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ACG 4361 FINAL EXAM REVIEW PROBLEMS

The questions in yellow are related to tests 4 and 5 materials.
Questions not highlighted are related to tests 1, 2, 3, and the
project.
1.

A regression analysis yields the following information:

Regression Statistics
Multiple R
0.961386
R Square
0.924262
Adjusted R Square
0.916688
Standard Error
39.10106
Observations
12
ANOVA
df
Regression
Residual
Total

Intercept
X Variable 1

1
10
11

SS
186578
15288.9
201867

Coefficients
955.01
1.09

Standard
Error
225.526
0.09912

MS
186578
1528.89

F
122.0345

Signifi.F
6.3E-07

t Stat
4.2349
11.0469

P-value
0.00173
0.00634

Lower 95%
452.579
0.87409

Upper
95%
1457.6
1.3158

Lower
95.0%
452.58
0.8741

Upper
95.0%
1457.6
1.3158

What is the estimated cost for a production level of 940 units?

2. Which one of the following is a key difference of the reciprocal method as compared to other methods of
allocating support activity costs?
a) It partially accounts for the relationship among support activities.
b) It fully accounts for the relationship among support activities.
c) It employs two separate drivers to allocate fixed and variable costs in a cost pool.
d) It ignores the relationship among support activities and focuses instead on the relationship between
support and production activities.
3. The main difference between a static budget and a flexible budget is that the static budget
A. contains the actual costs incurred.
B. is for units produced while a flexible budget is for units sold.
C. is for a single level of activity while a flexible budget is adjusted for the actual activity level.
D. is used only for selling and administrative costs while the flexible budget is used for manufacturing
costs.
4. Winslow Companys budgeted income statement for 2014 follows:
Sales (8,000 units)
$128,000
Direct materials
27,600
Direct labor
6,000
Variable overhead
16,800
Fixed overhead
15,000
Fixed selling & administrative expenses
30,000
Operating income
$32,400
How much operating income would appear on a flexible budget for 8,200 units?

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5. Tots Toyland makes a product that has a 40% contribution margin rate and a per unit contribution margin of
$60. Annual fixed costs are $24,000. How much will profits increase if revenue increases by $2,000?

6.

Simpson, Inc. produces tacos and burritos with a stable sales mix. Its financial information follows for
the month of June:
Tacos
Burritos
Units sold
25,000
37,500
Sales revenue
$150,000
$50,000
Fixed costs
Variable costs

8,000
12,000
$30,000

38,000
78,000
$34,000

Income
How much is the breakeven point in total sales dollars for Simpson?

7.

Which of the following is not an assumption underlying CVP analysis?

A. Costs can be accurately separated into their fixed and variable components.
B. Fixed costs remain fixed over the relevant range.
C. Variable costs per unit change over the relevant range.
D. The sales mix remains constant.

8.

Which of the following is not true for a firm with high operating leverage?
A. It has a relatively high amount of fixed costs.
B. It is generally thought to be riskier than a company with lower operating leverage.
C. It has a larger profit than most firms.
D.
If sales increase, its profits will increase more quickly than a company with lower operating
leverage.

9.

Cold Stuff manufactures refrigerators. Which of the following items is most likely to be an indirect material
cost for Cold Stuff?
A. Factory supervisors salary
B. Lubricant for refrigerator door hinges
C. Glass shelves for the refrigerators
D. Refrigerator motors

10. Which of the following costs is not part of manufacturing overhead?

A. Electricity for the factory
B. Depreciation of factory equipment
C. Salaries for the production supervisors
D. Fringe benefits for sales staff
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11. Work in Process Inventory consists of the cost of

A. goods which are only partially completed.
B. All manufacturing costs incurred during the period.
C. all materials purchased during the last period.
D. all goods which are completed and ready to sell.
E. both A and D
12. Burson, Inc. uses a job-order costing system. It reported the following amounts for March:
Work in process, March 31
Work in process, March 1
Cost of goods manufactured
Direct labor used

$35,000
31,000
182,000
56,000

Finished goods, March 31

Finished goods, March 1
Raw materials, March 31
Raw materials, March 1

Selling costs incurred

33,000
Direct materials used
How much of the above amounts will Burson report on its balance sheet at the end of March?

$12,800
15,200
15,300
17,800
66,000

13. Which one of the following is a reason that standard costs are used in process costing?
a) Record keeping is easier because the method attaches the same value to each completed unit.
b) No benchmarks are developed in the process.
c) It takes very little effort and resources to compute the standards.
d) Management can use standards developed by other companies in the same industry.
14. Companies that use process costing systems
A. generally produce large quantities of identical items.
B. trace costs to specific items produced.
C. accumulate costs by completed products rather than by departments.
D. All of the above answers are correct.
15.

Which of the following statements about job-order costing is not true?

A. Materials are traced to jobs using materials requisition forms.
B. Indirect labor is traced to jobs using time tickets.
C. Manufacturing overhead cannot be traced directly to jobs, so it is assigned using an overhead
allocation rate.
D. All of the above statements are true.

