Managerial Accounting Asia Global 2nd Edition Garrison Test Bank

Type:

Test Bank

Resource:

Managerial Accounting

Edition:

2nd Edition

Author(s):

Ray Garrison Eric Noreen Peter Brewer Nam Sang Cheng Katherine Yuen

Professional

Ethics

Governance, risk and sustainability management

Strategic roles of management accounting

Question Type 1 T/F E 2 T/F M 3 T/F M 4 T/F E 5 T/F E 6 T/F M 7 T/F M 8 T/F M 9 T/F E 10 T/F M 11 T/F M 12 Conceptual M/C E 13 Conceptual M/C E 14 Conceptual M/C E 15 Conceptual M/C E 16 Conceptual M/C M 17 Conceptual M/C M 18 Conceptual M/C H

What is management accounting

Difficulty

Chapter 01: Managerial Accounting and the Business Environment

x x x x x x x x x x x x x x x x x x

1-1 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 01: Managerial Accounting and the Business Environment True / False Questions 1. Managerial accounting is primarily concerned with the organization as a whole rather than with segments of the organization. True False

2. Managerial accounting places less emphasis on nonmonetary data than financial accounting. True False

3. A strategy is a game plan that enables a company to attract customers by mimicking what successful competitors do. True False

4. Customer value propositions tend to fall into three broad categories–theory of constraints, six sigma, and enterprise risk management. (to modify the question) True False

5. Companies that choose an operational excellence strategy are in essence saying to their customers, "Choose us because we can deliver products and services faster, more conveniently, and at a lower price than our competitors." True False

6. A value chain consists of the major subassemblies that add value to a product. True False

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Chapter 01: Managerial Accounting and the Business Environment

7. The Sarbanes-Oxley Act of 2002 was intended to protect the interests of those who invest in publicly traded companies by ensuring that their original investments could be recovered in case of fraud. True False

8. Enterprise risk management involves replacing risky investments with investments in lowrisk government securities. True False

9. Corporate social responsibility refers to the moral obligation of all corporations to make substantial monetary contributions to charitable causes. True False

10. The Statement of Ethical Professional Practice promulgated by the Institute of Management Accountants specifically states, among other things, that management accountants have a responsibility to inform responsible journalists of any wrongdoing they uncover in the organization. True False

11. The Institute of Management Accountants' Statement of Ethical Professional Practice specifically states, among other things, that management accountants have a responsibility to keep information confidential except when disclosure is authorized or legally required. True False

1-3 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 01: Managerial Accounting and the Business Environment Multiple Choice Questions 12. Managerial accounting: A. has its primary emphasis on the future. B. is required by regulatory bodies such as the SEC. C. focuses on the organization as a whole, rather than on the organization's segments. D. Responses a, b, and c are all correct.

13. The plans of management are expressed formally in: A. the annual report to shareholders. B. Form 10-Q submitted to the Securities and Exchange Commission. C. performance reports. D. budgets.

14. Which of the following IS a characteristic of financial accounting? A. not mandatory B. must follow GAAP C. emphasis on relevance of data, rather than precision D. both A and C above

15. Which of the following is NOT one of the three major customer value propositions discussed in the text? A. customer intimacy B. operational excellence C. zero defects D. product leadership

1-4 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 01: Managerial Accounting and the Business Environment 16. Which of the following statements is TRUE concerning the CMA? A. To earn the CMA, an examination must be passed. B. Experience in the accounting field is not necessary to earn the CMA. C. Compliance with the Institute of Management Accountants' Statement of Ethical Professional Practice is not necessary to earn the CMA. D. Both B and C above.

17. The Sarbanes-Oxley Act of 2002 contains all of the following provisions EXCEPT: A. A CFO must be a CPA or CMA. B. The audit committee of the board of directors of a company must hire, compensate, and terminate the public accounting firm that audits the company's financial reports. C. Severe penalties are established for altering or destroying documents that may eventually be used in an official proceeding. D. Both the CEO and CFO must certify in writing that their company's financial statements and accompanying disclosures fairly represent the results of operations.

18. The Institute of Management Accountants' Statement of Ethical Professional Practice states that when faced with significant ethical issues, management accountants should first: A. discuss such problems with the immediate superior except when it appears that the superior is involved. B. clarify relevant concepts by confidential discussion with an objective advisor to obtain an understanding of possible courses of action. C. follow the established policies of the organization bearing on the resolution of such conflict. D. submit an informative memorandum describing the ethical issue to an appropriate representative of the organization and resign if no action is taken as a result of the memorandum.

1-5 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 001: Managerial Accounting and the Business Environment - Key

True / False Questions 1. Managerial accounting is primarily concerned with the organization as a whole rather than with segments of the organization. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Objective: What is management accounting Level: Easy

2. Managerial accounting places less emphasis on nonmonetary data than financial accounting. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Objective: What is management accounting Level: Medium

3. A strategy is a game plan that enables a company to attract customers by mimicking what successful competitors do. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Objective: Strategic roles of management accounting Level: Medium

1-6 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 001: Managerial Accounting and the Business Environment - Key 4. Customer value propositions tend to fall into three broad categories–theory of constraints, six sigma, and enterprise risk management. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Objective: Strategic roles of management accounting Level: Easy

5. Companies that choose an operational excellence strategy are in essence saying to their customers, "Choose us because we can deliver products and services faster, more conveniently, and at a lower price than our competitors." TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Objective: Strategic roles of management accounting Level: Easy

6. A value chain consists of the major subassemblies that add value to a product. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Objective: Strategic roles of management accounting Level: Medium

7. The Sarbanes-Oxley Act of 2002 was intended to protect the interests of those who invest in publicly traded companies by ensuring that their original investments could be recovered in case of fraud. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Objective: Governance, risk and sustainability management Level: Medium

1-7 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 001: Managerial Accounting and the Business Environment - Key 8. Enterprise risk management involves replacing risky investments with investments in lowrisk government securities. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Objective: Governance, risk and sustainability management Level: Medium

9. Corporate social responsibility refers to the moral obligation of all corporations to make substantial monetary contributions to charitable causes. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Objective: Governance, risk and sustainability management Level: Easy

10. The Statement of Ethical Professional Practice promulgated by the Institute of Management Accountants specifically states, among other things, that management accountants have a responsibility to inform responsible journalists of any wrongdoing they uncover in the organization. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Objective: Ethics Level: Medium

11. The Institute of Management Accountants' Statement of Ethical Professional Practice specifically states, among other things, that management accountants have a responsibility to keep information confidential except when disclosure is authorized or legally required. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Objective: Ethics Level: Medium

1-8 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 001: Managerial Accounting and the Business Environment - Key Multiple Choice Questions 12. Managerial accounting: A. has its primary emphasis on the future. B. is required by regulatory bodies such as the SEC. C. focuses on the organization as a whole, rather than on the organization's segments. D. Responses a, b, and c are all correct.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Objective: What is management accounting Level: Easy

13. The plans of management are expressed formally in: A. the annual report to shareholders. B. Form 10-Q submitted to the Securities and Exchange Commission. C. performance reports. D. budgets.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Objective: What is management accounting Level: Easy

14. Which of the following IS a characteristic of financial accounting? A. not mandatory B. must follow GAAP C. emphasis on relevance of data, rather than precision D. both A and C above

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Objective: What is management accounting Level: Easy

1-9 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 001: Managerial Accounting and the Business Environment - Key 15. Which of the following is NOT one of the three major customer value propositions discussed in the text? A. customer intimacy B. operational excellence C. zero defects D. product leadership

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Objective: Strategic roles of management accounting Level: Easy

16. Which of the following statements is TRUE concerning the CMA? A. To earn the CMA, an examination must be passed. B. Experience in the accounting field is not necessary to earn the CMA. C. Compliance with the Institute of Management Accountants' Statement of Ethical Professional Practice is not necessary to earn the CMA. D. Both B and C above.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Objective: Professional Level: Medium

17. The Sarbanes-Oxley Act of 2002 contains all of the following provisions EXCEPT: A. A CFO must be a CPA or CMA. B. The audit committee of the board of directors of a company must hire, compensate, and terminate the public accounting firm that audits the company's financial reports. C. Severe penalties are established for altering or destroying documents that may eventually be used in an official proceeding. D. Both the CEO and CFO must certify in writing that their company's financial statements and accompanying disclosures fairly represent the results of operations.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Objective: Governance, risk and sustainability management Level: Medium

1-10 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 001: Managerial Accounting and the Business Environment - Key

18. The Institute of Management Accountants' Statement of Ethical Professional Practice states that when faced with significant ethical issues, management accountants should first: A. discuss such problems with the immediate superior except when it appears that the superior is involved. B. clarify relevant concepts by confidential discussion with an objective advisor to obtain an understanding of possible courses of action. C. follow the established policies of the organization bearing on the resolution of such conflict. D. submit an informative memorandum describing the ethical issue to an appropriate representative of the organization and resign if no action is taken as a result of the memorandum.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Objective: Ethics Level: Hard

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

M M M E E M M E E H M M M E E E E E E E E M E E E M M E E E H H

Professional Exam Adapted

LO1: DM, DL, Manuf overhead LO2: Period and product costs LO3: Income statement LO4: Schedule of cost of goods manufactured LO5: Variable and fixed costs LO6: Direct and indirect costs LO7: Decision-making cost classifications LO8: Labor cost classifications (App 2A) LO9: Classification of quality costs (App2B) LO10: Quality cost report (App 2B)

Question Type T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C

Difficulty

Chapter 02: Cost Concepts

x x x x x x x x x x x x x x x x x

x

x x x x x x x x x x x x x x x

x x

x

CMA x 2-1

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59-62 63-65 66-68 69-70 71-72 73-74

Professional Exam Adapted

Question Type Conceptual M/C M Conceptual M/C M Conceptual M/C E Conceptual M/C M Conceptual M/C M Conceptual M/C E Conceptual M/C M M/C M M/C M M/C H M/C H M/C H M/C M M/C M M/C H M/C H M/C H M/C E M/C M M/C E M/C E M/C M M/C H M/C M M/C E M/C E Multipart M/C M-H Multipart M/C M Multipart M/C M Multipart M/C E Multipart M/C M Multipart M/C M

LO1: DM, DL, Manuf overhead LO2: Period and product costs LO3: Income statement LO4: Schedule of cost of goods manufactured LO5: Variable and fixed costs LO6: Direct and indirect costs LO7: Decision-making cost classifications LO8: Labor cost classifications (App 2A) LO9: Classification of quality costs (App2B) LO10: Quality cost report (App 2B)

Difficulty

Chapter 02: Cost Concepts

x x x x x x x x x x x x x x x x x

x x x x x x x x x x x x x x x

x x x x x x x x x x

CIMA x x x x

2-2 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

75-78 79-82 83-86 87-88 89-92 93-94 95-96 97-100 101-102 103-104 105-106 107-108 109-111 112-113 114-115 116-117 118-119 120-121 122-123 124-125 126-127 128-129 130-132 133-135 136 137 138 139 140 141 142 143

M M M H M M M M M M E E H M M M E E E E E-M E-M E E M M E E M M M M

x x x x x x x x x x x x x

Professional Exam Adapted

LO1: DM, DL, Manuf overhead LO2: Period and product costs LO3: Income statement LO4: Schedule of cost of goods manufactured LO5: Variable and fixed costs LO6: Direct and indirect costs LO7: Decision-making cost classifications LO8: Labor cost classifications (App 2A) LO9: Classification of quality costs (App2B) LO10: Quality cost report (App 2B)

Question Type Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Problem Problem Problem Problem Problem Problem Problem Problem

Difficulty

Chapter 02: Cost Concepts

x x x x x x x x x x

x x x x x x x x x x

x x x x x x x x x x x x x x x

x x x

2-3 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

144 145 146 147 148 149 Question Type Problem Problem Problem Problem Problem Problem E E M E E E

Professional Exam Adapted

LO1: DM, DL, Manuf overhead LO2: Period and product costs LO3: Income statement LO4: Schedule of cost of goods manufactured LO5: Variable and fixed costs LO6: Direct and indirect costs LO7: Decision-making cost classifications LO8: Labor cost classifications (App 2A) LO9: Classification of quality costs (App2B) LO10: Quality cost report (App 2B)

Difficulty

Chapter 02: Cost Concepts

x x x x x x

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

2-4

Chapter 02: Cost Concepts

True / False Questions 1. All material costs would be considered as direct materials. True False 2. Direct material cost is a part of conversion cost. True False

3. Direct labor is a part of both prime cost and conversion cost. True False

4. Wages paid to production supervisors would be considered direct labor. True False

5. Direct material cost combined with manufacturing overhead cost is known as conversion cost. True False

6. Advertising is a product cost as long as it promotes specific products. True False

7. Although depreciation is always a period cost in a merchandising firm, it can be a product cost in a manufacturing firm. True False

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Chapter 02: Cost Concepts

8. In a manufacturing firm, all costs are product costs. True False

9. The cost of shipping parts from a supplier is considered a product cost. True False

10. If the finished goods inventory increases between the beginning and the end of a period, then the cost of goods manufactured for the period is larger than the cost of goods sold. True False

11. The inventory of finished goods on hand at the end of a period is considered an asset, but inventories of raw materials and work-in-process are not considered assets until production is completed. True False

12. The cost of goods manufactured for a period is the amount transferred from work in process inventory to finished goods inventory during the period. True False

13. Differential costs can be either fixed or variable. True False

14. A fixed cost is constant per unit of product. True False

15. The variable cost per unit is constant and does not depend on how many units are produced. True False

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Chapter 02: Cost Concepts

16. The cost of napkins put on each person's tray at a fast food restaurant is a fixed cost. True False

17. A factory supervisor's salary would be classified as a direct cost of a unit of product. True False

Multiple Choice Questions 18. The production supervisor’s salary would be considered a(n): A. period cost. B. product cost. C. administrative cost. D. selling expense.

19. Manufacturing overhead: A. is a part of conversion cost. B. includes the costs of shipping finished goods to customers. C. includes all factory labor costs. D. includes all fixed costs.

20. Conversion consists of manufacturing overheads combined with: A. direct labor. B. manufacturing overhead. C. indirect materials. D. cost of goods manufactured.

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Chapter 02: Cost Concepts 21. The corporate controller's salary would be considered a(n): A. manufacturing cost. B. product cost. C. administrative cost. D. selling expense.

22. The costs of direct materials are classified as:

A. Choice A B. Choice B C. Choice C D. Choice D

23. Manufacturing overhead: A. can be either a variable cost or a fixed cost. B. includes the costs of shipping finished goods to customers. C. includes all factory labor costs. D. includes all fixed costs.

24. The three basic elements of manufacturing cost are direct materials, direct labor, and: A. cost of goods manufactured. B. cost of goods sold. C. work in process. D. manufacturing overhead.

25. Prime cost consists of direct materials combined with: A. direct labor. B. manufacturing overhead. C. indirect materials. D. cost of goods manufactured.

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Chapter 02: Cost Concepts

26. Which terms below correctly describe the cost of the black paint used to paint the dots on a pair of dice?

A. Choice A B. Choice B C. Choice C D. Choice D

27. The cost of fire insurance for a manufacturing plant is generally considered to be a: A. product cost. B. period cost. C. variable cost. D. all of these.

28. An example of a period cost is: A. fire insurance on a factory building. B. salary of a factory supervisor. C. direct materials. D. rent on a headquarters building.

29. Transportation costs incurred by a manufacturing company to ship its product to its customers would be classified as which of the following? A. Product cost B. Manufacturing overhead C. Period cost D. Administrative cost

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Chapter 02: Cost Concepts

30. Micro Computer Company has set up a toll-free telephone line for customer inquiries regarding computer hardware produced by the company. The cost of this toll-free line would be classified as which of the following? A. Product cost B. Manufacturing overhead C. Direct labor D. Period cost

31. Rossiter Company failed to record a credit sale at the end of the year, although the reduction in finished goods inventories was correctly recorded when the goods were shipped to the customer. Which one of the following statements is correct? A. Accounts receivable was not affected, inventory was not affected, sales were understated, and cost of goods sold was understated. B. Accounts receivable was understated, inventory was overstated, sales were understated, and cost of goods sold was overstated. C. Accounts receivable was not affected, inventory was understated, sales were understated, and cost of goods sold was understated. D. Accounts receivable was understated, inventory was not affected, sales were understated, and cost of goods sold was not affected.

32. Cost of goods manufactured will usually include: A. only costs incurred during the current period. B. only direct labor and direct materials costs. C. some costs incurred during the prior period as well as costs incurred during the current period. D. some period costs as well as some product costs.

33. Which two terms below describe the wages paid to security guards that monitor a factory 24 hours a day? A. variable cost and direct cost B. fixed cost and direct cost C. variable cost and indirect cost D. fixed cost and indirect cost

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Chapter 02: Cost Concepts

34. Within the relevant range, the difference between variable costs and fixed costs is: A. variable costs per unit fluctuate and fixed costs per unit remain constant. B. variable costs per unit are constant and fixed costs per unit fluctuate. C. both total variable costs and total fixed costs are constant. D. both total variable costs and total fixed costs fluctuate.

35. Each of the following would be classified as variable in terms of cost behavior except: A. cost of shipping goods to customers via express mail. B. sales commissions. C. plant manager's salary. D. direct materials.

36. A lawnmower manufacturer computed a cost per unit of $53 by adding together last month's direct labor, direct materials, and manufacturing overhead and dividing that total by the 10,000 units produced last month. (There were no beginning or ending inventories.) If 9,000 units are going to be manufactured this month, we would expect that the: A. cost per unit will remain the same. B. cost per unit will decrease. C. direction of change in unit costs cannot be determined. D. cost per unit will increase.

37. Which one of the following costs should NOT be considered an indirect cost of serving a particular customer at a Dairy Queen fast food outlet? A. the cost of the hamburger patty in the burger they ordered. B. the wages of the employee who takes the customer's order. C. the cost of heating and lighting the kitchen. D. the salary of the outlet's manager.

38. An opportunity cost is: A. the difference in total costs which results from selecting one alternative instead of another. B. the benefit forgone by selecting one alternative instead of another. C. a cost which may be saved by not adopting an alternative. D. a cost which may be shifted to the future with little or no effect on current operations.

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Chapter 02: Cost Concepts

39. Buford Company rents out a small unused portion of its factory to another company for $1,000 per month. The rental agreement will expire next month, and rather than renew the agreement Buford Company is thinking about using the space itself to store materials. The term to describe the $1,000 per month is: A. sunk cost. B. period cost. C. opportunity cost. D. variable cost.

40. The following costs were incurred in August:

Conversion costs during the month totaled: A. $127,000 B. $51,000 C. $52,000 D. $75,000

41. The following costs were incurred in August:

Prime costs during the month totaled: A. $39,000 B. $59,000 C. $96,000 D. $38,000

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Chapter 02: Cost Concepts

42. During the month of August, direct labor cost totaled $13,000 and direct labor cost was 20% of prime cost. If total manufacturing costs during August were $88,000, the manufacturing overhead was: A. $75,000 B. $23,000 C. $65,000 D. $52,000

43. In August direct labor was 60% of conversion cost. If the manufacturing overhead for the month was $54,000 and the direct materials cost was $34,000, the direct labor cost was: A. $36,000 B. $22,667 C. $51,000 D. $81,000

44. Williams Company's direct labor cost is 25% of its conversion cost. If the manufacturing overhead for the last period was $45,000 and the direct materials cost was $25,000, the direct labor cost was: A. $15,000 B. $60,000 C. $33,333 D. $20,000

45. Green Company's costs for the month of August were as follows: direct materials, $27,000; direct labor, $34,000; selling, $14,000; administrative, $12,000; and manufacturing overhead, $44,000. The beginning work in process inventory was $16,000 and the ending work in process inventory was $9,000. What was the cost of goods manufactured for the month? A. $105,000 B. $132,000 C. $138,000 D. $112,000

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Chapter 02: Cost Concepts

46. Consider the following costs incurred in a recent period:

What was the total amount of the period costs listed above for the period? A. $78,000 B. $71,000 C. $46,000 D. $37,000

47. The Lyons Company's cost of goods manufactured was $120,000 when its sales were $360,000 and its gross margin was $220,000. If the ending inventory of finished goods was $30,000, the beginning inventory of finished goods must have been: A. $20,000 B. $50,000 C. $110,000 D. $150,000

48. Last month a manufacturing company had the following operating results:

What was the cost of goods manufactured for the month? A. $350,000 B. $385,000 C. $377,000 D. $323,000

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Chapter 02: Cost Concepts

49. The following inventory balances relate to Lequin Manufacturing Corporation at the beginning and end of the year:

Lequin's total manufacturing cost was $543,000. What was Lequin's cost of goods sold? A. $517,000 B. $545,000 C. $569,000 D. $567,000

50. Gabrisch Inc. is a merchandising company. Last month the company's merchandise purchases totaled $90,000. The company's beginning merchandise inventory was $13,000 and its ending merchandise inventory was $22,000. What was the company's cost of goods sold for the month? A. $90,000 B. $99,000 C. $125,000 D. $81,000

51. Haan Inc. is a merchandising company. Last month the company's cost of goods sold was $66,000. The company's beginning merchandise inventory was $14,000 and its ending merchandise inventory was $16,000. What was the total amount of the company's merchandise purchases for the month? A. $68,000 B. $96,000 C. $64,000 D. $66,000

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Chapter 02: Cost Concepts

52. During August, the cost of goods manufactured was $73,000. The beginning finished goods inventory was $15,000 and the ending finished goods inventory was $21,000. What was the cost of goods sold for the month? A. $79,000 B. $109,000 C. $67,000 D. $73,000

53. Walton Manufacturing Company gathered the following data for the month.

How much net operating income will be reported for the period? A. $54,000 B. $17,000 C. $52,000 D. Cannot be determined.

54. Using the following data for August, calculate the cost of goods manufactured:

The cost of goods manufactured was: A. $106,000 B. $92,000 C. $95,000 D. $89,000

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Chapter 02: Cost Concepts

55. The following inventory balances relate to Bharath Manufacturing Corporation at the beginning and end of the year:

Bharath's cost of goods sold was $653,000. What was Bharath's cost of goods manufactured? A. $660,000 B. $670,000 C. $682,000 D. $689,000

56. The following data have been provided by a company for a recent accounting period:

The cost of goods manufactured for the period was: A. $147,000 B. $151,000 C. $153,000 D. $154,000

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Chapter 02: Cost Concepts

57. Direct materials used in production totaled $330,000. Direct labor was $415,000 and manufacturing overhead was $220,000. What were the total manufacturing costs incurred for the month? A. $530,000 B. $965,000 C. $745,000 D. $635,000

58. How much opportunity cost is represented in the following information concerning a machine?

A. $80,000 B. $14,000 C. $25,000 D. $68,000

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Chapter 02: Cost Concepts

Corcetti Company manufactures and sells prewashed denim jeans. Large rolls of denim cloth are purchased and are first washed in a giant washing machine. After the cloth is dried, it is cut up into jean pattern shapes and then sewn together. The completed jeans are sold to various retail chains.

59. Which of the following terms could be used to correctly describe the cost of the soap used to wash the denim cloth?

A. Choice A B. Choice B C. Choice C D. Choice D

60. Which of the following terms could be used to correctly describe the wages paid to the workers that cut up the cloth into the jean pattern shapes?

A. Choice A B. Choice B C. Choice C D. Choice D

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Chapter 02: Cost Concepts

61. Which of the following terms could be used to correctly describe the cost of the thread used to sew the jeans together?

A. Choice A B. Choice B C. Choice C D. Choice D

62. Which of the following terms could be used to correctly describe the wages paid to the data entry clerk who enters customer order information into the company's computer system?

A. Choice A B. Choice B C. Choice C D. Choice D

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Chapter 02: Cost Concepts

A partial listing of costs incurred at Peggs Corporation during September appears below:

63. The total of the manufacturing overhead costs listed above for September is: A. $71,000 B. $351,000 C. $669,000 D. $40,000

64. The total of the product costs listed above for September is: A. $351,000 B. $669,000 C. $71,000 D. $318,000

65. The total of the period costs listed above for September is: A. $389,000 B. $318,000 C. $71,000 D. $351,000

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Chapter 02: Cost Concepts

A partial listing of costs incurred during February at Urfer Corporation appears below:

66. The total of the period costs listed above for February is: A. $379,000 B. $277,000 C. $61,000 D. $318,000

67. The total of the manufacturing overhead costs listed above for February is: A. $61,000 B. $595,000 C. $277,000 D. $33,000

68. The total of the product costs listed above for February is: A. $277,000 B. $595,000 C. $318,000 D. $61,000

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Chapter 02: Cost Concepts

Nadell Corporation reported the following data for the month of April:

69. If the raw materials purchased during April totaled $63,000, what was the cost of the raw materials used in production for the month? A. $63,000 B. $61,000 C. $62,000 D. $65,000

70. If the company transferred $234,000 of completed goods from work in process to finished goods inventory during April, what was the cost of goods sold for the month? A. $234,000 B. $235,000 C. $220,000 D. $248,000

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Chapter 02: Cost Concepts

Tart Corporation reported the following data for the month of September:

71. The conversion cost for September was: A. $150,000 B. $103,000 C. $117,000 D. $86,000

72. The prime cost for September was: A. $50,000 B. $83,000 C. $86,000 D. $103,000

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Chapter 02: Cost Concepts

Management of Solman Corporation has asked your help as an intern in preparing some key reports for June. The beginning balance in the raw materials inventory account was $20,000. During the month, the company made raw materials purchases amounting to $69,000. At the end of the month, the balance in the raw materials inventory account was $32,000. Direct labor cost was $24,000 and manufacturing overhead was $71,000. The beginning balance in the work in process account was $24,000 and the ending balance was $19,000. The beginning balance in the finished goods account was $53,000 and the ending balance was $58,000. Selling expense was $20,000 and administrative expense was $35,000.

73. The conversion cost for June was: A. $95,000 B. $140,000 C. $93,000 D. $152,000

74. The prime cost for June was: A. $95,000 B. $93,000 C. $81,000 D. $55,000

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Chapter 02: Cost Concepts The following data (in thousands of dollars) have been taken from the accounting records of Karlana Corporation for the just completed year.

75. The cost of the raw materials used in production during the year (in thousands of dollars) was: A. $180 B. $40 C. $120 D. $160

76. The cost of goods manufactured (finished) for the year (in thousands of dollars) was: A. $530 B. $520 C. $500 D. $460

77. The cost of goods sold for the year (in thousands of dollars) was: A. $670 B. $500 C. $540 D. $650

78. The net operating income for the year (in thousands of dollars) was: A. $410 B. $110 C. $40 D. $180 2-26 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 02: Cost Concepts Lavell Corporation reported the following data for the month of February:

79. The total manufacturing cost for February was: A. $174,000 B. $171,000 C. $70,000 D. $108,000 80. The cost of goods manufactured for February was: A. $171,000 B. $174,000 C. $183,000 D. $159,000 81. The cost of goods sold for February was: A. $225,000 B. $134,000 C. $184,000 D. $127,000

82. The net operating income for February was: A. $20,000 B. $116,000 C. $86,000 D. $60,000

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Chapter 02: Cost Concepts Management of Parrent Corporation has asked your help as an intern in preparing some key reports for April. The company started the month with raw materials inventories of $32,000. During the month, the company made raw materials purchases amounting to $68,000. At the end of the month, raw materials inventories totaled $35,000. Direct labor cost was $43,000 and manufacturing overhead was $62,000. The beginning balance in the work in process account was $19,000 and the ending balance was $12,000. The beginning balance in the finished goods account was $35,000 and the ending balance was $58,000. Sales totaled $240,000. Selling expense was $18,000 and administrative expense was $42,000.

83. The total manufacturing cost for April was: A. $170,000 B. $173,000 C. $62,000 D. $105,000

84. The cost of goods manufactured for April was: A. $177,000 B. $173,000 C. $170,000 D. $163,000

85. The cost of goods sold for April was: A. $123,000 B. $200,000 C. $217,000 D. $154,000

86. The net operating income for April was: A. $26,000 B. $86,000 C. $75,000 D. $7,000

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Chapter 02: Cost Concepts The following data pertain to Harriman Company's operations during July:

87. The beginning work in process inventory was: A. $10,000 B. $14,000 C. $1,000 D. $4,000

88. The ending finished goods inventory was: A. $17,000 B. $12,000 C. $7,000 D. $2,000

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Chapter 02: Cost Concepts Derflinger Corporation reported the following data for the month of January:

89. The total manufacturing cost for January was: A. $176,000 B. $74,000 C. $106,000 D. $172,000

90. The cost of goods manufactured for January was: A. $176,000 B. $172,000 C. $175,000 D. $177,000

91. The cost of goods sold for January was: A. $126,000 B. $180,000 C. $255,000 D. $170,000

92. The net operating income for January was: A. $79,000 B. $70,000 C. $13,000 D. $5,000

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Chapter 02: Cost Concepts Tator Corporation reported the following data for the month of April:

93. The cost of goods sold for April was: A. $178,000 B. $146,000 C. $126,000 D. $234,000

94. The net operating income for April was: A. $22,000 B. $81,000 C. $46,000 D. $104,000

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Chapter 02: Cost Concepts Weygandt Corporation reported the following data for the month of February:

95. The total manufacturing cost for February was: A. $90,000 B. $158,000 C. $67,000 D. $162,000

96. The net operating income for February was: A. $48,000 B. $6,000 C. $68,000 D. -$4,000

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Chapter 02: Cost Concepts

Management of Berndt Corporation has asked your help as an intern in preparing some key reports for August. The beginning balance in the raw materials inventory account was $33,000. During the month, the company made raw materials purchases amounting to $62,000. At the end of the month, the balance in the raw materials inventory account was $30,000. Direct labor cost was $46,000 and manufacturing overhead was $74,000. The beginning balance in the work in process account was $13,000 and the ending balance was $19,000. The beginning balance in the finished goods account was $54,000 and the ending balance was $50,000. Sales totaled $270,000. Selling expense was $18,000 and administrative expense was $49,000.

97. The total manufacturing cost for August was: A. $185,000 B. $182,000 C. $120,000 D. $74,000

98. The cost of goods manufactured for August was: A. $191,000 B. $185,000 C. $182,000 D. $179,000

99. The cost of goods sold for August was: A. $175,000 B. $183,000 C. $138,000 D. $274,000

100. The net operating income for August was: A. $20,000 B. $21,000 C. $87,000 D. $83,000

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Chapter 02: Cost Concepts

The CFO of Stoffer Corporation has provided the following data for October. The beginning balance in the raw materials inventory account was $39,000. During the month, the company made raw materials purchases amounting to $68,000. At the end of the month, the balance in the raw materials inventory account was $28,000. Direct labor cost was $29,000 and manufacturing overhead was $78,000. The beginning balance in the work in process account was $11,000 and the ending balance was $13,000. The beginning balance in the finished goods account was $37,000 and the ending balance was $47,000. Sales totaled $240,000. Selling expense was $21,000 and administrative expense was $27,000.

101. The cost of goods sold for October was: A. $194,000 B. $230,000 C. $128,000 D. $174,000

102. The net operating income for October was: A. $85,000 B. $18,000 C. $17,000 D. $66,000

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Chapter 02: Cost Concepts

Cromuel Corporation has provided the following data for January. The beginning balance in the raw materials inventory account was $27,000. During the month, the company made raw materials purchases amounting to $50,000. At the end of the month, the balance in the raw materials inventory account was $24,000. Direct labor cost was $53,000 and manufacturing overhead was $70,000. The beginning balance in the work in process account was $14,000 and the ending balance was $12,000. The beginning balance in the finished goods account was $33,000 and the ending balance was $51,000. Sales totaled $270,000. Selling expense was $21,000 and administrative expense was $48,000.

103. The total manufacturing cost for January was: A. $70,000 B. $123,000 C. $176,000 D. $173,000

104. The net operating income for January was: A. $41,000 B. $78,000 C. $110,000 D. $28,000

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Chapter 02: Cost Concepts Gluth Corporation has provided the following data for the month of July. The beginning balance in the finished goods inventory account was $56,000 and the ending balance was $49,000. Sales totaled $290,000. Cost of goods manufactured was $147,000, selling expense was $17,000, and administrative expense was $68,000.

105. The cost of goods sold for July was: A. $232,000 B. $140,000 C. $154,000 D. $147,000

106. The net operating income for July was: A. $58,000 B. $143,000 C. $150,000 D. $51,000

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Chapter 02: Cost Concepts Twichell Inc., a local retailer, has provided the following data for the month of December:

107. The cost of goods sold for December was: A. $131,000 B. $128,000 C. $134,000 D. $200,000

108. The net operating income for December was: A. $93,000 B. $159,000 C. $90,000 D. $156,000

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Chapter 02: Cost Concepts

Geneva Steel Corporation produces large sheets of heavy gauge steel. The company showed the following amounts relating to its production for the year just completed:

109. The balance of the finished goods inventory at the end of the year was: A. $95,000 B. $50,000 C. $193,000 D. $45,000

110. Manufacturing overhead for the year was: A. $84,000 B. $78,000 C. $56,000 D. $72,000

111. Cost of goods manufactured for the year was: A. $171,000 B. $160,000 C. $243,000 D. $244,000

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Chapter 02: Cost Concepts

Dagg Corporation reported the following data for the month of October:

112. The total manufacturing cost for October was: A. $84,000 B. $114,000 C. $176,000 D. $165,000

113. The cost of goods manufactured for October was: A. $176,000 B. $168,000 C. $162,000 D. $165,000

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Chapter 02: Cost Concepts

Ruggeri Corporation reported the following data for the month of July:

114. The cost of goods manufactured for July was: A. $152,000 B. $172,000 C. $177,000 D. $162,000

115. The cost of goods sold for July was: A. $196,000 B. $120,000 C. $148,000 D. $244,000

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Chapter 02: Cost Concepts

Dodridge Corporation has provided the following data for February. The beginning balance in the raw materials inventory account was $23,000. During the month, the company made raw materials purchases amounting to $59,000. At the end of the month, the balance in the raw materials inventory account was $33,000. Direct labor cost was $28,000 and manufacturing overhead was $74,000. The beginning balance in the work in process account was $12,000 and the ending balance was $17,000. The beginning balance in the finished goods account was $48,000 and the ending balance was $54,000.

116. The total manufacturing cost for February was: A. $74,000 B. $151,000 C. $102,000 D. $161,000

117. The cost of goods manufactured for February was: A. $156,000 B. $146,000 C. $151,000 D. $161,000

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Chapter 02: Cost Concepts At a sales volume of 36,000 units, Quale Corporation's sales commissions (a cost that is variable with respect to sales volume) total $187,200.

118. To the nearest whole dollar, what should be the total sales commissions at a sales volume of 38,300 units? (Assume that this sales volume is within the relevant range.) A. $199,160 B. $175,958 C. $193,180 D. $187,200

119. To the nearest whole cent, what should be the average sales commission per unit at a sales volume of 36,400 units? (Assume that this sales volume is within the relevant range.) A. $5.20 B. $4.89 C. $5.17 D. $5.14

At a sales volume of 37,000 units, Bonham Corporation's property taxes (a cost that is fixed with respect to sales volume) total $555,000.

120. To the nearest whole dollar, what should be the total property taxes at a sales volume of 34,900 units? (Assume that this sales volume is within the relevant range.) A. $539,250 B. $588,395 C. $523,500 D. $555,000

121. To the nearest whole cent, what should be the average property tax per unit at a sales volume of 38,600 units? (Assume that this sales volume is within the relevant range.) A. $15.00 B. $14.38 C. $15.90 D. $14.69

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Chapter 02: Cost Concepts Mire Corporation staffs a helpline to answer questions from customers. The costs of operating the helpline are variable with respect to the number of calls in a month. At a volume of 29,000 calls in a month, the costs of operating the helpline total $171,100. 122. To the nearest whole dollar, what should be the total cost of operating the helpline costs at a volume of 31,200 calls in a month? (Assume that this call volume is within the relevant range.) A. $171,100 B. $177,590 C. $184,080 D. $159,035

123. To the nearest whole cent, what should be the average cost of operating the helpline per call at a volume of 27,500 calls in a month? (Assume that this call volume is within the relevant range.) A. $5.48 B. $5.90 C. $6.22 D. $6.06

Henscheid Corporation leases its corporate headquarters building. This lease cost is fixed with respect to the company's sales volume. In a recent month in which the sales volume was 33,000 units, the lease cost was $283,800. 124. To the nearest whole dollar, what should be the total lease cost at a sales volume of 35,300 units in a month? (Assume that this sales volume is within the relevant range.) A. $283,800 B. $293,690 C. $303,580 D. $265,309 125. To the nearest whole cent, what should be the average lease cost per unit at a sales volume of 31,600 units in a month? (Assume that this sales volume is within the relevant range.) A. $8.04 B. $8.98 C. $8.79 D. $8.60

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Chapter 02: Cost Concepts The following cost data pertain to the operations of Lefthand Department Stores, Inc., for the month of December.

The Brentwood Store is just one of many stores owned and operated by the company. The Shoe Department is one of many departments at the Brentwood Store. The central warehouse serves all of the company's stores.

126. What is the total amount of the costs listed above that are direct costs of the Shoe Department? A. $43,000 B. $35,000 C. $79,000 D. $40,000

127. What is the total amount of the costs listed above that are NOT direct costs of the Brentwood Store? A. $78,000 B. $43,000 C. $162,000 D. $36,000

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Chapter 02: Cost Concepts The following cost data pertain to the operations of Polek Department Stores, Inc., for the month of March.

The Northridge Store is just one of many stores owned and operated by the company. The Cosmetics Department is one of many departments at the Northridge Store. The central warehouse serves all of the company's stores.

128. What is the total amount of the costs listed above that are direct costs of the Cosmetics Department? A. $66,000 B. $105,000 C. $62,000 D. $56,000

129. What is the total amount of the costs listed above that are NOT direct costs of the Northridge Store? A. $39,000 B. $66,000 C. $79,000 D. $147,000

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Chapter 02: Cost Concepts Lucena Corporation purchased a machine 7 years ago for $339,000 when it launched product X05K. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 360 machine costing $353,000 or by a new model 280 machine costing $332,000. Management has decided to buy the model 280 machine. It has less capacity than the model 360 machine, but its capacity is sufficient to continue making product X05K. Management also considered, but rejected, the alternative of dropping product X05K and not replacing the old machine. If that were done, the $332,000 invested in the new machine could instead have been invested in a project that would have returned a total of $426,000.

130. In making the decision to buy the model 280 machine rather than the model 360 machine, the differential cost was: A. $21,000 B. $87,000 C. $7,000 D. $14,000

131. In making the decision to buy the model 280 machine rather than the model 360 machine, the sunk cost was: A. $426,000 B. $339,000 C. $332,000 D. $353,000

132. In making the decision to invest in the model 280 machine, the opportunity cost was: A. $426,000 B. $353,000 C. $332,000 D. $339,000

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Chapter 02: Cost Concepts Management of Sourwine Corporation is considering whether to purchase a new model 320 machine costing $389,000 or a new model 280 machine costing $318,000 to replace a machine that was purchased 6 years ago for $376,000. The old machine was used to make product C78P until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 280 machine. It has less capacity than the new model 320 machine, but its capacity is sufficient to continue making product C78P. Management also considered, but rejected, the alternative of simply dropping product C78P. If that were done, instead of investing $318,000 in the new machine, the money could be invested in a project that would return a total of $405,000.

133. In making the decision to buy the model 280 machine rather than the model 320 machine, the sunk cost was: A. $376,000 B. $318,000 C. $405,000 D. $389,000

134. In making the decision to buy the model 280 machine rather than the model 320 machine, the differential cost was: A. $58,000 B. $13,000 C. $29,000 D. $71,000

135. In making the decision to invest in the model 280 machine, the opportunity cost was: A. $376,000 B. $389,000 C. $405,000 D. $318,000

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Chapter 02: Cost Concepts Essay Questions 136. Sid Freeman has developed a new electronic device that he has decided to produce and market. The production facility will be in a nearby industrial park which Sid will rent for $4,000 per month. Utilities will cost about $500 per month. He will use his personal computer, which he purchased for $2,000 last year, to monitor the production process. The computer will become obsolete before it wears out from use. The computer will be depreciated at the rate of $1,000 per year. He will rent production equipment at a monthly cost of $8,000. Sid estimates the material cost per finished unit of product to be $50, and the labor cost to be $10. He will hire workers, and spend his time promoting the product. To do this he will quit his job which pays $4,500 per month. Advertising will cost $2,000 per month. Sid will not draw a salary from the new company until it gets well established. Required: Complete the chart below by placing an "X" under each heading that helps to identify the cost involved. There can be "Xs" placed under more than one heading for a single cost; e.g., a cost might be a sunk cost, an overhead cost, and a product cost. There would be an "X" placed under each of these headings opposite the cost.

*Between the alternatives of producing and not producing the device.

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Chapter 02: Cost Concepts 137. The following data (in thousands of dollars) have been taken from the accounting records of Larsen Corporation for the just completed year.

Required: a. Prepare a Schedule of Cost of Goods Manufactured in good form. b. Compute the Cost of Goods Sold. c. Using data from your answers above as needed, prepare an Income Statement in good form.

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Chapter 02: Cost Concepts

138. Beauchesne Corporation, a manufacturing company, has provided the following data for the month of May:

Raw materials purchased during May totaled $69,000 and the cost of goods manufactured totaled $146,000. Required: a. What was the cost of raw materials used in production during May? Show your work. b. What was the cost of goods sold for May? Show your work.

139. During the month of January, Fisher Corporation, a manufacturing company, purchased raw materials costing $76,000. The cost of goods manufactured for the month was $129,000. The beginning balance in the raw materials account was $26,000 and the ending balance was $21,000. The beginning balance in the finished goods account was $52,000 and the ending balance was $35,000. Required: a. What was the cost of raw materials used in production during January? Show your work. b. What was the cost of goods sold for January? Show your work.

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Chapter 02: Cost Concepts

140. Joe Ringworth, factory supervisor at Winger Enterprises, had been attending night classes to earn a degree in business. He was particularly puzzled by what one of his accounting professors had said in class the previous evening. The professor, who knew that Joe worked as a factory supervisor, had said that some of Joe's salary could end up on the company's balance sheet at the end of the month. This didn't make any sense to Joe since he gets the salary, not the company. Required: Explain to Joe why some of his salary could end up on the company's balance sheet at the end of the month.

141. A partial listing of costs incurred at Rust Corporation during August appears below:

Required: a. What is the total amount of product cost listed above? Show your work. b. What is the total amount of period cost listed above? Show your work.

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Chapter 02: Cost Concepts

142. Machowski Corporation has provided the following partial listing of costs incurred during November:

Required: a. What is the total amount of product cost listed above? Show your work. b. What is the total amount of period cost listed above? Show your work.

143. Standford Corporation has provided the following data for the month of February:

Required: a. Prepare a Schedule of Cost of Goods Manufactured in good form for February. b. Prepare an Income Statement in good form for February.

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Chapter 02: Cost Concepts

144. In October, Ringler Corporation had sales of $273,000, selling expenses of $26,000, and administrative expenses of $47,000. The cost of goods manufactured was $183,000. The beginning balance in the finished goods inventory account was $45,000 and the ending balance was $34,000. Required: Prepare an Income Statement in good form for October.

145. In July, Neidich Inc., a merchandising company, had sales of $295,000, selling expenses of $24,000, and administrative expenses of $29,000. The cost of merchandise purchased during the month was $215,000. The beginning balance in the merchandise inventory account was $25,000 and the ending balance was $30,000. Required: Prepare an Income Statement in good form for July.

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Chapter 02: Cost Concepts 146. Dinius Corporation has provided the following data for the month of December:

Required: Prepare a Schedule of Cost of Goods Manufactured for December.

147. A number of costs and measures of activity are listed below.

Required: For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the possible measure of activity listed next to it.

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Chapter 02: Cost Concepts

148. A number of costs and measures of activity are listed below.

Required: For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the possible measure of activity listed next to it.

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Chapter 02: Cost Concepts

149. A number of costs are listed below.

Required: For each item above, indicate whether the cost is direct or indirect with respect to the cost object listed next to it.

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Chapter 02: Cost Concepts - Key

True / False Questions 1. All material costs would be considered as direct materials. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

2. Direct material cost is a part of conversion cost. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

3. Direct labor is a part of both prime cost and conversion cost. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

4. Wages paid to production supervisors would be considered direct labor. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 02: Cost Concepts - Key

5. Direct material cost combined with manufacturing overhead cost is known as conversion cost. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

6. Advertising is a product cost as long as it promotes specific products. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

7. Although depreciation is always a period cost in a merchandising firm, it can be a product cost in a manufacturing firm. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

8. In a manufacturing firm, all costs are product costs. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

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Chapter 02: Cost Concepts - Key

9. The cost of shipping parts from a supplier is considered a product cost. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

10. If the finished goods inventory increases between the beginning and the end of a period, then the cost of goods manufactured for the period is larger than the cost of goods sold. TRUE

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 4 Level: Hard

11. The inventory of finished goods on hand at the end of a period is considered an asset, but inventories of raw materials and work-in-process are not considered assets until production is completed. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 4 Level: Medium

12. The cost of goods manufactured for a period is the amount transferred from work in process inventory to finished goods inventory during the period. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 02: Cost Concepts - Key

13. Differential costs can be either fixed or variable. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Learning Objective: 7 Level: Medium

14. A fixed cost is constant per unit of product. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

15. The variable cost per unit is constant and does not depend on how many units are produced. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

16. The cost of napkins put on each person's tray at a fast food restaurant is a fixed cost. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 02: Cost Concepts - Key

17. A factory supervisor's salary would be classified as a direct cost of a unit of product. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

Multiple Choice Questions 18. The production supervisor’s salary would be considered a(n): A. period cost. B. product cost. C. administrative cost. D. selling expense.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

19. Manufacturing overhead: A. is a part of conversion cost. B. includes the costs of shipping finished goods to customers. C. includes all factory labor costs. D. includes all fixed costs.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 02: Cost Concepts - Key 20. Conversion consists of manufacturing overheads combined with: A. direct labor. B. manufacturing overhead. C. indirect materials. D. cost of goods manufactured.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

21. The corporate controller's salary would be considered a(n): A. manufacturing cost. B. product cost. C. administrative cost. D. selling expense.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Easy

22. The costs of direct materials are classified as:

A. Choice A B. Choice B C. Choice C D. Choice D

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

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Chapter 02: Cost Concepts - Key

23. Manufacturing overhead: A. can be either a variable cost or a fixed cost. B. includes the costs of shipping finished goods to customers. C. includes all factory labor costs. D. includes all fixed costs.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

24. The three basic elements of manufacturing cost are direct materials, direct labor, and: A. cost of goods manufactured. B. cost of goods sold. C. work in process. D. manufacturing overhead.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

25. Prime cost consists of direct materials combined with: A. direct labor. B. manufacturing overhead. C. indirect materials. D. cost of goods manufactured.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 02: Cost Concepts - Key

26. Which terms below correctly describe the cost of the black paint used to paint the dots on a pair of dice?

A. Choice A B. Choice B C. Choice C D. Choice D

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Learning Objective: 5 Level: Medium

27. The cost of fire insurance for a manufacturing plant is generally considered to be a: A. product cost. B. period cost. C. variable cost. D. all of these.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Learning Objective: 5 Level: Medium

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Chapter 02: Cost Concepts - Key

28. An example of a period cost is: A. fire insurance on a factory building. B. salary of a factory supervisor. C. direct materials. D. rent on a headquarters building.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

29. Transportation costs incurred by a manufacturing company to ship its product to its customers would be classified as which of the following? A. Product cost B. Manufacturing overhead C. Period cost D. Administrative cost

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

30. Micro Computer Company has set up a toll-free telephone line for customer inquiries regarding computer hardware produced by the company. The cost of this toll-free line would be classified as which of the following? A. Product cost B. Manufacturing overhead C. Direct labor D. Period cost

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

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Chapter 02: Cost Concepts - Key

31. Rossiter Company failed to record a credit sale at the end of the year, although the reduction in finished goods inventories was correctly recorded when the goods were shipped to the customer. Which one of the following statements is correct? A. Accounts receivable was not affected, inventory was not affected, sales were understated, and cost of goods sold was understated. B. Accounts receivable was understated, inventory was overstated, sales were understated, and cost of goods sold was overstated. C. Accounts receivable was not affected, inventory was understated, sales were understated, and cost of goods sold was understated. D. Accounts receivable was understated, inventory was not affected, sales were understated, and cost of goods sold was not affected.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Hard Source: CMA, adapted

32. Cost of goods manufactured will usually include: A. only costs incurred during the current period. B. only direct labor and direct materials costs. C. some costs incurred during the prior period as well as costs incurred during the current period. D. some period costs as well as some product costs.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Hard

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Chapter 02: Cost Concepts - Key

33. Which two terms below describe the wages paid to security guards that monitor a factory 24 hours a day? A. variable cost and direct cost B. fixed cost and direct cost C. variable cost and indirect cost D. fixed cost and indirect cost

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Learning Objective: 6 Level: Medium

34. Within the relevant range, the difference between variable costs and fixed costs is: A. variable costs per unit fluctuate and fixed costs per unit remain constant. B. variable costs per unit are constant and fixed costs per unit fluctuate. C. both total variable costs and total fixed costs are constant. D. both total variable costs and total fixed costs fluctuate.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Medium

35. Each of the following would be classified as variable in terms of cost behavior except: A. cost of shipping goods to customers via express mail. B. sales commissions. C. plant manager's salary. D. direct materials.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 02: Cost Concepts - Key

36. A lawnmower manufacturer computed a cost per unit of $53 by adding together last month's direct labor, direct materials, and manufacturing overhead and dividing that total by the 10,000 units produced last month. (There were no beginning or ending inventories.) If 9,000 units are going to be manufactured this month, we would expect that the: A. cost per unit will remain the same. B. cost per unit will decrease. C. direction of change in unit costs cannot be determined. D. cost per unit will increase.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Medium

37. Which one of the following costs should NOT be considered an indirect cost of serving a particular customer at a Dairy Queen fast food outlet? A. the cost of the hamburger patty in the burger they ordered. B. the wages of the employee who takes the customer's order. C. the cost of heating and lighting the kitchen. D. the salary of the outlet's manager.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Medium

38. An opportunity cost is: A. the difference in total costs which results from selecting one alternative instead of another. B. the benefit forgone by selecting one alternative instead of another. C. a cost which may be saved by not adopting an alternative. D. a cost which may be shifted to the future with little or no effect on current operations.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making Learning Objective: 7 Level: Easy

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Chapter 02: Cost Concepts - Key

39. Buford Company rents out a small unused portion of its factory to another company for $1,000 per month. The rental agreement will expire next month, and rather than renew the agreement Buford Company is thinking about using the space itself to store materials. The term to describe the $1,000 per month is: A. sunk cost. B. period cost. C. opportunity cost. D. variable cost.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Learning Objective: 7 Level: Medium

40. The following costs were incurred in August:

Conversion costs during the month totaled: A. $127,000 B. $51,000 C. $52,000 D. $75,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Medium

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Chapter 02: Cost Concepts - Key

41. The following costs were incurred in August:

Prime costs during the month totaled: A. $39,000 B. $59,000 C. $96,000 D. $38,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Medium

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Chapter 02: Cost Concepts - Key

42. During the month of August, direct labor cost totaled $13,000 and direct labor cost was 20% of prime cost. If total manufacturing costs during August were $88,000, the manufacturing overhead was: A. $75,000 B. $23,000 C. $65,000 D. $52,000 0.20 x Prime cost = Direct labor 0.20 x Prime cost = $13,000 Prime cost = $65,000 Prime cost = Direct materials + Direct labor $65,000 = Direct materials + $13,000 Direct materials = $52,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Hard

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Chapter 02: Cost Concepts - Key

43. In August direct labor was 60% of conversion cost. If the manufacturing overhead for the month was $54,000 and the direct materials cost was $34,000, the direct labor cost was: A. $36,000 B. $22,667 C. $51,000 D. $81,000 0.60 x Conversion costs = Direct labor 0.40 x Conversion costs = Manufacturing overhead 0.40 x Conversion costs = $54,000 Conversion costs = $135,000 Conversion costs = Direct labor + Manufacturing overhead $135,000 = Direct labor + $54,000 Direct labor = $81,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Hard

44. Williams Company's direct labor cost is 25% of its conversion cost. If the manufacturing overhead for the last period was $45,000 and the direct materials cost was $25,000, the direct labor cost was: A. $15,000 B. $60,000 C. $33,333 D. $20,000 0.25 x Conversion costs = Direct labor 0.75 x Conversion costs = Manufacturing overhead 0.75 x Conversion costs = $45,000 Conversion costs = $60,000 Conversion costs = Direct labor + Manufacturing overhead $60,000 = Direct labor + $45,000 Direct labor = $15,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Hard

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Chapter 02: Cost Concepts - Key

45. Green Company's costs for the month of August were as follows: direct materials, $27,000; direct labor, $34,000; selling, $14,000; administrative, $12,000; and manufacturing overhead, $44,000. The beginning work in process inventory was $16,000 and the ending work in process inventory was $9,000. What was the cost of goods manufactured for the month? A. $105,000 B. $132,000 C. $138,000 D. $112,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Learning Objective: 4 Level: Medium

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Chapter 02: Cost Concepts - Key

46. Consider the following costs incurred in a recent period:

What was the total amount of the period costs listed above for the period? A. $78,000 B. $71,000 C. $46,000 D. $37,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 02: Cost Concepts - Key

47. The Lyons Company's cost of goods manufactured was $120,000 when its sales were $360,000 and its gross margin was $220,000. If the ending inventory of finished goods was $30,000, the beginning inventory of finished goods must have been: A. $20,000 B. $50,000 C. $110,000 D. $150,000 Cost of goods sold = Sales - Gross margin Cost of goods sold = $360,000 - $220,000 Cost of goods sold = $140,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 4 Level: Hard

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Chapter 02: Cost Concepts - Key

48. Last month a manufacturing company had the following operating results:

What was the cost of goods manufactured for the month? A. $350,000 B. $385,000 C. $377,000 D. $323,000 Sales - Cost of goods sold = Gross margin $412,000 - Cost of goods sold = $62,000 Cost of goods sold = $350,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 4 Level: Hard

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Chapter 02: Cost Concepts - Key

49. The following inventory balances relate to Lequin Manufacturing Corporation at the beginning and end of the year:

Lequin's total manufacturing cost was $543,000. What was Lequin's cost of goods sold? A. $517,000 B. $545,000 C. $569,000 D. $567,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 4 Level: Hard

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Chapter 02: Cost Concepts - Key

50. Gabrisch Inc. is a merchandising company. Last month the company's merchandise purchases totaled $90,000. The company's beginning merchandise inventory was $13,000 and its ending merchandise inventory was $22,000. What was the company's cost of goods sold for the month? A. $90,000 B. $99,000 C. $125,000 D. $81,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 02: Cost Concepts - Key

51. Haan Inc. is a merchandising company. Last month the company's cost of goods sold was $66,000. The company's beginning merchandise inventory was $14,000 and its ending merchandise inventory was $16,000. What was the total amount of the company's merchandise purchases for the month? A. $68,000 B. $96,000 C. $64,000 D. $66,000

Goods available for sale = Cost of goods sold + Finished goods inventory, ending Goods available for sale = $66,000 + $16,000 Goods available for sale = $82,000 Merchandise purchased = $82,000 - Merchandise inventory, beginning Merchandise purchased = $82,000 - $14,000 Merchandise purchased = $68,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 02: Cost Concepts - Key

52. During August, the cost of goods manufactured was $73,000. The beginning finished goods inventory was $15,000 and the ending finished goods inventory was $21,000. What was the cost of goods sold for the month? A. $79,000 B. $109,000 C. $67,000 D. $73,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 02: Cost Concepts - Key

53. Walton Manufacturing Company gathered the following data for the month.

How much net operating income will be reported for the period? A. $54,000 B. $17,000 C. $52,000 D. Cannot be determined.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 3 Level: Easy

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Chapter 02: Cost Concepts - Key

54. Using the following data for August, calculate the cost of goods manufactured:

The cost of goods manufactured was: A. $106,000 B. $92,000 C. $95,000 D. $89,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 02: Cost Concepts - Key

55. The following inventory balances relate to Bharath Manufacturing Corporation at the beginning and end of the year:

Bharath's cost of goods sold was $653,000. What was Bharath's cost of goods manufactured? A. $660,000 B. $670,000 C. $682,000 D. $689,000

Goods available for sale = Cost of goods sold + Finished goods inventory, ending Goods available for sale = $653,000 + $36,000 = $689,000 Finished goods inventory, beginning + Cost of goods manufactured = Goods available for sale $29,000 + Cost of goods manufactured = $689,000 Cost of goods manufactured = $689,000 - $29,000 = $660,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Hard

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Chapter 02: Cost Concepts - Key

56. The following data have been provided by a company for a recent accounting period:

The cost of goods manufactured for the period was: A. $147,000 B. $151,000 C. $153,000 D. $154,000

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Chapter 02: Cost Concepts - Key AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

57. Direct materials used in production totaled $330,000. Direct labor was $415,000 and manufacturing overhead was $220,000. What were the total manufacturing costs incurred for the month? A. $530,000 B. $965,000 C. $745,000 D. $635,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

58. How much opportunity cost is represented in the following information concerning a machine?

A. $80,000 B. $14,000 C. $25,000 D. $68,000 $25,000: Only the resale value of the current machine is an opportunity cost in the above list.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Learning Objective: 7 Level: Easy

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Chapter 02: Cost Concepts - Key

Corcetti Company manufactures and sells prewashed denim jeans. Large rolls of denim cloth are purchased and are first washed in a giant washing machine. After the cloth is dried, it is cut up into jean pattern shapes and then sewn together. The completed jeans are sold to various retail chains.

59. Which of the following terms could be used to correctly describe the cost of the soap used to wash the denim cloth?

A. Choice A B. Choice B C. Choice C D. Choice D

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Learning Objective: 6 Level: Hard

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Chapter 02: Cost Concepts - Key

60. Which of the following terms could be used to correctly describe the wages paid to the workers that cut up the cloth into the jean pattern shapes?

A. Choice A B. Choice B C. Choice C D. Choice D

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 5 Level: Medium

61. Which of the following terms could be used to correctly describe the cost of the thread used to sew the jeans together?

A. Choice A B. Choice B C. Choice C D. Choice D

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 5 Level: Hard

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Chapter 02: Cost Concepts - Key

62. Which of the following terms could be used to correctly describe the wages paid to the data entry clerk who enters customer order information into the company's computer system?

A. Choice A B. Choice B C. Choice C D. Choice D

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 02: Cost Concepts - Key

A partial listing of costs incurred at Peggs Corporation during September appears below:

63. The total of the manufacturing overhead costs listed above for September is: A. $71,000 B. $351,000 C. $669,000 D. $40,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

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Chapter 02: Cost Concepts - Key

64. The total of the product costs listed above for September is: A. $351,000 B. $669,000 C. $71,000 D. $318,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

65. The total of the period costs listed above for September is: A. $389,000 B. $318,000 C. $71,000 D. $351,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 02: Cost Concepts - Key

A partial listing of costs incurred during February at Urfer Corporation appears below:

66. The total of the period costs listed above for February is: A. $379,000 B. $277,000 C. $61,000 D. $318,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 02: Cost Concepts - Key

67. The total of the manufacturing overhead costs listed above for February is: A. $61,000 B. $595,000 C. $277,000 D. $33,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

68. The total of the product costs listed above for February is: A. $277,000 B. $595,000 C. $318,000 D. $61,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 02: Cost Concepts - Key

Nadell Corporation reported the following data for the month of April:

69. If the raw materials purchased during April totaled $63,000, what was the cost of the raw materials used in production for the month? A. $63,000 B. $61,000 C. $62,000 D. $65,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Easy

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Chapter 02: Cost Concepts - Key

70. If the company transferred $234,000 of completed goods from work in process to finished goods inventory during April, what was the cost of goods sold for the month? A. $234,000 B. $235,000 C. $220,000 D. $248,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Easy

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Chapter 02: Cost Concepts - Key

Tart Corporation reported the following data for the month of September:

71. The conversion cost for September was: A. $150,000 B. $103,000 C. $117,000 D. $86,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

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Chapter 02: Cost Concepts - Key

72. The prime cost for September was: A. $50,000 B. $83,000 C. $86,000 D. $103,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

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Chapter 02: Cost Concepts - Key

Management of Solman Corporation has asked your help as an intern in preparing some key reports for June. The beginning balance in the raw materials inventory account was $20,000. During the month, the company made raw materials purchases amounting to $69,000. At the end of the month, the balance in the raw materials inventory account was $32,000. Direct labor cost was $24,000 and manufacturing overhead was $71,000. The beginning balance in the work in process account was $24,000 and the ending balance was $19,000. The beginning balance in the finished goods account was $53,000 and the ending balance was $58,000. Selling expense was $20,000 and administrative expense was $35,000.

73. The conversion cost for June was: A. $95,000 B. $140,000 C. $93,000 D. $152,000

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Chapter 02: Cost Concepts - Key

74. The prime cost for June was: A. $95,000 B. $93,000 C. $81,000 D. $55,000

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Chapter 02: Cost Concepts - Key

The following data (in thousands of dollars) have been taken from the accounting records of Karlana Corporation for the just completed year.

75. The cost of the raw materials used in production during the year (in thousands of dollars) was: A. $180 B. $40 C. $120 D. $160

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Chapter 02: Cost Concepts - Key

76. The cost of goods manufactured (finished) for the year (in thousands of dollars) was: A. $530 B. $520 C. $500 D. $460

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Chapter 02: Cost Concepts - Key

77. The cost of goods sold for the year (in thousands of dollars) was: A. $670 B. $500 C. $540 D. $650

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Chapter 02: Cost Concepts - Key

78. The net operating income for the year (in thousands of dollars) was: A. $410 B. $110 C. $40 D. $180

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Chapter 02: Cost Concepts - Key

Lavell Corporation reported the following data for the month of February:

79. The total manufacturing cost for February was: A. $174,000 B. $171,000 C. $70,000 D. $108,000

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Chapter 02: Cost Concepts - Key

80. The cost of goods manufactured for February was: A. $171,000 B. $174,000 C. $183,000 D. $159,000

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Chapter 02: Cost Concepts - Key

81. The cost of goods sold for February was: A. $225,000 B. $134,000 C. $184,000 D. $127,000

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Chapter 02: Cost Concepts - Key

82. The net operating income for February was: A. $20,000 B. $116,000 C. $86,000 D. $60,000

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Chapter 02: Cost Concepts - Key

Management of Parrent Corporation has asked your help as an intern in preparing some key reports for April. The company started the month with raw materials inventories of $32,000. During the month, the company made raw materials purchases amounting to $68,000. At the end of the month, raw materials inventories totaled $35,000. Direct labor cost was $43,000 and manufacturing overhead was $62,000. The beginning balance in the work in process account was $19,000 and the ending balance was $12,000. The beginning balance in the finished goods account was $35,000 and the ending balance was $58,000. Sales totaled $240,000. Selling expense was $18,000 and administrative expense was $42,000.

83. The total manufacturing cost for April was: A. $170,000 B. $173,000 C. $62,000 D. $105,000

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Chapter 02: Cost Concepts - Key

84. The cost of goods manufactured for April was: A. $177,000 B. $173,000 C. $170,000 D. $163,000

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Chapter 02: Cost Concepts - Key

85. The cost of goods sold for April was: A. $123,000 B. $200,000 C. $217,000 D. $154,000

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Chapter 02: Cost Concepts - Key

86. The net operating income for April was: A. $26,000 B. $86,000 C. $75,000 D. $7,000

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Chapter 02: Cost Concepts - Key

The following data pertain to Harriman Company's operations during July:

87. The beginning work in process inventory was: A. $10,000 B. $14,000 C. $1,000 D. $4,000

* Calculate this item by working backwards as shown: Beginning work in process inventory + $40,000 + $39,000 + $20,000 - $4,000 = $105,000 Beginning work in process inventory = $105,000 - $40,000 - $39,000 - $20,000 + $4,000 = $10,000

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Chapter 02: Cost Concepts - Key

88. The ending finished goods inventory was: A. $17,000 B. $12,000 C. $7,000 D. $2,000

**$117,000 - $110,000 = $7,000 = Ending finished goods inventory

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Chapter 02: Cost Concepts - Key

Derflinger Corporation reported the following data for the month of January:

89. The total manufacturing cost for January was: A. $176,000 B. $74,000 C. $106,000 D. $172,000

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Chapter 02: Cost Concepts - Key

90. The cost of goods manufactured for January was: A. $176,000 B. $172,000 C. $175,000 D. $177,000

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Chapter 02: Cost Concepts - Key

91. The cost of goods sold for January was: A. $126,000 B. $180,000 C. $255,000 D. $170,000

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Chapter 02: Cost Concepts - Key

92. The net operating income for January was: A. $79,000 B. $70,000 C. $13,000 D. $5,000

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Chapter 02: Cost Concepts - Key

Tator Corporation reported the following data for the month of April:

93. The cost of goods sold for April was: A. $178,000 B. $146,000 C. $126,000 D. $234,000

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Chapter 02: Cost Concepts - Key

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Chapter 02: Cost Concepts - Key

94. The net operating income for April was: A. $22,000 B. $81,000 C. $46,000 D. $104,000

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Chapter 02: Cost Concepts - Key

Weygandt Corporation reported the following data for the month of February:

95. The total manufacturing cost for February was: A. $90,000 B. $158,000 C. $67,000 D. $162,000

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Chapter 02: Cost Concepts - Key

96. The net operating income for February was: A. $48,000 B. $6,000 C. $68,000 D. -$4,000

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Chapter 02: Cost Concepts - Key

Management of Berndt Corporation has asked your help as an intern in preparing some key reports for August. The beginning balance in the raw materials inventory account was $33,000. During the month, the company made raw materials purchases amounting to $62,000. At the end of the month, the balance in the raw materials inventory account was $30,000. Direct labor cost was $46,000 and manufacturing overhead was $74,000. The beginning balance in the work in process account was $13,000 and the ending balance was $19,000. The beginning balance in the finished goods account was $54,000 and the ending balance was $50,000. Sales totaled $270,000. Selling expense was $18,000 and administrative expense was $49,000.

