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) For each of the following multiple-choice questions, circle only one of the four choices. 1. Which of the following activities is a unit-related activity? a. Preparing and filing the annual tax return for the organization. b. Machine set-ups for each production run. c. Quality inspections of 2% of the items produced. d. Obtaining patents and regulatory approval for each product produced. Which of the following is NOT a period cost? a. Marketing costs b. General and administrative costs c. Costs of shipping finished goods to customers d. Manufacturing overhead costs The terms "direct cost" and "indirect cost" are commonly used in management accounting. Classifying a cost as either direct or indirect depends upon: a. the behavior of the cost in response to volume changes. b. whether the cost is expended in the period in which it is incurred. c. whether the cost can be easily traced to a cost object. d. whether an expenditure is unavoidable because it cannot be changed regardless of any action taken. The activity most likely to add value from the customer's perspective is: a. moving. b. storing. c. inspecting. d. assembly. __________ include the cost of raw-materials inspections and assembly-line inspections. a. Prevention costs b. Appraisal costs c. Internal failure costs d. External failure costs Which of the following managerial functions involves the coordination of daily activities within an organization? a. Planning b. Directing and motivating c. Controlling d. None of the above Assume only the specified parameters change in a cost-volume-profit analysis. The contribution margin ratio increases when a. total fixed costs increase. b. total fixed costs decrease. c. variable costs per unit increase. d. variable costs per unit decrease.
000 Which of the following is least likely to be classified as an organization sustaining activity cost in an activity based costing system? a.000 units in work-inprocess.000 in actual manufacturing overhead cost. 40.$10.000/$20 = 12. 45. plant maintenance costs b.500 units d. c.000 (underapplied) = $240. insurance on the manufacturing equipment d. Another 40.000 (4. none of the above. The Manufacturing Overhead account showed that overhead was underapplied in the amount of $10. taxes on the property used for the manufacturing facilities c. What were the equivalent units for April for conversion costs? a.000 hours.25) 45. how many hours were worked during the year? a.500 hours. b.000 direct labour hours worked during the year since Applied OH = Rate x actual hours worked. 12. Paxman Company incurred $250.00 per direct labour hour.000 for the year.000 EU’s (conversion only) 41. On April 30 there were 4.000 45. 5. On April 1 there were 5. Black Company uses the weighted-average method in its process costing system.000 42. $240. all of these would likely be classified as an organization sustaining activity cost .000 x . Actual overhead of $250.000 41.000 (100%) 4. If the predetermined overhead rate was $20.000 40. 13. 12.000 (actual OH) . 10% complete with respect to conversion costs.2 8*.000 units were started during April. 42. d. none of the above WIP April 1 Started To account for Completed and transferred WIP April 30 Accounted for 10. For the current year.000 units in work-in-process.000 units c. 25% complete with respect to conversion costs.000 applied overhead. 9*.000 1.000 units b.000 hours.
$20. At this sales level. c. $ 65. what is the company's contribution margin? a. No change to break-even level.000 total costs Variable portion = ($120. . d. when a job is completed during June but only one-half of the units have been sold by the end of June. its net income is $25.000.000 = $105.000 d.000 13*. Due to purchasing equipment to perform a job that was previously done manually.250 direct labour hours would be which of the following? a.000 – (4. fixed costs will go up by $40.000 labour hours and $36 per labour hour at an activity level of 2. Finished Goods as at June 30. What will be the effect of these changes on the number of units that must be sold to break-even? a. $125.000 c.000 14*.000 – 2. d. will include a portion of the overhead applied to the job? a. which of the following accounts.000 more than its contribution margin.000 + $100. Average indirect labour costs are $30 per labour hour at an activity level of 4.000 + 3. none of the above $30 x 4. Both b.500 = $ 90.000 Contribution = $125.000. Assuming that this activity is within the relevant range.$90.000. b. total expected indirect labour costs for a budgeted activity level of 3. As per our discussion.250($20) = $105.000 $40.000 = $120. and its total selling and administrative expenses are $100.500) = $20 per hour Solve for fixed using either level of activity: $120.000 per period and variable costs will be reduced by $12 per unit. we can’t determine the impact of the changes on break-even. $145.000 = $125. In a job-order costing system.000)/(4.000 .500 labour hours.000 d.3 11. At a sales level of $400.000 b. c. the impact on break-even depends on the change in the fixed costs relative to the change in contribution margin per unit. Can’t determine the effect based on the information provided. none of the above First Solve for gross margin: $25. Increases break-even level. and example in class.000 x $20) = $40. as at June 30. Work-in-process as at June 30. and c.250 b. $105. James Company's gross margin is $20. Cost of Goods Sold for the month ending June 30. b.000 c.000 . Since we don’t know what fixed costs or contribution margin were before the change.000 total costs $36 x 2. 12*. $105. $107. Decreases break-even level.
