1) Under the weighted-average method of process costing, costs from the prior period
are averaged with those of the current period in computing unit costs.
2) Under variable costing, product cost does not contain any fixed manufacturing
overhead cost.
3) Under absorption costing, the profit for a period is affected by a change in the
number of units of finished goods in inventory.
4) All other things the same, a reduction in the variable expense per unit will decrease
the break-even point.
5) The direct method of preparing the statement of cash flows will show the same
increase or decrease in cash as the indirect method.
6) A catering service has contracts with a number of customers to supply lunches on a
daily basis. The chef has complained of the long hours she must work to prepare all of
these lunches and has threatened to quit. It would be very difficult, if not impossible, to
replace the chef. To reduce the pressure on the chef, some contracts may have to be
cancelled. (The catering service can cancel any contract with seven days notice.) To
help make this decision, the profitability of each customer should be measured by
dividing amount the customer is charged by the amount of the time it takes the chef to
prepare the customer’s meals.
7) Both variable and fixed manufacturing overhead costs are included in the selling and
administrative expense budget.
8) Eliminating nonproductive processing time is particularly important in work stations
that do not contain bottlenecks.
9) Fixed costs should be included in a flexible budget even though they do not change
when the level of activity changes.
10) All other things the same, an increase in variable expense per unit will reduce the
break-even point.
11) The markup over cost under the absorption costing approach would increase if the
required rate of return increases, holding everything else constant.
12) The gross margin for July is:
A) $1,618,100
B) $699,300
C) $359,900
D) $534,600
13) A manufacturing company that produces a single product has provided the
following data concerning its most recent month of operations:
What is the absorption costing unit product cost for the month?
A.$96 per unit
B.$83 per unit
C.$87 per unit
D.$100 per unit
14) Clemmens Corporation has two major business segments: Consumer and
Commercial. Data for the segments and for the company for August appear below:
In addition, common fixed expenses totaled $265,000 and were allocated as follows:
$135,000 to the Consumer business segment and $130,000 to the Commercial business
segment.
A properly constructed segmented income statement in a contribution format would
show that the net operating income of the company as a whole is:
A.$88,000
B.$353,000
C.$476,000
D.-$177,000
15) Cardiv Corporation has provided the following production and average cost data for
two levels of monthly production volume. The company produces a single product.
The best estimate of the total cost to manufacture 4,300 units is closest to:
A) $877,200
B) $909,400
C) $901,925
D) $926,650
16) The unit product cost of product M91F under the activity-based costing system is
closest to:
Kebort Manufacturing Corporation has a traditional costing system in which it applies
manufacturing overhead to its products using a predetermined overhead rate based on
direct labor-hours (DLHs). The company has two products, U86Y and M91F, about
which it has provided the following data:
The company’s estimated total manufacturing overhead for the year is $2,541,760 and
the company’s estimated total direct labor-hours for the year is 47,000.
The company is considering using a variation of activity-based costing to determine its
unit product costs for external reports. Data for this proposed activity-based costing
system appear below:
A.$95.20
B.$121.57
C.$216.77
D.$197.95
17) The management of Archut Corporation would like to set the selling price on a new
product using the absorption costing approach to cost-plus pricing. The company’s
accounting department has supplied the following estimates for the new product:
Management plans to produce and sell 9,000 units of the new product annually. The
new product would require an investment of $3,002,400 and has a required return on
investment of 10%.
Required:
a. Determine the unit product cost for the new product.
b. Determine the markup percentage on absorption cost for the new product.
c. Determine the selling price for the new product using the absorption costing
approach.
18) Guo Corporation uses the weighted-average method in its process costing system.
This month, the beginning inventory in the first processing department consisted of 500
units. The costs and percentage completion of these units in beginning inventory were:
A total of 9,700 units were started and 9,100 units were transferred to the second
processing department during the month. The following costs were incurred in the first
processing department during the month:
The ending inventory was 85% complete with respect to materials and 75% complete
with respect to conversion costs.
Note: Your answers may differ from those offered below due to rounding error. In all
cases, select the answer that is the closest to the answer you computed. To reduce
rounding error, carry out all computations to at least three decimal places.
How many units are in ending work in process inventory in the first processing
department at the end of the month?
A.900
B.1,100
C.600
D.9,200
19) Iancu Corporation, which has only one product, has provided the following data
concerning its most recent month of operations:
What is the unit product cost for the month under variable costing?
A.$124 per unit
B.$115 per unit
C.$78 per unit
D.$87 per unit
20) The company’s total asset turnover for Year 2 is closest to:
A.1.25
B.0.80
C.6.57
D.0.15
21) Oddo Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in December.
The company applies variable overhead on the basis of direct labor-hours. The direct
materials purchases variance is computed when the materials are purchased.
The variable overhead rate variance for December is:
A.$316 F
B.$294 F
C.$316 U
D.$294 U
22) The following information relates to the Blending Department of Kedakai Products
Corporation for the month of May. Kedakai uses a weighted-average process costing
system.
