Peaceful Pastures

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Mid-term Exam| Page: | 1 2 3 | 1. | Question ๐Ÿ˜ (TCO 1) The goal of managerial accounting is to provide information that managers need for| | | Student Answer:| | planning. | | | | control. | | | | decision making. | | | | All of the above answers are correct. | | Instructor Explanation:| Chapter 1, Page 4| | | | Points Received:| 4 of 4 | | Comments:| | | | 2. | Question ๐Ÿ˜ TCO 1) Which of the following statements regarding fixed costs is true? | | | Student Answer:| | 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. | | Instructor Explanation:| Chapter 1, Page 9| | | | Points Received:| 4 of 4 | | Comments:| | | | 3. | Question ๐Ÿ˜ (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? | | | Student Answer:| | the current selling price | | | | the original selling price | | | | the original purchase price | | | | the anticipated profit | Instructor Explanation:| Chapter 1, Page 9| | | | Points Received:| 4 of 4 | | Comments:| | | | 4. | Question ๐Ÿ˜ (TCO 1) Shulaโ€™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. How much is the budgeted variable cost per unit? | | | Student Answer:| | $5. 80 | | | | $7. 74 | | | | $6. 68 | | | | $3. 25 | | Instructor Explanation:| Chapter 1, Page 8 ($4,080 + $5,200) / 1,600 = $5. 80| | | | Points Received:| 0 of 4 | Comments:| | | | 5. | Question ๐Ÿ˜ (TCO 1) Which of the following is an example of a manufacturing overhead cost? | | | Student Answer:| | security at the manufacturing plant | | | | fabric used to produce shirts | | | | cost of shipping product to customers | | | | the salary of the president of the company | | Instructor Explanation:| Chapter 2, Page 37| | | | Points Received:| 0 of 4 | | Comments:| | | | 6. | Question ๐Ÿ˜ (TCO 1) Product costs| | | Student Answer:| | 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. | | Instructor Explanation:| Chapter 2, Page 38| | | | Points Received:| 4 of 4 | | Comments:| | | | 7. | Question ๐Ÿ˜ (TCO 1) At December 31, 2010, WDT Inc. has a balance in the Work in Process Inventory account of $62,000. At January 1, 2010, the balance was $55,000. Current manufacturing costs for the year are $292,000, and cost of goods sold is $284,000. How much is cost of goods manufactured? | | | Student Answer:| | $292,000 | | | | $299,000 | | | | $277,000 | | | | $285,000 | | Instructor Explanation:| Chapter 2, Page 43 $55,000 + $292,000 – $62,000 = $285,000| | | Points Received:| 0 of 4 | | Comments:| | | | 8. | Question ๐Ÿ˜ (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? | | | Student Answer:| | 177,000 | | | | 179,950 | | | | 171,100 | | | | 168,200 | | Instructor Explanation:| Chapter 2, Page 54 ($174,000 / 5,800) x 5,900 = 177,000| | | | Points Received:| 0 of 4 | | Comments:| | | 9. | Question ๐Ÿ˜ (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? | | | Student Answer:| | $7,000 overapplied | | | | $6,000 overapplied | | | | $6,000 underapplied | | | | $13,000 underapplied | | Instructor Explanation:| Chapter 2, Page 55 $306,000 – $300,000 = $6,000 overapplied| | | | Points Received:| 4 of 4 | | Comments:| | | | 10. | Question ๐Ÿ˜ (TCO 3) Companies in which of the following industries would not be likely to use process costing? | | | Student Answer:| | cereals | | | paints | | | | cosmetics | | | | auto body shop | | Instructor Explanation:| Chapter 3, Page 84| | | | Points Received:| 4 of 4 | | Comments:| | | | 11. | Question ๐Ÿ˜ (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 Departmentโ€™s work in process inventory at the end of the period? | | | Student Answer:| | 30,000 | | | | 22,500 | | | | 15,000 | | | | 11,250 | Instructor Explanation:| Chapter 3, Page 88 (45,000 + 30,000 – 60,000) x 75% = 11,250| | | | Points Received:| 4 of 4 | | Comments:| | | | 12. | Question ๐Ÿ˜ (TCO 3) Ranger Glass Company manufactures glass for French doors. At the start of May, 2,000 units were in-process. During May, 11,000 units were completed and 3,000 units were in process at the end of May. These in-process units were 90% complete with respect to material and 50% complete with respect to conversion costs. Other information is as follows: Work in process, May 1:| | Direct material| $36,000| Conversion costs| $45,000| Costs incurred during May:| |

