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The contribution margin for service companies is calculated by subtracting fixed costs
from service revenue.
Flexible budgets use budgeted (or standard) costs at the actual level of activity.
Merchandising companies, like service companies, do not have a Cost of Goods Sold
account.
The production cost report for Department 1 shows that $154,000 was assigned to the
36,000 units transferred to Department 2. This transfer cost assigned to units transferred
to Department 2 is recorded with a debit to Work-in-Process-Department 2.
An accounting information system has three basic components: source documents and
input devices, processing and storage, and internal controls.
To explain why two business segments have different contribution margin ratios, take
the total amounts and expand them into their two components'”units and amount per
unit'”by dividing the totals by the number of units.
The Raw Materials Inventory account is must be considered when calculating the
amount of materials to be purchased.
Product costs, such as factory overhead, should be treated as an asset until the product
is sold.
The IMA standards of ethical practice require managerial accountants to maintain their
professional competence.
Leeds Services provides event management services. The company has three
employees, each assigned to specific customers. The company considers each
employee's territory as a business segment. The following data relate to its three
segments for the month of June:
The business segments had the following number of customers: Matt, 26 ; Andrea, 29;
and Doug, 35. The total fixed costs for the month of June amounts to $3,400. Which
business segment was the most profitable?
A) Matt
B) Andrea
C) Doug
D) Both Matt and Andrea are equally profitable
Which of the following is not typically shown as a separate column in a cash receipts
journal that uses the perpetual inventory system?
A) Interest Revenue CR column
B) Cost of Goods Sold DR, Merchandise Inventory CR column
C) Sales Revenue CR column
D) Other Accounts CR column
Which of the following statements correctly describes the term "conversion costs"?
A) the cost to convert finished goods to sales to customers
B) the cost incurred for direct and indirect materials during production
C) the cost of direct materials, direct labor, and manufacturing overhead costs incurred
during production
D) the cost of direct labor combined with manufacturing overhead
Which of the following is a nonmanufacturing cost?
A) direct labor
B) direct materials
C) administrative expenses
D) indirect labor
Regarding the flow of costs through the inventory accounts, which of the following
statements is incorrect?
A) The final amount at each stage is added at the beginning of the next stage.
B) The costs flow from Raw Materials Inventory to Work-in-Process Inventory to
Finished Goods Inventory.
C) Purchases and freight in are debited to the Work-in-Process Inventory account.
D) The format for computing the amount used, manufactured, or sold is the same for all
three inventory accounts.
Galose Coffee Company sold 7,000 units in October at a sales price of $45 per unit. The
variable cost is $20 per unit. The monthly fixed costs are $8,000. What is the operating
income earned in October?
A) $175,000
B) $315,000
C) $167,000
D) $140,000
A company produces 1,000 packages of chicken feed per month. The sales price is $4
per pack. Variable cost is $1.60 per unit, and fixed costs are $1,700 per month.
Management is considering adding a vitamin supplement to improve the value of the
product. The variable cost will increase from $1.60 to $1.70 per unit, and fixed costs
will increase by 20%. At what sales price for the new product will the two alternatives
(sell as is or process further) produce the same operating income? (Round your answer
to the nearest cent.)
A) $3.74
B) $4.44
C) $0.70
D) $4.00
Which of the following statements regarding the manufacturing overhead budget is
incorrect?
A) Both fixed and variable manufacturing overhead costs are budgeted.
B) The manufacturing overhead budget calculates the budgeted overhead costs for the
year and also the predetermined overhead allocation rate for the year.
C) The cost accountant and the production manager work together to project variable
and fixed manufacturing costs.
D) Depreciation on manufacturing equipment is not included because the production
manager has no control over that cost allocation.
Iver Roller Skates has three product lines'”D, E, and F. The following information is
available:
The company is deciding whether to drop product line F because it has an operating
loss. Assuming fixed costs are unavoidable, if Iver drops product line F and rents the
space formerly used to produce product F for $19,000 per year, total income will be
________.
A) $11,000
B) $65,000
C) $19,000
D) $24,000
Which of the following would appear as a line item on the income statements of both a
merchandiser and a manufacturer?
