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ACG 4361 FINAL EXAM REVIEW PROBLEMS

1.A regression analysis yields the following information:

Regression Statistics
Multiple R / 0.961386
R Square / 0.924262
Adjusted R Square / 0.916688
Standard Error / 39.10106
Observations / 12
ANOVA
df / SS / MS / F / Signifi.F
Regression / 1 / 186578 / 186578 / 122.0345 / 6.3E-07
Residual / 10 / 15288.9 / 1528.89
Total / 11 / 201867
Coefficients / Standard Error / t Stat / P-value / Lower 95% / Upper 95% / Lower 95.0% / Upper 95.0%
Intercept / 955.01 / 225.526 / 4.2349 / 0.00173 / 452.579 / 1457.6 / 452.58 / 1457.6
X Variable 1 / 1.09 / 0.09912 / 11.0469 / 0.00634 / 0.87409 / 1.3158 / 0.8741 / 1.3158

What is the estimated cost for a production level of 940 units?

2. Which one of the following is a key difference of the reciprocal method as compared to other methods of allocating support activity costs?

a) It partially accounts for the relationship among support activities.

b) It fully accounts for the relationship among support activities.

c) It employs two separate drivers to allocate fixed and variable costs in a cost pool.

d) It ignores the relationship among support activities and focuses instead on the relationship between support and production activities.

3.The main difference between a static budget and a flexible budget is that the static budget

A.contains the actual costs incurred.

B.is for units produced while a flexible budget is for units sold.

C.is for a single level of activity while a flexible budget is adjusted for the actual activity level.

D.is used only for selling and administrative costs while the flexible budget is used for manufacturing costs.

4.Winslow Company’s budgeted income statement for 2014 follows:

Sales (8,000 units)$128,000

Direct materials27,600

Direct labor6,000

Variable overhead16,800

Fixed overhead15,000

Fixed selling & administrative expenses30,000

Operating income$32,400

How much operating income would appear on a flexible budget for 8,200 units?

5. Tots Toyland makes a product that has a 40% contribution margin rate and a per unit contribution margin of $60. Annual fixed costs are $24,000. How much will profits increase if revenue increases by $2,000?

6.Simpson, Inc. produces tacos and burritos with a stable sales mix. Its financial information follows for the month of June:

Tacos / Burritos
Units sold / 25,000 / 37,500
Sales revenue / $50,000 / $150,000
Fixed costs / 8,000 / 38,000
Variable costs / 12,000 / 78,000
Income / $30,000 / $34,000

How much is the breakeven point in total sales dollars for Simpson?

7.Which of the following is not an assumption underlying CVP analysis?

A.Costs can be accurately separated into their fixed and variable components.

B.Fixed costs remain fixed over the relevant range.

C.Variable costs per unit change over the relevant range.

D.The sales mix remains constant.

8.Which of the following is not true for a firm with high operating leverage?

  1. It has a relatively high amount of fixed costs.
  2. It is generally thought to be riskier than a company with lower operating leverage.
  3. It has a larger profit than most firms.
  4. If sales increase, its profits will increase more quickly than a company with lower operating leverage.

9.Cold Stuff manufactures refrigerators. Which of the following items is most likely to be an indirect material cost for Cold Stuff?

  1. Factory supervisor’s salary
  2. Lubricant for refrigerator door hinges
  3. Glass shelves for the refrigerators
  4. Refrigerator motors

10.Which of the following costs is not part of manufacturing overhead?

  1. Electricity for the factory
  2. Depreciation of factory equipment
  3. Salaries for the production supervisors

D.Fringe benefits for sales staff

11.Work in Process Inventory consists of the cost of

  1. goods which are only partially completed.
  2. All manufacturing costs incurred during the period.
  3. all materials purchased during the last period.
  4. all goods which are completed and ready to sell.
  5. both A and D

12.Burson, Inc. uses a job-order costing system. It reported the following amounts for March:

Work in process, March 31 / $35,000 / Finished goods, March 31 / $12,800
Work in process, March 1 / 31,000 / Finished goods, March 1 / 15,200
Cost of goods manufactured / 182,000 / Raw materials, March 31 / 15,300
Direct labor used / 56,000 / Raw materials, March 1 / 17,800
Selling costs incurred / 33,000 / Direct materials used / 66,000

How much of the above amounts will Burson report on its balance sheet at the end of March?

