Cost Concepts and Types of Costing
1. If a company wants to decrease its total quality cost, it would usually be best to spend more money on
A. prevention.
B. appraisal and external failure.
C. internal and external failure.
D. prevention and internal failure.
2. The following accounts are from last year's books at Sharp Manufacturing:
Sharp uses job-order costing and applies manufacturing overhead to jobs based on direct labor costs. Whatis the amount of cost of goods manufactured for the year?
A. $251,000
B. $255,000
C. $223,000
D. $226,000
3. Rice Corporation uses the cost formula Y = $4,800 + $0.40X for the maintenance cost, where X ismachine-hours. The August budget is based on 9,000 hours of planned machine time. What is the maintenance cost expected to be incurred during August?
A. $3,600
B. $8,400
C. $1,200
D. $4,800
4. There are two acceptable methods for closing out any balance of underapplied or overappliedmanufacturing overhead. One method involves allocation of the balance among several accounts, whereas the other closes any balance directly to
A. work in process inventory.
B. cost of goods manufactured.
C. cost of goods sold.
D. finished goods inventory.
5. During October, Dorinirl Corporation incurred $60,000 of direct labor costs and $5,000 of indirect labor costs. The journal entry to record the accrual of these wages would include a
A. credit to Work in Process of $65,000.
B. credit to Work in Process of $60,000.
C. debit to Work in Process of $60,000.
D. debit to Work in Process of $65,000.
6. In a job-order costing system, the use of indirect materials that have been previously purchased is recorded as a credit to
A. Finished Goods inventory.
B. Raw Materials inventory.
C. Work in Process inventory.
D. Manufacturing Overhead.
7. Traves Corporation incurred $69,000 of actual Manufacturing Overhead costs during October. During the same period, the Manufacturing Overhead applied to Work in Process was $68,000. The journal entry to record the application of Manufacturing Overhead to Work in Process would include a
A. debit to Work in Process of $69,000.
B. debit to Manufacturing Overhead of $68,000.
C. credit to Work in Process of $69,000.
D. credit to Manufacturing Overhead of $68,000.
8. Qart Corporation uses the FIFO method in its process costing system. Operating data for the Cutting Department for the month of March appear below. According to the company's records, the conversion cost in beginning work in process inventory was $1,656 at the beginning of March. Additional conversion costs of $129,960 were incurred in the department during the month. What is the cost per equivalent unit for conversion costs for March closest to?
A. $1.710
B. $1.677
C. $1.756
D. $1.840
9. Adams Corporation makes two products: Product A and Product B. Annual production and sales are 500 units of Product A and 900 units of Product B. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.4 direct labor-hours per unit and Product B requires 0.5 direct labor-hours per unit. The total estimated overhead for next period is $67,522. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows:
(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor-hours.) The predetermined overhead rate under the traditional costing system is closest to which value?
A. $13.83
B. $54.86
C. $8.91
D. $103.88
10. What would be an example of a discretionary fixed cost?
A. Taxes on the factory
B. Research and development
C. Insurance
D. Depreciation on manufacturing equipment
11. Steven Corporation uses the FIFO method in its process costing system. Department A's beginning work in process inventory consisted of 15,000 units, 100% complete with respect to materials and 40% complete with respect to conversion costs. The total cost of this inventory was $31,000. A total of 40,000 units were transferred out during the month. The costs per equivalent unit were computed to be $1.30 for materials and $2.20 for conversion costs. What was the cost of the units completed and transferred out?
A. $138,300
B. $131,700
C. $118,500
D. $140,000
12. Which of the following is classified as a product cost?
A. Delivery costs
B. Wages of machine operators
C. Storefront rental prices
D. Advertising costs
13. Tarten Corporation uses the FIFO method in its process costing system. Operating data for the Curing Department for the month of March appear below: According to the company's records, the conversion cost in beginning work in process inventory was $7,470 at the beginning of March. The cost per equivalent unit for conversion costs for March was $8.20.
How much conversion cost would be assigned to the units completed and transferred out of the department during March?
A. $592,040
B. $525,530
C. $533,090
D. $533,000
14. Supply costs at Chobot Corporation's chain of gyms are listed below: Management believes that supply cost is a mixed cost that depends on client-visits. Use the high-low method to estimate the variable and fixed components of this cost. Compute the variable component first, rounding off to the nearest whole cent. Then compute the fixed component, rounding off to the nearest whole dollar. These estimates would be closest to which value?
Client-Visits Supply Cost
January 12,183 $26,642
February 12,408 $26,853
March 12,232 $26,675
April 12,579 $26,054
May 12,527 $26,988
June 12,608 $27,064
July 12,143 $26,585
August 12,005 $26,454
September 11,944 $26,393
A. $1.04 per client-visit; $13,949 per month
B. $2.18 per client-visit; $26,745 per month
C. $0.99 per client-visit; $14,607 per month
D. $1.01 per client-visit; $14,330 per month
15. Narver Corporation uses the weighted-average method in its process costing system. Operating data for the Lubricating Department for the month of October appear below: What were the equivalent units for conversion costs in the Lubricating Department for October?
