Discounted cash flow methods incorporate compound interest by assuming that
companies will reinvest future cash flows when they are received.
The accounting rate of return method considers the time value of money.
Management by exception directs the management’s attention to important differences
between the actual and the budgeted amounts.
Repair and maintenance costs for manufacturing equipment are product costs.
Manufacturing overhead costs are allocated to the Work-in-Process Inventory account
by a debit to the Manufacturing Overhead account.
A subsidiary ledger is a record of accounts that provides supporting details on
individual balances, the total of which appears in a general ledger account.
Because it is a cost variance, the fixed overhead volume variance explains why fixed
overhead is underallocated or overallocated.
On a standard cost income statement, the variances with debit balances are shown in
parentheses because they are contra expenses and therefore decrease the expense Cost
of Goods Sold.
If variable costs decrease, and all other factors remain the same, the margin of safety
will become larger.
A company has two different products that sell to separate markets. Financial data are
as follows:
Assume that fixed costs are all unavoidable and that dropping one product would not
impact sales of the other. Because the contribution margin of Product B is negative, it
should be dropped.
The predetermined overhead allocation rate is an estimated overhead cost per unit of the
allocation base and is calculated at the beginning of the accounting period.
Companies with diverse products can obtain better costing information by using a
single plantwide rate for allocating manufacturing costs.
Haddows, Inc. completed Job GH6 last month. The cost details of GH6 are shown
below.
Calculate the cost per unit of the finished product of Job GH6. (Round your answer to
the nearest cent.)
A) $2,127.00
B) $12.10
C) $75.10
D) $77.90
Doric Agricultural Corporation uses a predetermined overhead allocation rate based on
the direct labor cost. The manufacturing overhead cost allocated during the year is
$300,000. The details of production and costs incurred during the year are as follows:
What is the predetermined overhead allocation rate applied by the corporation? (Round
your answer to two decimal places.)
A) 88.00%
B) 64.39 %
C) 176.47%
D) 36.95%
A company sells two products with information as follows:
The products are machine made. Four units of product A can be made with one machine
hour, and two units of product B can be made with one machine hour. The company has
a maximum of 6,000 machine hours available per month. The company can sell up to
7,000 units of product A per month and up to 3,000 units of product B for the month.
What is the maximum amount of contribution margin that the company could earn in a
month given the stated constraints?
A) $7,000
B) $48,000
C) $18,000
D) $30,000
The journal entry for adjustment of overallocated manufacturing overhead includes a
________.
A) credit to Finished Goods Inventory
B) credit to Manufacturing Overhead
C) debit to Work-in-Process Inventory
D) credit to Cost of Goods Sold
Star Health, Inc. is a fitness center in Oklahoma City. In October, the company earned
$550,000 in revenues and incurred the following operating costs from 300 customers:
How much is the unit cost per customer? (Round your answer to the nearest cent.)
A) $93.33
B) $19.00
C) $1,833.33
D) $135.67
Oceanside Marine Company manufactures special metallic materials and decorative
fittings for luxury yachts that require highly skilled labor. Oceanside uses standard costs
to prepare its flexible budget. For the first quarter of the year, direct materials and direct
labor standards for one of their popular products were as follows:
Direct materials: 2 pound per unit; $12 per pound
Direct labor: 2 hours per unit; $16 per hour
Oceanside produced 3,000 units during the quarter. At the end of the quarter, an
examination of the direct materials records showed that the company used 6,500 pounds
of direct materials and actual total materials costs were $99,600.
What is the direct materials cost variance? (Round any intermediate calculations to the
nearest cent, and your final answer to the nearest dollar.)
A) $9,960 Unfavorable
B) $9,960 Favorable
C) $21,580 Unfavorable
D) $21,580 Favorable
Tampa Corporation is considering an investment proposal that will require an initial
outlay of $804,000 and would yield yearly cash inflows of $200,000 for nine years. The
company uses a discount rate of 10%. What is the NPV of the investment?
Present value of an ordinary annuity of $1:
A) $350,000
B) $402,000
C) $347,800
D) $251,667
Garcia’s, a company that sells fishing nets, provides the following information about its
product:
What is the contribution margin ratio? (Round any intermediate calculations and your
final answer to two decimal places.)
A) 85.00%
B) 100%
C) 75.00%
D) 15.00%
Manufacturing Overhead is a temporary account used to ________ indirect production
costs during the accounting period.
A) allocate
B) assign
C) accumulate
D) approximate
________ is a costing system that starts with output that has been completed and then
assigns manufacturing costs to units sold and to inventories.
A) Job costing
B) Batch costing
C) Backflush costing
D) Process costing
Depreciation expense is recorded in a ________.
A) cash payments journal
B) sales journal
C) cash receipts journal
D) general journal
For decisions that affect controlling costs, consider the following decision focus. State
the appropriate costing method and the reason for your answer.
For decisions that affect production planning, consider the following decision focus.
State the appropriate costing method and the reason for your answer.
Norman Manufacturing reports the following data for the month:
Journalize the entries relating to materials and labor. Omit explanations.
On June 30, Cleopatra, Inc. finished Job 70 with total job costs of $40,000 and
transferred the costs to Finished Goods Inventory. On July 6, Cleopatra completed the
sale of the goods to a customer for $55,000 on account. Provide the journal entry to
record the sales revenue.
Management of Bluebird Manufacturing is considering whether to drop a product line.
So far, management has determined that the product has a negative contribution margin
and that lost revenues are less than the total cost savings. In making the final decision,
what are other questions that the management of Bluebird should consider?
Ferrero Corp. manufactures gourmet dips along with potato chips flavored with Cajun
spices. The market price for similar chips is $7. The management of the company
desires a 30% net profit margin.
The current costing data relating to this product are as follows.
Direct materials $1.00
Direct labor 1.50
Manufacturing overhead 2.75
Nonmanufacturing costs 0.75
Requirement: Determine if Ferrero’s current full-product costs meet its target cost.
