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ALL AC505 Week 4 Midterm
SET 1
QUESTION 1:
Wages paid to a timekeeper in a factory are a:
- Prime Cost YES.. .Conversion Cost NO
- Prime Cost YES.. .Conversion Cost YES
- Prime Cost NO..Conversion Cost NO
- Prime Cost NO...Conversion Cost YES QUESTION 2: A cost incurred in the past that is not relevant to any current decision is classified as a(n):
- period cost.
- opportunity cost.
- sunk cost.
- differential cost. QUESTION 3: Inventoriable costs are also known as:
- variable costs
- conversion costs
- product costs
- fixed costs QUESTION 4: When the activity level is expected to decline within the relevant range, what effects would be anticipated with respect to each of the following?
- Fixed Costs per Unit Increase and Variable Costs per Unit Increase
- Fixed Costs per Unit Increase and Variable Costs per Unit do not change
- Fixed Costs per Unit do not change and Variable Costs per Unit do not change
- Fixed Costs per Unit do not change and Variable Costs per Unit Increase
QUESTION 5:
When manufacturing overhead is applied to production, it is added to:
- the Cost of Goods Sold account
- the Raw Materials account
- the Work in Process account
- the Finished Goods inventory account QUESTION 6: Which of the following statements about process costing system is incorrect?
- In a process costing system, each processing department has a work in process account
- In a process costing system, equivalent units are separately computed for materials and for conversion costs
- In a process costing system, overhead can be under- or overapplied just as in job- order costing
- In a process costing system, materials costs are traced to units of products QUESTION 7: The weighted-average method of process costing differs from the FIFO method of process costing in that the weighted-average method:
- can be used under any cost flow assumption
- does not require the use of predetermined overhead rates
- keeps costs in the beginning inventory separate from current period costs
- does not consider the degree of completion of units in the beginning work in process inventory when computing equivalent units of production QUESTION 8: The contribution margin ratio always increases when the:
- break-even point increases
- break-even point decreases
- variable expenses as a percentage of net sales decreases
- variable expenses as a percentage of net sales increases QUESTION 9:
Direct materials:
Similar exercise with different data The following data (in thousands of dollars) have been taken from the accounting Required: a. Prepare a Schedule of Cost of Goods Manufactured in good form.
- Raw materials inventory, beginning............................$
- Add: Purchases of raw materials...................................
- Raw materials available for use....................................
- Deduct: Raw materials inventory, ending......................
- Raw materials used in production $
- Direct labor
- Manufacturing overhead
- Total manufacturing cost
- Add: Work in process inventory, beginning.
- Deduct: Work in process inventory, ending
- Cost of goods manufactured $
- Finished goods inventory, beginning...............................$ b. Computation of cost of goods sold
- Add: Cost of goods manufactured......................................
- Cost of goods available for sale..........................................
- Deduct: Finished goods inventory, ending.........................
- Cost of goods sold.............................................................$
- Sales...................................................................................$ c. Income statement
- Less: Cost of goods sold...................................................
- Gross margin....................................................................
- Less: Administrative expenses.........................................
- Less: Selling expenses......................................................
- Net operating income........................................................$
- Sales..................................................................................$ records of Larop Corporation for the just completed year.
- Purchases of raw materials..............................................$
- Direct labor.......................................................................$
- Manufacturing overhead..................................................$
- Administrative expenses..................................................$
- Selling expenses...............................................................$
- Raw materials inventory, beginning................................$
- Raw materials inventory, ending.....................................$
- Work in process inventory, beginning.............................$
- Work in process inventory, ending..................................$
- Finished goods inventory, beginning...............................$
- Finished goods inventory, ending....................................$
c. Using data from your answers above as needed, prepare an Income Statement
in good form
Answer:
a. Schedule of cost of goods manuf actured
Direct materials:
Raw materials inventory, beginning.............................$ 10
Add: Purchases of raw materials.................................... 190
Raw materials available for use.................................... 200
Deduct: Raw materials inventory, ending..................... 40
Raw materials used in production.................................... 160
Direct labor........................................................................ 200
Manufacturing overhead.................................................. 230
Total manufacturing cost.................................................. 590
Add: Work in process inventory, beginning.................... 20
Deduct: Work in process inventory, ending..................... 50
Cost of goods manufactured..............................................$
b. Computation of cost of goods sold
Finished goods inventory, beginning...............................$ 90
Add: Cost of goods manufactured.................................... 560
Goods available for sale................................................... 650
Deduct: Finished goods inventory, ending....................... 130
Cost of goods sold............................................................$
c. Income statement
Sales..................................................................................$
Less: Cost of goods sold.................................................. 520
Gross margin.................................................................... 350
Less: Administrative expenses......................................... 150
Less: Selling expenses...................................................... 140
Net operating income........................................................$ 60
QUESTION 12:
- Question : (TCO F) The Illinois Company manufactures a product that goes through three processing departments. Information relating to activity in the first department during June is given below: Percent completed Units Materials Conversion Work in process, June 1 150,000 75% 55% Work in process, Jun 30 145,000 85% 75% The department started 475,000 units into production during the month and transferred 480,000 completed units to the next department. REQUIRED: Compute the equivalent units of production for the first department for June, assuming that the company uses the weighted-average method of accounting for units and costs.
