Higher fixed costs increase the total number of units required to break even.
Entries in the sales journal are posted to both the accounts receivable subsidiary ledger
and the general ledger.
A modification of the overhead allocation method which uses a single plantwide rate, is
to use multiple predetermined overhead allocation rates that have different allocation
bases.
If all other factors remain constant, an increase in fixed costs will increase the
breakeven point.
Contribution margin is the difference between net sales revenue and variable costs.
When the variable cost per unit decreases, the contribution margin on each unit sold
also decreases.
The primary activity of manufacturing companies is to purchase goods from a
wholesaler and resell them.
If the debit side of the Manufacturing Overhead account totals more than the credit side
of the account, the manufacturing overhead is overallocated.
Revenue center responsibility reports show all costs incurred by the department and are
useful when management needs to know the full cost of operating the department.
The production cost report for Department 2 shows that $454,000 was assigned to the
50,000 units transferred to Finished Goods Inventory. Cost of goods manufactured
equals $454,000.
Standard costs are developed by the cooperative effort of purchasing, production,
human resources, and accounting personnel.
The accounts payable subsidiary ledger lists each vendor along with amounts paid to
the vendors and the remaining amounts owed to them.
A company’s production department was experiencing a high defect rate on the
assembly line, which was slowing down production and causing wastage of valuable
direct materials. The production manager decided to purchase a higher grade of
materials that would be more reliable, but he was worried that the cost of the new
materials might negatively affect operating income. This would produce a(n) ________.
A) unfavorable direct materials cost variance
B) favorable direct labor cost variance
C) favorable direct labor efficiency variance
D) unfavorable direct materials efficiency variance
Morewell, Inc. used a predetermined overhead allocation rate to allocate $80,000 and
$50,000 of indirect costs to Coloring Department and Mixing Department, respectively.
The journal entry to record the allocation of overhead costs to the Coloring Department
is ________.
A) debit Manufacturing Overhead, $80,000; credit Work-in-Process Inventory-Mixing,
$80,000
B) debit Work-in-Process Inventory-Coloring, $80,000; credit Manufacturing
Overhead, $80,000
C) debit Work-in-Process Inventory-Coloring, $50,000; credit Manufacturing
Overhead, $50,000
D) debit Manufacturing Overhead, $50,000; credit Work-in-Process Inventory-Mixing,
$50,000
The four-steps of tracking product costs in a process costing system are ________.
A) verify, analyze, record, and adjust
B) assign, analyze, approximate, and allocate
C) accumulate, assign, allocate, and adjust
D) arrive, analyze, assume, and allocate
The management of Delta Pet Supplies has calculated the following variances:
When determining the total production cost flexible budget variance, what is the fixed
overhead cost variance of the company?
A) $3,500 F
B) $13,500 U
C) $11,000 U
D) $12,000 F
Farmerlands, Inc. has budgeted sales for the months of September and October at
$303,000 and $289,000, respectively. Monthly sales are 80% credit and 20% cash. Of
the credit sales, 50% are collected in the month of sale, and 50% are collected in the
following month. Calculate cash collections for the month of October.
A) $173,400
B) $297,400
C) $294,600
D) $181,800
Smash Company has 4,000 machine hours available annually to manufacture
badminton racquets. The following information is available for the two different
racquets produced by Smash:
How many units of each racquet should be manufactured for the company to maximize
its operating income?
A) 2,000 units of Pro and 1,500 units of Mid
B) 2,000 units of Pro and 500 units of Mid
C) 2,000 units of Pro and 5,000 units of Mid
D) 5,000 units of Mid and 500 units of Pro
Gallup Foods produces a gourmet condiment that sells for $22 per unit. Variable cost is
$8 per unit, and fixed costs are $6,000 per month. If Gallup expects to sell 2,000 units,
compute the margin of safety in dollars. (Round any intermediate calculations to the
nearest whole unit, and your final answer to the nearest dollar.)
