Acc346 Managerial Accounting: Week 4 Activity-Based Costing and Incremental Analysis (Version 1)

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 1 (13 MCQs and 3 Problems)

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 costs does not change when the level of business activity changes? (Points : 4)
total fixed costs
total variable costs
total direct materials costs
fixed costs per unit

3. (TCO 1) A retailer purchased some trendy clothes that have gone out of style and must be marked down to 40% of the original selling price in order to be sold. Which of the following is a sunk cost in this situation? (Points : 4)
the current selling price
the original selling price
the original purchase price
the anticipated profit

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? (Points : 4)

5. (TCO 1) Which of the following costs is part of manufacturing overhead? (Points : 4)
indirect labor
direct labor
salaries for the accounting personnel
wages for the janitorial staff for the sales offices

6. (TCO 1) Which of the following is a period cost? (Points : 4)
rent on a factory building
depreciation on production equipment
raw materials cost
commissions paid on each unit sold

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)

8. (TCO 2) Lanking Company applies manufacturing overhead based on direct labor hours. Information concerning manufacturing overhead and labor for August follows:
Estimated Actual
Overhead cost $160,000 $161,000
Direct labor hours 8,000 8,200
Direct labor cost $120,000 $115,800

How much is the predetermined overhead rate? (Points : 4)

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? (Points : 4)
$100,000 underapplied
$20,000 underapplied
$100,000 overapplied
$120,000 underapplied

10. (TCO 3) Which of the following describes the differences between job-order and process costing? (Points : 4)
Job-order costing is used in financial accounting while process costing is used in managerial accounting.
Job-order costing can only be used by manufacturers; service enterprises must use process costing.
Job-order costing is voluntary while process costing is mandatory.
Job-order costing traces costs to jobs while process costing traces costs to departments and averages the costs among the units worked on during the period.

11. (TCO 3) Caliente Company uses process costing. At the beginning of the month, there were 3,000 units in process, 70% complete with respect to material and 60% complete with respect to conversion costs. 20,000 units were started during the month and 20,000 units were completed. The units in ending work in process inventory were 90% complete with respect to material and 30% complete with respect to conversion costs. How many equivalent units will be used in calculating the cost per unit for materials? (Points : 4)

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)

13. (TCO 4) Total costs were $75,800 when 30,000 units were produced and $95,800 when 40,000 units were produced. Use the high-low method to find the estimated total costs for a production level of 32,000 units. (Points : 4)

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? (Points : 20)

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. (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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