13. Which one of the following is a reason that standard costs are used in process costing?

a) Record keeping is easier because the method attaches the same value to each completed unit.

b) No benchmarks are developed in the process.

c) It takes very little effort and resources to compute the standards.

d) Management can use standards developed by other companies in the same industry.

14. Companies that use process costing systems

  1. generally produce large quantities of identical items.
  2. trace costs to specific items produced.
  3. accumulate costs by completed products rather than by departments.
  4. All of the above answers are correct.

15. Which of the following statements about job-order costing is not true?

  1. Materials are traced to jobs using materials requisition forms.
  2. Indirect labor is traced to jobs using time tickets.
  3. Manufacturing overhead cannot be traced directly to jobs, so it is assigned using an overhead allocation rate.
  4. All of the above statements are true.

16.Nations Shipping determined the rate to apply overhead based on direct labor hours would be $8.40, and based on machine hours would be $4.05. Job 43D used $12.80 of direct materials, 3.22 machine hours, and 24 minutes of direct labor at a cost of $15 per hour. How much is the cost of job 43D if Nations Shipping applies overhead based on machine hours?

17.Management by exception refers to the practice of only investigating variances

A.that are unfavorable.

B.where the actual amount exceeds the budget.

C.that are large in amount relative to budgeted amounts.

D.that are large in amount relative to actual amounts incurred.

18.Singster Company had sales of 1,200 units of its only product in the first quarter of 2013. In the first quarter of 2012, Markus anticipates selling 20% more units than it sold in the first quarter of 2013, with a selling price of $66 per unit. Variable cost per unit is $42 and total fixed costs are $18,000. The income tax rate is 30%. How much is total revenue at the breakeven point?

19.Budgeted sales (in units) for the Starfleet Company are as follows:

September45,000 units

October50,000 units

November40,000 units

December65,000 units

The company wishes to have 15% of the next month’s sales on hand at the end of each month. How much is budgeted production for November?

20.Standard costs would be most useful for

  1. A canning factory
  2. A tax preparation firm
  3. A software company
  4. A custom home builder

21.In general, unfavorable labor efficiency variances arise from
A.using more labor hours than planned.
B.paying a higher rate to employees than planned.
C.Both A and B are correct.
D.Producing less units of product than budgeted.

22.Werth Company produces tie racks. The estimated fixed costs for the year are $224,000, and the estimated variable costs per unit are $14. Werth expects to produce and sell 60,000 units at a price of $20 per unit.By how much can sales revenue drop before Werth incurs a loss?

23.Which of the following best describes one impact of undercosting?

A. It is a common practice that allows a company to show larger profit margins.

B. Undercosting some products will lead to overcosting other products, which is acceptable because total costs and profits are the same.

C. Undercosting may cause a company to price it products less than what is necessary to make a profit.

D. It can cause activity levels to fluctuate.

24.Which one of the following is an appropriate cost object?

A.A house cleaning by Molly Maids

B.The dollar amount of delivery costs incurred in shipping goods to customers

C.The number of purchase orders prepared by an ordering department

D.A production department

25.Manufacturing overhead during the year was overapplied. If the amount is immaterial, which one of the following is a part of the transaction that should occur to dispose of the overapplied amount?

A. Increase Cost of Goods Sold

B. Decrease Cost of Goods Sold

C. Increase Finished Goods Inventory, Work in process, and Cost of goods sold

D. Decrease Finished Goods Inventory, Work in process, and Cost of goods sold

26. A disadvantage of dropping a product line is that
A.the supplier may be able to produce a component at a lower cost.
B.there is a loss of control over the production process.
C.there may be an opportunity to expand other parts of the company.
D.allocated costs must absorbed by other product lines.

27.CFO Services is trying to determine the variable and fixed elements of its service overhead. The following data have been collected from recent activity:

Total Service Overhead / Cases Worked
June / $60,000 / 188
July / 59,000 / 190
August / 66,500 / 175
September / 56,000 / 178

Which data points will be chosen to use the high low method?

28. Which of the following is not true about the step-down method?

a.It is also known as the sequential method.

b.Costs are allocated from each support department to all other support and production departments.

c.Support cost pools ranking is a key step in step-down allocation.

d.This is considered to be aone–way allocation method.