97. The total manufacturing cost for August was: A. $185,000 B. $182,000 C. $120,000 D. $74,000

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Chapter 02: Cost Concepts - Key

98. The cost of goods manufactured for August was: A. $191,000 B. $185,000 C. $182,000 D. $179,000

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Chapter 02: Cost Concepts - Key

99. The cost of goods sold for August was: A. $175,000 B. $183,000 C. $138,000 D. $274,000

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Chapter 02: Cost Concepts - Key

100. The net operating income for August was: A. $20,000 B. $21,000 C. $87,000 D. $83,000

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Chapter 02: Cost Concepts - Key

The CFO of Stoffer Corporation has provided the following data for October. The beginning balance in the raw materials inventory account was $39,000. During the month, the company made raw materials purchases amounting to $68,000. At the end of the month, the balance in the raw materials inventory account was $28,000. Direct labor cost was $29,000 and manufacturing overhead was $78,000. The beginning balance in the work in process account was $11,000 and the ending balance was $13,000. The beginning balance in the finished goods account was $37,000 and the ending balance was $47,000. Sales totaled $240,000. Selling expense was $21,000 and administrative expense was $27,000. 101. The cost of goods sold for October was: A. $194,000 B. $230,000 C. $128,000 D. $174,000

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Chapter 02: Cost Concepts - Key

102. The net operating income for October was: A. $85,000 B. $18,000 C. $17,000 D. $66,000

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Chapter 02: Cost Concepts - Key

Cromuel Corporation has provided the following data for January. The beginning balance in the raw materials inventory account was $27,000. During the month, the company made raw materials purchases amounting to $50,000. At the end of the month, the balance in the raw materials inventory account was $24,000. Direct labor cost was $53,000 and manufacturing overhead was $70,000. The beginning balance in the work in process account was $14,000 and the ending balance was $12,000. The beginning balance in the finished goods account was $33,000 and the ending balance was $51,000. Sales totaled $270,000. Selling expense was $21,000 and administrative expense was $48,000.

103. The total manufacturing cost for January was: A. $70,000 B. $123,000 C. $176,000 D. $173,000

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Chapter 02: Cost Concepts - Key

104. The net operating income for January was: A. $41,000 B. $78,000 C. $110,000 D. $28,000

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Chapter 02: Cost Concepts - Key

Gluth Corporation has provided the following data for the month of July. The beginning balance in the finished goods inventory account was $56,000 and the ending balance was $49,000. Sales totaled $290,000. Cost of goods manufactured was $147,000, selling expense was $17,000, and administrative expense was $68,000.

105. The cost of goods sold for July was: A. $232,000 B. $140,000 C. $154,000 D. $147,000

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Chapter 02: Cost Concepts - Key

106. The net operating income for July was: A. $58,000 B. $143,000 C. $150,000 D. $51,000

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Chapter 02: Cost Concepts - Key

Twichell Inc., a local retailer, has provided the following data for the month of December:

107. The cost of goods sold for December was: A. $131,000 B. $128,000 C. $134,000 D. $200,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

108. The net operating income for December was: A. $93,000 B. $159,000 C. $90,000 D. $156,000

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Chapter 02: Cost Concepts - Key

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Chapter 02: Cost Concepts - Key

Geneva Steel Corporation produces large sheets of heavy gauge steel. The company showed the following amounts relating to its production for the year just completed:

109. The balance of the finished goods inventory at the end of the year was: A. $95,000 B. $50,000 C. $193,000 D. $45,000 Cost of goods available for sale - Cost of goods sold = Balance of finished goods inventory at end of year $288,000 - $238,000 = $50,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Hard

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Chapter 02: Cost Concepts - Key

110. Manufacturing overhead for the year was: A. $84,000 B. $78,000 C. $56,000 D. $72,000 Cost of goods available for sale - Cost of goods sold = Balance of finished goods inventory at end of year $288,000 - $238,000 = $50,000 Cost of goods sold - Beginning finished goods inventory + Ending finished goods inventory = Cost of goods manufactured $238,000 - $45,000 + $50,000 = $243,000

* These items must be calculated by working backwards upwards through the statements.

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Chapter 02: Cost Concepts - Key

111. Cost of goods manufactured for the year was: A. $171,000 B. $160,000 C. $243,000 D. $244,000 Cost of goods available for sale - Cost of goods sold = Balance of finished goods inventory at end of year $288,000 - $238,000 = $50,000 Cost of goods sold - Beginning finished goods inventory + Ending finished goods inventory = Cost of goods manufactured $238,000 - $45,000 + $50,000 = $243,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Hard

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Chapter 02: Cost Concepts - Key

Dagg Corporation reported the following data for the month of October:

112. The total manufacturing cost for October was: A. $84,000 B. $114,000 C. $176,000 D. $165,000

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Chapter 02: Cost Concepts - Key

113. The cost of goods manufactured for October was: A. $176,000 B. $168,000 C. $162,000 D. $165,000

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Chapter 02: Cost Concepts - Key

Ruggeri Corporation reported the following data for the month of July:

114. The cost of goods manufactured for July was: A. $152,000 B. $172,000 C. $177,000 D. $162,000

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Chapter 02: Cost Concepts - Key

115. The cost of goods sold for July was: A. $196,000 B. $120,000 C. $148,000 D. $244,000

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Chapter 02: Cost Concepts - Key

Dodridge Corporation has provided the following data for February. The beginning balance in the raw materials inventory account was $23,000. During the month, the company made raw materials purchases amounting to $59,000. At the end of the month, the balance in the raw materials inventory account was $33,000. Direct labor cost was $28,000 and manufacturing overhead was $74,000. The beginning balance in the work in process account was $12,000 and the ending balance was $17,000. The beginning balance in the finished goods account was $48,000 and the ending balance was $54,000.

116. The total manufacturing cost for February was: A. $74,000 B. $151,000 C. $102,000 D. $161,000

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Chapter 02: Cost Concepts - Key

117. The cost of goods manufactured for February was: A. $156,000 B. $146,000 C. $151,000 D. $161,000

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Chapter 02: Cost Concepts - Key

At a sales volume of 36,000 units, Quale Corporation's sales commissions (a cost that is variable with respect to sales volume) total $187,200.

118. To the nearest whole dollar, what should be the total sales commissions at a sales volume of 38,300 units? (Assume that this sales volume is within the relevant range.) A. $199,160 B. $175,958 C. $193,180 D. $187,200 $187,200 36,000 = $5.20 per unit 38,300 units x $5.20 = $199,160

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

119. To the nearest whole cent, what should be the average sales commission per unit at a sales volume of 36,400 units? (Assume that this sales volume is within the relevant range.) A. $5.20 B. $4.89 C. $5.17 D. $5.14 $187,200 36,000 = $5.20 per unit average cost Since sales commission is a variable cost, the average per unit cost is the same at any volume level within the relevant range.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 02: Cost Concepts - Key

At a sales volume of 37,000 units, Bonham Corporation's property taxes (a cost that is fixed with respect to sales volume) total $555,000.

120. To the nearest whole dollar, what should be the total property taxes at a sales volume of 34,900 units? (Assume that this sales volume is within the relevant range.) A. $539,250 B. $588,395 C. $523,500 D. $555,000 Fixed costs do not change with changes in volume; therefore, fixed costs will total $555,000 at a sales volume of 34,900 units.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

121. To the nearest whole cent, what should be the average property tax per unit at a sales volume of 38,600 units? (Assume that this sales volume is within the relevant range.) A. $15.00 B. $14.38 C. $15.90 D. $14.69 $555,000

38,600 units = $14.38 per unit (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 02: Cost Concepts - Key

Mire Corporation staffs a helpline to answer questions from customers. The costs of operating the helpline are variable with respect to the number of calls in a month. At a volume of 29,000 calls in a month, the costs of operating the helpline total $171,100.

122. To the nearest whole dollar, what should be the total cost of operating the helpline costs at a volume of 31,200 calls in a month? (Assume that this call volume is within the relevant range.) A. $171,100 B. $177,590 C. $184,080 D. $159,035 $171,100 29,000 calls = $5.90 per call $5.90 x 31,200 calls = $184,080

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

123. To the nearest whole cent, what should be the average cost of operating the helpline per call at a volume of 27,500 calls in a month? (Assume that this call volume is within the relevant range.) A. $5.48 B. $5.90 C. $6.22 D. $6.06 $171,100

29,000 calls = $5.90 per call (average)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 02: Cost Concepts - Key

Henscheid Corporation leases its corporate headquarters building. This lease cost is fixed with respect to the company's sales volume. In a recent month in which the sales volume was 33,000 units, the lease cost was $283,800.

124. To the nearest whole dollar, what should be the total lease cost at a sales volume of 35,300 units in a month? (Assume that this sales volume is within the relevant range.) A. $283,800 B. $293,690 C. $303,580 D. $265,309 Fixed costs do not change with changes in volume; therefore, fixed costs will total $283,800 at all sales levels within the relevant range.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

125. To the nearest whole cent, what should be the average lease cost per unit at a sales volume of 31,600 units in a month? (Assume that this sales volume is within the relevant range.) A. $8.04 B. $8.98 C. $8.79 D. $8.60 $283,800

31,600 units = $8.98 (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 02: Cost Concepts - Key

The following cost data pertain to the operations of Lefthand Department Stores, Inc., for the month of December.

The Brentwood Store is just one of many stores owned and operated by the company. The Shoe Department is one of many departments at the Brentwood Store. The central warehouse serves all of the company's stores.

126. What is the total amount of the costs listed above that are direct costs of the Shoe Department? A. $43,000 B. $35,000 C. $79,000 D. $40,000

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Chapter 02: Cost Concepts - Key

127. What is the total amount of the costs listed above that are NOT direct costs of the Brentwood Store? A. $78,000 B. $43,000 C. $162,000 D. $36,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Medium

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Chapter 02: Cost Concepts - Key

The following cost data pertain to the operations of Polek Department Stores, Inc., for the month of March.

The Northridge Store is just one of many stores owned and operated by the company. The Cosmetics Department is one of many departments at the Northridge Store. The central warehouse serves all of the company's stores.

128. What is the total amount of the costs listed above that are direct costs of the Cosmetics Department? A. $66,000 B. $105,000 C. $62,000 D. $56,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

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Chapter 02: Cost Concepts - Key

129. What is the total amount of the costs listed above that are NOT direct costs of the Northridge Store? A. $39,000 B. $66,000 C. $79,000 D. $147,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Medium

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Chapter 02: Cost Concepts - Key Lucena Corporation purchased a machine 7 years ago for $339,000 when it launched product X05K. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 360 machine costing $353,000 or by a new model 280 machine costing $332,000. Management has decided to buy the model 280 machine. It has less capacity than the model 360 machine, but its capacity is sufficient to continue making product X05K. Management also considered, but rejected, the alternative of dropping product X05K and not replacing the old machine. If that were done, the $332,000 invested in the new machine could instead have been invested in a project that would have returned a total of $426,000. 130. In making the decision to buy the model 280 machine rather than the model 360 machine, the differential cost was: A. $21,000 B. $87,000 C. $7,000 D. $14,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Learning Objective: 7 Level: Easy

131. In making the decision to buy the model 280 machine rather than the model 360 machine, the sunk cost was: A. $426,000 B. $339,000 C. $332,000 D. $353,000 The original cost of $339,000 is a sunk cost.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Learning Objective: 7 Level: Easy

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Chapter 02: Cost Concepts - Key 132. In making the decision to invest in the model 280 machine, the opportunity cost was: A. $426,000 B. $353,000 C. $332,000 D. $339,000 The opportunity cost is the proceeds from the project that would have yielded $426,000.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Learning Objective: 7 Level: Easy

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Chapter 02: Cost Concepts - Key

Management of Sourwine Corporation is considering whether to purchase a new model 320 machine costing $389,000 or a new model 280 machine costing $318,000 to replace a machine that was purchased 6 years ago for $376,000. The old machine was used to make product C78P until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 280 machine. It has less capacity than the new model 320 machine, but its capacity is sufficient to continue making product C78P. Management also considered, but rejected, the alternative of simply dropping product C78P. If that were done, instead of investing $318,000 in the new machine, the money could be invested in a project that would return a total of $405,000.

133. In making the decision to buy the model 280 machine rather than the model 320 machine, the sunk cost was: A. $376,000 B. $318,000 C. $405,000 D. $389,000 The original cost of $376,000 is a sunk cost.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Learning Objective: 7 Level: Easy

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Chapter 02: Cost Concepts - Key

134. In making the decision to buy the model 280 machine rather than the model 320 machine, the differential cost was: A. $58,000 B. $13,000 C. $29,000 D. $71,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Learning Objective: 7 Level: Easy

135. In making the decision to invest in the model 280 machine, the opportunity cost was: A. $376,000 B. $389,000 C. $405,000 D. $318,000 The opportunity cost is the proceeds from the project that would have yielded $405,000.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Learning Objective: 7 Level: Easy

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Chapter 02: Cost Concepts - Key

Essay Questions 136. Sid Freeman has developed a new electronic device that he has decided to produce and market. The production facility will be in a nearby industrial park which Sid will rent for $4,000 per month. Utilities will cost about $500 per month. He will use his personal computer, which he purchased for $2,000 last year, to monitor the production process. The computer will become obsolete before it wears out from use. The computer will be depreciated at the rate of $1,000 per year. He will rent production equipment at a monthly cost of $8,000. Sid estimates the material cost per finished unit of product to be $50, and the labor cost to be $10. He will hire workers, and spend his time promoting the product. To do this he will quit his job which pays $4,500 per month. Advertising will cost $2,000 per month. Sid will not draw a salary from the new company until it gets well established. Required: Complete the chart below by placing an "X" under each heading that helps to identify the cost involved. There can be "Xs" placed under more than one heading for a single cost; e.g., a cost might be a sunk cost, an overhead cost, and a product cost. There would be an "X" placed under each of these headings opposite the cost.

*Between the alternatives of producing and not producing the device.

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Chapter 02: Cost Concepts - Key

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making Learning Objective: 1 Learning Objective: 2 Learning Objective: 5 Learning Objective: 7 Level: Medium

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Chapter 02: Cost Concepts - Key

137. The following data (in thousands of dollars) have been taken from the accounting records of Larsen Corporation for the just completed year.

Required: a. Prepare a Schedule of Cost of Goods Manufactured in good form. b. Compute the Cost of Goods Sold. c. Using data from your answers above as needed, prepare an Income Statement in good form.

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Chapter 02: Cost Concepts - Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Learning Objective: 4 Level: Medium

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Chapter 02: Cost Concepts - Key

138. Beauchesne Corporation, a manufacturing company, has provided the following data for the month of May:

Raw materials purchased during May totaled $69,000 and the cost of goods manufactured totaled $146,000. Required: a. What was the cost of raw materials used in production during May? Show your work. b. What was the cost of goods sold for May? Show your work.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Easy

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Chapter 02: Cost Concepts - Key

139. During the month of January, Fisher Corporation, a manufacturing company, purchased raw materials costing $76,000. The cost of goods manufactured for the month was $129,000. The beginning balance in the raw materials account was $26,000 and the ending balance was $21,000. The beginning balance in the finished goods account was $52,000 and the ending balance was $35,000. Required: a. What was the cost of raw materials used in production during January? Show your work. b. What was the cost of goods sold for January? Show your work.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Easy

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Chapter 02: Cost Concepts - Key

140. Joe Ringworth, factory supervisor at Winger Enterprises, had been attending night classes to earn a degree in business. He was particularly puzzled by what one of his accounting professors had said in class the previous evening. The professor, who knew that Joe worked as a factory supervisor, had said that some of Joe's salary could end up on the company's balance sheet at the end of the month. This didn't make any sense to Joe since he gets the salary, not the company. Required: Explain to Joe why some of his salary could end up on the company's balance sheet at the end of the month. The key here is to understand the distinction between period and product costs. Product costs are initially assigned to inventories. That is, product costs are added to inventory accounts that appear on the balance sheet. These costs become expenses only when the inventories are sold. For external financial reports, all manufacturing costs must be included in product costs. Since Joe is a factory supervisor, his salary is considered to be part of manufacturing cost. Therefore, his salary is a product cost and some of it may still be in unsold inventories at the end of the month.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 02: Cost Concepts - Key

141. A partial listing of costs incurred at Rust Corporation during August appears below:

Required: a. What is the total amount of product cost listed above? Show your work. b. What is the total amount of period cost listed above? Show your work. a. Product costs consist of direct materials, direct labor, and manufacturing overhead:

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 02: Cost Concepts - Key

142. Machowski Corporation has provided the following partial listing of costs incurred during November:

Required: a. What is the total amount of product cost listed above? Show your work. b. What is the total amount of period cost listed above? Show your work. a. Product costs consist of direct materials, direct labor, and manufacturing overhead:

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 02: Cost Concepts - Key

143. Standford Corporation has provided the following data for the month of February:

Required: a. Prepare a Schedule of Cost of Goods Manufactured in good form for February. b. Prepare an Income Statement in good form for February.

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Chapter 02: Cost Concepts - Key a. Schedule of Cost of Goods Manufactured

b. Income Statement

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 4 Level: Medium

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Chapter 02: Cost Concepts - Key

144. In October, Ringler Corporation had sales of $273,000, selling expenses of $26,000, and administrative expenses of $47,000. The cost of goods manufactured was $183,000. The beginning balance in the finished goods inventory account was $45,000 and the ending balance was $34,000. Required: Prepare an Income Statement in good form for October.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 02: Cost Concepts - Key

145. In July, Neidich Inc., a merchandising company, had sales of $295,000, selling expenses of $24,000, and administrative expenses of $29,000. The cost of merchandise purchased during the month was $215,000. The beginning balance in the merchandise inventory account was $25,000 and the ending balance was $30,000. Required: Prepare an Income Statement in good form for July.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 02: Cost Concepts - Key

146. Dinius Corporation has provided the following data for the month of December:

Required: Prepare a Schedule of Cost of Goods Manufactured for December. Schedule of Cost of Goods Manufactured

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 02: Cost Concepts - Key

147. A number of costs and measures of activity are listed below.

Required: For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the possible measure of activity listed next to it.

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Chapter 02: Cost Concepts - Key

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 02: Cost Concepts - Key

148. A number of costs and measures of activity are listed below.

Required: For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the possible measure of activity listed next to it.

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Chapter 02: Cost Concepts - Key

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 02: Cost Concepts - Key

149. A number of costs are listed below.

Required: For each item above, indicate whether the cost is direct or indirect with respect to the cost object listed next to it.

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Chapter 02: Cost Concepts - Key

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

E E E E E E E E E E E M M E E M M E E E E M M E E E E H M M M H H H

Professional Exam Adapted

LO5: Least-squares regression (Appendix 3A)

LO4: Contribution format income statement

LO3: High-low analysis

LO2: Scattergraph analysis

LO1: Understand fixed and variable costs

Question Type T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C M/C M/C M/C M/C M/C M/C M/C

Difficulty

Chapter 03: Cost Behavior - Analysis and Use

x x x x x x x x x

x x x

x x x x x x x x x x x

CMA x x x x

CMA x

x x x x x x x

x x x x x x x

x

CMA

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35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66-68 69-72

M M M M M H M M M E E E M E E E E E E E E E E E E H H E E E E M E-M

x x x x x x x x x x x x x x x x

x x x x x x

Professional Exam Adapted

LO5: Least-squares regression (Appendix 3A)

LO4: Contribution format income statement

LO3: High-low analysis

LO2: Scattergraph analysis

LO1: Understand fixed and variable costs

Question Type M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C Multipart M/C Multipart M/C

Difficulty

Chapter 03: Cost Behavior - Analysis and Use

CIMA x

x x x x x x x x x

x x

x x

CIMA

x x x x x x x

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73-75 76-78 79-81 82-85 86-88 89-90 91-92 93-94 95-96 97-98 99-100 101-102 103-104 105-106 107-108 109-110 111-112 113-114 115 116 117 118 119 120 121 122 123 124 125 126 127

M H M M-H E E E E M M M E E E M E E E M E E H M E E E M E E E E

x x x x x x x x

Professional Exam Adapted

LO5: Least-squares regression (Appendix 3A)

LO4: Contribution format income statement

LO3: High-low analysis

LO2: Scattergraph analysis

LO1: Understand fixed and variable costs

Question Type Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem

Difficulty

Chapter 03: Cost Behavior - Analysis and Use

x x x x

x x x x x x x x x x x x x

x

x x x x x

x

x x x x x

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Chapter 03: Cost Behavior - Analysis and Use

True / False Questions 1. Economists correctly point out that many costs that the accountant classifies as variable are actually curvilinear. True False

2. A cost that is obtained in large chunks and that increases or decreases only in response to fairly wide changes in the activity level is known as a step-variable cost. True False

3. Fixed cost per unit increases as activity decreases and decreases as activity increases. True False

4. A cost formula may not be valid outside the relevant range of activity. True False

5. The relevant range concept is not applicable to mixed costs. True False

6. The planning horizons for committed fixed costs and discretionary fixed costs are generally the same. True False

7. With automation, fixed costs increase relative to variable costs. True False

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Chapter 03: Cost Behavior - Analysis and Use 8. The high-low method is generally less accurate than the least-squares regression method for analyzing the behavior of mixed costs. True False

9. The fact that the high-low method uses only two data points is a major defect of the method. True False

10. The contribution approach to the income statement classifies costs by behavior rather than by function. True False

11. On an income statement prepared by the traditional approach, costs are organized and presented according to function. True False

Multiple Choice Questions 12. Expense A is a fixed cost; expense B is a variable cost. During the current year the activity level has increased, but is still within the relevant range. In terms of cost per unit of activity, we would expect that: A. expense A has remained unchanged. B. expense B has decreased. C. expense A has decreased. D. expense B has increased.

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Chapter 03: Cost Behavior - Analysis and Use

13. When the level of activity increases within the relevant range, how does each of the following change?

A. Choice A B. Choice B C. Choice C D. Choice D

14. Which costs will change with a decrease in activity within the relevant range? A. Total fixed costs and total variable cost. B. Unit fixed costs and total variable cost. C. Unit variable cost and unit fixed cost. D. Unit fixed cost and total fixed cost.

15. Within the relevant range, the variable cost per unit: A. remains constant as activity changes. B. increases as activity increases. C. decreases as activity increases. D. can increase or decrease as the activity changes.

16. An increase in the activity level within the relevant range results in: A. an increase in fixed cost per unit. B. a proportionate increase in total fixed costs. C. an unchanged fixed cost per unit. D. a decrease in fixed cost per unit.

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Chapter 03: Cost Behavior - Analysis and Use 17. The linear equation Y = a + bX is often used to express cost formulas. In this equation: A. the b term represents variable cost per unit of activity. B. the a term represents variable cost in total. C. the X term represents total cost. D. the Y term represents total fixed cost.

18. An example of a discretionary fixed cost is: A. insurance. B. taxes on real estate. C. management training. D. depreciation of buildings and equipment.

19. Discretionary fixed costs: A. vary directly and proportionately with the level of activity. B. have a long-term planning horizon, generally encompassing many years. C. are made up of plant, equipment, and basic organizational costs. D. None of these.

20. An example of a cost that is variable with respect to the number of units produced and sold is: A. insurance on the headquarters building. B. power to run production equipment. C. supervisory salaries. D. depreciation of factory facilities.

21. The cost of goods sold in a merchandising company typically would be classified as a: A. fixed cost. B. variable cost. C. step-variable cost. D. mixed cost.

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Chapter 03: Cost Behavior - Analysis and Use 22. A cost driver is: A. the largest single category of cost in a company. B. a fixed cost that cannot be avoided. C. a factor that causes variations in a cost. D. an indirect cost that is essential to the business.

23. A disadvantage of the high-low method of cost analysis is that: A. it cannot be used when there are a very large number of observations. B. it is too time consuming to apply. C. it uses two extreme data points, which may not be representative of normal conditions. D. it relies totally on the judgment of the person performing the cost analysis.

24. The contribution approach to the income statement: A. organizes costs on a functional basis. B. is useful to managers in planning and decision making. C. shows a contribution margin rather than a net operating income figure at the bottom of the statement. D. can be used only by manufacturing companies.

25. Contribution margin is the excess of revenues over: A. cost of goods sold. B. manufacturing cost. C. all direct costs. D. all variable costs.

26. The _______________ approach to the income statement organizes costs by function. A. contribution B. traditional C. comparable D. None of these is true.

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Chapter 03: Cost Behavior - Analysis and Use 27. _________________ is a method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors. A. quick and dirty method B. scattergraph method C. high-low method D. least-square regression method

28. Iacopi Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $172.50 per unit.

The best estimate of the total contribution margin when 4,300 units are sold is: A. $343,140 B. $65,790 C. $121,260 D. $411,080

29. An analysis of past maintenance costs indicates that maintenance cost is an average of $0.20 per machine-hour at an activity level of 10,000 machine-hours and $0.25 per machinehour at an activity level of 8,000 machine-hours. Assuming that this activity is within the relevant range, what is the total expected maintenance cost if the activity level is 8,700 machine-hours? A. $2,000 B. $400 C. $2,250 D. $1,740

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Chapter 03: Cost Behavior - Analysis and Use

30. Shipping expense is $9,000 for 8,000 pounds shipped and $11,250 for 11,000 pounds shipped. Assuming that this activity is within the relevant range, if the company ships 9,000 pounds, its expected shipping expense is closest to: A. $10,125 B. $8,583 C. $9,972 D. $9,750

31. The controller of JoyCo has requested a quick estimate of the manufacturing supplies needed for the month of July when production is expected to be 470,000 units. Below are actual data from the prior three months of operations.

Using these data and the high-low method, what is the best estimate of the cost of manufacturing supplies that would be needed for July? (Assume that this activity is within the relevant range.) A. $805,284 B. $1,188,756 C. $755,196 D. $752,060

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Chapter 03: Cost Behavior - Analysis and Use 32. Anderton 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 monthly fixed manufacturing cost is: A. $391,200 B. $271,200 C. $656,400 D. $351,200

33. Bakken 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 variable manufacturing cost per unit is: A. $16.50 B. $90.40 C. $45.50 D. $106.90

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Chapter 03: Cost Behavior - Analysis and Use 34. Carbert 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. $899,345 B. $951,160 C. $847,530 D. $915,010

35. Dabbs Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

The best estimate of the total monthly fixed manufacturing cost is: A. $737,950 B. $686,400 C. $274,000 D. $789,500

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Chapter 03: Cost Behavior - Analysis and Use 36. Eddins Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

The best estimate of the total variable manufacturing cost per unit is: A. $60.10 B. $38.40 C. $21.70 D. $22.30

37. Faram Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

The best estimate of the total cost to manufacture 2,300 units is closest to: A. $446,660 B. $465,840 C. $462,415 D. $478,170

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Chapter 03: Cost Behavior - Analysis and Use 38. Gamba Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $170.00 per unit.

The best estimate of the total monthly fixed cost is: A. $865,800 B. $321,000 C. $820,400 D. $775,000

39. Haram Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $182.10 per unit.

The best estimate of the total variable cost per unit is: A. $120.40 B. $158.40 C. $167.90 D. $96.30

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Chapter 03: Cost Behavior - Analysis and Use

40. A company that produces and sells a single product has provided the following volume and average cost data for two accounting periods:

The best estimates of the total fixed cost and variable cost per unit are closest to: A. $2,000 fixed; $1.50 variable B. $2,000 fixed; $7.00 variable C. $3,000 fixed; $7.00 variable D. $3,000 fixed; $8.50 variable

41. Tempcon, Inc. sells and installs furnaces for $3,000 per furnace. The following cost formula relates to last year's operations at Tempcon: Y = $125,000 + $1,800X If Tempcon sold and installed 500 furnaces last year, what was its total contribution margin last year? A. $475,000 B. $900,000 C. $1,025,000 D. $600,000

42. The following information was collected for one of the costs at Demetra Manufacturing Corporation over the past two years:

Assuming that there has been no change in the cost structure over the last two years and this activity is within the relevant range, this cost at Demetra would best be described as a: A. fixed cost B. mixed cost C. step-variable cost D. true variable cost

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Chapter 03: Cost Behavior - Analysis and Use

43. The following data pertain to activity and costs for two recent months:

Assuming that these activity levels are within the relevant range, the mixed costs for November were: A. $40,000 B. $35,000 C. $25,000 D. $20,000

44. At an activity level of 10,000 units, variable costs totaled $35,000 and fixed costs totaled $20,800. If 16,000 units are produced and this activity is within the relevant range, then: A. total cost would equal $89,280. B. total unit cost would equal $4.80. C. fixed cost per unit would equal $5.58. D. total costs would equal $55,800.

45. Given the cost formula Y = $12,000 + $6X, total cost at an activity level of 8,000 units would be: A. $20,000 B. $60,000 C. $12,000 D. $48,000

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Chapter 03: Cost Behavior - Analysis and Use

46. Reddy Company has the following cost formulas for overhead:

Based on these cost formulas, the total overhead cost at 600 machine hours is expected to be: A. $4,500 B. $5,200 C. $5,620 D. $5,340

47. Given the cost formula Y = $17,500 + $4X, at what level of activity will total cost be $42,500? A. 10,625 units B. 4,375 units C. 6,250 units D. 5,250 units

48. Krouse Corporation reports that at an activity level of 8,100 units, its total variable cost is $509,652 and its total fixed cost is $197,316. What would be the total cost, both fixed and variable, at an activity level of 8,400 units? Assume that this level of activity is within the relevant range. A. $725,844 B. $706,968 C. $720,060 D. $733,152

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Chapter 03: Cost Behavior - Analysis and Use 49. At an activity level of 4,500 machine-hours in a month, Novosel Corporation's total variable maintenance and repair cost is $394,830 and its total fixed maintenance and repair cost is $105,570. What would be the total maintenance and repair cost, both fixed and variable, at an activity level of 4,600 units in a month? Assume that this level of activity is within the relevant range. A. $511,520 B. $505,960 C. $509,174 D. $500,400

50. At an activity level of 9,600 machine-hours in a month, Montgomery Corporation's total variable production engineering cost is $402,336 and its total fixed production engineering cost is $570,240. What would be the total production engineering cost, both fixed and variable, at an activity level of 9,900 machine-hours in a month? Assume that this level of activity is within the relevant range. A. $101.31 B. $99.51 C. $98.24 D. $99.78

51. You are applying the scattergraph method and find that the regression line you have drawn passes through a data point with the following coordinates: 1,000 units and $9,600. The regression line passes through the Y axis at the $600 point. Which of the following is the cost formula that represents the slope of this line? A. Y=$600+$9.00X B. Y=$600+$9.60X C. Y=$9,600+$.06X D. None of these is true.

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Chapter 03: Cost Behavior - Analysis and Use

52. The following data pertains to activity and utility costs for two recent years:

Using the high-low method, the cost formula for utilities is: A. $1.50 per unit B. $8,000 plus $0.50 per unit C. $1.25 per unit D. $6,000 plus $0.75 per unit

53. At an activity level of 6,000 units the cost for maintenance is $7,200 and at 10,000 units the cost for maintenance is $11,600. Using the high-low method, the cost formula for maintenance is: A. $1.20 per unit B. $1.16 per unit C. $1,200 plus $1.10 per unit D. $600 plus $1.10 per unit

54. Bell Company has provided the following data for maintenance costs:

Using the high-low method, the cost formula for maintenance cost would be: A. $2.00 per machine hour B. $1.625 per machine hour C. $18,000 plus $0.50 per machine hour D. $24,000 plus $0.50 per machine hour

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Chapter 03: Cost Behavior - Analysis and Use 55. The following data for a production department relate to two accounting periods:

The best estimate of the fixed departmental cost is closest to: A. $5,250 B. $59,500 C. $187,000 D. $246,500

56. Electrical costs at one of Gotch Corporation's factories are listed below:

Management believes that electrical cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the variable and fixed components of this cost, these estimates would be closest to: A. $0.15 per machine-hour; $35,115 per month B. $9.11 per machine-hour; $1,249 per month C. $9.43 per machine-hour; $35,406 per month D. $6.57 per machine-hour; $10,728 per month

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Chapter 03: Cost Behavior - Analysis and Use 57. Maintenance costs at a Neller Corporation factory are listed below:

Management believes that maintenance cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the variable and fixed components of this cost, these estimates would be closest to: A. $1.85 per machine-hour; $21,325 per month B. $3.77 per machine-hour; $15,648 per month C. $9.07 per machine-hour; $26,762 per month D. $0.27 per machine-hour; $26,071 per month

58. Supply costs at Rupard Corporation's chain of gyms are listed below:

Management believes that supply cost is a mixed cost that depends on client-visits. Using the high-low method to estimate the variable and fixed components of this cost, those estimates would be closest to: A. $0.76 per client-visit; $18,152 per month B. $1.31 per client-visit; $10,462 per month C. $2.08 per client-visit; $28,489 per month D. $0.77 per client-visit; $17,952 per month

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Chapter 03: Cost Behavior - Analysis and Use 59. A clothing manufacturer incurred the following factory maintenance costs: 2,100 units produced with maintenance cost of $61,500, and 750 units produced with maintenance cost of $41,250. How much of the maintenance cost is made up of fixed cost? (Use the high-low method.) A. $11,181 B. $20,125 C. $30,000 D. $50,319

60. The cost of goods sold in a retail store totaled $325,000. Fixed selling and administrative expenses totaled $115,000 and variable selling and administrative expenses were $210,000. If the store's contribution margin totaled $590,000, then sales must have been: A. $1,125,000 B. $1,030,000 C. $915,000 D. $650,000 61. At a sales level of $300,000, James Company's gross margin is $15,000 less than its contribution margin, its net operating income is $50,000, and its selling and administrative expenses total $120,000. At this sales level, its contribution margin would be: A. $250,000 B. $155,000 C. $170,000 D. $185,000

62. Kalbach Corporation, a manufacturing company, has provided the following financial data for November:

The company had no beginning or ending inventories. The contribution margin for November was: A. $285,000 B. $166,000 C. $310,000 D. $36,000 3-22 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 03: Cost Behavior - Analysis and Use 63. The management of Harper Corporation, a manufacturing company, has provided the following financial data for December:

The contribution margin for December was: A. $204,000 B. $64,000 C. $340,000 D. $319,000 64. The management of Degenhart Corporation, a manufacturing company, has provided the following data for February:

The contribution margin for February was: A. $34,000 B. $323,000 C. $191,000 D. $310,000 65. The following data pertains to activity and the cost of electricity for two recent months:

The best estimate of the total monthly fixed electrical cost is: A. $300 B. $1,200 C. $1,500 D. $1,050

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Chapter 03: Cost Behavior - Analysis and Use Callaham Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $115.80 per unit.

66. The best estimate of the total monthly fixed cost is: A. $24,000 B. $478,050 C. $427,600 D. $528,500 67. The best estimate of the total variable cost per unit is: A. $84.50 B. $100.90 C. $106.90 D. $105.70

68. The best estimate of the total contribution margin when 4,300 units are sold is: A. $134,590 B. $43,430 C. $64,070 D. $38,270

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Chapter 03: Cost Behavior - Analysis and Use Stewart Company is attempting to classify costs according to their cost behavior. Data concerning activity and costs are listed below:

69. The costs that Stewart Company would classify as variable would be: A. maintenance and supplies. B. maintenance, supplies, utilities, lubrication and advertising. C. supplies and advertising. D. maintenance, utilities and advertising. 70. The cost(s) that Stewart Company would classify as fixed would be: A. insurance. B. insurance and lubrication. C. supplies and lubrication. D. insurance and advertising.

71. The costs that Stewart Company would classify as mixed would be: A. lubrication and advertising. B. maintenance and insurance. C. supplies and lubrication. D. supplies and utilities.

72. If Stewart Company sells 1,150 units in March and this activity is within the relevant range, the expected total cost would most likely be closest to: A. $2,610.50 B. $1,774.00 C. $4,343.92 D. $4,384.50

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Chapter 03: Cost Behavior - Analysis and Use Maxwell Company has a total expense per unit of $2.00 per unit at the 16,000 level of activity and total expense per unit of $1.95 at the 21,000 unit level of activity.

73. The best estimate of the variable cost per unit for Maxwell Company is: A. $0.56 B. $1.79 C. $2.00 D. $1.95

74. The best estimate of the total fixed cost per period for Maxwell Company is: A. $40,950 B. $32,000 C. $3,360 D. $29,190

75. The best estimate of the total expected costs at the 19,000 level of activity for Maxwell Company is: A. $37,050 B. $38,000 C. $37,370 D. $39,830

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Chapter 03: Cost Behavior - Analysis and Use The following production and average cost data for two levels of monthly production volume have been supplied by a company that produces a single product:

76. The best estimate of the total monthly fixed manufacturing cost is: A. $222,000 B. $284,400 C. $305,200 D. $633,600

77. The best estimate of the total variable manufacturing cost per unit is: A. $116.40 B. $137.20 C. $20.80 D. $76.70

78. The best estimate of the total cost to manufacture 3,200 units is closest to: A. $675,840 B. $616,640 C. $661,040 D. $646,240

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Chapter 03: Cost Behavior - Analysis and Use

Baaca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

79. The best estimate of the total monthly fixed manufacturing cost is: A. $1,424,400 B. $1,506,400 C. $932,400 D. $1,465,400

80. The best estimate of the total variable manufacturing cost per unit is: A. $82.00 B. $70.20 C. $56.70 D. $11.80

81. The best estimate of the total cost to manufacture 6,300 units is closest to: A. $1,425,690 B. $1,355,760 C. $1,495,620 D. $1,449,000

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Chapter 03: Cost Behavior - Analysis and Use Buffo Company fabricates metal folding chairs. Data concerning the company's revenue and cost structure follow:

82. If Buffo plans to produce and sell 3,000 units next month, the expected contribution margin would be: A. $30,750 B. $74,250 C. $26,750 D. $96,500 83. If Buffo plans to produce and sell 4,000 units next month, the expected gross margin would be: A. $41,000 B. $37,000 C. $68,000 D. $57,500

84. If Buffo expects to produce and sell 2,000 units next month, the total expected manufacturing cost would be: A. $34,000 B. $39,000 C. $45,500 D. $38,000

85. If Buffo expects to produce and sell 5,000 units next month, the expected net operating income would be: A. $51,250 B. $42,750 C. $71,000 D. $62,500

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Chapter 03: Cost Behavior - Analysis and Use Rymore Company would like to classify the following costs according to their cost behavior:

86. Which of the following classifications best describes the behavior of Cost A? A. Mixed B. Variable C. Fixed D. None of these

87. Which of the following classifications best describes the behavior of Cost B? A. Mixed B. Variable C. Fixed D. None of these

88. Which of the following classifications best describes the behavior of Cost C? A. Mixed B. Variable C. Fixed D. None of these

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Chapter 03: Cost Behavior - Analysis and Use Bacho Corporation reports that at an activity level of 5,400 units, its total variable cost is $416,934 and its total fixed cost is $142,560.

89. What would be the total variable cost at an activity level of 5,500 units? Assume that this level of activity is within the relevant range. A. $424,655 B. $559,494 C. $416,934 D. $145,200

90. What would be the average fixed cost per unit at an activity level of 5,500 units? Assume that this level of activity is within the relevant range. A. $26.40 B. $103.61 C. $25.92 D. $51.98

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Chapter 03: Cost Behavior - Analysis and Use At an activity level of 7,900 machine-hours in a month, Manchester Corporation's total variable maintenance cost is $430,550 and its total fixed maintenance cost is $417,120. 91. What would be the total variable maintenance cost at an activity level of 8,000 machinehours in a month? Assume that this level of activity is within the relevant range. A. $847,670 B. $422,400 C. $430,550 D. $436,000

92. What would be the average fixed maintenance cost per unit at an activity level of 8,000 units in a month? Assume that this level of activity is within the relevant range. A. $52.14 B. $70.75 C. $52.80 D. $107.30

Grundmann Inc. reports that at an activity level of 6,500 machine-hours in a month, its total variable inspection cost is $487,110 and its total fixed inspection cost is $326,040. 93. What would be the average fixed inspection cost per unit at an activity level of 6,600 units in a month? Assume that this level of activity is within the relevant range. A. $125.10 B. $74.89 C. $50.16 D. $49.40 94. What would be the total variable inspection cost at an activity level of 6,600 machinehours in a month? Assume that this level of activity is within the relevant range. A. $494,604 B. $331,056 C. $487,110 D. $813,150

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Chapter 03: Cost Behavior - Analysis and Use Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the last five months of operations.

95. Using the high-low method of analysis, the estimated variable cost per machine hour for electricity is closest to: A. $0.40 B. $2.50 C. $0.98 D. $1.68

96. Using the high-low method of analysis, the estimated fixed cost per month for electricity is closest to: A. $1,306.50 B. $870.00 C. $1,290.00 D. $1,150.00

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Chapter 03: Cost Behavior - Analysis and Use Hiss Company's activity for the last six months is as follows:

97. Using the high-low method, the estimated variable electrical cost per machine hour is: A. $0.40 B. $0.65 C. $0.70 D. $0.67

98. Using the high-low method, the estimated monthly fixed component of the electrical cost is: A. $260 B. $235 C. $280 D. $800

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Chapter 03: Cost Behavior - Analysis and Use

Prater Company has provided the following data:

99. The best estimate of the company's variable selling and administrative expense per unit is: A. $0.24 per unit B. $4.17 per unit C. $0.91 per unit D. $0.96 per unit

100. The best estimate of the company's total fixed selling and administrative expense per year is: A. $188,000 B. $72,000 C. $200,000 D. $212,000

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Chapter 03: Cost Behavior - Analysis and Use Electrical costs at one of Noyd Corporation's factories are listed below:

Management believes that electrical cost is a mixed cost that depends on machine-hours.

101. Using the high-low method, the estimate of the variable component of electrical cost per machine-hour is closest to: A. $0.11 B. $8.92 C. $94.27 D. $8.56

102. Using the high-low method, the estimate of the fixed component of electrical cost per month is closest to: A. $9,266 B. $10,232 C. $10,244 D. $9,881

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Chapter 03: Cost Behavior - Analysis and Use

Inspection costs at one of Pulley Corporation's factories are listed below:

Management believes that inspection cost is a mixed cost that depends on units produced.

103. Using the high-low method, the estimate of the variable component of inspection cost per unit produced is closest to: A. $13.73 B. $10.17 C. $0.10 D. $10.35

104. Using the high-low method, the estimate of the fixed component of inspection cost per month is closest to: A. $2,749 B. $10,519 C. $9,980 D. $10,597

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Chapter 03: Cost Behavior - Analysis and Use Annarummo Inc., an escrow agent, has provided the following data concerning its office expenses:

Management believes that office expense is a mixed cost that depends on the number of escrows completed. Note: Real estate purchases usually involve the services of an escrow agent that holds funds and prepares documents to complete the transaction.

105. Using the high-low method, the estimate of the variable component of office expense per escrow completed is closest to: A. $196.11 B. $95.37 C. $99.50 D. $292.71

106. Using the high-low method, the estimate of the fixed component of office expense per month is closest to: A. $12,724 B. $11,333 C. $9,521 D. $14,115

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Chapter 03: Cost Behavior - Analysis and Use

Porter Company has provided the following data for the second quarter of the most recent year:

Assume that direct labor is a variable cost and that there were no beginning or ending inventories.

107. The total contribution margin of Porter Company for the second quarter was: A. $37,250 B. $87,000 C. $176,000 D. $211,000

108. The gross margin for Porter Company for the second quarter was: A. $(12,500) B. $80,000 C. $131,500 D. $135,000

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Chapter 03: Cost Behavior - Analysis and Use In October, Haldeman Corporation, a manufacturing company, reported the following financial data:

The company had no beginning or ending inventories.

109. The contribution margin for October was: A. $5,000 B. $183,000 C. $264,000 D. $282,000

110. The gross margin for October was: A. $282,000 B. $183,000 C. $264,000 D. $5,000

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Chapter 03: Cost Behavior - Analysis and Use The management of Harlow Corporation, a manufacturing company, would like your help in contrasting the traditional and contribution approaches to the income statement. The company has provided the following financial data for January:

The company had no beginning or ending inventories.

111. The gross margin for January was: A. $166,000 B. $110,000 C. $42,000 D. $172,000

112. The contribution margin for January was: A. $172,000 B. $42,000 C. $166,000 D. $110,000

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Chapter 03: Cost Behavior - Analysis and Use

Pfalzgraf Corporation, a manufacturing company, has provided the following financial data for January:

The company had no beginning or ending inventories.

113. The gross margin for January was: A. $14,000 B. $151,000 C. $91,000 D. $163,000

114. The contribution margin for January was: A. $14,000 B. $151,000 C. $91,000 D. $163,000

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Chapter 03: Cost Behavior - Analysis and Use

Essay Questions 115. Mateo Company's average cost per unit is $1.425 at the 16,000 unit level of activity and $1.38 at the 20,000 unit level of activity. Assume that all of the activity levels mentioned in this problem are within the relevant range. Required: Predict the following items for Mateo Company: a. Variable cost per unit. b. Total fixed cost per period. c. Total expected costs at the 18,000 unit level of activity.

116. Giaquinto Corporation reports that at an activity level of 7,600 units, its total variable cost is $182,856 and its total fixed cost is $444,296. Required: For the activity level of 7,900 units, compute: (a) the total variable cost; (b) the total fixed cost; (c) the total cost; (d) the average variable cost per unit; (e) the average fixed cost per unit; and (f) the average total cost per unit. Assume that this activity level is within the relevant range.

3-43 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 03: Cost Behavior - Analysis and Use 117. At an activity level of 2,400 units, Kloster Corporation's total variable cost is $118,008 and its total fixed cost is $9,000. Required: For the activity level of 2,500 units, compute: (a) the total variable cost; (b) the total fixed cost; (c) the total cost; (d) the average variable cost per unit; (e) the average fixed cost per unit; and (f) the average total cost per unit. Assume that this activity level is within the relevant range.

118. The Central Valley Company is a merchandising firm that sells a single product. The company's revenues and expenses for the last three months are given below:

Required: a. Determine which expenses are mixed and, by use of the high-low method, separate each mixed expense into its variable and fixed components. State the cost formula for each mixed expense. b. Compute the company's total contribution margin for May.

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Chapter 03: Cost Behavior - Analysis and Use

119. Unified Parcel, Inc., operates a local parcel delivery service. The company keeps detailed records relating to operating costs of trucks, and has found that if a truck is driven 110,000 miles per year the operating cost is 7.5 cents per mile. This cost increases to 8.75 cents per mile if a truck is driven 60,000 miles per year. Required: Estimate the cost formula for truck operating costs using the high-low method.

120. Utility costs at one of Hambley Corporation's factories are listed below:

Management believes that utility cost is a mixed cost that depends on machine-hours. Required: Estimate the variable cost per machine-hour and the fixed cost per month using the high-low method. Show your work!

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Chapter 03: Cost Behavior - Analysis and Use

121. Wigley Inc. has provided the following data concerning its maintenance costs:

Management believes that maintenance cost is a mixed cost that depends on machine-hours. Required: Estimate the variable cost per machine-hour and the fixed cost per month using the high-low method. Show your work!

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Chapter 03: Cost Behavior - Analysis and Use 122. The management of Fagundes Corporation would like to have a better understanding of the behavior of its inspection costs. The company has provided the following data:

Management believes that inspection cost is a mixed cost that depends on direct labor-hours. Required: Estimate the variable cost per direct labor-hour and the fixed cost per month using the highlow method. Show your work!

123. The 4 x 4 Shop is a large retailer of equipment for pickup trucks. An income statement for the company's bed liner department for the most recent quarter is presented below:

The liners sell, on average, for $350 each. The department's variable selling expenses are $35 per liner sold. The remaining selling expenses are fixed. The administrative expenses are 25% variable and 75% fixed. The company purchases its liners from a supplier at a cost of $125 per liner. Required: Prepare an income statement for the quarter, using the contribution approach. 3-47 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 03: Cost Behavior - Analysis and Use

124. In August, Clarey Corporation, a manufacturing company, reported the following financial data:

The company had no beginning or ending inventories. Required: a. Prepare an income statement in good form for August using the traditional approach. b. Prepare an income statement in good form for August using the contribution approach.

125. Sibrel Inc., a manufacturing company, has provided the following financial data for September:

The company had no beginning or ending inventories. Required: a. Prepare an income statement in good form for September using the traditional approach. b. Prepare an income statement in good form for September using the contribution approach.

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Chapter 03: Cost Behavior - Analysis and Use 126. In March, Branford Corporation, a manufacturing company, reported the following financial data:

Required: Prepare an income statement in good form for March using the contribution approach.

127. Bellido Inc., a manufacturing company, has provided the following data for December:

Required: Prepare an income statement in good form for December using the contribution approach.

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Chapter 03: Cost Behavior - Analysis and Use - Key True / False Questions 1. Economists correctly point out that many costs that the accountant classifies as variable are actually curvilinear. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

2. A cost that is obtained in large chunks and that increases or decreases only in response to fairly wide changes in the activity level is known as a step-variable cost. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

3. Fixed cost per unit increases as activity decreases and decreases as activity increases. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

4. A cost formula may not be valid outside the relevant range of activity. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

5. The relevant range concept is not applicable to mixed costs. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

6. The planning horizons for committed fixed costs and discretionary fixed costs are generally the same. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

7. With automation, fixed costs increase relative to variable costs. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

8. The high-low method is generally less accurate than the least-squares regression method for analyzing the behavior of mixed costs. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 5 Level: Easy

9. The fact that the high-low method uses only two data points is a major defect of the method. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

10. The contribution approach to the income statement classifies costs by behavior rather than by function. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

11. On an income statement prepared by the traditional approach, costs are organized and presented according to function. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

Multiple Choice Questions 12. Expense A is a fixed cost; expense B is a variable cost. During the current year the activity level has increased, but is still within the relevant range. In terms of cost per unit of activity, we would expect that: A. expense A has remained unchanged. B. expense B has decreased. C. expense A has decreased. D. expense B has increased.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

13. When the level of activity increases within the relevant range, how does each of the following change?

A. Choice A B. Choice B C. Choice C D. Choice D

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key

14. Which costs will change with a decrease in activity within the relevant range? A. Total fixed costs and total variable cost. B. Unit fixed costs and total variable cost. C. Unit variable cost and unit fixed cost. D. Unit fixed cost and total fixed cost.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

15. Within the relevant range, the variable cost per unit: A. remains constant as activity changes. B. increases as activity increases. C. decreases as activity increases. D. can increase or decrease as the activity changes.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

16. An increase in the activity level within the relevant range results in: A. an increase in fixed cost per unit. B. a proportionate increase in total fixed costs. C. an unchanged fixed cost per unit. D. a decrease in fixed cost per unit.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key

17. The linear equation Y = a + bX is often used to express cost formulas. In this equation: A. the b term represents variable cost per unit of activity. B. the a term represents variable cost in total. C. the X term represents total cost. D. the Y term represents total fixed cost.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

18. An example of a discretionary fixed cost is: A. insurance. B. taxes on real estate. C. management training. D. depreciation of buildings and equipment.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

19. Discretionary fixed costs: A. vary directly and proportionately with the level of activity. B. have a long-term planning horizon, generally encompassing many years. C. are made up of plant, equipment, and basic organizational costs. D. None of these.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

20. An example of a cost that is variable with respect to the number of units produced and sold is: A. insurance on the headquarters building. B. power to run production equipment. C. supervisory salaries. D. depreciation of factory facilities.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

21. The cost of goods sold in a merchandising company typically would be classified as a: A. fixed cost. B. variable cost. C. step-variable cost. D. mixed cost.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

22. A cost driver is: A. the largest single category of cost in a company. B. a fixed cost that cannot be avoided. C. a factor that causes variations in a cost. D. an indirect cost that is essential to the business.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium Source: CMA, adapted

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Chapter 03: Cost Behavior - Analysis and Use - Key

23. A disadvantage of the high-low method of cost analysis is that: A. it cannot be used when there are a very large number of observations. B. it is too time consuming to apply. C. it uses two extreme data points, which may not be representative of normal conditions. D. it relies totally on the judgment of the person performing the cost analysis.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

24. The contribution approach to the income statement: A. organizes costs on a functional basis. B. is useful to managers in planning and decision making. C. shows a contribution margin rather than a net operating income figure at the bottom of the statement. D. can be used only by manufacturing companies.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

25. Contribution margin is the excess of revenues over: A. cost of goods sold. B. manufacturing cost. C. all direct costs. D. all variable costs.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy Source: CMA, adapted

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Chapter 03: Cost Behavior - Analysis and Use - Key

26. The _______________ approach to the income statement organizes costs by function. A. contribution B. traditional C. comparable D. None of these is true.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

27. _________________ is a method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors. A. quick and dirty method B. scattergraph method C. high-low method D. least-square regression method

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

28. Iacopi Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $172.50 per unit.

The best estimate of the total contribution margin when 4,300 units are sold is: A. $343,140 B. $65,790 C. $121,260 D. $411,080 Variable component of cost of goods sold: Variable cost = Change in costs Change in units Variable cost = ($384,500 - $307,600) (5,000 - 4,000) Variable cost = $76.90 per unit Variable component of selling and administrative expenses: Variable cost = Change in costs Change in units Variable cost = ($337,000 - $321,200) (5,000 - 4,000) Variable cost = $15.80 per unit

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Chapter 03: Cost Behavior - Analysis and Use - Key 29. An analysis of past maintenance costs indicates that maintenance cost is an average of $0.20 per machine-hour at an activity level of 10,000 machine-hours and $0.25 per machinehour at an activity level of 8,000 machine-hours. Assuming that this activity is within the relevant range, what is the total expected maintenance cost if the activity level is 8,700 machine-hours? A. $2,000 B. $400 C. $2,250 D. $1,740

Variable cost = Change in cost Change in activity = ($2,000 - $2,000) (10,000 - 8,000) = $0.00 Fixed cost element = Total cost - Variable cost element = $2,000 - ($0.00 x 10,000) = $2,000 Therefore, the cost formula for total maintenance cost is $2,000 per period plus $0.00 per machine-hour, or Y = $2,000 + $0.00X. At an activity level of 8,700 machine-hours, total cost is estimated to be: Y = $2,000 + ($0.00 x 8,700) = $2,000

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Chapter 03: Cost Behavior - Analysis and Use - Key

30. Shipping expense is $9,000 for 8,000 pounds shipped and $11,250 for 11,000 pounds shipped. Assuming that this activity is within the relevant range, if the company ships 9,000 pounds, its expected shipping expense is closest to: A. $10,125 B. $8,583 C. $9,972 D. $9,750

Variable cost = Change in cost Change in activity = ($11,250 - $9,000) (11,000 - 8,000) = $0.75 Fixed cost element = Total cost - Variable cost element = $11,250 - ($0.75 x 11,000) = $3,000 Therefore, the cost formula for total shipping cost is $3,000 per period plus $0.75 per pound shipped, or Y = $3,000 + $0.75X. At an activity level of 9,000 pounds shipped, total cost is estimated to be: Y = $3,000 + ($0.75 x 9,000) = $9,750

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key

31. The controller of JoyCo has requested a quick estimate of the manufacturing supplies needed for the month of July when production is expected to be 470,000 units. Below are actual data from the prior three months of operations.

Using these data and the high-low method, what is the best estimate of the cost of manufacturing supplies that would be needed for July? (Assume that this activity is within the relevant range.) A. $805,284 B. $1,188,756 C. $755,196 D. $752,060

Variable cost = Change in cost Change in activity = ($853,560 - $723,060) (540,000 - 450,000) = $1.45 Fixed cost element = Total cost - Variable cost element = $853,560 - ($1.45 x 540,000) = $70,560 Therefore, the cost formula for total manufacturing supplies is $70,560 per period plus $1.45 per unit produced, or Y = $70,560 + $1.45X. At an activity level of 470,000 units produced, total cost is estimated to be: Y = $70,560 + ($1.45 x 470,000) = $752,060

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium Source: CMA, adapted

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Chapter 03: Cost Behavior - Analysis and Use - Key 32. Anderton 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 monthly fixed manufacturing cost is: A. $391,200 B. $271,200 C. $656,400 D. $351,200 Direct materials and direct labor are entirely variable since cost per unit does not change with changes in volume. Thus none of these costs are fixed and only manufacturing overhead is used to calculate the monthly fixed manufacturing cost. First, calculate the variable manufacturing cost per unit:

Variable manufacturing overhead cost = Change in cost Change in activity = ($391,200 - $351,200) (6,000 - 4,000) = $20.00 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $391,200 - ($20.00 x 6,000) = $271,200

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Hard

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Chapter 03: Cost Behavior - Analysis and Use - Key

33. Bakken 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 variable manufacturing cost per unit is: A. $16.50 B. $90.40 C. $45.50 D. $106.90 Direct materials and direct labor are entirely variable since cost per unit does not change with changes in volume. Thus none of these costs are fixed and only manufacturing overhead is used to calculate the monthly fixed manufacturing cost. First, calculate the variable manufacturing cost per unit:

Variable manufacturing overhead cost = Change in cost Change in activity = ($542,500 - $526,000) (5,000 - 4,000) = $16.50 Variable manufacturing cost = $45.50 + $44.90 + $16.50 = $106.90

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Hard

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Chapter 03: Cost Behavior - Analysis and Use - Key 34. Carbert 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. $899,345 B. $951,160 C. $847,530 D. $915,010 Direct materials and direct labor are entirely variable since cost per unit does not change with changes in volume. Thus none of these costs are fixed and only manufacturing overhead is used to calculate the monthly fixed manufacturing cost. To calculate the variable manufacturing cost per unit:

Variable manufacturing overhead cost = Change in cost Change in activity = ($553,500 - $539,200) (5,000 - 4,000) = $14.30 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $553,500 - ($14.30 x 5,000) = $482,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Hard

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Chapter 03: Cost Behavior - Analysis and Use - Key 35. Dabbs Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

The best estimate of the total monthly fixed manufacturing cost is: A. $737,950 B. $686,400 C. $274,000 D. $789,500 To calculate the variable manufacturing cost per unit:

Variable manufacturing overhead cost = Change in cost Change in activity = ($358,000 - $341,200) (5,000 - 4,000) = $16.80 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $358,000 - ($16.80 x 5,000) = $274,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key

36. Eddins Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

The best estimate of the total variable manufacturing cost per unit is: A. $60.10 B. $38.40 C. $21.70 D. $22.30 Direct material cost per unit = $89,200 4,000 units = $22.30 (Alternatively, direct material cost per unit = $111,500 5,000 units = $22.30) Direct labor cost per unit = $64,400 4,000 units = $16.10 (Alternatively, direct labor cost per unit = $80,500 5,000 units = $16.10) Variable manufacturing overhead cost = Change in cost Change in activity = ($314,500 - $292,800) (5,000 - 4,000) = $21.70 Total variable manufacturing cost per unit = $22.30 + $16.10 + $21.70 = $60.10

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key

37. Faram Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

The best estimate of the total cost to manufacture 2,300 units is closest to: A. $446,660 B. $465,840 C. $462,415 D. $478,170 To calculate the variable manufacturing cost per unit:

Variable manufacturing overhead cost = Change in cost Change in activity = ($151,800 - $128,600) (3,000 - 2,000) = $23.20 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $151,800 - ($23.20 x 3,000) = $82,200

* $262,500 3,000 units = $87.50 per unit ** $168,300 3,000 units = $56.10 per unit

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Chapter 03: Cost Behavior - Analysis and Use - Key

38. Gamba Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $170.00 per unit.

The best estimate of the total monthly fixed cost is: A. $865,800 B. $321,000 C. $820,400 D. $775,000 Variable component of cost of goods sold: Variable cost = Change in costs Change in units Variable cost = ($472,200 - $393,500) (6,000 - 5,000) Variable cost = $78.70 per unit Fixed cost: High units: $472,200 - $78.70 x 6,000 = $0 Low units: $393,500 - $78.70 x 5,000 = $0 Variable component of selling and administrative expenses: Variable cost = Change in costs Change in units Variable cost = ($393,600 - $381,500) (6,000 - 5,000) Variable cost = $12.10 per unit Fixed cost: High units: $393,600 - $12.10 x 6,000 = $321,000 Low units: $381,500 - $12.10 x 5,000 = $321,000 Total variable cost per unit: $78.70 + $12.10 = $90.80 per unit Total fixed cost: $0 + $321,000 = $321,000

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Chapter 03: Cost Behavior - Analysis and Use - Key 39. Haram Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $182.10 per unit.

The best estimate of the total variable cost per unit is: A. $120.40 B. $158.40 C. $167.90 D. $96.30 Variable component of cost of goods sold: Variable cost = Change in costs Change in units Variable cost = ($481,500 - $385,200) (5,000 - 4,000) Variable cost = $96.30 per unit Fixed cost: High units: $481,500 - $96.30 x 5,000 = $0 Low units: $385,200 - $96.30 x 4,000 = $0 Variable component of selling and administrative expenses: Variable cost = Change in costs Change in units Variable cost = ($310,500 - $286,400) (5,000 - 4,000) Variable cost = $24.10 per unit Fixed cost: High units: $310,500 - $24.10 x 5,000 = $190,000 Low units: $286,400 - $24.10 x 4,000 = $190,000 Total variable cost per unit: $96.30 + $24.10 = $120.40 per unit Total fixed cost: $0 + $190,000 = $190,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key 40. A company that produces and sells a single product has provided the following volume and average cost data for two accounting periods:

The best estimates of the total fixed cost and variable cost per unit are closest to: A. $2,000 fixed; $1.50 variable B. $2,000 fixed; $7.00 variable C. $3,000 fixed; $7.00 variable D. $3,000 fixed; $8.50 variable Variable component of manufacturing overhead: Variable cost = Change in costs Change in units Variable cost = ($5,000* - $3,500**) (2,000 - 1,000) Variable cost = $1.50 per unit * $2.50 x 2,000 units = $5,000 ** $3.50 x 1,000 units = $3,500 Fixed cost: High units: $5,000 - $1.50 x 2,000 = $2,000 Low units: $3,500 - $1.50 x 1,000 = $2,000 Variable component of general, selling, and administrative expenses: Variable cost = Change in costs Change in units Variable cost = ($1,000* - $1,000**) (2,000 - 1,000) Variable cost = $0 per unit * $0.50 x 2,000 units = $1,000 ** $1.00 x 1,000 units = $1,000 Fixed cost: High units: $1,000 - $0 x 2,000 = $1,000 Low units: $1,000 - $0 x 1,000 = $1,000 Total variable cost per unit (includes direct material, direct labor, variable manufacturing overhead, and variable other overhead): $4.00 + $3.00 + $1.50 + $0 = $8.50 per unit Total fixed cost: $2,000 + $1,000 = $3,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Hard Source: CIMA, adapted

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Chapter 03: Cost Behavior - Analysis and Use - Key 41. Tempcon, Inc. sells and installs furnaces for $3,000 per furnace. The following cost formula relates to last year's operations at Tempcon: Y = $125,000 + $1,800X If Tempcon sold and installed 500 furnaces last year, what was its total contribution margin last year? A. $475,000 B. $900,000 C. $1,025,000 D. $600,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 4 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key

42. The following information was collected for one of the costs at Demetra Manufacturing Corporation over the past two years:

Assuming that there has been no change in the cost structure over the last two years and this activity is within the relevant range, this cost at Demetra would best be described as a: A. fixed cost B. mixed cost C. step-variable cost D. true variable cost Variable component of cost: Variable cost = Change in costs Change in units Variable cost = ($147,000 - $125,000) (6,000 - 5,000) Variable cost = $22.00 per unit Fixed cost: High units: $147,000 - $22.00 x 6,000 = $15,000 Low units: $125,000 - $22.00 x 5,000 = $15,000 Since there is a variable component and a fixed component, this cost would be considered to be a mixed cost.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key

43. The following data pertain to activity and costs for two recent months:

Assuming that these activity levels are within the relevant range, the mixed costs for November were: A. $40,000 B. $35,000 C. $25,000 D. $20,000 October variable cost per unit = $10,000  5,000 units = $2.00 per unitNovember variable costs = $2.00  10,000 units = $20,000Fixed costs do not change with changes in activity level, so November fixed costs will be the same as October, or $30,000.Total costs for November - November variable costs - November fixed costs= November mixed costs$75,000 - $20,000 - $30,000 = $25,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key

44. At an activity level of 10,000 units, variable costs totaled $35,000 and fixed costs totaled $20,800. If 16,000 units are produced and this activity is within the relevant range, then: A. total cost would equal $89,280. B. total unit cost would equal $4.80. C. fixed cost per unit would equal $5.58. D. total costs would equal $55,800. Variable cost per unit: $35,000 10,000 units = $3.50 per unit Fixed cost per unit = $20,800 16,000 units = $1.30 per unit Total cost at 16,000 units = $20,800 + ($3.50 x 16,000) = $76,800 Total unit cost = $76,800 16,000 units = $4.80

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

45. Given the cost formula Y = $12,000 + $6X, total cost at an activity level of 8,000 units would be: A. $20,000 B. $60,000 C. $12,000 D. $48,000 Y = $12,000 + $6X Y = $12,000 + $6(8,000) Y = $60,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

46. Reddy Company has the following cost formulas for overhead:

Based on these cost formulas, the total overhead cost at 600 machine hours is expected to be: A. $4,500 B. $5,200 C. $5,620 D. $5,340

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

47. Given the cost formula Y = $17,500 + $4X, at what level of activity will total cost be $42,500? A. 10,625 units B. 4,375 units C. 6,250 units D. 5,250 units Y = $17,500 + $4X $42,500 = $17,500 + $4X $25,000 = $4X X = 6,250 units

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

48. Krouse Corporation reports that at an activity level of 8,100 units, its total variable cost is $509,652 and its total fixed cost is $197,316. What would be the total cost, both fixed and variable, at an activity level of 8,400 units? Assume that this level of activity is within the relevant range. A. $725,844 B. $706,968 C. $720,060 D. $733,152 Variable cost per unit: $509,652 The cost function is: Y = $197,316 + $62.92X Y = $197,316 + $62.92(8,400) Y = $725,844

8,100 units = $62.92 per unit

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Chapter 03: Cost Behavior - Analysis and Use - Key

49. At an activity level of 4,500 machine-hours in a month, Novosel Corporation's total variable maintenance and repair cost is $394,830 and its total fixed maintenance and repair cost is $105,570. What would be the total maintenance and repair cost, both fixed and variable, at an activity level of 4,600 units in a month? Assume that this level of activity is within the relevant range. A. $511,520 B. $505,960 C. $509,174 D. $500,400 Variable cost per unit: $394,830 The cost function is: Y = $105,570 + $87.74X Y = $105,570 + $87.74(4,600) Y = $509,174

4,500 units = $87.74 per unit

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Chapter 03: Cost Behavior - Analysis and Use - Key

50. At an activity level of 9,600 machine-hours in a month, Montgomery Corporation's total variable production engineering cost is $402,336 and its total fixed production engineering cost is $570,240. What would be the total production engineering cost, both fixed and variable, at an activity level of 9,900 machine-hours in a month? Assume that this level of activity is within the relevant range. A. $101.31 B. $99.51 C. $98.24 D. $99.78 Variable cost per unit: $402,336 9,600 machine-hours = $41.91 per machine-hour The cost function is: Y = $570,240 + $41.91X Y = $570,240 + $41.91(9,900) Y = $985,149 $985,149 9,900 units = $99.51 per unit

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

51. You are applying the scattergraph method and find that the regression line you have drawn passes through a data point with the following coordinates: 1,000 units and $9,600. The regression line passes through the Y axis at the $600 point. Which of the following is the cost formula that represents the slope of this line? A. Y=$600+$9.00X B. Y=$600+$9.60X C. Y=$9,600+$.06X D. None of these is true. Variable cost = Change in cost Change in activity = ($9,600 - $600) (1,000 - 0) = $9.00 Since the regression line passes through the Y axis at the $600 point, the $600 represents the fixed costs. Therefore, the cost formula would be Y=$600+$9.00X.

