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Part 1: Multiple Choice

1. The cost of the cushions that are used to manufacture sofas is best described as a: A. manufacturing overhead cost. B. period cost. C. variable cost. D. conversion cost. 2. In the preparation of the schedule of Cost of Goods Manufactured, the accountant incorrectly included as part of manufacturing overhead the rental expense on the firm's retail facilities. This inclusion would: A. overstate period expenses on the income statement. B. overstate the cost of goods sold on the income statement. C. understate the cost of goods manufactured. D. have no effect on the cost of goods manufactured. 3. Last month a manufacturing company had the following operating results: Beginning finished goods inventory ......... $77,000 Ending finished goods inventory .............. $72,000 Sales .......................................................... $593,000 Gross margin ............................................. $67,000 What was the cost of goods manufactured for the month? A. $588,000 B. $526,000 C. $521,000 D. $531,000 Use the following to answer questions 4-6: The following data pertain to Graham Company's operations in May: May 1 May 31 Work in process inventory ............ $7,000 $12,000 Raw materials inventory................ $15,000 ? Finished goods inventory .............. ? $20,000 Other data: Raw materials used ........................ $40,000 Sales ............................................... $200,000 Cost of goods manufactured .......... $135,000 Manufacturing overhead cost ......... $60,000 Raw materials purchases ................ $30,000 Gross Margin ................................. $60,000

4. The ending materials inventory was: A. $5,000 B. $10,000 C. $15,000 D. $20,000 5. The beginning finished goods inventory was: A. $5,000 B. $15,000 C. $25,000 D. $30,000 6.The direct labor cost for May was: A. $35,000 B. $40,000 C. $30,000 D. $25,000 7. Desco Electronics, Inc. manufactures car radios. The direct material cost assigned to car radios that Desco started during the period but did not fully complete would be found in the ending balance of: A. raw materials inventory. B. work in process inventory. C. finished goods inventory. D. both raw materials inventory and work in process inventory. 8. In a job-order cost system, which of the following events would trigger recording data on a job cost sheet? A. the purchase of direct materials B. the payment of fire insurance on the factory building C. the payment for product advertising D. none of the above 9. Avery Co. uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. For the month of October, Avery's estimated manufacturing overhead cost was $300,000 based on an estimated activity level of 100,000 direct labor-hours. Actual overhead amounted to $325,000 with actual direct labor-hours totaling 110,000 for the month. How much was the overapplied or underapplied overhead? A. $25,000 overapplied B. $25,000 underapplied C. $5,000 overapplied D. $5,000 underapplied 10. The job cost sheet: A. summarizes all costs charged to a particular job. B. contains only direct costs such as direct materials and direct labor. C. is discarded after production is completed on a particular job. D. is useful only in process costing.

11. Which of the following would produce the largest increase in the contribution margin per unit? A. A 7% increase in selling price. B. A 15% decrease in selling price. C. A 14% increase in variable cost. D. A 17% decrease in fixed cost. E. A 23% increase in the number of units sold. 12. A company has fixed costs of $900 and a per-unit contribution margin of $3. Which of the following statement is (are) true? A. Each unit "contributes" $3 toward covering the fixed costs of $900. B. The situation described is not possible and there must be an error. C. Once the break-even point is reached, the company will increase income at the rate of $3 per unit. D. The firm will definitely lose money in this situation. E. Statements "A" and "C" are true. 13. Lawson, Inc. sells a single product for $12. Variable costs are $8 per unit and fixed costs total $360,000 at a volume level of 60,000 units. Assuming that fixed costs do not change, Lawson's break-even point would be: A. 30,000 units. B. 45,000 units. C. 90,000 units. D. negative because the company loses $2 on every unit sold. E. a positive amount other than those given above. 14. A recent income statement of Dragonwood Corporation reported the following data:

If the company desired to earn a target profit of $1,270,000, it would have to sell: A. 5,778 units. B. 8,600 units. C. 10,160 units. D. 11,908 units. E. an amount other than those above. 15. Brooklyn sells a single product to wholesalers. The company's budget for the upcoming year revealed anticipated unit sales of 31,600, a selling price of $20, variable cost per unit of $8, and total fixed costs of $360,000. Brooklyn's safety margin in units is: A. (13,400). B. 0. C. 1,600. D. 13,600. E. an amount other than those above.