29.Budgets are useful in planning because they enhance

  1. relevance and reliability of information.
  2. communication and coordination.
  3. understanding of costs.
  4. elimination of costs.

30.Nail Kingdombudgeted 2014 sales to be 410,000 gallons and production to be 400,000 gallons of window cleaner. Material cost in the 2014 production plan amounted to $820,000. During 2014, the company actually produced 420,000 gallons and material costs totaled $882,000. How much is the flexible budget variance for materials on a level 2 analysis?

31.Robly Company currently produces 15,000 units of part B13. Current costs for part B13 are as follows:

Direct materials $12

Direct labor 9

Fixed factory costs 7

Fixed administrative costs 10

Variable factory overhead 6

Total $44

If the company decides to buy part B13, 50% of the administrative costs would be avoided. All of the Robly Company items, including part B13, are manufactured in the same rented production facility. The company has an offer from a wholesaler that wishes to sell the part to Robin for $15 per unit. What effect will occur if the company decides to accept the offer from the wholesaler?

32. Freesome Enterprises planned to sell 19,000 surfboards, however the actual number sold totaled 18,000. Which one of the following provides the best comparison of the cost data associated with the sales?

a.A budget based on the original planned level of activity

b.A budget of 18,000 units of activity

c.A budget of 19,000 units of activity

d.The master budget level of activity

33.Brink Company planned to make 500,000 cans of pasta sauce and spending $250,000 on tomatoes during November. However, demand was weak due to increased competition, and only 450,000 cans of pasta sauce were produced. The actual cost incurred was $230,000. Tomato prices were as expected during the period. Which of the following statements would be a fair statement regarding Brink’s performance on tomato usage?

A.Brink was under flexible budget by $20,000.

B.Brink was over budget by $5,000.

C.Brink’s flexible budget for tomatoes for performance evaluation is $250,000.

D.Both a and c are correct

34. Which one of the following is a suitable way to evaluate cost centers?

a.Compare the actual profit generated with expected profit

b.Compare actual total costs with flexible budget data

c.Compare actual controllable costs with static budget data

d.Compare actual controllable costs with flexible budget data

35.Given below is a portion of Dance, Inc.’s management performance report:

Budget ActualDifference

Contribution margin$1,010,000$1,020,000$10,000

Controllable fixed costs430,000425,0005,000

Which statement is true about the manager’s overall performance?

a.The performance is good.

b.The performance is bad.

c.The manager performed favorably on all controllable amounts.

d.The manager's overall performance cannot be determined from information given.

36.Randy Company produces a single product. The income tax rate is 30%. If the unit contribution marginis $43 and fixed costs total $47,500, how many units must Randy sell in order to earn net income of $88,000?

37. Which of the following allocations will never occur when the direct method of allocating service costs is used in a manufacturing company?

A.Payroll department costs are allocated to the baking department.

B.HR department costs are allocated to the maintenance department.

C.Personnel department costs are allocated to the assembly department.

D.All of the above allocations can occur when the direct method is used.

38.Under which costing method are fixed operating costsconsidered a product cost?

A.Absorption costing and variable costing

B.Absorption costing only

C.Variable costing only

D.Neither variable or absorption costing

39. Beginning finished goods inventory for Alves Inc. was $11,000. Goods completed during the year were costed at $780,000. Purchases of raw materials totaled $400,000. The ending finished goods inventory was $14,000. How much was cost of goods sold for the year?

40.Alfred, owner of Hi-Tech Fiberglass Fabricators, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis:

Budgeted manufacturing overhead costs:

Plant MaintenancePM (Support Dept)$350,000

Data ProcessingDP (Support Dept)$ 75,000

MachiningM (Operating Dept)$225,000

CappingC (Operating Dept)$125,000

Services furnished:

By Plant Maintenance (budgeted labor-hours):

to Data Processing3,500

to Machining5,000

to Capping8,200

By Data Processing (budgeted computer time):

to Plant Maintenance600

to Machining3,500

to Capping600

What are the two linear equation used to allocate support department costs using the reciprocal method?

