An increase in sales price per unit decreases the contribution margin per unit.
Total manufacturing costs to account for during the year minus the ending
Work-in-Process Inventory equals the cost of goods manufactured.
If the sales price of Product X is $24.00 per unit and unit fixed cost is $7.50, its
contribution margin per unit is $16.50.
Freemen Company’s western territory’s forecasted income statement for the upcoming
year is as follows:
Freemen Company’s management is considering dropping the western territory. This
move would be financially advantageous only if the company could eliminate $196,000
of fixed cost.
In a process costing system, each process or department has its own Work-in-Process
Inventory account.
Overallocated manufacturing overhead occurs when the manufacturing overhead
allocated to Work-in-Process Inventory is less than the amount actually incurred.
Work-in-Process Inventory is debited when indirect labor costs are incurred in a job
order costing system.
Fixed costs per unit is inversely proportional to the volume of units produced.
Babson Sugar, Inc. has six processing departments for refining sugar-Affination,
Carbonation, Decolorization, Boiling, Recovery, and Packaging. Conversion costs are
added evenly throughout each process. Data from August for the Decolorization
Department are as follows:
The ending Work-in-Process Inventory is 100% and 75% complete with respect to
direct materials and conversion costs, respectively. The weighted-average method is
used. Compute the cost per equivalent unit for the units transferred to the Boiling
process. (Round any intermediate calculations and your final answer to two decimal
places.)
A) $200.00 per metric ton
B) $96.00 per metric ton
C) $150.00 per metric ton
D) $360.44 per metric ton
Delaware, Inc. purchased raw materials worth $800 for cash. The journal entry to
record this transaction will include ________.
A) a debit to Cash for $800 and a credit to Raw Materials Inventory for $800
B) a debit to Accounts Payable for $800 and a credit to Raw Materials Inventory for
$800
C) a debit to Raw Materials Inventory for $800 and a credit to Accounts Payable for
$800
D) a debit to Raw Materials Inventory for $800 and a credit to Cash for $800
On September 30, the Drying Department of Green Tea, Inc. had Work-in-Process
Inventory that was 28% complete for materials and 23% complete for conversion costs.
This means that for the ending Work-in-Process inventory, ________% of materials and
________% of the conversion costs were added during September.
A) 77; 72
B) 72; 77
C) 23; 28
D) 28; 23
Which of the following is true of posting from a sales journal to the general ledger?
A) Entries in the sales journal are posted to either the accounts receivable subsidiary
ledger or the general ledger.
B) Individual accounts receivable are posted daily from the sales journal to the accounts
receivable subsidiary ledger.
C) Even though the sales journal is posted monthly to the subsidiary ledger, it is a
reliable record of the amount received from each customer.
D) Under a perpetual inventory system, the sales journal will not have the Cost of
Goods Sold DR and Merchandise Inventory CR column.
Nelson Products is a price-setter that uses the cost-plus pricing approach. The products
are specialty vacuum tubes used in sound equipment. The CEO is certain that the
company can produce and sell 310,000 units per year, due to the high demand for the
product. Variable costs are $2.40 per unit. Total fixed costs are $960,000 per year. The
CEO will receive stock options if $200,000 of operating income for the year is reported.
What sales price would allow the CEO to achieve the target if the cost-plus pricing
method is used? (Round your answer to the nearest cent.)
A) $2.40 per unit
B) $6.14 per unit
C) $3.74 per unit
D) $4.85 per unit
Ridley Corporation manufactures two styles of lamps’”a Bedford Lamp and a Lowell
Lamp. The following per unit data are available:
Total fixed costs are $40,000. Marketing data indicate that the company can sell up to
6,000 units of the Bedford Lamp and up to 6,000 units of the Lowell Lamp. Machine
hour capacity is 25,000 hours per year. Which product mix will deliver the optimum
operating income?
A) 6,000 Bedford Lamps and 6,000 Lowell Lamps
B) 3,000 Bedford Lamps and zero Lowell Lamps
C) 6,000 Bedford Lamps and 3,250 Lowell Lamps
D) 3,000 Bedford Lamps and 1,500 Lowell Lamps
Which of the following is a key performance indicator of the internal business
perspective of the balanced scorecard?
