimated direct labor hours for the company for the year are 110,000 hours. The company is evaluating whether it should use an activity-based costing system in place of its traditional costing system. Additional information about production needed for the activity-based costing system follows:

The amount of manufacturing overhead that would be allocated to one unit of Dees using an activitybased costing system would be closest to A) $94.82. B) $64.46. C) $48.53. D) $13.20. Answer: C

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Explanation: C) Activity cost pool

(a) Total cost

(b) Total activity

Supervision and maintenance $ 3,214,250 Batch costs $ 198,000 Engineering changes $ 190,950

Activity cost pool

(a)/(b) Activity rate

Direct labor 139,750 hours $ 23 per direct labor hour 2,750 setups $ 72 per setup 2,850 part types $ 67 per part type

(a) Activity rate

(b) Total activity

(a) × (b) Activity-based cost

Supervision and per direct labor Direct labor maintenance $ 23 hour 76,000 hours Batch costs $ 72 per setup 500 setups Engineering changes $ 67 per part type 900 part types

Total overhead applied to Dees Divide by Dees annual production Applied overhead per unit

$1,748,000 $36,000 $ 60,300 $1,844,300

$ 1,844,300 Divide by 38,000 $ 48.53

Diff: 2 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

86 .

145) Burning River Corporation, a manufacturer of a variety of products, uses an activity-based costing system. Information from its system for the year for all products follows:

Burning River Corporation makes 750 of its product X14 a year, which requires a total of 55 machine hours, 20 inspection hours, and 18 orders. Product X14 requires $77.00 in direct materials per unit and $65.00 in direct labor per unit. Product X14 sells for $195 per unit. Required: a. Calculate the cost pool activity rate for each of the three activities. b. How much manufacturing overhead would be allocated to Product X14 in total? c. What is the product margin in total for Product X14? Answer:

Diff: 3 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 87 .

146) Bohemian Manufacturing manufactures several different products and uses an activity-based costing system. Information from its system for the year for all products follows:

The annual production and sales of one of its products, the Sizzler, are 1,500 units. The following data relate to the production and sales of Sizzlers in the most recent year: Annual machine hours Annual number of orders Annual number of inspections Direct materials cost per unit Direct labor cost per unit

700 200 375 $120.00 $72.00

Required: 1. Calculate the activity cost pool rates for each of the three activity cost pools listed. 2. Calculate the average cost of one Sizzler. Answer:

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Part b. Activity rate per machine hour Annual machine hours Total assembly costs Divide by Annual unit production and sales Assembly cost per unit

$ 12.00 700 $ 8,400.00 Divide by 1,500 $ 5.60

Activity rate per order Annual number of orders Total processing orders costs Divide by Annual unit production and sales Processing orders cost per unit

$ 18.00 200 $ 3,600.00 Divide by 1,500 $ 2.40

Activity rate per inspection-hour Annual number of inspections Total inspection costs Divide by Annual unit production and sales Inspection cost per unit

$ 10.00 375 $ 3,750.00 Divide by 1,500 $ 2.50

Direct materials cost per unit Direct labor cost per unit Assembly cost per unit Processing orders cost per unit Inspection cost per unit Average cost per unit

$ 120.00 $ 72.00 $ 5.60 $ 2.40 $ 2.50 $ 202.50

Diff: 3 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

89 .

147) Duquesne Incorporated recently implemented an activity-based costing system. Total results from all products manufactured in the current year are: Activity cost pool Assembly Packaging Quality control inspections

Total cost $7,500 $3,150 $900

1,500 450 200

Total activity machine-hours number of orders number of inspections

Duquesne manufactures sprinkler heads for commercial applications. Annual production and sales of one of its heads, is 2,300. The following relates the the most recent year. Annual machine hours Annual number of orders Annual number of inspections Direct materials cost per unit Direct labor cost per unit

1,000 125 400 $15.00 $5.00

Required: 1. Calculate the activity cost pool rates for each of the three activity cost pools listed. 2. Calculate the average cost of one Sizzler. Answer:

Diff: 3 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking 90 .

Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 148) Darlington & Myrtle, Attorneys at Law, provide a variety of legal services. The law firm uses an activity-based costing system and has developed the following activity pool cost rates:

Cost and activity data related to two clients is as follows:

Number of paralegal hours Number of cases filed Number of documents

Client 245 38 4 18

Client 367 79 1 40

Required: a. Calculate the amount of overhead that would be allocated to Client 245 using the activity-based costing system. b. Calculate the amount of overhead that would be allocated to Client 367 using the activity-based costing system. Answer:

Diff: 3 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

91 .

149) Columbia Corporation manufactures two products: Tricycles and Wagons. The annual production and sales of Tricycles is 2,200 units, while 1,750 units of Wagons are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Tricycles require 2 direct labor hours per unit, while Wagons require 1.5 direct labor hours per unit. The total estimated overhead for the period is $385,125. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools:

Required: a. Calculate the unit cost for a Wagon using the traditional system based on a single plantwide overhead rate (use direct labor hours as the cost driver). b. Calculate the unit cost for a Wagon using the activity-based costing system. Answer:

92 .

Diff: 3 LO: 4-2 EOC: P4-48A AACSB: Analytical Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 150) ABC tends to increase the unit cost of low-volume products and decrease the unit cost of highvolume products. Answer: TRUE Diff: 2 LO: 4-3 EOC: P4-49A AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts. Compare a traditional cost allocation system to an activity based costing system 151) Traditional cost systems with a single-allocation base tend to overcost high-volume products and undercost low-volume products as compared to activity-based costing systems. Answer: TRUE Diff: 2 LO: 4-3 EOC: P4-49A AACSB: Reflective Thinking Learning Outcome: Compare a traditional cost allocation system to an activity based costing system 152) There will be little benefit to using an activity-based costing system when products are vastly different from each other and consume different amounts of resources. Answer: FALSE Diff: 2 LO: 4-3 EOC: P4-49A AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 93 .

153) Paulo Company has reengineered its production process and should now review and potentially revise its activity-based costing system. Answer: TRUE Diff: 2 LO: 4-3 EOC: P4-49A AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 154) Activity-based management refers to using activity-based cost information to make decisions that may increase profits while satisfying customers' needs. Answer: TRUE Diff: 1 LO: 4-3 EOC: P4-49A AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 155) Managers often reap benefits by using ABC data in ABM to pinpoint opportunities to cut costs. Answer: TRUE Diff: 1 LO: 4-3 EOC: P4-49A AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 156) ABC can be used in routine planning and control decisions as well as pricing, product mix and cost cutting decisions. Answer: TRUE Diff: 1 LO: 4-3 EOC: P4-49A AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 157) The benefits of adopting ABC/ABM are higher for companies in more competitive markets. Answer: TRUE Diff: 1 LO: 4-3 EOC: P4-49A AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

94 .

158) The goal of value-engineering is to eliminate all waste in the system by making the company's processes as effective and efficient as possible. Answer: TRUE Diff: 1 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 159) Value-engineering is accomplished by eliminating, reducing, or simplifying all non-value added activities, and examining whether value-added activities could be improved. Answer: TRUE Diff: 1 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 160) The movement of parts is considered a non-value-added activity. Answer: TRUE Diff: 1 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 161) The storage of raw materials is considered a value-added activity. Answer: FALSE Diff: 1 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 162) Inspection is considered a non-value-added activity. Answer: TRUE Diff: 1 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

95 .

163) Non-value-added activities can be described as activities for which the customer is willing to pay. Answer: FALSE Diff: 1 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 164) Waste activities is another name for non-value-added activities. Answer: TRUE Diff: 1 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 165) Non-value added activities are activities that neither enhance the customer's image of the product or service nor provide a competitive advantage. Answer: TRUE Diff: 1 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 166) Value-added activities are activities that could be reduced or removed from the process with no ill effect on the end product or service. Answer: FALSE Diff: 1 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 167) The goal of value-engineering is to A) improve value-added activities. B) eliminate or reduce non-value added activities. C) both A and B. D) none of the above. Answer: C Diff: 2 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

96 .

168) Non-value added activities are A) also called waste activities. B) activities that neither enhance the customer's image of the product or service nor provide a competitive advantage. C) activities that could be reduced or removed from the process with no ill effect on the end product or service. D) All of the above. Answer: D Diff: 2 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 169) The benefits of using the ABC costing system are higher if the company A) has high indirect costs. B) produces many different products that use differing amounts of resources. C) has high indirect costs and produces many different products that use differing amounts of resources. D) produces only one product. Answer: C Diff: 2 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 170) The costs of adopting ABC may be lower for some companies than for others. This situation may occur A) when a company has the accounting and information system expertise to develop the system. B) when a company has the information technology to record and compile cost driver data. C) with either situation A or situation B. D) in none of the above instances. Answer: C Diff: 2 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts

97 .

171) Which of the following terms describes the process of reevaluating activities to reduce costs while satisfying customers' needs? A) Design engineering B) Developmental engineering C) Value engineering D) Total engineering Answer: C Diff: 1 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 172) The benefits of adopting ABC/ABM are higher for companies in competitive markets because: A) accounting/information system expertise is inexpensive to develop. B) ABM can pinpoint opportunities for cost savings. C) accurate product cost information is not as relevant for price setting. D) companies in competitive markets have low indirect costs. Answer: B Diff: 2 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 173) Indications that a product cost system needs revision include A) managers lose bids they expected to win and win bids they expected to lose. B) employees do not believe the cost numbers are accurate. C) the company uses a single-allocation-base system developed long ago. D) all of the above. Answer: D Diff: 2 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 174) Which of the following is a sign that a product cost system is not working properly? A) The cost system is fully depreciated. B) The cost system was installed five years ago. C) The cost system has multiple allocation bases. D) Managers don't understand costs and profits. Answer: D Diff: 2 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 98 .

175) A system that focuses on activities as the fundamental cost object and uses the costs for these activities to compile indirect costs of goods and services is A) appraisal costs. B) value engineering. C) activity-based costing. D) prevention costs. Answer: C Diff: 2 LO: 4-3 EOC: S4-16 AACSB: Reflective Thinking Learning Outcome: Describe activity-based costing and calculate the cost of a job using ABC concepts 176) Customer response time is the time that lapses between the receipt of a customer order and delivery of the product or service. Answer: TRUE Diff: 1 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 177) Lean thinking is a management strategy that includes maintaining large inventories. Answer: FALSE Diff: 1 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 178) Lean thinking is a management philosophy that strives to create value by eliminating waste. Answer: TRUE Diff: 2 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 179) Lean thinking involves carrying large amounts of inventory "just in case" something goes wrong. Answer: FALSE Diff: 1 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting

99 .

180) Lean companies typically arrange production activities into self-contained cells. Answer: TRUE Diff: 1 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 181) Waste can be reduced by implementing shorter setup times. Answer: TRUE Diff: 1 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 182) Lean companies typically cross-train employees to perform more than one task. Answer: TRUE Diff: 1 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 183) One key element of lean production is to produce large batches. Answer: FALSE Diff: 1 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 184) A lean company typically strives to lengthen the manufacturing cycle time. Answer: FALSE Diff: 1 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 185) Lean thinking typically focuses on strengthening supply-chain management. Answer: TRUE Diff: 1 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting

100 .

186) Lean companies typically emphasize quality. Answer: TRUE Diff: 1 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 187) The eight wastes of traditional operations includes all of the following except A) defects. B) overproduction. C) waiting. D) utilizing people to their full potential. Answer: D Diff: 2 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 188) Which of the following is a lean strategy? A) Group like machines together. B) Produce in smaller batches than a traditional system. C) Maintain a higher level of inventory than a traditional system. D) Lengthen setup times relative to a traditional system. Answer: B Diff: 2 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 189) Which of the following pertains to a lean company? A) An individual does fewer tasks than under a traditional production system. B) Product costs attached to units are tracked as units move through production. C) Rather than many individual journal entries, summary journal entries are made when units are completed. D) Units are produced in larger batches than under a traditional production system. Answer: C Diff: 2 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting

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190) Which of the following is true about lean thinking? A) Customer orders drive the production process. B) Inventory levels are maintained at high levels. C) Raw materials are purchased in large quantities. D) Finished goods are produced ahead of customers' orders to protect against running out of finished goods inventory. Answer: A Diff: 2 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 191) Which of the following is not a factor in the success of a lean company? A) Short production cycle times B) Continuous flow of production without interruptions C) Inflexible production operations D) The focus on quality Answer: C Diff: 2 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 192) The management strategy designed to eliminate waste is called a(n) A) traditional thinking. B) lean thinking. C) activity-based costing. D) full costing. Answer: B Diff: 1 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 193) Which of the following items is not a characteristic of a lean company? A) Machines are arranged by function. B) Machine setup times are reduced. C) Production is in small batches. D) Employees are trained to operate more than one machine. Answer: A Diff: 2 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 102 .

194) A system in which companies purchase raw materials only when needed is called A) ABC. B) external failure costs. C) internal failure costs. D) JIT production. Answer: D Diff: 1 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 195) Which term listed below describes a system where companies purchase raw materials when needed in production and complete finished goods when needed by customers? A) Internal failure costs B) Backflush costing C) Just-in-time D) External failure costs Answer: C Diff: 1 LO: 4-4 EOC: S4-17 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 196) The goal of total quality management (TQM) is to provide customers with inferior products and services. Answer: FALSE Diff: 1 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 197) Appraisal costs are incurred to detect poor-quality goods or services. Answer: TRUE Diff: 1 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting

103 .

198) External failure costs occur when the company detects and corrects poor-quality goods or services after delivery to customers. Answer: TRUE Diff: 1 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 199) Inspection of incoming raw materials and production loss caused by downtime are examples of prevention costs. Answer: FALSE Diff: 1 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 200) External failure costs occur when poor-quality goods or services are not detected until after delivery to customers. Answer: TRUE Diff: 1 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 201) Product testing is an appraisal cost. Answer: TRUE Diff: 1 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 202) An example of an appraisal cost is the cost of automating the production process. Answer: FALSE Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting

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203) The cost of training employees would be classified as a prevention cost. Answer: TRUE Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 204) An example of a prevention cost is the cost of redesigning the product to reduce its complexity. Answer: TRUE Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 205) Quality-related costs generally fall into four different categories, which include all of the following except A) prevention costs. B) appraisal costs. C) internal failure costs. D) transportation costs. Answer: D Diff: 2 LO: 4-5 EOC: S4-20 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 206) On a cost of quality report, which of the following cost items should be classified as a prevention cost? A) Technical support provided to suppliers B) Warranty expenses on defective products C) Supervision of quality inspections D) Net cost of spoiled units Answer: A Diff: 2 LO: 4-5 EOC: S4-20 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting

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207) On a cost of quality report, which of the following cost items should be classified as an internal failure cost? A) Customer returns of defective products B) Net cost of scrap C) Training for quality control employees D) Patent cost for a new product Answer: B Diff: 2 LO: 4-5 EOC: S4-20 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 208) Which of the following is an example of a cost item that should be classified as a prevention cost? A) Maintenance of manufacturing machinery B) Quality control checks C) Rework costs D) Warranty costs Answer: A Diff: 2 LO: 4-5 EOC: S4-20 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 209) Which of the following is an example of a cost item that should be classified as an internal failure cost? A) Inspection costs B) Employee training costs C) Rework costs D) Product return costs Answer: C Diff: 2 LO: 4-5 EOC: S4-20 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting

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210) Which of the following is an example of a cost item that should be classified as an external failure cost? A) Tooling changes B) Cost of a lost unit C) Warranty claims D) Cost to redesign product Answer: C Diff: 1 LO: 4-5 EOC: S4-20 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 211) If a company were to decrease its prevention costs by eliminating employee training, the company's external failure costs would most likely A) increase. B) decrease. C) remain the same. D) Unable to predict Answer: A Diff: 2 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 212) On a cost of quality report, which of the following cost items should be classified as an external failure cost? A) Net cost of scrap B) Technical support provided to suppliers C) Customer returns of defective products D) Supplies used in the quality inspection program Answer: C Diff: 1 LO: 4-5 EOC: S4-20 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting

107 .

213) If a company were to increase its appraisal costs by inspecting more units as the units are completed, the company's external failure costs would most likely A) decrease. B) increase. C) remain the same. D) Unable to predict Answer: A Diff: 2 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 214) If a company were to increase its appraisal costs by inspecting more units as the units are are in production (during production), the company's external failure costs would most likely A) decrease. B) increase. C) not be affected. D) Unable to predict Answer: A Diff: 2 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 215) The cost of testing incoming raw materials from a supplier would be classified as a(n) ________ cost. A) appraisal B) prevention C) internal failure D) external failure Answer: B Diff: 1 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting

108 .

216) The cost of maintaining quality control testing equipment would be classified as a(n) ________ cost. A) appraisal B) prevention C) internal failure D) external failure Answer: A Diff: 1 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 217) The cost of downtime caused by quality problems with the raw materials would be classified as what type of cost? A) Prevention cost B) Appraisal cost C) External failure cost D) Internal failure cost Answer: D Diff: 1 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 218) The cost of fixing defective units found during the quality inspections would be classified as what type of cost? A) Prevention cost B) Appraisal cost C) External failure cost D) Internal failure cost Answer: D Diff: 1 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting

109 .

219) The cost of training quality control supervisors who are responsible for overseeing the inspection of units would be classified as a(n) ________ cost. A) appraisal B) prevention C) internal failure D) external failure Answer: A Diff: 1 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 220) All of the following statements regarding total quality management are true except A) TQM emphasizes educating, training, and cross training employees to increase and broaden their skills. B) TQM is a formal effort to improve quality throughout an organization's value chain. C) TQM extends horizontally across business functions in the value chain. D) TQM increases time spent on rework and warranty work. Answer: D Diff: 2 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 221) Managers who practice total quality management A) invest more resources at the front end of the value chain in research and development and design to produce a superior product. B) invest more resources in inspecting and repairing products once they are produced. C) practice both A and B. D) practice neither A nor B. Answer: A Diff: 2 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting

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222) Which of the following is one of the four cost categories typically found on a cost of quality report? A) Development costs B) Inventory failure costs C) Prevention costs D) Marketing costs Answer: C Diff: 2 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 223) Costs incurred in detecting poor quality goods or services are what type of costs? A) External failure costs B) Appraisal costs C) Internal failure costs D) Prevention costs Answer: B Diff: 2 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 224) What type of costs are incurred to avoid poor quality goods or services in the first place? A) Appraisal costs B) External costs C) Prevention costs D) Internal failure costs Answer: C Diff: 2 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 225) The costs incurred when poor quality goods or services are detected and corrected before delivery to customers are called ________ costs. A) appraisal B) external failure C) prevention D) internal failure Answer: D Diff: 2 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 111 .

226) The cost of inspection at various stages of production is an example of a(n) A) prevention cost. B) appraisal cost. C) internal failure cost. D) external failure cost. Answer: B Diff: 2 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 227) The cost of warranty work is an example of what type of cost? A) Prevention cost B) Appraisal cost C) External failure cost D) Internal failure cost Answer: C Diff: 2 LO: 4-5 EOC: S4-21 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 228) The cost of evaluating potential raw material suppliers is an example of what type of cost? A) Prevention cost B) Internal failure cost C) External failure cost D) Appraisal cost Answer: A Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 229) The cost of installing improved production equipment and production processes is a(n) ________ cost. A) external failure B) internal failure C) appraisal D) prevention Answer: D Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 112 .

230) The cost of product liability claims is an example of a(n) ________ cost. A) appraisal B) internal failure C) external failure D) prevention Answer: C Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 231) The lost profits from lost customers are an example of what type of cost? A) Prevention costs B) Internal failure costs C) External failure costs D) Appraisal costs Answer: C Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 232) The costs of training production personnel on their job tasks is an example of which of the following types of costs? A) Internal failure costs B) External failure costs C) Appraisal costs D) Prevention costs Answer: D Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 233) Production loss caused by downtime is an example of a(n) A) internal failure cost. B) external failure cost. C) prevention cost. D) appraisal cost. Answer: A Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 113 .

234) Costs incurred to detect poor quality goods and services refer to A) activity-based costing. B) appraisal costs. C) value engineering. D) prevention costs. Answer: B Diff: 1 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 235) Costs incurred to avoid manufacturing poor quality goods are considered to be A) appraisal costs. B) activity-based costing. C) prevention costs. D) value engineering. Answer: C Diff: 1 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 236) Costs incurred to avoid providing poor quality services would be considered to be A) appraisal costs. B) activity-based costing. C) prevention costs. D) value engineering. Answer: C Diff: 2 LO: 5-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 237) Costs incurred to detect poor quality goods or services are A) activity-based costing. B) appraisal costs. C) value engineering. D) prevention costs. Answer: B Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting

114 .

238) Which term listed below describes costs incurred for rework when the company detects poor quality goods before delivery to the customer? A) Lean production B) Value added activity C) Internal failure costs D) External failure costs Answer: C Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 239) Which term listed below describes costs incurred when the company fails to detect poor quality goods or services before delivery to the customer? A) Internal failure costs B) Value-added activity C) External failure costs D) Just-in-time production Answer: C Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 240) Which term below best describes the quality cost category for "cost to re-inspect reworked blenders"? A) Prevention costs B) Internal failure costs C) Appraisal costs D) External failure costs Answer: B Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting

115 .

241) Which term below best describes the quality cost category for "cost of warranty repairs on juicers"? A) Prevention costs B) Appraisal costs C) External failure costs D) Internal failure costs Answer: C Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 242) Which term below best describes the quality cost category for "cost of testing toasters before sale"? A) Appraisal costs B) Prevention costs C) Internal failure costs D) External failure costs Answer: A Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 243) The cost of searching for a supplier of higher quality raw materials (than the current supplier) would be classified as which cost of quality category? A) Prevention costs B) Appraisal costs C) Internal failure costs D) External failure costs Answer: A Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting

116 .

244) The cost to rework a defective product before it is shipped out from the factory would be classified as which cost of quality category? A) Prevention costs B) Appraisal costs C) Internal failure costs D) External failure costs Answer: C Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 245) Which term below best describes the quality cost category for "preventive maintenance on machinery"? A) Appraisal costs B) Prevention costs C) Internal failure costs D) External failure costs Answer: B Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting 246) Which term below best describes the quality cost category for "lost profits from lost sales"? A) Prevention costs B) Appraisal costs C) External failure costs D) Internal failure costs Answer: C Diff: 2 LO: 4-5 EOC: S4-19 AACSB: Reflective Thinking Learning Outcome: Discuss the legal, ethical, and business concepts that affect managerial accounting

117 .

Managerial Accounting, 3e (Braun/Tietz) Chapter 5 Process Costing 1) Process costing is typically used for businesses that make unique goods in relatively small amounts. Answer: FALSE Diff: 1 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 2) Cost for direct materials, direct labor and manufacturing overhead are assigned to each job. Answer: FALSE Diff: 1 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 3) A separate work in process inventory account is maintained for each process. Answer: TRUE Diff: 1 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 4) Unique or custom-made goods use a process costing system. Answer: FALSE Diff: 1 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 5) Both process costing and job costing assign costs to units as they proceed through the process. Answer: TRUE Diff: 2 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing. Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs

1 .

6) Each manufacturing process will have a WIP inventory account. Answer: TRUE Diff: 1 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 7) In a job cost system, all costs flow to a particular job. Answer: TRUE Diff: 1 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 8) Prime costs include direct labor and direct materials. Answer: TRUE Diff: 1 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 9) Conversion costs are the sum of direct labor and direct materials. Answer: FALSE Diff: 2 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 10) Indirect labor would not be a component of conversion costs. Answer: FALSE Diff: 1 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

2 .

11) In process costing, the costs flow from Raw Materials Inventory, to Work in Process Inventory, to Finished Goods Inventory. Answer: TRUE Diff: 1 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 12) To simplify the accounting, the journal entry to record the transfer of costs from one WIP account to the next WIP account is generally made once a month to reflect all physical transfers that occurred during the month. Answer: TRUE Diff: 2 LO: 5-1 EOC: E5-23 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 13) In process costing, the manufacturing costs assigned to the product must always follow the physical movement of the product. Answer: TRUE Diff: 2 LO: 5-1 EOC: E5-23 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 14) The costs moved from one processing department to the next processing department are called "transported-out" costs in the first department and "transported-in" costs in the next department. Answer: FALSE Diff: 2 LO: 5-1 EOC: E5-23 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 15) How are manufacturing costs treated in process costing? A) The manufacturing costs are added only when the goods are in finished inventory. B) The manufacturing costs are added only when the goods are sold. C) The manufacturing costs always follow the physical movement of the product. D) None of the above. Answer: C Diff: 2 LO: 5-1 EOC: E5-23 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 3 .

16) When units are moved from one processing department to the next, the cost associated with those units must also be moved from one WIP account to the next. What are these costs called? A) Transported costs B) Transmitted costs C) Transferred costs D) Conveyed costs Answer: C Diff: 2 LO: 5-1 EOC: E5-23 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 17) Baxter Company produces children's wiffle ball sets using a three-step sequential process that includes molding, coloring and finishing. When the sets are completely finished, out of which account should the cost be transferred? A) Finished goods inventory B) WIP inventory-coloring C) WIP inventory-finishing D) WIP inventory-molding Answer: C Diff: 2 LO: 5-1 EOC: E5-23A AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 18) Baxter Company produces wiffle ball sets using a three-step sequential process that includes molding, coloring and finishing. At what stage would the sets be allocated manufacturing overhead? A) When the frisbees are in WIP inventory-molding B) When the frisbees are in WIP inventory-finishing C) When the frisbees are in WIP inventory-coloring D) All of the above Answer: D Diff: 2 LO: 5-1 EOC: E5-23A AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

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19) The two basic types of product costing systems are A) department and plant. B) FIFO and weighted-average. C) variable and process. D) job and process. Answer: D Diff: 1 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing. Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 20) Which of the following product costing systems is normally used to assign costs to goods that are mass produced? A) Fixed costing B) Job costing C) Process costing D) LIFO costing Answer: C Diff: 1 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 21) Process costing is most likely used in which of the following industries? A) Chemicals B) Aircraft C) Construction D) Printing Answer: A Diff: 1 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

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22) Process costing is most likely used in which of the following industries? A) Pharmaceuticals B) Health Care C) Shipbuilding D) Construction Answer: A Diff: 1 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 23) Process costing would likely be used by which of the following? A) Clear Channel Advertising B) PIP Printing C) DBA Management Consultants D) PepsiCo Answer: D Diff: 1 LO: 5-1 EOC: S5-1 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 24) What does direct labor costs plus manufacturing overhead equal? A) Prime costs B) Operating costs C) Conversion costs D) Equivalent costs Answer: C Diff: 1 LO: 5-1 EOC: S5-7 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 25) The costing system used by a company producing custom fireplace mantels would be A) process costing. B) job costing. C) equivalent units costing. D) conversion cost costing. Answer: B Diff: 1 LO: 5-1 EOC: S5-7 AACSB: Reflective Thinking Learning Outcome: Describe a job order cost system and calculate the predetermined overhead rate and allocate indirect costs 6 .

26) The costing system used by a company making computer chips would be A) process costing. B) job costing. C) equivalent units costing. D) conversion cost costing. Answer: A Diff: 1 LO: 5-1 EOC: S5-7 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 27) The costing system used by an oil refinery would be A) process costing. B) job costing. C) equivalent units costing. D) conversion cost costing. Answer: A Diff: 1 LO: 5-1 EOC: S5-7 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 28) A system for assigning costs for products made in a continuous process is A) process costing. B) job costing. C) equivalent units costing. D) conversion cost costing. Answer: A Diff: 1 LO: 5-1 EOC: S5-7 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

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29) A company manufactures wallets. Last month's costs were: Direct materials Direct labor Manufacturing overhead

$235,000 $155,000 $82,000

What were the conversion costs for the month? A) $235,000 B) $390,000 C) $237,000 D) $472,000 Answer: C Explanation: C) Direct labor $155,000.00 MOH + 82,000.00 Conversion costs 237,000.00 Diff: 1 LO: 5-1 EOC: S5-7 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 30) A company manufactures mirrors. Last month's costs were: Direct materials Direct labor Manufacturing overhead

$90,000 $144,000 $158,000

What were the conversion costs for the month? A) $302,000 B) $392,000 C) $234,000 D) $90,000 Answer: A Explanation: A) Direct labor $144,000.00 MOH +158,000.00 Conversion costs 302,000.00 Diff: 1 LO: 5-1 EOC: S5-7 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

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31) In process costing, manufacturing costs are usually combined into two categories: direct materials and conversion costs. Answer: TRUE Diff: 1 LO: 5-2 EOC: S5-4 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 32) Conversion costs are generally added evenly throughout a process. Answer: TRUE Diff: 1 LO: 5-2 EOC: S5-4 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 33) Equivalent units express the amount of work done during a period in terms of partially completed units. Answer: FALSE Diff: 1 LO: 5-2 EOC: S5-3 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 34) Equivalent units should be computed separately for direct materials and conversion costs. Answer: TRUE Diff: 2 LO: 5-2 EOC: S5-3 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 35) The number of partially completed units multiplied by the percentage of process completed equals the number of equivalent units. Answer: TRUE Diff: 2 LO: 5-2 EOC: S5-3 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

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36) Equivalent units express the amount of work done during a period of time in terms of fully completed units of output. Answer: TRUE Diff: 2 LO: 5-2 EOC: S5-5 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 37) If a company has 6,000 units that are 60% complete, the equivalent unit figure is 3,600. Answer: TRUE Diff: 1 LO: 5-2 EOC: S5-5 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 38) Conversion costs are usually incurred evenly throughout productions. Answer: TRUE Diff: 2 LO: 5-2 EOC: S5-5 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 39) In a process costing environment, direct materials and direct labor are usually combined into one cost category called "conversion costs." Answer: FALSE Diff: 1 LO: 5-2 EOC: S5-3 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 40) In a process costing environment, direct labor and manufacturing overhead are usually combined into one cost category called "conversion cost." Answer: TRUE Diff: 1 LO: 5-2 EOC: S5-3 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

10 .

41) In a mass-production environment, direct labor is usually a relatively small component of the total manufacturing costs. Answer: TRUE Diff: 1 LO: 5-2 EOC: S5-3 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 42) Companies that use automated production processes often condense the three manufacturing costs into two categories: Direct materials and Conversion costs. Answer: TRUE Diff: 1 LO: 5-2 EOC: S5-3 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 43) Companies that use automated production processes often condense the three manufacturing costs into two categories: Direct labor and Conversion costs. Answer: FALSE Diff: 1 LO: 5-2 EOC: S5-3 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 44) Direct materials are often added at a particular point in the production process. Answer: TRUE Diff: 1 LO: 5-2 EOC: E5-25 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 45) The number of equivalent units is usually the same for direct materials and conversion costs. Answer: FALSE Diff: 2 LO: 5-2 EOC: E5-25 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

11 .

46) If all direct materials are added at the beginning of the production process, and the units have made it 50% of the way through the production process, then the percentage completion for direct materials is 100%. Answer: TRUE Diff: 1 LO: 5-2 EOC: E5-25 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 47) If all direct materials are added at the beginning of the production process, and the units have made it 50% of the way through the production process, then the percentage completion for direct materials is 50%. Answer: FALSE Diff: 2 LO: 5-2 EOC: E5-25 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 48) If all direct materials are added at the beginning of the production process, and the units have made it 50% of the way through the production process, then the percentage completion for direct materials is 0%. Answer: FALSE Diff: 1 LO: 5-2 EOC: E5-25 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 49) If all direct materials are added at the end of the production process, and the units have made it 50% of the way through the production process, then the percentage completion for direct materials is 100%. Answer: FALSE Diff: 2 LO: 5-2 EOC: E5-25 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 50) If all direct materials are added at the end of the production process, and the units have made it 50% of the way through the production process, then the percentage completion for direct materials is 50%. Answer: FALSE Diff: 2 LO: 5-2 EOC: E5-25 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

12 .

51) If all direct materials are added at the end of the production process, and the units have made it 50% of the way through the production process, then the percentage completion for direct materials is 0%. Answer: TRUE Diff: 1 LO: 5-2 EOC: E5-25 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 52) If conversion costs are added evenly throughout the production process, and the units have made it 50% of the way through the production process, then the percentage completion for conversion costs is 50%. Answer: TRUE Diff: 1 LO: 5-2 EOC: E5-25 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 53) The weighted average and FIFO methods differ only in how they treat beginning inventory. Answer: TRUE Diff: 1 LO: 5-2 EOC: E5-25 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 54) The FIFO method requires that any units in beginning inventory be costed separately from any units started in the current period. Answer: TRUE Diff: 1 LO: 5-2 EOC: E5-25 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 55) The weighted-average method of process costing is simpler than the FIFO method. Answer: TRUE Diff: 1 LO: 5-2 EOC: E5-25 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

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56) In process costing, ________ is/are found by taking the number of partially completed physical units and multiplying it by the percentage of the process completed. A) cost of goods sold B) equivalent units C) fixed manufacturing overhead costs D) conversion costs Answer: B Diff: 1 LO: 5-2 EOC: E5-25 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 57) Manufacturing costs are usually combined into two categories in a process costing system. These two categories are A) direct labor and conversion costs. B) direct materials and conversion costs. C) manufacturing overhead and conversion costs. D) direct materials and direct labor. Answer: B Diff: 1 LO: 5-2 EOC: E5-25 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 58) If all direct materials are added at the end of the production process, and the units have made it 50% of the way through the production process, then the percentage completion for direct materials is A) 50%. B) 100%. C) 0%. D) none of the above. Answer: C Diff: 2 LO: 5-2 EOC: E5-25 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

14 .

59) If all direct materials are added at the beginning of the production process, and the units have made it 50% of the way through the production process, then the percentage completion for direct materials is A) 100%. B) 0%. C) 50%. D) none of the above. Answer: A Diff: 2 LO: 5-2 EOC: E5-25 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 60) If conversion costs are added evenly throughout the production process, and the units have made it 50% of the way through the production process, then the percentage completion for direct materials is A) 0%. B) 100%. C) 50%. D) cannot determine Answer: D Diff: 1 LO: 5-2 EOC: E5-25 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 61) If conversion costs are added evenly throughout the production process, and the units have made it 50% of the way through the production process, then the percentage completion for conversion costs is A) 0%. B) 50%. C) 100%. D) none of the above. Answer: B Diff: 1 LO: 5-2 EOC: E5-25 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

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62) A company uses a process system. The number of equivalent units in ending WIP inventory regarding direct materials costs and conversion costs is A) always lower for direct materials. B) always equal. C) always lower for conversion costs. D) none of the above. Answer: D Diff: 2 LO: 5-2 EOC: E5-25 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 63) In a process system, direct labor and manufacturing overhead are normally A) incurred at the end of the process. B) incurred evenly throughout the process. C) incurred in full at the beginning of the process. D) not recorded. Answer: B Diff: 2 LO: 5-2 EOC: E5-25 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 64) Which of the following is a measure of the amount of work done, expressed in complete units of output? A) Job costing B) Process costing C) Conversion costs D) Equivalent units Answer: D Diff: 1 LO: 5-2 EOC: E5-25 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

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65) A business has 175 full-time workers who work 8 hours per day. They have 130 part-time workers who work 4 hours per day. What is the number of full-time equivalent employees? A) 150 B) 300 C) 238 D) 240 Answer: D Explanation: D) (130 workers × 4 hours ) / 8 hr day = 65 Plus full time workers 175 Full time equivalents 240 Diff: 2 LO: 5-2 EOC: S5-5 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 66) The full-time employees at Rocky Corporation work 8 hours per day, while the part-time employees work 6 hours per day. Rocky has 2,250 full-time employees and 900 part-time employees. What is the number of full-time equivalent employees? A) 2,363 B) 2,925 C) 3,150 D) 2,250 Answer: B Explanation: B) (900 workers × 6 hours) / 8 hr day = 675 Plus full time workers 2,250 Full time equivalents 2,925 Diff: 1 LO: 5-2 EOC: S5-5 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 67) Perfect Pigments has 3,500 gallons of paint in WIP inventory, with 80% of materials already added. What are equivalent units in ending WIP inventory for materials if the paint is 50% through the process? A) 2,800 B) 1,750 C) 0 D) 1,050 Answer: A Explanation: A) 3,500 gallons × 80% = 2,800 Diff: 1 LO: 5-2 EOC: S5-5 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 17 .

68) Perfect Pigments has 3,500 gallons of paint in WIP inventory, with 80% of materials already added. The paint is 50% through the process. Assuming all conversion costs are added evenly throughout the process, what are the equivalent units for conversion costs? A) 0 B) 1,050 C) 2,800 D) 1,750 Answer: D Explanation: D) 3,500 gallons × 50% = 1,750 Diff: 1 LO: 5-2 EOC: S5-5 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 69) Color Wheel has 3,500 gallons of paint in WIP inventory, with 75% of materials already added. What are equivalent units in ending WIP inventory for materials if the paint is 60% through the process? A) 2,100 B) 2,625 C) 0 D) 525 Answer: B Explanation: B) 3,500 gallons × 75% = 2,625 Diff: 1 LO: 5-2 EOC: S5-5 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 70) Color Wheel has 3,500 gallons of paint in WIP inventory, with 75% of materials already added. The paint is 60% through the process. Assuming all conversion costs are added evenly throughout the process, what are the equivalent units for conversion costs? A) 0 B) 525 C) 2,100 D) 2,625 Answer: C Explanation: C) 3,500 gallons × 60% = 2,100 Diff: 1 LO: 5-2 EOC: S5-5 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

18 .

71) Yummy Tummy Desserts has 3,200 quarts of ice cream in WIP inventory, with all materials already added. What are equivalent units in ending WIP inventory for materials if the ice cream is 75% through the process? A) 3,200 B) 2,400 C) 800 D) 0 Answer: A Explanation: A) 3,200 quarts × 100% = 3,200 Diff: 1 LO: 5-2 EOC: S5-5 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 72) Yummy Tummy Desserts has 3,200 quarts of ice cream in WIP inventory, with all materials already added. The ice cream is 75% through the process. Assuming all conversion costs are added evenly throughout the process, what are the equivalent units for conversion costs? A) 0 B) 3,200 C) 2,400 D) 800 Answer: C Explanation: C) 3,200 ice cream × 75% = 2,400 Diff: 1 LO: 5-1 EOC: S5-5 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

19 .

73) The following information is provided by Alexandria Corporation: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 14,000 9,000 5,000 $28,200 $18,000 $7,500

The units in ending WIP inventory were 75% complete for materials and 50% complete for conversion costs. What are the total equivalent units for direct materials? A) 12,750 B) 3,750 C) 5,000 D) 14,000 Answer: A Explanation: A) Completed and transferred 9,000 WIP 5,000 × 75% 3,750 Total 12,750 Diff: 2 LO: 5-2 EOC: S5-5 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

20 .

74) The following information is provided by Alexandria Corporation: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 14,000 9,000 5,000 $28,200 $18,000 $7,500

The units in ending WIP inventory were 75% complete for materials and 50% complete for conversion costs. At the end of the year, what are the equivalent units for conversion costs? A) 7,000 B) 9,000 C) 2,500 D) 11,500 Answer: D Explanation: D) Completed and transferred 9,000 WIP 5,000 × 50% 2,500 Total 11,500 Diff: 2 LO: 5-2 EOC: S5-5 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

21 .

75) The following information is provided by Zander Corporation: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 14,000 9,000 5,000 $28,200 $18,000 $7,500

The units in ending WIP inventory were 80% complete for materials and 45% complete for conversion costs. What are the total equivalent units for direct materials? A) 14,000 B) 5,000 C) 4,000 D) 13,000 Answer: D Explanation: D) Completed and transferred 9,000 WIP 5,000 × 80% 4,000 Total 13,000 Diff: 2 LO: 5-2 EOC: S5-5 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

22 .

76) The following information is provided by Zander Corporation: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 14,000 9,000 5,000 $28,200 $18,000 $7,500

The units in ending WIP inventory were 80% complete for materials and 45% complete for conversion costs. At the end of the year, what are the equivalent units for conversion costs? A) 11,250 B) 6,300 C) 2,250 D) 9,000 Answer: A Explanation: A) Completed and transferred 9,000 WIP 5,000 × 45% 2,250 Total 11,250 Diff: 2 LO: 5-2 EOC: S5-5 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

23 .

77) The following information is provided by Arrow Company: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 7,000 4,000 3,000 $15,500 $18,400 $9,000

The units in ending WIP inventory were 80% complete for materials and 40% complete for conversion costs. What are the total equivalent units for direct materials? A) 2,400 B) 6,400 C) 3,000 D) 7,000 Answer: B Explanation: B) Completed and transferred 4,000 WIP 3,000 × 80% 2,400 Total 6,400 Diff: 2 LO: 5-2 EOC: S5-5 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

24 .

78) The following information is provided by Arrow Company: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 7,000 4,000 3,000 $15,500 $18,400 $9,000

The units in ending WIP inventory were 80% complete for materials and 40% complete for conversion costs. At the end of the year, what are the equivalent units for conversion costs? A) 5,200 B) 1,200 C) 4,000 D) 2,800 Answer: A Explanation: A) Completed and transferred 4,000 WIP 3,000 × 40% 1,200 Total 5,200 Diff: 2 LO: 5-2 EOC: E5-26 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

25 .

79) The following information is provided by Adametz Company: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 7,500 3,300 4,200 $15,500 $18,400 $9,000

The units in ending WIP inventory were 90% complete for materials and 50% complete for conversion costs. What are the total equivalent units for direct materials? A) 7,080 B) 3,780 C) 4,200 D) 7,500 Answer: A Explanation: A) Completed and transferred 3,300 WIP 4,200 × 90% 3,780 Total 7,080 Diff: 2 LO: 5-2 EOC: S5-5 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

26 .

80) The following information is provided by Adametz Company: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 7,500 3,300 4,200 $15,500 $18,400 $9,000

The units in ending WIP inventory were 90% complete for materials and 50% complete for conversion costs. At the end of the year, what are the equivalent units for conversion costs? A) 3,750 B) 3,300 C) 5,400 D) 2,100 Answer: C Explanation: C) Completed and transferred 3,300 WIP 4,200 × 50% 2,100 Total 5,400 Diff: 2 LO: 5-2 EOC: E5-26 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

27 .

81) The following information is provided by Bynes Company: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 23,000 units 20,000 units 3,000 units $22,400 $16,500 $27,200

The units in ending WIP inventory were 85% complete for materials and 25% complete for conversion costs. Required: a. What are the total equivalent units for direct materials? b. At the end of the year, what are the equivalent units for conversion costs? Answer: part a. Work in progress inventory, December 31 3,000 Materials completeness 85% Equivalent units in ending inventory 2,550 Units completed and transferred out 20,000 Total materials equivalent units 22,550 part b. Work in progress inventory, December 31 Conversion cost completeness Equivalent units in ending inventory Units completed and transferred out Total conversion cost equivalent units

3,000 25% 750 20,000 20,750

Diff: 2 LO: 5-2 EOC: E5-26 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

28 .

82) There are a total of 14,000 students at a school. Eighty percent of them go full time at 16 hours per term. Ten percent take a half-load of 8 hours per term, and ten percent take a three-quarter load of 12 hours per term. What is the equivalent number of full-time students? A) 11,200 B) 14,000 C) 12,950 D) 1,750 Answer: C Explanation: C) Total students Percent full-time Number of full-time students

14,000 80% 11,200

Total students Percent 3/4 time Number of 3/4-time students

14,000 10% 1,400

3/4 time hours Full-time hours Full time equivalent of 3/4 hours Full time equivalent of 3/4 students

12 16 0.75 1,050

Total students Percent half-time Total students

14,000 10% 1,400

Half-time hours Full-time hours Full time equivalent of half time hours Full time equivalent of half time students

8 16 0.50 700

Number of full-time students Full time equivalent of 3/4 students Full time equivalent of half time students Equivalent number of full time students

11,200 1,050 700 12,950

Diff: 2 LO: 5-2 EOC: E5-26 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

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83) The following information is provided by Mel Company: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 23,000 units 18,000 units 5,000 units $22,400 $16,500 $27,200

The units in ending WIP inventory were 90% complete for materials and 25% complete for conversion costs. Required: a. What are the total equivalent units for direct materials? b. At the end of the year, what are the equivalent units for conversion costs? Answer: part a. Work in progress inventory, December 31 5,000 Materials completeness 90% Equivalent units in ending inventory 4,500 Units completed and transferred out 18,000 Total materials equivalent units 22,500 part b. Work in progress inventory, December 31 Conversion cost completeness Equivalent units in ending inventory Units completed and transferred out Total conversion cost equivalent units

5,000 25% 1,250 18,000 19,250

Diff: 2 LO: 5-2 EOC: E5-26 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 84) In process costing, units that are partially completed are accounted for the same as units in finished goods inventory. Answer: FALSE Diff: 2 LO: 5-3 EOC: S5-8 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

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85) The cost per equivalent unit for direct materials will always be equal to the cost per equivalent unit for conversion costs. Answer: FALSE Diff: 2 LO: 5-3 EOC: S5-8 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 86) The number of equivalent units is computed before computing the cost per equivalent unit. Answer: TRUE Diff: 2 LO: 5-3 EOC: S5-8 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 87) Wong completed 24,000 units and had another 6,000 units 45% complete. The total equivalent units for the period are 26,700. Answer: TRUE Diff: 2 LO: 5-3 EOC: S5-8 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 88) Total direct materials = $67,500, and there is no beginning WIP inventory. Units completed are 15,000 with no ending work in process inventory. The cost per unit is $4.50. Answer: TRUE Diff: 2 LO: 5-3 EOC: S5-8 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 89) The production equivalent unit report summarizes all costs. Answer: FALSE Diff: 2 LO: 5-3 EOC: S5-8 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

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90) If a company has no ending work in process inventory, it does not need to use the 5-step process costing procedure to determine the cost of making one unit. Answer: TRUE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 91) If a company has ending work in process inventory it must use the 5-step process costing procedure to determine the cost of making one unit. Answer: TRUE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 92) The existence of ending work in process inventory necessitates the use of the 5-step process costing procedure. Answer: TRUE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 93) The existence of ending work in process inventory necessitates how much of the total manufacturing cost should be assigned to units still in ending WIP inventory, and how much of the cost should be assigned to units completed during the period. Answer: TRUE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 94) The first step of the 5-step process costing procedure is to summarize the flow of physical units. Answer: TRUE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

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95) The last step of the 5-step process costing procedure is to assign total costs to units completed and to units in ending Work in Process inventory. Answer: TRUE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 96) The first step of the 5-step process costing procedure is to summarize total costs to account for. Answer: FALSE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 97) The last step of the 5-step process costing procedure is to summarize the flow of physical units. Answer: FALSE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 98) The "total physical units to account for" must be greater than the "total physical units accounted for." Answer: FALSE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 99) The "total physical units to account for" is the sum of the units in beginning WIP inventory plus the units started in production during the period. Answer: TRUE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

33 .

100) The "total physical units accounted for" is the sum of the units completed and transferred out during the period plus the units in ending WIP inventory. Answer: TRUE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 101) The "total physical units to account for" is the sum of the units in beginning WIP inventory plus the units in ending WIP inventory. Answer: FALSE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 102) The "total physical units accounted for" is the sum of the units completed and transferred out during the period plus the units in beginning WIP inventory. Answer: FALSE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 103) To find the "cost per equivalent unit," the "total costs to account for" are divided by the "total equivalent units." Answer: TRUE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 104) To find the "cost per equivalent unit," the "total costs to account for" are divided by the "total direct materials." Answer: FALSE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

34 .

105) The "total costs to account for" is the sum of the costs in beginning WIP inventory plus the manufacturing costs added during the period. Answer: TRUE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 106) To assign costs to the units in ending WIP inventory, the company multiplies the cost per equivalent unit by the number of equivalent units for direct materials and conversion costs separately, and then sums the two amounts. Answer: TRUE Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 107) The first step of the 5-step process costing procedure is A) compute output in terms of equivalent units. B) summarize total costs to account for. C) compute the cost per equivalent unit. D) summarize the flow of physical units. Answer: D Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 108) Which of the following is the first step of the 5-step process costing procedure? A) Compute output in terms of equivalent units B) Summarize total costs to account for C) Summarize the flow of physical units D) Compute the cost per equivalent unit Answer: C Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

35 .

109) Which of the following is the last step of the 5-step process costing procedure? A) Summarize total costs to account for B) Assign total costs to units completed and to units in ending WIP inventory C) Compute the cost per equivalent unit D) Summarize the flow of physical units Answer: B Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 110) The five steps of the process costing procedure are scrambled below: 1. 2. 3. 4. 5.

Assign total costs to units completed and to units in ending WIP inventory. Summarize total costs to account for. Compute the cost per equivalent unit. Summarize the flow of physical units. Compute output in terms of equivalent units.

The correct order for these steps is: A) 3, 1, 4, 2, 5. B) 5, 3, 1, 4, 2. C) 2, 4, 5, 1, 3. D) 4, 5, 2, 3, 1. Answer: D Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 111) In Step 1 of the process costing procedure, the "total units to account for" is the sum of A) the units in beginning WIP plus the units in ending WIP. B) the units in ending WIP plus the units started in production during the month. C) the units in beginning WIP plus the units started in production during the month. D) the units completed and transferred out plus the units started in production during the month. Answer: C Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

36 .

112) In Step 1 of the process costing procedure, the "total units accounted for" is the sum of A) the units completed and transferred out plus the units in ending WIP. B) the units in ending WIP plus the units started in production during the month. C) the units in beginning WIP plus the units in ending WIP. D) the units in beginning WIP plus the units completed and transferred out. Answer: A Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 113) How is the cost per equivalent unit computed? A) Total equivalent units divided by total costs to account for B) Total costs to account for divided by total equivalent units C) Costs in beginning WIP inventory divided by equivalent units in beginning WIP D) Costs added to production during the month divided by equivalent units in ending WIP Answer: B Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 114) Which of the following items would appear first on a production cost report? A) Total costs accounted for B) Cost of goods finished for the month C) Total equivalent units D) Beginning WIP, if any Answer: D Diff: 1 LO: 5-3 EOC: S5-10 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 115) Which item would appear last on a production cost report? A) Cost of goods finished for the month B) Total costs accounted for C) Beginning WIP inventory, if any D) Ending WIP inventory, if any Answer: B Diff: 1 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

37 .

116) On a production cost report, the following cost(s) would appear A) beginning work in process. B) costs added during the period. C) total operating costs during the period. D) Both A and B are included on a production cost report. Answer: D Diff: 1 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 117) On a production cost report, where would current costs added during the period appear? A) After any beginning WIP inventory cost B) As part of unit output for the period C) After any ending WIP inventory cost D) As part of beginning WIP inventory cost Answer: A Diff: 1 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 118) Which costs comprise WIP inventory on a production cost report? A) Direct materials and direct labor B) Direct materials and manufacturing overhead C) Direct materials, direct labor, and manufacturing overhead D) Direct labor and manufacturing overhead Answer: C Diff: 1 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 119) For which of the following do we prepare calculations for equivalent units? A) Both direct labor and manufacturing overhead B) Both direct materials and conversion costs C) Both direct labor and direct materials D) Neither direct materials nor conversion costs Answer: B Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

38 .

120) What are the ending inventory equivalent units for materials if 15,500 units are completed and transferred out and 4,200 remain in ending WIP at 35% complete? A) 3,955 B) 4,200 C) 1,470 D) 5,425 Answer: C Explanation: C) 4,200 units × 35% = 1,470 Diff: 1 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 121) In a department, 26,000 units are completed and transferred out and 7,400 remain in ending WIP at 65% complete. If an equivalent unit costs $9.00 for direct materials, what is the value of materials transferred out? A) $43,290 B) $167,400 C) $66,600 D) $234,000 Answer: D Explanation: D) 26,000 units × $9 = $234,000 Diff: 1 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 122) Beginning WIP inventory is 900 units; completed and transferred out were 3,400 units; and Ending WIP inventory is 800 units. What is the number of units started? A) 3,300 B) 2,600 C) 3,400 D) 4,200 Answer: A Explanation: A) Beg inv800 End inv - 900 Trans out 3,400 Started 3,300 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

39 .

123) Assume that 8,200 units were in beginning WIP inventory, 34,500 were started, 30,000 were completed, and 12,700 were in ending WIP inventory. Direct materials are added at the beginning of the process. What are the total equivalent units for direct materials? A) 42,700 B) 47,200 C) 38,200 D) 34,500 Answer: A Explanation: A) Ending work in process units 12,700 Ending work in process materials completion Equivalent units in ending work in process

12,700

Units completed and transferred out Total equivalent units for direct materials Diff: 1 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

40 .

124) At Sunrise Corporation, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: WIP beginning (50% for conversion) Units started Units completed and transferred out WIP ending (60% for conversion) Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added

19,200 units 120,500 units 116,700 units 23,000 units $35,000 $22,500 $384,100 $271,125

What are the total equivalent units for direct materials? A) 139,700 B) 130,500 C) 135,900 D) 143,500 Answer: A Explanation: A) Ending work in process units

23,000

Ending work in process materials completion Equivalent units in ending work in process

10,300

Units completed and transferred out Equivalent units of production for materials Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

41 .

125) At Sunrise Corporation, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: WIP beginning (50% for conversion) Units started Units completed and transferred out WIP ending (60% for conversion) Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added

19,200 units 120,500 units 116,700 units 23,000 units $35,000 $22,500 $384,100 $271,125

What are the total equivalent units for conversion costs? A) 126,300 B) 139,700 C) 128,200 D) 130,500 Answer: D Explanation: D) Units completed 116,700 WIP 23,000 × 60% 13,800 Total 130,500 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

42 .

126) At Sunrise Corporation, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: WIP beginning (50% for conversion) Units started Units completed and transferred out WIP ending (60% for conversion) Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added

19,200 units 120,500 units 116,700 units 23,000 units $35,000 $22,500 $384,100 $271,125

What is the cost per equivalent unit for direct materials? A) $2.75 B) $3.00 C) $3.21 D) $3.08 Answer: B Explanation: B) Ending work in process units

23,000

Ending work in process materials completion Equivalent units in ending work in process

23,000

Units completed and transferred out Equivalent units of production for materials

139,700

Materials cost in beginning work in process inventory

$ 35,000

Materials cost added to production during the period: Total material cost to account for

$419,000

Equivalent units of production for materials Cost per material cost equivalent unit (divide) Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

43 .

127) At Sunrise Corporation, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: WIP beginning (50% for conversion) Units started Units completed and transferred out WIP ending (60% for conversion) Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added

19,200 units 120,500 units 116,700 units 23,000 units $35,000 $22,500 $384,100 $271,125

What is the cost per equivalent unit for conversion costs? A) $2.32 B) $2.08 C) $2.10 D) $2.25 Answer: D Explanation: D) Conversion costs $22,500 + 271,125 = 293,625 / 130,500 units = 2.25 Units completed 115,700 WIP 23,000 × 60% 13,800 Total 130,500 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

44 .

128) At Sunrise Corporation, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: WIP beginning (50% for conversion) Units started Units completed and transferred out WIP ending (60% for conversion) Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added

19,200 units 120,500 units 116,700 units 23,000 units $35,000 $22,500 $384,100 $271,125

What is the total cost of units completed and transferred out? A) $612,675 B) $632,625 C) $563,317 D) $615,381 Answer: A

45 .

Explanation: A) Ending work in process units

23,000

Ending work in process conversion cost completion Equivalent units in ending work in process

13,800

Units completed and transferred out Equivalent units of production for conversion costs

130,500

Conversion cost in beginning work in process inventory

$ 22,500

Conversion cost added to production during the period: Total conversion cost to account for

$293,625

Equivalent units of production for conversion costs Cost per conversion cost equivalent unit

$ 2.25

Ending work in process units

23,000

Ending work in process materials completion Equivalent units in ending work in process

23,000

Units completed and transferred out Equivalent units of production for materials

139,700

Materials cost in beginning work in process inventory

$ 35,000

Materials cost added to production during the period: Total material cost to account for

$419,100

Equivalent units of production for materials Cost per material cost equivalent unit

$ 3.00

Cost per conversion cost equivalent unit

$ 2.25

Cost per material cost equivalent unit Total cost per unit

$ 5.25

Units completed and transferred out Total cost of units completed and transferred out Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

46 .

129) At Sunrise Corporation, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: WIP beginning (50% for conversion) Units started Units completed and transferred out WIP ending (60% for conversion) Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added

19,200 units 120,500 units 116,700 units 23,000 units $35,000 $22,500 $384,100 $271,125

What is the total cost of units remaining in ending WIP? A) $69,000 B) $100,050 C) $91,908 D) $120,750 Answer: B

47 .

Explanation: B) Ending work in process units

23,000

Ending work in process conversion cost completion Equivalent conversion cost units in ending work in process

13,800

Units completed and transferred out Equivalent units of production for conversion costs

130,500

Conversion cost in beginning work in process inventory

$ 22,500

Conversion cost added to production during the period: Total conversion cost to account for

$293,625

Equivalent units of production for conversion costs Cost per conversion cost equivalent unit

$ 2.25

Ending work in process units

23,000

Ending work in process materials completion Equivalent materials units in ending work in process

23,000

Units completed and transferred out Equivalent units of production for materials

139,700

Materials cost in beginning work in process inventory

$ 35,000

Materials cost added to production during the period: Total material cost to account for

$419,100

Equivalent units of production for materials Cost per material cost equivalent unit

$ 3.00

Cost per conversion cost equivalent unit

$ 2.25

Equivalent conversion cost units in ending work in process Conversion costs in ending work in process

$ 31,050

Cost per material cost equivalent unit

$ 3.00

Equivalent conversion cost units in ending work in process Materials costs in ending work in process

69,000

Conversion costs in ending work in process

$ 31,050

Materials costs in ending work in process Total costs in ending work in process Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

48 .

130) At Hodgson Corporation, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: WIP beginning (50% for conversion) Units started Units completed and transferred out WIP ending (60% for conversion) Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added

19,200 units 119,500 units 115,700 units 23,000 units $32,000 $20,250 $384,100 $271,125

What are the total equivalent units for direct materials? A) 138,700 B) 129,500 C) 134,900 D) 142,500 Answer: A Explanation: A) Ending work in process units

23,000

Ending work in process materials completion Equivalent units in ending work in process

23,000

Units completed and transferred out Equivalent units of production for materials Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

49 .

131) At Hodgson Corporation, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added WIP beginning (50% for conversion) Units started Units completed and transferred out WIP ending (60% for conversion)

$32,000 $20,250 $384,100 $271,125 19,200 units 119,500 units 115,700 units 23,000 units

What are the total equivalent units for conversion costs? A) 127,200 B) 125,300 C) 129,500 D) 138,700 Answer: C Explanation: C) Units completed 115,700 WIP 23,000 × 60% 13,800 Total 129,500 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

50 .

132) At Hodgson Corporation, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added WIP beginning (50% for conversion) Units started Units completed and transferred out WIP ending (60% for conversion)

$32,000 $20,250 $384,100 $271,125 19,200 units 119,500 units 115,700 units 23,000 units

What is the cost per equivalent unit for direct materials? A) $2.77 B) $3.08 C) $3.21 D) $3.00 Answer: D Explanation: D) Ending work in process units

23,000

Ending work in process materials completion Equivalent units in ending work in process

23,000

Units completed and transferred out Equivalent units of production for materials

138,700

Materials cost in beginning work in process inventory

$ 32,000

Materials cost added to production during the period: Total material cost to account for

$416,100

Equivalent units of production for materials Cost per material cost equivalent unit (divide) Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

51 .

133) At Hodgson Corporation, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added WIP beginning (50% for conversion) Units started Units completed and transferred out WIP ending (60% for conversion)

$32,000 $20,250 $384,100 $271,125 19,200 units 119,500 units 115,700 units 23,000 units

What is the cost per equivalent unit for conversion costs? A) $2.32 B) $2.09 C) $2.25 D) $2.10 Answer: C Explanation: C) Conversiton costs $20,250 + 271,125 = 291,375 / 129,500 units = 2.25 Units completed 115,700 WIP 23,000 × 60% 13,800 Total 129,500 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

52 .

134) At Hodgson Corporation, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added WIP beginning (50% for conversion) Units started Units completed and transferred out WIP ending (60% for conversion)

$32,000 $20,250 $384,100 $271,125 19,200 units 119,500 units 115,700 units 23,000 units

What is the total cost of units completed and transferred out? A) $610,150 B) $627,375 C) $562,639 D) $607,425 Answer: D

53 .

Explanation: D) Ending work in process units

23,000

Ending work in process conversion cost completion Equivalent units in ending work in process

13,800

Units completed and transferred out Equivalent units of production for conversion costs

129,500

Conversion cost in beginning work in process inventory

$ 20,250

Conversion cost added to production during the period: Total conversion cost to account for

$291,375

Equivalent units of production for conversion costs Cost per conversion cost equivalent unit

$ 2.25

Ending work in process units

23,000

Ending work in process materials completion Equivalent materials units in ending work in process

23,000

Units completed and transferred out Equivalent units of production for materials

138,700

Materials cost in beginning work in process inventory

$ 32,000

Materials cost added to production during the period: Total material cost to account for

$416,100

Equivalent units of production for materials Cost per material cost equivalent unit

$ 3.00

Cost per conversion cost equivalent unit

$ 2.25

Cost per material cost equivalent unit Total cost per unit Units completed and transferred out

$ 5.25 115,700

Total cost of units completed and transferred out Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

54 .

135) At Hodgson Corporation, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added WIP beginning (50% for conversion) Units started Units completed and transferred out WIP ending (60% for conversion)

$32,000 $20,250 $384,100 $271,125 19,200 units 119,500 units 115,700 units 23,000 units

What is the total cost of units remaining in ending WIP? A) $120,750 B) $92,586 C) $100,050 D) $69,000 Answer: C

55 .

Explanation: C) Ending work in process units

23,000

Ending work in process conversion cost completion Equivalent conversion cost units in ending work in process

13,800

Units completed and transferred out Equivalent units of production for conversion costs

129,500

Conversion cost in beginning work in process inventory

$ 20,250

Conversion cost added to production during the period: Total conversion cost to account for

$291,375

Equivalent units of production for conversion costs Cost per conversion cost equivalent unit

$ 2.25

Ending work in process units

23,000

Ending work in process materials completion Equivalent materials units in ending work in process

23,000

Units completed and transferred out Equivalent units of production for materials

138,700

Materials cost in beginning work in process inventory

$ 32,000

Materials cost added to production during the period: Total material cost to account for

$416,100

Equivalent units of production for materials Cost per material cost equivalent unit

$ 3.00

Cost per conversion cost equivalent unit

$ 2.25

Equivalent conversion cost units in ending work in process Conversion costs in ending work in process

$ 31,050

Cost per material cost equivalent unit

$ 3.00

Equivalent materials units in ending work in process Materials costs in ending work in process

69,000

Conversion costs in ending work in process

$ 31,050

Materials costs in ending work in process Total costs in ending work in process Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

56 .

136) At Onyx Incorporated, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: WIP beginning (70% for conversion) Units started Units completed and transferred out WIP ending (50% for conversion) Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added

15,200 units 150,000 units 120,000 units 45,200 units $52,500 $25,200 $443,100 $260,000

What are the total equivalent units for direct materials? A) 165,200 B) 135,200 C) 195,200 D) 142,600 Answer: A Explanation: A) Ending work in process units

45,200

Ending work in process materials completion Equivalent units in ending work in process

45,200

Units completed and transferred out Equivalent units of production for materials Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

57 .

137) At Onyx Incorporated, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: WIP beginning (70% for conversion) Units started Units completed and transferred out WIP ending (50% for conversion) Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added

15,200 units 150,000 units 120,000 units 45,200 units $52,500 $25,200 $443,100 $260,000

What are the total equivalent units for conversion costs? A) 130,460 B) 165,200 C) 142,600 D) 151,640 Answer: C Explanation: C) Ending work in process units

45,200

Ending work in process conversion cost completion Equivalent units in ending work in process

22,600

Units completed and transferred out Equivalent units of production for conversion costs Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

58 .

138) At Onyx Incorporated, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: WIP beginning (70% for conversion) Units started Units completed and transferred out WIP ending (50% for conversion) Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added

15,200 units 150,000 units 120,000 units 45,200 units $52,500 $25,200 $443,100 $260,000

What is the cost per equivalent unit for direct materials? A) $3.00 B) $3.48 C) $3.67 D) $2.68 Answer: A Explanation: A) Ending work in process units

45,200

Ending work in process materials completion Equivalent units in ending work in process

45,200

Units completed and transferred out Equivalent units of production for materials

165,200

Materials cost in beginning work in process inventory

$ 52,500

Materials cost added to production during the period: Total material cost to account for

$495,600

Equivalent units of production for materials Cost per material cost equivalent unit (divide) Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

59 .

139) At Onyx Incorporated, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: WIP beginning (70% for conversion) Units started Units completed and transferred out WIP ending (50% for conversion) Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added

15,200 units 150,000 units 120,000 units 45,200 units $52,500 $25,200 $443,100 $260,000

What is the cost per equivalent unit for conversion costs? A) $1.73 B) $2.00 C) $1.82 D) $2.18 Answer: B Explanation: B) Ending work in process units

45,200

Ending work in process conversion cost completion Equivalent units in ending work in process

22,600

Units completed and transferred out Equivalent units of production for conversion costs

142,600

Conversion cost in beginning work in process inventory

$ 25,200

Conversion cost added to production during the period: Total conversion cost to account for

$285,200

Equivalent units of production for conversion costs Cost per conversion cost equivalent unit (divide) Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

60 .

140) At Onyx Incorporated, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: WIP beginning (70% for conversion) Units started Units completed and transferred out WIP ending (50% for conversion) Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added

15,200 units 150,000 units 120,000 units 45,200 units $52,500 $25,200 $443,100 $260,000

What is the total cost of units completed and transferred out? A) $540,658 B) $600,000 C) $750,000 D) $628,696 Answer: B

61 .

Explanation: B) Ending work in process units

45,200

Ending work in process conversion cost completion Equivalent units in ending work in process

22,600

Units completed and transferred out Equivalent units of production for conversion costs

142,600

Conversion cost in beginning work in process inventory

$ 25,200

Conversion cost added to production during the period: Total conversion cost to account for

$285,200

Equivalent units of production for conversion costs Cost per conversion cost equivalent unit

$ 2.00

Ending work in process units

45,200

Ending work in process materials completion Equivalent units in ending work in process

45,200

Units completed and transferred out Equivalent units of production for materials

165,200

Materials cost in beginning work in process inventory

$ 52,500

Materials cost added to production during the period: Total material cost to account for

$495,600

Equivalent units of production for materials Cost per material cost equivalent unit

$ 3.00

Cost per conversion cost equivalent unit

$ 2.00

Cost per material cost equivalent unit Total cost per unit Units completed and transferred out

$ 5.00 120,000

Total cost of units completed and transferred out Diff: 3 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

62 .

