Acc346 Managerial Accounting: Week 4 Activity-Based Costing and Incremental Analysis (Version 3)

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Acc346 Managerial Accounting

Week 4 : Activity-Based Costing and Incremental Analysis (Version 3)

1. (TCO 1) Which of the following is not a difference between financial accounting and managerial accounting?

2. TCO 1) Which of the following statements regarding fixed costs is true?

3. (TCO 1) You own a car and are trying to decide whether or not to trade it in and buy a new car. Which of the following costs is an opportunity cost in this situation?

        the trip to Cancun that you will not be able to take if you buy the car

        the cost of the car you are trading in

        the cost of your books for this term

        the cost of your car insurance last year

4. (TCO 1) Shula’s 347 Grill has budgeted the following costs for a month in which 1,600 steak dinners will be produced and sold: materials, $4,080; hourly labor (variable), $5,200; rent (fixed), $1,700; depreciation, $800; and other fixed costs, $600. Each steak dinner sells for $14.00 each. How much is the budgeted variable cost per unit?

5. (TCO 1) Which of the following is an example of a manufacturing overhead cost?

6. (TCO 1) Product costs

7. (TCO 1) At December 31, 2010, WDT Inc. has a balance in the Work in Process Inventory account of $62,000. At January 1, 2010, the balance was $55,000. Current manufacturing costs for the year are $292,000, and cost of goods sold is $284,000. How much is cost of goods manufactured?

8. (TCO 2) BCS Company applies manufacturing overhead based on direct labor hours. Information concerning manufacturing overhead and labor for August follows:

                                                Estimated            Actual

Overhead cost                  $174,000              $171,000

Direct labor hours            5,800                     5,900

Direct labor cost               $87,000 $89,975

How much overhead should be applied in total during August?


9. (TCO 2) Citrus Company incurred manufacturing overhead costs of $300,000. Total overhead applied to jobs was $306,000. What was the amount of overapplied or underapplied overhead?

10. (TCO 3) Companies in which of the following industries would not be likely to use process costing? 

11. (TCO 3) The Blending Department began the period with 20,000 units. During the period the department received another 80,000 units from the prior department and at the end of the period 30,000 units remained, which were 40% complete. How much are equivalent units in The Blending Department’s work in process inventory at the end of the period?

12. (TCO 3) Ranger Glass Company manufactures glass for French doors. At the start of May, 2,000 units were in-process. During May, 11,000 units were completed and 3,000 units were in process at the end of May. These in-process units were 90% complete with respect to material and 50% complete with respect to conversion costs. Other information is as follows:

 Work in process, May 1:             

          Direct material        $36,000

          Conversion costs    $45,000

Costs incurred during May:        

          Direct material        $186,000 

          Conversion costs    $255,000

 Calculate the cost per equivalent unit for conversion costs.

13. (TCO 4) Clearance Depot has total monthly costs of $8,000 when 2,500 units are produced and $12,400 when 5,000 units are produced. What is the estimated total monthly fixed cost?


1. (TCO 4) Which of the following will have no effect on the break-even point in units?

        The selling price increases

        The variable cost per unit increases

        The sales volume increases

        Total fixed costs increase

2. (TCO 4) Circle K Furniture has a contribution margin ratio of 16%. If fixed costs are $176,800, how many dollars of revenue must the company generate in order to reach the break-even point?

3. (TCO 4) Randy Company produces a single product that is sold for $85 per unit. If variable costs per unit are $26 and fixed costs total $47,500, how many units must Randy sell in order to earn a profit of $100,000?

4. (TCO 5) In full costing, when does fixed manufacturing overhead become an expense?

5. (TCO 5) Variable costing income is a function of

6. (TCO 5) Peak Manufacturing produces snow blowers. The selling price per snow blower is $100. Costs involved in production are:

 Direct Material per unit                $20

Direct Labor per unit       12

Variable manufacturing overhead per unit           10

Fixed manufacturing overhead per year                $148,500

In addition, the company has fixed selling and administrative costs of $150,000 per year. During the year, Peak produces 45,000 snow blowers and sells 30,000 snow blowers. How much fixed manufacturing overhead is in ending inventory under full costing?


7. (TCO 6) Which of the following is not a reason that companies allocate costs?

