Accounting Study Guide Assignment
I. Multiple Choice:
1. Management accounting primarily is concerned with providing:
a. information to managers inside the organization as well as information to stockholders, creditors, and others outside the organization.
b. information to governmental regulatory agencies.
c. information to managers inside the organization.
d. information to stockholders, creditors, and others outside the organization.
2. Managerial accounting reports are:
a. required under the Foreign Corrupt Practices Act of 1977.
b. specified by the Securities and Exchange Commission.
c. designed to meet the needs of the managers and are not mandated by a regulatory body or outside agency.
d. governed by the requirements of generally accepted accounting principles.
3. An example of a direct labor cost is wages paid to a:
Factory machine operator Supervisor in a factory
a. No No
b. No Yes
c. Yes Yes
d. Yes No
4. Within the relevant range:
a. variable cost per unit decreases as production decreases.
b. fixed cost per unit increases as production decreases.
c. fixed cost per unit decreases as production decreases.
d. variable cost per unit increases as production decreases.
5. Manufacturing overhead cost:
a. can be either a variable cost or a fixed cost.
b. includes the costs shipping finished goods to customers.
c. includes all factory labor costs.
d. include all fixed costs.
6. When the level of activity increases within the relevant range, how does each of the following change?
Average cost Total variable Fixed cost
per unit cost per unit
a. Increases Increases Increases
b. Increases No change Increases
c. Decreases No change Decreases
d. Decreases Increases Decreases
7. The manufacturing operation that would be most likely to use a job-order costing system is:
b. Toy manufacturing.
c. Candy manufacturing.
d. Crude oil refining.
8. 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.
9. In computing its predetermined overhead rate, Brady Company included its factory insurance cost twice. This error will result in:
a. the ending balance of Finished Goods to be understated.
b. the credits to the Manufacturing Overhead account to be understated.
c. the Cost of Goods manufactured to be overstated.
d. the Net Operating Income to be overstated.
10. A proper journal entry to close overapplied overhead to Cost of Goods Sold would be:
a. Cost of Goods Sold xxx
Work in Process xxx
b. Cost of Goods Sold xxx
Manufacturing Overhead xxx
c. Cost of Goods Sold xxx
Finished Goods xxx
d. Manufacturing Overhead xxx
Cost of Goods Sold xxx
11. A proper journal entry to record issuing raw materials to be used on a job would be:
a. Finished Goods xxx
Raw Materials xxx
b. Work in Process xxx
Raw Materials xxx
c. Raw Materials xxx
Work in Process xxx
d. Raw Materials xxx
Finished Goods xxx
12. Contribution margin means
a. what remains from total sales after deducting fixed expenses.
b. what remains after deducting cost of goods sold to cover fixed and variable expenses.
c. what remains from total sales after deducting all variable expenses.
d. the sum of cost of goods sold and variable expenses.
13. If the labor efficiency variance is unfavorable, then:
a. actual hours exceeded standard hours allowed for the actual output.
b. standard hours allowed for the actual output exceeded actual hours.
c. the standard rate exceeded the actual rate.
d. the actual rate exceeded the standard rate.
14. An unfavorable material quantity variance indicates that:
a. actual usage of material exceeds the standard material allowed for output.
b. standard material allowed for output exceeds the actual usage of material.
c. actual material price exceeds standard price.
d. standard material price exceeds actual price.
15. Which of the following would most likely be included as part of manufacturing overhead in the production of a wooden table?
a. The amount paid to the individual who stains the table.
b. The commission paid to the salesperson who sold the table.
c. The cost of glue used in the table.
d. The cost of the wood used in the table.
16. In a manufacturing company, direct labor costs combined with direct materials costs are known as:
a. period costs.
b. prime costs.
c. conversion costs.
d. opportunity cost.
17. The property taxes on the factory building for a manufacturer would be an example of:
Prime Cost Conversion Cost
a. Yes No
b. No Yes
c. No No
d. Yes Yes
18. All of the following costs would be found in a company's accounting records except:
a. Sunk cost.
b. Direct cost.
c. Indirect costs.
d. Opportunity costs.