QUESTION 13:
A tile manufacturer has supplied the following data: Boxes of tile produced and sold 580, Sales revenue $2,842, 0 Variable manufacturing expense $1,653, 0 Fixed manufacturing expense $784, Variable selling and admin expense $145, Fixed selling and admin expense $128, Net operating income $132, Required: a. Calculate the company's unit contribution margin b. Calculate the company's unit contribution ratio c. If the company increases its unit sales volume by 5% without increasing its fixed expenses, what would the company's net operating income be? Calculate unit contribution margin, contribution ratio, unit sales increase of 5%
Answers
a. Calculate the company's unit contribution margin
Contribution margin = Sales - Variable expenses
Contribution margin = $2,842,000 - ($1,653,000 +
$145,000) Contribution margin = $1,044,
Unit contribution margin = Contribution margin Boxes of
tiles Unit contribution margin = $1,044,000 580,
Unit contribution margin = $1.
b. Calculate the company's unit contribution ratio
Contribution margin ratio = Contribution margin Sales
Contribution margin ratio = $1,044,000 $2,842,
Contribution margin ratio = 36.74% (rounded)
c. If the company increases its unit sales volume by 5% without increasing its fixed expenses, what
would the company's net operating income be?
Contribution margin = Sales - Variable expenses
Contribution margin = $2,132,000 - ($650,000 + $260,000)
Contribution margin = $1,222,
Unit contribution margin = Contribution margin Boxes of
tiles Unit contribution margin = $1,222,000 520,
Unit contribution margin = $2.
Increase in sales units = 580,000 x 5% = 29,000 units
Increase in net operating income = Unit contribution margin x Increase in sales units
= $1.8 x 29,
New net operating income = Current net operating income + Increase
QUESTION 14:
(TCO E) The Dean Company produces and sells a single product. The following data refer to the year just
completed: Selling Price $ 350 Units in beginning Inventory 0 Units Produced 20000 Units sold 19000
Variable Costs per unit: Direct materials $ 190 Direct labor $ 40 Variable manufacturing overhead $ 25
Variable selling and admin $ 10 Fixed Costs: Fixed manufacturing overhead $ 250,000 Fixed selling and
admin $ 225,000 Assume that direct labor is a variable cost.
Required:
a. Compute the cost of a single unit of product under both the absorption costing and variable
costing approaches.
b. Prepare an income statement for the year using absorption costing.
c. Prepare an income statement for the year using variable costing.
Answers
a. Cost per unit under absorption costing: Direct materials................................................................ $190. Direct labor....................................................................... 40. Variable overhead............................................................. 25. Fixed overhead ($250,000 / 20,000).................................. 12. Total cost per unit............................................................. $267. Cost per unit under variable costing:
Fixed costs in total:
Fixed manufacturing overhead.....................$200,
Fixed selling and administrative..................$70,
Assume direct labor is a variable cost.
Required:
a. Compute the unit product cost under both absorption and variable costing.
b. Prepare an income statement for the year using absorption costing.
c. Prepare an income statement for the year using variable costing.
d. Prepare a report reconciling the difference in net operating income
between absorption and variable costing for the year.
Answer:
a. Variable
Absorption costing
costing
Direct materials........................................$15 $
Direct labor................................................5 5
Variable manufacturing overhead............2 2
Fixed manufacturing overhead
($200,000 ÷ 10,000 units) .................... - 20
Unit product costs.....................................$22 $
b. Sales......................................................................$540,
Cost of goods sold:
Beginning inventory..........................................$ 0
Add cost of goods manufactured @ $42............420,
Goods available for sale....................................420,
Less ending inventory @ $42............................42,000 378,
Gross margin........................................................162,
Selling and administrative expenses*..................106,
Net operating income............................................$ 56,
* 9,000 units × $4 per unit variable plus $70,000 fixed.
c.