What are the Blending Department’s equivalent units related to conversion costs for
May?
A.266,400
B.290,400
C.293,400
D.303,600
23) Maraby Corporation’s working capital (in thousands of dollars) at the end of Year 2
was closest to:
A.$260
B.$620
C.$360
D.$990
24) In making the decision to buy the model 260 machine rather than the model 330
machine, the sunk cost was:
A) $418,000
B) $456,000
C) $474,000
D) $496,000
25) The net present value of the proposed project is closest to:
A.$(6,409)
B.$(11,295)
C.$1,385
D.$(16,615)
26) The company’s average sale period (turnover in days) for Year 2 is closest to:
A.226.5 days
B.60.1 days
C.40.0 days
D.64.4 days
27) The DVD Division of Sound Company makes and sells compact DVD players
(DVDP) that it presently sells to outside customers. Budgeted costs next month for the
DVD Division are as follows:
MaxiSound, another division of Sound Company, would like to buy 1,000 of the
DVDPs from the DVD Division. An outside supplier has offered to sell similar DVDPs
to MaxiSound for $170 each.
Assume the DVD Division’s monthly production capacity is 4,000 units. If the DVD
Division sells 1,000 DVDPs to MaxiSound for $170 each, the monthly effect on the
profits of DVD Division will be a:
A.$65,000 increase
B.$50,000 increase
C.$185,000 increase
D.$170,000 increase
28) The following data were provided by Rider, Inc, which produces a single product:
Under variable costing, the unit product cost is:
A.$14 per unit
B.$13 per unit
C.$10 per unit
D.$16 per unit
29) Titzer Corporation is about to announce a new product, C02, whose variable cost is
$134.80 per unit and that would require 5.90 grams of a raw material that is the
constrained resource in the company. The opportunity cost to use this constrained
resource is $68.00 per gram. What is the minimum acceptable selling price for the new
product?
A.$401.20
B.$134.80
C.$202.80
D.$536.00
30) Benjamin Signal Company produces products R, J, and C from a joint production
process. Each product may be sold at the split-off point or be processed further. Joint
production costs of $92,000 per year are allocated to the products based on the relative
number of units produced. Data for Benjamin’s operations for the current year are as
follows:
Product R can be processed beyond the split-off point for an additional cost of $26,000
and can then be sold for $105,000. Product J can be processed beyond the split-off point
for an additional cost of $38,000 and can then be sold for $117,000. Product C can be
processed beyond the split-off point for an additional cost of $12,000 and can then be
sold for $57,000.
Required:
Which products should be processed beyond the split-off point?
31) Coody Clinic uses patient-visits as its measure of activity. The clinic has provided
the following report:
Required:
Prepare the clinic’s flexible budget performance report for July. Label each variance as
favorable (F) or unfavorable (U).
32) Farwest Inc. uses the FIFO method in its process costing system. The following
data concern the operations of the company’s first processing department for a recent
month.
Required:
Using the FIFO method, determine the equivalent units of production for materials and
conversion costs.
33) Cearns Memorial Diner is a charity supported by donations that provides free meals
to the homeless. The diner’s budget for December is to be based on 3,900 meals. The
diner’s director has provided the following cost formulas to use in the budget:
Required:
Prepare the diner’s budget for the month of December. The budget will only contain the
costs listed above; no revenues will be on the budget.
34) Xiong Corporation makes a product that sells for $130 per unit. The product’s
current sales are 14,000 units and its break-even sales are 10,220 units.
Required:
Compute the margin of safety in both dollars and as a percentage of sales.
35) The management of Pacubas Corporation expects sales in July to be $121,000. The
company’s contribution margin ratio is 64% and its fixed monthly expenses are
$40,000.
Required:
Estimate the company’s net operating income for July, assuming that the fixed monthly
expenses do not change. Show your work!
36) Wrobbel Corporation produces and sells a single product. Data concerning that
product appear below:
Fixed expenses are $307,000 per month. The company is currently selling 6,000 units
per month.
Required:
Management is considering using a new component that would increase the unit
variable cost by $2. Since the new component would improve the company’s product,
the marketing manager predicts that monthly sales would increase by 200 units. What
should be the overall effect on the company’s monthly net operating income of this
change if fixed expenses are unaffected? Show your work!
37) Tullius Corporation has received a request for a special order of 8,000 units of
product C64 for $50.00 each. The normal selling price of this product is $53.25 each,
but the units would need to be modified slightly for the customer. The normal unit
product cost of product C64 is computed as follows:
Direct labor is a variable cost. The special order would have no effect on the company’s
total fixed manufacturing overhead costs. The customer would like some modifications
made to product C64 that would increase the variable costs by $5.00 per unit and that
would require a one-time investment of $43,000 in special molds that would have no
salvage value. This special order would have no effect on the company’s other sales.
The company has ample spare capacity for producing the special order.
Required:
Determine the effect on the company’s total net operating income of accepting the
special order. Show your work!
