Accounting test 4

The cost of a manufactured product generally consists of which of the following costs?

Direct labor cost, direct materials cost, and factory overhead cost

The cost of materials entering directly into the manufacturing process is classified as

direct materials cost.

Which of the following is an example of direct materials cost for an automobile manufacturer?

Cost of interior upholstery

If the cost of direct materials is a small portion of total production cost, it may be classified as part of

factory overhead cost.

The cost of wages paid to employees directly involved in the manufacturing process in converting materials into finished product is classified as

direct labor cost.

Which of the following is FALSE in regards to direct materials for an auto manufacturer?

Small plastic clips to hold on door panels, because they become part of the auto, must be accounted for as direct materials.

Which of the following is an example of direct labor cost for an airplane manufacturer?

Cost of wages of assembly worker

Which of the following is considered a part of factory overhead cost?

Depreciation of factory buildings

The following are all product costs EXCEPT

sales and administrative expenses.

Which of the following is an example of a factory overhead cost?

Factory heating and lighting cost

Which of the following items would NOT be classified as part of factory overhead?

Direct labor used

Compute factory overhead cost from the following costs:
Depreciation on factory buildings $ 20,000
Depreciation on office equipment 20,000
Direct materials used 70,000
Indirect labor 3,000

$23,000

Which of the following manufacturing costs is an indirect cost of producing a product?

Oil lubricants used for factory machinery

Which of the following are the two main types of cost accounting systems for manufacturing operations?

Job order cost and process cost systems

For which of the following businesses would the job order cost system be appropriate?

Custom cabinet manufacturer

Which of the following would most likely use a job order costing system?

A swimming pool installer

For which of the following businesses would the process cost system be appropriate?

Lumber mill

Which of the following costs are NOT included in finished goods inventory?

Company president’s salary

The document authorizing the issuance of materials from the storeroom is the

materials requisition.

Which of the following products probably would be manufactured using a job order costing system?

Wedding invitations

In a job order cost accounting system, the effect of the flow of direct materials into production is to

increase Work in Process, decrease Materials Inventory.

A summary of the materials requisitions completed during a period serves as the basis for transferring the cost of the materials from the materials account to

work in process and factory overhead.

Job order costing and process costing are

cost accounting systems.

In a job order cost accounting system, when goods that have been ordered are received, the receiving department personnel count, inspect the goods, and complete a

receiving report.

The amount of time spent by each employee and the labor cost incurred for each individual job or for factory overhead are recorded on

time tickets.

Which of the following is NOT true about why a service firm will use the job order costing system?

To determine department costs within the firm

The basis for recording direct and indirect labor costs incurred is a summary of the period’s

time tickets.

Recording direct labor costs in a job order cost accounting system

increases Work in Process, increases Wages Payable.

Increases in the Work in Process account occur when

direct labor is recorded from the time sheets

At the end of the fiscal year, the balance in Factory Overhead is small. This balance would normally be

transferred to Cost of Goods Sold

Each account in the work in process subsidiary ledger is called a

job cost sheet

The recording of the factory labor incurred for general factory use would increase

Factory Overhead.

The recording of the application of factory overhead costs to jobs would decrease

Factory Overhead.

The recording of the jobs completed would increase

Finished Goods.

The recording of the jobs completed would decrease

Work in Process.

The recording of the jobs shipped and customers billed would increase

Cost of Goods Sold

The finished goods account is the controlling account for the

stock ledger.

The Cranford Company forecasts that total overhead for the current year will be $15,000,000 and that total machine hours will be 200,000 hours. Year to date, the actual overhead is $8,000,000 and the actual machine hours are 100,000 hours. If the Crawford Company uses a predetermined overhead rate based on machine hours for applying overhead, what is that overhead rate?

$75 per machine hour

Bell Manufacturers Inc. has estimated total factory overhead costs of $60,000 and 10,000 direct labor hours for the current fiscal year. If job number 117 incurred 2,000 direct labor hours, the work in process account will be increased and factory overhead will be decreased for

$12,000.

