# Acc346 Managerial Accounting: Week 4 Activity-Based Costing and Incremental Analysis (Version 4)

Acc346 Managerial Accounting
Week 4 : Activity-Based Costing and Incremental Analysis
Midterm Exam (Version 4)
1. (TCO 1) Managerial accounting stresses accounting concepts and procedures that are relevant to preparing reports for

2. (TCO 1) Variable cost per unit

3. (TCO 1) You own a car and are trying to decide whether or not to trade it in and buy a new car. Which of the following costs is an opportunity cost in this situation?
the trip toCancunthat you will not be able to take if you buy the car
the cost of the car you are trading in
the cost of your books for this term
the cost of your car insurance last year

4. (TCO 1) Shula’s 347 Grill has budgeted the following costs for a month in which 1,600 steak dinners will be produced and sold: materials, \$4,080; hourly labor (variable), \$5,200; rent (fixed), \$1,700; depreciation, \$800; and other fixed costs, \$600. Each steak dinner sells for \$14.00 each. What is the budgeted total variable cost?

5. (TCO 1) Which of the following costs is part of manufacturing overhead?

6. (TCO 1) Product costs

7. (TCO 1) Red Runner’s Work in Process Inventory account has a beginning balance of \$50,000 and an ending balance of \$40,000. Direct materials used are \$70,000 and direct labor used totals \$35,000. Cost of goods sold totals \$135,000. Manufacturing overhead applied is \$20,000. How much is cost of goods manufactured?

8. (TCO 2) BCS Company applies manufacturing overhead based on direct labor hours. Information concerning manufacturing overhead and labor for August follows:
Estimated Actual
Direct labor hours 5,800 5,900
Direct labor cost \$87,000 \$89,975
How much overhead should be applied in total during August?

9. (TCO 2) During 2011, Magus Company applied overhead using a job-order costing system at a rate of \$12 per direct labor hours. Estimated direct labor hours for the year were 150,000, and estimated overhead for the year was \$1,800,000. Actual direct labor hours for 2011 were 140,000 and actual overhead was \$1,700,000.
What is the amount of under or over applied overhead for the year?

10. (TCO 3) Which of the following companies is most likely to use a process costing system?
a law office
a custom home builder
a food manufacturer

11. (TCO 3) The Blending Department began the period with 45,000 units. During the period the department received another 30,000 units from the prior department and completed 60,000 units during the period. The remaining units were 75% complete. How much are equivalent units in The Blending Department’s work in process inventory at the end of the period?

12. (TCO 3) During March, the varnishing department incurred costs of \$90,250 for direct labor. The beginning inventory was 3,500 units and 10,000 units were transferred to the varnishing department from the sanding department during June. The direct labor cost in the beginning inventory was \$27,270. The ending inventory consisted of 2,000 units, which were 25% complete with respect to direct labor.
What is the cost per equivalent unit for direct labor?

13. (TCO 4) Clearance Depot has total monthly costs of \$8,000 when 2,500 units are produced and \$12,400 when 5,000 units are produced. What is the estimated total monthly fixed cost?

1. (TCO 4) Which of the following will have no effect on the break-even point in units?
The selling price increases
The variable cost per unit increases
The sales volume increases
Total fixed costs increase

2. (TCO 4) Werth Company produces tie racks. The estimated fixed costs for the year are \$288,000, 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. How much is the break-even point in units?

3. (TCO 4) The president of Jackson Corporation will not receive a bonus next year unless the company’s profits are at least \$435,000.Jacksonsells a single product at a price of \$27 per unit. If variable costs are \$12 per unit and fixed costs total \$150,000, what amount of sales mustJacksongenerate in order for the president to receive a bonus?

4. (TCO 5) Which of the following is treated differently in full costing than in variable costing?
Direct materials
Direct labor

5. (TCO 5) Which of the following items on a variable costing income statement will change in direct proportion to a change in sales?
Sales, contribution margin, fixed costs
Sales, variable costs, contribution margin
Sales, variable costs, contribution margin, fixed costs
Sales, variable costs, and fixed costs

6. (TCO 5) Peak Manufacturing produces snow blowers. The selling price per snow blower is \$100. Costs involved in production are:
Direct Material per unit \$20
Direct Labor per unit 12
Variable manufacturing overhead per unit 10
Fixed manufacturing overhead per year \$148,500
In addition, the company has fixed selling and administrative costs of \$150,000 per year. During the year, Peak produces 45,000 snow blowers and sells 30,000 snow blowers. How much fixed manufacturing overhead is in ending inventory under full costing?