141) At Onyx Incorporated, direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: WIP beginning (70% for conversion) Units started Units completed and transferred out WIP ending (50% for conversion) Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added

15,200 units 150,000 units 120,000 units 45,200 units $52,500 $25,200 $443,100 $260,000

What is the total cost of units remaining in ending WIP? A) $ 226,000 B) $ 162,442 C) $ 135,600 D) $180,800 Answer: D

63 .

Explanation: D) Ending work in process units

45,200

Ending work in process conversion cost completion Equivalent conversion cost units in ending work in process

22,600

Units completed and transferred out Equivalent units of production for conversion costs

142,600

Conversion cost in beginning work in process inventory

$ 25,200

Conversion cost added to production during the period: Total conversion cost to account for

$285,200

Equivalent units of production for conversion costs Cost per conversion cost equivalent unit

$ 2.00

Ending work in process units

45,200

Ending work in process materials completion Equivalent materials units in ending work in process

45,200

Units completed and transferred out Equivalent units of production for materials

165,200

Materials cost in beginning work in process inventory

$ 52,500

Materials cost added to production during the period: Total material cost to account for

$495,600

Equivalent units of production for materials Cost per material cost equivalent unit

$ 3.00

Cost per conversion cost equivalent unit

$ 2.00

Equivalent conversion cost units in ending work in process Conversion costs in ending work in process

$ 45,200

Cost per material cost equivalent unit

$ 3.00

Equivalent materials units in ending work in process Materials costs in ending work in process

135,600

Conversion costs in ending work in process

$ 45,200

Materials costs in ending work in process Total costs in ending work in process Diff: 3 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

64 .

142) Beginning WIP inventory is 15,500 units, 75% complete for materials. During the month 90,000 units were started; 87,000 were finished; and ending WIP was 18,500 units that were 50% complete for materials. How many equivalent units should be used to allocate costs for materials (assume as usual, that the weighted average method is used, not FIFO)? A) 98,625 B) 96,250 C) 99,250 D) 100,875 Answer: B Explanation: B) Completed 87,000 End WIP 18,500 × 50% 9,250 Total 96,250 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 143) Assume 12,500 units were in beginning WIP; 45,200 units were started; 47,000 units were completed; and 10,700 units were in ending WIP. Materials are added at the beginning of the process. What is the total number of equivalent units for materials? A) 55,900 B) 59,500 C) 45,200 D) 57,700 Answer: D Explanation: D) Completed 47,000 End WIP 10,700 × 100% 10,700 Total 57,700 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

65 .

144) Ending WIP inventory has 100 units that are 70% complete for direct materials and 20% complete for conversion costs. For calculating costs per equivalent unit, which of the following statements is true? A) The denominator would include 100 units for both. B) The denominator would include 70 units for direct materials and 20 for conversion. C) The denominator would include 20 units for direct materials and 80 for conversion. D) You cannot determine what constitutes the denominator. Answer: B Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 145) In a particular department, 8,200 units were started and all but 800 were completed at the end of the period. These 800 were 80% complete for materials and 30% for conversion costs. Costs added were $55,400 for materials and $52,100 for conversion costs. What is the total number of equivalent units for direct materials? A) 8,040 B) 8,840 C) 7,640 D) 7,400 Answer: A Explanation: A) Completed 8,200 - 800 7,400 End WIP 800 × 80% 620 Total 8,040 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

66 .

146) In a particular department, 8,200 units were started and all but 800 were completed at the end of the period. These 800 were 80% complete for materials and 30% for conversion costs. Costs added were $55,400 for materials and $52,100 for conversion costs. What is the total number of equivalent units for conversion costs? A) 8,200 B) 8,040 C) 8,440 D) 7,640 Answer: D Explanation: D) Completed 8,200 - 800 7,400 End WIP 800 × 30% 240 Total 7,640 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 147) Assume no beginning WIP inventory. The ending WIP inventory is 30% complete for materials. The total number of equivalents for materials would be A) less than the units started. B) less than the units completed. C) equal to the units completed. D) equal to the units started. Answer: A Diff: 3 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

67 .

148) During a period, 38,200 units were completed and 4,200 units were in ending WIP inventory. Ending WIP was 75% complete for direct materials and 50% complete for conversion costs. What are the equivalent units for direct materials? A) 42,400 B) 41,350 C) 40,300 D) 31,800 Answer: B Explanation: B) Completed 38,200 End WIP 4200 × 75% 3,150 Total 41,350 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 149) During a period, 38,200 units were completed and 4,200 units were in ending WIP inventory. Ending WIP was 75% complete for direct materials and 50% complete for conversion costs. What are the equivalent units for conversion costs? A) 40,300 B) 41,350 C) 42,400 D) 21,200 Answer: A Explanation: A) Completed 38,200 End WIP 4,200 × 50% 2,100 Total 40,300 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

68 .

150) During a period, 38,200 units were completed and 5,300 units were in ending WIP inventory. Ending WIP was 70% complete for direct materials and 50% complete for conversion costs. What are the equivalent units for direct materials? A) 43,500 B) 40,850 C) 41,910 D) 30,450 Answer: C Explanation: C) Completed 38,200 End WIP 5300 × 70% 3,710 Total 41,910 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 151) During a period, 38,200 units were completed and 5,300 units were in ending WIP inventory. Ending WIP was 70% complete for direct materials and 50% complete for conversion costs. What are the equivalent units for conversion costs? A) 21,750 B) 43,500 C) 41,910 D) 40,850 Answer: D Explanation: D) Completed 38,200 End WIP 5,300 × 50% 2,650 Total 40,850 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

69 .

152) The Jones Corporation uses a process system. During the current period, 2,500 units were started and 1,100 units were completed and transferred out. Ending units were 60% complete for materials and 45% complete for conversion costs. Direct materials costs added were $35,405 and conversion costs added were $32,870. There was no beginning WIP inventory and conversion costs are added evenly throughout the process. At the end of the period, the total equivalent units for direct materials are: A) 1,730. B) 1,940. C) 1,100. D) 2,500. Answer: B Explanation: B) Completed 1,100 End WIP 1,400 × 60% 840 Total 1,940 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 153) The Jones Corporation uses a process system. During the current period, 2,500 units were started and 1,100 units were completed and transferred out. Ending units were 60% complete for materials and 45% complete for conversion costs. Direct materials costs added were $35,405 and conversion costs added were $32,870. There was no beginning WIP inventory and conversion costs are added evenly throughout the process. At the end of the period, the cost per equivalent unit for conversion costs would be closest to A) $29.88. B) $18.25. C) $19.00. D) $32.19. Answer: C Explanation: C) Completed 1,100 End WIP 1,400 × 45% 630 Total 1,730 Conversion costs $32,870 / 1730 units = 19.00 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

70 .

154) The Jones Corporation uses a process system. During the current period, 2,500 units were started and 1,100 units were completed and transferred out. Ending units were 60% complete for materials and 50% complete for conversion costs. Direct materials costs added were $35,405 and conversion costs added were $32,870. There was no beginning WIP inventory and conversion costs are added evenly throughout the process. At the end of the period, the cost per equivalent unit for direct materials would be closest to: A) $19.00. B) $18.25. C) $32.19. D) $29.88. Answer: B Explanation: B) Completed 1,100 End WIP 1,400 × 60% 840 Total 1,940 Conversion costs $35,405 / 1,940 units = 18.25 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 155) The Jones Corporation uses a process system. During the current period, 2,500 units were started and 1,100 units were completed and transferred out. Ending units were 60% complete for materials and 45% complete for conversion costs. Direct materials costs added were $35,405 and conversion costs added were $32,870. There was no beginning WIP inventory and conversion costs are added evenly throughout the process. At the end of the period, what are the total equivalent units for conversion costs? A) 1,940 B) 1,400 C) 1,100 D) 1,730 Answer: D Explanation: D) Completed 1,100 End WIP 1,400 × 45% 630 Total 1,730 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

71 .

156) There are 34,400 units started. 25,600 were completed and transferred out and the 8,800 remaining units were 60% complete for conversion costs. The total number of equivalent units for conversion costs is: A) 30,880. B) 20,640. C) 25,600. D) 5,280. Answer: A Explanation: A) Completed 25,600 End WIP 8,800 × 60% 5,280 Total 30,880 Diff: 2 LO: 5-3 EOC: E5-26 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 157) There are 35,000 units started. 25,600 were completed and transferred out and the 9,400 remaining units were 65% complete for conversion costs. The total number of equivalent units for conversion costs is A) 25,600. B) 31,710. C) 22,750. D) 6,110. Answer: B Explanation: B) Completed 25,600 End WIP 9,400 × 65% 6,110 Total 31,710 Diff: 2 LO: 5-3 EOC: E5-26 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

72 .

158) The following information is provided by Greenbay Company: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 22,000 units 9,000 units 13,000 units $24,400 $12,500 $12,000

The units were 80% complete for materials and 30% complete for conversion costs. How much are the total costs for which Greenbay has to account (i.e., its total costs to account for)? A) $36,900 B) $48,900 C) $24,500 D) $24,400 Answer: B Explanation: B) Direct materials $24,400 Direct labor $12,500 Manufacturing overhead $12,000 Total costs $48,900 Diff: 2 LO: 5-3 EOC: E5-26 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

73 .

159) The following information is provided by Galloway Company: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 22,000 units 9,000 units 13,000 units $26,500 $12,500 $12,000

The units were 80% complete for materials and 30% complete for conversion costs. How much are the total costs for which Galloway has to account (i.e., its total costs to account for)? A) $26,500 B) $24,500 C) $39,000 D) $51,000 Answer: D Explanation: D) Direct materials $26,500 Direct labor $12,500 Manufacturing overhead $12,000 Total costs $51,000 Diff: 2 LO: 5-3 EOC: E5-26 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

74 .

160) A shampoo manufacturer offers the following information: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 25,600 units 19,200 units 6,400 units $276,480 $585,000 $328,920

The units in ending WIP inventory were 60% complete for materials and 40% complete for conversion costs. What is the total cost of units in ending WIP? A) $345,600 B) $107,520 C) $153,600 D) $207,360 Answer: C Explanation: C) Material Completed 19,200 End Inv. 6,400 × 60% 3,840 @40 Total units 23,040 Costs Unit costs End inv./ units

Conversion 19,200 2,560 21,760

276,480 $12.00 3,840 $46,080

913,920 $42.00 2,560 $107,520

(585,000 + 328,920)

= 153,600 Diff: 2 LO: 5-3 EOC: E5-26 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

75 .

161) A shampoo manufacturer offers the following information: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 25,600 units 19,200 units 6,400 units $276,480 $585,000 $328,920

The units in ending WIP inventory were 60% complete for materials and 40% complete for conversion costs. On December 31, what is the total cost of units completed and transferred? A) $ 1,036,800 B) $ 853,527 C) $ 1,050,353 D) $ 1,071,254 Answer: A Explanation: A) Material Conversion Completed 19,200 19,200 End Inv. 6400 × 60% 3,840 @40% 2,560 Total units 23,040 19,200 Costs Unit costs Completed./ units

276,480 $12.00 19,200 $230,400

913,920 $42.00 19,200 $806,400

(585,000 + 328,920)

= 1,036,800 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

76 .

162) A shampoo manufacturer offers the following information: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 25,600 units 19,200 units 6,400 units $276,480 $585,000 $328,920

The units in ending WIP inventory were 60% complete for materials and 40% complete for conversion costs. On December 31, the cost per equivalent unit for conversion costs would be closest to A) $32.45. B) $27.82. C) $42.00. D) $39.59. Answer: C Explanation: C) Conversion Completed 19,200 End Inv. 7000 × 60% @ 40% 2,560 Total units 21,760 Costs 913,920 (585,000 + 328,920) Unit costs $42.00 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

77 .

163) A shampoo manufacturer offers the following information: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 25,600 units 19,200 units 6,400 units $276,480 $585,000 $328,920

The units in ending WIP inventory were 60% complete for materials and 40% complete for conversion costs. On December 31, the cost per equivalent unit for materials would be closest to A) $14.28. B) $ 9.39. C) $12.71. D) $12.00. Answer: D Explanation: D) Material Completed 19,200 End Inv. 7000 × 60% 3,840 Total units 23,040 Costs 276,480 Unit costs $12.00 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

78 .

164) A shampoo manufacturer offers the following information: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 25,600 units 19,200 units 6,400 units $276,480 $585,000 $328,920

The units in ending WIP inventory were 60% complete for materials and 40% complete for conversion costs. On December 31, what are the total equivalent units for conversion costs? A) 21,760 B) 23,040 C) 19,200 D) 28,160 Answer: A Explanation: A) Conversion Completed 19,200 End Inv. 6,400 × 40% 2,560 Total units 21,760 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

79 .

165) A shampoo manufacturer offers the following information: WIP inventory, January 1 Units started Units completed and transferred out WIP inventory, December 31 Direct materials Direct labor Manufacturing overhead

0 units 25,600 units 19,200 units 6,400 units $276,480 $585,000 $328,920

The units in ending WIP inventory were 60% complete for materials and 40% complete for conversion costs. On December 31, what are the total equivalent units for direct materials? A) 25,600 B) 29,440 C) 21,760 D) 23,040 Answer: D Explanation: D) Material Completed 19,200 End Inv. 6,400 × 60% 3,840 Total units 23,040 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

80 .

166) A tennis ball maker gives us its data for the year: WIP inventory, beginning Units started Units completed and transferred out WIP inventory, ending Direct materials Direct labor Manufacturing overhead

0 units 8,500 units 5,600 units 2,900 units $14,778 $6,500 $5,611

Units in ending WIP inventory were 90% complete for materials and 60% complete for conversion costs. On December 31, the cost per equivalent unit for direct materials would be closest to: A) $2.01. B) $1.80. C) $1.33. D) $1.65. Answer: B Explanation: B) Material Completed 5,600 End Inv. 2,900 × 90% 2,610 Total units 8,210 Costs 14,778 Unit costs $1.80 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

81 .

167) A tennis ball maker gives us its data for the year: WIP inventory, beginning Units started Units completed and transferred out WIP inventory, ending Direct materials Direct labor Manufacturing overhead

0 units 8,500 units 5,600 units 2,900 units $14,778 $6,500 $5,611

Units in ending WIP inventory were 90% complete for materials and 60% complete for conversion costs. On December 31, the cost per equivalent unit for conversion costs would be closest to A) $ 1.65. B) $ 1.80. C) $ 1.48. D) $ 0.89. Answer: A Explanation: A) Conversion Completed 5,600 End Inv. 2,900 × 60% 1,740 Total units 7,340 Costs 12,111 (6,500 + 5,611) Unit costs $1.65 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

82 .

168) A tennis ball maker gives us its data for the year: WIP inventory, beginning Units started Units completed and transferred out WIP inventory, ending Direct materials Direct labor Manufacturing overhead

0 units 8,500 units 5,600 units 2,900 units $14,778 $6,500 $5,611

Units in ending WIP inventory were 90% complete for materials and 60% complete for conversion costs. On December 31, the total cost of the units in ending WIP would be closest to A) $ 6,239. B) $ 7,569. C) $19,320. D) $10,005. Answer: B Explanation: B) Material Conversion Completed 5,600 5,600 End Inv. 2,900 × 90% 6,610 @60% 1,740 Total units 8,210 7,340 Costs Unit costs

14,778 $1.80

Units end WIP

2,610 $4,698

12,111 $1.65 1,740 $2,871

+

(6,500 + 5,611)

=

$7,569

Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

83 .

169) A tennis ball maker gives us its data for the year: WIP inventory, beginning Units started Units completed and transferred out WIP inventory, ending Direct materials Direct labor Manufacturing overhead

0 units 8,500 units 5,600 units 2,900 units $14,778 $6,500 $5,611

Units in ending WIP inventory were 90% complete for materials and 60% complete for conversion costs. On December 31, the total costs of units complete and transferred would be closest to A) $7,569. B) $29,325. C) $14,361. D) $19,320. Answer: D Explanation: D) Material Conversion Completed 5,600 5,600 End Inv. 2,900 × 90% 2,610 @60% 1,740 Total units 8,210 7,340 Costs Per unit

14,778 $1.80

Units completed

5,600 $10,080

12,111 $1.65 5,600 $9.240

+

(6,500 + 5,611)

=

$19,320

Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

84 .

170) Raw materials purchased were $18,640 and ending inventory of raw materials was $5,200. If raw materials beginning inventory was 30% of materials used in the process, what was the cost of materials used in production? A) $ 9,408 B) $19,200 C) $34,057 D) $26,629 Answer: B Explanation: B) Purchases - End inventory = Used - Beginning inventory 18,640 - 5,200 = Used - .30 Used 13,440 = .70 Used 13,440 / .70 = 19,200 Diff: 2 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

85 .

171) A pizza company produces frozen pizzas in three departments: assembly, freezing, and packaging. In assembly, crust ingredients are added at the beginning of the process. After the crust is made, the sauce, cheese, and toppings are added at the end of the process. Conversion costs are added evenly. Data for the assembly department includes: Beginning WIP inventory Units started Units completed/transferred to freezing Ending WIP (65% through assembly) Crust ingredients added Cheese added Sauce and toppings added Direct labor Manufacturing overhead

0 units 26,000 units 22500 units 3,500 units $33,880 $15,000 $7,500 $24,00 $5,730

The cost per equivalent unit for crust ingredients would be closest to A) $1.30. B) $1.00. C) $1.20. D) $1.01. Answer: A Explanation: A) Crust Completed 22,500 End Inv. 3,500 × 100% 3,500 Total units 26,000 Costs 33,880 Per unit $1.30 Diff: 3 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

86 .

172) A pizza company produces frozen pizzas in three departments: assembly, freezing, and packaging. In assembly, crust ingredients are added at the beginning of the process. After the crust is made, the sauce, cheese, and toppings are added at the end of the process. Conversion costs are added evenly. Data for the assembly department includes: Beginning WIP inventory Units started Units completed/transferred to freezing Ending WIP (65% through assembly) Crust ingredients added Cheese added Sauce and toppings added Direct labor Manufacturing overhead

0 units 26,000 units 22,500 units 3,500 units $33,880 $15,000 $7,500 $24,000 $5,730

The cost per equivalent unit for cheese, sauce, and toppings would be closest to A) $1.20. B) $1.01. C) $1.30. D) $1.00. Answer: D Explanation: D) Ending work in process units Ending work in process cheese, sauce, toppings

3,500

completion Equivalent units in ending work in process

-

Units completed and transferred to next department Equivalent units for cheese, sauce, toppings completion Beginning work in process costs

22,500 -

Cheese added to production during the period: Sauce and toppings added to production during the period: Total cheese, sauce, and toppings ingredients to account for

$22,500

Equivalent units for cheese, sauce, toppings completion Cost per equivalent unit for cheese, sauce, and toppings Diff: 3 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

87 .

173) A pizza company produces frozen pizzas in three departments: assembly, freezing, and packaging. In assembly, crust ingredients are added at the beginning of the process. After the crust is made, the sauce, cheese, and toppings are added at the end of the process. Conversion costs are added evenly. Data for the assembly department includes: Beginning WIP inventory Units started Units completed/transferred to freezing Ending WIP (65% through assembly) Crust ingredients added Cheese added Sauce and toppings added Direct labor Manufacturing overhead

0 units 26,000 units 22,500 units 3,500 units $33,880 $15,000 $ 7,500 $24,000 $ 5,730

The cost per equivalent unit for conversion costs would be closest to A) $1.01. B) $1.30. C) $1.20. D) $1.00. Answer: C Explanation: C) Cheese/Sauce/Topping Completed 22,500 End Inv. 3500 × 65% 2,275 Total units 24,775 Conversion Costs 24,000 + 5,730 29,730 Per unit $1.20 Diff: 3 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

88 .

174) The mixing department has 44,000 equivalent units of direct materials and 25,000 equivalent units of conversion costs. The direct materials cost $33,000, and the conversion costs are $10,000. Assuming no beginning inventory, the total cost per equivalent unit is A) $0.98. B) $0.40. C) $1.15. D) $0.75. Answer: C Explanation: C) Materials 33,000 units / $44,000 = $.75 per unit Conversion 10,000 units / $25,000 = .40 Total $1.15 Diff: 2 LO: 5-3 EOC: S5-10 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 175) The mixing department has 18,000 units and $50,000 in costs for which to account. Of the 18,000 units, 12,000 were completed and transferred to the next department. The 6,000 remaining were 25% complete for conversion costs. Direct materials are added at the beginning of the process, and the conversion costs are added evenly throughout the process. The cost per equivalent unit is $2.25 for direct materials and $0.80 for conversion costs. The total costs to account for are A) $93,000. B) $50,000. C) $14,700. D) $18,300. Answer: B Diff: 2 LO: 5-3 EOC: S5-12 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

89 .

176) The mixing department has 18,000 units and $50,000 in costs for which to account. Of the 18,000 units, 12,000 were completed and transferred to the next department. The 6,000 remaining were 25% complete for conversion costs. Direct materials are added at the beginning of the process, and the conversion costs are added evenly throughout the process. The cost per equivalent unit is $2.25 for direct materials and $0.80 for conversion costs. The total cost of ending WIP is A) $14,700. B) $ 8,175. C) $18,300. D) $13,500. Answer: A Explanation: A) 6,000 units × $2.25 material costs = $13,500 6000 units × 25% × .$.80 = 1,200 Total 14,700 Diff: 3 LO: 5-3 EOC: S5-12 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 177) Sunnyside Orchards, a juice manufacturer, uses a process that adds flavoring at the beginning of the process and vitamins and minerals 65% of the way through the process. Conversion costs are evenly distributed. Assume there are no beginning inventories. The company started making 14,000 gallons of the drink, and the 1,500 gallons left in ending WIP were 50% of the way through the process. The equivalent units for flavoring is A) 14,000. B) 15,500. C) 13,250. D) 1,500. Answer: A Explanation: A) 14,000 units started × 100% = 14,000 Diff: 1 LO: 5-3 EOC: S5-12 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

90 .

178) Sunnyside Orchards, a juice manufacturer, uses a process that adds flavoring at the beginning of the process and vitamins and minerals 65% of the way through the process. Conversion costs are evenly distributed. Assume there are no beginning inventories. The company started making 14,000 gallons of the drink, and the 1,500 gallons left in ending WIP were 50% of the way through the process. The number of equivalent units for vitamins and minerals is A) 1,500. B) 13,250. C) 14,000. D) 12,500. Answer: D Explanation: D) 14,000 units stated 1,500 units end WIP @ 0% 12,500 units completed Diff: 1 LO: 5-3 EOC: S5-12 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 179) Sunnyside Orchards, a juice manufacturer, uses a process that adds flavoring at the beginning of the process and vitamins and minerals 65% of the way through the process. Conversion costs are evenly distributed. Assume there are no beginning inventories. The company started making 14,000 gallons of the drink, and the 1,500 gallons left in ending WIP were 50% of the way through the process. The number of equivalent units for conversion costs is A) 1,500. B) 14,750. C) 13,250. D) 14,000. Answer: C Explanation: C) Units Started 14,000 Units end WIP 1,500 × 50% = 750 Units Completed 12,500 × 100% = 12,500 Total 13,250 Diff: 1 LO: 5-3 EOC: S5-12 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

91 .

180) Sunnyside Orchards, a juice manufacturer, uses a process that adds flavoring at the beginning of the process and vitamins and minerals 65% of the way through the process. Conversion costs are evenly distributed. Assume there are no beginning inventories. The company started making 14,000 gallons of the drink, and the 1,500 gallons left in ending WIP were 50% of the way through the process. Costs incurred during the period were: $ 10,500 for flavoring $ 7,500 for vitamins/minerals $ 5,300 for conversion costs The cost assigned to ending work in process would be closest to

A) $2,625. B) $1,725. C) $1,425. D) $1,125. Answer: C Explanation: C) Costs

Flavoring $10,500

Vit/minerals $7,500

Completed 14,000 - 1500 = Units End WIP 1,500 Equiv units

12,500 1,500 × 0 % 14,000

12,500 0 12,500

Per unit

$0.75

$.0.60

Ending WIP

1500 units × $0.75 1500 × 50% × $0.40

Conversion $5,300

1500 × 50%

12,500 750 13,250 $0.40

= =

1,250 300 1,425

Diff: 2 LO: 5-3 EOC: S5-12 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

92 .

181) Direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include: WIP beginning (50% for conversion) Units started Units completed and transferred out WIP ending (50% for conversion) Beginning WIP direct materials Beginning WIP conversion costs Costs of materials added Costs of conversion added

28,400 units 124,000 units 107,000 units 45,400 units $53,200 $19,600 $442,100 $304,650

Required: a. What are the total equivalent units for direct materials? b. What are the total equivalent units for conversion costs? c. What is the cost per equivalent unit for direct materials? d. What is the cost per equivalent unit for conversion costs? e. What is the total cost of units completed and transferred out? f. What is the total cost of units remaining in ending WIP? Answer:

93 .

94 .

Diff: 3 LO: 5-3 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

95 .

182) In process costing, there is only one Work in Process Inventory account for all of the individual processing departments. Answer: FALSE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 183) When units are transferred from Processing Department #1 to Processing Department #2, a debit is made to WIP-Processing Department #2 to reflect the transferred-in costs. Answer: TRUE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 184) When units are transferred from Processing Department #1 to Processing Department #2, a credit is made to WIP-Processing Department #2 to reflect the transferred-in costs. Answer: FALSE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 185) When units are transferred from Processing Department #1 to Processing Department #2, a debit is made to WIP-Processing Department #1 to reflect the transferred-out costs. Answer: FALSE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 186) When units are transferred from Processing Department #1 to Processing Department #2, a credit is made to WIP-Processing Department #1 to reflect the transferred-out costs. Answer: TRUE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

96 .

187) The journal entry to record the use of direct materials in Processing Department #1 would include a debit to WIP-Processing Department #1. Answer: TRUE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 188) The journal entry to record the use of direct materials in Processing Department #1 would include a credit to WIP-Processing Department #1. Answer: FALSE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 189) The journal entry to record the use of direct materials in Processing Department #1 would include a debit to Raw Materials inventory. Answer: FALSE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 190) The journal entry to record the use of direct materials in Processing Department #1 would include a credit to Raw Materials inventory. Answer: TRUE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 191) The journal entry to record the use of direct labor in Processing Department #1 would include a debit to WIP-Processing Department #1. Answer: TRUE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

97 .

192) The journal entry to record the use of direct labor in Processing Department #1 would include a credit to WIP-Processing Department #1. Answer: FALSE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 193) The journal entry to record the use of direct labor in Processing Department #1 would include a debit to Wages Payable. Answer: FALSE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 194) The journal entry to record the use of direct labor in Processing Department #1 would include a credit to Wages Payable. Answer: TRUE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 195) The journal entry to record the ultimate completion of the units would include a credit to Finished Goods Inventory. Answer: FALSE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 196) The journal entry to record the ultimate completion of the units would include a debit to the WIP inventory account of the last sequential production department. Answer: FALSE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

98 .

197) The journal entry to record the ultimate completion of the units would include a debit to Finished Goods Inventory. Answer: TRUE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 198) The journal entry to record the ultimate completion of the units would include a credit to the WIP inventory account of the last sequential production department. Answer: TRUE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 199) When units are sold, Finished Goods Inventory is debited. Answer: FALSE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 200) When units are sold, Finished Goods Inventory is credited. Answer: TRUE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 201) When units are sold, Cost of Goods Sold is debited. Answer: TRUE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

99 .

202) When the units are sold, Cost of Goods Sold is credited. Answer: FALSE Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 203) Fun Stuff Manufacturing produces ping pong balls using a three-step sequential process that includes molding, coloring and finishing. When the balls and associated costs are transferred from the coloring process to the finishing process, which account is credited? A) WIP inventory-coloring B) WIP inventory-molding C) Raw materials inventory D) WIP inventory-finishing Answer: A Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 204) Fun Stuff Manufacturing produces frisbees using a three-step sequential process that includes molding, coloring and finishing. When the frisbees and associated costs are transferred from the molding process to the coloring process, which account is debited? A) WIP inventory- molding B) WIP inventory- coloring C) Raw materials inventory D) WIP inventory –finishing Answer: B Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

100 .

205) Fun Stuff Manufacturing produces frisbees using a three-step sequential process that includes molding, coloring and finishing. When the frisbees and associated costs are transferred from the molding process to the coloring process, which account is credited? A) WIP inventory-molding B) WIP inventory-coloring C) Raw materials inventory D) WIP inventory-finishing Answer: A Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 206) Fun Stuff Manufacturing produces frisbees using a three-step process that includes molding, coloring and finishing. Which account is debited when the frisbees are totally completed? A) WIP inventory-finishing B) Finished goods inventory C) Manufacturing overhead D) WIP inventory-coloring Answer: B Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 207) Fun Stuff Manufacturing produces frisbees using a three-step process that includes molding, coloring and finishing. Which of the following accounts is credited for manufacturing overhead? A) WIP inventory-molding B) WIP inventory-finishing C) Manufacturing Overhead D) WIP inventory-coloring Answer: C Diff: 1 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

101 .

208) Fun Stuff Manufacturing produces frisbees using a three-step process that includes molding, coloring and finishing. Which of the following accounts is credited for direct labor used during the molding process? A) Wages payable B) Manufacturing overhead C) Raw materials inventory D) WIP inventory-molding Answer: A Diff: 1 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 209) Fun Stuff Manufacturing produces frisbees using a three-step sequential process that includes molding, coloring and finishing. When the frisbees and associated costs are transferred out of the coloring process and into the finishing process, the journal entry would include a A) debit to WIP inventory-coloring and a credit to WIP-finishing. B) debit to Finished Goods inventory and a credit to WIP-coloring. C) debit to WIP inventory-finishing and a credit to WIP-coloring. D) debit to WIP inventory-coloring and a credit to Finished Goods inventory. Answer: C Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 210) Fun Stuff Manufacturing produces frisbees using a three-step process that includes molding, coloring and finishing. The purchase of materials includes a A) debit to WIP inventory-molding. B) debit to raw materials inventory. C) credit to manufacturing overhead. D) credit to raw materials inventory. Answer: B Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

102 .

211) Fun Stuff Manufacturing produces frisbees using a three-step process that includes molding, coloring and finishing. Requisition of materials to molding includes a A) debit to raw materials inventory. B) debit to manufacturing overhead. C) credit to raw materials inventory. D) credit to finished goods inventory. Answer: C Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 212) A transfer of $30,000 from the assembly department to the packaging department would require the entry of a A) debit to finished goods inventory. B) debit to WIP inventory-assembly. C) credit to WIP inventory-assembly. D) credit to raw materials inventory. Answer: C Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 213) What would be included in the entry to record actual manufacturing overhead costs incurred in a process department? A) Debit to WIP inventory B) Debit to manufacturing overhead C) Credit to manufacturing overhead D) Credit Finished Goods inventory Answer: B Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

103 .

214) The entry to record the use of direct materials in production would include a A) debit to finished goods inventory. B) debit to raw materials inventory. C) debit to WIP inventory. D) credit to finished goods inventory. Answer: C Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 215) Fun Stuff Manufacturing produces frisbees using a three-step process that includes molding, coloring and finishing. Which of the following accounts is credited when material requests are filled? A) Finished goods inventory B) WIP inventory–finishing C) Raw materials inventory D) Manufacturing overhead Answer: C Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 216) Fun Stuff Manufacturing produces frisbees using a three-step process that includes molding, coloring and finishing. Which account is credited when the frisbees are totally completed? A) WIP inventory–finishing B) Finished goods inventory C) Manufacturing overhead D) WIP inventory–coloring Answer: A Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

104 .

217) Fun Stuff Manufacturing produces frisbees using a three-step process that includes molding, coloring and finishing. Which of the following accounts is debited for manufacturing overhead? A) WIP inventory-molding B) WIP inventory-finishing C) WIP inventory-coloring D) All of the above Answer: D Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 218) Fun Stuff Manufacturing produces frisbees using a three-step process that includes molding, coloring and finishing. Which of the following accounts is debited for conversion costs? A) WIP inventory-finishing B) Finished goods inventory C) Raw materials inventory D) Cost of goods sold Answer: A Diff: 2 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

105 .

219) Blossom Company has two sequential processing departments: Assembly then Shaping. The Shaping Department reports the following information. Conversion costs are applied evenly throughout the process. Beginning WIP inventory Transferred-in costs in beginning WIP inventory Direct materials costs in beginning WIP inventory Conversion costs in beginning WIP inventory Units transferred-in Transferred-in costs Units completed Costs added: materials Costs added: conversion Ending WIP inventory (50% complete for materials and 40% complete for conversion)

9,000 units $98,000 25,600 $23,750 47,000 units $645,000 43,000 $155,040 $230,710 13,000 units

What would have been the journal entry to record the transfer of product from the assembly department to the shaping department? A) WIP–assembly (Dr); WIP–shaping (Cr) 645,000 B) WIP–shaping (Dr); WIP–assembly (Cr)728,000 C) WIP–assembly (Dr); WIP–shaping (Cr)728,000 D) WIP–shaping (Dr); WIP–assembly (Cr)645,000 Answer: D Diff: 3 LO: 5-4 EOC: E5-28 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 220) In process costing, when multiple production steps are required, the five-step process costing procedure must be completed in each production department. Answer: TRUE Diff: 2 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 221) In a process costing system, costs flow into finished goods inventory only from the work in process inventory of the last process. Answer: TRUE Diff: 2 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 106 .

222) Costs are transferred, along with the units, from one WIP inventory to the next. Answer: TRUE Diff: 2 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 223) If a company has a series of processes, the company uses just one work-in-process account. Answer: FALSE Diff: 2 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 224) The entry to transfer goods in process from Dept. A to Dept. B includes increasing (debiting) WIP inventory in Dept. A. Answer: FALSE Diff: 2 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 225) Transferred-in costs are incurred in a previous process and are carried forward as part of the product's cost when it moves to the next process. Answer: TRUE Diff: 2 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 226) Second or subsequent departments must account for units and costs transferred in from previous departments. Answer: TRUE Diff: 2 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

107 .

227) Assigning costs to units completed and to units in ending WIP inventory in a second department is a three-step process. Answer: FALSE Diff: 2 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 228) The cost per equivalent unit must be computed for transferred-in costs, as well as direct materials and conversions costs, in a subsequent department. Answer: TRUE Diff: 2 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 229) Product cost reports are done only for the final department in process costing. Answer: FALSE Diff: 1 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 230) When calculating equivalent units in a second or later processing department, all physical units should be considered 100% complete with respect to transferred-in work and costs. Answer: TRUE Diff: 1 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 231) When calculating equivalent units in a second or later processing department, all physical units should be considered 50% complete with respect to transferred-in work and costs. Answer: FALSE Diff: 1 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

108 .

232) The document many process costing companies use to summarize the entire five-step process on one schedule is called the A) conversion report. B) income costing statement. C) bill of materials. D) production cost report. Answer: D Diff: 1 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 233) In a process costing system, the number of WIP inventories A) equals the number of production departments. B) equals the number of products produced. C) equals the number used in a job cost system. D) cannot equal the number of parts used in the product. Answer: A Diff: 1 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 234) In a process system with multiple processes, the cost of units completed in department one is transferred to A) finished goods. B) WIP in department two. C) cost of goods sold. D) overhead. Answer: B Diff: 1 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

109 .

235) Which of the following is unique to a process costing system? A) Work is not started on a product until an order is received. B) Direct materials, direct labor and manufacturing overhead are assigned to the first department only. C) Costs for each process stay with that process until the goods are moved to finished goods. D) Each process has its own WIP account. Answer: D Diff: 2 LO: 5-5 EOC: E5-34 AACSB: Reflective Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

110 .

236) At Panther Company, materials are added at the beginning of the process and conversion costs are added uniformly. Work in process, beginning: Number of units Transferred-in costs Direct materials (100%) Conversion costs (75%) Units transferred-in: Number of units Transferred-in costs Units completed Costs during the period: Direct materials Conversion costs Work in process, ending: Number of units (100% complete for materials and 35% complete for conversion)

9,000 $94,000 $22,500 $25,400 47,500 $640,500 43,000 $155,475 $213,225 13,500

The total cost of units remaining in ending WIP inventory is closest to A) $285,525. B) $241,650. C) $ 66,150. D) $257,884. Answer: B Explanation: B) Units completed End WIP Total units Costs Beg Inv. Added Total Unit Costs End WIP

Trans in 43,000 13,500 56,500

Materials 43,000 13,500 56,500

Conversion 43,000 4,725 (13,500 × 35%) 47,725

$94,000 640,500 734,500

$22,500 155,475 177,975

$25,400 213,225 238,625

$13.00 13,500 $175,500

$3.15 13,500 $42,525

$5.00 4,725 (13,500 × 35%) $23,625 = 241,650

Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

111 .

237) At Panther Company, materials are added at the beginning of the process and conversion costs are added uniformly. Work in process, beginning: Number of units Transferred-in costs Direct materials (100%) Conversion costs (75%) Units transferred-in: Number of units Transferred-in costs Units completed Costs during the period: Direct materials Conversion costs Work in process, ending: Number of units (100% complete for materials and 35% complete for conversion)

9,000 $94,000 $22,500 $25,400 47,500 $640,500 43,000 $155,475 $213,225 13,500

The total cost of units transferred out to finished goods is closest to A) $ 909,450. B) $1,004,625. C) $ 350,450. D) $1,151,100. Answer: A Explanation: A) Units completed End WIP Total units Costs Beg Inv. Added Total Unit Costs Completed units

Trans in 43,000 13,500 56,500

Materials 43,000 13,500 56,500

Conversion 43,000 4,750 (13,500 × 35%) 47,750

$94,000 640,500 734,500

$25,000 155,475 177,975

$25,400 213,225 238,625

$13.00 43,000 $559,000

$3.15 43,000 $135,450

$5.00 43,000 $215,000 = $909,450

Diff: 3 LO: 5-5 EOC: E5-27 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

112 .

238) Note the following data: Units: Beginning WIP 75% for materials 45% for conversion Transferred-in Completed Ending WIP 60% for materials 20% for conversion

54,500

225,000 232,000

47,500

Costs: Beginning WIP Direct materials Conversion Transferred-in Transferred-in from department 1 Direct materials added Conversion added

$ 67,500 145,400 99,000 $1,550,050 909,375 542,875

Costs of units transferred to finished goods would be closest to A) $3,002,300. B) $1,531,200. C) $2,900,000. D) $3,314,200. Answer: C Explanation: C) Units completed End WIP Total units Costs Beg Inv. Added Total Unit Costs Completed units

Trans in Materials 225,000 232,000 54,500 (60% *47,500) 28,500 279,500 260,500

Conversion 232,000 9,500 (20% *47,500) 241,500

$99,000 1,550,050 1,649,050

$67,500 909,375 976,875

$145,400 542,875 688,275

$5.90

$3.75

$2.85 = $12.50 232,000 $2,900,000

Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

113 .

239) Note the following data: Units: Beginning WIP 75% for materials 45% for conversion Transferred-in Completed Ending WIP 60% for materials 20% for conversion

54,500

225,000 232,000

47,500

Costs: Beginning WIP Direct materials Conversion Transferred-in Transferred-in from department 1 Direct materials added Conversion added

$ 67,500 145,400 99,000 $1,550,050 909,375 542,875

The cost of ending WIP is closest to A) $133,950. B) $593,750. C) $311,900. D) $414,200. Answer: D Explanation: D) Trans in Units completed 225,000 End WIP 54,500 (60% *47,500) Total units 279,500 Costs Beg Inv. $99,000 Added 1,550,050 Total 1,649,050 Unit Costs End WIP

$5.90 47,500 $280,250

60%

Materials 232,000 28,500 260,500

Conversion 232,000 9,500 (20% * 47,500) 241,500

$67,500 909,375 976,875

$145,400 542,875 688,275

$3.75 28,500 $106,875

$2.85 = $12.50 9,500 20% $27,075 = $414,200

Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

114 .

240) Materials are added at the beginning of the process and conversion costs are added uniformly. Work in process, beginning: Number of units Transferred-in costs Direct materials (100%) Conversion costs (75%) Units transferred-in: Number of units Transferred-in costs Units completed Costs during the period: Direct materials Conversion costs Work in process, ending: Number of units (100% complete for materials and 35% complete for conversion)

9,000 $94,000 $22,500 $25,400 47,500 $640,500 43,000 $155,475 $213,225 13,500

At period end, what would be the total equivalent units for direct materials? A) 38,500 B) 56,500 C) 52,000 D) 43,000 Answer: B Explanation: B) Materials Units completed 43,000 End WIP 13,500 Total units 56,500 Diff: 2 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

115 .

241) Materials are added at the beginning of the process and conversion costs are added uniformly. Work in process, beginning: Number of units Transferred-in costs Direct materials (100%) Conversion costs (75%) Units transferred-in: Number of units Transferred-in costs Units completed Costs during the period: Direct materials Conversion costs Work in process, ending: Number of units (100% complete for materials and 35% complete for conversion)

9,000 $94,000 $22,500 $25,400 47,500 $640,500 43,000 $155,475 $213,225 13,500

What is the total number of physical units to account for? A) 56,500 B) 47,500 C) 43,000 D) 38,500 Answer: A Explanation: A) Beg WIP 9,000 Trans in 47,500 Total 56,500 Diff: 2 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

116 .

242) Brambles Corporation has two sequential processing departments: Assembly then Shaping. The Shaping Department reports the following information. Conversion costs are applied evenly throughout the process. Beginning WIP inventory Transferred-in costs in beginning WIP inventory Direct materials cost in beginning WIP inventory Conversion costs in beginning WIP inventory Units transferred-in Transferred-in costs Units completed Costs added: direct materials Costs added: conversion costs Ending WIP inventory (40% complete for materials and 30% complete for conversion)

8,000 unit $110,200 $24,500 $22,750 57,000 units $546,300 52,000 $167,120 $245,570 13,000 units

What is the total number of equivalent units for direct materials? A) 52,000 B) 55,200 C) 62,200 D) 57,200 Answer: D Explanation: D) Completed units 52,000 End WIP 5,200 (13,000 × 40%) 57,200 Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

117 .

243) Brambles Corporation has two sequential processing departments: Assembly then Shaping. The Shaping Department reports the following information. Conversion costs are applied evenly throughout the process. Beginning WIP inventory Transferred-in costs in beginning WIP inventory Direct materials cost in beginning WIP inventory Conversion costs in beginning WIP inventory Units transferred-in Transferred-in costs Units completed Costs added: direct materials Costs added: conversion costs Ending WIP inventory (40% complete for materials and 30% complete for conversion)

8,000 unit $110,200 $24,500 $22,750 57,000 units $546,300 52,000 $167,120 $245,570 13,000 units

What is the total number of equivalent units for conversion costs? A) 54,400 B) 65,000 C) 60,900 D) 55,900 Answer: D Explanation: D) Completed units 52,000 End WIP 3,900 (13,000 × 30%) 55,900 Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

118 .

244) Ready Company adds direct materials at the beginning of the process and adds conversion costs throughout the process. Data for the finishing department follows: WIP, April 1 Transferred-in costs in WIP, April 1 Direct materials (100%) in WIP, April 1 Conversion costs (75%) in WIP, April 1 Units transferred-in Transferred-in costs during April Units completed April direct materials cost April conversion costs WIP, April 30 (100% for materials and 50% for conversion costs)

14,000 units $79,940 $24,420 $23,400 47,000 $550,900 41,000 $155,500 $239,250 20,000 units

The cost per equivalent unit for conversion costs would be closest to A) $5.15. B) $4.31. C) $4.69. D) $5.47. Answer: A Explanation: A) Completed units 41,000 End WIP 10,000 (20,000 × 50%) 51,000 Costs Beg WIP $ 23,400 Trans in 239,250 262,650 Unit Costs $5.15 Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

119 .

245) Ready Company adds direct materials at the beginning of the process and adds conversion costs throughout the process. Data for the finishing department follows: WIP, April 1 Transferred-in costs in WIP, April 1 Direct materials (100%) in WIP, April 1 Conversion costs (75%) in WIP, April 1 Units transferred-in Transferred-in costs during April Units completed April direct materials cost April conversion costs WIP, April 30 (100% for materials and 50% for conversion costs)

14,000 units $79,940 $24,420 $23,400 47,000 $550,900 41,000 $155,500 $239,250 20,000 units

What are the equivalent units for conversion costs? A) 51,000 B) 56,000 C) 48,000 D) 61,000 Answer: A Explanation: A) Completed units 41,000 End WIP 10,000 (20,000 × 50%) 51,000 Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

120 .

246) Ready Company adds direct materials at the beginning of the process and adds conversion costs throughout the process. Data for the finishing department follows: WIP, April 1 Transferred-in costs in WIP, April 1 Direct materials (100%) in WIP, April 1 Conversion costs (75%) in WIP, April 1 Units transferred-in Transferred-in costs during April Units completed April direct materials cost April conversion costs WIP, April 30 (100% for materials and 50% for conversion costs)

14,000 units $79,940 $24,420 $23,400 47,000 $550,900 41,000 $155,500 $239,250 20,000 units

What are the equivalent units for direct materials? A) 67,000 B) 61,000 C) 51,000 D) 55,000 Answer: B Explanation: B) Completed units 41,000 End WIP 20,000 (20,000 × 100%) 61,000 Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

121 .

247) Ready Company adds direct materials at the beginning of the process and adds conversion costs throughout the process. Data for the finishing department follows: WIP, April 1 Transferred-in costs in WIP, April 1 Direct materials (100%) in WIP, April 1 Conversion costs (75%) in WIP, April 1 Units transferred-in Transferred-in costs during April Units completed April direct materials cost April conversion costs WIP, April 30 (100% for materials and 50% for conversion costs)

14,000 units $79,940 $24,420 $23,400 47,000 $550,900 41,000 $155,500 $239,250 20,000 units

The total number of physical units for which we have to account is A) 41,000. B) 61,000. C) 67,000. D) 55,000. Answer: B Explanation: B) Beg WIP 14,000 Trans in 47,000 61,000 Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

122 .

248) Martinson Company adds direct materials at the beginning of the process and adds conversion costs throughout the process. Data for the finishing department follows: WIP, April 1 Transferred-in costs in WIP, April 1 Direct materials (100%) in WIP, April 1 Conversion costs (75%) in WIP, April 1 Units transferred-in Transferred-in costs during April Units completed April direct materials cost April conversion costs WIP, April 30 (100% for materials and 50% for conversion costs)

12,000 units $79,940 $24,420 $23,400 47,000 $550,900 42,000 $155,500 $243,600 17,000 units

The cost per equivalent unit for conversion costs would be closest to A) $5.11. B) $4.53. C) $5.43. D) $4.88. Answer: A Explanation: A) Completed units 42,000 End WIP 10,200 (17,000 × 60%) 52,200 Costs Beg WIP $ 23,400 Trans in 239,250 262,650 Unit Costs $5.1149 Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

123 .

249) Martinson Company adds direct materials at the beginning of the process and adds conversion costs throughout the process. Data for the finishing department follows: WIP, April 1 Transferred-in costs in WIP, April 1 Direct materials (100%) in WIP, April 1 Conversion costs (75%) in WIP, April 1 Units transferred-in Transferred-in costs during April Units completed April direct materials cost April conversion costs WIP, April 30 (100% for materials and 60% for conversion costs)

12,000 units $79,940 $24,420 $23,400 47,000 $550,900 42,000 $155,500 $243,600 17,000 units

What are the equivalent units for conversion costs? A) 59,000 B) 49,200 C) 54,750 D) 52,200 Answer: D Explanation: D) Completed units 42,000 End WIP 10,200 (17,000 × 60%) 52,200 Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

124 .

250) Martinson Company adds direct materials at the beginning of the process and adds conversion costs throughout the process. Data for the finishing department follows: WIP, April 1 Transferred-in costs in WIP, April 1 Direct materials (100%) in WIP, April 1 Conversion costs (75%) in WIP, April 1 Units transferred-in Transferred-in costs during April Units completed April direct materials cost April conversion costs WIP, April 30 (100% for materials and 60% for conversion costs)

12,000 units $79,940 $24,420 $23,400 47,000 $550,900 42,000 $155,500 $243,600 17,000 units

What are the equivalent units for direct materials? A) 64,000 B) 54,000 C) 59,000 D) 52,200 Answer: C Explanation: C) Completed units 42,000 End WIP 17,000 (17,000 × 100%) 59,000 Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

125 .

251) Martinson Company adds direct materials at the beginning of the process and adds conversion costs throughout the process. Data for the finishing department follows: WIP, April 1 Transferred-in costs in WIP, April 1 Direct materials (100%) in WIP, April 1 Conversion costs (75%) in WIP, April 1 Units transferred-in Transferred-in costs during April Units completed April direct materials cost April conversion costs WIP, April 30 (100% for materials and 60% for conversion costs)

12,000 units $79,940 $24,420 $23,400 47,000 $550,900 42,000 $155,500 $243,600 17,000 units

The total number of physical units for which we have to account is A) 42,000. B) 54,000. C) 64,000. D) 59,000. Answer: D Explanation: D) Beg WIP 12,000 Trans in 47,000 59,000 Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

126 .

252) Baron Corporation has two sequential processing departments: Assembly then Shaping. The Shaping Department reports the following information. Conversion costs are applied evenly throughout the process. Beginning WIP inventory Transferred-in costs in beginning WIP inventory Direct materials cost in beginning WIP inventory Conversion costs in beginning WIP inventory Units transferred-in Transferred-in costs Units completed Costs added: direct materials Costs added: conversion costs Ending WIP inventory (40% complete for materials and 30% complete for conversion)

8,000 unit $110,20 $24,500 $22,750 57,000 units $546,300 52,000 $167,120 $245,570 13,000 units

The total cost of units transferred out to finished goods would be closest to A) $949,000. B) $958,990. C) $423,800. D) $1,040,250. Answer: A

127 .

Explanation: A) Ending work in process units

13,000

Ending work in process materials completion Materials equivalent units in ending work in process

5,200

Units completed and transferred to next department Equivalent units of production for materials

57,200

Ending work in process units

13,000

Ending work in process conversion cost completion Conversion equivalent units in ending work in process

3,900

Units completed and transferred to next department Equivalent units of production for conversion costs

55,900

Beginning work in process units

8,000

Units started into production during the period Transferred-in equivalent units

65,000

Beginning work in process inventory materials cost

$24,500

Materials cost added to production during the period: Total materials costs to account for

$191,620

Equivalent units of production for materials Cost per materials equivalent unit

$3.35

Beginning work in process inventory conversion cost

$ 22,750

Conversion cost added to production during the period: Total conversion costs to account for

$268,320

Equivalent units of production for conversion costs Cost per conversion cost equivalent unit

$ 4.80

Beginning work in process inventory transferred in costs

110,200

Transferred in costs added to production during the period: Total transferred in costs

656,500

Transferred-in equivalent units Cost per transferred in equivalent unit

$ 10.10

Units completed and transferred to next department

52,000

Cost per materials equivalent unit Materials cost transferred out

$ 174,200

Units completed and transferred to next department

52,000

Cost per conversion cost equivalent unit Conversion cost transferred out

$ 249,600

Units completed and transferred to next department

52,000

128 .

Cost per transferred in equivalent unit Transferred in cost transferred out Total costs in ending work in process

$ 525,200

Total costs transferred out Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 253) Baron Corporation has two sequential processing departments: Assembly then Shaping. The Shaping Department reports the following information. Conversion costs are applied evenly throughout the process. Beginning WIP inventory Transferred-in costs in beginning WIP inventory Direct materials cost in beginning WIP inventory Conversion costs in beginning WIP inventory Units transferred-in Transferred-in costs Units completed Costs added: direct materials Costs added: conversion costs Ending WIP inventory (40% complete for materials and 30% complete for conversion)

8,000 unit $110,20 $24,500 $22,750 57,000 units $546,300 52,000 $167,120 $245,570 13,000 units

The total cost of units in ending WIP inventory-Shaping would be closest to A) $36,140. B) $146,000. C) $237,250. D) $167,440. Answer: D

129 .

Explanation: D) Ending work in process units

13,000

Ending work in process materials completion Materials equivalent units in ending work in process

5,200

Units completed and transferred to next department Equivalent units of production for materials

57,200

Ending work in process units

13,000

Ending work in process conversion cost completion Conversion equivalent units in ending work in process

3,900

Units completed and transferred to next department Equivalent units of production for conversion costs

55,900

Beginning work in process units

8,000

Units started into production during the period Transferred-in equivalent units

65,000

Beginning work in process inventory materials cost

$24,500

Materials cost added to production during the period: Total materials costs to account for

$191,620

Equivalent units of production for materials Cost per materials equivalent unit

$3.35

Beginning work in process inventory conversion cost

$ 22,750

Conversion cost added to production during the period: Total conversion costs to account for

$268,320

Equivalent units of production for conversion costs Cost per conversion cost equivalent unit

$ 4.80

Beginning work in process inventory transferred in costs

110,200

Transferred in costs added to production during the period: Total transferred in costs

656,500

Transferred-in equivalent units Cost per transferred in equivalent unit

$ 10.10

Materials equivalent units in ending work in process

5,200

Cost per materials equivalent unit Materials cost in ending inventory

$ 17,420

Conversion equivalent units in ending work in process Cost per conversion cost equivalent unit Conversion cost in ending inventory

3,900 $ 18,720

Ending work in process units

13,000 130 .

Cost per transferred in equivalent unit Transferred in cost in ending inventory

$ 131,300

Total costs in ending inventory Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing 254) At Billy Distillery, direct materials are added at the beginning of the process and conversion costs are added throughout the process. Data for the finishing department follows: WIP, April 1 Transferred-in costs in WIP, April 1 Direct materials (100%) in WIP, April 1 Conversion costs (65%) in WIP, April 1 Units transferred-in Transferred-in costs during April Units completed April direct materials cost April conversion costs WIP, April 30 (100% for materials and 60% for conversion costs)

22,000 units $95,200 $24,200 $20,100 38,000 $506,000 33,000 $155,500 $213,600 27,000 units

Required: a. What is the cost per equivalent unit for conversion costs? b. What are the equivalent units for conversion costs?c. What are the equivalent units for direct materials? d. What are the total number of physical units for which to account?

131 .

Answer: SOLUTION -- part a. Ending work in process units Ending work in process conversion cost completion Equivalent units in ending work in process Units completed and transferred out Equivalent units for conversion costs

27,000 60% 16,200 33,000 49,200

Beginning work in process conversion cost Conversion cost added to production during the period: Total conversion cost to account for Equivalent units for conversion costs Cost per equivalent unit

$20,100 $213,600 $233,700 49,200 $4.75

SOLUTION -- part b. Ending work in process units Ending work in process conversion cost completion Equivalent units in ending work in process Units completed and transferred out Equivalent units for conversion costs

27,000 60% 16,200 33,000 49,200

SOLUTION -- part c. Ending work in process units Ending work in process materials completion Equivalent units in ending work in process Units completed and transferred out Equivalent units for direct materials

27,000 100% 27,000 33,000 60,000

SOLUTION -- part d. Beginning work in process units Units started into production during the period Total physical units to account for

22,000 38,000 60,000

Diff: 3 LO: 5-5 EOC: E5-34 AACSB: Analytical Thinking Learning Outcome: Discuss process costing systems and calculate product cost using process costing

132 .

Managerial Accounting, 3e (Braun/Tietz) Chapter 6 Cost Behavior 1) Total fixed costs do not change in response to changes in the volume of production. Answer: TRUE Diff: 1 LO: 6-1 EOC: E6-19A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 2) In a manufacturing company, fixed costs remain the same at many different production levels within the relevant range. Answer: TRUE Diff: 1 LO: 6-1 EOC: E6-19A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 3) Unit variable costs do not change as total production increases. Answer: TRUE Diff: 1 LO: 6-1 EOC: E6-19A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 4) Mixed costs are purely fixed. Answer: FALSE Diff: 1 LO: 6-1 EOC: E6-19A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 5) Fixed costs per unit decrease as production levels increase. Answer: TRUE Diff: 2 LO: 6-1 EOC: E6-19A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs

1 .

6) An expense such as advertising could be considered a discretionary fixed cost. Answer: TRUE Diff: 2 LO: 6-1 EOC: E6-19A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 7) The fixed cost per unit does not always remain the same. Answer: TRUE Diff: 2 LO: 6-1 EOC: E6-19A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 8) The line on a graph representing total fixed costs will be a horizontal line. Answer: TRUE Diff: 1 LO: 6-1 EOC: E6-19A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 9) Total variable costs change in direct proportion to changes in volume. Answer: TRUE Diff: 2 LO: 6-1 EOC: E6-19A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 10) The variable cost per unit of activity increases as activity increases. Answer: FALSE Diff: 2 LO: 6-1 EOC: E6-19A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 11) When graphing total fixed costs, the fixed cost per unit is the slope of the fixed cost line. Answer: FALSE Diff: 2 LO: 6-1 EOC: S6-2 AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs

2 .

12) When graphing total fixed costs, the cost line always begins at the origin. Answer: FALSE Diff: 2 LO: 6-1 EOC: S6-2 AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 13) The graph of total variable cost will be a horizontal line over all activity levels within the relevant range. Answer: FALSE Diff: 2 LO: 6-1 EOC: S6-2 AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 14) The fixed cost per unit of activity varies with changes in volume. Answer: TRUE Diff: 2 LO: 6-1 EOC: S6-2 AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 15) When graphing total variable costs, the cost line begins at the origin. Answer: TRUE Diff: 2 LO: 6-1 EOC: S6-2 AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 16) Total mixed costs increase as volume increases because of the variable cost component. Answer: TRUE Diff: 2 LO: 6-1 EOC: S6-2 AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 17) Mixed costs per unit decrease as volume increases because of the variable cost component. Answer: FALSE Diff: 2 LO: 6-1 EOC: S6-2 AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 3 .

18) Total mixed cost graphs slope upward but do not begin at the origin. Answer: TRUE Diff: 2 LO: 6-1 EOC: S6-2 AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 19) Total mixed cost graphs intersect the y-axis at the level of fixed costs. Answer: TRUE Diff: 2 LO: 6-1 EOC: S6-2 AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 20) Fixed costs that are the result of previous management decisions that current managers have no control over in the short run are called ________ fixed costs. A) discretionary B) committed C) standard D) past Answer: B Diff: 1 LO: 6-1 EOC: S6-2 AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 21) A(n) ________ cost is a cost whose total amount changes in direct proportion to a change in volume. A) variable B) fixed C) mixed D) irrelevant Answer: A Diff: 1 LO: 6-1 EOC: S6-2 AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs

4 .

22) Which of the following costs is an example of a fixed cost? A) Sales commissions B) Salary of plant manager C) Direct materials D) Delivery costs Answer: B Diff: 1 LO: 6-1 EOC: E6-19A AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 23) With respect to variable costs per unit, which of the following statements is true? A) They will decrease as production increases within the relevant range. B) They will increase as production decreases within the relevant range. C) They will decrease as production decreases within the relevant range. D) They will remain the same as production levels change within the relevant range. Answer: D Diff: 2 LO: 6-1 EOC: E6-20A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 24) With respect to total variable costs, which of the following statements is true? A) They will remain the same as production levels change within the relevant range. B) They will decrease as production decreases within the relevant range. C) They will decrease as production increases within the relevant range. D) They will increase as production decreases within the relevant range. Answer: B Diff: 2 LO: 6-1 EOC: E6-20A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 25) With respect to total fixed costs, which of the following statements is true? A) They will remain the same as production levels change within the relevant range. B) They will increase as production decreases within the relevant range. C) They will decrease as production increases within the relevant range. D) They will decrease as production decreases within the relevant range. Answer: A Diff: 2 LO: 6-1 EOC: E6-20A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs

5 .

26) Within the relevant range, which of the following statements is true with respect to fixed costs per unit? A) They will increase as production increases. B) They will decrease as production decreases. C) They will remain the same as production levels change. D) They will increase as production decreases. Answer: D Diff: 2 LO: 6-1 EOC: E6-20A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 27) Which of the following is a characteristic of a variable cost? A) Variable costs are fixed in total. B) Variable costs fluctuate in total with production and sales. C) Variable costs do not change in total over any range. D) All of the above may be characteristic of a variable cost. Answer: B Diff: 2 LO: 6-1 EOC: E6-20A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 28) Which of the following is a fixed cost? A) Direct materials cost B) Direct labor cost C) Straight-line depreciation expense D) Sales commissions expense Answer: C Diff: 1 LO: 6-1 EOC: E6-19A AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 29) Variable costs are described by which of the following statements? A) They vary per unit of output. B) They are fixed in total. C) They are fixed per unit and vary in total. D) They decrease per unit as production volume increases. Answer: C Diff: 1 LO: 6-1 EOC: E6-19A AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 6 .

30) Renting a scooter and paying $30 per day plus $.20 per mile driven is an example of what type of cost? A) Mixed cost B) Fixed cost C) Conversion cost D) Variable cost Answer: A Diff: 1 LO: 6-1 EOC: E6-19A AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 31) For most businesses, annual straight line depreciation expense on the company's building is what type of cost? A) Variable B) Mixed C) Fixed D) Step Answer: C Diff: 1 LO: 6-1 EOC: E6-19A AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 32) Total fixed costs for Taylor Incorporated are $240,000. Total costs, including both fixed and variable, are $500,000 if 125,000 units are produced. The variable cost per unit is A) $5.92/unit. B) $2.08/unit. C) $4.00/unit. D) $1.92/unit. Answer: B Explanation: B) Cost equation y = vx + f $500,000 = 125,000x + 240,000 260,000 = 125,000x $2.08 = x Diff: 2 LO: 6-1 EOC: E6-22A AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs

7 .

33) Total fixed costs for Randolph Manufacturing are $754,000. Total costs, including both fixed and variable, are $1,000,000 if 150,000 units are produced. The variable cost per unit is A) $6.67/unit. B) $5.03/unit. C) $11.69/unit. D) $1.64/unit. Answer: D Explanation: D) Cost equation y = vx + f $1,000,000 = 150,000x + 754,000 246,000 = 150,000x $1.64 = x Diff: 2 LO: 6-1 EOC: E6-22A AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 34) Total fixed costs for Diamond Enterprises are $800,000. Total costs, including both fixed and variable, are $890,000 if 120,000 units are produced. The fixed cost per unit at 200,000 units would be A) $4.00/unit. B) $7.42/unit. C) $4.45/unit. D) $0.45/unit. Answer: A Explanation: A) Fixed Cost / units produced = Fixed Cost per unit $800,000 / 200,000 = $ 4.00 Diff: 2 LO: 6-1 EOC: E6-22A AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 35) Total fixed costs for Randolph Manufacturing are $752,450. Total costs, including both fixed and variable, are $1,000,000 if 150,000 units are produced. The fixed cost per unit at 186,250 units would be closest to A) $1.31/unit. B) $5.31/unit. C) $4.00/unit. D) $5.03/unit. Answer: C Explanation: C) 754,000 / 186,250 = $ 4.00 Diff: 2 LO: 6-1 EOC: E6-22A AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs

8 .

36) Total fixed costs for Green Planes Inc. are $120,000. Total costs, including both fixed and variable, are $600,000 if 150,000 units are produced. The total variable costs at a level of 220,000 units would be A) $409,091. B) $176,000. C) $880,000. D) $704,000. Answer: D Explanation: D) Cost Equationy = vx + f $600,000 = 150,000x + $120,000 X = 3.20 Then $3.20 × 220,000 = $ 704,000 Diff: 3 LO: 6-1 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 37) Total fixed costs for Toys and Trinkets Incorporated are $88,000. Total costs, including both fixed and variable, are $155,000 if 268,000 units are produced. The total variable costs at a level of 275,000 units would be A) $68,750. B) $159,049. C) $90,299. D) $151,055. Answer: A Explanation: A) Cost Equationy = vx + f $155,000 = 268,000x + $88,000 X = 0.25 Then $0.25 × 275,000 = $ 68,750 Diff: 3 LO: 6-1 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs

9 .

38) If 120,000 units are produced, total costs are $343,000. Total fixed costs for Blue Peace Inc. are $175,000. The variable cost per unit is A) $4.32/unit. B) $1.46/unit. C) $2.86/unit. D) $1.40/unit. Answer: D Explanation: D) Cost Equation y = vx + f $343,000 = 120,000x + $175,000 X = 1.40 Diff: 2 LO: 6-1 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 39) Total fixed costs for Purple Figs Company are $52,000. Total costs, both fixed and variable are $160,000 if 80,000 units are produced. The fixed cost per unit at 80,000 units would be A) $1.35/unit. B) $0.65/unit. C) $2.00/unit. D) $2.65/unit. Answer: B Explanation: B) $ 52,000/ 80,000 = $.65 Diff: 2 LO: 6-1 EOC: E6-22A AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 40) Total costs for Locke & Company at 120,000 units are $289,000, while total fixed costs are $145,000. The total variable costs at a level of 250,000 units would be A) $300,000. B) $602,083. C) $138,720. D) $302,083. Answer: A Explanation: A) Cost Equation y = vx + f $289,000 = 120,000x + $145,000 X = 1.20 Then $1.20 × 250,000 = $ 300,000 Diff: 3 LO: 6-1 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs

10 .

41) Selected financial data for Spark Enterprises follows for a production level of 120,000 units: Total fixed costs Total costs (fixed and variable)

$ 300,000 $ 450,000

a. Calculate the variable cost per unit. b. If Flash Corporation makes 75,000 units, calculate the fixed cost per unit. c. If Flash Corporation makes 160,000 units, calculate the total variable costs. d. If Flash Corporation makes 280,000 units, calculate the total costs. Answer:

11 .

Diff: 3 LO: 6-1 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 42) Relevant range is the range of activity (volume) over which total fixed costs and variable costs per unit can be assumed to remain the same. Answer: TRUE Diff: 2 LO: 6-2 EOC: S6-6 AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 43) In the equation y = vx + f, the x represents the fixed costs. Answer: FALSE Diff: 2 LO: 6-2 EOC: S6-6 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 44) In the equation y = vx + f, the f represents the volume of activity. Answer: FALSE Diff: 1 LO: 6-2 EOC: S6-6 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 12 .

45) Cost behavior can be mathematically expressed using equations. Answer: TRUE Diff: 1 LO: 6-2 EOC: S6-6 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 46) The equation for a straight line is y = fx + v, where y is the total cost, f is the fixed cost per unit, x is the volume of activity, and v is the variable cost per unit. Answer: FALSE Diff: 1 LO: 6-2 EOC: S6-6 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 47) At any given volume, average fixed costs must equal average variable costs. Answer: FALSE Diff: 2 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 48) The "averaging method" is a method that may be used to separate mixed costs into fixed and variable components. Answer: FALSE Diff: 2 LO: 6-2 EOC: E6-5 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 49) Total variable costs can be expressed as y = vx, where y = total mixed cost, v = mixed cost per unit of activity, and x = volume of activity. Answer: FALSE Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

13 .

