When estimated costs are used in applying the cost-plus approach to product pricing,
the estimates should be based upon normal levels of performance.
a. True
b. False
Answer:
For the current year ending January 31, Harp Company expects fixed costs of $188,500
and a unit variable cost of $51.50. For the coming year, a new wage contract will
increase the unit variable cost to $55.50. The selling price of $70.00 per unit is expected
to remain the same.
(a) Compute the break-even sales (units) for the current year. Round your answer to the
nearest whole number.
(b) Compute the anticipated break-even sales (units) for the coming year, assuming the
new wage contract is signed.
Answer:
prepared when materials that have been ordered are received and inspected
Match the following phrases with the term (a-e) that it most closely describes it. Each
term will be used only once.
a. job cost sheets
b. materials requisitions
c. receiving report
d. time tickets
e. cost allocation
Answer:
Gasoline refinery
Match each business that follows to the type of costing system (a or b) it would
typically use.
a. Job order costing
b. Process costing
Answer:
The master budget of a small manufacturer would normally include all component
budgets that impact on the financial statements.
a. True
b. False
Answer:
Magpie Corporation uses the total cost concept of product pricing. Below is cost
information for the production and sale of 60,000 units of its sole product. Magpie
desires a profit equal to a 25% rate of return on invested assets of $700,000.
The markup percentage on total cost for the company’s product is a. 21.0%
b. 22.7%
c. 15.8%
d. 24.0%
Answer:
All of the following are typically included in the management’s discussion and analysis
in annual reports except
a. explanations of any significant changes between the current and prior years’ financial
statements
b. management’s assessment of liquidity
c. journal entries
d. off-balance-sheet arrangements
Answer:
On the variable costing income statement, variable selling and administrative expenses
are deducted from manufacturing margin to yield contribution margin.
a. True
b. False
Answer:
An anticipated purchase of equipment for $490,000 with a useful life of 8 years and no
residual value is expected to yield the following annual net incomes and net cash flows:
What is the cash payback period?
a. 5 years
b. 4 years
c. 6 years
d. 3 years
Answer:
If the property tax rates are increased, this change in fixed costs will result in a decrease
in the break-even point.
a. True
b. False
Answer:
The ratio of income from operations to sales, which is also a factor in the DuPont
formula for determining the rate of return on investment, is called
a. profit margin
b. indirect expenses
c. investment turnover
d. cost
Answer:
Which of the following is not an advantage of the average rate of return method?
a. easy to use
b. takes into consideration the time value of money
c. includes the amount of income earned over the entire life of the proposal
d. emphasizes accounting income
Answer:
Cost-volume-profit analysis can be presented in both equation form and graphic form.
a. True
b. False
Answer:
Factory rent
Match the items below for a bakery to the type of cost (a-d).
a. Direct materials
b. Direct labor
c. Factory overhead
d. Non-manufacturing cost
Answer:
If the cost of a direct material is a small portion of total production cost, it may be
classified as part of
a. direct labor cost
b. selling and administrative costs
c. miscellaneous costs
d. factory overhead cost
Answer:
The condensed income statement for a Hayden Corp. for the past year is as follows:
Management is considering the discontinuance of the manufacture and sale of Product
T at the beginning of the current year. The discontinuance would have no effect on the
total fixed costs and expenses or on the sales of Product U. What is the amount of
change in net income for the current year that will result from the discontinuance of
Product T?
a. $140,000 increase
b. $5,000 increase
c. $5,000 decrease
d. $140,000 decrease
Answer:
Mocha Company manufactures a single product by a continuous process, involving
three production departments. The records indicate that direct materials, direct labor,
and applied factory overhead for Department 1 were $100,000, $125,000, and
$150,000, respectively. The records further indicate that direct materials, direct labor,
and applied factory overhead for Department 2 were $55,000, $65,000, and $80,000,
respectively. In addition, work in process at the beginning of the period for Department
1 totaled $75,000, and work in process at the end of the period totaled $60,000.
The journal entry to record the flow of costs into Department 1 for direct labor is
a. Work in Process’”Department 1 Wages Payable 65,000
65,000
b. Wages Payable Work in Process’”Department 1 125,000
125,000
c. Work in Process’”Department 1 Wages Payable 125,000
125,000
d. Wages Payable Work in Process’”Department 1 65,000
65,000
Answer:
An extraordinary item can result from
a. a segment of the business being sold
b. corporate income tax being paid
c. a change from one accounting method to another acceptable accounting method
d. a transaction or event that is unusual and occurs infrequently
Answer:
Carter Co. sells two products, Arks and Bins. Last year, Carter sold 14,000 units of
Arks and 56,000 units of Bins. Related data are:
What was Carter Co.’s sales mix last year?
a. 20% Arks, 80% Bins
b. 12% Arks, 28% Bins
c. 70% Arks, 30% Bins
d. 40% Arks, 20% Bins
Answer:
The materials requisition is used to
a. release materials from the storeroom to the factory
b. release finished goods to the shipping department
c. record the acquisition of materials from a vendor
d. record and electronically transmit materials data in place of a receiving report
Answer:
The Mountain Springs Water Company has two departments, Purifying and Bottling.
The Bottling Department had 8,000 liters in beginning work in process inventory (60%
complete). During the period 70,000 liters were completed. The ending work in process
was 3,000 liters (60% completed). What are the total equivalent units for direct
materials under the FIFO method if materials were added at the beginning of the
process?
Answer:
Piano Company’s costs were over budget by $47,000. The Piano Company is divided in
two regions. The first region’s costs were over budget by $5,000. Determine the amount
that the second region’s cost was over or under budget.
Answer:
Erin Company’s inventory at December 1, 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, and of the 26,000 units entering the
department, all were completed except 1,000 units which were 70% completed as to
conversion costs. Inventories are costed by the first-in, first-out method.
Prepare a cost of production report for December.
Answer:
Star Co. was organized on August 1 of the current year. Projected sales for the next
three months are as follows:
The company expects to sell 50% of its merchandise for cash. Of the sales on account,
30% are expected to be collected in the month of the sale and the remainder in the
following month.
Prepare a schedule indicating cash collections for August, September, and October.
Answer:
Central Division for Chemical Company has a rate of return on investment of 22% and
an investment turnover of
Answer:
The Magnolia Company’s Division A has income from operations of $80,000 and assets
of $400,000. The minimum acceptable rate of return on assets is 12%. What is the
residual income for the division?
Answer:
