C253– Practice Test Questions with Answers 2024/2025 Updates, Exams of Accounting

Download C253– Practice Test Questions with Answers 2024/2025 Updates and more Exams Accounting in PDF only on Docsity! C253– Practice Test Questions with Answers 2024/2025 Updates 1. Which type of business should use process costing? a) Accounting firm b) Dentist office c) Oil refinery d) Custom home builder 2. A company had 1,000 units in beginning work in process, 80% complete for materials and 30% complete for conversion. During the period,10,000 units were started. At the end of the month, 700 units were in ending work in process: 70% complete for materials, and 40% complete for conversion. What is the equivalent units for conversion using the first-in, first-out (FIFO) method? Equivalent units = (1,000*.70)+(9,300*1)+(700*.40) = 10,280 units 3. A company has a contract to manufacture 15 units of Job A , and it is the only job in production at this time. It will take 10 machine hours to complete Job A. The company has $200 of beginning materials inventory and purchases $1,000 of additional materials . The direct labor cost is $500 , and the ending material inventory will be $400 . What is the per-unit cost of this job if overhead is allocated based on $25 per machine hour? Cost/unit = ((200+1,000-400)+(500)+(10*25))/15 = 103.33 2 | P a g e 4. A company uses the first-in, first-out (FIFO) method for its process costing. The following data is for February operations: Units in Beginning Inventory 800 Units Started into Production 12,000 Units in Ending Inventory 300 Units Transferred to the Next Department 12,500 Material Conversion Percentage Completion of Beginning Inventory 80% 30% Percentage Completion of Ending Inventory 90% 40% Beginning inventory consisted of $1,200 of material costs and $800 of conversion costs. A total of $72,000 was added during the month of February, which consisted of $31,000 of materials and $41,000 of conversion costs . What is the cost assigned to ending work in process inventory? Equivalent units Materials Conversion Beg Inventory 160 560 Started and completed 11700 11,700 End Inventory 270 120 Equivalent units 12,130 12,380 Costs added during period $31,000 41,000 Cost/eq. unit 31,000/12,130 41,000/12,380 =2.56 =3.31 Cost of End Inventory = (270*2.56)691.20+(120*3.31) 397.2= 1,088.40 5 | P a g e 9. A company makes baseballs that are sold for $5.00 each. Baseballs have a 30% contribution margin and fixed costs of $40,000. The company plans to make and sell 50,000 baseballs. What will be the effect on net operating income if the company increases sales by 20%? Increase in operating income = (50,000*$5*.20*.30) = $15,000 10. The following information is available regarding the potential purchase of a new machine: Year Investment Net Income+Dep Net cash flow 1 $120,000 $30,000+$20,000 $50,000 2 $20,000+20,000 $40,000 3 $35,000+20,000 $55,000 4 $25,000+20,000 $45,000 5 $40,000+20,000 60,000 6 $45,000+20,000 65,000 The machine is expect to last six years and will be depreciated over six years using straight line depreciation with no salvage value. What is the payback period for this machine? Depreciation expense = ($120,000-0)/6 = $20,000 Payback period = 2 +($30,000/$55,000) = 2.54 years 6 | P a g e 11. A company is trying to decide whether or not it should discontinue a product segment. The segment has the following costs and sales: Sales $170,000 Variable Expenses $120,000 Supervisor's Salary $15,000 Advertising $10,000 Utilities $30,000 Property Taxes $15,000 Depreciation of Equipment $25,000 Other Overhead $17,000 No other use can be found for the floor space and equipment being used to produce the product, and the other overhead and utilities must still be paid regardless of the firm’s decision. The supervisor will be laid off if the segment is discontinued. Should the company continue or discontinue the segment? Segment margin = (170,000-120,000-15,000-10,000) = 25,000 Continue, because operating income will decrease by 25,000 12. An individual is considering making an investment that will return $2,800 per year for five years but requires a $10,000 investment up-front. What is the internal rate of return (IRR) on the investment? PVAF = 10,000/2,800= 3.5714 From the annuity tables, the IRR is approximately 12% 7 | P a g e 13. A firm makes and sells surfboards. The firm sells its surfboards for $110 to its distributors. The surfboards require $32 of foam and fiberglass and 1.0 direct labor hours and annual fixed costs of $450,000. The firm compensates its manufacturing employees at the rate of $25 per hour. The firm also applies variable manufacturing overhead at the rate of 60% of direct labor dollars. If the firm increases the quality of its direct materials, it will incur the following new production costs: • $45 direct materials • 80% of the original labor hours • $50,000 more fixed costs • Applied overhead rate of 50% of the direct labor dollars What is the dollar increase in the firm's break-even point if it changes to higher quality materials? Current BEP($) = 450000/((110-32-(1*25)-(1*25*.60))*110)=1,302,632 450,000/(110 – 32 – 25 – 15) = 450,000/38 = 11,842 New BEP ($) = (((450000+50000)/(110-45-(1*0.80*25)-(1*.80*25*.50)))*110)=1,571,429 500,000 / 110 – 45 – 20 – 10 = 500,000/35 = 14,286 Increase in BEP = 1571429-1302632=268,797 14,286 – 11,842 = 2,444 14. A company is evaluating a project with an