19. A sunk cost is:
a. a cost that may be saved by not adopting an alternative.
b. a cost that may be shifted to the future with little or no effect on current operations.
c. a cost that cannot be avoided because it has already been incurred.
d. a cost which does not entail any dollar outlay but which is relevant to the decision-making process.
20. The balance in the Work in Process account equals:
a. the balance in the Finished Goods inventory account.
b. the balance in the Cost of Goods Sold account.
c. the balances on the job cost sheets of uncompleted jobs.
d. the balance in the Manufacturing Overhead account.
21. Which of the following costs, if expressed on a per unit basis, would be expected to vary inversely with the level of production and sales?
a. Sales commissions.
b. Fixed manufacturing overhead.
c. Variable manufacturing overhead.
d. Direct materials.
22. All other things equal, if a division’s traceable fixed expenses decrease:
a. the division’s segment margin will increase.
b. the overall company net operating income will decrease.
c. the division’s contribution margin will increase.
d. the division’s sales volume will increase.
23. On January 1, Lake Corporation increased its management salaries. All other costs and revenues were unchanged. How did this increase affect Lake's break-even point and margin of safety?
Break-even point Margin of safety
a. Increase Decrease
b. Increase Increase
c. Decrease Increase
d. Decrease Decrease
24. The break-even point in units is calculated using:
a. variable expenses and the unit contribution margin.
b. variable expenses and the contribution margin ratio.
c. fixed expenses and the unit contribution margin.
d. fixed expenses and the contribution margin ratio.
25. If sales volume increases and all other factors remain constant, then the:
a. contribution margin ratio will increase.
b. break-even point will decrease.
c. margin of safety will increase.
d. net operating income will decrease.
26. Segmented income statements are most meaningful to managers when they are prepared:
a. in a single-step format.
b. on an absorption cost basis.
c. on a cost behavior (contribution format) basis.
d. on a cash basis.
27. In setting a transfer price, which of the following should not be considered?
a. Production capacity of the selling division.
b. Product demand from outside customers.
c. Costs eliminated by internal transfers.
d. Fixed production costs of the buying division.
II. Multiple Choice: Problems
1. Electrical costs at one of Gotch Corporation's factories are listed below:
Machine –Hours Electrical Cost
March …………………… 3,731 $35,243
April …………………….. 3,728 35,248
May ……………………… 3,765 35,479
June ……………………… 3,793 35,651
July ……………………… 3,797 35,692
August …………………… 3,701 35,044
September ……………….. 3,800 35,694
October ………………….. 3,735 35,276
November ……………….. 3,740 35,325
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
Exhibit 1: The Tingey Company has 500 obsolete microcomputers that are carried in inventory at a total cost of $720,000. If these microcomputers are upgraded at a total cost of $100,000, they can be sold for a total of $160,000. As an alternative, the microcomputers can be sold in their present condition for $50,000.
2. Refer to Exhibit 1. The sunk cost in this situation is:
c. $ 50,000
3. Refer to Exhibit 1: What is the net advantage or disadvantage to the company from upgrading the computers rather than selling them in their present condition?
a. $110,000 advantage.
b. $660,000 disadvantage.
c. $ 10,000 advantage.
d. $ 60,000 advantage.
4. Refer to Exhibit 1. Suppose the selling price of the upgraded computers has not been set. At what selling price per unit would the company be as well off upgrading the computers as if it just sold the computers in their present condition?