16.

Nations Shipping determined the rate to apply overhead based on direct labor hours would be $8.40,
and based on machine hours would be $4.05. Job 43D used $12.80 of direct materials, 3.22 machine
hours, and 24 minutes of direct labor at a cost of $15 per hour. How much is the cost of job 43D if
Nations Shipping applies overhead based on machine hours?

17.

Management by exception refers to the practice of only investigating variances

A. that are unfavorable.
B. where the actual amount exceeds the budget.
C. that are large in amount relative to budgeted amounts.
D. that are large in amount relative to actual amounts incurred.

18.

Singster Company had sales of 1,200 units of its only product in the first quarter of 2013. In the first
quarter of 2012, Markus anticipates selling 20% more units than it sold in the first quarter of 2013, with a
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selling price of $66 per unit. Variable cost per unit is $42 and total fixed costs are $18,000. The income
tax rate is 30%. How much is total revenue at the breakeven point?

19. Budgeted sales (in units) for the Starfleet Company are as follows:
September
45,000 units
October
50,000 units
November
40,000 units
December
65,000 units
The company wishes to have 15% of the next months sales on hand at the end of each month. How
much is budgeted production for November?

20. Standard costs would be most useful for

A. A canning factory
B. A tax preparation firm
C. A software company
D. A custom home builder
21. In general, unfavorable labor efficiency variances arise from
A. using more labor hours than planned.
B. paying a higher rate to employees than planned.
C. Both A and B are correct.
D. Producing less units of product than budgeted.
22.

Werth Company produces tie racks. The estimated fixed costs for the year are $224,000, and the
estimated variable costs per unit are $14. Werth expects to produce and sell 60,000 units at a price of
$20 per unit. By how much can sales revenue drop before Werth incurs a loss?

23.

Which of the following best describes one impact of undercosting?

A. It is a common practice that allows a company to show larger profit margins.
B. Undercosting some products will lead to overcosting other products, which is acceptable because
total costs and profits are the same.
C. Undercosting may cause a company to price it products less than what is necessary to make a
profit.
D. It can cause activity levels to fluctuate.

24.

Which one of the following is an appropriate cost object?

A. A house cleaning by Molly Maids
B. The dollar amount of delivery costs incurred in shipping goods to customers
C. The number of purchase orders prepared by an ordering department
D. A production department

25. Manufacturing overhead during the year was overapplied. If the amount is immaterial, which one of the
following is a part of the transaction that should occur to dispose of the overapplied amount?
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A. Increase Cost of Goods Sold

B. Decrease Cost of Goods Sold
C. Increase Finished Goods Inventory, Work in process, and Cost of goods sold
D. Decrease Finished Goods Inventory, Work in process, and Cost of goods sold
26. A disadvantage of dropping a product line is that
A. the supplier may be able to produce a component at a lower cost.
B. there is a loss of control over the production process.
C. there may be an opportunity to expand other parts of the company.
D. allocated costs must absorbed by other product lines.
27. CFO Services is trying to determine the variable and fixed elements of its service overhead. The following
data have been collected from recent activity:
Total Service Overhead
Cases Worked
June
$60,000
188
July
59,000
190
August
66,500
175
September
56,000
178
Which data points will be chosen to use the high low method?

28. Which of the following is not true about the step-down method?
a. It is also known as the sequential method.
b. Costs are allocated from each support department to all other support and production departments.
c. Support cost pools ranking is a key step in step-down allocation.
d. This is considered to be a oneway allocation method.

29. Budgets are useful in planning because they enhance

A. relevance and reliability of information.
B. communication and coordination.
C. understanding of costs.
D. elimination of costs.

30. Nail Kingdom budgeted 2014 sales to be 410,000 gallons and production to be 400,000 gallons of window
cleaner. Material cost in the 2014 production plan amounted to $820,000. During 2014, the company
actually produced 420,000 gallons and material costs totaled $882,000. How much is the flexible budget
variance for materials on a level 2 analysis?

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31. Robly Company currently produces 15,000 units of part B13. Current costs for part B13 are as follows:
Direct materials
$12
Direct labor
9
Fixed factory costs
7
Fixed administrative costs
10
Variable factory overhead
6
Total
$44
If the company decides to buy part B13, 50% of the administrative costs would be avoided. All of the Robly
Company items, including part B13, are manufactured in the same rented production facility. The company
has an offer from a wholesaler that wishes to sell the part to Robin for $15 per unit. What effect will occur if
the company decides to accept the offer from the wholesaler?