A) $34,571
B) $1,571
C) $6,000
D) $12,571
Which of the following describes the selling and administrative expenses budget?
A) It aids in planning to ensure the company has adequate inventory on hand.
B) It captures the variable and fixed components of selling and administrative expenses
of the business.
C) It depicts the breakdown of sales based on terms of collection.
D) It shows the cash flows related to the selling and administrative expenses and helps
in planning to ensure the business has adequate cash.
Which of the following is true of the general journal?
A) All transactions recorded in one of the special journals also are recorded in the
general journal.
B) Manual accounting information systems do not need the general journal.
C) The adjusting entries and the closing entries are recorded in the general journal.
D) Non-routine transactions are generally not recorded in the general journal.
Lakefront Equipment Company has several divisions that are investment centers. Data
for the Boat Division and the Trailer Division are shown here:
Which of the following statements would be the most meaningful interpretation of this
data?
A) The Boat Division’s performance is better than that of the Trailer Division because it
has higher assets.
B) The Boat Division uses its assets less efficiently than the Trailer Division does
because it has a lower return on investment.
C) The Boat Division shows a more efficient use of assets than the Trailer Division
because it has a higher operating income.
D) The Boat Division is financially more successful than the Trailer Division because it
shows an increase in assets.
Rice Corporation manufactures two styles of lamps’”a Bedford Lamp and a Lowell
Lamp. The following per unit data are available:
Total fixed costs are $50,000. Machine hour capacity is 25,000 hours per year.
Assuming that the company can sell as many products as it can make, which product
mix would deliver the highest operating income?
A) 5,000 Bedford Lamps and 6,250 Lowell Lamps
B) 0 Bedford Lamps and 5,000 Lowell Lamps
C) 6,250 Bedford Lamps and 0 Lowell Lamps
D) 6,250 Bedford Lamps and 6,250 Lowell Lamps
If there is cash involved in a business transaction, the transaction should be recorded in
either the ________.
A) cash payments journal or cash receipts journal
B) cash payments journal or general journal
C) cash payments journal or cash receipts journal and in general journal
D) sales journal or purchases journal
Amoeba Manufacturing, Inc. provided the following information for the year:
The inventory account balances as of January 1 are given below.
What is the ending balance in the Raw Materials Inventory account?
A) $135,000
B) $6,000
C) $110,240
D) $24,760
An investment should be accepted if ________.
A) it has positive total cash inflows
B) it has a payback period in less than 10 years
C) the investment’s rate of return is lower than the company’s current year required rate
of return
D) the net present value is positive
________ are costs incurred to avoid poor-quality goods or services.
A) Prevention costs
B) Appraisal costs
C) Internal failure costs
D) External failure costs
Elite Brands Company uses standard costs for its manufacturing division. Standards
specify 0.1 direct labor hours per unit of product. At the beginning of the year, the static
budget for variable overhead costs included the following data:
At the end of the year, actual data were as follows:
How much is the standard cost per direct labor hour for variable overhead?
A) $22.13 per direct labor hour
B) $32.93 per direct labor hour
C) $26.73 per direct labor hour
D) $24.92 per direct labor hour
When units produced exceeds units sold, how does operating income differ between
variable costing and absorption costing? Explain your answer.
Poodle Grooming Salon provides dog grooming services. In March, the business
groomed 245 dogs, earned $10,300 in revenues, and incurred the following operating
costs:
Compute the cost of one grooming. (Round to two decimal places.)
Define indirect materials and give two examples of indirect materials for a
manufacturing company.
The following information relates to Regency Manufacturing’s overhead costs for the
month:
Regency allocates manufacturing overhead to production based on standard direct labor
hours.
Regency reported the following actual results for last month: actual variable overhead,
$14,500; actual fixed overhead, $5,400; actual production of 4,700 units at 0.22 direct
labor hours per unit. The standard direct labor time is 0.20 direct labor hours per unit.
Compute the variable overhead cost variance. (Round the answer to the nearest dollar.)
List two objectives in setting transfer prices.