50) Total fixed costs can be expressed as y = vx, where y = total variable cost, v = variable cost per unit of activity, and x = volume of activity. Answer: FALSE Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 51) Total mixed costs can be expressed as y = vx, where y = total variable cost, v = variable cost per unit of activity, and x = volume of activity. Answer: FALSE Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 52) Total mixed costs can be expressed as a combination of the fixed and sunk cost equations. Answer: FALSE Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 53) Managers often approximate curvilinear costs and step costs as fixed costs. Answer: FALSE Diff: 2 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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54) If production increases by 25%, how will total fixed costs likely react? A) Increase by 12.5% B) Increase by 25% C) Decrease by 25% D) Remain the same Answer: D Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 55) If production increases by 30%, how will total variable costs likely react? A) Increase by 15% B) Decrease by 30% C) Increase by 30% D) Remain the same Answer: C Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Analytical Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 56) Which of the following would be considered a discretionary fixed cost? A) Property taxes and insurance B) Advertising C) Employees wages D) Depreciation Answer: B Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 57) Which of the following would be considered a committed fixed cost? A) Depreciation B) Research and Development C) Office holiday party D) Advertising Answer: A Diff: 1 LO: 6-2 EOC: E6-22A AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs

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58) Management has little or no control over A) discretionary fixed costs. B) committed fixed costs. C) all fixed costs. D) all of the above. Answer: B Diff: 1 LO: 6-2 EOC: E6-22A AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 59) Which of the following cost behaviors cannot be accurately represented by a single straight line? A) Variable costs B) Mixed costs C) Fixed costs D) Step costs Answer: D Diff: 1 LO: 6-2 EOC: E6-22A AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 60) Managers should consider which of the following when predicting costs at different volumes? A) The relevant range of the cost B) The type of cost behavior C) Both of the above should be considered. D) Neither of the above should be considered. Answer: C Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 61) An equation of a line for total costs is A) y = vx - f. B) y = fx + v. C) y = f. D) none of the above. Answer: D Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 16 .

62) An equation of a line for total mixed costs is A) y = vx + f. B) y = vx - f. C) f = vx - y. D) f = vx + y. Answer: A Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 63) The equation for total fixed costs is A) y = f. B) y = vx + f. C) y = vx - f. D) none of the above. Answer: A Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 64) The representation for total variable costs is A) vx + f. B) vx. C) vx - f. D) y = vx + f. Answer: B Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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65) The representation for fixed cost per unit of activity is A) vx divided by v. B) vx divided by y. C) y divided by x. D) f divided by x. Answer: D Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 66) If a company's overhead cost equation is y = $8.80x + $120,020. The "x" is A) the cost driver in units. B) total fixed costs. C) total overhead costs. D) the variable costs. Answer: A Diff: 21 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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67) Which type of cost behavior is indicated by the following graph?

A) Fixed B) Step C) Mixed D) Variable Answer: B Diff: 1 LO: 6-2 EOC: S6-3 AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 68) Which type of cost behavior is indicated by the following graphs?

A) Step B) Fixed C) Curvilinear D) Variable Answer: C Diff: 2 LO: 6-2 EOC: S6-3 AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs

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69) What term represents the total variable cost component in the equation: y = vx + f? A) f B) v C) vx D) y Answer: C Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 70) What term represents the total cost in the equation: y = vx + f? A) f B) v C) vx D) y Answer: D Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 71) What term represents the variable cost per unit of activity in the equation: y = vx + f? (Assume x represents the volume of activity.) A) v B) f C) y D) vx Answer: A Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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72) What variable represents the volume of activity in the equation: y = vx + f? (Assume v represents the variable cost per unit of activity.) A) v B) x C) y D) vx Answer: B Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 73) What term represents the fixed cost component in the equation: y = vx + f? A) y B) v C) f D) vx Answer: C Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 74) Total mixed cost is represented by which of the following equations? A) y = vx B) y = vx + f C) y = f D) y = v + f Answer: B Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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75) In the equation y = $7.20x + $790, "y" represents A) total fixed costs. B) total costs. C) variable costs/unit. D) none of the above. Answer: B Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 76) In the equation y = $7.20x + $790, "x" represents A) number of units produced. B) total fixed costs. C) total costs. D) none of the above. Answer: A Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 77) In the equation y = $7.20x + $790, A) $250,250 are the total variable costs. B) $250,250 are the total costs. C) $250,250 are the total fixed costs. D) $250,250 are the total overhead costs. Answer: C Diff: 2 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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78) In the equation y = $11.75x + $550, "y" represents A) total costs. B) total fixed costs. C) variable costs/unit. D) none of the above. Answer: A Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 79) In the equation y = $11.75x + $550, "x" represents A) number of units produced. B) total fixed costs. C) total costs. D) none of the above. Answer: A Diff: 1 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 80) In the equation y = $11.75x + $550, A) $550 are the total step costs. B) $550 are the total overhead costs. C) $550 are the total variable costs. D) $550 are the total fixed costs. Answer: D Diff: 2 LO: 6-2 EOC: S6-4 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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81) DirectCall offers a calling plan that charges $5.00 per month plus $0.02 per minute of call time. Under this plan, what is your monthly cost if you talk for a total of 200 minutes? A) $4.00 B) $9.00 C) $(1.00) D) $5.00 Answer: B Explanation: B) Cost Equation Y = vx + f y = ($ .02 × 200) + $ 5.00 y = $ 9.00 Diff: 2 LO: 6-2 EOC: S6-4 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 82) GreatCalls has a special plan offer this month. There is a $3.00 per month charge each month and calls anywhere in the United States are $0.04 per minute. What would the monthly cost be if you typically talk for 450 minutes per month? A) $ 5.00 B) $ 15.00 C) $ 18.00 D) $ 21.00 Answer: D Explanation: D) Cost Equation Y = vx + f y = ($ .04 × 450) + $ 3.00 y = $ 21.00 Diff: 2 LO: 6-2 EOC: S6-4 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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83) Maryland Incorporated produces toys. Total manufacturing costs are $350,000 when 50,000 toys are produced. Of this amount, total variable costs are $100,000. What are the total production costs when 75,000 toys are produced? (Assume the same relevant range for both production levels.) A) $150,000 B) $400,000 C) $500,000 D) $525,000 Answer: B Explanation: B) v = $ 100,000/ 50,000 v=$2 then f = $350,000 - 100,000 f = 250,000 finally y = vx + f y = $ 3.00 (75,000) + $ 250,000 y = $ 400,000 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 84) Doggie Pals produces 100,000 dog collars each month that give off a fresh scent to keep your dog smelling clean between baths. Total manufacturing costs are $200,000. Of this amount, $150,000 are variable costs. What are the total production costs when 125,000 collars are produced? (Assume both production levels are in the same relevant range.) A) $387,500 B) $250,000 C) $237,500 D) $187,500 Answer: C Explanation: C) v = $ 150,000/ 100,000 v = $ 1.50 then f = $200,000 - 150,000 f = $50,000 finally y = vx + f y = $ 1.50 (125,000) + $ 50,000 y = $ 237,500 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 25 .

85) Best Birdies produces ornate birdcages. The company's average cost per unit is $18.00 at a production level of 2,200 birdcages. What is the total cost of producing 2,200 birdcages? A) $39,600 B) $18.00 C) $2,218 D) $122 Answer: A Explanation: A) $ 18 × 2,200 = $ 39,600 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 86) Best Birdies produces ornate birdcages. The company's average cost per unit is $18.00 when it produces 2,200 birdcages. If $5,500 of the total costs are fixed, what is the variable cost of producing each birdcage? A) $2.50 B) $34,100 C) $18.00 D) $15.50 Answer: D Explanation: D) TOTAL COST = $18 × 2,200 = $ 39,600 $ 39,600 = VARIABLE COST PER UNIT(2,200 ) + $ 5,500 $ 15.50 = VARIABLE COST PER UNIT Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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87) Best Birdies produces ornate birdcages. The company's average cost per unit is $18.00 when it produces 2,200 birdcages. If $5,500 of the costs are fixed, and the plant manager uses the average cost per unit to predict total costs, his forecast for 3,000 birdcages will be A) $52,000. B) $39,600. C) $14,400. D) $54,000. Answer: D Explanation: D) y = 3,000 × $ 18.00 y = $ 54,000 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 88) Best Birdies produces ornate birdcages. The company's average cost per unit is $18.00 when it produces 2,200 birdcages. If $5,500 of the costs are fixed, and the plant manager uses the cost equation to predict total costs, his forecast for 3,000 birdcages will be A) $52,000. B) $54,000. C) $39,600. D) $14,400. Answer: A Explanation: A) Total Cost = $18 × 2,200 = $ 39,600 $ 39,600 = VARIABLE COST PER UNIT (2,000 ) + $ 5,500 $ 15.50 = VARIABLE COST PER UNIT then Y = $15.50 (3,000) + $ 5,500 y = $ 52,000 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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89) The Akron Slugger Company produces various types of wooden baseball bats. It has calculated the average cost per unit of a production level of 7,500 bats to be $10.00. Given this information, what would be the total cost of producing 7,500 baseball bats? A) $7,510 B) $75,000 C) $10 D) $750 Answer: B Explanation: B) $ 10 × 7,500 = $ 39,600 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 90) The Akron Slugger Company produces various types of wooden baseball bats. It has calculated the average cost per unit of a production level of 7,500 bats to be $10.00. If $22,500 of the total costs are fixed, what is the variable cost of producing each bat? A) $10.00 B) $52,500 C) $7.00 D) $3.00 Answer: C Explanation: C) TOTAL COST = $10 × 7,500 = $ 75,000 $ 75,000 = VARIABLE COST PER UNIT (7,500 ) + $ 22,500 $ 7.00 = VARIABLE COST PER UNIT Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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91) The Akron Slugger Company produces various types of wooden baseball bats. It has calculated the average cost per unit of a production level of 7,500 bats to be $10.00. If $22,500 of the costs are fixed, and the plant manager uses the average cost per unit to predict total costs, her forecast for 8,500 bats will be A) $10,000. B) $85,000. C) $82,000. D) $75,000. Answer: B Explanation: B) y = 8,500 × $ 10.00 y = $ 85,000 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 92) The Akron Slugger Company produces various types of wooden baseball bats. It has calculated the average cost per unit of a production level of 7,500 bats to be $10.00. If $22,500 of the costs are fixed, and the plant manager uses the cost equation to predict total costs, her forecast for 8,500 bats will be A) $10,000. B) $75,000. C) $85,000. D) $82,000. Answer: D Explanation: D) Total Cost = $10 × 7,500 = $ 75,000 $ 75,000 = VARIABLE COST PER UNIT (7,500 ) + $ 22,500 $ 7.00 = VARIABLE COST PER UNIT then Y = $7.00 (8,500) + $ 5,500 y = $ 82,000 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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93) The Maple Company has total fixed costs of $400,000. It also has $200,000 in total variable costs. These costs exist at a production level of 100,000 units. The variable cost per unit is A) $2.00. B) $6.00. C) $4.00. D) $1.50. Answer: A Explanation: A) $ 200,000 / 100,000 = $ 2.00 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 94) The Maple Company has total fixed costs of $400,000. It also has $200,000 in total variable costs. These costs exist at a production level of 100,000 units. The fixed cost per unit is A) $2.00. B) $6.00. C) $1.50. D) $4.00. Answer: D Explanation: D) $ 500,000 / 100,000 = $ 5.00 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 95) Mario Company has total fixed costs of $600,000. Total fixed and variable costs are $612,500 at a production level of 175,000 units. The fixed cost per unit at a production level of 300,000 units is A) $1.75. B) $2.00. C) $2.04. D) $3.50. Answer: B Explanation: B) $ 600,000 / 300,000 = $ 2.00 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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96) George Company has a relevant range of 150,000 units to 400,000 units. The company has total fixed costs of $525,000. Total fixed and variable costs are $612,500 at a production level of 175,000 units. The variable cost per unit at 300,000 units is A) the same as at 175,000 units. B) greater than at 175,000 units. C) less than at 175,000 units. D) dependent upon fixed costs per unit. Answer: A Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 97) George Company has a relevant range of 150,000 units to 400,000 units. The company has total fixed costs of $525,000. Total fixed and variable costs are $612,500 at a production level of 175,000 units. The variable cost per unit at 300,000 units is A) $3.00. B) $0.29. C) $0.50. D) $3.50. Answer: C Explanation: C) $612,500 = $525,000 + vx 175,000 = vx Then $ 87,500 /175,000 = $.50 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 98) Sea Side Enterprises is trying to predict the cost associated with producing its anchors. At a production level of 5,000 anchors, Sea Side Enterprises' average cost per anchor is $52.00. What is the total cost of producing 5,000 anchors? A) $260,000. B) $5,052. C) $52.00. D) $96. Answer: A Explanation: A) $52 × 5,000 = $260,000 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 31 .

99) Sea Side Enterprises is trying to predict the cost associated with producing its anchors. At a production level of 5,000 anchors, Sea Side Enterprises' average cost per anchor is $52.00. If $15,000 of the total costs are fixed, what is the variable cost of producing each anchor? A) $3.00 B) $49.00 C) $245.00 D) $52.00 Answer: B Explanation: B) TOTAL COST = $52 × 5,000 = $260,000 Variable cost = $260,000 - 15,000 = $245,000 $245,000 divided by 5,000 = $49.00 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 100) Sea Side Enterprises is trying to predict the cost associated with producing its anchors. At a production level of 5,000 anchors, Sea Side Enterprises average cost per anchor is $52.00. If $15,000 of the costs are fixed, and the plant manager uses the average cost per unit to predict total costs, her forecast for 6,000 anchors will be A) $260,000. B) $312,000. C) $309,000. D) $52,000. Answer: B Explanation: B) $52 × 6,000 = $312,000 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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101) Sea Side Enterprises is trying to predict the cost associated with producing its anchors. At a production level of 5,000 anchors, Sea Side Enterprises average cost per anchor is $52.00. If $15,000 of the costs are fixed, and the plant manager uses the cost equation to predict total costs, her forecast for 6,000 anchors will be A) $52,000. B) $260,000. C) $312,000. D) $309,000. Answer: D Explanation: D) TOTAL COST = $52 × 5,000 = $260,000 Variable cost = $260,000 - 15,000 = $245,000 $245,000 divided by 5,000 = $49.00 THEN y = $49 (6,000) + $15,000 y = $309,000 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 102) The following data pertain to costs at Summit Company: Total fixed costs Total variable costs Production level

$300,000 $ 75,000 20,000 units

The variable cost per unit is A) $ 3.75. B) $15.00. C) $18.75. D) $11.25. Answer: A Explanation: A) vx = $ 75,000 divided by 20,000 = $ 3.75 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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103) The following data pertain to costs at Summit Company: Total fixed costs Total variable costs Production level

$300,000 $ 75,000 20,000 units

The fixed cost per unit is A) $3.75. B) $15.00. C) $18.75. D) $11.25. Answer: B Explanation: B) $ 300,000 / 20,000 = $ 15.00 Diff: 21 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 104) At Dwight Incorporated, total fixed and variable costs are $400,000 at a production level of 100,000 units. The company has total fixed costs of $225,000. The fixed cost per unit at a production level of 150,000 units is A) $4.00. B) $2.25. C) $2.67. D) $1.50. Answer: D Explanation: D) $ 225,000 / 150,000 = $ 1.50 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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105) At Dwight Incorporated, total fixed and variable costs are $400,000 at a production level of 100,000 units. The company has total fixed costs of $225,000. The variable cost per unit at 150,000 units is A) $1.75. B) $2.25. C) $4.00. D) $1.17. Answer: A Explanation: A) vx = $ 400,000 - 225,000 vx = @ 175,000 then $ 175,000 / 100,000 = $ 1.75 Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 106) Answer the following questions: a. What is a cost equation? b. If a company has fixed costs of $1,000 and variable costs of $4 per unit, what is their cost equation? c. What would a company use a cost equation for? Answer: a. A cost equation takes the form of y = vx + f, where: y = total costs v = variable cost per unit x = activity level f = fixed costs A cost equation is the mathematical model for how costs behave (over a relevant range). b. Y = $4x + $1,000 c. A company would use a cost equation to predict costs at various activity levels. Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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107) The controller for Andy's Bicycles has gathered the following cost and activity level information: Average total cost per unit Production level used to calculate average cost Total fixed costs

$ 225.00 1,000 $ 80,000

a. What is the total cost of producing 1,000 racing bicycles? b. What is the variable cost of producing each racing bicycle? c. Suppose the controller uses the average cost to predict total costs. What total cost would the controller calculate for 2,500 racing bicycles? d. If the controller uses the cost equation to predict total costs, what total cost would the controller calculate for 2,500 racing bicycles? e. Is there a difference between the forecasted total cost using average cost versus the cost equation? If there is a difference, what creates the difference? If there is no difference, when would there be a difference? Answer: Part a. Production level used to calculate average cost 1,000 Average total cost per unit $ 225.00 Total costs $ 225,000

Part b. Production level used to calculate average cost Average cost per unit Total costs

1,000 $ 225.00 $ 225,000

Total costs Total fixed cost Total variable cost Divide by Production level used to calculate average cost Variable cost per unit

$ 225,000 $ (80,000) $ 145,000 Divide by 1,000 $ 145.00

Part c. Average cost per unit Predicted volume level Total cost when using average cost to predict

$ 225.00

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Part d. Production level used to calculate average cost Average cost per unit Total costs

1,000 $ 225.00 $ 225,000

Total costs Total fixed cost Total variable cost Divide by Production level used to calculate average cost Variable cost per unit

$ 225,000 $ (80,000) $ 145,000 Divide by 1,000 $ 145.00

Variable cost per unit (v) Predicted volume level (x) Total variable cost Total fixed cost (f) Total cost at forecasted production

$ 145.00 2,500 $ 362,500 $ 80,000 $ 442,500

Part e. There is a difference between the cost prediction using average cost and the cost prediction using the cost equation. The difference is the fixed costs. Average costing spreads the fixed costs over a specified number of units. When making a prediction at a level different from that initial level, either more fixed costs will be estimated or less fixed costs; either way, the fixed costs with average costing appear to change in total, which they do not. Diff: 2 LO: 6-2 EOC: E6-22A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 108) The high-low method is theoretically better than regression analysis because the high-low method uses more data points than regression analysis. Answer: FALSE Diff: 1 LO: 6-3 EOC: S6-7 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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109) When performing account analysis, managers decide how to classify each account as a variable, fixed or mixed cost. Answer: TRUE Diff: 1 LO: 6-3 EOC: S6-7 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 110) Rent on a factory building would likely be classified as a fixed cost. Answer: TRUE Diff: 1 LO: 6-3 EOC: S6-7 AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs 111) If the data points in a scatter plot fall in a fairly straight line, it means that there is a fairly strong relationship between cost and volume. Answer: TRUE Diff: 2 LO: 6-3 EOC: E6-27A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 112) If there is little or no relationship between the cost and the volume, the data points on a scatter plot will appear almost as a straight line. Answer: FALSE Diff: 1 LO: 6-3 EOC: E6-27A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 113) A scatter plot helps managers visualize the relationship between historical costs and volume. Answer: TRUE Diff: 1 LO: 6-3 EOC: E6-27A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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114) A scatter plot will help managers identify potential outliers. Answer: TRUE Diff: 1 LO: 6-3 EOC: E6-27A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 115) If a scatter plot reveals a fairly weak relationship between cost and volume, the cost equation based on that data would not be very useful for predicting future costs. Answer: TRUE Diff: 2 LO: 6-3 EOC: E6-27A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 116) If a scatter plot reveals a fairly weak relationship between cost and volume, the manager should select a different activity for modeling cost behavior. Answer: TRUE Diff: 2 LO: 6-3 EOC: E6-27A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 117) Outliers are data points that fall in the same general pattern as the other data points. Answer: FALSE Diff: 1 LO: 6-3 EOC: E6-27A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 118) Outliers are abnormal data points. Answer: TRUE Diff: 1 LO: 6-3 EOC: E6-27A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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119) If a manager sees a potential outlier in the data, he or she should first determine whether the data is correct. Answer: TRUE Diff: 1 LO: 6-3 EOC: E6-27A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 120) Which is true about a scatter plot? A) If there is a strong relationship between cost and volume, the points will fall in a linear pattern. B) If there is a strong relationship between cost and volume, the points will fall in a scattered pattern. C) Cost and volume have no effect on the pattern of the points on a scatter plot. D) A strong relationship between production and inventory is shown by a linear pattern. Answer: A Diff: 1 LO: 6-3 EOC: E6-26A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 121) Using account analysis, what type of cost is the rental of a space at $6,000 per month? A) Mixed B) Fixed C) Step D) Variable Answer: B Diff: 1 LO: 6-3 EOC: E6-26A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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122) Using account analysis, what type of cost are utilities if you are charged $45 for the first 400 kilowatt hours, $100 for 401-600 kilowatt hours, and $165 + or - for 601-900 kilowatt hours? A) Fixed B) Mixed C) Variable D) Step Answer: D Diff: 1 LO: 6-3 EOC: E6-26A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 123) Using account analysis, what type of cost is the local phone service which charges a flat fee for unlimited local calls? A) Step B) Mixed C) Fixed D) Variable Answer: C Diff: 1 LO: 6-3 EOC: E6-26A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 124) Using account analysis, what type of cost is the price of gasoline when your car gets 30 miles per gallon and each gallon costs $3.65? A) Fixed B) Mixed C) Variable D) Step Answer: C Diff: 1 LO: 6-3 EOC: E6-26A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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125) Using account analysis, what type of cost is Satellite TV when the charge is $45.00 per month plus $5.99 for pay-per-view movies? A) Mixed B) Fixed C) Step D) Variable Answer: A Diff: 1 LO: 6-3 EOC: E6-26A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 126) Using account analysis, what type of cost is an electric bill that charges a flat monthly fee plus a charge for each kilowatt hour of electricity used? A) Fixed B) Mixed C) Step D) Variable Answer: B Diff: 1 LO: 6-3 EOC: E6-26A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 127) Using account analysis, what type of cost is the fee the airline company charges for your bags? A typical policy is $25 if the bag weighs between 0 and 50 lbs; $75 if the bag weighs between 50 and 75 lbs and $125 if the bag weighs between 75 and 100 lbs. A) Fixed B) Mixed C) Step D) Variable Answer: C Diff: 1 LO: 6-3 EOC: E6-26A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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128) Using account analysis, what type of cost is the monthly cost of a storage locker used for holding old records? A) Fixed B) Mixed C) Variable D) Step Answer: A Diff: 1 LO: 6-3 EOC: E6-26A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 129) Using account analysis, what type of cost is a community activity pass that costs $80 plus $15.00 per event? A) Fixed B) Step C) Mixed D) Variable Answer: C Diff: 1 LO: 6-3 EOC: E6-26A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 130) Manufacturing overhead (consisting of costs like factory rent, factory utilities, factory maintenance, and other similar costs) is usually what type of cost? A) Variable B) Fixed C) Step D) Mixed Answer: D Diff: 2 LO: 6-3 EOC: S6-7 AACSB: Reflective Thinking Learning Outcome: Define and distinguish among variable, fixed and mixed costs

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131) Which method are managers using when they use their judgment to classify costs as variable, fixed, or mixed? A) High-low method B) Account analysis C) Regression analysis D) Low-high method Answer: B Diff: 1 LO: 6-3 EOC: S6-8 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 132) When preparing a scatter plot, how should the data be graphed? A) Volume data on the y-axis B) Cost data on the x-axis C) Cost data on the y-axis D) Volume data on the z-axis Answer: C Diff: 1 LO: 6-3 EOC: E6-27A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 133) What are scatter plots useful for? A) Determining the overall strength of the relationship between historical cost and volume B) Identifying potential outliers C) Both of the above D) Neither of the above Answer: C Diff: 1 LO: 6-3 EOC: E6-27A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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134) Describe the scattergraph method. Discuss the advantages and disadvantages of using the scattergraph method. Answer: The scattergraph method involves plotting cost/activity data with the activity on the x-axis (horizontal) and the related cost on the y-axis (vertical) for a period of time. Once the data is plotted, a line is drawn through the data points in which half of the data points are above the line and half are below the line. The equation for that line is calculated; the slope of that line is the variable cost per activity-unit and the y-intercept represents the fixed costs. Diff: 2 LO: 6-3 EOC: E6-27A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 135) When using the high-low method, the slope of the mixed cost line is fixed cost per unit. Answer: FALSE Diff: 1 LO: 6-4 EOC: S6-11 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 136) When using the high-low method, fixed costs and variable costs appear in the same cost equation. Answer: TRUE Diff: 1 LO: 6-4 EOC: S6-11 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 137) The high-low method uses only two of the historical data points for estimating a cost equation. Answer: TRUE Diff: 1 LO: 6-4 EOC: S6-11 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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138) When using the high-low method, the "high" point should be chosen as the data point with the highest cost (not the highest volume). Answer: FALSE Diff: 1 LO: 6-4 EOC: S6-10 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 139) When using the high-low method, the "low" point should be chosen as the data point with the lowest volume (not the lowest cost). Answer: TRUE Diff: 1 LO: 6-4 EOC: S6-10 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 140) Regression analysis uses only two of the historical data points for estimating a cost equation. Answer: FALSE Diff: 1 LO: 6-4 EOC: S6-11 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 141) The high-low method basically fits a line through the highest and lowest ________ points. A) fixed cost B) variable cost C) volume D) none of the above Answer: C Diff: 1 LO: 6-4 EOC: S4-9 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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142) The data points with the ________ should be selected for use in calculating the variable cost per unit and the total fixed costs when using the high-low method. A) highest cost and the lowest cost B) highest volume and the lowest volume C) highest volume and the lowest cost D) highest cost and the lowest volume Answer: B Diff: 1 LO: 6-4 EOC: S6-10 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 143) Which step is performed first when using the high-low method? A) Find the vertical intercept B) Write the cost equation C) Predict total cost D) Find the slope Answer: D Diff: 1 LO: 6-4 EOC: S6-10 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 144) When using the high-low method, what is the correct order of the following three steps? i. write the cost equation ii. find the vertical intercept iii. find the slope A) i, ii, iii B) ii, iii, i C) iii, ii, i D) iii, i, ii Answer: C Diff: 2 LO: 6-4 EOC: S6-10 AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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145) When using the high-low method, the variable cost per unit can be found as A) rise over run. B) run over rise. C) change in volume over change in cost. D) vertical intercept. Answer: A Diff: 2 LO: 6-4 EOC: E6-28A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 146) What data point can be used to solve for the fixed cost component when using the high-low method? A) The "high" month B) Either the "high" or the "low" month C) The "low" month D) Any month in the data set Answer: B Diff: 2 LO: 6-4 EOC: E6-28A AACSB: Reflective Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 147) The tennis club where you play tennis charges $50.00 per month and $10.00 per hour of court time. If your current bill is $100.00, how many hours did you use? A) 5 hours B) 10 hours C) 8 hours D) 2 hours Answer: A Explanation: A) $100 = $ 10.00(x) + $50.00 5 hours = x Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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148) Pablo was reviewing the water bill for his carwash business and determined that the highest bill, $5,000, occurred in July when 2,200 cars were washed and the lowest bill, $3,200, occurred in February when 1,400 cars were washed. What was the variable cost per carwash? A) $2.25 B) $2.27 C) $0.44 D) $2.29 Answer: A Explanation: A) Highest cost $ 5,000 Highest activity 2,200 Lowest cost $ 3,200 Lowest activity 1,400 Difference $ 1,800 800 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $1,800/800 = $ 2.25 Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 149) Pablo was reviewing the water bill for his carwash business and determined that the highest bill, $5,000, occurred in July when 2,200 cars were washed and the lowest bill, $3,200, occurred in February when 1,400 cars were washed. What was the fixed portion of the water bill? A) $3,600 B) $3,150 C) $4,100 D) $50 Answer: D Explanation: D) Highest cost $ 5,000 Highest activity 2,200 Lowest cost $ 3,200 Lowest activity 1,400 Difference $ 1,800 800 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $1,800/800 = $ 2.25 Put the numbers into the Cost Equation: $5,000 = $ 2.25 (2,200) + f $50 = f Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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150) Tasty Treats is a snow cone stand near the local park. To plan for the future, Tasty Treats wants to determine its cost behavior patterns. It has the following information available about its operating costs and the number of snow cones served. Month January February March April May June

Number of snow cones 6,400 7,000 6,200 6,900 7,600 7,250

Total operating costs $5,980 $6,400 $5,840 $6,330 $6,820 $6,575

The variable cost per snow cone using the high-low method is A) $1.43. B) $0.70. C) $0.90. D) $0.94. Answer: B Explanation: B) Highest cost $ 6,820 Highest activity 7,600 Lowest cost $ 5,840 Lowest activity 6,200 Difference $ 980 1,400 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $980/1,400 = $ .70 Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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151) Tasty Treats is a snow cone stand near the local park. To plan for the future, Tasty Treats wants to determine its cost behavior patterns. It has the following information available about its operating costs and the number of snow cones served. Month January February March April May June

Number of snow cones 6,400 7,000 6,200 6,900 7,600 7,250

Total operating costs $5,980 $6,400 $5,840 $6,330 $6,820 $6,575

Using the high-low method, the fixed costs for a month are A) $ 980. B) $12,660. C) $ 1,500. D) $ 5,320. Answer: C Explanation: C) Highest cost $ 6,820 Highest activity 7,600 Lowest cost $ 5,840 Lowest activity 6,200 Difference $ 980 1,400 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $980/1,400 = $ .70 Put the numbers into the Cost Equation: $6,820 = $ .70 (7,600) + f $ 1,500 = f Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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152) Tasty Treats is a snow cone stand near the local park. To plan for the future, it wants to determine its cost behavior patterns. It has the following information available about its operating costs and the number of snow cones served. Month January February March April May June

Number of snow cones 6,400 7,000 6,200 6,900 7,600 7,250

Total operating costs $5,980 $6,400 $5,840 $6,330 $6,820 $6,575

Using the high-low method, the monthly operating costs—if Sunny sells 8,000 snow cones in a month— are A) $7,100. B) $5,600. C) $10,920. D) $1,500. Answer: A Explanation: A) Highest cost $ 6,820 Highest activity 7,600 Lowest cost $ 5,840 Lowest activity 6,200 Difference $ 980 1,400 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $980/1,400 = $ .70 Put the numbers into the Cost Equation: $6,820 = $ .70 (7,600) + f $ 1,500 = f Finish the equation: y = $ .70 (8,000) + 1,500 y = $ 7,100 Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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153) Jones Ice Cream Stand is operated by Mr. Jones and experiences different sales patterns throughout the year. To plan for the future, Mr. Jones wants to determine its cost behavior patterns. He has the following information available about the ice cream stand's operating costs and the number of soft serve cones served. Month April May June July August September

Number of ice cream cones 800 825 1,125 2,000 1,500 900

Total operating costs $950 $975 $1,000 $1,250 $1,875 $1,500

The variable cost per ice cream cone using the high-low method is A) $0.25. B) $4.00. C) $0.63. D) $1.19. Answer: A Explanation: A) Highest cost $ 1,250 Highest activity 2,000 Lowest cost $ 950 Lowest activity 800 Difference $ 300 1,200 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $300/1,200 = $ .25 Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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154) Jones Ice Cream Stand is operated by Mr. Jones and experiences different sales patterns throughout the year. To plan for the future, Mr. Jones wants to determine its cost behavior patterns. He has the following information available about the ice cream stand's operating costs and the number of soft serve cones served. Month April May June July August September

Number of ice cream cones 800 825 1,125 2,000 1,500 900

Total operating costs $950 $975 $1,000 $1,250 $1,875 $1,500

Using the high-low method, the fixed costs for a month are A) $ 300. B) $2,200. C) $ 500. D) $ 750. Answer: D Explanation: D) Highest cost $ 1,250 Highest activity 2,000 Lowest cost $ 950 Lowest activity 800 Difference $ 300 1,200 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $300/1,200 = $ .25 Put the numbers into the Cost Equation: $1,250 = $ .25 (2000) + f $750 = f Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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155) Jones Ice Cream Stand is operated by Mr. Jones and experiences different sales patterns throughout the year. To plan for the future, Mr. Jones wants to determine its cost behavior patterns. He has the following information available about the ice cream stand's operating costs and the number of soft serve cones served. Month April May June July August September

Number of ice cream cones 800 825 1,125 2,000 1,500 900

Total operating costs $950 $975 $1,000 $1,250 $1,875 $1,500

Using the high-low method, the monthly operating costs—if Mr. Jones sells 1,436 ice cream cones in a month—are A) $750. B) $859. C) $1,109. D) $359. Answer: C Explanation: C) Highest cost $ 1,250 Highest activity 2,000 Lowest cost $ 950 Lowest activity 800 Difference $ 300 1,200 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $300/1,200 = $ .25 Put the numbers into the Cost Equation: $1,250 = $ .25 (2000) + f $750 = f Finish the equation: y = $ .25 (1,436) + 750 y = $ 1,109 Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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156) Johnson Trucking Company wants to determine a fuel surcharge to add to its customers' bills based on the number of miles driven to each area. It wants to separate the fixed and variable portion of the truck's operating costs so it has a better idea of how distance affects these costs. Johnson Trucking Company has the following data available. Month January February March April May June

Miles driven 16,200 17,00 18,200 16,500 17,400 15,400

Total operating costs $22,650 $23,250 $24,150 $22,875 $23,550 $22,050

The variable cost per mile using the high-low method is A) $1.33. B) $0.75. C) $1.43. D) $1.00. Answer: B Explanation: B) Highest cost $ 24,150 Highest activity 18,200 Lowest cost $ 22,050 Lowest activity 15,400 Difference $ 2,100 2,800 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 2,100/ 2,800 = $ .75 Diff: 3 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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157) Johnson Trucking Company wants to determine a fuel surcharge to add to its customers' bills based on the number of miles driven to each area. It wants to separate the fixed and variable portion of the truck's operating costs so it has a better idea of how distance affects these costs. Johnson Trucking Company has the following data available. Month January February March April May June

Miles driven 16,200 17,00 18,200 16,500 17,400 15,400

Total operating costs $22,650 $23,250 $24,150 $22,875 $23,550 $22,050

Using the high-low method, the fixed costs in a month are A) $ 2,100. B) $13,650. C) $46,200. D) $10,500. Answer: D Explanation: D) Highest cost $ 24,150 Highest activity 18,200 Lowest cost $ 22,050 Lowest activity 15,400 Difference $ 2,100 2,800 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 2,100/ 2,800 = $ .75 Put the numbers into the Cost Equation: $24,150 = $0.75 (18,200) + f $ 10,500 = f Diff: 3 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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158) Johnson Trucking Company wants to determine a fuel surcharge to add to its customers' bills based on the number of miles driven to each area. It wants to separate the fixed and variable portion of the truck's operating costs so it has a better idea of how distance affects these costs. Johnson Trucking Company has the following data available. Month January February March April May June

Miles driven 16,200 17,00 18,200 16,500 17,400 15,400

Total operating costs $22,650 $23,250 $24,150 $22,875 $23,550 $22,050

Using the high-low method, the monthly operating costs if Johnson Trucking Company drives 20,000 miles in a month will be A) $28,650. B) $10,500. C) $25,500. D) $15,000. Answer: C Explanation: C) Highest cost $ 24,150 Highest activity 18,200 Lowest cost $ 22,050 Lowest activity 15,400 Difference $ 2,100 2,800 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 2,100/ 2,800 = $ .75 Put the numbers into the Cost Equation: $24,150 = $0.75 (18,200) + f $ 10,500 = f Finally y = $ 0.75 (20,000) + $ 10,500 y = $ 25,500 Diff: 3 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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159) The manager at Wheeling Mulch has been trying to calculate the portion of the company's overhead expenses that is fixed and the portion that is variable. Over the past twelve months, the number of yards of mulch processed was highest in July, when the total monthly overhead costs totaled $28,000 for 32,000 yards of mulch processed. The lowest number of yards of mulch processed in the last twelve months occurred in October, when total overhead costs were $26,000 for 28,000 yards of mulch processed. What was the variable cost per yard? A) $0.50 B) $2.00 C) $0.88 D) $0.93 Answer: A Explanation: A) Highest cost $28,000 Highest activity 32,000 Lowest cost $26,000 Lowest activity 28,000 Difference $ 2,000 4,000 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 2,000/ 4,000 = $ .50 Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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160) The manager at Wheeling Mulch has been trying to calculate the portion of the company's overhead expenses that is fixed and the portion that is variable. Over the past twelve months, the number of yards of mulch processed was highest in July, when the total monthly overhead costs totaled $28,000 for 32,000 yards of mulch processed. The lowest number of yards of mulch processed in the last twelve months occurred in October, when total overhead costs were $26,000 for 28,000 yards of mulch processed. What is the fixed portion of the monthly overhead expenses? A) $0 B) $12,000 C) $16,000 D) $26,000 Answer: B Explanation: B) Highest cost $ 28,000 Highest activity 32,000 Lowest cost $26,000 Lowest activity 28,000 Difference $ 2,000 4,000 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 2,000/ 4,000 = $ .50 Put the numbers into the Cost Equation: $28,000 = $.50 (32,000) + f $ 12,000 = f Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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161) Joe, Jeff and Jerry Frank own Frank Brothers Farm, a seed company specializing in seed corn. At their weekly meeting they tried to calculate the portion of the farm's overhead expenses that is fixed and the portion that is variable. Over the past twelve months, the number of bushels of seed corn that has been sold reached its peak in May, when the total monthly overhead costs totaled $250,000 for 95,000 bushels of seed corn sold. The lowest number of bushels sold in the last twelve months occurred in December, when total overhead costs were $75,000 for 7,500 bushels sold. What was the variable cost per yard? A) $0.50 B) $2.00 C) $10.00 D) $2.63 Answer: B Explanation: B) Highest cost $250,000 Highest activity 95,000 Lowest cost $75,000 Lowest activity 7,500 Difference $175,000 87,500 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 175,000/ 87,500 = $2.00 Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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162) Joe, Jeff and Jerry Frank own Frank Brothers Farm, a seed company specializing in seed corn. At their weekly meeting they tried to calculate the portion of the farm's overhead expenses that is fixed and the portion that is variable. Over the past twelve months, the number of bushels of seed corn that has been sold reached its peak in May, when the total monthly overhead costs totaled $250,000 for 95,000 bushels of seed corn sold. The lowest number of bushels sold in the last twelve months occurred in December, when total overhead costs were $75,000 for 7,500 bushels sold. What is the fixed portion of the monthly overhead expenses? A) $60,000 B) $242,500 C) $190,000 D) $75,000 Answer: A Explanation: A) Highest cost $250,000 Highest activity 95,000 Lowest cost $75,000 Lowest activity 7,500 Difference $ 175,000 87,500 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 175,000/ 87,500 = $2.00 Put the numbers into the Cost Equation: $250,000 = $2.00 (95,000) + f $ 60,000 = f Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

62 .

163) To follow is information about the units produced and total manufacturing costs for Pine Enterprises for the past six months. Month January February March April May June

Number of units produced 7,800 7,500 6,600 6,800 4,500 7,000

Total manufacturing costs $8,150 $8,000 $7,550 $7,650 $6,500 $7,750

Using the high-low method, what is the variable cost per unit? A) $1.44 B) $1.04 C) $0.50 D) $2.00 Answer: C Explanation: C) Highest cost $ 8,150 Highest activity 7,800 Lowest cost $ 6,500 Lowest activity 4,500 Difference $ 1,650 3,300 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 1650/3,300 = $ .50 Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

63 .

164) To follow is information about the units produced and total manufacturing costs for Pine Enterprises for the past six months. Month January February March April May June

Number of units produced 7,800 7,500 6,600 6,800 4,500 7,000

Total manufacturing costs $8,150 $8,000 $7,550 $7,650 $6,500 $7,750

Using the high-low method, what is the monthly fixed manufacturing cost? A) $3,900 B) $14,650 C) $1,650 D) $4,250 Answer: D Explanation: D) Highest cost $ 8,150 Highest activity 7,800 Lowest cost $ 6,500 Lowest activity 4,500 Difference $ 1,650 3,300 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 1,650/3,300 = $ .50 Put the numbers into the Cost Equation: $8,150 = $.50 (7,800) + f $ 4,250 = f Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

64 .

165) To follow is information about the units produced and total manufacturing costs for Pine Enterprises for the past six months. Month January February March April May June

Number of units produced 7,800 7,500 6,600 6,800 4,500 7,000

Total manufacturing costs $8,150 $8,000 $7,550 $7,650 $6,500 $7,750

Using the high-low method, what will the total monthly manufacturing costs be if the company produces 9,000 units? A) $8,750 B) $4,500 C) $8,400 D) $4,250 Answer: A Explanation: A) Highest cost $ 8,150 Highest activity 7,800 Lowest cost $ 6,500 Lowest activity 4,500 Difference $ 1,650 3,300 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 1,650/3,300 = $ .50 Put the numbers into the Cost Equation: $8,150 = $.50 (7,800) + f $ 4,250 = f Finally y = $ .50 (9,000) + $ 4,250 y = $ 8,750 Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

65 .

166) Maintenance costs at Wilmington Manufacturing over the past six months are listed in the following table.

Month January February March April May June

Maintenance cost $13,600 $14,720 $12,560 $14,480 $14,880 $13,200

Machine hours 15,500 16,900 14,200 16,600 17,100 15,000

Using the high-low method, what would the variable maintenance cost per machine hour be? A) $1.25 B) $0.80 C) $0.87 D) $0.88 Answer: B Explanation: B) Cost associated with highest activity $ 14,880 Highest activity 17,100 Cost associated with lowest activity $ 12,560 Lowest activity 14,200 Difference $ 2,320 2,900 NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $2,320/2,900 = $ .80 Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

66 .

167) Maintenance costs at Wilmington Manufacturing over the past six months are listed in the following table.

Month January February March April May June

Maintenance cost $13,600 $14,720 $12,560 $14,480 $14,880 $13,200

Machine hours 15,500 16,900 14,200 16,600 17,100 15,000

Using the high-low method, what would the monthly fixed maintenance cost be? A) $ 1,200 B) $ 2,320 C) $13,680 D) $27,440 Answer: A Explanation: A) High cost $ 14,880 Low cost Change in cost

$

2,320

High activity

17,100

Low activity Change in activity

2,900

Change in cost Divide by

$ 1,320 Divide by

Change in activity Variable cost per unit

$

Now, using high point data: Total variable cost at high point: High activity

$ 17,100

Variable cost per unit Total variable cost at high point

$

13,680

$

14,880

Total cost at high point Less total variable cost at high

0.80

point Fixed cost Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking 67 .

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 168) Maintenance costs at Wilmington Manufacturing over the past six months are listed in the following table.

Month January February March April May June

Maintenance cost $13,600 $14,720 $12,560 $14,480 $14,880 $13,200

Machine hours 15,500 16,900 14,200 16,600 17,100 15,000

Using the high-low method, what would the total maintenance costs be if 17,500 machine hours were used? A) $15,200 B) $14,000 C) $27,680 D) $ 1,200 Answer: A

68 .

Explanation: A) High cost

$

14,880

Low cost Change in cost

$

2,320

High activity

17,100

Low activity Change in activity

2,900

Change in cost Divide by

$ 2,320 Divide by

Change in activity Variable cost per unit

$

Now, using high point data: Total variable cost at high point: High activity

$ 17,100

Variable cost per unit Total variable cost at high point

$

13,680

Total cost at high point

$

14,880

Less total variable cost at high point Fixed cost

$

1,200

0.80

Total cost at new volume: Anticipated machine hours Variable cost per unit Total variable cost at new volume

17,500 $

14,000

Fixed cost Monthly operating cost at new volume Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

69 .

169) McCartney Services has a customer website to take orders, answer customer questions, and address customer complaints. The costs associated with this customer website over the past six months are listed below:

Month January February March April May June

Customer website costs $8,960 $8,762 $9,032 $8,942 $8,420 $8,492

Number of website hits 11,600 11,270 11,720 11,570 10,700 10,820

Management at McCartney Services believes that the customer website costs are a mixed cost and would like to use the high-low method to estimate their future costs using the number of website hits in any given month as the cost driver. Required: 1. Using the high-low method, estimate the variable cost per website hit and the monthly fixed costs associated with the customer website. 2. Write the cost equation for estimating the customer website expenses for McCartney Services using the results from Requirement 1. 3. If McCartney Services expects 9,500 website hits for July, what are their anticipated customer website costs for July? Answer: part a. High cost $ 9,032 Low cost $ (8,420) Change in cost $ 612 High activity Low activity Change in activity Change in cost Divide by Change in activity Variable cost per unit

11,720 (10,700) 1,020 $ 612 Divide by 1,020 $ 0.60

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part b. High cost Low cost Change in cost

$ 9,032 $ (8,420) $ 612

High activity Low activity Change in activity

11,720 (10,700) 1,020

Change in cost Divide by Change in activity Variable cost per unit

$ 612 Divide by 1,020 $ 0.60

Now, using high point data: Total variable cost at high point: High activity Variable cost per unit Total variable cost at high point

$ 11,720 $ 0.60 $ 7,032

Total cost at high point Less total variable cost at high point Fixed cost

$ 9,032 $ (7,032) $ 2,000

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part c. High cost Low cost Change in cost

$ 9,032 $ (8,420) $ 612

High activity Low activity Change in activity

11,720 (10,700) 1,020

Change in cost Divide by Change in activity Variable cost per unit

$ 612 Divide by 1,020 $ 0.60

Now, using high point data: Total variable cost at high point: High activity Variable cost per unit Total variable cost at high point

$ 11,720 $ 0.60 $ 7,032

Total cost at high point Less total variable cost at high point Fixed cost

$ 9,032 $ (7,032) $ 2,000

Total cost at new volume: Anticipated number of calls Variable cost per call Total variable cost at new volume Fixed cost Mothly operating cost at new volume

9,500 $ 0.60 $ 5,700 $ 2,000 $ 7,700

Diff: 2 LO: 6-4 EOC: E6-28A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

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170) The following is information about the units produced and the total manufacturing costs for Rose's Rug Company for the past six months. Month January February March April May June

Number of units produced 28,700 31,000 25,500 26,000 30,000 29,000

Total manufacturing costs $61,400 $66,000 $55,000 $56,000 $64,000 $62,000

Rose's Rug Company uses the high-low method to estimate its costs. Answer the following questions: a. What is the variable cost per unit? b. What is the monthly fixed manufacturing cost? c. Write the cost equation that could be used to predict Rose's Rug Company's total manufacturing costs. d. What will the total monthly manufacturing costs be if the company produces 28,000 units? Answer: part a. High cost Low cost Change in cost High activity Low activity Change in activity Change in cost Divide by Change in activity Variable cost per unit

$ 66,000 $ (55,000) $ 11,000 31,000 (25,500) 5,500 $ 11,000 Divide by 5,500 $ 2.00

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part b. High cost Low cost Change in cost High activity Low activity Change in activity Change in cost Divide by Change in activity Variable cost per unit

$ 66,000 $ (55,000) $ 11,000 31,200 (25,500) 5,500 $ 11,000 Divide by 5,500 $ 2.00

Now, using high point data: Total variable cost at high point: High activity Variable cost per unit Total variable cost at high point

31,000 $ 2,00 $ 62,000

Total cost at high point Less total variable cost at high point Fixed cost

$ 66,000 $ (64,000) $ 4,000

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part c. y = $4,000 + $2.00x part d. High cost

$ 66,000 $ (55,000) $ 11,000

Low cost Change in cost High activity

31,000 (25,500) 5,500

Low activity Change in activity Change in cost Divide by Change in activity Variable cost per unit Now, using high point data: Total variable cost at high point: High activity Variable cost per unit Total variable cost at high point Total cost at high point Less total variable cost at high point Fixed cost

$ 11,000 Divide by 5,500 $ 2.00

31,000 $ 2.00 $ 62,000 $ 66,000 $ (62,000) $ 4,000

Total cost at new volume: Anticipated production volume 28,000 Variable cost per unit $ 2.00 Total variable cost at new volume $ 56,000 Fixed cost $ 4,000 Monthly operating cost at new volume $ 60,000 Diff: 2 LO: 6-4 EOC: S6-9 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

75 .

171) Regression analysis is found by using only the two data points of the highest and lowest volume. Answer: FALSE Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 172) The intercept-coefficient in regression analysis yields the fixed cost portion of the total costs. Answer: TRUE Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 173) The X Variable 1 Coefficient in regression analysis yields the variable cost per unit of activity. Answer: TRUE Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 174) An R-square statistic of 0 indicates a perfect level of correlation between costs and the cost driver. Answer: FALSE Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 175) The cost equation determined using the high-low method should be the same as the cost equation determined using regression analysis. Answer: FALSE Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

76 .

176) The line determined by regression analysis is sometimes referred to as the "line of worst fit." Answer: FALSE Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 177) The R-squared statistic determined by regression analysis is sometimes referred to as the "goodnessof-fit" statistic. Answer: TRUE Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 178) The cost equation determined by regression analysis is usually more accurate than the line determined by the high-low method. Answer: TRUE Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 179) In a regression output, the "intercept coefficient" represents the fixed cost component of a mixed cost equation. Answer: TRUE Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 180) In a regression output, the "X variable 1 coefficient" represents the variable cost component of a mixed cost equation. Answer: TRUE Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 77 .

181) A "perfect" straight line would render an R-square value of 1.00. Answer: TRUE Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 182) If the data points were randomly scattered, the R-square value would be closer to 0 than 1. Answer: TRUE Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 183) An R-square value over .80 generally indicates that the cost equation is not very reliable for predicting costs at other volumes within the relevant range. Answer: FALSE Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 184) Regression analysis can be used in ABC implementations to help managers select the primary cost driver for an activity cost pool. Answer: TRUE Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 185) An R-square value of 0.00 indicates a perfect relationship between the volume of activity and the cost being analyzed. Answer: FALSE Diff: 21 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

78 .

186) Regression analysis uses all data points, not just the highest and lowest volume data points. Answer: TRUE Diff: 1 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 187) The output from regression analysis generated in Excel gives us all of the following information except A) intercept coefficient. B) highest and lowest data points × variable 1 coefficient. C) R-square. D) x variable 1 coefficient. Answer: B Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 188) On a regression analysis output generated with Excel, a regression equation's variable cost per unit is represented by the ________. A) x variable 1 coefficient B) intercept coefficient C) R-square D) residual Answer: A Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

79 .

189) On a regression analysis output generated with Excel, a regression equation's fixed cost component is represented by the ________. A) x variable 1 coefficient B) intercept coefficient C) R-square D) residual Answer: B Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 190) On a regression analysis output generated with Excel, a regression equation's "goodness of fit" is represented by the ________. A) intercept coefficient B) x variable 1 coefficient C) residual D) R-square Answer: D Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 191) On a regression analysis output generated with Excel, the slope of a mixed cost line is represented by the ________. A) x variable 1 coefficient B) intercept coefficient C) R-square D) residual Answer: A Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

80 .

192) When predicting costs at other volumes using a cost equation derived from either the high-low method or regression analysis, managers should consider A) outliers. B) general inflation. C) seasonality. D) all of the above. Answer: D Diff: 2 LO: 6-5 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 193) Your client's company wants to determine the relationship between its monthly operating costs and a potential cost driver. The output of regression analysis showed the following information: Intercept Coefficient = 89,500 X Variable 1 Coefficient = 62.50 R-square = 0.9855 What is the company's monthly cost equation? A) y = $98.55x + $89,500 B) y = $62.50x + $89,500 C) y = $89,500x + $62.98 D) y = $89,500x + $98.55 Answer: B Diff: 3 LO: 6-5 EOC: E6-31A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

81 .

194) Your boss wants you to analyze the relationship between the company's monthly operating costs and the current cost driver she has chosen. You run a regression analysis and receive the following information: Intercept Coefficient = 653,434 X Variable 1 Coefficient = 5.76 R-square = 0.3784 What is your company's monthly cost equation? A) y = $653,434x + $5.76 B) y = $0.38x + $653,434 C) y = $5.76x + $653,434 D) y = $0.38x + $576 Answer: C Diff: 3 LO: 6-5 EOC: E6-31A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 195) Regis Corporation wants to know how closely its current cost driver is correlated with its monthly operating costs. The managerial accountant runs a regression analysis using a statistical software program and produces the following data: Intercept Coefficient = 12,200,567 X Variable 1 Coefficient = 95.65 R-square = 0.8574 What is the Regis Corporation's monthly cost equation? A) y = $95.65x + $8,574 B) y = $95.65x + $12,200,567 C) y = $12,200,567x + $8,574 D) y = $0.8574x + $12,200,567 Answer: B Diff: 3 LO: 6-5 EOC: E6-31A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

82 .

196) Your client's company wants to determine the relationship between its monthly operating costs and a potential cost driver. The output of regression analysis showed the following information: Intercept Coefficient = 75,828 X Variable 1 Coefficient = 52.61 R-square = 0.9756 Should your client use this information to predict monthly operating costs? A) No, because R-square is so high. B) Yes, because R-square is so high. C) Yes, because regression analysis can be relied upon. D) There is not enough information to make this prediction. Answer: B Diff: 3 LO: 6-5 EOC: E6-31A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 197) If a regression analysis shows an R factor of 0.15, it is safe to assume A) a strong positive relationship between cost and volume. B) a strong negative relationship between cost and volume. C) a perfect positive relationship between cost and volume. D) a very weak relationship between cost and volume. Answer: D Diff: 2 LO: 6-5 EOC: E6-31A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost 198) If a regression analysis shows an R factor of .89 exists, it is safe to assume A) a strong negative relationship between cost and volume. B) a strong positive relationship between cost and volume. C) no relationship between cost and volume. D) a perfect positive relationship between cost and volume. Answer: B Diff: 2 LO: 6-5 EOC: E6-31A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

83 .

199) Wallace Incorporated wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):

What is the variable cost per machine hour (rounded to the nearest cent)? A) $67.59 B) $2,945.95 C) $0.99 D) $0.72 Answer: D Diff: 3 LO: 6-5 EOC: E6-31A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

84 .

200) Wallace Incorporated wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):

What is the fixed cost (round to nearest cent)? A) $67.59 B) $0.99 C) $2,945.95 D) $0.72 Answer: C Diff: 3 LO: 6-5 EOC: E6-31A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

85 .

201) Wallace Industries wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):

What is closest to the total cost if the firm uses 4,200 machine hours? A) $5,964.03 B) $3,018.08 C) $2,945.95 D) $12,372,975.38 Answer: A Explanation: A) y = $ .718590832 (4,200) + $ 3,018.08 Y = $ 5,964.03 Diff: 3 LO: 6-5 EOC: E6-31A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

86 .

202) Wallace Industries wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):

What is the cost equation based upon the results of the regression analysis? A) y = $072x B) y = $0.72x + $2,945.95 C) y = $2,945.95x + $0.72 D) y = $2,945.95 + $0.72 Answer: B Diff: 2 LO: 6-5 EOC: E6-31A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

87 .

203) Checak Incorporated wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):

What is closest to the total cost if the firm uses 6,000 machine hours? A) $7,257.49 B) $6,538.90 C) $14,729,732.60 D) $1,365.59 Answer: A Explanation: A) y = $ 71,859 (6,000) + $ 2,945.95 y = $ 7,257.49 Diff: 3 LO: 6-5 EOC: E6-31A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

88 .

204) What are three methods used to estimate cost behavior? What are the advantages and disadvantages of each method? Answer: Method Advantages Disadvantages Quick; visual representation of 1. Scattergraph behavior; easy to identify outliers Subjective 2. High-low Objective Only uses two data points 3. Regression analysis Uses all data points Complicated to use well Diff: 3 LO: 6-5 EOC: E6-31A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

89 .

205) Scranton Printer Company would like to estimate its total manufacturing costs using regression analysis but is unsure whether machine hours or units produced would be a better predictor of total manufacturing costs. Output from regression analysis using machine hours as the volume (cost driver) follows. Note: the results are excerpts so not all of the regression analysis results are presented.

Output from a regression analysis using units produced as the volume (cost driver) follows. Again, the results are excerpts so not all of the regression analysis results are presented.

90 .

Required: a. What is the cost equation if machine hours is used as the volume (cost driver)? b. Predict total manufacturing costs using machine hours as the volume (cost driver) if Scranton Paper Company uses 18,000 hours. c.

What is the cost equation if units produced is used as the volume (cost driver)?

d. Predict total manufacturing costs using units produced as the volume (cost driver) if Scranton Paper Company produces 65,000 units. e. Which volume (cost driver) is a better predictor of total manufacturing costs? Why? Answer: a. y = $314,842.08 + $8.96x b. Variable cost per machine hour Machine hours used Total variable cost Fixed cost Total predicted cost

$ 8.96 18,000 $ 161,330 $ 314,842 $ 476,172

c. y = $234,383.11 + $5.08x d. Variable cost per unit Units produced Total variable cost Fixed cost Total predicted cost

$ 5.0845 65,000 $ 330,493 $ 234,383 $ 564,876

e. Using units produced as the cost driver appears to be the better choice in this case, because the Rsquare for the units produced model is .99 versus the R-square for the machine hours model of .95. Diff: 3 LO: 6-5 EOC: E6-31A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

91 .

206) Paula Corporation is trying to predict its manufacturing overhead costs for the upcoming year; they are debating the use of the high-low method versus the use of regression analysis. They have gathered information about their manufacturing overhead costs in each of the past six months. A table containing their cost data and the associated machine hours in each month (the cost driver) follows.

Month April May June July August September

Manufacturing overhead costs $ 17,000 $ 14,500 $ 13,250 $ 15,000 $ 13,500 $ 14,500

Number of machine hours 14,250 12,010 10,280 11,910 11,080 11,670

The company performed a regression analysis using the above data and had the following results. (Note: the results are excerpts so not all of the regression analysis results are presented.)

Required: a. What is the cost equation if the high-low method is used to estimate costs? b. Using the high-low method, predict total manufacturing overhead costs if Paula Corporation uses 12,000 hours. c. What is the cost equation if regression analysis is used to estimate costs (use the results from the regression analysis provided)? d. Using the results from the regression analysis provided, predict total manufacturing overhead costs if Paula Corporation uses 12,000 hours. e. Which method (high-low or regression analysis) is a better predictor of total manufacturing overhead costs? Why?

92 .

Answer: a.

y = $0.94x + $3,540

93 .

b.

c. y = $0.99x + $2,929.07 d.

e. The regression analysis will generally be a better predictor of total costs than the high-low method because the regression analysis considers all data points when arriving at the cost estimates while the high-low method uses only the highest activity point and the lowest activity point. Diff: 3 LO: 6-5 EOC: E6-31A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

94 .

207) Match the term on the right with the appropriate definition provided on the right. Definition Term A statistical procedure for determining the line that best fits the data by using all of the historical data 1 points, not just the high and low data points Outliers Costs that change, but not in direct proportion to 2 changes in volume Fixed costs A cost behavior that is not linear (not a straight 3 line) Contribution Margin Costing concept where all manufacturing-related costs, whether fixed or variable, are "absorbed" into 4 the cost of the product Variable costs Costs that do not change in total despite wide 5 changes in volume Cost behavior A cost behavior that is fixed over a small range of activity and then jumps to a different fixed level 6 with moderate changes in volume Absorption Costing 7 Sales revenue minus variable expenses Curvilinear costs Abnormal data points; data points that do not fall 8 in the same general pattern as the other data points Mixed costs A method for determining cost behavior that is based on a manager's judgment in classifying each 9 account as to its cost behavior Cost equation 10 Describes how costs change as volume changes Regression analysis A mathematical equation for a straight line that 11 expresses how a cost behaves Account analysis Costs that change in total in direct proportion to 12 changes in volume Step costs

95 .

Answer: Definition Term A statistical procedure for determining the line that best fits the data by using all of the historical data 1 points, not just the high and low data points Regression analysis Costs that change, but not in direct proportion to 2 changes in volume Mixed costs A cost behavior that is not linear (not a straight 3 line) Curvilinear costs Costing concept where all manufacturing-related costs, whether fixed or variable, are "absorbed" into 4 the cost of the product Absorption Costing Costs that do not change in total despite wide 5 changes in volume Fixed costs A cost behavior that is fixed over a small range of activity and then jumps to a different fixed level 6 with moderate changes in volume Step costs 7 Sales revenue minus variable expenses Contribution Margin Abnormal data points; data points that do not fall 8 in the same general pattern as the other data points Outliers A method for determining cost behavior that is based on a manager's judgment in classifying each 9 account as to its cost behavior Account analysis 10 Describes how costs change as volume changes Cost behavior A mathematical equation for a straight line that 11 expresses how a cost behaves Cost equation Costs that change in total in direct proportion to 12 changes in volume Variable costs Diff: 1 LO: 6-5 EOC: E6-21A AACSB: Analytical Thinking Learning Outcome: Discuss standard costing and variance analysis. Discuss and calculate direct material, direct labor and overhead variances. 208) A contribution margin income statement allows managers to see which costs will change with changes in volume and which costs will remain fixed. Answer: TRUE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

96 .

209) For retailers and service companies without inventory, operating income is different if a traditional income statement or a contribution margin income statement is prepared. Answer: FALSE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 210) Sales revenue less variable expenses equals contribution margin. Answer: TRUE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 211) When preparing a traditional income statement, fixed costs are subtracted from gross profit to arrive at operating income. Answer: FALSE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 212) The traditional income statement is considered by most companies to be a better management tool than the contribution margin income statement. Answer: FALSE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 213) Traditional income statements provide managers with little cost behavior information. Answer: TRUE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

97 .

214) The cost of goods sold is a variable cost for merchandise company, but contains a mixture of variable and fixed production costs for manufacturers. Answer: TRUE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 215) Traditional income statements do not distinguish fixed operating costs from variable operating costs. Answer: TRUE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 216) U.S. GAAP requires companies to use absorption costing for external reporting purposes. Answer: TRUE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 217) Contribution margin income statements organize costs by behavior. Answer: TRUE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 218) When a merchandiser prepares a contribution margin income statement, Cost of Goods Sold is always a variable cost. Answer: FALSE Diff: 2 LO: 6-6 EOC: S6-17 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

98 .

219) When a company produces more units than it sells, absorption costing operating income will be higher than variable costing operating income. Answer: TRUE Diff: 2 LO: 6-6 EOC: S6-17 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 220) If the number of units produced equals the number of units sold for a manufacturer, both variable costing and absorption costing income statements will yield the same gross margin. Answer: FALSE Diff: 2 LO: 6-6 EOC: E6-41A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 221) Under absorption costing, fixed manufacturing costs are not expensed until the units are sold. Answer: TRUE Diff: 2 LO: 6-6 EOC: S6-17 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 222) Under absorption costing, variable manufacturing costs are treated as period costs. Answer: FALSE Diff: 2 LO: 6-6 EOC: S6-17 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 223) Under absorption costing, fixed manufacturing costs are treated as period costs. Answer: FALSE Diff: 2 LO: 6-6 EOC: S6-17 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

99 .

224) Under absorption costing, all nonmanufacturing costs are treated as period costs. Answer: TRUE Diff: 2 LO: 6-6 EOC: S6-17 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 225) Under variable costing, fixed manufacturing overhead is expensed immediately as a period cost. Answer: TRUE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 226) Under variable costing, fixed manufacturing costs are treated as inventoriable product costs. Answer: FALSE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 227) Under variable costing, all nonmanufacturing costs are treated as inventoriable product costs. Answer: FALSE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 228) If inventory has grown, operating income will be higher under absorption costing than it is under variable costing. Answer: TRUE Diff: 2 LO: 6-6 EOC: E6-41A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

100 .

229) If inventory has declined, operating income will be higher under absorption costing than it is under variable costing. Answer: FALSE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 230) If inventory has not increased or decreased, but has stayed the same, operating income will be the same under variable costing and absorption costing. Answer: TRUE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 231) Managers whose bonuses are based on operating income have more incentive to increase inventory levels when variable costing is used than when absorption costing is used. Answer: FALSE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 232) Variable costing considers fixed manufacturing costs as inventoriable product costs. Answer: FALSE Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

101 .

233) When absorption costing is used and management bonuses are related to operating income, managers are more likely to A) decrease inventory levels. B) increase inventory levels. C) keep inventory levels consistent. D) steal from the company. Answer: B Diff: 1 LO: 6-6 EOC: S6-15 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 234) On a traditional income statement, sales revenue less cost of goods sold equals A) gross profit. B) contribution margin. C) operating income. D) operating expenses. Answer: A Diff: 1 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 235) For external reporting purposes, U.S. GAAP allows companies to use ________. A) either the traditional format or the contribution margin format B) only the contribution margin format of the income statement C) only the traditional format of the income statement D) the variable costing format Answer: C Diff: 1 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

102 .

236) On a contribution margin income statement, sales revenue less variable expenses equals A) operating expenses. B) gross profit. C) operating income. D) contribution margin. Answer: D Diff: 1 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 237) On a traditional income statement, all manufacturing-related costs, whether fixed or variable, are listed A) above the gross profit line. B) above the contribution margin line. C) below the operating income line. D) above the sales line. Answer: A Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 238) The contribution margin is equal to A) sales minus cost of goods sold. B) sales minus operating expenses. C) sales minus fixed expenses. D) sales minus variable expenses. Answer: D Diff: 1 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

103 .

239) The contribution margin income statement presents ________ above the contribution margin line. A) only variable expenses relating to selling and administrative activities B) only fixed expenses relating to selling and administrative activities C) all fixed expenses D) all variable expenses Answer: D Diff: 1 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 240) The contribution margin income statement presents ________ below the contribution margin line. A) only variable expenses relating to selling and administrative activities B) only fixed expenses relating to selling and administrative activities C) all fixed expenses D) all variable expenses Answer: C Diff: 1 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 241) All fixed costs are listed ________ on a contribution margin income statement. A) below the contribution margin line B) above the gross profit line C) above the contribution margin line D) below the gross profit line Answer: A Diff: 1 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

104 .

242) All variable costs are listed ________ on a contribution margin income statement. A) above the gross profit line B) above the contribution margin line C) below the contribution margin line D) below the gross profit line Answer: B Diff: 1 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 243) When the number of units produced is less than the number of units sold, how does operating income under variable costing differ from operating income under absorption costing? A) It is lower than operating income under absorption costing. B) It is higher than operating income under absorption costing. C) It is the same as operating income under absorption costing. D) It depends upon the amount of decline. Answer: B Diff: 2 LO: 6-7 EOC: E6-41A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 244) Which of the following statements is true concerning income if production exceeds units sold? A) A higher operating income will result under a variable costing income statement. B) A lower operating income will result under an absorption costing income statement. C) A higher operating income will result under an absorption costing income statement. D) The same operating income will result under both a variable costing and absorption costing income statement. Answer: C Diff: 3 LO: 6-7 EOC: E6-41A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

105 .