7. (TCO 6) Which of the following is not a reason that companies allocate costs?
To calculate the full cost of products for financial reporting purposes
To discourage managers from using external suppliers
To reduce the frivolous use of company resources
To provide information needed by managers to make appropriate decisions

8. (TCO 5) An allocation base
is the minimum amount to be allocated to a cost object.
coordinates the manufacturing overhead costs as they are incurred.
will always be less than the variable costs for a product.
relates the cost pool to the cost objectives.

9. (TCO 6) The building maintenance department for Jones Manufacturing Company budgets annual costs of \$4,200,000 based on the expected operating level for the coming year. The costs are allocated to two production departments. The following data relate to the potential allocation bases:
Production Dept. 1 Production Dept. 2
Square footage 15,000 45,000
Direct labor hours 25,000 50,000
If Jones assigns costs to departments based on square footage, how much total costs will be allocated to Production Department 1?

10. (TCO 7) A company is currently making a necessary component in house (the company is producing the component for its own use). The company has received an offer to buy the component from an outside supplier. A machine is being rented to make the component. If the company were to buy the component, the machine would no longer be rented. The rent on the machine, in relation to the decision to make or buy the component, is:
sunk and therefore not relevant.
avoidable and therefore not relevant.
avoidable and therefore relevant.
unavoidable and therefore relevant.

11. (TCO 7) Ricket Company has 1,500 obsolete calculators that are carried in inventory at a cost of \$13,200. If these calculators are upgraded at a cost of \$9,500, they could be sold for \$22,500. Alternatively, the calculators could be sold "as is" for \$9,000. What is the net advantage or disadvantage of reworking the calculators?

12. (TCO 7) YXZ Company’s market for the Model 55 has changed significantly, and YXZ has had to drop the price per unit from \$275 to \$135. There are some units in the work in process inventory that have costs of \$160 per unit associated with them. YXZ could sell these units in their current state for \$100 each. It will cost YXZ \$10 per unit to complete these units so that they can be sold for \$135 each.
When the incremental revenues and expenses are analyzed, what is the financial impact?
\$25 per unit profit if the units are completed
\$125 per unit if the units are completed
\$65 per unit loss if the units are completed
\$150 per unit loss if the units are completed
1. (TCO 3) Describe a process costing system, including the types of companies that commonly use this system. How can process costing information be used in incremental analysis?

2. (TCO 7) Computer Boutique sells computer equipment and home office furniture. Currently, the furniture product line takes up approximately 50% of the company's retail floor space. The president of Computer Boutique is trying to decide whether the company should continue offering furniture or just concentrate on computer equipment. If furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of computer equipment can increase by 13%. Allocated fixed costs are assigned based on relative sales.
Computer Home Office
Equipment Furniture Total
Sales \$1,200,000 \$800,000 \$2,000,000
Less cost of goods sold 700,000 500,000 1,200,000
Contribution margin 500,000 300,000 800,000
Less direct fixed costs:
Salaries 175,000 175,000 350,000
Other 60,000 60,000 120,000
Less allocated fixed costs:
Rent 14,118 9,882 24,000
Insurance 3,529 2,471 6,000
Cleaning 4,117 2,883 7,000
President's salary 76,470 53,350 130,000
Other 7,058 4,942 12,000
Total costs 340,292 380,708 649,000
Net Income \$159,708 (\$ 8,708) \$151,000
Prepare an incremental analysis to determine the incremental effect on profit of discontinuing the furniture line.

3. (TCO 4) The following monthly data are available for RedEx, which produces only one product that it sells for \$84 each. Its unit variable costs are \$28 and its total fixed expenses are \$64,960. Sales during April totaled 1,600 units.
(a) How much is the breakeven point in sales dollars for RedEx?
(b) How many units must RedEx sell in order to earn a profit of \$24,640?
(c) A new employee suggests that RedEx sponsor a company softball team as a form of advertising. The cost to sponsor the team is \$1,792. How many more units must be sold to cover this cost?