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