245) How is operating income affected if the number of units sold exceeds the number of units produced? A) Operating income would be higher under a variable costing income statement. B) Operating income would be lower under a variable costing income statement. C) Operating income would be higher under an absorption costing income statement. D) Operating income would be the same under both a variable costing and absorption costing income statement. Answer: A Diff: 3 LO: 6-7 EOC: E6-41A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 246) Which type of costing system is the only acceptable costing system for external financial reporting? A) Prime costing B) Out-of-pocket costing C) Variable costing D) Absorption costing Answer: D Diff: 1 LO: 6-7 EOC: E6-41A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 247) A basic tenet of variable costing is that fixed manufacturing overhead costs be currently expensed. What is the rationale behind this? A) Fixed manufacturing overhead costs are generally immaterial in amount. B) Fixed manufacturing overhead costs occur regardless of level of production. C) Allocation of fixed manufacturing costs are arbitrary at best. D) Fixed manufacturing costs change as production changes. Answer: B Diff: 2 LO: 6-7 EOC: E6-41A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

106 .

248) Net income reported under absorption costing will exceed net income reported under variable costing for a given period if A) production equals sales for that period. B) sales exceed production for that period. C) production exceeds sales for that period. D) variable overhead exceeds fixed overhead for that period. Answer: C Diff: 2 LO: 6-7 EOC: E6-41A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 249) The income statement is organized by ________ under absorption costing. A) period costs only B) fixed costs only C) variable costs only D) product and period costs Answer: D Diff: 2 LO: 6-7 EOC: E6-41A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 250) What will happen to the contribution margin if fixed costs related to a product increase while variable costs and sales price remain constant? A) Will increase B) Will not change C) Will decrease D) Will stay the same Answer: C Diff: 2 LO: 6-7 EOC: E6-41A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

107 .

251) What factor related to manufacturing costs causes the difference between operating income computed using absorption costing and operating income computed using variable costing? A) Absorption costing expenses all costs, whether fixed or variable. B) Absorption costing "inventories" all direct manufacturing costs. C) Absorption costing "inventories" all fixed manufacturing costs. D) Absorption costing "inventories" all fixed manufacturing and period costs. Answer: C Diff: 2 LO: 6-7 EOC: E6-41A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 252) By increasing ________, a manager can increase operating income under absorption costing. A) variable costs B) fixed costs C) production D) leased assets Answer: C Diff: 2 LO: 6-7 EOC: E6-41A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 253) Absorption costing is required to be used for A) federal income tax reports. B) external financial reports, but not income taxes. C) neither external financial reports nor income tax reports. D) both external financial reports and income tax reports. Answer: D Diff: 2 LO: 6-7 EOC: E6-41A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

108 .

254) The use of either absorption or variable costing will make little difference in companies A) using just-in-time inventory methods. B) with large inventories. C) with high fixed costs. D) with high variable costs. Answer: A Diff: 2 LO: 6-7 EOC: E6-41A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 255) Which of the following does not appear on an income statement prepared using variable costing? A) Fixed production costs B) Contribution margin C) Gross margin D) Variable production costs Answer: C Diff: 2 LO: 6-7 EOC: E6-41A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 256) Schrute Farm Sales buys portable generators for $450 and sells them for $720. He pays a sales commission of 5% of sales revenue to his sales staff. Mr. Schrute pays $2,000 a month rent for his store, and also pays $1,700 a month to his staff in addition to the commissions. Mr. Schrute sold 200 generators in June. If Mr. Schrute prepares a contribution margin income statement for the month of June, what would be his contribution margin? A) $241,200 B) $ 97,200 C) $46,800 D) $144,000 Answer: C Explanation: C) Sales $ 720 × 200 = $ 144,000 Less: Variable costs $ 450 × 200 = $ 90,000 Commission $144,000 × 5% = $ 7,200 Contribution Margin $ 46,800 Diff: 3 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

109 .

257) Schrute Farm Sales buys portable generators for $450 and sells them for $720. He pays a sales commission of 5% of sales revenue to his sales staff. Mr. Schrute pays $2,000 a month rent for his store, and also pays $1,700 a month to his staff in addition to the commissions. Mr. Schrute sold 200 generators in June. If Mr. Schrute prepares a traditional income statement for the month of June, what would be his gross profit? A) $234,000 B) $144,000 C) $90,000 D) $54,000 Answer: D Explanation: D) Sales $ 720 × 200 = $ 144,000 Less: Cost of Goods Sold $ 450 × 200 = $ 90,000 Gross Profit $ 54,000 Diff: 3 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 258) Schrute Farm Sales buys portable generators for $450 and sells them for $720. He pays a sales commission of 5% of sales revenue to his sales staff. Mr. Schrute pays $2,000 a month rent for his store, and also pays $1,700 a month to his staff in addition to the commissions. Mr. Schrute sold 200 generators in June. If Mr. Schrute prepares a traditional income statement for the month of June, what would be his operating income? A) $ 43,100 B) $ 54,00 C) $ 64,900 D) $144,000 Answer: A Explanation: A) Sales $ 720 × 200 = $ 144,000 Less: Cost of Goods Sold $ 450 × 200 = $ 90,000 Gross Profit $ 54,000 Commission $144,000 × 5% = $ 7,200 Rent $ 2,000 Salaries $ 1,700 Operating Income $ 43,100 Diff: 3 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

110 .

259) Schrute Farm Sales buys portable generators for $450 and sells them for $720. He pays a sales commission of 5% of sales revenue to his sales staff. Mr. Schrute pays $2,000 a month rent for his store, and also pays $1,700 a month to his staff in addition to the commissions. Mr. Schrute sold 200 generators in June. If Mr. Schrute prepares a contribution margin income statement for the month of June, what would be his operating income? A) $ 97,200 B) $ 50,,500 C) $144,000 D) $ 43,100 Answer: D Explanation: D) Sales $ 720 × 200 = $ 144,000 Less: Variable costs $ 450 × 200 = $ 90,000 Commission $144,000 × 5% = $ 7,200 Contribution Margin $ 46,800 Rent $ 2,000 Salaries $ 1,700 Operating Income $ 43,100 Diff: 3 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 260) It costs Homer's Manufacturing $0.75 to produce baseballs and Homer sells them for $4.00 a piece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $12,000 a month rent for his factory and store, and also pays $75,000 a month to his staff in addition to the commissions. Homer sold 67,500 baseballs in June. If Homer prepares a contribution margin income statement for the month of June, what would be his contribution margin? A) $205,875 B) $334,125 C) $64,125 D) $270,000 Answer: A Explanation: A) Sales $ 4 × 67,500 = $ 270,000 Less: Variable costs $ 0.75 × 67,500 = $ 50,625 Commission $275,000 × 5% = $ 13,500 Contribution Margin $ 205,875 Diff: 3 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

111 .

261) It costs Homer's Manufacturing $0.75 to produce baseballs and Homer sells them for $4.00 a piece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $12,000 a month rent for his factory and store, and also pays $75,000 a month to his staff in addition to the commissions. Homer sold 67,500 baseballs in June. If Homer prepares a traditional income statement for the month of June, what would be his gross profit? A) $320,625 B) $219,375 C) $270,000 D) $50,625 Answer: B Explanation: B) Sales $ 4 × 67,500 = $ 270,000 Less: Cost of Goods Sold $ 0.75 × 67,500 = $ 50,625 Gross Profit $ 219,375 Diff: 3 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 262) It costs Homer's Manufacturing $0.75 to produce baseballs and Homer sells them for $4.00 a piece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $12,000 a month rent for his factory and store, and also pays $75,000 a month to his staff in addition to the commissions. Homer sold 67,500 baseballs in June. If Homer prepares a traditional income statement for the month of June, what would be his operating income? A) $ 270,000 B) $ 319,875 C) $ 219,375 D) $118,875 Answer: D Explanation: D) Sales $ 4 × 67,500 = $ 270,000 Less: Cost of Goods Sold $ 0.75 × 67,500 = $ 50,625 Gross Profit $ 219,375 Commission $275,000 × 5% = $ 13,500 Rent $ 12,000 Salaries $ 75,000 Operating Income $ 118,875 Diff: 3 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

112 .

263) It costs Homer's Manufacturing $0.75 to produce baseballs and Homer sells them for $4.00 a piece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $12,000 a month rent for his factory and store, and also pays $75,000 a month to his staff in addition to the commissions. Homer sold 67,500 baseballs in June. If Homer prepares a contribution margin income statement for the month of June, what would be his operating income? A) $292,875 B) $270,000 C) $64,125 D) $118,875 Answer: D Explanation: D) Sales $ 4 × 67,500 = $ 270,000 Less: Variable costs $ 0.75 × 67,500 = $ 50,625 Commission $270,000 × 5% = $ 13,500 Contribution Margin $ 205,875 Rent $ 12,000 Salaries $ 75,000 Operating Income $ 118,875 Diff: 3 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

113 .

264) Jean's Fitness Club provides monthly memberships as well as personal training sessions. The personal trainers earn 50% of the revenue for all personal training sessions. The Fitness Club also sells nutrition products. Jean's general ledger accounts indicate the following for the year. The front desk staff wages expense remains the same throughout the year. Account Amount Membership revenue $ 140,000 Personal training revenue $ 75,000 Product sales $ 65,000 Cost of product sold $ 35,000 Front desk staff wages expense $ 12,000

Account Amount Personal trainer wages expense ? Space rental expense $ 11,000 Straight line depreciation expense $ 6,000 Rental insurance expense $ 3,000

If a contribution margin income statement is prepared for the year, what is the amount of total revenue? A) $280,000 B) $215,000 C) $315,000 D) $140,000 Answer: A Explanation: A) Membership $ 140,000 Personal Training 75,000 Product Sales 65,000 Total Revenue 280,000 Diff: 1 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

114 .

265) Jeans's Fitness Club provides monthly memberships as well as personal training sessions. The personal trainers earn 50% of the revenue for all personal training sessions. The Fitness Club also sells nutrition products. Jeans's general ledger accounts indicate the following for the year. The front desk staff wages expense remains the same throughout the year. Account Amount Membership revenue $ 140,000 Personal training revenue $ 75,000 Product sales $ 65,000 Cost of product sold $ 35,000 Front desk staff wages expense $ 12,000

Account Amount Personal trainer wages expense ? Space rental expense $ 11,000 Straight line depreciation expense $ 6,000 Rental insurance expense $ 3,000

If a contribution margin income statement is prepared for the year, what is the contribution margin? A) $ 72,500 B) $352,500 C) $280,000 D) $207,500 Answer: D Explanation: D) Membership $ 140,000 Personal Training 75,000 Product Sales 65,000 Total Revenue 280,000 LESS: Variable expense 35,000 Personal Trainer commissions $60,000 × 50% 37,500 Contribution Margin $ 207,500 Diff: 3 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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266) Jean's Fitness Club provides monthly memberships as well as personal training sessions. The personal trainers earn 50% of the revenue for all personal training sessions. The Fitness Club also sells nutrition products. Jean's general ledger accounts indicate the following for the year. The front desk staff wages expense remains the same throughout the year. Account Amount Membership revenue $140,000 Personal training revenue $75,000 Product sales $65,000 Cost of product sold $35,000 Front desk staff wages expense $12,000

Account Amount Personal trainer wages expense ? Space rental expense $11,000 Straight line depreciation expense $6,000 Rental insurance expense $3,000

If a traditional income statement is prepared for the year, what is Gross Profit? A) $280,000 B) $245,000 C) $315,000 D) $207,500 Answer: B Explanation: B) Membership $ 140,000 Personal Training 75,000 Product Sales 65,000 Total Revenue 280,000 Cost of Goods Sold 35,000 Gross Profit $ 245,000 Diff: 3 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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267) Jean's Fitness Club provides monthly memberships as well as personal training sessions. The personal trainers earn 50% of the revenue for all personal training sessions. The Fitness Club also sells nutrition products. Jean's general ledger accounts indicate the following for the year. The front desk staff wages expense remains the same throughout the year. Account Amount Membership revenue $140,000 Personal training revenue $75,000 Product sales $65,000 Cost of product sold $35,000 Front desk staff wages expense $12,000

Account Amount Personal trainer wages expense ? Space rental expense $11,000 Straight line depreciation expense $6,000 Rental insurance expense $3,000

If a traditional income statement is prepared for the year, what is operating income? A) $175,500 B) $280,000 C) $207,500 D) $245,500 Answer: A Explanation: A) Membership $ 140,000 Personal Training 75,000 Product Sales 65,000 Total Revenue 280,000 Cost of Goods Sold 35,000 Gross Profit $ 245,000 Less: Wage expense 12,000 Personal Trainer wage 37,500 Space rental 11,000 Depreciation 6,000 Insurance 3,000 Operating Income 175,500 Diff: 2 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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268) Jean's Fitness Club provides monthly memberships as well as personal training sessions. The personal trainers earn 50% of the revenue for all personal training sessions. The Fitness Club also sells nutrition products. Jean's general ledger accounts indicate the following for the year. The front desk staff wages expense remains the same throughout the year. Account Amount Membership revenue $140,000 Personal training revenue $75,000 Product sales $65,000 Cost of product sold $35,000 Front desk staff wages expense $12,000

Account Amount Personal trainer wages expense ? Space rental expense $11,000 Straight line depreciation expense $6,000 Rental insurance expense $3,000

If a contribution margin income statement is prepared for the year, what is operating income? A) $207,500 B) $280,000 C) $175,500 D) $384,500 Answer: C Explanation: C) Membership $ 140,000 Personal Training 75,000 Product Sales 65,000 Total Revenue 280,000 LESS: Variable expense 35,000 Personal Trainer commissions $75,000 × 50% 37,500 Contribution Margin $ 207,500 Less: Wage expense 12,000 Space rental 11,000 Depreciation 6,000 Insurance 3,000 Operating Income 175,500 Diff: 2 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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269) Sugartown Corporation has total sales revenues of $930,000. If its total fixed costs are $182,000 and its total variable costs are $267,000, then the total contribution margin is A) total revenue minus total fixed costs. B) total revenue minus total variable costs. C) total variable costs minus total fixed costs. D) equal to operating income. Answer: B Diff: 1 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 270) Green Corporation has total sales revenues of $400,000. If its total fixed costs are $70,000 and its total variable costs are $150,000, the contribution margin is A) $330,000. B) $250,000. C) $550,000. D) $220,000. Answer: B Explanation: B) Sales $ 400,000 Less: Variable expense $ 150,000 Contribution Margin 250,000 Diff: 1 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 271) Frost Company has a contribution margin per unit of $49. If 7,000 more items are sold, and fixed expenses remain the same, the net change in operating income will be A) $343,000. B) $(343,000). C) $143. D) $7,000. Answer: A Explanation: A) $ 49 × 7,000 = $ 343,000 Diff: 2 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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272) Stanley's Bicycles store buys bicycles on average for $600 and sells them on average for $750. He pays a sales commission of 15% of sales revenue to his sales staff. Stanley pays $1,400 a month rent for his store, and also pays $3,000 a month to his staff in addition to the commissions. Stanley sold 120 bicycles in June. If Stanley prepares a contribution margin income statement for the month of June, what would be his contribution margin? A) $4,500 B) $90,000 C) $85,500 D) $175,500 Answer: A Explanation: A) Revenue $ 750 × 120 = $ 90,000 Less: Variable cost $ 600 × 120 = 72,000 Sales Commission $90,000 × 15% = 13,500 Contribution Margin 4,500 Diff: 3 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 273) Stanley's Bicycles store buys bicycles on average for $600 and sells them on average for $750. He pays a sales commission of 15% of sales revenue to his sales staff. Stanley pays $1,400 a month rent for his store, and also pays $3,000 a month to his staff in addition to the commissions. Stanley sold 120 bicycles in June. If Stanley prepares a traditional income statement for the month of June, what would be his gross profit? A) $162,000 B) $18,000 C) $72,000 D) $90,000 Answer: B Explanation: B) Revenue $ 750 × 120 = $ 90,000 Less: Cost of Goods Sold $ 600 × 120 = 72,000 Gross Profit 18,000 Diff: 3 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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274) Stanley's Bicycles store buys bicycles on average for $600 and sells them on average for $750. He pays a sales commission of 15% of sales revenue to his sales staff. Stanley pays $1,400 a month rent for his store, and also pays $3,000 a month to his staff in addition to the commissions. Stanley sold 120 bicycles in June. If Stanley prepares a traditional income statement for the month of June, what would be his operating income? A) $90,000 B) $35,900 C) $100 D) $18,000 Answer: C Explanation: C) Revenue $ 750 × 120 = $ 90,000 Less: Cost of goods Sold $ 600 × 120 = 72,000 Gross Profit 18,000 Less: Commissions 13,500 Rent 1,400 Salaries 3,000 Operating Income 100 Diff: 3 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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275) Stanley's Bicycles store buys bicycles on average for $600 and sells them on average for $750. He pays a sales commission of 15% of sales revenue to his sales staff. Stanley pays $1,400 a month rent for his store, and also pays $3,000 a month to his staff in addition to the commissions. Stanley sold 120 bicycles in June. If Stanley prepares a contribution margin income statement for the month of June, what would be his operating income? A) $8,900 B) $90,000 C) $85,500 D) $100 Answer: D Explanation: D) Revenue $ 750 × 120 = $ 90,000 Less: Variable cost $ 600 × 120 = 72,000 Sales Commission $90,000 × 15% = 13,500 Contribution Margin 4,500 Rent 1,400 Salaries 3,000 Operating Income 100 Diff: 3 LO: 6-6 EOC: E6-42A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 276) Lily's Pastries produces cupcakes, which sell for $5 each. During the current month, Lily produced 2,800 cupcakes, but only sold 2,700 cupcakes. The variable cost per cupcake was $3 and the sales commission per cupcake was $0.50. Total fixed manufacturing costs were $1,400 and total fixed marketing and administrative costs were $1,200. What is the product cost per cupcake under absorption costing? A) $3.50 B) $5.50 C) $5.00 D) $3.00 Answer: A Explanation: A) Fixed Manufacturing $ 1,400 divided by production 2,800 = $ .50 per unit fixed cost Now: Add Variable cost per unit $ 3 + fixed $.50 = $ 3.50 product cost Diff: 2 LO: 6-6 EOC: S6-17 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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277) During the current period, 14,000 units were produced and 12,000 units were sold. Fixed manufacturing costs incurred amounted to $126,000. An absorption costing income statement would report fixed manufacturing costs as which of the following? A) Costs of $108,000 as a deduction from gross profit to obtain operating income B) Overhead of $126,000 as a deduction from sales revenue to obtain gross profit C) Overhead of $108,000 as a deduction from sales revenue to obtain gross profit D) Costs of $126,000 as a deduction from sales revenue to obtain contribution margin Answer: C Explanation: C) Fixed cost $ 126,000 divided by production 14,000 = $ 9 fixed cost per unit NOW Units sold 12,000 × fixed cost $9 = $ 108,000 Diff: 3 LO: 6-6 EOC: S6-17 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs. 278) Neon Company manufactures widgets. The following data is related to sales and production of the widgets for last year. Selling price per unit Variable manufacturing costs per unit Variable selling and administrative expenses per unit Fixed manufacturing overhead (in total) Fixed selling and administrative expenses (in total) Units produced during the year Units sold during year

$ 130.00 $ 62.00 $ 5.00 $ 30,000 $ 8,000 1,500 1,100

Using variable costing, what is the contribution margin for last year? A) $216,700 B) $68,200 C) $143,000 D) $69,300 Answer: D Explanation: D) Sales $130 × 1100 $143,000 Less Variable Mfg cost 1100 × $62 68,200 Less Variable Selling expense 1100 × $5 = 5,500 Contribution Margin $69,300 Diff: 3 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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279) Neon Company manufactures widgets. The following data is related to sales and production of the widgets for last year. Selling price per unit Variable manufacturing costs per unit Variable selling and administrative expenses per unit Fixed manufacturing overhead (in total) Fixed selling and administrative expenses (in total) Units produced during the year Units sold during year

$ 130.00 $ 62.00 $ 5.00 $ 30,000 $ 8,000 1,500 1,100

Using variable costing, what is the operating income for last year? A) $143,000 B) $31,300 C) $69,300 D) $107,300 Answer: B Explanation: B) Sales Revenue 1,100 × 130 = 143,000 Variable Manufacturing Costs 1,100 × 130 = (68,200) Variable Selling and Administrative Costs 1,100 × 5 = (5,500) Contribution Margin 69,300 Fixed Manufacturing Overhead (30,000) Fixed Selling and Administrative Costs (8,000) Operating Income 31,300 Diff: 3 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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280) Neon Company manufactures widgets. The following data is related to sales and production of the widgets for last year. Selling price per unit Variable manufacturing costs per unit Variable selling and administrative expenses per unit Fixed manufacturing overhead (in total) Fixed selling and administrative expenses (in total) Units produced during the year Units sold during year

$ 130.00 $ 62.00 $ 5.00 $ 30,000 $ 8,000 1,500 1,100

Using absorption costing, what is gross profit for last month? A) $233,200 B) $143,000 C) $104,800 D) $52,800 Answer: D Explanation: D) Fixed MOH $ 30,000 divided by units produced 1,500 = $ 20 Fixed MOH Add Variable manufacturing cost 62 = Total Manufacturing cost $ 82 × 1,100 sales = $90,200 Cost of goods sold So:

Sales $130 × 1100 = Less Cost of Goods Sold Equals Gross Profit

$ 143,000 90,200 $ 52,800

Diff: 3 LO: 6-6 EOC: S6-17 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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281) Neon Company manufactures widgets. The following data is related to sales and production of the widgets for last year. Selling price per unit Variable manufacturing costs per unit Variable selling and administrative expenses per unit Fixed manufacturing overhead (in total) Fixed selling and administrative expenses (in total) Units produced during the year Units sold during year

$ 130.00 $ 62.00 $ 5.00 $ 30,000 $ 8,000 1,500 1,100

Using absorption costing, what is operating income for last year? A) $ 39,300 B) $ 66,300 C) $219,700 D) $143,000 Answer: A Explanation: A) Fixed MOH $ 30,000 divided by units produced 1,500 = $ 20 Fixed MOH Add Variable manufacturing cost 62 = Total Manufacturing cost $ 82 × 1,100 sales = $90,200 Cost of goods sold So:

Sales $130 × 1,100 = Less Cost of Goods Sold Equals Gross Profit Less Variable selling Less fixed selling Operating Income

$ 143,000 90,200 $ 52,800 5,500 8,000 $ 39,300

Diff: 3 LO: 6-6 EOC: S6-17 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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282) The HF Corporation manufactures and sells toy gyroscopes. The following data is related to sales and production of the toy gyroscopes for last year. Selling price per unit Variable manufacturing costs per unit Variable selling and administrative expenses per unit Fixed manufacturing overhead (in total) Fixed selling and administrative expenses (in total) Units produced during the year Units sold during the year

$ 8.00 $ 1.83 $ 4.45 $ 75,000 $ 80,000 500,000 150,000

Using variable costing, what is the contribution margin for last year? A) $1,200,000 B) $274,500 C) $258,000 D) $2,142,000 Answer: C Explanation: C) Sales $8.00 × 150,000 $1,200,000 Less Variable Mfg cost 150,000 × $1.83 274,500 Less Variable Selling exp. 150,000 × $4.45 = 667,500 Contribution Margin 258,000 Diff: 3 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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283) The HF Corporation manufactures and sells toy gyroscopes. The following data is related to sales and production of the toy gyroscopes for last year. Selling price per unit Variable manufacturing costs per unit Variable selling and administrative expenses per unit Fixed manufacturing overhead (in total) Fixed selling and administrative expenses (in total) Units produced during the year Units sold during the year

$ 8.00 $ 1.83 $ 4.45 $ 75,000 $ 80,000 500,000 150,000

Using variable costing, what is the operating income for last year? A) $1,200,000 B) $103,000 C) $413,000 D) $258,000 Answer: B Explanation: B) Sales $8.00 × 150,000 $1,200,000 Less Variable Mfg cost 150,000 × $1.83 274,500 Less Variable Selling exp. 150,000 × $4.45 = 667,500 Contribution Margin 258,000 Fixed Manufacturing Overhead 75,000 Fixed Selling and Administrative Costs 80,000 Operating Income 103,000 Diff: 3 LO: 6-6 EOC: S6-16 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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284) The HF Corporation manufactures and sells toy gyroscopes. The following data is related to sales and production of the toy gyroscopes for last year. Selling price per unit Variable manufacturing costs per unit Variable selling and administrative expenses per unit Fixed manufacturing overhead (in total) Fixed selling and administrative expenses (in total) Units produced during the year Units sold during the year

$ 8.00 $ 1.83 $ 4.45 $ 75,000 $ 80,000 500,000 150,000

Using absorption costing, what is gross profit for last month? A) $903,000 B) $1,497,000 C) $1,200,000 D) $3,703,000 Answer: A Explanation: A) Fixed MOH $ 75,000 divided by units produced 500,000 = $0.15 Fixed MOH Add Variable manufacturing cost 1.83 =Total Manufacturing cost 1.98 × 150,000 sales = $297,000 Cost of goods sold So:

Sales $8 × 150,000 = Less Cost of Goods Sold Equals Gross Profit

$ 1,200,000 297,000 $ 903,000

Diff: 3 LO: 6-6 EOC: S6-17 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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285) The HF Corporation manufactures and sells toy gyroscopes. The following data is related to sales and production of the toy gyroscopes for last year. Selling price per unit Variable manufacturing costs per unit Variable selling and administrative expenses per unit Fixed manufacturing overhead (in total) Fixed selling and administrative expenses (in total) Units produced during the year Units sold during the year

$ 8.00 $ 1.83 $ 4.45 $ 75,000 $ 80,000 500,000 150,000

Using absorption costing, what is operating income for last year? A) $ 749,500 B) $ 155,500 C) $1,200,000 D) $1,650,500 Answer: B Explanation: B) Fixed MOH $ 75,000 divided by units produced 500,000 = $0.15 Fixed MOH Add Variable manufacturing cost 1.83 = Total Manufacturing cost 1.98 × 150,000 sales = $297,000 Cost of goods sold So:

Sales $8 × 150,000 = Less Cost of Goods Sold Equals Gross Profit Less Variable selling Less fixed selling Operating Income

$ 1,200,000 297,000 $ 903,000 667,500 80,000 $155,500

Diff: 3 LO: 6-6 EOC: S6-17 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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286) Sally's Gift Baskets sells gift baskets, on average, for $125; each gift basket costs, on average, $60. Debby pays salaries each month of $1,300 and her store rent is $1,000 per month. She also pays sales commissions of 5% of the sales price. In May, 140 gift baskets were sold. Required: a. Prepare a traditional income statement for the month of May. b. Prepare a contribution margin income statement for the month of May. Answer: Part a. Unit sale price $ 125 Units sold 140 Sales $ 17,500 Unit cost Units sold Cost of goods sold

$ 60 140 $ 8,400

Unit sale price Commission % of sales Commission per unit

$ 125 5% $ 6.25

Commission per unit Units sold Total commission Rent Salaries Operating expenses

$ 6.25 140 $ 875 $ 1,000 $ 1,300 $ 3,175

Sales Cost of goods sold Gross profit Operating expenses Operating income

$ 17,500 $ (8,400) $ 9,100 $ (3,175) $ 5,925

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Part b. Unit sale price Units sold Sales

$ 125 140 $ 17,500

Unit sale price Commission % of sales Commission per unit

$ 125 5% $ 6.25

Unit cost Commission per unit Variable cost per unit Units sold Total variable costs

$ 60 $ 6.25 $ 66.25 140 $ 9,275

Rent Salaries Fixed costs

$ 1,000 $ 1,300 $ 2,300

Sales Total variable costs Contribution margin Fixed costs Operating income

$ 17,500 $ (9,275) $ 8,225 $ (2,300) $ 5,925

Diff: 3 LO: 6-6 EOC: E6-23A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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287) Discuss and compare absorption costing income statements with variable costing income statements. In your discussion, address the following questions: a. What is the main difference between the two methods? b. Under what circumstances will the operating income under each method be the same? c. What situation will cause the absorption costing income to be higher than the variable costing income? d. What situation will cause the absorption costing income to be lower than the variable costing income? e. Why would a company use absorption costing to prepare its income statements? f. Why would a company use variable costing to prepare its income statements? Answer: a. Fixed manufacturing overhead is expensed in its entirety under variable costing, while fixed overhead is added as the part of cost of each unit under absorption costing. If all units are not produced and sold within a period, some of the fixed manufacturing overhead is either deferred to the next period or it is released (expenses) from a prior period. b. If the units produced equals the units sold, the operating income under absorption costing will be equal to the operating income under variable costing. c. Absorption costing operating income will be higher in any period when more units are produced than sold. d. Absorption costing operating income will be lower in a period when more units are sold than produced (when units from beginning inventory are sold). e. Absorption costing is required by GAAP. f. Variable costing is useful for short-term decision-making by managers. Diff: 3 LO: 6-6 EOC: S6-17 AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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288) The following data is related to sales and production of the Tauro Corporation for last year. Selling price per unit Variable manufacturing cost per unit Variable selling and administrative expense per unit Fixed manufacturing overhead (in total) Fixed selling and administrative expenses (in total) Units produced during year Units sold during year Units in beginning inventory Units in ending inventory

$ 60.00 $ 25.00 $ 6.00 $ 50,000 $ 8,000 10,000 8,000 0 2,000

Required: a. Prepare an income statement for last year using absorption costing. b. Calculate the value of the ending inventory using absorption costing. c. Prepare an income statement for last year using variable costing. d. Calculate the value of the ending inventory using variable costing. Answer:

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Diff: 3 LO: 6-6 EOC: E6-43A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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289) Snowy Mountain Company has the following selected data for the past year: Units sold during year Units produced during year Units in ending inventory Variable manufacturing cost per unit Fixed manufacturing overhead (in total) Selling price per unit Variable selling and administrative expense per unit Fixed selling and administrative expenses (in total)

30,000 45,000 15,000 $ 4.50 $ 20,250 $ 12.00 $ 1.00 $ 4,000

There were no units in beginning inventory. Required: a. Prepare an income statement for last year using absorption costing. b. Calculate the value of the ending inventory using absorption costing. c. Prepare an income statement for last year using variable costing. d. Calculate the value of the ending inventory using variable costing. Answer:

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Diff: 3 LO: 6-7 EOC: E6-43A AACSB: Analytical Thinking Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

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Managerial Accounting, 3e (Braun/Tietz) Chapter 7 Cost-Volume-Profit Analysis 1) The contribution margin per unit is how much profit each unit contributes after fixed costs are considered. Answer: FALSE Diff: 1 LO: 7-1 EOC: S7-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 2) CVP stands for Company—Volume—Profit. Answer: FALSE Diff: 1 LO: 7-1 EOC: S7-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 3) CVP assumes that inventory levels will not change. Answer: TRUE Diff: 1 LO: 7-1 EOC: S7-2 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 4) When using the contribution margin ratio, managers project operating income based upon sales units. Answer: FALSE Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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5) A product's contribution margin per unit is the excess of the selling price per unit over the variable cost of obtaining and selling each unit. Answer: TRUE Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations. 6) The contribution margin derived from different products is not used to motivate the sales force to increase sales of the most profitable products. Answer: FALSE Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 7) The contribution margin ratio is the unit contribution margin divided by the variable cost per unit. Answer: FALSE Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 8) If a unit sells for $12.50 and has a variable cost of $3.25, its contribution margin per unit is $9.25. Answer: TRUE Diff: 2 LO: 7-1 EOC: S7-1 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 9) Contribution margin on an income statement is equal to sales revenue minus fixed expenses. Answer: FALSE Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations

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10) Gross margin is another term for net income. Answer: FALSE Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 11) CVP analysis assumes that the only factor that affects costs is a change in sale price. Answer: FALSE Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 12) Total contribution margin less total fixed expenses equals A) contribution margin ratio. B) operating income. C) gross profit. D) sales revenue. Answer: B Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 13) The unit contribution margin is computed by A) subtracting the variable cost per unit from the sales price per unit. B) dividing the sales revenue by variable cost per unit. C) dividing the variable cost per unit by the sales revenue. D) subtracting the sales price per unit from the variable cost per unit. Answer: A Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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14) The contribution margin ratio explains the percentage of each sales dollar that A) contributes towards variable costs. B) contributes towards sales revenue. C) contributes towards period expenses. D) contributes towards fixed costs and generating a profit. Answer: D Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 15) CVP analysis assumes all of the following except A) the mix of products will not change. B) revenues are linear throughout the relevant range. C) inventory levels will increase. D) a change in volume is the only factor that affect costs. Answer: C Diff: 1 LO: 7-1 EOC: S7-2 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 16) ________ should be subtracted from the sales price per unit to compute the unit contribution margin. A) All variable costs B) Only variable inventoriable product costs C) Only variable period costs D) All fixed costs Answer: A Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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17) By multiplying ________ and then subtracting fixed costs, managers can quickly forecast the operating income. A) projected sales units by the contribution margin ratio B) projected sales revenue by the contribution margin ratio C) projected sales revenue by the unit contribution margin D) projected sales units by the variable cost ratio Answer: B Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 18) Managers can quickly forecast the total contribution margin by dividing the A) projected sales units by the variable cost ratio. B) projected sales units by the contribution margin ratio. C) projected sales revenue by the unit contribution margin. D) projected sales revenue by the contribution margin ratio. Answer: D Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 19) Which of the following represents the excess of the selling price per unit of a product over the variable cost of obtaining and selling each unit? A) Gross margin B) Operating income C) Net income D) Unit contribution margin Answer: D Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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20) Contribution margin ratio is computed by A) dividing contribution margin by operating income. B) dividing contribution margin by sales revenue. C) dividing sales revenue by contribution margin. D) dividing operating income by contribution margin. Answer: B Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 21) What is contribution margin equal to on a contribution margin income statement? A) Fixed expenses plus variable expenses B) Fixed expenses minus variable expenses C) Sales revenues minus variable expenses D) Sales revenues minus fixed expenses Answer: C Diff: 2 LO: 7-1 EOC: S7-1 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 22) Dairy Days Ice Cream sells ice cream cones for $4 per customer. Variable costs are $3 per cone. Fixed costs are $2,500 per month. What is Dairy Days' contribution margin ratio? A) 267% B) 25% C) 2% D) 63% Answer: B Explanation: B) Sales $4 Less Variable costs 3 = Contribution Margin 1 divided by $4 sales = 25% Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations

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23) Dairy Days Ice Cream sells ice cream cones for $4 per customer. Variable costs are $3 per cone. Fixed costs are $2,500 per month. What is Dairy Days' contribution margin per ice cream cone? A) $1.00 B) $3.00 C) $0.25 D) $4.00 Answer: A Explanation: A) Sales $4 Less Variable costs 3 = Contribution Margin 1 Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 24) Mom and Pop's Ice Cream Shoppe sells ice cream cones for $5.00 per customer. Variable costs are $2.25 per cone. Fixed costs are $3,000 per month. What is the company's contribution margin ratio? A) 182% B) 45% C) 3% D) 55% Answer: D Explanation: D) Sales $5.00 Less Variable costs 2.25 = Contribution Margin 2.75 divided by $5.00 sales = 55% Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 25) Mom and Pop's Ice Cream Shoppe sells ice cream cones for $5.00 per customer. Variable costs are $2.25 per cone. Fixed costs are $3,000 per month. What is the company's contribution margin per ice cream cone? A) $2.25 B) $2.75 C) $0.55 D) $1.82 Answer: B Explanation: B) Sales $ 5.00 Less Variable costs 2.25 = Contribution Margin 2.75 Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 7 .

26) Fave Motion Pictures sells movie tickets for $10 per movie patron. Variable costs are $7.50 per movie patron and fixed costs are $50,000 per month. The company's relevant range extends to 35,000 movie patrons per month. What is Fave Motion Pictures' projected operating income if 25,000 movie patrons see movies during a month? A) $62,500 B) $12,500 C) $250,000 D) $200,000 Answer: B Explanation: B) Sales $ 10 Less Variable costs 7.50 = Contribution Margin 2.50 × 25,000 = $ 62,500 Less Fixed 50,000 Operating Income $ 12,500 Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 27) Hickory Point Amusement Park sells admission tickets for $50 per person for one visit. Variable costs are $15 per visitor and fixed costs are $60,000,000 per month. The company's relevant range extends to 2,000,000 visitors per month. What is Hickory Point's projected operating income if 1,750,000 visitors come to the park during the month? A) $1,250,000 B) $61,250,000 C) $87,500,000 D) $27,500,000 Answer: A Explanation: A) Sales $ 50 Less Variable costs 15 = Contribution Margin 35 × 1,750,000 = 61,250,000 Less Fixed 60,000,000 Operating Income $ 1,250,000 Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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28) Electric Jet Skis operates a jet ski rental business. Assume the jet skis rent for $55 for 6 hours. The variable costs are $33 per 6 hour rental, and its fixed costs are $80,000 each month. What is the contribution margin per 6 hour jet ski rental? A) $33.00 B) $0.40 C) $22.00 D) $2.50 Answer: C Explanation: C) Sales $ 55 Less Variable costs 33 = Contribution Margin 22 Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 29) Electric Jet Skis operates a jet ski rental business. Assume the jet skis rent for $55 per 6 hours. The variable costs are $33 per 6 hours rental, and its fixed costs are $80,000 each month. What is the contribution margin ratio? A) 40% B) 60% C) 250% D) 22% Answer: A Explanation: A) Sales $ 55 Less Variable costs 33 = Contribution Margin 22 divided by $55 sales = 40% Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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30) LaComedia Dinner Theater sells tickets for dinner and a show for $40 each. The cost of providing dinner is $26 per ticket and the fixed cost of operating the theater is $100,000 per month. The company can accommodate 12,000 patrons each month. What is the contribution margin per patron? A) $2.86 B) $14.00 C) $0.35 D) $26.00 Answer: B Explanation: B) Sales $ 40 Less Variable costs 26 = Contribution Margin 14 Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 31) LaComedia Dinner Theater sells tickets for dinner and a show for $40 each. The cost of providing dinner is $26 per ticket and the fixed cost of operating the theater is $100,000 per month. The company can accommodate 12,000 patrons each month. What is the contribution margin ratio? A) 65% B) 35% C) 14% D) 286% Answer: B Explanation: B) Sales $ 40 Less Variable costs 26 = Contribution Margin 14 Divided by $ 40 = 35% Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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32) LaComedia Dinner Theater sells tickets for dinner and a show for $40 each. The cost of providing dinner is $26 per ticket and the fixed cost of operating the theater is $100,000 per month. The company can accommodate 12,000 patrons each month. What is the projected monthly income if 10,000 patrons visit the theater each month? A) $68,000 B) $140,000 C) $240,000 D) $40,000 Answer: D Explanation: D) Sales $ 40 Less Variable costs 26 = Contribution Margin 14 × 10,000 = $ 140,000 Less fixed = 100,000 Operating Income $ 40,000 Diff: 1 LO: 7-1 EOC: S7-2 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 33) The Settler's Chuck Wagon sells tickets for dinner and a show for $50 each. The cost of providing dinner is $23 per ticket and the fixed cost of operating the theater is $115,000 per month. The company can accommodate 13,500 patrons each month. What is the contribution margin per patron? A) $1.85 B) $ 0.54 C) $27.00 D) $23.00 Answer: C Explanation: C) Sales $ 50 Less Variable costs 23 = Contribution Margin 27 Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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34) The Settler's Chuck Wagon sells tickets for dinner and a show for $50 each. The cost of providing dinner is $23 per ticket and the fixed cost of operating the theater is $115,000 per month. The company can accommodate 13,500 patrons each month. What is the contribution margin ratio? A) 46% B) 185% C) 27% D) 54% Answer: D Explanation: D) Sales $ 50 Less Variable costs 23 = Contribution Margin 27 Divided by $ 50 = 54% Diff: 1 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 35) The Settler's Chuck Wagon sells tickets for dinner and a show for $50 each. The cost of providing dinner is $23 per ticket and the fixed cost of operating the theater is $115,000 per month. The company can accommodate 13,500 patrons each month. What is the projected monthly income if 5,500 patrons visit the theater each month? A) $263,500 B) $148,500 C) $249,500 D) $33,500 Answer: D Explanation: D) Sales $ 50 Less Variable costs 23 = Contribution Margin 27 × 5,500 = $ 148,500 Less fixed = 115,000 Operating Income $ 33,500 Diff: 1 LO: 7-1 EOC: S7-2 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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36) Bernard Corporation gathered the following information for the year just ended: Fixed costs: Manufacturing Marketing Administrative Variable costs: Manufacturing Marketing Administrative

$120,000 42,000 22,000 $80,000 22,000 38,000

During the year, Bernard produced and sold 50,000 units of product at a selling price of $9.00 per unit. There was no beginning inventory of product at the start of the year. What is the contribution margin for the year? A) $126,000 B) $310,000 C) $450,000 D) $266,000 Answer: B Explanation: B) Variable costs : Manufacturing $ 80,000 Marketing 22,000 Administrative 38,000 Total $ 140,000 Sales $ 9 × 50,000 = $ 450,000 Less Variable costs 140,000 Contribution Margin $ 310,000 Diff: 2 LO: 7-1 EOC: E7-17A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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37) Bernard Corporation gathered the following information for the year just ended: Fixed costs: Manufacturing Marketing Administrative Variable costs: Manufacturing Marketing Administrative

$120,000 42,000 22,000 $80,000 22,000 38,000

During the year, Bernard produced and sold 50,000 units of product at a selling price of $9.00 per unit. There was no beginning inventory of product at the start of the year. What is the operating income (loss) for the year? A) $266,000 B) $450,000 C) $126,000 D) $310,000 Answer: C Explanation: C) Variable costs : Manufacturing $ 80,000 Marketing 22,000 Administrative 38,000 Total $ 140,000 Sales $ 9 × 50,000 = $ 450,000 Less Variable costs 140,000 Contribution Margin $ 310,000 Less Fixed $ 184,000 Operating Income $ 126,000 Diff: 1 LO: 7-1 EOC: E7-17A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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38) The Halpert Group produces a single product selling for $70 per unit. Variable costs are $7 per unit and total fixed costs are $5,000. What is the contribution margin ratio? A) 0.10 B) 0.63 C) 0.90 D) 1.11 Answer: C Explanation: C) Sales $ 70 Less Variable costs 7 = Contribution Margin 63 Divided by $ 70 = 90% Diff: 1 LO: 7-1 EOC: S7-17A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 39) The following selected data relates to Ivory Corporation: Total fixed costs Selling price per unit Variable costs per unit

$25,000 $22 $15

Assuming 8,500 units are sold, what is the contribution margin? A) $314,500 B) $84,500 C) $59,500 D) $34,500 Answer: C Explanation: C) Sales $ 22 Less Variable costs 15 = Contribution Margin 7 × 8,500 = $ 59,500 Diff: 1 LO: 7-1 EOC: E7-17A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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40) The following selected data relates to Ivory Corporation: Total fixed costs Selling price per unit Variable costs per unit

$25,000 $22 $15

If sales revenue per unit increases to $27 and 8,500 units are sold, what is the contribution margin? A) $357,000 B) $77,000 C) $59,500 D) $102,000 Answer: D Explanation: D) Sales $ 27 Less Variable costs 15 = Contribution Margin 12 × 8,500 = $ 102,000 Diff: 1 LO: 7-1 EOC: E7-17A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 41) Marie's Magic Shoppe provides the following information about its single product. Targeted operating income Selling price per unit Variable cost per unit Total fixed cost

$38,000 $25.00 $12.00 $85,000

What is the contribution margin ratio? A) 1.92 B) 0.52 C) 0.13 D) 0.48 Answer: B Explanation: B) Sales $ 25 Less Variable costs 12 = Contribution Margin 13 divided by $ 25 = 52% Diff: 1 LO: 7-1 EOC: E7-17A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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42) Antonio's Flowers sells bouquets for $65 each. The variable costs for each kit are $45. The total contribution margin for 30 kits is A) $1,950. B) $3,300. C) $600. D) $1,350. Answer: C Explanation: C) Sales $ 65 Less Variable costs 45 = Contribution Margin 20 × 30 = $ 600 Diff: 2 LO: 7-1 EOC: E7-17A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 43) Spice Company has a product which sells for $150 and has a unit contribution margin of $75. It has fixed costs of $35/unit at the current production volume. Spice Company's contribution margin ratio is A) 23%. B) 50%. C) 37%. D) 73%. Answer: B Explanation: B) Contribution Margin $ 75 divided by $ 150 = 50% Diff: 2 LO: 7-1 EOC: E7-17A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 44) Helga's Pretzels sells pretzels for $5. The variable costs for each pizza are $3, while the total fixed costs are $1,500. The contribution margin for 1,500 pretzels is A) $1,500. B) $3,000. C) $7,500. D) $6,000. Answer: B Explanation: B) Sales $5 Less Variable costs 3 = Contribution Margin 2 × 1,500 = $ 3,000 Diff: 2 LO: 7-1 EOC: E7-17A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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45) Jack's Toys sells kites for $20 each. Variable costs are $8 per kite. Fixed costs are $2,400 per month. What is the contribution margin ratio for the kites? A) 167% B) 60% C) 12% D) 40% Answer: B Explanation: B) Sales $ 20 Less Variable costs 8 = Contribution Margin 12 divided by $20 = 60% Diff: 2 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 46) Jack's Toys sells kites for $20 each. Variable costs are $8 per refill. Fixed costs are $2,400 per month. What is the contribution margin per kite? A) $1.67 B) $ 0.60 C) $8.00 D) $12.00 Answer: D Explanation: D) Sales $ 20 Less Variable costs 8 = Contribution Margin 12 Diff: 2 LO: 7-1 EOC: S7-1 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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47) The following information for the past year for the Blaine Corporation has been provided: Fixed costs: Manufacturing Marketing Administrative Variable costs: Manufacturing Marketing Administrative

$125,000 23,000 21,000 $115,000 30,000 43,000

During the year, the company produced and sold 30,000 units of product at a selling price of $15.00 per unit. There was no beginning inventory of product at the beginning of the year. What is the contribution margin for the year? A) $ 93,000 B) $450,000 C) $262,000 D) $281,000 Answer: C Explanation: C) Variable costs : Manufacturing $ 115,000 Marketing 30,000 Administrative 43,000 Total $ 188,000 Sales $ 15 × 30,000 = $ 450,000 Less Variable costs 188,000 Contribution Margin $ 262,000 Diff: 2 LO: 7-1 EOC: E7-17A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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48) The following information for the past year for the Blaine Corporation has been provided: Fixed costs: Manufacturing Marketing Administrative Variable costs: Manufacturing Marketing Administrative

$125,000 23,000 21,000 $115,000 30,000 43,000

During the year, the company produced and sold 30,000 units of product at a selling price of $15.00 per unit. There was no beginning inventory of product at the beginning of the year. What is the operating income (loss) for the year? A) $281,000 B) $450,000 C) $262,000 D) $93,000 Answer: D Explanation: D) Variable costs : Manufacturing $ 115,000 Marketing 30,000 Administrative 43,000 Total $ 188,000 Fixed Expenses: Manufacturing $ 125,000 Marketing 23,000 Administrative 21,000 Total $ 169,000 Sales $ 15 × 30,000 = $ 450,000 Less Variable costs 188,000 Contribution Margin $ 262,000 Less Fixed Expenses $ 169,000 Operating Income $ 93,000 Diff: 2 LO: 7-1 EOC: E7-17A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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49) Neeley Incorporated had the following fixed costs: Fixed manufacturing costs Fixed marketing costs Fixed administrative costs

$ 98,000 $ 40,000 $ 18,000

The company also had the following variable costs: Variable manufacturing costs Variable marketing costs Variable administrative costs

$ 124,000 $ 30,000 $ 28,000

The company produced and sold 55,000 units of the product during the year at a selling price of $9.00 per unit. The company had no inventory at the beginning of the year. Required: Prepare a contribution margin income statement for the year. Answer:

Diff: 2 LO: 7-2 EOC: E7-17A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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50) William's Steel had the following fixed costs: Fixed manufacturing costs Fixed marketing costs Fixed administrative costs

$ 1,108,000 $ 140,000 $ 300,000

The company also had the following variable costs: Variable manufacturing costs Variable marketing costs Variable administrative costs

$ 1,980,000 $ 60,000 $ 95,000

During the year, the company produced and sold 55,000 units of the product at a selling price of $100.00 per unit. The company had no inventory at the beginning of the year. Required: Prepare a contribution margin income statement for the year. Answer:

Diff: 2 LO: 7-2 EOC: E7-17A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 51) The breakeven point is the sales level where operating income is positive. Answer: FALSE Diff: 1 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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52) Only the income statement approach may be used to calculate the breakeven point. Answer: FALSE Diff: 1 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 53) The breakeven point represents the minimum number of units a company must sell before it earns a profit. Answer: TRUE Diff: 1 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 54) On a CVP graph, the vertical distance between the total expense line and the total fixed cost line equals the variable expenses. Answer: TRUE Diff: 2 LO: 7-2 EOC: S7-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 55) On a CVP graph, total fixed costs are shown as a horizontal line. Answer: TRUE Diff: 2 LO: 7-2 EOC: S7-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 56) The breakeven point on a CVP graph is the point where the sales revenue line intersects the total expense line. Answer: TRUE Diff: 2 LO: 7-2 EOC: S7-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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57) Fixed costs of $15,750 divided by the contribution margin ratio of 50% would yield the dollar amount of breakeven sales as $31,500. Answer: TRUE Diff: 2 LO: 7-2 EOC: S7-5 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 58) The breakeven point can either be calculated in terms of number of units or in terms of sales revenue. Answer: TRUE Diff: 2 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 59) A company that sells one product would be more likely to calculate breakeven in terms of sales units, rather than sales revenue. Answer: TRUE Diff: 2 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 60) When calculating the breakeven point in terms of units, fixed costs should be divided by the contribution per unit. Answer: TRUE Diff: 2 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 61) When calculating the breakeven point in terms of sales revenue, variable costs should be divided by the contribution margin ratio. Answer: FALSE Diff: 2 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations

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62) To the left of the breakeven point on a CVP graph, the area between the total expense line and the sales revenue line representing which of the following? A) Operating loss B) Operating income C) Slope of variable costs per unit D) Slope of fixed costs per unit Answer: A Diff: 1 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 63) To find the number of units that need to be sold in order to breakeven or generate a target profit, the formula used is A) (fixed expenses + operating income) ÷ contribution margin per unit. B) (fixed expenses + operating income) ÷ contribution margin ratio. C) (fixed expenses - operating income) ÷ contribution margin ratio. D) (fixed expenses - operating income) ÷ contribution margin per unit. Answer: A Diff: 1 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 64) To find the sales revenue (sales in dollars) needed in order to breakeven or generate a target profit, the formula used is A) (fixed expenses + operating income) ÷ contribution margin per unit. B) (fixed expenses + operating income) ÷ contribution margin ratio. C) (fixed expenses - operating income) ÷ contribution margin ratio. D) (fixed expenses - operating income) ÷ contribution margin per unit. Answer: B Diff: 1 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations

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65) To find the breakeven point using the shortcut formulas, you use A) zero for the contribution margin per unit. B) zero for the fixed expenses. C) zero for the contribution margin ratio. D) zero for the operating income. Answer: D Diff: 1 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 66) To find the sales revenue needed to breakeven, the formula used could be A) fixed expenses ÷ contribution margin ratio. B) contribution margin per unit ÷ fixed expenses. C) contribution margin ratio ÷ fixed expenses. D) fixed expenses ÷ contribution margin per unit. Answer: A Diff: 2 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 67) To find the number of units that need to be sold to breakeven, the formula used could be A) fixed expenses ÷ contribution margin per unit. B) contribution margin per unit ÷ fixed expenses. C) fixed expenses ÷ contribution margin ratio. D) contribution margin ratio ÷ fixed expenses. Answer: A Diff: 2 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 68) When using the income statement approach to finding breakeven, which of the following is true? A) (variable expenses × number of units) - fixed expenses = operating income B) sales revenue - variable expenses - fixed expenses = operating income C) fixed expenses + variable expenses + sales revenue = operating income D) fixed expenses + variable expenses - sales revenue = operating income Answer: B Diff: 2 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations

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69) On a CVP graph, the total cost line intersects the total revenue line at which of the following points? A) The breakeven point B) The level of the variable costs C) The level of the fixed costs D) None of the above Answer: A Diff: 2 LO: 7-2 EOC: S7-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 70) Which of the following is not an approach used to calculate the breakeven point? A) The income statement approach B) The shortcut approach using the unit contribution margin C) The balance sheet approach D) The shortcut approach using the contribution margin ratio Answer: C Diff: 2 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 71) The breakeven point may be defined as the number of units a company must sell to do which of the following? A) Generate a net loss B) Generate a zero profit C) Earn more net income than the previous accounting period D) Generate a net income Answer: B Diff: 1 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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72) Sales above the breakeven point indicate a ________, whereas sales below the breakeven point indicate a ________. A) loss, loss B) loss, profit C) profit, profit D) profit, loss Answer: D Diff: 1 LO: 7-2 EOC: S7-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 73) The horizontal line intersecting the vertical y-axis at the level of total cost on a CVP graph represents A) total costs. B) total variable costs. C) total fixed costs. D) breakeven point. Answer: C Diff: 2 LO: 7-2 EOC: S7-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 74) The line that begins at the origin on a CVP graph represents A) total fixed expenses. B) total sales revenues. C) total expenses. D) both the total expenses and the total sales revenues. Answer: B Diff: 2 LO: 7-2 EOC: S7-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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75) The intersection of the sales revenue line and the variable expense line on a CVP graph is known as A) the margin of safety point. B) the unit contribution margin. C) the breakeven point. D) none of the above. Answer: D Diff: 2 LO: 7-2 EOC: S7-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 76) Which of the following is an underlying assumption of the cost-volume-profit graph? A) Total fixed expenses will change during the accounting period. B) The sales mix of products is constantly changing. C) Volume is the only cost driver. D) Inventory levels are constantly changing. Answer: C Diff: 2 LO: 7-2 EOC: S7-6 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 77) The area to the right of the breakeven point and between the total revenue line and the total expense line represents A) expected profits. B) expected losses. C) variable expenses. D) fixed expenses. Answer: A Diff: 2 LO: 7-2 EOC: S7-3 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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78) The Muffin House produces and sells a variety of muffins. The selling price per dozen is $15, variable costs are $9 per dozen, and total fixed costs are $4,200. How many dozen muffins must The Muffin House sell to breakeven? A) 10,500 B) 700 C) 280 D) 175 Answer: B Explanation: B) Sales $ 15 Variable costs 9 Contribution Margin $ 6 Fixed Expenses $ 4,200 divided by Contribution Margin $6 = 700 Breakeven Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 79) The Muffin House produces and sells a variety of muffins. The selling price per dozen is $15, variable costs are $9 per dozen, and total fixed costs are $4,200. What are breakeven sales in dollars? A) $10,500 B) $2,625 C) $700 D) $6,300 Answer: A Explanation: A) Sales $ 15 Variable costs 9 Contribution Margin $ 6 Fixed Expenses $ 4,200 divided by Contribution Margin $6 = 700 Breakeven Breakeven Sales units 700 × $ 15 = $ 10,500 Breakeven sales dollars Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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80) Corny and Sweet grows and sells sweet corn at its roadside produce stand. The selling price per dozen is $3.75, variable costs are $1.25 per dozen, and total fixed costs are $750.00. How many dozens of ears of corn must Corny and Sweet sell to breakeven? A) 1,125 B) 200 C) 300 D) 175 Answer: C Explanation: C) Sales $ 3.75 Variable costs 1.25 Contribution Margin $ 2.50 Fixed Expenses $750 divided by Contribution Margin $2.50 = 300 Breakeven Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 81) Corny and Sweet grows and sells sweet corn at its roadside produce stand. The selling price per dozen is $3.75, variable costs are $1.25 per dozen, and total fixed costs are $750.00. What are breakeven sales in dollars? A) $563 B) $300 C) $375 D) $1,125 Answer: D Explanation: D) Sales $ 3.75 Variable costs 1.25 Contribution Margin $ 2.50 Fixed Expenses $ 750 divided by Contribution Margin $2.50 = 300 Breakeven Breakeven Sales units 300 × $3.75 = $1,125 Breakeven sales dollars Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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82) If the selling price per unit is $10, the unit contribution margin is $5, and total fixed expenses are $15,000, what are the breakeven sales in units? A) 75,000 B) 150,000 C) 1,500 D) 3,000 Answer: D Explanation: D) Fixed Expenses $ 15,000 divided by Contribution Margin $5 = 3,000 Breakeven Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 83) If the selling price per unit is $40.00, the variable expense per unit is $30, and total fixed expenses are $200,000, what are the breakeven sales in dollars? A) $5,000 B) $50,000 C) $800,000 D) $114,286 Answer: C Explanation: C) Sales $ 40 Less Variable costs 30 = Contribution Margin 10 divided by $ 40 = 25% Fixed Expense $ 200,000 divided by Contribution Margin Ratio 25% = $ 800,000 Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 84) A product is sold at $6 per unit, the unit contribution margin is $5, and total fixed expenses are $5,000, what are the breakeven sales in units? A) 30,000 B) 1,000 C) 833 D) 25,000 Answer: B Explanation: B) Fixed Expenses $ 5,000 divided by Contribution Margin $5 = 1,000 Breakeven Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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85) A product is sold at $60.00 per unit, the variable expense per unit is $30, and total fixed expenses are $200,000, what are the breakeven sales in dollars? A) $3,333 B) $100,000 C) $133,333 D) $400,000 Answer: D Explanation: D) Sales $ 60 Less Variable costs 30 = Contribution Margin 30 divided by $ 60 = 50% Fixed Expense $ 200,000 divided by Contribution Margin Ratio 50% = $ 400,000 Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 86) Assume the following amounts: Total fixed costs Selling price per unit Variable costs per unit

$24,000 $20 $15

If sales revenue per unit increases to $22 and 12,000 units are sold, what is the operating income? A) $264,000 B) $60,000 C) $108,000 D) $84,000 Answer: B Explanation: B) Sales $ 22 Less Variable costs 15 = Contribution Margin 7 × 12,000 = $ 84,000 Less Fixed expense 24,000 = Operating Income $ 60,000 Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

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87) If the selling price per unit is $42, the unit contribution margin is $15, and total fixed expenses are $570,000, what will the breakeven sales in units be? A) 38,000 B) 8,550,000 C) 21,111 D) 13,571 Answer: A Explanation: A) Fixed expenses $ 570,000 divided by Contribution Margin $15 = 38,000 BE units Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 88) If the selling price per unit is $65, the variable expense per unit is $45, and total fixed expenses are $250,000, what will the breakeven sales in units be? A) 12,500 B) 5,556 C) 2,273 D) 3,846 Answer: A Explanation: A) Sales $ 65 Less Variable costs 45 = Contribution Margin $ 20 Fixed expenses $ 250,000 divided by Contribution Margin $ 20 = 12,500 BE units Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 89) If total fixed costs are $455,000, the contribution margin per unit is $25.00, and targeted operating income is $25,000, how many units must be sold to breakeven? A) 11,375,000 B) 19,200 C) 18,200 D) 625,000 Answer: C Explanation: C) Fixed expenses $ 455,000 divided by Contribution Margin $25 = 18,200 BE units Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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90) Martin Enterprises provides the following information about its single product. Targeted operating income Selling price per unit Variable cost per unit Total fixed cost

$50,830 $6.55 $4.25 $94,070

What is the contribution margin per unit? A) $0.35 B) $10.80 C) $2.30 D) $4.25 Answer: C Explanation: C) Sales $ 6.55 Less Variable costs 4.25 = Contribution Margin $ 2.30 Diff: 1 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 91) Martin Enterprises provides the following information about its single product. Targeted operating income Selling price per unit Variable cost per unit Total fixed cost

$50,830 $6.55 $4.25 $94,070

What is the breakeven point in units? A) 22,100 B) 8,710 C) 40,900 D) 4,706 Answer: C Explanation: C) Sales $ 6.55 Less Variable costs 4.25 = Contribution Margin $ 2.30 Fixed expenses $ 94,070 divided by Contribution Margin $ 2.30 = 40,900 BE units Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 35 .

92) Martin Enterprises provides the following information about its single product. Targeted operating income Selling price per unit Variable cost per unit Total fixed cost

$50,830 $6.55 $4.25 $94,070

How many units must be sold to earn the targeted operating income? A) 13,417 B) 63,000 C) 40,900 D) 22,100 Answer: B Explanation: B) Sales $ 6.55 Less Variable costs 4.25 = Contribution Margin $ 2.30 Fixed expenses $ 94,070 + Target Income $ 50,830 = $ 144,900 divided by Contribution Margin $ 2.30 = 63,000 BE units Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 93) Washington Bottling Company provides the following information about its single product. Targeted operating income Selling price per unit Variable cost per unit Total fixed cost

$659,930 $7.55 $5.55 $112,200

What is the contribution margin per unit? A) $2.00 B) $13.10 C) $0.26 D) $5.55 Answer: A Explanation: A) Sales $ 7.55 Less Variable costs 5.55 = Contribution Margin $ 2.00 Diff: 1 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 36 .

94) Washington Bottling Company provides the following information about its single product. Targeted operating income Selling price per unit Variable cost per unit Total fixed cost

$659,930 $7.55 $5.55 $112,200

What is the breakeven point in units? A) 329,965 B) 8,565 C) 56,100 D) 50,376 Answer: C Explanation: C) Sales $ 7.55 Less Variable costs 5.55 = Contribution Margin $ 2.00 Fixed expenses $ 112,200 divided by Contribution Margin $ 2.00 = 56,100 BE units Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 95) Washington Bottling Company provides the following information about its single product. Targeted operating income Selling price per unit Variable cost per unit Total fixed cost

$659,930 $7.55 $5.55 $112,200

How many units must be sold to earn the targeted operating income? A) 329,965 B) 56,100 C) 58,941 D) 386,065 Answer: D Explanation: D) Sales $ 7.55 Less Variable costs 5.55 = Contribution Margin $ 2.00 Fixed expenses $ 112,200 + Target Income $ 659,930 = $ 772,130 divided by Contribution Margin $ 2.00 = 386,065 BE units Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 37 .

96) Given breakeven sales in units of 34,000 and a unit contribution margin of $5, how many units must be sold to reach a target operating income of $8,000? A) 32,400 B) 40,000 C) 35,600 D) 1,600 Answer: C Explanation: C) Target Income $ 8,000 / $5 contribution margin = 1,600 Add Break even units + 34,000 Total units 35,600 Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 97) Given breakeven sales in units of 45,000 and a unit contribution margin of $4, how many units must be sold to reach a target operating income of $18,000? A) 4,500 B) 40,500 C) 49,500 D) 72,000 Answer: C Explanation: C) Target Income $ 18,000 / $4 contribution margin = 4,500 Add Break even units + 45,000 Total units 49,500 Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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98) If the selling price per unit is $70, variable expenses per unit are $45, target operating income is $38,000, and total fixed expenses are $22,000, how many units must be sold to reach the target operating income? A) 880 B) 2,400 C) 1,520 D) 543 Answer: B Explanation: B) Sales $ 70 Less Variable costs 45 = Contribution Margin $ 25 Fixed expenses $ 22,000 + Target Income $ 38,000 = $ 60,000 divided by Contribution Margin $ 25 = 2,400 BE units Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 99) If the contribution margin ratio is 45%, target operating income is $50,000, and the sales revenue needed to achieve the target operating income is $300,000, what are total fixed expenses? A) $22,500 B) $85,000 C) $185,000 D) $135,000 Answer: B Explanation: B) Fixed expenses + $50,000 / 32% = 300,000 Sales Revenue Fixed Expenses = $ 85,000 Diff: 2 LO: 7-2 EOC: E7-19A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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100) If target sales in units is 80,000, total fixed expenses are $10,000, and the unit contribution margin is $0.30, what is the target operating income? A) $34,000 B) $14,000 C) $24,000 D) $3,000 Answer: B Explanation: B) Target Sales units 80,000 × unit Contribution Margin × .30 Target Sales 24,000 Less Fixed expense 10,000 Target Operating Income $ 14,000 Diff: 2 LO: 7-2 EOC: E7-19A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 101) Cedar Mills Incorporated has a predicted operating income of $72,000. Its total variable expenses are $20,000 and its total fixed expenses are $32,000. It has a unit contribution margin of $10. Cedar Mills' breakeven sales in units is A) 8,400. B) 10,400. C) 4,000. D) 12,400. Answer: B Explanation: B) Fixed expenses $ 32,000 + Target Income $ 72,000 = $ 104,000 divided by Contribution Margin $ 10 = 10,400 BE units Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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102) Cedar Mills Incorporated has a predicted operating income of $72,000. Its variable expenses are $20,000 and its total fixed expenses have increased from $32,000 to $60,000. Its unit contribution margin is $10. Its breakeven sales in units is A) 15,200. B) 1,200. C) 13,200. D) 11,200. Answer: C Explanation: C) Fixed expenses $ 60,000 + Target Income $ 72,000 = $ 132,000 divided by Contribution Margin $ 10 = 13,200 BE units Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 103) Contessa Corporation has fixed expenses of $200,000, and a unit sales price of $70. Its variable cost per unit is $50. If it sells 8,500 posters, its operating income is a A) gain of $820,000. B) loss of $30,000. C) gain of $370,000. D) gain of $225,000. Answer: B Explanation: B) Sales $ 70 Less Variable costs 50 = Contribution Margin $ 20 × 8,500 = $170,000 Less Fixed expenses (200,000) Loss $ (30,000) Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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104) Palmer's Gourmet Chocolates produces and sells assorted boxed chocolates. The unit selling price is $50, unit variable costs are $25, and total fixed costs are $2,000. How many boxes of chocolates must Palmer's Gourmet Chocolates sell to breakeven? A) 4,000 B) 40 C) 27 D) 80 Answer: D Explanation: D) Sales $ 50 Less Variable costs 25 = Contribution Margin $ 25 Fixed expenses $ 2,000 divided by Contribution Margin $ 25 = 80 BE units Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 105) Palmer's Gourmet Chocolates produces and sells assorted boxed chocolates. The unit selling price is $50, unit variable costs are $25, and total fixed costs are $2,000. What are breakeven sales in dollars? A) $4,000 B) $1,333 C) $80 D) $2,000 Answer: A Explanation: A) Sales $ 50 Less Variable costs 25 = Contribution Margin $ 25 Fixed expenses $ 2,000 divided by Contribution Margin $ 25 = 80 BE units × $50 Sales Price = $4,000 Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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106) The fixed expenses of Greg's Snowboards are $800,000. The selling price for one snowboard is $150. The variable cost per unit is $68. If the company sells 9,300 snowboards, its operating income is a A) gain of $1,227,400. B) loss of $167,600. C) loss of $37,400. D) gain of $1,562,600. Answer: C Explanation: C) Sales $ 150 Less Variable costs 68 = Contribution Margin $ 82 × 9,300 = $762,600 Less Fixed expenses (800,000) Loss $ (37,400) Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 107) The selling price of a RoadKing bicycle is $700, unit variable costs are $350, and total fixed costs are $12,600. How many bicycles will RoadKing need to sell to breakeven? A) 25,200 B) 12 C) 36 D) 18 Answer: C Explanation: C) Sales $ 700 Less Variable costs 350 = Contribution Margin $ 350 Fixed expenses $ 12,600 divided by Contribution Margin $ 350 = 36 BE units Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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108) The selling price of a RoadKing bicycle is $700, unit variable costs are $350, and total fixed costs are $12,600. What are breakeven sales in dollars? A) $8,400 B) $36 C) $12,600 D) $25,200 Answer: D Explanation: D) Sales $ 700 Less Variable costs 350 = Contribution Margin $ 350 Fixed expenses $ 12,600 divided by Contribution Margin $ 350 = 36 BE units × $700 Sales Price = $25,200 Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 109) Barbara's Candles provides the following information about its single product. Targeted operating income Selling price per unit Variable cost per unit Total fixed cost

$55,000 $100.00 $60.00 $90,000

What is the contribution margin per unit? A) $60.00 B) $0.40 C) $160.00 D) $40.00 Answer: D Explanation: D) Sales $ 100 Less Variable costs 60 = Contribution Margin $ 40 Diff: 1 LO: 7-2 EOC: E7-18A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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110) Barbara's Candles provides the following information about its single product. Targeted operating income Selling price per unit Variable cost per unit Total fixed cost

$55,000 $100.00 $60.00 $90,000

What is the breakeven point in units? A) 2,250 B) 1,375 C) 344 D) 563 Answer: A Explanation: A) Sales $ 100 Less Variable costs 60 = Contribution Margin $ 40 Fixed Expenses 90,000 divided by Contribution Margin $40 = 2,250 Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 111) Barbara's Candles provides the following information about its single product. Targeted operating income Selling price per unit Variable cost per unit Total fixed cost

$55,000 $100.00 $60.00 $90,000

How many units must be sold to earn the targeted operating income? A) 1,375 B) 3,625 C) 2,250 D) 906 Answer: B Explanation: B) Sales $ 100 Less Variable costs 60 = Contribution Margin $ 40 Fixed expenses $ 90,000 + $55,000 Target Income divided by Contribution Margin $ 40 = 3,625 units Diff: 2 LO: 7-2 EOC: E7-21A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 45 .

