1. Wages paid to the factory maintenance supervisor are considered an example of: a.

Direct Labor - yes, Period Cost - yes b. Direct Labor - yes, Period Cost - No c. Direct Labor - no , Period Cost - yes d. Direct Labor - no , Period Cost - no A period cost is a cost that is not directly linked to production. 2. Machinery Depreciation on a manufacturing plant is an element of: a. Conversion cost - yes, period cost - no b. Conversion cost - yes, period cost - yes c. Conversion cost - no, period cost - yes d. Conversion cost - no, period cost - no Conversion cost is the sum total of all costs incurred in transforming raw materials into finished goods. 3. Evergreen Corp. has provided the following data: Sales per period 1,000 units Selling price $40 per unit Variable manufacturing cost $12 per unit Selling expenses $5,100 plus 5% of selling price Administrative expenses $3,000 plus 20% of selling price The number of units needed to achieve a target net operating income of $49,500 would be: a. 1,238 Units b. 2,750 Units c. 3,200 Units d. 2,057 Units Fixed cost $8,100 =(5,100 + 3,000) Selling price 40 Variable costs 22 =12 + (5% * 40) + (20% * 40) required income 49,500 Units required 3,200 =(8,100 + 49,500)/(40 22) 4. Garth Company sells a single product. If the selling price per unit and the variable expense per unit both increase by 15% and fixed expenses do not change, then:
a. Contribution Margin Per Unit - Increases, Contribution Margin Ratio - Increases, Break-Even in Units Decreases b. Contribution Margin Per Unit - No Change, Contribution Margin Ratio - No Change, Break-Even in Units - No Change c. Contribution Margin Per Unit - No Change, Contribution Margin Ratio - Increases, Break-Even in Units - No Change d. Contribution Margin Per Unit - Increases, Contribution Margin Ratio - No Change, Break-Even in Units - Decreases

5. A single-product company prepares income statements using both absorption and variable costing methods. Manufacturing overhead cost applied per unit produced under absorption costing in year 2 was the same as in year 1. The year 2 variable costing statement reported a profit, whereas the year 2 absorption costing statement reported a loss. The difference in reported income could be explained by units produced in year 1 as being: a. Less than units sold in year 2. b. Less than the activity level used for allocating overhead to the product. c. In excess of the activity level used for allocating overhead to the product. d. In excess of units sold in year 2. 6. Tragon Corporation has provided data concerning the company's Manufacturing Overhead account for the month of September. Prior to the closing of the overapplied or underapplied balance to Cost of Goods sold, the total of the debits to the Manufacturing Overhead account was $76,000 and the total of the credits to the account was $75,000. Which of the following statements is true?
a. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month was $76,000 b. Actual manufacturing overhead incurred during the month was $66,000 c. Manufacturing overhead applied to Work in Process for the month was $76,000 d. Manufacturing overhead for the month was underapplied by $1,000

7. Some investment projects require that a company increase its working capital. Under the net present value method, the investment and eventual recovery of working capital should be treated as: a. an initial cash outflow. b. a future cash inflow. c. both an initial cash outflow and a future cash inflow. d. irrelevant to the net present value analysis. 8. Logan Company is considering two projects, A and B. The following information has been gathered on these projects: Project A Project B Initial investment needed 40,000 60,000 Present value of future cash flows 60,000 85,000 Useful life 4 Years 4 Years Based on this information, which of the following statements is (are) true? I. Project A has the highest ranking according to the profitability index criterion. II. Project B has the highest ranking according to the net present value criterion. a. Only I b. Only II c. Both I and II d. Neither I and II Project A Project B Initial investment 40,000 60,000 Present value of cash flows 60,000 85,000 Profitability index 1.50 =60,000/40,000 1.42 NPV 20,000 =-40,000 + 25,000 60,000 9. Variable expenses for Alpha Company are 40% of sales. What are sales at the break-even point, assuming that fixed expenses total $150,000 per year: a. $250,000 b. $375,000 c. $600,000 d. $150,000 Fixed cost $150,000 Contribution margin 60.0% =1 40% Break-even point $250,000 =$150,000/60% 10. Elliott Company uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The company manufactures tools to customer specifications. The following data pertain to Job 1501: Direct materials used: $4,200 Direct labor hours worked: 300 Direct labor rate per hour: $8.00 Machine hours used: 200 Predetermined overhead rate per machine hour: $15.00 What is the total manufacturing cost recorded on Job 1501? a. $8,800 b. $9,600 c. $10,300 d. $11,100 Direct materials $4,200 Direct labor $2,400 =300 * $8 Overheads $3,000 =$15 * 200 Total cost $9,600