d. 18. c. At the break-even point contribution margin must be $4. The a term represents variable cost in total. d. b. The X term represents total costs. opportunity costs 16*. Sunk costs. $10. b. The linear equation Y = a + bX is often used to express cost formulas. profit will be 1 x $5 = $5. 17. $20. sunk costs c. 19. b. Differential costs.At a break-even point of 800 units sold. d. in the correct order? a. A proportionate increase in total fixed costs. b. Opportunity costs. What will the company's net income be at a volume of 801 units? a. Which of the following pairs of cost terms best completes the above sentence. Differential costs. Contribution margin per unit is $4. A decrease in fixed cost per unit. It is the same as a job-order costing system except that direct materials costs are accounted for in the same way as in a process costing system. at a volume of 801 units. It is identical to a job-order costing system except that actual manufacturing overhead costs are traced to units of product.000.000 and its fixed expenses are $4.000 since fixed costs are $4. c. The b term represents variable cost per unit of activity. . An unchanged fixed cost per unit. c. When preparing analyses.4 15. $ 5. It is the same as a process costing system except that direct materials costs are accounted for in the same way as in job-order costing system. Which of the following statements best defines an operation costing system? a. c. What will result from an increase in the activity level within the relevant range? a. It is identical to a process costing system except that actual manufacturing overhead costs are traced to units of product. d. White Company's variable expenses are $8. sunk costs d. opportunity costs b.000/800 = $5. $15. Therefore.000. An increase in fixed cost per unit. Which of the following representations in this equation is correct? a. The Y term represents total fixed costs. managers often neglect to consider ________ costs but frequently incorporate ________ costs.
000 Gross margin $ 38. overapplied overhead would only have been $2. $65. Since the $6. The $6.000 for indirect materials been correctly debited to the OH Control account. $14. Yes No c.000 last year. c.000 for the year.000 Purchases $ 80.. Yes Yes d. Best Company's records show that overhead was overapplied by $8. Gross Margin = Sales – cost of goods sold Cost of goods sold = $128.500 .450. the error in recording indirect materials would have no effect on net income for the year. Under the circumstances described above. No Yes b.500 Beginning inventory $ 24.000 for the year. How would the wages of factory maintenance personnel usually be classified? Indirect Manufacturing labour overhead a. d. Given the above information. Had the $6. In trying to determine why overhead was overapplied by such a large amount. has provided the following information for the year just ended: Net sales $128.550 = $89. This overapplied overhead was closed out to the Cost of Goods Sold account at the end of the year. The company's net income is overstated by $6. The company's net income is understated by $6.500. c.5 20*. Inc. Note: the example similar to this we did in class had the item incorrectly debited to depreciation expense which completely offset the adjustment to cost of goods sold.000 was debited to a balance sheet account (Office Supplies inventory) and not another expense account. $ 9. No No . b. which of the following statements is true? a.950 = $24. income is overstated. b.550 What was the ending inventory for the company at year-end? a.000 and the reduction of Cost of Goods Sold (credit CGS for overapplied overhead) would only have been $2.000 of indirect materials was mistakenly debited to the Office Supplies inventory account in error.050 22.050.950 Cost of goods sold = Beginning inventory + purchases – ending inventory $89.950. 21*.000 + $80. Delta Merchandising.000 in indirect materials should have been charged to Work in Process rather than to Office Supplies inventory.000 – ending inventory Ending inventory = $14.000. d. the company has discovered that $6.$38. $24.