112) Martin Enterprises has a predicted operating income of $140,000. Its total variable expenses are $50,000 and its total fixed expenses are $20,000. The unit contribution margin for the company's sole product is $10. The number of units that Martin Enterprises needs to sell to achieve the predicted operating income would be A) 12,000. B) 21,000. C) 11,000. D) 16,000. Answer: D Explanation: D) Fixed expenses $ 20,000 + $140,000 Operating Income / $10 Contribution Margin = 16,000 Diff: 2 LO: 7-2 EOC: S7-3 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 113) Martin Enterprises has a predicted operating income of $140,000. Its total variable expenses are $50,000 and its total fixed expenses have doubled from $20,000 to $40,000. The unit contribution margin for the company's sole product is $10. The number of units that Martin Enterprises needs to sell to achieve the predicted operating income would be A) 10,000. B) 13,000. C) 23,000. D) 18,000. Answer: D Explanation: D) Fixed expenses $ 40,000 + $140,000 Operating Income / $10 Contribution Margin = 18,000 Diff: 2 LO: 7-2 EOC: S7-3 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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114) Rogers Incorporated has a targeted operating income of $518,000 for the upcoming year. The selling price of its single product is $40.50 each, while the variable cost per unit is $12.50. Fixed costs total $182,000. Calculate the following: a. Contribution margin per unit b. Breakeven point in units c. Units to be sold to earn the targeted operating income Answer: a. Selling price per unit $ 40.50 Variable cost per unit $ (12.50) Contribution margin per unit $ 28.00 b. Total fixed cost $ 182,000 Divide by Divide by Contribution margin per unit $ 28.00 Breakeven in units 6,500 c. Selling price per unit Variable cost per unit Contribution margin per unit Total fixed cost Targeted operating income Divide by Contribution margin per unit Unit sales at target income

$ 40.50 $ (12.50) $ 28.00 $ 182,000 $ 518,000 $ 700,000 Divide by $ 28.00 25,000

Diff: 2 LO: 7-2 EOC: E7-19A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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115) Haines Corporation has a predicted operating income of $80,000. Its total variable expenses are $25,000 and its total fixed expenses are $24,000. The company has a unit contribution margin of $20 on its sole product. a. Calculate the break-even in sales units. b. Calculate the break-even in sales units if the company's fixed expenses double from $24,000 to $48,000. Answer: a. Total fixed costs $ 24,000 Predicted operating income $ 80,000 $ 104,000 Divide by Divide by Unit contribution margin $ 20.00 Unit sales needed to reach target income 5,200 b. New fixed costs Predicted operating income Divide by Unit contribution margin Unit sales needed to reach target income at new level of fixed costs

$ 48,000 $ 80,000 $ 128,000 Divide by $ 20.00 6,400

Diff: 2 LO: 7-2 EOC: E7-19A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

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116) Randolph runs a lemonade stand and wants to make $150 in the next week. He sells each cup of lemonade for $0.75, while the variable cost is $0.15 for the cups and ingredients. Fixed costs such as posters and signs are $15.00. Calculate the following: a. Contribution margin per unit sold b. Contribution margin ratio c. Breakeven point in units d. Units to be sold to earn the targeted operating income Answer: a. Selling price per unit $ 0.75 Variable cost per unit $ (0.15) Contribution margin per unit $ 0.60 b. Contribution margin per unit Divide by Sales price per unit Contribution margin ratio c. Total fixed cost Divide by Contribution margin per unit Breakeven in units

$ 0.60 Divide by $ 0.75 0.80

$ 15 Divide by $ 0.60 25

d. Selling price per unit Variable cost per unit Contribution margin per unit

$ 0.75 $ (0.15) $ 0.60

Total fixed cost Targeted operating income Divide by Contribution margin per unit Unit sales at target income

$ 15 $ 150 $ 165 Divide by $ 0.60 275

Diff: 2 LO: 7-2 EOC: E7-19A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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117) CVP analysis helps managers prepare for and respond to economic changes, such as increasing costs and pressure to drop sales price. Answer: TRUE Diff: 1 LO: 7-3 EOC: S7-8 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 118) If all other factors are constant, any decrease in fixed costs will decrease the breakeven point. Answer: TRUE Diff: 1 LO: 7-3 EOC: S7-8 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 119) Holding all other factors constant, the breakeven point will always double if fixed expenses increase by 25%. Answer: FALSE Diff: 2 LO: 7-3 EOC: S7-8 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 120) Sensitivity analysis is a "what if" technique that asks what a result will be if an underlying assumption changes. Answer: TRUE Diff: 2 LO: 7-3 EOC: S7-8 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 121) If total fixed expenses are $65,000, the target operating income is $15,000 and the contribution margin is $25 per unit, the sales needed to achieve the target operating income will be 3,200 units. Answer: TRUE Diff: 2 LO: 7-3 EOC: S7-8 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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122) The addition of a specified target operating income to contribution margin analysis has the same effect on required sales in units as increasing fixed expenses. Answer: TRUE Diff: 2 LO: 7-3 EOC: S7-8 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 123) Variable costs are $17 per unit and the sales price is $20 per unit. If volume would triple as a result of decreasing the sales price to $16 per unit, the business should strongly consider decreasing the sales price to $16 per unit. Answer: FALSE Diff: 2 LO: 7-3 EOC: S7-8 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations. 124) Which of the following statements is true if the sales price per unit decreases while the variable cost per unit and total fixed costs remain constant? A) The contribution margin increases and the breakeven point decreases. B) The contribution margin decreases and the breakeven point decreases. C) The contribution margin increases and the breakeven point increases. D) The contribution margin decreases and the breakeven point increases. Answer: D Diff: 2 LO: 7-3 EOC: S7-8 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 125) If the sales price per unit increases while the variable cost per unit and total fixed costs remain constant, which of the following statements is true? A) The contribution margin decreases and the breakeven point decreases. B) The contribution margin increases and the breakeven point decreases. C) The contribution margin increases and the breakeven point increases. D) The contribution margin decreases and the breakeven point increases. Answer: B Diff: 2 LO: 7-3 EOC: S7-8 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 51 .

126) If the variable cost per unit decreases while the sales price per unit and total fixed costs remain constant, which of the following statements is true? A) The contribution margin decreases and the breakeven point increases. B) The contribution margin decreases and the breakeven point decreases. C) The contribution margin increases and the breakeven point increases. D) The contribution margin increases and the breakeven point decreases. Answer: D Diff: 2 LO: 7-3 EOC: S7-8 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 127) If the fixed costs increase while the sales price per unit and variable costs per unit remain constant, which of the following statements is true? A) The contribution margin stays the same and the breakeven point increases. B) The contribution margin decreases and the breakeven point increases. C) The contribution margin stays the same and the breakeven point decreases. D) The contribution margin increases and the breakeven point decreases. Answer: A Diff: 2 LO: 7-3 EOC: S7-8 AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 128) What will be the effect on the contribution margin ratio if the selling price per unit decreases and variable cost per unit remains the same? A) It will decrease. B) It will increase. C) It will remain the same. D) It is impossible to determine with the given information. Answer: A Diff: 2 LO: 7-2 EOC: E7-22A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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129) If the variable cost per unit increases while the sale price per unit and total fixed costs remain constant, which of the following statements is true? A) Breakeven point in units remains the same. B) Breakeven point in units decreases. C) Breakeven point in units increases. D) Contribution margin ratio increases. Answer: C Diff: 2 LO: 7-3 EOC: E7-38A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 130) If total fixed costs decrease while the selling price per unit and variable costs per unit remain constant, which of the following statements is true? A) Contribution margin increases. B) Contribution margin decreases. C) Breakeven point in units increases. D) Breakeven point in units decreases. Answer: D Diff: 2 LO: 7-3 EOC: E7-38A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 131) If both fixed expenses and the selling price per unit increase while variable costs per unit are unchanged, which of the following statements is true? A) Breakeven point in units increases. B) Breakeven point in units could increase, decrease, or remain the same. C) Breakeven point in units decreases. D) Breakeven point in units remains unchanged. Answer: B Diff: 2 LO: 7-3 EOC: E7-38A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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132) Assuming no other changes in the cost-volume-profit relationship, which of the following will decrease the breakeven point in units? A) A decrease in the selling price per unit B) An increase in the selling price per unit C) An increase in total fixed costs D) An increase in the variable costs per unit Answer: B Diff: 2 LO: 7-3 EOC: E7-38A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 133) The difference between sales dollars and total costs after breakeven point on a CVP graph is the representation of A) operating loss. B) slope of variable costs per unit. C) operating income. D) slope of fixed costs per unit. Answer: C Diff: 2 LO: 7-3 EOC: S7-7 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

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134) Monroe Manufacturing produces and sells a product with a price of $100/unit. The following data has been prepared for its estimated upper and lower levels of activity. Production Category Units of Production Direct Materials Direct Labor Manufacturing Overhead: Indirect materials Indirect labor Depreciation Selling and Admin. Expenses: Sales salaries Office salaries Advertising Other Totals

Lower Limit 4,000 units $60,000 $80,000

Upper Limit 6,000 units $90,000 $120,000

$25,000 $40,000 $20,000

$37,500 $50,000 $20,000

$50,000 $30,000 $45,000 $15,000 $365,000

$65,000 $30,000 $45,000 $20,000 $477,500

The fixed expenses for this company are A) depreciation, office salaries, and advertising. B) indirect materials, indirect labor, and depreciation. C) direct materials, direct labor, and depreciation. D) sales salaries, office salaries, and advertising. Answer: A Diff: 2 LO: 7-3 EOC: E7-38A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Define and distinguish among variable, fixed, and mixed costs.

55 .

135) Monroe Manufacturing produces and sells a product with a price of $100/unit. The following data has been prepared for its estimated upper and lower levels of activity. Production Category Units of Production Direct Materials Direct Labor Manufacturing Overhead: Indirect materials Indirect labor Depreciation Selling and Admin. Expenses: Sales salaries Office salaries Advertising Other Totals

Lower Limit 4,000 units $60,000 $80,000

Upper Limit 6,000 units $90,000 $120,000

$25,000 $40,000 $20,000

$37,500 $50,000 $20,000

$50,000 $30,000 $45,000 $15,000 $365,000

$65,000 $30,000 $45,000 $20,000 $477,500

The only variable expenses for this company are A) indirect materials, direct materials, and direct labor. B) all categories of selling and administrative expenses. C) indirect materials, indirect labor, direct materials, and direct labor. D) none of the above. Answer: D Diff: 2 LO: 7-3 EOC: E7-38A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Define and distinguish among variable, fixed, and mixed costs.

56 .

136) If the selling price per unit is $25.00, the variable expense per unit is $6.25, and the breakeven sales in dollars is $465,200, what are total fixed expenses? A) $18,608 B) $ 992 C) $348,900 D) $1,395,600 Answer: C Explanation: C) Sales $25.00 Var. Exp (6.25) Contribution Margin 18.75 Breakeven Sales $465,200 Divide: Sales Price / 25 Breakeven Sales Units 18,608 × Contribution Margin 18.75 Fixed Expense 348,900 Diff: 2 LO: 7-3 EOC: S7-8 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 137) If the selling price per unit is $75, total fixed expenses are $90,000, and the breakeven sales in dollars is $360,000, what will the variable expense per unit be? A) $56.25 B) $18.75 C) $93.75 D) $225.00 Answer: A Explanation: A) Contribution Margin = Fixed Expense/ Breakeven = $90,000 / 360,000 = .25 Sales × Contribution Margin % = Contribution Margin $

$75. .25 $18.75

Sales $75. Less Contribution Margin 18.75 Variable Expense 56.25 Diff: 2 LO: 7-3 EOC: S7-7 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

57 .

138) If the selling price per unit is $100, total fixed expenses are $600,000, and the breakeven sales in dollars is $800,000, what is the variable expense per unit? A) $33.33 B) $175.00 C) $75.00 D) $25.00 Answer: D Explanation: D) Fixed Expenses $ 600,000 / Contribution Margin Ratio (x) = $ 800,000 BE Sales X = 75% Sales $100 × 75% = $ 75 Contribution Margin Sales $ 100 Less Contribution Margin 75 = Variable expense $ 25 Diff: 2 LO: 7-3 EOC: S7-7 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 139) If the selling price per unit is $32, the variable expense per unit is $19.50, and the breakeven sales in dollars is $44,800, what are total fixed expenses? A) $28,718 B) $17,500 C) $1,400 D) $112 Answer: B Explanation: B) Sales $ 32.00 Less Variable expenses 19.50 Contribution Margin $ 12.50 Breakeven Sales 44,800 divided by Sales $32 * Contribution Margin $12.50 = $17,500 Diff: 2 LO: 7-3 EOC: S7-8 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

58 .

140) The selling price of a particular product is $5.00 per unit, the variable expense is $3.00 per unit, and the breakeven sales in dollars is $18,660, what are total fixed expenses? A) $12,440 B) $1,866 C) $3,732 D) $7,464 Answer: D Explanation: D) Sales $5.00 Var. Exp (3.00) Contribution Margin 2.00 Breakeven Sales $18660 Divide: Sales Price / 5.00 Breakeven Sales Units 3,732 × Contribution Margin 2.00 Fixed Expense 7,464 Diff: 2 LO: 7-3 EOC: S7-8 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 141) The selling price of a particular product is $38.00 per unit, fixed costs total $175,000, and the breakeven sales in dollars is $875,000, what will the variable expense per unit be? A) $152.00 B) $7.60 C) $45.60 D) $30.40 Answer: D Explanation: D) Contribution Margin = Fixed Expense/ Breakeven = $175,000 / 875,000 = .20 Sales × Contribution Margin % = Contribution Margin $

$38 .20 $7.60

Sales $38 Less Contribution Margin 7.60 Variable Expense $30.40 Diff: 2 LO: 7-3 EOC: S7-7 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

59 .

142) The selling price of a particular product is $7.00 per unit, fixed costs total $18,000, and the breakeven sales in dollars is $24,000. What would be the variable expense per unit? A) $2.33 B) $5.25 C) $1.75 D) $12.25 Answer: C Explanation: C) Fixed Expenses $ 18,000 / Contribution Margin Ratio (x) = $ 24,000 BE Sales X = 75% Sales $7 × 75% = $ 5.25 Contribution Margin Sales $7 Less Contribution Margin 5.25 = Variable expense $ 1.75 Diff: 2 LO: 7-3 EOC: S7-7 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 143) The selling price of a particular product is $85.00 per unit, the variable expense is $49.00 per unit, and the breakeven sales in dollars is $340,000, what are total fixed expenses? A) $111 B) $144,000 C) $4,000 D) $249,796 Answer: B Explanation: B) Sales $ 85.00 Less Variable expenses 49.00 Contribution Margin $ 36.00 Breakeven Sales 340,000 divided by Selling Price 85 * Contribution Margin 36 = $ 144,000 Diff: 2 LO: 7-3 EOC: S7-8 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

60 .

144) Claudia Enterprises has budgeted the following amounts for its next fiscal year: Total fixed expenses Selling price per unit Variable expenses per unit

$48,200 $60 $30

If Claudia Enterprises can reduce fixed expenses by $12,000, how will breakeven sales in units be affected? A) Decrease by 400 units B) Increase by 133 units C) Increase by 400 units D) Decrease by 133 units Answer: A Explanation: A) Sales $ 60.00 Less Variable expenses 30.00 Contribution Margin $ 30.00 12,000 / $ 30 CM = 400 decrease in Break Even units Diff: 2 LO: 7-3 EOC: E7-38A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

61 .

145) Prince Paper has budgeted the following amounts for its next fiscal year: Total fixed expenses Selling price per unit Variable expenses per unit

$500,000 $75 $25

If Price Paper spends an additional $12,500 on advertising, sales volume should increase by 2,300 units. What effect will this have on operating income? A) Increase of $102,500 B) Increase of $115,000 C) Decrease of $115,000 D) Decrease of $102,500 Answer: A Explanation: A) Sales $ 75.00 Less Variable expenses 25.00 Contribution Margin $ 50.00 Sales units 2,300 × CM per unit ×$ 50 = Contribution Margin $ 115,000 Less advertising 12,500 Operating Income $ 102,500 Diff: 2 LO: 7-3 EOC: E7-38A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

62 .

146) Moe's Garage management has budgeted the following amounts for its next fiscal year: Total fixed expenses Selling price per unit Variable expenses per unit

$500,000 $45 $25

If Moe's can reduce fixed expenses by $20,000, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units? A) $19.20 B) $25.80 C) $0.80 D) $20.00 Answer: C Explanation: C) Sales $ 45.00 Less Variable expenses 25.00 Contribution Margin $ 20.00 Fixed expense $ 500,000 / $ 20 = 25,000 BE Units Reduction $ 20,000 / 25,000 units = $ 0.80 Diff: 2 LO: 7-3 EOC: E7-38A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

63 .

147) Scott Incorporated management has budgeted the following amounts for its next fiscal year: Total fixed expenses Selling price per unit Variable expenses per unit

$585,000 $50 $22

If fixed expenses increase by 10%, to maintain the original breakeven sales in units, the selling price per unit would have to be A) increased by 17.60%. B) increased by 105.60%. C) increased by 5.6%. D) decreased by 117.60%. Answer: C Explanation: C) Sales Price per unit $50 Divided by Variable cost per unit 22 Contribution Margin 28 Fixed expense Contribution Margin per unit Units at original sales

$580.000/ 28 20,714

New Fixed expenses $638,000 (580,000 × 1.10) Divided by old breakeven units 20, 714 Target Contribution Margin per unit 30.80 Plus Variable Expenses per unit 22.00 New Sales Price per unit 52.80 Divided by Old Sales per unit 50.00 % increase 5.60% Diff: 3 LO: 7-3 EOC: E7-38A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

64 .

148) Boss Enterprises currently sells its products for $40 per unit. Management is contemplating a 40% increase in the selling price for the next year. Variable costs are currently 40% of sales revenue and are not expected to change next year. Fixed expenses are $120,000 per year. What is the breakeven point in units at the current selling price? A) 5,000 units B) 2,143 units C) 24 units D) 7,500 units Answer: A Explanation: A) Sales price per unit $40.00 Variable costs 16.00 ($40.00 × 40 % of sales) Contribution Margin 24.00 Fixed costs $120,000 Breakeven units 5,000 (120,000 / $24.00 CM) Diff: 2 LO: 7-3 EOC: E7-39A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

65 .

149) Beasley Company currently sells its products for $35 per unit. Management is contemplating a 20% increase in the selling price for the next year. Variable costs are currently 50% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will pay the same amount for variable costs next year). Fixed expenses are $79,625 per year. What is the breakeven point in units at the anticipated selling price per unit next year? A) 1,338 units B) 3,250 units C) 3,520 units D) 7,583 units Answer: B Explanation: B) Selling Price $ 35 × Variable costs % × 50% = Variable costs $ 17.50 Selling Price Increase Adj. Selling Price Less Variable costs = Contribution Margin

$35 × 1.20 $ 42 17.50 $ 24.50

Fixed Expense $ 79,625 / $24.50 = 3,250 Break Even Diff: 2 LO: 7-3 EOC: E7-39A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

66 .

150) Grosheim Incorporated has fixed expenses of $212,500 per year. Right now, Grosheim Incorporated is selling its products for $125 per unit. Management is contemplating a 25% increase in the selling price for the next year. Variable costs are currently 40% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will pay the same amount for variable costs next year). If fixed costs increase 10% next year, and the new selling price per unit goes into effect, how many units will need to be sold to breakeven? A) 1,133 units B) 2,877 units C) 233,750 units D) 2,200 units Answer: D Explanation: D) This year Sales price per unit $125 Variable costs 50 (40% of sales) Contribution Margin 75 Next year Sales Price Variable costs Contribution Margin

$156.25 50 106.25

(125 plus 25%)

New fixed costs $233,750 (212,500 plus 10%) Units 2,200 (233,750 / 106.25 CM) Diff: 2 LO: 7-3 EOC: E7-39A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

67 .

151) Management at the Forrest Company currently sells its products for $225 per unit and is contemplating a 40% increase in the selling price for the next year. Variable costs are currently 25% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will still pay the same variable cost per unit). Fixed expenses are $120,750 per year. If fixed costs were to decrease 10% during the current year and the new selling price goes into effect, how many units will need to be sold to breakeven? A) 420 units B) 358 units C) 908 units D) 132,825 units Answer: A Explanation: A) Current year Sales price per unit $225 Variable expense 56.25 (25% of sales price) Contribution Margin 168.75

New year

CM %

75%

(168.75 / 225)

Sales Price Variable expense Contribution margin CM % Fixed cost Units

$315 56.25 258.75 82.1% 108,675 420

(225 × 1.4)

(258.75 / 315) (120,750 less 10%) (108,675 divided by 258.75CM)

Diff: 2 LO: 7-3 EOC: E7-39A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

68 .

152) Mae Company sells its product for $12 per unit and has variable costs of $8 per unit. Total fixed costs are $60,000. Suppose variable costs increase by 10% due to an increase in the cost of direct materials. What will be the effect on the breakeven point in units? A) Increase from 15,000 units to 18,750 units B) Decrease from 3,000 units to 2,885 units C) Decrease from 15,000 units to 5,357 units D) Decrease from 7,500 units to 6,818 units Answer: A Explanation: A) Sales $ 12.00 Less Variable expenses 8.00 Contribution Margin $ 4.00 Fixed expense $60,000/ $4.00 CM = 15,000 BE units Sales $ 12.00 Less Variable expenses 8.80 Contribution Margin $ 3.20 Fixed expense $60,000/ $3.20 CM = 18,750 BE units Diff: 2 LO: 7-3 EOC: E7-39A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations. 153) If fixed expenses are $45,000, the breakeven in sales dollars is $60,000 and the selling price per unit is $100, then the variable expense per unit is A) approximately $75. B) approximately $175. C) approximately $33.33. D) approximately $25 Answer: D Explanation: D) Sales $60,000 Selling price 100 Units 600 Sales $60,000 Less fixed expense 45,000 Variable expense 15,000 Per unit 25.00 (15,000 / 600 units) Diff: 3 LO: 7-3 EOC: S7-7 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

69 .

154) Franklin Producers sells its core product for $8 per unit and has variable costs of $6 per unit. Total fixed costs are $28,000. Suppose variable costs increase by 20% due to an increase in the cost of direct materials. What will be the effect on the breakeven point in units? A) Decrease from 2,000 units to 1,842 units B) Decrease from 14,000 units to 4,118 units C) Increase from 14,000 units to 35,000 units D) Decrease from 4,667 units to 3,889 units Answer: C Explanation: C) Sales $ 8.00 Less Variable expenses 6.00 Contribution Margin $ 2.00 Fixed expense $28,000/ $2.00 CM = 14,000 BE units Sales $ 8.00 Less Variable expenses 7.20 Contribution Margin $ 0.80 Fixed expense $28,000/ $0.80 CM = 35,000 BE units Diff: 2 LO: 7-3 EOC: E7-39A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations. 155) Fixed expenses total $31,000, the breakeven sales in dollars is $93,000 and the selling price per unit is $99. The variable expense per unit is A) approximately $33. B) approximately $66. C) approximately $132. D) approximately $198. Answer: B Explanation: B) Sales $93,000 Selling price 99 Units 939.40 approx Sales $93,000 Less fixed expense 31,000 Variable expense 62,000 Per unit 66.00 (62,000 / 939.40 units) Diff: 3 LO: 7-3 EOC: S7-7 AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

70 .

156) Cartman Enterprises management has budgeted the following amounts for its next fiscal year: Total fixed expenses Selling price per unit Variable expenses per unit

$550,000 $25 $15

If Cartman Enterprises can reduce fixed expenses by $16,000, how will breakeven sales in units be affected? A) Increase by 400 units B) Increase by 1,600 units C) Decrease by 400 units D) Decrease by 1,600 units Answer: D Explanation: D) Sales $ 25.00 Less Variable expenses 15.00 Contribution Margin $ 10.00 Fixed Expense $550,000 / $10 CM = 55,000 Fixed expense $550,000 Less Reduction 16,000 Equals 534,000 / $ 10 CM = 53,400 Break Even; 1,600 Decrease Diff: 2 LO: 7-3 EOC: E7-38A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

71 .

157) Star Corporation management has budgeted the following amounts for its next fiscal year: Total fixed expenses Selling price per unit Variable expenses per unit

$450,000 $50 $25

If Star Corporation spends an additional $20,000 on advertising, sales volume should increase by 3,000 units. What effect will this have on operating income? A) Increase of $75,000 B) Increase of $55,000 C) Decrease of $55,000 D) Decrease of $75,000 Answer: B Explanation: B) Sales $ 50.00 Less Variable expenses 25.00 Contribution Margin $ 25.00 × Add'l units × 3,000 Add'l CM $ 75,000 Less Advertising expense 20,000 = Operating Income Increase $55,000 Diff: 2 LO: 7-3 EOC: E7-38A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

72 .

158) Catamount Studios has budgeted the following amounts for its next fiscal year: Total fixed expenses Selling price per unit Variable expenses per unit

$620,000 $40 $20

If Catamount Studios can reduce fixed expenses by $46,500, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units? A) $1.50 B) $20.00 C) $21.50 D) $18.50 Answer: A Explanation: A) Sales $ 40.00 Less Variable expenses 20.00 Contribution Margin $ 20.00 Fixed Exp $ 620,000 / 20 = 31,000 BE Units Fixed expense reduction $ 46,500 / 31,000 BE Units = $ 18.50 Selling price per unit $40.00 Less Target Contribution Margin $18.50 Variable Expenses at new level $21.50 Less Old Variable Expenses $20.00 Change in Variable Expenses $ 1.50 Diff: 2 LO: 7-3 EOC: E7-38A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

73 .

159) Elk Manufacturing has budgeted the following amounts for its next fiscal year: Total fixed expenses Selling price per unit Variable expenses per unit

$425,000 $80 $20

To maintain the original breakeven sales in units if fixed expenses were to increase by 20%, the selling price per unit would have to be A) increased by 65.00%. B) increased by 15.00%. C) decreased by 15.00%. D) decreased by 65.00%. Answer: B Explanation: B) Current Sales price $80 Variable expense 20 Contribution margin 60 Fixed expenses $425,000 Units 7,083.33 (425,000 / 60ea ) New Fixed expense $510,000 (425,000 plus 20% increase) Contribution margin 72 (510,000 / 7,083.33 units) Plus variable expenses 20 New Selling price 92 Divided by Old Sales Price 80 Percentage increase 15% Diff: 3 LO: 7-3 EOC: E7-38A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

74 .

160) Wallace Incorporated sells its products for $520 per unit. Variable costs are currently 45% of sales revenue. Fixed expenses are $125,840 per year. What is the breakeven point in units at the current selling price? A) 167 units B) 286 units C) 440 units D) 538 units Answer: C Explanation: C) Sales Price $ 520 × Variable Costs 45% VC = $ 234 Sales Price Less VC Contribution Margin

$ 520 234 $ 286

Fixed Cost $ 125,840 / CM 286 = 440 units Diff: 2 LO: 7-3 EOC: E7-39A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

75 .

161) Crossroads Packaging Co. has budgeted the following amounts for its next fiscal year: Total fixed expenses Selling price per unit Variable expenses per unit

$80,000 $4.00 $3.20

To maintain the original breakeven sales in units if fixed expenses were to increase by 10%, the selling price per unit would have to be A) increased by 2.00%. B) increased by 58.00%. C) decreased by 2.00%. D) decreased by 58.00%. Answer: A Explanation: A) Current Sales price $4.00 Variable expense 3.20 Contribution margin 0.80 Fixed expenses $80,000 Units 100,000 (80,000 / 0.80ea ) New Fixed expense $88,000 (80,000 plus 10% increase) Contribution margin 0.88 (88,000 / 100,000 units) Plus variable expenses 3.20 New Selling price 4.08 Divided by Old Sales Price 4.00 Percentage increase 2.00% Diff: 2 LO: 7-3 EOC: E7-38A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

76 .

162) J.I.T Auto sells its cars for $20,000 per unit (car). Variable costs are currently 60% of sales revenue. Fixed expenses are $480,000,000 per year. What is the breakeven point in units at the current selling price? A) 8,000 units B) 15,000 units C) 60,000 units D) 40,000 units Answer: C Explanation: C) Sales Price $ 20,000 × Variable Costs 60% VC = $ 12,000 Sales Price Less VC Contribution Margin

$ 20,000 12,000 $ 8,000

Fixed Cost $ 480,000,000 / CM 8,000 = 60,000 units Diff: 2 LO: 7-3 EOC: E7-39A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

77 .

163) Deen Enterprises currently sells its products for $1,200 per unit. Management is contemplating a 10% increase in the selling price for the next year. Variable costs are currently 40% of sales revenue and are not expected to change next year. Fixed expenses are $147,000 per year. What is the breakeven point in units at the anticipated selling price per unit next year? A) 175 units B) 82 units C) 245 units D) 408 units Answer: A Explanation: A) Sales price × increase New Sales Price Sales Price Variable %

$ 1,200 × 1.10% $ 1,320 $ 1,200 × 40% = $ 480 Variable costs

Sales Price Less Variable costs Contribution Margin

$ 1,320 480 $ 840

Fixed exp $ 147,000 / $ 840 CM = 175 BE units Diff: 2 LO: 7-3 EOC: E7-39A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

78 .

164) Martin Company currently sells its products for $220 per unit. Management is contemplating a 20% increase in the selling price for the next year. Variable costs are currently 40% of sales revenue and are not expected to change next year. Fixed expenses are $120,000 per year. If fixed costs increase 10% next year, and the new selling price per unit goes into effect, how many units will need to be sold to breakeven? A) 750 units B) 1,000 units C) 132,000 units D) 375 units Answer: A Explanation: A) Fixed Expense $ 120,000 × increase × 1.10% Adj. Fixed exp $ 132,000 Selling Price × increase Adj. Selling Price

$ 220 × 1.20 % $ 264

Selling Price Variable % Variable Cost

$ 220 × 40% $ 88

Selling Price Less Variable cost Contribution Margin

$ 264 88 $ 176

Fixed Expense $ 132,000/ $ 176 = 750 units Diff: 2 LO: 7-3 EOC: E7-39A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

79 .

165) Oscar Incorporated currently sells its products for $400 per unit. Management is contemplating a 10% increase in the selling price for the next year. Variable costs are currently 20% of sales revenue and are not expected to change next year. Fixed expenses are $140,000 per year. If fixed costs were to decrease 10% during the current year and the new selling price goes into effect, how many units will need to be sold to breakeven? A) 1,283 units B) 296 units C) 350 units D) 154,000 units Answer: C Explanation: C) Selling Price $ 400 × increase × 1.10 % Adj. Selling Price $ 440 Selling Price Variable % Variable Cost

$ 400 × 20% $ 80

Selling Price Less Variable cost Contribution Margin

$ 440 80 $ 360

Old Fixed Expenses Less 10% New Fixed Expenses

$140,000 14,000 $126,000

Fixed Expense $ 126,000/ $ 360 = 350 units Diff: 2 LO: 7-3 EOC: E7-39A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations.

80 .

166) Lewis Enterprises management has budgeted the following amounts for its next fiscal year: Total fixed expenses Selling price per unit Variable expenses per unit

$500,000 $1,000 $750

Requirements: a. If Lewis Enterprises can reduce fixed expenses by $25,000, how will breakeven sales in units be affected? b. If Lewis Enterprises spends an additional $1,000 on advertising, sales volume should increase by 2,000 units. What effect will this have on operating income? c. If Lewis Enterprises can reduce fixed expenses by $40,000, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units? d. If fixed expenses increase by 25%, to maintain the original breakeven sales in units, what would be the selling price per unit have to be? Answer:

81 .

82 .

Diff: 3 LO: 7-3 EOC: E7-39A AACSB: Analytical Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits. Perform fundamental CVP calculations. 167) All else being equal, a company earns more income by selling low-contribution margin products than by selling an equal number of high-contribution margin products. Answer: FALSE Diff: 3 LO: 7-4 EOC: S7-9 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 168) Gray Company sells two products, X and Y. For the coming year, Gray predicts the sale of 10,000 units of X and 20,000 units of Y. The contribution margins of the two products are $4 and $6, respectively. The weighted-average contribution margin per unit would be $5.00. Answer: FALSE Diff: 3 LO: 7-4 EOC: S7-9 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 169) The sales mix cannot significantly affect CVP relationships. Answer: FALSE Diff: 1 LO: 7-4 EOC: S7-9 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 170) To calculate the weighted-average contribution margin, divide the sum of the individual product contribution margins by the sales mix in units. Answer: TRUE Diff: 2 LO: 7-4 EOC: S7-9 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations

83 .

171) If unit sales prices, unit variable costs and total fixed costs all remain the same, but the sales mix changes, there is an effect on the breakeven point. Answer: TRUE Diff: 2 LO: 7-4 EOC: S7-9 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 172) A breakeven mix is the combination of products that are available for sale. Answer: FALSE Diff: 1 LO: 7-4 EOC: S7-9 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 173) All else being equal, a company earns more income by selling high-contribution margin products than by selling an equal number of low-contribution margin products. Answer: TRUE Diff: 2 LO: 7-4 EOC: E7-30A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 174) The same CVP formulas that are used to perform CVP analysis for a company with a single product can be used for any company that sells more than one product, as long as a company uses the weightedaverage contribution margin of all products, rather than the contribution margin of a sole product. Answer: TRUE Diff: 2 LO: 7-4 EOC: E7-30A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 175) To find the weighted average contribution margin, a company adds up the individual unit contribution margins of the different products and then divides by the number of different products. Answer: FALSE Diff: 2 LO: 7-4 EOC: E7-30A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 84 .

176) When a company sells more than one product, it does not have a unique breakeven point. Answer: FALSE Diff: 2 LO: 7-4 EOC: E7-30A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 177) The weighted average contribution margin will always be the same as the contribution margin of the highest-volume product. Answer: FALSE Diff: 2 LO: 7-4 EOC: E7-30A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 178) If a company sells 13 of Product A for every 3 of Product B that it sells, the sales mix can be stated as A) 13:3. B) 13/16 A and 3/16 B. C) both "13:3" and " 13/16 A and 3/16 B" are correct. D) neither "13:3" nor " 13/16 A and 3/16 B" is correct. Answer: C Diff: 2 LO: 7-4 EOC: E7-32A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 179) If a company sells 15 of Product A for every 2 of Product B that it sells, the sales mix can be stated as A) 15:2. B) 15/17 A and 2/17 B. C) neither "15:2" nor " 15/17 A and 2/17 B" is correct. D) both "15:2" and " 15/17 A and 2/17 B" are correct. Answer: D Diff: 2 LO: 7-4 EOC: E7-32A AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

85 .

180) Fixed costs divided by weighted-average contribution margin per unit equals A) breakeven sales in units. B) margin of safety ratio. C) breakeven sales in dollars. D) contribution margin ratio. Answer: A Diff: 2 LO: 7-4 EOC: E7-32A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 181) Contribution margin less fixed costs yields A) sales. B) operating income. C) variable costs. D) none of the above. Answer: B Diff: 2 LO: 7-4 EOC: E7-32A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 182) Gabe Industries sells two products, Basic models and Deluxe models. Basic models sell for $42 per unit with variable costs of $30 per unit. Deluxe models sell for $50 per unit with variable costs of $40 per unit. Total fixed costs for the company are $75,400. Gabe Industries typically sells four Basic models for every Deluxe model. What is the breakeven point in total units? A) 6,500 units B) 3,900 units C) 9,921 units D) 5,953 units Answer: A Explanation: A) Basic Deluxe Total Sales $42 $50 Variable Costs 30 40 Contribution Margin 12 10 × Sales Mix 4 1 5 Contribution margin $48 $10 $58 Contribution Margin

$ 58 / 5 Sales Mix = $ 11.60 Weighted CM

Fixed costs $ 75,400 / 11.60 = 6,500 BE units Diff: 2 LO: 7-4 EOC: E7-32A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 86 .

183) Mayfield Company sells two products, Blue models and Plaid models. Blue models sell for $45 per unit with variable costs of $30 per unit. Plaid models sell for $50 per unit with variable costs of $25 per unit. Total fixed costs for the company are $19,950. Mayfield Company typically sells two Blue models for every three Plaid models. What is the breakeven point in total units? A) 190 units B) 266 units C) 950 units D) 2,217 units Answer: C Explanation: C) Blue Plaid Total Sales $ 45 $50 Variable Costs 30 25 Contribution Margin 15 25 × Sales Mix 2 3 5 Contribution margin $30 $75 $105 Contribution Margin $ 105 / 5 Sales Mix = $ 21 Weighted CM Fixed costs $ 19,950 / 21 = 950 BE units Diff: 2 LO: 7-4 EOC: E7-30A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 184) Barkley Company sells two products, red cups and black mugs. Barkley predicts that it will sell 2,500 red cups and 1,000 black mugs in the next period. The unit contribution margins for red cups and black mugs are $2.80 and $3.50, respectively. What is the weighted-average unit contribution margin? A) $2.33 B) $7.00 C) $3.00 D) $1.00 Answer: C Explanation: C) RED BLACK TOTAL Contribution Margin $2.80 $ 3.50 × Sales Mix 2,500 1,000 3,500 Contribution margin $7,000 $3,500 $10,500 Contribution Margin $ 10,500 / 3,500 Sales Mix = $ 3.00 Weighted CM Diff: 2 LO: 7-4 EOC: E7-30A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

87 .

185) Madden Enterprises sells two products, Silver models and Gold models. Madden Enterprises predicts that it will sell 6,000 Silver models and 4,000 Gold models in the next period. The unit contribution margins for Silver models and Gold models are $75 and $150, respectively. What is the weighted-average unit contribution margin? A) $0.01 B) $37.50 C) $105.00 D) $525.00 Answer: C Explanation: C) Silver Gold Total Contribution Margin $75.00 $ 150.00 × Sales Mix 6,000 4,000 10,000 Contribution margin $450,000 $600,000 $1,050,000 Contribution Margin $ 1,050,000 / 10,000 Sales Mix = $ 105.00 Weighted CM Diff: 2 LO: 7-4 EOC: E7-30A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 186) Sally's Fries sells three large fries for every two small ones. A small fry sells for $2 with a variable cost of $1. A large fry sells for $3 with a variable cost of $1.25. What is the weighted-average contribution margin? A) $0.69 B) $0.65 C) $3.75 D) $1.45 Answer: D Explanation: D) Large Small Total Sales $3 $2 Variable Costs 1.25 1 Contribution Margin $1.75 $1 × Sales Mix 3 2 5 Contribution margin $5.25 $2.00 $7.25

Contribution Margin $ 7.25 / 5 Sales Mix = $ 1.45 Weighted CM Diff: 2 LO: 7-4 EOC: E7-30A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

88 .

187) Sandy Incorporated sells two products, larges and smalls. Larges sell for $90 per unit with variable costs of $60 per unit. Smalls sell for $30 per unit with variable costs of $10 per unit. Total fixed costs for the company are $41,600. Sandy Incorporated typically sells three larges for every two smalls. What is the breakeven point in total units? A) 392 units B) 4,160 units C) 1,600 units D) 320 units Answer: C Explanation: C) Larges Smalls Total Sales $ 90 $30 Variable Costs 60 10 Contribution Margin 30 20 × Sales Mix 3 2 5 Contribution margin $90 $40 $130 Contribution Margin $ 130 / 5 Sales Mix = $ 26.00 Weighted CM Fixed costs $ 41,600 / 26.00 = 1,600 BE units Diff: 2 LO: 7-4 EOC: E7-30A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 188) Bravo Company sells two products, green camouflage pants and orange camouflage pants. Bravo predicts that it will sell 1,000 pairs of green pants and 1,500 pairs of orange pants in the next period. The unit contribution margins for green pants and orange pants are $8.00 and $7.50, respectively. What is the weighted-average unit contribution margin? A) $1.30 B) $7.70 C) $6.50 D) $38.50 Answer: B Explanation: B) RED BLACK TOTAL Contribution Margin $8.00 $ 7.50 × Sales Mix 1,000 1,500 2,500 Contribution margin $8,000 $11,250 $19,250 Contribution Margin $ 19,250 / 2,500 Sales Mix = $ 7.70 Weighted CM Diff: 2 LO: 7-4 EOC: E7-30A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

89 .

189) The Winner's Circle sells two products, medals and trophies. The Winner's Circle predicts that it will sell 25,000 medals and 5,000 trophies in the next period. The unit contribution margins for medals and trophies are $6.00 and $15.00, respectively. What is the weighted-average unit contribution margin? A) $15.00 B) $11.25 C) $7.50 D) $0.13 Answer: C Explanation: C) Silver Gold Total Contribution Margin $6.00 $ 15.00 × Sales Mix 25,000 5,000 30,000 Contribution margin $150,000 $75,000 $225,000 Contribution Margin $ 225,000 / 30,000 Sales Mix = $ 7.50 Weighted CM Diff: 2 LO: 7-4 EOC: E7-30A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 190) Slamburger's sells three cheeseburgers for every two regular hamburgers. A cheeseburger sells for $3.50 with a variable cost of $1.00. A regular hamburger sells for $3 with a variable cost of $0.75. What is the weighted-average contribution margin? A) $0.60 B) $2.40 C) $0.42 D) $4.20 Answer: B Explanation: B) Cheeseburger Hamburger Total Sales $ 3.50 $3.00 Variable Costs 1.00 0.75 Contribution Margin $2.50 $2.25 × Sales Mix 3 2 5 Contribution margin $7.50 $4.50 $12.00 Contribution Margin $ 12.00 / 5 Sales Mix = $ 2.40 Weighted CM Diff: 2 LO: 7-4 EOC: E7-30A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

90 .

191) Wallace Industrial sells two products, large forklifts and small forklifts. A large forklift sells for $50,000 per unit with variable costs of $26,000 per unit. Small forklifts sell for $30,000 per unit with variable costs of $12,000 per unit. Total fixed costs for the company are $1,600,000. Wallace Industrial typically sells one large forklifts for every two smalls. What is the breakeven point in total units? A) 80 units B) 400 units C) 30 units D) 27 units Answer: A Explanation: A) Large Small Total Sales $50,000 $30,000 Variable Costs 26,000 12,000 Contribution Margin 24,000 18,000 × Sales Mix 1 2 3 Contribution margin $24,000 $36,000 $60,000 Contribution Margin $ 60,000 / 3 Sales Mix = $ 20,000 Weighted CM Fixed costs $ 1,600,000 / 20,000 = 80 BE units Diff: 2 LO: 7-4 EOC: E7-30A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 192) Jackie's Snacks sells fudge, caramels, and popcorn. It sold 12,000 boxes last year. Popcorn outsold fudge by a margin of 2 to 1. Sales of caramels were the same as sales of popcorn. Fixed costs for Jackie's Snacks are $14,000 and additional information follows: Product Fudge Caramels Popcorn

Unit Sales Prices $5.00 $8.00 $6.00

Unit Variable Cost $4.00 $5.00 $4.00

The formula to determine the number of boxes of each snack sold is A) 3x + 2x + x = 12,000. B) x + y + z = 12,000. C) x + 4x = 12,000. D) none of the above. Answer: C Diff: 3 LO: 7-4 EOC: E7-32A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

91 .

193) Jackie's Snacks sells fudge, caramels, and popcorn. It sold 12,000 units last year. Popcorn outsold fudge by a ratio of 2 to 1. Sales of caramels were the same as sales of popcorn. Fixed costs for Jackie's Snacks are $14,000. Additional information follows: Product Fudge Caramels Popcorn

Unit Sales Prices $5.00 $8.00 $6.00

Unit Variable Cost $4.00 $5.00 $4.50

The sales mix percentage of caramel corn based upon units is A) 20%. B) 40%. C) 75%. D) 44%. Answer: B Explanation: B) Sales Mix: Popcorn 2 + Caramels 2 + Fudge 1 = 5 Caramel Corn 2/5= 40% Diff: 2 LO: 7-4 EOC: E7-32A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

92 .

194) Jackie's Snacks sells fudge, caramels, and popcorn. It sold 12,000 units last year. Popcorn outsold fudge by a margin of 2 to 1. Sales of caramels were the same as sales of popcorn. Fixed costs for Jackie's Snacks are $14,000. Additional information follows: Product Fudge Caramels Popcorn

Unit Sales Prices $5.00 $8.00 $6.00

Unit Variable Cost $4.00 $5.00 $4.50

The weighted average contribution margin for the three products of Jackie's Snacks is A) $11.20. B) $ 0.65. C) $ 2.00. D) $50.00. Answer: C Explanation: C) Fudge Caramels Popcorn Total Sales $5 $8 $6 Variable Costs 4 5 4.50 Contribution Margin $1 $3 $1.50 × Sales Mix 20% 40% 40% 100% Contribution Margin $0.20 $1.20 $0.60 $2.00 Diff: 3 LO: 7-4 EOC: E7-32A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

93 .

195) Jackie's Snacks sells fudge, caramels, and popcorn. It sold 12,000 units last year. Popcorn outsold fudge by a margin of 2 to 1. Sales of caramels were the same as sales of popcorn. Fixed costs for Jackie's Snacks are $14,000. Additional information follows: Product Fudge Caramels Popcorn

Unit Sales Prices $5.00 $8.00 $6.00

Unit Variable Cost $4.00 $5.00 $4.50

The breakeven sales volume in units for Jackie's Snacks is A) 2,800. B) 6,000. C) 7,000. D) 1,250. Answer: C Explanation: C) Fudge Caramels Popcorn Total Sales $5 $8 $6 Variable Costs 4 5 4.50 Contribution Margin $1 $3 $1.50 × Sales Mix 20% 40% 40% 100% Contribution Margin $0.20 $1.20 $0.60 $2.00 Breakeven

Fixed costs Contribution margin Breakeven units

$14,000 2.00 7,000

(14,000 / 2.00)

Diff: 3 LO: 7-4 EOC: E7-32A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

94 .

196) Jackie's Snacks sells fudge, caramels, and popcorn. It sold 12,000 units last year. Popcorn outsold fudge by a margin of 2 to 1. Sales of caramels were the same as sales of popcorn. Fixed costs for Jackie's Snacks are $14,000. Additional information follows: Product Fudge Caramels Popcorn

Unit Sales Prices $5.00 $8.00 $6.00

Unit Variable Cost $4.00 $5.00 $4.50

Breakeven sales in dollars for Jackie's Snacks is A) $46,200. B) $39,600. C) $ 8,250. D) $16,800. Answer: A Explanation: A) Sales Variable Costs Contribution Margin × Sales Mix Contribution Margin Breakeven

Fudge $5 4 $1 20% $0.20

Caramels $8 5 $3 40% $1.20

Fixed costs Contribution margin Breadeven units

Sales Units × sales mix % Break even sales Sales Price

Fudge 7,000 20% 1,400 $5 $7,000

Caramels 7,000 40% 2,800 $8 22,400

Popcorn $6 4.50 $1.50 40% $0.60

$14,000 2.00 7,000

Total

100% $2.00

(14,000 / 2.00)

Popcorn 7,000 40% 2,800 $6 16,800

Total

7,000 46,200

Diff: 2 LO: 7-4 EOC: E7-32A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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197) I Scream For Ice Cream sells specialty ice cream in three flavors: Rocky Road, Peanut Butter, and Fruity Tooty. It sold 15,000 gallons last year. For every five gallons of ice cream sold, one pound is Fruity Tooty and the remainder is split evenly between Peanut Butter and Rocky Road. Fixed costs for I Scream For Ice Cream are $27,000 and additional information follows:

Sales price per pound Variable cost per pound

Rocky Road $ 5.50 $ 3.00

Peanut Butter $ 4.00 $ 2.00

The sales mix percentage of Fruity Tooty based upon pounds is A) 71%. B) 40%. C) 75%. D) 20%. Answer: D Explanation: D) Rocky Road 2 Peanut Butter 2 Fruity Tooty 1 Total 5 Sales mix Peanuts 1/5 = 20% Diff: 2 LO: 7-4 EOC: E7-32A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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Fruity Tooty $ 3.50 $ 2.50

198) I Scream For Ice Cream sells specialty ice cream in three flavors: Rocky Road, Peanut Butter, and Fruity Tooty. It sold 15,000 gallons last year. For every five gallons of ice cream sold, one pound is Fruity Tooty and the remainder is split evenly between Peanut Butter and Rocky Road. Fixed costs for I Scream For Ice Cream are $27,000 and additional information follows:

Sales price per pound Variable cost per pound

Rocky Road $ 5.50 $ 3.00

Peanut Butter Fruity Tooty $ 4.00 $ 3.50 $ 2.00 $ 2.50

The weighted average contribution margin per pound for the three products of I Scream For Ice Cream is A) $50.00. B) $ 0.65. C) $ 7.00. D) $ 2.00. Answer: D Explanation: D) Rocky Peanut Fruity Road Butter Tooty Total Sales price per pound $ 5.50 $ 4.00 $ 3.50 Variable cost per pound $ 3.00 $ 2.00 $ 2.50 Contribution margin/unit $ 2.50 $ 2.00 $ 1.00 Sales mix 2 2 1 5 Contribution margin 5.00 4.00 1.00 10 Weighte average CM (10/5) 2.00 Diff: 3 LO: 7-4 EOC: E7-32A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

97 .

199) I Scream For Ice Cream sells specialty ice cream in three flavors: Rocky Road, Peanut Butter, and Fruity Tooty. It sold 15,000 gallons last year. For every five gallons of ice cream sold, one pound is Fruity Tooty and the remainder is split evenly between Peanut Butter and Rocky Road. Fixed costs for I Scream For Ice Cream are $27,000 and additional information follows:

Sales price per pound Variable cost per pound

Rocky Road $ 5.50 $ 3.00

Peanut Butter Fruity Tooty $ 4.00 $ 3.50 $ 2.00 $ 2.50

The breakeven sales volume in gallons for I Scream For Ice Cream is A) 5,400. B) 7,500. C) 3,857. D) 13,500. Answer: D Explanation: D) Rocky Peanut Fruity Road Butter Tooty Total Sales price per pound $ 5.50 $ 4.00 $ 3.50 Variable cost per pound $ 3.00 $ 2.00 $ 2.50 Contribution margin/unit $ 2.50 $ 2.00 $ 1.00 Sales mix 2 2 1 5 Contribution margin 5.00 4.00 1.00 10 Weighted average CM (10/5) 2.00 Fixed cost + Operating income $27,000 + 0 Weighted average CM 2.0 Breakeven sales volume 13,500 Diff: 3 LO: 7-4 EOC: E7-32A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

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200) I Scream For Ice Cream sells specialty ice cream in three flavors: Rocky Road, Peanut Butter, and Fruity Tooty. It sold 15,000 gallons last year. For every five gallons of ice cream sold, one pound is Fruity Tooty and the remainder is split evenly between Peanut Butter and Rocky Road. Fixed costs for I Scream For Ice Cream are $27,000 and additional information follows: Rocky Road $ 5.50 $ 3.00

Sales price per pound Variable cost per pound

Peanut Butter Fruity Tooty $ 4.00 $ 3.50 $ 2.00 $ 2.50

Breakeven sales in dollars for I Scream For Ice Cream is A) $22,275. B) $17,357. C) $60,750. D) $33,750. Answer: C Explanation: C)

Sales price per pound Variable cost per pound Contribution margin/unit Sales mix Contribution margin Weighted average CM (10/5)

Rocky Road $ 5.50 $ 3.00 $ 2.50 2 5.00

Fruity Tooty $ 3.50 $ 2.50 $ 1.00 1 1.00

Total

5 10 2.00

Fixed cost + Operating income Weighted average CM Breakeven sales volume

Breakeven sales volume Sales mix % Units Sales Price Breakeven sales dollars

Peanut Butter $ 4.00 $ 2.00 $ 2.00 2 4.00

$27,000 + 0 2.00 13,500 Rocky Road 13,500 2/5 5,400 5.50 29,700

Peanut Butter 13,500 2/5 5,400 4.00 21,600

Fruity Tooty 13,500 1/5 2,700 3.50 9,450

Diff: 2 LO: 7-4 EOC: E7-32A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

99 .

Total

60,750.00

201) Papa Pastries sells Donuts, Muffins, and Mixed Dozens. It sold 10,000 dozens last year. Mixtures outsold Muffins by a margin of 2 to 1. Sales of Donuts were the same as sales of Mixtures. Fixed costs for Papa Pastries are $19,600 and additional information follows: Product Dozen Donuts Dozen Muffins Mixed Dozen

Unit Sales Prices $15.00 $20.00 $16.00

Unit Variable Cost $10.00 $12.00 $11.00

a. Calculate the sales mix percentage of all three products (based upon the number of dozens). b. Calculate the weighted average contribution margin for all three types of dozens. c. Calculate the breakeven volume in number of dozens. d. Calculate the breakeven sales in dollars. Answer: a.

b.

100 .

c.

d.

Diff: 3 LO: 7-4 EOC: E7-32A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

101 .

202) Kent Coffee Haus sells Drip Coffee, Cappuccino, or Lattes. It sold 20,000 total cups of various coffee products last year. Drip Coffee outsold Cappuccino 2 to 1. Sales of Lattes were the same as sales of Drip Coffee. Fixed costs for the company are $15,000 and additional information follows: Product Drip Coffee Cappuccino Latte

Unit Sales Prices $1.50 $2.50 $3.50

Unit Variable Cost $0.50 $1.25 $1.75

a. Calculate the sales mix percentage of all three products (based upon the number of cups). b. Calculate the weighted average contribution margin for all three types of drinks. c. Calculate the breakeven volume in number of cups. d. Calculate the breakeven sales in dollars. Answer: a.

b.

102 .

c.

d.

Diff: 3 LO: 7-4 103 .

EOC: E7-32A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 203) The margin of safety is the "cushion," or drop in sales, a company can absorb without incurring a loss. Answer: TRUE Diff: 1 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 204) The margin of safety is the excess of expected sales over breakeven sales. Answer: TRUE Diff: 1 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 205) The margin of safety can be expressed in units, in sales dollars, or as a percentage. Answer: TRUE Diff: 1 LO: 7-5 EOC: E7-31 AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 206) Companies with high operating leverages generally have lower fixed costs than variable costs. Answer: FALSE Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 207) Operating leverage refers to the relative amount of fixed and variable costs that make up total costs for a company. Answer: TRUE Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations

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208) The operating leverage factor indicates the percentage change in operating income that will occur from a 5% change in volume. Answer: FALSE Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 209) The operating leverage factor will be exactly "1" only if a company has no fixed costs. Answer: TRUE Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 210) Companies with low operating leverage have relatively higher variable costs and lower fixed costs. Answer: TRUE Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 211) A hotel would be an example of a company with high operating leverage. Answer: TRUE Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 212) Company A has a higher margin of safety while Company B has a lower margin of safety. Company A would be considered ________ Company B when considering only margin of safety: A) more risky than B) less risky than C) to have the same level of risk as D) Unable to judge based on margin on safety. Answer: B Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations

105 .

213) A company's margin of safety can be stated A) in units. B) in dollars. C) as a percentage of sales. D) any of the above. Answer: D Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 214) A company's margin of safety is computed as A) actual sales—expected sales. B) expected sales—actual sales. C) expected sales—sales at breakeven. D) sales at breakeven—expected sales. Answer: C Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 215) All else being equal, a company with a high operating leverage will have A) relatively low fixed costs. B) relatively high variable costs. C) relatively high contribution margin ratio. D) relatively low risk. Answer: C Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 216) All else being equal, a company with a low operating leverage will have A) relatively high fixed costs. B) relatively high contribution margin ratio. C) relatively high risk. D) relatively high variable costs. Answer: D Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations

106 .

217) To find a firm's operating leverage factor at a given level of sales, you A) divide the contribution margin by fixed expenses. B) divide the contribution margin by operating income. C) divide variable expenses by fixed expenses. D) divide relatively operating income by contribution margin. Answer: B Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 218) By multiplying the operating leverage factor by the anticipated percentage change in volume, one can find A) the anticipated change in operating income. B) the anticipated change in contribution margin. C) the anticipated change in fixed expenses. D) the anticipated change in sales revenue. Answer: A Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 219) The higher the operating leverage factor, the A) lesser the impact of volume on operating income. B) greater the impact of volume on operating income. C) more likely operating income is to stay constant. D) none of the above. Answer: B Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 220) All of the following would be considered a company with high operating leverage, except A) retailer. B) golf course. C) theme park. D) hotel. Answer: A Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 107 .

221) Total predicted sales (in units) minus total breakeven sales in units divided by total predicted sales (in units) yields A) contribution margin ratio. B) contribution margin per unit. C) percent of sales mix. D) margin of safety percentage. Answer: D Diff: 2 LO: 7-5 EOC: E7-34A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 222) The lowest possible operating leverage factor for a company is: A) zero. B) -1. C) +1. D) somewhere between zero and +1. Answer: C Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Reflective Thinking Learning Outcome: Perform fundamental CVP calculations 223) Hyde's Headphones sells deluxe headphones for $75 each. Unit variable expenses total $45. The breakeven sales in units is 2,400 and budgeted sales in units is 4,200. What is the margin of safety in dollars? A) $24 B) $135,000 C) $495,000 D) $1,800 Answer: B Explanation: B) (4,200 - 2,400) × 75 = $135,000 Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

108 .

224) Moe's Pizza Shop sells a large pizza for $11.50. Unit variable expenses total $5.50. The breakeven sales in units is 5,000 and budgeted sales in units is 9,500. What is the margin of safety in dollars? A) $51,750 B) $391 C) $166,750 D) $4,500 Answer: A Explanation: A) (9,500 - 5,000) × 11.50 = $51,750 Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 225) Matthew's Fish Fry has a monthly target operating income of $7,200. Variable expenses are 60% of sales and monthly fixed expenses are $1,800. What is the monthly margin of safety in dollars if the business achieves its operating income goal? A) $22,500 B) $18,000 C) $27,000 D) $13,500 Answer: B Explanation: B) Monthly fixed expense $1,800 Targeted operating income 7,200 Contribution margin 9,000 divided by Contribution margin % 40% (1- variable expense of 60%) Targeted income = 22,500 (11,200 / 40%) Less Break even 4,500 (fixed expense 1,800 / 40% CM) Margin Safety dollars 18,000 Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

109 .

226) Matthew's Fish Fry has a monthly target operating income of $7,200. Variable expenses are 60% of sales and monthly fixed expenses are $1,800. What is the monthly margin of safety as a percentage of target sales in dollars? A) 120.00% B) 40.00% C) 80.00% D) 400.00% Answer: C Explanation: C) Monthly fixed expense $1,800 Targeted operating income 7,200 Contribution margin 9,000 divided by Contribution margin % 40% (1- variable expense of 60%) Targeted income = 22,500 (9,000 / 40%) Less Break even 4,500 (fixed expense 1,800 / 40% CM) Margin Safety dollars 18,000 Margin safety percentage 80.00% (18,000 margin safety/ 22,500 targeted inc) Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 227) Matthew's Fish Fry has a monthly target operating income of $7,200. Variable expenses are 60% of sales and monthly fixed expenses are $1,800. What is Matthew's operating leverage factor at the target level of operating income? A) 0.75 B) 1.25 C) 5.00 D) 0.80 Answer: B Explanation: B) Target income 7,200 + Fixed expense 1,800 9,000 Divided by target inc 7,200 Operating leverage = 1.25 Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

110 .

228) Tom's Taxidermy has a monthly target operating income of $25,000. Variable expenses are 75% of sales and monthly fixed expenses are $15,000. What is the monthly margin of safety in dollars if the business achieves its operating income goal? A) $220,000 B) $160,000 C) $40,000 D) $100,000 Answer: D Explanation: D) Monthly fixed expense $15,000 Targeted operating income 25,000 Contribution margin 40,000 divided by Contribution margin % 25% (1- variable expense of 75%) Targeted income = 160,000 (40,000 / 25%) Less Break even 60,000 (fixed expense 15,000 / 25% CM) Margin Safety dollars 100,000 Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 229) Tom's Taxidermy has a monthly target operating income of $25,000. Variable expenses are 75% of sales and monthly fixed expenses are $15,000. What is the monthly margin of safety as a percentage of target sales in dollars? A) 62.50% B) 137.50% C) 25.00% D) 167.67% Answer: A Explanation: A) Monthly fixed expense $15,000 Targeted operating income 25,000 Contribution margin 40,000 divided by Contribution margin % 25% (1- variable expense of 75%) Targeted income = 160,000 (40,000 / 25%) Less Break even 60,000 (fixed expense 15,000 / 25% CM) Margin Safety dollars 100,000 Margin safety percentage 62.50% (100,000 margin safety/ 160,000 targeted inc) Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

111 .

230) Tom's Taxidermy has a monthly target operating income of $25,000. Variable expenses are 75% of sales and monthly fixed expenses are $15,000. What is Tom's operating leverage factor at the target level of operating income? A) 0.40 B) 0.63 C) 1.60 D) 2.67 Answer: C Explanation: C) Target income 25,000 + Fixed expense 15,000 40,000 Divided by target inc 25,000 Operating leverage = 1.60 Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

112 .

231) Stanley's Candies is considering building a new plant in Europe. It predicts sales at the new plant to be 40,000 units at $4.00/unit. Below is a listing of estimated expenses:

Category Materials Labor Overhead Marketing/Admin

Total Annual Expenses $20,000 $30,000 $50,000 $10,000

% of Annual Expense that are Fixed 10% 20% 40% 60%

A European firm was contracted to sell the product and will receive a commission of 10% of the sales price. No U.S. home office expenses will be allocated to the new facility. How much does the European contractor expect to make in commissions? A) $4,000 B) $32,000 C) $80,000 D) $16,000 Answer: D Explanation: D) Sales units 40,000 Sales price 4.00 Sales 160,000 Commission rate 10% Commission 16,000 (160,000 × .10) Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

113 .

232) Stanley's Candies is considering building a new plant in Europe. It predicts sales at the new plant to be 40,000 units at $4.00/unit. Below is a listing of estimated expenses:

Category Materials Labor Overhead Marketing/Admin

% of Annual Expense Total Annual Expenses that are Fixed $20,000 10% $30,000 20% $50,000 40% $10,000 60%

A European firm was contracted to sell the product and will receive a commission of 10% of the sales price. No U.S. home office expenses will be allocated to the new facility. The unit variable cost for Stanley's Candies is A) $1.25. B) $3.15. C) $2.30. D) $1.90. Answer: C Explanation: C) Category Total Exps %Fixed Total fixed Materials $20,000 10% 2,000 Labor $30,000 20% 6,000 Overhead $50,000 40% 20,000 Market/Admin $10,000 60% 6,000 Total 110,000 34,000 Commissions ( 40,000 units × $4.00 × 10%) Total variable expense

Total Variable 18,000 24,000 30,000 4,000 76,000 16,000 92,000

Unit variable costs (92,000 / 40,000 units) = $2.30 Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

114 .

233) Stanley's Candies is considering building a new plant in Europe. It predicts sales at the new plant to be 40,000 units at $4.00/unit. Below is a listing of estimated expenses: Total Annual Expenses $20,000 $30,000 $50,000 $10,000

Category Materials Labor Overhead Marketing/Admin

% of Annual Expense that are Fixed 10% 20% 40% 60%

A European firm was contracted to sell the product and will receive a commission of 10% of the sales price. No U.S. home office expenses will be allocated to the new facility. The margin of safety percentage for Stanley's Candies is A) 50.00%. B) 86.51%. C) 150.00%. D) 14.49%. Answer: A Explanation: A) Category Total Exps %Fixed Total fixed Materials $20,000 10% Labor $30,000 20% Overhead $50,000 40% Market/Admin $10,000 60% Sub Total 110,000 34,000 Commissions ( 40,000 units × $4.00 ×10 %) Total expense Contribution margin

2,000 6,000 20,000 6,000 76,000

18,000 24,000 30,000 4,000 16,000 92,000

34,000

Sales 160,000 Variable expense 92,000 Contribution margin 68,000 Percentage 42.5%

40,000 units × $4)

(68,000 / 160,000)

Breakeven sales Fixed expenses 34,000 Contribution margin 42.5% BE Sales 80,000 (34,000 / .425) Target Sales 160,000 Less Breakeven sales 80,000 Margin safety 80,000 Margin safety % 50.00% (80000 / 160000) Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 115 .