32. Freesome Enterprises planned to sell 19,000 surfboards, however the actual number sold totaled 18,000.
Which one of the following provides the best comparison of the cost data associated with the sales?
a. A budget based on the original planned level of activity
b. A budget of 18,000 units of activity
c. A budget of 19,000 units of activity
d. The master budget level of activity
33. Brink Company planned to make 500,000 cans of pasta sauce and spending $250,000 on tomatoes during
November. However, demand was weak due to increased competition, and only 450,000 cans of pasta
sauce were produced. The actual cost incurred was $230,000. Tomato prices were as expected during the
period. Which of the following statements would be a fair statement regarding Brinks performance on
tomato usage?
A. Brink was under flexible budget by $20,000.
B. Brink was over budget by $5,000.
C. Brinks flexible budget for tomatoes for performance evaluation is $250,000.
D. Both a and c are correct
34. Which one of the following is a suitable way to evaluate cost centers?
a. Compare the actual profit generated with expected profit
b. Compare actual total costs with flexible budget data
c. Compare actual controllable costs with static budget data
d. Compare actual controllable costs with flexible budget data
35. Given below is a portion of Dance, Inc.s management performance report:
Budget
Actual
Contribution margin
$1,010,000
$1,020,000
Controllable fixed costs
430,000
425,000

Difference
$10,000
5,000

Which statement is true about the managers overall performance?

a. The performance is good.
b. The performance is bad.
c. The manager performed favorably on all controllable amounts.
d. The manager's overall performance cannot be determined from information given.
36. Randy Company produces a single product. The income tax rate is 30%. If the unit contribution margin is
$43 and fixed costs total $47,500, how many units must Randy sell in order to earn net income of $88,000?
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37. Which of the following allocations will never occur when the direct method of allocating service costs is used
in a manufacturing company?
A. Payroll department costs are allocated to the baking department.
B. HR department costs are allocated to the maintenance department.
C. Personnel department costs are allocated to the assembly department.
D. All of the above allocations can occur when the direct method is used.
38. Under which costing method are fixed operating costs considered a product cost?
A. Absorption costing and variable costing
B. Absorption costing only
C. Variable costing only
D. Neither variable or absorption costing
39. Beginning finished goods inventory for Alves Inc. was $11,000. Goods completed during the year were
costed at $780,000. Purchases of raw materials totaled $400,000. The ending finished goods inventory was
$14,000. How much was cost of goods sold for the year?

40. Alfred, owner of Hi-Tech Fiberglass Fabricators, Inc., is interested in using the reciprocal allocation method.
The following data from operations were collected for analysis:
Budgeted manufacturing overhead costs:
Plant Maintenance
PM (Support Dept)
$350,000
Data Processing
DP (Support Dept)
$ 75,000
Machining
M (Operating Dept)
$225,000
Capping
C (Operating Dept)
$125,000
Services furnished:
By Plant Maintenance (budgeted labor-hours):
to Data Processing
3,500
to Machining
5,000
to Capping
8,200
By Data Processing (budgeted computer time):
to Plant Maintenance
600
to Machining
3,500
to Capping
600
What are the two linear equation used to allocate support department costs using the reciprocal method?

41. Morgan Models company manufacturers replica plastic airplane and motorized vehicle models. During
October, the firm's Assembly Department started production of 60,000 models. During the month, the firm
completed 66,000 models, and transferred them to the Finishing Department. The firm ended the month
with 22,000 models in ending inventory. There were 28,000 models in beginning inventory. All direct
materials costs are added at the beginning of the production cycle and conversion costs are added
uniformly throughout the production process. The FIFO method of process costing is used by Morgan.
Beginning work in process was 25% complete as to conversion costs, while ending work in process was
50% complete as to conversion costs. Other information follows:
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Beginning inventory:
Direct materials costs $39,200
Conversion costs
$30,800
Manufacturing costs added during the accounting period:
Direct materials costs
$90,000
Conversion costs
$280,000
What is the amount of direct materials cost assigned to ending work-in-process inventory at the end of
October?

42. Activity-based costing

A. calculates a more accurate product cost and is less expensive than the traditional method of costing.
B. categorizes direct costs by activity and traces the direct costs to those activities using a cost driver.
C. is used to allocate indirect and direct costs to products.
D. allocates indirect costs based on the activity that causes costs to increase.
USE THIS INFORMATION FOR QUESTIONS 43 through 45.
Four Wheels is approached by Harry Truman, a new customer, to fulfill a large one-time-only special order for an
all-terrain vehicle similar to that sold to regular customers. The following per unit data apply for sales to regular
customers:
Direct materials
$155
Direct labor
100
Variable manufacturing overhead
40
Fixed manufacturing overhead
80
Total manufacturing costs
375
Markup (40%)
150
Targeted selling price
$525
Four Wheels is operating at capacity. Harry Truman wants the ATV painted in green metallic paint, so direct
material costs will increase by $30 per unit.
43. What is the minimum price that Four Wheels should accept for this one-time-only special order?

44.

Other than price, what other items should Four Wheels consider before accepting this one-time-only
special order?
a. Reaction of shareholders
b. Reaction of existing customers to the lower price offered to Truman
c. Demand for ATVs
d. Price is the only consideration.
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45.

If there was unlimited capacity at Four Wheels, all of the following amounts would decrease EXCEPT
a. opportunity costs.
b. total revenue.
c. contribution margin on products sold to regular customers.
d. the minimum acceptable price.

46.