When Job 711 was completed, direct materials totaled $3,000; direct labor, $3,500; and factory overhead, $1,500. Units produced totaled 1,000. Unit costs are

$8.

Cambridge Corporation applied factory overhead costs of $205,000 to production during the current year. At the end of the year, total overapplied factory overhead is $17,000. What was the amount of actual factory overhead cost incurred during the year?

$188,000

Hudson, Inc. has estimated total factory overhead costs of $400,000 and 20,000 direct labor hours for the current fiscal year. If direct labor hours for Job N41 total 1,500, calculate applied factory overhead applied to this job.

$30,000

Hudson, Inc. has estimated total factory overhead costs of $400,000 and 20,000 direct labor hours for the current fiscal year. If direct labor hours for the year total 18,000 and actual factory overhead totals $350,000, what is the amount of overapplied or underapplied overhead for the year?

$10,000 overapplied

The sale of a finished good on account

increases Cost of Goods Sold, decreases Finished Goods, increases Accounts Receivable, and increases Sales.

Product costs include all of the following EXCEPT

CEO salary.

Which of the following would most likely be a period cost?

Salary of telephone receptionist in the sales office

Period costs include all of the following EXCEPT

wages of an assembly worker.

The period costs of a textbook printer would include

advertising expenses.

Which types of inventories does a manufacturing business report on its balance sheet?

Direct materials inventory, work in process inventory, and finished goods inventory

Costs that are treated as assets until the product is sold are called

product costs.

The Crawford Company forecasts that total overhead for the current year will be $12,000,000 and that total machine hours will be 200,000 hours. Year to date, the actual overhead is $4,000,000 and the actual machine hours are 100,000 hours. If the Crawford Company uses a predetermined overhead rate based on machine hours for applying overhead, as of this point in time (year to date) the overhead is over/under applied by

$2,000,000 over.

At the end of the year, overhead applied was $35,000,000. Actual overhead was $35,800,000. Closing over/under applied overhead into cost of goods sold would cause net income to

decrease by $800,000

Which of the following would most likely be a product cost?

Drill bits for a drill press used in the plant assembly area

For a manufacturing business, inventory that is in the process of being manufactured is referred to as

work in process inventory

The following information is available for the first month of operations for Crawford, Inc.:
Sales $570,000
Gross profit 210,000
Indirect labor 20,000
Indirect materials 9,000
Other factory overhead 7,500
Materials purchased 250,000
Total manufacturing costs 420,000
Materials inventory, end of period 10,000
Calculate cost of goods sold for Crawford, Inc.

$360,000

The following information is available for the first month of operations for Crawford, Inc.:
Sales $570,000
Gross profit 210,000
Indirect labor 20,000
Indirect materials 9,000
Other factory overhead 7,500
Materials purchased 250,000
Total manufacturing costs 420,000
Materials inventory, end of period 10,000
Calculate direct materials cost used in production for Crawford, Inc.

$231,000

The following information is available for the first month of operations for Brandt, Inc.:
Sales $570,000
Gross profit 210,000
Indirect labor 20,000
Indirect materials 5,000
Other factory overhead 37,000
Direct materials cost 390,000
Total manufacturing costs 658,000
Calculate direct labor cost for Brandt, Inc.

$206,000

Job cost sheets can provide information to managers for all but which of the following?

Utilities, managerial salaries, and depreciation of computers in the corporate office

A difference in quantity of materials used on two comparable jobs may be caused by

inadequately trained employees. poor quality materials. employee carelessness.

Which of the following would probably NOT be found in the accounting system of a service provider?

Finished goods ledger

In a job order cost accounting system used by a service business, which of the following items would normally NOT be included as part of overhead?

Direct labor

The direct labor and overhead costs of providing services to clients are accumulated in

work in process.