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Chapter 03: Cost Behavior - Analysis and Use - Key

52. The following data pertains to activity and utility costs for two recent years:

Using the high-low method, the cost formula for utilities is: A. $1.50 per unit B. $8,000 plus $0.50 per unit C. $1.25 per unit D. $6,000 plus $0.75 per unit Variable cost = Change in cost Change in activity = ($15,000 - $12,000) (12,000 - 8,000) = $0.75 Fixed cost element = Total cost - Variable cost element = $15,000 - ($0.75 x 12,000) = $6,000 Therefore, the cost formula for total maintenance cost is $6,000 per period plus $0.75 per unit, or Y = $6,000 + $0.75X.

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Chapter 03: Cost Behavior - Analysis and Use - Key

53. At an activity level of 6,000 units the cost for maintenance is $7,200 and at 10,000 units the cost for maintenance is $11,600. Using the high-low method, the cost formula for maintenance is: A. $1.20 per unit B. $1.16 per unit C. $1,200 plus $1.10 per unit D. $600 plus $1.10 per unit Variable cost = Change in cost Change in activity = ($11,600 - $7,200) (10,000 - 6,000) = $1.10 Fixed cost element = Total cost - Variable cost element = $11,600 - ($1.10 x 10,000) = $600 Therefore, the cost formula for total maintenance cost is $600 per period plus $1.10 per unit, or Y = $600 + $1.10X.

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Chapter 03: Cost Behavior - Analysis and Use - Key

54. Bell Company has provided the following data for maintenance costs:

Using the high-low method, the cost formula for maintenance cost would be: A. $2.00 per machine hour B. $1.625 per machine hour C. $18,000 plus $0.50 per machine hour D. $24,000 plus $0.50 per machine hour Variable cost = Change in cost Change in activity = ($26,000 - $24,000) (16,000 - 12,000) = $0.50 Fixed cost element = Total cost - Variable cost element = $26,000 - ($0.50 x 16,000) = $18,000 Therefore, the cost formula for total maintenance cost is $18,000 per period plus $0.50 per machine-hour, or Y = $18,000 + $0.50X.

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Chapter 03: Cost Behavior - Analysis and Use - Key

55. The following data for a production department relate to two accounting periods:

The best estimate of the fixed departmental cost is closest to: A. $5,250 B. $59,500 C. $187,000 D. $246,500 Variable cost = Change in cost Change in activity = ($251,750 - $246,500) (18,500 - 17,000) = $3.50 Fixed cost element = Total cost - Variable cost element = $251,750 - ($3.50 x 18,500) = $187,000

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Chapter 03: Cost Behavior - Analysis and Use - Key

56. Electrical costs at one of Gotch Corporation's factories are listed below:

Management believes that electrical cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the variable and fixed components of this cost, these estimates would be closest to: A. $0.15 per machine-hour; $35,115 per month B. $9.11 per machine-hour; $1,249 per month C. $9.43 per machine-hour; $35,406 per month D. $6.57 per machine-hour; $10,728 per month Variable cost = Change in cost Change in activity = ($35,694 - $35,044) (3,800 - 3,701) = $6.57 Fixed cost element = Total cost - Variable cost element = $35,694 - ($6.57 x 3,800) = $10,728 Therefore, the cost formula for total electrical cost is $10,728 per period plus $6.57 per machine-hour, or Y = $10,728 + $6.57X

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Chapter 03: Cost Behavior - Analysis and Use - Key

57. Maintenance costs at a Neller Corporation factory are listed below:

Management believes that maintenance cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the variable and fixed components of this cost, these estimates would be closest to: A. $1.85 per machine-hour; $21,325 per month B. $3.77 per machine-hour; $15,648 per month C. $9.07 per machine-hour; $26,762 per month D. $0.27 per machine-hour; $26,071 per month Variable cost = Change in cost Change in activity = ($26,860 - $26,532) (2,974 - 2,887) = $3.77 Fixed cost element = Total cost - Variable cost element = $26,860 - ($3.77 x 2,974) = $15,648 Therefore, the cost formula for total maintenance cost is $15,648 per period plus $3.77 per machine-hour, or Y = $15,648 + $3.77X

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Chapter 03: Cost Behavior - Analysis and Use - Key

58. Supply costs at Rupard Corporation's chain of gyms are listed below:

Management believes that supply cost is a mixed cost that depends on client-visits. Using the high-low method to estimate the variable and fixed components of this cost, those estimates would be closest to: A. $0.76 per client-visit; $18,152 per month B. $1.31 per client-visit; $10,462 per month C. $2.08 per client-visit; $28,489 per month D. $0.77 per client-visit; $17,952 per month Variable cost = Change in cost Change in activity = ($28,707 - $28,093) (13,968 - 13,166) = $0.77 Fixed cost element = Total cost - Variable cost element = $28,707 - ($0.77 x 13,968) = $17,952 Therefore, the cost formula for total supply cost is $17,952 per period plus $0.77 per clientvisit, or Y = $17,952 + $0.77X

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Chapter 03: Cost Behavior - Analysis and Use - Key

59. A clothing manufacturer incurred the following factory maintenance costs: 2,100 units produced with maintenance cost of $61,500, and 750 units produced with maintenance cost of $41,250. How much of the maintenance cost is made up of fixed cost? (Use the high-low method.) A. $11,181 B. $20,125 C. $30,000 D. $50,319 Variable cost = Change in cost Change in activity = ($61,500 - $41,250) (2,100 - 750) = $15.00 Fixed cost element = Total cost - Variable cost element = $61,500 - ($15.00 x 2,100) = $30,000

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60. The cost of goods sold in a retail store totaled $325,000. Fixed selling and administrative expenses totaled $115,000 and variable selling and administrative expenses were $210,000. If the store's contribution margin totaled $590,000, then sales must have been: A. $1,125,000 B. $1,030,000 C. $915,000 D. $650,000

To solve this problem, work backwards. First, calculate what total variable expenses must be by adding the variable cost of goods sold and the variable selling and administrative expenses, or $325,000 + $210,000 = $535,000. Next, add the total variable expenses to the contribution margin to get sales, or $535,000 + $590,000 = $1,125,000.

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Chapter 03: Cost Behavior - Analysis and Use - Key

61. At a sales level of $300,000, James Company's gross margin is $15,000 less than its contribution margin, its net operating income is $50,000, and its selling and administrative expenses total $120,000. At this sales level, its contribution margin would be: A. $250,000 B. $155,000 C. $170,000 D. $185,000 Gross margin - Selling and administrative expenses = Net operating income Gross margin = Net operating income + Selling and administrative expenses Gross margin = $50,000 + $120,000 = $170,000 Since the gross margin is $15,000 less than the contribution margin, the contribution margin must be $170,000 + $15,000 = $185,000.

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Chapter 03: Cost Behavior - Analysis and Use - Key

62. Kalbach Corporation, a manufacturing company, has provided the following financial data for November:

The company had no beginning or ending inventories. The contribution margin for November was: A. $285,000 B. $166,000 C. $310,000 D. $36,000

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Chapter 03: Cost Behavior - Analysis and Use - Key

63. The management of Harper Corporation, a manufacturing company, has provided the following financial data for December:

The contribution margin for December was: A. $204,000 B. $64,000 C. $340,000 D. $319,000

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Chapter 03: Cost Behavior - Analysis and Use - Key

64. The management of Degenhart Corporation, a manufacturing company, has provided the following data for February:

The contribution margin for February was: A. $34,000 B. $323,000 C. $191,000 D. $310,000

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Chapter 03: Cost Behavior - Analysis and Use - Key

65. The following data pertains to activity and the cost of electricity for two recent months:

The best estimate of the total monthly fixed electrical cost is: A. $300 B. $1,200 C. $1,500 D. $1,050 To calculate the variable manufacturing cost per unit:

Variable manufacturing overhead cost = Change in cost Change in activity = ($1,800 - $1,500) (5,000 - 4,000) = $0.30 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $1,800 - ($0.30 x 5,000) = $300

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Chapter 03: Cost Behavior - Analysis and Use - Key Callaham Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $115.80 per unit.

66. The best estimate of the total monthly fixed cost is: A. $24,000 B. $478,050 C. $427,600 D. $528,500

Variable component of cost of goods sold: Variable cost = Change in costs Change in units Variable cost = ($422,500 - $338,000) (5,000 - 4,000) Variable cost = $84.50 per unit Fixed cost: High units: $422,500 - $84.50 x 5,000 = $0 Low units: $338,000 - $84.50 x 4,000 = $0 Variable component of selling and administrative expenses: Variable cost = Change in costs Change in units Variable cost = ($106,000 - $89,600) (5,000 - 4,000) Variable cost = $16.40 per unit Fixed cost: High units: $106,000 - $16.40 x 5,000 = $24,000 Low units: $89,600 - $16.40 x 4,000 = $24,000 Total variable cost per unit: $84.50 + $16.40 = $100.90 per unit Total fixed cost: $0 + $24,000 = $24,000

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Chapter 03: Cost Behavior - Analysis and Use - Key

67. The best estimate of the total variable cost per unit is: A. $84.50 B. $100.90 C. $106.90 D. $105.70 Variable component of cost of goods sold: Variable cost = Change in costs Change in units Variable cost = ($422,500 - $338,000) (5,000 - 4,000) Variable cost = $84.50 per unit Fixed cost: High units: $422,500 - $84.50 x 5,000 = $0 Low units: $338,000 - $84.50 x 4,000 = $0 Variable component of selling and administrative expenses: Variable cost = Change in costs Change in units Variable cost = ($106,000 - $89,600) (5,000 - 4,000) Variable cost = $16.40 per unit Fixed cost: High units: $106,000 - $16.40 x 5,000 = $24,000 Low units: $89,600 - $16.40 x 4,000 = $24,000 Total variable cost per unit: $84.50 + $16.40 = $100.90 per unit Total fixed cost: $0 + $24,000 = $24,000

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Chapter 03: Cost Behavior - Analysis and Use - Key

68. The best estimate of the total contribution margin when 4,300 units are sold is: A. $134,590 B. $43,430 C. $64,070 D. $38,270 Variable component of cost of goods sold: Variable cost = Change in costs Change in units Variable cost = ($422,500 - $338,000) (5,000 - 4,000) Variable cost = $84.50 per unit Fixed cost: High units: $422,500 - $84.50 x 5,000 = $0 Low units: $338,000 - $84.50 x 4,000 = $0 Variable component of selling and administrative expenses: Variable cost = Change in costs Change in units Variable cost = ($106,000 - $89,600) (5,000 - 4,000) Variable cost = $16.40 per unit Fixed cost: High units: $106,000 - $16.40 x 5,000 = $24,000 Low units: $89,600 - $16.40 x 4,000 = $24,000 Total variable cost per unit: $84.50 + $16.40 = $100.90 per unit Total fixed cost: $0 + $24,000 = $24,000

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Chapter 03: Cost Behavior - Analysis and Use - Key

Stewart Company is attempting to classify costs according to their cost behavior. Data concerning activity and costs are listed below:

69. The costs that Stewart Company would classify as variable would be: A. maintenance and supplies. B. maintenance, supplies, utilities, lubrication and advertising. C. supplies and advertising. D. maintenance, utilities and advertising.

Since variable costs, by definition, do not change with changes in activity level, maintenance, utilities, and advertising would all be variable costs.

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Chapter 03: Cost Behavior - Analysis and Use - Key 70. The cost(s) that Stewart Company would classify as fixed would be: A. insurance. B. insurance and lubrication. C. supplies and lubrication. D. insurance and advertising. Fixed costs, by definition, do not change in total with changes in activity level. Therefore, the fixed cost would be insurance.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

71. The costs that Stewart Company would classify as mixed would be: A. lubrication and advertising. B. maintenance and insurance. C. supplies and lubrication. D. supplies and utilities.

Mixed costs change on both a per unit basis and in total with changes in activity level. Therefore, supplies and lubrication are both mixed costs. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key 72. If Stewart Company sells 1,150 units in March and this activity is within the relevant range, the expected total cost would most likely be closest to: A. $2,610.50 B. $1,774.00 C. $4,343.92 D. $4,384.50

To calculate variable and fixed portions of mixed costs: Variable component of supplies: Variable cost = Change in costs Change in units Variable cost = ($790 - $750) (1,400 - 1,200) Variable cost = $0.20 per unit Fixed cost: High units: $790 - ($0.20 x 1,400) = $510 Feedback: Low units: $750 - ($0.20 x 1,200) = $510 Variable component of lubrication: Variable cost = Change in costs Change in units Variable cost = ($576 - $560) (1,400 - 1,200) Variable cost = $0.08 per unit Fixed cost: High units: $576 - ($0.08 x 1,400) = $464 Low units: $560 - ($0.08 x 1,200) = $464 Total variable cost per unit (includes maintenance, utilities, advertising, supplies, and lubrication): $0.50 + $0.74 + $0.75 + $0.20 + $0.08 = $2.27 Total fixed cost: $800 + $510 + $464 = $1,774 Total cost at 1,150 units = $1,774 + ($2.27 x 1,150) = $4,384.50 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key Maxwell Company has a total expense per unit of $2.00 per unit at the 16,000 level of activity and total expense per unit of $1.95 at the 21,000 unit level of activity. 73. The best estimate of the variable cost per unit for Maxwell Company is: A. $0.56 B. $1.79 C. $2.00 D. $1.95 To calculate the variable manufacturing cost per unit:

Variable manufacturing overhead cost = Change in cost = ($40,950 - $32,000) (21,000 - 16,000) = $1.79

Change in activity

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Chapter 03: Cost Behavior - Analysis and Use - Key 74. The best estimate of the total fixed cost per period for Maxwell Company is: A. $40,950 B. $32,000 C. $3,360 D. $29,190 To calculate the variable manufacturing cost per unit:

Variable manufacturing overhead cost = Change in cost Change in activity = ($40,950 $32,000) (21,000 - 16,000) = $1.79 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $40,950 - ($1.79 x 21,000) = $3,360

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Chapter 03: Cost Behavior - Analysis and Use - Key

75. The best estimate of the total expected costs at the 19,000 level of activity for Maxwell Company is: A. $37,050 B. $38,000 C. $37,370 D. $39,830 To calculate the variable manufacturing cost per unit:

Variable manufacturing overhead cost = Change in cost Change in activity = ($40,950 - $32,000) (21,000 - 16,000) = $1.79 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $40,950 - ($1.79 x 21,000) = $3,360 Total cost at 19,000 units = $3,360 + ($1.79 x 19,000) = $37,370

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Chapter 03: Cost Behavior - Analysis and Use - Key

The following production and average cost data for two levels of monthly production volume have been supplied by a company that produces a single product:

76. The best estimate of the total monthly fixed manufacturing cost is: A. $222,000 B. $284,400 C. $305,200 D. $633,600 To calculate the variable manufacturing cost per unit:

Variable manufacturing overhead cost = Change in cost Change in activity = ($305,200 - $284,400) (4,000 - 3,000) = $20.80 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $305,200 - ($20.80 x 4,000) = $222,000

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Chapter 03: Cost Behavior - Analysis and Use - Key 77. The best estimate of the total variable manufacturing cost per unit is: A. $116.40 B. $137.20 C. $20.80 D. $76.70 To calculate the variable manufacturing cost per unit:

Variable manufacturing overhead cost = Change in cost Change in activity = ($305,200 - $284,400) (4,000 - 3,000) = $20.80 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $305,200 - ($20.80 x 4,000) = $222,000 Variable manufacturing cost per unit = Direct material + Direct labor + Variable manufacturing overhead = $76.70 + $39.70 + $20.80 = $137.20

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Chapter 03: Cost Behavior - Analysis and Use - Key 78. The best estimate of the total cost to manufacture 3,200 units is closest to: A. $675,840 B. $616,640 C. $661,040 D. $646,240 To calculate the variable manufacturing cost per unit:

Variable manufacturing overhead cost = Change in cost Change in activity = ($305,200 - $284,400) (4,000 - 3,000) = $20.80 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $305,200 - ($20.80 x 4,000) = $222,000 Variable manufacturing cost per unit = Direct material + Direct labor + Variable manufacturing overhead = $76.70 + $39.70 + $20.80 = $137.20 Y = $222,000 + $137.20(3,200) Y = $661,040

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Chapter 03: Cost Behavior - Analysis and Use - Key

Baaca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

79. The best estimate of the total monthly fixed manufacturing cost is: A. $1,424,400 B. $1,506,400 C. $932,400 D. $1,465,400 First, calculate the variable manufacturing overhead cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($1,015,000 - $1,003,200) (7,000 - 6,000) = $11.80 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $1,015,000 - ($11.80 x 7,000) = $932,400

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Chapter 03: Cost Behavior - Analysis and Use - Key

80. The best estimate of the total variable manufacturing cost per unit is: A. $82.00 B. $70.20 C. $56.70 D. $11.80 First, calculate the variable manufacturing overhead cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($1,015,000 - $1,003,200) (7,000 - 6,000) = $11.80 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $1,015,000 - ($11.80 x 7,000) = $932,400 Variable direct materials cost = $340,200 6,000 units = $56.70 Variable direct labor cost = $81,000 6,000 units = $13.50 Total variable manufacturing cost per unit = Direct materials + Direct labor + Manufacturing overhead Total variable manufacturing cost per unit = $56.70 + $13.50 + $11.80 = $82.00

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Chapter 03: Cost Behavior - Analysis and Use - Key

81. The best estimate of the total cost to manufacture 6,300 units is closest to: A. $1,425,690 B. $1,355,760 C. $1,495,620 D. $1,449,000 First, calculate the variable manufacturing overhead cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($1,015,000 - $1,003,200) (7,000 - 6,000) = $11.80 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $1,015,000 - ($11.80 x 7,000) = $932,400 Variable direct materials cost = $340,200 6,000 units = $56.70 Variable direct labor cost = $81,000 6,000 units = $13.50 Total variable manufacturing cost per unit = Direct materials + Direct labor + Manufacturing overhead Total variable manufacturing cost per unit = $56.70 + $13.50 + $11.80 = $82.00 Y = $932,400 + ($82.00 x 6,300) = $1,449,000

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Chapter 03: Cost Behavior - Analysis and Use - Key

Buffo Company fabricates metal folding chairs. Data concerning the company's revenue and cost structure follow:

82. If Buffo plans to produce and sell 3,000 units next month, the expected contribution margin would be: A. $30,750 B. $74,250 C. $26,750 D. $96,500

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Chapter 03: Cost Behavior - Analysis and Use - Key

83. If Buffo plans to produce and sell 4,000 units next month, the expected gross margin would be: A. $41,000 B. $37,000 C. $68,000 D. $57,500

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84. If Buffo expects to produce and sell 2,000 units next month, the total expected manufacturing cost would be: A. $34,000 B. $39,000 C. $45,500 D. $38,000 Total expected manufacturing cost = $4,000 + ($17 x 2,000 units) = $38,000

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Chapter 03: Cost Behavior - Analysis and Use - Key

85. If Buffo expects to produce and sell 5,000 units next month, the expected net operating income would be: A. $51,250 B. $42,750 C. $71,000 D. $62,500

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Chapter 03: Cost Behavior - Analysis and Use - Key

Rymore Company would like to classify the following costs according to their cost behavior:

86. Which of the following classifications best describes the behavior of Cost A? A. Mixed B. Variable C. Fixed D. None of these

Since Cost A both changes in total when activity level changes and Cost A changes on a per unit basis with changes in activity level, Cost A must, by definition, be a mixed cost.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

87. Which of the following classifications best describes the behavior of Cost B? A. Mixed B. Variable C. Fixed D. None of these

Since Cost B does not change in total with changes in activity level, Cost B must, by definition, be a fixed cost.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

88. Which of the following classifications best describes the behavior of Cost C? A. Mixed B. Variable C. Fixed D. None of these Since Cost C does not change on a per unit basis with changes in activity level, Cost C must, by definition, be a variable cost.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

Bacho Corporation reports that at an activity level of 5,400 units, its total variable cost is $416,934 and its total fixed cost is $142,560.

89. What would be the total variable cost at an activity level of 5,500 units? Assume that this level of activity is within the relevant range. A. $424,655 B. $559,494 C. $416,934 D. $145,200 Variable cost per unit: $416,934 5,400 units = $77.21 per unit Total variable cost = $77.21 x 5,500 units = $424,655

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

90. What would be the average fixed cost per unit at an activity level of 5,500 units? Assume that this level of activity is within the relevant range. A. $26.40 B. $103.61 C. $25.92 D. $51.98 Average fixed cost per unit = Total fixed costs total units Average fixed cost per unit = $142,560 5,500 units = $25.92

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

At an activity level of 7,900 machine-hours in a month, Manchester Corporation's total variable maintenance cost is $430,550 and its total fixed maintenance cost is $417,120.

91. What would be the total variable maintenance cost at an activity level of 8,000 machinehours in a month? Assume that this level of activity is within the relevant range. A. $847,670 B. $422,400 C. $430,550 D. $436,000 Variable cost per unit: $430,550 7,900 hours = $54.50 per hour Total variable cost = 8,000 hours x $54.50 = $436,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

92. What would be the average fixed maintenance cost per unit at an activity level of 8,000 units in a month? Assume that this level of activity is within the relevant range. A. $52.14 B. $70.75 C. $52.80 D. $107.30 Average fixed cost per unit = Total fixed costs total units Average fixed cost per unit = $417,120 8,000 units = $52.14

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

Grundmann Inc. reports that at an activity level of 6,500 machine-hours in a month, its total variable inspection cost is $487,110 and its total fixed inspection cost is $326,040.

93. What would be the average fixed inspection cost per unit at an activity level of 6,600 units in a month? Assume that this level of activity is within the relevant range. A. $125.10 B. $74.89 C. $50.16 D. $49.40 Total fixed costs total units = Average fixed cost per unit $326,040 6,600 units = $49.40 per unit

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

94. What would be the total variable inspection cost at an activity level of 6,600 machinehours in a month? Assume that this level of activity is within the relevant range. A. $494,604 B. $331,056 C. $487,110 D. $813,150 First, calculate the variable inspection cost per hour by: Total variable inspection costs Total machine hours = Variable inspection cost per unit $487,110 6,500 = $74.94 per machine-hour Next, calculate the total variable inspection costs by: Total variable inspection costs @ 6,600 machine-hours = $74.94 x 6,600 = $494,604

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the last five months of operations.

95. Using the high-low method of analysis, the estimated variable cost per machine hour for electricity is closest to: A. $0.40 B. $2.50 C. $0.98 D. $1.68 Variable cost = Change in cost $0.40

Change in activity = ($1,950 - $1,510)

(2,000 - 900) =

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

96. Using the high-low method of analysis, the estimated fixed cost per month for electricity is closest to: A. $1,306.50 B. $870.00 C. $1,290.00 D. $1,150.00 Variable cost = Change in cost Change in activity = ($1,950 - $1,510) (2,000 - 900) = $0.40 Fixed cost element = Total cost - Variable cost element = $1,950 - ($0.40 x 2,000) = $1,150 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key Hiss Company's activity for the last six months is as follows:

97. Using the high-low method, the estimated variable electrical cost per machine hour is: A. $0.40 B. $0.65 C. $0.70 D. $0.67 Variable cost = Change in cost $0.65

Change in activity = ($2,230 - $1,450)

(3,000 - 1,800) =

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

98. Using the high-low method, the estimated monthly fixed component of the electrical cost is: A. $260 B. $235 C. $280 D. $800 Variable cost = Change in cost Change in activity = ($2,230 - $1,450) (3,000 - 1,800) = $0.65 Fixed cost element = Total cost - Variable cost element = $2,230 - ($0.65 x 3,000) = $280 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key Prater Company has provided the following data:

99. The best estimate of the company's variable selling and administrative expense per unit is: A. $0.24 per unit B. $4.17 per unit C. $0.91 per unit D. $0.96 per unit Variable component of selling and administrative expenses: Variable cost = Change in costs Change in units = ($272,000 - $260,000) 250,000) = $0.24 per unit

(300,000 -

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

100. The best estimate of the company's total fixed selling and administrative expense per year is: A. $188,000 B. $72,000 C. $200,000 D. $212,000 Variable component of selling and administrative expenses: Variable cost = Change in costs Change in units = ($272,000 - $260,000) (300,000 250,000) = $0.24 per unit Fixed cost element = Total cost - Variable cost element = $272,000 - ($0.24 x 300,000) = $200,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key Electrical costs at one of Noyd Corporation's factories are listed below:

Management believes that electrical cost is a mixed cost that depends on machine-hours. 101. Using the high-low method, the estimate of the variable component of electrical cost per machine-hour is closest to: A. $0.11 B. $8.92 C. $94.27 D. $8.56 Variable cost = Change in cost $8.92

Change in activity = ($10,550 - $9,881)

(144 - 69) =

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

102. Using the high-low method, the estimate of the fixed component of electrical cost per month is closest to: A. $9,266 B. $10,232 C. $10,244 D. $9,881 Variable cost = Change in cost Change in activity = ($10,550 - $9,881) (144 - 69) = $8.92 Fixed cost element = Total cost - Variable cost element = $10,550 - ($8.92 x 144) = $9,265.52 = $9,266 (rounded) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key Inspection costs at one of Pulley Corporation's factories are listed below:

Management believes that inspection cost is a mixed cost that depends on units produced. 103. Using the high-low method, the estimate of the variable component of inspection cost per unit produced is closest to: A. $13.73 B. $10.17 C. $0.10 D. $10.35 Variable cost = Change in cost $10.17 (rounded)

Change in activity = ($10,875 - $9,980)  (799 - 711) =

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

104. Using the high-low method, the estimate of the fixed component of inspection cost per month is closest to: A. $2,749 B. $10,519 C. $9,980 D. $10,597 Variable cost = Change in cost Change in activity = ($10,875 - $9,980) (799 - 711) = $10.17 (rounded) Fixed cost element = Total cost - Variable cost element = $10,875 - ($10.17 x 799) = $2,749.17 = $2,749 (rounded) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key Annarummo Inc., an escrow agent, has provided the following data concerning its office expenses:

Management believes that office expense is a mixed cost that depends on the number of escrows completed. Note: Real estate purchases usually involve the services of an escrow agent that holds funds and prepares documents to complete the transaction. 105. Using the high-low method, the estimate of the variable component of office expense per escrow completed is closest to: A. $196.11 B. $95.37 C. $99.50 D. $292.71 Variable cost = Change in cost $95.37 (rounded)

Change in activity = ($18,295 - $11,333)

(92 - 19) =

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

106. Using the high-low method, the estimate of the fixed component of office expense per month is closest to: A. $12,724 B. $11,333 C. $9,521 D. $14,115 Variable cost = Change in cost Change in activity = ($18,295 - $11,333) (92 - 19) = $95.37 (rounded) Fixed cost element = Total cost - Variable cost element = $18,295 - ($95.37 x 92) = $9,520.96 = $9,521 (rounded) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key Porter Company has provided the following data for the second quarter of the most recent year:

Assume that direct labor is a variable cost and that there were no beginning or ending inventories. 107. The total contribution margin of Porter Company for the second quarter was: A. $37,250 B. $87,000 C. $176,000 D. $211,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key

108. The gross margin for Porter Company for the second quarter was: A. $(12,500) B. $80,000 C. $131,500 D. $135,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key In October, Haldeman Corporation, a manufacturing company, reported the following financial data:

The company had no beginning or ending inventories. 109. The contribution margin for October was: A. $5,000 B. $183,000 C. $264,000 D. $282,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

110. The gross margin for October was: A. $282,000 B. $183,000 C. $264,000 D. $5,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key The management of Harlow Corporation, a manufacturing company, would like your help in contrasting the traditional and contribution approaches to the income statement. The company has provided the following financial data for January:

The company had no beginning or ending inventories.

111. The gross margin for January was: A. $166,000 B. $110,000 C. $42,000 D. $172,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key 112. The contribution margin for January was: A. $172,000 B. $42,000 C. $166,000 D. $110,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

Pfalzgraf Corporation, a manufacturing company, has provided the following financial data for January:

The company had no beginning or ending inventories.

113. The gross margin for January was: A. $14,000 B. $151,000 C. $91,000 D. $163,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

114. The contribution margin for January was: A. $14,000 B. $151,000 C. $91,000 D. $163,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key Essay Questions

115. Mateo Company's average cost per unit is $1.425 at the 16,000 unit level of activity and $1.38 at the 20,000 unit level of activity. Assume that all of the activity levels mentioned in this problem are within the relevant range. Required: Predict the following items for Mateo Company: a. Variable cost per unit. b. Total fixed cost per period. c. Total expected costs at the 18,000 unit level of activity.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key

116. Giaquinto Corporation reports that at an activity level of 7,600 units, its total variable cost is $182,856 and its total fixed cost is $444,296. Required: For the activity level of 7,900 units, compute: (a) the total variable cost; (b) the total fixed cost; (c) the total cost; (d) the average variable cost per unit; (e) the average fixed cost per unit; and (f) the average total cost per unit. Assume that this activity level is within the relevant range.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

117. At an activity level of 2,400 units, Kloster Corporation's total variable cost is $118,008 and its total fixed cost is $9,000. Required: For the activity level of 2,500 units, compute: (a) the total variable cost; (b) the total fixed cost; (c) the total cost; (d) the average variable cost per unit; (e) the average fixed cost per unit; and (f) the average total cost per unit. Assume that this activity level is within the relevant range.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key 118. The Central Valley Company is a merchandising firm that sells a single product. The company's revenues and expenses for the last three months are given below:

Required: a. Determine which expenses are mixed and, by use of the high-low method, separate each mixed expense into its variable and fixed components. State the cost formula for each mixed expense. b. Compute the company's total contribution margin for May.

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Chapter 03: Cost Behavior - Analysis and Use - Key a. The cost of goods sold for this company is a variable cost and is $56 per unit. The Shipping Expense and the Salaries and Commissions Expense are mixed. All other expenses are constant for each of the months shown and are therefore fixed. Shipping Expense: ($71,000 - $56,000)/(6,000 - 4,500) = $15,000/1,500 = $10 per unit $56,000 - (4,500 x $10) = $11,000 Cost formula = $11,000 per month plus $10 per unit Salaries and Commissions: ($180,500 - 143,000)/(6,000 - 4,500) = $37,500/1,500 = $25 per unit $143,000 - (4,500 x $25) = $30,500 Cost formula = $30,500 per month plus $25 per unit

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 4 Level: Hard

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Chapter 03: Cost Behavior - Analysis and Use - Key

119. Unified Parcel, Inc., operates a local parcel delivery service. The company keeps detailed records relating to operating costs of trucks, and has found that if a truck is driven 110,000 miles per year the operating cost is 7.5 cents per mile. This cost increases to 8.75 cents per mile if a truck is driven 60,000 miles per year. Required: Estimate the cost formula for truck operating costs using the high-low method. Total cost at high level of activity: 110,000 x $0.075 = $8,250 Total cost at low level of activity: 60,000 x $0.0875 = $5,250

Variable cost = Change in cost Change in activity = $3,000 50,000 miles = $0.06 per mile Fixed cost element = $8,250 - ($0.06 per mile x 110,000 miles) = $1,650 The cost formula is $1,650 per year plus $0.06 per mile.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key 120. Utility costs at one of Hambley Corporation's factories are listed below:

Management believes that utility cost is a mixed cost that depends on machine-hours. Required: Estimate the variable cost per machine-hour and the fixed cost per month using the high-low method. Show your work! Machine-Hours Utility Cost High activity level 4,318 $39,881 Low activity level 4,221 $39,308

Variable cost = Change in cost Change in activity = ($39,881 - $39,308) (4,318 - 4,221) = $5.91 Fixed cost element = Total cost - Variable cost element = $39,308 - ($5.91 x 4,221) = $14,362

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

121. Wigley Inc. has provided the following data concerning its maintenance costs:

Management believes that maintenance cost is a mixed cost that depends on machine-hours. Required: Estimate the variable cost per machine-hour and the fixed cost per month using the high-low method. Show your work!

Variable cost = Change in cost Change in activity = ($37,098 - $36,612) (4,833 - 4,743) = $5.40 Fixed cost element = Total cost - Variable cost element = $36,612 - ($5.40 x 4,743) = $11,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

122. The management of Fagundes Corporation would like to have a better understanding of the behavior of its inspection costs. The company has provided the following data:

Management believes that inspection cost is a mixed cost that depends on direct labor-hours. Required: Estimate the variable cost per direct labor-hour and the fixed cost per month using the highlow method. Show your work!

Variable cost = Change in cost Change in activity = ($59,565 - $58,787) (4,966 - 4,875) = $8.55 Fixed cost element = Total cost - Variable cost element = $58,787 - ($8.55 x 4,875) = $17,106

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key 123. The 4 x 4 Shop is a large retailer of equipment for pickup trucks. An income statement for the company's bed liner department for the most recent quarter is presented below:

The liners sell, on average, for $350 each. The department's variable selling expenses are $35 per liner sold. The remaining selling expenses are fixed. The administrative expenses are 25% variable and 75% fixed. The company purchases its liners from a supplier at a cost of $125 per liner. Required: Prepare an income statement for the quarter, using the contribution approach.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 03: Cost Behavior - Analysis and Use - Key

124. In August, Clarey Corporation, a manufacturing company, reported the following financial data:

The company had no beginning or ending inventories. Required: a. Prepare an income statement in good form for August using the traditional approach. b. Prepare an income statement in good form for August using the contribution approach.

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Chapter 03: Cost Behavior - Analysis and Use - Key AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

125. Sibrel Inc., a manufacturing company, has provided the following financial data for September:

The company had no beginning or ending inventories. Required: a. Prepare an income statement in good form for September using the traditional approach. b. Prepare an income statement in good form for September using the contribution approach.

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Chapter 03: Cost Behavior - Analysis and Use - Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

126. In March, Branford Corporation, a manufacturing company, reported the following financial data:

Required: Prepare an income statement in good form for March using the contribution approach.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 03: Cost Behavior - Analysis and Use - Key

127. Bellido Inc., a manufacturing company, has provided the following data for December:

Required: Prepare an income statement in good form for December using the contribution approach.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

H M M E M M M M M H H E M M M E H E M E M H E M H M H M H H H E E E E E

Professional Exam Adapted

LO9: Multiproduct CVP

LO8: Operating leverage

LO7: Margin of safety

LO6: Target profit analysis

LO5: Break-even analysis

LO4: Effects of changes in parameters

LO3: CM ratio

LO2: CVP and profit graphs

LO1: CVP concepts

Question Type T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C M/C M/C M/C M/C M/C M/C M/C M/C

Difficulty

Chapter 04: Cost-Volume-Profit Relationship

x x x x x x x x x x x x x x x

x x x x x x x x x

CMA x x x x

CMA x

x x x x x x x x

x

CMA

x x x

4-1 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

CMA

Professional Exam Adapted

LO9: Multiproduct CVP

x x

LO8: Operating leverage

x x x x x x

LO7: Margin of safety

LO4: Effects of changes in parameters

x x x x x x x x x x x x x

LO6: Target profit analysis

H H E H M M H H H M E E E M H E E E E E E E E M M H E E E E E E E E M

LO3: CM ratio

LO2: CVP and profit graphs

LO1: CVP concepts

Question Type M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C

LO5: Break-even analysis

37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71

Difficulty

Chapter 04: Cost-Volume-Profit Relationship

x x x

x x x x x x x x x x x

CIMA

x x x x x x x x x x

x

x 4-2

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95-100 101-102 103-105 106-108 109-110 111-112 113-114 115-118 119-121 122-123 124-125 126-128

M M E E E E E E E E E E E E E E E M H E E E E

x x x x x x x

Professional Exam Adapted

LO9: Multiproduct CVP

LO8: Operating leverage

LO7: Margin of safety

LO6: Target profit analysis

LO5: Break-even analysis

LO4: Effects of changes in parameters

LO3: CM ratio

LO2: CVP and profit graphs

LO1: CVP concepts

Question Type M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C

Difficulty

Chapter 04: Cost-Volume-Profit Relationship

CMA

x x x x x x x x x x x x x x x x x x x x x x x

x x x

x

x x x x

x x

x x x

x

x

x

x

x

x x x

x

x

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CIMA

x x x x x

x x x x x x x x x x x E M H H E E E E E E E E E E E

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x x x

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x x

x

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Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

x

Professional Exam Adapted

LO9: Multiproduct CVP

x

LO8: Operating leverage

x x x x x

LO7: Margin of safety

LO6: Target profit analysis

LO4: Effects of changes in parameters

LO3: CM ratio

LO2: CVP and profit graphs

LO1: CVP concepts

Question Type Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem

LO5: Break-even analysis

129-130 131-134 135-138 139-142 143-145 146-147 148-149 150-151 152-153 154-155 156-157 158-159 160-161 162-163 164-165 166-167 168-169 170-171 172-173 174-175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190

Difficulty

Chapter 04: Cost-Volume-Profit Relationship

x

x

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x x x x x x x x x x x x x x x x x x x x x x x x x

4-5 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Professional Exam Adapted

LO9: Multiproduct CVP

LO6: Target profit analysis

LO5: Break-even analysis

LO4: Effects of changes in parameters

LO8: Operating leverage

E E E E M E E E E E E E E E E E E E E E E E E E E

LO3: CM ratio

LO2: CVP and profit graphs

LO1: CVP concepts

Question Type Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem

LO7: Margin of safety

191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215

Difficulty

Chapter 04: Cost-Volume-Profit Relationship

Chapter 04: Cost-Volume-Profit Relationship - Key

True / False Questions 1. A contribution approach income statement can usually be easily prepared from the information contained in a corporation's published income statement. True False

2. The profit in cost-volume-profit equations is the same as the net operating income on a contribution income statement. True False

3. On a cost-volume-profit graph, the revenue line will be shown above the total expense line for any activity level above the break-even point. True False

4. On a CVP graph for a profitable company, the line representing total expenses is steeper than the line representing total revenue. True False

5. The contribution margin ratio measures the effect on the total contribution margin of a given change in total sales. True False

6. A company with sales of $100,000, variable expenses of $70,000, and fixed expenses of $50,000 will reach its break-even point if sales are increased by $20,000. True False

7. At the break-even point, variable expenses and fixed expenses are equal. True False

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Chapter 04: Cost-Volume-Profit Relationship - Key

8. All other things the same, a decrease in variable expense per unit will reduce the breakeven point. True False

9. An increase in the number of units sold will decrease the break-even point. True False

10. All other things equal, the margin of safety in a company with high fixed costs and low variable costs will tend to be higher than the margin of safety in a similar company that has low fixed costs and high variable costs. True False

11. As total sales increase beyond the break-even point, the degree of operating leverage will also increase. True False

12. The degree of operating leverage is greatest at sales levels near the break-even point and decreases as sales rise. True False

13. All other things the same, in periods of increasing sales, net operating income will tend to increase more rapidly in a company with high variable costs and low fixed costs than in a company with high fixed costs and low variable costs. True False

14. If the sales mix changes, the average contribution margin ratio is likely to change as well. True False

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Chapter 04: Cost-Volume-Profit Relationship - Key

Multiple Choice Questions 15. Which of the following is an assumption that is NOT made in most cost-volume-profit calculations? A. Selling price, variable expense per unit, and fixed expense per unit do not change throughout the relevant range. B. There is no change in inventory levels. C. In a multiproduct company, the sales mix does not change. D. The selling price is constant.

16. On a cost-volume-profit graph, the break-even point is located: A. at the origin. B. where the total revenue line intersects the volume axis. C. where the total expenses line intersects the dollars axis. D. where the total revenue line intersects the total expenses line.

17. If a company increases advertising by $500,000, this will cause net operating income to increase if the resulting increase in sales dollars is greater than: A. $500,000. B. $500,000 divided by the percentage increase in advertising. C. $500,000 divided by the degree of operating leverage. D. $500,000 divided by the contribution margin ratio.

18. Once the break-even point is reached: A. the total contribution margin changes from negative to positive. B. net operating income will increase by the unit contribution margin for each additional item sold. C. variable expenses will remain constant in total. D. the contribution margin ratio begins to decrease.

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Chapter 04: Cost-Volume-Profit Relationship - Key

19. Which of the following is true regarding the contribution margin ratio of a single product company? A. As fixed expenses decrease, the contribution margin ratio increases. B. The contribution margin ratio multiplied by the variable expense per unit equals the contribution margin per unit. C. If sales increase, the dollar increase in net operating income can be computed by multiplying the contribution margin ratio by the dollar increase in sales. D. The contribution margin ratio increases as the number of units sold increases.

20. Assuming that the unit sales are unchanged, the total contribution margin will decrease if: A. fixed expenses increase. B. fixed expenses decrease. C. variable expense per unit increases. D. variable expense per unit decreases.

21. To obtain the break-even point in terms of dollar sales, total fixed expenses are divided by which of the following? A. Variable expense per unit. B. Variable expense per unit/Selling price per unit. C. Fixed expense per unit. D. (Selling price per unit - Variable expense per unit)/Selling price per unit.

22. A company increased the selling price for its product from $5 to $6 per unit when total fixed expenses increased from $100,000 to $200,000 and variable expense per unit remained unchanged. How would these changes affect the break-even point? A. The break-even point in units would increase. B. The break-even point in units would decrease. C. The break-even point in units would remain unchanged. D. The effect cannot be determined from the information given.

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Chapter 04: Cost-Volume-Profit Relationship - Key

23. The ratio of fixed expenses to the unit contribution margin is the: A. break-even point in unit sales. B. profit margin. C. contribution margin ratio. D. margin of safety.

24. The margin of safety is equal to: A. Sales - Net operating income. B. Sales - (Variable expenses/Contribution margin). C. Sales - (Fixed expenses/Contribution margin ratio). D. Sales - (Variable expenses + Fixed expenses).

25. Witczak Company has a single product and currently has a degree of operating leverage of 5. Which of the following will increase Witczak's degree of operating leverage?

A. Choice A B. Choice B C. Choice C D. Choice D

26. If company A has a higher degree of operating leverage than company B, then: A. company A has higher variable expenses. B. company A's profits are more sensitive to percentage changes in sales. C. company A is more profitable. D. company A is less risky.

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Chapter 04: Cost-Volume-Profit Relationship - Key

27. Which of the following would a manufacturing company expect to experience as it automates and shifts from variable expenses to fixed expenses? A. A lower margin of safety percentage. B. A higher contribution margin ratio. C. A steeper total expenses line on its cost-volume-profit graph. D. Both A and B above.

28. Marston Enterprises sells three chemicals: petrol, septine, and tridol. Petrol's unit contribution margin is higher than septine's which is higher than tridol's. Which one of the following events is most likely to decrease the company's overall break-even point? A. The installation of new computer-controlled equipment that reduces variable costs and increases fixed costs. B. A decrease in tridol's selling price. C. An increase in the overall market demand for septine. D. A change in the relative market demand for the products, with the increase favoring petrol relative to septine and tridol.

29. Last year, Twins Company reported $750,000 in sales (25,000 units) and a net operating income of $25,000. At the break-even point, the company's total contribution margin equals $500,000. Based on this information, the company's: A. contribution margin ratio is 40%. B. break-even point is 24,000 units. C. variable expense per unit is $9. D. variable expenses are 60% of sales.

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Chapter 04: Cost-Volume-Profit Relationship - Key

30. A company has provided the following data:

If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%, and all other factors remain the same, net operating income will: A. increase by $61,000. B. increase by $20,000. C. increase by $3,500. D. increase by $11,000.

31. At a break-even point of 400 units sold, variable expenses were $4,000 and fixed expenses were $2,000. What will the 401st unit sold contribute to profit? A. $0 B. $5 C. $10 D. $15

32. Carver Company produces a product which sells for $30. Variable manufacturing costs are $15 per unit. Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and administrative costs are $4 per unit. A selling commission of 10% of the selling price is paid on each unit sold. The contribution margin per unit is: A. $3 B. $15 C. $8 D. $12

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Chapter 04: Cost-Volume-Profit Relationship - Key

33. Pilkinton Corporation has provided its contribution format income statement for July. The company produces and sells a single product.

If the company sells 10,300 units, its total contribution margin should be closest to: A. $49,211 B. $391,400 C. $407,400 D. $376,200

34. Litke Corporation, a company that produces and sells a single product, has provided its contribution format income statement for February.

If the company sells 5,100 units, its net operating income should be closest to: A. $15,600 B. $11,700 C. $8,400 D. $14,733

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Chapter 04: Cost-Volume-Profit Relationship - Key

35. Filson Inc., a company that produces and sells a single product, has provided its contribution format income statement for February.

If the company sells 9,700 units, its total contribution margin should be closest to: A. $252,200 B. $74,026 C. $247,000 D. $263,200

36. Finnefrock Inc. produces and sells a single product. The company has provided its contribution format income statement for December.

If the company sells 9,200 units, its net operating income should be closest to: A. $115,800 B. $95,800 C. $110,975 D. $78,600

37. Last year, Black Company reported sales of $640,000, a contribution margin of $160,000, and a net loss of $40,000. Based on this information, the break-even point was: A. $640,000 B. $480,000 C. $800,000 D. $960,000

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Chapter 04: Cost-Volume-Profit Relationship - Key

38. The break-even point in dollar sales for Rice Company is $360,000 and the company's contribution margin ratio is 30%. If Rice Company desires a profit of $84,000, sales would have to total A. $280,000 B. $640,000 C. $480,000 D. $560,000

39. North Company sells a single product. The product has a selling price of $30 per unit and variable expenses of 70% of sales. If the company's fixed expenses total $60,000 per year, then it will have a break-even of: A. $60,000 B. $85,714 C. $42,000 D. $200,000

40. Fenestre Corporation's contribution margin ratio is 25%. The company's break-even is 80,000 units and the selling price of its only product is $4.00 a unit. What are the company's fixed expenses? A. $80,000 B. $320,000 C. $20,000 D. $120,000

41. Jatry Corporation's budgeted sales are $300,000, its budgeted variable expenses are $210,000, and its budgeted fixed expenses are $60,000. The company's break-even in dollar sales is: A. $200,000 B. $330,000 C. $210,000 D. $270,000

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Chapter 04: Cost-Volume-Profit Relationship - Key

42. Forest Corporation has prepared the following budgeted data based on a sales forecast of $3,000,000:

What would be the amount of dollar sales at the break-even point? A. $1,125,000 B. $2,000,000 C. $2,650,000 D. $1,750,000

43. Mardist Corporation has sales of $100,000, variable expenses of $75,000, fixed expenses of $30,000, and a net loss of $5,000. How much would Mardist have to sell to achieve a profit of 10% of sales? A. $187,500 B. $200,000 C. $225,500 D. $180,000

44. Green Company's variable expenses are 75% of sales. At a sales level of $400,000, the company's degree of operating leverage is 8. At this sales level, fixed expenses are: A. $87,500 B. $100,000 C. $50,000 D. $75,000

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Chapter 04: Cost-Volume-Profit Relationship - Key

45. Slosh Cleaning Corporation services both residential and commercial customers. Slosh expects the following operating results next year for each type of customer:

Slosh expects to have $18,000 in fixed expenses next year. What would Slosh's total dollar sales have to be next year in order to generate a profit of $90,000? A. $216,000 B. $250,000 C. $270,000 D. $300,000

46. Scott Company's variable expenses are 72% of sales. The company's break-even point in dollar sales is $2,450,000. If sales are $60,000 below the break-even point, the company would report a: A. $43,200 loss B. $60,000 loss C. $16,800 loss D. cannot be determined from the data given.

47. Mitch Corporation's contribution margin ratio is 14% and its fixed monthly expenses are $87,000. If the company's sales for a month are $678,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change. A. $591,000 B. $496,080 C. $94,920 D. $7,920

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Chapter 04: Cost-Volume-Profit Relationship - Key

48. Seyal Inc.'s contribution margin ratio is 55% and its fixed monthly expenses are $34,000. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $94,000? A. $17,700 B. $60,000 C. $8,300 D. $51,700

49. Scobie Corporation's fixed monthly expenses are $16,000 and its contribution margin ratio is 57%. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $69,000? A. $39,330 B. $23,330 C. $13,670 D. $53,000

50. Riven Corporation has a single product whose selling price is $10. At an expected sales level of $1,000,000, the company's variable expenses are $600,000 and its fixed expenses are $300,000. The marketing manager has recommended that the selling price be increased by 20%, with an expected decrease of only 10% in unit sales. What would be the company's net operating income if the marketing manager's recommendation is adopted? A. $132,000 B. $290,000 C. $180,000 D. $240,000

51. Last year, variable expenses were 60% of total sales and fixed expenses were 10% of total sales. If the company increases its selling prices by 10%, but if fixed expenses, variable costs per unit, and unit sales remain unchanged, the effect of the increase in selling price on the company's total contribution margin would be: A. a decrease of 2%. B. an increase of 5%. C. an increase of 10%. D. an increase of 25%.

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Chapter 04: Cost-Volume-Profit Relationship - Key

52. Data concerning Damberger Corporation's single product appear below:

The company is currently selling 5,000 units per month. Fixed expenses are $243,000 per month. The marketing manager believes that an $11,000 increase in the monthly advertising budget would result in a 180 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $200 B. decrease of $200 C. increase of $10,800 D. decrease of $11,000

53. Ringstaff Corporation produces and sells a single product. Data concerning that product appear below:

The company is currently selling 7,000 units per month. Fixed expenses are $615,000 per month. The marketing manager believes that a $21,000 increase in the monthly advertising budget would result in a 180 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $600 B. decrease of $600 C. decrease of $21,000 D. increase of $21,600

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Chapter 04: Cost-Volume-Profit Relationship - Key

54. Data concerning Grodi Corporation's single product appear below:

Fixed expenses are $324,000 per month. The company is currently selling 5,000 units per month. Management is considering using a new component that would increase the unit variable cost by $9. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $4,500 B. decrease of $40,500 C. increase of $40,500 D. increase of $4,500

55. Vaccaro Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $293,000 per month. The company is currently selling 3,000 units per month. Management is considering using a new component that would increase the unit variable cost by $13. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $600 B. increase of $39,600 C. decrease of $600 D. decrease of $39,600

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Chapter 04: Cost-Volume-Profit Relationship - Key

56. Data concerning Amburn Corporation's single product appear below:

Fixed expenses are $179,000 per month. The company is currently selling 3,000 units per month. The marketing manager would like to cut the selling price by $9 and increase the advertising budget by $12,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 500 units. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $7,500 B. increase of $19,500 C. decrease of $19,500 D. increase of $43,500

57. Similien Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $300,000 per month. The company is currently selling 5,000 units per month. The marketing manager would like to cut the selling price by $14 and increase the advertising budget by $17,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,400 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $64,200 B. increase of $215,400 C. decrease of $64,200 D. decrease of $5,800

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Chapter 04: Cost-Volume-Profit Relationship - Key

58. Data concerning Sa Corporation's single product appear below:

Fixed expenses are $445,000 per month. The company is currently selling 6,000 units per month. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $9 per unit. In exchange, the sales staff would accept a decrease in their salaries of $43,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 100 units. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $88,900 B. decrease of $2,900 C. increase of $42,100 D. increase of $537,100

59. Moloney Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $898,000 per month. The company is currently selling 9,000 units per month. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $16 per unit. In exchange, the sales staff would accept a decrease in their salaries of $117,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 100 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $115,400 B. decrease of $16,600 C. decrease of $250,600 D. increase of $1,063,400

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Chapter 04: Cost-Volume-Profit Relationship - Key

60. Bear Publishing sells a nature guide. The following information was reported for a typical month (sales volume is constant each month):

Bear is expecting a 20 cent increase in variable expenses. No other changes are expected or planned. How much contribution margin should Bear expect after the increase? A. $7,700 B. $4,100 C. $9,900 D. Cannot be determined.

61. The following is last month's contribution format income statement:

What is the company's margin of safety in dollars? A. $100,000 B. $600,000 C. $1,500,000 D. $250,000

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Chapter 04: Cost-Volume-Profit Relationship - Key

62. Last year, Perry Company reported profits of $4,200. Its variable expenses totaled $66,000 or $6 per unit. The unit contribution margin was $3.00. The break-even point in unit sales for Perry Company is: A. 11,000 B. 9,600 C. 22,000 D. 12,400

63. The following data pertain to last month's operations:

The break-even point in dollar sales is: A. $18,000 B. $6,000 C. $11,250 D. $7,500

64. The following is last month's contribution format income statement:

What is the company's break-even in unit sales? A. 0 units B. 12,000 units C. 6,000 units D. 8,000 units

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Chapter 04: Cost-Volume-Profit Relationship - Key

65. Witting Corporation produces and sells a single product. Data concerning that product appear below:

The break-even in monthly unit sales is closest to: A. 2,523 B. 1,502 C. 3,337 D. 2,730

66. Data concerning Enslow Corporation's single product appear below:

The break-even in monthly unit sales is closest to: A. 6,711 B. 4,390 C. 12,495 D. 3,249

67. Steckelberg Inc. produces and sells a single product. The selling price of the product is $150.00 per unit and its variable cost is $54.00 per unit. The fixed expense is $154,560 per month. The break-even in monthly unit sales is closest to: A. 1,610 B. 1,030 C. 1,834 D. 2,862

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Chapter 04: Cost-Volume-Profit Relationship - Key

68. Terres Corporation produces and sells a single product. Data concerning that product appear below:

The break-even in monthly dollar sales is closest to: A. $889,273 B. $438,000 C. $293,460 D. $540,244

69. Data concerning Vogelgesang Corporation's single product appear below:

The break-even in monthly dollar sales is closest to: A. $850,000 B. $527,000 C. $921,281 D. $1,386,842

70. Zents Inc. produces and sells a single product. The selling price of the product is $240.00 per unit and its variable cost is $108.00 per unit. The fixed expense is $407,880 per month. The break-even in monthly dollar sales is closest to: A. $685,293 B. $741,600 C. $906,400 D. $407,880

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Chapter 04: Cost-Volume-Profit Relationship - Key

71. A product sells for $20 per unit, and has a contribution margin ratio of 40%. Fixed expenses are $120,000. How many units must be sold to yield a profit of $30,000? A. 18,750 B. 20,000 C. 25,000 D. 12,500

72. Harist Corporation sold 5,000 units in May. Sales were $400,000, variable expenses were $240,000, and fixed expenses were $120,000. If the company increases its selling price by 10%, how many units would have to be sold in June to generate a profit of $40,000? A. 4,200 B. 4,500 C. 4,000 D. 5,000

73. Austin Manufacturing had the following operating data for the year just ended.

Management plans to improve the quality of its only product by: (1) replacing a component that costs $3.50 with a higher-grade component that costs $5.50; and (2) renting a packing machine for $18,000 a year. If the desired target profit is $288,000, the company must sell: A. 19,300 units B. 21,316 units C. 22,500 units D. 20,842 units

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Chapter 04: Cost-Volume-Profit Relationship - Key

74. Lempka Corporation produces and sells a single product. Data concerning that product appear below:

The unit sales to attain the company's monthly target profit of $17,000 is closest to: A. 4,172 B. 4,520 C. 2,169 D. 3,620

75. Data concerning Shanor Enterprises Corporation's single product appear below:

The unit sales to attain the company's monthly target profit of $13,000 is closest to: A. 2,245 B. 3,805 C. 5,475 D. 3,842

76. Aybar International Corporation's only product sells for $210.00 per unit and its variable expense is $75.60. The company's monthly fixed expense is $766,080 per month. The unit sales to attain the company's monthly target profit of $28,000 is closest to: A. 5,908 B. 6,731 C. 10,504 D. 3,781

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Chapter 04: Cost-Volume-Profit Relationship - Key

77. Monsky Corporation produces and sells a single product whose contribution margin ratio is 60%. The company's monthly fixed expense is $420,000 and the company's monthly target profit is $13,000. The dollar sales to attain that target profit is closest to: A. $252,000 B. $259,800 C. $721,667 D. $700,000

78. The contribution margin ratio of Scoggins Corporation's only product is 69%. The company's monthly fixed expense is $364,320 and the company's monthly target profit is $14,000. The dollar sales to attain that target profit is closest to: A. $261,041 B. $251,381 C. $548,290 D. $528,000

79. Lineman Corporation sells a product for $230 per unit. The product's current sales are 23,400 units and its break-even sales are 20,124 units. What is the margin of safety in dollars? A. $3,588,000 B. $5,382,000 C. $753,480 D. $4,628,520

80. Knell Corporation sells a product for $230 per unit. The product's current sales are 33,000 units and its break-even sales are 26,400 units. The margin of safety as a percentage of sales is closest to: A. 25% B. 75% C. 20% D. 80%

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Chapter 04: Cost-Volume-Profit Relationship - Key

81. Murdoch Corporation has provided the following data concerning its only product:

What is the margin of safety in dollars? A. $2,158,320 B. $5,995,333 C. $6,834,680 D. $8,993,000

82. Tassone Corporation has provided the following data concerning its only product:

The margin of safety as a percentage of sales is closest to: A. 37% B. 73% C. 27% D. 63%

83. If sales increase from $80,000 per year to $120,000 per year, and if the operating leverage is 5, then net operating income should increase by: A. 167% B. 250% C. 100% D. 334%

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Chapter 04: Cost-Volume-Profit Relationship - Key

84. The following is last month's contribution format income statement:

What is the company's degree of operating leverage? A. 0.125 B. 8.0 C. 3.0 D. 0.333

85. The January contribution format income statement of Steffel Corporation appears below:

The degree of operating leverage is closest to: A. 0.09 B. 11.34 C. 4.13 D. 0.24

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Chapter 04: Cost-Volume-Profit Relationship - Key

86. Kappen Corporation's contribution format income statement for October appears below:

The degree of operating leverage is closest to: A. 0.15 B. 0.28 C. 3.63 D. 6.79

87. Valesquez Corporation's operating leverage is 8.6. If the company's sales increase by 17%, its net operating income should increase by about: A. 8.6% B. 50.6% C. 17.0% D. 146.2%

88. Goyal Inc. has an operating leverage of 12.5. If the company's sales increase by 6%, its net operating income should increase by about: A. 6.0% B. 12.5% C. 75.0% D. 208.3%

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Chapter 04: Cost-Volume-Profit Relationship - Key

89. The following data pertain to Wistron Company's two products:

If fixed expenses for the company as a whole are $60,000 and the product mix is constant, the overall break-even point for the company would be: A. $150,000 B. $153,846 C. $100,000 D. $132,000

90. A company currently sells products Aye, Bee, and Cee in equal quantities and at the same selling price per unit. The contribution margin ratio for product Aye is 40%, for product Bee is 50%, and the overall contribution margin ratio for the company is 48%. Suppose that the sales mix changes to 40% Aye, 25% Bee, and 35% Cee, what would be the new overall contribution margin ratio for the company? A. 27.5% B. 45.3% C. 47.4% D. 68.4%

91. Rierson Inc. produces and sells two products. Data concerning those products for the most recent month appear below:

The fixed expenses of the entire company were $17,730. The break-even point for the entire company is closest to: A. $32,250 B. $17,730 C. $31,661 D. $15,270

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Chapter 04: Cost-Volume-Profit Relationship - Key

92. Sween Corporation produces and sells two products. Data concerning those products for the most recent month appear below:

The fixed expenses of the entire company were $27,530. If the sales mix were to shift toward Product Z45B with total sales remaining constant, the overall break-even point for the entire company: A. would decrease. B. could increase or decrease. C. would increase. D. would not change.

93. Hilty Corporation produces and sells two products. In the most recent month, Product U77D had sales of $45,000 and variable expenses of $15,750. Product D86D had sales of $49,000 and variable expenses of $22,790. And the fixed expenses of the entire company were $46,170. The break-even point for the entire company is closest to: A. $47,830 B. $84,710 C. $46,170 D. $78,254

94. Isaza Corporation produces and sells two products. In the most recent month, Product U82U had sales of $28,000 and variable expenses of $13,440. Product P89W had sales of $18,000 and variable expenses of $7,260. And the fixed expenses of the entire company were $24,650. If the sales mix were to shift toward Product U82U with total sales remaining constant, the overall break-even point for the entire company: A. would decrease. B. would not change. C. could increase or decrease. D. would increase.

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Chapter 04: Cost-Volume-Profit Relationship - Key

The following is Addison Corporation's contribution format income statement for last month:

The company has no beginning or ending inventories. A total of 20,000 units were produced and sold last month.

95. What is the company's contribution margin ratio? A. 250% B. 150% C. 70% D. 30%

96. What is the company's break-even in units? A. 20,000 units B. 0 units C. 18,000 units D. 12,000 units

97. If sales increase by 100 units, by how much should net operating income increase? A. $400 B. $4,800 C. $1,500 D. $2,500

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Chapter 04: Cost-Volume-Profit Relationship - Key

98. How many units would the company have to sell to attain the target profit of $150,000? A. 22,000 B. 37,500 C. 25,000 D. 26,667

99. What is the company's margin of safety in dollars? A. $400,000 B. $600,000 C. $120,000 D. $880,000

100. What is the company's degree of operating leverage? A. 0.12 B. 2.5 C. 0.4 D. 3.3

McGordon Corporation has provided the following data:

101. The contribution margin is: A. $240,000 B. $560,000 C. $632,000 D. $72,000 102. The break-even point in sales dollars is: A. $240,000 B. $560,000 C. $728,000 D. $408,000

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Chapter 04: Cost-Volume-Profit Relationship - Key A tile manufacturer has supplied the following data:

103. What is the company's unit contribution margin? A. $0.86 B. $2.35 C. $4.10 D. $1.75

104. The company's contribution margin ratio is closest to: A. 42.7% B. 57.3% C. 45.8% D. 21.0%

105. If the company increases its unit sales volume by 3% without increasing its fixed expenses, then total net operating income should be closest to: A. $459,380 B. $453,667 C. $13,380 D. $482,660

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Chapter 04: Cost-Volume-Profit Relationship - Key

A company that makes organic fertilizer has supplied the following data:

106. The company's margin of safety in units is closest to: A. 115,128 B. 16,111 C. 168,986 D. 100,444

107. The company's unit contribution margin is closest to: A. $4.50 B. $6.90 C. $3.60 D. $4.20

108. The company's degree of operating leverage is closest to: A. 1.27 B. 26.90 C. 3.45 D. 12.41

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Chapter 04: Cost-Volume-Profit Relationship - Key

Doubleday Corporation produces and sells a single product. The company has provided its contribution format income statement for August.

109. If the company sells 3,000 units, its total contribution margin should be closest to: A. $20,813 B. $115,200 C. $96,600 D. $108,000 110. If the company sells 3,500 units, its net operating income should be closest to: A. $33,000 B. $24,281 C. $22,200 D. $50,100

Sullens Inc, which produces and sells a single product, has provided its contribution format income statement for July.

111. If the company sells 8,600 units, its total contribution margin should be closest to: A. $113,400 B. $111,800 C. $110,500 D. $24,788 112. If the company sells 8,300 units, its net operating income should be closest to: A. $23,924 B. $21,900 C. $24,500 D. $18,700 4-39 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 04: Cost-Volume-Profit Relationship - Key Erdmann Corporation has provided its contribution format income statement for July. The company produces and sells a single product.

113. If the company sells 7,500 units, its total contribution margin should be closest to: A. $55,063 B. $184,800 C. $210,000 D. $221,200

114. If the company sells 8,100 units, its net operating income should be closest to: A. $58,000 B. $63,600 C. $59,468 D. $76,200

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Chapter 04: Cost-Volume-Profit Relationship - Key Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800.