16. Danielle sells a single product at $20 per unit. The firm's most recent income statement revealed unit sales of 100,000, variable costs of $800,000, and fixed costs of $400,000. If a $4 drop in selling price will boost unit sales volume by 20%, the company will experience: A. no change in profit because a 20% drop in sales price is balanced by a 20% increase in volume. B. an $80,000 drop in profit. C. a $240,000 drop in profit. D. a $400,000 drop in profit. E. a change in profit other than those above. 17. Grime-X is studying the profitability of a change in operation and has gathered the following information:

Should Grime-X make the change? A. Yes, the company will be better off by $6,000. B. No, because sales will drop by 3,000 units. C. No, because the company will be worse off by $4,000. D. No, because the company will be worse off by $22,000. E. It is impossible to judge because additional information is needed. 18. O'Dale sells three products: R, S, and T. Budgeted information for the upcoming accounting period follows.

The company's weighted-average unit contribution margin is: A. $3.00. B. $3.55. C. $4.00. D. $19.35. E. an amount other than those above.

19. A manager who wants to determine the percentage impact on income of a given percentage change in sales would multiply the percentage increase/decrease in sales revenue by the: A. contribution margin. B. gross margin. C. operating leverage factor. D. safety margin. E. contribution-margin ratio. 20. A company, subject to a 40% tax rate, desires to earn $500,000 of after-tax income. How much should the firm add to fixed costs when figuring the sales revenues necessary to produce this income level? A. $200,000. B. $300,000. C. $500,000. D. $833,333. E. $1,250,000. 21. Carolina Plating Company reported a cost of goods manufactured of $520,000, with the firm's year-end balance sheet revealing work in process and finished goods of $70,000 and $134,000, respectively. If supplemental information disclosed raw materials used in production of $80,000, direct labor of $140,000, and manufacturing overhead of $240,000, the company's beginning work in process must have been: A. $130,000. B. $10,000. C. $66,000. D. $390,000. E. some other amount. 22. An employee accidentally overstated the year's advertising expense by $50,000. Which of the following correctly depicts the effect of this error? A. Cost of goods manufactured will be overstated by $50,000. B. Cost of goods sold will be overstated by $50,000. C. Both cost of goods manufactured and cost of goods sold will be overstated by $50,000. D. Cost of goods sold will be overstated by $50,000, and cost of goods manufactured will be understated by $50,000. E. None of these. 23. A controller is normally involved with: A. preparing financial statements. B. managing investments. C. raising capital. D. safeguarding assets. E. managing the firm's credit policy.

24. Which of the following would take place if a company experienced an increase in advertising expenses? A. Net income would increase. B. The break-even point would increase. C. The contribution margin would increase. D. The contribution margin would decrease. E. More than one of the above events would occur. 25. Wellcom Corporation has the following sales mix for its three products: A, 20%; B, 35%; and C, 45%. Fixed costs total $400,000 and the weighted-average contribution margin is $100. How many units of product A must be sold to breakeven? A. 800. B. 4,000. C. 20,000. D. An amount other than those above. .

Part 2: Essay Questions

1. Operating leverage is an important concept for many companies. Required: A. Define operating leverage. B. Assume that a firm pays no income taxes and is planning to increase its selling price. If sales volume in units does not change, what will be the effect on the operating leverage factor? Explain. C. Assume that another firm that pays no income taxes is planning to increase total fixed manufacturing costs and decrease variable manufacturing costs per unit. At the present volume of production, the total manufacturing costs will be unchanged. What will this change do to the operating leverage factor? Explain. Answer :

2. Discuss the reason for (1) allocating overhead to the cost of production jobs, and (2) applying overhead using a predetermined rate instead of an actual overhead rate. Also provide the analysis for the impact of over-applied and under-applied MOH, on the firms financial statements. Answer :

3. Once upon a time, two brothers (Barry and Larry) dreamt about owning and operating companies in the same line of business. Barry believed in maintaining a very large, highly efficient manual labor force; Larry, on the other hand, favored automated-production processes. One business was located in Madison and the other was located in Austin. Recent data follow.

Required: A. Which of the two businesses, Madison or Austin, has the higher level of (1) variable cost and (2) higher level of fixed cost? Explain how you determined your answer. B. Determine the probable owner of the firm located in (1) Madison and (2) Austin. Briefly explain your logic. C. Compute the operating leverage factor for Madison and Austin. D. Suppose that both Madison and Austin had the opportunity to increase sales by 10%. Which of the two locations would experience a larger percentage change in net income? Why? Answer :