Inventories are costly to carry and can be kept to minimum levels or eliminated completely with careful planning. II. stimulate sales volume d. discretionary variable cost d. discretionary fixed cost 26. increase fixed costs b. Amounts spent for charitable donations are an example of a(n): a. III. If a company wants to increase its safety margin. Both are geared to the future. Which of the following statements are true regarding financial and managerial accounting? I.6 23. The maintenance of a stock of raw materials allows defective materials to be replaced quickly so as to maintain a high rate of productivity. Both emphasize the segments of an organization. Both often rely on the same underlying financial data. III. Both are required for external reporting purposes. even if suppliers are late with deliveries or departments are unable to operate for a brief period due to breakdowns or other reasons. Which of the following statements reflects a key concept of a JIT production system? a. attempt to raise the break-even point . a. rather than just looking at the organization as a whole. work-in-process. IV. and finished goods inventories of manufacturing companies act as buffers so that operations can proceed smoothly. II. 24. b. committed variable cost c. III. The raw materials. The use of many suppliers ensures rapid delivery of materials for production. b. committed fixed cost b. IV only II and III only II only 25. rather than to the past. c. it should: a. d. decrease the contribution margin c. d. c. and IV II. I.
including manufacturing overhead.000. Data for the 2004 budget include manufacturing overhead costs of $3. The expected direct costs for one-pound bags of one of the company’s smaller volume products are as follows: Hawaiian Blend Direct material ……………………………… $3.000.000 720.700 Activity Driver Rate $ 500 per order $ 400 per setup $ 200 per batch $ 10 per hour Data regarding the 2004 production of the Hawaiian coffee is shown in the following table.000 1. adjustments are made.30 BBCC’s controller believes the traditional product-costing system may be providing misleading cost information. Budgeted sales1 Batch size Setups Purchase order size Processing and packaging 1 2.20 Direct labour ………………………………… . The budgeted direct-labour cost for 2004 totals $600. Activity Purchasing Material handling Quality control Processing and packaging Cost Driver Purchase orders Setups Batches Processing hours Budgeted Activity Cost $ 579.7 Question 2 (17 marks) Best Blend Coffee Company (BBCC) is a distributor and processor of different blends of coffee. plus a markup of 30 percent.000. BBCC prices its coffee at full product cost. BBCC has always used a traditional product-costing system that allocates overhead costs on the basis of each product’s direct-labour cost. however.000 lbs 500 lbs 3 per batch 500 lbs 1. there are substantial amounts of overhead costs in the predominantly automated roasting and packing process. Based on the sales budget and raw-material budget. She has developed an analysis of the 2004 budgeted manufacturing overhead costs shown in the following table.557.000. There will be no raw-material inventory at the beginning of the year.158 1.800 720 155. The major cost is raw materials.6 hours per 100 lbs Production will equal sales for 2004. purchases and use of direct materials (mostly coffee beans) will total $6. . If prices for certain coffees are significantly higher than market.000 Budgeted Activity Level 1.000.000 144.
(9 marks) c. Briefly explain why the activity-based costing approach has led to a different product cost. Determine the full product cost.8 Required: a. Note. using an activity-based costing approach. your explanation must relate specifically to the facts of this case. determine the full product cost and selling price of one pound of Hawaiian coffee. (4 marks) Question 2 Response: . Using BBCC’s traditional product-costing system. (4 marks) b. for one pound of Hawaiian coffee.