Direct material| $186,000| Conversion costs| $255,000| How much is the cost per equivalent unit for direct materials? | | | Student Answer:| | $24. 00 | | | | $16. 20 | | | | $15. 86 | | | | $13. 58 | | Instructor Explanation:| Chapter 3, Page 89 ($36,000 + $186,000) / [11,000 + (3,000 x 90%)] = $16. 20| | | | Points Received:| 0 of 4 | | Comments:| | | | 13. | Question ๐Ÿ˜ (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? | | | Student Answer:| | $2. 0 | | | | $0. 40 | | | | $2. 00 | | | | $4. 00 | | Instructor Explanation:| Chapter 4, Page 127 ($26,000 – $18,000) / (5,200 – 2,000) = $2. 50| | | | Points Received:| 4 of 4 | | Comments:| | | | | Page: | 1 2 3 | 1. | Question ๐Ÿ˜ (TCO 4) The three elements of the profit margin are:| | | Student Answer:| | Selling price per unit, variable cost per unit, and fixed cost per unit. | | | | Total revenues, total variable costs, and total fixed cost. | | | | Selling price per unit, variable cost per unit, and total fixed costs. | | | | Selling price per unit, total variable costs, and fixed cost per unit. | Instructor Explanation:| Chapter 4, Page 130| | | | Points Received:| 0 of 4 | | Comments:| | | | 2. | Question ๐Ÿ˜ (TCO 4) Circle K Furniture has a contribution margin ratio of 16%. If fixed costs are $176,800, how many dollars of revenue must the company generate in order to reach the break-even point? | | | Student Answer:| | $1,105,000 | | | | $282,880 | | | | $1,060,800 | | | | $208,476 | | Instructor Explanation:| Chapter 4, Page 133 $176,800 / 16% = $1,105,000| | | | Points Received:| 4 of 4 | | Comments:| | | | 3. | Question ๐Ÿ˜ (TCO 4) Randy Company produces a single product that is sold for $85 per unit.

If variable costs per unit are $26 and fixed costs total $47,500, how many units must Randy sell in order to earn a profit of $100,000? | | | Student Answer:| | 1,735 | | | | 618 | | | | 890 | | | | 2,500 | | Instructor Explanation:| Chapter 4, Page 132 ($100,000 + $47,500) / ($85 – $26) = 2,500 units| | | | Points Received:| 4 of 4 | | Comments:| | | | 4. | Question ๐Ÿ˜ (TCO 5) Which of the following is treated differently in full costing than in variable costing? | | | Student Answer:| | Direct materials | | | | Fixed manufacturing overhead | | | | Direct labor | | | | Variable manufacturing overhead | Instructor Explanation:| Chapter 5, Page 168| | | | Points Received:| 4 of 4 | | Comments:| | | | 5. | Question ๐Ÿ˜ (TCO 5) Which of the following items appears on a variable costing income statement but not on a full costing income statement? | | | Student Answer:| | Sales | | | | Gross margin | | | | Net income | | | | Contribution margin | | Instructor Explanation:| Chapter 5, Page 169| | | | Points Received:| 4 of 4 | | Comments:| | | | 6. | Question ๐Ÿ˜ (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 is net income using full costing? | | | Student Answer:| | 1,641,000 | | | | $1,590,000 | | | | $1,441,500 | | | | $1,491,000 | | Instructor Explanation:| Chapter 5, Pages 172-174 Sales = $100 x 30,000 = $3,000,000Expenses = [($148,500 / 45,000) + $20 + $12 + $10] x 30,000 = $1,359,000 COGS + $150,000 = $1,509,000Net Income = $3,000,000 – $1,509,000 = $1,491,000| | | Points Received:| 0 of 4 | | Comments:| | | | 7. | Question ๐Ÿ˜ (TCO 6) Costs may be allocated to | | | Student Answer:| | products. | | | | services. | | | | departments. | | | | any of the above. | | Instructor Explanation:| Chapter 6, Page 201| | | | Points Received:| 4 of 4 | | Comments:| | | | 8. | Question ๐Ÿ˜ (TCO 5) An allocation base| | | Student Answer:| | 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. | Instructor Explanation:| Chapter 6, Page 202| | | | Points Received:| 4 of 4 | | Comments:| | | | 9. | Question ๐Ÿ˜ (TCO 6) Sierra Company allocates the estimated $200,000 of its accounting department costs to its production and sales departments because the accounting department supports the other two departments, particularly with regard to payroll and accounts payable functions. The costs will be allocated based on the number of employees using the direct method. Information regarding costs and employees follows: Department| Employees| Accounting| 4| Production| 36| Sales| 12|

How much of the accounting department costs will be allocated to the production and sales departments? | | | Student Answer:| | Production: $150,000 Sales: $50,000 | | | | Production: $180,000 Sales: $60,000 | | | | Production: $1,800,000 Sales: $600,000 | | | | Production: $22,222 Sales: $66,667 | | Instructor Explanation:| Chapter 6, Pages 213-214 Production = [$200,000 / (36 + 12)] x 36 = $150,000Sales = [$200,000 / (36 + 12)] x 12 = $50,000| | | | Points Received:| 4 of 4 | | Comments:| | | | 10. | Question ๐Ÿ˜ (TCO 7) A company is trying to decide whether to keep or drop the sporting goods department in its department store.

