Which of the following is NOT a period expense in a merchandising firm?
A) Selling Expense
B) Administrative Expenses
C) R&D Expenses
D) Cost of Goods Sold
Michael Company uses job-order costing. The company has gathered the following
data:
Direct materials purchased for cash $60,000
Direct materials requisitioned $50,000
Direct labor costs incurred $90,000
Factory overhead costs incurred $60,000
Cost of goods completed $180,000
Cost of goods sold $170,000
Sales for cash $300,000
Factory overhead applied ?
Factory overhead costs are applied at 90% of direct labor costs.
Required:
A) Prepare the required journal entries for the above transactions.
B) Prepare the journal entry to dispose of the overhead variance using the immediate
write-off method.
The excess of applied overhead costs over the actual overhead costs is called ________.
A) overapplied overhead
B) underapplied overhead
C) underbudgeted overhead
D) overestimated overhead
Durante Company reported the following information about the production and sale of
its only product during the first month of operations:
Selling price per unit $300
Sales $480,000
Direct materials used $220,000
Direct labor $200,000
Variable factory overhead $60,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $10,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 400 units
Under variable costing, the cost of finished goods ending inventory is ________.
A) $64,000
B) $68,000
C) $80,000
D) $96,000
Double Company has the following data available:
Dividends declared in 2015 $8,000
Retained Earnings, December 31, 2014 $30,000
Net income for the year ended December 31, 2015 $14,000
Paid-in Capital, December 31, 2014 $29,000
Paid-in Capital, December 31, 2015 $26,000
What is the balance in Retained Earnings on December 31, 2015?
A) $2,000
B) $24,000
C) $36,000
D) $44,000
When determining product costs, the last step in the traditional approach to cost
allocation is ________.
A) divide costs in each producing department into direct costs and indirect costs
B) trace direct costs to products
C) select cost pools and cost allocation bases in each production department and assign
indirect department costs to the appropriate cost pool
D) allocate the costs in each cost pool to the products in proportion to their usage of the
related cost-allocation base
To determine the cost of a product, which of the following are followed?
A) first step, cost assignment and second step, cost allocation
B) first step, cost accumulation and second step, cost assignment
C) first step, cost allocation and second step, cost apportionment
D) first step, cost absorption and second step, cost attribution
Kaprelian Company sells desks at $480 per desk. The variable costs are $300 per desk.
Total fixed costs for the period are $400,000. The contribution margin ratio is
________.
A) 22.5%
B) 37.5%
C) 40.6%
D) 62.5%
Sealing Company manufactures only one product that is available in both a Deluxe
model and a Regular model. The company has manufactured the Regular model for
years and the Deluxe model was recently introduced. The company is concerned about
the accuracy of its costing system because profits are declining since the Deluxe model
was introduced.
Indirect production costs are assigned to the products using direct labor hours. For the
current year, the company estimates $2,000,000 of indirect production costs and 40,000
direct labor hours. They expect to produce 5,000 units of the Deluxe model and 40,000
units of the Regular model. The Deluxe model requires 1.6 hours of direct labor time
per unit and the Regular model requires 0.8 hours. Other costs are as follows:
Costs Deluxe Model Regular Model
Direct materials $150 $112
Direct labor $16 $8
Assume the company’s indirect production costs can be traced to four activities with the
following cost drivers:
Activity (Cost Driver) Costs
Purchase orders (number of purchase orders) $84,000
Rework orders (number of rework orders) $216,000
Product testing (number of tests) $450,000
Machining (number of machine hours) $1,250,000
Deluxe Regular
Cost Drivers Model Model
Number of purchase orders 400 600
Number of rework orders 200 600
Number of tests 4,000 6,000
Number of machine hours 20,000 30,000
Required:
A) Assume direct labor hours are the only cost-allocation base. What is the cost to
manufacture one unit of each model?
B) Assume the activity-based costing method is used. What is the cost to manufacture
one unit of each model?
C) Based on the results obtained from the activity-based costing method, what are the
implications for pricing policy for the two models?
What happens when the cost-driver level increases within the relevant range?
A) Total fixed costs remain unchanged.
B) Fixed costs per unit of cost driver increase.