00 Mark-up $1.9 Question 2 Response: a.20 $. only 32 processing hours required.5 marks Full Cost Per Pound: Direct materials $3.50 ($5 x 30%) .000/$600. only $6.5 2.5 marks Overhead 1..000 1 $400 $4.000 = $5 per Direct Labour Dollar .800 1 $200 $800 1 $10 $320 1 $7.5 Total OH Costs Pounds of coffee Rate Cost $500 $2.5 1..5 .20 .50 ($5 x .30) .g.46 Cost per pound Direct Costs (.5 $3.000/500 = 4 . 1 mark for noting that it is a small volume product and 1 mark for identifying specific activity costs that seem high for this product.5 marks for each item in brackets: Total 1 Price $6.6/100 x 2. purchasing.5 .000.50 b.5 .000 .30 .5 marks . material handling and quality control) 1 mark for recognizing specific non-unit-level activities and 1 mark for specific identification of an example (at least one) Hawaiian Blend is a very low volume product (e.5 .5 2. Total 4 marks: POHR calculation: $3. Total 4 marks: • BBCC has significant overhead costs that are not driven by unit-level activities (e.400 of total direct material costs of $6.5 marks Direct labour .000 are for this blend. Total 9 marks: Stage two allocation of activity costs to product: Activity Purchasing Material handling Quality control Processing & packaging Level of Driver 2.96 $3.5 marks for each item in brackets: Total 1 Total costs $5.000 = 32 .5) Direct materials Direct Labour Total Cost c.000/500 = 4 .30 $7.000. etc.920 2.)) yet it incurs significant purchasing and material handling costs. • .000/500 x 3 = 12 .g.
(5. Conversion costs are incurred evenly throughout the production process and all direct materials are added at the beginning of the process in the Forming Department.5 marks) c. September 30: Direct materials: ? complete Conversion costs: 60% complete Required: a.000 Units completed during September and transferred out: 190.000 units Direct material: ? complete Conversion: 40% complete Units started in September: 200. Calculate unit costs for direct materials and conversion and prepare a cost reconciliation showing the cost of: (i) the units completed and transferred out.000 $34. September 1: 50. Prepare a quantity schedule and calculate the equivalent units of production for the month of September for direct materials and conversion costs. Costs Work in process.800 .400 $492.000 Costs incurred during September: Direct materials: Conversion: Work in process. The following data pertains to the month of September for the Forming Department. and (ii) ending work-inprocess.10 Question 3 (15 marks) Wilmot Plastics Company manufactures a specialized plastic that is used in the toy industry.5 marks) b.500 $349. (2 marks) $120. Did the weighted average unit cost for direct materials change in September compared to August? Explain your answer. (7.
) .000 .5 . 1 $154. 1 Started during the month Units to account for Equivalent units: Completed and transferred out Work-in-process Sept.15 per unit .5 .5 Conversion 190.000 .5 (Break-down of the 1 mark shown above) b.000 .5 Average unit cost for September = $2.5 .000 250.5 60.000 x 100%) . 30 Costs accounted for: $788.000 – 190.5 ($2.700 Conversion $ 34.000 Total 190.000 .5 250.60) .000 (60.5 Cost per unit: $2.000 .5 Costs incurred in September $842.300 .000 x .000 .000 (Must use EU’s from part a.000) + ($1.5 $384.000/50.45 x 60.200 ÷ 226.000 Total units accounted for: 250.45 (or whatever amount was calculated in b.500 ÷ Equivalent units 250.400 . (.5 $4.) per above calculations (.500 .5 200.5 60.) during September. 30 50.0001 1 Direct Materials 190.5 .200 $996.5) .40 .500 $208.15 x 190.000 .5 .000 1 250.000 .5 marks Total Direct Materials Work-in-process Sept.5 $492.000 (60.400 .5 36.5 Costs to account for $996.5 226. Total 2 marks: Average unit costs for direct materials for August were: $120.5) Thus it appears that costs have increased (or decreased depending on calculations in b.5 $349.000 .5 $1.5 $120.5 c.45 Total cost: Cost reconciliation: Costs transferred out Work-in-process Sept. Total 5.5 .000 = $2.5 .000) . Total 7.5 marks Quantity schedule and equivalent units: Work-in-process Sept.700 $612.5 .11 Question 3 Response: a.70 $4.70 x 36.800 .