If the segment is dropped, the manager will be fired. The manager’s salary, in relation to the decision to keep or drop the sporting goods department, is| | | Student Answer:| | avoidable and therefore relevant. | | | | not avoidable and therefore relevant. | | | | sunk and therefore not relevant. | | | | the same for all alternatives and therefore not relevant. | | Instructor Explanation:| Chapter 7, Pages 256-257| | | | Points Received:| 0 of 4 | | Comments:| | | | 11. | Question ๐Ÿ˜ (TCO 7) BigByte Company has 12 obsolete computers that are carried in inventory at a cost of $13,200.

If these computers are upgraded at a cost of $7,500, they could be sold for $15,300. Alternatively, the computers could be sold “as is” for $9,000. What is the net advantage or disadvantage of reworking the computers? | | | Student Answer:| | $6,300 advantage | | | | $1,200 disadvantage | | | | $5,400 disadvantage | | | | $3,000 advantage | | Instructor Explanation:| Chapter 7, Pages 251-252 ($15,300 – $9,000) – ($7,500 – $0) = ($1,200)| | | | Points Received:| 4 of 4 | | Comments:| | | | 12. | Question ๐Ÿ˜ (TCO 7) Olde Store has 12,000 cans of crab meat just a week past the expiration date. Each can cost $0. 31.

The cans could be sold as is for $0. 20 each, or relabeled and sold as gourmet cat food. The cost of relabeling the cans would be $0. 04 per can and the cans would then sell for $0. 29 per can. What should be done with the cans and why? | | | Student Answer:| | The cans should be thrown away since there will be a loss with the other alternatives. | | | | The cans should be relabeled into cat food since the sales price increases $0. 09 per can and the cost is only $0. 04 per can. | | | | The cans should be put on clearance since there is no reason to put more money into something that is already selling below cost. | | | It doesnโ€™t matter what you do since all alternatives result in a loss. | | Instructor Explanation:| Chapter 7, Pages 251-252| | | | Points Received:| 4 of 4 | | Comments:| | | | Page: | 1 2 3 | 1. | Question ๐Ÿ˜ (TCO 3) Why is it necessary to use equivalent units in a process costing system? | | | Student Answer:| | Process costing, as we have seen, is essentially a system of averaging. Equivalent Units In calculating the average unit cost, it is necessary to convert the number of partially completed units in Work in Process to an equivalent number of whole units.

Otherwise, the denominator in the average unit cost calculation will be misstated. When partially completed units are converted to a comparable number of completed units, they are referred to as equivalent units. Jiambalvo. Managerial Accounting, 4th Edition. John Wiley & Sons. . | | Instructor Explanation:| In a company that uses process costing, there may be incomplete units in ending Work in Process inventory. These units are converted to a comparable number of completed units in order to calculate the cost per equivalent unit. | | | | Points Received:| 20 of 20 | | Comments:| | | | 2. Question ๐Ÿ˜ (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. | | Student Answer:| | | | Instructor Explanation:| Incremental drop in revenue| ($800,000)| Incremental cost savings:| | Cost of sales| 500,000| Salaries| 175,000| Other| 60,000| Incremental increase in computer equipment| | (13% x $1,200,000)| 156,000| Incremental increase in computer equipment| | variable costs (13% x $700,000)| (91,000)| Incremental increase in profit| $ 0| | | | | Points Received:| 10 of 25 | | Comments:| | | | 3. | Question ๐Ÿ˜ (TCO 4) Beach Rentals has estimated that fixed costs per month are $79,200 and variable cost per dollar of sales is $0. 2. (a) What is the break-even point per month in sales? (b) What level of sales is needed for a monthly profit of $24,000? (c) For the month of July, the company anticipates sales of $240,000. What is the expected level of profit? | | | Student Answer:| | a. ) $165,000 sales b. ) $215,000 c. ) | | Instructor Explanation:| (a) Contribution margin ratio = 1. 00 โ€“ 0. 52 = 0. 48 $79,200 ? 0. 48 = $165,000 (b) ($79,200 + $24,000) ? 0. 48 = $215,000 (c) ($240,000 ? 0. 48) โ€“ $79,200 = $36,000| | | | Points Received:| 20 of 25 | | Comments:| | | |

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