1. The following overhead data are for a department of a large company. Actual costs incurred Static budget Activity level (Units) 800 750 Variable costs: Indirect materials 6,850 6,600 Electricity 1,312 1,275 Fixed costs: Administration 3,570 3,700 Rent 3,320 3,200 Required: Construct a flexible budget performance report that would be useful in assessing how well costs were controlled in this department. Flexible budget report Actual costs Static Difference incurred budget Activity level 800 750 (Units) Variable costs: Indirect materials 6,850 6,600 -250 =static budget actual Unfavorabl costs e Electricity 1,312 1,275 -37 Unfavorabl e Fixed costs: Administration 3,570 3,700 130 Favorable Rent 3,320 3,200 -120 Unfavorabl e Total cost 15,052 14,775 -277 Unfavorabl e

2. Mr. Earl Pearl, Accountant for Margie Knall, Inc. has prepared the following product-line income data: Product Total A B C Sales 100,000 50,000 20,000 30,000 Variable expenses 60,000 30,000 10,000 20,000 Contribution margin 40,000 20,000 10,000 10,000 Fixed expenses: Rent 5,000 2,500 1,000 1,500 Depreciation 6,000 3,000 1,200 1,800 Utilities 4,000 2,000 500 1,500 Maintenance 3,000 1,500 600 900 Administrative expenses 10,000 3,000 2,000 5,000 Total fixed expenses 33,000 13,500 5,800 13,700 Net operating income 7,000 6,500 4,200 -3,700 The following additional information is available: The factory rent of $1,500 assigned to product C is avoidable if the product were dropped. The company's total depreciation would not be affected by dropping C. Eliminating product C will reduce the monthly utility bill from $1,500 to $800. All supervisors' salaries are avoidable. If product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,000 to $2,000. Elimination of product C will make it possible to cut two persons from the administrative staff. Currently, their combined salaries total $2,000. Required: Prepare an analysis showing whether product C should be eliminated. Articulate your findings. With C Without C Total 100,000 60,000 40,000 Total 70,000 40,000 30,000

Sales Variable expenses Contribution margin Fixed expenses: Rent Depreciation Utilities Maintenance Administrative expenses Total fixed expenses Net operating income Decision

5,000 3,500 6,000 6,000 4,000 3,300 3,000 2,000 10,000 8,000 33,000 22,800 7,000 10,700 Eliminate Product C

The above table shows the effect, on net income, for dropping product C. you will observe that net income will increase by about $3,700. it is therefore advisable to eliminate Product C.

3. The following absorption costing income statement and additional data are available from the accounting records of Bernon Co. for the month ended May 31, 2007. 17,000 units were manufactured and sold during the accounting period at a price of $60 per unit. There were no beginning inventories. Bernon Co. Absorption Costing Income Statement For the Month Ended May 31, 2007 Sales (17,000 @ $60) $1,020,000 Cost of goods sold 612,000 Gross profit $ 408,000 Selling and administrative expenses 66,000 Income from operations $ 342,000 Additional Information: Cost Total Cost Number of Units Unit Cost Manufacturing costs: Variable $442,000 17,000 $26 Fixed 170,000 17,000 10 Total $612,000 $36 Selling and administrative expenses: Variable ($2 per unit sold) $34,000 Fixed 32,000 Total $66,000 Required: Prepare a new income statement for the year using variable costing. Comment on the differences, if any, between the absorption costing and the variable costing income statements. Bernon Co. Absorption Costing Income Statement For the Month Ended May 31, 2007 Sales (17,000 @ $60) 1,020,000 Cost of goods sold 476,000 Gross profit 544,000 Fixed cost: Manufacturing cost 170,000 Selling and administrative expenses 32,000 Income from operations 342,000 Absorption costing is the costing technique whereby all manufacturing costs are included in the cost of goods sold. However, under variable costing only variable costs are included in the cost of goods sold. The major difference, in income, between the two formats, would occur if the company sold a quantity that is lower than the amount manufactured.

4. The following data (in thousands of dollars) have been taken from the accounting records of Karmana Corporation for the just completed year. Sales ...............................................................$950 Raw materials inventory, beginning .....................$10 Raw materials inventory, ending .........................$30 Purchases of raw materials ...............................$120 Direct labor ......................................................$180 Manufacturing overhead ...................................$230 Administrative expenses ...................................$100 Selling expenses ...............................................$140 Work in process inventory, beginning ..................$50 Work in process inventory, ending ......................$40 Finished goods inventory, beginning ..................$100 Finished goods inventory, ending ........................$80 Use these data to prepare (in thousands of dollars) a schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold for the year. In addition, elaborate on the relationship between these schedules as they relate to the flow of product costs in a manufacturing company. STATEMENT OF COST OF GOODS SOLD Raw materials Start 10 Add: Purchases 120 Cost of goods available for sale 130 Less: Raw materials End -30 Cost of direct materials used 100 Add: Direct labor 180 Overhead 230 Total manufacturing cost 510 Add: Work in progress start 50 Total cost of goods in progress 560 Less: Work in progress end -40 Cost of goods manufactured 520 STATEMENT OF COST OF GOODS SOLD Finished goods - start Add: Cost of goods manufactured Selling expenses Cost of goods available for sale Less: Finished goods - End Cost of goods sold 100 520 140 760 -80 680