Just-in-time processing is a business philosophy that focuses on reducing time and cost and eliminating poor quality. One of the ways in which this is accomplished in manufacturing and nonmanufacturing processes is by:

combining processing functions into work centers and cross-training workers to perform more than one function.

A disadvantage of maintaining high inventory levels includes

both hiding underlying production problems and the fact that maintaining inventory is wasteful and unnecessary are disadvantages of maintaining inventory.

Which of the following statements is TRUE regarding lead time?

Reducing nonvalue-added lead time reduces costs and improves the speed of production

Just-in-time manufacturing uses which of the following techniques?

Organizes the plant in such a way as to reduce product movement from station to station

Pull manufacturing is driven by which of the following?

Customer demand

Just-in-time manufacturing practices include all of the following EXCEPT

emphasizing push manufacturing to ensure inventory levels that will provide a buffer against production problems

An activity-based costing system allocates factory overhead rates to products or services using

the cost of activities based on an activity rate times the number of activity-based usage quantities.

Heedy Winery accumulates the costs incurred in the labeling process in an activity cost pool. Costs for the labeling process are estimated to be $320,000 for the coming year, and the winery expects to generate 640,000 labels. Production for its top-selling wine is estimated at 160,000 bottles. How much overhead from the labeling process will be allocated to this particular variety of wine?

$80,000

Cost behavior refers to the manner in which

a cost changes as the related activity changes

Costs that remain constant on a per-unit level as the level of activity changes are called

variable costs.

Which of the following graphs illustrates the behavior of a total fixed cost?

Graph 1

Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes?

Salary of a factory supervisor

Which of the following describes the behavior of the variable cost per unit?

Remains constant with changes in production

Which of the following activity bases would be the most appropriate for food costs of a hospital?

Number of patients who stay in the hospital

Which of the following activity bases would be the most appropriate for gasoline costs of a delivery service such as UPS?

Number of miles driven

Costs that vary in total in direct proportion to changes in an activity level are called

variable costs.

Which of the following is an example of a cost that varies in total as the number of units produced changes?

Direct materials cost

Which of the following is an example of a cost that varies in total as the number of units produced changes?

Electricity per KWH to operate factory equipment

As production increases, what would you expect to happen to fixed costs per unit?

Decrease

Which of the following statements is TRUE regarding fixed and variable costs?

Fixed costs are fixed in total, and variable costs are fixed per unit

Which of the following graphs illustrates the behavior of a total variable cost?

Graph 3

The graph of a variable cost when plotted against its related activity base appears as a

straight line.

Which of the following describes the behavior of the fixed cost per unit?

Decreases with increasing production

Knowing how costs behave is useful to management for all the following reasons EXCEPT for

predicting customer demand.

Which of the following graphs illustrates the nature of a mixed cost?

Graph 2

Given the following cost and activity observations for Merritt Company’s utilities, use the high-low method to calculate Merritt’s fixed costs per month.

Cost Machine Hours
January $52,600 20,000
February 75,100 29,000
March 57,000 22,000
April 64,000 24,500

$2,600

Which of the following costs is a mixed cost?

Rental costs of $5,000 per month plus $0.30 per machine hour of use

Given the following cost and activity observations for Pike Company’s utilities, use the high-low method to calculate Pike’s variable utilities costs per machine hour.

Cost Machine Hours
May $8,300 15,000
June 10,400 20,000
July 7,200 12,000
August 9,500 18,000

$0.40

As production increases, what should happen to the variable costs per unit?

Stay the same

Winston Co. manufactures office furniture. During the most productive month of the year, 3,500 desks were manufactured at a total cost of $84,400. In its slowest month, the company made 1,100 desks at a cost of $46,000. Using the high-low method of cost estimation, total fixed costs are

$28,400.

For purposes of analysis, mixed costs are generally

separated into their variable and fixed cost components.