C) Total variable costs decrease.
D) Variable costs per unit of cost driver increase.
The most effective budget processes facilitate communication from top management to
________ and from lower level managers and employees to ________.
A) the SEC; the audit committee
B) stockholders; creditors
C) lower level managers and employees; top management
D) creditors; stockholders
When considering the replacement of old equipment, which of the following item is
relevant?
A) loss on disposal of old equipment
B) book value of old equipment
C) accumulated depreciation on old equipment
D) future maintenance costs of old equipment
Slocum Company has determined the following information about a new product. The
manufacturing process used for the product is very complex and it has a higher
proportion of indirect costs than direct costs. The company wants a 100% markup on
cost. The following data is available:
Product cost according to traditional costing system $4.00 per unit
Product cost according to activity-based costing system $7.00 per unit
What price per unit should Slocum Company use for this new product?
A) $4.00
B) $7.00
C) $8.00
D) $14.00
The annual after-tax cash operating inflows of a newly purchased machine are expected
to be $60,000. The expected useful life of the machine is 5 years. The after-tax
minimum desired rate of return, including an inflation factor, is 25%. The inflation rate
is 10% per year. What is the annual after-tax cash operating inflow for year 2 for the
machine?
A) $54,000
B) $60,000
C) $66,000
D) $72,600
Which financial statement summarizes the operating performance of a company over a
period of time?
A) statement of cash flows
B) statement of stockholders’ equity
C) balance sheet
D) income statement
________ costs include those costs that a manager’s decisions and actions can influence
to a reasonable degree.
A) uncontrollable
B) controllable
C) third party
D) allocated
An unfavorable production volume variance ________ manufacturing costs on the
________ income statement.
A) decreases; variable costing
B) increases; variable costing
C) decreases; absorption costing
D) increases; absorption costing
When managers use the decision process to make decisions, which information is used
to make predictions about the amount of expected sales for Product XYZ?
A) historical data from the accounting system only
B) data outside the accounting system only
C) data outside the organization only
D) A and B
Variable administrative expenses affect the calculation of ________ on the contribution
income
statement. Variable administrative expenses do NOT affect the calculation of ________
on the absorption income statement.
A) gross margin; contribution margin
B) contribution margin; gross margin
C) operating income; contribution margin
D) gross margin; operating income
This is a statement from the IMA’s Statement of Ethical Professional Practice: “Each
member has a responsibility to communicate information fairly and objectively.” This
statement comes from the ________ standard.
A) competence
B) confidentiality
C) integrity
D) credibility
Hoover Company expects June sales to be $30,000. Of these sales, credit sales are
expected to be $12,000. Collection of credit sales are 50% in the month of sale, 40% in
the month following sale and 5% two months following sale. The remaining 5% is
uncollectible. ________ is the expected cash collection in June from June sales.
A) $9,200
B) $14,000
C) $17,200
D) $24,000
The activity of Vegas Company for the month of April is given below:
Cash purchases of inventory $45,000
Credit purchases of inventory $50,000
Cash payment for credit purchases of inventory $12,000
Cash dividend paid $7,000
Wages earned and paid $12,000
Wages earned and unpaid $2,000
Rent paid for April, May and June $9,000
Using the cash basis of accounting, the total expenses for Vegas Company for the
month of April are ________.
A) $35,000
B) $78,000
C) $80,000
D) $95,000
Which of the following items should be considered by managers when designing
accounting systems?
A) cost-benefit balances
B) behavioral implications
C) cost-benefit balances and behavioral implications
D) none of the above
The following information pertains to a segment of the Marian Company. Invested
capital is defined as total assets. The weighted average cost of capital is 10%. The ROI
of the segment before the project is 20%. The ROI of the segment after the project is
18%. The manager is evaluated based on the segment’s economic profit. A project
earning a ROI of 12% should be ________.
A) accepted
B) rejected
C) compared to the company’s ROI
D) compared to the company’s residual income
Boston Corporation has a joint process that produces three products: X, Y and Z. Each
product may be sold at split-off or processed further and then sold. Joint-processing
costs for a year amount to $100,000. Other data follows:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs after Split-Off at Completion
X $128,000 $16,000 $160,000
Y 50,000 25,000 77,000
Z 25,600 20,000 40,000
Processing Product Y beyond the split-off point will cause profits to ________.
