When more units are sold than produced, operating income is less under absorption
costing.
A depreciable asset’s original cost is relevant when considering whether to replace the
asset.
Absorption costing is required by the Generally Accepted Accounting Principles
(GAAP) for financial statements issued to investors, creditors, and other external users.
An annuity is a stream of equal cash payments made at equal time intervals.
A standard cost system is an accounting system that uses standards for product costs.
The budgeted income statement is a cash-based income statement.
Unlike manufacturing companies, service companies use an allocation base for
allocating both direct and indirect costs.
Peter Newton, a production supervisor at BeThink, Inc., uses variable costing for any
cost control decisions that he has to make. Which of the following is the reason for his
choice?
A) Fixed costs are not relevant in the long run.
B) Only variable costs are controllable in the long and short run.
C) Absorption costing is not relevant for long-run decisions.
D) Lower management usually does not have control over most fixed costs.
The highest value of total cost was $800,000 in June for Mantilla Beverages, Inc. Its
lowest value of total cost was $510,000 in December. The company makes a single
product. The production volume in June and December were 13,000 and 8,000 units,
respectively. What is the fixed cost per month? (Round any intermediate calculations to
the nearest cent, and your final answer to the nearest dollar.)
A) $510,000
B) $290,000
C) $46,000
D) $8,000
The starting point in developing the master budget is the preparation of the ________.
A) cash budget
B) production budget
C) sales budget
D) budgeted income statement
Hilltop Golf Course is planning for the coming golfing season. Investors would like to
earn a 10% return on the company’s $50,000,000 of assets. The company primarily
incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be
$32,000,000 for the season. About 500,000 rounds of golf are expected to be played
each year. Variable costs are about $17 per round of golf. Hilltop golf course has a
favorable reputation in the area and, therefore, has some control over the sales price of a
round of golf. Using a cost-plus pricing approach, what sales price should Hilltop
charge for a round of golf to achieve the desired profit?
A) $64
B) $81
C) $47
D) $91
When goods are transferred from the Work-in-Process Inventory account to the
Finished Goods Inventory account, ________.
A) total assets and total liabilities increase by the same amount
B) total assets of the company remain constant
C) total equity and total assets increase by the same amount
D) total liabilities increase and total equity decreases by the same amount
Which of the following is an entry-level accounting software package?
A) Microsoft Word
B) QuickBooks
C) Cloud Computing
D) Oracle®
Which of the following statements is true of the flow of product and period costs for a
manufacturer?
A) When the manufacturing process is completed, the costs are transferred to the
Work-in-Process Inventory account.
B) The cost of the finished goods that the manufacturer sells becomes its Cost of Goods
Sold on the income statement.
C) Period costs remain in inventory accounts on the balance sheet until the product is
sold.
D) All product costs that have been paid are expensed and reported on the income
statement at the end of the accounting period.
Swanson, Inc. has collected the following data. (There are no beginning inventories.)
What is the ending balance in Finished Goods Inventory using absorption costing if 550
units are sold? (Round any intermediate calculations to the nearest cent, and your final
answer to the nearest dollar.)
A) $1,450
B) $1,900
C) $4,742
D) $3,350
Cheong Automobiles Company fabricates automobiles. Each vehicle includes one
wiring harness, which is currently made in-house. Details of the harness fabrication are
as follows:
An Indonesian factory has offered to supply Cheong Company with ready-made units
for a cost of $17 for each harness. Assume that Cheong’s fixed costs are unavoidable
and that Cheong will not be able to use the excess capacity in any profitable manner. If
Cheong decides to outsource, monthly operating income will ________.
A) increase by $5,850
B) decrease by $15,000
C) increase by $15,000
D) decrease by $5,850
Young Guns Company, which sells tents, has provided the following information:
What are the required sales in units for Young to break even? (Round your answer up to
the nearest whole unit.)
A) 227 units
B) 1,155 units
C) 283 units
D) 374 units
Effects Manufacturing produces a pesticide chemical and uses process costing. There
are three processing departments-Mixing, Refining, and Packaging. On January 1, the
Refining Department had 4,000 gallons of partially processed product in production.
During January, 30,000 gallons were transferred in from the Mixing Department, and
30,000 gallons were completed and transferred out. At the end of the month, 4,000
gallons of partially processed product remained in the Refining Department. See
additional details below.
Refining Department, ending balance at January 31
Percent completed for materials cost: 94%
Percent completed for conversion cost: 76%
What was the total number of equivalent units of production for conversion costs for
the month of January for the Refining Department?