A. 47,780
B. 43,100
C. 44,780
D. 37,100
16. Trapp Corporation uses the weighted-average method in its process costing system. The beginning work in process inventory in its Painting Department consisted of 3,000 units that were 70% complete with respect to materials and 60% complete with respect to conversion costs. The cost of the beginning work in process inventory in the department was recorded as $10,000. During the period, 9,000 units were completed and transferred on to the next department. The costs per equivalent unit for the period were $2.00 for material and $3.00 for conversion costs. What was the cost of units transferred out during the month?
A. $45,400
B. $45,000
C. $35,400
D. $39,600
17. The management of Digges Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity. The Corporation's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 51,000 machine-hours. In addition, capacity is 63,000 machine-hours and the actual level of activity for the year is 53,300 machine-hours. All of the manufacturing overhead is fixed and is $1,702,890 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity. It is further assumed that this is also the actual amount of manufacturing overhead for the year. If the Corporation bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied?
A. $262,191 Underapplied
B. $76,797 Overapplied
C. $76,797 Underapplied
D. $262,191 Overapplied
18. Which is a proper journal entry to record issuing raw materials to be used on a job?
A. Option D
B. Option B
C. Option C
D. Option A
19. Which of the following entries would correctly record the application of overhead cost?
A. Option C
B. Option B
C. Option D
D. Option A
20. In July, Essinger Inc. incurred $72,000 of direct labor costs and $3,000 of indirect labor costs. The journal entry to record the accrual of these wages would include a
A. credit to Manufacturing Overhead of $3,000.
B. debit to Work in Process of $75,000.
C. credit to Work in Process of $75,000.
D. debit to Manufacturing Overhead of $3,000.
Tools for Management and Aids to Decision Making
1. Warburton Corporation has two divisions: Alpha and Beta. Data from the most recent month appear below:
The company's common fixed expenses total $85,690. What is the break-even in sales dollars for Alpha Division closest to?
A. $420,116
B. $273,623
C. $162,338
D. $217,117
2. Senff Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:Data concerning two products appear below:
How much overhead cost would be assigned to Product V91Z using the activity-based costing system?
A. $3,195.50
B. $132.45
C. $14,751.04
D. $113,774.55
3. Tisch Corporation manufactures and sells one product. The following information pertains to the company's first year of operations: The company does not have any variable manufacturing overhead costs or variable selling and administrative costs. During its first year of operations, the company produced 20,000 units and sold
13,000 units. The company's only product is sold for $242 per unit.
What is the net operating income for the year under super-variable costing?
A. $(676,000)
B. $(11,000)
C. $(109,000)
D. $507,000
4. Ofarrell Corporation, a company that produces and sells a single product, has provided its contribution format income statement for March.
If the company sells 5,400 units, what should its net operating income be closest to?
A. $17,600
B. $34,000
C. $19,008
D. $24,000
5. The contribution margin ratio of Baginski Corporation's only product is 53%. The company's monthly fixed expense is $617,980 and the company's monthly target profit is $23,000. What are the dollar sales to attain that target profit closest to?
A. $1,209,396
B. $339,719
C. $327,529
D. $1,166,000
6. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
What is the variable costing unit product cost for the month?
A. $111 per unit
B. $115 per unit
C. $94 per unit
D. $90 per unit
7. Cleckley Corporation's operating leverage is 5.9. If the company's sales increase by 19%, its net operating income should increase by about how much?
A. 5.9%
B. 31.1%
C. 19.0%
D. 112.1%
8. Axsom Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 1,300 direct labor-hours will be required in March. The variable overhead rate is $8.90 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $20,020 per month,which includes depreciation of $2,600. All other fixed manufacturing overhead costs represent current cash
flows. The company recomputes its predetermined overhead rate every month. What should thepredetermined overhead rate for March be?
A. $8.90
B. $24.30
C. $15.40
D. $22.30
9. Contribution margin is the amount remaining after
A. fixed expenses have been deducted from variable expenses.
B. variable expenses have been deducted from sales revenue.
C. fixed expenses have been deducted from sales revenue.
D. cost of goods sold has been deducted from sales revenues.
10. Havely International Corporation's only product sells for $200.00 per unit and its variable expense is $70.00. The company's monthly fixed expense is $390,000 per month. What are the unit sales to attain the company's monthly target profit of $10,000 closest to?
A. 3,597
B. 5,714
C. 2,000
D. 3,077
11. Which of the following represents the normal sequence in which the below budgets are prepared?
A. Sales Budget, Budgeted Income Statement, Budgeted Balance Sheet
B. Sales Budget, Budgeted Balance Sheet, Budgeted Income Statement
C. Budgeted Balance Sheet, Sales Budget, Budgeted Income Statement
D. Budgeted Income Statement, Sales Budget, Budgeted Balance Sheet
12. The direct labor budget is based on
A. the required production for the period.
B. the beginning inventory of finished goods.
C. the desired ending inventory of finished goods.
D. the required materials purchases for the period.
13. The break-even in units sold will decrease if there is an increase in
A. unit sales.
B. selling price.
C. unit variable expenses.
D. total fixed expenses.
14. Holdt Inc. produces and sells a single product. The selling price of the product is $230.00 per unit and its variable cost is $66.70 per unit. The fixed expense is $212,290 per month. What is the break-even in monthly unit sales closest to?