When evaluating a make-or-buy decision, which of the following does NOT need to be considered?
a. Alternative uses of the production capacity
b. The original cost of the production equipment
c. The quality of the supplier's product
d. The reliability of the supplier's delivery schedule

47.

Which of the following will NOT be considered in a make-or-buy decision?

a. Fixed costs that will no longer be incurred
b. Incremental revenue
c. Potential rental income from space occupied by the production area
d. Variable selling costs

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48. Weighty Steel processes a single type of steel. For the current period the following information is given:
Beginning Inventory
Started During the Current Period
Ending Inventory

Units
3,000
20,000
2,500

Material Costs
$4,500
32,000

Conversion Costs
$5,400
78,200

All materials are added at the beginning of the production process. The beginning inventory was 40%
complete as to conversion, while the ending inventory was 30% completed for conversion purposes.
Weighty uses the weighted-average costing method. What is the total cost assigned to the units
completed and transferred this period?

49. Billings Companys plant manager is trying to better understand his plants inventory workflow. He
determined that $10 million was incurred to purchase raw materials, $2 million on direct labor and $3
million on manufacturing overhead. If raw materials beginning and ending inventories are $2 million and $1
million, respectively, and work-in-process beginning and ending inventories are $6 million and $4 million
respectively, how much is cost of goods manufactured using an actual costing system?

50. Gecko Company is evaluating the use of a supplier versus making the wheels for its skateboards internally.
The currently manufactured wheels have a variable unit cost of $2. Fixed costs are $16,000 per month,
however, 25% can be eliminated if wheels are no longer produced. A supplier has offered to produce this
part for $3 per wheel and can produce the 3,200 wheels for the 800 skateboards needed monthly. What is
the effect on profit is Gecko outsources the wheels or make them internally?

51. Redplum Computers sales volume is below its production volume for the month. How will profit differ on an
absorption costing income statement from profit on a variable costing income statement?
a) Profit will be higher on a variable costing income statement.
b) Profit will be higher on an absorption costing income statement.
c) Both amounts will be the same. The costs are just located in different sections of the two statements.
d) It depends on the number of cost pools the company uses to allocate indirect costs.
52. Geronimo Gym Equipment produces playground equipment with a selling price of $700 per set. The costs to
produce each set include: direct materials, $200; direct labor, $125, variable manufacturing overhead,
$100. The fixed manufacturing overhead per year is $12,000. Beginning inventory is 12 units. If Geronimo
produces 200 sets and sells 180 sets, and income under variable costing is $34,500, how much is
operating income under absorption costing?
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53. Lawn Queen manufactures mowers. The firm has divided its two divisionsEast Division, and West
Division. It is contemplating the best way to allocate the support costs in the head office to the two
divisions. The following data are available.
Traced Costs
Consumption Pattern
From Technology
From Administration

Technology

Administration

East Division

West Division

$112,000

$126,000

$141,000

$120,000

10%

40%
30%

50%
55%

15%

How much is the total cost for the East Division after allocation using the direct method?

54. Use the information from question 53. How much is the total cost for the East Division after allocation using
the step-down method?

55. Which amount would not be considered to be a period cost on an absorption costing income statement?
a) Variable manufacturing overhead costs
b) Fixed marketing and sales costs
c) Administration costs
d) Variable marketing and sales costs
56. What is an activity-based costing system?
a) An approach to determining product costs
b) An approach that allocates all product costs
c) An approach that allocates all costs that can be directly traced to products or services
d) An approach that allocates indirect costs to products
57. If the anticipated contribution margin on a new product line is $9 per unit, total fixed costs are $140,000,
and the total market for the product is 15,000 units, then the CVP analysis would recommend that the
company
A. abandon the potential new product line.
B. decrease the sales price per unit.
C. increase fixed costs (such as advertising) to lower the breakeven units.
D. adopt the new product line.
58. In graph form, the breakeven point is at the intersection of the
A. total-revenue and variable-cost lines.
B. total-cost line and vertical axis.
C. variable-cost and fixed-cost lines.
D. total-cost and total-revenue lines.

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59. During May, actual costs for a company that produced 25,000 widgets were direct materials, $20,000; direct
labor, $30,000; indirect materials, $3,000, indirect hourly labor, $2,000, factory supplies, $1,000, factory
supervisor salary, $4,000, selling expenses; $10,000, and costs to delivery products to customers, $2,000.
How much is the full product cost per unit of manufacturing widgets?

60. Nantucket Enterprises has identified three cost pools to allocate overhead costs. The following estimates
are provided for the coming year:
Cost Pool
Overhead Costs
Cost driver
Activity level
Supervision administration
$120,000
Direct labor hours
400,000
Machine maintenance
70,000
Machine-hours
140,000
Facility costs
115,200
Square feet of area
24,000
Total overhead costs
$305,200
The accounting records show the City of Neptune Job consumed the following resources:
Cost driver
Actual level
Direct labor-hours
8,800
Machine-hours
1,800
Square feet of area
1,200
If direct labor hours are considered the only overhead cost driver, what is the cost driver rate for Nantucket
Enterprises?

