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ACC 2203 Spring 2017 Practice Problems for Chapters 1, 2, 3 and 5

1. The number of X-rays taken and X-ray costs over the last nine months in a hospital are given below:
Month X-Rays Taken X-Ray Costs
January 6,250 $28,000
February 7,000 $29,000
March 5,000 $23,000
April 4,250 $20,000
May 4,500 $22,000
June 3,000 $17,000
July 3,750 $18,000
August 5,500 $24,000
September 6,750 $28,500
Using the high-low method, what is the hospitals estimated monthly fixed X-ray cost?
a. $8,000
b. $6,500
c. $6,000
d. $5,850
e. None of the above

2. A company sells a single product for $50 per unit. The companys variable manufacturing costs are $20 per unit, its
variable selling costs are $10 per unit, and total annual fixed expenses are $80,000. What number of units must be sold to
generate an annual target profit of $100,000?
a. 2,000 units
b. 5,000 units
c. 6,000 units
d. 4,500 units
e. 9,000 units


3. A company manufactures two products: A and B. The company's accounting records revealed the following per-unit costs
for direct material and direct labor:
Product A Product B
Production volume (units) 2,500 10,000
Direct material $16 $84
Direct labor:
4 hours at $12/hour $48
1 hour at $12/hour $12

Management is considering a shift to activity-based costing and gathered the following data:
Expected Activity
Activity Cost Pool Estimated Cost Activity cost driver Product A Product B Total
Setups $240,000 Number of setups 80 40 120
General factory $600,000 Direct labor hours 10,000 10,000 20,000
Machine processing $120,000 Machine hours 2,000 1,000 3,000

Assuming that actual activity is the same as expected activity, what is the unit product cost of Product B under activity-based
costing?
a. $138
b. $123
c. $118
d. $96
e. None of the above

4. Last year, a company reported sales of $640,000, a contribution margin of $160,000, and a net operating income of
$40,000. Based on this information, the break-even point in sales dollars was:
A. $240,000
B. $480,000
C. $800,000
D. $400,000
E. None of the above


5. A company operates a job-order costing system and applies overhead cost to jobs on the basis of direct labor cost. Its
predetermined overhead rate was based on a cost formula that estimated $135,000 of manufacturing overhead and an
estimated allocation base of $90,000 in direct labor cost. The company has provided the following data:
Beginning Ending
Raw Materials Inventory (all direct) $29,000 $11,000
Work in Process Inventory 45,000 36,000
Finished Goods Inventory 71,000 61,000
The following actual costs were incurred during the year:
Purchase of raw materials (all direct) $130,000
Direct labor cost $100,000
Manufacturing overhead cost $110,000

Suppose the company closes out any under- or over-applied overhead cost to Cost of Goods Sold. How much was the companys
adjusted Cost of Goods Sold?
a. $377,000
b. $357,000
c. $337,000
d. $363,000
e. None of the above

6. The Work in Process inventory account of a manufacturing company shows a balance of $2,600 at the end of an accounting
period. The job cost sheets of the two uncompleted jobs show charges of $400 and $200 for direct materials, and charges of $300
and $500 for direct labor. From this information, it appears that the company is using a predetermined overhead rate, as a
percentage of direct labor cost ($) of:
a. 80%
b. 125%
c. 100%
d. 150%
e. 200%

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7. A company distributes a product that sells for $50 per unit. Variable expenses are $10 per unit, and fixed expenses total
$15,000 annually. Assume that the company sold 4,000 units last year. The sales manager is convinced that a 10% reduction
in the selling price, combined with a $30,000 increase in advertising expenditures, would increase annual unit sales by 50%. If
these changes were made, by how much would net operating income increase or decrease?

a. $20,000 increase
b. $16,000 increase
c. $12,000 decrease
d. $10,000 decrease
e. None of the above

8. The following information pertains to a companys CVP relationships:

Breakeven point in units sold 1,000


Variable cost per unit $500
Total fixed costs $250,000

How much will be contributed to profit by the 1,001st unit sold ?

a. $1
b. $500
c. $750
d. $250
e. $1,000

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9. A company produces toys. The following information is available:

Selling price per doll $26.40


Variable costs per doll $12.00
Current annual sales 80,000 units
Current fixed costs $360,000

The sales manager projects that next year a 10% reduction in selling price, combined with an increase of $50,000 in advertising
spending would result in an increase of 50% in unit sales. By how much will net income increase if they do so?
a. $166,000
b. $157,000
c. $187,600
d. $145,000
e. $209,200

10. A company uses direct labor-hours as the allocation base in its predetermined overhead rate. At the beginning of the
year, the estimated direct labor-hours were 1,500 hours and the total estimated manufacturing overhead was $30,000. At the
end of the year, actual direct labor-hours for the year were 1,300 hours and the actual manufacturing overhead for the year was
$29,000. What is the amount of overapplied or underapplied manufacturing overhead for the year?
A. $3,000 underapplied
B. $1,000 overapplied
C. $5,000 underapplied
D. $3,000 overapplied
E. None of the above

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11. A company revealed the following figures:

Sales revenue $840,000


Contribution margin $504,000
Net operating income $54,000

How much is the companys margin of safety in dollars?

A. $140,000
B. $90,000.
C.$120,000.
D.$336,000.
E. None of the above

12. A companys total overhead cost at various levels of activity is presented below:

Month Machine-Hours Total Overhead Cost


March ...................................... 5,000 $21,750
April ......................................... 4,000 $19,000
May ......................................... 6,000 $25,000
June ........................................ 7,000 $28,750

Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the
4,000 machine-hour level of activity is as follows:

Utilities (variable) ............................... $ 8,000


Supervisory salaries (fixed) ................. 4,000
Maintenance (mixed) .......................... 7,000
Total overhead cost ............................ $19,000

Suppose the company uses the high-low method to estimate a cost formula for maintenance. What is the total maintenance cost the
company expects to incur at an activity level of 7,600 machine hours?

a. $12,640
b. $13,400
c. $12,800
d. $11,500
e. None of the above

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