115. The variable expense per unit is: A. $31.20 B. $24.00 C. $36.00 D. $28.80

116. The break-even point in sales dollars is: A. $48,000 B. $72,000 C. $28,800 D. $0

117. If Dorian Company desires a monthly net operating income equal to 10% of sales, monthly sales will have to be: A. $90,000 B. $45,600 C. $120,000 D. $96,000

118. If the selling price is reduced by 5%, variable expenses reduced by $1.00, and fixed expenses increased to a total of $38,400, how many units would need to be sold to earn a net operating income of $21,000? A. 1,000 B. 2,700 C. 1,700 D. 2,950

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Chapter 04: Cost-Volume-Profit Relationship - Key

A manufacturer of tiling grout has supplied the following data:

119. The company's break-even in unit sales is closest to: A. 272,308 B. 98,333 C. 92,055 D. 60,488

120. The company's contribution margin ratio is closest to: A. 28.9% B. 63.9% C. 71.1% D. 36.1%

121. The company's degree of operating leverage is closest to: A. 9.77 B. 1.36 C. 3.53 D. 2.47

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Chapter 04: Cost-Volume-Profit Relationship - Key Janet Company produces a game that sells for $17 per game. Variable expenses are $9 per game and fixed expenses total $172,000 annually. 122. The break-even point is closest to: A. 19,111 units B. 10,118 units C. 21,500 units D. 24,000 units 123. The contribution margin ratio is closest to: A. 47.1% B. 2.1% C. 1.9% D. 52.9%

Fletcher Company has three products with the following characteristics:

124. The overall contribution margin ratio for the company as a whole is (to the nearest tenth of a percent): A. 25.3% B. 75.0% C. 25.0% D. 28.5%

125. If total units sold remain unchanged, but the sales mix shifts more heavily toward Product C, one would expect the overall contribution margin ratio to: A. increase B. decrease C. remain unchanged D. none of these

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Chapter 04: Cost-Volume-Profit Relationship - Key Merced Corporation has provided the following budgeted data:

126. The break-even point in units is closest to: A. 14,000 units B. 75,002 units C. 12,500 units D. 16,000 units

127. If the selling price is raised by $5 per unit, the break-even point in units will be: A. 7,692 units B. 14,000 units C. 12,500 units D. 11,200 units

128. If the variable expense per unit is increased by 10 percent, and if the total fixed expenses are increased by $20,000 with the selling price remaining unchanged at $20, the break-even point in units will be: A. 14,706 units B. 9,091 units C. 17,647 units D. 15,000 units

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Chapter 04: Cost-Volume-Profit Relationship - Key

Finestra Corporation produces a single product that it currently sells for $10. Fixed expenses are $120,000 for the year and variable expenses are $6 per unit. In addition, Finestra's salespersons are paid a commission of 10% of their sales.

129. If Finestra spends an additional $10,000 on advertising, increases its selling price to $12 per unit, and sells 60,000 units, its net operating income would be: A. $158,000 B. $230,000 C. $218,000 D. $194,000

130. A customer has just approached Finestra to make a special, one-time purchase of 10,000 units. These units would not be sold by the salespeople, and therefore no commission would have to be paid. The price Finestra would have to charge on this special order to earn an additional profit of $40,000 is: A. $9.00 per unit B. $10.00 per unit C. $5.00 per unit D. $11.20 per unit

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Chapter 04: Cost-Volume-Profit Relationship - Key

Hinsey Corporation produces and sells a single product. Data concerning the product appear below:

Fixed expenses are $300,000 per month. The company is currently selling 4,000 units per month. Consider each of the following questions independently.

131. This question is to be considered independently of all other questions relating to Hinsey Corporation. Refer to the original data when answering this question. The marketing manager believes that an $18,000 increase in the monthly advertising budget would result in a 180 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $2,160 B. decrease of $18,000 C. increase of $15,840 D. increase of $2,160

132. This question is to be considered independently of all other questions relating to Hinsey Corporation. Refer to the original data when answering this question. Management is considering using a new component that would increase the unit variable cost by $11. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $38,500 B. increase of $5,500 C. increase of $38,500 D. decrease of $5,500

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Chapter 04: Cost-Volume-Profit Relationship - Key

133. This question is to be considered independently of all other questions relating to Hinsey Corporation. Refer to the original data when answering this question. The marketing manager would like to cut the selling price by $13 and increase the advertising budget by $21,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 900 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $46,500 B. decrease of $46,500 C. increase of $165,300 D. decrease of $5,500

134. This question is to be considered independently of all other questions relating to Hinsey Corporation. Refer to the original data when answering this question. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $11 per unit. In exchange, the sales staff would accept a decrease in their salaries of $37,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 200 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $34,800 B. increase of $8,400 C. decrease of $65,600 D. increase of $360,400

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Chapter 04: Cost-Volume-Profit Relationship - Key

Data concerning Sotero Corporation's single product appear below:

The company is currently selling 5,000 units per month. Fixed expenses are $319,000 per month. Consider each of the following questions independently.

135. This question is to be considered independently of all other questions relating to Sotero Corporation. Refer to the original data when answering this question. Management is considering using a new component that would increase the unit variable cost by $8. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $2,000 B. decrease of $2,000 C. increase of $38,000 D. decrease of $38,000

136. This question is to be considered independently of all other questions relating to Sotero Corporation. Refer to the original data when answering this question. The marketing manager believes that a $12,000 increase in the monthly advertising budget would result in a 180 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $3,120 B. increase of $3,120 C. decrease of $12,000 D. increase of $15,120

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Chapter 04: Cost-Volume-Profit Relationship - Key

137. This question is to be considered independently of all other questions relating to Sotero Corporation. Refer to the original data when answering this question. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $9 per unit. In exchange, the sales staff would accept a decrease in their salaries of $37,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 100 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $36,100 B. decrease of $74,500 C. decrease of $500 D. increase of $419,500

138. This question is to be considered independently of all other questions relating to Sotero Corporation. Refer to the original data when answering this question. The marketing manager would like to cut the selling price by $7 and increase the advertising budget by $20,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 500 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $46,500 B. decrease of $18,500 C. decrease of $16,500 D. increase of $18,500

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Chapter 04: Cost-Volume-Profit Relationship - Key

Wertman Corporation produces and sells a single product with the following characteristics:

The company is currently selling 3,000 units per month. Fixed expenses are $215,000 per month. Consider each of the following questions independently.

139. This question is to be considered independently of all other questions relating to Wertman Corporation. Refer to the original data when answering this question. Management is considering using a new component that would increase the unit variable cost by $5. Since the new component would increase the features of 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? A. increase of $15,800 B. decrease of $15,800 C. increase of $800 D. decrease of $800

140. This question is to be considered independently of all other questions relating to Wertman Corporation. Refer to the original data when answering this question. The marketing manager believes that a $7,000 increase in the monthly advertising budget would result in a 110 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $7,000 B. increase of $2,240 C. decrease of $2,240 D. increase of $9,240

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Chapter 04: Cost-Volume-Profit Relationship - Key

141. This question is to be considered independently of all other questions relating to Wertman Corporation. Refer to the original data when answering this question. The marketing manager would like to cut the selling price by $19 and increase the advertising budget by $14,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,000 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $177,000 B. increase of $51,000 C. decrease of $6,000 D. decrease of $51,000

142. This question is to be considered independently of all other questions relating to Wertman Corporation. Refer to the original data when answering this question. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $20 per unit. In exchange, the sales staff would accept a decrease in their salaries of $52,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 300 units. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $92,800 B. increase of $263,200 C. increase of $11,200 D. increase of $46,000

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Chapter 04: Cost-Volume-Profit Relationship - Key

Hurst Co. manufacturers and sells a single product. Price and cost data regarding this product are as follows:

143. The break-even point in units per year is: A. 15,200 units B. 26,600 units C. 38,000 units D. 40,000 units

144. How many units need to be sold to earn an annual net operating income equal to 10% of sales? A. 44,000 units B. 53,200 units C. 54,500 units D. 47,500 units

145. In the current year, the company sold 43,000 units. Due to competition, management will be forced to lower the selling price by 10% next year. How many units must be sold next year to earn the same income as was earned in the current year? A. 50,000 units B. 53,200 units C. 58,800 units D. 60,200 units

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Chapter 04: Cost-Volume-Profit Relationship - Key

Junsin Corporation's budget for next year appears below. The budget assumes the company will sell 30,000 units.

146. The break-even point in annual sales dollars is: A. $530,000 B. $350,000 C. $460,000 D. $400,000

147. The company's margin of safety as a percentage of sales (rounded to the nearest whole percent) is: A. 33% B. 50% C. 12% D. 67%

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Chapter 04: Cost-Volume-Profit Relationship - Key

Vandinter Corporation produces and sells a single product. Data concerning that product appear below:

148. The break-even in monthly unit sales is closest to: A. 8,101 B. 3,352 C. 4,190 D. 16,760 149. The break-even in monthly dollar sales is closest to: A. $536,320 B. $670,400 C. $2,681,600 D. $1,296,160

Data concerning Hahl Corporation's single product appear below:

150. The break-even in monthly unit sales is closest to: A. 4,529 B. 3,470 C. 2,394 D. 7,724 151. The break-even in monthly dollar sales is closest to: A. $485,800 B. $634,060 C. $1,081,360 D. $335,160

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Chapter 04: Cost-Volume-Profit Relationship - Key Edmondson Inc. produces and sells a single product. The selling price of the product is $200.00 per unit and its variable cost is $50.00 per unit. The fixed expense is $205,500 per month. 152. The break-even in monthly unit sales is closest to: A. 4,110 B. 2,169 C. 1,028 D. 1,370 153. The break-even in monthly dollar sales is closest to: A. $205,500 B. $274,000 C. $822,000 D. $433,833

Pedaci Corporation produces and sells a single product. Data concerning that product appear below:

154. Assume the company's monthly target profit is $15,000. The unit sales to attain that target profit is closest to: A. 3,212 B. 5,265 C. 8,235 D. 5,571

155. Assume the company's monthly target profit is $17,000. The dollar sales to attain that target profit is closest to: A. $387,392 B. $635,069 C. $671,925 D. $993,313

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Chapter 04: Cost-Volume-Profit Relationship - Key Data concerning Plaxco Corporation's single product appear below:

156. Assume the company's monthly target profit is $11,000. The unit sales to attain that target profit is closest to: A. 4,818 B. 5,219 C. 4,181 D. 2,505 157. Assume the company's monthly target profit is $12,000. The dollar sales to attain that target profit is closest to: A. $941,500 B. $754,166 C. $451,920 D. $869,077

Boening Enterprises, Inc., produces and sells a single product whose selling price is $130.00 per unit and whose variable expense is $39.00 per unit. The company's monthly fixed expense is $509,600. 158. Assume the company's monthly target profit is $11,000. The unit sales to attain that target profit is closest to: A. 7,692 B. 13,349 C. 4,005 D. 5,721

159. Assume the company's monthly target profit is $22,000. The dollar sales to attain that target profit is closest to: A. $1,021,010 B. $759,429 C. $1,772,000 D. $531,600

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Chapter 04: Cost-Volume-Profit Relationship - Key

Rosner Corporation sells a product for $150 per unit. The product's current sales are 32,500 units and its break-even sales are 24,050 units.

160. What is the margin of safety in dollars? A. $4,875,000 B. $3,607,500 C. $3,250,000 D. $1,267,500

161. The margin of safety as a percentage of sales is closest to: A. 65% B. 26% C. 74% D. 35%

Compos Corporation has provided the following data concerning its only product:

162. What is the margin of safety in dollars? A. $2,091,000 B. $2,460,000 C. $1,640,000 D. $369,000

163. The margin of safety as a percentage of sales is closest to: A. 18% B. 15% C. 85% D. 82%

4-57 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 04: Cost-Volume-Profit Relationship - Key Faust Corporation has provided its contribution format income statement for August.

164. The degree of operating leverage is closest to: A. 18.93 B. 0.14 C. 0.05 D. 7.21 165. If the company's sales increase by 10%, its net operating income should increase by about: A. 5% B. 72% C. 10% D. 189%

The April contribution format income statement of Iannacone Corporation appears below:

166. The degree of operating leverage is closest to: A. 11.28 B. 0.29 C. 3.50 D. 0.09 167. If the company's sales increase by 1%, its net operating income should increase by about: A. 9% B. 1% C. 4% D. 11%

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Chapter 04: Cost-Volume-Profit Relationship - Key The following data concern two products sold by Redding Corporation.

168. If fixed expenses for the company as a whole are $120,000, the break-even point would be: A. $200,000 B. $218,182 C. $300,000 D. $266,667 169. If the sales mix shifts toward Product X, and product contribution margin ratios remain unchanged, one would expect the break-even point for the company as a whole to: A. increase. B. decrease. C. remain unchanged. D. it is impossible to determine.

Hooper Corporation produces and sells two models of vacuum cleaners, Standard and Deluxe. The company records show the following monthly data relating to these two products:

The company's total monthly fixed cost is $15,000. 170. The break-even in sales dollars for the expected sales mix is closest to: A. $160,772 B. $95,178 C. $109,091 D. $175,644 171. If the expected monthly sales in units were divided equally between the two models (900 Standard and 900 Deluxe), the break-even level of sales would be: A. the same as with the expected sales mix. B. higher than with the expected sales mix. C. lower than with the expected sales mix. D. cannot be determined with the available data. 4-59 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 04: Cost-Volume-Profit Relationship - Key Weise Corporation produces and sells two products. Data concerning those products for the most recent month appear below:

Fixed expenses for the entire company were $38,200. 172. The break-even point for the entire company is closest to: A. $48,200 B. $38,200 C. $47,750 D. $11,800 173. If the sales mix were to shift toward Product U69I with total sales remaining constant, the overall break-even point for the entire company: A. would increase. B. would not change. C. would decrease. D. could increase or decrease.

Bello Corporation produces and sells two products. In the most recent month, Product D99P had sales of $33,000 and variable expenses of $15,840. Product G71P had sales of $42,000 and variable expenses of $4,410. The fixed expenses of the entire company were $49,790. 174. The break-even point for the entire company is closest to: A. $25,210 B. $49,790 C. $68,205 D. $70,040

175. If the sales mix were to shift toward Product D99P with total sales remaining constant, the overall break-even point for the entire company: A. would not change. B. would increase. C. could increase or decrease. D. would decrease.

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Chapter 04: Cost-Volume-Profit Relationship - Key Essay Questions 176. The following is Alsatia Corporation's contribution format income statement for last month:

The company has no beginning or ending inventories and produced and sold 10,000 units during the month. Required: a. What is the company's contribution margin ratio? b. What is the company's break-even in units? c. If sales increase by 100 units, by how much should net operating income increase? d. How many units would the company have to sell to attain target profits of $225,000? e. What is the company's margin of safety in dollars? f. What is the company's degree of operating leverage?

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Chapter 04: Cost-Volume-Profit Relationship - Key

177. Tanner Company's most recent contribution format income statement is presented below:

The company sells its only product for $15 per unit. There were no beginning or ending inventories. Required: a. Compute the company's break-even point in units sold. b. Compute the total variable expenses at the break-even point. c. How many units would have to be sold to earn a target profit of $9,000? d. The sales manager is convinced that a $6,000 increase in the advertising budget would increase total sales by $25,000. Would you advise the increased advertising outlay?

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Chapter 04: Cost-Volume-Profit Relationship - Key

178. The following monthly data are available for the Challenger Company and its only product, Product SW:

Required: a. Without resorting to calculations, what is the total contribution margin at the break-even point? b. Management is contemplating the use of plastic gearing rather than metal gearing in Product SW. This change would reduce variable costs by $15. The company's marketing manager predicts that this would reduce the overall quality of the product and thus would result in a decline in sales to a level of 350 units per month. Should this change be made? c. Assume that Challenger Company is currently selling 400 units of Product SW per month. Management wants to increase sales and feels this can be done by cutting the selling price by $25 per unit and increasing the advertising budget by $20,000 per month. Management believes that these actions will increase unit sales by 50%. Should these changes be made? d. Assume that Challenger Company is currently selling 400 units of Product SW. Management wants to automate a portion of the production process for Product SW. The new equipment would reduce direct labor costs by $20 per unit but would result in a monthly rental cost for the new robotic equipment of $10,000. Management believes that the new equipment will increase the reliability of Product SW thus resulting in an increase in monthly sales of 12%. Should these changes be made?

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Chapter 04: Cost-Volume-Profit Relationship - Key

179. Rawlings Company prepared the following budget information for the coming year:

The budget assumes the sale of 20,000 units of A, 100,000 units of B, and 80,000 units of C. Required: a. What is the company's break-even point given the sales mix above? b. If the budgeted sales mix is maintained, what is the total contribution margin and net operating income if 300,000 units are sold?

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Chapter 04: Cost-Volume-Profit Relationship - Key

180. Zins Corporation produces and sells a single product. The company's contribution format income statement for August appears below:

Required: Redo the company's contribution format income statement assuming that the company sells 1,400 units.

181. Bayona Inc., which produces and sells a single product, has provided the following contribution format income statement for November:

Required: Redo the company's contribution format income statement assuming that the company sells 8,400 units.

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Chapter 04: Cost-Volume-Profit Relationship - Key

182. Boettner Corporation produces and sells a single product. In April, the company sold 9,700 units. Its total sales were $543,200, its total variable expenses were $329,800, and its total fixed expenses were $182,200. Required: a. Construct the company's contribution format income statement for April in good form. b. Redo the company's contribution format income statement assuming that the company sells 10,100 units.

183. In August, Bliek Corporation sold 8,300 units of its only product. Its total sales were $664,000, its total variable expenses were $415,000, and its total fixed expenses were $204,000. Required: a. Construct the company's contribution format income statement for August in good form. b. Redo the company's contribution format income statement assuming that the company sells 8,600 units.

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Chapter 04: Cost-Volume-Profit Relationship - Key

184. Loss Corporation's contribution margin ratio is 63% and its fixed monthly expenses are $76,000. Assume that the company's sales for March are expected to be $179,000. Required: Estimate the company's net operating income for March, assuming that the fixed monthly expenses do not change. Show your work!

185. The management of Reagon Corporation expects sales in January to be $122,000. The company's contribution margin ratio is 69% and its fixed monthly expenses are $50,000. Required: Estimate the company's net operating income for January, assuming that the fixed monthly expenses do not change. Show your work!

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Chapter 04: Cost-Volume-Profit Relationship - Key

186. Concepcion Inc. expects its sales in March to be $126,000. The company's contribution margin ratio is 67% and its fixed monthly expenses are $48,000. Required: Estimate the company's net operating income for March, assuming that the fixed monthly expenses do not change. Show your work!

187. Furgason Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $303,000 per month. The company is currently selling 5,000 units per month. Required: The marketing manager believes that a $9,000 increase in the monthly advertising budget would result in a 120 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

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Chapter 04: Cost-Volume-Profit Relationship - Key

188. Data concerning Hogarth Corporation's single product appear below:

Fixed expenses are $96,000 per month. The company is currently selling 1,000 units per month. Required: The marketing manager believes that a $12,000 increase in the monthly advertising budget would result in a 110 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

189. Lynn Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $387,000 per month. The company is currently selling 7,000 units per month. Required: Management is considering using a new component that would increase the unit variable cost by $3. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 300 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!

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Chapter 04: Cost-Volume-Profit Relationship - Key 190. Data concerning Hillegass Corporation's single product appear below:

Fixed expenses are $502,000 per month. The company is currently selling 4,000 units per month. Required: Management is considering using a new component that would increase the unit variable cost by $18. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 500 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!

191. Legaard Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $220,000 per month. The company is currently selling 4,000 units per month. Required: The marketing manager would like to cut the selling price by $15 and increase the advertising budget by $11,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,500 units. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

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Chapter 04: Cost-Volume-Profit Relationship - Key

192. Data concerning Uthe Corporation's single product appear below:

Fixed expenses are $522,000 per month. The company is currently selling 6,000 units per month. Required: The marketing manager would like to cut the selling price by $19 and increase the advertising budget by $30,900 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,600 units. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

193. Gruen Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $505,000 per month. The company is currently selling 5,000 units per month. Required: The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $16 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $65,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 100 units. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

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Chapter 04: Cost-Volume-Profit Relationship - Key 194. Data concerning Emmanuel Corporation's single product appear below:

Fixed expenses are $650,000 per month. The company is currently selling 8,000 units per month. Required: The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $12 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $79,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 300 units. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

195. The following monthly budgeted data are available for the International Company:

Budgeted net operating income for the month is $220,000. Required: a. Calculate the break-even dollar sales for the month. b. Calculate the margin of safety. c. Calculate the operating leverage.

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Chapter 04: Cost-Volume-Profit Relationship - Key 196. Magers Corporation produces and sells a single product. Data concerning that product appear below:

Required: Determine the monthly break-even in either unit or total dollar sales. Show your work!

197. Kantor, Inc., produces and sells a single product whose selling price is $180.00 per unit and whose variable expense is $46.80 per unit. The company's fixed expense is $580,752 per month. Required: Determine the monthly break-even in either unit or total dollar sales. Show your work!

198. Rana Corporation produces and sells a single product. Data concerning that product appear below:

Required: Determine the monthly break-even in unit sales. Show your work!

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Chapter 04: Cost-Volume-Profit Relationship - Key

199. Akerley, Inc., produces and sells a single product. The product sells for $140.00 per unit and its variable expense is $42.00 per unit. The company's monthly fixed expense is $393,960. Required: Determine the monthly break-even in unit sales. Show your work!

200. Yundt Corporation produces and sells a single product. Data concerning that product appear below:

Required: Determine the monthly break-even in total dollar sales. Show your work!

201. Boor International, Inc., produces and sells a single product. The product sells for $110.00 per unit and its variable expense is $37.40 per unit. The company's monthly fixed expense is $188,034. Required: Determine the monthly break-even in total dollar sales. Show your work!

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Chapter 04: Cost-Volume-Profit Relationship - Key 202. Hounshell Corporation produces and sells a single product. Data concerning that product appear below:

Required: a. Assume the company's monthly target profit is $20,880. Determine the unit sales to attain that target profit. Show your work! b. Assume the company's monthly target profit is $6,960. Determine the dollar sales to attain that target profit. Show your work!

203. Sadbury Corporation produces and sells a single product whose selling price is $210.00 per unit and whose variable expense is $73.50 per unit. The company's monthly fixed expense is $873,600. Required: a. Assume the company's monthly target profit is $27,300. Determine the unit sales to attain that target profit. Show your work! b. Assume the company's monthly target profit is $68,250. Determine the dollar sales to attain that target profit. Show your work!

204. Burtchell Corporation produces and sells a single product. Data concerning that product appear below:

Required: Assume the company's monthly target profit is $47,520. Determine the unit sales to attain that target profit. Show your work! 4-75 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 04: Cost-Volume-Profit Relationship - Key

205. The selling price of Garey Corporation's only product is $170.00 per unit and its variable expense is $39.10 per unit. The company's monthly fixed expense is $641,410. Required: Assume the company's monthly target profit is $65,450. Determine the unit sales to attain that target profit. Show your work!

206. Gurr Corporation produces and sells a single product whose contribution margin ratio is 63%. The company's monthly fixed expense is $604,800 and the company's monthly target profit is $50,400. Required: Determine the dollar sales to attain the company's target profit. Show your work!

207. The contribution margin ratio of Lukasiewicz Corporation's only product is 62%. The company's monthly fixed expense is $297,600 and the company's monthly target profit is $37,200. Required: Determine the dollar sales to attain the company's target profit. Show your work!

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Chapter 04: Cost-Volume-Profit Relationship - Key 208. Yerkes Corporation makes a product that sells for $110 per unit. The product's current sales are 35,900 units and its break-even sales are 26,566 units. Required: Compute the margin of safety in both dollars and as a percentage of sales.

209. Fietsam Corporation's only product sells for $120 per unit. Its current sales are 43,400 units and its break-even sales are 37,324 units. Required: Compute the margin of safety in both dollars and as a percentage of sales.

210. Logiudice Inc. has provided the following data concerning its only product:

Required: Compute the margin of safety in both dollars and as a percentage of sales.

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Chapter 04: Cost-Volume-Profit Relationship - Key 211. Langin Corporation has provided its contribution format income statement for June.

Required: a. Compute the degree of operating leverage to two decimal places. b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 14% increase in sales.

212. Speir Corporation's contribution format income statement for the most recent month follows:

Required: a. Compute the degree of operating leverage to two decimal places. b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 3% increase in sales.

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Chapter 04: Cost-Volume-Profit Relationship - Key 213. In the most recent month, Flamino Corporation's total contribution margin was $83,700 and its net operating income $21,200. Required: a. Compute the degree of operating leverage to two decimal places. b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 17% increase in sales.

214. Deavila Inc. produces and sells two products. Data concerning those products for the most recent month appear below:

Fixed expenses for the entire company were $13,980. Required: a. Determine the overall break-even point for the company. Show your work! b. If the sales mix shifts toward Product Q91I with no change in total sales, what will happen to the break-even point for the company? Explain.

215. Camden Inc. produces and sells two products. During the most recent month, Product M21B's sales were $35,000 and its variable expenses were $14,350. Product Y79X's sales were $20,000 and its variable expenses were $7,650. The company's fixed expenses were $30,820. Required: a. Determine the overall break-even point for the company. Show your work! b. If the sales mix shifts toward Product M21B with no change in total sales, what will happen to the break-even point for the company? Explain.

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Chapter 04: Cost-Volume-Profit Relationship - Key True / False Questions 1. A contribution approach income statement can usually be easily prepared from the information contained in a corporation's published income statement. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Hard

2. The profit in cost-volume-profit equations is the same as the net operating income on a contribution income statement. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

3. On a cost-volume-profit graph, the revenue line will be shown above the total expense line for any activity level above the break-even point. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

4. On a CVP graph for a profitable company, the line representing total expenses is steeper than the line representing total revenue. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

5. The contribution margin ratio measures the effect on the total contribution margin of a given change in total sales. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

6. A company with sales of $100,000, variable expenses of $70,000, and fixed expenses of $50,000 will reach its break-even point if sales are increased by $20,000. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Medium

7. At the break-even point, variable expenses and fixed expenses are equal. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Medium

8. All other things the same, a decrease in variable expense per unit will reduce the breakeven point. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

9. An increase in the number of units sold will decrease the break-even point. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Medium

10. All other things equal, the margin of safety in a company with high fixed costs and low variable costs will tend to be higher than the margin of safety in a similar company that has low fixed costs and high variable costs. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 7 Level: Hard

11. As total sales increase beyond the break-even point, the degree of operating leverage will also increase. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Hard

12. The degree of operating leverage is greatest at sales levels near the break-even point and decreases as sales rise. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

13. All other things the same, in periods of increasing sales, net operating income will tend to increase more rapidly in a company with high variable costs and low fixed costs than in a company with high fixed costs and low variable costs. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Medium

14. If the sales mix changes, the average contribution margin ratio is likely to change as well. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

Multiple Choice Questions 15. Which of the following is an assumption that is NOT made in most cost-volume-profit calculations? A. Selling price, variable expense per unit, and fixed expense per unit do not change throughout the relevant range. B. There is no change in inventory levels. C. In a multiproduct company, the sales mix does not change. D. The selling price is constant.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 9 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

16. On a cost-volume-profit graph, the break-even point is located: A. at the origin. B. where the total revenue line intersects the volume axis. C. where the total expenses line intersects the dollars axis. D. where the total revenue line intersects the total expenses line.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

17. If a company increases advertising by $500,000, this will cause net operating income to increase if the resulting increase in sales dollars is greater than: A. $500,000. B. $500,000 divided by the percentage increase in advertising. C. $500,000 divided by the degree of operating leverage. D. $500,000 divided by the contribution margin ratio.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Hard

18. Once the break-even point is reached: A. the total contribution margin changes from negative to positive. B. net operating income will increase by the unit contribution margin for each additional item sold. C. variable expenses will remain constant in total. D. the contribution margin ratio begins to decrease.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

19. Which of the following is true regarding the contribution margin ratio of a single product company? A. As fixed expenses decrease, the contribution margin ratio increases. B. The contribution margin ratio multiplied by the variable expense per unit equals the contribution margin per unit. C. If sales increase, the dollar increase in net operating income can be computed by multiplying the contribution margin ratio by the dollar increase in sales. D. The contribution margin ratio increases as the number of units sold increases.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

20. Assuming that the unit sales are unchanged, the total contribution margin will decrease if: A. fixed expenses increase. B. fixed expenses decrease. C. variable expense per unit increases. D. variable expense per unit decreases.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

21. To obtain the break-even point in terms of dollar sales, total fixed expenses are divided by which of the following? A. Variable expense per unit. B. Variable expense per unit/Selling price per unit. C. Fixed expense per unit. D. (Selling price per unit - Variable expense per unit)/Selling price per unit.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

22. A company increased the selling price for its product from $5 to $6 per unit when total fixed expenses increased from $100,000 to $200,000 and variable expense per unit remained unchanged. How would these changes affect the break-even point? A. The break-even point in units would increase. B. The break-even point in units would decrease. C. The break-even point in units would remain unchanged. D. The effect cannot be determined from the information given.

AACSB: Analytic Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Hard

23. The ratio of fixed expenses to the unit contribution margin is the: A. break-even point in unit sales. B. profit margin. C. contribution margin ratio. D. margin of safety.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy Source: CMA, adapted

24. The margin of safety is equal to: A. Sales - Net operating income. B. Sales - (Variable expenses/Contribution margin). C. Sales - (Fixed expenses/Contribution margin ratio). D. Sales - (Variable expenses + Fixed expenses).

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 7 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

25. Witczak Company has a single product and currently has a degree of operating leverage of 5. Which of the following will increase Witczak's degree of operating leverage?

A. Choice A B. Choice B C. Choice C D. Choice D

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Hard

26. If company A has a higher degree of operating leverage than company B, then: A. company A has higher variable expenses. B. company A's profits are more sensitive to percentage changes in sales. C. company A is more profitable. D. company A is less risky.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Medium Source: CMA, adapted

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Chapter 04: Cost-Volume-Profit Relationship - Key

27. Which of the following would a manufacturing company expect to experience as it automates and shifts from variable expenses to fixed expenses? A. A lower margin of safety percentage. B. A higher contribution margin ratio. C. A steeper total expenses line on its cost-volume-profit graph. D. Both A and B above.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Hard

28. Marston Enterprises sells three chemicals: petrol, septine, and tridol. Petrol's unit contribution margin is higher than septine's which is higher than tridol's. Which one of the following events is most likely to decrease the company's overall break-even point? A. The installation of new computer-controlled equipment that reduces variable costs and increases fixed costs. B. A decrease in tridol's selling price. C. An increase in the overall market demand for septine. D. A change in the relative market demand for the products, with the increase favoring petrol relative to septine and tridol.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium Source: CMA, adapted

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Chapter 04: Cost-Volume-Profit Relationship - Key

29. Last year, Twins Company reported $750,000 in sales (25,000 units) and a net operating income of $25,000. At the break-even point, the company's total contribution margin equals $500,000. Based on this information, the company's: A. contribution margin ratio is 40%. B. break-even point is 24,000 units. C. variable expense per unit is $9. D. variable expenses are 60% of sales. Solve backwards for contribution margin and then variable costs:

*Given **At the break-even point, fixed expenses = contribution margin, so we know that fixed costs are $500,000. Before going any further, it can be seen that variable expense per unit is $9.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Learning Objective: 5 Level: Hard

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Chapter 04: Cost-Volume-Profit Relationship - Key

30. A company has provided the following data:

If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%, and all other factors remain the same, net operating income will: A. increase by $61,000. B. increase by $20,000. C. increase by $3,500. D. increase by $11,000.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 4 Level: Hard

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Chapter 04: Cost-Volume-Profit Relationship - Key

31. At a break-even point of 400 units sold, variable expenses were $4,000 and fixed expenses were $2,000. What will the 401st unit sold contribute to profit? A. $0 B. $5 C. $10 D. $15 Break-even point (units) = Fixed expenses Contribution margin per unit Substituting: 400 = $2,000 Contribution margin per unit Contribution margin per unit = $5

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 5 Level: Hard Source: CMA, adapted

32. Carver Company produces a product which sells for $30. Variable manufacturing costs are $15 per unit. Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and administrative costs are $4 per unit. A selling commission of 10% of the selling price is paid on each unit sold. The contribution margin per unit is: A. $3 B. $15 C. $8 D. $12 Contribution margin per unit = Sales price - Variable manufacturing costs per unit Contribution margin per unit = $30 - $15 - ($30 x 10%) = $12

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

33. Pilkinton Corporation has provided its contribution format income statement for July. The company produces and sells a single product.

If the company sells 10,300 units, its total contribution margin should be closest to: A. $49,211 B. $391,400 C. $407,400 D. $376,200 Current contribution margin Current sales in units = Contribution margin per unit $376,200 9,900 = $38 contribution margin per unit If 10,300 units are sold, the total contribution margin will be 10,300 x $38, or $391,400.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

34. Litke Corporation, a company that produces and sells a single product, has provided its contribution format income statement for February.

If the company sells 5,100 units, its net operating income should be closest to: A. $15,600 B. $11,700 C. $8,400 D. $14,733 Current sales dollars Current sales in units = Sales price per unit $129,600 5,400 = $24 sales price per unit Current variable expenses Current sales in units = Variable expense per unit $59,400 5,400 = $11 variable expense per unit

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Chapter 04: Cost-Volume-Profit Relationship - Key

35. Filson Inc., a company that produces and sells a single product, has provided its contribution format income statement for February.

If the company sells 9,700 units, its total contribution margin should be closest to: A. $252,200 B. $74,026 C. $247,000 D. $263,200 Current contribution margin Current sales in units = Contribution margin per unit $247,000 9,500 = $26 contribution margin per unit If 9,700 units are sold, the total contribution margin will be 9,700 x $26, or $252,200.

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Chapter 04: Cost-Volume-Profit Relationship - Key

36. Finnefrock Inc. produces and sells a single product. The company has provided its contribution format income statement for December.

If the company sells 9,200 units, its net operating income should be closest to: A. $115,800 B. $95,800 C. $110,975 D. $78,600 Current sales dollars Current sales in units = Sales price per unit Current variable expenses Current sales in units = Variable expense per unit $412,800 9,600 = $43 variable expense per unit

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

37. Last year, Black Company reported sales of $640,000, a contribution margin of $160,000, and a net loss of $40,000. Based on this information, the break-even point was: A. $640,000 B. $480,000 C. $800,000 D. $960,000 Solve backwards for unknowns:

* Given Break-even point = Fixed expenses = $200,000 25% = $800,000

Contribution

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Chapter 04: Cost-Volume-Profit Relationship - Key

38. The break-even point in dollar sales for Rice Company is $360,000 and the company's contribution margin ratio is 30%. If Rice Company desires a profit of $84,000, sales would have to total A. $280,000 B. $640,000 C. $480,000 D. $560,000 Break-even point = Fixed expenses Contribution margin ratio $360,000 = Fixed expenses 30% Fixed expenses = $360,000 x 30% = $108,000 Sales to achieve target profit = (Fixed expenses + Target profit) Contribution margin = ($108,000 + $84,000) 30% = $640,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 5 Learning Objective: 6 Level: Hard

39. North Company sells a single product. The product has a selling price of $30 per unit and variable expenses of 70% of sales. If the company's fixed expenses total $60,000 per year, then it will have a break-even of: A. $60,000 B. $85,714 C. $42,000 D. $200,000 Contribution margin ratio = 1 - Variable expense ratio = 1 - 70% = 30% Break-even in total sales dollars = Fixed expenses Contribution margin ratio = $60,000 30% = $200,000

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Chapter 04: Cost-Volume-Profit Relationship - Key

40. Fenestre Corporation's contribution margin ratio is 25%. The company's break-even is 80,000 units and the selling price of its only product is $4.00 a unit. What are the company's fixed expenses? A. $80,000 B. $320,000 C. $20,000 D. $120,000 Break-even point in units = Fixed expenses 80,000 = Fixed expenses ($4.00 x 25%) Fixed expenses = $80,000

Contribution margin ratio

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 5 Level: Hard

41. Jatry Corporation's budgeted sales are $300,000, its budgeted variable expenses are $210,000, and its budgeted fixed expenses are $60,000. The company's break-even in dollar sales is: A. $200,000 B. $330,000 C. $210,000 D. $270,000 Contribution margin = $300,000 - $210,000 = $90,000 Contribution margin ratio = $90,000 $300,000 = 30% Break-even in total sales dollars = Fixed expenses Contribution margin ratio = $60,000 30% = $200,000

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Chapter 04: Cost-Volume-Profit Relationship - Key

42. Forest Corporation has prepared the following budgeted data based on a sales forecast of $3,000,000:

What would be the amount of dollar sales at the break-even point? A. $1,125,000 B. $2,000,000 C. $2,650,000 D. $1,750,000

Break-even in total sales dollars = Fixed expenses = $700,000 35% = $2,000,000

Contribution margin ratio

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Chapter 04: Cost-Volume-Profit Relationship - Key

43. Mardist Corporation has sales of $100,000, variable expenses of $75,000, fixed expenses of $30,000, and a net loss of $5,000. How much would Mardist have to sell to achieve a profit of 10% of sales? A. $187,500 B. $200,000 C. $225,500 D. $180,000 Variable expenses as a % of sales = $75,000 $100,000 = 75% Sales = Variable expenses + Fixed expenses + Profit Sales = (75% x Sales) + $30,000 + (10% x Sales) 15% x Sales = $30,000 Sales = $200,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 6 Level: Hard

44. Green Company's variable expenses are 75% of sales. At a sales level of $400,000, the company's degree of operating leverage is 8. At this sales level, fixed expenses are: A. $87,500 B. $100,000 C. $50,000 D. $75,000 Contribution margin ratio = 1 - Variable expense ratio = 1 - .75 = .25 Contribution margin = 25% x $400,000 = $100,000 Degree of operating leverage = Contribution margin Net operating income 8 = $100,000 Net operating income Net operating income = $12,500 Contribution margin - Fixed expenses = Net operating income $100,000 - Fixed expenses = $12,500 Fixed expenses = $87,500

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Chapter 04: Cost-Volume-Profit Relationship - Key

45. Slosh Cleaning Corporation services both residential and commercial customers. Slosh expects the following operating results next year for each type of customer:

Slosh expects to have $18,000 in fixed expenses next year. What would Slosh's total dollar sales have to be next year in order to generate a profit of $90,000? A. $216,000 B. $250,000 C. $270,000 D. $300,000

Weighted-average contribution margin ratio = $72,000 $200,000 = 36% Sales needed to achieve target profit = (Fixed expenses + Target profit) Weighted-average contribution margin ratio = ($18,000 + $90,000) 36% = $300,000

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Chapter 04: Cost-Volume-Profit Relationship - Key

46. Scott Company's variable expenses are 72% of sales. The company's break-even point in dollar sales is $2,450,000. If sales are $60,000 below the break-even point, the company would report a: A. $43,200 loss B. $60,000 loss C. $16,800 loss D. cannot be determined from the data given. Contribution margin ratio = 1 - Variable expense ratio = 1 - .72 = .28, or 28% Contribution margin ratio x Sales below break-even point = Loss 28% x $60,000 = $16,800 loss

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

47. Mitch Corporation's contribution margin ratio is 14% and its fixed monthly expenses are $87,000. If the company's sales for a month are $678,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change. A. $591,000 B. $496,080 C. $94,920 D. $7,920

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

48. Seyal Inc.'s contribution margin ratio is 55% and its fixed monthly expenses are $34,000. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $94,000? A. $17,700 B. $60,000 C. $8,300 D. $51,700

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

49. Scobie Corporation's fixed monthly expenses are $16,000 and its contribution margin ratio is 57%. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $69,000? A. $39,330 B. $23,330 C. $13,670 D. $53,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

50. Riven Corporation has a single product whose selling price is $10. At an expected sales level of $1,000,000, the company's variable expenses are $600,000 and its fixed expenses are $300,000. The marketing manager has recommended that the selling price be increased by 20%, with an expected decrease of only 10% in unit sales. What would be the company's net operating income if the marketing manager's recommendation is adopted? A. $132,000 B. $290,000 C. $180,000 D. $240,000 Sales in units = $1,000,000 $10 = 100,000 units Variable expense per unit = $600,000 100,000 units = $6 per unit Proposed new selling price = $10 x (1 + .20) = $12 Proposed new contribution margin per unit = $12 - $6 = $6 New sales units = 100,000 units - (10% x 100,000) = 90,000 units

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

51. Last year, variable expenses were 60% of total sales and fixed expenses were 10% of total sales. If the company increases its selling prices by 10%, but if fixed expenses, variable costs per unit, and unit sales remain unchanged, the effect of the increase in selling price on the company's total contribution margin would be: A. a decrease of 2%. B. an increase of 5%. C. an increase of 10%. D. an increase of 25%. Contribution margin ratio = 100% - 60% = 40% Use sample numbers to solve (assuming original sales price of $10):

Increase in contribution margin Original contribution margin = ($5 - $4) $4 = 25% Note that using ANY original selling price will result in the 25% increase in contribution margin.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Hard Source: CIMA, adapted

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Chapter 04: Cost-Volume-Profit Relationship - Key

52. Data concerning Damberger Corporation's single product appear below:

The company is currently selling 5,000 units per month. Fixed expenses are $243,000 per month. The marketing manager believes that an $11,000 increase in the monthly advertising budget would result in a 180 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $200 B. decrease of $200 C. increase of $10,800 D. decrease of $11,000

Decrease in net operating income: $57,000 - $56,800 = $200

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

53. Ringstaff Corporation produces and sells a single product. Data concerning that product appear below:

The company is currently selling 7,000 units per month. Fixed expenses are $615,000 per month. The marketing manager believes that a $21,000 increase in the monthly advertising budget would result in a 180 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $600 B. decrease of $600 C. decrease of $21,000 D. increase of $21,600

Increase in net operating income: $225,600 - $225,000 = $600

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

54. Data concerning Grodi Corporation's single product appear below:

Fixed expenses are $324,000 per month. The company is currently selling 5,000 units per month. Management is considering using a new component that would increase the unit variable cost by $9. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $4,500 B. decrease of $40,500 C. increase of $40,500 D. increase of $4,500

Decrease in net operating income: $126,000 - $121,500 = $4,500

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

55. Vaccaro Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $293,000 per month. The company is currently selling 3,000 units per month. Management is considering using a new component that would increase the unit variable cost by $13. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $600 B. increase of $39,600 C. decrease of $600 D. decrease of $39,600

Increase in net operating income: $43,600 - $43,000 = $600

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

56. Data concerning Amburn Corporation's single product appear below:

Fixed expenses are $179,000 per month. The company is currently selling 3,000 units per month. The marketing manager would like to cut the selling price by $9 and increase the advertising budget by $12,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 500 units. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $7,500 B. increase of $19,500 C. decrease of $19,500 D. increase of $43,500

Decrease in net operating income: $37,000 - $29,500 = $7,500

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

57. Similien Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $300,000 per month. The company is currently selling 5,000 units per month. The marketing manager would like to cut the selling price by $14 and increase the advertising budget by $17,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,400 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $64,200 B. increase of $215,400 C. decrease of $64,200 D. decrease of $5,800

Decrease in net operating income: $60,000 - $54,200 = $5,800

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

58. Data concerning Sa Corporation's single product appear below:

Fixed expenses are $445,000 per month. The company is currently selling 6,000 units per month. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $9 per unit. In exchange, the sales staff would accept a decrease in their salaries of $43,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 100 units. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $88,900 B. decrease of $2,900 C. increase of $42,100 D. increase of $537,100

Decrease in net operating income: $95,000 - $92,100 = $2,900

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

59. Moloney Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $898,000 per month. The company is currently selling 9,000 units per month. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $16 per unit. In exchange, the sales staff would accept a decrease in their salaries of $117,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 100 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $115,400 B. decrease of $16,600 C. decrease of $250,600 D. increase of $1,063,400

Decrease in net operating income: $182,000 - $165,400 = $16,600

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

60. Bear Publishing sells a nature guide. The following information was reported for a typical month (sales volume is constant each month):

Bear is expecting a 20 cent increase in variable expenses. No other changes are expected or planned. How much contribution margin should Bear expect after the increase? A. $7,700 B. $4,100 C. $9,900 D. Cannot be determined. Number of units = $17,600

$16.00 = 1,100 units

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

61. The following is last month's contribution format income statement:

What is the company's margin of safety in dollars? A. $100,000 B. $600,000 C. $1,500,000 D. $250,000

Break-even in total sales dollars = Fixed expenses Contribution margin ratio = $500,000 0.40 = $1,250,000 Margin of safety in dollars = Sales - Break-even sales = $1,500,000 - $1,250,000 = $250,000

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Chapter 04: Cost-Volume-Profit Relationship - Key

62. Last year, Perry Company reported profits of $4,200. Its variable expenses totaled $66,000 or $6 per unit. The unit contribution margin was $3.00. The break-even point in unit sales for Perry Company is: A. 11,000 B. 9,600 C. 22,000 D. 12,400 Number of units sold = Total variable expenses Per unit variable expenses = $66,000 $6 = 11,000 units Total contribution margin = 11,000 units x $3.00 contribution margin per unit Contribution margin - Fixed expenses = Profit Fixed expenses = Contribution margin - Profit = $33,000 - $4,200 = $28,800 Break-even point in units = Fixed expenses Unit contribution margin = $28,800 $3.00 = 9,600 units

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Hard

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Chapter 04: Cost-Volume-Profit Relationship - Key

63. The following data pertain to last month's operations:

The break-even point in dollar sales is: A. $18,000 B. $6,000 C. $11,250 D. $7,500 Contribution margin per unit = $20 - $12 - $3 = $5 per unit Contribution margin ratio = $5 $20 = 25% Total fixed expenses = $3,000 + $1,500 = $4,500 Break-even point (in dollars) = Fixed expenses Contribution margin ratio = $4,500 $18,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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25% =

Chapter 04: Cost-Volume-Profit Relationship - Key

64. The following is last month's contribution format income statement:

What is the company's break-even in unit sales? A. 0 units B. 12,000 units C. 6,000 units D. 8,000 units Contribution margin per unit = $400,000 10,000 units = $40 per unit Break-even point in units = $240,000 $40 = 6,000 units

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

65. Witting Corporation produces and sells a single product. Data concerning that product appear below:

The break-even in monthly unit sales is closest to: A. 2,523 B. 1,502 C. 3,337 D. 2,730 Contribution margin per unit = $130.00 - $58.50 = $71.50 Break-even point in units = $195,195 $71.50 = 2,730

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

66. Data concerning Enslow Corporation's single product appear below:

The break-even in monthly unit sales is closest to: A. 6,711 B. 4,390 C. 12,495 D. 3,249 Contribution margin per unit = $200 - $52 = $148 Break-even point in units = $649,720 $148 = 4,390

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

67. Steckelberg Inc. produces and sells a single product. The selling price of the product is $150.00 per unit and its variable cost is $54.00 per unit. The fixed expense is $154,560 per month. The break-even in monthly unit sales is closest to: A. 1,610 B. 1,030 C. 1,834 D. 2,862 Contribution margin per unit = $150 - $54 = $96 Break-even point in units = $154,560 $96 = 1,610

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

68. Terres Corporation produces and sells a single product. Data concerning that product appear below:

The break-even in monthly dollar sales is closest to: A. $889,273 B. $438,000 C. $293,460 D. $540,244 Contribution margin per unit = $100 - $33 = $67 Contribution margin ratio = $67 $100 = 67% Break-even point in dollars = $293,460 67% = $438,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

69. Data concerning Vogelgesang Corporation's single product appear below:

The break-even in monthly dollar sales is closest to: A. $850,000 B. $527,000 C. $921,281 D. $1,386,842 Contribution margin per unit = $200 - $76 = $124 Contribution margin ratio = $124 $200 = 62% Break-even point in dollars = $527,000 62% = $850,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

70. Zents Inc. produces and sells a single product. The selling price of the product is $240.00 per unit and its variable cost is $108.00 per unit. The fixed expense is $407,880 per month. The break-even in monthly dollar sales is closest to: A. $685,293 B. $741,600 C. $906,400 D. $407,880 Contribution margin per unit = $240 - $108 = $132 Contribution margin ratio = $132 $240 = 55% Break-even point in dollars = $407,880 55% = $741,600

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

71. A product sells for $20 per unit, and has a contribution margin ratio of 40%. Fixed expenses are $120,000. How many units must be sold to yield a profit of $30,000? A. 18,750 B. 20,000 C. 25,000 D. 12,500 Contribution margin per unit = $20 x 40% = $8 Sales in units needed = ($120,000 + $30,000) $8 = 18,750

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Medium

72. Harist Corporation sold 5,000 units in May. Sales were $400,000, variable expenses were $240,000, and fixed expenses were $120,000. If the company increases its selling price by 10%, how many units would have to be sold in June to generate a profit of $40,000? A. 4,200 B. 4,500 C. 4,000 D. 5,000 Sales price per unit = ($400,000 5,000 units) x (100% + 10%) = $88.00 Variable expense per unit = $240,000 5,000 units = $48.00 Sales = Variable expenses + Fixed expenses + Profit $88.00Q = $48.00Q + $120,000 + $40,000 $40.00Q = $160,000 Q = $160,000 $40.00 per unit = 4,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

73. Austin Manufacturing had the following operating data for the year just ended.

Management plans to improve the quality of its only product by: (1) replacing a component that costs $3.50 with a higher-grade component that costs $5.50; and (2) renting a packing machine for $18,000 a year. If the desired target profit is $288,000, the company must sell: A. 19,300 units B. 21,316 units C. 22,500 units D. 20,842 units Contribution margin per unit = $60 - $22 - $2* = $36 * increase in variable cost per unit ($5.50 - $3.50) Break-even point in units = ($504,000 + $18,000 + $288,000) = 22,500 units

$36

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Medium Source: CMA, adapted

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Chapter 04: Cost-Volume-Profit Relationship - Key

74. Lempka Corporation produces and sells a single product. Data concerning that product appear below:

The unit sales to attain the company's monthly target profit of $17,000 is closest to: A. 4,172 B. 4,520 C. 2,169 D. 3,620 Contribution margin per unit = $190.00 - $91.20 = $98.80 Sales needed to achieve target profit = ($395,200 + $17,000) = 4,172 (rounded)

$98.80

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Chapter 04: Cost-Volume-Profit Relationship - Key

75. Data concerning Shanor Enterprises Corporation's single product appear below:

The unit sales to attain the company's monthly target profit of $13,000 is closest to: A. 2,245 B. 3,805 C. 5,475 D. 3,842 Contribution margin per unit = $210.00 - $86.10 = $123.90 Sales needed to achieve target profit = ($458,430 + $13,000) = 3,805 (rounded)

$123.90

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

76. Aybar International Corporation's only product sells for $210.00 per unit and its variable expense is $75.60. The company's monthly fixed expense is $766,080 per month. The unit sales to attain the company's monthly target profit of $28,000 is closest to: A. 5,908 B. 6,731 C. 10,504 D. 3,781 Contribution margin per unit = $210.00 - $75.60 = $134.40 Sales needed to achieve target profit = ($766,080 + $28,000) = 5,908 (rounded)

$134.40

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Chapter 04: Cost-Volume-Profit Relationship - Key

77. Monsky Corporation produces and sells a single product whose contribution margin ratio is 60%. The company's monthly fixed expense is $420,000 and the company's monthly target profit is $13,000. The dollar sales to attain that target profit is closest to: A. $252,000 B. $259,800 C. $721,667 D. $700,000 Sales needed to achieve target profit = ($420,000 + $13,000) 60% = $721,667 (rounded)

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78. The contribution margin ratio of Scoggins Corporation's only product is 69%. The company's monthly fixed expense is $364,320 and the company's monthly target profit is $14,000. The dollar sales to attain that target profit is closest to: A. $261,041 B. $251,381 C. $548,290 D. $528,000 Sales needed to achieve target profit = ($364,320 + $14,000) = $548,290 (rounded)

69%

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Chapter 04: Cost-Volume-Profit Relationship - Key

79. Lineman Corporation sells a product for $230 per unit. The product's current sales are 23,400 units and its break-even sales are 20,124 units. What is the margin of safety in dollars? A. $3,588,000 B. $5,382,000 C. $753,480 D. $4,628,520 Margin of safety in dollars: Break-even sales = $230 per unit x 20,124 units = $4,628,520 Current sales = $230 per unit x 23,400 units = $5,382,000 Margin of safety in dollars = Sales - Break-even sales = $5,382,000 - $4,628,520 = $753,480

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80. Knell Corporation sells a product for $230 per unit. The product's current sales are 33,000 units and its break-even sales are 26,400 units. The margin of safety as a percentage of sales is closest to: A. 25% B. 75% C. 20% D. 80% Margin of safety in dollars: Break-even sales = $230 per unit x 26,400 units = $6,072,000 Current sales = $230 per unit x 33,000 units = $7,590,000 Margin of safety in dollars = Sales - Break-even sales = $7,590,000 - $6,072,000 = $1,518,000 Margin of safety as a percentage of sales = Margin of safety in dollars = $1,518,000 $7,590,000 = 20%

Current sales

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Chapter 04: Cost-Volume-Profit Relationship - Key

81. Murdoch Corporation has provided the following data concerning its only product:

What is the margin of safety in dollars? A. $2,158,320 B. $5,995,333 C. $6,834,680 D. $8,993,000 Margin of safety in dollars: Break-even sales = $230 per unit x 29,716 units = $6,834,680 Current sales = $230 per unit x 39,100 units = $8,993,000 Margin of safety in dollars = Sales - Break-even sales = $8,993,000 - $6,834,680 = $2,158,320

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Chapter 04: Cost-Volume-Profit Relationship - Key

82. Tassone Corporation has provided the following data concerning its only product:

The margin of safety as a percentage of sales is closest to: A. 37% B. 73% C. 27% D. 63% Margin of safety in dollars: Break-even sales = $100 per unit x 34,091 units = $3,409,100 Current sales = $100 per unit x 46,700 units = $4,670,000 Margin of safety in dollars = Sales - Break-even sales = $4,670,000 - $3,409,100 = $1,260,900 Margin of safety as a percentage of sales = Margin of safety in dollars = $1,260,900 $4,670,000 = 27%

Current sales

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 7 Level: Easy

83. If sales increase from $80,000 per year to $120,000 per year, and if the operating leverage is 5, then net operating income should increase by: A. 167% B. 250% C. 100% D. 334% Percent increase in sales = ($120,000 - $80,000) $80,000 = 50% Percent increase in net operating income = Percent increase in sales x Degree of operating leverage = 50% x 5 = 250%

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Chapter 04: Cost-Volume-Profit Relationship - Key

84. The following is last month's contribution format income statement:

What is the company's degree of operating leverage? A. 0.125 B. 8.0 C. 3.0 D. 0.333 Degree of operating leverage = Contribution margin Net operating income Degree of operating leverage = $300,000 $100,000 = 3

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Chapter 04: Cost-Volume-Profit Relationship - Key

85. The January contribution format income statement of Steffel Corporation appears below:

The degree of operating leverage is closest to: A. 0.09 B. 11.34 C. 4.13 D. 0.24 Degree of operating leverage = Contribution margin Net operating income Degree of operating leverage = $13,200 $3,200 = 4.13 (rounded)

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Chapter 04: Cost-Volume-Profit Relationship - Key

86. Kappen Corporation's contribution format income statement for October appears below:

The degree of operating leverage is closest to: A. 0.15 B. 0.28 C. 3.63 D. 6.79 Degree of operating leverage = Contribution margin Net operating income Degree of operating leverage = $140,400 $38,700 = 3.63 (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Easy

87. Valesquez Corporation's operating leverage is 8.6. If the company's sales increase by 17%, its net operating income should increase by about: A. 8.6% B. 50.6% C. 17.0% D. 146.2% Percent increase in net operating income = Percent increase in sales x Degree of operating leverage = 17% x 8.6 = 146.2%

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Chapter 04: Cost-Volume-Profit Relationship - Key

88. Goyal Inc. has an operating leverage of 12.5. If the company's sales increase by 6%, its net operating income should increase by about: A. 6.0% B. 12.5% C. 75.0% D. 208.3% Percent increase in net operating income = Percent increase in sales x Degree of operating leverage = 6% x 12.5 = 75.0%

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Chapter 04: Cost-Volume-Profit Relationship - Key

89. The following data pertain to Wistron Company's two products:

If fixed expenses for the company as a whole are $60,000 and the product mix is constant, the overall break-even point for the company would be: A. $150,000 B. $153,846 C. $100,000 D. $132,000

Overall CM ratio = Total contribution margin Total sales = $72,000 $180,000 = 0.40 Break-even point in total sales dollars = Fixed expenses Overall contribution margin ratio = $60,000 0.40 = $150,000 Alternative Method: BE% = 1- MOS% BE% = 1 – (Net Income/Contribution Margin) = 1 – ($12,000/$72,000) BE% = 0.83333333 BE$ = $180,000 * 0.83333333 = $150,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

90. A company currently sells products Aye, Bee, and Cee in equal quantities and at the same selling price per unit. The contribution margin ratio for product Aye is 40%, for product Bee is 50%, and the overall contribution margin ratio for the company is 48%. Suppose that the sales mix changes to 40% Aye, 25% Bee, and 35% Cee, what would be the new overall contribution margin ratio for the company? A. 27.5% B. 45.3% C. 47.4% D. 68.4% First, calculate contribution margin ratio for product Cee (all products are sold in equal quantities and selling prices so each product represents one third of total): 1/3 (40%) + 1/3 (50%) + 1/3 (C) = 48% 1/3 C = 18% C = 54% contribution margin ratio New overall contribution margin ratio = (40% x 40%) + (25% x 50%) + (35% x 54%) = 47.4%

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Chapter 04: Cost-Volume-Profit Relationship - Key

91. Rierson Inc. produces and sells two products. Data concerning those products for the most recent month appear below:

The fixed expenses of the entire company were $17,730. The break-even point for the entire company is closest to: A. $32,250 B. $17,730 C. $31,661 D. $15,270

Overall contribution margin ratio = $18,480 $33,000 = 56% Break-even point = $17,730 56% = $31,661 (rounded) Alternative Method: BE% = 1- MOS% BE% = 1 – (Net Income/Contribution Margin) = 1 – ($750/$18,480) BE% = 0.959415585 BE$ = $33,000 * 0.959415585 = $31,661 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

92. Sween Corporation produces and sells two products. Data concerning those products for the most recent month appear below:

The fixed expenses of the entire company were $27,530. If the sales mix were to shift toward Product Z45B with total sales remaining constant, the overall break-even point for the entire company: A. would decrease. B. could increase or decrease. C. would increase. D. would not change.

Since product Z45B has a higher contribution margin ratio than Product C00Q, the overall break-even point for the entire company would decrease.

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Chapter 04: Cost-Volume-Profit Relationship - Key

93. Hilty Corporation produces and sells two products. In the most recent month, Product U77D had sales of $45,000 and variable expenses of $15,750. Product D86D had sales of $49,000 and variable expenses of $22,790. And the fixed expenses of the entire company were $46,170. The break-even point for the entire company is closest to: A. $47,830 B. $84,710 C. $46,170 D. $78,254

Overall contribution margin ratio = Total contribution margin = $55,460 $94,000 = 0.59 Break-even point in total sales dollars = Fixed expenses Overall contribution margin ratio = $46,170 0.59 = $78,254 (rounded)

Total sales

Alternative Method: BE% = 1- MOS% BE% = 1 – (Net Income/Contribution Margin) = 1 – ($9,290/$55,460) BE% = 0.832491887 BE$ = $94,000 * 0.832491887 = $78,254 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

94. Isaza Corporation produces and sells two products. In the most recent month, Product U82U had sales of $28,000 and variable expenses of $13,440. Product P89W had sales of $18,000 and variable expenses of $7,260. And the fixed expenses of the entire company were $24,650. If the sales mix were to shift toward Product U82U with total sales remaining constant, the overall break-even point for the entire company: A. would decrease. B. would not change. C. could increase or decrease. D. would increase.

Since Product U82U has a lower contribution margin ratio than Product P89W, a shift towards the product with the lowest contribution margin ratio will cause the company's overall break-even point to increase.

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Chapter 04: Cost-Volume-Profit Relationship - Key

The following is Addison Corporation's contribution format income statement for last month:

The company has no beginning or ending inventories. A total of 20,000 units were produced and sold last month.

95. What is the company's contribution margin ratio? A. 250% B. 150% C. 70% D. 30% Contribution margin ratio = Contribution margin Sales Contribution margin ratio = $300,000 $1,000,000 Contribution margin ratio = 0.30 or 30%

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Chapter 04: Cost-Volume-Profit Relationship - Key

96. What is the company's break-even in units? A. 20,000 units B. 0 units C. 18,000 units D. 12,000 units Contribution margin ratio = Contribution margin Sales Contribution margin ratio = $300,000 $1,000,000 Contribution margin ratio = 0.30 or 30% Original sales dollars Units = Selling price per unit $1,000,000 20,000 = $50 Break-even point in dollars = Fixed expenses Contribution margin ratio = $180,000 30% = $600,000 Divide break-even sales by the selling price per unit to get break-even units. Break-even point (in units) = $600,000 $50 = 12,000 units

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Chapter 04: Cost-Volume-Profit Relationship - Key

97. If sales increase by 100 units, by how much should net operating income increase? A. $400 B. $4,800 C. $1,500 D. $2,500 Contribution margin ratio = Contribution margin Sales Contribution margin ratio = $300,000 $1,000,000 Contribution margin ratio = 0.30 or 30% Original sales dollars Units = Selling price per unit $1,000,000 20,000 = $50 Increase in net operating income from additional sales of 100 units:

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Chapter 04: Cost-Volume-Profit Relationship - Key

98. How many units would the company have to sell to attain the target profit of $150,000? A. 22,000 B. 37,500 C. 25,000 D. 26,667 Contribution margin ratio = Contribution margin Sales Contribution margin ratio = $300,000 $1,000,000 Contribution margin ratio = 0.30 or 30%

Sales needed to achieve target profit = ($180,000 + $150,000) = 22,000 units

$15

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

99. What is the company's margin of safety in dollars? A. $400,000 B. $600,000 C. $120,000 D. $880,000 Contribution margin ratio = Contribution margin Sales Contribution margin ratio = $300,000 $1,000,000 Contribution margin ratio = 0.30 or 30% Original sales dollars Units = Selling price per unit $1,000,000 20,000 = $50 Break-even point in dollars = Fixed expenses Contribution margin ratio = $180,000 30% = $600,000 Margin of safety in dollars = Sales - Break-even sales = $1,000,000 - $600,000 = $400,000

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Chapter 04: Cost-Volume-Profit Relationship - Key

100. What is the company's degree of operating leverage? A. 0.12 B. 2.5 C. 0.4 D. 3.3 Degree of operating leverage = Contribution margin = $300,000 $120,000 = 2.5

Net operating income

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Easy

McGordon Corporation has provided the following data:

101. The contribution margin is: A. $240,000 B. $560,000 C. $632,000 D. $72,000 Contribution margin = Sales - Variable expenses = $800,000 - $560,000 = $240,000

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Chapter 04: Cost-Volume-Profit Relationship - Key

102. The break-even point in sales dollars is: A. $240,000 B. $560,000 C. $728,000 D. $408,000 Contribution margin = Sales - Variable expenses = $800,000 - $560,000 = $240,000 Contribution margin ratio = Contribution margin = $240,000 $800,000 = 30% Break-even point in sales dollars: Fixed expenses Contribution margin ratio = $168,000 0.30 = $560,000

Sales

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Chapter 04: Cost-Volume-Profit Relationship - Key

A tile manufacturer has supplied the following data:

103. What is the company's unit contribution margin? A. $0.86 B. $2.35 C. $4.10 D. $1.75 Contribution margin = Sales - Variable expenses Contribution margin = $2,132,000 - ($650,000 + $260,000) Contribution margin = $1,222,000 Unit contribution margin = Contribution margin Boxes of tiles Unit contribution margin = $1,222,000 520,000 Unit contribution margin = $2.35

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Chapter 04: Cost-Volume-Profit Relationship - Key

104. The company's contribution margin ratio is closest to: A. 42.7% B. 57.3% C. 45.8% D. 21.0% Contribution margin = Sales - Variable expenses Contribution margin = $2,132,000 - ($650,000 + $260,000) Contribution margin = $1,222,000 Contribution margin ratio = Contribution margin Sales Contribution margin ratio = $1,222,000 $2,132,000 Contribution margin ratio = 57.3% (rounded)

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Chapter 04: Cost-Volume-Profit Relationship - Key

105. If the company increases its unit sales volume by 3% without increasing its fixed expenses, then total net operating income should be closest to: A. $459,380 B. $453,667 C. $13,380 D. $482,660 Contribution margin = Sales - Variable expenses Contribution margin = $2,132,000 - ($650,000 + $260,000) Contribution margin = $1,222,000 Unit contribution margin = Contribution margin Boxes of tiles Unit contribution margin = $1,222,000 520,000 Unit contribution margin = $2.35 Increase in sales units = 520,000 x 3% = 15,600 units Increase in net operating income = Unit contribution margin x Increase in sales units = $2.35 x 15,600 = $36,660 New net operating income = Current net operating income + Increase = $446,000 + $36,660 = $482,660

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

A company that makes organic fertilizer has supplied the following data:

106. The company's margin of safety in units is closest to: A. 115,128 B. 16,111 C. 168,986 D. 100,444 Total contribution margin = Sales - Variable expenses = $1,560,000 - $660,000 - $180,000 = $720,000 Unit contribution margin = Total contribution margin Number of units = $720,000 200,000 = $3.60 Break-even sales in units = Fixed expenses Unit contribution margin = ($448,000 + $214,000) $3.60 = 183,889 units (rounded) Margin of safety in units = Sales in units - Break-even sales in units = 200,000 - 183,889 = 16,111 units

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Chapter 04: Cost-Volume-Profit Relationship - Key

107. The company's unit contribution margin is closest to: A. $4.50 B. $6.90 C. $3.60 D. $4.20 Total contribution margin = Sales - Variable expenses = $1,560,000 - $660,000 - $180,000 = $720,000 Unit contribution margin = Total contribution margin Number of units = $720,000 200,000 = $3.60

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

108. The company's degree of operating leverage is closest to: A. 1.27 B. 26.90 C. 3.45 D. 12.41 Total contribution margin = Sales - Variable expenses = $1,560,000 - $660,000 - $180,000 = $720,000 Degree of operating leverage = Contribution margin/Net operating income = $720,000 $58,000 = 12.41 (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

Doubleday Corporation produces and sells a single product. The company has provided its contribution format income statement for August.

