86. Which of the following is a conversion resource?
87. Theoretically, overtime premium paid to a machine operator should be accounted for as:
88. Idle time caused by equipment breakdown should be accounted for as:
89. Prime costs are the same as:
90. The cost of renting a car for the sales force should be accounted for as:
91. Depreciation on forklifts used to transport materials should be accounted for as:
92. Which of the following describes the formula for cost of goods manufactured?
93. Which of the following best describes a variable cost?
94. Which of the following best describes a fixed cost?
95. Which of the following is an example of a unit–level cost?
96. Which of the following is an example of a batch-level cost?
97. Which of the following is an example of a product–level cost?
98. Which of the following is an example of a facility-level cost?
99. Which of the following describes an opportunity cost?
100. Which of the following describes a sunk cost?
101. Which of the following is not a relevant cost for a decision?
102. Below is presented information regarding the production process of Ghavidel Manufacturing for a two
month period.
Required:
(a) Compute the operating income under variable costing and absorption costing for each month.
(b) Provide and explanation for the difference in operating income between the two methods in each month.
103. Below is presented information regarding the production process Chen Manufacturing for years 1 and 2
Required:
(a) Prepare income statements for both years using absorption costing
(b) Prepare income statements for both years using variable costing
(c) Comment on the different operating income figures. Explain the management implications of any
differences in operating profits between the two methods.
(a)
104. You have the following information regarding Crosby Company:
Sales 25,000 units per year at $45 per unit
Production 30,000 units in 2007 and 20,000 units in 2008
At the beginning of 2007 there was no inventory.
Variable manufacturing costs are $30.00 per unit
Fixed manufacturing costs are $150,000 per year
Marketing costs are all fixed at $75,000 per year
Required:
(a) Prepare an income statement under absorption costing for 2007 and 2008. Include a column for both years
taken together.
(b) Prepare an income statement under variable costing for 2007 and 2008. Include a column for both years
taken together.
(c) Comment on the results and reconcile any differences in income.
105. The following data are available for the Saint Paul Manufacturing Company for the year 2007, its first year
of operations:
Required:Calculate cost of goods sold under throughput costing, variable costing and absorption costing.
106. The following data are available for the Lawrence Manufacturing Company for the year 2007, its first year
of operations:
Required:
(a) Calculate ending inventory under throughput costing, variable costing and absorption costing. Assume that
management has committed to direct labor and manufacturing resources sufficient to produce the planned
annual production of 2,400 units.
(b) Calculate operating income under throughput costing, variable costing and absorption costing.
Assume that management has committed to direct labor and manufacturing resources sufficient to produce the
planned annual production of 2,400 units.
(c) Explain the relationship between a and b above.
107. Dimmick Corporation produces and sells a single product at $40 per unit. During 2007, the company
produced 200,000 units, 160,000 of which were sold during the year. All ending inventory was in finished
goods inventory; there was no inventory on hand at the beginning of the year. The following data relate to the
company’s production process:
Required:
Calculate the following.
(a) The unit cost of ending inventory on the balance sheet prepared for stockholders.
(b) The unit cost of ending inventory on a variable cost balance sheet.
(c) The operating income using absorption costing
(d) The operating income using variable costing.
(e) The ending inventory using absorption costing.
(f) The ending inventory using variable costing.
(g) A reconciliation of the difference in operating income between absorption costing and variable costing using
the shortcut method.
108. Boylan Company had an operating profit of $400,000 using variable costing in April, 2007. Beginning
inventory was 36,000 units and ending inventory was 46,000 units. The committed (fixed) overhead was $10
per unit for the beginning and ending inventory. Sales were $900,000 and committed (fixed) operating expenses
were $50,000.
Required: Calculate the operating profit in April, 2007 using absorption costing.
109. Consider the following cost and production information for Hinsley Machine Parts, Inc.
Additional information:
Ⴠ Sales revenue: $12,500,000
Ⴠ Beginning inventory: $3,375,000
Ⴠ The only spending increase was for material cost due to increased production. All other spending as shown
above was unchanged.
Ⴠ Sales of all parts are the same as the number of units produced.
Hinsley Machine Parts, Inc. uses the throughput costing method.
Required
(a) Compute the throughput contribution margin, operating income and ending inventory for Hinsley Machine
Parts, Inc.
(b) Assume that production of part D-1251 increases by 25 units during the given period (sales remain constant).
Re-compute the above figures.
(c) Diana Holinger, the production foreperson, argues that an overall average cost is good enough; it is a waste
of resources to compute the costs of individual parts. According to her, Hero’s products are better than that of
competitors. Therefore, all that needs to be done is to produce more so that the average cost figure goes down.
Do you agree? Why or why not?
110. Consider the following cost and production information for Quinn Machine Tools, Inc.
Quinn Machine Tools, Inc. uses the throughput costing method.
Required
(a) Compute the throughput contribution margin, operating income, and ending inventory for Quinn Machine
Tools, Inc.
(b) Assume that sales of part D-1251 increases by 15 units during the given period (production remains
constant). Re-compute the above figures.
(c) Joel Shukla, the production manager of Quinn Machine Tools, argues with the controller that computing
costs for each different part is a waste of time. He asks: “Costs per unit of the different parts are average costs
after all. How is that an improvement over using overall average cost?” Assume the role of the controller of
Quinn Machine Tools, Inc. Explain to Joel why he is wrong.