61. Use the information in question 60. How much is the overhead cost assigned to the City of Neptune job
using ABC?

62. When indirect materials are requisitioned by the production supervisor in actual costing,
A. Work in Process Inventory decreases.
B. Finished Goods Inventory increases.
C. Raw Materials Inventory decreases.
D. Finished Goods Inventory decreases.
E. Some other answer
63. The CEO of Wilson Wheel Barrows is estimating sales based on a budgeted net income of $58,000. The
income tax rate is 30%. If the unit contribution margin of each wheel barrow is $80, total sales in June are
estimated at $600,000 and fixed costs are $240,000, how many wheel barrows must be sold to attain the
target net income?

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64. At the point that indirect labor is incurred in production, what transaction occurs in normal costing?
A. Raw Materials Inventory increases
B. Work in Process Inventory increases
C. Manufacturing overhead increases
D. Cost of goods sold increases
65. Lansings Work in Process account showed a balance of $14,500 on July 1, 2014. During July, direct
materials costing $58,000 were requested for production and total factory payroll was $72,000 with 10% of
this being indirect labor. Lansing applies manufacturing overhead at a rate of 80% of direct labor costs. Cost
of goods manufactured was $171,000 during July. How much should Lansing report as its July 31, 2014
balance in Work in Process Inventory?

A.
B.
C.
D.

66.

Overcosting of a product is MOST likely to result from

a. misallocating direct labor costs.
b. overpricing the product.
c. allocating overhead costs.
d. understating total product costs in budgets.

67.

Activity-based costing (ABC) can eliminate cost distortions because ABC

a. develops cost drivers that have a cause-and-effect relationship with the activities performed.
b. establishes multiple cost pools.
c. eliminates product variations.
d. recognizes interactions between different departments in assigning support costs.

68.

Each of the following statements is true EXCEPT

a. traditional product costing systems are easier to apply than ABC.
b. ABC is a method of allocating indirect costs to products.
c. traditional product costing systems are more accurate than an ABC system.
d. cost distortions occur when a mismatch (incorrect association) occurs between the way indirect costs
are incurred and the basis for their assignment to individual products.

69. Which of the following units of Target Corporation would most likely not be a support department?
An assembly department
The corporate accounting department
The marketing department
Investor Relations
70. Tire Town produces specialty tires for luggage. The company is evaluating its current months profit for the
deluxe tire. The tires unit selling price is $3.20, the variable cost per unit is $1.50, sales volume is 450 units,
and fixed costs are $5,600 for the period. How much is the contribution margin ratio of the tires?

71. The fixed overhead production volume variance is favorable when

A. more units are produced than were originally planned.
B. actual overhead costs are less than the flexible budget.
C. the static budget is greater than the amount of fixed overhead applied.
D. there are units remaining in ending inventory.
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Use the Nelson Manufacturing information for questions 72 through 75.

Nelson Manufacturing produces baseball equipment. The standard cost of producing one unit of model XHR is:
Material (3 ounces at $1.30 per ounce)
$3.90
Labor (12 minutes at $12.00 per hour)
2.40
Overhead
1.80
Total
$8.10
At the start of 2014, Nelsons planned to produce 40,000 units during the year. Annual fixed overhead is
budgeted at $56,000 and the standard for variable overhead is $0.70 per unit. The following information
summarizes the results for 2013:
Actual production was 39,200 units.
Purchased 124,000 ounces of material at a total cost of $155,000.
Used 119,000 ounces of material in production.
Employees worked 8,100 hours and were paid $95,800.
72.
73.

What is the material price variance?

What is the material quantity variance?

74.
75.

What is the labor rate variance?

What is the labor efficiency variance?

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76. The standard price for materials is often determined by

A. a financial analyst who is following the company.
B. a union labor contract.
C. price lists provided by suppliers.
D. multiplying the number of units needed by the actual cost.
77. The difference between standard costs and budgeted costs is that standard costs
A. refer to a single unit while budgeted costs refer to the cost, at standard, for the total number of budgeted
units.
B. are calculated under ideal conditions, while budgeted costs are calculated for attainable conditions.
C. are calculated for material while budgeted costs are calculated for labor.
D. are part of the management accounting system, while budgets are part of the financial accounting
system.
78. JewelCo produces a bracelet which normally sells for $82. The company produces 1,500 units annually but
has the capacity to produce 2,000 units. A special order for 200 bracelets at $55 has been received which
would not disrupt current operations. Current costs for the bracelet are as follows:
Direct materials
$17.00
Direct labor
11.50
Variable overhead
4.00
Fixed overhead
5.00
Total
$37.50
In addition, the customer would like to add a monogram to each bracelet which would require $4 per unit in
additional labor costs and JewelCo would also have to purchase a piece of equipment to create the
monogram which would cost $1,600. This equipment would not have any other uses. With regard to this
special order, what effect will occur is it is accepted?