investment of $275,000. The project will create annual incremental revenues for the firm of $100,000, accompanied by an additional $25,000 in operating costs and $30,000 in annual depreciation over the life of the project. When the project is finished, the equipment will have no salvage value. What is the simple rate of return on the project? SRR = (100,000-25,000-30,000)/275,000 = .1636 10 | P a g e 19. A firm has two different products: A and B. The firm's two major overhead costs are indirect personnel wages and equipment depreciation. Product A is responsible for 60% of indirect wages and personnel overhead, while product B is responsible for 40% of those costs. Product A is responsible for 80% of equipment depreciation costs, while product B is responsible for 20%. Indirect personnel wages cost the firm $100,000 per year, while depreciation costs are $200,000 per year. The firm intends to produce and sell 2,500 units of product B for $200 per unit and it has direct material costs of $35 and direct labor costs of $25. What are the per-unit gross profit margins on product B under an activity-based cost system? Manufacturing overhead for Product B =(100000*.4)+(200000*.2)=80,000 Gross profit margin/unit for B =((2500*140-80000)/2500=108 20. A company incurred expenses the following to produce Job 1: Direct materials used: $2,500 Direct labor hours: 20 Machine hours used: 15 The company incurred the following to produce Job 2. Direct materials used: $3,500 Direct labor hours: 10 Machine hours used: 25 The company allocated total overhead of $3,600 for these two jobs. What is the predetermined overhead rate for Job 1 if this company uses labor hours as the cost driver? Overhead rate/labor hour =3600/(20+10)=120 11 | P a g e 21. The following activity was recorded for a factory: Units Material Conversion Work in Process, June 1 1,000 90% 30% Work in Process, June 30 2,000 40% 70% Units Started 18,000 Cost per Equivalent Unit $2.00 $3.00 What is the total cost of goods transferred out using the weighted average method? Units completed = (1000+18000-2000)=17,000 Cost of goods transferred = (17000*2)+(17000*3)=85,000 22. A company had 20,000 units of work in processing in its milling department on January 1. These units were 80% complete with respect to material costs and 30% complete with respect to conversion costs. During January, 50,000 units were started. At the end of January, there were 10,000 units in work in process: 80% complete for materials and 40% complete for conversion. What are January's equivalent units for material when using the weighted average method? Units completed =(20000+50000-10000) Equivalent units = (60000*1)+(10000*.8) = 68000 23. In March, a new company incurred the following total costs for the production of 10,000 units during its first month of operations: Variable Fixed Direct Materials $500,000 Direct Labor $350,000 Manufacturing Overhead $250,000 $550,000 Administrative Expenses $275,000 The company sold 9,000 units at a selling price of $250 per unit. These units incurred variable selling costs of $15 per unit and total fixed selling costs of $100,000. What is the net income for February under variable costing? 12 | P a g e 500,000+350,000+250,000+275,000/9000=137.50 (250-137.50-15)*9000-550000-100000=227500 24. A company manufactures a single product and has a low level of overhead. Which overhead allocation method should this company use? c a) Activity-based costing b) Standard costing c) Traditional costing d) Job-order costing 25. What are two advantages of variable costing? a) Variable costing income statements easily illustrate changes in net income. b) Variable costing can be easily used for external reporting. c) Variable costing easily eliminates the need for recording fixed costs. d) Variable costing makes it easy to perform cost-volume-profit analysis. 15 | P a g e Annual Cash Revenues and Costs: Sales $190,000 Cost of Goods Sold 100,000 Other Out-of-Pocket Costs 20,000 Cost of Equipment Needed $200,000 Working Capital Needed 40,000 Overhaul of Equipment in Three Years 20,000 Salvage Value of Equipment in Five Years 15,000 Annual Depreciation 40,000 What is the net present value of this opportunity if the company uses a 10% discount rate? NPV = ((190000-100000-20000)*3.7907) + ((40000 + 15000)*.6209) - (200000+40000) - ((20000)*.7513)=44,472. 29. A hotel's overhead budget for the most recent month is: Activity level 1,000 guests Variable costs Supplies $15,000 Laundry $10,000 Fixed costs Depreciation $30,000 Salaries $25,000 Utilities $15,000 Total overhead cost $95,600 The hotel's variable overhead costs are driven by the number of guests. What is the flexible budget total overhead cost for 1,200 guests? Variable overhead cost/guest = (15000+10000)/1000=25 16 | P a g e Flexible budget overhead for 1200 guests = (1200*25)+(30000+25000+15000)=100,000 30. A corporation's budgeted sales revenue for the first quarter is presented below: January February March Credit Sales $120,000 $130,000 $140,000 Cash Sales $10,000 $20,000 $ 30,000 Management estimates that 5% of the credit sales are uncollectible. Of the collectible credit sales, it is estimated that 60% will be collected in the month of sale, 35% the month following the sale, and 5% two months following the sale. WHY ISNT THE 5% UNCOLLECTIBLE TAKEN INTO ACCT March cash collections =30000+(120000*.05)+(130000*.35)+(140000*.6)=165,500