109. If the company sells 3,000 units, its total contribution margin should be closest to: A. $20,813 B. $115,200 C. $96,600 D. $108,000 Unit contribution margin = Total contribution margin Total units = $115,200 3,200 = $36 Total contribution margin @ 3,000 units = 3,000 units x $36 = $108,000

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Chapter 04: Cost-Volume-Profit Relationship - Key

110. If the company sells 3,500 units, its net operating income should be closest to: A. $33,000 B. $24,281 C. $22,200 D. $50,100 Unit contribution margin = Total contribution margin Total units = $115,200 3,200 = $36 Total contribution margin @ 3,500 units = 3,500 units x $36 = $126,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

Sullens Inc, which produces and sells a single product, has provided its contribution format income statement for July.

111. If the company sells 8,600 units, its total contribution margin should be closest to: A. $113,400 B. $111,800 C. $110,500 D. $24,788 Unit contribution margin = Total contribution margin Number of units = $110,500 8,500 = $13 Total contribution margin @ 8,600 units = 8,600 units x $13 = $111,800

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Chapter 04: Cost-Volume-Profit Relationship - Key

112. If the company sells 8,300 units, its net operating income should be closest to: A. $23,924 B. $21,900 C. $24,500 D. $18,700 Unit contribution margin = Total contribution margin Number of units = $110,500 8,500 = $13 Total contribution margin @ 8,300 units = 8,300 units x $13 = $107,900

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Chapter 04: Cost-Volume-Profit Relationship - Key

Erdmann Corporation has provided its contribution format income statement for July. The company produces and sells a single product.

113. If the company sells 7,500 units, its total contribution margin should be closest to: A. $55,063 B. $184,800 C. $210,000 D. $221,200 Unit contribution margin = Total contribution margin Number of units = $221,200 7,900 = $28 Total contribution margin @ 7,500 units = 7,500 units x $28 = $210,000

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Chapter 04: Cost-Volume-Profit Relationship - Key

114. If the company sells 8,100 units, its net operating income should be closest to: A. $58,000 B. $63,600 C. $59,468 D. $76,200 Unit contribution margin = Total contribution margin Number of units = $221,200 7,900 = $28 Total contribution margin @ 8,100 units = 8,100 units x $28 = $226,800

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800.

115. The variable expense per unit is: A. $31.20 B. $24.00 C. $36.00 D. $28.80 Variable expense ratio = 1 - Contribution margin ratio = 1 - .40 = .60 Variable expense per unit = Selling price x Variable expense ratio = $60 x .60 = $36.00

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Chapter 04: Cost-Volume-Profit Relationship - Key

116. The break-even point in sales dollars is: A. $48,000 B. $72,000 C. $28,800 D. $0 Break-even point in sales dollars: Fixed expenses Contribution margin ratio = $28,800 0.40 = $72,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

117. If Dorian Company desires a monthly net operating income equal to 10% of sales, monthly sales will have to be: A. $90,000 B. $45,600 C. $120,000 D. $96,000 Variable expense ratio = 1 - Contribution margin ratio = 1 - .40 = .60 Variable expense per unit = Selling price x Variable expense ratio = $60 x .60 = $36.00 Sales needed to achieve target profit: Sales = Variable expenses + Fixed expenses + Profit $60Q = $36Q + $28,800 + ($60Q x 10%) $60Q = $36Q + $28,800 + $6Q $18Q = $28,800 Q = 1,600 units Total sales dollars = 1,600 units x $60 = $96,000

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Chapter 04: Cost-Volume-Profit Relationship - Key

118. If the selling price is reduced by 5%, variable expenses reduced by $1.00, and fixed expenses increased to a total of $38,400, how many units would need to be sold to earn a net operating income of $21,000? A. 1,000 B. 2,700 C. 1,700 D. 2,950 Variable expense ratio = 1 - Contribution margin ratio = 1 - .40 = .60 Variable expense per unit = Selling price x Variable expense ratio = $60 x .60 = $36.00

Sales needed to achieve target profit = (Fixed expenses + Target profit) Unit contribution margin = ($38,400 + $21,000) $22 = 2,700 units

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Chapter 04: Cost-Volume-Profit Relationship - Key

A manufacturer of tiling grout has supplied the following data:

119. The company's break-even in unit sales is closest to: A. 272,308 B. 98,333 C. 92,055 D. 60,488 Total contribution margin = Sales - Variable expenses = $2,736,000 - $1,349,000 - $399,000 = $988,000 Contribution margin per unit = Total contribution margin Number of units = $988,000 380,000 = $2.60 Unit sales to break even = Fixed expenses Unit contribution margin = ($336,000 + $372,000) $2.60 = 272,308 (rounded)

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Chapter 04: Cost-Volume-Profit Relationship - Key

120. The company's contribution margin ratio is closest to: A. 28.9% B. 63.9% C. 71.1% D. 36.1% Total contribution margin = Sales - Variable expenses = $2,736,000 - $1,349,000 - $399,000 = $988,000 Contribution margin ratio = Total contribution margin = $988,000 $2,736,000 = 36.1% (rounded)

Sales

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

121. The company's degree of operating leverage is closest to: A. 9.77 B. 1.36 C. 3.53 D. 2.47 Total contribution margin = Sales - Variable expenses = $2,736,000 - $1,349,000 - $399,000 = $988,000 Degree of operating leverage = Total contribution margin = $988,000 $280,000 = 3.53 (rounded)

Net operating income

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Chapter 04: Cost-Volume-Profit Relationship - Key

Janet Company produces a game that sells for $17 per game. Variable expenses are $9 per game and fixed expenses total $172,000 annually.

122. The break-even point is closest to: A. 19,111 units B. 10,118 units C. 21,500 units D. 24,000 units Unit contribution margin = Selling price - Variable expense = $17 - $9 = $8 Break-even point in units = Fixed expenses Unit contribution margin = $172,000 $8 = 21,500 units

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

123. The contribution margin ratio is closest to: A. 47.1% B. 2.1% C. 1.9% D. 52.9% Unit contribution margin = Selling price - Variable expense = $17 - $9 = $8 Contribution margin ratio = Contribution margin Selling price = $8 $17 = 47.1% (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

Fletcher Company has three products with the following characteristics:

124. The overall contribution margin ratio for the company as a whole is (to the nearest tenth of a percent): A. 25.3% B. 75.0% C. 25.0% D. 28.5%

Overall contribution margin ratio = Table contribution margin = $60,000 $240,000 = 25%

Total sales

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Chapter 04: Cost-Volume-Profit Relationship - Key

125. If total units sold remain unchanged, but the sales mix shifts more heavily toward Product C, one would expect the overall contribution margin ratio to: A. increase B. decrease C. remain unchanged D. none of these Since the contribution margin ratio for Product C is the lowest ratio of all products, shifting more sales towards Product C will cause the overall contribution margin ratio to decrease.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 9 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

Merced Corporation has provided the following budgeted data:

126. The break-even point in units is closest to: A. 14,000 units B. 75,002 units C. 12,500 units D. 16,000 units Variable expense per unit = Total variable expense Total number of units = $180,000 15,000 = $12 Contribution margin per unit = Selling price - Variable expense = $20 - $12 = $8 Unit sales to break even = Fixed expenses Unit contribution margin = $100,000 $8 = 12,500 units

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

127. If the selling price is raised by $5 per unit, the break-even point in units will be: A. 7,692 units B. 14,000 units C. 12,500 units D. 11,200 units New selling price = $20 + $5 = $25 Variable expense per unit = Total variable expense Total number of units = $180,000 15,000 = $12 Contribution margin per unit = Selling price - Variable expense = $25 - $12 = $13 Unit sales to break-even = Fixed expenses Unit contribution margin = $100,000 $13 = 7,692 units (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

128. If the variable expense per unit is increased by 10 percent, and if the total fixed expenses are increased by $20,000 with the selling price remaining unchanged at $20, the break-even point in units will be: A. 14,706 units B. 9,091 units C. 17,647 units D. 15,000 units Variable expense per unit = Total variable expense Total number of units = $180,000 15,000 = $12 New variable expense per unit = $12 x (1 + 10%) = $13.20 New contribution margin per unit = $20.00 - $13.20 = $6.80 New fixed expenses = $100,000 + $20,000 = $120,000 Unit sales to break even = Fixed expenses/Unit CM = $120,000 $6.80 = 17,647 (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

Finestra Corporation produces a single product that it currently sells for $10. Fixed expenses are $120,000 for the year and variable expenses are $6 per unit. In addition, Finestra's salespersons are paid a commission of 10% of their sales.

129. If Finestra spends an additional $10,000 on advertising, increases its selling price to $12 per unit, and sells 60,000 units, its net operating income would be: A. $158,000 B. $230,000 C. $218,000 D. $194,000 Contribution margin per unit = Selling price - Variable expenses = $12 - $6 - ($12 x 10%) = $4.80 per unit

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

130. A customer has just approached Finestra to make a special, one-time purchase of 10,000 units. These units would not be sold by the salespeople, and therefore no commission would have to be paid. The price Finestra would have to charge on this special order to earn an additional profit of $40,000 is: A. $9.00 per unit B. $10.00 per unit C. $5.00 per unit D. $11.20 per unit Price x 10,000 units = ($6 x 10,000 units) + $40,000 10,000 x Price = $100,000 Price = $10.00 per unit

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

Hinsey Corporation produces and sells a single product. Data concerning the product appear below:

Fixed expenses are $300,000 per month. The company is currently selling 4,000 units per month. Consider each of the following questions independently.

131. This question is to be considered independently of all other questions relating to Hinsey Corporation. Refer to the original data when answering this question. The marketing manager believes that an $18,000 increase in the monthly advertising budget would result in a 180 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $2,160 B. decrease of $18,000 C. increase of $15,840 D. increase of $2,160

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

132. This question is to be considered independently of all other questions relating to Hinsey Corporation. Refer to the original data when answering this question. Management is considering using a new component that would increase the unit variable cost by $11. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $38,500 B. increase of $5,500 C. increase of $38,500 D. decrease of $5,500

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

133. This question is to be considered independently of all other questions relating to Hinsey Corporation. Refer to the original data when answering this question. The marketing manager would like to cut the selling price by $13 and increase the advertising budget by $21,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 900 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $46,500 B. decrease of $46,500 C. increase of $165,300 D. decrease of $5,500

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

134. This question is to be considered independently of all other questions relating to Hinsey Corporation. Refer to the original data when answering this question. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $11 per unit. In exchange, the sales staff would accept a decrease in their salaries of $37,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 200 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $34,800 B. increase of $8,400 C. decrease of $65,600 D. increase of $360,400

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

Data concerning Sotero Corporation's single product appear below:

The company is currently selling 5,000 units per month. Fixed expenses are $319,000 per month. Consider each of the following questions independently.

135. This question is to be considered independently of all other questions relating to Sotero Corporation. Refer to the original data when answering this question. Management is considering using a new component that would increase the unit variable cost by $8. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $2,000 B. decrease of $2,000 C. increase of $38,000 D. decrease of $38,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

136. This question is to be considered independently of all other questions relating to Sotero Corporation. Refer to the original data when answering this question. The marketing manager believes that a $12,000 increase in the monthly advertising budget would result in a 180 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $3,120 B. increase of $3,120 C. decrease of $12,000 D. increase of $15,120

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

137. This question is to be considered independently of all other questions relating to Sotero Corporation. Refer to the original data when answering this question. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $9 per unit. In exchange, the sales staff would accept a decrease in their salaries of $37,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 100 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $36,100 B. decrease of $74,500 C. decrease of $500 D. increase of $419,500

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

138. This question is to be considered independently of all other questions relating to Sotero Corporation. Refer to the original data when answering this question. The marketing manager would like to cut the selling price by $7 and increase the advertising budget by $20,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 500 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $46,500 B. decrease of $18,500 C. decrease of $16,500 D. increase of $18,500

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

Wertman Corporation produces and sells a single product with the following characteristics:

The company is currently selling 3,000 units per month. Fixed expenses are $215,000 per month. Consider each of the following questions independently.

139. This question is to be considered independently of all other questions relating to Wertman Corporation. Refer to the original data when answering this question. Management is considering using a new component that would increase the unit variable cost by $5. Since the new component would increase the features of 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? A. increase of $15,800 B. decrease of $15,800 C. increase of $800 D. decrease of $800

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

140. This question is to be considered independently of all other questions relating to Wertman Corporation. Refer to the original data when answering this question. The marketing manager believes that a $7,000 increase in the monthly advertising budget would result in a 110 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $7,000 B. increase of $2,240 C. decrease of $2,240 D. increase of $9,240

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

141. This question is to be considered independently of all other questions relating to Wertman Corporation. Refer to the original data when answering this question. The marketing manager would like to cut the selling price by $19 and increase the advertising budget by $14,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,000 units. What should be the overall effect on the company's monthly net operating income of this change? A. increase of $177,000 B. increase of $51,000 C. decrease of $6,000 D. decrease of $51,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

142. This question is to be considered independently of all other questions relating to Wertman Corporation. Refer to the original data when answering this question. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $20 per unit. In exchange, the sales staff would accept a decrease in their salaries of $52,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 300 units. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of $92,800 B. increase of $263,200 C. increase of $11,200 D. increase of $46,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

Hurst Co. manufacturers and sells a single product. Price and cost data regarding this product are as follows:

143. The break-even point in units per year is: A. 15,200 units B. 26,600 units C. 38,000 units D. 40,000 units Unit sales to break even = Fixed expenses Unit contribution margin = ($208,000 + $324,000) ($40 - $20 - $6) = $532,000 $14 = 38,000 units

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

144. How many units need to be sold to earn an annual net operating income equal to 10% of sales? A. 44,000 units B. 53,200 units C. 54,500 units D. 47,500 units Variable expenses per unit = $20 + $6 = $26 Total fixed expenses = $208,000 + $324,000 = $532,000 $40Q = $26Q + $532,000 + ($40Q x 10%) $40Q = $26Q + $532,000 + $4Q $10Q = $532,000 Q = 53,200 units

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Hard

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Chapter 04: Cost-Volume-Profit Relationship - Key

145. In the current year, the company sold 43,000 units. Due to competition, management will be forced to lower the selling price by 10% next year. How many units must be sold next year to earn the same income as was earned in the current year? A. 50,000 units B. 53,200 units C. 58,800 units D. 60,200 units Variable expenses per unit = $20 + $6 = $26 Total fixed expenses = $208,000 + $324,000 = $532,000 Last year's net operating income:

New selling price per unit = $40 - (10% x $40) = $36 New contribution margin per unit = $36 - $26 = $10 Sales to achieve target profit = ($532,000 + $70,000)

$10 = 60,200 units

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Hard

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Chapter 04: Cost-Volume-Profit Relationship - Key

Junsin Corporation's budget for next year appears below. The budget assumes the company will sell 30,000 units.

146. The break-even point in annual sales dollars is: A. $530,000 B. $350,000 C. $460,000 D. $400,000 Contribution margin = $600,000 - $390,000 = $210,000 Contribution margin ratio = $210,000 $600,000 = 35% Dollar sales to break even = Fixed expenses Contribution margin ratio = $140,000 35% = $400,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

147. The company's margin of safety as a percentage of sales (rounded to the nearest whole percent) is: A. 33% B. 50% C. 12% D. 67% Contribution margin = $600,000 - $390,000 = $210,000 Contribution margin ratio = $210,000 $600,000 = 35% Dollar sales to break even = Fixed expenses Contribution margin ratio = $140,000 35% = $400,000 Margin of safety = Total sales - Break-even sales = $600,000 - $400,000 = $200,000 Margin of safety (%) = $200,000 $600,000 = 33% (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 7 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

Vandinter Corporation produces and sells a single product. Data concerning that product appear below:

148. The break-even in monthly unit sales is closest to: A. 8,101 B. 3,352 C. 4,190 D. 16,760 Contribution margin per unit = $160 - $32 = $128 Unit sales to break even = Fixed expenses Unit contribution margin = $536,320 $128 = 4,190 units

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

149. The break-even in monthly dollar sales is closest to: A. $536,320 B. $670,400 C. $2,681,600 D. $1,296,160 Contribution margin per unit = $160 - $32 = $128 Contribution margin ratio = $128 $160 = 80% Dollar sales to break even = Fixed expenses Contribution margin ratio = $536,320 80% = $670,400

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

Data concerning Hahl Corporation's single product appear below:

150. The break-even in monthly unit sales is closest to: A. 4,529 B. 3,470 C. 2,394 D. 7,724 Contribution margin per unit = $140.00 - $43.40 = $96.60 Unit sales to break even = Fixed expenses/Unit contribution margin = $335,202 $96.60 = 3,470

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

151. The break-even in monthly dollar sales is closest to: A. $485,800 B. $634,060 C. $1,081,360 D. $335,160 Contribution margin per unit = $140.00 - $43.40 = $96.60 Contribution margin ratio = $96.60 $140.00 = 69% Dollar sales to break even = Fixed expenses Contribution margin ratio = $335,202 69% = $485,800

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

Edmondson Inc. produces and sells a single product. The selling price of the product is $200.00 per unit and its variable cost is $50.00 per unit. The fixed expense is $205,500 per month.

152. The break-even in monthly unit sales is closest to: A. 4,110 B. 2,169 C. 1,028 D. 1,370 Contribution margin per unit = $200.00 - $50.00 = $150.00 Unit sales to break even = Fixed expenses/Unit contribution margin = $205,500 $150 = 1,370 units

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

153. The break-even in monthly dollar sales is closest to: A. $205,500 B. $274,000 C. $822,000 D. $433,833 Contribution margin per unit = $200.00 - $50.00 = $150.00 Contribution margin ratio = $150 $200 = 75% Dollar sales to break even = Fixed expenses/Contribution margin ratio = $205,500 75% = $274,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

Pedaci Corporation produces and sells a single product. Data concerning that product appear below:

154. Assume the company's monthly target profit is $15,000. The unit sales to attain that target profit is closest to: A. 3,212 B. 5,265 C. 8,235 D. 5,571 Contribution margin per unit = $120.00 - $46.80 = $73.20 Sales dollars needed to achieve target profit = (Fixed expenses + Target profit) Contribution margin per unit = ($370,392 + $15,000) $73.20 = 5,265 units (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

155. Assume the company's monthly target profit is $17,000. The dollar sales to attain that target profit is closest to: A. $387,392 B. $635,069 C. $671,925 D. $993,313 Contribution margin per unit = $120.00 - $46.80 = $73.20 Contribution margin ratio = $73.20 $120.00 = 61% Dollar sales to attain target profit = (Fixed expenses + Target profit) Contribution margin ratio = ($370,392 + $17,000) 61% = $635,069

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

Data concerning Plaxco Corporation's single product appear below:

156. Assume the company's monthly target profit is $11,000. The unit sales to attain that target profit is closest to: A. 4,818 B. 5,219 C. 4,181 D. 2,505 Contribution margin per unit = $180.00 - $86.40 = $93.60 Unit sales to achieve target profit = (Fixed expenses + Target profit) Contribution margin per unit = ($439,920 + $11,000) $93.60 = 4,818 (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

157. Assume the company's monthly target profit is $12,000. The dollar sales to attain that target profit is closest to: A. $941,500 B. $754,166 C. $451,920 D. $869,077 Contribution margin per unit = $180.00 - $86.40 = $93.60 Contribution margin ratio = $93.60 $180.00 = 52% Dollar sales to attain target profit = (Fixed expenses + Target profit) Contribution margin ratio = ($439,920 + $12,000) 52% = $869,077 (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

Boening Enterprises, Inc., produces and sells a single product whose selling price is $130.00 per unit and whose variable expense is $39.00 per unit. The company's monthly fixed expense is $509,600.

158. Assume the company's monthly target profit is $11,000. The unit sales to attain that target profit is closest to: A. 7,692 B. 13,349 C. 4,005 D. 5,721 Contribution margin per unit = $130.00 - $39.00 = $91.00 Unit sales to attain target profit = (Fixed expenses + Target profit) Unit contribution margin = ($509,600 + $11,000) $91.00 = 5,721 units (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

159. Assume the company's monthly target profit is $22,000. The dollar sales to attain that target profit is closest to: A. $1,021,010 B. $759,429 C. $1,772,000 D. $531,600 Contribution margin per unit = $130.00 - $39.00 = $91.00 Contribution margin ratio = $91.00 $130.00 = 70% Dollar sales to attain target profit = (Fixed expenses + Target profit) Contribution margin ratio = ($509,600 + $22,000) 70% = $759,429 (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

Rosner Corporation sells a product for $150 per unit. The product's current sales are 32,500 units and its break-even sales are 24,050 units.

160. What is the margin of safety in dollars? A. $4,875,000 B. $3,607,500 C. $3,250,000 D. $1,267,500 Margin of safety in dollars: Break-even sales = $150 per unit x 24,050 units = $3,607,500 Current sales = $150 per unit x 32,500 units = $4,875,000 Margin of safety in dollars = Sales - Break-even sales = $4,875,000 - $3,607,500 = $1,267,500

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 7 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

161. The margin of safety as a percentage of sales is closest to: A. 65% B. 26% C. 74% D. 35% Margin of safety in dollars: Break-even sales = $150 per unit x 24,050 units = $3,607,500 Current sales = $150 per unit x 32,500 units = $4,875,000 Margin of safety in dollars = Sales - Break-even sales = $4,875,000 - $3,607,500 = $1,267,500 Margin of safety as a percentage of sales = Margin of safety in dollars = $1,267,500 $4,875,000 = 26%

Current sales

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 7 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

Compos Corporation has provided the following data concerning its only product:

162. What is the margin of safety in dollars? A. $2,091,000 B. $2,460,000 C. $1,640,000 D. $369,000 Margin of safety in dollars: Break-even sales = $150 per unit x 13,940 units = $2,091,000 Current sales = $150 per unit x 16,400 units = $2,460,000 Margin of safety in dollars = Sales - Break-even sales = $2,460,000 - $2,091,000 = $369,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 7 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

163. The margin of safety as a percentage of sales is closest to: A. 18% B. 15% C. 85% D. 82% Margin of safety in dollars: Break-even sales = $150 per unit x 13,940 units = $2,091,000 Current sales = $150 per unit x 16,400 units = $2,460,000 Margin of safety in dollars = Sales - Break-even sales = $2,460,000 - $2,091,000 = $369,000 Margin of safety as a percentage of sales = Margin of safety in dollars = $369,000 $2,460,000 = 15%

Current sales

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 7 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

Faust Corporation has provided its contribution format income statement for August.

164. The degree of operating leverage is closest to: A. 18.93 B. 0.14 C. 0.05 D. 7.21 Degree of operating leverage = Contribution margin Net operating income Degree of operating leverage = $58,400 $8,100 = 7.21 (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Easy

165. If the company's sales increase by 10%, its net operating income should increase by about: A. 5% B. 72% C. 10% D. 189% Degree of operating leverage = Contribution margin Net operating income Degree of operating leverage = $58,400 $8,100 = 7.21 (rounded) Percent increase in net operating income = Percent increase in sales x Degree of operating leverage = 10% x 7.21 = 72% (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

The April contribution format income statement of Iannacone Corporation appears below:

166. The degree of operating leverage is closest to: A. 11.28 B. 0.29 C. 3.50 D. 0.09 Degree of operating leverage = Contribution margin = $18,900 $5,400 = 3.50

Net operating income

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Easy

167. If the company's sales increase by 1%, its net operating income should increase by about: A. 9% B. 1% C. 4% D. 11% Degree of operating leverage = Contribution margin Net operating income = $18,900 $5,400 = 3.50 Percent increase in net operating income = Percent increase in sales x Degree of operating leverage = 1% x 3.5 = 4% (rounded)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

The following data concern two products sold by Redding Corporation.

168. If fixed expenses for the company as a whole are $120,000, the break-even point would be: A. $200,000 B. $218,182 C. $300,000 D. $266,667

Overall contribution margin ratio = Total contribution margin = $90,000 $150,000 = 60% Break-even point in total sales dollars = Fixed expenses Overall contribution margin ratio = $120,000 60% = $200,000

Total sales

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

169. If the sales mix shifts toward Product X, and product contribution margin ratios remain unchanged, one would expect the break-even point for the company as a whole to: A. increase. B. decrease. C. remain unchanged. D. it is impossible to determine. Since the contribution margin ratio for Product X is higher than for Product Y, the shift to more sales of Product X will cause the overall break-even point to decrease.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

Hooper Corporation produces and sells two models of vacuum cleaners, Standard and Deluxe. The company records show the following monthly data relating to these two products:

The company's total monthly fixed cost is $15,000.

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Chapter 04: Cost-Volume-Profit Relationship - Key 170. The break-even in sales dollars for the expected sales mix is closest to: A. $160,772 B. $95,178 C. $109,091 D. $175,644

Overall CM ratio = Total contribution margin/Total sales = $39,600 $288,000 = 13.75% Break-even point in total sales dollars = Fixed expenses/Overall CM ratio = $15,000 13.75% = $109,091 (rounded) Alternative Method: BE% = 1- MOS% BE% = 1 – (Net Income/Contribution Margin) = 1 – ($24,600/$39,600) BE% = 0.378787879 BE$ = $288,000 * 0.378787879 = $109,091 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

171. If the expected monthly sales in units were divided equally between the two models (900 Standard and 900 Deluxe), the break-even level of sales would be: A. the same as with the expected sales mix. B. higher than with the expected sales mix. C. lower than with the expected sales mix. D. cannot be determined with the available data.

Since the contribution margin ratio of the Standard product in lower than that of the Deluxe product, if the company were to shift more of its sales to Standard, the company's break-even point would increase.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

Weise Corporation produces and sells two products. Data concerning those products for the most recent month appear below:

Fixed expenses for the entire company were $38,200.

172. The break-even point for the entire company is closest to: A. $48,200 B. $38,200 C. $47,750 D. $11,800

Overall contribution margin ratio = Total contribution margin = $40,000 $50,000 = 80% Break-even point in total sales dollars = Fixed expenses Overall contribution margin ratio = $38,200 80% = $47,750

Total sales

Alternative Method: BE% = 1- MOS% BE% = 1 – (Net Income/Contribution Margin) = 1 – ($1,800/$40,000) BE% = 0.955 BE$ = $50,000 * 0.955 = $47,750 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

173. If the sales mix were to shift toward Product U69I with total sales remaining constant, the overall break-even point for the entire company: A. would increase. B. would not change. C. would decrease. D. could increase or decrease.

Since the contribution margin ratio of the Product U69I is less than that of Product F34P, a shift to more sales of Product U69I would cause the company's break-even point to increase.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

Bello Corporation produces and sells two products. In the most recent month, Product D99P had sales of $33,000 and variable expenses of $15,840. Product G71P had sales of $42,000 and variable expenses of $4,410. The fixed expenses of the entire company were $49,790.

174. The break-even point for the entire company is closest to: A. $25,210 B. $49,790 C. $68,205 D. $70,040

Overall contribution margin ratio = Total contribution margin = $54,750 $75,000 = 73% Break-even point in total sales dollars = Fixed expenses Overall contribution margin ratio = $49,790 73% = $68,205 (rounded)

Total sales

Alternative Method: BE% = 1- MOS% BE% = 1 – (Net Income/Contribution Margin) = 1 – ($4,960/$54,750) BE% = 0.909406393 BE$ = $75,000 * 0.909406393 = $68,205 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

175. If the sales mix were to shift toward Product D99P with total sales remaining constant, the overall break-even point for the entire company: A. would not change. B. would increase. C. could increase or decrease. D. would decrease.

Since the contribution margin ratio ($17,160 $33,000 = 52%) for Product D99P is lower than that of Product G71P ($37,590 $42,000 = 89.5%), to shift to more sales of Product D99P would cause the break-even point to increase.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

Essay Questions 176. The following is Alsatia Corporation's contribution format income statement for last month:

The company has no beginning or ending inventories and produced and sold 10,000 units during the month. Required: a. What is the company's contribution margin ratio? b. What is the company's break-even in units? c. If sales increase by 100 units, by how much should net operating income increase? d. How many units would the company have to sell to attain target profits of $225,000? e. What is the company's margin of safety in dollars? f. What is the company's degree of operating leverage?

4-208 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 04: Cost-Volume-Profit Relationship - Key a. CM ratio CM ratio = Contribution margin Sales = $500,000 $1,400,000 = 0.357 b. Break-even units

Unit sales to break even = Fixed expenses/Unit CM = $300,000/($140-$90) = $300,000/$50 = 6,000 units c. Increase in net operating income from additional sales of 100 units

d. Unit sales to attain target profit = (Target profit + Fixed Expenses)/Unit CM = ($225,000+$300,000)/$50 = 10,500 units e. Margin of safety in dollars Break-even sales = $140 per unit x 6,000 units = $840,000 Margin of safety in dollars = Sales - Break-even sales = $1,400,000 - $840,000 = $560,000 f. Degree of operating leverage = Contribution margin = $500,000 $200,000 = 2.5

Net operating income

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Chapter 04: Cost-Volume-Profit Relationship - Key

177. Tanner Company's most recent contribution format income statement is presented below:

The company sells its only product for $15 per unit. There were no beginning or ending inventories. Required: a. Compute the company's break-even point in units sold. b. Compute the total variable expenses at the break-even point. c. How many units would have to be sold to earn a target profit of $9,000? d. The sales manager is convinced that a $6,000 increase in the advertising budget would increase total sales by $25,000. Would you advise the increased advertising outlay? a. CM ratio = $30,000 $36,000 $90,000

$75,000 = 0.40

0.40 = $90,000 break-even sales $15 per unit = 6,000 units to break even.

b. Variable expense ratio = $45,000

$75,000 = 0.60

$90,000 sales x 60% variable expense ratio = $54,000 c. ($9,000 + $36,000) 0.40 = $112,500 $112,500 $15 per unit = 7,500 units d.

Yes, the advertising budget should be increased.

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Chapter 04: Cost-Volume-Profit Relationship - Key AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 4 Learning Objective: 5 Learning Objective: 6 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

178. The following monthly data are available for the Challenger Company and its only product, Product SW:

Required: a. Without resorting to calculations, what is the total contribution margin at the break-even point? b. Management is contemplating the use of plastic gearing rather than metal gearing in Product SW. This change would reduce variable costs by $15. The company's marketing manager predicts that this would reduce the overall quality of the product and thus would result in a decline in sales to a level of 350 units per month. Should this change be made? c. Assume that Challenger Company is currently selling 400 units of Product SW per month. Management wants to increase sales and feels this can be done by cutting the selling price by $25 per unit and increasing the advertising budget by $20,000 per month. Management believes that these actions will increase unit sales by 50%. Should these changes be made? d. Assume that Challenger Company is currently selling 400 units of Product SW. Management wants to automate a portion of the production process for Product SW. The new equipment would reduce direct labor costs by $20 per unit but would result in a monthly rental cost for the new robotic equipment of $10,000. Management believes that the new equipment will increase the reliability of Product SW thus resulting in an increase in monthly sales of 12%. Should these changes be made?

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Chapter 04: Cost-Volume-Profit Relationship - Key a. The total contribution margin is $52,800 since it is equal to the fixed expenses at the breakeven point. b. The $15 decrease in variable costs will cause the contribution margin per unit to increase from $165 to $180.

The less costly components should not be used to manufacture Product SW. Net operating income will decrease by $3,000. c. The decrease in selling price per unit will cause the unit contribution margin to decrease from $165 to $140.

The change should not be made. d. The use of the automated process would affect both fixed and variable costs. Fixed costs will increase by $10,000 from $52,800 to $62,800. Variable costs will decrease by $20 from $110 to $90, and the unit contribution margin will increase from $165 to $185.

The changes should be made.

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Chapter 04: Cost-Volume-Profit Relationship - Key AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 4 Learning Objective: 5 Level: Hard

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Chapter 04: Cost-Volume-Profit Relationship - Key

179. Rawlings Company prepared the following budget information for the coming year:

The budget assumes the sale of 20,000 units of A, 100,000 units of B, and 80,000 units of C. Required: a. What is the company's break-even point given the sales mix above? b. If the budgeted sales mix is maintained, what is the total contribution margin and net operating income if 300,000 units are sold? a.

Unit sales to break even = Fixed expenses $947,618

CM Ratio = $255,000

26.90959037% =

Alternative Method: BE% = 1- MOS% BE% = 1 – (Net Income/Contribution Margin) = 1 – ($85,000/$340,000) BE% = 0.75 BE$ = $1,263,491 * 0.75 = $947,618

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Chapter 04: Cost-Volume-Profit Relationship - Key

b. Per unit contribution margins for Products A, B, and C are as follows: Product A: $60,000 Product B: $200,000 Product C: $80,000

20,000 units = $3 per unit 100,000 units = $2 per unit 80,000 units = $1 per unit

Product mix for Products A, B, and C: Product A: 20,000 Product B: 100,000 Product C: 80,000

(20,000 + 100,000 + 80,000) = 10% (20,000 + 100,000 + 80,000) = 50% (20,000 + 100,000 + 80,000) = 40%

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Chapter 04: Cost-Volume-Profit Relationship - Key

180. Zins Corporation produces and sells a single product. The company's contribution format income statement for August appears below:

Required: Redo the company's contribution format income statement assuming that the company sells 1,400 units.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

181. Bayona Inc., which produces and sells a single product, has provided the following contribution format income statement for November:

Required: Redo the company's contribution format income statement assuming that the company sells 8,400 units.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

182. Boettner Corporation produces and sells a single product. In April, the company sold 9,700 units. Its total sales were $543,200, its total variable expenses were $329,800, and its total fixed expenses were $182,200. Required: a. Construct the company's contribution format income statement for April in good form. b. Redo the company's contribution format income statement assuming that the company sells 10,100 units.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

183. In August, Bliek Corporation sold 8,300 units of its only product. Its total sales were $664,000, its total variable expenses were $415,000, and its total fixed expenses were $204,000. Required: a. Construct the company's contribution format income statement for August in good form. b. Redo the company's contribution format income statement assuming that the company sells 8,600 units.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

184. Loss Corporation's contribution margin ratio is 63% and its fixed monthly expenses are $76,000. Assume that the company's sales for March are expected to be $179,000. Required: Estimate the company's net operating income for March, assuming that the fixed monthly expenses do not change. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

185. The management of Reagon Corporation expects sales in January to be $122,000. The company's contribution margin ratio is 69% and its fixed monthly expenses are $50,000. Required: Estimate the company's net operating income for January, assuming that the fixed monthly expenses do not change. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

186. Concepcion Inc. expects its sales in March to be $126,000. The company's contribution margin ratio is 67% and its fixed monthly expenses are $48,000. Required: Estimate the company's net operating income for March, assuming that the fixed monthly expenses do not change. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

187. Furgason Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $303,000 per month. The company is currently selling 5,000 units per month. Required: The marketing manager believes that a $9,000 increase in the monthly advertising budget would result in a 120 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

188. Data concerning Hogarth Corporation's single product appear below:

Fixed expenses are $96,000 per month. The company is currently selling 1,000 units per month. Required: The marketing manager believes that a $12,000 increase in the monthly advertising budget would result in a 110 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

189. Lynn Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $387,000 per month. The company is currently selling 7,000 units per month. Required: Management is considering using a new component that would increase the unit variable cost by $3. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 300 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!

Since fixed expenses are not affected by this change, the change in net operating income will be equal to the change in total contribution margin.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

190. Data concerning Hillegass Corporation's single product appear below:

Fixed expenses are $502,000 per month. The company is currently selling 4,000 units per month. Required: Management is considering using a new component that would increase the unit variable cost by $18. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 500 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!

Since fixed expenses are not affected by this change, the change in net operating income will be equal to the change in total contribution margin.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

191. Legaard Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $220,000 per month. The company is currently selling 4,000 units per month. Required: The marketing manager would like to cut the selling price by $15 and increase the advertising budget by $11,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,500 units. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

192. Data concerning Uthe Corporation's single product appear below:

Fixed expenses are $522,000 per month. The company is currently selling 6,000 units per month. Required: The marketing manager would like to cut the selling price by $19 and increase the advertising budget by $30,900 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,600 units. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

193. Gruen Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $505,000 per month. The company is currently selling 5,000 units per month. Required: The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $16 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $65,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 100 units. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

194. Data concerning Emmanuel Corporation's single product appear below:

Fixed expenses are $650,000 per month. The company is currently selling 8,000 units per month. Required: The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $12 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $79,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 300 units. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

195. The following monthly budgeted data are available for the International Company:

Budgeted net operating income for the month is $220,000. Required: a. Calculate the break-even dollar sales for the month. b. Calculate the margin of safety. c. Calculate the operating leverage. a. Break-even sales

a. Dollar sales to break even = Fixed Expenses

CM Ratio = $250,000

0.28 = $892,857

b. Margin of safety= Total sales - Break-even sales = $1,700,000 - $892,857 = $807,143 c. Operating leverage = Contribution margin $470,000 $220,000 = 2.14

Net operating income =

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Learning Objective: 7 Learning Objective: 8 Learning Objective: 9 Level: Medium

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Chapter 04: Cost-Volume-Profit Relationship - Key

196. Magers Corporation produces and sells a single product. Data concerning that product appear below:

Required: Determine the monthly break-even in either unit or total dollar sales. Show your work!

Unit sales to break even = Fixed expenses/Unit CM = $214,720/$97.60 = 2,200 Dollar sales to break even = Fixed expenses/CM ratio = $214,720/0.61 = $352,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

197. Kantor, Inc., produces and sells a single product whose selling price is $180.00 per unit and whose variable expense is $46.80 per unit. The company's fixed expense is $580,752 per month. Required: Determine the monthly break-even in either unit or total dollar sales. Show your work!

Unit sales to break even = Fixed expenses/Unit CM = $580,752/$133.20 = 4,360 Dollar sales to break even = Fixed expenses/CM ratio = $580,752/0.74 = $784,800

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

198. Rana Corporation produces and sells a single product. Data concerning that product appear below:

Required: Determine the monthly break-even in unit sales. Show your work!

Unit sales to break even = Fixed expenses/Unit CM = $216,060/$78 = 2,770

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

199. Akerley, Inc., produces and sells a single product. The product sells for $140.00 per unit and its variable expense is $42.00 per unit. The company's monthly fixed expense is $393,960. Required: Determine the monthly break-even in unit sales. Show your work!

Unit sales to break even = Fixed expenses/Unit CM = $393,960/$98 = 4,020

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

200. Yundt Corporation produces and sells a single product. Data concerning that product appear below:

Required: Determine the monthly break-even in total dollar sales. Show your work!

Dollar sales to break even = Fixed expenses/CM ratio = $82,080/0.54 = $152,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

201. Boor International, Inc., produces and sells a single product. The product sells for $110.00 per unit and its variable expense is $37.40 per unit. The company's monthly fixed expense is $188,034. Required: Determine the monthly break-even in total dollar sales. Show your work!

Dollar sales to break even = Fixed expenses/CM ratio = $188,034/0.66 = $284,900

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

202. Hounshell Corporation produces and sells a single product. Data concerning that product appear below:

Required: a. Assume the company's monthly target profit is $20,880. Determine the unit sales to attain that target profit. Show your work! b. Assume the company's monthly target profit is $6,960. Determine the dollar sales to attain that target profit. Show your work!

a. Unit sales to attain target profit = (Target profit + Fixed expenses)/Unit CM = ($257,520 + $20,880)/$69.60 = 4,000 b. Dollar sales to attain target profit = (Target profit + Fixed expenses)/CM ratio = ($257,520 + $6,960)/0.58 = $456,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

203. Sadbury Corporation produces and sells a single product whose selling price is $210.00 per unit and whose variable expense is $73.50 per unit. The company's monthly fixed expense is $873,600. Required: a. Assume the company's monthly target profit is $27,300. Determine the unit sales to attain that target profit. Show your work! b. Assume the company's monthly target profit is $68,250. Determine the dollar sales to attain that target profit. Show your work!

a. Unit sales to attain target profit = (Target profit + Fixed expenses)/Unit CM = ($873,600 + $27,300)/$136.50 = 6,600 b. Dollar sales to attain target profit = (Target profit + Fixed expenses)/CM ratio = ($873,600 + $68,250)/0.65 = $1,449,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

204. Burtchell Corporation produces and sells a single product. Data concerning that product appear below:

Required: Assume the company's monthly target profit is $47,520. Determine the unit sales to attain that target profit. Show your work!

Unit sales to attain target profit = (Target profit + Fixed expenses)/Unit CM = ($546,480 + $47,520)/$118.80 = 5,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

205. The selling price of Garey Corporation's only product is $170.00 per unit and its variable expense is $39.10 per unit. The company's monthly fixed expense is $641,410. Required: Assume the company's monthly target profit is $65,450. Determine the unit sales to attain that target profit. Show your work!

Unit sales to attain target profit = (Target profit + Fixed expenses)/Unit CM = ($641,410 + $65,450)/$130.90 = 5,400

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

206. Gurr Corporation produces and sells a single product whose contribution margin ratio is 63%. The company's monthly fixed expense is $604,800 and the company's monthly target profit is $50,400. Required: Determine the dollar sales to attain the company's target profit. Show your work! Dollar sales to attain target profit = (Target profit + Fixed expenses)/CM ratio = ($604,800 + $50,400)/0.63 = $1,040,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

207. The contribution margin ratio of Lukasiewicz Corporation's only product is 62%. The company's monthly fixed expense is $297,600 and the company's monthly target profit is $37,200. Required: Determine the dollar sales to attain the company's target profit. Show your work! Dollar sales to attain target profit = (Target profit + Fixed expenses)/CM ratio = ($297,600 + $37,200)/0.62 = $540,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Easy

208. Yerkes Corporation makes a product that sells for $110 per unit. The product's current sales are 35,900 units and its break-even sales are 26,566 units. Required: Compute the margin of safety in both dollars and as a percentage of sales.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 7 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

209. Fietsam Corporation's only product sells for $120 per unit. Its current sales are 43,400 units and its break-even sales are 37,324 units. Required: Compute the margin of safety in both dollars and as a percentage of sales.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 7 Level: Easy

210. Logiudice Inc. has provided the following data concerning its only product:

Required: Compute the margin of safety in both dollars and as a percentage of sales.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 7 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

211. Langin Corporation has provided its contribution format income statement for June.

Required: a. Compute the degree of operating leverage to two decimal places. b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 14% increase in sales. a. Degree of operating leverage = Contribution margin/Net operating income = $436,100/$83,700 = 5.21 b. Percent increase in net operating income = Percent increase in sales x Degree of operating leverage = 14% x 5.21 = 72.94%

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

212. Speir Corporation's contribution format income statement for the most recent month follows:

Required: a. Compute the degree of operating leverage to two decimal places. b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 3% increase in sales. a. Degree of operating leverage = Contribution margin/Net operating income = $305,300/$51,100 = 5.97 b. Percent increase in net operating income = Percent increase in sales x Degree of operating leverage = 3% x 5.97 = 17.91%

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

213. In the most recent month, Flamino Corporation's total contribution margin was $83,700 and its net operating income $21,200. Required: a. Compute the degree of operating leverage to two decimal places. b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 17% increase in sales. a. Degree of operating leverage = Contribution margin/Net operating income = $83,700/$21,200 = 3.95 b. Percent increase in net operating income = Percent increase in sales x Degree of operating leverage = 17% x 3.95 = 67.15%

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 8 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

214. Deavila Inc. produces and sells two products. Data concerning those products for the most recent month appear below:

Fixed expenses for the entire company were $13,980. Required: a. Determine the overall break-even point for the company. Show your work! b. If the sales mix shifts toward Product Q91I with no change in total sales, what will happen to the break-even point for the company? Explain.

Overall CM ratio = Total contribution margin/Total sales = $15,080/$26,000 = 0.58 Break-even point in total sales dollars = Fixed expenses/Overall CM ratio = $13,980/0.58 = $24,103

Since Product Q91I's CM ratio is greater than Product J53Z's, a shift in the sales mix toward Product Q91I will result in a decrease in the company's overall break-even point.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Easy

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Chapter 04: Cost-Volume-Profit Relationship - Key

215. Camden Inc. produces and sells two products. During the most recent month, Product M21B's sales were $35,000 and its variable expenses were $14,350. Product Y79X's sales were $20,000 and its variable expenses were $7,650. The company's fixed expenses were $30,820. Required: a. Determine the overall break-even point for the company. Show your work! b. If the sales mix shifts toward Product M21B with no change in total sales, what will happen to the break-even point for the company? Explain.

Overall CM ratio = Total contribution margin/Total sales = $33,000/$55,000 = 0.60 Break-even point in total sales dollars = Fixed expenses/Overall CM ratio = $30,820/0.60 = $51,367

Since Product M21B's CM ratio is less than Product Y79X's, a shift in the sales mix toward Product M21B will result in an increase in the company's overall break-even point.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Easy

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

M M M H H H M M E M M M M E M M M M E M E M M E M M E H E E

Professional Exam Adapted

LO8: Potential problems of absorption costing (App 5C)

LO7: Under- or over-applied overhead (App 5B)

LO6: Overhead rate and capacity (App 5A)

LO5: Predetermined overhead rate (App 5A)

LO4: Evaluation of methods

LO3: Reconciliation of net operating incomes

LO2: Prepare income statements

LO1: Unit product costs

Question Type T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C M/C M/C M/C

Difficulty

Chapter 05: Absorption Costing and Variable Costing

x x x x x x x x x x x x x x x x x x x x x

x x x

x x x

x CMA x x x

x x x

x

x

5-1 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

7-1 7-2 7-3 7-4 7-5 7-6 7-7 7-8 7-9

31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51-53 54-61 62-67 68-71 72-75 76-79 80-81 82-83 84-85

E E E E E E E M E E M M H H H H E E M M M-H E-H E-M E-M M E-H E-M H E-M

x x x x x x x x x x x x

x x x x x x x x x

x x x x x x x x x

x x x x x x x x x

5-2 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Professional Exam Adapted

LO8: Potential problems of absorption costing (App 5C)

LO7: Under- or over-applied overhead (App 5B)

LO6: Overhead rate and capacity (App 5A)

LO5: Predetermined overhead rate (App 5A)

LO4: Evaluation of methods

LO3: Reconciliation of net operating incomes

LO2: Prepare income statements

LO1: Unit product costs

Question Type M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C

Difficulty

Chapter 05: Absorption Costing and Variable Costing

7-10 7-11 7-12 7-13 7-14 7-15 7-16 7-17 7-18 7-19 7-20 7-21 7-22 7-23

86-89 90-92 93-94 95-96 97-98 99-100 101-102 103-104 105-106 107-108 109-110 111-112 113-114 115-116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131

M-H E-M E E H E E M M M E E M M H M M H M E E E E E E M H H M

x x x x x x x

x x

x x x

x x x x x x x x x x x

x x x x x

x x x x

x x x x x x x x x

x x

5-3 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Professional Exam Adapted

LO8: Potential problems of absorption costing (App 5C)

LO7: Under- or over-applied overhead (App 5B)

LO6: Overhead rate and capacity (App 5A)

LO5: Predetermined overhead rate (App 5A)

LO4: Evaluation of methods

LO3: Reconciliation of net operating incomes

LO2: Prepare income statements

LO1: Unit product costs

Question Type Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem

Difficulty

Chapter 05: Absorption Costing and Variable Costing

132 133 134 135 136 137 Question Type Problem Problem Problem Problem Problem Problem E E E M M M x x x x x x

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

5-4

Professional Exam Adapted

LO8: Potential problems of absorption costing (App 5C)

LO7: Under- or over-applied overhead (App 5B)

LO6: Overhead rate and capacity (App 5A)

LO5: Predetermined overhead rate (App 5A)

LO4: Evaluation of methods

LO3: Reconciliation of net operating incomes

LO2: Prepare income statements

LO1: Unit product costs

Difficulty

Chapter 05: Absorption Costing and Variable Costing

Chapter 05: Absorption Costing and Variable Costing

True / False Questions 1. The costs assigned to units in inventory are typically lower under absorption costing than under variable costing. True False

2. Under variable costing, product cost contains some fixed manufacturing overhead cost. True False

3. Variable selling and administrative expenses are part of product costs under the variable costing approach. True False

4. In a manufacturing company using absorption costing, the fixed costs associated with idle production capacity are commonly included as part of the product cost. True False

5. Direct labor is always considered to be a product cost under variable costing. True False

6. Suppose fewer units are sold in year 2 than in year 1. If production exceeds sales in year 2, net operating income under absorption costing could be higher in year 2 than in year 1. True False

7. When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs released from inventory under absorption costing should be deducted from variable costing net operating income to arrive at the absorption costing net operating income. True False

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Chapter 05: Absorption Costing and Variable Costing

8. If production exceeds sales for the period, variable costing net operating income will typically be greater than absorption costing net operating income. True False

9. When sales exceeds production for a period, absorption costing net operating income will generally be greater than variable costing net operating income. True False

10. Profits move in the same direction as sales when variable costing is used if selling prices, the sales mix, and the cost structure remain the same. True False

11. Net operating income is affected by changes in production under both variable costing and absorption costing. True False

12. Net operating income is not affected by changes in production when absorption costing is used. True False

13. Under the absorption costing method, a company can increase profits by increasing production rather than by increasing sales. True False

14. Since variable costing emphasizes costs by behavior, it works well with cost-volumeprofit analysis. True False

5-6 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 05: Absorption Costing and Variable Costing

Multiple Choice Questions 15. Which of the following statements is true? A. When production exceeds sales, a manufacturing company's variable costing net operating income will usually be greater than its absorption costing net operating income. B. The variable costing method is usually not used for external reporting purposes. C. The absorption costing method treats fixed production costs as period costs. D. All of these.

16. Which of the following statements is true for a company that uses variable costing? A. The unit product cost changes because of changes in the number of units manufactured. B. Profit fluctuates with sales. C. Any underapplied overhead is included in the product cost. D. Product costs include variable administration costs.

17. Which of the following statements is true for a company that uses variable costing? A. The unit product cost changes as a result of changes in the number of units manufactured. B. Both variable selling costs and variable production costs are included in the unit product cost. C. Net operating income moves in the same direction as sales. D. Net operating income is greatest in periods when production is highest.

18. Which of the following costs at a sofa manufacturing company would be treated as a period cost under the variable costing method? A. the cost of glue used to assemble the wood frame of each sofa produced B. depreciation on sales vehicles C. the salary of a factory manager D. both B and C above

5-7 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 05: Absorption Costing and Variable Costing

19. A cost that would be included in product costs under both absorption costing and variable costing would be: A. supervisory salaries. B. equipment depreciation. C. variable manufacturing costs. D. variable selling expenses.

20. Which of the following costs at a manufacturing company would be treated as a product cost under the absorption costing method? A. sales commissions B. fire insurance cost on factory building C. advertising costs D. All of these

21. Assuming that direct labor is a variable cost, product costs under variable costing include only: A. direct materials and direct labor. B. direct materials, direct labor, and variable manufacturing overhead. C. direct materials, direct labor, variable manufacturing overhead, and variable selling and administrative expenses. D. direct material, variable manufacturing overhead, and variable selling and administrative expenses.

22. Which of the following statements is true? A. Expenses are not usually separated into variable and fixed elements in externally reported income statements. B. Even if there is no change in units sold, selling price, or cost structure, a company can increase its absorption costing net operating income from one year to the next just by producing more units. C. When finished goods inventory decreases during a period, a manufacturing company's absorption costing net operating income for that period will usually be greater than its variable costing net operating income. D. Both A and B above.

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Chapter 05: Absorption Costing and Variable Costing 23. What is the cause of the difference between absorption costing net operating income and variable costing net operating income? A. Absorption costing deducts all manufacturing costs from net operating income; variable costing deducts only prime costs. B. Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories; variable costing considers all fixed manufacturing costs to be period costs. C. Absorption costing includes variable manufacturing costs in product costs; variable costing considers variable manufacturing costs to be period costs. D. Absorption costing includes fixed administrative costs in product costs; variable costing considers fixed administrative costs to be period costs.

24. The gross margin for a manufacturing company is the excess of sales over: A. cost of goods sold, excluding fixed manufacturing overhead. B. all variable costs, including variable selling and administrative expenses. C. cost of goods sold, including fixed manufacturing overhead. D. variable costs, excluding variable selling and administrative expenses.

25. Weber Company computes net operating income under both the absorption costing approach and the variable costing approach. For a given year the absorption costing net operating income was greater than the variable costing net operating income. This fact suggests that: A. variable manufacturing costs were less than fixed manufacturing costs. B. more units were produced during the year than were sold. C. more units were sold during the year than were produced. D. common costs were greater than variable costs for the year.

26. Net operating income computed using variable costing would exceed net operating income computed using absorption costing if: A. units sold exceed units produced. B. units sold are less than units produced. C. units sold equal units produced. D. the average fixed cost per unit is zero.

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Chapter 05: Absorption Costing and Variable Costing

27. The costing method that can be used most easily with break-even analysis and other costvolume-profit techniques is: A. variable costing. B. absorption costing. C. process costing. D. job-order costing.

28. Silver Company produces a single product. Last year, the company's variable production costs totaled $7,500 and its fixed manufacturing overhead costs totaled $4,500. The company produced 3,000 units during the year and sold 2,400 units. There were no units in the beginning inventory. Which of the following statements is true? A. Under variable costing, the units in the ending inventory will be costed at $4 each. B. The net operating income under absorption costing for the year will be $900 lower than the net operating income under variable costing. C. The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing. D. Under absorption costing, the units in ending inventory will be costed at $2.50 each.

29. Charrd Corporation manufactures a gas operated barbecue grill. The following information relates to Charrd's operations for last year:

What is Charrd's variable costing unit product cost? A. $29 B. $34 C. $58 D. $63

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Chapter 05: Absorption Costing and Variable Costing

30. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the variable costing unit product cost for the month? A. $97 B. $90 C. $68 D. $75

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Chapter 05: Absorption Costing and Variable Costing

31. 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. $107 B. $94 C. $87 D. $114

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Chapter 05: Absorption Costing and Variable Costing

32. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the total period cost for the month under variable costing? A. $151,800 B. $51,800 C. $100,000 D. $125,900

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Chapter 05: Absorption Costing and Variable Costing

33. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the total period cost for the month under absorption costing? A. $48,000 B. $275,100 C. $86,400 D. $188,700

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Chapter 05: Absorption Costing and Variable Costing 34. Yoshihara Corporation produces a single product and has the following cost structure:

The absorption costing unit product cost is: A. $140 B. $197 C. $133 D. $227

35. Sharko Corporation produces a single product and has the following cost structure:

The variable costing unit product cost is: A. $89 B. $86 C. $164 D. $87

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Chapter 05: Absorption Costing and Variable Costing

36. Gallipeau Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories. The absorption costing unit product cost was: A. $219 B. $151 C. $150 D. $300

37. Baylor Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories. The variable costing unit product cost was: A. $91 B. $67 C. $69 D. $61

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Chapter 05: Absorption Costing and Variable Costing

38. Indiana Corporation produces a single product that it sells for $9 per unit. During the first year of operations, 100,000 units were produced and 90,000 units were sold. Manufacturing costs and selling and administrative expenses for the year were as follows:

What was Indiana Corporation's net operating income for the year using variable costing? A. $181,000 B. $271,000 C. $281,000 D. $371,000

39. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

The total contribution margin for the month under variable costing is: A. $83,900 B. $221,400 C. $135,000 D. $270,000

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Chapter 05: Absorption Costing and Variable Costing

40. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

The total gross margin for the month under absorption costing is: A. $163,800 B. $7,800 C. $170,800 D. $312,000

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Chapter 05: Absorption Costing and Variable Costing

41. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the net operating income for the month under variable costing? A. $15,800 B. $5,000 C. $20,800 D. $3,800

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Chapter 05: Absorption Costing and Variable Costing

42. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the net operating income for the month under absorption costing? A. $(15,900) B. $19,200 C. $10,200 D. $9,000

43. Atlantic Company produces a single product. For the most recent year, the company's net operating income computed by the absorption costing method was $7,400, and its net operating income computed by the variable costing method was $10,100. The company's unit product cost was $17 under variable costing and $22 under absorption costing. If the ending inventory consisted of 1,460 units, the beginning inventory must have been: A. 920 units B. 1,460 units C. 2,000 units D. 12,700 units

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Chapter 05: Absorption Costing and Variable Costing

44. Roberts Company produces a single product. During the year just ended, the company's net operating income under absorption costing was $3,000 lower than under variable costing. The company sold 9,000 units during the year, and its variable costs were $9 per unit, of which $3 was variable selling expense. If production cost is $11 per unit under absorption costing every year, then how many units did the company produce during the year? A. 8,000 B. 10,000 C. 9,600 D. 8,400

45. Lee Company produces a single product. At the end of last year, the company had 30,000 units in its ending inventory. Lee's variable production costs are $10 per unit and its fixed manufacturing overhead costs are $5 per unit every year. The company's net operating income for the year was $12,000 higher under variable costing than under absorption costing. Given these facts, the number of units of product in inventory at the beginning of the year must have been: A. 28,800 units B. 27,600 units C. 32,400 units D. 42,000 units

46. Ben Company produces a single product. Last year, the company's net operating income under absorption costing was $4,400 lower than under variable costing. The company sold 8,000 units during the year, and its variable costs were $8 per unit, of which $3 was variable selling expense. Fixed manufacturing overhead was $1 per unit in beginning inventory under absorption costing. How many units did the company produce during the year? A. 12,400 units B. 3,600 units C. 7,120 units D. 7,450 units

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Chapter 05: Absorption Costing and Variable Costing

47. Mcferrin Corporation manufactures a variety of products. Last year, the company's variable costing net operating income was $53,200. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $32,900. What was the absorption costing net operating income last year? A. $86,100 B. $20,300 C. $32,900 D. $53,200

48. Last year, Wardrup Corporation's variable costing net operating income was $67,200. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $600. What was the absorption costing net operating income last year? A. $67,800 B. $66,600 C. $67,200 D. $600

49. Schrick Inc. manufactures a variety of products. Variable costing net operating income was $86,800 last year and ending inventory increased by 1,900 units. Fixed manufacturing overhead cost was $6 per unit. What was the absorption costing net operating income last year? A. $86,800 B. $75,400 C. $98,200 D. $11,400

50. Last year, Gransky Corporation's variable costing net operating income was $52,100 and its ending inventory increased by 400 units. Fixed manufacturing overhead cost was $7 per unit. What was the absorption costing net operating income last year? A. $52,100 B. $2,800 C. $54,900 D. $49,300

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Chapter 05: Absorption Costing and Variable Costing

Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows:

Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost.

51. The contribution margin per unit was: A. $17.50 B. $32.50 C. $27.30 D. $25.70

52. Under absorption costing, the carrying value on the balance sheet of the ending inventory for the year would be: A. $190,800 B. $170,000 C. $230,800 D. $0

53. Under variable costing, the company's net operating income for the year would be: A. $60,000 higher than under absorption costing B. $108,000 higher than under absorption costing C. $108,000 lower than under absorption costing D. $60,000 lower than under absorption costing

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Chapter 05: Absorption Costing and Variable Costing

Abdol Company, which has only one product, has provided the following data concerning its most recent month of operations:

54. What is the unit product cost for the month under variable costing? A. $73 B. $44 C. $79 D. $38

55. What is the unit product cost for the month under absorption costing? A. $38 B. $73 C. $44 D. $79

56. The total contribution margin for the month under the variable costing approach is: A. $273,000 B. $42,000 C. $84,500 D. $312,000

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Chapter 05: Absorption Costing and Variable Costing

57. The total gross margin for the month under the absorption costing approach is: A. $13,000 B. $91,800 C. $273,000 D. $84,500

58. What is the total period cost for the month under the variable costing approach? A. $263,500 B. $71,500 C. $302,500 D. $231,000

59. What is the total period cost for the month under the absorption costing approach? A. $32,500 B. $71,500 C. $302,500 D. $231,000

60. What is the net operating income for the month under variable costing? A. $13,000 B. $5,700 C. $9,500 D. $3,500

61. What is the net operating income for the month under absorption costing? A. $9,500 B. $3,500 C. $5,700 D. $13,000

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Chapter 05: Absorption Costing and Variable Costing

Walsh Company produces a single product. Last year, the company manufactured 25,000 units and sold 22,000 units. Production costs were as follows:

Sales totaled $440,000, variable selling and administrative expenses were $110,000, and fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labor is a variable cost.

62. Under absorption costing, the unit product cost would be: A. $9.00 B. $12.00 C. $13.40 D. $14.00

63. Under absorption costing, the gross margin would be: A. $176,000 B. $242,000 C. $66,000 D. $21,000

64. The contribution margin per unit would be: A. $15.00 B. $11.00 C. $8.00 D. $6.00

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Chapter 05: Absorption Costing and Variable Costing

65. Under variable costing, the total amount of fixed manufacturing cost in the ending inventory would be: A. $0 B. $9,000 C. $14,400 D. $27,000

66. The net operating income under variable costing would be: A. $2,000 B. $21,000 C. $12,000 D. $9,000

67. The net operating income under absorption costing would be: A. $9,000 B. $12,000 C. $2,000 D. $21,000

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Chapter 05: Absorption Costing and Variable Costing Faxon Company, which has only one product, has provided the following data concerning its most recent month of operations:

68. What is the unit product cost for the month under variable costing? A. $122 B. $108 C. $99 D. $131

69. What is the unit product cost for the month under absorption costing? A. $99 B. $131 C. $122 D. $108

70. What is the net operating income for the month under variable costing? A. $2,300 B. $(600) C. $9,300 D. $11,600

71. What is the net operating income for the month under absorption costing? A. $11,600 B. $2,300 C. $(600) D. $9,300

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Chapter 05: Absorption Costing and Variable Costing Jarmon Company, which has only one product, has provided the following data concerning its most recent month of operations:

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

72. What is the unit product cost for the month under variable costing? A. $78 B. $105 C. $73 D. $110

73. What is the unit product cost for the month under absorption costing? A. $78 B. $73 C. $105 D. $110

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Chapter 05: Absorption Costing and Variable Costing

74. What is the net operating income for the month under variable costing? A. $4,500 B. $10,900 C. $25,500 D. $12,800

75. What is the net operating income for the month under absorption costing? A. $4,500 B. $12,800 C. $25,500 D. $10,900

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Chapter 05: Absorption Costing and Variable Costing Hackney Company, which has only one product, has provided the following data concerning its most recent month of operations:

76. What is the unit product cost for the month under variable costing? A. $92 B. $107 C. $100 D. $85 77. The total contribution margin for the month under the variable costing approach is: A. $47,000 B. $117,500 C. $12,600 D. $84,600 78. What is the total period cost for the month under the variable costing approach? A. $42,300 B. $81,400 C. $114,300 D. $72,000 79. What is the net operating income for the month under variable costing? A. $4,700 B. $(5,300) C. $1,500 D. $3,200

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Chapter 05: Absorption Costing and Variable Costing Ilford Company, which has only one product, has provided the following data concerning its most recent month of operations:

80. What is the unit product cost for the month under variable costing? A. $87 B. $64 C. $68 D. $83

81. What is the net operating income for the month under variable costing? A. $1,200 B. $5,700 C. $6,900 D. $(18,000)

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Chapter 05: Absorption Costing and Variable Costing Crystal Company produces a single product. The company's variable costing income statement for the month of May appears below:

The company produced 80,000 units in May and the beginning inventory consisted of 25,000 units. Variable production costs per unit and total fixed costs have remained constant over the past several months.

82. The dollar value of the company's inventory on May 31 under the absorption costing method would be: A. $120,000 B. $90,000 C. $75,000 D. $60,000

83. Under absorption costing, for the month ended May 31, the company would report a: A. $30,000 loss B. $0 profit C. $30,000 profit D. $60,000 profit

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Chapter 05: Absorption Costing and Variable Costing Erie Company manufactures a single product. Assume the following data for the year just completed:

There were no units in inventory at the beginning of the year. During the year 30,000 units were produced and 25,000 units were sold. Each unit sells for $35. 84. Under absorption costing, the unit product cost would be: A. $8.00 B. $17.75 C. $13.00 D. $10.75

85. The company's net operating income under variable costing would be: A. $407,500 B. $421,250 C. $431,250 D. $417,500

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Chapter 05: Absorption Costing and Variable Costing

Gallager Company, which has only one product, has provided the following data concerning its most recent month of operations:

86. The total contribution margin for the month under the variable costing approach is: A. $303,600 B. $132,000 C. $356,400 D. $72,400 87. The total gross margin for the month under the absorption costing approach is: A. $303,600 B. $132,000 C. $19,800 D. $148,600 88. What is the total period cost for the month under the variable costing approach? A. $290,600 B. $112,200 C. $231,200 D. $343,400 89. What is the total period cost for the month under the absorption costing approach? A. $59,400 B. $112,200 C. $343,400 D. $231,200

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Chapter 05: Absorption Costing and Variable Costing During its first year of operations, Holt Manufacturing Company incurred the following costs to produce 200,000 units of its only product:

Holt also incurred the following costs in the sale of 180,000 units of product during its first year:

Assume that direct labor is a variable cost. 90. What would be the cost per unit of Holt's finished goods inventory at the end of the first year of operations under the variable costing method? A. $2.34 B. $2.74 C. $4.50 D. $6.30

91. What would be the cost per unit of Holt's finished goods inventory at the end of the first year of operations under the absorption costing method? A. $2.34 B. $2.74 C. $4.50 D. $6.30 92. If Holt's variable costing net operating income for this first year is $397,800, what would its absorption costing net operating income be for this first year? A. $354,600 B. $441,000 C. $445,800 D. $473,800

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Chapter 05: Absorption Costing and Variable Costing Ross Company produces a single product. The company has direct materials costs of $8 per unit, direct labor costs of $6 per unit, and manufacturing overhead of $10 per unit. Sixty percent of the manufacturing overhead is for fixed costs. In addition, variable selling and administrative costs are $2 per unit, and fixed selling and administrative costs are $3 per unit at the current activity level. Assume that direct labor is a variable cost.