A) number of units produced per hour
B) employee turnover
C) cash flow
D) number of cross-trained employees
In a company with different business units, individual managers make decisions by
changing various assumptions of its budget in order to determine how the modifications
would affect the operational and financial results. This is an example of ________.
A) financial statement analysis
B) responsibility accounting
C) sensitivity analysis
D) zero-based budgeting
Liberty Corporation sells a product for $500 cash to Sarah Lewis. This transaction will
be recorded in the ________.
A) cash payments journal
B) sales journal
C) cash receipts journal
D) purchase journal
Todd Corporation produces two products, P and Q. P sells for $7.50 per unit; Q sells for
$6.50 per unit. Variable costs for P and Q are $4.00 and $6.00, respectively. There are
7,300 direct labor hours per month available for producing the two products. Product P
requires 5.00 direct labor hours per unit, and product Q requires 5.00 direct labor hours
per unit. The company can sell as many of either product as it can produce. What is the
maximum monthly contribution margin that Todd can generate under the
circumstances? (Round to nearest whole dollar.)
A) $5,110
B) $730
C) $25,550
D) $3,650
Which of the following best describes the term ‘sensitivity analysis”?
A) It is a testing technique to determine how results would differ if key assumptions are
changed.
B) It is an analysis of the emotional sensitivity of a company’s employees.
C) It is an evaluation of the accuracy of the assumptions.
D) It evaluates a company’s financial condition by doing financial statement analysis.
The costs incurred in the inspection of final products or services is an example of a(n)
________.
A) prevention cost
B) appraisal cost
C) internal failure cost
D) external failure cost
Quality Stereo Company has provided the following information regarding its
activity-based costing system:
‘¢ Purchasing department costs are allocated based on purchase orders, and the
predetermined overhead allocation rate is $79 per purchase order.
‘¢ Assembly department costs are allocated based on the number of parts used, and the
predetermined overhead allocation rate is $2 per part.
‘¢ Packaging department costs are allocated based on the number of units produced, and
the predetermined overhead allocation rate is $2 per unit produced.
Each stereo produced has 50 parts, and the direct materials cost per unit is $62. There
are no direct labor costs. Quality Stereo has an order for 1,000 stereos, which will
require 40 purchase orders in all. What is the total cost for the 1,000 stereos?
A) $167,160
B) $104,480
C) $103,160
D) $164,000
How does a manufacturing company calculate unit product cost? Why do managers
need to know the unit product cost?
List the steps of the capital budgeting process and identify actions that relate to each
step.
Florian Plant Services completed a special landscaping job for Pierre Designs
Company. Florian uses ABC and has the following predetermined overhead allocation
rates:
Predetermined Overhead
Activity Allocation Base Allocation Rate
Designing Number of designs $275 per design
Planting Number of plants $15 per plant
The Pierre Designs project required $1,200 in landscape materials, $700 in direct labor,
one design, and 35 plants.
Requirements:
1. What is the total cost of the work done for Pierre Designs?
2. If Pierre Designs paid $3,900 for the job, what is the operating income or loss?
3. If Florian desires an operating income of 50% of cost, how much should the
company charge for the Pierre Designs project?
Answer the following variable costing questions:
Complete the statement, using the following terms: increases, decreases, or have no
effect on.
Decreases in fixed cost ________ contribution margin per unit and ________ the
breakeven point.
For each of the following business transactions, list two examples of related accounting
information system (AIS) activities:
State the strategy for each of the perspectives of the balanced scorecard.
Cilia Corporation specializes in the production of door knobs, which are mostly sold
within its territory. The selling price for each door knob is $15. Using the traditional
allocation method to allocate manufacturing overhead, the full-product cost is
determined to be $10. The company recently introduced the activity-based costing
method to allocate its overhead. The refinement of costs shows that the full-product cost
is $2.50 lower with activity-based costing than with traditional costing.
Requirement:
1. Calculate the change in net profit percentage as a result of the introduction of
activity-based costing.
2. The desired net profit margin of the company is 60%. If the production costs cannot
be reduced, by how much should the selling price be increased in order to achieve the
desired profit? (Use the cost estimates under activity-based costing.)
Mason Cabinet Company sells standard kitchen cabinets. The following information
summarizes Mason’s operating activities for the year:
Mason sold 950 cabinets during the year.
Calculate the operating income for the year.
Compute the unit cost for one cabinet (Round to two decimal places.)
