When finished products are sold, Sales Revenue is debited, and Cost of Goods Sold is
credited.
Most capital budgeting methods focus on accrual-based income.
When using an activity-based costing system in service companies, the allocation of
indirect costs to the cost object is the last step of the process.
The fact that invested cash earns income over time is called the time value of money.
The first step in developing an activity-based costing system is to identify the activities
that will be used to allocate the manufacturing overhead costs.
Bass Accounting Services expects its accountants to work a total of 24,000 direct labor
hours per year. The company’s estimated total indirect costs are $336,000. The company
uses direct labor hours as the allocation base for indirect costs. What is the indirect cost
allocation rate?
A) $14 per hour
B) $28 per hour
C) $140 per hour
D) $16.80 per hour
In process costing, which of the following is recorded by debiting the Manufacturing
Overhead account?
A) transfer of units from one process to the next
B) direct labor costs incurred
C) depreciation on factory machinery
D) office electricity charges
In its first year of business, Smith, Inc. produced and sold 600 units. If Smith uses
variable costing, ________.
A) its operating income for the period will be higher than under absorption costing
B) its operating income for the period will be lower than under absorption costing
C) its value of ending Finished Goods Inventory reported in the balance sheet will be
higher than under absorption costing
D) its operating income will be the same as under absorption costing
Back Bay Company is a price-taker and uses target pricing. Refer to the following
information:
What is the target full product cost per unit? (Round your answer to nearest cent.)
Assume all units produced are sold.
A) $32.00
B) $28.59
C) $4.80
D) $27.20
Cavalaris Products uses a standard cost system. Overhead costs are allocated based on
direct labor hours. In the first quarter, Cavalaris had an unfavorable cost variance for
variable overhead costs. Which of the following scenarios is a reasonable explanation
for this variance?
A) The actual number of direct labor hours was lower than the budgeted hours.
B) The actual variable overhead costs were higher than the budgeted costs.
C) The actual variable overhead costs were lower than the budgeted costs.
D) The actual number of direct labor hours was higher than the budgeted hours.
Poolside Manufacturing provided the following information for the month ended March
31:
Compute cost of goods sold.
A) $16,600
B) $11,100
C) $22,100
D) $28,100
Clay Corporation manufactures two styles of lamps’”a Bedford Lamp and a Lowell
Lamp. The following per unit data are available:
Total fixed costs are $30,000, and Clay can sell a maximum of 10,000 units of each
style of lamp annually. Machine hour capacity is 25,000 hours per year. What is the
contribution margin per machine hour for the Bedford Lamp? (Round your answer to
the nearest cent.)
A) $5.00 per machine hour
B) $3.25 per machine hour
C) $13.50 per machine hour
D) $17.50 per machine hour
Which of the following is a product cost?
A) sales commissions
B) CEO’s salary
C) delivery van depreciation
D) depreciation on production equipment
Left Hand, Inc. has fixed costs of $400,000. Total costs, both fixed and variable, are
$550,000 when 40,000 units are produced. Calculate the total costs if the volume
increases to 64,000 units. (Round any intermediate calculations to the nearest cent, and
your final answer to the nearest dollar.)
A) $950,000
B) $150,000
C) $640,000
D) $550,000
The Equinox Fabrication Plant suffered a fire incident in August, and most of the
records for the year were destroyed. The following accounting data for the year were
recovered:
The company bases its manufacturing overhead allocation on the number of direct labor
hours. What was the predetermined overhead allocation rate for the year? (Round your
answer to the nearest cent.)
A) $35.09
B) $1.86
C) $29.58
D) $62.71
Which of the following is a capital budgeting method used to screen potential
investments?
A) return on assets
B) acid test ratio
C) accounting rate of return
D) debt-to-equity ratio
Winslow, Inc., a tennis equipment manufacturer, has variable costs of $0.60 per unit of
product. In August, the volume of production was 27,000 units, and units sold were
21,800. The total production costs incurred were $30,600. What are the fixed costs per
month?
A) $14,400
B) $17,520
C) $3,600
D) $16,200
