maintenance supplies
Match the costs that follow to the type of product cost (a-c) or designate as not a
product cost (d).
a. direct labor
b. direct materials
c. factory overhead
d. not a product cost
Answer:
The management of Indiana Corporation is considering the purchase of a new machine
costing $400,000. The company’s desired rate of return is 10%. The present value
factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826,
0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the
following data in determining the acceptability of this investment:
The average rate of return for this investment is a. 18%
b. 21%
c. 53%
d. 10%
Answer:
Below is a table for the present value of $1 at compound interest.
Below is a table for the present value of an annuity of $1 at compound interest.
Using the tables above, what is the present value of $6,000 to be received at the end of
each of the next 4 years, assuming an earnings rate of 10%?
a. $20,790
b. $19,020
c. $14,412
d. $25,272
Answer:
Activity-based costing can only be used to allocate manufacturing factory overhead.
a. True
b. False
Answer:
In an investment center, the manager has the responsibility and the authority to make
decisions that affect not only costs and revenues, but also the plant assets invested in the
center.
a. True
b. False
Answer:
Selected accounts with some amounts omitted are as follows
If the balance of Work in Process at August 31 is $220,000, what was the amount
debited to Work in Process for factory overhead in August, assuming a factory overhead
rate of 30% of direct labor costs?
a. $135,000
b. $10,000
c. $120,000
d. $70,000
Answer:
If the principal products of a manufacturing process are identical, a process cost system
is more appropriate than a job order cost system.
a. True
b. False
Answer:
The ratio of sales to invested assets, which is also a factor in the DuPont formula for
determing the rate of return on investment, is called
a. profit margin
b. indirect margin
c. investment turnover
d. cost ratio
Answer:
The following unit data were assembled for the assembly process of the Super Co. for
the month of April. Direct materials are added at the beginning of the process.
Conversion costs are added uniformly over the production process. The company uses
the FIFO method.
Units
The number of equivalent units produced with respect to direct materials costs is
a. 48,000
b. 49,000
c. 43,000
d. 53,000
Answer:
Zoe Corporation has the following information for the month of March:
Prepare (a) a schedule of cost of goods manufactured, (b) an income statement for the
month ended March 31, and (c) the inventory section of the balance sheet.
Answer:
Period costs are operating costs that are expensed in the period in which the goods are
sold.
a. True
b. False
Answer:
An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds
actual cost.
a. True
b. False
Answer:
The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and
no residual value, is expected to yield total net income of $200,000 for the 5 years. The
expected average rate of return on investment is 50%.
a. True
b. False
Answer:
Most manufacturing plants are considered cost centers because they have control over
a. sales and costs
b. fixed assets and costs
c. costs only
d. fixed assets and sales
Answer:
Which of the following statements best describes the relationship among the costs of
quality?
a. Spending more on prevention and appraisal costs will reduce the total overall costs of
quality.
b. Spending more on prevention and appraisal costs will increase the total overall costs
of quality.
c. Adequate spending on prevention and appraisal costs will eliminate all internal and
external failure costs.
d. The amount spent on prevention and appraisal costs has no impact on the amount
spent on internal and external failure costs.
Answer:
If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost
after modifying the style is estimated to be $48, the differential cost for this situation is
$12.
a. True
b. False
Answer:
Using a plantwide factory overhead rate distorts product costs when:
a. products require different ratios of allocation-base usage in each production
department
b. significant differences exist in the factory overhead rates used across different
production departments
c. both A and B are true
d. neither A nor B are true
Answer:
Cordell, Inc. has an operating leverage of 3. Sales are expected to increase by 9% next
year. What is the expected change in operating income next year?
Answer:
Everett Company’s inventory at December 31, and the costs charged to Work in
Process’”Department B during December are as follows:
During December, all direct materials are transferred from Department A, the units in
process at December 1 were completed. Of the 10,000 units entering the department, all
were completed except 1,200 units which were 25% completed as to conversion costs.
Inventories are costed by the first-in, first-out method.
Prepare a cost of production report for December.
Answer:
Dickerson Co. is evaluating a project requiring a capital expenditure of $810,000. The
project has an estimated life of 4 years and no salvage value. The estimated net income
and net cash flow from the project are as follows:
The company’s minimum desired rate of return is 12%. The present value of $1 at
compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636,
respectively.
Determine the average rate of return on investment, including the effect of depreciation
on the investment.
Answer:
The cost per equivalent units of direct materials and conversion in the Bottling
Department of Mountain Springs Water Company is $0.45 and $0.12, respectively. The
equivalent units to be assigned costs are as follows.
The beginning work in process inventory had a cost of $2,200. Determine the cost of
completed and transferred out production, and the ending work in process inventory.
Answer:
On March 1, Upton Company’s Packaging Department had work in process inventory
of 8,820 units, which had been transferred in from the Finishing Department. These
units had accumulated costs of $315,000 in previous departments and $16,000 for
conversion costs in the Packaging Department.
During March, 30,000 units were transferred into the department. These units had
accumulated costs of $770,000 in the previous departments. The Packaging Department
incurred $54,000 in conversion costs during the month. On March 31, 700 units
remained in ending inventory. These units were 80% complete with respect to
conversion costs.
Calculate the cost per equivalent unit for transferred-in costs and for conversion costs
for the Packaging Department using the average cost method.
Answer:
Olsen Company produces two products. Product A has a contribution margin of $30 and
requires 10 machine hours. Product B has a contribution margin of $24 and requires 4
machine hours. Determine the most profitable product assuming the machine hours are
the constraint.
Answer:
Gull Corp. is considering selling its old popcorn machine and replacing it with a newer
one. The old machine has a book value of $5,000 and its remaining useful life is 5
years. Annual costs are $4,000. A high school is willing to buy it for $2,000. New
equipment would cost $18,000 with annual operating costs of $1,500. The new machine
has an estimated useful life of 5 years.
Should the machine be replaced?
Answer:
Why is the sales budget usually prepared first?
Answer:
Sleep Tight, Inc. manufactures bedding sets. The budgeted production is for 52,000
comforters this year. Each comforter requires 1.5 hours to cut and sew the material. The
cost of cutting and sewing labor is $12.50 per hour. Determine the direct labor budget
for this year.
Answer:
