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Managerial accounting is used in manufacturing and merchandising companies, but not
in service companies.
Under absorption costing, the more fixed manufacturing overhead in ending Finished
Goods Inventory, the larger the Cost of Goods Sold.
Both the sales volume variance and the flexible budget variance help revenue center
managers understand why they have exceeded or fallen short of budgeted revenue.
In service companies, variable costing can be used for profitability analysis and
contribution margin analysis.
A lag indicator is a performance measure that forecasts future performance.
Polynesia Company manufactures sonars for fishing boats. Its Model 70 sells for $300.
Polynesia produces and sells 5,700 of them per year. Cost data follow:
Arthur Bailey, the sales manager, wants to offer a special sale to a new customer that
outfits boats. He proposes a sale of 41 units at a special price of $148 per unit. Arthur
believes that it will not affect the company's regular sales in the long run because it is a
one-time transaction. The sale will require the normal variable costs, both selling and
administrative costs and manufacturing costs, but will not impact the fixed costs. The
president of the company has some reservations but finally agrees to make the deal if
and only if it adds a minimum of $1,500 to operating income. Based on the president's
criteria, Polynesia will not make the offer.
The sales volume variance is a result of the difference between the actual sales price
and the budgeted sales price.
Favorable and unfavorable variances are netted together in the same way debits and
credits are.
A modification of the overhead allocation method which uses a single plantwide rate, is
to use multiple predetermined overhead allocation rates that have a single allocation
base.
Favorable variances are contra expenses and therefore decrease Cost of Goods Sold.
To calculate budgeted direct labor costs, multiply the number of units to be produced by
the number of projected direct labor hours. Next, multiply that total by the average
direct cost per hour.
Absorption costing considers direct materials, direct labor, variable manufacturing
overhead, and fixed manufacturing overhead as product costs.
For manufacturing companies, the primary source of cash is from its customers.
The Kentucky Foam Products Company completed the flexible budget analysis for the
second quarter, which is given below.
Which of the following would be a correct analysis of the sales volume variance for
variable costs?
A) decrease in sales price per unit
B) increase in variable cost per unit
C) increase in sales volume
D) increase in fixed costs
Discount Sales Company uses a standard cost system. Variable overhead costs are
allocated based on direct labor hours. In the first quarter, Discount Sales had a favorable
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.
The following information was obtained from MCB Manufacturing, Inc.:
Calculate MCB Manufacturing's total product costs.
A) $170,560
B) $654,900
C) $105,000
D) $165,500
Jeremy Corporation estimated manufacturing overhead costs for the year to be
$510,000. Jeremy also estimated 9,000 machine hours and 3,000 direct labor hours for
the year. It bases the predetermined overhead allocation rate on machine hours. On
January 31, Job 25 was completed. It required 4 machine hours and 4 direct labor hours.
What is the amount of manufacturing overhead allocated to the completed job? (Round
your answer to the nearest dollar.)
A) $57
B) $453
C) $228
D) $680
Hexagon Corporation sold a product on credit for $2,235 to Merin Lynch. The cost of
goods sold was $1,324. Assuming the firm is following a perpetual inventory system
and using a sales journal, it will record $2,235 in the ________.
A) Accounts Receivable CR, Sales Revenue DR column
B) Cost of Goods Sold DR, Merchandise Inventory CR column
C) Merchandise Inventory DR, Cost of Goods Sold CR column
D) Accounts Receivable DR, Sales Revenue CR column
Pena Corporation manufactures two styles of lamps'”a Bedford Lamp and a Lowell
Lamp. The following per unit data are available:
Total fixed costs are $32,000, and Pena can sell a maximum of 10,000 units of each
style of lamp annually. Machine hour capacity is 30,000 hours per year. What is the
contribution margin per machine hour for the Lowell Lamp? (Round your answer to the
nearest cent.)
A) $5.50 per machine hour
B) $13.50 per machine hour
C) $2.17 per machine hour
D) $17.50 per machine hour
Abadeer Company manufactures ceiling fans and uses an activity-based costing system.
Each ceiling fan has 20 separate parts. The direct materials cost is $70, and each ceiling
fan requires 4.00 hours of machine time to manufacture. Additional information is as
follows:
What is the cost of assembling per ceiling fan? (Round any intermediate calculations
and your final answer to the nearest cent.)
A) $70.00
B) $6.00
C) $24.80
D) $21.00
Forsyth, Inc. uses estimated direct labor hours of 245,000 and estimated manufacturing
overhead costs of $1,200,000 in establishing its predetermined overhead allocation rate
for the year. Actual results showed the following:
The number of direct labor hours worked during the period was ________. (Round any
intermediate calculations to two decimal places, and your final answer to the nearest
whole number.)
A) 245,000 hours
B) 168,367 hours
C) 163,265 hours
D) 237,575 hours
Which of the following is an example of the planning function of the budgeting
process?
A) A budget demands integrated input from different business units and functions.
B) Employees are motivated to achieve the goals set by the budget.
C) Budget figures are used to evaluate the performance of managers.
D) The budget outlines a specific course of action for the coming period.
Discounted cash flow methods typically ________.
A) use simple interest calculations
B) assume that cash flows will be reinvested when received
C) focus on the payback period
D) comply with the requirements of GAAP
The static budget, at the beginning of the month, for Onyx Décor Company, follows:
Static budget:
Sales volume: 1,000 units; Sales price: $70.00 per unit
Variable costs: $32.00 per unit; Fixed costs: $37,900 per month
Operating income: $100
Actual results, at the end of the month, follows:
Actual results:
Sales volume: 970 units; Sales price: $74.00 per unit
Variable costs: $35.00 per unit; Fixed costs: $34,400 per month
Operating income: $3,430
Calculate the flexible budget variance for sales revenue.
A) $4,470 U
B) $4,470 F
C) $3,880 U
D) $3,880 F
Which of the following is true of an accounts receivable subsidiary ledger?
A) It does not include a receivable account for each customer, but includes a cumulative
account for all customers.
B) It contains information about the amount each customer purchased on credit, but
excludes the customer name.
C) The total of the accounts in the accounts receivable subsidiary ledger must equal the
accounts receivable balance in the general ledger.
D) Companies keep an accounts payable subsidiary ledger that is entirely different from
the accounts receivable subsidiary ledger.
Which of the following is a product cost for a manufacturing company?
A) salary of administrative staff
B) wages paid to factory janitor
C) commissions paid to sales staff
D) depreciation on corporate building
Antique Works is owned and operated by a craftsman who makes replicas of historic
firearms for museums, sportsmen, and collectors. The data are as follows:
If Antique expects to sell 40 units per month, what is his margin of safety expressed in
units per month?
A) 14 units
B) 40 units
C) 66 units
D) 12 units
The entry to record the purchase of direct materials on account would include a
________.
A) debit to the Raw Materials Inventory account
B) debit to the Work-in-Process Inventory account
C) credit to the Work-in-Process Inventory account
D) credit to the Raw Materials Inventory account
Which of the following is an example of direct labor cost in a factory?
A) wages of assembly line personnel
B) salary of vice president of production
C) wages of factory security guard
D) salary of production manager
Ipswich Corporation is considering an investment opportunity with the expected net
cash inflows of $300,000 for four years. The residual value of the investment, at the end
of four years, would be $70,000. The company uses a discount rate of 14%, and the
initial investment is $290,000. Calculate the NPV of the investment.
Present value of an ordinary annuity of $1:
Present value of $1:
Describe the transactions recorded in the purchases journal.
For decisions that affect setting sales prices, consider the following decision focus.
State the appropriate costing method and the reason for your answer.
When using the accounting rate of return, what is the basis for making the decision to
make the investment?
When recording direct materials purchased, what does an unfavorable direct materials
cost variance represent? Will this variance have a debit or credit balance?
Define a job order costing system and list two types of businesses that would us a job
order costing system.
Why is using multiple predetermined overhead allocation rates more accurate than
using a single plantwide allocation rate?
What is activity-based management? How is it different from activity-based costing?
How is the contribution margin calculated?