A) Direct Labor
B) Cost of Goods Manufactured
C) Direct Materials
D) Cost of Goods Sold
A company produces 200 microwave ovens per month, each of which includes one
electrical circuit. The company currently manufactures the circuits in-house but is
considering outsourcing the circuits at a contract cost of $30 each. Currently, the cost of
producing circuits in-house includes variable costs of $24 per circuit and fixed costs of
$12,000 per month. Assume the company could cut fixed costs in half by outsourcing
and that there is no alternative use for the facilities presently being used to make
circuits. If the company outsources, operating income will ________.
A) increase by $4,800
B) decrease by $4,800
C) decrease by $1,200
D) stay the same
Revolve Company is a price-taker and uses a target-pricing approach. Refer to the
following information:
What is the target full product cost in total for the year? Assume all units produced are
sold.
A) $90,300
B) $17,209,000
C) $13,700,000
D) $2,055,000
Zale, Inc. has provided the following extracts from their budget for the first quarter of
the forthcoming year:
The company collects 70% of credit sales in the same month and the balance in the next
month. Calculate the collections from the customers for the month of February.
A) $570,000
B) $540,000
C) $690,000
D) $750,000
Which of the following statements is true of financial accounting?
A) It provides information to investors needed for their investment decisions.
B) It provides forward-looking information needed for managing and delegating
operations.
C) It focuses on detailed reports for parts of the company rather than the whole
company.
D) It focuses on planning and controlling day-to-day operations.
Story 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, 42,000 gallons of
chemicals were started into production. During the month, 34,000 gallons were
completed, and 8,000 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 $63,000 in direct materials costs and
$240,000 in conversion costs. At the end of the month, the ending inventory in the
Mixing Department was 60% complete with respect to conversion costs. First, calculate
the equivalent units, then calculate the cost per equivalent unit, and then calculate the
total cost of the product that was completed and transferred out during January. The
weighted-average method is used.
The total cost of product transferred out was ________. (Round any intermediate
calculations two decimal places, and your final answer to the nearest dollar.)
A) $51,000
B) $240,000
C) $303,000
D) $261,460
Blue Manufacturing Company is trying to decide whether to trade in equipment used in
its manufacturing process for a newer model. The new equipment will save money
because it will be more efficient to use. Indicate if the following items are relevant or
irrelevant to this decision.
Fisher Manufacturing uses a standard cost system. Data on standard costs and actual
costs are as follows:
Direct materials: Standard Actual
Direct materials units per unit of output 2.0 3.3
Sales price per unit of direct materials $5.00 $4.80
Direct materials cost per unit $10.00 $16.00
Number of units 3,000 3,000
Direct materials cost $30,000 $48,000
Direct labor: Standard Actual
Hours per unit 0.5 0.4
Cost per hour $18.00 $20.00
Labor cost per unit $9.00 $8.00
Number of units 3,000 3,000
Direct labor cost $27,000 $24,000
Variable overhead* Standard Actual
Hours per unit 0.5 0.4
Cost per hour $30.00 $29.00
Variable overhead cost per unit $15.00 $11.60
Number of units 3,000 3,000
Variable overhead cost $45,000 $34,800
*allocated based on direct labor hours
Fixed overhead* Standard Actual
Hours per unit 0.5 0.4
Cost per hour $10.00 $9.00
Fixed overhead cost per unit $5.00 $3.60
Number of units 3,000 3,000
Fixed overhead cost $15,000 $10,800
*allocated on the basis of direct labor hours
Give the journal entry to transfer the cost of units from Work-in-Process Inventory to
Finished Goods Inventory.
What does the fixed overhead volume variance measure?
Define joint cost. Should joint costs be considered in the decision to sell or further
process the product? Explain your answer.
What causes manufacturing overhead to be overallocated? When manufacturing
overhead is overallocated, will the Manufacturing Overhead account have a debit or a
credit balance?
Haverhill Products completed Job 440 and several other jobs during the year. In
addition to direct labor and direct materials cost, Haverhill allocated $450 of
manufacturing overhead to the job. Provide the journal entry for the allocation of
manufacturing overhead.
What is a quality management system? What is the common factor in all quality
management systems?
List the three sections of the cash budget.