000 1 .5 . On January 1. Identify two reasons why companies use a predetermined rate to apply overhead to jobs rather than using the actual amount of overhead incurred. (8 marks) c.000. Actual overhead incurred during January was $26. Job P82 was still in progress on January 31.12 Question 4 (14 marks) Gulf Shore Clothing Company applies overhead to jobs using machine hours as the basis.500 + 500) x $5 = $20.000 and total estimated machine hours are 47.000 .000 = $5 per machine hour . finished goods inventory and cost of goods sold.5 .5 .000.000 . Prepare a journal entry to prorate the amount calculated in requirement a. No units from job N08 had been sold as of January 31. (4 marks) b. Total estimated manufacturing overhead for 2004 is $235. Calculate the amount of underapplied or overapplied overhead for January. (2 marks) Question 4 Response: a. Total: 4 marks Rate: $235.000/47.000 machine hours 2.5 Actual overhead: $26. jobs A79 and N08 were completed and all units from job A79 were sold during the month.000 + 2. to work-in-process inventory. which utilized machine hours during the month as shown: A79 N08 P82 1.5 Applied overhead: (1.500 machine hours 500 machine hours During January.5 Underapplied overhead: $ 6. During January the firm began the following jobs. 2004 there were no balances in either work-in-process or finished goods inventory. Required: a.
5 .000 x $5 = $5.5 $20.5 $1.000 . maximum two) • • • Some overhead costs are seasonal so using a predetermined rate spreads those costs evenly across all products whereas use of an actual rate would charge those costs to the jobs being worked on when they were incurred.5 . Use of a predetermined rate avoids the need to wait for a total job cost until the bookkeeping is complete.750 . Jobs may be completed part way through a month or accounting period before all entries have been made.5 Overhead control $6.500 x $5 = $12.000 Applied OH (b) Underapplied Pro-Rated Overhead Underapplie d OH (a x b) 6.000 . .5 500 x $5 = $2.625 . Total: 8 marks Job A79 N08 P82 (a) % of Total Applied OH 1. Total: 2 marks (1 mark for each.500 .5 .500 .000 Journal entry: Cost of good sold $1.5 2.25 . Simplifies bookkeeping.5 $750 $6.5 .125 .5 Finished goods $3.000 6.13 b.750 .5 c.500 .000 .500 6.5 .5 $3. which seems unfair.5 Work-in-process $ 750 .000 .5 .
5 hours per tire) Variable Selling Costs Overhead1 1 Radial $120 $75 $15 $5 $10 All Ultra Weather Grip $100 $205 $50 $70 $15 $15 $5 $5 $10 $10 Overhead per unit is based on the budgeted 2004 production and sales mix of 4. (2 marks for identifying that labour hours is likely a plausible predictor of overhead since labour is an “integral element” (or words to that effect) of the production process.14 Question 5 (14 marks) Lemon Tire Company (LTC) manufactures and sells only three types of tires: Radial.000 + $10x. how many tires in total will LTC need to sell to breakeven? How many All Weather tires must be sold at the break-even level? (6 marks) c. Using the budgeted sales mix for 2004.72.72 indicating a large portion of the variation in overhead costs is explained by variation in labour hours. as per the case facts. You weren’t comfortable with the $10 per unit rate for overhead. (1 mark for identifying/explaining this criterion) ii. Your boss wants a brief explanation of why you believe the model produced by the regression analysis is appropriate to use for predicting overhead costs. 24. The R2 for the model is .) • Goodness of fit: i. Total fixed administration costs are expected to be $150. T-statistic is > 2.000 All Weather tires and 12.0 indicating labour hours is a statistically significant predictor of overhead costs.000 Radial Tires. how many of each type of tire must they sell? (4 marks) Question 5 Response: a. Total: 4 marks The regression model satisfies the two criteria (identified and discussed in class) for using it: • Economic plausibility: labour hours are likely a good predictor of overhead because direct labour is an integral part of the production process.000 Ultra Grip tires. (1 mark for identifying/explaining this criterion) . if LTC wants to earn $500.000 and 35. R2 is very good at .72 with a t-statistic for direct labour hours of 4. so using data from the past several years. The following represents the per unit sales and cost information budgeted for 2004: Per Unit Amounts Selling Price Direct Materials Direct Labour (. All Weather and Ultra Grip. Required: a. you ran a regression analysis which produced the following cost prediction model: y = $200. where total overhead costs is the dependent variable and direct labour hours is the independent variable.000 tires were sold in total.000 in 2004. The $10 per unit rate was calculated using 2003 actual figures when actual total overhead costs were $350. The production process is very similar for each type of tire and direct labour is an integral element of that process.000 in 2004 and has a tax rate of 40%. Using the budgeted sales mix for 2004. (4 marks) b.