Given the following cost and activity observations for Pike Company’s utilities, use the high-low method to calculate Pike Company’s variable utilities costs per machine hour.
Cost Machine Hours
March $3,100 15,000
April 2,700 10,000
May 2,900 12,000
June 3,500 18,000

$0.10

Tucker Co. manufactures office furniture. During the most productive month of the year, 3,600 desks were manufactured at a total cost of $192,000. In its slowest month, the company made 1,200 desks at a cost of $72,000. Using the high-low method of cost estimation, total fixed costs per month are

$12,000.

The systematic examination of the relationships among selling prices, volume of sales and production, costs, expenses, and profits is termed

cost-volume-profit analysis.

In cost-volume-profit analysis, all costs are classified into the following two categories:

variable costs and fixed costs.

The contribution margin ratio is

the same as the profit-volume ratio.

Which ratio indicates the percentage of each sales dollar that is available to cover fixed costs and to provide a profit?

Contribution margin ratio

Variable costs as a percentage of sales for Leamon Inc. are 75%, current sales are $600,000, and fixed costs are $110,000. How much will operating income change if sales increase by $50,000?

$12,500 increase

If sales are $820,000, variable costs are 68% of sales, and operating income is $260,000, what is the contribution margin ratio?

32%

A firm operated at 90% of capacity for the past year during which fixed costs were $320,000, variable costs were 60% of sales, and sales were $1,200,000. Operating profit was

$160,000.

If sales are $200,000, variable costs are 56% of sales, and operating income is $30,000, what is the contribution margin ratio?

44%

Wiles Inc.’s unit selling price is $40, the unit variable costs are $30, fixed costs are $135,000, and current sales are 10,000 units. How much will operating income change if sales increase by 5,000 units?

$50,000 increase

If fixed costs are $850,000 and variable costs are 70% of sales, what is the break-even point (in dollars)?

$2,833,333

If fixed costs are $250,000, the unit selling price is $105, and the unit variable costs are $65, what is the break-even sales (in units)?

6,250 units

If fixed costs are $750,000 and variable costs are 55% of sales, what is the break-even point (in dollars)?

$1,666,667

Foggy Co. has the following operating data for its manufacturing operations:

Unit selling price $250
Unit variable cost $100
Total fixed costs $840,000
The company has decided to increase the wages of hourly workers, which will increase the unit variable cost by 10%. Increases in the salaries of factory supervisors and property taxes for the factory will increase fixed costs by 4%. If sales prices are held constant, the break-even point for Flynn Co. will

increase by 640 units.

If fixed costs are $350,000, the unit selling price is $75, and the unit variable costs are $30, what is the break-even sales (in units)?

7,778 units

If fixed costs are $810,000, the unit selling price is $60, and the unit variable costs are $48, what is the break-even sales (in units) if the variable costs are increased by $2?

81,000 units

If fixed costs are $810,000, the unit selling price is $60, and the unit variable costs are $48, what is the break-even sales (in units) if fixed costs are reduced by $50,000?

63,333 units

If fixed costs are $450,000, the unit selling price is $75, and the unit variable costs are $50, what are the old and new break-even sales (in units) if the unit selling price increases by $5?

18,000 units and 15,000 units

Snower Corporation sells product G for $150 per unit, the variable cost per unit is $105, the fixed costs are $720,000, and Snower is in the 25% corporate tax bracket. What are the sales (in dollars) required to earn a net income (after tax) of $40,000?

$2,577,778

If fixed costs are $850,000 and the unit contribution margin is $90, what amount of units must be sold in order to have a zero profit?

9,445

If fixed costs are $600,000 and the unit contribution margin is $12, what amount of units must be sold in order to realize an operating income of $100,000?

58,334

If fixed costs are $500,000 and the unit contribution margin is $40, what is the break-even point in units if fixed costs are reduced by $80,000?

10,500

If fixed costs are $561,000 and the unit contribution margin is $10, what is the break-even point in units if variable costs are decreased by $0.50 per unit?

