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The three categories of period costs are direct materials, direct labor, and manufacturing
overhead.
The fundamental assumption of cost-volume-profit (CVP) analysis is that, in the long
run, fixed costs become variable costs.
When indirect materials are issued to production, the Manufacturing Overhead account
is credited.
A company produces 300 microwave ovens per month, each of which includes one
electrical circuit. The company currently manufactures the circuit in-house but is
considering outsourcing the circuits at a contract cost of $34 each. Currently, the cost of
producing circuits in-house includes variable costs of $28 per circuit and fixed costs of
$5,000 per month. The controller says that they could outsource production of the
circuit, if it reduces fixed cost more than $1,800 per month. Is this statement true or
false?
An operational asset used for a long period of time is known as a capital asset.
Sales on account are recorded in a cash receipts journal.
The Purely Pizza Company sells pizzas in two different sizes'”medium and large. The
two products sell in equal numbers. The contribution margin of a medium pizza is $16,
and the contribution margin of a large pizza is $18. The weighted average contribution
margin is $17.
Variable costing cannot be used in service companies.
Quality management systems (QMS) are systems that help managers improve the
business's performance by providing quality products and services.
The fixed overhead volume variance always reveals underallocated fixed overhead
costs.
The wages of manufacturing plant janitors are considered to be non-manufacturing
overhead costs as these costs are not directly related to the manufacturing process.
Budgeted purchases of direct materials is determined by adding direct materials needed
for production to the desired direct materials in ending inventory.
The manufacturing overhead budget calculates the budgeted overhead cost for the year
and also the predetermined overhead allocation rate for the year.
Which of the following will be included in manufacturing overhead costs?
A) indirect labor and indirect materials used
B) salaries of salesmen
C) direct materials and direct labor
D) delivery costs to ship goods to customers
Steve Coleman has just won the state lottery and has the following three payout options
for after-tax prize money:
1. $166,000 per year at the end of each of the next six years
2. $306,000 (lump sum) now
3. $518,000 (lump sum) six years from now
The annual discount rate is 9%. Compute the present value of the second option.
(Round to nearest whole dollar.)
Present value of $1:
A) $684,000
B) $103,600
C) $414,400
D) $306,000
Which of the following accounting information system activities is completed when
merchandise inventory is sold?
A) preparation and payment of payroll
B) receipt of customer payment
C) receipt of goods or services
D) payment for goods or services
Which of the following appears as a line item in a contribution margin income
statement?
A) Gross profit
B) Total cost of goods sold
C) Operating income
D) Total selling and administrative expenses
When preparing the budgeted balance sheet of a merchandising company, the amount of
Merchandise Inventory can be obtained from the ________.
A) merchandise inventory account
B) inventory, purchases, and cost of goods sold budget
C) production budget
D) capital expenditure budget and cash budget
Sun, Inc. has average total assets of $300,000. The annual operating income of the
company is $125,000. The target rate of return for the company is 15%. Calculate the
residual income.
A) $45,000
B) $175,000
C) $18,750
D) $80,000
Which of the following is an example of a period cost for a manufacturing company?
A) advertising expense
B) depreciation on factory equipment
C) indirect materials
D) property taxes for the factory
Which of the following is an example of a direct labor cost standard?
A) $40 per direct labor hour
B) 50 square feet per unit
C) $0.95 per square foot
D) 0.5 direct labor hours per unit
The phone bill for a company consists of both fixed and variable costs. Refer to the
four-month data below and apply the high-low method to answer the question. (Round
any intermediate calculations to the nearest cent, and your final answer to the nearest
dollar.)
What is the fixed portion of the total cost?
A) $607
B) $370
C) $2,393
D) $2,630
Which of the following statements is true of costing systems?
A) A process costing system would be used by manufacturers of custom-made
perfumes.
B) A job order costing system would be used by manufacturers of baking utensils.
C) A construction company would likely use a process costing system.
D) An accounting firm would likely use a job order costing system.
Grady Corporation provides the following financial information:
Calculate the target rate of return. (Round your answer to two decimal places.)
A) 27.83%
B) 78.67%
C) 35.40%
D) 61.84%
Odin Avionics makes aircraft instrumentation. Its basic navigation radio requires $90 in
variable costs and $2,000 per month in fixed costs. Odin sells 30 radios per month. If
the company further processes the radio, to enhance its functionality, it will require an
additional $25 per unit of variable costs, plus an increase in fixed costs of $800 per
month. The current sales price of the radio is $260. The marketing manager is sure that
Odin can charge a higher sales price for the improved version. At what sales price level
would the new, improved radio begin to improve operating earnings? (Round to the
nearest whole dollar.)
A) at a sales price higher than $312
B) at a sales price of $260
C) at a sales price lower than $260
D) at a sales price of $375
Which of the following represents the combined sum of direct materials and direct
labor?
A) conversion costs
B) period costs
C) prime costs
D) fixed costs
Cardoza Construction Materials Company has a sales office that sells concrete culvert
pipes to property developers. The sales office is a revenue center and prepares a
monthly responsibility report. The following information is provided.
Revenue Center Responsibility Report
What is the sales volume variance for the 36-inch long pipe?
A) $1,950 U
B) $9,100 F
C) $9,850 U
D) $750 F
Which of the following is the correct formula for the asset turnover ratio?
A) Net sales / Average total assets
B) Net sales / Cost of goods sold
C) Net sales / Net assets
D) Net profit / Net sales
Seven Seas Sailboats Company manufactures 100 luxury yachts per month. A compact
media center is included in each yacht. Seven Seas Sailboats manufactures the media
center in-house. The company is considering the possibility of outsourcing the
production of the media center in order to close down some of its facilities and reduce
administrative costs. At present, the variable cost per unit is $275, and fixed costs are
$39,000 per month. Assuming the company outsources the production of media center
and the fixed costs could be eliminated entirely, at what contract cost would outsourcing
pay off for Seven Seas? (Round to the nearest whole dollar.)
A) at any cost lower than $390 per unit
B) at any cost lower than $275 per unit
C) at any cost lower than $765 per unit
D) at any cost lower than $665 per unit
In variable costing, fixed manufacturing overhead is considered a period cost because
________.
A) these costs are indirectly related to production
B) these are not incurred in the period in which the units are produced
C) these costs are incurred whether or not the company manufactures any goods
D) these costs are direct costs incurred for production
Waterfall Manufacturing produces a chemical pesticide and uses process costing. There
are three processing departments-Mixing, Refining, and Packaging. On January 1, the
first department-Mixing-had a zero beginning balance. During January, 44,000 gallons
of chemicals were started into production. During the month, 35,000 gallons were
completed, and 9,000 remained in process, partially completed. In the Mixing
Department, all direct materials are added at the beginning of the production process,
and conversion costs are applied evenly through the process.
During January, the Mixing Department incurred $52,000 in direct materials costs and
$211,000 in conversion costs. At the end of the month, the ending inventory in the
Mixing Department was 60% complete with respect to conversion costs. The
weighted-average method is used.
The total cost of product in ending inventory was ________. (Round any intermediate
calculations two decimal places, and your final answer to the nearest dollar.)
A) $211,000
B) $52,000
C) $38,808
D) $263,000
Becky's Bakery sells three large muffins for every two small ones. A small muffin sells
for $3.50 with a variable cost of $2.00. A large muffin sells for $6.00 with a variable
cost of $3.00. What is the weighted-average contribution margin? (Round any
intermediate calculations and your final answer to the nearest cent.)
A) $4.75 per muffin
B) $2.25 per muffin
C) $4.50 per muffin
D) $2.40 per muffin