41.Morgan Models company manufacturers replica plastic airplane and motorized vehicle models. During October, the firm's Assembly Department started production of 60,000 models. During the month, the firm completed 66,000 models, and transferred them to the Finishing Department. The firm ended the month with 22,000 models in ending inventory. There were 28,000 models in beginning inventory. All direct materials costs are added at the beginning of the production cycle and conversion costs are added uniformly throughout the production process. The FIFO method of process costing is used by Morgan. Beginning work in process was 25% complete as to conversion costs, while ending work in process was 50% complete as to conversion costs. Other information follows:

Beginning inventory:

Direct materials costs$39,200

Conversion costs$30,800

Manufacturing costs added during the accounting period:

Direct materials costs$90,000

Conversion costs$280,000

What is the amount of direct materials cost assigned to ending work-in-process inventory at the end of October?

42.Activity-based costing

A. calculates a more accurate product cost and is less expensive than the traditional method of costing.
B. categorizes direct costs by activity and traces the direct costs to those activities using a cost driver.
C. is used to allocate indirect and direct costs to products.
D. allocates indirect costs based on the activity that causes costs to increase.

USE THIS INFORMATION FOR QUESTIONS 43 through 45.

Four Wheels is approached by Harry Truman, a new customer, to fulfill a large one-time-only special order for anall-terrain vehicle similar to thatsold to regular customers. The following per unit data apply for sales to regular customers:

Direct materials$155

Direct labor100

Variable manufacturing overhead40

Fixed manufacturing overhead 80

Total manufacturing costs375

Markup (40%)150

Targeted selling price$525

Four Wheelsis operating at capacity. Harry Truman wants the ATV painted in green metallic paint, so direct material costs will increase by $30 per unit.

43. What is the minimum price that Four Wheels should accept for this one-time-only special order?

44.Other than price, what other items should Four Wheels consider before accepting this one-time-only special order?

a.Reaction of shareholders

b.Reaction of existing customers to the lower price offered to Truman

c.Demand for ATVs

d.Price is the only consideration.

45.If there was unlimited capacity at Four Wheels, all of the following amounts would decrease EXCEPT

a.opportunity costs.

b.total revenue.

c.contribution margin on products sold to regular customers.

d.the minimum acceptable price.

46.When evaluating a make-or-buy decision, which of the following does NOT need to be considered?

a.Alternative uses of the production capacity

b.The original cost of the production equipment

c.The quality of the supplier's product

d.The reliability of the supplier's delivery schedule

47.Which of the following will NOT be considered in a make-or-buy decision?

a.Fixed costs that will no longer be incurred

b.Incremental revenue

c.Potential rental income from space occupied by the production area

d.Variable selling costs

48. Weighty Steel processes a single type of steel. For the current period the following information is given:

Units / Material Costs / Conversion Costs
Beginning Inventory / 3,000 / $4,500 / $5,400
Started During the Current Period / 20,000 / 32,000 / 78,200
Ending Inventory / 2,500

All materials are added at the beginning of the production process. The beginning inventory was 40% complete as to conversion, while the ending inventory was 30% completed for conversion purposes.

Weighty uses the weighted-average costing method. What is the total cost assigned to the units completed and transferred this period?

49. Billings Company’s plant manager is trying to better understand his plant’s inventory workflow. He determined that $10 million was incurred to purchase raw materials, $2 million on direct labor and $3 million on manufacturing overhead. If raw materials beginning and ending inventories are $2 million and $1 million, respectively, and work-in-process beginning and ending inventories are $6 million and $4 million respectively, how much is cost of goods manufactured using an actual costing system?

50. Gecko Company is evaluating the use of a supplier versus making the wheels for its skateboards internally. The currently manufactured wheels have a variable unit cost of $2. Fixed costs are $16,000 per month, however, 25% can be eliminated if wheels are no longer produced. A supplier has offered to produce this part for $3 per wheel and can produce the 3,200 wheels for the 800 skateboards needed monthly. What is the effect on profit is Gecko outsourcesthe wheels or make them internally?

51. Redplum Computers’ sales volume is below its production volume for the month. How will profit differ on an absorption costing income statement from profit on a variable costing income statement?

a) Profit will be higher on a variable costing income statement.

b) Profit will be higher on an absorption costing income statement.

c) Both amounts will be the same. The costs are just located in different sections of the two statements.