000/(1-.667 x .5 .1 = 2. Total: 4 marks .000) x $25] + .15 Question 5 Response: b.000 + $500.5 AW: 23.5 c.5 .000/$50 = 7.000) x $110] = $50 .4 = 7.5 .5 = $5 (1 mark) (variable rate should have been used since the regression clearly shows overhead is a mixed cost and $10/tire is incorrect) Per Unit Amounts Selling Price Direct Materials Direct Labour (.000) x $20] + [(24.667 x .367 .) .000/40.000 + $150.5 [(12.5 Break-even: $200.5 .000/40.5 .4) = 23.5 1 $350.5 UG: 23.5 Radial: 23.000/40. All Weather tires: 7.000 tires in total.5 .5 .000 x .000 x $10 per direct labour hour Therefore variable overhead per tire = $10 x .200 .6 = 14. Total 6 marks: Need to determine fixed and variable portions of manufacturing overhead: OH = $200.5 hours per tire) Variable Selling Costs Variable Overhead for using rate calculated above) Contribution Margin Radial $120 $75 $15 $5 $5 All Ultra Weather Grip $100 $205 $50 $70 $15 $15 $5 $5 $5 $5 $20 $25 $110 .6 = 4.667 x .667 $50 (from part b.5 (.5 deduction if any element is missing) Weighted average contribution margin: [(4.5 .100 .200 .
000 $40. no mark was given for attempting to justify its inclusion simply because it was the “high” level of activity. approx.000 $116. 3.5 .000.5 Fixed: $120.600 $118.000 .600) = $5 per machine hour .5 .800 $87.$96.000 $102.600) = $78.000 $140.000 $120.000 + $5x Or $96. (6 marks) Part A: Response: ($120.000 $20.000 $60.000 – ($5 x 8.400 $160.5 .5 for showing cost prediction model Justification of months: Chose July because scattergram shows that June appears to be an outlier (1 mark) Note: Because June is clearly an outlier per the scattergram.400) = $78.000.000)/(8.. Briefly justify the two months you use in developing your model.800 Overhead Costs $100.000 $80. Part A (6 marks): Month January February March April May June July August September October Table 1 Machine Hours 3600 5040 5400 6600 7800 9000 8400 5400 3720 7800 Scattergram 1 $180.000 $108. use the high-low method to develop a cost prediction model for overhead costs.g.5 .000 – ($5 x 3.000 $0 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 Machine Hours Required: Based on Table 1 and Scattergram 1.000 machine hours) . y = $78.000 + $5x . y = $78.16 Question 6 (10 marks) Answer both of the following independent parts.5 .400 – 3.200 $113. Chose January because it is the lowest activity level of the year (1 mark) Also accepted use of the “low” level of activity identified on the scattergram (e.000 $160.400 $107.5 .000 Overhead Costs $96.000 $120.
800 $180.347 $127. What kind of cost behavior pattern for overhead costs is suggested by Scattergram 2? Defend your answer.240 Scattergram 2 $350.17 Part B (4 marks): Table 2 Machine Hours 6000 6720 7200 10080 10800 13200 15600 18000 16800 10800 7440 15600 4000 149.280 $2.000 $250.060 $277.432 $191.646. (2 marks) .348 $132.000 $50.800 $298.000 $100.700 $231.000 Overhead Costs $200.739 $300.500 $119.660 $276.000 Month 1 2 3 4 5 6 7 8 9 10 11 12 13 Totals Overhead Costs $106. develop a model for predicting overhead costs using the data contained in Table 2. Given your response to a.200 $192.000 $0 0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 Machine Hours Required: a. above.000 $150.900 $316.992 $71. (2 marks) b.
Since the costs are completely variable the above approach is appropriate. Part marks were given for taking a particular month and dividing the cost by the activity level for that month. b. Since the cost appears to be purely variable then the following approach can be used to develop a model for predicting costs: $2.646.240 1 1 Note: no value was given for use of the high/low method as the scattergram clearly indicates that no fixed costs exist in this case. The cost behavior pattern appears to be completely variable as since the line appears as though it will intercept the y-axis at or near 0 (1 mark) and overhead costs are going up in a linear fashion as machine hours increase (1 mark). .18 Part B Response: a.730/149.
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