93. Under absorption costing, the unit product cost is: A. $24 B. $20 C. $26 D. $29

94. Under variable costing, the unit product cost is: A. $24 B. $20 C. $18 D. $21

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Chapter 05: Absorption Costing and Variable Costing

Bawcutt Company, which has only one product, has provided the following data concerning its most recent month of operations:

95. What is the unit product cost for the month under variable costing? A. $93 B. $62 C. $66 D. $97

96. What is the unit product cost for the month under absorption costing? A. $62 B. $93 C. $97 D. $66

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Chapter 05: Absorption Costing and Variable Costing Dearman Company, which has only one product, has provided the following data concerning its most recent month of operations:

97. What is the total period cost for the month under the variable costing approach? A. $98,700 B. $64,400 C. $65,100 D. $129,500

98. What is the total period cost for the month under the absorption costing approach? A. $33,600 B. $65,100 C. $129,500 D. $64,400

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Chapter 05: Absorption Costing and Variable Costing

Mcgougan Corporation produces a single product and has the following cost structure:

99. The unit product cost under absorption costing is: A. $126 B. $158 C. $139 D. $121

100. The unit product cost under variable costing is: A. $139 B. $126 C. $122 D. $127

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Chapter 05: Absorption Costing and Variable Costing

Slovick Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories.

101. The unit product cost under absorption costing was: A. $161 B. $199 C. $262 D. $168

102. The unit product cost under variable costing was: A. $168 B. $164 C. $199 D. $171

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Chapter 05: Absorption Costing and Variable Costing

Clubb Company, which has only one product, has provided the following data concerning its most recent month of operations:

103. The total contribution margin for the month under the variable costing approach is: A. $38,000 B. $92,000 C. $170,200 D. $119,600

104. The total gross margin for the month under the absorption costing approach is: A. $110,000 B. $92,000 C. $119,600 D. $13,800

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Chapter 05: Absorption Costing and Variable Costing

Elder Company, which has only one product, has provided the following data concerning its most recent month of operations:

105. What is the net operating income for the month under variable costing? A. $9,800 B. $(27,400) C. $15,400 D. $5,600

106. What is the net operating income for the month under absorption costing? A. $(27,400) B. $5,600 C. $9,800 D. $15,400

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Chapter 05: Absorption Costing and Variable Costing

Kidwell Company, which has only one product, has provided the following data concerning its most recent month of operations:

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

107. What is the net operating income for the month under variable costing? A. $5,800 B. $5,400 C. $8,300 D. $16,000

108. What is the net operating income for the month under absorption costing? A. $5,800 B. $16,000 C. $5,400 D. $8,300

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Chapter 05: Absorption Costing and Variable Costing

Botwinick Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

109. What was the absorption costing net operating income last year? A. $57,000 B. $28,000 C. $58,000 D. $88,000

110. What was the absorption costing net operating income this year? A. $98,000 B. $36,000 C. $68,000 D. $66,000

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Chapter 05: Absorption Costing and Variable Costing Schubert Corporation manufactures a variety of products. Variable costing net operating income last year was $59,000 and this year was $70,000. Last year, $31,000 in fixed manufacturing overhead costs were released from inventory under absorption costing. This year, $22,000 in fixed manufacturing overhead costs were deferred in inventory under absorption costing.

111. What was the absorption costing net operating income last year? A. $90,000 B. $59,000 C. $28,000 D. $68,000

112. What was the absorption costing net operating income this year? A. $92,000 B. $58,000 C. $79,000 D. $61,000

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Chapter 05: Absorption Costing and Variable Costing Dewiel Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

113. What was the absorption costing net operating income last year? A. $90,900 B. $96,900 C. $84,900 D. $92,100

114. What was the absorption costing net operating income this year? A. $105,900 B. $115,500 C. $89,700 D. $109,500

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Chapter 05: Absorption Costing and Variable Costing Caparros Corporation manufactures a variety of products. Variable costing net operating income was $62,800 last year and was $74,900 this year. Last year, ending inventory decreased by 3,300 units. This year, ending inventory increased by 1,900 units. Fixed manufacturing overhead cost is $7 per unit.

115. What was the absorption costing net operating income last year? A. $72,600 B. $85,900 C. $62,800 D. $39,700

116. What was the absorption costing net operating income this year? A. $88,200 B. $65,100 C. $61,600 D. $53,000

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Chapter 05: Absorption Costing and Variable Costing

Essay Questions 117. Leibson Company, which has only one product, has provided the following data concerning its most recent month of operations:

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. Required: a. What is the unit product cost for the month under variable costing? b. What is the unit product cost for the month under absorption costing? c. Prepare a contribution format income statement for the month using variable costing. d. Prepare an income statement for the month using absorption costing. e. Reconcile the variable costing and absorption costing net operating incomes for the month.

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Chapter 05: Absorption Costing and Variable Costing

118. Mafli Company, which has only one product, has provided the following data concerning its most recent month of operations:

Required: a. What is the unit product cost for the month under variable costing? b. What is the unit product cost for the month under absorption costing? c. Prepare a contribution format income statement for the month using variable costing. d. Prepare an income statement for the month using absorption costing. e. Reconcile the variable costing and absorption costing net operating incomes for the month.

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Chapter 05: Absorption Costing and Variable Costing

119. Fowler Company manufactures a single product. Operating data for the company and its absorption costing income statements for the last two years are presented below:

Variable manufacturing costs are $6 per unit. Fixed manufacturing overhead totals $72,000 in each year. This overhead is applied at the rate of $4 per unit. Variable selling and administrative expenses are $2 per unit sold. Required: a. What was the unit product cost in each year under variable costing? b. Prepare new income statements for each year using variable costing. c. Reconcile the absorption costing and variable costing net operating income for each year.

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Chapter 05: Absorption Costing and Variable Costing

120. Pachur Company, which has only one product, has provided the following data concerning its most recent month of operations:

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. Required: a. What is the unit product cost for the month under variable costing? b. Prepare a contribution format income statement for the month using variable costing. c. Without preparing an income statement, determine the absorption costing net operating income for the month. (Hint: Use the reconciliation method.)

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Chapter 05: Absorption Costing and Variable Costing

121. Qiu Company, which has only one product, has provided the following data concerning its most recent month of operations:

Required: a. What is the unit product cost for the month under variable costing? b. Prepare a contribution format income statement for the month using variable costing. c. Without preparing an income statement, determine the absorption costing net operating income for the month. (Hint: Use the reconciliation method.)

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Chapter 05: Absorption Costing and Variable Costing

122. Penna Corporation produces a single product and has the following cost structure:

Required: a. Compute the unit product cost under absorption costing. Show your work! b. Compute the unit product cost under variable costing. Show your work!

123. Smolinski Corporation produces a single product and has the following cost structure:

Required: Compute the unit product cost under absorption costing. Show your work!

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Chapter 05: Absorption Costing and Variable Costing

124. Mascioli Corporation produces a single product and has the following cost structure:

Required: Compute the unit product cost under variable costing. Show your work!

125. Nimocks Inc., which produces a single product, has provided the following data for its most recent month of operation:

The company had no beginning or ending inventories. Required: a. Compute the unit product cost under absorption costing. Show your work! b. Compute the unit product cost under variable costing. Show your work!

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Chapter 05: Absorption Costing and Variable Costing

126. Przygocki Inc., which produces a single product, has provided the following data for its most recent month of operation:

The company had no beginning or ending inventories. Required: Compute the unit product cost under absorption costing. Show your work!

127. Friddell Inc., which produces a single product, has provided the following data for its most recent month of operation:

The company had no beginning or ending inventories. Required: Compute the unit product cost under variable costing. Show your work!

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Chapter 05: Absorption Costing and Variable Costing

128. Data concerning Sonderegger Company's operations last year appear below:

Required: a. Prepare an income statement for the year using absorption costing. b. Prepare a contribution format income statement for the year using variable costing. c. Prepare a report reconciling the difference in net operating income between absorption and variable costing for the year.

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Chapter 05: Absorption Costing and Variable Costing

129. The Hadfield Company manufactures and sells a unique electronic part. The company's plant is highly automated with low variable and high fixed manufacturing costs. Operating results on an absorption costing basis for the first three years of activity were as follows:

Additional information about the company is as follows: - Variable manufacturing costs (direct labor, direct materials, and variable manufacturing overhead) total $3 per unit, and fixed manufacturing overhead costs total $400,000. - Fixed manufacturing costs are applied to units of product on the basis of the number of units produced each year (i.e., a new fixed manufacturing overhead rate is computed each year). - The company uses a FIFO inventory flow assumption. - Variable selling and administrative expenses are $2 per unit sold. Fixed selling and administrative expenses total $100,000. - Production and sales information for the three years is as follows:

Required: a. Compute net operating income for each year under the variable costing approach. b. Referring to the absorption costing income statements above, explain why net operating income was higher in Year 2 than in Year 1 under absorption costing, in light of the fact that fewer units were sold in Year 2 than in Year 1. c. Referring again to the absorption costing income statements, explain why the company suffered a loss in Year 3 but reported a profit in Year 1, although the same number of units was sold in each year. d. If the company had used lean production during Year 2 and Year 3 and produced only what could be sold, what would the company's net operating income (loss) have been each year under absorption costing?

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Chapter 05: Absorption Costing and Variable Costing

130. Neuman Company, which has only one product, has provided the following data concerning its most recent month of operations:

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. Required: a. Prepare a contribution format income statement for the month using variable costing. b. Prepare an income statement for the month using absorption costing.

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Chapter 05: Absorption Costing and Variable Costing

131. O'Bannion Company, which has only one product, has provided the following data concerning its most recent month of operations:

Required: a. Prepare a contribution format income statement for the month using variable costing. b. Prepare an income statement for the month using absorption costing.

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Chapter 05: Absorption Costing and Variable Costing

132. Boyar Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

Required: a. Determine the absorption costing net operating income last year. Show your work! b. Determine the absorption costing net operating income this year. Show your work!

133. Soffer Corporation manufactures a variety of products. Last year, variable costing net operating income was $72,000. The fixed manufacturing overhead costs released from inventory under absorption costing amounted to $24,000. Required: Determine the absorption costing net operating income last year. Show your work!

134. Last year, Jaquet Corporation's variable costing net operating income was $58,000. The fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $9,000. Required: Determine the absorption costing net operating income last year. Show your work!

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Chapter 05: Absorption Costing and Variable Costing 135. Eagen Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

Required: a. Determine the absorption costing net operating income for last year. Show your work! b. Determine the absorption costing net operating income for this year. Show your work!

136. Cardwell Corporation manufactures a variety of products. Last year, the company's variable costing net operating income was $63,900 and ending inventory increased by 900 units. Fixed manufacturing overhead cost per unit was $3. Required: Determine the absorption costing net operating income for last year. Show your work!

137. Last year, Brunkow Corporation's variable costing net operating income was $93,500 and ending inventory increased by 800 units. Fixed manufacturing overhead cost per unit was $7. Required: Determine the absorption costing net operating income for last year. Show your work!

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Chapter 05: Absorption Costing and Variable Costing - Key

True / False Questions 1. The costs assigned to units in inventory are typically lower under absorption costing than under variable costing. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

2. Under variable costing, product cost contains some fixed manufacturing overhead cost. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

3. Variable selling and administrative expenses are part of product costs under the variable costing approach. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

4. In a manufacturing company using absorption costing, the fixed costs associated with idle production capacity are commonly included as part of the product cost. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Hard

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Chapter 05: Absorption Costing and Variable Costing - Key

5. Direct labor is always considered to be a product cost under variable costing. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Hard

6. Suppose fewer units are sold in year 2 than in year 1. If production exceeds sales in year 2, net operating income under absorption costing could be higher in year 2 than in year 1. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Hard

7. When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs released from inventory under absorption costing should be deducted from variable costing net operating income to arrive at the absorption costing net operating income. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

8. If production exceeds sales for the period, variable costing net operating income will typically be greater than absorption costing net operating income. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key 9. When sales exceeds production for a period, absorption costing net operating income will generally be greater than variable costing net operating income. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

10. Profits move in the same direction as sales when variable costing is used if selling prices, the sales mix, and the cost structure remain the same. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

11. Net operating income is affected by changes in production under both variable costing and absorption costing. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

12. Net operating income is not affected by changes in production when absorption costing is used. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

13. Under the absorption costing method, a company can increase profits by increasing production rather than by increasing sales. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

14. Since variable costing emphasizes costs by behavior, it works well with cost-volumeprofit analysis. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

Multiple Choice Questions 15. Which of the following statements is true? A. When production exceeds sales, a manufacturing company's variable costing net operating income will usually be greater than its absorption costing net operating income. B. The variable costing method is usually not used for external reporting purposes. C. The absorption costing method treats fixed production costs as period costs. D. All of these.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

16. Which of the following statements is true for a company that uses variable costing? A. The unit product cost changes because of changes in the number of units manufactured. B. Profit fluctuates with sales. C. Any underapplied overhead is included in the product cost. D. Product costs include variable administration costs.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Medium

17. Which of the following statements is true for a company that uses variable costing? A. The unit product cost changes as a result of changes in the number of units manufactured. B. Both variable selling costs and variable production costs are included in the unit product cost. C. Net operating income moves in the same direction as sales. D. Net operating income is greatest in periods when production is highest.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Medium

18. Which of the following costs at a sofa manufacturing company would be treated as a period cost under the variable costing method? A. the cost of glue used to assemble the wood frame of each sofa produced B. depreciation on sales vehicles C. the salary of a factory manager D. both B and C above

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

19. A cost that would be included in product costs under both absorption costing and variable costing would be: A. supervisory salaries. B. equipment depreciation. C. variable manufacturing costs. D. variable selling expenses.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

20. Which of the following costs at a manufacturing company would be treated as a product cost under the absorption costing method? A. sales commissions B. fire insurance cost on factory building C. advertising costs D. All of these

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

21. Assuming that direct labor is a variable cost, product costs under variable costing include only: A. direct materials and direct labor. B. direct materials, direct labor, and variable manufacturing overhead. C. direct materials, direct labor, variable manufacturing overhead, and variable selling and administrative expenses. D. direct material, variable manufacturing overhead, and variable selling and administrative expenses.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

22. Which of the following statements is true? A. Expenses are not usually separated into variable and fixed elements in externally reported income statements. B. Even if there is no change in units sold, selling price, or cost structure, a company can increase its absorption costing net operating income from one year to the next just by producing more units. C. When finished goods inventory decreases during a period, a manufacturing company's absorption costing net operating income for that period will usually be greater than its variable costing net operating income. D. Both A and B above.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Learning Objective: 4 Level: Medium

23. What is the cause of the difference between absorption costing net operating income and variable costing net operating income? A. Absorption costing deducts all manufacturing costs from net operating income; variable costing deducts only prime costs. B. Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories; variable costing considers all fixed manufacturing costs to be period costs. C. Absorption costing includes variable manufacturing costs in product costs; variable costing considers variable manufacturing costs to be period costs. D. Absorption costing includes fixed administrative costs in product costs; variable costing considers fixed administrative costs to be period costs.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

24. The gross margin for a manufacturing company is the excess of sales over: A. cost of goods sold, excluding fixed manufacturing overhead. B. all variable costs, including variable selling and administrative expenses. C. cost of goods sold, including fixed manufacturing overhead. D. variable costs, excluding variable selling and administrative expenses.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

25. Weber Company computes net operating income under both the absorption costing approach and the variable costing approach. For a given year the absorption costing net operating income was greater than the variable costing net operating income. This fact suggests that: A. variable manufacturing costs were less than fixed manufacturing costs. B. more units were produced during the year than were sold. C. more units were sold during the year than were produced. D. common costs were greater than variable costs for the year.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

26. Net operating income computed using variable costing would exceed net operating income computed using absorption costing if: A. units sold exceed units produced. B. units sold are less than units produced. C. units sold equal units produced. D. the average fixed cost per unit is zero.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

27. The costing method that can be used most easily with break-even analysis and other costvolume-profit techniques is: A. variable costing. B. absorption costing. C. process costing. D. job-order costing.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

28. Silver Company produces a single product. Last year, the company's variable production costs totaled $7,500 and its fixed manufacturing overhead costs totaled $4,500. The company produced 3,000 units during the year and sold 2,400 units. There were no units in the beginning inventory. Which of the following statements is true? A. Under variable costing, the units in the ending inventory will be costed at $4 each. B. The net operating income under absorption costing for the year will be $900 lower than the net operating income under variable costing. C. The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing. D. Under absorption costing, the units in ending inventory will be costed at $2.50 each.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Learning Objective: 3 Level: Hard

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Chapter 05: Absorption Costing and Variable Costing - Key 29. Charrd Corporation manufactures a gas operated barbecue grill. The following information relates to Charrd's operations for last year:

What is Charrd's variable costing unit product cost? A. $29 B. $34 C. $58 D. $63 Unit fixed manufacturing overhead = $300,000 25,000 = $12 Unit variable product cost = Unit product cost - Unit manufacturing overhead = $46 - $12 = $34

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

30. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the variable costing unit product cost for the month? A. $97 B. $90 C. $68 D. $75 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $20 + $41 + $7 = $68

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

31. 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. $107 B. $94 C. $87 D. $114 Unit fixed manufacturing overhead = $130,000 6,500 = $20 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost + Fixed manufacturing overhead cost = $26 + $55 + $6 + $20 = $107

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

32. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the total period cost for the month under variable costing? A. $151,800 B. $51,800 C. $100,000 D. $125,900 Total variable selling and administrative cost = $7 x 3,700 = $25,900 Period cost = Total variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost = $25,900 + $100,000 + $25,900 = $151,800

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

33. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the total period cost for the month under absorption costing? A. $48,000 B. $275,100 C. $86,400 D. $188,700 Total variable selling and administrative cost = $8 x 4,800 = $38,400 Period cost = Variable selling and administrative cost + Fixed selling and administrative cost = $38,400 + $48,000 = $86,400

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

34. Yoshihara Corporation produces a single product and has the following cost structure:

The absorption costing unit product cost is: A. $140 B. $197 C. $133 D. $227 Unit fixed manufacturing overhead = $228,000 Unit product cost = $57 + $62 + $71 + $7 = $197

4,000 = $57

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

35. Sharko Corporation produces a single product and has the following cost structure:

The variable costing unit product cost is: A. $89 B. $86 C. $164 D. $87 Unit product cost = $66 + $18 + $2 = $86

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

36. Gallipeau Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories. The absorption costing unit product cost was: A. $219 B. $151 C. $150 D. $300 Unit fixed manufacturing overhead = $68,000 Unit product cost = $68 + $79 + $71 + $1 = $219

1,000 = $68

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

37. Baylor Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories. The variable costing unit product cost was: A. $91 B. $67 C. $69 D. $61 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $40 + $19 + $8 = $67

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

38. Indiana Corporation produces a single product that it sells for $9 per unit. During the first year of operations, 100,000 units were produced and 90,000 units were sold. Manufacturing costs and selling and administrative expenses for the year were as follows:

What was Indiana Corporation's net operating income for the year using variable costing? A. $181,000 B. $271,000 C. $281,000 D. $371,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium Source: CMA, adapted

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Chapter 05: Absorption Costing and Variable Costing - Key

39. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

The total contribution margin for the month under variable costing is: A. $83,900 B. $221,400 C. $135,000 D. $270,000

Total contribution margin = $41 x 5,400 = $221,400

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

40. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

The total gross margin for the month under absorption costing is: A. $163,800 B. $7,800 C. $170,800 D. $312,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

41. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the net operating income for the month under variable costing? A. $15,800 B. $5,000 C. $20,800 D. $3,800 Unit product cost = $39 + $15 + $6 = $60

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

42. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the net operating income for the month under absorption costing? A. $(15,900) B. $19,200 C. $10,200 D. $9,000 Unit fixed manufacturing overhead = $227,800 6,700 = $34 Unit product cost = $34 + $43 + $35 + $5 = $117

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

43. Atlantic Company produces a single product. For the most recent year, the company's net operating income computed by the absorption costing method was $7,400, and its net operating income computed by the variable costing method was $10,100. The company's unit product cost was $17 under variable costing and $22 under absorption costing. If the ending inventory consisted of 1,460 units, the beginning inventory must have been: A. 920 units B. 1,460 units C. 2,000 units D. 12,700 units Fixed manufacturing overhead per unit = Unit cost under absorption costing - Unit cost under variable costing = $22 - $17 = $5 Difference in income between absorption and variable costing = Fixed manufacturing overhead per unit x Change in inventory in units ($10,100 - $7,400) = $5 x Change in inventory in units Change in inventory in units = 540 units Since variable costing net income is greater than absorption costing net income, then inventory must have decreased since the beginning of the year. Therefore, beginning inventory must have been 2,000 units (1,460 units + 540 units).

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Hard

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Chapter 05: Absorption Costing and Variable Costing - Key

44. Roberts Company produces a single product. During the year just ended, the company's net operating income under absorption costing was $3,000 lower than under variable costing. The company sold 9,000 units during the year, and its variable costs were $9 per unit, of which $3 was variable selling expense. If production cost is $11 per unit under absorption costing every year, then how many units did the company produce during the year? A. 8,000 B. 10,000 C. 9,600 D. 8,400 Direct material + Direct labor + Variable manufacturing overhead = Variable unit product cost = $9 - $3 = $6 Unit fixed manufacturing overhead = $11 - $6 = $5 Difference in net income between methods Unit fixed manufacturing overhead = ($3,000) $5 = (600) units Units produced = Units sold + Change in inventory = 9,000 + (600) = 8,400

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Hard

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Chapter 05: Absorption Costing and Variable Costing - Key

45. Lee Company produces a single product. At the end of last year, the company had 30,000 units in its ending inventory. Lee's variable production costs are $10 per unit and its fixed manufacturing overhead costs are $5 per unit every year. The company's net operating income for the year was $12,000 higher under variable costing than under absorption costing. Given these facts, the number of units of product in inventory at the beginning of the year must have been: A. 28,800 units B. 27,600 units C. 32,400 units D. 42,000 units Unit fixed manufacturing overhead = Difference in net income Change in inventory = $12,000 Change in inventory = $5 Change in inventory = 2,400 units Beginning inventory = 2,400 + 30,000 = 32,400 units

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Hard

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Chapter 05: Absorption Costing and Variable Costing - Key

46. Ben Company produces a single product. Last year, the company's net operating income under absorption costing was $4,400 lower than under variable costing. The company sold 8,000 units during the year, and its variable costs were $8 per unit, of which $3 was variable selling expense. Fixed manufacturing overhead was $1 per unit in beginning inventory under absorption costing. How many units did the company produce during the year? A. 12,400 units B. 3,600 units C. 7,120 units D. 7,450 units Unit fixed manufacturing overhead = (Difference in income / Change in inventory) = $4,400 Change in inventory = $1 Change in inventory = 4,400 units Units produced during the year = 8,000 units sold - 4,400 units change in inventory = 3,600 units

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Hard

47. Mcferrin Corporation manufactures a variety of products. Last year, the company's variable costing net operating income was $53,200. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $32,900. What was the absorption costing net operating income last year? A. $86,100 B. $20,300 C. $32,900 D. $53,200 Absorption costing net income = Variable costing net income - fixed manufacturing overhead costs released from inventory = $53,200 - $32,900 = $20,300

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

48. Last year, Wardrup Corporation's variable costing net operating income was $67,200. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $600. What was the absorption costing net operating income last year? A. $67,800 B. $66,600 C. $67,200 D. $600 Absorption costing net income = Variable costing net income - fixed manufacturing overhead costs released from inventory = $67,200 - $600 = $66,600

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

49. Schrick Inc. manufactures a variety of products. Variable costing net operating income was $86,800 last year and ending inventory increased by 1,900 units. Fixed manufacturing overhead cost was $6 per unit. What was the absorption costing net operating income last year? A. $86,800 B. $75,400 C. $98,200 D. $11,400 Fixed manufacturing overhead deferred = $6 x 1,900 = $11,400 Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $86,800 + $11,400 = $98,200

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

50. Last year, Gransky Corporation's variable costing net operating income was $52,100 and its ending inventory increased by 400 units. Fixed manufacturing overhead cost was $7 per unit. What was the absorption costing net operating income last year? A. $52,100 B. $2,800 C. $54,900 D. $49,300 Fixed manufacturing overhead deferred = $7 x 400 = $2,800 Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $52,100 + $2,800 = $54,900

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows:

Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost.

51. The contribution margin per unit was: A. $17.50 B. $32.50 C. $27.30 D. $25.70

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

52. Under absorption costing, the carrying value on the balance sheet of the ending inventory for the year would be: A. $190,800 B. $170,000 C. $230,800 D. $0 Unit fixed manufacturing overhead = $255,000 17,000 = $15 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = ($153,000 17,000) + ($110,500 17,000) + ($204,000 17,000) + $15 = $42.50 Carrying value = Unit product cost x Ending inventory in units = $42.50 x (17,000 - 13,000) = $42.50 x 4,000 = $170,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Learning Objective: 3 Level: Medium

53. Under variable costing, the company's net operating income for the year would be: A. $60,000 higher than under absorption costing B. $108,000 higher than under absorption costing C. $108,000 lower than under absorption costing D. $60,000 lower than under absorption costing Unit fixed manufacturing overhead x Change in inventory in units = ($255,000 17,000) x (17,000 - 13,000) = $15 x 4,000 = $60,000 Since the units produced are greater than the units sold (inventory increased), net income under absorption costing will be higher than net income under variable costing.Level: Hard

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Chapter 05: Absorption Costing and Variable Costing - Key

Abdol Company, which has only one product, has provided the following data concerning its most recent month of operations:

54. What is the unit product cost for the month under variable costing? A. $73 B. $44 C. $79 D. $38 Direct materials + Direct labor + Variable manufacturing overhead = $22 + $12 + $4 = $38

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

55. What is the unit product cost for the month under absorption costing? A. $38 B. $73 C. $44 D. $79 Unit fixed manufacturing overhead = $231,000 6,600 = $35 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $22 + $12 + $4 + $35 = $73

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

56. The total contribution margin for the month under the variable costing approach is: A. $273,000 B. $42,000 C. $84,500 D. $312,000

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Chapter 05: Absorption Costing and Variable Costing - Key

57. The total gross margin for the month under the absorption costing approach is: A. $13,000 B. $91,800 C. $273,000 D. $84,500 Unit fixed manufacturing overhead = $231,000 6,600 = $35 Unit product cost under absorption costing = $22 + $12 + $4 + $35 = $73

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Medium

58. What is the total period cost for the month under the variable costing approach? A. $263,500 B. $71,500 C. $302,500 D. $231,000 Variable selling and administrative cost + Fixed costs = ($6 x 6,500) + ($231,000 + $32,500) = $39,000 + $263,500 = $302,500

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Hard

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Chapter 05: Absorption Costing and Variable Costing - Key

59. What is the total period cost for the month under the absorption costing approach? A. $32,500 B. $71,500 C. $302,500 D. $231,000 Variable selling and administrative cost + Fixed selling and administrative cost = ($6 x 6,500) + $32,500 = $39,000 + $32,500 = $71,500

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Hard

60. What is the net operating income for the month under variable costing? A. $13,000 B. $5,700 C. $9,500 D. $3,500

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Chapter 05: Absorption Costing and Variable Costing - Key

61. What is the net operating income for the month under absorption costing? A. $9,500 B. $3,500 C. $5,700 D. $13,000 Unit fixed manufacturing overhead = $231,000 6,600 = $35 Unit product cost under absorption costing = $22 + $12 + $4 + $35 = $73

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Chapter 05: Absorption Costing and Variable Costing - Key Walsh Company produces a single product. Last year, the company manufactured 25,000 units and sold 22,000 units. Production costs were as follows:

Sales totaled $440,000, variable selling and administrative expenses were $110,000, and fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labor is a variable cost. 62. Under absorption costing, the unit product cost would be: A. $9.00 B. $12.00 C. $13.40 D. $14.00 Unit product cost under absorption costing = ($100,000 25,000) + ($75,000 25,000) + ($50,000 = $4 + $3 + $2 + $3 = $12.00

25,000) + ($75,000

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25,000)

Chapter 05: Absorption Costing and Variable Costing - Key

63. Under absorption costing, the gross margin would be: A. $176,000 B. $242,000 C. $66,000 D. $21,000 Unit fixed manufacturing overhead = $75,000 25,000 = $3 Unit product cost under absorption costing = ($100,000 25,000) + ($75,000 25,000) + ($50,000 25,000) + ($75,000 = $4 + $3 + $2 + $3 = $12

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Medium

64. The contribution margin per unit would be: A. $15.00 B. $11.00 C. $8.00 D. $6.00 Variable product cost = ($100,000 25,000) + ($75,000

25,000) + ($50,000

25,000) = $9

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25,000)

Chapter 05: Absorption Costing and Variable Costing - Key

65. Under variable costing, the total amount of fixed manufacturing cost in the ending inventory would be: A. $0 B. $9,000 C. $14,400 D. $27,000 Under variable costing, all fixed manufacturing overhead is expensed in the period in which it is incurred. No fixed manufacturing overhead is added to the cost of inventory.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

66. The net operating income under variable costing would be: A. $2,000 B. $21,000 C. $12,000 D. $9,000 Variable product cost = ($100,000 25,000) + ($75,000 25,000) + ($50,000 Variable selling and administrative cost = $110,000 22,000 = $5

25,000) = $9

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Chapter 05: Absorption Costing and Variable Costing - Key

67. The net operating income under absorption costing would be: A. $9,000 B. $12,000 C. $2,000 D. $21,000 Unit direct material = $100,000 25,000 = $4 Unit direct labor = $75,000 25,000 = $3 Unit variable manufacturing overhead = $50,000 25,000 = $2 Unit fixed manufacturing overhead = $75,000 25,000 = $3 Unit product cost under absorption costing = $4 + $3 + $2 + $3 = $12

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Chapter 05: Absorption Costing and Variable Costing - Key

Faxon Company, which has only one product, has provided the following data concerning its most recent month of operations:

68. What is the unit product cost for the month under variable costing? A. $122 B. $108 C. $99 D. $131 Direct materials + Direct labor + Variable manufacturing overhead = $40 + $53 + $6 = $99

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

69. What is the unit product cost for the month under absorption costing? A. $99 B. $131 C. $122 D. $108 Unit fixed manufacturing overhead = $69,000 3,000 = $23 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $40 + $53 + $6 + $23 = $122

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

70. What is the net operating income for the month under variable costing? A. $2,300 B. $(600) C. $9,300 D. $11,600

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Chapter 05: Absorption Costing and Variable Costing - Key

71. What is the net operating income for the month under absorption costing? A. $11,600 B. $2,300 C. $(600) D. $9,300 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $40 + $53 + $6 + $23 = $122

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Chapter 05: Absorption Costing and Variable Costing - Key

Jarmon Company, which has only one product, has provided the following data concerning its most recent month of operations:

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

72. What is the unit product cost for the month under variable costing? A. $78 B. $105 C. $73 D. $110 Direct materials + Direct labor + Variable manufacturing overhead = $45 + $27 + $1 = $73

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

73. What is the unit product cost for the month under absorption costing? A. $78 B. $73 C. $105 D. $110 Unit fixed manufacturing overhead = $41,600 1,300 = $32 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $45 + $27 + $1 + $32 = $105

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

74. What is the net operating income for the month under variable costing? A. $4,500 B. $10,900 C. $25,500 D. $12,800

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Chapter 05: Absorption Costing and Variable Costing - Key

75. What is the net operating income for the month under absorption costing? A. $4,500 B. $12,800 C. $25,500 D. $10,900 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $45 + $27 + $1 + $32 = $105

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Chapter 05: Absorption Costing and Variable Costing - Key

Hackney Company, which has only one product, has provided the following data concerning its most recent month of operations:

76. What is the unit product cost for the month under variable costing? A. $92 B. $107 C. $100 D. $85 Direct materials + Direct labor + Variable manufacturing overhead = $30 + $52 + $3 = $85

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

77. The total contribution margin for the month under the variable costing approach is: A. $47,000 B. $117,500 C. $12,600 D. $84,600

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Medium

78. What is the total period cost for the month under the variable costing approach? A. $42,300 B. $81,400 C. $114,300 D. $72,000 Period cost = Variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost = ($7 x 4,700) + $72,000 + $9,400 = $32,900 + $72,000 + $9,400 = $114,300

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Chapter 05: Absorption Costing and Variable Costing - Key

79. What is the net operating income for the month under variable costing? A. $4,700 B. $(5,300) C. $1,500 D. $3,200

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

Ilford Company, which has only one product, has provided the following data concerning its most recent month of operations:

80. What is the unit product cost for the month under variable costing? A. $87 B. $64 C. $68 D. $83 Product cost = Direct materials + Direct labor + Variable manufacturing overhead = $27 + $35 + $2 = $64

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

81. What is the net operating income for the month under variable costing? A. $1,200 B. $5,700 C. $6,900 D. $(18,000)

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Chapter 05: Absorption Costing and Variable Costing - Key

Crystal Company produces a single product. The company's variable costing income statement for the month of May appears below:

The company produced 80,000 units in May and the beginning inventory consisted of 25,000 units. Variable production costs per unit and total fixed costs have remained constant over the past several months.

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Chapter 05: Absorption Costing and Variable Costing - Key 82. The dollar value of the company's inventory on May 31 under the absorption costing method would be: A. $120,000 B. $90,000 C. $75,000 D. $60,000 Units sold = $900,000 $10 = 90,000 Ending inventory = Beginning inventory + Units produced - Units sold = 25,000 + 80,000 - 90,000 = 15,000 Unit fixed manufacturing overhead = $240,000 80,000 = $3 Unit product cost = ($450,000 90,000) + $3 = $5 + $3 = $8 Value of ending inventory = Unit product cost x Units in ending inventory = $8 x 15,000 = $120,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Hard

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Chapter 05: Absorption Costing and Variable Costing - Key

83. Under absorption costing, for the month ended May 31, the company would report a: A. $30,000 loss B. $0 profit C. $30,000 profit D. $60,000 profit Unit fixed manufacturing cost = $240,000 Unit product cost = ($450,000 90,000) + $3 = $5 + $3 = $8 Units sold = $900,000 $10 = 90,000

80,000 = $3

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Chapter 05: Absorption Costing and Variable Costing - Key

Erie Company manufactures a single product. Assume the following data for the year just completed:

There were no units in inventory at the beginning of the year. During the year 30,000 units were produced and 25,000 units were sold. Each unit sells for $35.

84. Under absorption costing, the unit product cost would be: A. $8.00 B. $17.75 C. $13.00 D. $10.75 Unit fixed product cost = $82,500 30,000 = $2.75 Unit product cost = Variable product cost + Fixed product cost = $8.00 + $2.75 = $10.75

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

85. The company's net operating income under variable costing would be: A. $407,500 B. $421,250 C. $431,250 D. $417,500

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

Gallager Company, which has only one product, has provided the following data concerning its most recent month of operations:

86. The total contribution margin for the month under the variable costing approach is: A. $303,600 B. $132,000 C. $356,400 D. $72,400

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

87. The total gross margin for the month under the absorption costing approach is: A. $303,600 B. $132,000 C. $19,800 D. $148,600 Unit fixed manufacturing overhead = $231,200 Unit product cost = $22 + $23 + $4 + $34 = $83

6,800 = $34

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Medium

88. What is the total period cost for the month under the variable costing approach? A. $290,600 B. $112,200 C. $231,200 D. $343,400 Period cost = Variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost = $8 x 6,600 + $231,200 + $59,400 = $52,800 + $231,200 + $59,400 = $343,400

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Chapter 05: Absorption Costing and Variable Costing - Key

89. What is the total period cost for the month under the absorption costing approach? A. $59,400 B. $112,200 C. $343,400 D. $231,200 Period cost = Variable selling and administrative cost + Fixed selling and administrative cost = $8 x 6,600 + $59,400 = $112,200

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Hard

During its first year of operations, Holt Manufacturing Company incurred the following costs to produce 200,000 units of its only product:

Holt also incurred the following costs in the sale of 180,000 units of product during its first year:

Assume that direct labor is a variable cost.

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Chapter 05: Absorption Costing and Variable Costing - Key 90. What would be the cost per unit of Holt's finished goods inventory at the end of the first year of operations under the variable costing method? A. $2.34 B. $2.74 C. $4.50 D. $6.30 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = ($144,000 200,000) + ($108,000 200,000) + ($216,000 200,000) = $0.72 + $0.54 + $1.08 = $2.34

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

91. What would be the cost per unit of Holt's finished goods inventory at the end of the first year of operations under the absorption costing method? A. $2.34 B. $2.74 C. $4.50 D. $6.30 Unit fixed manufacturing overhead = $432,000 200,000 = $2.16 = ($144,000 200,000) + ($108,000 200,000) + ($216,000 200,000) + $2.16 = $0.72 + $0.54 + $1.08 + $2.16 = $4.50

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

92. If Holt's variable costing net operating income for this first year is $397,800, what would its absorption costing net operating income be for this first year? A. $354,600 B. $441,000 C. $445,800 D. $473,800 Unit fixed manufacturing overhead = $432,000 200,000 = $2.16 Variable costing net income = Absorption costing net income - (Unit fixed manufacturing overhead x Change in inventory in units) $397,800 = Absorption costing net income - [$2.16 x (200,000 - 180,000)] $397,800 = Absorption costing net income - $43,200 Absorption costing net income = $441,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

Ross Company produces a single product. The company has direct materials costs of $8 per unit, direct labor costs of $6 per unit, and manufacturing overhead of $10 per unit. Sixty percent of the manufacturing overhead is for fixed costs. In addition, variable selling and administrative costs are $2 per unit, and fixed selling and administrative costs are $3 per unit at the current activity level. Assume that direct labor is a variable cost.

93. Under absorption costing, the unit product cost is: A. $24 B. $20 C. $26 D. $29 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost + Fixed manufacturing overhead cost = $8 + $6 + $10* = $24 * Manufacturing overhead cost of $10 includes variable and fixed costs.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

94. Under variable costing, the unit product cost is: A. $24 B. $20 C. $18 D. $21 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $8 + $6 + [$10 x (100% - 60%)] = $8 + $6 + $4= $18

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

Bawcutt Company, which has only one product, has provided the following data concerning its most recent month of operations:

95. What is the unit product cost for the month under variable costing? A. $93 B. $62 C. $66 D. $97 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $10 + $45 + $7 = $62

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

96. What is the unit product cost for the month under absorption costing? A. $62 B. $93 C. $97 D. $66 Unit fixed manufacturing overhead = $263,500 8,500 = $31 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost + Fixed manufacturing overhead cost = $10 + $45 + $7 + $31 = $93

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key Dearman Company, which has only one product, has provided the following data concerning its most recent month of operations:

97. What is the total period cost for the month under the variable costing approach? A. $98,700 B. $64,400 C. $65,100 D. $129,500 Total variable selling and administrative cost = $11 x 2,800 = $30,800 Period cost = Total variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost = $30,800 + $65,100 + $33,600 = $129,500

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Hard

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Chapter 05: Absorption Costing and Variable Costing - Key 98. What is the total period cost for the month under the absorption costing approach? A. $33,600 B. $65,100 C. $129,500 D. $64,400 Total variable selling and administrative cost = $11 x 2,800 = $30,800 Period cost = Variable selling and administrative cost + Fixed selling and administrative cost = $30,800 + $33,600 = $64,400

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Hard

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Chapter 05: Absorption Costing and Variable Costing - Key Mcgougan Corporation produces a single product and has the following cost structure:

99. The unit product cost under absorption costing is: A. $126 B. $158 C. $139 D. $121 Unit fixed manufacturing overhead = $91,000 7,000 = $13 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost + Fixed manufacturing overhead cost = $81 + $40 + $5 + $13 = $139 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

100. The unit product cost under variable costing is: A. $139 B. $126 C. $122 D. $127 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $81 + $40 + $5 = $126 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key Slovick Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories. 101. The unit product cost under absorption costing was: A. $161 B. $199 C. $262 D. $168 Unit fixed manufacturing overhead = $31,000 1,000 = $31 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost + Fixed manufacturing overhead cost = $79 + $82 + $7 + $31 = $199 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

102. The unit product cost under variable costing was: A. $168 B. $164 C. $199 D. $171 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $79 + $82 + $7 = $168

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key Clubb Company, which has only one product, has provided the following data concerning its most recent month of operations:

103. The total contribution margin for the month under the variable costing approach is: A. $38,000 B. $92,000 C. $170,200 D. $119,600

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

104. The total gross margin for the month under the absorption costing approach is: A. $110,000 B. $92,000 C. $119,600 D. $13,800 Unit fixed manufacturing overhead = $81,600 4,800 = $17 Unit product cost under absorption costing = $48 + $23 + $2 + $17 = $90

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key Elder Company, which has only one product, has provided the following data concerning its most recent month of operations:

105. What is the net operating income for the month under variable costing? A. $9,800 B. $(27,400) C. $15,400 D. $5,600

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key 106. What is the net operating income for the month under absorption costing? A. $(27,400) B. $5,600 C. $9,800 D. $15,400 Unit fixed manufacturing overhead = $113,400 8,100 = $14 Unit product cost under absorption costing = $27 + $59 + $7 + $14 = $107

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

Kidwell Company, which has only one product, has provided the following data concerning its most recent month of operations:

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. 107. What is the net operating income for the month under variable costing? A. $5,800 B. $5,400 C. $8,300 D. $16,000

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Chapter 05: Absorption Costing and Variable Costing - Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

108. What is the net operating income for the month under absorption costing? A. $5,800 B. $16,000 C. $5,400 D. $8,300 Unit fixed manufacturing overhead = $153,700 5,300 = $29 Unit product cost under absorption costing = $38 + $38 + $1 + $29 = $106

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

Botwinick Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

109. What was the absorption costing net operating income last year? A. $57,000 B. $28,000 C. $58,000 D. $88,000 Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $58,000 + $30,000 = $88,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

110. What was the absorption costing net operating income this year? A. $98,000 B. $36,000 C. $68,000 D. $66,000 Absorption costing net income = Variable costing net operating income - Fixed manufacturing overhead released = $67,000 - $31,000 = $36,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key Schubert Corporation manufactures a variety of products. Variable costing net operating income last year was $59,000 and this year was $70,000. Last year, $31,000 in fixed manufacturing overhead costs were released from inventory under absorption costing. This year, $22,000 in fixed manufacturing overhead costs were deferred in inventory under absorption costing.

111. What was the absorption costing net operating income last year? A. $90,000 B. $59,000 C. $28,000 D. $68,000 Absorption costing net income = Variable costing net operating income - Fixed manufacturing overhead released = $59,000 - $31,000 = $28,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

112. What was the absorption costing net operating income this year? A. $92,000 B. $58,000 C. $79,000 D. $61,000 Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $70,000 + $22,000 = $92,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key Dewiel Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

113. What was the absorption costing net operating income last year? A. $90,900 B. $96,900 C. $84,900 D. $92,100 Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $90,900 + ($4 x 1,500) = $96,900

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

114. What was the absorption costing net operating income this year? A. $105,900 B. $115,500 C. $89,700 D. $109,500 Absorption costing net income = Variable costing net operating income - Fixed manufacturing overhead released = $110,700 - ($4 x 1,200) = $105,900

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key Caparros Corporation manufactures a variety of products. Variable costing net operating income was $62,800 last year and was $74,900 this year. Last year, ending inventory decreased by 3,300 units. This year, ending inventory increased by 1,900 units. Fixed manufacturing overhead cost is $7 per unit. 115. What was the absorption costing net operating income last year? A. $72,600 B. $85,900 C. $62,800 D. $39,700 Absorption costing net income = Variable costing net operating income - Fixed manufacturing overhead released = $62,800 - ($7 x 3,300) = $39,700

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

116. What was the absorption costing net operating income this year? A. $88,200 B. $65,100 C. $61,600 D. $53,000 Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $74,900 + ($7 x 1,900) = $88,200

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key Essay Questions 117. Leibson Company, which has only one product, has provided the following data concerning its most recent month of operations:

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. Required: a. What is the unit product cost for the month under variable costing? b. What is the unit product cost for the month under absorption costing? c. Prepare a contribution format income statement for the month using variable costing. d. Prepare an income statement for the month using absorption costing. e. Reconcile the variable costing and absorption costing net operating incomes for the month.

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Chapter 05: Absorption Costing and Variable Costing - Key a. & b. Unit product costs

c. & d. Income statements

e. Reconciliation

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Learning Objective: 3 Level: Hard

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Chapter 05: Absorption Costing and Variable Costing - Key 118. Mafli Company, which has only one product, has provided the following data concerning its most recent month of operations:

Required: a. What is the unit product cost for the month under variable costing? b. What is the unit product cost for the month under absorption costing? c. Prepare a contribution format income statement for the month using variable costing. d. Prepare an income statement for the month using absorption costing. e. Reconcile the variable costing and absorption costing net operating incomes for the month.

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Chapter 05: Absorption Costing and Variable Costing - Key a. & b. Unit product costs

c. & d. Income statements

e. Reconciliation

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Learning Objective: 3 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key 119. Fowler Company manufactures a single product. Operating data for the company and its absorption costing income statements for the last two years are presented below:

Variable manufacturing costs are $6 per unit. Fixed manufacturing overhead totals $72,000 in each year. This overhead is applied at the rate of $4 per unit. Variable selling and administrative expenses are $2 per unit sold. Required: a. What was the unit product cost in each year under variable costing? b. Prepare new income statements for each year using variable costing. c. Reconcile the absorption costing and variable costing net operating income for each year.

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Chapter 05: Absorption Costing and Variable Costing - Key a. The manufacturing cost of $6 per unit is the unit product cost under variable costing in both years. b.

c.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Learning Objective: 3 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

120. Pachur Company, which has only one product, has provided the following data concerning its most recent month of operations:

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. Required: a. What is the unit product cost for the month under variable costing? b. Prepare a contribution format income statement for the month using variable costing. c. Without preparing an income statement, determine the absorption costing net operating income for the month. (Hint: Use the reconciliation method.)

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Chapter 05: Absorption Costing and Variable Costing - Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Learning Objective: 3 Level: Hard

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Chapter 05: Absorption Costing and Variable Costing - Key

121. Qiu Company, which has only one product, has provided the following data concerning its most recent month of operations:

Required: a. What is the unit product cost for the month under variable costing? b. Prepare a contribution format income statement for the month using variable costing. c. Without preparing an income statement, determine the absorption costing net operating income for the month. (Hint: Use the reconciliation method.)

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Chapter 05: Absorption Costing and Variable Costing - Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Learning Objective: 3 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

122. Penna Corporation produces a single product and has the following cost structure:

Required: a. Compute the unit product cost under absorption costing. Show your work! b. Compute the unit product cost under variable costing. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

123. Smolinski Corporation produces a single product and has the following cost structure:

Required: Compute the unit product cost under absorption costing. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

124. Mascioli Corporation produces a single product and has the following cost structure:

Required: Compute the unit product cost under variable costing. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

125. Nimocks Inc., which produces a single product, has provided the following data for its most recent month of operation:

The company had no beginning or ending inventories. Required: a. Compute the unit product cost under absorption costing. Show your work! b. Compute the unit product cost under variable costing. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

126. Przygocki Inc., which produces a single product, has provided the following data for its most recent month of operation:

The company had no beginning or ending inventories. Required: Compute the unit product cost under absorption costing. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

127. Friddell Inc., which produces a single product, has provided the following data for its most recent month of operation:

The company had no beginning or ending inventories. Required: Compute the unit product cost under variable costing. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

128. Data concerning Sonderegger Company's operations last year appear below:

Required: a. Prepare an income statement for the year using absorption costing. b. Prepare a contribution format income statement for the year using variable costing. c. Prepare a report reconciling the difference in net operating income between absorption and variable costing for the year.

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Chapter 05: Absorption Costing and Variable Costing - Key a.

* $6 = $2.00 + $1.00 + $1.00 + $140,000/70,000 **$150,000 + 60,000 units x $1.50 per unit

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Learning Objective: 3 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

129. The Hadfield Company manufactures and sells a unique electronic part. The company's plant is highly automated with low variable and high fixed manufacturing costs. Operating results on an absorption costing basis for the first three years of activity were as follows:

Additional information about the company is as follows: - Variable manufacturing costs (direct labor, direct materials, and variable manufacturing overhead) total $3 per unit, and fixed manufacturing overhead costs total $400,000. - Fixed manufacturing costs are applied to units of product on the basis of the number of units produced each year (i.e., a new fixed manufacturing overhead rate is computed each year). - The company uses a FIFO inventory flow assumption. - Variable selling and administrative expenses are $2 per unit sold. Fixed selling and administrative expenses total $100,000. - Production and sales information for the three years is as follows:

Required: a. Compute net operating income for each year under the variable costing approach. b. Referring to the absorption costing income statements above, explain why net operating income was higher in Year 2 than in Year 1 under absorption costing, in light of the fact that fewer units were sold in Year 2 than in Year 1. c. Referring again to the absorption costing income statements, explain why the company suffered a loss in Year 3 but reported a profit in Year 1, although the same number of units was sold in each year. d. If the company had used lean production during Year 2 and Year 3 and produced only what could be sold, what would the company's net operating income (loss) have been each year under absorption costing?

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Chapter 05: Absorption Costing and Variable Costing - Key

b. Production increased sharply in Year 2 even though unit sales declined. The increase in production resulted in a lower unit product cost in Year 2 than in Year 1. Furthermore, because production exceeded sales, fixed manufacturing overhead costs were deferred in inventories. These effects more than offset the loss of revenue due to lower sales. The company's income thus rose even though sales were down. c. Production decreased sharply in Year 3. This resulted in an increase in the unit product cost. In addition, inventories decreased and as a result fixed manufacturing overhead deferred in inventories in Year 2 were released to the income statement in Year 3. d. If lean production had been in use, the net operating income under absorption costing would have been the same as under variable costing in all three years. With production geared to sales, there would have been no ending inventory, and therefore, there would have been no fixed manufacturing overhead costs deferred in inventory to other years.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Learning Objective: 4 Level: Hard

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Chapter 05: Absorption Costing and Variable Costing - Key

130. Neuman Company, which has only one product, has provided the following data concerning its most recent month of operations:

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. Required: a. Prepare a contribution format income statement for the month using variable costing. b. Prepare an income statement for the month using absorption costing.

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Chapter 05: Absorption Costing and Variable Costing - Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Hard

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Chapter 05: Absorption Costing and Variable Costing - Key

131. O'Bannion Company, which has only one product, has provided the following data concerning its most recent month of operations:

Required: a. Prepare a contribution format income statement for the month using variable costing. b. Prepare an income statement for the month using absorption costing.

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Chapter 05: Absorption Costing and Variable Costing - Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

132. Boyar Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

Required: a. Determine the absorption costing net operating income last year. Show your work! b. Determine the absorption costing net operating income this year. Show your work! a. and b.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

133. Soffer Corporation manufactures a variety of products. Last year, variable costing net operating income was $72,000. The fixed manufacturing overhead costs released from inventory under absorption costing amounted to $24,000. Required: Determine the absorption costing net operating income last year. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

134. Last year, Jaquet Corporation's variable costing net operating income was $58,000. The fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $9,000. Required: Determine the absorption costing net operating income last year. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 05: Absorption Costing and Variable Costing - Key

135. Eagen Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

Required: a. Determine the absorption costing net operating income for last year. Show your work! b. Determine the absorption costing net operating income for this year. Show your work! a. and b.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

136. Cardwell Corporation manufactures a variety of products. Last year, the company's variable costing net operating income was $63,900 and ending inventory increased by 900 units. Fixed manufacturing overhead cost per unit was $3. Required: Determine the absorption costing net operating income for last year. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 05: Absorption Costing and Variable Costing - Key

137. Last year, Brunkow Corporation's variable costing net operating income was $93,500 and ending inventory increased by 800 units. Fixed manufacturing overhead cost per unit was $7. Required: Determine the absorption costing net operating income for last year. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Problem Problem Problem Problem

M M-H M M-H E E E M M M M

x

x x x x x x x x x x x x x x x x x x x x x x x x x x x x

6-1 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Professional Exam Adapted

18 19-20 21-22 23-24 25-26 27-28 29-30 31 32 33 34

x

LO4: Step-down method

M M E M M M M M M M M E M M E M M

LO3: Direct method

Question Type T/F T/F T/F Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C

LO2: Allocation using the behavior concept

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

LO1: Reasons for allocating nonmanufacturing costs

Difficulty

Chapter 6: Cost Allocations of Service Departments

35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52-53 54-55 56-58 59-60 61-62 63-64 65-66 67-70 71-72 73-74 75-76

E M M M M H M M E E E E E E E E E M M E-M E E E E M E E E

x x x

x x x x x x x x

x x x x x x x

x x x x x

x x x x x x x

x x x x

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Professional Exam Adapted

LO4: Step-down method

LO3: Direct method

LO2: Allocation using the behavior concept

LO1: Reasons for allocating nonmanufacturing costs

Question Type Problem T/F T/F T/F T/F Conceptual M/C Conceptual M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C

Difficulty

Chapter 6: Cost Allocations of Service Departments

77-78 79 80 81 82 83 84 85 86

E E E E E E E E E

x x x x x x x x x

6-3 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Professional Exam Adapted

LO4: Step-down method

LO3: Direct method

LO2: Allocation using the behavior concept

Question Type Multipart M/C Problem Problem Problem Problem Problem Problem Problem Problem

LO1: Reasons for allocating nonmanufacturing costs

Difficulty

Chapter 6: Cost Allocations of Service Departments

Chapter 6: Cost Allocations of Service Departments True / False Questions 1. The fixed costs of service departments should be allocated to operating departments in proportion to the amount of capacity the service departments actually use during the period. True False

2. For performance evaluation purposes, actual service department costs instead of budgeted service department costs should be allocated to operating departments. True False

3. An allocation basis for service department costs should reflect how much cost the operating departments can bear. For this reason, the sales of the operating departments is often a good allocation basis. True False

Multiple Choice Questions 4. Variable service department costs should be charged to operating departments at the end of the period according to the formula: A. Budgeted rate x Budgeted activity. B. Budgeted rate x Actual activity. C. Actual rate x Actual activity. D. Budgeted total cost x Percentage of peak-period capacity required.

5. For performance evaluation purposes, the fixed costs of a service department should be charged to operating departments using: A. actual fixed costs and the budgeted level of activity for the period. B. budgeted fixed costs and the actual level of activity for the period. C. budgeted fixed costs and the peak-period or long-run average servicing capacity. D. actual fixed costs and the peak-period or long-run average servicing capacity.

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Chapter 6: Cost Allocations of Service Departments

6. The long-run average or peak period needs of operating departments would be the most suitable base for allocating: A. the variable element of power costs. B. the fixed element of power costs. C. total power costs. D. any spending variance associated with power costs.

7. Which of the following would be the least appropriate allocation base to allocate the cost of a human resources department to other departments? A. sales dollars B. labor turnover C. hours of training D. number of employees

8. The medical services department of Bantam Company budgeted $20 of variable medical expenses per employee for the year, based on 1,500 employees in the operating departments. During the year, an average of 1,200 employees were employed in operating departments. Actual variable medical expenses totaled $28,800 for the year. How much variable medical expenses should be charged to operating departments at year-end? A. $28,800 B. $24,000 C. $23,040 D. $28,000

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Chapter 6: Cost Allocations of Service Departments

9. Swift Company has a Maintenance Department that does maintenance work on all equipment in operating departments A and B. The Maintenance Department budgeted variable maintenance costs of $0.20 per machine hour for June. Actual variable maintenance costs for the month totaled $15,000. Budgeted and actual machine hours in the operating departments for the month were:

How much variable maintenance cost for the month should be charged to Department A at the end of the month for performance evaluation purposes? A. $6,000 B. $15,000 C. $8,250 D. $9,000

10. The medical services department of Carey Company budgeted $20 of variable medical expenses per employee for May, based on 1,000 employees in operating departments. During May an average of 1,050 employees were employed in operating departments. Actual variable medical expenses totaled $23,100 for the month. How much variable medical expenses should be charged to operating departments at the end of May for performance evaluation purposes? A. $21,000 B. $23,100 C. $20,000 D. $22,000

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Chapter 6: Cost Allocations of Service Departments

11. Fox Company has the following data concerning the machine-hours in its operating departments:

Fixed costs of the maintenance department are budgeted at $30,000 per year. The fixed maintenance costs are incurred in order to service long-run average demand. The actual fixed maintenance cost was actually $32,000. How much fixed maintenance cost should be charged to Department B at the end of the year for performance evaluation purposes? A. $12,000 B. $14,400 C. $15,000 D. $18,000

12. Krikorian Corporation has two operating divisions-an Atlantic Division and a Pacific Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $37 per shipment. The Logistics Department's fixed costs are budgeted at $330,600 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand.

How much Logistics Department cost should be charged to the Altlantic Division at the end of the year for performance evaluation purposes? A. $198,840 B. $272,600 C. $169,200 D. $218,080

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Chapter 6: Cost Allocations of Service Departments

13. Bunyard Corporation has two operating divisions-an Atlantic Division and a Pacific Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $45 per shipment. The Logistics Department's fixed costs are budgeted at $212,400 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand.

At the end of the year, actual Logistics Department variable costs totaled $202,400 and fixed costs totaled $223,900. The Atlantic Division had a total of 2,100 shipments and the Pacific Division had a total of 2,300 shipments for the year. How much Logistics Department cost should be charged to the Pacific Division at the end of the year for performance evaluation purposes? A. $241,560 B. $222,839 C. $251,335 D. $214,527 14. Derico Corporation has two operating divisions-an Atlantic Division and a Pacific Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $42 per shipment. The Logistics Department's fixed costs are budgeted at $365,800 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand.

At the end of the year, actual Logistics Department variable costs totaled $388,800 and fixed costs totaled $378,080. The Atlantic Division had a total of 4,700 shipments and the Pacific Division had a total of 4,300 shipments for the year. For performance evaluation purposes, how much actual Logistics Department cost should NOT be charged to the operating divisions at the end of the year? A. $23,080 B. $0 C. $12,280 D. $10,800

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Chapter 6: Cost Allocations of Service Departments

15. Wentz Corporation has two operating divisions-a Consumer Division and a Commercial Division. The company's Order Fulfillment Department provides services to both divisions. The variable costs of the Order Fulfillment Department are budgeted at $56 per order. The Order Fulfillment Department's fixed costs are budgeted at $190,800 for the year. The fixed costs of the Order Fulfillment Department are determined based on the peak period orders.

At the end of the year, actual Order Fulfillment Department variable costs totaled $206,640 and fixed costs totaled $202,680. The Consumer Division had a total of 1,240 orders and the Commercial Division had a total of 2,360 orders for the year. For purposes of evaluation performance, how much Order Fulfillment Department cost should be charged to the Commercial Division at the end of the year? A. $257,240 B. $246,640 C. $268,332 D. $257,072

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Chapter 6: Cost Allocations of Service Departments 16. Auchmoody Corporation has two operating divisions-a Consumer Division and a Commercial Division. The company's Customer Service Department provides services to both divisions. The variable costs of the Customer Service Department are budgeted at $63 per order. The Customer Service Department's fixed costs are budgeted at $372,600 for the year. The fixed costs of the Customer Service Department are determined based on the peak period orders.

At the end of the year, actual Customer Service Department variable costs totaled $444,405 and fixed costs totaled $382,900. The Consumer Division had a total of 2,030 orders and the Commercial Division had a total of 4,860 orders for the year. For performance evaluation purposes, how much actual Customer Service Department cost should NOT be charged to the operating divisions at the end of the year? A. $10,300 B. $0 C. $10,335 D. $20,635

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Chapter 6: Cost Allocations of Service Departments

17. Rapone Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period. Data appear below:

For performance evaluation purposes, how much Maintenance Department cost should be charged to the Paints Division at the end of the year? A. $261,600 B. $396,000 C. $277,200 D. $220,000

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Chapter 6: Cost Allocations of Service Departments

18. Schaich Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period. Data appear below:

For performance evaluation purposes, how much Maintenance Department cost should be charged to the Stains Division at the END of the year? A. $219,710 B. $209,412 C. $232,051 D. $197,520

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Chapter 6: Cost Allocations of Service Departments

Lakeside Nursing Home has two operating departments, Custodial Care and Rehabilitation. It also has a Housekeeping Department that serves the two operating departments. The costs of the Housekeeping Department are all variable and are charged to the operating departments on the basis of labor-hours. Data for September follow:

The budgeted costs of the Housekeeping Department for September were $24,000 and the actual costs were $29,760.

19. How much Housekeeping Department cost should be charged to Rehabilitation at the end of September for performance evaluation purposes? A. $19,840 B. $9,920 C. $9,600 D. $7,440

20. How much of the actual Housekeeping Department costs for September should not be charged to the operating departments for performance evaluation purposes? A. $960 B. $5,760 C. $0 D. $1,240

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Chapter 6: Cost Allocations of Service Departments

Community General Hospital has a Food Services Department that provides meals for all patients in the hospital. Budgeted and actual meals served for the month just ended are:

The budgeted variable cost of meals for the month just ended was $100,000; the actual variable cost of meals for the month was $130,000.

21. How much of the $130,000 actual Food Services variable cost should be charged to the Surgical Department at the end of the month just completed? A. $62,500 B. $65,000 C. $95,000 D. $98,800

22. How much of the $130,000 actual Food Services cost for the month just completed should be kept in the Food Services Department and not charged to the other departments? A. $30,000 B. $5,000 C. $4,000 D. $0

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Chapter 6: Cost Allocations of Service Departments

Fixed costs budgeted for Caterton's Maintenance Department for last year totaled $280,000; actual fixed costs for the year totaled $308,000. The level of budgeted fixed costs is determined by peak-period requirements. The Milling Department requires 15/35 of the peakperiod capacity and the Assembly Department requires 20/35.

23. How much fixed maintenance cost should be charged to the Assembly department at the end of the year for purposes of measuring performance? A. $160,000 B. $176,000 C. $173,500 D. $147,800

24. How much of the actual fixed maintenance cost for the year should be kept in the Maintenance department and not charged to the other departments for performance evaluation purposes? A. $0 B. $308,000 C. $28,000 D. $280,000

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Chapter 6: Cost Allocations of Service Departments

Komlos Corporation has two operating divisions-an East Division and a West Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $48 per shipment. The Logistics Department's fixed costs are budgeted at $253,000 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand.

At the end of the year, actual Logistics Department variable costs totaled $360,620 and fixed costs totaled $267,210. The East Division had a total of 4,200 shipments and the West Division had a total of 3,100 shipments for the year.

25. How much Logistics Department cost should be allocated to the West Division at the end of the year? A. $340,187 B. $256,238 C. $325,900 D. $266,613

26. How much actual Logistics Department cost should not be allocated to the operating divisions at the end of the year? A. $10,220 B. $24,430 C. $0 D. $14,210

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Chapter 6: Cost Allocations of Service Departments

Fickling Corporation has two operating divisions-a Consumer Division and a Commercial Division. The company's Order Fulfillment Department provides services to both divisions. The variable costs of the Order Fulfillment Department are budgeted at $51 per order. The Order Fulfillment Department's fixed costs are budgeted at $484,000 for the year. The fixed costs of the Order Fulfillment Department are budgeted based on the peak period orders.

At the end of the year, actual Order Fulfillment Department variable costs totaled $460,404 and fixed costs totaled $493,700. The Consumer Division had a total of 2,430 orders and the Commercial Division had a total of 6,390 orders for the year.

27. How much Order Fulfillment Department cost should be allocated to the Commercial Division at the end of the year? A. $676,543 B. $679,148 C. $691,239 D. $664,690

28. How much actual Order Fulfillment Department cost should not be allocated to the operating divisions at the end of the year? A. $20,284 B. $0 C. $10,584 D. $9,700

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Chapter 6: Cost Allocations of Service Departments

Caruana Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are determined by the number of cases produced by the operating departments during the peak period. Data appear below:

29. How much Maintenance Department cost should be allocated to the Stains Division at the end of the year? A. $582,027 B. $549,663 C. $575,460 D. $543,390

30. How much actual Maintenance Department cost should not be allocated to the operating divisions at the end of the year? A. $5,401 B. $0 C. $4,460 D. $9,861

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Chapter 6: Cost Allocations of Service Departments

Essay Questions 31. Gabritz, Inc. has a maintenance department that provides services to the company's two operating departments. The variable costs of the maintenance department are charged on the basis of the number of maintenance hours logged in each department. Last year, budgeted variable maintenance costs were $7.50 per maintenance hour and actual variable maintenance costs were $7.80 per maintenance hour. The budgeted and actual maintenance hours for each operating department for last year appear below:

Required: a. Compute the amount of variable maintenance department cost that should have been charged to each operating department at the end of the year for performance evaluation purposes. b. Compute the amount of actual variable maintenance department cost that should NOT have been charged to the operating departments at the end of the year for performance evaluation purposes.

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Chapter 6: Cost Allocations of Service Departments

32. Smurnov Company has a purchasing department that provides services to two factories located in Austin and the other in Belmont. Budgeted costs for the purchasing department consist of $91,000 per year of fixed costs and $7 per purchase order for variable costs. The level of budgeted fixed costs is determined by the peak-period requirements. The Austin factory requires 3/7 of the peak-period capacity and the Belmont factory requires 4/7. During the year, 2,700 purchase orders were processed for the Austin factory and 3,900 purchase orders for the Belmont factory. Required: Compute the amount of purchasing department cost that should be charged to each factory for the year.

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Chapter 6: Cost Allocations of Service Departments

33. Boulay Corporation has two operating divisions-a North Division and a South Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $34 per shipment. The Logistics Department's fixed costs are budgeted at $175,000 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand.

At the end of the year, actual Logistics Department variable costs totaled $147,840 and fixed costs totaled $189,610. The North Division had a total of 2,100 shipments and the South Division had a total of 2,100 shipments for the year. Required: a. Prepare a report showing how much of the Logistics Department's costs should be charged to each of the operating divisions at the end of the year. b. How much of the actual Logistics Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs?