c. $ 300
Exhibit 2: The Liski Company has established standards as follows:
Direct material ………………………….. 3 pounds @ $4/pound = $12 per unit
Direct labor ……………………………… 2 hours @ $8/hour = $16 per unit
4 Variable overhead ……………………….. 2 hours @ $5/hour = $10 per unit
Actual production figures for the past year were as follows:
Units produced …………………………….. 500
Direct material used …………………….…. 1,600 pounds
Direct material purchased (3,000 pounds)… $12,300
Direct labor cost (950 hours) ……………… $7,790
Variable overhead cost incurred …………… $4,655
5. Refer to Exhibit 2. The materials price variance is:
a. $160 U
b. $6,300 U
c. $300 U
d. $150 U
6. Refer to Exhibit 2. The materials quantity variance is:
a. $ 400 U
b. $410 F
c. $410 U
d. $ 6,000 U
7. Refer to Exhibit 2. The labor rate variance is:
a. $210 F
b. $190 F
c. $399 F
d. $190 U
8. Refer to Exhibit 2. The labor efficiency variance is:
a. $400 F
b. $800 F
c. $800 U
d. $500 F
9. Refer to Exhibit 2. The variable overhead spending variance is:
a. $345 F
b. $95 F
c. $655.50 F
d. $345 U
10. Refer to Exhibit 2. The variable overhead efficiency variance is:
a. $500 F
b. $500 U
c. $245 F
d. $250 F
1. Watkins Pacific Company sells a single product for $38 per unit. If variable expenses are 62.5% of sales and fixed expenses total $13,500, the break-even point in quantity and dollar($) will be:
2. Best Client Company has sales of 1,200 units at $60 a unit. Variable expenses are 40% of the selling price and total fixed expenses are $35,000. If Cartel Company expects next year’s total sales could increase 12%, they want to know how this change affects their profit. Calculate DOL and then, using DOL, calculate next year’s net income in dollar.
3. At the end of the year, actual manufacturing overhead costs were $120,000 and applied manufacturing overhead costs were $163,125. If the denominator activity for the year was 20,000 machine-hours, and if 22,500 standard machine-hours were allowed for the year's production, Calculate the predetermined overhead rate per machine-hour.
4. The Assembly Department uses the weighted-average method in its process costing system. The following information pertains to one of the company’s processing departments for a recent month (5 points):
Number of units Materials cost
Beginning WIP ———————— 30,000 $22,000
Started during the month ————- 80,000 $72,000
Ending WIP —————————- 25,000 (60% completed)
a. How many units were completed and transferred to the next processing department during the month?
b. What is the EU in the ending WIP?
c. What is the cost per unit for material?
5. Central Company has two product lines, J and K. During June, the company's net operating income was $25,000, and the common fixed expenses were $37,000. The contribution margin ratio for J was 30%, its sales were $200,000, and its segment margin was $21,000. If the contribution margin for K was $80,000, Calculate the segment margin for K.
6. The Kosco Company has three divisions—Northern, Western, and Southern. The divisions have the following revenues and expenses: Northernn Western Southern
Sales $450,000 $400,000 680,000
Variable expenses 235,000 140,000 242,000
Traceable fixed expenses 165,000 105,000 218,000
Allocated common corporate expenses 92,000 85,000 135,000
Net operating income (loss) $(42,000) $70,000 $ 85,000
Management of Kosco is considering the elimination of the Northern Division. If the Northern Division were eliminated, its traceable fixed expenses could be avoided. The total common corporate expenses would be unaffected. Given these data, what is your decision, eliminating or keeping it and why? Justify your decision by showing your calculation and overall company’s net operating income (or loss) before and after eliminating Northern Division.
7. Rowell Corporation manufactures laser printers. Rowell currently manufactures the 32,000 imaging drums that it uses in its printers. The annual costs to manufacture these 32,000 drums are as follows:
Cost of drum Total cost
Variable manufacturing cost …………… $23 $736,000
Fixed manufacturing cost ……………….. $65 $2,080,000
Total cost $88 $2,816,000
Hardware Solutions Inc. has offered to provide Rowell with all of its imaging drum needs for $72 per drum. If Rowell accepts this offer, 70% of the fixed manufacturing cost above could be totally eliminated. Also, Rowell will be able to use the freed up space to generate $240,000 of income each year in the production of alternative products.
Based on the information presented, would Rowell be better off to make the drums or buy the drums and by how much?
8. Hausman Corporation bases its budget on machine-hours. The company’s static planning budget for November appears below:
Budgeted number of machine-hours ————————- $9,500
Budgeted variable costs:
Supplies (@$3.70 per machine-hour) ————- 35,150
Power (@$2.40 per machine-hour) —————- 22,800
Budgeted fixed costs:
Salaries ———————————————— 46,550
Equipment depreciation —————————– 31,350
Total cost —————————————————— $135,850
Required: Prepare a flexible budget for 9,850 machine-hours per month.
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