Sales.......................................................................$540,
Less variable expenses:
Variable cost of goods sold:
Beginning inventory.......................................$ 0
Add variable manufacturing costs @ $22.......220,
Goods available for sale.................................220,
Less ending inventory @ $22..........................22,
Variable cost of goods sold...............................198,
Variable selling & admin. @ $4........................36,000 234,
Contribution margin.............................................306,
Less fixed expenses:
Fixed manufacturing overhead..........................200,
Fixed selling & admin.......................................70,000 270,
Net operating income............................................$ 36,
d. Variable costing net operating income.................$36,
Add fixed factory overhead deferred in
inventory under absorption costing
(1,000 units × $20 per unit)...............................20,
Absorption costing net operating income.............$56,
SET 2
- Question : (TCO A) Wages paid to an assembly line worker in a factory are a Prime Cost YES Conversion Cost NO. Prime Cost YES.. .Conversion Cost YES. Prime Cost NO..Conversion Cost NO. Prime Cost NO...Conversion Cost YES.
- Question : (TCO A) A cost incurred in the past that is not relevant to any current decision is classified as a(n)
are all true 6.Question : (TCO F) A job-order cost system is employed in those situations where
- many different products, jobs, or batches of production are being produced each period –
- manufacturing involves a single, homogeneous product that flows evenly through the production process on a continuous basis
Another similar 6’.Question : A process cost system is employed in those situations where:
A) many different products, jobs, or batches of production are being produced
each period.
B) where manufacturing involves a single, homogeneous product that flows
evenly through the production process on a continuous basis.
C) a service is performed such as in a law firm or an accounting firm.
D) full or absorption cost approach is not employed.
- Question : (TCO F) The FIFO method only provides a major advantage over the weighted-average method in that the calculation of equivalent units is less complex under the FIFO method. the FIFO method treats units in the beginning inventory as if they were started and completed during the current period. the FIFO method provides measurements of work done during the current period. the weighted-average method ignores units in the beginning and ending work-in-process inventories. 8.Question : (TCO B) The contribution margin ratio always decreases when the break-even point increases. break-even point decreases. variable expenses as a percentage of net sales increase. variable expenses as a percentage of net sales decrease.
- Question :(TCO B) Which of the following would not affect the break-even point? number of units sold variable expense per unit total fixed expenses selling price per unit
- Question : (TCO E) In an income statement prepared using the variable costing method, variable selling and administrative expenses would be used in the computation of the contribution margin be used in the computation of net operating income but not in the computation of the contribution margin be treated differently from variable manufacturing expenses not be used
Variable manufacturing expense $1,720,000 Fixed manufacturing expense $790,000 Variable selling and admin expense $152,000 Fixed selling and admin expense $133,000 Net operating income $180, Required: a. Calculate the company's unit contribution margin. b. Calculate the company's unit contribution ratio. c. If the company increases its unit sales volume by 5% without increasing its fixed expenses, what would the company's net operating income be?
- Question : (TCO E) Lehne Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 125 Units in beginning inventory 600 Units produced 3000 Units sold 3500 Units in ending inventory 100 Variable costs per unit: Direct materials $ 15 Direct labor $ 50 Variable manufacturing overhead $ 8 Variable selling and admin $ 12 Fixed costs: Fixed manufacturing overhead $ 75,000 Fixed selling and admin $ 20,
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.
- (TCO A) A cost incurred in the past that is not relevant to any current decision is classified as a(n): (Points : 6) period cost. opportunity cost. sunk cost. differential cost.
- (TCO A) The cost of lubricants used to grease a production machine in a manufacturing company is an example of a(n): (Points : 6) period cost direct material cost indirect manufacturing cost direct labor cost none of the above
- (TCO A) When the activity level is expected to increase within the relevant range, what effects would be anticipated with respect to each of the following? Fixed costs per unit increase and variable costs per unit increase. Fixed costs per unit decrease and variable costs per unit do not change. Fixed costs per unit do not change and variable costs per unit do not change. Fixed costs per unit do not change and variable costs per unit increase.
- (TCO F) Emco Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for last year, the company included in direct labor cost a portion of indirect labor. The effect of this misclassification will be to: (Points : 6) understate the predetermined overhead rate overstate the predetermined overhead rate have no effect on the predetermined overhead
rate cannot be determined from the information given
- (TCO F) Which of the following statements about process costing system is incorrect?(Points : 6) In a process costing system, each processing department has a work in process account