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Chapter 6: Cost Allocations of Service Departments

34. Ocon Corporation has two operating divisions-an Inland Division and a Coast Division. The company's Customer Service Department provides services to both divisions. The variable costs of the Customer Service Department are budgeted at $28 per order. The Customer Service Department's fixed costs are budgeted at $372,300 for the year. The fixed costs of the Customer Service Department are determined based on the peak period orders.

At the end of the year, actual Customer Service Department variable costs totaled $212,284 and fixed costs totaled $381,740. The Inland Division had a total of 1,710 orders and the Coast Division had a total of 5,560 orders for the year. Required: a. Prepare a report showing how much of the Customer Service Department's costs should be charged to each of the operating divisions at the end of the year. b. How much of the actual Customer Service Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs?

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Chapter 6: Cost Allocations of Service Departments

35. Szafran Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are determined based on the number of cases produced by the operating departments during the peak period. Data appear below:

Required: a. Prepare a report showing how much of the Maintenance Department's costs should be charged to each of the operating divisions at the end of the year. b. How much of the actual Maintenance Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs?

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Chapter 6: Cost Allocations of Service Departments True / False Questions 36. In both the direct and step-down methods of allocating service department costs, any amount of the allocation base that is attributable to the service department whose cost is being allocated is ignored. True False

37. The direct method has the disadvantage that it may leave some service department costs unallocated. True False

38. If personnel department expenses are allocated on the basis of the number of employees in various departments, then the number of employees in the personnel department itself must be included in the allocation base when the step-down method is used. True False

39. The step-down method requires that an order of allocation is established before service department costs can be allocated to operating departments. True False

Multiple Choice Questions 40. When would the direct method and the step-down method of service department cost allocation result in identical allocations being made to the operating departments? A. when there is only one service department B. when all of the costs in the service departments are fixed costs C. when there is an equal amount of service departments and operating departments D. both A and B above

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Chapter 6: Cost Allocations of Service Departments

41. Reciprocal service department costs are: A. allocated to producing departments under the direct method but not allocated to producing departments at all under the step-down method. B. allocated to producing departments under the step-down method but not allocated to producing departments at all under the direct method. C. not allocated to producing departments under either the direct or the step-down methods. D. allocated to producing departments under both the direct and step-down methods.

42. Parker Company has two service departments, cafeteria and engineering, and two operating departments. The number of employees in each department is given below:

The costs of the Cafeteria are allocated to other departments on the basis of the number of employees in the departments. If these costs are budgeted at $69,375, the amount of cost allocated to Engineering under the direct method would be: A. $0 B. $3,700 C. $3,750 D. $17,344

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Chapter 6: Cost Allocations of Service Departments

43. Nolin Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Administrative and Facilities, and two operating departments, Assembly and Wholesaling.

Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied. The total Wholesaling Department cost after the allocations of service department costs is closest to: A. $418,700 B. $406,160 C. $416,273 D. $418,390

44. Hypes Clinic uses the direct method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Support, and two operating departments, Prenatal and Pediatrics.

Personnel Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $1,036,914 B. $1,036,040 C. $1,024,310 D. $1,033,809

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Chapter 6: Cost Allocations of Service Departments

45. Hopp Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Data Processing and Personnel, and two operating departments, Assembly and Finishing.

Data Processing Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees. The total amount of Data Processing Department cost allocated to the two operating departments is closest to: A. $29,871 B. $82,720 C. $34,689 D. $21,946

46. The direct method is used by Hoeffner Publishing, Inc., to allocate service department costs to operating departments. The company has two service departments, Information Technology and Personnel, and two operating departments, Prepress and Printing.

Information Technology Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees. The total Prepress Department cost after service department allocations is closest to: A. $345,276 B. $342,428 C. $334,685 D. $339,455

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Chapter 6: Cost Allocations of Service Departments

47. Kormos Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Telecommunications and Administration, and two operating departments, Surgery and Recovery.

Telecommunications Department costs are allocated on the basis of the number of telecommunications ports in departments and Administration Department costs are allocated on the basis of employees. The total Surgery Department cost after service department allocations is closest to: A. $485,219 B. $481,451 C. $476,168 D. $487,892

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Chapter 6: Cost Allocations of Service Departments

48. Wisneski Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, General Management and Physical Plant, and two operating departments, Sales and After-Sales. Data concerning those departments follow:

General Management Department costs are allocated first on the basis of employee time and Physical Plant Department costs are allocated second on the basis of space occupied. The total After-Sales Department cost after allocations is closest to: A. $251,200 B. $261,249 C. $263,460 D. $262,820

49. Lisby, Inc., allocates service department costs to operating departments using the stepdown method. The company has two service departments, Administration and Physical Plant, and two operating departments, Assembly and Testing. Data concerning those departments follow:

Administration Department costs are allocated first on the basis of employee time and Physical Plant Department costs are allocated second on the basis of space occupied. The total Testing Department cost after allocations is closest to: A. $226,258 B. $225,800 C. $211,940 D. $224,077

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Chapter 6: Cost Allocations of Service Departments

50. Ranft Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Medicine and Pediatric. Data concerning those departments follow:

Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs. The total Pediatric Department cost after allocations is closest to: A. $456,993 B. $456,904 C. $409,220 D. $447,702

51. Wiedenheft Children's Clinic allocates service department costs to operating departments using the step-down method. The clinic has two service departments, Administration and Information Technology (IT), and two operating departments, Prenatal and Pediatric. Data concerning those departments follow:

Administration costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs. The total Pediatric Department cost after allocations is closest to: A. $390,036 B. $380,828 C. $389,712 D. $365,886

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Chapter 6: Cost Allocations of Service Departments

The James Company has four departments with data as follows:

52. Maintenance Department costs are allocated on the basis of labor hours. The amount of cost allocated to Milling from Maintenance under the direct method would be: A. $5,600 B. $6,720 C. $5,250 D. $5,700

53. Cafeteria costs are allocated on the basis of number of employees. If the step-down method is used with costs of the Cafeteria allocated first, the amount of cost allocated from the Cafeteria to Maintenance would be: A. $0 B. $625 C. $698 D. $750

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Chapter 6: Cost Allocations of Service Departments

Letter Corporation has two service departments (A and B) that provide service to each other and to two operating departments (X and Y). A provides 20% of its service to B, 30% of its service to X, and 50% of its service to Y. B provides 10% of its service to A, 45% of its service to X, and 45% of its service to Y. Operating costs in A are $300,000. Operating costs in B are $180,000. Cost allocations are made starting with department A. No distinction is made between variable and fixed costs.

54. If service department costs are allocated using the direct method, what is the total amount of service cost that will be allocated to X? A. $172,000 B. $180,000 C. $198,000 D. $202,500

55. If service department costs are allocated using the step-down method, what is the total amount of service cost that will be allocated to Y? A. $231,000 B. $240,000 C. $258,000 D. $270,000

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Chapter 6: Cost Allocations of Service Departments

Zoopsia Hospital has two service departments and three operating departments. Selected information on the five departments for last year is as follows:

Zoopsia allocates Power Generation cost first on the basis of kilowatt hours. Zoopsia then allocates Laundry cost on the basis of the number of employees. Operating costs in Power Generation for last year were $250,000. Operating costs in Laundry for last year were $60,000. No distinction is made between variable and fixed costs.

56. If service department costs are allocated using the direct method, what is the total amount of service cost that would be allocated to the Emergency Room? A. $147,100 B. $161,000 C. $182,750 D. $192,250

57. If service department costs are allocated using the step-down method, what is the total amount of service cost that will be allocated to Maternity? A. $66,425 B. $73,000 C. $84,500 D. $88,000

58. If service department costs are allocated using the step-down method, how much service cost will remain in the Power Generation department after allocation? A. $0 B. $6,750 C. $12,375 D. $12,500 6-33 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 6: Cost Allocations of Service Departments Franca Corporation has two service departments, Administrative and Facilities, and two operating departments, Assembly and Customer Feedbacks.

The company uses the direct method to allocate service department costs to operating departments. Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied.

59. The total amount of Administrative Department cost allocated to the Assembly Department is closest to: A. $37,806 B. $28,217 C. $28,830 D. $26,524

60. The total Customer solutions Department cost after the allocations of service department costs is closest to: A. $696,940 B. $682,990 C. $694,753 D. $697,172

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Chapter 6: Cost Allocations of Service Departments

Silguero Clinic has two service departments, Administrative and Support, and two operating departments, Adult Medicine and Pediatrics.

The clinic uses the direct method to allocate service department costs to operating departments. Administrative Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet.

61. The total amount of Administrative Department cost allocated to the Adult Medicine Department is closest to: A. $18,482 B. $14,333 C. $12,968 D. $14,720

62. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $521,999 B. $524,830 C. $515,870 D. $525,825

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Chapter 6: Cost Allocations of Service Departments

Weisenborn Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Information Technology and Personnel, and two operating departments, Fabrication and Customization.

Information Technology Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees.

63. The total amount of Information Technology Department cost allocated to the two operating departments is closest to: A. $28,688 B. $66,435 C. $18,427 D. $25,500

64. The total Fabrication Department cost after service department allocations is closest to: A. $235,821 B. $227,905 C. $234,336 D. $231,641

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Chapter 6: Cost Allocations of Service Departments

Holmon Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Information Technology and Administration, and two operating departments, Surgery and Recovery.

Information Technology Department costs are allocated on the basis of computer workstations and Administration Department costs are allocated on the basis of employees.

65. The total amount of Information Technology Department cost allocated to the two operating departments is closest to: A. $37,740 B. $24,997 C. $98,705 D. $33,474

66. The total Surgery Department cost after service department allocations is closest to: A. $463,368 B. $457,933 C. $470,058 D. $467,841

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Chapter 6: Cost Allocations of Service Departments

The Mohawk-Hudson Company is an electric utility which has two service departments, Accounting and Maintenance. It has two operating departments, Generation and Transmission. The company does not distinguish between fixed and variable service department costs. Maintenance Department costs are allocated on the basis of maintenance hours. Accounting Department costs are allocated to operating departments on the basis of accounting hours of service provided. Budgeted costs and other data for the coming year are as follows:

The step-down method is used to allocate service department costs, with the accounting department being allocated first.

67. The amount of accounting department costs allocated to the Maintenance Department would be: A. $0 B. $20,000 C. $19,048 D. $18,000

68. The amount of Accounting Department costs allocated to the Generation Department would be: A. $42,857 B. $57,143 C. $38,000 D. $45,000

69. The amount of Maintenance Department cost allocated to the Accounting Department would be: A. $0 B. $69,315 C. $75,000 D. $88,000

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Chapter 6: Cost Allocations of Service Departments

70. The amount of Maintenance Department cost allocated to the Generation Department would be: A. $132,000 B. $123,750 C. $150,685 D. $140,000

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Chapter 6: Cost Allocations of Service Departments Karnofski Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y. Data concerning those departments follow:

Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B.

71. In the first step of the allocation, the amount of Service Department A cost allocated to the Operating Department X is closest to: A. $13,599 B. $18,426 C. $16,123 D. $17,430

72. The total Operating Department Y cost after allocations is closest to: A. $398,810 B. $397,211 C. $399,285 D. $387,190

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Chapter 6: Cost Allocations of Service Departments

Quezaire Corporation, a manufacturer, uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing. Data concerning those departments follow:

Administration Department costs are allocated first on the basis of labor hours and Facilities Department costs are allocated second on the basis of space occupied.

73. In the first step of the allocation, the amount of Administration Department cost allocated to the Assembly Department is closest to: A. $32,640 B. $14,569 C. $34,124 D. $29,440

74. The total Finishing Department cost after allocations is closest to: A. $528,859 B. $525,110 C. $528,790 D. $519,190

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Chapter 6: Cost Allocations of Service Departments

Clopton Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Medicine and Geriatric Medicine. Data concerning those departments follow:

Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs.

75. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Medicine Department is closest to: A. $20,285 B. $17,929 C. $18,560 D. $39,774

76. The total Geriatric Medicine Department cost after allocations is closest to: A. $113,020 B. $134,101 C. $139,700 D. $139,601

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Chapter 6: Cost Allocations of Service Departments

Finkler Legal Services, LLC, uses the step-down method to allocate service department costs to operating departments. The firm has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Law and Corporate Law. Data concerning those departments follow:

Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs.

77. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Law Department is closest to: A. $30,752 B. $32,837 C. $45,636 D. $29,177

78. The total Corporate Law Department cost after allocations is closest to: A. $389,318 B. $380,375 C. $346,910 D. $388,872

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Chapter 6: Cost Allocations of Service Departments

Essay Questions 79. Maclennan Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Administrative and Facilities, and two operating departments, Assembly and Finishing.

Administrative Department costs are allocated on the basis of employee hours and Facilities Department costs are allocated on the basis of space occupied. Required: Allocate the service department costs to the operating departments using the direct method.

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Chapter 6: Cost Allocations of Service Departments

80. Hodgin Corporation uses the direct method to allocate its two service department costs to its two operating departments. Data concerning those departments follow:

Service Department A costs are allocated on the basis of allocation base A and Service Department B costs are allocated on the basis of allocation base B. Required: Allocate the service department costs to the operating departments using the direct method.

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Chapter 6: Cost Allocations of Service Departments

81. The direct method is used by Rastorfer Clinic to allocate its service department costs to its operating departments. Data concerning those departments follow:

Information Technology costs are allocated on the basis of computers and Personnel costs are allocated on the basis of employees. Required: Allocate the service department costs to the operating departments using the direct method.

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Chapter 6: Cost Allocations of Service Departments

82. Goffinet Consultancy uses the direct method to allocate its service department costs to its operating departments. The company has two service departments, Information Technology and Administration, and two operating departments, Corporate Practice and Government Practice. Data concerning those departments follow:

Information Technology Department costs are allocated on the basis of computers and Administration Department costs are allocated on the basis of employees. Required: Allocate the service department costs to the operating departments using the direct method.

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Chapter 6: Cost Allocations of Service Departments

83. Costillo Corporation has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y.

The company uses the step-down method to allocate service department costs to operating departments. Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B. Required: Allocate the service department costs to the operating departments using the step-down method.

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Chapter 6: Cost Allocations of Service Departments

84. Taketa Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing.

Administration Department costs are allocated first on the basis of employee time and Facilities Department costs are allocated second on the basis of space occupied. Required: Allocate the service department costs to the operating departments using the step-down method.

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Chapter 6: Cost Allocations of Service Departments

85. Aderholt Emergency Care Hospital uses the step-down method to allocate service department costs to operating departments. The hospital has two service departments, Administration and Information Technology (IT), and two operating departments, Emergency Room and Intensive Care.

Administration Department costs are allocated first on the basis of employees and IT Department costs are allocated second on the basis of computers. Required: Allocate the service department costs to the operating departments using the step-down method.

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Chapter 6: Cost Allocations of Service Departments

86. Ziebol Natal Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Administration and Information Technology (IT), and two operating departments, Prenatal Care and Postnatal Care.

Administration Department costs are allocated first on the basis of employees and IT Department costs are allocated second on the basis of computers. Required: Allocate the service department costs to the operating departments using the step-down method.

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Chapter 6: Cost Allocations of Service Departments - Key True / False Questions 1. The fixed costs of service departments should be allocated to operating departments in proportion to the amount of capacity the service departments actually use during the period. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

2. For performance evaluation purposes, actual service department costs instead of budgeted service department costs should be allocated to operating departments. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

3. An allocation basis for service department costs should reflect how much cost the operating departments can bear. For this reason, the sales of the operating departments is often a good allocation basis. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

Multiple Choice Questions 4. Variable service department costs should be charged to operating departments at the end of the period according to the formula: A. Budgeted rate x Budgeted activity. B. Budgeted rate x Actual activity. C. Actual rate x Actual activity. D. Budgeted total cost x Percentage of peak-period capacity required.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

5. For performance evaluation purposes, the fixed costs of a service department should be charged to operating departments using: A. actual fixed costs and the budgeted level of activity for the period. B. budgeted fixed costs and the actual level of activity for the period. C. budgeted fixed costs and the peak-period or long-run average servicing capacity. D. actual fixed costs and the peak-period or long-run average servicing capacity.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

6. The long-run average or peak period needs of operating departments would be the most suitable base for allocating: A. the variable element of power costs. B. the fixed element of power costs. C. total power costs. D. any spending variance associated with power costs.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

7. Which of the following would be the least appropriate allocation base to allocate the cost of a human resources department to other departments? A. sales dollars B. labor turnover C. hours of training D. number of employees

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

8. The medical services department of Bantam Company budgeted $20 of variable medical expenses per employee for the year, based on 1,500 employees in the operating departments. During the year, an average of 1,200 employees were employed in operating departments. Actual variable medical expenses totaled $28,800 for the year. How much variable medical expenses should be charged to operating departments at year-end? A. $28,800 B. $24,000 C. $23,040 D. $28,000 1,200 x $20 = $24,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

9. Swift Company has a Maintenance Department that does maintenance work on all equipment in operating departments A and B. The Maintenance Department budgeted variable maintenance costs of $0.20 per machine hour for June. Actual variable maintenance costs for the month totaled $15,000. Budgeted and actual machine hours in the operating departments for the month were:

How much variable maintenance cost for the month should be charged to Department A at the end of the month for performance evaluation purposes? A. $6,000 B. $15,000 C. $8,250 D. $9,000 Charged to Operating Department A: 30,000 x $0.20 $6,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

10. The medical services department of Carey Company budgeted $20 of variable medical expenses per employee for May, based on 1,000 employees in operating departments. During May an average of 1,050 employees were employed in operating departments. Actual variable medical expenses totaled $23,100 for the month. How much variable medical expenses should be charged to operating departments at the end of May for performance evaluation purposes? A. $21,000 B. $23,100 C. $20,000 D. $22,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

11. Fox Company has the following data concerning the machine-hours in its operating departments:

Fixed costs of the maintenance department are budgeted at $30,000 per year. The fixed maintenance costs are incurred in order to service long-run average demand. The actual fixed maintenance cost was actually $32,000. How much fixed maintenance cost should be charged to Department B at the end of the year for performance evaluation purposes? A. $12,000 B. $14,400 C. $15,000 D. $18,000 Total average machine-hours: 10,000 + 30,000 + 20,000 = 60,000 Fixed maintenance cost to be charged to Department B = $30,000 x (30,000 60,000) = $15,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

12. Krikorian Corporation has two operating divisions-an Atlantic Division and a Pacific Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $37 per shipment. The Logistics Department's fixed costs are budgeted at $330,600 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand.

How much Logistics Department cost should be charged to the Altlantic Division at the end of the year for performance evaluation purposes? A. $198,840 B. $272,600 C. $169,200 D. $218,080 The amount of cost that would be charged to the Atlantic Division at the end of the year would be as follows:

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

13. Bunyard Corporation has two operating divisions-an Atlantic Division and a Pacific Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $45 per shipment. The Logistics Department's fixed costs are budgeted at $212,400 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand.

At the end of the year, actual Logistics Department variable costs totaled $202,400 and fixed costs totaled $223,900. The Atlantic Division had a total of 2,100 shipments and the Pacific Division had a total of 2,300 shipments for the year. How much Logistics Department cost should be charged to the Pacific Division at the end of the year for performance evaluation purposes? A. $241,560 B. $222,839 C. $251,335 D. $214,527 The amount of cost that would be charged to the Pacific Division at the end of the year would be as follows:

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

14. Derico Corporation has two operating divisions-an Atlantic Division and a Pacific Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $42 per shipment. The Logistics Department's fixed costs are budgeted at $365,800 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand.

At the end of the year, actual Logistics Department variable costs totaled $388,800 and fixed costs totaled $378,080. The Atlantic Division had a total of 4,700 shipments and the Pacific Division had a total of 4,300 shipments for the year. For performance evaluation purposes, how much actual Logistics Department cost should NOT be charged to the operating divisions at the end of the year? A. $23,080 B. $0 C. $12,280 D. $10,800 The amount of cost that would be charged to each of the operating divisions at the end of the year would be as follows:

The spending variance represents the difference between the Logistics Department's actual costs and what those costs should have been, given the actual level of activity. This difference is properly the responsibility of the Logistics Department and should not be charged to the operating divisions.

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Chapter 6: Cost Allocations of Service Departments - Key AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

15. Wentz Corporation has two operating divisions-a Consumer Division and a Commercial Division. The company's Order Fulfillment Department provides services to both divisions. The variable costs of the Order Fulfillment Department are budgeted at $56 per order. The Order Fulfillment Department's fixed costs are budgeted at $190,800 for the year. The fixed costs of the Order Fulfillment Department are determined based on the peak period orders.

At the end of the year, actual Order Fulfillment Department variable costs totaled $206,640 and fixed costs totaled $202,680. The Consumer Division had a total of 1,240 orders and the Commercial Division had a total of 2,360 orders for the year. For purposes of evaluation performance, how much Order Fulfillment Department cost should be charged to the Commercial Division at the end of the year? A. $257,240 B. $246,640 C. $268,332 D. $257,072 The amount of cost that would be charged to the Commercial Division at the end of the year would be as follows:

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

16. Auchmoody Corporation has two operating divisions-a Consumer Division and a Commercial Division. The company's Customer Service Department provides services to both divisions. The variable costs of the Customer Service Department are budgeted at $63 per order. The Customer Service Department's fixed costs are budgeted at $372,600 for the year. The fixed costs of the Customer Service Department are determined based on the peak period orders.

At the end of the year, actual Customer Service Department variable costs totaled $444,405 and fixed costs totaled $382,900. The Consumer Division had a total of 2,030 orders and the Commercial Division had a total of 4,860 orders for the year. For performance evaluation purposes, how much actual Customer Service Department cost should NOT be charged to the operating divisions at the end of the year? A. $10,300 B. $0 C. $10,335 D. $20,635 The amount of cost that would be charged to each of the operating divisions at the end of the year would be as follows:

The spending variance represents the difference between the Customer Service Department's actual costs and what those costs should have been, given the actual level of activity. This difference is properly the responsibility of the Customer Service Department and should not be charged to the operating divisions. 6-63 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 6: Cost Allocations of Service Departments - Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

17. Rapone Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period. Data appear below:

For performance evaluation purposes, how much Maintenance Department cost should be charged to the Paints Division at the end of the year? A. $261,600 B. $396,000 C. $277,200 D. $220,000 The amount of cost that would be charged to the Paints Division at the end of the year would be as follows:

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

18. Schaich Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period. Data appear below:

For performance evaluation purposes, how much Maintenance Department cost should be charged to the Stains Division at the END of the year? A. $219,710 B. $209,412 C. $232,051 D. $197,520 The amount of cost that would be charged to the Stains Division at the end of the year would be as follows:

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

6-66 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 6: Cost Allocations of Service Departments - Key Lakeside Nursing Home has two operating departments, Custodial Care and Rehabilitation. It also has a Housekeeping Department that serves the two operating departments. The costs of the Housekeeping Department are all variable and are charged to the operating departments on the basis of labor-hours. Data for September follow:

The budgeted costs of the Housekeeping Department for September were $24,000 and the actual costs were $29,760.

19. How much Housekeeping Department cost should be charged to Rehabilitation at the end of September for performance evaluation purposes? A. $19,840 B. $9,920 C. $9,600 D. $7,440 Total budgeted labor-hours = 3,000 + 1,000 = 4,000 Budgeted rate = $24,000 4,000 = $6 per labor-hour Charged to Rehabilitation: 1,600 x $6 = $9,600

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

20. How much of the actual Housekeeping Department costs for September should not be charged to the operating departments for performance evaluation purposes? A. $960 B. $5,760 C. $0 D. $1,240 Total budgeted labor-hours = 3,000 + 1,000 = 4,000 Budgeted rate = $24,000 4,000 = $6 per labor-hour

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Hard

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Chapter 6: Cost Allocations of Service Departments - Key

Community General Hospital has a Food Services Department that provides meals for all patients in the hospital. Budgeted and actual meals served for the month just ended are:

The budgeted variable cost of meals for the month just ended was $100,000; the actual variable cost of meals for the month was $130,000.

21. How much of the $130,000 actual Food Services variable cost should be charged to the Surgical Department at the end of the month just completed? A. $62,500 B. $65,000 C. $95,000 D. $98,800 Budgeted meal rate = $100,000 80,000 = $1.25 per meal Charged to Surgical Department: 76,000 x $1.25 = $95,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

22. How much of the $130,000 actual Food Services cost for the month just completed should be kept in the Food Services Department and not charged to the other departments? A. $30,000 B. $5,000 C. $4,000 D. $0

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

Fixed costs budgeted for Caterton's Maintenance Department for last year totaled $280,000; actual fixed costs for the year totaled $308,000. The level of budgeted fixed costs is determined by peak-period requirements. The Milling Department requires 15/35 of the peakperiod capacity and the Assembly Department requires 20/35.

23. How much fixed maintenance cost should be charged to the Assembly department at the end of the year for purposes of measuring performance? A. $160,000 B. $176,000 C. $173,500 D. $147,800 Amount to be charged = $280,000 x 20/35 = $160,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

24. How much of the actual fixed maintenance cost for the year should be kept in the Maintenance department and not charged to the other departments for performance evaluation purposes? A. $0 B. $308,000 C. $28,000 D. $280,000

The spending variance represents the difference between the Maintenance Department's actual costs and what those costs should have been, given the actual level of activity. This difference is properly the responsibility of the Maintenance Department and should not be charged to the operating divisions.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Hard

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Chapter 6: Cost Allocations of Service Departments - Key

Komlos Corporation has two operating divisions-an East Division and a West Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $48 per shipment. The Logistics Department's fixed costs are budgeted at $253,000 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand.

At the end of the year, actual Logistics Department variable costs totaled $360,620 and fixed costs totaled $267,210. The East Division had a total of 4,200 shipments and the West Division had a total of 3,100 shipments for the year.

25. How much Logistics Department cost should be allocated to the West Division at the end of the year? A. $340,187 B. $256,238 C. $325,900 D. $266,613 West Division Allocation = ($48 x 3,100) + (70% x $253,000) = $325,900

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

26. How much actual Logistics Department cost should not be allocated to the operating divisions at the end of the year? A. $10,220 B. $24,430 C. $0 D. $14,210

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

Fickling Corporation has two operating divisions-a Consumer Division and a Commercial Division. The company's Order Fulfillment Department provides services to both divisions. The variable costs of the Order Fulfillment Department are budgeted at $51 per order. The Order Fulfillment Department's fixed costs are budgeted at $484,000 for the year. The fixed costs of the Order Fulfillment Department are budgeted based on the peak period orders.

At the end of the year, actual Order Fulfillment Department variable costs totaled $460,404 and fixed costs totaled $493,700. The Consumer Division had a total of 2,430 orders and the Commercial Division had a total of 6,390 orders for the year.

27. How much Order Fulfillment Department cost should be allocated to the Commercial Division at the end of the year? A. $676,543 B. $679,148 C. $691,239 D. $664,690 Commercial Division Allocation = ($51 x 6,390) + (70% x $484,000) = $664,690

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

28. How much actual Order Fulfillment Department cost should not be allocated to the operating divisions at the end of the year? A. $20,284 B. $0 C. $10,584 D. $9,700

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

Caruana Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are determined by the number of cases produced by the operating departments during the peak period. Data appear below:

29. How much Maintenance Department cost should be allocated to the Stains Division at the end of the year? A. $582,027 B. $549,663 C. $575,460 D. $543,390 Stains Division Allocation = ($7 x 35,970) + (60% x $486,000) = $543,390

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

30. How much actual Maintenance Department cost should not be allocated to the operating divisions at the end of the year? A. $5,401 B. $0 C. $4,460 D. $9,861 The amount of cost that would be charged to each of the operating divisions at the end of the year would be as follows:

The spending variance represents the difference between the Maintenance Department's actual costs and what those costs should have been, given the actual level of activity. This difference is the responsibility of the Maintenance Department and should not be charged to the operating divisions. The total of this variance is $62,791 + ($52,930) = $9,861.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

Essay Questions 31. Gabritz, Inc. has a maintenance department that provides services to the company's two operating departments. The variable costs of the maintenance department are charged on the basis of the number of maintenance hours logged in each department. Last year, budgeted variable maintenance costs were $7.50 per maintenance hour and actual variable maintenance costs were $7.80 per maintenance hour. The budgeted and actual maintenance hours for each operating department for last year appear below:

Required: a. Compute the amount of variable maintenance department cost that should have been charged to each operating department at the end of the year for performance evaluation purposes. b. Compute the amount of actual variable maintenance department cost that should NOT have been charged to the operating departments at the end of the year for performance evaluation purposes.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

32. Smurnov Company has a purchasing department that provides services to two factories located in Austin and the other in Belmont. Budgeted costs for the purchasing department consist of $91,000 per year of fixed costs and $7 per purchase order for variable costs. The level of budgeted fixed costs is determined by the peak-period requirements. The Austin factory requires 3/7 of the peak-period capacity and the Belmont factory requires 4/7. During the year, 2,700 purchase orders were processed for the Austin factory and 3,900 purchase orders for the Belmont factory. Required: Compute the amount of purchasing department cost that should be charged to each factory for the year.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

33. Boulay Corporation has two operating divisions-a North Division and a South Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $34 per shipment. The Logistics Department's fixed costs are budgeted at $175,000 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand.

At the end of the year, actual Logistics Department variable costs totaled $147,840 and fixed costs totaled $189,610. The North Division had a total of 2,100 shipments and the South Division had a total of 2,100 shipments for the year. Required: a. Prepare a report showing how much of the Logistics Department's costs should be charged to each of the operating divisions at the end of the year. b. How much of the actual Logistics Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs?

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Chapter 6: Cost Allocations of Service Departments - Key a. The amount of cost that would be charged to each of the operating divisions at the end of the year would be as follows:

The spending variance represents the difference between the Logistics Department's actual costs and what those costs should have been, given the actual level of activity. This difference is properly the responsibility of the Logistics Department and should not be charged to the operating divisions.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

34. Ocon Corporation has two operating divisions-an Inland Division and a Coast Division. The company's Customer Service Department provides services to both divisions. The variable costs of the Customer Service Department are budgeted at $28 per order. The Customer Service Department's fixed costs are budgeted at $372,300 for the year. The fixed costs of the Customer Service Department are determined based on the peak period orders.

At the end of the year, actual Customer Service Department variable costs totaled $212,284 and fixed costs totaled $381,740. The Inland Division had a total of 1,710 orders and the Coast Division had a total of 5,560 orders for the year. Required: a. Prepare a report showing how much of the Customer Service Department's costs should be charged to each of the operating divisions at the end of the year. b. How much of the actual Customer Service Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs?

6-82 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 6: Cost Allocations of Service Departments - Key a. The amount of cost that would be charged to each of the operating divisions at the end of the year would be as follows:

The spending variance represents the difference between the Customer Service Department's actual costs and what those costs should have been, given the actual level of activity. This difference is properly the responsibility of the Customer Service Department and should not be charged to the operating divisions.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

35. Szafran Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are determined based on the number of cases produced by the operating departments during the peak period. Data appear below:

Required: a. Prepare a report showing how much of the Maintenance Department's costs should be charged to each of the operating divisions at the end of the year. b. How much of the actual Maintenance Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs?

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Chapter 6: Cost Allocations of Service Departments - Key a. The amount of cost that would be charged to each of the operating divisions at the end of the year would be as follows:

The spending variance represents the difference between the Maintenance Department's actual costs and what those costs should have been, given the actual level of activity. This difference is the responsibility of the Maintenance Department and should not be charged to the operating divisions.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key True / False Questions 36. In both the direct and step-down methods of allocating service department costs, any amount of the allocation base that is attributable to the service department whose cost is being allocated is ignored. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 4 Level: Medium

37. The direct method has the disadvantage that it may leave some service department costs unallocated. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

38. If personnel department expenses are allocated on the basis of the number of employees in various departments, then the number of employees in the personnel department itself must be included in the allocation base when the step-down method is used. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

39. The step-down method requires that an order of allocation is established before service department costs can be allocated to operating departments. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

Multiple Choice Questions 40. When would the direct method and the step-down method of service department cost allocation result in identical allocations being made to the operating departments? A. when there is only one service department B. when all of the costs in the service departments are fixed costs C. when there is an equal amount of service departments and operating departments D. both A and B above

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 4 Level: Hard

41. Reciprocal service department costs are: A. allocated to producing departments under the direct method but not allocated to producing departments at all under the step-down method. B. allocated to producing departments under the step-down method but not allocated to producing departments at all under the direct method. C. not allocated to producing departments under either the direct or the step-down methods. D. allocated to producing departments under both the direct and step-down methods.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 4 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

42. Parker Company has two service departments, cafeteria and engineering, and two operating departments. The number of employees in each department is given below:

The costs of the Cafeteria are allocated to other departments on the basis of the number of employees in the departments. If these costs are budgeted at $69,375, the amount of cost allocated to Engineering under the direct method would be: A. $0 B. $3,700 C. $3,750 D. $17,344 The costs of one service department would not be allocated to another service department using the direct method.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

43. Nolin Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Administrative and Facilities, and two operating departments, Assembly and Wholesaling.

Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied. The total Wholesaling Department cost after the allocations of service department costs is closest to: A. $418,700 B. $406,160 C. $416,273 D. $418,390 Allocation rate for Administrative costs = Cost to be allocated Allocation base = $26,400 (21,000 + 19,000) = $0.66 Allocation rate for Facilities costs = Cost to be allocated Allocation base = $67,550 (31,000 + 4,000) = $1.93

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

44. Hypes Clinic uses the direct method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Support, and two operating departments, Prenatal and Pediatrics.

Personnel Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $1,036,914 B. $1,036,040 C. $1,024,310 D. $1,033,809 Allocation rate for Personnel costs = Cost to be allocated Allocation base = $27,600 (23,000 + 17,000) = $0.69 Allocation rate for Support costs = Cost to be allocated Allocation base = $77,550 (38,000 + 9,000) = $1.65

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

45. Hopp Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Data Processing and Personnel, and two operating departments, Assembly and Finishing.

Data Processing Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees. The total amount of Data Processing Department cost allocated to the two operating departments is closest to: A. $29,871 B. $82,720 C. $34,689 D. $21,946 Allocation rate for Data Processing costs = Cost to be allocated Allocation base = $34,689 (55 + 38) = $373 Allocation rate for Personnel costs = Cost to be allocated Allocation base = $21,755 (59 + 36) = $229

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

46. The direct method is used by Hoeffner Publishing, Inc., to allocate service department costs to operating departments. The company has two service departments, Information Technology and Personnel, and two operating departments, Prepress and Printing.

Information Technology Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees. The total Prepress Department cost after service department allocations is closest to: A. $345,276 B. $342,428 C. $334,685 D. $339,455 Allocation rate for Information Technology costs = Cost to be allocated Allocation base = $36,828 (49 + 44) = $396 Allocation rate for Personnel costs = Cost to be allocated Allocation base = $22,989 (56 + 41) = $237

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key 47. Kormos Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Telecommunications and Administration, and two operating departments, Surgery and Recovery.

Telecommunications Department costs are allocated on the basis of the number of telecommunications ports in departments and Administration Department costs are allocated on the basis of employees. The total Surgery Department cost after service department allocations is closest to: A. $485,219 B. $481,451 C. $476,168 D. $487,892 Allocation rate for Telecommunications costs = Cost to be allocated Allocation base = $34,485 (54 + 41) = $363 Allocation rate for Administration costs = Cost to be allocated Allocation base = $27,608 (100 + 36) = $203

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

48. Wisneski Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, General Management and Physical Plant, and two operating departments, Sales and After-Sales. Data concerning those departments follow:

General Management Department costs are allocated first on the basis of employee time and Physical Plant Department costs are allocated second on the basis of space occupied. The total After-Sales Department cost after allocations is closest to: A. $251,200 B. $261,249 C. $263,460 D. $262,820

Allocation rate for General Management Department costs = Cost to be allocated Allocation base = $29,880 (2,000 + 20,000 + 14,000) = $0.83 Allocation rate for Physical Plant Department costs = Cost to be allocated Allocation base = ($57,240 + $1,660) (37,000 + 1,000) = $1.55

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

49. Lisby, Inc., allocates service department costs to operating departments using the stepdown method. The company has two service departments, Administration and Physical Plant, and two operating departments, Assembly and Testing. Data concerning those departments follow:

Administration Department costs are allocated first on the basis of employee time and Physical Plant Department costs are allocated second on the basis of space occupied. The total Testing Department cost after allocations is closest to: A. $226,258 B. $225,800 C. $211,940 D. $224,077

Allocation rate for Administration Department costs = Cost to be allocated Allocation base = $49,500 (2,000 + 34,000 + 14,000) = $0.99 Allocation rate for Physical Plant Department costs = Cost to be allocated Allocation base = ($32,340 + $1,980) (31,000 + 2,000) = $1.04

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

50. Ranft Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Medicine and Pediatric. Data concerning those departments follow:

Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs. The total Pediatric Department cost after allocations is closest to: A. $456,993 B. $456,904 C. $409,220 D. $447,702

Allocation rate for Personnel Department costs = Cost to be allocated Allocation base = $86,460 (21 + 127 + 182) = $262 Allocation rate for IT Department costs = Cost to be allocated Allocation base = ($54,238 + $5,502) (88 + 118) = $290

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

51. Wiedenheft Children's Clinic allocates service department costs to operating departments using the step-down method. The clinic has two service departments, Administration and Information Technology (IT), and two operating departments, Prenatal and Pediatric. Data concerning those departments follow:

Administration costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs. The total Pediatric Department cost after allocations is closest to: A. $390,036 B. $380,828 C. $389,712 D. $365,886

Allocation rate for Administration Department costs = Cost to be allocated Allocation base = $45,150 (22 + 118 + 161) = $150 Allocation rate for IT Department costs = Cost to be allocated Allocation base = ($44,424 + $3,300) (63 + 131) = $246

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

The James Company has four departments with data as follows:

52. Maintenance Department costs are allocated on the basis of labor hours. The amount of cost allocated to Milling from Maintenance under the direct method would be: A. $5,600 B. $6,720 C. $5,250 D. $5,700 Allocation rate for Cafeteria costs = Cost to be allocated Allocation base = $12,000 (84 + 66) = $80 Allocation rate for Maintenance costs = Cost to be allocated Allocation base = $10,000 (5,250 + 4,750) = $1

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

53. Cafeteria costs are allocated on the basis of number of employees. If the step-down method is used with costs of the Cafeteria allocated first, the amount of cost allocated from the Cafeteria to Maintenance would be: A. $0 B. $625 C. $698 D. $750

Allocation rate for Cafeteria Department costs = Cost to be allocated Allocation base = $12,000 (10 + 84 + 66) = $75 Allocation rate for Maintenance Department costs = Cost to be allocated Allocation base = ($10,000 + $750) (5,250 + 4,750) = $1.075

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

Letter Corporation has two service departments (A and B) that provide service to each other and to two operating departments (X and Y). A provides 20% of its service to B, 30% of its service to X, and 50% of its service to Y. B provides 10% of its service to A, 45% of its service to X, and 45% of its service to Y. Operating costs in A are $300,000. Operating costs in B are $180,000. Cost allocations are made starting with department A. No distinction is made between variable and fixed costs.

54. If service department costs are allocated using the direct method, what is the total amount of service cost that will be allocated to X? A. $172,000 B. $180,000 C. $198,000 D. $202,500

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

55. If service department costs are allocated using the step-down method, what is the total amount of service cost that will be allocated to Y? A. $231,000 B. $240,000 C. $258,000 D. $270,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

Zoopsia Hospital has two service departments and three operating departments. Selected information on the five departments for last year is as follows:

Zoopsia allocates Power Generation cost first on the basis of kilowatt hours. Zoopsia then allocates Laundry cost on the basis of the number of employees. Operating costs in Power Generation for last year were $250,000. Operating costs in Laundry for last year were $60,000. No distinction is made between variable and fixed costs.

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Chapter 6: Cost Allocations of Service Departments - Key 56. If service department costs are allocated using the direct method, what is the total amount of service cost that would be allocated to the Emergency Room? A. $147,100 B. $161,000 C. $182,750 D. $192,250 Allocation rate for Power Generation costs = Cost to be allocated Allocation base = $250,000 (475,000 + 209,000 + 76,000) = $0.33 Allocation rate for Laundry costs = Cost to be allocated Allocation base = $60,000 (378 + 189 + 63) = $95.24

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

57. If service department costs are allocated using the step-down method, what is the total amount of service cost that will be allocated to Maternity? A. $66,425 B. $73,000 C. $84,500 D. $88,000

Allocation rate for Power Generation Department costs = Cost to be allocated Allocation base = $250,000 (190,000 + 475,000 + 209,000 + 76,000) = $0.26 Allocation rate for Laundry Department costs = Cost to be allocated Allocation base = ($60,000 + $50,000) (378 + 189 + 63) = $174.60 Service cost allocated to Maternity = $55,000 + $33,000 = $88,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

58. If service department costs are allocated using the step-down method, how much service cost will remain in the Power Generation department after allocation? A. $0 B. $6,750 C. $12,375 D. $12,500

Allocation rate for Power Generation Department costs = Cost to be allocated Allocation base = $250,000 (190,000 + 475,000 + 209,000 + 76,000) = $0.26 Allocation rate for Laundry Department costs = Cost to be allocated Allocation base = ($60,000 + $50,000) (378 + 189 + 63) = $174.60

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

Franca Corporation has two service departments, Administrative and Facilities, and two operating departments, Assembly and Customer Feedbacks.

The company uses the direct method to allocate service department costs to operating departments. Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied.

59. The total amount of Administrative Department cost allocated to the Assembly Department is closest to: A. $37,806 B. $28,217 C. $28,830 D. $26,524 Allocation rate for Administrative costs = Cost to be allocated Allocation base = $42,780 (31,000 + 15,000) = $0.93 Allocation rate for Facilities costs = Cost to be allocated Allocation base = $65,790 (38,000 + 5,000) = $1.53

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key 60. The total Customer solutions Department cost after the allocations of service department costs is closest to: A. $696,940 B. $682,990 C. $694,753 D. $697,172 Allocation rate for Administrative costs = Cost to be allocated Allocation base = $42,780 (31,000 + 15,000) = $0.93 Allocation rate for Facilities costs = Cost to be allocated Allocation base = $65,790 (38,000 + 5,000) = $1.53

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

Silguero Clinic has two service departments, Administrative and Support, and two operating departments, Adult Medicine and Pediatrics.

The clinic uses the direct method to allocate service department costs to operating departments. Administrative Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet.

61. The total amount of Administrative Department cost allocated to the Adult Medicine Department is closest to: A. $18,482 B. $14,333 C. $12,968 D. $14,720 Allocation rate for Administrative costs = Cost to be allocated Allocation base = $23,680 (23,000 + 14,000) = $0.64 Allocation rate for Support costs = Cost to be allocated Allocation base = $41,000 (32,000 + 9,000) = $1.00

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

62. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $521,999 B. $524,830 C. $515,870 D. $525,825 Allocation rate for Administrative costs = Cost to be allocated Allocation base = $23,680 (23,000 + 14,000) = $0.64 Allocation rate for Support costs = Cost to be allocated Allocation base = $41,000 (32,000 + 9,000) = $1.00

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

Weisenborn Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Information Technology and Personnel, and two operating departments, Fabrication and Customization.

Information Technology Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees.

63. The total amount of Information Technology Department cost allocated to the two operating departments is closest to: A. $28,688 B. $66,435 C. $18,427 D. $25,500 Allocation rate for Information Technology costs = Cost to be allocated Allocation base = $28,688 (41 + 47) = $326 Allocation rate for Personnel costs = Cost to be allocated Allocation base = $17,425 (47 + 38) = $205

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key 64. The total Fabrication Department cost after service department allocations is closest to: A. $235,821 B. $227,905 C. $234,336 D. $231,641 Allocation rate for Information Technology costs = Cost to be allocated Allocation base = $28,688 (41 + 47) = $326 Allocation rate for Personnel costs = Cost to be allocated Allocation base = $17,425 (47 + 38) = $205

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key Holmon Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Information Technology and Administration, and two operating departments, Surgery and Recovery.

Information Technology Department costs are allocated on the basis of computer workstations and Administration Department costs are allocated on the basis of employees. 65. The total amount of Information Technology Department cost allocated to the two operating departments is closest to: A. $37,740 B. $24,997 C. $98,705 D. $33,474 Allocation rate for Information Technology costs = Cost to be allocated Allocation base = $37,740 (53 + 49) = $370 Allocation rate for Administration costs = Cost to be allocated Allocation base = $33,864 (92 + 44) = $249

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

66. The total Surgery Department cost after service department allocations is closest to: A. $463,368 B. $457,933 C. $470,058 D. $467,841 Allocation rate for Information Technology costs = Cost to be allocated Allocation base = $37,740 (53 + 49) = $370 Allocation rate for Administration costs = Cost to be allocated Allocation base = $33,864 (92 + 44) = $249

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key The Mohawk-Hudson Company is an electric utility which has two service departments, Accounting and Maintenance. It has two operating departments, Generation and Transmission. The company does not distinguish between fixed and variable service department costs. Maintenance Department costs are allocated on the basis of maintenance hours. Accounting Department costs are allocated to operating departments on the basis of accounting hours of service provided. Budgeted costs and other data for the coming year are as follows:

The step-down method is used to allocate service department costs, with the accounting department being allocated first. 67. The amount of accounting department costs allocated to the Maintenance Department would be: A. $0 B. $20,000 C. $19,048 D. $18,000

Allocation rate for Accounting Department costs = Cost to be allocated Allocation base = $100,000 (2,000 + 4,500 + 3,500) = $10.00 Allocation rate for Maintenance Department costs = Cost to be allocated Allocation base = ($200,000 + $20,000) (7,200 + 4,800) = $18.33

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

68. The amount of Accounting Department costs allocated to the Generation Department would be: A. $42,857 B. $57,143 C. $38,000 D. $45,000

Allocation rate for Accounting Department costs = Cost to be allocated Allocation base = $100,000 (2,000 + 4,500 + 3,500) = $10.00 Allocation rate for Maintenance Department costs = Cost to be allocated Allocation base = ($200,000 + $20,000) (7,200 + 4,800) = $18.33

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

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Chapter 6: Cost Allocations of Service Departments - Key

69. The amount of Maintenance Department cost allocated to the Accounting Department would be: A. $0 B. $69,315 C. $75,000 D. $88,000

Allocation rate for Accounting Department costs = Cost to be allocated Allocation base = $100,000 (2,000 + 4,500 + 3,500) = $10.00 Allocation rate for Maintenance Department costs = Cost to be allocated Allocation base = ($200,000 + $20,000) (7,200 + 4,800) = $18.33

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

6-115 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 6: Cost Allocations of Service Departments - Key

70. The amount of Maintenance Department cost allocated to the Generation Department would be: A. $132,000 B. $123,750 C. $150,685 D. $140,000

Allocation rate for Accounting Department costs = Cost to be allocated Allocation base = $100,000 (2,000 + 4,500 + 3,500) = $10.00 Allocation rate for Maintenance Department costs = Cost to be allocated Allocation base = ($200,000 + $20,000) (7,200 + 4,800) = $18.33

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Medium

6-116 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 6: Cost Allocations of Service Departments - Key Karnofski Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y. Data concerning those departments follow:

Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B. 71. In the first step of the allocation, the amount of Service Department A cost allocated to the Operating Department X is closest to: A. $13,599 B. $18,426 C. $16,123 D. $17,430

Allocation rate for Service Department A costs = Cost to be allocated Allocation base = $30,710 (2,000 + 21,000 + 14,000) = $0.83 Allocation rate for Service Department B costs = Cost to be allocated Allocation base = ($56,860 + $1,660) (39,000 + 5,000) = $1.33 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

6-117 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 6: Cost Allocations of Service Departments - Key 72. The total Operating Department Y cost after allocations is closest to: A. $398,810 B. $397,211 C. $399,285 D. $387,190

Allocation rate for Service Department A costs = Cost to be allocated Allocation base = $30,710 (2,000 + 21,000 + 14,000) = $0.83 Allocation rate for Service Department B costs = Cost to be allocated Allocation base = ($56,860 + $1,660) (39,000 + 5,000) = $1.33

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key Quezaire Corporation, a manufacturer, uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing. Data concerning those departments follow:

Administration Department costs are allocated first on the basis of labor hours and Facilities Department costs are allocated second on the basis of space occupied. 73. In the first step of the allocation, the amount of Administration Department cost allocated to the Assembly Department is closest to: A. $32,640 B. $14,569 C. $34,124 D. $29,440

Allocation rate for Administration Department costs = Cost to be allocated Allocation base = $44,160 (2,000 + 34,000 + 10,000) = $0.96 Allocation rate for Facilities Department costs = Cost to be allocated Allocation base = ($77,040 + $1,920) (38,000 + 9,000) = $1.68

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

74. The total Finishing Department cost after allocations is closest to: A. $528,859 B. $525,110 C. $528,790 D. $519,190

Allocation rate for Administration Department costs = Cost to be allocated Allocation base = $44,160 (2,000 + 34,000 + 10,000) = $0.96 Allocation rate for Facilities Department costs = Cost to be allocated Allocation base = ($77,040 + $1,920) (38,000 + 9,000) = $1.68

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key Clopton Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Medicine and Geriatric Medicine. Data concerning those departments follow:

Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs. 75. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Medicine Department is closest to: A. $20,285 B. $17,929 C. $18,560 D. $39,774

Allocation rate for Personnel Department costs = Cost to be allocated Allocation base = $49,445 (29 + 128 + 184) = $145 Allocation rate for IT Department costs = Cost to be allocated Allocation base = ($19,327 + $4,205) (82 + 130) = $111

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

76. The total Geriatric Medicine Department cost after allocations is closest to: A. $113,020 B. $134,101 C. $139,700 D. $139,601

Allocation rate for Personnel Department costs = Cost to be allocated Allocation base = $49,445 (29 + 128 + 184) = $145 Allocation rate for IT Department costs = Cost to be allocated Allocation base = ($19,327 + $4,205) (82 + 130) = $111

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key Finkler Legal Services, LLC, uses the step-down method to allocate service department costs to operating departments. The firm has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Law and Corporate Law. Data concerning those departments follow:

Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs. 77. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Law Department is closest to: A. $30,752 B. $32,837 C. $45,636 D. $29,177

Allocation rate for Personnel Department costs = Cost to be allocated Allocation base = $78,120 (20 + 124 + 171) = $248 Allocation rate for IT Department costs = Cost to be allocated Allocation base = ($36,340 + $4,960) (78 + 158) = $175

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

78. The total Corporate Law Department cost after allocations is closest to: A. $389,318 B. $380,375 C. $346,910 D. $388,872

Allocation rate for Personnel Department costs = Cost to be allocated Allocation base = $78,120 (20 + 124 + 171) = $248 Allocation rate for IT Department costs = Cost to be allocated Allocation base = ($36,340 + $4,960) (78 + 158) = $175

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key Essay Questions 79. Maclennan Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Administrative and Facilities, and two operating departments, Assembly and Finishing.

Administrative Department costs are allocated on the basis of employee hours and Facilities Department costs are allocated on the basis of space occupied. Required: Allocate the service department costs to the operating departments using the direct method. Allocation rate for administrative costs = Cost to be allocated Allocation base = $23,040 (25,000 + 11,000) = $0.64 Allocation rate for facilities costs = Cost to be allocated Allocation base = $79,950 (37,000 + 4,000) = $1.95

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

80. Hodgin Corporation uses the direct method to allocate its two service department costs to its two operating departments. Data concerning those departments follow:

Service Department A costs are allocated on the basis of allocation base A and Service Department B costs are allocated on the basis of allocation base B. Required: Allocate the service department costs to the operating departments using the direct method. Allocation rate for Service Department A costs = Cost to be allocated Allocation base = $38,000 (28,000 + 12,000) = $0.95 Allocation rate for Service Department B costs = Cost to be allocated Allocation base = $86,240 (37,000 + 7,000) = $1.96

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

81. The direct method is used by Rastorfer Clinic to allocate its service department costs to its operating departments. Data concerning those departments follow:

Information Technology costs are allocated on the basis of computers and Personnel costs are allocated on the basis of employees. Required: Allocate the service department costs to the operating departments using the direct method. Allocation rate for Information Technology costs = Cost to be allocated Allocation base = $35,114 / (56 + 41) = $362.00 Allocation rate for Personnel costs = Cost to be allocated Allocation base = $42,483 / (107 + 40) = $289.00

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

82. Goffinet Consultancy uses the direct method to allocate its service department costs to its operating departments. The company has two service departments, Information Technology and Administration, and two operating departments, Corporate Practice and Government Practice. Data concerning those departments follow:

Information Technology Department costs are allocated on the basis of computers and Administration Department costs are allocated on the basis of employees. Required: Allocate the service department costs to the operating departments using the direct method. Allocation rate for Information Technology costs = Cost to be allocated Allocation base = $30,082 / (58 + 31) = $338.00 Allocation rate for Administration costs = Cost to be allocated Allocation base = $39,760 / (112 + 30) = $280.00

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key 83. Costillo Corporation has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y.

The company uses the step-down method to allocate service department costs to operating departments. Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B. Required: Allocate the service department costs to the operating departments using the step-down method.

Allocation rate for Service Department A costs = Cost to be allocated / Allocation base = $46,560 / (2,000 + 33,000 + 13,000) = $0.97 Allocation rate for Service Department B costs = Cost to be allocated / Allocation base = ($56,960 + $1,940) / (31,000 + 7,000) = $1.55 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

84. Taketa Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing.

Administration Department costs are allocated first on the basis of employee time and Facilities Department costs are allocated second on the basis of space occupied. Required: Allocate the service department costs to the operating departments using the step-down method.

Allocation rate for Administration Department costs = Cost to be allocated Allocation base = $31,590 (2,000 + 21,000 + 16,000) = $0.81 Allocation rate for Facilities Department costs = Cost to be allocated Allocation base = ($78,180 + $1,620) (38,000 + 4,000) = $1.90

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

85. Aderholt Emergency Care Hospital uses the step-down method to allocate service department costs to operating departments. The hospital has two service departments, Administration and Information Technology (IT), and two operating departments, Emergency Room and Intensive Care.

Administration Department costs are allocated first on the basis of employees and IT Department costs are allocated second on the basis of computers. Required: Allocate the service department costs to the operating departments using the step-down method.

Allocation rate for Administration Department costs = Cost to be allocated Allocation base = $16,906 (2 + 116 + 96) = $79 Allocation rate for IT Department costs = Cost to be allocated Allocation base = ($31,237 + $158) (49 + 56) = $299

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 6: Cost Allocations of Service Departments - Key

86. Ziebol Natal Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Administration and Information Technology (IT), and two operating departments, Prenatal Care and Postnatal Care.

Administration Department costs are allocated first on the basis of employees and IT Department costs are allocated second on the basis of computers. Required: Allocate the service department costs to the operating departments using the step-down method.

Allocation rate for Administration Department costs = Cost to be allocated Allocation base = $11,468 (4 + 100 + 84) = $61 Allocation rate for IT Department costs = Cost to be allocated Allocation base = ($20,546 + $244) (28 + 62) = $231

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

M M E E M M M M M M M M M M M M E M H M M M M M M M M M M M H H M M

x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x

x x x x

x x x x

x x x x

x x

7-1 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Professional Exam Adapted

Other topics

LO7: ABC absorption costing (Appendix 7B)

LO6: Action Analysis (Appendix 7A)

LO5: Product and customer margins

LO4: Second-stage allocation

LO3: Activity rates

LO2: First-stage allocation

LO1: ABC concepts

Question Type T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C

Difficulty

Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

35 36 37 38 39 40 41 42-43 44-45 46-47 48-49 50-52 53-54 55-56 57-58 59-60 61-63 64-65 66 67 68 69 70 71 72 73 74 75 76 77

M E E E E E E E E E M E-M M M M E-M M M E E E E M M M E E E E E

x x x x

Professional Exam Adapted

Other topics

LO7: ABC absorption costing (Appendix 7B)

LO6: Action Analysis (Appendix 7A)

LO5: Product and customer margins

LO4: Second-stage allocation

LO3: Activity rates

LO2: First-stage allocation

LO1: ABC concepts

Question Type M/C M/C M/C M/C M/C M/C M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem

Difficulty

Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

x

x x x x x x

x x x x x

x x x x x

x x x

x x x x x x

CMA CMA

x x

x x x x x x x x x

x x x

x x

x x x

7-2 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

True / False Questions 1. When combining activities in an activity-based costing system, activities should be grouped together at the same level. For example, batch-level activities should not be combined with unit-level activities. True False

2. In activity-based costing, organization-sustaining costs should not be included in product costs for internal management reports that are used for decision-making. However, companies frequently include organization-sustaining costs in product costs to satisfy external reporting requirements. True False

3. Unit-level production activities are performed each time a unit is made. True False

4. Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct labor-hours. True False

5. An activity-based costing system is generally easier to set up and run than a traditional cost system. True False

6. Duration drivers ordinarily require more effort to record than transaction drivers. True False

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

7. In activity-based costing, as in traditional costing systems, nonmanufacturing costs are not assigned to products. True False

8. In activity-based costing, a plantwide overhead rate is used to apply overhead to products. True False

9. Changing a cost accounting system is likely to meet with little resistance in an organization since it is a technical matter of little interest to individuals outside of the accounting department. True False

10. The first-stage allocation in activity-based costing is the process by which overhead costs are assigned to products before they are assigned to customers. True False

11. An action analysis report reconciles activity-based costing product costs with traditional product costs based on direct labor. True False

12. If a company switches from a traditional costing system to an activity-based costing system in which some activities are batch-level and product-level, costs ordinarily shift from high-volume to low-volume products. True False

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

Multiple Choice Questions 13. Purchase order processing is an example of a: A. Unit-level activity. B. Batch-level activity. C. Product-level activity. D. Organization-sustaining activity.

14. Rank the following methods of assigning overhead costs from least accurate to most accurate. A. departmental rates, plantwide rate, activity-based costing B. plantwide rate, departmental rates, activity-based costing C. plantwide rate, activity-based costing, departmental rates D. activity-based costing, departmental rates, plantwide rate E. activity-based costing, plantwide rate, departmental rates

15. Overhead allocation based solely on a measure of volume such as direct labor-hours: A. is a key aspect of the activity-based costing model. B. will systematically overcost high-volume products and undercost low-volume products. C. will systematically overcost low-volume products and undercost high-volume products. D. must be used for external financial reporting.

16. Arranging for a shipment of a number of different products to a customer is an example of an activity at which of the following levels? A. Unit-level activity. B. Batch-level activity. C. Customer-level activity. D. Organization-sustaining activity.

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

17. Testing a prototype of a new product is an example of a: A. Unit-level activity. B. Batch-level activity. C. Product-level activity. D. Organization-sustaining activity.

18. Setting up equipment is an example of a: A. Unit-level activity. B. Batch-level activity. C. Product-level activity. D. Organization-sustaining activity.

19. The clerical activity associated with processing purchase orders to produce an order for a standard product is an example of a: A. Unit-level activity. B. Batch-level activity. C. Product-level activity. D. Organization-sustaining activity.

20. Worker recreational facilities is an example of a cost that would ordinarily be considered to be: A. Unit-level. B. Batch-level. C. Product-level. D. Organization-sustaining.

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

21. Daniele Corporation uses an activity-based costing system with the following three activity cost pools:

The Other activity cost pool is used to accumulate costs of idle capacity and organizationsustaining costs. The company has provided the following data concerning its costs:

The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Fabrication activity cost pool is closest to: A. $3.72 per machine-hour B. $4.44 per machine-hour C. $7.44 per machine-hour D. $1.24 per machine-hour

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

22. Lippincott Corporation uses an activity-based costing system with the following three activity cost pools:

The Other activity cost pool is used to accumulate costs of idle capacity and organizationsustaining costs. The company has provided the following data concerning its costs:

The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Order Processing activity cost pool is closest to: A. $1,050 per order B. $1,680 per order C. $1,190 per order D. $1,350 per order

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

23. Whiting Corporation has provided the following data concerning its overhead costs for the coming year:

The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:

The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs. The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Assembly activity cost pool is closest to: A. $4.30 per labor-hour B. $7.00 per labor-hour C. $8.60 per labor-hour D. $12.90 per labor-hour

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

24. Cuna Corporation has provided the following data concerning its overhead costs for the coming year:

The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:

The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs. The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Order Processing activity cost pool is closest to: A. $905 per order B. $630 per order C. $1,080 per order D. $840 per order

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

25. Kassabian Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

How much cost, in total, would be allocated in the first-stage allocation to the Assembly activity cost pool? A. $314,000 B. $272,333 C. $215,000 D. $430,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

26. Emmette Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

How much cost, in total, would be allocated in the first-stage allocation to the Setting Up activity cost pool? A. $325,000 B. $312,000 C. $333,000 D. $429,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

27. Graney Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool? A. $143,000 B. $144,000 C. $108,000 D. $135,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

28. Vanfleet Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:

How much cost, in total, would be allocated in the first-stage allocation to the Fabricating activity cost pool? A. $120,000 B. $216,000 C. $161,000 D. $108,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

29. Stoudmire Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:

How much cost, in total, would be allocated in the first-stage allocation to the Order Processing activity cost pool? A. $462,000 B. $407,000 C. $396,000 D. $431,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

30. Laib Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:

How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool? A. $187,000 B. $133,000 C. $264,000 D. $66,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

31. Trauscht Corporation has provided the following data from its activity-based costing system:

The company makes 340 units of product P23F a year, requiring a total of 710 machine-hours, 80 orders, and 40 inspection-hours per year. The product's direct materials cost is $40.05 per unit and its direct labor cost is $14.35 per unit. The product sells for $121.90 per unit. According to the activity-based costing system, the product margin for product P23F is: A. $9,223.20 B. $7,853.60 C. $5,401.60 D. $22,950.00 32. Kraska Corporation has provided the following data from its activity-based costing system:

According to the activity-based costing system, the product margin for product O11W is: A. $4,651.80 B. $1,688.10 C. $17,934.00 D. $3,956.10

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

33. Viren Corporation has provided the following data from its activity-based costing system:

The company makes 240 units of product T91H a year, requiring a total of 550 machinehours, 90 orders, and 40 inspection-hours per year. The product's direct materials cost is $16.98 per unit and its direct labor cost is $12.09 per unit. According to the activity-based costing system, the average cost of product T91H is closest to: A. $79.66 per unit B. $90.81 per unit C. $29.07 per unit D. $75.70 per unit 34. Vodopich Corporation has provided the following data from its activity-based costing system:

According to the activity-based costing system, the average cost of product P58Z is closest to: A. $113.33 per unit B. $58.30 per unit C. $123.40 per unit D. $118.30 per unit

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

35. Jasmine Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 10,000 units and of Product B is 4,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows:

The activity-based costing cost per unit of Product A is closest to: A. $6.00 B. $9.70 C. $1.50 D. $3.00

36. Marton Corporation has provided the following data from its activity-based costing accounting system:

The activity rate for the "designing products" activity cost pool is closest to: A. $124 per product design hour B. $181 per product design hour C. $55 per product design hour D. $1,526,916 per product design hour

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

37. Data concerning three of the activity cost pools of Bramhall LLC, a legal firm, have been provided below:

The activity rate for the "meeting with clients" activity cost pool is closest to: A. $125 per meeting hour B. $65 per meeting hour C. $80 per meeting hour D. $665,500 per meeting hour

38. Anola Company has two products: A and B. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows:

The activity rate under the activity-based costing system for Activity 3 is closest to: A. $30.00 B. $30.50 C. $90.00 D. $67.78

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

39. Pauls Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

Data concerning two products appear below:

How much overhead cost would be assigned to Product X60R using the activity-based costing system? A. $5,523.58 B. $87,070.14 C. $115.02 D. $7,212.38

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

40. Suoboda Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

How much overhead cost would be assigned to Product I90W using the activity-based costing system? A. $316.56 B. $105.05 C. $4,371.90 D. $59,038.10

41. Activity rates from Hample Corporation's activity-based costing system are listed below. The company uses the activity rates to assign overhead costs to products:

Last year, Product J27W involved 30 customer orders, 152 assembly hours, and 54 batches. How much overhead cost would be assigned to Product J27W using the activity-based costing system? A. $24,702.12 B. $5,419.38 C. $4,634.28 D. $104.67

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

Kleppe Corporation has provided the following data from its activity-based costing accounting system:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products.

42. How much indirect factory wages and factory equipment depreciation cost would be assigned to the Customer Orders activity cost pool? A. $240,000 B. $72,000 C. $68,000 D. $480,000

43. How much indirect factory wages and factory equipment depreciation cost would NOT be assigned to products using the activity-based costing system? A. $0 B. $68,000 C. $280,000 D. $200,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

Morsell Corporation has provided the following data from its activity-based costing accounting system:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products.

44. How much supervisory wages and factory supplies cost would be assigned to the Batch Processing activity cost pool? A. $286,000 B. $520,000 C. $284,000 D. $260,000

45. How much supervisory wages and factory supplies cost would NOT be assigned to products using the activity-based costing system? A. $0 B. $280,000 C. $240,000 D. $76,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

The following data have been provided by Letze Corporation from its activity-based costing accounting system:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products.

46. How much factory supervision and indirect factory labor cost would be assigned to the Batch Set-Up activity cost pool? A. $680,000 B. $385,000 C. $391,000 D. $340,000

47. How much factory supervision and indirect factory labor cost would NOT be assigned to products using the activity-based costing system? A. $220,000 B. $90,000 C. $0 D. $460,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

Fordham Florist specializes in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity based costing system:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs. The amount of activity for the year is as follows:

48. What would be the total overhead cost per bouquet according to the activity based costing system? In other words, what would be the overall activity rate for the making bouquets activity cost pool? (Round to the nearest whole cent.) A. $1.58 B. $1.24 C. $1.93 D. $1.68

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

49. What would be the total overhead cost per delivery according to the activity based costing system? In other words, what would be the overall activity rate for the deliveries activity cost pool? (Round to the nearest whole cent.) A. $6.88 B. $5.50 C. $6.19 D. $6.00

Dilloo Company uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs. You have been asked to complete the first-stage allocation of costs to the activity cost pools.

