Acc346 Managerial Accounting: Week 4 Activity-Based Costing and Incremental Analysis (Version 2)

Note: There are several versions of the week 4 (Midterm) exam. This is one of those. Usually a few of the problems per test is changed.

Acc346 Managerial Accounting
Week 4 : Activity-Based Costing and Incremental Analysis
Midterm Exam (Version 2)

1. (TCO 1) Managerial accounting stresses accounting concepts and procedures that are relevant to preparing reports for (Points : 4)
taxing authorities.
internal users of accounting information.
external users of accounting information.
the Securities and Exchange Commission (SEC).

2. TCO 1) Which of the following statements regarding fixed costs is true? (Points : 4)
When production increases, fixed cost per unit increases.
When production decreases, total fixed costs decrease.
When production increases, fixed cost per unit decreases.
When production decreases, total fixed costs increase.

3. (TCO 1) Which of the following is a direct cost in relation to the cost of teaching the managerial accounting course you are currently taking? (Points : 4)
the cost of the paper that you receive as handouts for the class
the cost of the room you are using for the class
the cost of the registration system that allowed you to enroll in the class
the cost of the financial aid department that helps you fund the cost of taking the class

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 fixed cost per unit? (Points : 4)
$1.06
$1.44
$4.49
$1.94

5. (TCO 1) Which of the following costs is not part of manufacturing overhead? (Points : 4)
electricity for the factory
depreciation of factory equipment
salaries for the production supervisors
health insurance for sales staff


6. (TCO 1) Product costs (Points : 4)
are also called manufacturing costs.
are considered an asset until the finished goods are sold.
become an expense when the goods are sold.
All of the above answers are correct.

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? (Points : 4)
$145,000
$115,000
$125,000
$135,000

8. (TCO 2) BCS Company applies manufacturing overhead based on direct labor hours. Information concerning manufacturing overhead and labor for August follows:
Estimated Actual
Overhead cost $174,000 $171,000
Direct labor hours 5,800 5,900
Direct labor cost $87,000 $89,975
How much overhead should be applied in total during August? (Points : 4)
$177,000
$179,950
$171,100
$168,200

9. (TCO 2) Citrus Company incurred manufacturing overhead costs of $300,000. Total overhead applied to jobs was $306,000. What was the amount of overapplied or underapplied overhead? (Points : 4)
$7,000 overapplied
$6,000 overapplied
$6,000 underapplied
$13,000 underapplied

10. (TCO 3) Which of the following companies is most likely to use a process costing system? (Points : 4)
a law office
a custom home builder
a car repair business
a food manufacturer

11. (TCO 3) The Blending Department began the period with 20,000 units. During the period the department received another 80,000 units from the prior department and at the end of the period 30,000 units remained, which were 40% complete. How much are equivalent units in The Blending Department’s work in process inventory at the end of the period? (Points : 4)
12,000
28,000
40,000
52,000

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? (Points : 4)
$8.71
$7.84
$11.19
$9.79


13. (TCO 4) 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 $8 each. What is the variable cost per unit? (Points : 4)
$2.50
$0.40
$2.00
$4.00


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1. (TCO 4) The margin of safety is the difference between (Points : 4)
total revenue and total fixed costs.
expected level of sales and the break-even point.
budgeted fixed costs and actual fixed costs.
selling price and variable cost per unit.

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? (Points : 4)
48,000
72,000
3,600
8,471

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. Jackson sells 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 must Jackson generate in order for the president to receive a bonus? (Points : 4)
48,750 units
39,000 units
29,000 units
21,167 units

4. (TCO 5) In variable costing, when does fixed manufacturing overhead become an expense? (Points : 4)
Never
In the period when the product is sold
In the period when the expense is incurred
In the period when other expenses are at the lowest level

5. (TCO 5) Variable costing income is a function of: (Points : 4)
Units sold only.
Units produced only
Both units sold and units produced.
Neither units sold nor units. produced

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? (Points : 4)
$0
$49,500
$148,500
$99,000

7. (TCO 6) Which of the following is not a reason that companies allocate costs? (Points : 4)
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 6) The overriding concern in forming a cost pool is to ensure that (Points : 4)
there are no variable costs in the cost pool.
the total amount in the cost pool is less than the direct costs for the product.
only costs that have been budgeted are included in the cost pool.
the costs in the pool are homogeneous or similar.

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? (Points : 4)
$1,400,000
$1,050,000
$1,575,000
$2,100,000

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: (Points : 4)
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? (Points : 4)
$13,000 advantage
$4,000 advantage
$9,200 disadvantage
$200 disadvantage

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.
Which of the following is the amount of sunk costs in this problem? (Points : 4)
$160 per unit
$10 per unit
$125 per unit
$100 per unit


Page 3
1. (TCO 3) Why is it necessary to use equivalent units in a process costing system? (Points : 20)

2. (TCO 7) Each year, ACE Engines surveys 7,600 former and prospective customers regarding satisfaction and brand awareness. For the current year, the company is considering outsourcing the survey to RBG Associates, who have offered to conduct the survey and summarize results for $50,000. Robert Ace, the president of ACE Engines, believes that RBG will do a higher-quality job than his company has been doing, but is unwilling to spend more than $12,000 above current costs. The head of bookkeeping for ACE has prepared the following summary of costs related to the survey in the prior year.
Mailing $27,000
Printing (done by Lester Print Shop) 9,000
Salary of Pat Fisher, part-time employee who stuffed envelopes and summarized data when surveys were returned (130 x $16) 2,080
Share of depreciation of computer and software used to track survey responses and summarize results 1,200
Share of electricity/phone/etc. based on square feet of space occupied by Pat Fisher vs. entire company 600
Total $39,880

Prepare an incremental analysis in good form to determine the impact on profit of going outside versus conducting the survey as in the past. Will ACE accept the RBG offer? Why or why not? (Points : 25)

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?
(Points : 25)
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