Question 1

1. Assigning manufacturing overhead to a specific job involves some difficulties. Which of

the following is an example of such a difficulty?
Manufacturing overhead consists of only fixed costs.

Manufacturing overhead is an indirect cost, and is either impossible or difficult to trace to

a particular product or job.

Manufacturing overhead is a direct cost and consists of both variable and fixed costs.

Manufacturing overhead consists of both variable and fixed costs and the fixed costs
fluctuate widely.
3 points

Question 2
1. Why is a predetermined overhead rate calculated and used to apply manufacturing
overhead to a job, instead of using the actual cost of manufacturing overhead?
Seasonal factors should be included in the cost of products so products that cost more in
summer as opposed to winter are priced at higher amounts.
Actual overhead costs may not be known until the end of the year.
Managers would rather not accumulate the actual overhead costs, so estimations are made
throughout the year.
There is no way to calculate the actual overhead costs.
3 points

Question 3
1. Which of the following would not be an appropriate allocation base for calculating the
predetermined overhead rate?
Number of beds occupied in a hospital.
Flight hours for airline transportation.

Direct labor cost in a factory which produces custom made furniture built exclusively by
factory personnel.
Direct labor hours for a factory which is totally automated.
3 points

Question 4
1. Which of the following is not a step of the four-step process used to compute the
predetermined overhead rate?
The first step is to compute the actual amount of the allocation base that will be used for
next period's production.

The second step is to estimate the total fixed manufacturing overhead cost for the coming
period and the variable manufacturing overhead cost per unit of the allocation base.

The third step is to use the cost formula, Y = a + bX to estimate the total manufacturing
overhead cost for the coming period.

The fourth step is to compute the predetermined overhead rate by dividing estimated total
manufacturing overhead cost by estimated total amount of the allocation base.
3 points

Question 5
1. Which of the following statements is false with regard to the schedule of cost of goods
manufactured?
The schedule of cost of goods manufactured summarizes the portions of costs that remain
in ending Work in Process inventory and that are transferred out of Work in Process to
Finished Goods.

The schedule of cost of goods manufactured contains three elements of product costsdirect materials, direct labor and manufacturing overhead.

The schedule of cost of goods manufactured includes a calculation for raw materials used
in production which is embedded in the schedule.

The schedule of cost of goods manufactured summarizes the portions of costs that remain
in ending Finished Goods inventory and that are transferred out of finished goods to Cost
of Goods Sold.
3 points

Question 6
1. All of the following equations are embedded in the schedule of cost of goods
manufactured except:
Unadjusted cost of goods sold = Beginning finished goods inventory + Cost of goods
manufactured - Ending finished goods inventory

Total manufacturing costs = Direct materials + Direct labor + Manufacturing overhead

applied to work in process

Raw materials used in production = Beginning raw materials inventory + Purchases of raw
materials - Ending raw materials inventory.

Cost of goods manufactured = Total manufacturing costs + Beginning work in process

inventory - Ending work in process inventory
3 points

Question 7
1. Brown Company computes its predetermined overhead rate on the basis of direct labor
hours. Estimated direct labor hours at the beginning of the year are 10,000 and actual
direct labor hours at the end of the year are 12,000. Estimated total manufacturing
overhead costs at the beginning of the year are $480,000 and actual total manufacturing
overhead costs at the end of the year are $452,000. The predetermined overhead rate for
Brown Company would be:

$45.20 per direct labor hour

$37.67 per direct labor hour
$40 per direct labor hour
$48 per direct labor hour
3 points

Question 8
1. Luke Company uses a predetermined overhead rate of $25 per machine hour. Estimated
machine hours at the beginning of the year were 1,000 and actual machine hours at the
end of the year were 1,200. Estimated total manufacturing overhead costs at the
beginning of the year are $25,000 and actual total manufacturing overhead costs at the
end of the year are $26,000. What is the amount of manufacturing overhead that would
have been applied to all jobs during the year?
$30,000
$21,667
$25,000
$31,200
3 points

Question 9
1. All of the following assumptions are generally made when using cost-volume-profit
analysis except for:
Selling price is constant regardless of volume changes.
Fixed costs are linear which means they are constant per unit, regardless of activity.
The mix of products sold remains constant in multiproduct companies.
Costs are linear and can be accurately divided into variable and fixed elements.
3 points

Question 10
1. Which of the following statements is true with regard to the contribution margin ratio?
The contribution margin ratio is calculated by dividing sales minus cost of goods sold by
sales.