Total Variable

234) Stanley's Candies is considering building a new plant in Europe. It predicts sales at the new plant to be 40,000 units at $4.00/unit. Below is a listing of estimated expenses. Total Annual Expenses $20,000 $30,000 $50,000 $10,000

Category Materials Labor Overhead Marketing/Admin

% of Annual Expense that are Fixed 10% 20% 40% 60%

A European firm was contracted to sell the product and will receive a commission of 10% of the sales price. No U.S. home office expenses will be allocated to the new facility. The contribution margin ratio for Stanley's Candies is: A) 157.50%. B) 57.50%. C) 42.50%. D) 52.50%. Answer: C Explanation: C) Calculations Category Total Exps %Fixed Materials $20,000 10% Labor $30,000 20% Overhead $50,000 40% Market/Admin $10,000 60% Sub Total 110,000 34,000 Commissions ( 40,000 units × $4.00 ×10 %) Total expense Contribution margin

Total fixed

2,000 6,000 20,000 6,000 76,000

18,000 24,000 30,000 4,000 16,000 92,000

34,000

Sales 160,000 Variable expense 92,000 Contribution margin 68,000 Percentage 42.5%

(40,000 units × $4)

(68,000 / 160,000)

Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

116 .

Total Variable

235) Fancy Furniture has variable expenses of 40% of sales and monthly fixed expenses of $240,000. The monthly target operating income is $60,000. What is the monthly margin of safety in dollars if Fancy Furniture achieves its operating income goal? A) $100,000 B) $900,000 C) $500,000 D) $(300,000) Answer: A Explanation: A) Fixed expenses 240,000 Target income 60,000 300,000 Contribution margin 60% (Variable expense of 40%) Target sales 500,000 Fixed expense Contribution margin Breakeven sales

240,000 60% 400,000(240,000 / .60)

Target sales 500,000 - Breakeven sales 400,000 Margin safety 100,000 Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

117 .

236) Fancy Furniture has variable expenses of 40% of sales and monthly fixed expenses of $240,000. The monthly target operating income is $60,000. What is the monthly margin of safety as a percentage of target sales in dollars? A) 180.00% B) 25.00% C) 20.00% D) 60.00% Answer: C Explanation: C) Fixed expenses 240,000 Target income 60,000 300,000 Contribution margin 60% (Variable expense of 40%) Target sales 500,000 Fixed expense Contribution margin Breakeven sales

240,000 60% 400,000 (240,000 / .60)

Target sales 500,000 - Breakeven sales 400,000 Margin safety 100,000 Target sales 500,000 Percent of sales 20% (100,000 / 500,000) Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 237) Fancy Furniture has variable expenses of 40% of sales and monthly fixed expenses of $240,000. The monthly target operating income is $60,000. What is Fancy Furniture's operating leverage factor at the target level of operating income? A) 0.20 B) 5.00 C) (3.00) D) 1.25 Answer: B Explanation: B) Fixed expenses 240,000 - Target income 60,000 300,000 Operating leverage 5.0 (300,000 / 60,000) Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

118 .

238) Yellow Company's variable expenses are 40% of sales and have monthly fixed expenses of $15,000. The monthly target operating income is $3,750. What is the monthly margin of safety in dollars if Yellow Company achieves its operating income goal? A) $(18,750) B) $56,250 C) $6,250 D) $31,250 Answer: C Explanation: C) Fixed expenses 15,000 Target income 3,750 18,500 Contribution margin 60% (Variable expense of 40%) Target sales 31,250 Fixed expense Contribution margin Breakeven sales

15,000 60% 25,000 (15,000 / .60)

Target sales 31,250 - Breakeven sales 25,000 Margin safety 6,250 Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

119 .

239) Yellow Company's variable expenses are 40% of sales and have monthly fixed expenses of $15,000. The monthly target operating income is $3,750. What is the monthly margin of safety as a percentage of target sales in dollars? A) 20.00% B) 180.00% C) 60.00% D) 25.00% Answer: A Explanation: A) Fixed expenses 15,000 Target income 3,750 18,750 Contribution margin 60% (Variable expense of 40%) Target sales 31,250 Fixed expense Contribution margin Breakeven sales

15,000 60% 25,000 (15,000 / .60)

Target sales - Breakeven sales Margin safety

31,250 25,000 6,250

Target sales 31,250 Percent of sales 20% (6,250 / 31,250) Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

120 .

240) Yellow Company's variable expenses are 40% of sales and have monthly fixed expenses of $15,000. The monthly target operating income is $3,750. What is Yellow Company's operating leverage factor at the target level of operating income? A) 1.25 B) 0.20 C) (3.00) D) 5.00 Answer: D Explanation: D) Fixed expenses 15,000 - Target income 3,750 18,750 Operating leverage 5.00 (18,750 / 3,750) Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 241) Neeley Grocery has a monthly target operating income of $25,000. Variable expenses are 20% of sales and monthly fixed expenses are $15,000. What is the monthly margin of safety in dollars if the business achieves its operating income goal? A) $ 50,000 B) $ 31,250 C) $ 68,750 D) $ 12,500 Answer: B Explanation: B) Fixed expenses 15,000 Target income 25,000 40,000 Contribution margin 80% (Variable expense of 20%) Target sales 50,000 Fixed expense Contribution margin Breakeven sales

15,000 80% 18,750 (15,000 / .80)

Target sales 50,000 - Breakeven sales 18,750 Margin safety 31,250 Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

121 .

242) Neeley Grocery has a monthly target operating income of $25,000. Variable expenses are 20% of sales and monthly fixed expenses are $15,000. What is the monthly margin of safety as a percentage of target sales in dollars? A) 137.50% B) 62.50% C) 80.00% D) 166.67% Answer: B Explanation: B) Fixed expenses 15,000 Target income 25,000 40,000 Contribution margin 80% (Variable expense of 20%) Target sales 50,000 Fixed expense Contribution margin Break -even sales

15,000 80% 18,750 (15,000 / .80)

Target sales 50,000 - Breakeven sales 18,750 Margin safety 31,250 % of Target sales 62.50% (31,250 / 50,000) Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations 243) Neeley Grocery has a monthly target operating income of $25,000. Variable expenses are 20% of sales and monthly fixed expenses are $15,000. What is Neeley Grocery's operating leverage factor at the target level of operating income? A) 0.63 B) 2.67 C) 0.40 D) 1.60 Answer: D Explanation: D) Fixed expenses $25,000 + Target income 15,000 40,000 Operating leverage 1.60 (40,000 / 25,000) Diff: 3 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

122 .

244) Garfield Corporation is considering building a new plant in Canada. It predicts sales at the new plant to be 50,000 units at $5.00/unit. Below is a listing of estimated expenses:

Category Materials Labor Overhead Marketing/Admin

Total Annual Expenses $50,000 $90,000 $40,000 $20,000

% of Annual Expense that are Fixed 10% 20% 30% 50%

A Canadian firm was contracted to sell the product and will receive a commission of 10% of the sales price. No U.S. home office expenses will be allocated to the new facility. How much does the Canadian contractor expect to make in commissions? A) $ 25,000 B) $ 75,000 C) $225,000 D) $ 5,000 Answer: A Explanation: A) Sales units 50,000 Sales price 5 Total sales 150,000 Commission 10% Total 25,000 Diff: 2 LO: 7-5 EOC: E7-33A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

123 .

245) Garfield Corporation is considering building a new plant in Canada. It predicts sales at the new plant to be 50,000 units at $5.00/unit. Below is a listing of estimated expenses:

Category Materials Labor Overhead Marketing/Admin

Total Annual Expenses $50,000 $90,000 $40,000 $20,000

% of Annual Expense that are Fixed 10% 20% 30% 50%

A Canadian firm was contracted to sell the product and will receive a commission of 10% of the sales price. No U.S. home office expenses will be allocated to the new facility. The unit variable cost for Garfield Corporation is A) $4.50. B) $3.10. C) $3.60. D) $1.40. Answer: C Explanation: C)

Diff: 2 LO: 7-5 EOC: E7-34A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

124 .

246) Garfield Corporation is considering building a new plant in Canada. It predicts sales at the new plant to be 50,000 units at $5.00/unit. Below is a listing of estimated expenses:

Category Materials Labor Overhead Marketing/Admin

Total Annual Expenses $50,000 $90,000 $40,000 $20,000

% of Annual Expense that are Fixed 10% 20% 30% 50%

A Canadian firm was contracted to sell the product and will receive a commission of 10% of the sales price. No U.S. home office expenses will be allocated to the new facility. The margin of safety percentage for Duncan Enterprises is A) 89.53%. B) 35.71%. C) 164.29%. D) 64.29%. Answer: B Explanation: B)

Diff: 3 LO: 7-5 EOC: E7-34A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

125 .

247) Garfield Corporation is considering building a new plant in Canada. It predicts sales at the new plant to be 50,000 units at $5.00/unit. Below is a listing of estimated expenses.

Category Materials Labor Overhead Marketing/Admin

Total Annual Expenses $50,000 $90,000 $40,000 $20,000

% of Annual Expense that are Fixed 10% 20% 30% 50%

A Canadian firm was contracted to sell the product and will receive a commission of 10% of the sales price. No U.S. home office expenses will be allocated to the new facility. The contribution margin ratio for Garfield Corporation is A) 28.00%. B) 38.00%. C) 172.00%. D) 72.00%. Answer: A Explanation: A)

Diff: 2 LO: 7-5 EOC: E7-34A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

126 .

248) Heavenly Cupcakes has a monthly target operating income of $12,000. Variable expenses are 40% of sales and monthly fixed expenses are $8,000. Requirements: a. What is the monthly margin of safety in dollars if the business achieves its operating income goal? b. What is the monthly margin of safety as a percentage of target sales in dollars? c. What is Heavenly Cupcakes' operating leverage factor at the target level of operating income? Answer: a. 1 -40% 60%

Variable expenses (% of sales) Contribution margin ratio Monthly fixed expenses Target operating income Divide by Contribution margin ratio Target sales dollars

$ 8,000 $ 12,000 $ 20,000 Divide by 60% $ 33,333

Monthly fixed expenses Divide by Contribution margin ratio Breakeven sales dollars

$ 8,000 Divide by 60% $ 13,333

Target sales dollars Breakeven sales dollar Margin of safety in dollars

$ 33,333 $ (13,333) $ 20,000

127 .

b. 1 -40% 60%

Variable expenses (% of sales) Contribution margin ratio Monthly fixed expenses Target operating income Divide by Contribution margin ratio Target sales dollars

$ 8,000 $ 12,000 $ 20,000 Divide by 60% $ 33,333

Monthly fixed expenses Divide by Contribution margin ratio Breakeven sales dollars

$ 8,000 Divide by 60% $ 13,333

Target sales dollars Breakeven sales dollar Margin of safety in dollars

$ 33,333 $ (13,333) $ 20,000

Margin of safety in dollars Divide by Target sales dollars Margin of Safety as % of target sales dollars

$ 20,000 Divide by $ 33,333 60.00%

c. Target operating income Monthly fixed expenses Contribution margin

$ 12,000 $ 8,000 $ 20,000

Contribution margin Divide by Target operating income Operating leverage factor

$ 20,000 Divide by $ 12,000 1.67

Diff: 2 LO: 7-5 EOC: E7-34A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

128 .

249) Fast as Lightning is an oil change service drive-through that charges each customer $24.00 for an oil and filter change service. Fast as Lightning has found that it costs its business $16.00 per oil and filter change. Monthly fixed costs are $44,000; current sales are 8,000 services. a. Compute the breakeven sales in units. b. Compute Fast as Lightning's margin of safety in units and sales dollars. c. Compute Fast as Lightning's margin of safety as a percentage. d. Compute Fast as Lightning's operating leverage factor. e. Compute Fast as Lightning's % of operating income decline if sales fall by 18%. Answer: a. Sales price per unit $ 24.00 Variable cost per unit $ (16.00) Contribution margin per unit $ 8.00 Total fixed costs Contribution margin per unit Breakeven in units

$ 44,000 $ 8.00 5,500

b. Current unit sales Breakeven in units Margin of safety in units Times sales price per unit Margin of safety in sales dollars

8,000 (5,500) 2,500 $ 24.00 $ 60,000

c. Margin of safety in units Current unit sales Margin of safety in percentage

2,500 8,000 31.25%

d. Contribution margin per unit Current unit sales Total contribution margin Total fixed costs Operating income

$ 8.00 8,000 64,000 $ (44,000) 20,000

Total contribution margin Operating income Operating leverage factor

64,000 20,000 3.20

129 .

e. Operating leverage factor Times Sales decline (percentage) % change in income if sales fall

3.20 -18.00% -57.60%

Diff: 2 LO: 7-5 EOC: E7-40A AACSB: Analytical Thinking Learning Outcome: Perform fundamental CVP calculations

130 .

Managerial Accounting, 3e (Braun/Tietz) Chapter 8 Relevant Costs for Short-Term Decisions 1) Irrelevant costs are costs that do not affect short-term decisions. Answer: TRUE Diff: 1 LO: 8-1 EOC: S8-1 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 2) Relevant information is future data that do not differ among alternatives. Answer: FALSE Diff: 1 LO: 8-1 EOC: S8-1 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 3) Management accountants gather and analyze relevant information to compare alternatives. Answer: TRUE Diff: 1 LO: 8-1 EOC: S8-1 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 4) One key to analyzing short-term business decisions is to focus on relevant revenues, costs and profits. Answer: TRUE Diff: 1 LO: 8-1 EOC: S8-1 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 5) One key to analyzing short-term business decisions is to use a contribution margin approach that separates variable costs from fixed costs. Answer: TRUE Diff: 1 LO: 8-1 EOC: S8-1 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

1 .

6) Relevant information is expected future data that will not differ among alternatives. Answer: FALSE Diff: 1 LO: 8-1 EOC: S8-1 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 7) Costs that differ between alternatives are irrelevant. Answer: FALSE Diff: 1 LO: 8-1 EOC: S8-1 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 8) One cost that is irrelevant in decision making is a sunk cost. Answer: TRUE Diff: 1 LO: 8-1 EOC: E8-15 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 9) Managers' decisions are based solely on quantitative factors. Answer: FALSE Diff: 1 LO: 8-1 EOC: E8-15 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 10) Which of the following best describes a "sunk cost"? A) Costs that were incurred in the past and cannot be changed B) Benefits foregone by choosing a particular alternative course of action C) A factor that restricts the production or sale of a product D) Expected future data that differ among alternatives Answer: A Diff: 2 LO: 8-1 EOC: S8-1 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs

2 .

11) An "opportunity cost" is best described by which of the following? A) Benefits foregone by choosing a particular alternative course of action B) Costs that were incurred in the past and cannot be changed C) The distribution of all products to be sold D) Expected future costs that differ among alternatives Answer: A Diff: 2 LO: 8-1 EOC: S8-1 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 12) A "relevant cost" is best described by which of the following? A) A factor that restricts production or sales of a product B) Cost of developing, producing, and delivering a product or service C) Costs that were incurred in the past and can not be changed D) Expected future costs that differ among alternatives Answer: D Diff: 2 LO: 8-1 EOC: S8-1 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 13) "Contribution margin per unit" is best described by which of the following? A) Sales price per unit minus fixed cost per unit B) Sales price per unit minus variable cost unit C) Sales price per unit minus fixed and variable costs per unit D) Units sold time contribution margin ratio Answer: B Diff: 2 LO: 8-1 EOC: S8-1 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 14) Expected future data that differs among alternative courses of action are referred to as A) relevant information. B) historical information. C) predictable information. D) irrelevant information. Answer: A Diff: 1 LO: 8-1 EOC: E8-15 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs

3 .

15) Which of the following is irrelevant when making a decision? A) Fixed overhead costs that differ among alternatives B) The cost of an asset that the company is considering replacing C) The cost of further processing a product that could be sold as is D) The expected increase in contribution margin of one product line as a result of a decision to discontinue a separate unprofitable product line Answer: B Diff: 1 LO: 8-1 EOC: E8-15 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 16) Fixed costs that do not differ between two alternatives are A) irrelevant to the decision. B) considered opportunity costs. C) relevant to the decision. D) important only if they represent a material dollar amount. Answer: A Diff: 1 LO: 8-1 EOC: E8-15 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 17) Which of the following is a sunk cost? A) Operating costs for a new vehicle B) Trade in value of old vehicle C) Purchase price of vehicle to be traded in D) Purchase price of new vehicle Answer: C Diff: 1 LO: 8-1 EOC: E8-15 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 18) Fixed costs that may be avoided in the future are referred to as A) relevant costs. B) opportunity costs. C) replacement costs. D) sunk costs. Answer: A Diff: 2 LO: 8-1 EOC: E8-15 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 4 .

19) A sunk cost is described as which of the following? A) One that is relevant to a decision because it changes depending on the alternative course of action selected B) A historical cost that is always irrelevant C) An outlay expected to be incurred in the future D) A historical cost that may be relevant Answer: B Diff: 1 LO: 8-1 EOC: E8-15 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 20) The effect of a plant closing on employee morale is an example of which of the following? A) A qualitative factor B) A quantitative factor C) A sunk cost D) A variable cost Answer: A Diff: 1 LO: 8-1 EOC: E8-15 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 21) The format of the income statement most useful in decision-making is which of the following? A) Absorption costing format B) Traditional format C) Contribution margin format D) Single-step format Answer: C Diff: 2 LO: 8-1 EOC: E8-15 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs

5 .

22) Ida Enterprises is considering replacing a machine that is presently used in its production process. The following information is available:

Original cost Remaining useful life in years Current age in years Book value Current disposal value in cash Future disposal value in cash (in 5 years) Annual cash operating costs

Old Machine $60,000 5 5 $25,000 $8,000 $0 $7,000

Replacement Machine $35,000 5 0

$0 $4,000

Which of the information provided in the table is irrelevant to the replacement decision? A) The annual operating cost of the old machine B) The original cost of the old machine C) The current disposal value of the old machine D) Both A and C Answer: B Diff: 2 LO: 8-1 EOC: S8-1 AACSB: Analytical Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 23) All of the following are relevant to the decision to replace equipment except the A) cost of old equipment. B) selling price of old equipment. C) future maintenance costs of old equipment. D) cost of new equipment. Answer: A Diff: 2 LO: 8-1 EOC: S8-1 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 24) Which of the following is most important in making a short-term special decision? A) Focus on total costs B) Separate variable from fixed costs C) Use a conventional absorption costing approach D) Calculating the fixed cost per unit Answer: B Diff: 2 LO: 8-1 EOC: S8-1 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 6 .

25) Managers should consider ________ when making any sort of decision. A) only fixed costs B) sunk costs C) only variable costs D) revenues that differ among alternatives Answer: D Diff: 2 LO: 8-1 EOC: S8-1 AACSB: Reflective Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 26) Label each item below as relevant or irrelevant in making a decision. a) Cost of roof repair made on rental property last year b) The cost of insurance on a new vehicle when deciding to buy a new vehicle c) Cost of new equipment under evaluation to replace used equipment d) Original cost of old equipment that is being evaluated for replacement e) Cost of previous year's insurance policy on old equipment being evaluated for replacement f) Accumulated depreciation on old equipment being evaluated for replacement Answer: a) irrelevant b) relevant c) relevant d) irrelevant e) irrelevant f) irrelevant Diff: 1 LO: 8-1 EOC: S8-1 AACSB: Analytical Thinking Learning Outcome: Distinguish between relevant and irrelevant costs 27) What is the difference between relevant and irrelevant information for making decisions. Provide examples of each. Answer: Relevant information affects a decision and irrelevant information does not. Relevant information differs between alternatives and affects the future. For example, the cost of insurance for a car will differ depending upon the make, model, year, etc of the car. Therefore, this information is relevant when deciding upon which car to purchase. The cost of a parking sticker to park in the school lot is not relevant, since it is the same regardless of the make, model, year, etc. of car. Diff: 1 LO: 8-1 EOC: E8-15 AACSB: Analytical Thinking Learning Outcome: Distinguish between relevant and irrelevant costs

7 .

28) A special order occurs when a customer requests a one-time order at an increased sales price. Answer: FALSE Diff: 1 LO: 8-2 EOC: S8-2 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 29) Special orders increase income if the revenue from the order does not exceed the incremental variable and fixed costs incurred to fill the order. Answer: FALSE Diff: 1 LO: 8-2 EOC: S8-2 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 30) In deciding whether to accept a special sales order, any fixed costs that would remain unchanged are considered relevant data. Answer: FALSE Diff: 1 LO: 8-2 EOC: S8-2 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 31) Variable costs are irrelevant to a special decision when those variable costs differ between alternatives. Answer: FALSE Diff: 1 LO: 8-2 EOC: S8-2 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 32) Managers should consider the potential effect of a special order on long-run profits and operations. Answer: TRUE Diff: 1 LO: 8-2 EOC: S8-2 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

8 .

33) When deciding whether to accept a special order, managers need to consider whether they have available excess capacity. Answer: TRUE Diff: 1 LO: 8-2 EOC: S8-2 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 34) If the expected increase in revenues from a special order is greater than the expected increase in variable and fixed costs, then the special order should be accepted. Answer: TRUE Diff: 1 LO: 8-2 EOC: S8-2 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 35) In a special sales order decision, the special price must exceed the variable cost of filling the order. In other words, the special order must have ________. A) sunk costs B) a positive contribution margin C) opportunity costs D) a negative contribution margin Answer: B Diff: 2 LO: 8-2 EOC: S8-2 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 36) In a special sales order decision, incremental fixed costs that will be incurred if the special order is accepted are considered to be A) opportunity costs. B) irrelevant to the decision. C) relevant to the decision. D) sunk costs. Answer: C Diff: 2 LO: 8-2 EOC: S8-2 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

9 .

37) Managers should consider all of the following when deciding whether to accept a special order, except A) available excess capacity. B) the variable costs associated with the special order. C) the effect of the order on regular sales. D) fixed costs that will not be affected by the order. Answer: D Diff: 2 LO: 8-1 EOC: S8-2 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 38) A manager should always reject a special order if A) the special order price is less than the variable costs of the order. B) there is available excess capacity. C) the special order price is less than the regular sales price. D) the special order will require variable nonmanufacturing expenses. Answer: A Diff: 2 LO: 8-1 EOC: S8-2 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 39) Which would be a consideration for making special orders? A) Available capacity to fill the order B) If price will cover incremental costs of filling the order C) If the order will affect regular sales in the long run D) All of the above Answer: D Diff: 2 LO: 8-2 EOC: S8-2 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

10 .

40) A company should ________ when making a short-term special decision. A) focus on qualitative factors only B) focus on quantitative factors only C) separate variable costs from fixed costs D) use a traditional direct costing approach Answer: C Diff: 2 LO: 8-2 EOC: S8-2 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

11 .

41) Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but is currently producing and selling 75,000 seats per year. The following information relates to current production: Sale price per unit

$400

Variable costs per unit: Manufacturing Marketing and administrative

$220 $50

Total fixed costs: Manufacturing Marketing and administrative

$750,000 $200,000

If a special sales order is accepted for 7,000 seats at a price of $350 per unit, and fixed costs remain unchanged, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.) A) Increase by $560,000 B) Decrease by $560,000 C) Increase by $2,450,000 D) Increase by $8,000,000 Answer: A Explanation: A) Variable Mfg. Cost $ 220 Variable Marketing $ 50 Total Variable $ 270 NOW Sales Price Less Total Variable Cost = Contribution Margin

$ 350 270 $ 80

Times units sold × 7,000 = Additional Profit $ 560,000 Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

12 .

42) Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but is currently producing and selling 75,000 seats per year. The following information relates to current production: Sale price per unit

$400

Variable costs per unit: Manufacturing Marketing and administrative

$220 $50

Total fixed costs: Manufacturing Marketing and administrative

$750,000 $200,000

If a special sales order is accepted for 4,000 seats at a price of $325 per unit, fixed costs remain unchanged, and no variable marketing and administrative costs will be incurred for this order, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.) A) Increase by $2,180,000 B) Increase by $420,000 C) Increase by $220,000 D) Decrease by $420,000 Answer: B Explanation: B) Sales Price $ 325 Less Total Variable Cost 220 = Contribution Margin $ 105 Times units sold × 4,000 = Additional Profit $ 420,000 Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

13 .

43) Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but is currently producing and selling 75,000 seats per year. The following information relates to current production: Sale price per unit

$400

Variable costs per unit: Manufacturing Marketing and administrative

$220 $50

Total fixed costs: Manufacturing Marketing and administrative

$750,000 $200,000

If a special sales order is accepted for 3,000 seats at a price of $300 per unit, and fixed costs increase by $10,000, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.) A) Decrease by $80,000 B) Increase by $230,000 C) Increase by $90,000 D) Increase by $80,000 Answer: D Explanation: D) Special sales order volume 3,000 Special order price per unit Additional revenue from order Variable manufacturing costs per unit Variable marketing and administrative costs per unit Total variable costs per unit

$ 900,000 $

220.00

$

270.00

Special sales order volume

3,000

Total variable costs per unit Additional variable expenses from order

$ 810,000

Additional revenue from order Additional variable expenses from order

$ 900,000 $ (810,000)

Special order increase in fixed expense Change in operating income Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 14 .

44) Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but is currently producing and selling 75,000 seats per year. The following information relates to current production: Sale price per unit

$400

Variable costs per unit: Manufacturing Marketing and administrative

$220 $50

Total fixed costs: Manufacturing Marketing and administrative

$750,000 $200,000

If a special sales order is accepted for 2,500 seats at a price of $320 per unit, fixed costs increase by $5,000, and variable marketing and administrative costs for that order are $25 per unit, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.) A) Increase by $187,500 B) Decrease by $182,500 C) Increase by $182,500 D) Increase by $245,000 Answer: C Explanation: C) Variable Mfg. Cost $ 220 Variable Marketing $ 25 Total Variable $ 245 Now Sales Price $ 320 Less Total Variable Cost 245 = Contribution Margin $ 75 Times units sold × 2,500 = Contribution Margin $ 187,500 Less: add'l fixed cost 5,000 = Add'l Profit $ 182,500 Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

15 .

45) Comfort Cloud manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but is currently producing and selling 75,000 seats per year. The following information relates to current production: Sale price per unit

$400

Variable costs per unit: Manufacturing Marketing and administrative

$220 $50

Total fixed costs: Manufacturing Marketing and administrative

$750,000 $200,000

If a special sales order is accepted for 6,500 seats at a price of $325 per unit, and fixed costs remain unchanged, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.) A) Decrease by $357,500 B) Increase by $357,500 C) Increase by $2,112,500 D) Increase by $5,500,000 Answer: B Explanation: B) Variable Mfg. Cost $ 220 Variable Marketing $ 50 Total Variable $ 270 NOW Sales Price Less Total Variable Cost = Contribution Margin

$ 325 270 $ 55

Times units sold × 6,500 = Additional Profit $ 357,500 Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

16 .

46) Comfort Cloud manufactures seats for airplanes. The company has the capacity to prroduce 100,000 seats per year, but is currently producing and selling 75,000 seats per year. The following information relates to current production: Sale price per unit

$400

Variable costs per unit: Manufacturing Marketing and administrative

$220 $50

Total fixed costs: Manufacturing Marketing and administrative

$750,000 $200,000

If a special sales order is accepted for 5,500 seats at a price of $325 per unit, fixed costs remain unchanged, and no variable marketing and administrative costs will be incurred for this order, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.) A) Increase by $2,997,500 B) Increase by $302,500 C) Increase by $577,500 D) Decrease by $577,500 Answer: C Explanation: C) Sales Price $ 325 Less Total Variable Cost 220 = Contribution Margin $ 105 Times units sold × 5,500 = Additional Profit $ 577,500 Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

17 .

47) Comfort Cloud manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but is currently producing and selling 75,000 seats per year. The following information relates to current production: Sale price per unit

$400

Variable costs per unit: Manufacturing Marketing and administrative

$220 $50

Total fixed costs: Manufacturing Marketing and administrative

$750,000 $200,000

If a special sales order is accepted for 3,200 seats at a price of $350 per unit, and fixed costs increase by $12,000, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.) A) Decrease by $244,000 B) Increase by $404,000 C) Increase by $256,000 D) Increase by $244,000 Answer: D Explanation: D) Special sales order volume 3,200 Special order price per unit Additional revenue from order Variable manufacturing costs per unit Variable marketing and administrative costs per unit Total variable costs per unit

$ 1,120,000 $

220.00

$

270.00

Special sales order volume

3,200

Total variable costs per unit Additional variable expenses from order

$ 864,000

Additional revenue from order Additional variable expenses from order

$ 1,120,000 $ (864,000)

Special order increase in fixed expenses Change in operating income Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 18 .

48) Comfort Cloud manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but is currently producing and selling 75,000 seats per year. The following information relates to current production: Sale price per unit

$400

Variable costs per unit: Manufacturing Marketing and administrative

$220 $50

Total fixed costs: Manufacturing Marketing and administrative

$750,000 $200,000

If a special sales order is accepted for 2,500 seats at a price of $310 per unit, fixed costs increase by $6,500, and variable marketing and administrative costs for that order are $25 per unit, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.) A) Increase by $218,500 B) Decrease by $156,000 C) Increase by $162,500 D) Increase by $156,000 Answer: D Explanation: D) Variable Mfg. Cost Variable Marketing Total Variable Now Sales Price Less Total Variable Cost = Contribution Margin

$ 220 $ 25 $ 245 $ 310 245 $ 65

Times units sold × 2,500 = Contribution Margin $ 162,500 Less: add'l fixed cost 6,500 = Add'l Profit $ 156,000 Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

19 .

49) Samson Incorporated provided the following information regarding its only product: Sale price per unit Direct materials used Direct labor incurred Variable manufacturing overhead Variable selling and administrative expenses Fixed manufacturing overhead Fixed selling and administrative expenses Units produced and sold

$50.00 $160,000 $185,000 $120,000 $70,000 $65,000 $12,000 20,000

Assume no beginning inventory Assuming there is excess capacity, what would be the effect on operating income of accepting a special order for 5,000 units at a sale price of $40 per product? (NOTE: Assume regular sales are not affected by the special order.) A) Decrease by $66,250 B) Increase by $66,250 C) Increase by $200,000 D) Increase by $333,750 Answer: B Explanation: B) Direct Materials $ 160,000 Direct Labor 185,000 Variable Mfg. O/H 120,000 Variable Selling 70,000 Total Mfg. Cost $ 535,000 / units produced 20,000 = $ 26.75 Mfg. cost per unit Then Sales Price $ 40 Less Mfg cost per Unit 26.75 = Contribution Margin $ 13.25 Times units sold × 5,000 Profit = $66,250 Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

20 .

50) Samson Incorporated provided the following information regarding its only product: Sale price per unit Direct materials used Direct labor incurred Variable manufacturing overhead Variable selling and administrative expenses Fixed manufacturing overhead Fixed selling and administrative expenses Units produced and sold

$50.00 $160,000 $185,000 $120,000 $70,000 $65,000 $12,000 20,000

Assume no beginning inventory Assuming there is excess capacity, what would be the effect on operating income of accepting a special order for 3,000 units at a sale price of $45 per product assuming additional fixed manufacturing overhead costs of $5,000 is incurred? (NOTE: Assume regular sales are not affected by the special order.) A) Increase by $135,000 B) Decrease by $49,750 C) Increase by $49,750 D) Increase by $54,750 Answer: C Explanation: C) Direct Materials $ 160,000 Direct Labor 185,000 Variable Mfg. O/H 120,000 Variable Selling 70,000 Total Mfg. Cost $ 535,000 / units produced 20,000 = $ 26.75 Mfg. cost per unit Then Sales Price $ 45.00 Less Mfg cost per Unit 26.75 = Contribution Margin $ 18.25 Times units sold × 3,000 Total Contribution Margin = $54,750 Less Add'l Fixed cost - 5,000 Add'l Profit 49,750 Diff: 3 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

21 .

51) Samson Incorporated provided the following information regarding its only product: Sale price per unit Direct materials used Direct labor incurred Variable manufacturing overhead Variable selling and administrative expenses Fixed manufacturing overhead Fixed selling and administrative expenses Units produced and sold

$50.00 $160,000 $185,000 $120,000 $70,000 $65,000 $12,000 20,000

Assume no beginning inventory Assuming there is excess capacity, what would be the effect on operating income of accepting a special order for 1,200 units at a sale price of $47 per product? The 1,200 units would not require any variable selling and administrative expenses. (NOTE: Assume regular sales are not affected by the special order.) A) Increase by $84,300 B) Decrease by $28,500 C) Increase by $24,300 D) Increase by $28,500 Answer: D Explanation: D) Direct Materials Direct Labor Variable Mfg. O/H Variable Selling Total Mfg. Cost

$ 160,000 185,000 120,000 70,000 $ 465,000 / units produced 20,000 = $ 23.25 Mfg. cost per unit

Then Sales Price $ 47 Less Mfg cost per Unit 23.25 = Contribution Margin $ 23.75 Times units sold × 1,200 Profit = $28,500 Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

22 .

52) Blue Technologies manufactures and sells DVD players. Great Products Company has offered Blue Technologies $22 per DVD player for 10,000 DVD players. Blue Technologies' normal selling price is $30 per DVD player. The total manufacturing cost per DVD player is $12 and consists of variable costs of $14 per DVD player and fixed overhead costs of $4 per DVD player. (NOTE: Assume excess capacity and no effect on regular sales.) How much are the expected increase (decrease) in revenues and expenses from the special sales order? A) Expected increase in revenues $220,000; expected increase in expenses $140,000 B) Expected increase in revenues $220,000; expected increase in expenses $40,000 C) Expected increase in revenues $300,000; expected increase in expenses $140,000 D) Expected increase in revenues $220,000; expected increase in expenses $120,000 Answer: A Explanation: A) $ 22 × 10,000 = $ 220,000 Add'l Revenue $ 14 × 10,000 = $ 140,000 Add'l Expense Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 53) Blue Technologies manufactures and sells DVD players. Great Products Company has offered Blue Technologies $22 per DVD player for 10,000 DVD players. Blue Technologies' normal selling price is $30 per DVD player. The total manufacturing cost per DVD player is $12 and consists of variable costs of $14 per DVD player and fixed overhead costs of $4 per DVD player. (NOTE: Assume excess capacity and no effect on regular sales.) Should Blue Technologies accept or reject the special sales order? A) Accept, because operating income would increase $360,000. B) Reject, because operating income would decrease $80,000. C) Accept, because operating income would increase $80,000. D) Reject, because operating income would decrease $160,000. Answer: C Explanation: C) $ 22 × 10,000 = $ 220,000 Add'l Revenue Less $ 14 × 10,000 = 140,000 Add'l Expense = $ 80,000 Operating Income Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

23 .

54) ABC Toys manufactures and sells wooden toys for $15 each. The company has the capacity to produce 25,000 toys in a year, but is currently producing and selling 20,000 toys per year. The company currently is incurring the following costs at its current production level of 20,000 toys: Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative costs Fixed selling and administrative costs

$ 70,000 $ 90,000 $ 75,000 $ 50,000

A retailer is interested in purchasing the excess capacity of 5,000 toys if it can receive a special price. This special order would not affect ABC Toys' regular sales or its cost structure. ABC Toys' profits would increase from this special order if the special order price per toy is greater than A) $8.00. B) $5.80. C) $7.25. D) $14.25. Answer: C Explanation: C) Variable Mfg Cost $ 70,000 Variable Selling Cost + 75,000 Total Cost $ 145,000/ 20,000 produced = $ 7.25 Contribution Margin Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

24 .

55) Apex Company produces artificial Christmas trees. A local shopping mall recently made a special order offer; the shopping mall would like to purchase 200 extra large white trees. Apex Company is currently producing and selling 20,000 trees; the company has the excess capacity to handle this special order. The shopping mall has offered to pay $120 for each tree. An accountant at Apex Company provides an estimate of the unit product cost as follows: Direct materials Direct labor (variable) Variable manufacturing overhead Fixed manufacturing overhead Total unit cost

$ 50.00 $ 3.50 $ 1.00 $ 4.00 $ 14.50

This special order would require an investment of $10,000 for the molds required for the extra large trees. These molds would have no other purpose and would have no salvage value. The special order trees would also have an additional variable cost of $5.00 per unit associated with having a white tree. This special order would not have any effect on the company's other sales. If the special order is accepted, the company's operating income would increase (decrease) by A) $2,300 decrease. B) $13,100 decrease. C) $2,100 increase. D) $13,100 increase. Answer: C Explanation: C) Direct materials $ 50.00 Direct Labor 3.50 Variable MOH 1.00 Add'l variable cost 5.00 Total Mfg cost $ 59.50 Now Selling Price $ 120.00 Mfg cost 59.50 Contribution Margin $ 60.50 × 200 units = 12,100 - 10,000 Add'l Fixed = $ 2,100 Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

25 .

56) The following information relates to current production of outdoor chaise lounges at Backyard Posh: Variable manufacturing costs per unit Total fixed manufacturing costs Variable marketing and administrative costs per unit Total fixed marketing and administrative costs

$ 102.00 $ 525,000 $ 30.00 $ 250,000

The regular selling price per chaise lounge is $300.00. The company is analyzing the opportunity to accept a special sales order for 1,200 chaise lounges at a price of $225.00 per unit. Fixed costs would remain unchanged. The company has the capacity to produce 15,000 chaise lounges per year, but is currently producing and selling 10,000 chaise lounges per year. Regular sales will not be affected by the special order. If the company were to accept this special order, how would operating income be affected? A) Increase by $270,000 B) Increase by $111,600 C) Decrease by $111,600 D) Decrease by $270,000 Answer: B Explanation: B) Special sales order volume 1,200 Special order price per unit Additional revenue from order Variable manufacturing costs per unit Variable marketing and administrative costs per unit Total variable costs per unit

$ 270,000 $

102.00

$

132.00

Special sales order volume

1,200

Total variable costs per unit Additional expenses from order

$ 158,400

Additional revenue from order

$ 270,000

Additional expenses from order Change in operating income Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

26 .

57) The following information relates to current production of outdoor chaise lounges at Backyard Posh: Variable manufacturing costs per unit Total fixed manufacturing costs Variable marketing and administrative costs per unit Total fixed marketing and administrative costs

$ 102.00 $ 525,000 $ 30.00 $ 250,000

The regular selling price per chaise lounge is $300.00. The company is analyzing the opportunity to accept a special sales order for 800 chaise lounge at a price of $250.00 per unit. Fixed costs would remain unchanged. The company has the capacity to produce 15,000 chaise lounges per year, but is currently producing and selling 10,000 chaise lounges per year. Regular sales will not be affected by the special order. If the company were to accept this special order, how would operating income be affected? A) Decrease by $94,400 B) Decrease by $118,400 C) Increase by $94,400 D) Increase by $118,400 Answer: D Explanation: D) Special sales order volume 800 Special order price per unit Additional revenue from order

$ 200,000

Special sales order volume

800

Variable manufacturing costs per unit Additional expenses from order

$

Additional revenue from order

$ 200,000

81,600

Additional expenses from order Change in operating income Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

27 .

58) The following information relates to current production of outdoor chaise lounges Backyard Posh: Variable manufacturing costs per unit Total fixed manufacturing costs Variable marketing and administrative costs per unit Total fixed marketing and administrative costs

$ 102.00 $ 525,000 $ 30.00 $ 250,000

The regular selling price per chaise lounge is $300.00. The company is analyzing the opportunity to accept a special sales order for 200 chaise lounges at a price of $200.00 per unit. Fixed costs would increase by $20,000. The company has the capacity to produce 15,000 chaise lounges per year, but is currently producing and selling 10,000 chaise lounges per year. Regular sales will not be affected by the special order. If the company were to accept this special order, how would operating income be affected? A) Decrease by $6,400 B) Increase by $13,600 C) Decrease by $13,600 D) Increase by $6,400 Answer: A Explanation: A) Special sales order volume 200 Special order price per unit Additional revenue from order Variable manufacturing costs per unit Variable marketing and administrative costs per unit Total variable costs per unit

$ 40,000 $

102.00

$

132.00

Special sales order volume

200

Total variable costs per unit Additional variable expenses from order

$

Additional revenue from order Additional variable expenses from order

$ 40,000 $ (26,400)

26,400

Special order increase in fixed expenses Change in operating income Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

28 .

59) The following information relates to current production of outdoor chaise lounges at Backyard Posh: Variable manufacturing costs per unit Total fixed manufacturing costs Variable marketing and administrative costs per unit Total fixed marketing and administrative costs

$ 102.00 $ 525,000 $ 30.00 $ 250,000

The regular selling price per chaise lounge is $300.00. The company is analyzing the opportunity to accept a special sales order for 500 chaise lounges at a price of $200.00 per unit. Variable marketing and administrative costs would be $10 per unit lower than on regular sales. Fixed costs would increase by $15,000. The company has the capacity to produce 15,000 chaise lounges per year, but is currently producing and selling 10,000 chaise lounges per year. Regular sales will not be affected by the special order. If the company were to accept this special order, how would operating income be affected? A) Decrease by $39,000 B) Decrease by $24,000 C) Increase by $39,000 D) Increase by $24,000 Answer: D Explanation: D) Special sales order volume Special order price per unit Additional revenue from order Variable manufacturing costs per unit Variable marketing and administrative costs per unit Total variable costs per unit

500 $ 100,000 $

102.00

$

122.00

Special sales order volume

500

Total variable costs per unit Additional variable expenses from order

$

61,000

Additional revenue from order Additional variable expenses from order

$ $

100,000 (61,000)

Special order increase in fixed expenses Change in operating income Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

29 .

60) Pluto Incorporated provided the following information regarding its single product: Direct materials used Direct labor incurred Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses

$ 240,000 $ 420,000 $ 160,000 $ 100,000 $ 60,000 $ 20,000

The regular selling price for the product is $80. The annual quantity of units produced and sold is 40,000 units (the costs above relate to the 40,000 units production level). The company has excess capacity and regular sales will not be affected by this special order. There was no beginning inventory. What would be the effect on operating income of accepting a special order for 3,500 units at a sale price of $55 per product? A) Increase by $115,500 B) Increase by $269,500 C) Decrease by $115,500 D) Decrease by $269,500 Answer: A Explanation: A) Direct Materials $ 240,000 Direct Labor 420,000 Variable Overhead 160,000 Variable Selling 60,000 Total $ 880,000 Total Divided by production Cost per unit

$880,000 40,000 $ 22.00

Selling Price Less cost per unit Contribution Margin × units sold Operating Income

$ 55.00 22.00 $ 33.00 × 3,500 $ 115,500

Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

30 .

61) Pluto Incorporated provided the following information regarding its single product: Direct materials used Direct labor incurred Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses

$ 240,000 $ 420,000 $ 160,000 $ 100,000 $ 60,000 $ 20,000

The regular selling price for the product is $80. The annual quantity of units produced and sold is 40,000 units (the costs above relate to the 40,000 units production level). The company has excess capacity and regular sales will not be affected by this special order. There was no beginning inventory. What would be the effect on operating income of accepting a special order for 1,500 units at a sale price of $50 per product assuming additional fixed manufacturing overhead costs of $10,000 are incurred? A) Decrease by $42,000 B) Decrease by $32,000 C) Increase by $32,000 D) Increase by $42,000 Answer: C Explanation: C) Direct Materials Direct Labor Variable Overhead Variable Selling Total

$ 240,000 420,000 160,000 60,000 $ 880,000

Total Divided by production Cost per unit

$880,000 40,000 $ 22.00

Selling Price Less cost per unit Contribution Margin × units sold Operating Income Less Add’d Fixed Cost Operating (loss)

$ 50.00 22.00 $ 28.00 × 1,500 $ 42,000 10,000 $32,000

Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

31 .

62) Pluto Incorporated provided the following information regarding its single product: Direct materials used Direct labor incurred Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses

$ 240,000 $ 420,000 $ 160,000 $ 100,000 $ 60,000 $ 20,000

The regular selling price for the product is $80. The annual quantity of units produced and sold is 40,000 units (the costs above relate to the 40,000 units production level). The company has excess capacity and regular sales will not be affected by this special order. There was no beginning inventory. What would be the effect on operating income of accepting a special order for 1,000 units at a sale price of $40 per product? The special order units would not require any variable selling and administrative expenses. A) Decrease by $18,000 B) Decrease by $19,500 C) Increase by $18,000 D) Increase by $19,500 Answer: D

32 .

Explanation: D) Direct materials used Divide by

$ 240,000 Divide by

Units produced and sold Direct materials cost per unit

$

Direct labor incurred Divide by

$ 420,000 Divide by

Units produced and sold Direct labor costs per unit

$

Variable manufacturing overhead Divide by

$ 160,000 Divide by

Units produced and sold Variable manufacturing overhead cost per unit

$

4.00

Direct materials cost per unit Direct labor costs per unit

$ $

6.00 10.50

Variable manufacturing overhead per unit Total variable costs per unit

$

20.50

Special order volume Special order sales price per unit Additional revenue from order

6.00

10.50

1,000 $ 40,000

Special order volume

1,000

Special order sales price per unit Additional revenue from order

$ 20,500

Additional revenue from order

$ 40,000

Additional variable costs per unit Change in operating income Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

33 .

63) Indicate whether each item below is a characteristic of a price-taker or a price-setter. Use PT for pricetaker and PS for price-setter. a) Cost-plus pricing b) Product lacks uniqueness c) Less competition d) Target pricing e) Heavy competition Answer: a) PS b) PT c) PS d) PT e) PT Diff: 1 LO: 8-2 EOC: E8-17A AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

34 .

64) Mountaintop golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $50 million of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $25,000,000 for the golfing season. About 400,000 golfers are expected each year. Variable costs are about $8 per golfer. The Mountaintop golf course has a favorable reputation in the area and therefore, has some control over the price of a round of golf. Using a cost-plus approach, what price should Mountaintop charge for a round of golf? Answer: Variable costs per unit $ 8.00 Expected volume Total variable costs

$

3,200,000

Investors' return (% of assets)

12%

Total assets Desired profit

$

6,000,000

Total fixed costs

$

25,000,000

Total assets Total costs

$ 28,200,000

Desired profit Target revenue Divide by

$ 34,200,000 Divide by

Expected volume Cost-plus price per round of golf Diff: 3 LO: 8-2 EOC: E8-17A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

35 .

65) Mountaintop golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $50 million of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $25,000,000 for the golfing season. About 400,000 golfers are expected each year. Variable costs are about $8 per golfer. The Mountaintop golf course is a price-taker and won't be able to charge more than its competitors who charge $75 per round of golf. What profit will it earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit level? Answer: Market price per unit $ 75.00 Expected volume Revenue at market price

$

30,000,000

Variable costs per unit

$

8.00

Expected volume Total variable costs

$

3,200,000

Revenue at market price Less: total fixed costs

$ 30,000,000 $ (25,000,000)

total variable costs Operating income Investors' return (% of ssets)

12%

Total assets Desired profit

$

6,000,000

Operating income Profit expectation shortfall

$

4,200,000

$

4,200,000 Divide by

Profit expectation shortfall Divide by Total assets Percent of assets

No, investors will not be happy. They wanted 12% ROI. Diff: 3 LO: 8-2 EOC: E8-17A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

36 .

66) Extreme Sports received a special order for 1,000 units of its extreme motorbike at a selling price of $250 per motorbike. Extreme Sports has enough extra capacity to accept the order. No additional selling costs will be incurred. Unit costs to make and sell this product are as follows: Direct materials, $100; direct labor, $50; variable manufacturing overhead, $14; fixed manufacturing overhead, $10, and variable selling costs, $2. A) List the relevant costs. B) What will be the change in operating income if Extreme Sports accepts the special order? C) Should Extreme Sports accept the special order? Answer: A) Relevant costs: Direct material Direct labor Variable manufacturing overhead Total relevant costs

$ 100.00 $ 50.00 $ 14.00 $ 164.00

B) Special offer volume Special offer price Additional revenue from order

1,000 $ 250.00 $ 250,000

Relevant costs: Direct material Direct labor Variable manufacturing overhead Total relevant costs Special offer volume Additional expenses from order

$ 100.00 $ 50.00 $ 14.00 $ 164.00 1,000 $ 164,000

Additional revenue from order Additional expenses from order Change in operating income

$ 250,000 $ (164,000) $ 86,000

C) Yes, Extreme Sports should accept the order. Diff: 2 LO: 8-2 EOC: S8-2 AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

37 .

67) Jeff's Widget Corporation produces and sells a part used in the production of bicycles. The unit costs associated with this part are as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost

$.14 .30 .20 .05 $.69

Saturn Company has approached Jeff's Widget Corporation with an offer to purchase 20,000 units of this part at a price of $.80. Accepting this special sales order will put idle manufacturing capacity to use and will not affect regular sales. Total fixed costs will not change. Determine whether or not the special order should be accepted. Justify your conclusion. Answer: Special offer volume Special offer price Additional revenue from order

20,000 $ 0.80 $ 16,000

Direct material Direct labor Variable manufacturing overhead Total costs Special offer volume Additional expenses from order

$ 0.14 $ 0.30 $ 0.20 $ 0.64 20,000 $ 12,800

Additional revenue from order Additional expenses from order Change in operating income

$ 16,000 $ (12,800) $ (3,200)

The company should accept the special order since total operating income would increase if the special order were to be accepted. Diff: 2 LO: 8-2 EOC: E8-18A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

38 .

68) Revved Up Toys manufactures a computer chip used in the production of remote control cars. When 6,000 cars are produced, the costs per part are: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total

$2.50 1.50 1.00 1.75 $6.75

Sam's Associates has offered to sell Revved Up Toys 6,000 parts for $5.75 each. If Sarah accepts the offer, $1.00 of the fixed manufacturing overhead costs can be eliminated. a. What is the relevant per unit cost to manufacture the part? b. Which alternative is best for Revved Up Toys and by how much? Answer: a. Relevant costs to manufacture the part include direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead that can be eliminated, or: Direct materials Direct labor Variable manufacturing overhead Traceable fixed cost per unit Relevant cost to produce each unit

$2.50 $1.50 $1.00 $1.00 $6.00

b. Direct materials Direct labor Variable manufacturing overhead Traceable fixed cost per unit Relevant cost to produce each unit Offer price by supplier Savings per unit if bought Production level Total increase in operating income if bought

$2.50 $1.50 $1.00 $1.00 $6.00 $(5.75) $0.25 6,000 $1,500

Diff: 2 LO: 8-2 EOC: P8-43A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

39 .

69) Elite Office Furniture received a special order for 1,200 units of its executive chair at a selling price of $90 per chair. Elite Office Furniture has enough capacity to accept the order. No additional selling costs will be incurred. Unit costs to make and sell this product are as follows: Direct Materials $45; Direct Labor $19; Variable Manufacturing Overhead $6; Fixed Manufacturing Overhead $12; and Variable Selling Costs $5. List the relevant costs (and amount) to Elite Office Furniture for this special order. Answer: Direct material $ 45.00 Direct labor $ 19.00 Variable manufacturing overhead $ 6.00 Total relevant costs $ 70.00 Diff: 2 LO: 8-2 EOC: S8-2 AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

40 .

70) Elite Office Furniture received a special order for 1,200 units of its executive chairs at a selling price of $90 per chair. Elite Office Furniture has enough capacity to accept the order. No additional selling costs will be incurred. Unit costs to make and sell this product are as follows: Direct Materials $45; Direct Labor $19; Variable Manufacturing Overhead $6; Fixed Manufacturing Overhead $12; and Variable Selling Costs $5. What will be Elite Office Furniture's change in operating income if they accept the special order? Should Elite Office Furniture accept the order? Explain why or why not. Answer: Special offer volume 1,200 Special offer price $ 90.00 Additional revenue from order $ 108,000 Direct material Direct labor Variable manufacturing overhead Total relevant costs Special offer volume Additional expenses from order

$ 45.00 $ 19.00 $ 6.00 $ 70.00 1,200 $ 84,000

Additional revenue from order Additional expenses from order Increase in operating income

$ 108,000 $ (84,000) $ 24,000

Yes, they should accept the order as it results in additional operating income since the company has the additional capacity. Diff: 2 LO: 8-2 EOC: P8-43A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

41 .

71) Heinz Manufacturing produces Item Q with variable manufacturing costs of $12/unit. The selling price of Item Q is $15/unit. The fixed manufacturing overhead cost is $72,000. A normal production run includes 100,000 units. Heinz Manufacturing has discovered an additional process to change Item Q into Item QR. Additional costs are estimated at $7/unit. Item QR would sell for $24/unit. Additional fixed manufacturing overhead costs of $4,500 would be incurred if Item QR is produced. There would be no change in the number of units produced. What would be the operating income for Item Q? Answer: Production volume 100,000 Product Q selling price $ 15.00 Product Q revenue $ 1,500,000 Production volume Product Q variable costs Product Q total variable costs

100,000 $ 12.00 $ 1,200,000

Product Q revenue Product Q total variable costs Fixed manufacturing overhead for product Q Operating income for Q

$ 1,500,000 $ (1,200,000) $ (72,000) $ 228,000

Diff: 2 LO: 8-2 EOC: P8-43A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

42 .

72) Heinz Manufacturing produces Item Q with variable manufacturing costs of $12/unit. The selling price of Item Q is $15/unit. The fixed manufacturing overhead cost is $72,000. A normal production run includes 100,000 units. Heinz Manufacturing has discovered an additional process to change Item Q into Item QR. Additional costs are estimated at $7/unit. Item QR would sell for $24/unit. Additional fixed manufacturing overhead costs of $4,500 would be incurred if Item QR is produced. There would be no change in the number of units produced. What would be the operating income for Item QR? Answer: Production volume 100,000 Product QR selling price $ 24.00 Product QR revenue $ 2,400,000 Product Q variable costs Product QR additional costs Product QR variable costs Production volume Product QR total variable costs

$ 12.00 $ 7.00 $ 19.00 100,000 $ 1,900,000

Fixed manufacturing overhead for product Q Additional fixed manufacturing overhead Fixed manufacturing overhead for product QR

$ 72,000 $ 4,500

Product QR revenue Product QR total variable costs Fixed manufacturing overhead for product QR Operating income for QR

$ 2,400,000 $ (1,900,000)

$ 76,500

$ (76,500) $ 423,500

Diff: 2 LO: 8-2 EOC: P8-43A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 73) Heinz Manufacturing produces Item Q with variable manufacturing costs of $12/unit. The selling price of Item Q is $15/unit. The fixed manufacturing overhead cost is $72,000. A normal production run includes 100,000 units. Heinz Manufacturing has discovered an additional process to change Item Q into Item QR. Additional costs are estimated at $7/unit. Item QR would sell for $24/unit. Additional fixed manufacturing overhead costs of $4,500 would be incurred if Item QR is produced. There would be no change in the number of units produced. By what percent would Heinz Manufacturing's operating income improve if the change is made?

43 .

Answer: Production volume Product Q selling price Product Q revenue

100,000 $ 15.00 $ 1,500,000

Production volume Product Q variable costs Product Q total variable costs

100,000 $ 12.00 $ 1,200,000

Product Q revenue Product Q total variable costs Fixed manufacturing overhead for product Q Operating income for Q

$ 1,500,000 $(1,200,000) $ (72000) $ 228,000

Product QR: Production volume Product QR selling price Product QR revenue

100,000 $ 24.00 $ 2,400,000

Product Q variable costs Product QR additional costs Product QR variable costs Production volume Product QR total variable costs

$ 12.00 $ 7.00 $ 19.00 100,000 $ 1,900,000

Fixed manufacturing overhead for product Q Additional fixed manufacturing overhead Fixed manufacturing overhead for product QR

$ 72,000 $ 4,500 $ 76,500

Product QR revenue Product QR total variable costs Fixed manufacturing overhead for product QR Operating income for QR

$ 2,400,000 $(1,900,000) $ (76,500) $ 423,500

Operating income for QR Divide by Operating income for Q

$ 423,500 Divide by $ 228,000 1.857 (1) 85.75%

Subtract Increase in income Diff: 2 LO: 8-2 EOC: P8-43A 44 .

AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 74) Companies operating in highly competitive industries are generally price-setters. Answer: FALSE Diff: 1 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 75) When setting prices, a company need not consider whether it is a price-taker or a price-setter for each product that it sells. Answer: FALSE Diff: 1 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 76) A price-setter company emphasizes a cost-plus approach to pricing. Answer: TRUE Diff: 1 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 77) For a product, revenue at market price plus desired operating profit equals target total cost. Answer: FALSE Diff: 1 LO: 8-3 EOC: S8-4 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 78) When a company is a price-setter, it emphasizes a target costing approach to pricing. Answer: FALSE Diff: 1 LO: 8-3 EOC: S8-4 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

45 .

79) When making a pricing decision, it is not necessary to separate costs into fixed and variable. Answer: FALSE Diff: 1 LO: 8-3 EOC: S8-4 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 80) Cost-plus price minus desired profit equals total cost. Answer: TRUE Diff: 2 LO: 8-3 EOC: S8-4 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 81) When using a target costing approach, the company starts with revenue at market price, and then subtracts its desired profit, to yield the target total cost. Answer: TRUE Diff: 2 LO: 8-3 EOC: S8-4 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 82) Companies often try to gain more control over pricing by attempting to differentiate their products. Answer: TRUE Diff: 2 LO: 8-3 EOC: S8-4 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 83) Product differentiation allows companies to become more of a price-setter, and less of a price-taker. Answer: TRUE Diff: 2 LO: 8-3 EOC: S8-4 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 84) When setting prices, managers need to consider all costs. Answer: TRUE Diff: 2 LO: 8-3 EOC: S8-4 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 46 .

85) Managers need to consider variable costs, fixed costs, inventoriable product costs and period costs when setting prices. Answer: TRUE Diff: 2 LO: 8-3 EOC: S8-4 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 86) Cost-plus pricing is essentially the opposite of target-costing. Answer: TRUE Diff: 2 LO: 8-3 EOC: S8-4 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 87) Which of the following best describes "target costing"? A) An approach to pricing that begins with revenue at market price and subtracts desired profit to arrive at target total cost B) A factor that restricts production or sales of a product C) All costs incurred along the value chain in connection with the product or service D) An approach to pricing that begins with the product's total cost and adds desired profit Answer: A Diff: 2 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 88) "Total cost of product or service" is best described as which of the following? A) Benefits foregone by choosing a particular alternative course of action B) A factor that restricts production or sales of a product C) Costs that were incurred in the past and can not be changed D) All costs incurred along the value chain in connection with the product or service Answer: D Diff: 2 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

47 .

89) Which of the following describes the products and services of companies that are price-setters? A) They tend to be unique. B) They are priced by managers using a target-costing emphasis. C) They tend to have a lot of competitors. D) They tend to be commodities. Answer: A Diff: 2 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 90) Stockholders' expectations of company profits are affected by which of the following? A) Industry risk B) Historical company earnings C) General economic conditions D) All of the above Answer: D Diff: 2 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 91) The cost-plus price is described by which of the following? A) Target total cost plus desired profit B) Total cost plus desired profit C) Revenue at market price plus desired profit D) Variable cost plus desired profit Answer: B Diff: 2 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 92) Target total cost is described by which of the following? A) Total cost plus desired profit B) Revenue at market price plus desired profit C) Revenue at market price minus desired profit D) Total cost minus actual cost Answer: C Diff: 2 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

48 .

93) Managers must consider which of the following when pricing a product or service? A) All costs B) Only period costs C) Only manufacturing costs D) Only variable costs Answer: A Diff: 2 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 94) Which of the following pairs are characteristics of price-takers? A) Less competition and target pricing B) Cost-plus pricing and less competition C) Target costing and heavy competition D) Cost-plus pricing and lack of product uniqueness Answer: C Diff: 2 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 95) Which of the following pairs are characteristics of price-setters? A) Less competition and target costing B) Cost-plus pricing and less competition C) Lack of product uniqueness and heavy competition D) Less competition and lack of product uniqueness Answer: B Diff: 2 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 96) Big-box retailers such as Lowe's are considered price-takers because A) their products are not unique. B) there is less competition in the home improvement retail sector. C) their products are unique. D) they emphasize cost-plus pricing. Answer: A Diff: 2 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

49 .

97) Target total cost is defined as A) cost of goods sold less desired profit. B) revenue at market price less desired profit. C) revenue at market price less variable costs. D) revenue at market price less fixed costs. Answer: B Diff: 2 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 98) Methods for a company to meet target total cost and the profit goals if the current cost of the product is higher than the target cost include which of the following? A) Accept a lower profit B) Cut fixed costs, cut variable costs C) Cut fixed costs D) Any of the above Answer: D Diff: 2 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 99) In pricing a product, managers should consider which of the following? A) Only fixed costs B) Only variable costs C) Only period costs D) None of the above Answer: D Diff: 2 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

50 .

100) All of the following factors affect the amount a customer is willing to pay for a product, except A) the selling company's costs. B) the competition's price. C) the product's uniqueness. D) general economic conditions. Answer: A Diff: 2 LO: 8-3 EOC: S8-3 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 101) Mountaintop golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $45 million of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $20,000,000 for the golfing season. About 400,000 golfers are expected each year. Variable costs are about $15 per golfer. Mountaintop golf course has a favorable reputation in the area and therefore, has some control over the price of a round of golf. Using a cost-plus approach, what price should Mountaintop charge for a round of golf? A) $51.50 B) $71.00 C) $78.50 D) $ 0.21 Answer: C Explanation: C) Variable costs per unit $ 15.00 Expected volume 400,000 Total variable costs $ 6,000,000 Investors' return (% of assets) Total assets Desired profit

12% $45,000,000 $ 5,400,000

Total fixed costs Total variable costs Total costs Desired profit Target revenue Divide by Expected volume Cost-plus price per round of golf

$20,000,000 $ 6,000,000 $26,000,000 $ 5,400,000 $31,400,000 Divide by 400,000 $ 78.50

Diff: 3 LO: 8-3 EOC: S8-4 AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 51 .

102) Mountaintop golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $45 million of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $20,000,000 for the golfing season. About 400,000 golfers are expected each year. Variable costs are about $15 per golfer. The Mountaintop golf course is a price-taker and won't be able to charge more than its competitors who charge $75 per round of golf. What profit will it earn in terms of dollars? A) $16,000,000 B) $(4,000,000) C) $ 4,000,000 D) $(20,000,000) Answer: C Explanation: C) Market price per unit $ 75.00 Expected volume Revenue

$

30,000,000

Expected volume

400,000

Variable costs per unit Total variable costs

$

6,000,000

Total fixed costs

$

20,000,000

Total variable costs Total product costs

$ 26,000,000

Revenue

$ 30,000,000

Total product costs Expected profit Diff: 3 LO: 8-3 EOC: E8-19A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

52 .

103) Mountaintop golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $45 million of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $20,000,000 for the golfing season. About 400,000 golfers are expected each year. Variable costs are about $15 per golfer. Mountaintop golf course is a pricetaker and won't be able to charge more than its competitors who charge $75 per round of golf. What profit will it earn as a percent of assets? A) Loss of 8.89% B) Profit of 35.56% C) Profit of 8.89% D) Loss of 57.67% Answer: C Explanation: C) Market price per unit

$

75.00

Expected volume Revenue

$

30,000,000

Expected volume

400,000

Variable costs per unit Total variable costs

$

6,000,000

Total fixed costs

$

20,000,000

Total variable costs Total product costs

$ 26,000,000

Revenue

$ 30,000,000

Total product costs Expected profit

$

4,000,000

$

4,000,000 Divide by

Expected profit Divide by Total assets Expected profit as a percent of

assets Diff: 3 LO: 8-3 EOC: E8-19A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

53 .

104) Philadelphia Swim Club is planning for the coming year. Investors would like to earn a 10% return on the company's $30 million of assets. The company primarily incurs fixed costs to maintain the swimming pool. Fixed costs are projected to be $12,500,000 for the year. About 500,000 members are expected to swim each year. Variable costs are about $10 per swimmer. The Philadelphia Swim Club has a favorable reputation in the area and therefore, has some control over the membership price. Using a cost-plus approach, what price should Philadelphia Swim Club charge for a membership? A) $41.00 B) $37.50 C) $29.00 D) $ 0.17 Answer: A Explanation: A) Variable costs per unit $ 10.00 Expected volume 500,000 Total variable costs $ 5,000,000 Investors' return (% of assets) Total assets Desired profit

10% $30,000,000 $ 3,000,000

Total fixed costs Total variable costs Total costs Desired profit Target revenue Divide by Expected volume Cost-plus price per round of golf

$12,500,000 $ 5,000,000 $17,500,000 $ 3,000,000 $20,500,000 Divide by 500,000 $ 41.00

Diff: 3 LO: 8-3 EOC: E8-19A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

54 .

105) Philadelphia Swim Club is planning for the coming year. Investors would like to earn a 10% return on the company's $30 million of assets. The company primarily incurs fixed costs to maintain the swimming pools. Fixed costs are projected to be $12,500,000 for the year. About 500,000 members are expected to swim each year. Variable costs are about $10 per swimmer. Philadelphia Swim Club is a price-taker and won't be able to charge more than its competitors who charge $37.00 for a membership. What profit will it earn in terms of dollars? A) $11,000,000 B) $(12,500,000) C) $1,000,000 D) $(1,000,000) Answer: C Explanation: C) Market price per unit $ 37.00 Expected volume Revenue

$

18,500,000

Expected volume

500,000

Variable costs per unit Total variable costs

$

5,000,000

Total fixed costs

$

12,500,000

Total variable costs Total product costs

$ 17,500,000

Revenue

$ 18,500,000

Total product costs Expected profit Diff: 3 LO: 8-3 EOC: E8-19A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

55 .

106) Philadelphia Swim Club is planning for the coming year. Investors would like to earn a 10% return on the company's $30 million of assets. The company primarily incurs fixed costs to maintain the swimming pools. Fixed costs are projected to be $12,500,000 for the year. About 500,000 members are expected to swim each year. Variable costs are about $10 per swimmer. Philadelphia Swim Club is a price-taker and won't be able to charge more than its competitors who charge $37.00 per hour of court time. What profit will it earn as a percent of assets? A) Profit of 3.33% B) Loss of 3.33% C) Loss of 58.17% D) Profit of 36.67% Answer: A Explanation: A) Market price per unit

$

37.00

Expected volume Revenue

$

18,500,000

Expected volume

500,000

Variable costs per unit Total variable costs

$

5,000,000

Total fixed costs

$

12,500,000

Total variable costs Total product costs

$ 17,500,000

Revenue

$ 18,500,000

Total product costs Expected profit

$

1,000,000

$

1,000,000 Divide by

Expected profit Divide by Total assets Expected profit as a percent of

assets Diff: 3 LO: 8-3 EOC: E8-19A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

56 .