53,429

If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would

increase.

If variable costs per unit decreased because of a decrease in utility rates, the break-even point would

decrease.

Which of the following conditions would cause the break-even point to decrease?

Unit variable cost decreases

Which of the following conditions would cause the break-even point to increase?

Unit variable cost increases

Which of the following conditions would cause the break-even point to increase?

Total fixed costs increase

Rouney Co. has budgeted salary increases to factory supervisors totaling 10%. If selling prices and all other cost relationships are held constant, next year’s break-even point will

increase by 10%.

Vest Food Co. has the following operating data:
Unit selling price $10.00
Unit variable costs 6.00
Fixed costs $960,000

The company is contemplating moving to another state where direct labor costs can be reduced, thereby reducing the unit variable cost by 10%. The state where the company currently operates has offered to reduce property taxes to encourage Vest to stay. The minimum amount of property tax savings necessary to keep the company, assuming no other changes, would be

$125,217.

If the contribution margin ratio for Harrison Company is 38%, sales were $425,000 and fixed costs were $100,000, what was the income from operations?

$61,500

The point where the sales line and the total costs line intersect on the cost-volume-profit chart represents

the break-even point.

The point where the profit line intersects the horizontal axis on the profit-volume chart represents

the break-even point.

With the aid of computer software, managers can vary assumptions regarding selling prices, costs, and volume and can immediately see the effects of each change on the break-even point and profit. Such an analysis is called

"what if" or sensitivity analysis.

The point where the profit line intersects the left vertical axis on the profit-volume chart represents

the maximum possible operating loss.

Clinton Co. has an operating leverage of 4. Sales are expected to increase by 8% next year. Operating income is

expected to increase by 32%.

Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of Bins. Related data are:
Uni.Selling Un.Variable Un.Contribution
Product Price Cost Margin
Arks
$80 $20 $60

Bins 120 40 $80
What was Kennedy Co.’s sales mix last year?

64% Arks, 36% Bins

Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of Bins. Related data are:
Uni.Selling Un.Variable Un.Contribution
Product Price Cost Margin
Arks
$80 $20 $60

Bins 120 40 $80
What was Kennedy Co.’s overall enterprise product’s unit selling price?

$27.20

Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of Bins. Related data are:
Uni.Selling Un.Variable Un.Contribution
Product Price Cost Margin
Arks
$80 $20 $60

Bins 120 40 $80
What was Kennedy Co.’s overall enterprise product’s unit contribution margin?

$67.20

Assuming that last year’s fixed costs totaled $910,000, what was Kennedy Co.’s break-even point in units?

13,542 units

Assume that Crowson Co. sold 8,000 units of Product A and 2,000 units of Product B during the past year. The unit contribution margins for Products A and B are $20 and $45, respectively. Crowson has fixed costs of $350,000. The break-even point in units is

14,000 units.

The relative distribution of sales among the various products sold by a business is termed the

sales mix.

When a business sells more than one product at varying selling prices, the business’s break-even point can be determined as long as the number of products does not exceed

There is no limit.

If a business had sales of $4,000,000, fixed costs of $1,200,000, a margin of safety of 25%, and a contribution margin ratio of 40%, what was the break-even point?

$3,000,000

If a business had sales of $4,000,000 and a margin of safety of 25%, what was the break-even point?

$3,000,000

If a business had a capacity of $10,000,000 of sales, actual sales of $6,000,000, break-even sales of $4,500,000, fixed costs of $1,800,000, and variable costs of 60% of sales, what is the margin of safety expressed as a percentage of sales?

25%

If sales are $300,000, variable costs are 60% of sales, and operating income is $40,000, what is the operating leverage?

3.000

The difference between the current sales revenue and the sales at the break-even point is called the

margin of safety.

Cost-volume-profit analysis CANNOT be used if which of the following occurs?

Costs cannot be properly classified into fixed and variable costs