A) 3,040 units
B) 33,040 units
C) 30,000 units
D) 3,760 units
Centric Sail Makers manufactures sails for sailboats. The company has the capacity to
produce 36,000 sails per year and is currently producing and selling 30,000 sails per
year. The following information relates to current production:
If a special pricing order is accepted for 5,500 sails at a sales price of $160 per unit, and
fixed costs remain unchanged, what is the change in operating income? (Assume the
special pricing order will require variable manufacturing costs and variable selling and
administrative costs.)
A) Operating income decreases by $880,000.
B) Operating income increases by $880,000.
C) Operating income decreases by $440,000.
D) Operating income increases by $440,000.
Which of the following is not included in the purchases journal?
A) purchases of merchandise inventory for cash
B) purchase of merchandise inventory on account
C) purchase of office supplies on credit
D) purchase of equipment on account
A radial tire manufacturer produces products in two departments-Divisions A and B.
The company uses separate predetermined overhead allocation rates for each
department to allocate its overhead. Divisions A and B have estimated manufacturing
overhead costs of $160,000 and $340,000, respectively. Division A uses machine hours
as the allocation base, and Division B uses direct labor hours as the allocation base. The
total estimated machine hours were 31,000, and direct labor hours were 22,000 for the
year. Calculate the departmental predetermined overhead allocation rates. (Round your
answer to the nearest cent.)
A) Division A-$5.16, Division B-$15.45
B) Division A-$15.45, Division B-$5.16
C) Division A-$7.27, Division B-$10.97
D) Division A-$10.97, Division B-$7.27
Atom, Inc. has a division that manufactures a component that sells for $150 and has a
variable cost of $30. Another division of the company wants to purchase the
component. Fixed cost per unit of the component is $20. What is the minimum transfer
price if the division is operating at capacity?
A) $150
B) $30
C) $50
D) $20
Merrimack Tire Company makes a special kind of racing tire. Variable costs are $210
per unit, and fixed costs are $35,000 per month. Merrimack sells 400 units per month at
a sales price of $310. If the quality of the tire is upgraded, the company believes it can
increase the price to $330. If so, the variable cost will increase to $220 per unit, and the
fixed costs will rise by 20%. If Merrimack decides to upgrade, how will operating
income be affected?
A) Operating income will decrease by $8,000.
B) Operating income will decrease by $3,000.
C) Operating income will increase by $8,000.
D) Operating income will increase by $20.
Horizon Marine Stores Company manufactures special metallic materials and
decorative fittings for luxury yachts that require highly skilled labor. Horizon 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: 4 pounds per unit; $4 per pound
Direct labor: 4 hours per unit; $15 per hour
Horizon produced 5,000 units during the quarter. At the end of the quarter, an
examination of the labor costs records showed that the direct labor cost variance was
$6,000 F. Which of the following is a logical explanation for this variance?
A) The company used fewer labor hours than allowed by the standards.
B) The company paid a lower cost per hour for labor than allowed by the standards.
C) The company used a lower quantity of direct materials than allowed by the
standards.
D) The company paid a lower cost for the direct materials than allowed by the
standards.
Emara Company sells two generators’”Model A and Model B’”for $456 and $394,
respectively. The variable cost of Model A is $406 and of Model B is $304. The
company will generate lower revenues but a higher net income if it sells more of Model
B than Model A.
Indiana Hot Tubs, Inc. reports the following information for August:
Calculate the operating income for August using variable costing.
A) $380,000
B) $577,000
C) $307,000
D) $650,000
Describe the flow of product costs for a manufacturer.
Use the following cash receipts journal to record the preceding transactions.
Cash Receipts Journal Page 3
Define indirect cost.
Handbags R Us sells designer and everyday priced handbags. Top management is
deciding which product line to emphasize. Company accountants have provided the
following data:
The store has 5,000 square feet of floor space. If the company emphasizes everyday
handbags, it can display 1,000 items in the store. If the store emphasizes designer
handbags, it can display only 680 items, These numbers are also the average monthly
sales in units.
Prepare an analysis to show which product the company should emphasize. Explain
your answer. (Do not round intermediate answers.)
Define product cost. How does a merchandising company treat these costs?
A manufacturer, using a standard cost system, purchased 250 units of direct materials at
a cost of $2 per unit. The standard cost per unit of direct materials is $1.85. Prepare the
journal entry to record the direct materials cost variance at the time of purchase.
Define variance. What is the difference between a favorable and an unfavorable
variance?
For each of the following efficiency standards, indicate which parties are responsible
for the standard and list one factor that should be used in setting the standard.
Complete the statement, using the following terms: increase, decrease, or have no
effect on.
Increases in sales price per unit ________ contribution margin per unit and ________
the breakeven point.