A. 3,183
B. 1,802
C. 923
D. 1,300
15. Milano Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.50 direct labor-hours. The direct labor rate is $9.80 per direct labor-hour. The production budget calls for producing 6,400 units in October and 6,300 units in November. If the direct labor work force is fully adjusted to the total direct labor-hours needed each month, what would be the total combined direct
labor cost for the two months?
A. $31,115
B. $31,360
C. $62,230
D. $30,870
16. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
What is the total contribution margin for the month under variable costing?
A. $120,000
B. $42,600
C. $160,000
D. $88,000
17. On November 1, Barnes Corporation has 8,000 units of Product A on hand. During the month, the company plans to sell 30,000 units of Product A, and plans to have 6,500 units on hand at end of the month. How many units of Product A must be produced during the month?
A. 36,500
B. 30,000
C. 31,500
D. 28,500
18. The selling and administrative expense budget of Ruffing Corporation is based on budgeted unit sales, which are 4,800 units for February. The variable selling and administrative expense is $8.10 per unit. Thebudgeted fixed selling and administrative expense is $71,520 per month, which includes depreciation of $16,800 per month. The remainder of the fixed selling and administrative expense represents current cash
flows. What should the cash disbursements for selling and administrative expenses on the February sellingand administrative expense budget be?
A. $110,400
B. $38,880
C. $93,600
D. $54,720
19. Data concerning Wythe Corporation's single product appear below:
Fixed expenses are $106,000 per month. The company is currently selling 2,000 units per month. The marketing manager would like to cut the selling price by $15 and increase the advertising budget by $5,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 800units. What should be the overall effect of this change on the company's monthly net operating income?
A. increase of $1,000
B. increase of $103,000
C. decrease of $31,000
D. increase of $31,000
20. Seventy percent of Parlee Corporation's sales are collected in the month of sale, 25% in the month following sale, and 5% in the second month following sale. The following are budgeted sales data for the company:
What would the total budgeted cash collections in April be?
A. $35,000
B. $210,000
C. $370,000
D. $125,000
Budget Analysis and Performance Measurement in Decision Maki
1. For which cost(s) is a volume variance computed?
A. Variable manufacturing overhead only
B. Both variable and fixed manufacturing overhead
C. Fixed manufacturing overhead only
D. Direct labor costs as well as overhead costs
2. Oldham Corporation bases its predetermined overhead rate on a variable manufacturing overhead cost of $4.00 per machine-hour and fixed manufacturing overhead cost of $87,822 per period. If the denominator level of activity is 4,100 machine-hours, what would the fixed component in the predetermined overhead rate be?
A. $25.42
B. $400.00
C. $21.42
D. $4.00
3. A study has been conducted to determine if Product A should be dropped. Sales of the product total $400,000 per year; variable expenses total $270,000 per year. Fixed expenses charged to the product total $160,000 per year. The company estimates that $70,000 of these fixed expenses is not avoidable even if the product is dropped. If Product A is dropped, what would happen to the company's overall net operating income?
A. Decrease by $40,000 per year
B. Increase by $30,000 per year
C. Decrease by $30,000 per year
D. Increase by $40,000 per year
4. The following labor standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:
What is the labor efficiency variance for the month?
A. $19,017 F
B. $19,017 U
C. $16,029 F
D. $16,577 F
5. Fahringer Corporation makes three products that use compound W, the current constrained resource. Data concerning those products appear below:
Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized.
A. BJ,QR,XS
B. XS,BJ,QR
C. QR,XS,BJ
D. QR,BJ,XS
6. Sekuterski Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $45,700 per month plus $2,892 per flight plus $4 per passenger. The company expected its activity in November to be 81 flights and 283 passengers, but the actual activity was 80 flights and 282 passengers. The actual cost for plane operating costs in November was $286,360. What would the plane operating costs in the flexible budget for November be closest to?
A. $286,360
B. $278,188
C. $277,614
D. $281,084
7. Pettry Snow Removal's cost formula for its vehicle operating cost is $2,170 per month plus $408 persnow day. For the month of December, the company planned for activity of 16 snow days, but the act level of activity was 13 snow days. The actual vehicle operating cost for the month was $7,600. What would the vehicle operating cost in the planning budget for December be closest to?
A. $8,698
B. $9,354
C. $7,600
D. $7,474
8. Data concerning the direct labor costs for March of Boler Corporation appear below:
The journal entry to record the incurrence of direct labor costs in March would include the following forWork in Process:
A. Debit of $125,139
B. Credit of $125,139
C. Debit of $114,948
D. Credit of $114,948
9. Part S00 is used in one of Morsey Corporation's products. The company makes 6,000 units of this part each year. The company's Accounting Department reports the following costs of producing the part at this level of activity:
An outside supplier has offered to produce this part and sell it to the company for $16.10 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $6,000 of these allocated general overhead costs would be avoided. If management decides to buy part S00 from the outside supplier rather than to continue making the part, what would be the annual impact on the company's overall net operating income?