A) be unchanged
B) increase by $1,000
C) increase by $2,000
D) increase by $27,000
A company has identified the appropriate cost driver for a resource cost. To estimate or
approximate the cost function, the company manager has a broad selection of methods
that will NOT include ________.
A) least squares regression analysis
B) activity analysis
C) high-low method
D) engineering method
Christina Company has two service departments, Maintenance and Human Resources.
Christina Company also has two production departments, Mixing and Finishing.
Maintenance costs are allocated based on square footage while Human Resources costs
are allocated based on number of employees. The following information has been
gathered for the current year:
Human
Maintenance Resources Mixing Finishing
Direct costs $50,400 $33,600 $42,000 $70,000
Square footage 1,600 800 3,200 2,400
Number of employees 16 24 48 64
Assume the step-down method is used to allocate service department costs and the
Human Resources Department is allocated first. Then the cost allocated from the
Human Resources Department to the Maintenance Department is ________.
A) $0
B) $3,539
C) $4,200
D) $13,440
The following information for Zippy Company is:
Sales $1,000,000
Variable Selling Expenses 23,000
Fixed Selling Expenses 33,000
Variable Administrative Expenses 39,000
Fixed Administrative Expenses 10,000
Variable Cost of Goods Sold 300,000
Fixed Cost of Goods Sold 100,000
What is the gross margin for this company?
A) $500,000
B) $548,000
C) $578,000
D) $600,000
Benjamin Company has the following data:
Month Budgeted Sales
January $108,000
February 132,000
March 144,000
April 120,000
Cost of goods sold average 60% of sales. The inventory at December 31 was $19,440.
Desired ending inventory levels are 20% of next month’s sales at cost. What is the
desired ending inventory value at February 28?
A) $15,840
B) $17,280
C) $26,400
D) $28,800
Butters Company has budgeted sales of $30,000 with the following budgeted costs:
Direct materials $6,300
Direct labor $4,100
Variable factory overhead $3,700
Fixed factory overhead $5,600
Variable selling and administrative costs $2,400
Fixed selling and administrative costs $3,200
What is the average target markup percentage for setting prices as a percentage of total
manufacturing costs?
A) 34%
B) 52%
C) 61%
D) none of the above
An opportunity cost is ________.
A) the additional costs generated by a proposed alternative
B) the difference in total cost between two alternatives
C) a cash disbursement in the future
D) the maximum available benefit foregone by using a resource for a particular purpose
instead of the best alternative use
Keisha Company is considering the following investment:
Estimated capital investment $300,000
Estimated useful life 3 years
Estimated disposal value in 3 years $10,000
Estimated annual savings in cash operating costs(end of year) $130,000
Minimum desired rate of return 12%
Present value of ordinary annuity of one, 3 periods at 12% 2.4018
Present value of one, 3 periods at 12% 0.7118
Assume straight-line depreciation is used. Ignore income taxes. The net present value of
the investment is ________.
A) $12,234
B) $19,352
C) $22,234
D) $100,000
What is gross margin?
A) sales minus operating expenses
B) sales minus other expenses
C) sales minus cost of goods sold
D) sales plus other income
Department A covers one section of a large factory building. Which of the following
costs is relevant to the decision to eliminate Department A?
A) Heating expenses of building allocated to Department A
B) General corporate overhead allocated to Department A
C) Depreciation Expense on store building allocated to Department A
D) Salary Expense of Supervisor in Department A; he only works in Department A
North Division sells a part internally to South Division. South Division uses the part to
produce inexpensive products sold at discount stores. North Division incurs costs of
$1.50 per part, while South Division incurs additional costs of $4.80 per product. North
Division sells the part to South Division for $2.00 per part. The final product is sold to
external customers for $8.00 each. Which of the following formulas correctly reflects
the company’s operating income?
A) $8.00 – $1.50 – $4.80 – $2.00 = $(0.30)
B) $8.00 – $1.50 – $4.80 = $1.70
C) $8.00 – $4.80 -$2.00 = $1.20
D) $8.00 – $1.50 = $6.50