79. BigByte Company has 12 obsolete computers that are carried in inventory at a cost of $13,200. If these
computers are upgraded at a cost of $2,500, they could be sold for $4,800. Alternatively, the calculators
could be sold as is for $2,600. What is the net advantage or disadvantage of re-working the computers?

80. Companies which use only one or two cost pools rather than several cost pools
A. may have seriously distorted product costs.
B. will have higher record-keeping costs.
C. will be able to more accurately price products to cover the cost and generate a profit.
D. are likely to be using ABC.
81. Which of the following is not generally true when a company compares ABC and traditional costing?
A. ABC uses more cost drivers.
B. ABC allocates costs based solely on production volume.
C. ABC is more expensive.
D. ABC is less likely to undercost complex, low-volume products.
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82. Central Apparel Company owns two stores and management is considering eliminating the East store due
to declining sales. Contribution income statements are as follows and common fixed costs are allocated on
the basis of sales.
West
East
Total
Sales
$420,000
$510,000
Variable costs
210,000
255,000
Direct fixed costs
50,000
75,000
Allocated fixed costs
110,000
145,000
Net Income
$ 50,000
$35,000
Centrals management feels that if they eliminate the East store, that sales in the West store will increase by
15%. If the East store is closed, what effect will occur to the overall company net income?

83. Jarme Company makes two products and is budgeting for its Activity Based Costing (ABC) system.
Previously, all overhead had been applied on the basis of machine hours. The company produces 20,000
units of product D and 10,000 units of product F annually. Overhead is applied based on machine hours.
Actual Activity
Estimated
Cost Pool
Estimated Activity
Cost in Pool
Product D
Product F
Equipment Setup
500 setups
$640,000
350 setups
160 setups
Materials Ordering
10,000 orders
$250,000
7,000 orders
3,100 orders
Quality Control
4,000 inspections
$100,000
2,000 inspections
1,980 inspections
50,000 machine
40,000 machine
12,000 machine
Machining
$400,000
hours
hours
hours
What is the total overhead cost allocated to Product F using traditional allocation?

84. Use the information in question 83. What is the overhead cost per unit for Product F using ABC?

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85.

Offshore Company makes 2 different types of boats, commercial fishing and sail boats both for recreation
and competition. The company consists of two different departments, design & engineering, and
production administration. The company has decided to allocate overhead costs in each of the two cost
pools. Data on estimated overhead follows:
Estimate
d
Sailboat
Activity
Driver
Fishing Estimate
Overhead
Estimate
Cost
Design and engineering
# of designs
$180,000
22 designs
23 designs
Production administration
Labor hours
$708,000 4,000 hours
2,000 hours
What overhead rates will be used in each department to assign costs to the sailboats?

86. West Companys manufacturing costs for 2014 are as follows:

Direct materials
$100,000
Direct labor
$250,000
Variable factory overhead
$72,000
Depreciation of factory equipment
$30,000
Other fixed manufacturing overhead
$50,000
The company has 700 units in beginning inventory. What amount should be considered cost of goods sold
for external reporting purposes if 8,000 units were produced and 8,100 are sold?

87. As volume decreases,

A. variable cost per unit decreases.
B. fixed cost in total decreases.
C. variable cost in total remains the same.
D. fixed cost per unit increases.
88. Sam Company makes 2 products, buckets and shovels. Additional information follows:
Buckets
Shovels
Units
2,000
3,000
Sales
$60,000
$25,000
Variable costs
24,000
13,750
Fixed costs
10,000
5,250
Net income
$26,000
$6,000
Pounds of plastic per unit
2.00
0.40
Profit per unit
$13.00
$2.00
Contribution margin per unit
$18.00
$3.75
The company can sell as many buckets and shovels as it can manufacture and can eliminate one or the
other without an effect on demand of the other. Suppose that plastic is in limited supply and only 1,760
pounds are available. Which products and how many should the company manufacture?

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89. The fixed overhead production volume variance is due to

A.
using a different selling price from that budgeted.
B.
inaccurate forecasting of units sold.
C.
producing a different number of units than planned.
D.
both A and C.
E.
both B and C.
90. The following information was taken from the cost records of the Cott Corporation:
Estimated manufacturing overhead
$84,000
Actual manufacturing overhead
$81,800
Actual direct labor hours
12,000 @ $11.00
Estimated direct labor hours
12,500 @ $11.20
Cott applies manufacturing overhead based on direct labor hours. How much is overapplied or underapplied
manufacturing overhead?

91. A favorable direct materials price variance indicates that

a. a lower price than planned was paid for materials.
b. a higher price than planned was paid for materials.
c. less material was used during production than planned for actual output.
d. more material was used during production than planned for actual output.
92. A favorable efficiency variance for direct manufacturing labor indicates that
a. a lower wage rate than planned was paid for direct labor.
b. a higher wage rate than planned was paid for direct labor.
c. less direct manufacturing labor hours were used during production than planned for actual output.
d. more direct manufacturing labor hours were used during production than planned for actual output.
e. less direct manufacturing labor hours were used during production than planned for budgeted output.
f. more direct manufacturing labor hours were used during production than planned for budgeted output.
93. The delivery trucks of Transport Company incurred $3,600 of maintenance costs during the busiest month of
2004, in which 12,000 miles were driven collectively. During the slowest month, $2,800 in maintenance
costs were incurred, and 8,000 miles were driven. Using the high-low method, what maintenance cost would
the company expect to incur if 9,200 miles were driven?