        To calculate the full cost of products for financial reporting purposes

        To discourage managers from using external suppliers

        To reduce the frivolous use of company resources

        To provide information needed by managers to make appropriate decisions


8. (TCO 6) Which of the following statements about cost pools is not true?

        The costs in each of the cost pools should be homogeneous or similar.

        Managers must make a cost-benefit decision when determining how many cost pools are appropriate.

        Only four different kinds of costs may be included in a single cost pool.

        More cost pools usually provide more accurate information, but are more expensive.


9. (TCO 6) The building maintenance department for Jones Manufacturing Company budgets annual costs of $4,200,000 based on the expected operating level for the coming year. The costs are allocated to two production departments. The following data relate to the potential allocation bases:

                               Production Dept. 1         Production Dept. 2

Square footage                 15,000                   45,000

Direct labor hours            25,000                   50,000

 If Jones assigns costs to departments based on square footage, how much total costs will be allocated to Production Department 1?


10. (TCO 7) A company is currently making a necessary component in house (the company is producing the component for its own use). The company has received an offer to buy the component from an outside supplier. A machine is being rented to make the component. If the company were to buy the component, the machine would no longer be rented. The rent on the machine, in relation to the decision to make or buy the component, is:

        sunk and therefore not relevant.

        avoidable and therefore not relevant.

        avoidable and therefore relevant.

        unavoidable and therefore relevant.


11. (TCO 7) Ricket Company has 1,500 obsolete calculators that are carried in inventory at a cost of $13,200. If these calculators are upgraded at a cost of $9,500, they could be sold for $22,500. Alternatively, the calculators could be sold “as is” for $9,000. What is the net advantage or disadvantage of reworking the calculators?

        $13,000 advantage

        $4,000 advantage

        $9,200 disadvantage

        $200 disadvantage

12. (TCO 7) YXZ Company’s market for the Model 55 has changed significantly, and YXZ has had to drop the price per unit from $275 to $135. There are some units in the work in process inventory that have costs of $160 per unit associated with them. YXZ could sell these units in their current state for $100 each. It will cost YXZ $10 per unit to complete these units so that they can be sold for $135 each.

When the incremental revenues and expenses are analyzed, what is the financial impact?

        $25 per unit profit if the units are completed

        $125 per unit if the units are completed

        $65 per unit loss if the units are completed

        $150 per unit loss if the units are completed


1. (TCO 3) What are transferred-in costs? Which departments will never have transferred-in costs?


2. (TCO 7) Computer Boutique sells computer equipment and home office furniture. Currently, the furniture product line takes up approximately 50% of the company’s retail floor space. The president of Computer Boutique is trying to decide whether the company should continue offering furniture or just concentrate on computer equipment. If furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of computer equipment can increase by 13%. Allocated fixed costs are assigned based on relative sales.                               

                                                Computer           Home Office    

                                                Equipment          Furniture                   Total

Sales                                      $1,200,000           $800,000              $2,000,000

Less cost of goods sold    700,000                 500,000               1,200,000

Contribution margin         500,000                 300,000                  800,000

Less direct fixed costs:                                  

          Salaries                       175,000 175,000 350,000

          Other                          60,000                   60,000                   120,000

Less allocated fixed costs:                                            

          Rent                            14,118                   9,882                     24,000

          Insurance                  3,529                     2,471                     6,000

          Cleaning                     4,117                     2,883                     7,000

          President’s salary   76,470                   53,350                   130,000

          Other                               7,058                     4,942                   12,000

Total costs                           340,292                380,708                649,000

Net Income                        $159,708              ($ 8,708)               $151,000

Prepare an incremental analysis to determine the incremental effect on profit of discontinuing the furniture line.       


3. (TCO 4) The following monthly data are available for RedEx, which produces only one product that it sells for $84 each. Its unit variable costs are $28 and its total fixed expenses are $64,960. Sales during April totaled 1,600 units.

 (a) How much is the breakeven point in sales dollars for RedEx?

(b) How many units must RedEx sell in order to earn a profit of $24,640?

(c) A new employee suggests that RedEx sponsor a company softball team as a form of advertising. The cost to sponsor the team is $1,792. How many more units must be sold to cover this cost?


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