107) Green Pastures golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $40 million of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $20 million for the golfing season. About 500,000 golfers are expected each year. Variable costs are about $12 per golfer. The Green Pastures course has a favorable reputation in the area and therefore, has some control over the price of a round of golf. Based on these numbers, what are Green Pasture's total costs? Answer: $20,000, 000 in fixed costs + (500,000 golfers × $12 variable cost/golfer) = $26,000,000 Diff: 2 LO: 8-3 EOC: S8-4; E8-19A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions 108) Green Pastures golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $40 million of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $20 million for the golfing season. About 500,000 golfers are expected each year. Variable costs are about $12 per golfer. The Green Pastures course has a favorable reputation in the area and therefore, has some control over the price of a round of golf. Based on these numbers, what is Green Pasture's target revenue? Answer: $20,000, 000 in fixed costs + (500,000 golfers × $12 variable cost/golfer) = $26,000,000 $26,000, 000 in total costs + ($40,000,000 × 12% return) = $30,800,000 Diff: 2 LO: 8-3 EOC: E8-19A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions 109) Green Pastures golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $40 million of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $20 million for the golfing season. About 500,000 golfers are expected each year. Variable costs are about $12 per golfer. Green Pastures golf course is a price-taker and won't be able to charge more than $60 per round because of local competition. What will Green Pasture's revenue be at a market price of $60/round? Answer: 500,000 golfers × $60/round = $30,000,000 Diff: 2 LO: 8-3 EOC: E8-19A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

57 .

110) Green Pastures golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $40 million of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $20 million for the golfing season. About 500,000 golfers are expected each year. Variable costs are about $12 per golfer. Green Pastures golf course is a price-taker and won't be able to charge more than $60 per round because of local competition. What will Green Pasture's expected profit shortfall be if it charges $60/round? Answer: $20,000,000 in fixed costs + (500,000 golfers × $12 variable cost/golfer) = $26,000,000 $26,000,000 in total costs + ($40,000,000 × 12% return) = $30,800,000 $30,000,000 - 26,000,000 = 4,000,000 $4,800,000 desired operating income - $4,000,000 operating income at $60/round equals a shortfall of $800,000 Diff: 2 LO: 8-3 EOC: E8-19A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions 111) If a product line has a negative contribution margin, the product is not covering its fixed costs and should be discontinued. Answer: TRUE Diff: 1 LO: 8-4 EOC: S8-5 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 112) If the cost savings from discontinuing a product exceed the lost revenues from discontinuing the product, it should be retained. Answer: FALSE Diff: 1 LO: 8-4 EOC: S8-5 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 113) From a purely financial standpoint, if a product line has a negative contribution margin, the product line should be discontinued. Answer: TRUE Diff: 2 LO: 8-4 EOC: S8-5 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

58 .

114) Fixed costs that exist even after a product is discontinued are called unavoidable fixed costs. Answer: TRUE Diff: 2 LO: 8-4 EOC: S8-5 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 115) When deciding whether to discontinue a product, managers should only consider the costs that will be saved. Answer: FALSE Diff: 2 LO: 8-4 EOC: S8-5 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 116) If a product has a negative contribution margin, it should not be discontinued. Answer: FALSE Diff: 2 LO: 8-4 EOC: S8-5 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 117) Fixed costs that will continue to exist if a product is discontinued are relevant. Answer: FALSE Diff: 2 LO: 8-4 EOC: S8-5 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

59 .

118) Unavoidable fixed costs are A) irrelevant to the decision of whether to discontinue a product line because they will differ between alternatives. B) relevant to the decision of whether to discontinue the department. C) irrelevant to the decision of whether to discontinue a product line because they will not differ between alternatives. D) none of the above. Answer: C Diff: 2 LO: 8-4 EOC: S8-5 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 119) Common fixed costs that are allocated between departments are generally A) direct fixed costs of the department. B) relevant to the decision of whether to discontinue the department. C) irrelevant to the decision of whether to discontinue the department. D) direct fixed costs of other departments. Answer: C Diff: 2 LO: 8-4 EOC: S8-5 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 120) Fixed costs that are allocated among all departments are known as A) direct fixed costs. B) relevant fixed costs. C) general fixed costs. D) common fixed costs. Answer: D Diff: 2 LO: 8-4 EOC: S8-5 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

60 .

121) A company's manager would consider which of the following in deciding whether to discontinue its electronics product line? A) The costs it could save by discontinuing the product line B) The revenues it would lose from discontinuing the product line C) How discontinuing the electronics product line would affect sales of its other products (like CDs) D) All of the above Answer: D Diff: 2 LO: 8-4 EOC: S8-5 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 122) All of the following are considerations for discontinuing a product or product line, except A) whether the product has a positive or negative contribution margin. B) not having any free capacity. C) if discontinuing the product or product line will affect sales of remaining products. D) determining if direct fixed costs could be avoided if the product or product line is discontinued. Answer: B Diff: 2 LO: 8-4 EOC: S8-5 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 123) A drug store decides to discontinue its health and beauty section of products because it has been unprofitable. This strategy could backfire because A) the store can readily fill the available space. B) the store's sales may suffer by not having this convenience category of products. C) it has automatically saved that department's fixed costs. D) none of the above. Answer: B Diff: 2 LO: 8-4 EOC: S8-5 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

61 .

124) Fixed costs that continue to exist even after a product line is discontinued are called A) unavoidable fixed costs. B) avoidable fixed costs. C) variable fixed costs. D) relevant fixed costs. Answer: A Diff: 2 LO: 8-4 EOC: S8-5 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 125) Each month, Burrel Incorporated produces 500 units of a product that has unit variable costs of $17.00. Total fixed costs for the month are $4,375. A special sales order is received for 200 units of the product at a price of $20 per unit. In deciding to accept or reject the special sales order, it is appropriate to consider the A) new fixed cost per unit of $6.25. B) current fixed cost per unit of $8.75. C) difference between the offered price and the variable cost per unit. D) difference between the two fixed costs per unit, or $2.50. Answer: C Diff: 2 LO: 8-4 EOC: S8-5 AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

62 .

126) Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Total $480,000 355,000 125,000 76,000 $49,000

Hiking $340,000 235,000 105,000 38,000 $67,000

Fashion $140,000 120,000 20,000 38,000 $(18,000)

Assuming fixed costs remain unchanged, how would discontinuing the Fashion line affect operating income? A) Increase in total operating income of $29,000 B) Increase in total operating income of $132,000 C) Decrease in total operating income of $78,000 D) Decrease in total operating income of $20,000 Answer: D Diff: 3 LO: 8-4 EOC: E8-20A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

63 .

127) Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Total $480,000 355,000 125,000 76,000 $49,000

Hiking $340,000 235,000 105,000 38,000 $67,000

Fashion $140,000 120,000 20,000 38,000 $(18,000)

If $25,000 of fixed costs will be eliminated by discontinuing the Fashion line, how will operating income be affected? A) Increase $5,000 B) Decrease $45,000 C) Increase $54,000 D) Increase $103,000 Answer: A Explanation: A) Contribution Margin $ 105,000 Less Fixed Expenses 51,000 New Net income 54,000 Less original OI 49,000 Increase in OI $ 5,000 Diff: 3 LO: 8-4 EOC: E8-20A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

64 .

128) Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Total $480,000 355,000 125,000 76,000 $49,000

Hiking $340,000 235,000 105,000 38,000 $67,000

Fashion $140,000 120,000 20,000 38,000 $(18,000)

Assuming the Fashion line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $30,000 per year, how will operating income be affected? A) Decrease $10,000 B) Increase $59,000 C) Increase $10,000 D) Increase $162,000 Answer: C Explanation: C) Sales Revenue 340,000 Plus Additional Revenue 30,000 Total Revenu 370,000 Less Variable Expenses (235,000) Contribution Margin 135,000 Less Fixed Expenses (76,000) New Net OI 59,000 Less original OI (49,000) Increase in OI $ 10,000 Diff: 3 LO: 8-4 EOC: E8-20A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

65 .

129) Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Total $480,000 355,000 125,000 76,000 $49,000

Hiking $340,000 235,000 105,000 38,000 $67,000

Fashion $140,000 120,000 20,000 38,000 $(18,000)

Assuming the Fashion line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the Fashion line is used to increase the production of Hiking boots by 250%, how will operating income be affected? A) Increase $137,500 B) Increase $235,500 C) Increase $186,500 D) Decrease $137,500 Answer: A Explanation: A) Add'l Hiking Revenue$ 340,000 × 2.5 = $ 850,000 Less Hiking Variable Expenses $ 235,000 × 2.5 = (587,500) Contribution Margin 262,500 Less: Fixed Expense (76,000) Operating Income 186,500 Less old OI 49,000 Difference $ 137,500 Diff: 3 LO: 8-4 EOC: E8-20A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

66 .

130) Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Total $490,000 355,000 135,000 76,000 $59,000

Luxury $360,000 235,000 125,000 38,000 $87,000

Sporty $130,000 120,000 10,000 38,000 $(28,000)

Assuming fixed costs remain unchanged, how would discontinuing the Sporty line affect operating income? A) Increase in total operating income of $49,000 B) Increase in total operating income of $142,000 C) Decrease in total operating income of $10,000 D) Decrease in total operating income of $108,000 Answer: C Diff: 3 LO: 8-4 EOC: E8-20A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

67 .

131) Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Total $490,000 355,000 135,000 76,000 $59,000

Luxury $360,000 235,000 125,000 38,000 $87,000

Sporty $130,000 120,000 10,000 38,000 $(28,000)

If $20,000 of fixed costs will be eliminated by discontinuing the Sporty line, how will operating income be affected? A) Decrease $30,000 B) Increase $10,000 C) Increase $69,000 D) Increase $128,000 Answer: B Explanation: B) Contribution Margin $ 125,000 Less Fixed Expenses 56,000 New Net income 69,000 Less original OI 59,000 Increase in OI $ 10,000 Diff: 3 LO: 8-4 EOC: E8-20A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

68 .

132) Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Total $490,000 355,000 135,000 76,000 $59,000

Luxury $360,000 235,000 125,000 38,000 $87,000

Sporty $130,000 120,000 10,000 38,000 $(28,000)

Assuming the Sporty line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $32,000 per year, how will operating income be affected? A) Increase $22,000 B) Increase $174,000 C) Decrease $22,000 D) Increase $81,000 Answer: A Explanation: A) Sales Revenue 360,000 Plus Additional Revenue 32,000 Total Revenue 392,000 Less Variable Expenses (235,000) Contribution Margin 157,000 Less Fixed Expenses (76,000) New Net OI 81,000 Less original OI (59,000) Increase in OI $ 22,000 Diff: 3 LO: 8-4 EOC: E8-20A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

69 .

133) Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Total $490,000 355,000 135,000 76,000 $59,000

Luxury $360,000 235,000 125,000 38,000 $87,000

Sporty $130,000 120,000 10,000 38,000 $(28,000)

Assuming the Sporty line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the Sporty line is used to increase the production of Luxury watches by 250%, how will operating income be affected? A) Increase $299,500 B) Increase $177,500 C) Increase $236,500 D) Decrease $177,500 Answer: B Explanation: B) Add'l Hiking Revenue $ 360,000 × 2.5 = $ 900,000 Less Hiking Variable Expenses $ 235,000 × 2.5 = (587,500) Contribution Margin 312,500 Less: Fixed Expense (76,000) Operating Income 236,500 Less old OI 59,000 Difference $ 177,500 Diff: 3 LO: 8-4 EOC: E8-20A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

70 .

134) Jim Bean Company has three product lines: D, E, and F. The following information is available:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

$ $ $ $ $

D 80,000 40,000 40,000 12,000 28,000

E $42,000 $21,000 $21,000 $15,000 $46,000

F $20,000 $12,000 $ 8,000 $17,000 $(9,000)

Jim Bean Company is thinking of discontinuing product line F because it is reporting an operating loss. All fixed expenses are unavoidable. Assuming Jim Bean Company discontinues product line F and does not replace it, what affect will this have on operating income? A) Increase $9,000 B) Increase $17,000 C) Increase $8,000 D) Decrease $8,000 Answer: D

71 .

Explanation: D) Sales revenue, D

$

80,000

Sales revenue, E Sales revenue from D and E

$

122,000

Variable expenses, D

40,000

Variable expenses, E Variable expenses from D and E

$

61,000

Fixed expenses, D Fixed expenses, E

$ $

12,000 15,000

Fixed expenses, F Fixed expenses for all products

$

44,000

Sales revenue from D and E

$

122,000

Variable expenses from D and E Contribution margin from D and E

$

61,000

Fixed expenses for all products Operating income (loss) from D and E

$

17,000

Operating income (loss), D Operating income (loss), E

$ $

28,000 6,000

Operating income (loss), F Operating income (loss) from all products

$

25,000

$

17,000

Operating income (loss) from D and E Operating income (loss) from all products

Difference in operating income Diff: 2 LO: 8-4 EOC: E8-34A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

72 .

135) Jim Bean Company has three product lines: D, E, and F. The following information is available:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

$ $ $ $ $

D 80,000 40,000 40,000 12,000 28,000

E $42,000 $21,000 $21,000 $15,000 $46,000

F $20,000 $12,000 $ 8,000 $17,000 $(9,000)

Jim Bean Company is thinking of discontinuing product line F because it is reporting an operating loss. All fixed costs are unavoidable. Jim Bean Company discontinues product line F and rents the space formerly used to produce product F for $20,000 per year, what affect will this have on operating income? A) Increase $29,000 B) Increase $12,000 C) Decrease $12,000 D) Increase $37,000 Answer: B

73 .

Explanation: B) Sales revenue, D Sales revenue, E

$ $

80,000 42,000

Rental revenue from discontinuing F Revenue from D and E only

$

142,000

Variable expenses, D

40,000

Variable expenses, E Variable expenses from D and E

$

61,000

Fixed expenses, D Fixed expenses, E

$ $

12,000 15,000

Fixed expenses, F Fixed expenses for all products

$

44,000

Revenue from D and E only

$

142,000

Variable expenses from D and E Contribution margin from D and E

$

81,000

Fixed expenses for all products Operating income (loss) from D and E

$

37,000

Operating income (loss), D Operating income (loss), E

$ $

28,000 6,000

Operating income (loss), F Operating income (loss) from all products

$

25,000

$

37,000

Operating income (loss) from D and E Operating income (loss) from all products

Difference in operating income Diff: 3 LO: 8-4 EOC: E8-34A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

74 .

136) Jim Bean Company has three product lines: D, E, and F. The following information is available:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

$ $ $ $ $

D 80,000 40,000 40,000 12,000 28,000

E $42,000 $21,000 $21,000 $15,000 $46,000

F $20,000 $12,000 $ 8,000 $17,000 $(9,000)

Jim Bean Company is thinking of discontinuing product line F because it is reporting an operating loss. All fixed costs are unavoidable. Assuming Jim Bean Company discontinues line F and is able to double the production and sales of product line E without increasing fixed costs. What affect will this have on operating income? A) Decrease $13,000 B) Increase $13,000 C) Increase $30,000 D) Increase $34,000 Answer: B

75 .

Explanation: B) Sales revenue, E Discontinue F, increase in production of

$

42,000

E New sales revenue for E

$

84,000

Sales revenue, D Sales revenue from D and E

$

164,000

$

21,000

E New variable expenses for E

$

42,000

Variable expenses, D Variable expenses from D and E

$

82,000

Fixed expenses, D Fixed expenses, E

$ $

12,000 15,000

Fixed expenses, F Fixed expenses for all products

$

44,000

Sales revenue from D and E

$

164,000

Variable expenses from D and E Contribution margin from D and E

$

82,000

Fixed expenses for all products Operating income (loss) from D and E

$

38,000

Operating income (loss), D Operating income (loss), E

$ $

28,000 6,000

Operating income (loss), F Operating income (loss) from all products

$

25,000

$

38,000

Variable expenses, E Discontinue F, increase in production of

Operating income (loss) from D and E Operating income (loss) from all products Difference in operating income

Diff: 3 LO: 8-4 EOC: E8-34A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

76 .

137) Jim Bean Company has three product lines: D, E, and F. The following information is available:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

$ $ $ $ $

D 80,000 40,000 40,000 12,000 28,000

E $42,000 $21,000 $21,000 $15,000 $46,000

F $20,000 $12,000 $ 8,000 $17,000 $(9,000)

Jim Bean Company is thinking of discontinuing product line F because it is reporting an operating loss. All fixed costs are unavoidable. Assume Jim Bean Company is able to increase the sale price of product F to $32,000 with no change in volume of units sold and no change in variable costs or fixed costs. What affect will this have on operating income? A) Increase $37,000 B) Increase $12,000 C) Decrease $12,000 D) Decrease $20,000 Answer: B

77 .

Explanation: B) Sales revenue, D Sales revenue, E

$ $

80,000 42,000

New revenue for F Sales revenue for all products

$

154,000

Variable expenses, D Variable expenses, E

$ $

40,000 21,000

Variable expenses, F Variable expenses for all products

$

73,000

Fixed expenses, D Fixed expenses, E

$ $

12,000 15,000

Fixed expenses, F Fixed expenses for all products

$

44,000

Sales revenue for all products

$

154,000

Variable expenses for all products Contribution margin for all products

$

81,000

Fixed expenses for all products New operating income (loss) for all products

$

37,000

Operating income (loss), D Operating income (loss), E

$ $

28,000 6,000

Operating income (loss), F Original operating income (loss) from all products

$

25,000

$

37,000

New operating income (loss) for all products Original operating income (loss) from all products

Difference in operating income Diff: 3 LO: 8-4 EOC: E8-34A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

78 .

138) The income statement for Germain Appliances is divided by its two product lines, Toasters and Microwaves, as follows:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Toaster $600,000 $450,000 $150,000 $75,000 $75,000

Microwave $255,000 $210,000 $45,000 $75,000 $(30,000)

Total $855,000 $660,000 $195,000 $150,000 $45,000

If fixed costs remain unchanged and Germain Appliances discontinues the Microwave line, how will operating income change? A) Will decrease by $150,000 B) Will increase by $45,000 C) Will decrease by $45,000 D) Will increase by $150,000 Answer: C Explanation: C) Sales revenue, Toasters $ 600,000 Variable expenses, Toasters Contribution margin for Toasters only

$

150,000

Total fixed expenses for both products Operating income (loss) for Toasters only

$

0

Operating income (loss) for Toasters only

$

0

Operating income (loss) for both products Difference in operating income Diff: 3 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

79 .

139) The income statement for Germain Appliances is divided by its two product lines, Toasters and Microwaves, as follows:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Toaster $600,000 $450,000 $150,000 $75,000 $75,000

Microwave $255,000 $210,000 $45,000 $75,000 $(30,000)

Total $855,000 $660,000 $195,000 $150,000 $145,000

If Germain Appliances can eliminate fixed costs of $32,000 by discontinuing the Microwave line, then discontinuing it should result in which of the following? A) Increase in total operating income of $45,000 B) Increase in total operating income of $13,000 C) Decrease in total operating income of $13,000 D) Decrease in total operating income of $45,000 Answer: C Explanation: C) Total fixed expenses for both products

$

150,000

Avoided fixed costs Unavoidable fixed costs

$

118,000

Sales revenue, Toasters

$

600,000

Variable expenses, Toasters Contribution margin for Toasters only

$

150,000

Unavoidable fixed costs Operating income (loss) from Toasters only

$

32,000

Operating income (loss) from Toasters only

$

32,000

Operating income (loss) for both products Difference in operating income Diff: 3 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

80 .

140) The income statement for Germain Appliances is divided by its two product lines, Toasters and Microwaves, as follows:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Toaster $600,000 $450,000 $150,000 $75,000 $75,000

Microwave $255,000 $210,000 $45,000 $75,000 $(30,000)

Total $855,000 $660,000 $195,000 $150,000 $45,000

If Germain Appliances can eliminate fixed costs of $32,000 and increase the sale of Toasters by 6,000 units at a selling price of $30 per unit and a contribution margin of $8 per unit, then discontinuing the Microwaves should result in which of the following? A) Increase in total operating income of $35,000 B) Increase in total operating income of $3,000 C) Decrease in total operating income of $35,000 D) Decrease in total operating income of $3,000 Answer: A

81 .

Explanation: A) Increased volume of Toasters

$

6,000

Sale price per unit of new volume Additional revenue

$

180,000

Sales revenue, Toasters Total sales revenue fot Toasters

$

780,000

$

30.00

unit Variable expense per unit for new volume

$

22.00

Increased volume of Toasters Additional variable expenses

$

132,000

Variable expenses, Toasters Total variable expenses for Toasters

$

582,000

Total fixed expenses for both products

$

150,000

Avoidable fixed costs Unavoidable fixed costs

$

118,000

Total sales revenue for Toasters

$

780,000

Total variable expenses for Toasters Contribution margin for Toasters only

$

198,000

Uavoidable fixed costs Operating income (loss) from Toasters only

$

80,000

Operating income (loss) from Toasters only

$

80,000

Sale price per unit of new volume Contribution margin for each new volume

Operating income (loss) for both products Difference in operating income Diff: 3 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

82 .

141) The income statement for Lovely Locks is divided by its two product lines, Curling Irons and Straighteners, as follows:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Curling Irons $600,000 $450,000 $150,000 $75,000 $75,000

Straighteners $260,000 $210,000 $50,000 $75,000 $(25,000)

Total $860,000 $660,000 $200,000 $150,000 $50,000

If fixed costs remain unchanged and Lovely Locks discontinues the Straightener line, how will operating income change? A) Will decrease by $150,000 B) Will increase by $50,000 C) Will increase by $150,000 D) Will decrease by $50,000 Answer: D Explanation: D) Sales revenue, Curling Irons $ 600,000 Variable expenses, Curling Irons Contribution margin for Curling Irons only

$

150,000

Total fixed expenses for both products Operating income (loss) for Curling Irons only

$

0

Operating income (loss) for Curling Irons only

$

0

Operating income (loss) for both products Difference in operating income Diff: 3 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

83 .

142) The income statement for Lovely Locks is divided by its two product lines, Curling Irons and Straighteners, as follows:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Curling Irons $600,000 $450,000 $150,000 $75,000 $75,000

Straighteners $260,000 $210,000 $50,000 $75,000 $(25,000)

Total $860,000 $660,000 $200,000 $150,000 $50,000

If Lovely Locks can eliminate fixed costs of $32,000 by discontinuing the Straightener line, then discontinuing it should result in which of the following? A) Increase in total operating income of $50,000 B) Decrease in total operating income of $18,000 C) Increase in total operating income of $18,000 D) Decrease in total operating income of $50,000 Answer: B Explanation: B) Total fixed expenses for both products $ 150,000 Avoidable fixed costs Unavoidable fixed costs

$

118,000

Sales revenue, Curling Irons

$

600,000

Variable expenses, Curling Irons Contribution margin for Curling Irons only

$

150,000

Unavoidable fixes costs Operating income (loss) for Curling Irons only

$

32,000

Operating income (loss) for Curling Irons only

$

32,000

Operating income (loss) for both products Difference in operating income Diff: 3 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

84 .

143) The income statement for Lovely Locks is divided by its two product lines, Curling Irons and Straighteners, as follows:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Curling Irons $600,000 $450,000 $150,000 $75,000 $75,000

Straighteners $260,000 $210,000 $50,000 $75,000 $(25,000)

Total $860,000 $660,000 $200,000 $150,000 $50,000

If Lovely Locks can eliminate fixed costs of $32,000 and increase the sale of Curling Irons by 6,000 units at a selling price of $30 per unit and a contribution margin of $8 per unit, then discontinuing the Straighteners should result in which of the following? A) Decrease in total operating income of $30,000 B) Increase in total operating income of $2,000 C) Increase in total operating income of $30,000 D) Decrease in total operating income of $2,000 Answer: C

85 .

Explanation: C) Increased volume of Curling Irons

$

6,000

Sale price per unit of new volume Additional revenue

$

180,000

Sales revenue, Curling Irons Total sales revenue for Curling Irons

$

780,000

$

30.00

unit Variable expense per unit for new volume

$

22.00

Increased volume of Curling Irons Additional variable expenses

$

132,000

Variable expenses, Curling Irons Total variable expenses for Curling Irons

$

582,000

Total fixed expenses for both products

$

150,000

Avoidable fixed costs Unavoidable fixed costs

$

118,000

Total sales revenue for Curling Irons

$

780,000

Total variable expenses for Curling Irons Contribution margin for Curling Irons only

$

198,000

Uavoidable fixed costs Operating income (loss) from Curling Irons only

$

80,000

Operating income (loss) from Curling Irons only

$

80,000

Sale price per unit of new volume Contribution margin for each new volume

Operating income (loss) for both products Difference in operating income Diff: 3 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

86 .

144) The internal financial statements of Vera Incorporated show that their beaded purses incurred an operating loss in the most recent year. There were 25,000 purses sold in that year. Selected financial information about the purse line follows. Total sales revenue Variable costs Contribution margin Fixed costs Net operating loss

$ 190,000 $ 100,000 $ 90,000 $ 100,000 $ (10,000)

If the line of purses were to be discontinued, the company would avoid $16,000 in fixed costs per year. If Vera Incorporated were to discontinue the line of purses, the change in annual operating income would be a(n): A) increase in total operating income of $74,000. B) decrease in total operating income of $10,000. C) increase in total operating income of $10,000. D) decrease in total operating income of $74,000. Answer: D Explanation: D) Contribution Margin $ 90,000 Less Fixed exp. Avoided 16,000 Decrease in OI $ 74,000 Diff: 2 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

87 .

145) Simpson Corporation operates two divisions with the following operating results from last year:

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

Western Division $ 620,000 $ 310,000 $ 310,000 $ 110,000 $ 90,000 $ 100,000

Eastern Division $ 290,000 $ 200,000 $ 90,000 $ 70,000 $ 45,000 $ (25,000)

Total $ 900,000 $ 510,000 $ 390,000 $ 180,000 $ 135,000 $ 75,000

Management is considering whether the Eastern Division should be discontinued since it incurred an operating loss last year. Allocated common fixed costs would continue for Simpson Corporation whether the division is discontinued or not. If the Eastern Division had been discontinued at the beginning of last year, what would the total operating income for Simpson Corporation have been for the year? A) $55,000 B) $20,000 C) $25,000 D) $110,000 Answer: A Explanation: A) SOLUTION Eastern Division Sales

$

290,000

Variable costs Contribution margin

$

90,000

$

75,000

Less avoidable fixed costs Segment margin for division Original total operating income Less segment margin for discontinued division Operating income if division discontinued Diff: 2 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

88 .

146) Benace Parts and Supply makes a variety of car parts. The company produces 6,000 A90 parts each year. Each A90 sells for $7 and has a contribution margin of $2. Currently, $16,000 of fixed manufacturing overhead is allocated to the A90 product line. If Benace Parts and Supply discontinues the A90 product line, $7,000 of fixed manufacturing overhead costs would be avoided. What would be the impact on total operating income if the A90 product line were to be discontinued? A) Increase in total operating income of $5,000 B) Decrease in total operating income of $5,000 C) Increase in total operating income of $4,000 D) Decrease in total operating income of $4,000 Answer: B Explanation: B) Number of units produced 6,000 Unit contribution margin Total contribution margin

$

12,000

Avoidable fixed costs Decrease (increase) in operating income if product discontinued Diff: 2 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 147) Jerry Enterprises is considering whether to discontinue a division that generates a total contribution margin of $65,000 per year. Fixed manufacturing overhead allocated to this division is $50,000, of which 18,000 is unavoidable. If Jerry Enterprises were to eliminate this division, the effect on the company's operating income would be a(n): A) increase in total operating income of $33,000. B) decrease in total operating income of $33,000. C) increase in total operating income of $47,000. D) decrease in total operating income of $47,000. Answer: B Explanation: B) SOLUTION Fixed manufacturing overhead of division $ 50,000 Portion of fixed MOH which is unavoidable Avoidable fixed manufacturing overhead

$

32,000

Total contribution margin

$

65,000

Avoidable fixed manufacturing overhead Division segment margin income (loss) Diff: 2 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 89 .

148) All About Animals has two product lines: Cat food and Dog food. Contribution margin income statement data for the most recent year follow:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Total $385,000 $205,000 $180,000 $102,000 $78,000

Cat Food $300,000 $165,000 $135,000 $50,000 $85,000

Dog Food $85,000 $40,000 $45,000 $52,000 $(7,000)

Assuming total fixed costs remain unchanged, how would discontinuing the Dog food line affect operating income? A) Increase in total operating income of $33,000 B) Increase in total operating income of $159,000 C) Decrease in total operating income of $45,000 D) Decrease in total operating income of $111,000 Answer: C Explanation: C) Sales revenue, Cat food $ 300,000 Variable expenses, Cat food Contribution margin for Cat food

$

135,000

Total fixed expenses Operating income (loss) from Cat food only

$

33,000

Operating income (loss) from Cat food only

$

33,000

Total operating income (loss) Difference in operating income Diff: 3 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

90 .

149) All About Animals has two product lines: Cat food and Dog food. Contribution margin income statement data for the most recent year follow:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Total $385,000 $205,000 $180,000 $102,000 $78,000

Cat Food $300,000 $165,000 $135,000 $50,000 $85,000

Dog Food $85,000 $40,000 $45,000 $52,000 $(7,000)

If $12,000 of fixed costs will be eliminated by discontinuing the Dog food line, how will operating income be affected? A) Increase $123,000 B) Increase $45,000 C) Decrease $33,000 D) Decrease $57,000 Answer: C Explanation: C) Sales revenue, Cat food $ 300,000 Variable expenses, Cat food Contribution margin for Cat food

$

135,000

Fixed expenses

$

102,000

Avoidable fixed costs Unavoidable fixed costs

$

90,000

Contribution margin for Cat food

$

135,000

Unavoidable fixed costs Operating income (loss) from Cat food only

$

45,000

Operating income (loss) from Cat food only

$

45,000

Total operating income (loss) Difference in operating income Diff: 3 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

91 .

150) Contribution margin income statement data for the most recent year follow:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Total $385,000 $205,000 $180,000 $102,000 $78,000

Cat Food $300,000 $165,000 $135,000 $50,000 $85,000

Dog Food $85,000 $40,000 $45,000 $52,000 $(7,000)

Assuming the Dog food is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $25,000 per year, how will operating income be affected? A) Increase $58,000 B) Increase $184,000 C) Decrease $20,000 D) Increase $20,000 Answer: C Explanation: C) Sales revenue, Cat food $ 300,000 Additional revenue if Dog food discontinued Total sales revenue for Cat food only

$

325,000

Variable expenses, Cat food Contribution margin for Cat food

$

160,000

Fixed expenses Operating income (loss) from Cat food only

$

58,000

Operating income (loss) from Cat food only

$

58,000

Total operating income (loss) Difference in operating income Diff: 3 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

92 .

151) Contribution margin income statement data for the most recent year follow:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Total $385,000 $205,000 $180,000 $102,000 $78,000

Cat Food $300,000 $165,000 $135,000 $50,000 $85,000

Dog Food $85,000 $40,000 $45,000 $52,000 $(7,000)

Assuming the Dog food line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the Dog food line is used to double the production of Cat food, how will operating income be affected? A) Increase $90,000 B) Increase $246,000 C) Increase $168,000 D) Decrease $90,000 Answer: A Diff: 3 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

93 .

152) Black Productions has three models: D, E, and F. The following information is available:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Model D $65,000 $32,000 $33,000 $16,000 $17,000

Model E $33,000 $13,000 $20,000 $16,000 $4,000

Model F $24,000 $14,000 $10,000 $16,000 $(6,000)

Black Productions is thinking of discontinuing model F because it is reporting an operating loss. All fixed expenses are unavoidable. Assuming Black Productions discontinues model F and does not replace it, what effect will this have on operating income? A) Decrease $10,000 B) Increase $10,000 C) Increase $6,000 D) Decrease $6,000 Answer: A Explanation: A) Contribution Margin 33,000 + 20,000 Fixed Exp 16,000 × 3 Operating Income

$53,000 48,000 5,000

Prior operating income

15,000

Decrease

10,000

Diff: 2 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

94 .

153) Black Productions has three models: D, E, and F. The following information is available:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Model D $65,000 $32,000 $33,000 $16,000 $17,000

Model E $33,000 $13,000 $20,000 $16,000 $4,000

Model F $24,000 $14,000 $10,000 $16,000 $(6,000)

Black Productions is thinking of discontinuing model F because it is reporting an operating loss. All fixed costs are unavoidable. Black Productions discontinues model F and rents the space formerly used to produce product F for $15,000 per year, what effect will this have on operating income? A) Increase $21,000 B) Increase $5,000 C) Decrease $21,000 D) Decrease $5,000 Answer: B Explanation: B) Contribution Margin 33,000 + 20,000 $53,000 Fixed Exp 16,000 × 3 48,000 Operating Income 5,000 Prior operating income Rent income Increase

-15,000 +15,000 5,000

Diff: 3 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

95 .

154) Black Productions has three models: D, E, and F. The following information is available:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Model D $65,000 $32,000 $33,000 $16,000 $17,000

Model E $33,000 $13,000 $20,000 $16,000 $4,000

Model F $24,000 $14,000 $10,000 $16,000 $(6,000)

Black Productions is thinking of discontinuing model F because it is reporting an operating loss. All fixed costs are unavoidable. Assuming Black Productions discontinues line F and is able to double the production and sales of model E without increasing fixed costs. What effect will this have on operating income? A) Increase $10,000 B) Decrease $10,000 C) Increase $26,000 D) Decrease $26,000 Answer: A

96 .

Explanation: A) Sales revenue, E Discontinue F, increase in production of

$

33,000

E New sales revenue for E

$

66,000

Sales revenue, D Sales revenue from D and E

$

131,000

$

13,000

E New sales revenue for E

$

26,000

Variable expenses for E Variable expenses from D and E

$

58,000

Fixed expenses, D Fixed expenses, E

$ $

16,000 16,000

Fixed expenses, F Fixed expenses for all products

$

48,000

Sales revenue from D and E

$

131,000

Variable expenses from D and E Contribution margin from D and E

$

73,000

Fixed expenses for all products Operating income (loss) from D and E

$

25,000

Operating income (loss), D Operating income (loss), E

$ $

17,000 4,000

Operating income (loss), F Operating income (loss) from all products

$

15,000

$

25,000

Variable expenses, E Discontinue F, increase in production of

Operating income (loss) from D and E Operating income (loss) from all products

Difference in operating income Diff: 3 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

97 .

155) Black Productions has three models: D, E, and F. The following information is available:

Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss)

Model D $65,000 $32,000 $33,000 $16,000 $17,000

Model E $33,000 $13,000 $20,000 $16,000 $4,000

Model F $24,000 $14,000 $10,000 $16,000 $(6,000)

Black Productions is thinking of discontinuing model F because it is reporting an operating loss. All fixed costs are unavoidable. Assume Black Productions is able to increase the sale price of product F to $35,000 with no change in volume of units sold and no change in variable costs or fixed costs. What effect will this have on operating income? A) Increase $11,000 B) Increase $24,000 C) Decrease $11,000 D) Decrease $24,000 Answer: A

98 .

Explanation: A) Sales revenue, D Sales revenue, E

$ $

65,000 33,000

New revenue for F Sales revenue for all products

$

133,000

Variable expenses, D Variable expenses, E

$ $

32,000 13,000

Variable expenses, F Variable expenses for all products

$

59,000

Fixed expenses, D Fixed expenses, E

$ $

16,000 16,000

Fixed expenses, F Fixed expenses for all products

$

48,000

Sales revenue for all products

$

133,000

Variable expenses for all products Contribution margin for all products

$

74,000

Fixed expenses for all products New operating income (loss) for all products

$

26,000

Operating income (loss), D Operating income (loss), E

$ $

17,000 4,000

Operating income (loss), F Original operating income (loss) from all products

$

15,000

New operating income (loss) for all products

$

26,000

Original operating income (loss) from all products

Difference in operating income Diff: 3 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

99 .

156) Totally Technology manufactures Cameras and Video Recorders. The company's product line income statement follows:

Sales revenue Cost of goods sold Variable Fixed Total cost of goods sold Gross profit Marketing and administrative expenses Variable Fixed Total marketing and administrative expenses Operating income (loss)

Camera Video Recorder $300,000 $100,000

Total $400,000

$75,000 $82,000 $157,000 $143,000

$49,000 $28,000 $77,000 $23,000

$124,000 $110,000 $234,000 $166,000

$25,000 $32,000 $57,000 $86,000

$28,000 $19,000 $47,000 $(24,000)

$53,000 $51,000 $104,000 $62,000

Management is considering discontinuing the Video Recorder product line. Accountants for the company estimate that discontinuing the Video Recorder line will decrease fixed cost of goods sold by $10,000 and fixed marketing and administrative expenses by $4,000. Prepare an analysis supporting your opinion about whether or not the Video Recorder product line should be discontinued.

100 .

Answer: Contribution margin income statement for DVDs: If Video Recorders discontinued: Sales revenue from Cameras Variable cost of goods sold from Cameras Variable marketing and administrative expenses from Cameras Contribution margin from Cameras only Total fixed costs of goods sold Decrease in fixed costs of goods sold if Video Recorders discontinued Fixed costs of goods sold if Video Recorders discontinued Total fixed marketing and administrative expenses Decrease in fixed marketing and administrative if Video Recorders discontinued Fixed marketing and administrative expenses if Video Recorders discontinued

$ 300,000 $ (75,000) $ (25,000) $ 200,000 $ 110,000 $ (10,000) $ 100,000 $ 51,000 $ (4,000) $ 47,000

Contribution margin from Cameras only Fixed costs of goods sold if Video Recorders discontinued Fixed marketing and administrative expenses if Video Recorders discontinued Operating income (loss)

$ 200,000 $(100,000)

Operating income (loss) from Cameras only Operating income (loss) with both products Decrease in operating income if Video Recorders discontinued

$ 53,000 $ 62,000 $ 9,000

$ (47,000) $ 53,000

The company should keep producing and selling Video Recorders since operating income will decrease by $9,000 if the product line is discontinued. Diff: 3 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

101 .

157) Cornell Enterprises currently produces several products. Model L78 is showing a net operating loss as indicated by the following condensed income statement prepared for the year ended December 31.

You have been hired by Cornell Enterprises to help analyze the decision as to whether to eliminate Model L78. Upon investigation, you discover that if Model L78 is eliminated, $20,000 of the fixed costs shown on the above condensed income statement can be eliminated. The rest of the fixed costs allocated to Model L78 are common fixed costs that will be allocated to the remaining two products produced by Cornell Enterprises. Determine if Cornell Enterprises should discontinue Model L78. Answer: If product discontinued: Lost sales $(480,000) Savings in variable costs $ 360,000 Savings in avoidable fixed costs $ 20,000 Operating loss $ (100,000) Cornell Enterprises should not discontinue L78, since discontinuing the product will result in a $100,000 loss. Diff: 2 LO: 8-4 EOC: P8-45A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 158) For some merchandisers, the primary constraint may be cubic feet of display space. Answer: TRUE Diff: 1 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

102 .

159) A constraint is a factor that restricts production or sale of a product. Answer: TRUE Diff: 1 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 160) Fixed costs affect product mix considerations. Answer: TRUE Diff: 1 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 161) An example of an expansion constraint would be the size of the available labor pool. Answer: TRUE Diff: 1 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 162) To maximize profits, produce the product with the lowest contribution margin per unit of the constraint. Answer: FALSE Diff: 1 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 163) When making product mix decisions, companies are most profitable when they maximize production of the product with the greatest sales demand. Answer: FALSE Diff: 1 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

103 .

164) When making product mix decisions, companies are most profitable when they maximize production of the product with the greatest sales price. Answer: FALSE Diff: 1 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 165) All of the following are product mix considerations except A) What constraint(s) stops us from making (or displaying) all of the units we can sell? B) Which products offer the highest contribution margin per unit of the constraint? C) Would emphasizing one product over another affect fixed costs? D) Which product has the most sunk costs? Answer: D Diff: 1 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 166) The contribution margin per unit of constraint is calculated as A) contribution margin per unit × constraint per unit. B) contribution margin per unit × units per constraint. C) contribution margin per unit ÷ units per constraint. D) contribution margin per unit + constraint per unit. Answer: B Diff: 1 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 167) Companies with production constraints and irrelevant fixed costs will be most profitable when they maximize production of the product with the highest A) sales price. B) demand for the product. C) contribution margin per unit of the constraint. D) contribution margin per unit. Answer: C Diff: 1 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

104 .

168) The factor that restricts production or sale of a product is which of the following? A) Demanding factor B) Constraint C) Sunk factor D) Relevant factor Answer: B Diff: 1 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 169) A "constraint" is best described by which of the following? A) The distribution of all products to be sold B) A factor that restricts production or sales of a product C) Benefits foregone by choosing a particular alternative course of action D) Expected future costs that differ among alternatives Answer: B Diff: 1 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 170) A "sales mix" is best described by which of the following? A) A factor that restricts production or sales of a product B) Costs that were incurred in the past and cannot be changed C) Expected future costs that differ among alternatives D) The relative number of all products to be sold Answer: D Diff: 1 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 171) Which of the following could be a constraint for selling a product? A) Store hours B) Available labor hours for employees C) Shelf space D) All of the above could be constraints. Answer: D Diff: 1 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

105 .

172) All of the following would be considered in evaluating product or sales mix allocations, except A) deciding which product offers the lowest contribution margin per unit. B) deciding whether fixed costs would change as a result of the product sales mix. C) deciding upon any and all constraints associated with the product/sale mix. D) deciding which products will contribute the highest contribution margin per unit. Answer: A Diff: 2 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 173) Changing the product mix emphasis in the short run will usually not affect A) total variable costs. B) both total variable and total fixed costs. C) total fixed costs. D) total contribution margin. Answer: C Diff: 2 LO: 8-5 EOC: S8-8 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

106 .

174) Mama's Favorite Appliances manufactures two products: Food Processors and Espresso Makers. The following data are available:

Sales price Variable costs

Food Processors $125 $50

Espresso Makers $225 $150

The company can manufacture two food processors per machine hour and three espresso machines per machine hour. The company's production capacity is 1,200 machine hours per month. What is the contribution margin ratio for food processors? A) 60.00% B) 150.00% C) 140.00% D) 33.33% Answer: A Explanation: A) Sales price, food processors $ 125.00 Variable costs, food processors Contribution margin per food processor Divide by

$

75.00 Divide by

Sales price, food processors Contribution margin ratio for food processors Diff: 2 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

107 .

175) Mama's Favorite Appliances manufactures two products: Food Processors and Espresso Machines. The following data are available:

Sales price Variable costs

Food Processors $125 $50

Espresso Machines $225 $150

The company can manufacture two food processors per machine hour and three espresso machines per machine hour. The company's production capacity is 1,200 machine hours per month. What is the contribution margin per machine hour for espresso machines? A) $1,125 B) $225 C) $150 D) $75 Answer: B Explanation: B) Sales price, espresso machines $ 225.00 Variable costs, espresso machines Contribution margin per espresso machine

$

75.00

Espresso machines per hour Contribution margin per hour for espresso machines Diff: 3 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

108 .

176) Mama's Favorite Appliances manufactures two products: Food Processors and Espresso Machines. The following data are available:

Sales price Variable costs

Food Processors $125 $50

Espresso Machines $225 $150

The company can manufacture two food processors per machine hour and three espresso machines per machine hour. The company's production capacity is 1,200 machine hours per month. What is the contribution margin per machine hour for food processors? A) $350 B) $225 C) $75 D) $150 Answer: D Explanation: D) Sales price, food processors $ 125.00 Variable costs, food processors Contribution margin per food processor

$

75.00

Food processors per hour Contribution margin per hour for food processors Diff: 3 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

109 .

177) Mama's Favorite Appliances manufactures two products: Food Processors and Espresso Machines. The following data are available: Food Processors $125 $50

Sales price Variable costs

Espresso Machines $225 $150

The company can manufacture two food processors per machine hour and three espresso machines per machine hour. The company's production capacity is 1,200 machine hours per month. To maximize profits, what product and how many units should the company produce in a month? A) 2,400 Food Processors and 0 Espresso Machines B) 300 Food Processors and 675 Espresso Machines C) 2,400 Food Processors and 3,600 Espresso Machines D) 3,600 Espresso Machines and 0 Food Processors Answer: D Explanation: D) Sales price, food processors

$

125.00

Variable costs, food processors Contribution margin per food processor

$

75.00

Food processors per hour Contribution margin per hour for food processors

$

Sales price, espresso machines

$

225.00

Variable costs, espresso machines Contribution margin per espresso machine

$

75.00

Espresso machiness per hour Contribution margin per hour for espresso machines

$

225.00

Product to emphasize

150.00

Espresso Machines

Production capacity (hours)

1,200

Espresso machines per hour Number to produce Diff: 3 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

110 .

178) Brigg's Breakfast Appliances manufactures two products: Waffle Makers and Coffee Makers. The following data are available:

Sales price Variable cost

Waffle Makers $120 $45

Coffee Makers $215 $150

The company can manufacture two waffle makers per machine hour and three coffee makers per machine hour. The company's production capacity is 1,200 machine hours per month. What is the contribution margin ratio for waffle makers? A) 30.23%B) 62.50% C) 166.67% D) 137.50% Answer: B Explanation: B) Sales price, waffle makers $ 120.00 Variable costs, waffle maker Contribution margin per waffle maker Divide by

$

75.00 Divide by

Sales price, waffle makers Contribution margin ratio for waffle makers Diff: 2 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

111 .

179) Brigg's Breakfast Appliances manufactures two products: Waffle Makers and Coffee Makers. The following data are available:

Sales price Variable cost

Waffle Makers $120 $45

Coffee Makers $215 $150

The company can manufacture two waffle makers per machine hour and three coffee makers per machine hour. The company's production capacity is 1,200 machine hours per month. What is the contribution margin per machine hour for coffee makers? A) $195 B) $1,095 C) $130 D) $65 Answer: A Explanation: A) Sales price, coffee makers $ 215.00 Variable costs, coffee makers Contribution margin per coffee maker

$

65.00

Coffee makers per hour Contribution margin per hour for coffee makers Diff: 3 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

112 .

180) Brigg's Breakfast Appliances manufactures two products: Waffle Makers and Coffee Makers. The following data are available:

Sales price Variable cost

Waffle Makers $120 $45

Coffee Makers $215 $150

The company can manufacture two waffle makers per machine hour and three coffee makers per machine hour. The company's production capacity is 1,200 machine hours per month. What is the contribution margin per machine hour for waffle makers? A) $75 B) $225 C) $150 D) $330 Answer: C Explanation: C) Sales price, waffle makers $ 120.00 Variable costs, waffle makers Contribution margin per waffle maker

$

75.00

Waffle makers per hour Contribution margin per hour for waffle makers Diff: 3 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

113 .

181) Brigg's Breakfast Appliances manufactures two products: Waffle Makers and Coffee Makers. The following data are available:

Sales price Variable cost

Waffle Makers $120 $45

Coffee Makers $215 $150

The company can manufacture two waffle makers per machine hour and three coffee makers per machine hour. The company's production capacity is 1,200 machine hours per month. To maximize profits, what product and how many units should the company produce in a month? A) 3,600 Coffee Makers and 0 Waffle Makers B) 300 Waffle Makers and 675 Coffee Makers C) 2,400 Waffle Makers and 3,600 Coffee Makers D) 2,400 Waffle Makers and 0 Coffee Makers Answer: A Explanation: A) Sales price, waffle makers

$

120.00

Variable costs, waffle makers Contribution margin per waffle maker

$

75.00

Waffle makers per hour Contribution margin per hour for waffle makers $

150.00

Sales price, coffee makers

$

215.00

Variable costs, coffee makers Contribution margin per coffee maker

$

65.00

Coffee makers per hour Contribution margin per hour for coffee makers $

195.00

Product to emphasize

Coffee Makers

Production capacity (hours)

$

1,200

Coffee makers per hour Number to produce Diff: 3 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

114 .

182) Silvio Enterprises produces three products, with costs and selling prices as follows:

Each product requires a certain number of minutes on the drill press. There is only one drill press available so it is the constraint for this product. Model D7 requires 2 minutes of drill press time, Model B3 requires 1 minute of drill press time, and Model F5 requires 7 minutes of drill press time. In what order should Silvio Enterprises emphasize its products to maximize its contribution margin? (Rank the products in order from most profitable to least profitable.) A) Model B3, Model D7, Model F5 B) Model B3, Model F5, Model D7 C) Model D7, Model B3, Model F5 D) Model F5, Model D7, Model B3 Answer: A Explanation: A)

Selling Price Variable Cost Contribution Margin Divided by Minutes to Produce Contribution Margin per minute

Product B3 $42 18 24 1

Product D7 $34 12 22 2

Product F5 $50 36 14 7

$24.00

$11.00

$2.00

Diff: 3 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

115 .

183) Alamo Corporation processes all of its products through a lathe machine. The lathe is only available for 60 hours per week and is the constraint for all of the products. Data regarding Alamo Corporation's three products follows:

Selling price per unit Variable cost per unit Minutes of lathe time required per unit

Product A $75.00 $45.00 15

Product B $60.00 $35.00 20

Product C $90.00 $80.00 10

In what order should Alamo Corporation emphasize its products to maximize its contribution margin? (Rank the products in order from most profitable to least profitable.) A) Product B, Product A, Product C B) Product A, Product C, Product B C) Product A, Product B, Product C D) Product B, Product C, Product A Answer: C Explanation: C)

Diff: 3 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

116 .

184) Brittany Furniture manufactures two products: Couches and Beds. The following data are available:

Sales price Variable costs

Couches $500.00 $350.00

Beds $700.00 $375.00

The company can manufacture two couches per machine hour and one bed per machine hour. The company's production capacity is 900 machine hours per month. What is the contribution margin ratio for Couches? A) 30.0% B) 42.86% C) 170.00% D) 23.08% Answer: A Explanation: A) Sales price, Couches $ Variable costs, Couches Contribution margin per Couch Divide by

$

500.00 150.00 Divide by

Sales price, Couches Contribution margin ratio for Couches Diff: 1 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

117 .

185) Brittany Furniture manufactures two products: Couches and Beds. The following data are available:

Sales price Variable costs

Couches $500.00 $350.00

Beds $700.00 $375.00

The company can manufacture two couches per machine hour and one bed per machine hour. The company's production capacity is 900 machine hours per month. What is the contribution margin per machine hour for beds? A) $325 B) $1,075 C) $650 D) $975 Answer: A Explanation: A) Sales price, Beds $ 700.00 Variable costs, Beds Contribution margin per Bed

$

325.00

Beds per hour Contribution margin per hour for Beds Diff: 3 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

118 .

186) Brittany Furniture manufactures two products: Couches and Beds. The following data are available:

Sales price Variable costs

Couches $500.00 $350.00

Beds $700.00 $375.00

The company can manufacture two couches per machine hour and one bed per machine hour. The company's production capacity is 900 machine hours per month. What is the contribution margin per machine hour for couches? A) $1,700 B) $300 C) $150 D) $250 Answer: B Explanation: B) Sales price, Couches $ 500.00 Variable costs, Couches Contribution margin per Couche

$

150.00

Couches per hour Contribution margin per hour for Couches Diff: 2 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

119 .

187) Brittany Furniture manufactures two products: Couches and Beds. The following data are available:

Sales price Variable costs

Couch $500.00 $350.00

Bed $700.00 $375.00

The company can manufacture two couches per machine hour and one bed per machine hour. The company's production capacity is 900 machine hours per month. To maximize profits, what product and how many units should the company produce in a month? A) 1,800 couches and 900 beds B) 900 beds C) 1,800 couches D) 600 couches and 325 beds Answer: B Explanation: B) Sales price, Couches

$

500.00

Variable costs, Couches Contribution margin per Couch

$

150.00

Couches per hour Contribution margin per hour for Couches

$

300.00

Sales price, Beds

$

700.00

Variable costs, Beds Contribution margin per Bed

$

325.00

Beds per hour Contribution margin per hour for Beds

$

325.00

Product to emphasize Production capacity (hours)

Beds $

900

Beds per hour Number to produce Diff: 3 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

120 .

188) Brittany Furniture manufactures two products: Futons and Recliners. The following data are available:

Sales price Variable costs

Futons $500.00 $325.00

Recliners $480.00 $120.00

The company can manufacture two futons per machine hour and one recliner per machine hour. The company's production capacity is 900 machine hours per month. What is the contribution margin ratio for futons? A) 53.85% B) 37.50% C) 165.00% D) 35.00% Answer: D Explanation: D) Sales price, Futons $ Variable costs, Futons Contribution margin per Futons Divide by

$

500.00 175.00 Divide by

Sales price, Futons Contribution margin ratio for Futons Diff: 1 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

121 .

189) Brittany Furniture manufactures two products: Futons and Recliners. The following data are available:

Sales price Variable costs

Futons $500.00 $325.00

Recliners $480.00 $120.00

The company can manufacture two futons per machine hour and one recliner per machine hour. The company's production capacity is 900 machine hours per month. What is the contribution margin per machine hour for recliners? A) $1,080 B) $720 C) $600 D) $360 Answer: D Explanation: D) Sales price, Recliners $ 480.00 Variable costs, Recliners Contribution margin per Recliner

$

360.00

Recliners per hour Contribution margin per hour for Recliners Diff: 3 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

122 .

190) Brittany Furniture manufactures two products: Futons and Recliners. The following data are available:

Sales price Variable costs

Futons $500.00 $325.00

Recliners $480.00 $120.00

The company can manufacture two futons per machine hour and one recliner per machine hour. The company's production capacity is 900 machine hours per month. What is the contribution margin per machine hour for futons? A) $350 B) $1,650 C) $175 D) $180 Answer: A Explanation: A) Sales price, Futons $ 500.00 Variable costs, Futons Contribution margin per Futon

$

175.00

Futons per hour Contribution margin per hour for Futons Diff: 2 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

123 .

191) Brittany Furniture manufactures two products: Futons and Recliners. The following data are available:

Sales price Variable costs

Futons $500.00 $325.00

Recliners $480.00 $120.00

The company can manufacture two futons per machine hour and one recliner per machine hour. The company's production capacity is 900 machine hours per month. To maximize profits, what product and how many units should the company produce in a month? A) 900 recliners B) 1,800 futons and 900 recliners C) 1,800 futons D) 700 futons and 360 recliners Answer: A Explanation: A) Sales price, Futons

$

500.00

Variable costs, Futons Contribution margin per Futon

$

175.00

Futons per hour Contribution margin per hour for Futons

$

350.00

Sales price, Recliners

$

480.00

Variable costs, Recliners Contribution margin per Recliner

$

360.00

Recliners per hour Contribution margin per hour for Recliners

$

360.00

Product to emphasize Production capacity (hours)

Beds $

900

Recliners per hour Number to produce Diff: 3 LO: 8-5 EOC: E8-22A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

124 .

192) Rose Incorporated manufactures two types of vases, small and large. The following per unit data are available:

Sale price Variable costs Machine hours required for 1 vase

Small Vase $60 $35 1

Large Vase $100 $60 2

Total fixed costs are $600,000 and Rose Incorporated can sell a maximum of 25,000 units of each type of vase annually. Machine hour capacity is 50,000 hours per year. A. Determine the contribution margin per unit for each type of vase. B. Determine the contribution margin per machine hour for each type of vase. C. Determine the number of units of each style of vase that Rose Incorporated should produce to maximize operating income. D. What is the dollar amount of the maximum operating income as calculated in C above? Answer: A.

B.

C.

125 .

D.

Diff: 2 LO: 8-5 EOC: P8-46A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

126 .

193) Becky's Bakery produces two products, cake and pie. Becky's Bakery sells each cake for $15.00 and each pie for $10.00. Variable costs for cakes and pies are respectively, $7.00 and $6.00. There are 3,200 direct labor hours per month available for producing one of the two products. Fixed manufacturing overhead cost is allocated at $1,000 per month. Each cake and pie require 2 direct labor hours. Compute the following: A. Contribution margin per unit for each product. B. Contribution margin per direct labor hour for each product. C. The total number of products produced if only that product is produced each month. D. Income for a month if only one product is produced and total production is sold. Answer: A. Cakes Pies Selling price each $ 15.00 $ 10.00 Variable costs $ (7.00) $ (6.00) Contribution margin per unit $ 8.00 $ 4.00 B. Cakes Selling price each Variable costs Contribution margin per unit Divide by Hours taken for each Contribution margin per hour

Pies

$ 15.00 $ (7.00) $ 8.00 Divide by 2 $ 4.00

$ 10.00 $ (6.00) $ 4.00 Divide by 2 $ 2.00

C. Cakes Production capacity (hours) Divide by Hours taken for each Maximum to produce

Pies

3,200 Divide by 2 1,600

3,200 Divide by 5 1,600

D. Cakes Production capacity (hours) Divide by Hours taken for each Maximum to produce Contribution margin per unit Maximum to produce Total fixed costs Income

Pies

3,200 Divide by 2 1,600 $

8.00 1,600 $ 12,800 $ (1,000) $ 11,800

127 .

3,200 Divide by 2 1,600 $

4.00 1,600 $ 6,400 $ (1,000) $ 5,400

Diff: 3 LO: 8-5 EOC: P8-46A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions 194) When making outsourcing (make-or-buy) decisions, the focus is on how best to use available resources. Answer: TRUE Diff: 1 LO: 8-6 EOC: S8-10 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 195) Make or buy decisions are often referred to as outsourcing decisions. Answer: TRUE Diff: 1 LO: 8-6 EOC: S8-10 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 196) All other things being equal, if the incremental costs of outsourcing a product exceed the incremental costs of making a product, it should be outsourced. Answer: FALSE Diff: 1 LO: 8-6 EOC: S8-10 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 197) In most circumstances, all fixed costs can be eliminated by outsourcing a product. Answer: FALSE Diff: 1 LO: 8-6 EOC: S8-10 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 198) An opportunity cost is a past cost. Answer: FALSE Diff: 1 LO: 8-6 EOC: S8-11 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

128 .

199) Qualitative factors play an important part in make or buy decisions. Answer: TRUE Diff: 1 LO: 8-6 EOC: S8-10 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 200) Outsourcing decisions are best made by comparing the total manufacturing costs, both fixed and variable, allocated to the product versus the total unit cost charged by the outsourcing company. Answer: FALSE Diff: 1 LO: 8-6 EOC: S8-10 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 201) The maximum outsourcing price a company is willing to pay can be found by solving for the company's indifference point. Answer: TRUE Diff: 1 LO: 8-6 EOC: S8-10 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 202) Opportunity costs should be factored into outsourcing decisions. Answer: TRUE Diff: 1 LO: 8-6 EOC: S8-10 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 203) Companies often consider outsourcing so they can focus on their core competencies. Answer: TRUE Diff: 1 LO: 8-6 EOC: S8-10 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

129 .

204) In deciding whether to outsource, managers must consider A) relevant fixed and variable components. B) sunk costs. C) only variable costs. D) none of the above. Answer: A Diff: 1 LO: 8-6 EOC: S8-10 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 205) Outsourcing decisions are sometimes referred to as A) make-or-buy decisions. B) make decisions. C) buy decisions. D) none of the above. Answer: A Diff: 1 LO: 8-6 EOC: S8-10 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 206) All of the following are outsourcing considerations, except A) Are any fixed costs avoidable if we outsource? B) How do our fixed costs compare to the outsourcing cost? C) What could we do with the freed capacity? D) How do our variable costs compare to the outsourcing cost? Answer: B Diff: 1 LO: 8-6 EOC: S8-10 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

130 .

207) If a company decides to outsource and then has freed capacity, the decision on what to do with that freed capacity would be based upon A) avoidable fixed costs. B) opportunity costs. C) unavoidable fixed costs. D) none of the above. Answer: B Diff: 2 LO: 8-6 EOC: S8-10 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 208) Managers should consider which of the following when deciding whether to outsource a product or service? A) Quality of the product or service B) Delivery schedule of the product or service C) Cost charged for the product or service D) All of the above Answer: D Diff: 2 LO: 8-6 EOC: S8-10 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

131 .

209) Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing 40,000 parts is $120,000, which includes fixed costs of $60,000 and variable costs of $60,000. The company can buy the part from an outside supplier for $3.00 per unit, and avoid 30% of the fixed costs. If Harvey Automobiles makes the part, how much will its operating income be? A) $42,000 greater than if the company bought the part B) $42,000 less than if the company bought the part C) $78,000 greater than if the company bought the part D) $78,000 less than if the company bought the part Answer: A Explanation: A) Outside supplier price $ 3.00 Parts produced Purchase price

$

120,000

Fixed costs

$

60,000

Avoidable percentage of fixed costs Avoidable fixed costs

$

18,000

Fixed costs

$

60,000

Avoidable fixed costs Unavoidable fixed costs

$

42,000

Purchase price

$

120,000

Unavoidable fixed costs Cost if bought

$

162,000

Total cost to produce Income difference if produced Diff: 2 LO: 8-6 EOC: E8-25A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

132 .

210) Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing 40,000 parts is $120,000, which includes fixed costs of $60,000 and variable costs of $60,000. By outsourcing the part, the company can avoid 30% of the fixed costs. If Harvey Automobiles buys the part, what is the most Harvey Automobiles can spend per unit so that operating income equals the operating income from making the part? A) $1.30 B) $1.95 C) $4.05 D) $2.33 Answer: B Explanation: B) Cost to Build Variable Costs $60,000 Fixed Costs 60,000 Total $ 120,000 Less Unavoidable Fixed Cost 42,000 Adjusted Cost of part 78,000 Divided by 40,000 = $ 1.95 Diff: 2 LO: 8-6 EOC: E8-25A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

133 .

211) Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing 40,000 parts is $120,000, which includes fixed costs of $60,000 and variable costs of $60,000. The company can buy the part from an outside supplier for $3.00 per unit, and avoid 30% of the fixed costs. Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for $12,000 profit. If Harvey Automobiles makes the part, what will its operating income be? A) $54,000 greater than if the company bought the part B) $30,000 less than if the company bought the part C) $30,000 greater than if the company bought the part D) $150,000 greater than if the company bought the part Answer: C Explanation: C) Outside supplier price

$

3.00

Parts produced Purchase price

$

120,000

Fixed costs

$

60,000

Avoidable percentage of fixed costs Avoidable fixed costs

$

18,000

Fixed costs

$

60,000

Avoidable fixed costs Unavoidable fixed costs

$

42,000

$ $

120,000 42,000

bought Cost if bought

$

150,000

Cost if bought

$

150,000

Purchase price Unavoidable fixed costs Profit from free space if part is

Total cost to produce Income difference if produced Diff: 2 LO: 8-6 EOC: E8-25A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

134 .

212) Cuyahoga Valley Bicycles uses a standard part in the manufacture of several of its bikes. The cost of producing 40,000 parts is $138,000, which includes fixed costs of $68,000 and variable costs of $70,000. The company can buy the part from an outside supplier for $3.50 per unit, and avoid 30% of the fixed costs. If Cuyahoga Valley Bicycles makes the part, how much will its operating income be? A) $90,400 less than if the company bought the part B) $45,600 less than if the company bought the part C) $47,600 greater than if the company bought the part D) $49,600 greater than if the company bought the part Answer: D Explanation: D) Outside supplier price $ 3.50 Parts produced Purchase price

$

140,000

Fixed costs

$

68,000

Avoidable percentage of fixed costs Avoidable fixed costs

$

20,400

Fixed costs

$

68,000

Avoidable fixed costs Unavoidable fixed costs

$

47,600

Purchase price

$

140,000

Unavoidable fixed costs Cost if bought

$

187,600

Total cost to produce Income difference if produced Diff: 2 LO: 8-6 EOC: E8-25A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

135 .

213) Cuyahoga Valley Bicycles uses a standard part in the manufacture of several of its bikes. The cost of producing 40,000 parts is $138,000, which includes fixed costs of $68,000 and variable costs of $70,000. By outsourcing the part, the company can avoid 30% of the fixed costs. If Cuyahoga Valley Bicycles buys the part, what is the most Cuyahoga Valley Bicycles can spend per unit so that operating income equals the operating income from making the part? A) $1.33 B) $2.26 C) $4.64 D) $2.33 Answer: B Explanation: B) Cost to Build Variable Costs $70,000 Fixed Costs 68,000 Total $ 138,000 Less Unavoidable Fixed Cost 47,600 Adjusted Cost of part 90,400 Divided by 40,000 = $ 2.26 Diff: 2 LO: 8-6 EOC: E8-25A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

136 .

214) Cuyahoga Valley Bicycles uses a standard part in the manufacture of several of its bikes. The cost of producing 40,000 parts is $138,000, which includes fixed costs of $68,000 and variable costs of $70,000. The company can buy the part from an outside supplier for $3.50 per unit, and avoid 30% of the fixed costs. Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for $12,000 profit. If Cuyahoga Valley Bicycles makes the part, what will its operating income be? A) $37,600 greater than if the company bought the part B) $37,600 less than if the company bought the part C) $61,600 greater than if the company bought the part D) $175,600 greater than if the company bought the part Answer: A Explanation: A) Outside supplier price

$

3.50

Parts produced Purchase price

$

140,000

Fixed costs

$

68,000

Avoidable percentage of fixed costs Avoidable fixed costs

$

20,400

Fixed costs

$

68,000

Avoidable fixed costs Unavoidable fixed costs

$

47,600

$ $

140,000 47,600

bought Cost if bought

$

175,600

Cost if bought

$

175,600

Purchase price Unavoidable fixed costs Profit from free space if part is

Total cost to produce Income difference if produced Diff: 2 LO: 8-6 EOC: E8-25A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

137 .

215) Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 6,000 units, are as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost The fixed overhead costs are unavoidable.

$4.00 $4.00 $3.00 $1.00 $12.00

Suri Company has offered to sell 6,000 units of the same part to Cruise Company for $14 per unit. Assuming the company has no other use for its facilities, what should Cruise Company do? A) Make the part and save $3 per unit. B) Make the part and save $6 per unit. C) Buy from Suri and save $2 per unit. D) Make the part and save $10 per unit. Answer: A Explanation: A) Cost to produce: Direct Materials $4.00 Direct Labor 4.00 Var. mfg 3.00 Total Cost to build 11.00 Cost to Purchase 14.00 Savings to build $ 3.00 Diff: 2 LO: 8-6 EOC: E8-25A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

138 .

216) Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 6,000 units, are as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost

$4.00 $4.00 $3.00 $1.00 $12.00

The fixed overhead costs are unavoidable. Assuming no other use for its facilities, what is the highest price per unit that Cruise Company should be willing to pay for the part? A) $12 B) $11 C) $8 D) $5 Answer: B Explanation: B) Cost to produce: Direct Materials $4.00 Direct Labor 4.00 Var. mfg 3.00 Total Cost to build 11.00 Diff: 2 LO: 8-6 EOC: E8-25A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

139 .

217) Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 6,000 units, are as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost

$4.00 $4.00 $3.00 $1.00 $12.00

The fixed overhead costs are unavoidable. Assuming Cruise Company can purchase 6,000 units of the part from Suri Company for $14 each, and the facilities currently used to make the part could be rented out to another manufacturer for $24,000 a year, what should Cruise Company do? A) Make the part and save $6.00 per unit. B) Make the part and save $2.00 per unit. C) Buy the part and save $2.00 per unit. D) Buy the part and save $1.00 per unit. Answer: D Explanation: D) Direct materials Direct labor

$ $

4.00 4.00

Variable manufacturing overhead Cost to produce

$

11.00

$

24,000 Divide by

Production level Additional rental revenue per unit

$

4.00

Price to buy from supplier

$

14.00

Additional rental revenue per unit Cost per unit if bought

$

10.00

Cost to produce

$

11.00

Rental revenue from unused space Divide by

Cost per unit if bought Savings if buy from supplier Diff: 2 LO: 8-6 EOC: E8-26A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

140 .

218) Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 6,000 units, are as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost

$4.00 4.00 3.00 1.00 $12.00

The fixed overhead costs are unavoidable. Assume Cruise Company can purchase 6,000 units of the part from Suri Company for $14.00 each, and the facilities currently used to make the part could be used to manufacture 6,000 units of another product that would have an $8 per unit contribution margin. If no additional fixed costs would be incurred, what should Cruise Company do? A) Make the new product and buy the part to earn an extra $5.00 per unit contribution to profit. B) Make the new product and buy the part to earn an extra $6.00 per unit contribution to profit. C) Continue to make the part to earn an extra $2.00 per unit contribution to profit. D) Continue to make the part to earn an extra $4.00 per unit contribution to profit. Answer: A Explanation: A) Direct materials Direct labor

$ $

4.00 4.00

Variable manufacturing overhead Cost to produce

$

11.00

Price to buy from supplier

$

14.00

Contribution margin per unit of new product Net cost to buy

$

6.00

Cost to produce

$

11.00

Net cost to buy Savings if new product made and part bought Diff: 2 LO: 8-6 EOC: E8-26A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

141 .

219) Part P40 is a part used in the production of air conditioners at Jackson Corporation. The following costs and data relate to the production of Part P40: Number of parts produced annually Fixed costs Variable costs Total cost to produce

22,000 $ 40,000 $ 66,000 $ 106,000

Jackson Corporation can purchase the part from an outside supplier for $4.25 per unit. If they purchase from the outside supplier, 50% of the fixed costs would be avoided. If Jackson Corporation makes the part, how much will its operating income be? A) $47,500 greater than if the company bought the part B) $20,000 greater than if the company bought the part C) $7,500 greater than if the company bought the part D) $32,500 less than if the company bought the part Answer: C Explanation: C) Purchase cost 22,000 × $ 4.25 = $ 93,500 Plus unavoidable fixed cost 40,000 × 50% 20,000 Total Cost to purchase 113,500 Less Cost to build 106,000 Add'l cost to buy the part 7,500 Diff: 2 LO: 8-6 EOC: E8-26A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

142 .

220) Part P40 is a part used in the production of air conditioners at Jackson Corporation. The following costs and data relate to the production of Part P40: Number of parts produced annually Fixed costs Variable costs Total cost to produce

22,000 $ 40,000 $ 66,000 $ 106,000

Jackson Corporation can purchase the part from an outside supplier for $4.25 per unit. If they purchase from the outside supplier, 50% of the fixed costs would be avoided. If Jackson Corporation buys the part, what is the most Jackson Corporation can spend per unit so that operating income is equal to $97,000? A) $5.32 B) $3.50 C) $1.93 D) $1.00 Answer: B Explanation: B) Desired Income $ 97,000 Less Unavoidable Fixed Cost 50% × $40,000 20,000 Equals Maximum cost of part 77,000 / 22,000 units = $ 3.50 Diff: 2 LO: 8-6 EOC: E8-25A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

143 .

221) Part P40 is a part used in the production of air conditioners at Jackson Corporation. The following costs and data relate to the production of Part P40: Number of parts produced annually Fixed costs Variable costs Total cost to produce

22,000 $ 40,000 $ 66,000 $ 106,000

Jackson Corporation can purchase the part from an outside supplier for $4.25 per unit. If they purchase from the outside supplier, 50% of the fixed costs would be avoided. Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for $2,000 profit. If Jackson Corporation makes the part, what will its operating income be? A) $5,500 less than if the company bought the part B) $5,500 greater than if the company bought the part C) 9,500 greater than if the company bought the part D) $111,500 greater than if the company bought the part Answer: B Explanation: B) Purchase price $ 4.25 × 22,000 = $ 93,500 Unavoidable Fixed Cost 50% × $40,000 20,000 Less lost profit from new product (2,000) Cost to buy $ 111,500 Current cost to produce 106,000 Difference 5,500 Diff: 2 LO: 8-6 EOC: E8-25A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

144 .

222) Moon Appliance manufactures a variety of appliances which all use Part B89. Currently, Moon Appliance manufactures Part B89 itself. It has been producing 9,000 units of Part B89 annually. The annual costs of producing Part B89 at the level of 9,000 units include: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost

$ 3.00 $ 8.00 $ 4.00 $ 3.00 $ 18.00

All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier. Moon Appliance has no alternative use for the manufacturing facilities. Nadal Parts Company has offered to sell 9,000 units of Part B89 to Moon Appliance for $20.00 per unit. What should Moon Appliance do? A) Make the part and save $9 per unit. B) Make the part and save $5 per unit. C) Buy from Nadal Parts Company and lose $2 per unit. D) Make the part and save $13 per unit. Answer: B Explanation: B) Purchase part $ 20.00 Add fixed cost 3.00 Total cost 23.00 Less build cost 18.00 Savings $ 5.00 Diff: 2 LO: 8-6 EOC: E8-25A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

145 .

223) Moon Appliance manufactures a variety of appliances which all use Part B89. Currently, Moon Appliance manufactures Part B89 itself. It has been producing 9,000 units of Part B89 annually. The annual costs of producing Part B89 at the level of 9,000 units include: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost

$ 3.00 $ 8.00 $ 4.00 $ 3.00 $ 18.00

All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier. Moon Appliance has no alternative use for the manufacturing facilities. Nadal Parts Company has offered to sell 9,000 units of Part B89 to Moon Appliance for $20.00 per unit. What is the highest price per unit that Moon Appliance should be willing to pay for the part? A) $7 B) $15 C) $11 D) $18 Answer: B Explanation: B) Direct Materials $ 3.00 Direct Labor 8.00 Variable MOH 4.00 Total Variable Cost $15.00 Diff: 2 LO: 8-6 EOC: E8-25A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

146 .

224) Moon Appliance manufactures a variety of appliances which all use Part B89. Currently, Moon Appliance manufactures Part B89 itself. It has been producing 9,000 units of Part B89 annually. The annual costs of producing Part B89 at the level of 9,000 units include: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost

$ 3.00 $ 8.00 $ 4.00 $ 3.00 $ 18.00

All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier. Assuming Moon Appliance can purchase 9,000 units of the part from the Nadal Parts Company for $20.00 each, and the facilities currently used to make the part could be rented out to another manufacturer for $18,000 a year, what should Moon Appliance do? A) Make the part and save $7.00 per unit. B) Make the part and save $3.00 per unit. C) Buy the part and save $7.00 per unit. D) Buy the part and save $3.00 per unit. Answer: B Explanation: B) Direct Materials Direct Labor Variable Expenses Cost to Produce

3.00 8.00 4.00 15.00

Potential income $ 18,000 / 9,000 units = $ 2.00 additional revenue per unit Price to buy from Supplier 20.00 Less Rental Revenue (2.00) Net Cost to Buy 18.00 Cost to Produce 15.00 Less Cost to Buy (18.00) Savings if Buy (3.00) Diff: 2 LO: 8-6 EOC: E8-25A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

147 .

225) Moon Appliance manufactures a variety of appliances which all use Part B89. Currently, Moon Appliance manufactures Part B89 itself. It has been producing 9,000 units of Part B89 annually. The annual costs of producing Part B89 at the level of 9,000 units include: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost

$ 3.00 $ 8.00 $ 4.00 $ 3.00 $ 18.00

All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier. Assume Moon Appliance can purchase 9,000 units of the part from the Nadal Parts Company for $20.00 each, and the facilities currently used to make the part could be used to manufacture 7,000 units of another product that would have a $6 per unit contribution margin. If no additional fixed costs would be incurred, what should Moon Appliance do? A) Make the new product and buy the part to earn an extra $1.00 per unit contribution to profit. B) Make the new product and buy the part to earn an extra $4.00 per unit contribution to profit. C) Continue to make the part to earn an extra $3.00 per unit contribution to profit. D) Continue to make the part to earn an extra $8.00 per unit contribution to profit. Answer: A Explanation: A) Direct Materials $ 3.00 Direct Labor 8.00 Variable MOH 4.00 Total Variable Cost $15.00 Less cost to buy 20.00 Savings (5.00) Plus CM from new product 6.00 Total add'l contribution to profit $ 1.00 Diff: 3 LO: 8-6 EOC: E8-25A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

148 .

226) Victoria Technologies makes a part used in the manufacture of digital cameras. Management is considering whether to continue manufacturing the part, or to buy the part from an outside source at a cost of $24.00 per part. Victoria Technologies needs 60,000 parts per year. The cost of manufacturing 60,000 parts is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing costs

$ 750,000 600,000 525,000 750,000 $2,525,0000

If Victoria Technologies buys the part, it would pay $.60 per unit to transport the parts to its manufacturing plant. Purchasing the part from an outside source would enable the company to avoid 50% of fixed manufacturing overhead costs. Victoria Technologies' factory space freed up by purchasing the part from an outside supplier could be used to manufacture another product with a contribution margin of $70,000. Prepare an analysis to show which alternative makes the best use of Victoria Technologies' factory space: 1) Make the part 2) Buy the part and leave facilities idle 3) Buy the part and use facilities to make another product

149 .

Answer: Transport cost per unit (if bought)

$

0.60

Number of parts needed Total variable transportation

$

36,000

Fixed manufacturing overhead

$

750,000

Avoidable percentage of fixed costs Avoidable fixed manufacturing overhead

$

375,000

Fixed manufacturing overhead

$

750,000

Avoidable fixed manufacturing overhead Unavoidable fixed manufacturing overhead

$

375,000

Total variable transportation Unavoidable fixed manufacturing overhead

$ $

36,000 375,000

Total variable transportation $ Unavoidable fixed manufacturing overhead $ Total purchase price $ Contribution margin provided by alternate use

36,000 375,000 1,440,000

Total purchase price Total cost to buy parts and leave facilities idle

of space Total cost to buy parts and use facilities to make another product Total manufacturing costs to make parts #3: Victoria Technologies should buy the part and use facilities to make another product since their total costs will be $1,781,000 under this option versus total costs of $2,625,000 to make the part. Diff: 3 LO: 8-6 EOC: P8-47A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

150 .

227) Define the term constraints and give an example. What product should be made first when resource constraints exist? Answer: Constraints are the limited resources that restrict production or sale of a product, and they vary from company to company. For a manufacturer, production may be constrained by labor hours, machine hours, or available materials. For a merchandiser, the primary constraint is cubic feet of display space. When resource constraints exist, the company should focus on selling the products with the highest contribution margin per unit of the constraint. Diff: 2 LO: 8-6 EOC: P8-47A AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 228) Patty's Mailbox Company produces a standard mailbox with variable manufacturing costs of $18 per unit. The selling price of the standard mailbox is $25 per unit. The fixed manufacturing overhead cost is $67,000. A normal production run includes 100,000 units. Patty's Mailbox Company has discovered an additional process to change the standard mailbox into a deluxe mailbox. Additional costs are estimated at $4 per unit. The deluxe mailbox would sell for $35. Additional fixed manufacturing overhead cost of $23,000 would be incurred if the deluxe mailbox is produced. There would be no change in the number of units produced. Make an analysis to determine if Patty's Mailbox Company should continue producing and selling the standard mailbox or change the standard mailbox into a deluxe mailbox.

151 .

Answer: Standard mailbox: Standard mailbox selling price Production volume Revenue

$ 25.00 100,000 $ 2,500,000

Standard mailbox variable costs Production volume Variable costs

$ 18.00 100,000 $ 1,800,000

Revenue Variable costs Fixed manufacturing overhead Operating income for Standard mailbox

$ 2,500,000 $(1,800,000) $ (67,000) $ 633,000

Deluxe mailbox: Deluxe mailbox selling price Production volume Revenue

$ 35.00 100,000 $ 3,500,000

Standard mailbox variable costs Deluxe mailbox additional costs Total costs Production volume Variable costs

$ 18.00 $ 4.00 $ 22.00 100,000 $ 2,200,000

Fixed manufacturing overhead Additional fixed manufacturing overhead Fixed costs

$ 67,000 $ 23,000 $ 90,000

Revenue Variable costs Fixed costs Operating income for Deluxe mailbox

$ 3,500,000 $(2,200,000) $ (90,000) $ 1,210,000

Operating income for Deluxe mailbox Operating income for Standard mailbox Increase in income

$ 1,210,000 $ (633,000) $ 577,000

Change the standard mailbox into the deluxe mailbox for $577,000 increase in operating income. Diff: 2 LO: 8-6 EOC: P8-47A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

152 .

229) Sunk costs should be considered when deciding whether to sell a product as is or process it further. Answer: FALSE Diff: 2 LO: 8-7 EOC: S8-13 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 230) A decision must be made at the point in a process where a product can either be sold as is or processed further. Answer: TRUE Diff: 2 LO: 8-7 EOC: S8-13 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 231) A sunk cost is a past cost that can be changed regardless of which future action is taken. Answer: FALSE Diff: 1 LO: 8-7 EOC: S8-13 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 232) When the extra revenue from processing further is less than the extra cost of processing further, the best decision would be to A) process further. B) develop a new product. C) not process further. D) start over. Answer: C Diff: 1 LO: 8-7 EOC: E8-28A AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

153 .

233) The benefit foregone by choosing a particular alternative course of action is referred to as a(n) A) sunk cost. B) opportunity cost. C) variable cost. D) incremental cost. Answer: B Diff: 1 LO: 8-7 EOC: E8-28A AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 234) In making the decision whether to sell a product as is or process the product further, the expected income from selling the product as is may be defined as which of the following? A) The opportunity cost of processing the product further B) A sunk cost of processing the product further C) The opportunity cost of selling the product as is D) A limiting factor in processing the product further Answer: A Diff: 2 LO: 8-7 EOC: E8-28A AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions 235) In a sell or process further decision, the company should process further if A) the extra cost of processing further is the same as the extra revenue. B) the extra revenue from processing further is less than the extra cost. C) the extra cost of processing further is greater than the extra revenue. D) the extra cost of processing further is less than the extra revenue. Answer: D Diff: 2 LO: 8-7 EOC: E8-28A AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions

154 .

236) Which of the following would be a consideration for "sell as is or process further" decisions? A) Revenue generated if sold "as is" B) Revenue generated if "further processed" C) Costs involved in further processing D) All of the above Answer: D Diff: 2 LO: 8-7 EOC: S8-13 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 237) Bear Country Granola is considering selling premium granola. It already sells regular for $6.75/pound and would sell premium granola for $9.50/pound. The cost for organic grains for the premium granola would be $1.15/pound. A cost that would not be considered in this decision would be A) the extra revenue generated by selling premium. B) the cost of refining the regular granola. C) the cost of further processing the regular granola into premium granola. D) any of the above would be considered. Answer: B Diff: 2 LO: 8-7 EOC: S8-13 AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 238) Four Guys Company has in its inventory 5,000 damaged televisions that cost $50,000. The televisions can be sold in their present condition for $32,000, or repaired at a cost of $43,000 and sold for $76,000. What is the opportunity cost of selling the televisions in their present condition? A) $82,000 B) $119,000 C) $33,000 D) $75,000 Answer: C Explanation: C) Selling price after repair $ 76,000 Cost to repair Opportunity cost to sell in current condition Diff: 2 LO: 8-7 EOC: P8-48A AACSB: Reflective Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

155 .

239) Paula has the following information to evaluate–her current salary of $55,000 versus total revenues of $120,000 and expenses of $75,000 from starting a new business. How much is the opportunity cost associated with starting the new business? A) $55,000 B) $120,000 C) $45,000 D) $75,000 Answer: A Diff: 2 LO: 8-7 EOC: P8-48A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions 240) Zach has the following information to evaluate–his current salary of $75,000 versus total revenues of $100,000 and expenses of $67,000 from starting a new business. How much is the opportunity cost associated with staying at his current job? A) $75,000 B) $(8,000) C) $33,000 D) $167,000 Answer: C Explanation: C) Revenues $ 100,000 Expenses 67,000 Potential income $ 33,000 Diff: 2 LO: 8-7 EOC: P8-48A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

156 .

241) Brittany Furniture manufactures two products, pillows and cushions, from a joint process. Pillows are allocated $7,000 of the total joint costs of $25,000. There are 2,500 pillows produced and 2,500 cushions produced each year. Pillows can be sold at the split-off point for $12 per unit, or they can be processed further into a deluxe pillow for additional processing costs of $8,000 and sold for $16 for each deluxe pillow. If the pillows are processed further and made into deluxe pillows, the effect on operating income would be: A) $30,000 net increase in operating income. B) $2,000 net decrease in operating income. C) $2,000 net increase in operating income. D) $30,000 net decrease in operating income. Answer: C Explanation: C) Selling Price × Units $ 16.00 × 2,500 = $40,000 less Additional cost 8,000 Profit 32,000 Less split-off point sales $ 12 × 2,500 = 30,000 Net increase $2,000 Diff: 3 LO: 8-7 EOC: P8-48A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 242) Upscale Dishwear manufactures two products, salad plates and platters, from a joint process. Salad plates are allocated $7,500 of the total joint costs of $25,000. There are 3,000 salad plates produced and 3,000 platters produced each year. Salad plates can be sold at the split-off point for $12 per unit, or they can be hand painted for additional processing costs of $8,400 and sold for $16 for each deluxe salad plate. If the salad plates are processed further and made into deluxe plates, the effect on operating income would be: A) $36,000 net increase in operating income. B) $3,600 net decrease in operating income. C) $36,000 net decrease in operating income. D) $3,600 net increase in operating income. Answer: D Explanation: D) Selling Price × Units $ 16.00 × 3000 = $48,000 less Additional cost 8,400 Profit 39,600 Less split-off point sales $ 12 × 3,000 = 36,000 Net increase $3,600 Diff: 3 LO: 8-7 EOC: P8-48A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

157 .

243) A joint production process at Happy Days Farms results in two products, blackberry syrup and blackberry jam. The following cost and activity data relate to these two products:

Joint costs allocated

Blackberry syrup Blackberry jam $ 10,000 $ 12,000

Number of units produced from joint process

1,500

1,500

Selling price at split-off point Selling price after processing further

$ 2.50 $ 5.00

$ 1.75 $ 2.00

Cost of processing further

$ 2,000

$ 2,000

Blackberry syrup can be sold as-is (at the split-off point) for $2.50 per unit, or it can be processed further into a specialty blackberry juice and then sold for $5.00 per unit. If blackberry syrup is processed further into the specialty blackberry juice, what would be the overall effect on operating income? A) $1,750 net increase in operating income B) $1,750 net decrease in operating income C) $3,750 net increase in operating income D) $3,750 net decrease in operating income Answer: A Explanation: A) Selling Price after further processing 1500 × $ 5.00 = $ 7,500 Additional Processing cost 2,000 Net Income 5,500 Less Income if sold at split-off point 1,500 × $ 2.50 3,750 Equals increase in Operating Income $ 1,750 Diff: 3 LO: 8-7 EOC: P8-48A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

158 .

244) A joint production process at Sunny Brooks Dairy results in two products, cherry jelly and cherry jam. The following cost and activity data relate to these two products: Cherry jelly $ 10,000

Cherry jam $ 12,000

Number of units produced from joint process

2,000

2,000

Selling price at split-off point Selling price after processing further

$ 2.50 $ 5.00

$ 1.75 $ 2.00

Cost of processing further

$ 2,200

$ 2,000

Joint costs allocated

Cherry jelly can be sold as-is (at the split-off point) for $2.50 per unit, or it can be processed further into a specialty cherry smoothie and then sold for $5.00 per unit. If cherry jelly is processed further into the specialty cherry smoothie, what would be the overall effect on operating income? A) $2,800 net decrease in operating income B) $5,000 net decrease in operating income C) $5,000 net increase in operating income D) $2,800 net increase in operating income Answer: D Explanation: D) Selling Price after further processing 2000 × $ 5.00 = $ 10,000 Additional Processing cost 2,200 Net Income 7,800 Less Income if sold at split-off point 2,000 × $ 2.50 5,000 Equals increase in Operating Income $ 2,800 Diff: 3 LO: 8-7 EOC: P8-48A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

159 .

245) Stoog Enterprises manufactures ceiling fans that normally sell for $90 each. There are 300 defective fans in inventory, which cost $55 each to manufacture. These defective units can be sold as is for $20 each, or they can be processed further for a cost of $40 each and then sold for the normal selling price. Stoog Enterprises would be better off by a A) $21,000 net increase in operating income if the ceiling fans are repaired. B) $9,000 net increase in operating income if the ceiling fans are sold as is. C) $9,000 net increase in operating income if the ceiling fans are repaired. D) $21,000 net increase in operating income if the ceiling fans are sold as is. Answer: C Explanation: C) Normal selling price $ 90.00 Sold "as is" price per unit Incremental revenue per unit

$

Cost to repair each unit Incremental income per unit from further processing

70.00 $

30.00

Number of defective units Total incremental income from further processing Diff: 3 LO: 8-7 EOC: P8-48A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions 246) Longview Baskets has in its inventory 2,000 damaged baskets that cost $20,000. The baskets can be sold in their present condition for $12,000, or repaired at a cost of $13,000 and sold for $35,000. What is the opportunity cost of selling the baskets in their present condition? A) $32,000 B) $25,000 C) $48,000 D) $22,000 Answer: D Explanation: D) Selling price after repair $ 35,000 Cost to repair Opportunity cost to sell in current condition Diff: 2 LO: 8-7 EOC: P8-48A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions

160 .

247) Molly has the following information to evaluate–her current salary of $57,000 versus total revenues of $62,000 and expenses of $47,000 from starting a new business. How much is the opportunity cost associated with starting the new business? A) $62,000 B) $15,000 C) $57,000 D) $47,000 Answer: C Diff: 2 LO: 8-7 EOC: P8-48A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs. 248) Jackie has the following information to evaluate–her current salary of $74,000 versus total revenues of $100,000 and expenses of $65,000 from starting a new business. How much is the opportunity cost associated with staying at her current job? A) $35,000 B) $165,000 C) $74,000 D) $(9,000) Answer: A Explanation: A) Revenues from the new business $ 100,000 Costs to start a business Opportunity cost of staying at current job Diff: 2 LO: 8-7 EOC: P8-48A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

161 .

249) On the line in front of each statement, enter the letter corresponding to the term that best fits that statement. An item may be used more than once or not at all. A. B. C. D.

relevant costs sunk costs constraint contribution margin

E. F. G. H.

opportunity costs full cost of product or service sales mix variable costing

____ Costs that were incurred in the past and cannot be changed ____ Benefits foregone by choosing a particular alternative course of action ____ Expected future costs that differs among alternatives ____ Costs of developing, producing and delivering a product or service ____ A factor that restricts production or sales of a product Answer: B, E, A, F, C Diff: 2 LO: 8-7 EOC: E8-28A AACSB: Analytical Thinking Learning Outcome: Use incremental analysis to make short-term decisions. Distinguish between relevant and irrelevant costs.

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Managerial Accounting, 3e (Braun/Tietz) Chapter 9 The Master Budget 1) Strategic planning involves setting short-term goals extending three to four months into the future. Answer: FALSE Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 2) Budgeting is helpful to plan for cash inflows and outflows. Answer: TRUE Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 3) A budget is a quantitative expression of a plan that helps managers coordinate and implement the plan. Answer: TRUE Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 4) Budgets do not provide benchmarks to help managers evaluate performance. Answer: FALSE Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 5) Budgets communicate financial plans throughout the company. Answer: TRUE Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 1 .

6) One of the key benefits of budgeting is that it forces managers to plan. Answer: TRUE Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 7) The capital expenditures budget is not part of the operating budget. Answer: TRUE Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 8) The master budget is the set of budgeted financial statements and supporting schedules for the entire organization. Answer: TRUE Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 9) The master budget includes both the operating budgets and the financial budgets. Answer: TRUE Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 10) Management uses budgeting to express its plans and to assess how well it's reaching its goals. Answer: TRUE Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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11) Strategic planning involves setting long-term goals that extend 5-10 years into the future. Answer: TRUE Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 12) A rolling budget is a budget that is continuously updated so that the next 12 months of operations are always budgeted. Answer: TRUE Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 13) The financial budgets project the collection and payment of cash, as well as forecast the company's budgeted balance sheet. Answer: TRUE Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 14) Budget committees most often would include all of the following people except A) CEO B) Research and development manager C) Shareholder D) Marketing manager Answer: C Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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15) Budgets are used for all of the following, except A) planning for the future. B) controlling operations. C) recording actual results. D) directing operations. Answer: C Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 16) Strategic planning involves A) setting long-term goals that extend 5-10 years into the future. B) setting short-term goals that extend one year into the future. C) setting goals for next month. D) executing directives from the board of directors. Answer: A Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 17) A rolling budget is a budget that A) extends 5-10 years into the future. B) is continuously updated, so that the next 12 months of operations are always budgeted. C) begins with zero for each expense, and then amounts are added in. D) is rolled out by upper management. Answer: B Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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18) Most companies use ________ when developing the budgets each year. A) a top-down approach B) zero-based budgets C) slack-based budgets D) participative budgeting Answer: D Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 19) Which of the following is a potential disadvantage of participative budgeting? A) Managers are more likely to be motivated by budgets they helped to create. B) Managers may build slack into the budget. C) Managers should have more detailed knowledge for creating realistic budgets. D) None of the above are true. Answer: B Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 20) Managers may intentionally build slack into the budget A) to have the resources they need in the event of budget cuts. B) to make their performance look worse. C) because of certainty about the future. D) because of all of the above. Answer: A Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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21) Managers may intentionally build slack into the budget A) because of uncertainty about the future. B) to make their performance look better. C) to have the resources they need in the event of budget cuts. D) because of all of the above. Answer: D Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 22) The budget committee A) rarely has the final say on the budget. B) usually is made up of the accounting staff. C) usually is made up of managers from all areas of the value chain. D) usually is made up of the Board of Directors. Answer: C Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 23) All of the following are functions of the budget committee except A) reviews submitted budgets. B) determines the bonuses awarded to those who achieve budget targets. C) approves the final budget. D) removes unwarranted slack. Answer: B Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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24) Which of the following is the starting place for budgeting? A) Last year's budget B) Last year's actual amounts C) Zero D) Any of the above Answer: D Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 25) Which of the following is an advantage of zero-based budgeting? A) It is time consuming. B) It forces managers to justify every dollar put in the budget, so some expenses may be lower than they were in previous years. C) It is labor intensive. D) All of the above are advantages. Answer: B Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 26) The ________ budget is part of the financial budgets. A) cash B) sales C) direct materials D) operating expense Answer: A Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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27) The ________ budget is part of the financial budgets. A) direct labor B) capital expenditure C) budgeted income statement D) manufacturing overhead Answer: B Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 28) The ________ budget is part of the financial budgets. A) production B) budgeted income statement C) budgeted balance sheet D) sales Answer: C Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 29) The ________ budget is part of the operating budgets. A) capital expenditure B) budgeted balance sheet C) production D) cash Answer: C Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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30) Which of the following alternatives reflects the proper order of preparing components of the master budget? 1. Production budget 2. Sales budget 3. Direct materials budget A) 2, 3, 1 B) 1, 3, 2 C) 3, 1, 2 D) 2, 1, 3 Answer: D Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 31) Which of the following is an advantage of the budgeting process? A) Coordinates the activities of the organization B) Assures that the lowest cost materials will be obtained C) Assures the company will achieve its objectives D) Guarantees that a profit will be achieved Answer: A Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 32) Regarding the budgeting process, which of the following statements is true? A) The budget should always be designed by top corporate management. B) The budget should be approved by the company's external auditors. C) The budget should be designed from the bottom up, with input from employees at all levels. D) All of the listed statements are true regarding the budgeting process. Answer: C Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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33) Which of the following is a benefit of budgeting? A) Focuses management's attention on the future B) Improved decision-making processes C) Improved motivation by employees D) All of the above Answer: D Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 34) Which of the following statements about budgeting is not true? A) Budgeting is an aid to planning and control. B) The operating budget should be prepared by top management, rather than mid-management personnel, because they have the overall objectives of the company in mind. C) Budgets help to coordinate the activities of the entire organization. D) Budgets promote communication and coordination between departments. Answer: B Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 35) Which of the following alternatives reflects the proper order of preparing components of the master budget? 1. Financial budget 2. Operating budget 3. Capital expenditures budget A) 1, 3, 2 B) 2, 3, 1 C) 1, 2, 3 D) 3, 1, 2 Answer: B Diff: 2 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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36) Which of the following budgets is a major part of the master budget and focuses on the income statement and its supporting schedules? A) cash B) operating C) capital expenditures D) financial Answer: B Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 37) Which of the following budgets is the cornerstone of the master budget? A) sales B) cash C) budgeted balance sheet D) operating expense Answer: A Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 38) "Sets the targeted revenue and expenses for the period" is best described by which of the following terms? A) Responsibility center B) Capital budget C) Operating budget D) Sensitivity analysis Answer: C Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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39) "The comprehensive budget" is best described by which term below? A) Operating budget B) Sensitivity analysis C) Responsibility center D) Master budget Answer: D Diff: 1 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 40) List and describe three reasons why a company and its managers could benefit from the use of budgeting. Answer: 1. Planning: The budgeting process forces managers to spend time planning for the future, rather than only concerning themselves with daily operations. 2. Coordination and Communication: The budget coordinates a company's activities. It forces managers to consider relations among operations across the entire value chain. 3. Benchmarking: Budgets provide a benchmark that motivates employees and helps managers evaluate performance. The budget provides a target that most managers will try to achieve, especially if they participated in the budgeting process and the budget has been set at a realistic level. Diff: 2 LO: 9-1 EOC: S9-2 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 41) When creating the sales budget, management simply takes the sales from the year before and divides that total by 12 months. Thus, each month will always predict the same amount of budgeted sales. Answer: FALSE Diff: 1 LO: 9-2 EOC: E9-16 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 42) The first component of the operating budget is the production budget. Answer: FALSE Diff: 1 LO: 9-2 EOC: E9-16 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 12 .

43) The three components of the operating budget are the sales budget; inventory, purchases and cost of goods sold budget; and the cash budget. Answer: FALSE Diff: 1 LO: 9-2 EOC: E9-23 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 44) The sales budget must be prepared after every other component of the operating budget. Answer: FALSE Diff: 1 LO: 9-2 EOC: E9-16 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 45) Budgeting includes planning for ending inventory. Answer: TRUE Diff: 1 LO: 9-2 EOC: E9-18 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 46) The sales budget is the cornerstone of the master budget. Answer: TRUE Diff: 1 LO: 9-2 EOC: E9-23 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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47) On the production budget, the number of units to be produced is computed as A) unit sales + desired end inventory + beginning inventory. B) unit sales + desired end inventory - beginning inventory. C) unit sales - desired end inventory - beginning inventory. D) unit sales - desired end inventory + beginning inventory. Answer: B Diff: 1 LO: 9-2 EOC: E9-18A AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 48) On the direct labor budget, the total quantity of direct labor hours needed is computed as A) units to be produced × direct labor hour per unit. B) quantity needed for production + indirect labor hours - direct labor hours. C) units to be produced - indirect labor hours × cost per labor hour. D) estimated direct labor hours needed × cost per hour. Answer: A Diff: 1 LO: 9-2 EOC: E9-18A AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 49) On the direct materials budget, the total quantity of direct materials needed is computed as A) quantity needed for production + desired end inventory of DM - beginning inventory of DM. B) units to be produced + desired end inventory of DM - beginning inventory of DM. C) units to be produced - desired end inventory of DM + beginning inventory of DM. D) quantity needed for production - desired end inventory of DM + beginning inventory DM. Answer: A Diff: 1 LO: 9-2 EOC: E9-18A AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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50) The ________ budget is the only budget stated ONLY in units, not dollars. A) production B) sales C) direct materials D) manufacturing overhead Answer: A Diff: 1 LO: 9-2 EOC: E9-18A AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 51) The ________ budget starts with the number of units to be produced. A) production B) operating expense C) direct materials D) All of these choices start with the number of units to be produced. Answer: C Diff: 1 LO: 9-2 EOC: E9-23A AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 52) The ________ budget begins with the number of units to be sold. A) manufacturing overhead B) direct materials C) production D) capital expenditures Answer: C Diff: 1 LO: 9-2 EOC: E9-16A AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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53) Which of the following budgets usually shows separate sections for fixed and variable costs? A) Direct materials and manufacturing overhead budget B) Manufacturing overhead budget and production budget C) Production budget and manufacturing overhead budget D) Operating expense budget and manufacturing overhead budget Answer: D Diff: 1 LO: 9-2 EOC: E9-23A AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 54) Which of the following budgets or financial statements is part of the operating budget? A) Sales budget B) Budgeted balance sheet C) Capital expenditures budget D) Cash budget Answer: A Diff: 1 LO: 9-2 EOC: E9-16 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 55) The ________ is a plan that shows the units to be sold and the projected selling price and is also the starting point in the budgeting process. A) cash budget B) budgeted statement of cash flows C) budgeted income statement D) sales budget Answer: D Diff: 1 LO: 9-2 EOC: E9-16 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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56) Which of the following is not part of the operating budget? A) Inventory, purchases and cost of goods sold budget B) Cash budget C) Sales budget D) Budgeted income statement Answer: B Diff: 1 LO: 9-2 EOC: E9-23 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 57) Which of the following is not included in the operating budget? A) Budgeted income statement B) Sales budget C) Inventory budget D) Budgeted balance sheet Answer: D Diff: 1 LO: 9-2 EOC: E9-23 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 58) In preparing the operating budget, the first step is preparing the A) cash budget. B) sales budget. C) budgeted income statement. D) purchases budget. Answer: B Diff: 1 LO: 9-2 EOC: E9-23 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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59) Desired ending inventory is 20% of next month's sales. If cost of goods sold is $300,000 and next month's sales is $900,000, which of the following statements is true regarding purchases? A) Purchases will be more than cost of goods sold. B) Purchases cannot be predicted from the information given. C) Purchases will be less than cost of goods sold. D) Purchases will equal cost of goods sold. Answer: B Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 60) Desired ending inventory is 25% more than beginning inventory. If purchases total $160,000, which of the following statements is true regarding cost of goods sold (COGS)? A) COGS will exceed cost of goods available for sale. B) COGS will be less than purchases. C) COGS will exceed purchases. D) COGS will equal $55,000. Answer: B Diff: 3 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 61) Loyal Pet Company expects to sell 5,000 beefy dog treats in January and 9,000 in February for $3 each. What will be the total sales revenue reflected in the sales budget for those months? A) January $15,000; February $27,000 B) January $1,667; February $3,000 C) January $3,000; February $1,667 D) January $27,000; February $15,000 Answer: A Explanation: A) January 5000 × $3 = $15,000; February 9000 × $ 3 = $ 27,000 Diff: 1 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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62) Mockingbird Company expects to sell 5,200 bird perches in January and 9,500 in February for $3 each. What will be the total sales revenue reflected in the sales budget for those months? A) January $1,733; February $3,167 B) January $15,600; February $28,500 C) January $3,167; February $1,733 D) January $28,500; February $15,600 Answer: B Explanation: B) January 5,200 × $3 = $15,600; February 9,500 × $ 3 = $ 28,500 Diff: 1 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 63) Hewitt Company expects cash sales for July of $15,000, and a 22% monthly increase during August and September. Credit sales of $10,000 in July should be followed by 30% increases during August and September. What are budgeted cash sales and budgeted credit sales for September respectively? A) $19,500 and $12,200 B) $25,350 and $14,884 C) $22,326 and $16,900 D) $18,300 and $13,000 Answer: C Explanation: C) Cash sales $ 15,000 × 1.22% = $ 18,300 × 1.22% = $ 22,326; Credit sales $ 10,000 × 1.30% = $ 13,000 × 1.30 % = $ 16,900 Diff: 2 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 64) Piatt Company expects cash sales for July of $15,000, and a 26% monthly increase during August and September. Credit sales of $12,000 in July should be followed by 30% increases during August and September. What are budgeted cash sales and budgeted credit sales for September respectively? A) $19,500 and $15,120 B) $25,350 and $19,051 C) $18,900 and $15,600 D) $23,814 and $20,280 Answer: D Explanation: D) Cash sales $ 15,000 × 1.26% = $ 18,900 × 1.26% = $ 23,814; Credit sales $ 12,000 × 1.30% = $ 15,600 × 1.30 % = $ 20,280 Diff: 2 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 19 .

65) CatNap Company has two products: Kittyz and Katz. A March sales forecast projects 20,000 units of Kittyz and 15,000 units of Katz are going to be sold at prices of $15 and $12, respectively. The desired ending inventory of Kittyz is 20% higher than the beginning inventory, which was 2,000 units. How much are total March sales for Kittyz anticipated to be? A) $100,000 B) $180,000 C) $300,000 D) $240,000 Answer: C Explanation: C) 20,000 × $ 15 = $ 300,000 Diff: 1 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 66) DogDayz Company has two products: Doggyz and Pupz. A March sales forecast projects 22,000 units of Doggyz and 15,000 units of Pupz are going to be sold at prices of $17.50 and $12.00, respectively. The desired ending inventory of Doggyz is 20% higher than the beginning inventory, which was 2,000 units. How much are total March sales for Doggyz anticipated to be? A) $180,000 B) $385,000 C) $264,000 D) $110,000 Answer: B Explanation: B) 22,000 × $ 17.50 = $ 385,000 Diff: 1 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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67) Russell Company expects cash sales for July of $15,000, and a 22% monthly increase during August and September. Credit sales of $6,000 in July should be followed by 15% decreases during August and September. What are budgeted cash sales and budgeted credit sales for September? A) $18,300 and $5,100 B) $22,326 and $4,335 C) $12,750 and $7,320 D) $10,838 and $8,930 Answer: B Explanation: B) Cash $15,000 × 1.22% = $ 8,300 × 1.22% = $22,326; Credit $6,000 × 85% = $5,100 × 85 % = $4,335 Diff: 2 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 68) Kotrick Company has beginning inventory of 15,000 units and expected sales of 23,000 units. If the desired ending inventory is 18,000 units, how many units should be produced? A) 20,000 B) 56,500 C) 10,000 D) 26,000 Answer: D Explanation: D) Sales 23,000 Less: BI 15,000 = Need to produce 8,000 + desired EI 18,000 = Total Production 26,000 Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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69) McCoy Company wants to have an ending inventory of 7,000 units. McCoy Company has beginning inventory of 9,000 units and expects to sell 33,000 units. How many units should McCoy Company produce? A) 31,000 B) 35,000 C) 49,000 D) 40,000 Answer: A Explanation: A) Sales 33,000 Less: BI 9,000 = Need to produce 24,000 + desired EI 7,000 = Total Production 31,000 Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 70) Rubino Corporation desires a December 31 ending inventory of 900 units. Budgeted sales for December are 2,650 units. The November 30 inventory was 850 units. What are budgeted purchases in units? A) 3,550 B) 2,600 C) 2,700 D) 4,400 Answer: C Explanation: C) Sales 2,650 Less: BI 850 = Need to produce 1,800 + desired EI 900 = Total Production 2,700 Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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71) Bruner Stores wants to have 500 shovels in ending inventory on December 31. Budgeted sales for December are 1,950 shovels. The November 30 inventory was 320 shovels. How many shovels should Benson Stores purchase for December? A) 2,770 B) 1,770 C) 2,450 D) 2,130 Answer: D Explanation: D) Sales 1,950 Less: BI 320 = Need to produce 1,630 + desired EI 500 = Total Production 2,130 Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 72) Crafty Carpentry Company produces and sells a shelf for $25 each. The beginning inventory is 2,000 shelves, and the desired ending inventory is 2,200 shelves. If budgeted production is 12,500 shelves, what is the forecasted sales revenue from the shelves? A) $417,500 B) $307,500 C) $317,500 D) $207,500 Answer: B Explanation: B) Production 12,500 + BI 2,000 Total Produced 14,500 Less: EI 2,200 Unit Sales 12,300 × $ 25 = $ 307,500 Diff: 2 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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73) SportSupplies Corporation has budgeted purchases of inventory for December of $140,000. Expected beginning inventory on December 1 and ending inventory on December 31 are $90,000 and $120,000, respectively. If cost of goods sold averages 88% of sales, what are budgeted sales for December? A) $125,000 B) $96,800 C) $193,182 D) $397,727 Answer: A Explanation: A) BI $90,000 + Purchases 140,000 = Goods Available 230,000 Less : EI 120,000 = Cost of Goods Sold $110,000 Now 88% × (Sales) = $ 110,000 Sales = $ 125,500 Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 74) Willard's Department Store has budgeted cost of goods sold of $42,000 for its men's shorts in March. Management also wants to have $7,600 of men's shorts in inventory at the end of March to prepare for the summer season. Beginning inventory of men's shorts for March is expected to be $5,500. What dollar amount of men's shorts should be purchased in March? A) $39,900 B) $44,100 C) $55,100 D) $29,900 Answer: B Explanation: B) Cost of Goods Sold $ 42,000 + EI 7,600 = Goods Available 49,600 Less BI 5,500 = Purchases 44,100 Diff: 2 LO: 9-2 EOC: E9-20 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

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75) Goddard's Department Store has budgeted cost of goods sold of $44,000 for its men's shorts in March. Management also wants to have $8,000 of men's shorts in inventory at the end of March to prepare for the summer season. Beginning inventory of men's shorts for March is expected to be $5,500. What dollar amount of men's shorts should be purchased in March? A) $46,500 B) $41,500 C) $57,500 D) $30,500 Answer: A Explanation: A) Cost of Goods Sold $ 44,000 + EI 8,000 = Goods Available 52,000 Less BI 5,500 = Purchases 46,500 Diff: 2 LO: 9-2 EOC: E9-20 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 76) Thomas Corporation recorded sales of $200,000 during March. Management expects sales to increase 5% in April, another 2% in May, and another 10% in June. Cost of goods sold is expected to be 80% of sales. What is the budgeted gross profit for June? A) $47,124 B) $43,697 C) $235,620 D) $42,840 Answer: A Explanation: A) $ 200,000 × 1.05% = 210,000 × 1.02% = 214,200 × 1.10% = $ 235,620 Now Sales × 80% = Cost of Goods Sold - 188,496 = Gross Profit $ 47,124 Diff: 2 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

25 .

77) Meers Corporation had beginning inventory of 21,000 units and expects sales of 76,500 units during the year. Desired ending inventory is 19,500 units. How many units should Meers Corporation produce? A) 78,000 units B) 36,000 units C) 75,000 units D) 117,000 units Answer: C Explanation: C) Sales $76,500 - BI 21,000 Total needed 55,500 + EI 19,500 = Production 75,000 Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 78) Dallas Corporation had beginning inventory of 19,500 units and expects sales of 85,000 units during the year. Desired ending inventory is 18,500 units. How many units should Dallas Corporation produce? A) 84,000 units B) 47,000 units C) 86,000 units D) 123,000 units Answer: A Explanation: A) Sales $85,000 - BI 19,500 Total needed 65,500 + EI 18,500 = Production 84,000 Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

26 .

79) Sam's Toys budgeted sales of $300,000 for the month of November and cost of goods sold equal to 80% of sales. Beginning inventory for November was $50,000 and ending inventory for November is estimated at $55,000. How much are the budgeted purchases for November? A) $245,000 B) $65,000 C) $235,000 D) $135,000 Answer: A Explanation: A) 80 % x $ 300,000 = $240,000 Cost of Goods Sold Less BI 50,000 = 190,000 + EI 55,000 = Purchases $ 245,000 Diff: 3 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 80) Fosnight Enterprises prepared the following sales budget: Month March April May June

Budgeted Sales $6,000 $13,000 $12,000 $14,000

The expected gross profit rate is 30% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the desired beginning inventory on June 1? A) $840 B) $1,680 C) $1,960 D) $9,800 Answer: C Explanation: C) Sales = 100% - 30% Gross Profit = 70% Cost of Goods Sold (CGS) Now: June Sales $14,000 × 70% = 9,800 (CGS) × 20% = $ 1,960 Diff: 2 LO: 9-2 EOC: E9-20A AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 27 .

81) Fosnight Enterprises prepared the following sales budget: Month March April May June

Budgeted Sales $6,000 $13,000 $12,000 $14,000

The expected gross profit rate is 30% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the desired ending inventory on May 31? A) $840 B) $9,800 C) $1,680 D) $1,960 Answer: D Explanation: D) Sales = 100% - 30% Gross Profit = 70% Cost of Goods Sold (CGS) Now: June Sales $14,000 × 70% = 9,800 (CGS) × 20% = $ 1,960 Diff: 2 LO: 9-2 EOC: E9-20A AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

28 .

82) Fosnight Enterprises prepared the following sales budget: Month March April May June

Budgeted Sales $6,000 $13,000 $12,000 $14,000

The expected gross profit rate is 30% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the budgeted cost of goods sold for May? A) $3,600 B) $4,200 C) $2,400 D) $8,400 Answer: D Explanation: D) $ 12.000 × 70% = $ 8,400 Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

29 .

83) Fosnight Enterprises prepared the following sales budget: Month March April May June

Budgeted Sales $6,000 $13,000 $12,000 $14,000

The expected gross profit rate is 30% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What are the total purchases budgeted for April? A) $8,680 B) $10,920 C) $8,960 D) $9,240 Answer: C Explanation: C) Cost of Goods Sold = $ 13,000 × 70% = $ 9,100 Ending Inventory = $12,000 × 70% = 8,400 × 20% = $ 1,680 Beginning Inventory = $ 13,000 × 70% = 9,100 × 20% = $ 1,820 Now: CGS $ 9,100 + EI 1,680 - BI 1,820 = Purchases $ 8,960 Diff: 3 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

30 .

84) Fosnight Enterprises prepared the following sales budget: Month March April May June

Budgeted Sales $6,000 $13,000 $12,000 $14,000

The expected gross profit rate is 30% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What are the total purchases budgeted for May? A) $8,120 B) $8,960 C) $8,680 D) $10,080 Answer: C Explanation: C) May Beginning Inventory = $ 12,000 × 70% = 8,400 × 20% = $ 1,680May Ending Inventory = $ 14,000 × 70% = 9,800 × 20% = $ 1,960 May Cost of Goods Sold = $ 12,000 × 70% = $ 8,400 Now $ 8,400 + 1,960 - 1,680 = $ 8,680 Diff: 3 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

31 .

85) Sander Enterprises prepared the following sales budget: Month March April May June

Budgeted Sales $8,000 $13,000 $12,000 $14,000

The expected gross profit rate is 40% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the desired beginning inventory on June 1? A) $1,440 B) $1,680 C) $1,120 D) $8,400 Answer: B Explanation: B) Sales = 100% - 40% Gross Profit = 60% Cost of Goods Sold (CGS) Now: June Sales $ 14,000 × 60% = 8,400 (CGS) × 20% = $ 1,680 Diff: 2 LO: 9-2 EOC: E9-20A AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

32 .

86) Sander Enterprises prepared the following sales budget: Month March April May June

Budgeted Sales $8,000 $13,000 $12,000 $14,000

The expected gross profit rate is 40% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the desired ending inventory on May 31? A) $1,120 B) $1,440 C) $1,680 D) $8,400 Answer: C Explanation: C) Sales = 100% - 40% Gross Profit = 60% Cost of Goods Sold (CGS) Now: June Sales $14,000 × 60% = 8,400 (CGS) × 20% = $ 1,680 Diff: 2 LO: 9-2 EOC: E9-20A AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

33 .

87) Sander Enterprises prepared the following sales budget: Month March April May June

Budgeted Sales $8,000 $13,000 $12,000 $14,000

The expected gross profit rate is 40% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the budgeted cost of goods sold for May? A) $7,200 B) $4,800 C) $2,400 D) $8,400 Answer: A Explanation: A) $ 12,000 × 60% = $ 7,200 Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

34 .

88) Sander Enterprises prepared the following sales budget: Month March April May June

Budgeted Sales $8,000 $13,000 $12,000 $14,000

The expected gross profit rate is 40% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What are the total purchases budgeted for April? A) $9,360 B) $7,440 C) $7,680 D) $7,920 Answer: C Explanation: C) Cost of Goods Sold = $ 13,000 × 60% = $ 7,800 Ending Inventory = $ 12,000 × 60% = 7,200 x 20% = $ 1,440 Beginning Inventory = $ 13,000 × 60% = 7,800 × 20% = $ 1,560 Now: CGS $ 7,800 + EI 1,440 - BI 1,560 = Purchases $ 7,680 Diff: 3 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

35 .

89) Sander Enterprises prepared the following sales budget: Month March April May June

Budgeted Sales $8,000 $13,000 $12,000 $14,000

The expected gross profit rate is 40% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What are the total purchases budgeted for May? A) $8,640 B) $7,680 C) $6,960 D) $7,440 Answer: D Explanation: D) May Beginning Inventory = $ 12,000 × 60% = 7,200 × 20% = $ 1,440 May Ending Inventory = $ 14,000 × 60% = 8,400 × 20% = $ 1,680 May Cost of Goods Sold = $ 12,000 × 60% = $ 7,200 Now $ 7,200 + 1,680 - 1,440 = $ 7,440 Diff: 3 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 90) A lamp store purchased $3,800 of lamps in September. The store had $1,600 of lamps on hand at the beginning of September, and expected to have $1,300 of lamps at the end of September to cover part of anticipated October sales. What is the budgeted cost of goods sold for September? A) $5,400 B) $4,100 C) $6,700 D) $3,500 Answer: B Explanation: B) BI $ 1,600 + Purchases 3,800 = Goods Available 5,400 Less : EI 1,300 = Cost of Goods Sold $4,100 Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 36 .

91) Warshaw Company budgets payroll at $3,600 per month plus a percentage of monthly sales. The June operating expense budget includes total payroll of $13,200 with budgeted sales of $160,000. Sales for July are budgeted at $180,000 while purchases of inventory for July are budgeted at $95,000. Depreciation and insurance for July are estimated at $1,000 and $600, respectively. Office and administrative expenses related to purchasing inventory are budgeted at 10% of purchases for the month. The purchase of $2,500 in equipment and $1,500 in furniture is expected in July. The July payroll should be budgeted at A) $14,400. B) $13,200. C) $22,500. D) $15,300. Answer: A Explanation: A) Total Payroll $ 13,200 - fixed payroll - 3,600 = variable payroll = $ 9,600 divided by Sales = 6% (payroll as a % of Sales) Now: $ 180,000 × 6% = $ 10,800 Variable Payroll + 3,600 Fixed = $ 14,400 Total Payroll Diff: 3 LO: 9-2 EOC: E9-21 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

37 .

92) Warshaw Company budgets payroll at $3,600 per month plus a percentage of monthly sales. The June operating expense budget includes total payroll of $13,200 with budgeted sales of $160,000. Sales for July are budgeted at $180,000 while purchases of inventory for July are budgeted at $95,000. Depreciation and insurance for July are estimated at $1,000 and $600, respectively. Office and administrative expenses related to purchasing inventory are budgeted at 10% of purchases for the month. The purchase of $2,500 in equipment and $1,500 in furniture is expected in July. The total operating expenses budgeted for July are A) $23,900. B) $14,800. C) $25,500. D) $14,400. Answer: C Explanation: C) Inventory $ 95,000 10% = $9,500 Office and Adm. Expense Total Payroll $13,200 - fixed payroll -3,600 = variable payroll = $ 9,600 divided by Sales = 6% (payroll as a % of Sales) Now: $ 180,000 × 6% = $ 10,800 + 3,600 = $ 14,400

Variable Payroll Fixed Total Payroll

Finally Payroll $ 14,400 + Office and Adm. expense 9,500 + Depreciation 1,000 + Insurance 600 = Total Operating Expense $ 25,500 Diff: 3 LO: 9-2 EOC: E9-23 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

38 .

93) Warshaw Company budgets payroll at $3,600 per month plus a percentage of monthly sales. The June operating expense budget includes total payroll of $13,200 with budgeted sales of $160,000. Sales for July are budgeted at $180,000 while purchases of inventory for July are budgeted at $95,000. Depreciation and insurance for July are estimated at $1,000 and $600, respectively. Office and administrative expenses related to purchasing inventory are budgeted at 10% of purchases for the month. The purchase of $2,500 in equipment and $1,500 in furniture is expected in July. If the percentage of monthly sales used in budgeting payroll increases 25%, what would the total payroll budgeted for July be? A) $20,025 B) $17,100 C) $13,500 D) $14,400 Answer: B Explanation: B) June expense budget total payroll Fixed payroll budget June variable payroll budget Divide by June budgeted sales Old variable payroll budget (% of month's sales)

$ 13,200 $ (3,600) $ 9,600 $ 160,000 6%

Increase in variable payroll expense Add

25% 1 125% 6%

Old variable payroll budget (% of month's sales) New variable payroll budget (% of month's sales)

8%

July budgeted sales New variable payroll budget (% of month's sales) July variable payroll budget Fixed payroll budget July payroll

$ 180,000 8% $ 13,500 $ 3,600 $ 17,100

Diff: 3 LO: 9-2 EOC: E9-21 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

39 .

94) At the beginning of the year, Patio Living Corporation has 550 planters in inventory. The company plans to sell 5,200 planters during the year and wants to have 1,200 planters in inventory at the end of the year. How many planters must Patio Living Corporation produce during the year? A) 5,850 B) 6,400 C) 3,450 D) 6,950 Answer: A Explanation: A) Sales $ 5,200 BI - 550 EI + 1,200 Production $ 5,850 Diff: 1 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 95) At the beginning of the year, Lakeview Corporation has 660 life vests in inventory. The company wants to have 2,100 vests in inventory at the end of the year and plans to sell 6,400 life vests during the year. How many life vests must Lakeview Corporation produce during the year? A) 8,500 B) 3,640 C) 7,840 D) 9,160 Answer: C Explanation: C) Sales $ 6,400 BI - 660 EI + 2,100 Production $ 7,840 Diff: 1 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

40 .

96) Totz Company produces jump ropes. Totz Company has the following sales projections for the upcoming year: First quarter budgeted jump rope sales in units Second quarter budgeted jump rope sales in units Third quarter budgeted jump rope sales in units Fourth quarter budgeted jump rope sales in units

21,000 35,000 22,000 30,000

Inventory at the beginning of the year was 4,200 jump ropes. Totz Company wants to have 20% of the next quarter's sales in units on hand at the end of each quarter. How many jump ropes should Totz Company produce during the first quarter? A) 16,800 B) 21,000 C) 23,800 D) 32,200 Answer: C Explanation: C) Unit Sales 2nd Qtr 35,000 × 20% = 7,000 EI Sales $ 21,000 BI - 4,200 EI + 7,000 Production $ 23,800 Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

41 .

97) Jolly Company produces hula hoops. Jolly Company has the following sales projections for the upcoming year: First quarter budgeted hula hoop sales in units Second quarter budgeted hula hoop sales in units Third quarter budgeted hula hoop sales in units Fourth quarter budgeted hula hoop sales in units

22,100 28,000 22,000 30,000

Jolly Company wants to have 25% of the next quarter's sales in units on hand at the end of each quarter. Inventory at the beginning of the year was 5,525 hula hoops. How many hula hoops should Jolly Company produce during the first quarter? A) 34,625 B) 23,575 C) 16,575 D) 22,100 Answer: B Explanation: B) Unit Sales 2nd Qtr 28,000 × 25% = 7,000 EI Sales $ 22,100 BI - 5,525 EI + 7,000 Production $ 23,575 Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

42 .

98) Daisy Company manufactures dog collars. The following selected data relates to Daisy Company's budgeted sales and inventory levels of the dog collars for the upcoming quarter: October expected unit sales November expected unit sales December expected unit sales October desired ending unit finished goods inventory November desired ending unit finished goods inventory December desired ending unit finished goods inventory

2,000 2,600 2,200 850 720 520

How many dog collars should Daisy Company produce in November? A) 2,870 B) 3,320 C) 4,170 D) 2,470 Answer: D Explanation: D) Sales $ 2,600 BI - 850 EI + 720 Production 2,470 Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

43 .

99) Victoria Corporation manufactures quality vases. Budgeted sales and production data for the vases are as follows: Month 1 budgeted unit sales Month 2 budgeted unit sales Month 3 budgeted unit sales Month 1 budgeted unit production Month 2 budgeted unit production Month 3 budgeted unit production Raw material required for each finished unit (in pounds)

2,000 2,500 3,200 2,400 2,700 3,400 1

The ending inventory for each month should be equal to 20% of the next month's production needs. Each vase requires one pound of clay in its manufacture. Victoria Corporation has a policy that the inventory of clay at the end of each month needs to be equal to 20% of the production needs for the following month. At the beginning of January, 480 pounds of clay were in inventory. How many pounds of clay would Victoria Corporation need to purchase in February? A) 2,660 B) 2,940 C) 3,620 D) 2,840 Answer: D Explanation: D) Production Month 2 2,700 Less BI (2,700 × 20%) - 540 Plus EI (3,400 × 20%) +680 Equals Purchases 2,840 Diff: 2 LO: 9-2 EOC: E9-19 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

44 .

100) Terrific Toys Company manufactures and sells children's skateboards. Each skateboard requires four bearings. For September, Terrific Toys Company has budgeted skateboard sales of 530 skateboards, while 570 skateboards are scheduled to be produced. Terrific Toys Company will begin September with 220 bearings in its beginning inventory. How many bearings should Terrific Toys Company purchase for September? A) 310 B) 2,280 C) 2,500 D) 2,060 Answer: D Explanation: D) Production 570 × 4 = 2,280 - 220 (BI) = 2,060 Diff: 2 LO: 9-2 EOC: E9-19 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 101) Beloved Baby Company manufactures and sells children's strollers. Each stroller requires eight screws. For September, Beloved Baby Company will begin September with 380 screws in its beginning inventory. Beloved Baby Company has budgeted stroller sales of 530 strollers, while 570 strollers are scheduled to be produced. How many screws should Beloved Baby Company purchase for September? A) 150 B) 4,180 C) 4,940 D) 4,560 Answer: B Explanation: B) Production 570 × 8 = 4,560 - 380 (BI) = 4,180 Diff: 2 LO: 9-2 EOC: E9-19 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

45 .

102) The Porch Cushion Company manufactures foam cushions. The number of cushions to be produced in the upcoming three months follows: Number of foam cushions to be produced in July 12,000 Number of foam cushions to be produced in August 15,000 Number of foam cushions to be produced in September 10,000 Each cushion requires 2 pounds of the foam used as stuffing. The company has a policy that the ending inventory of foam each month must be equal to 25% of the following month's expected production needs. How many pounds of foam does The Porch Cushion Company need to purchase in August? A) 27,500 B) 20,000 C) 22,500 D) 42,500 Answer: A Explanation: A) August Production 15,000 × 25% = 3,750 September Production 10,000 × 25% = 2,500 Now Production August 15,000 Less BI - 3,750 Plus EI + 2,500 Equals Purchases 13,750 × 2 pounds = 27,500 Diff: 2 LO: 9-2 EOC: E9-19 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 103) Mighty Corporation manufactures end tables. Each end table requires .50 direct labor hours in its production. Mighty Corporation has a direct labor rate of $15 per direct labor hour. The production budget shows that Mighty Corporation plans to produce 1,000 end tables in March and 1,100 end tables in April. What is the total combined direct labor cost that should be budgeted for March and April? A) 8,250 B) 7,500 C) 15,750 D) 31,500 Answer: C Explanation: C) March production 1,000 + April production 1,100 Total 2,100 × .5 = 1,050 hours × $ 15 = $ 15,750 Diff: 2 LO: 9-2 EOC: E9-21 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 46 .

104) Forty Winks Corporation manufactures night stands. The production budget shows that Forty Winks Corporation plans to produce 1,200 night stands in March and 1,050 night stands in April. Each night stand requires .50 direct labor hours in its production. Forty Winks Corporation has a direct labor rate of $12 per direct labor hour. What is the total combined direct labor cost that should be budgeted for March and April? A) 6,300 B) 7,200 C) 27,000 D) 13,500 Answer: D Explanation: D) March production 1,200 + April production 1,050 Total 2,250 × .5 = 1,125 hours × $ 12 = $ 13,500 Diff: 2 LO: 9-2 EOC: E9-21 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

47 .

105) List the operating budgets. Describe the purpose of each of the budgets listed and the order in which they are prepared. Describe how the budgets are interrelated. Answer: The operating budgets are as follows: 1. Sales budget — shows the number of units to be sold and the total sales revenue. 2. Production budget — shows the number of units to be produced to support the sales to be made. 3. Direct materials budget — shows the amount and dollar amount of direct materials to be purchased to support the production budget. 4. Direct labor budget — shows the number of direct labor hours required to support the number of products to be purchased from the production budget. 5. Manufacturing overhead budget — shows the budgeted manufacturing overhead to be incurred to support the number of units being produced as denoted on the production budget. 6. Operating expenses budget — all research and development, design, marketing, distribution, and customer service costs will be shown on the operating expenses budget. 7. Budgeted income statement — is constructed after preparing all of the above budgets. The operating budgets are the budgets needed to run the daily operations of the company. The operating budgets culminate in a budgeted income statement. The starting point of the operating budgets is the sales budget, because it affects most other components of the master budget. After estimating sales, manufacturers prepare the production budget, which determines how many units need to be produced. Once production volume is established, managers prepare the budgets determining the amounts of direct materials, direct labor, and manufacturing overhead that will be needed to meet production. Next, managers prepare the operating expenses budget. After all of these budgets are prepared, management will be able to prepare the budgeted income statement. Diff: 2 LO: 9-2 EOC: E9-23 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

48 .

106) Carlton Cookie Company produces a hand-processed gourmet cookie that is made with organic sugar. Five (5) pounds of organic sugar are required per batch of gourmet cookies. The organic sugar costs $2.40 per pound. The company needs to have 20% of the following month's production needs of organic sugar in ending inventory so it is on hand to start each month. A total of 120 pounds of organic sugar are expected to be on hand on April 1. 1. Budgeted production of the gourmet cookies for the first four months of the upcoming year is as follows: Number of batches of cookies to be produced in January Number of batches of cookies to be produced in February Number of batches of cookies to be produced in March Number of batches of cookies to be produced in April

600 750 800 700

Required: Prepare a direct materials budget for organic sugar for each of the months in the second quarter and for the second quarter in total. Include both the quantity of sugar to be purchased and the cost of the purchases in each month. Answer:

Diff: 3 LO: 9-2 EOC: E9-21 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

49 .

107) Frisbee Enterprises produces frisbees. Frisbee Enterprises has the following sales projections for the upcoming year: First quarter budgeted frisbee sales in units Second quarter budgeted frisbee sales in units Third quarter budgeted frisbee sales in units Fourth quarter budgeted frisbee sales in units

20,000 35,000 22,000 30,000

Inventory at the beginning of the year was 6,000 frisbees. Frisbee Enterprises wants to have 30% of the next quarter's sales in units on hand at the end of each quarter. How many frisbees should Frisbee Enterprises produce during the first quarter? Show your calculations. Answer: Finished goods inventory at end of each quarter, as percent of next quarter's budgeted unit sales 30% Second quarter budgeted frisbee sales in units 35,000 First quarter ending inventory 10,500 First quarter ending inventory First quarter budgeted frisbee sales in units Beginning frisbee inventory in units Units to produce

10,500 20,000 (6,000) 24,500

Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

50 .

108) Birch Company manufactures coffee makers. The following selected data relates to Birch Company's budgeted sales and inventory levels of the coffee makers for the upcoming quarter. How many coffee makers should Birch Company produce in November? Show your calculations. October expected unit sales November expected unit sales December expected unit sales October desired ending unit finished goods inventory November desired ending unit finished goods inventory December desired ending unit finished goods inventory

1,000 1,500 3,300 800 950 600

Answer: November desired ending unit finished goods inventory November expected unit sales October desired ending unit finished goods inventory Units to produce

950 1,500 (800) 1,650

Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 109) Sally Scooters manufactures and sells scooters. Each scooter requires two rear view mirrors. For September, Sally Scooters has budgeted sales of 415 scooters, while 450 scooters are scheduled to be produced. Sally Scooters will begin September with 220 rear view mirrors in its beginning inventory. How many rear view wheels should Sally Scooters purchase for September? Answer: 680 Budgeted number of scooters to be produced Rear view mirrors per scooter Mirrors to be used Number of mirrors in beginning inventory Rear view mirrors to purchase

450 2 900 (220) 680

Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

51 .

110) Pristine Yards Manufacturing produces weed whackers. On March 31, Pristine Yards Manufacturing had 144 weed whackers in inventory. The company has a policy that the ending inventory in any month must be 12% of the following month's expected sales. Pristine Yards Manufacturing expects to sell the following number of weed whackers in each of the next four months:

Required: Prepare a production budget for the second quarter, with a column for each month and for the quarter. Answer:

Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

52 .

111) Flawless Lawns Manufacturing produces lawn edgers. The company has a policy that the ending inventory in any month must be 10% of the following month's expected sales. On March 31, Flawless Lawns Manufacturing had 140 lawn edgers in inventory. Flawless Lawns Manufacturing expects to sell the following number of lawn edgers in each of the next four months:

Required: Prepare a production budget for the second quarter, with a column for each month and for the quarter. Answer:

Diff: 2 LO: 9-2 EOC: E9-18 AACSB: Reflective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget

53 .

112) Timber Run Company has prepared the following forecasts of monthly sales:

Sales (in units)