94.

A favorable variable overhead efficiency variance indicates that

a. variable overhead items were used efficiently.
b. the price of variable overhead items was less than budgeted.
c. the variable overhead cost allocation base was used efficiently.
d. the activity level was not accurately determined.

95.

The amount reported for fixed overhead on the static budget is also reported
a. as actual fixed costs.
b. as applied fixed overhead.
c. on the flexible budget.
d. as both (b) and (c).
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96.

97.

If the number of units in finished goods beginning inventory is more than the number of units in finished
goods ending inventory, the number of units sold is
A.
less than the number of units produced.
B.
greater than the number of units produced.
C.
less than the number of units in beginning inventory.
D.
equal to the cost of goods manufactured.
Which of the following statements is correct?
A. Total fixed costs are equal to revenue plus variable cost per unit times the quantity produced.
B. Profit is equal to total fixed costs plus revenue.
C. Total fixed costs are equal to profit minus revenue.
D. Profit is equal to revenue minus total variable costs minus total fixed costs.

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 98 THROUGH 101.

Jennys Corporation manufactured 12,000 grooming kits for horses during March. Overhead is allocated based
on machine hours. The following fixed overhead data pertain to March.
Actual
Static Budget
Production
12,000 units
13,000 units
Machine hours per unit
0.30 hours
0.28 hours
Fixed overhead costs for March
$49,000
$51,688
98.
99.
100.
101.

102.

What is the fixed overhead flexible budget amount?

What is the amount of fixed overhead allocated to production?
What is the fixed overhead spending variance?
What is the fixed overhead production volume variance?

What is one reason the amount of cash paid out for overhead each period does not equal the total
overhead incurred?
A. Depreciation is an overhead expense that does not require the use of cash.
B. Overhead expenses are only estimates, they do not require cash.
C. Units sold normally differ from the number of units produced.
D. The amount of cash paid out is adjusted for the number of units sold.

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103.

A disadvantage of the weighted-average method compared to the FIFO process-costing method is that:
A) FIFO is computationally simpler
B) FIFO provides better management information for planning and control purposes
C) when unit cost per input prices fluctuate markedly from month to month, its per unit cost is less
representative than FIFO
D) the information it provides about changes in unit prices from one period to the next is less useful
than the information provided by FIFO

104.

Hunley Companys sales revenue for 2012 was $120,000. Hunley has one product that has a 30
percent contribution margin. Fixed costs total $25,000 and the income tax rate is 40%.What is Hunley
Companys breakeven point in sales dollars?

105. What will occur when the number of units sold differ from the number produced?
A.
finished goods inventory levels changed
B.
work in process inventory levels changed
C.
direct material inventory levels changed
D.
sales returns and allowances occurred
106. Activity-based budgeting
A. uses one cost driver such as direct labor hours.
B. uses only output-based cost drivers such as units sold.
C. focuses on activities necessary to produce and sell products and services.
D. requires a division between fixed and variable costs when estimating overhead costs.
107. A maintenance department manager is MOST likely responsible for
A. a revenue center.
B. an investment center.
C. a cost center.
D. a profit center.
108. The flexible budget variance for overhead costs can be subdivided into
A.
a static budget variance and a sales volume variance.
B.
a sales volume variance and an efficiency variance.
C.
a spending variance and an efficiency variance.
D.
a static budget variance and a spending variance.
109. A cost that includes direct labor, direct materials, and manufacturing overhead is called
A. a discretionary cost
B. a direct cost
C. a variable cost
D. a product cost
E. a period cost
110. Which of the following items on a variable costing income statement will change in direct proportion to a
change in sales?
A. Contribution margin and operating income
B. Variable costs and contribution margin
C. Variable costs, contribution margin, fixed costs and operating income
D. Variable costs and fixed costs

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USE THIS INFORMATION FOR QUESTIONS 111 through 114.

Closeout Deals manufactures gizmos and employs a normal costing system. During June, Closeouts
transactions and accounts included the following
Raw materials acquired
$138,000
Total manufacturing overhead allocated
27,900
Total manufacturing overhead incurred
29,800
Finished goods, beginning
15,400
Finished goods, ending
19,000
Raw materials inventory, beginning
5,900
Raw materials inventory, ending
4,200
Work in process inventory, beginning
11,600
Work in process inventory, ending
12,500
Direct labor cost incurred
42,000
111. How much is the cost of direct materials requisitioned for production during June?
112. How much is the total manufacturing costs for June?
113. How much is cost of goods manufactured for June?
114. How much is cost of goods sold for June if manufacturing overhead is assumed to be immaterial?