1. Industrial Supply Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below: Work in process, beginning: Units in beginning work in process inventory 400 Materials costs $6,900 Conversion costs $2,500 Percent complete for materials 80% Percent complete for conversion 15% Units started into production during the month 6,000 Units transferred to the next department during the month 5,200 Materials costs added during the month $112,500 Conversion costs added during the month $210,300 Ending work in process: Units in ending work in process inventory 1,200 Percent complete for materials 75% Percent complete for conversion 30% Required: calculate the equivalent units for materials for the month in the first processing department. Total whole Percent materials added Equivalent units units Inventory in process - start 400 80% 320 Units started and completed 4800 100% 4,800 Completed and transferred 5,200 5,120 Inventory in process - end 1,200 75% 900 Equivalent units Equivalent units for direct 6,020 materials 2. Hill Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 700 units. The costs and percentage completion of these units in beginning inventory were: Materials costs $9,100 -- 80% complete Conversion costs $5,400 -- 25% complete A total of 7,000 units were started, and 6,600 units were transferred to the second processing department during the month. The following costs were incurred in the first processing department during the month: Materials costs $96,700 Conversion costs $180,700 The ending inventory was 80% completed for materials and 80% completed for conversion costs. Required: Calculate the equivalent units for conversion costs for the month in the first processing department. Total whole Percent converted Equivalent units units Inventory in process - start 700 80% 560 Units started and completed 6,600 100% 6,600 Completed and transferred 7,300 7,160 Inventory in process - end 800 80% 640 Equivalent units for conversion 7,80 costs 0

3. (Ignore income taxes in this problem.) Five years ago, the City of Paranoya spent $30,000 to purchase a computerized radar system called W.A.S.T.E. (Watching Aliens Sent To Earth). Recently, a sales rep from W.A.S.T.E. Radar Company told the city manager about a new and improved radar system that can be purchased for $50,000. The rep also told the manager that the company would give the city $10,000 in trade on the old system. The new system will last 10 years. The old system will also last that long but only if a $4,000 upgrade is done in 5 years. The manager assembled the following information to use in the decision regarding which system is more desirable: Old System New System Cost of radar system $30,000 $50,000 Current salvage value $10,000 Salvage value in 10 years $5,000 $8,000 Annual operating costs $34,000 $29,000 Upgrade required in 5 years $4,000 Discount rate 14% 14% Required: a. What is the City of Paranoya's net present value for the decision described above? Use the total cost approach. Amoun Timing Discount factor Present value t Buy the New System: Initial investment -50,000 0 1.00 -50,000 Annual operating costs -29,000 10 5.22 -151,267 Salvage of the old 10,000 0 1.00 10,000 system Salvage of the new 8,000 10 3.71 2,158 system NPV -189,109 (A) Amoun t Keep the old system: Upgrade Annual operating costs Salvage of the old system NPV -4,000 -34,000 5,000 Timing Discount factor Present value

5 10 0

1.93 =1/(1+14%)^5 5.22 =(1 (1/ (1+14%)^10))/14% 1.00

-2,077 =-4,000/1.93 -177,348 =5.22 * -34,000 5,000 -174,425 (B) 14,684 =(A) (B)

Difference in NPV

b. Should the City of Paranoya purchase the new system or keep the old system? You will observe that the NPV, of keeping the old system, is lower. It would therefore be advisable to keep the old system. UPDATE For following problem: The following absorption costing income statement and additional data are available from the accounting records of Bernon Co. for the month ended May 31, 2007. .....Prepare a new income statement for the year using VARIABLE COSTING. You provided an answer with Absorption Costing Income Statement. Can you provide verification that the answer you provided is correct? Under variable costing, cost of goods sold is only affected by the amount of variable expenses incurred. All fixed elements are always treated as period costs instead of product costs. Variable costing only apportions costs to the inventory that was sold. For example, if 100 were produced but 90 were sold variable costing would apportion costs, for 90 units, into the income statement. Since all inventory were sold the variable statement would show the same costs as the absorption statement.

For the following problem: Industrial Supply Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below....In the solution where is the Units started and completed 4800 @ 100% from? The value is derived through: 4,800 = 5,200 400.