50. How much cost, in total, would be allocated in the first-stage allocation to the Order Size activity cost pool? A. $271,000 B. $280,500 C. $297,000 D. $264,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

51. How much cost, in total, would be allocated in the first-stage allocation to the Customer Support activity cost pool? A. $330,000 B. $231,000 C. $280,500 D. $309,000

52. How much cost, in total, should NOT be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decision-making? A. $80,000 B. $132,000 C. $0 D. $66,000

The controller of Hallowell Company estimates the amount of materials handling overhead cost that should be allocated to the company's two products using the data that are given below:

The total materials handling cost for the year is expected to be $18,257.40.

53. If the materials handling cost is allocated on the basis of direct labor-hours, how much of the total materials handling cost would be allocated to the wall mirrors? (Round off your answer to the nearest whole dollar.) A. $6,086 B. $9,129 C. $11,618 D. $3,961

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

54. If the materials handling cost is allocated on the basis of material moves, how much of the total materials handling cost would be allocated to the specialty windows? (Round off your answer to the nearest whole dollar.) A. $9,129 B. $6,639 C. $14,296 D. $15,649

Merone Company allocates materials handling cost to the company's two products using the below data:

The total materials handling cost for the year is expected to be $218,790.

55. If the materials handling cost is allocated on the basis of direct labor-hours, how much of the total materials handling cost would be allocated to the prefab barns? (Round off your answer to the nearest whole dollar.) A. $109,395 B. $48,620 C. $125,238 D. $68,640

56. If the materials handling cost is allocated on the basis of material moves, how much of the total materials handling cost would be allocated to the modular homes? (Round off your answer to the nearest whole dollar.) A. $182,325 B. $170,170 C. $93,552 D. $109,395

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

Accola Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 1,100 units and of Product B is 700 units. There are three activity cost pools, with estimated costs and expected activity as follows:

57. The activity rate for Activity 3 is closest to: A. $119.72 B. $116.18 C. $26.67 D. $56.74

58. The cost per unit of Product A is closest to: A. $59.23 B. $57.20 C. $47.89 D. $22.70

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

Aujla Corporation uses activity-based costing to determine product costs for external financial reports. The company has provided the following data concerning its activity-based costing system:

59. The activity rate for the batch setup activity cost pool is closest to: A. $70.40 B. $29.40 C. $26.10 D. $234.90

60. Assuming that actual activity turns out to be the same as expected activity, the total amount of overhead cost allocated to Product X would be closest to: A. $235,000 B. $563,000 C. $316,600 D. $357,500

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

Lifsey Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activitybased costing system:

The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake. The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately. Data concerning two recent orders appear below:

61. Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Pyburn wedding cake to just break even? A. $279.87 B. $55.79 C. $29.92 D. $338.64

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

62. Assuming that the company charges $556.96 for the Smith wedding cake, what would be the overall margin on the order? A. $152.45 B. $96.66 C. $460.30 D. $165.41

63. Suppose that the company decides that the present activity-based costing system is too complex and that all costs (except for the costs of purchased decorations) should be allocated on the basis of the number of guests. In that event, what would you expect to happen to the costs of cakes? A. The cost of cakes for receptions with more than the average number of guests would go down. B. The costs of all cakes would go up. C. The cost of cakes for receptions with fewer than the average number of guests would go down. D. The costs of all cakes would go down.

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

Toma Nuptial Bakery makes very elaborate wedding cakes to order. The company has an activity-based costing system with three activity cost pools. The activity rate for the SizeRelated activity cost pool is $1.14 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $31.86 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $59.66 per order. (Each wedding involves one order for a cake.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately. Data concerning two recent orders appear below:

64. Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Zedian wedding cake to just break even? A. $247.60 B. $18.55 C. $59.66 D. $204.63

65. Assuming that the company charges $458.08 for the Towry wedding cake, what would be the overall margin on the order? A. $106.76 B. $79.50 C. $139.16 D. $378.58

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

Essay Questions 66. Ternasky Corporation has provided the following data from its activity-based costing accounting system:

Distribution of Resource Consumption across Activity Cost Pools:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products. Required: a. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would be allocated to the Product Processing activity cost pool. Show your work! b. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would NOT be assigned to products. Show your work!

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

67. Tomczak Corporation has provided the following data from its activity-based costing accounting system:

Distribution of Resource Consumption across Activity Cost Pools:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products. Required: a. Determine the total amount of supervisory wages and factory utilities costs that would be allocated to the Unit Processing activity cost pool. Show your work! b. Determine the total amount of supervisory wages and factory utilities costs that would NOT be assigned to products. Show your work!

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

68. The following data have been provided by Walch Corporation from its activity-based costing accounting system:

Distribution of Resource Consumption across Activity Cost Pools:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products. Required: a. Determine the total amount of supervisory wages and factory utilities costs that would be allocated to the Machining activity cost pool. Show your work! b. Determine the total amount of supervisory wages and factory utilities costs that would NOT be assigned to products. Show your work!

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

69. Finkel & Robbins PLC, a consulting firm, uses an activity-based costing in which there are three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

Required: a. How much cost, in total, would be allocated to the Working On Engagements activity cost pool? b. How much cost, in total, would be allocated to the Business Development activity cost pool? c. How much cost, in total, would be allocated to the Other activity cost pool?

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

70. Andracki Housecleaning provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system.

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs. One particular client, the Lason family, requested 46 jobs during the year that required a total of 92 hours of housecleaning. For this service, the client was charged $2,230. Required: a. Compute the activity rates (i.e., cost per unit of activity) for the activity cost pools. Round off all calculations to the nearest whole cent. b. Using the activity-based costing system, compute the customer margin for the Lason family. Round off all calculations to the nearest whole cent. c. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours. Compute the margin for the Lason family. Round off all calculations to the nearest whole cent.

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

71. The Coletti Cleaning Brigade Company provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system.

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs. One particular client, the Tubman family, requested 26 jobs during the year that required a total of 104 hours of housecleaning. For this service, the client was charged $1,420. Required: a. Using the activity-based costing system, compute the customer margin for the Tubman family. Round off all calculations to the nearest whole cent. b. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours. Compute the margin for the Tubman family. Round off all calculations to the nearest whole cent.

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

72. Darter Company manufactures two products, Product F and Product G. The company expects to produce and sell 2,600 units of Product F and 6,000 units of Product G during the current year. The company uses activity-based costing to compute unit product costs for external reports. Data relating to the company's three activity cost pools are given below for the current year:

Required: Using the activity-based costing approach, determine the overhead cost per unit for each product.

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

73. Lakes Corporation has provided the following data from its activity-based costing accounting system:

Required: Compute the activity rates for each of the three cost pools. Show your work!

74. Data concerning three of Hatt Corporation's activity cost pools appear below:

Required: Compute the activity rates for each of the three cost pools. Show your work!

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

75. Proudfoot Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.

Data concerning two products appear below:

Required: How much overhead cost would be assigned to each of the two products using the company's activity-based costing system?

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

76. Whitford Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.

Required: a. How much overhead cost would be assigned to Product W52Q using the company's activity-based costing system? Show your work! b. How much overhead cost would be assigned to Product Q29D using the company's activity-based costing system? Show your work!

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making

77. Sailer Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.

Last year, Product J34U involved 48 batches, 22 customer orders, and 395 assembly hours. Required: How much overhead cost would be assigned to Product J34U using the company's activitybased costing system? Show your work!

7-45 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key True / False Questions 1. When combining activities in an activity-based costing system, activities should be grouped together at the same level. For example, batch-level activities should not be combined with unit-level activities. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

2. In activity-based costing, organization-sustaining costs should not be included in product costs for internal management reports that are used for decision-making. However, companies frequently include organization-sustaining costs in product costs to satisfy external reporting requirements. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

3. Unit-level production activities are performed each time a unit is made. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

4. Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct labor-hours. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

5. An activity-based costing system is generally easier to set up and run than a traditional cost system. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

6. Duration drivers ordinarily require more effort to record than transaction drivers. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

7. In activity-based costing, as in traditional costing systems, nonmanufacturing costs are not assigned to products. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

8. In activity-based costing, a plantwide overhead rate is used to apply overhead to products. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

9. Changing a cost accounting system is likely to meet with little resistance in an organization since it is a technical matter of little interest to individuals outside of the accounting department. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

10. The first-stage allocation in activity-based costing is the process by which overhead costs are assigned to products before they are assigned to customers. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Medium

11. An action analysis report reconciles activity-based costing product costs with traditional product costs based on direct labor. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 6 Level: Medium

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

12. If a company switches from a traditional costing system to an activity-based costing system in which some activities are batch-level and product-level, costs ordinarily shift from high-volume to low-volume products. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Medium

Multiple Choice Questions 13. Purchase order processing is an example of a: A. Unit-level activity. B. Batch-level activity. C. Product-level activity. D. Organization-sustaining activity.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

14. Rank the following methods of assigning overhead costs from least accurate to most accurate. A. departmental rates, plantwide rate, activity-based costing B. plantwide rate, departmental rates, activity-based costing C. plantwide rate, activity-based costing, departmental rates D. activity-based costing, departmental rates, plantwide rate E. activity-based costing, plantwide rate, departmental rates

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

15. Overhead allocation based solely on a measure of volume such as direct labor-hours: A. is a key aspect of the activity-based costing model. B. will systematically overcost high-volume products and undercost low-volume products. C. will systematically overcost low-volume products and undercost high-volume products. D. must be used for external financial reporting.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

16. Arranging for a shipment of a number of different products to a customer is an example of an activity at which of the following levels? A. Unit-level activity. B. Batch-level activity. C. Customer-level activity. D. Organization-sustaining activity.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

17. Testing a prototype of a new product is an example of a: A. Unit-level activity. B. Batch-level activity. C. Product-level activity. D. Organization-sustaining activity.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

18. Setting up equipment is an example of a: A. Unit-level activity. B. Batch-level activity. C. Product-level activity. D. Organization-sustaining activity.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

19. The clerical activity associated with processing purchase orders to produce an order for a standard product is an example of a: A. Unit-level activity. B. Batch-level activity. C. Product-level activity. D. Organization-sustaining activity.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Hard

20. Worker recreational facilities is an example of a cost that would ordinarily be considered to be: A. Unit-level. B. Batch-level. C. Product-level. D. Organization-sustaining.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

21. Daniele Corporation uses an activity-based costing system with the following three activity cost pools:

The Other activity cost pool is used to accumulate costs of idle capacity and organizationsustaining costs. The company has provided the following data concerning its costs:

The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Fabrication activity cost pool is closest to: A. $3.72 per machine-hour B. $4.44 per machine-hour C. $7.44 per machine-hour D. $1.24 per machine-hour Total Fabrication Cost:

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Learning Objective: 3 Level: Medium

22. Lippincott Corporation uses an activity-based costing system with the following three activity cost pools:

The Other activity cost pool is used to accumulate costs of idle capacity and organizationsustaining costs. The company has provided the following data concerning its costs:

The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Order Processing activity cost pool is closest to: A. $1,050 per order B. $1,680 per order C. $1,190 per order D. $1,350 per order

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Learning Objective: 3 Level: Medium

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

23. Whiting Corporation has provided the following data concerning its overhead costs for the coming year:

The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:

The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs. The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Assembly activity cost pool is closest to: A. $4.30 per labor-hour B. $7.00 per labor-hour C. $8.60 per labor-hour D. $12.90 per labor-hour Total Assembly Cost:

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Learning Objective: 3 Level: Medium

24. Cuna Corporation has provided the following data concerning its overhead costs for the coming year:

The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:

The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs. The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Order Processing activity cost pool is closest to: A. $905 per order B. $630 per order C. $1,080 per order D. $840 per order

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key Order Processing Cost:

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

25. Kassabian Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

How much cost, in total, would be allocated in the first-stage allocation to the Assembly activity cost pool? A. $314,000 B. $272,333 C. $215,000 D. $430,000 Total Assembly Cost:

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

26. Emmette Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

How much cost, in total, would be allocated in the first-stage allocation to the Setting Up activity cost pool? A. $325,000 B. $312,000 C. $333,000 D. $429,000 Total Setting Up Cost:

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

27. Graney Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool? A. $143,000 B. $144,000 C. $108,000 D. $135,000 Total Other Cost:

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

28. Vanfleet Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:

How much cost, in total, would be allocated in the first-stage allocation to the Fabricating activity cost pool? A. $120,000 B. $216,000 C. $161,000 D. $108,000 Total Fabricating Cost:

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

29. Stoudmire Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:

How much cost, in total, would be allocated in the first-stage allocation to the Order Processing activity cost pool? A. $462,000 B. $407,000 C. $396,000 D. $431,000 Total Order Processing Cost:

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

30. Laib Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:

How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool? A. $187,000 B. $133,000 C. $264,000 D. $66,000 Total Other Cost:

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

31. Trauscht Corporation has provided the following data from its activity-based costing system:

The company makes 340 units of product P23F a year, requiring a total of 710 machine-hours, 80 orders, and 40 inspection-hours per year. The product's direct materials cost is $40.05 per unit and its direct labor cost is $14.35 per unit. The product sells for $121.90 per unit. According to the activity-based costing system, the product margin for product P23F is: A. $9,223.20 B. $7,853.60 C. $5,401.60 D. $22,950.00

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32. Kraska Corporation has provided the following data from its activity-based costing system:

According to the activity-based costing system, the product margin for product O11W is: A. $4,651.80 B. $1,688.10 C. $17,934.00 D. $3,956.10

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

33. Viren Corporation has provided the following data from its activity-based costing system:

The company makes 240 units of product T91H a year, requiring a total of 550 machinehours, 90 orders, and 40 inspection-hours per year. The product's direct materials cost is $16.98 per unit and its direct labor cost is $12.09 per unit. According to the activity-based costing system, the average cost of product T91H is closest to: A. $79.66 per unit B. $90.81 per unit C. $29.07 per unit D. $75.70 per unit

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

34. Vodopich Corporation has provided the following data from its activity-based costing system:

According to the activity-based costing system, the average cost of product P58Z is closest to: A. $113.33 per unit B. $58.30 per unit C. $123.40 per unit D. $118.30 per unit

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 4 Level: Medium

35. Jasmine Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 10,000 units and of Product B is 4,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows:

The activity-based costing cost per unit of Product A is closest to: A. $6.00 B. $9.70 C. $1.50 D. $3.00

Cost per unit = Total cost

Number of units produced= $97,000

10,000 = $9.70

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

36. Marton Corporation has provided the following data from its activity-based costing accounting system:

The activity rate for the "designing products" activity cost pool is closest to: A. $124 per product design hour B. $181 per product design hour C. $55 per product design hour D. $1,526,916 per product design hour

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

37. Data concerning three of the activity cost pools of Bramhall LLC, a legal firm, have been provided below:

The activity rate for the "meeting with clients" activity cost pool is closest to: A. $125 per meeting hour B. $65 per meeting hour C. $80 per meeting hour D. $665,500 per meeting hour

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

38. Anola Company has two products: A and B. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows:

The activity rate under the activity-based costing system for Activity 3 is closest to: A. $30.00 B. $30.50 C. $90.00 D. $67.78

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

39. Pauls Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

Data concerning two products appear below:

How much overhead cost would be assigned to Product X60R using the activity-based costing system? A. $5,523.58 B. $87,070.14 C. $115.02 D. $7,212.38

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

40. Suoboda Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

How much overhead cost would be assigned to Product I90W using the activity-based costing system? A. $316.56 B. $105.05 C. $4,371.90 D. $59,038.10

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

41. Activity rates from Hample Corporation's activity-based costing system are listed below. The company uses the activity rates to assign overhead costs to products:

Last year, Product J27W involved 30 customer orders, 152 assembly hours, and 54 batches. How much overhead cost would be assigned to Product J27W using the activity-based costing system? A. $24,702.12 B. $5,419.38 C. $4,634.28 D. $104.67

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

Kleppe Corporation has provided the following data from its activity-based costing accounting system:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products.

42. How much indirect factory wages and factory equipment depreciation cost would be assigned to the Customer Orders activity cost pool? A. $240,000 B. $72,000 C. $68,000 D. $480,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

43. How much indirect factory wages and factory equipment depreciation cost would NOT be assigned to products using the activity-based costing system? A. $0 B. $68,000 C. $280,000 D. $200,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

Morsell Corporation has provided the following data from its activity-based costing accounting system:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products.

44. How much supervisory wages and factory supplies cost would be assigned to the Batch Processing activity cost pool? A. $286,000 B. $520,000 C. $284,000 D. $260,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

45. How much supervisory wages and factory supplies cost would NOT be assigned to products using the activity-based costing system? A. $0 B. $280,000 C. $240,000 D. $76,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

The following data have been provided by Letze Corporation from its activity-based costing accounting system:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products.

46. How much factory supervision and indirect factory labor cost would be assigned to the Batch Set-Up activity cost pool? A. $680,000 B. $385,000 C. $391,000 D. $340,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

47. How much factory supervision and indirect factory labor cost would NOT be assigned to products using the activity-based costing system? A. $220,000 B. $90,000 C. $0 D. $460,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key Fordham Florist specializes in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity based costing system:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs. The amount of activity for the year is as follows:

48. What would be the total overhead cost per bouquet according to the activity based costing system? In other words, what would be the overall activity rate for the making bouquets activity cost pool? (Round to the nearest whole cent.) A. $1.58 B. $1.24 C. $1.93 D. $1.68

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key 49. What would be the total overhead cost per delivery according to the activity based costing system? In other words, what would be the overall activity rate for the deliveries activity cost pool? (Round to the nearest whole cent.) A. $6.88 B. $5.50 C. $6.19 D. $6.00

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

Dilloo Company uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs. You have been asked to complete the first-stage allocation of costs to the activity cost pools.

50. How much cost, in total, would be allocated in the first-stage allocation to the Order Size activity cost pool? A. $271,000 B. $280,500 C. $297,000 D. $264,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

51. How much cost, in total, would be allocated in the first-stage allocation to the Customer Support activity cost pool? A. $330,000 B. $231,000 C. $280,500 D. $309,000

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52. How much cost, in total, should NOT be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decision-making? A. $80,000 B. $132,000 C. $0 D. $66,000

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

The controller of Hallowell Company estimates the amount of materials handling overhead cost that should be allocated to the company's two products using the data that are given below:

The total materials handling cost for the year is expected to be $18,257.40.

53. If the materials handling cost is allocated on the basis of direct labor-hours, how much of the total materials handling cost would be allocated to the wall mirrors? (Round off your answer to the nearest whole dollar.) A. $6,086 B. $9,129 C. $11,618 D. $3,961 Total Direct Labor-Hours

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

54. If the materials handling cost is allocated on the basis of material moves, how much of the total materials handling cost would be allocated to the specialty windows? (Round off your answer to the nearest whole dollar.) A. $9,129 B. $6,639 C. $14,296 D. $15,649

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

Merone Company allocates materials handling cost to the company's two products using the below data:

The total materials handling cost for the year is expected to be $218,790.

55. If the materials handling cost is allocated on the basis of direct labor-hours, how much of the total materials handling cost would be allocated to the prefab barns? (Round off your answer to the nearest whole dollar.) A. $109,395 B. $48,620 C. $125,238 D. $68,640 Total Direct Labor-Hours

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

56. If the materials handling cost is allocated on the basis of material moves, how much of the total materials handling cost would be allocated to the modular homes? (Round off your answer to the nearest whole dollar.) A. $182,325 B. $170,170 C. $93,552 D. $109,395

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

Accola Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 1,100 units and of Product B is 700 units. There are three activity cost pools, with estimated costs and expected activity as follows:

57. The activity rate for Activity 3 is closest to: A. $119.72 B. $116.18 C. $26.67 D. $56.74

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

58. The cost per unit of Product A is closest to: A. $59.23 B. $57.20 C. $47.89 D. $22.70

Cost per unit of Product A = $65,155.60  1,100 units = $59.23 per unit

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

Aujla Corporation uses activity-based costing to determine product costs for external financial reports. The company has provided the following data concerning its activity-based costing system:

59. The activity rate for the batch setup activity cost pool is closest to: A. $70.40 B. $29.40 C. $26.10 D. $234.90

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

60. Assuming that actual activity turns out to be the same as expected activity, the total amount of overhead cost allocated to Product X would be closest to: A. $235,000 B. $563,000 C. $316,600 D. $357,500

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

Lifsey Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activitybased costing system:

The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake. The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately. Data concerning two recent orders appear below:

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key 61. Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Pyburn wedding cake to just break even? A. $279.87 B. $55.79 C. $29.92 D. $338.64 Total Cost for Pyburn Wedding Cake Order:

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

62. Assuming that the company charges $556.96 for the Smith wedding cake, what would be the overall margin on the order? A. $152.45 B. $96.66 C. $460.30 D. $165.41 Total Cost for Smith Wedding Cake Order:

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

63. Suppose that the company decides that the present activity-based costing system is too complex and that all costs (except for the costs of purchased decorations) should be allocated on the basis of the number of guests. In that event, what would you expect to happen to the costs of cakes? A. The cost of cakes for receptions with more than the average number of guests would go down. B. The costs of all cakes would go up. C. The cost of cakes for receptions with fewer than the average number of guests would go down. D. The costs of all cakes would go down.

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key Toma Nuptial Bakery makes very elaborate wedding cakes to order. The company has an activity-based costing system with three activity cost pools. The activity rate for the SizeRelated activity cost pool is $1.14 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $31.86 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $59.66 per order. (Each wedding involves one order for a cake.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately. Data concerning two recent orders appear below:

64. Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Zedian wedding cake to just break even? A. $247.60 B. $18.55 C. $59.66 D. $204.63 Total Cost for Zedian Wedding Cake Order:

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

65. Assuming that the company charges $458.08 for the Towry wedding cake, what would be the overall margin on the order? A. $106.76 B. $79.50 C. $139.16 D. $378.58 Total Cost for Towry Wedding Cake Order:

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key Essay Questions 66. Ternasky Corporation has provided the following data from its activity-based costing accounting system:

Distribution of Resource Consumption across Activity Cost Pools:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products. Required: a. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would be allocated to the Product Processing activity cost pool. Show your work! b. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would NOT be assigned to products. Show your work!

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

67. Tomczak Corporation has provided the following data from its activity-based costing accounting system:

Distribution of Resource Consumption across Activity Cost Pools:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products. Required: a. Determine the total amount of supervisory wages and factory utilities costs that would be allocated to the Unit Processing activity cost pool. Show your work! b. Determine the total amount of supervisory wages and factory utilities costs that would NOT be assigned to products. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Easy

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

68. The following data have been provided by Walch Corporation from its activity-based costing accounting system:

Distribution of Resource Consumption across Activity Cost Pools:

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products. Required: a. Determine the total amount of supervisory wages and factory utilities costs that would be allocated to the Machining activity cost pool. Show your work! b. Determine the total amount of supervisory wages and factory utilities costs that would NOT be assigned to products. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 2 Level: Easy

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

69. Finkel & Robbins PLC, a consulting firm, uses an activity-based costing in which there are three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

Required: a. How much cost, in total, would be allocated to the Working On Engagements activity cost pool? b. How much cost, in total, would be allocated to the Business Development activity cost pool? c. How much cost, in total, would be allocated to the Other activity cost pool? All three parts can be answered using a first-stage allocation of costs.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

70. Andracki Housecleaning provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system.

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs. One particular client, the Lason family, requested 46 jobs during the year that required a total of 92 hours of housecleaning. For this service, the client was charged $2,230. Required: a. Compute the activity rates (i.e., cost per unit of activity) for the activity cost pools. Round off all calculations to the nearest whole cent. b. Using the activity-based costing system, compute the customer margin for the Lason family. Round off all calculations to the nearest whole cent. c. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours. Compute the margin for the Lason family. Round off all calculations to the nearest whole cent.

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

Computations for costs: Cleaning: 92 hours x $5.61 per hour = $516.12 Job support: 46 jobs x $27.79 per job = $1,278.34 Client support: 1 client x $26.20 per client = $26.20 c. The margin if all costs are allocated on the basis of cleaning hours: Predetermined overhead rate = $614,039  78,800 hours = $7.79 per hour

* 92 hours x $7.79 per hour = $716.68

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 4 Learning Objective: 5 Level: Medium

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

71. The Coletti Cleaning Brigade Company provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system.

The "Other" activity cost pool consists of the costs of idle capacity and organizationsustaining costs. One particular client, the Tubman family, requested 26 jobs during the year that required a total of 104 hours of housecleaning. For this service, the client was charged $1,420. Required: a. Using the activity-based costing system, compute the customer margin for the Tubman family. Round off all calculations to the nearest whole cent. b. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours. Compute the margin for the Tubman family. Round off all calculations to the nearest whole cent.

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

Computations for costs: Cleaning: 104 hours x $7.03 per hour = $731.12 Job support: 26 jobs x $15.82 per job = $411.32 Client support: 1 client x $18.60 per client = $18.60 b. The margin if all costs are allocated on the basis of cleaning hours: Predetermined overhead rate = $535,441

43,100 hours = $12.42 per hour

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 4 Learning Objective: 5 Level: Medium

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

72. Darter Company manufactures two products, Product F and Product G. The company expects to produce and sell 2,600 units of Product F and 6,000 units of Product G during the current year. The company uses activity-based costing to compute unit product costs for external reports. Data relating to the company's three activity cost pools are given below for the current year:

Required: Using the activity-based costing approach, determine the overhead cost per unit for each product. The activity rates for each activity cost pool are as follows:

The overhead cost charged to each product is:

Overhead cost per unit: Product F: $64,580 2,600 units = $24.84 per unit Product G: $99,600 6,000 units = $16.60 per unit

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 4 Level: Medium

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key 73. Lakes Corporation has provided the following data from its activity-based costing accounting system:

Required: Compute the activity rates for each of the three cost pools. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

74. Data concerning three of Hatt Corporation's activity cost pools appear below:

Required: Compute the activity rates for each of the three cost pools. Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

75. Proudfoot Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.

Data concerning two products appear below:

Required: How much overhead cost would be assigned to each of the two products using the company's activity-based costing system?

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key

76. Whitford Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.

Required: a. How much overhead cost would be assigned to Product W52Q using the company's activity-based costing system? Show your work! b. How much overhead cost would be assigned to Product Q29D using the company's activity-based costing system? Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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Chapter 07: Activity-Based Costing - A Tool to Aid Decision-Making - Key 77. Sailer Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.

Last year, Product J34U involved 48 batches, 22 customer orders, and 395 assembly hours. Required: How much overhead cost would be assigned to Product J34U using the company's activitybased costing system? Show your work!

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

E E E E E E M M E M M E M M M H E M E M M E M M M E M M E M M

x x x x x x x x x x x

x

x x x x

x x

x x x x x x x x x x x x

x x

x x x

8-1 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Professional Exam Adapted

L10: Activity-based job costing

LO9: Under- or over-applied overhead

L08: T-accounts

LO7: Schedule of cost of goods manufactured

LO6: Applying overhead

LO5: Flow of costs and journal entries

LO4: Total cost and average cost per unit of a job

LO3: Predetermined overhead rate

LO2: Job-ordering costing documents

LO1: Job order vs process costing

Question Type T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F T/F Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C Conceptual M/C

Difficulty

Chapter 08: Job-Order Costing

32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62

M M H E E M M H H H M H E M H M M M E E E E E E E E E E E M H

Professional Exam Adapted

L10: Activity-based job costing

LO9: Under- or over-applied overhead

L08: T-accounts

LO7: Schedule of cost of goods manufactured

LO6: Applying overhead

LO5: Flow of costs and journal entries

LO4: Total cost and average cost per unit of a job

LO3: Predetermined overhead rate

LO2: Job-ordering costing documents

LO1: Job order vs process costing

Question Type Conceptual M/C Conceptual M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C

Difficulty

Chapter 08: Job-Order Costing

x x x x x

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x x x x x x x x x x

x x x x x x x x x x x x x x x x x x x x x x x x x

x x x x x x x

x

x x x x

x x x

CMA x

8-2 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78-80 81-83 84-86 87-89 90-93 94-99 100-101 102-103 104-108 109-111 112-115 116-117 118-119 120-122 123-124 125-127

E M M M M M E M M M H H H M M E-M E E E-M M-H E E E M-H M-H M E-M M H M M

x x x

Professional Exam Adapted

L10: Activity-based job costing

LO9: Under- or over-applied overhead

L08: T-accounts

LO7: Schedule of cost of goods manufactured

LO6: Applying overhead

LO5: Flow of costs and journal entries

LO4: Total cost and average cost per unit of a job

LO3: Predetermined overhead rate

LO2: Job-ordering costing documents

LO1: Job order vs process costing

Question Type M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C

Difficulty

Chapter 08: Job-Order Costing

x x

x x

x x x x

x x x x x x x x x

x x x x

x

x x x x x x x x x

x x x x

x x x

x

x

x x x x x x x x

x

x x x x

x x x x x

8-3 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

CMA

x

x x x x x x x x

x x x x x x

x x x x x

x x x x

x

x x x x x

x

x x

x x

x x

x x x x x x x

8-4 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Professional Exam Adapted

L10: Activity-based job costing

LO9: Under- or over-applied overhead

L08: T-accounts

LO7: Schedule of cost of goods manufactured

M E E E M E E M M M E E M M M M M M M M

LO6: Applying overhead

Multipart M/C Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem

LO5: Flow of costs and journal entries

145-146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165

LO4: Total cost and average cost per unit of a job

M M-H M M M M M

LO3: Predetermined overhead rate

Question Type Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C

LO2: Job-ordering costing documents

128-129 130-134 135-136 137-138 139-140 141-142 143-144

LO1: Job order vs process costing

Difficulty

Chapter 08: Job-Order Costing

Chapter 08: Job-Order Costing True / False Questions 1. Job-order costing would be more likely to be used than process costing in situations where many different products or services are produced each period to customer specifications. True False

2. In a job-order costing system, costs are traced to departments and then allocated to units of product using an average process. True False

3. Job-order costing is used in those situations where units of a product are homogeneous, such as in the manufacture of sugar. True False

4. Job-order costing is usually not used in service organizations such as hospitals and law firms. True False

5. The three cost categories appearing on a job cost sheet are: selling expense, manufacturing expense, and administrative expense. True False

6. The labor time ticket contains the details of how much time an employee takes on each task throughout the day. True False

7. In order to improve the accuracy of unit costs, most companies recompute the predetermined overhead rate each month. True False

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Chapter 08: Job-Order Costing

8. Use of a single, plantwide overhead rate is generally appropriate only for very large manufacturing companies. True False

9. Predetermined overhead rates are based on actual cost and activity data. True False

10. The following journal entry would be made to apply overhead cost to jobs in a job-order costing system:

True False

11. When completed goods are sold, the transaction is recorded as a debit to Cost of Goods Sold and a credit to Work in Process. True False

12. When the predetermined overhead rate is based on direct labor-hours, the amount of overhead applied to a job is proportional to the amount of actual direct labor-hours incurred on the job. True False

13. Actual manufacturing overhead costs are traced to specific jobs. True False

14. A credit balance in the Manufacturing Overhead account at the end of the year means that overhead was underapplied. True False

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Chapter 08: Job-Order Costing

15. The sum of all amounts transferred from the Work in Process account and into the Finished Goods account represents the Cost of Goods Manufactured for the period. True False

16. The most common accounting treatment of underapplied manufacturing overhead is to transfer it to the Manufacturing Overhead control account. True False

Multiple Choice Questions 17. Which of the following companies would be most likely to use a job-order costing system rather than a process costing system? A. fast food restaurant B. shipbuilding C. crude oil refining D. candy making

18. Computing unit product costs involves averaging in:

A. Choice A B. Choice B C. Choice C D. Choice D

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Chapter 08: Job-Order Costing

19. For which situation(s) below would an organization be more likely to use a job-order costing system of accumulating product costs rather than a process costing system? A. a steel factory that processes iron ore into steel bars B. a factory that processes sugar and other ingredients into black licorice C. a costume maker that makes specialty costumes for figure skaters D. all of these

20. In job-order costing, all of the following statements are correct with respect to labor time and cost except: A. time tickets are kept by employees showing the amount of work on specific jobs. B. the job cost sheet for a job will contain all direct labor charges to that particular job. C. labor cost that can be traced to a job only with a great deal of effort is treated as part of manufacturing overhead. D. a machine operator performing routine annual maintenance work on a piece of equipment would charge the maintenance time to a specific job.

21. Which of the following documents is used to specify the type and quantity of materials drawn from the storeroom, and identifies the job to which the costs of the materials are to be charged? A. Job Cost Sheet B. Bill of Materials C. Material Requisition Form D. Purchase Order

22. Choice of allocation base should be made based on: A. the relative size of the base. B. the base's relation to direct labor. C. the base's activity. D. whether the base actually drives the cost being allocated.

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Chapter 08: Job-Order Costing

23. In a job-order costing system, the journal entry to record the application of overhead cost to jobs would include: A. a credit to the Manufacturing Overhead account. B. a credit to the Work in Process inventory account. C. a debit to Cost of Goods Sold. D. a debit to the Manufacturing Overhead account.

24. Ivory Company uses a job-order costing system. What year-end journal entry could Ivory make to dispose of (close out) $4,150 of overapplied manufacturing overhead cost? A. B. C. D.

25. In a job-order costing system, the use of indirect materials would usually be recorded as a debit to: A. Raw Materials. B. Work in Process. C. Manufacturing Overhead. D. Finished Goods.

26. In a job-order costing system, direct labor costs usually are recorded initially with a debit to: A. Manufacturing Overhead. B. Finished Goods inventory. C. Direct Labor Expense. D. Work in Process.

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Chapter 08: Job-Order Costing

27. In a job-order costing system, the entry to record depreciation on manufacturing equipment would include: A. a debit to the Work in Process inventory account. B. a debit to the Depreciation Expense account. C. a debit to the Manufacturing Overhead account. D. a credit to the Work in Process inventory account.

28. Which of the following accounts is debited when indirect labor is recorded? A. Work in Process B. Salaries and Wages Expense C. Salaries and Wages Payable D. Manufacturing Overhead

29. When applying manufacturing overhead to jobs, the formula to calculate the amount is as follows: A. Predetermined overhead rate divided by the actual manufacturing overhead incurred on the particular job. B. Predetermined overhead rate times the actual manufacturing overhead incurred on the particular job. C. Predetermined overhead rate divided by the actual units of allocation base charged to the particular job. D. Predetermined overhead rate times the actual units of allocation base charged to the particular job.

30. In a job-order costing system, the amount of overhead cost that has been applied to a job that remains incomplete at the end of a period: A. is deducted on the Income Statement as overapplied overhead. B. is closed to Cost of Goods Sold. C. is transferred to Finished Goods at the end of the period. D. is part of the ending balance of the Work in Process inventory account.

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Chapter 08: Job-Order Costing

31. If a company applies overhead to jobs on the basis of a predetermined overhead rate, a credit balance in the Manufacturing Overhead account at the end of any period means that: A. more overhead cost has been charged to jobs than has been incurred during the period. B. more overhead cost has been incurred during the period than has been charged to jobs. C. the amount of overhead cost charged to jobs is greater than the estimated cost for the period. D. the amount of overhead cost charged to jobs is less than the estimated overhead cost for the period.

32. Which of the following situations always results in underapplied overhead? A. actual overhead is greater than applied overhead B. actual overhead is less than applied overhead C. estimated overhead is greater than actual overhead D. estimated overhead is less than actual overhead

33. When closing overapplied manufacturing overhead to cost of goods sold, which of the following would be true? A. Work in process will decrease. B. Cost of goods sold will increase. C. Net income will decrease. D. Gross margin will increase.

34. The Work in Process inventory account of a manufacturing company shows a balance of $2,400 at the end of an accounting period. The job cost sheets of the two uncompleted jobs show charges of $400 and $200 for direct materials, and charges of $300 and $500 for direct labor. From this information, it appears that the company is using a predetermined overhead rate, as a percentage of direct labor costs, of: A. 80% B. 125% C. 300% D. 240%

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Chapter 08: Job-Order Costing

35. Job 607 was recently completed. The following data have been recorded on its job cost sheet:

The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $14 per machine-hour. The total cost that would be recorded on the job cost sheet for Job 607 would be: A. $4,107 B. $6,319 C. $3,432 D. $4,863

36. The following data have been recorded for recently completed Job 501 on its job cost sheet. Direct materials cost was $3,067. A total of 30 direct labor-hours and 104 machinehours were worked on the job. The direct labor wage rate is $12 per labor-hour. The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $11 per machine-hour. The total cost for the job on its job cost sheet would be: A. $4,571 B. $3,757 C. $3,090 D. $3,427

37. Freeman Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. At the beginning of the year, the company estimated manufacturing overhead would be $150,000 and direct labor-hours would be 10,000. The actual figures for the year were $186,000 for manufacturing overhead and 12,000 direct laborhours. The cost records for the year will show: A. overapplied overhead of $30,000 B. underapplied overhead of $30,000 C. underapplied overhead of $6,000 D. overapplied overhead of $6,000

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Chapter 08: Job-Order Costing

38. Harrell Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. At the beginning of the year the company estimated its total manufacturing overhead cost at $400,000 and its direct labor-hours at 100,000 hours. The actual overhead cost incurred during the year was $350,000 and the actual direct labor-hours incurred on jobs during the year was 90,000 hours. The manufacturing overhead for the year would be: A. $10,000 underapplied B. $10,000 overapplied C. $50,000 underapplied D. $50,000 overapplied

39. For the current year, Paxman Company incurred $150,000 in actual manufacturing overhead cost. The Manufacturing Overhead account showed that overhead was overapplied in the amount of $6,000 for the year. If the predetermined overhead rate was $8.00 per direct labor-hour, how many hours were worked during the year? A. 19,500 hours B. 18,000 hours C. 18,750 hours D. 17,750 hours

40. At the beginning of the year, manufacturing overhead for the year was estimated to be $702,450. At the end of the year, actual direct labor-hours for the year were 33,100 hours, the actual manufacturing overhead for the year was $697,450, and manufacturing overhead for the year was overapplied by $40,680. If the predetermined overhead rate is based on direct labor-hours, then the estimated direct labor-hours at the beginning of the year used in the predetermined overhead rate must have been: A. 31,500 direct labor-hours B. 29,452 direct labor-hours C. 31,276 direct labor-hours D. 33,100 direct labor-hours

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Chapter 08: Job-Order Costing

41. Brabo Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 15,700 hours. At the end of the year, actual direct labor-hours for the year were 16,700 hours, the actual manufacturing overhead for the year was $352,960, and manufacturing overhead for the year was overapplied by $27,800. The estimated manufacturing overhead at the beginning of the year used in the predetermined overhead rate must have been: A. $327,124 B. $357,960 C. $380,760 D. $347,960

42. Crimp Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 15,000 hours and the total estimated manufacturing overhead was $258,000. At the end of the year, actual direct laborhours for the year were 13,100 hours and the actual manufacturing overhead for the year was $253,000. Overhead at the end of the year was: A. $27,680 overapplied B. $32,680 overapplied C. $27,680 underapplied D. $32,680 underapplied

43. Dagnon Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the total estimated manufacturing overhead was $299,130. At the end of the year, actual direct labor-hours for the year were 17,400 hours, manufacturing overhead for the year was overapplied by $13,850, and the actual manufacturing overhead was $294,130. The predetermined overhead rate for the year must have been closest to: A. $17.70 B. $17.19 C. $18.22 D. $16.90

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Chapter 08: Job-Order Costing

44. The Watts Company uses predetermined overhead rates to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labor cost in Dept. A and on machinehours in Dept. B. At the beginning of the year, the company made the following estimates:

What predetermined overhead rates would be used in Dept A and Dept B, respectively? A. 50% and $8.00 B. 50% and $5.00 C. $15 and 110% D. 200% and $5.00

45. Simplex Company has the following estimated costs for next year:

Simplex estimates that 10,000 direct labor and 16,000 machine-hours will be worked during the year. If overhead is applied on the basis of machine-hours, the overhead rate per hour will be: A. $8.56 B. $7.63 C. $6.94 D. $3.50

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Chapter 08: Job-Order Costing

46. The balance in White Company's Work in Process inventory account was $15,000 on August 1 and $18,000 on August 31. The company incurred $30,000 in direct labor cost during August and requisitioned $25,000 in raw materials (all direct material). If the sum of the debits to the Manufacturing Overhead account total $28,000 for the month, and if the sum of the credits totaled $30,000, then: A. Finished Goods was debited for $82,000 during the month. B. Finished Goods was credited for $83,000 during the month. C. Manufacturing Overhead was underapplied by $2,000 at the end of the month. D. Finished Goods was debited for $85,000 during the month.

47. Melillo Corporation has provided data concerning the company's Manufacturing Overhead account for the month of October. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was $67,000 and the total of the credits to the account was $57,000. Which of the following statements is true? A. Manufacturing overhead for the month was overapplied by $10,000. B. Actual manufacturing overhead for the month was $67,000. C. Manufacturing overhead applied to Work in Process for the month was $67,000. D. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month was $57,000.

48. Waldvogel Corporation has provided data concerning the company's Manufacturing Overhead account for the month of April. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was $55,000 and the total of the credits to the account was $56,000. Which of the following statements is true? A. Manufacturing overhead for the month was underapplied by $1,000. B. Manufacturing overhead applied to Work in Process for the month was $56,000. C. Actual manufacturing overhead incurred during the month was $56,000. D. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month was $55,000.

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Chapter 08: Job-Order Costing

49. Danoff Corporation has provided data concerning the company's Manufacturing Overhead account for the month of October. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was $68,000 and the total of the credits to the account was $77,000. Which of the following statements is true? A. Actual manufacturing overhead incurred during the month was $77,000. B. Manufacturing overhead applied to Work in Process for the month was $68,000. C. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month was $68,000. D. Manufacturing overhead for the month was overapplied by $9,000.

50. On December 1, Catherman Corporation had $21,000 of raw materials on hand. During the month, the company purchased an additional $61,000 of raw materials. During December, $70,000 of raw materials were requisitioned from the storeroom for use in production. The debits to the Raw Materials account for the month of December total: A. $82,000 B. $70,000 C. $61,000 D. $21,000

51. At the beginning of October, Cozier Corporation had $34,000 of raw materials on hand. During the month, the company purchased an additional $78,000 of raw materials. During October, $92,000 of raw materials were requisitioned from the storeroom for use in production. The credits to the Raw Materials account for the month of October total: A. $92,000 B. $34,000 C. $78,000 D. $112,000

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Chapter 08: Job-Order Costing

52. Mcmackin Corporation had $35,000 of raw materials on hand on August 1. During the month, the company purchased an additional $66,000 of raw materials. During August, $81,000 of raw materials were requisitioned from the storeroom for use in production. These raw materials included both direct and indirect materials. The indirect materials totaled $7,000. The debits to the Work in Process account as a consequence of the raw materials transactions in August total: A. $66,000 B. $0 C. $74,000 D. $81,000

53. During August at Schlappi Corporation, $80,000 of raw materials were requisitioned from the storeroom for use in production. These raw materials included both direct and indirect materials. The indirect materials totaled $2,000. The journal entry to record this requisition would include a debit to Manufacturing Overhead of: A. $2,000 B. $80,000 C. $78,000 D. $0

54. Hards Corporation had $38,000 of raw materials on hand on September 1. During the month, the company purchased an additional $54,000 of raw materials. The journal entry to record the purchase of raw materials would include a: A. debit to Raw Materials of $54,000 B. debit to Raw Materials of $92,000 C. credit to Raw Materials of $92,000 D. credit to Raw Materials of $54,000

55. During May at Landreth Corporation, $81,000 of raw materials were requisitioned from the storeroom for use in production. These raw materials included both direct and indirect materials. The indirect materials totaled $7,000. The journal entry to record the requisition from the storeroom would include a: A. debit to Raw Materials of $81,000 B. debit to Work in Process of $81,000 C. credit to Manufacturing Overhead of $7,000 D. debit to Work in Process of $74,000

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Chapter 08: Job-Order Costing

56. In December, Perone Inc. incurred $78,000 of direct labor costs and $4,000 of indirect labor costs. The journal entry to record the accrual of these wages would include a: A. debit to Work in Process of $82,000 B. debit to Manufacturing Overhead of $4,000 C. credit to Work in Process of $82,000 D. credit to Manufacturing Overhead of $4,000

57. Inks Corporation incurred $69,000 of actual Manufacturing Overhead costs during June. During the same period, the Manufacturing Overhead applied to Work in Process was $70,000. The journal entry to record the incurrence of the actual Manufacturing Overhead costs would include a: A. debit to Manufacturing Overhead of $69,000 B. debit to Work in Process of $70,000 C. credit to Manufacturing Overhead of $69,000 D. credit to Work in Process of $70,000

58. Mincks Corporation incurred $64,000 of actual Manufacturing Overhead costs during November. During the same period, the Manufacturing Overhead applied to Work in Process was $61,000. The journal entry to record the application of Manufacturing Overhead to Work in Process would include a: A. debit to Work in Process of $64,000 B. credit to Manufacturing Overhead of $61,000 C. credit to Work in Process of $64,000 D. debit to Manufacturing Overhead of $61,000

59. During October, Kreitner Inc. transferred $73,000 from Work in Process to Finished Goods and recorded a Cost of Goods Sold of $76,000. The journal entries to record these transactions would include a: A. credit to Work in Process of $73,000 B. credit to Cost of Goods Sold of $76,000 C. debit to Finished Goods of $76,000 D. credit to Finished Goods of $73,000

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Chapter 08: Job-Order Costing

60. During December, Fleeger Corporation incurred $51,000 of direct labor costs and $5,000 of indirect labor costs. The journal entry to record the accrual of these wages would include a: A. debit to Work in Process of $56,000 B. credit to Work in Process of $51,000 C. debit to Work in Process of $51,000 D. credit to Work in Process of $56,000

61. Lucy Sportswear manufactures a specialty line of T-shirts. The company uses a job-order costing system. During March, the following costs were incurred on Job ICU2: direct materials $13,700 and direct labor $4,800. In addition, selling and shipping costs of $7,000 were incurred on the job. Manufacturing overhead was applied at the rate of $25 per machinehour and Job ICU2 required 800 machine-hours. If Job ICU2 consisted of 7,000 shirts, the Cost of Goods Sold per shirt was: A. $6.50 B. $6.00 C. $5.70 D. $5.50

62. Pricton Corporation has a job-order costing system. For the month of April, the following debits (credits) appeared in the Work in Process account:

Pricton applies overhead at a predetermined rate of 90% of direct labor cost. Job No. 50, the only job still in process at the end of April, has been charged with manufacturing overhead of $2,250. The amount of direct materials charged to Job No. 50 was: A. $9,000 B. $4,250 C. $2,500 D. $2,250

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Chapter 08: Job-Order Costing

63. Beaver Company used a predetermined overhead rate last year of $2 per direct labor-hour, based on an estimate of 25,000 direct labor-hours to be worked during the year. Actual costs and activity during the year were:

The underapplied or overapplied overhead last year was: A. $1,000 underapplied B. $1,000 overapplied C. $3,000 overapplied D. $2,000 underapplied

64. Paul Company used a predetermined overhead rate during the year just completed of $3.50 per direct labor-hour, based on an estimate of 22,000 direct labor-hours to be worked during the year. Actual overhead cost and activity during the year were:

The underapplied or overapplied overhead for the year would be: A. $13,000 underapplied B. $10,500 overapplied C. $2,500 overapplied D. $2,500 underapplied

65. Sweet Company applies overhead to jobs on the basis of 125% of direct labor cost. If Job 107 shows $10,000 of manufacturing overhead applied, how much was the direct labor cost on the job? A. $8,000 B. $12,500 C. $11,250 D. $10,000

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Chapter 08: Job-Order Costing

66. Pitzer Corporation, a manufacturing company, has provided data concerning its operations for March. The beginning balance in the raw materials account was $29,000 and the ending balance was $38,000. Raw materials purchases during the month totaled $74,000. Manufacturing overhead cost incurred during the month was $106,000, of which $7,000 consisted of raw materials classified as indirect materials. The direct materials cost for March was: A. $83,000 B. $58,000 C. $74,000 D. $65,000

67. Jarratt Inc., a manufacturing company, has provided the following data for the month of September. The balance in the Work in Process inventory account was $21,000 at the beginning of the month and $24,000 at the end of the month. During the month, the company incurred direct materials cost of $69,000 and direct labor cost of $31,000. The actual manufacturing overhead cost incurred was $54,000. The manufacturing overhead cost applied to Work in Process was $58,000. The cost of goods manufactured for September was: A. $158,000 B. $154,000 C. $151,000 D. $155,000

68. Erholm Inc. has provided the following data for the month of March. The balance in the Finished Goods inventory account at the beginning of the month was $43,000 and at the end of the month was $42,000. The cost of goods manufactured for the month was $221,000. The actual manufacturing overhead cost incurred was $45,000 and the manufacturing overhead cost applied to Work in Process was $49,000. The adjusted cost of goods sold that would appear on the income statement for March is: A. $218,000 B. $220,000 C. $222,000 D. $221,000

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Chapter 08: Job-Order Costing

69. The following data have been provided by a company:

Compute the amount of direct materials used during November if $20,000 in raw materials were purchased during the month. A. $21,000 B. $19,000 C. $18,000 D. $15,000

70. Wandrie Inc. has provided the following data for the month of October. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.

Manufacturing overhead for the month was overapplied by $3,000. The company allocates any underapplied or overapplied overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts. The cost of goods sold for October after allocation of any underapplied or overapplied overhead for the month is closest to: A. $215,600 B. $210,980 C. $210,290 D. $216,290

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Chapter 08: Job-Order Costing

71. Chaffey Inc. has provided the following data for the month of January. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.

Manufacturing overhead for the month was underapplied by $7,000. The company allocates any underapplied or overapplied overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts. The work in process inventory at the end of January after allocation of any underapplied or overapplied overhead for the month is closest to: A. $5,975 B. $6,340 C. $5,920 D. $6,285

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Chapter 08: Job-Order Costing

72. Niglio Inc. has provided the following data for the month of December. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.

Manufacturing overhead for the month was underapplied by $10,000. The company allocates any underapplied or overapplied overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts. The finished goods inventory at the end of December after allocation of any underapplied or overapplied overhead for the month is closest to: A. $56,950 B. $51,750 C. $51,691 D. $57,009

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Chapter 08: Job-Order Costing

73. Mieras Inc. has provided the following data for the month of November. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.

Manufacturing overhead for the month was underapplied by $2,000. The company allocates any underapplied or overapplied overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts. The journal entry to record the allocation of any underapplied or overapplied overhead for November would include the following: A. credit to Work in Process of $140 B. debit to Work in Process of $140 C. credit to Work in Process of $13,670 D. debit to Work in Process of $13,670

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Chapter 08: Job-Order Costing

74. Rinks Inc. has provided the following data for the month of December. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.

Manufacturing overhead for the month was underapplied by $1,000. The company allocates any underapplied or overapplied overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts. The journal entry to record the allocation of any underapplied or overapplied overhead for December would include the following: A. debit to Finished Goods of $120 B. credit to Finished Goods of $42,480 C. debit to Finished Goods of $42,480 D. credit to Finished Goods of $120

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Chapter 08: Job-Order Costing

75. Roswick Inc. has provided the following data for the month of August. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.

Manufacturing overhead for the month was underapplied by $3,000. The company allocates any underapplied or overapplied overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts. The journal entry to record the allocation of any underapplied or overapplied overhead for August would include the following: A. debit to Cost of Goods Sold of $142,300 B. credit to Cost of Goods Sold of $2,220 C. credit to Cost of Goods Sold of $142,300 D. debit to Cost of Goods Sold of $2,220

76. The actual manufacturing overhead incurred at Huberty Corporation during January was $73,000, while the manufacturing overhead applied to Work in Process was $78,000. The company's Cost of Goods Sold was $349,000 prior to closing out its Manufacturing Overhead account. The company closes out its Manufacturing Overhead account to Cost of Goods Sold. Which of the following statements is true? A. Manufacturing overhead was overapplied by $5,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $354,000 B. Manufacturing overhead was underapplied by $5,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $344,000 C. Manufacturing overhead was underapplied by $5,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $354,000 D. Manufacturing overhead was overapplied by $5,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $344,000

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Chapter 08: Job-Order Costing

77. Molano Corporation has provided the following data concerning manufacturing overhead for June:

The company's Cost of Goods Sold was $255,000 prior to closing out its Manufacturing Overhead account. The company closes out its Manufacturing Overhead account to Cost of Goods Sold. Which of the following statements is true? A. Manufacturing overhead was underapplied by $7,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $248,000 B. Manufacturing overhead was overapplied by $7,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $248,000 C. Manufacturing overhead was underapplied by $7,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $262,000 D. Manufacturing overhead was overapplied by $7,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $262,000

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Chapter 08: Job-Order Costing Munos Publishing Company uses a job-order costing system to collect costs related to the manufacture of specialty publications for corporate training.

78. What journal entry would Munos make to record the application of $1,200 of manufacturing overhead to Job KN672? A. B. C. D.

79. What journal entry would Munos make to record the completion of Job KN668 at a total cost of $7,600? A. B. C. D. 80. What journal entry would Munos make to record $9,500 of depreciation on its printing presses? A. B. C. D.

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Chapter 08: Job-Order Costing

Acer Corporation, which applies manufacturing overhead on the basis of machine-hours, has provided the following data for its most recent year of operations.

The estimates of the manufacturing overhead and of machine-hours were made at the beginning of the year for the purpose of computing the company's predetermined overhead rate for the year.

81. The predetermined overhead rate is closest to: A. $49.23 B. $49.90 C. $49.78 D. $50.45

82. The applied manufacturing overhead for the year is closest to: A. $218,581 B. $221,023 C. $223,998 D. $221,556

83. The overhead for the year was: A. $2,994 underapplied B. $2,444 overapplied C. $2,444 underapplied D. $2,994 overapplied

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Chapter 08: Job-Order Costing

Baken Corporation applies manufacturing overhead on the basis of direct labor-hours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $172,140 and 3,800 estimated direct labor-hours. Actual manufacturing overhead for the year amounted to $171,000 and actual direct labor-hours were 3,880.

84. The predetermined overhead rate for the year was closest to: A. $45.00 B. $44.07 C. $46.25 D. $45.30

85. The applied manufacturing overhead for the year was closest to: A. $175,764 B. $174,600 C. $179,450 D. $170,992

86. The overhead for the year was: A. $4,764 overapplied B. $3,624 underapplied C. $4,764 underapplied D. $3,624 overapplied

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Chapter 08: Job-Order Costing

Cahin Corporation applies manufacturing overhead on the basis of machine-hours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $21,060. Actual manufacturing overhead for the year amounted to $13,000 and actual machine-hours were 1,380. The company's predetermined overhead rate for the year was $16.20 per machine-hour.

87. The predetermined overhead rate was based on how many estimated machine-hours? A. 1,380 B. 802 C. 225 D. 1,300

88. The applied manufacturing overhead for the year was closest to: A. $23,732 B. $21,060 C. $22,356 D. $13,800

89. The overhead for the year was: A. $1,296 overapplied B. $9,356 overapplied C. $9,356 underapplied D. $1,296 underapplied

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Chapter 08: Job-Order Costing

Loraine Company applies manufacturing overhead to jobs using a predetermined overhead rate of 70% of direct labor cost. Any underapplied or overapplied overhead cost is closed to Cost of Goods Sold at the end of the month. During August, the following transactions were recorded by the company:

90. The amount of direct materials cost in the August 31 Work in Process inventory account was: A. $10,200 B. $9,000 C. $4,800 D. $4,200

91. The Cost of Goods Manufactured for August was: A. $69,600 B. $69,500 C. $76,900 D. $84,500

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Chapter 08: Job-Order Costing

92. The entry to dispose of the underapplied or overapplied overhead cost for the month would include: A. a credit of $100 to Cost of Goods Sold. B. a credit of $6,000 to Manufacturing Overhead. C. a debit of $6,000 to Cost of Goods Sold. D. a credit of $100 to the Manufacturing Overhead Account.

93. The balance on August 1 in the Raw Materials inventory account was: A. $4,500 B. $7,000 C. $9,000 D. $11,500

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Chapter 08: Job-Order Costing On July 1, Woolard Corporation had $20,000 of raw materials on hand. During the month, the company purchased an additional $53,000 of raw materials. During July, $49,000 of raw materials were requisitioned from the storeroom for use in production. These raw materials included both direct and indirect materials. The indirect materials totaled $5,000. Prepare journal entries to record these events. Use those journal entries to answer the following questions:

94. The debits to the Raw Materials account for the month of July total: A. $53,000 B. $20,000 C. $73,000 D. $49,000

95. The credits to the Raw Materials account for the month of July total: A. $53,000 B. $49,000 C. $20,000 D. $73,000

96. The debits to the Work in Process account as a consequence of the raw materials transactions in July total: A. $53,000 B. $44,000 C. $0 D. $49,000

97. The credits to the Work in Process account as a consequence of the raw materials transactions in July total: A. $49,000 B. $53,000 C. $0 D. $44,000

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Chapter 08: Job-Order Costing 98. The debits to the Manufacturing Overhead account as a consequence of the raw materials transactions in July total: A. $44,000 B. $5,000 C. $0 D. $49,000

99. The credits to the Manufacturing Overhead account as a consequence of the raw materials transactions in July total: A. $0 B. $5,000 C. $49,000 D. $44,000

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Chapter 08: Job-Order Costing

On April 1, Bachler Corporation had $37,000 of raw materials on hand. During the month, the company purchased an additional $75,000 of raw materials. During April, $88,000 of raw materials were requisitioned from the storeroom for use in production. These raw materials included both direct and indirect materials. The indirect materials totaled $6,000. 100. The journal entry to record the purchase of raw materials would include a: A. credit to Raw Materials of $112,000 B. credit to Raw Materials of $75,000 C. debit to Raw Materials of $75,000 D. debit to Raw Materials of $112,000 101. The journal entry to record the requisition from the storeroom would include a: A. credit to Manufacturing Overhead of $6,000 B. debit to Raw Materials of $88,000 C. debit to Work in Process of $82,000 D. debit to Work in Process of $88,000

During August, Sherill Corporation incurred $78,000 of actual Manufacturing Overhead costs. During the same period, the Manufacturing Overhead applied to Work in Process was $81,000.

102. The journal entry to record the incurrence of the actual Manufacturing Overhead costs would include a: A. debit to Manufacturing Overhead of $78,000 B. credit to Work in Process of $81,000 C. credit to Manufacturing Overhead of $78,000 D. debit to Work in Process of $81,000

103. The journal entry to record the application of Manufacturing Overhead to Work in Process would include a: A. credit to Work in Process of $78,000 B. debit to Manufacturing Overhead of $81,000 C. credit to Manufacturing Overhead of $81,000 D. debit to Work in Process of $78,000

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Chapter 08: Job-Order Costing The following partially completed T-accounts summarize last year's transactions for Kelshaw Company.

At the end of the year, the company closes out the balance in the Manufacturing Overhead account to Cost of Goods Sold.

104. The indirect labor cost is: A. $5,000 B. $12,000 C. $15,000 D. $35,000

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Chapter 08: Job-Order Costing 105. The cost of goods manufactured is: A. $56,000 B. $50,000 C. $61,000 D. $55,000

106. The cost of goods sold (after adjustment for underapplied or overapplied overhead) is: A. $55,000 B. $51,000 C. $54,000 D. $56,000

107. The manufacturing overhead applied is: A. $28,000 B. $27,000 C. $29,000 D. $36,000

108. The cost of direct materials used is: A. $20,000 B. $11,000 C. $12,000 D. $15,000

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Chapter 08: Job-Order Costing

Dasilva Company had only one job in process on May 1. The job had been charged with $1,400 of direct materials, $6,192 of direct labor, and $5,712 of manufacturing overhead cost. The company assigns overhead cost to jobs using the predetermined overhead rate of $11.90 per direct labor-hour. During May, the following activity was recorded:

Work in process inventory on May 30 contains $4,773 of direct labor cost. Raw materials consist solely of items that are classified as direct materials.

109. The balance in the raw materials inventory account on May 30 was: A. $4,700 B. $43,300 C. $3,800 D. $39,500

110. The cost of goods manufactured for May was: A. $98,920 B. $92,688 C. $120,800 D. $97,310

111. The entry to dispose of the underapplied or overapplied overhead cost for the month would include a: A. credit of $1,610 to Manufacturing Overhead B. debit of $4,403 to Manufacturing Overhead C. credit of $4,403 to Manufacturing Overhead D. debit of $1,610 to Manufacturing Overhead 8-41 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 08: Job-Order Costing Madtack Company's beginning and ending inventories for the month of November were as follows:

Madtack applies manufacturing overhead cost to jobs at the rate of 70% of direct labor cost incurred. The company does not close underapplied or overapplied manufacturing overhead to Cost of Goods Sold until the end of the year.

112. Madtack Company's total manufacturing cost for November was: A. $502,000 B. $510,000 C. $363,000 D. $495,000

113. Madtack Company's cost of goods manufactured for November was: A. $469,000 B. $477,000 C. $495,000 D. $484,000

114. Madtack Company's Cost of Goods Sold for November was: A. $484,000 B. $491,000 C. $502,000 D. $476,000

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Chapter 08: Job-Order Costing 115. Madtack Company's manufacturing overhead for November was: A. overapplied by $8,000 B. underapplied by $8,000 C. overapplied by $132,000 D. underapplied by $132,000

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Chapter 08: Job-Order Costing

Maverick Company had the following transactions last year:

116. The total cost added to Work in Process during the year was: A. $366,000 B. $340,000 C. $420,000 D. $286,000

117. The cost of goods manufactured was: A. $366,000 B. $420,000 C. $385,000 D. $310,000

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Chapter 08: Job-Order Costing

The Lee Company uses a job-order costing system. The following data were recorded for June:

Overhead is charged to production at 80% of direct materials cost. Jobs 235, 237, and 238 were completed during June and transferred to finished goods. Jobs 235 and 238 have been delivered to customers.

118. Lee Company's cost of goods sold for June was: A. $15,520 B. $10,170 C. $9,730 D. $14,640

119. Lee's Work in Process inventory balance on June 30 was: A. $4,100 B. $3,940 C. $3,300 D. $9,450

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Chapter 08: Job-Order Costing

Rappaport Corporation reported the following data for the month of February:

120. The direct materials cost for February is: A. $95,000 B. $88,000 C. $79,000 D. $63,000

121. The cost of goods manufactured for February is: A. $220,000 B. $238,000 C. $241,000 D. $223,000

122. The adjusted cost of goods sold that appears on the income statement for February is: A. $240,000 B. $238,000 C. $239,000 D. $237,000

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Chapter 08: Job-Order Costing

Smalling Inc. has provided the following data for the month of November:

123. The cost of goods manufactured for November is: A. $226,000 B. $218,000 C. $225,000 D. $217,000

124. The adjusted cost of goods sold that appears on the income statement for November is: A. $237,000 B. $225,000 C. $214,000 D. $213,000

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Chapter 08: Job-Order Costing

The Garnet Company uses a job-order costing system. The following data were recorded for February:

Overhead is charged to jobs at the rate of 140% of direct labor cost. Jobs 1, 2, and 3 were completed during February and transferred to finished goods. Job 3 has been delivered to the customer.

125. The manufacturing costs added to jobs during the month totaled: A. $8,250 B. $11,880 C. $12,500 D. $15,180

126. The work in process inventory on February 28 was: A. $7,310 B. $9,500 C. $3,950 D. $7,060

127. The cost of goods sold during February was: A. $5,100 B. $3,000 C. $12,120 D. $8,120

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Chapter 08: Job-Order Costing

Eccles Corporation uses a job-order costing system and applies overhead to jobs using a predetermined overhead rate. During the year the company's Finished Goods inventory account was debited for $384,000 and credited for $325,900. The ending balance in the Finished Goods inventory account was $72,100. At the end of the year, manufacturing overhead was underapplied by $5,400.

128. The balance in the Finished Goods inventory account at the beginning of the year was: A. $72,100 B. $5,400 C. $14,000 D. $58,100

129. If the applied manufacturing overhead was $174,000, the actual manufacturing overhead cost for the year was: A. $193,400 B. $251,500 C. $179,400 D. $168,600

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Chapter 08: Job-Order Costing

The following partially completed T-accounts summarize transactions for Faas Company during the year:

130. The Cost of Goods Manufactured was: A. $22,900 B. $22,700 C. $8,200 D. $45,600

131. The direct labor cost was: A. $8,000 B. $12,100 C. $17,200 D. $11,600

132. The direct materials cost was: A. $3,600 B. $6,600 C. $5,000 D. $8,000

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Chapter 08: Job-Order Costing

133. The manufacturing overhead applied was: A. $4,100 B. $3,300 C. $15,400 D. $9,100

134. The manufacturing overhead was: A. $3,300 overapplied B. $3,300 underapplied C. $100 overapplied D. $100 underapplied

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Chapter 08: Job-Order Costing Sanker Inc. has provided the following data for the month of August. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.

Manufacturing overhead for the month was overapplied by $5,000. The company allocates any underapplied or overapplied overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts.

135. The work in process inventory at the end of August after allocation of any underapplied or overapplied overhead for the month is closest to: A. $18,593 B. $18,780 C. $17,080 D. $17,267

136. The journal entry to record the allocation of any underapplied or overapplied overhead for August would include the following: A. debit to Finished Goods of $34,880 B. debit to Finished Goods of $1,250 C. credit to Finished Goods of $34,880 D. credit to Finished Goods of $1,250

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Chapter 08: Job-Order Costing Alvernaz Inc. has provided the following data for the month of April. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.

Manufacturing overhead for the month was overapplied by $2,000. The company allocates any underapplied or overapplied overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts.

137. The work in process inventory at the end of April after allocation of any underapplied or overapplied overhead for the month is closest to: A. $20,947 B. $20,400 C. $21,000 D. $20,453

138. The journal entry to record the allocation of any underapplied or overapplied overhead for April would include the following: A. credit to Cost of Goods Sold of $1,240 B. credit to Cost of Goods Sold of $106,810 C. debit to Cost of Goods Sold of $106,810 D. debit to Cost of Goods Sold of $1,240