115. Gable Corporation is allocating costs under weighted average process costing system during May for its
vacuum products. There were 1,500 units in beginning inventory and 21,000 were started during May. At
May 31, its work in process inventory has 5,000 units that are 20% complete as it relates to labor and
overhead costs with all other units complete. Materials are added at the start of production. The total
conversion costs to account for are $135,000. How much is the conversion cost allocated to Work in
Process at May 31?

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116. Macus Productions uses a FIFO process costing system and has three process departments: assembly,
painting, and finishing. There were 62,000 units transferred out of the assembly department and 9,000 units
still in process at the end of a period. There were 8,400 in process at the beginning of the period. How many
units were started into production during the period?

117.

Which of the following is not true in a job-order costing system?

A. Cost of goods sold will include the costs of all jobs that are sold during the accounting period.
B. Work in Process Inventory will include the cost of all jobs that are currently being worked on.
C. Finished Goods Inventory will include the cost of all jobs that are completed but not yet sold.
D. Raw Materials Inventory will include the cost of jobs that have been started.

118.

Clinton Ties began the month of July with jobs 80 and 83 completed and waiting to be shipped to
customers. At the end of June, jobs 81, 84, and 85 were in production. During July, jobs 86, 87, 88, 89
and 90 were begun. The company completed Jobs 81, 85, 86, 88, and 89 during July. Jobs 80, 81, 83,
85, and 88 were shipped to customers during July. Which jobs are in finished goods at July
31?

119.

Eastern Spas produces custom portable spas. At the end of its accounting period, the account balances
indicated the following:
Raw Materials Inventory
$ 18,000
Work in Process Inventory
74,000
Finished Goods Inventory
42,000
Cost of Goods Sold
384,000
Manufacturing Overhead underapplied
6,200
Determine the adjusted balance of Cost of Goods Sold, rounded to the nearest whole dollar, assuming
the balance in Manufacturing Overhead is considered material in amount.

120.

Uno Pizza produced and sold 800 pizzas last month and had total variable ingredients that cost $3,440.
If production and sales are expected to increase by 10% next month, which of the following statements
is true?
A. Total variable materials costs are expected to be $3,784
B. Variable material cost per unit is expected to be $4.73
C. Total costs are expected to be $47,784
D. Total variable materials costs are expected to be $344
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121.

Which of the following statements regarding fixed costs is true?

A. When production increases, fixed cost per unit increases.
B. When production decreases, total fixed costs decrease.
C. When production increases, fixed cost per unit decreases.
D. When production decreases, total fixed costs increase.

122. Duradyne, Inc. has total costs of $18,000 when 2,000 units are produced and $26,000 when 5,200 units
are produced. During March, 4,000 units were produced and sold for $11 each. What is the contribution
margin per unit?

Use the following information for questions 123 through 124:

Bjorni Inc. makes a single product, the Bjorn, and has 7,000 units in inventory as of January 1, 2014. Information
for 2014 appears below:
Sales in units
99,000
Production in units
98,000
Variable production cost per unit
$1.50
Variable selling cost per unit
$0.30
Fixed production cost per year
$112,700
Fixed selling and administrative cost per year
$50,000
Selling price per unit
$3.00
123.

How much is the ending inventory cost using variable costing?

124.

How much is the full cost of inventory to be reported on the 2014 income statement?

125. A significant weakness of the high-low method is that

A. a significant amount of management expertise is necessary to break out the variable and fixed costs.
B. the two data points that are used may not be representative of the general relation between cost and
activity.
C. the calculations are so complex that a computer is usually necessary in order to get accurate results.
D. monthly data must be collected for at least three years before the method can be used.
126.

Holding all other factors constant, the break-even point will be decreased by
A. increasing the fixed costs.
B. decreasing the contribution margin.
C. increasing the selling price.
D. increasing the variable cost per unit.
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127. Samson Industries began June with 30 tables in its beginning WIP inventory in the cutting department. On
June 1, the company began work on 450 tables. By the end of June, Samson had completed work in the
cutting department on 400 tables, and assessed ending work in process inventory to be 20% complete with
respect to conversion costs, and 80% complete as to materials. Samson spent $24,592 on materials and
$40,352 on conversion costs during June. What is the cost of dining tables that were transferred out of the
cutting department during June using a weighted average process costing system?

128. Washington Supply Company experienced the following costs in 2014:

Direct materials
$3.30/unit
Direct labor
$2.50/unit
Manufacturing Overhead Costs
Variable
$1.50/unit
Fixed
$40,000
Selling & Administrative Costs
Variable selling
$2.15/unit
Fixed selling
$8,000
Fixed administrative
$7,000
Beginning finished goods inventory contained 5,200 units. During the year, the company manufactured
19,000 units and sold 21,000 units. If the average selling price per unit was $13, how much was the
companys contribution margin for 2014?

129. Use the information in question 128. How much is gross profit for 2014?

130. Use the information in question 128. Assume that variable costing income is $17,000. By what amount will
variable costing income be adjusted to determine absorption income?

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