The contribution margin ratio shows how the contribution margin will be affected by a
change in total sales.
The contribution margin ratio is calculated by dividing sales by contribution margin.
The products with the lowest contribution margin should be emphasized.
3 points

Question 11
1. Which of the following statements is true with regard to the contribution margin ratio?
If the contribution margin ratio is 60% for ABC Company, the impact on fixed costs of a
$30,000 increase in sales would be an increase of $18,000.
If the contribution margin ratio is 20% for ABC Company, the impact on sales of a
$20,000 increase in costs would be an increase of $4,000.
If the contribution margin ratio is 30% for ABC Company, the impact on net operating
income of a $20,000 increase in sales would be an increase of $6,000 in net operating
income assuming fixed costs do not change.
If the contribution margin ratio is 40% for ABC Company, the impact on total costs of a
$10,000 increase in sales would be an increase of $4,000.
3 points

Question 12
1. All of the following statements describe the break-even point except:
The level of sales at which the company's profit is zero.

The point where contribution margin equals fixed costs.

The point where total revenues equal total expenses.

The point where sales minus costs equal target profit.

3 points

Question 13

1. Last year Von's Baskets sold 30,000 units, total sales were $600,000, total variable
expenses were $180,000 and total fixed expenses were $150,000. What is the
contribution margin ratio for Von's Baskets?
45%

70%

55%

30%
3 points

Question 14
1. Last year Von's Baskets sold 30,000 units, total sales were $600,000, total variable
expenses were $180,000 and total fixed expenses were $150,000. What is the estimated
change in the company's net operating income if it were to increase its total sales by
$4,500?
$2,475

$1,350

$2,025

$3,150
3 points

Question 15
1. Use the following information to answer questions 15 through 17. Pencil Pushers, Inc.
manufactures a "Silly Pencil" which sells for $7.50 each. Pencil Pushers expects to sell

82,000 silly pencils next year. At this level of sales, variable expenses will total $184,500
and fixed expenses will total $242,130.
How many silly pencils will Pencil Pushers have to sell next year to breakeven?
46,120 silly pencils

32,384 silly pencils

56,884 silly pencils

345,900 silly pencils

4 points

Question 16
1. If Pencil Pushers wants to make $160,125 in profit next year, what will total sales in
dollars have to be next year?
$470,880
$228,750
$76,620
$574,650
4 points

Question 17
1. The marketing department forecasts that sales of silly pencils will increase 40% next year
if Pencil Pushers increases the yearly advertising budget by $10,000 and redesigns a new
package for the silly pencil that would increase packing costs by $1 per unit. If these
changes are made, what would be the new projected net operating income?
$487,900
$424,370
$861,000

$235,770
4 points

Question 18
1. Use the following data for James Corporation to answer questions 18 through 20.

Sales
Direct labor cost
Raw material purchases
Selling expenses
Administrative expenses
Manufacturing overhead applied to work in
process
Actual manufacturing overhead costs

$626,000
$114,500
$251,000
$95,000
$87,300
$133,200
$145,100

2.
Inventories
Beginning of YearEnd of Year
Raw materials
$8,000
$14,000
Work in
$13,000
$9,000
process
Finished goods
$22,000
$31,000
3.
How many raw materials were used in production this year?
$273,000
$245,000
$257,000
$251,000
4 points

Question 19
1. How much was cost of goods manufactured for the year?
$382,200

$508,600
$504,500
$496,700
4 points

Question 20
1. How much was the adjusted cost of goods sold for the year?
$317,300
$487,700
$499,600
$126,400