Cost Behavior Analysis 17

E 5. Hoyden Co. developed the following equation to predict certain components of its budget for the
coming period:

Costs = $50,000 + ($5 x direct labor hours)

The $5 would approximate:

A. total cost
B. direct labor rate per hour
C. fixed cost per direct labor hour
D. the coefficient of determination
E. variable costs per direct labor hour

E 6. When cost relationships are linear, total variable manufacturing costs will vary in proportion to
changes in:
A. machine hours
B. direct labor hours
C. total material cost t
D. total overhead cost
E. volume of production

B 7. The term "relevant range" as used in cost accounting means the range over which:
A. relevant costs are incurred
B. cost relationships are valid
C. costs may fluctuate
D. sales volume fluctuates
E. production may vary

E 8. Within a relevant range, the amount of fixed cost per unit:

A. differs at each production level on a per-unit basis
B. remains constant in total
C. decreases as production increases on a per-unit basis
D. increases as production decreases on a per-unit basis
E. all of the above

C 9. The following relationships pertain to a year's budgeted activity for Buckeye Company:

High Low
Direct labor hours ................................................................ 400,000 300,000
Total costs .............................................................................. $154,000 $129,000

What are the budgeted fixed costs for the year?

A. $100,000
B. $25,000
C. $54,000
D. $75,000
E. none of the above
 18 Chapter 3

SUPPORTING CALCULATION:

High ........................................................................................ $ 154,000 400,000

KNOWN
Low ......................................................................................... 129,000 300,000
Difference............................................................................... $ 25,000 100,000

Variable rate = $25,000  100,000 = $.25/direct labor hour

Fixed cost = $154,000 - $.25(400,000) = $54,000

B 10. Maintenance expenses of a company are to be analyzed for purposes of constructing a flexible
i budget. Examination of past records disclosed the following costs and volume measures:

High Low
Cost per month ..................................................................... $39,200 $32,000
Machine hours ...................................................................... 24,000 15,000

Using the high-low method of analysis, the estimated variable cost per machine hour is:
A. $12.50
B. $0.80
C. $0.08
D. $1.25
E. none of the above

SUPPORTING CALCULATION:

High ........................................................................................ $ 39,200 24,000

I
E
Low ......................................................................................... 32,000 15,000
Difference............................................................................... $ 7,200 9,000

Variable rate = $7,200  9,000 = $.80/machine hour

D 11. A company allocates its variable factory overhead based on direct labor hours. During the past
three months, the actual direct labor hours and the total factory overhead allocated were as
follows:

October November December

Direct labor hours ..................................... 2,500 3,000 5,000
Total factory
overhead allocated ............................. $80,000 $75,000 $100,000

Based upon this information, the estimated variable cost per direct labor hour was:
A. $.125
B. $12.50
C. $.08
D. $8
E. none of the above
24 Chapter 3

PROBLEMS

PROBLEM

1.
High and Low Points Method. A controller is interested in analyzing the fixed and variable costs of indirect
labor as related to direct labor hours. The following data have been accumulated:

Indirect Direct Labor

Month Labor Cost Hours
March............................................................................................................ $2,880 425
April .............................................................................................................. 3,256 545
May ............................................................................................................... 2,820 440
June ............................................................................................................... 3,225 560
July ................................................................................................................ 3,200 540
gamut
August ........................................................................................................... 3,200 495

Required: Determine the amount of the fixed portion of indirect labor expense and the variable rate for
indirect labor expense, using the high and low points method. (Round the variable rate to three decimal places
and the fixed cost to the nearest whole dollar.)

SOLUTION

Indirect Direct Labor

Labor Cost Hours
High ............................................................................................................... $ 3,225 560
Low ................................................................................................................ 2,880 425
Difference...................................................................................................... $ 345 135

Variable rate = $345  135 = $2.556 per direct labor hour

Fixed cost = $3,225 - ($2.556 x 560) = $1,794

PROBLEM

2.
Fixed, Variable, and Semivariable Production Costs. Ibus Instruments Co. developed the following regression
equations to indicate costs at various activity levels:

Direct labor = $4 per unit

Materials = $3 per unit
Supervision = $5,000
Power = $300 + $.25 per unit + $.50 per machine hour
Factory supplies = $250 + $.75 per unit
Depreciation—equipment = $1 per machine hour
Depreciation—building = $10,000

During the next period, the company anticipates production of 20,000 units and usage of 3,000 machine hours.

Required: Prepare a schedule of the production costs to be incurred during the next period.
Chapter 5

JOB ORDER COSTING

Beg

MULTIPLE CHOICE

Question Nos. 4, 5, 9-13, and 18 are AICPA adapted.

Question Nos. 7, 8, and 14-17 are ICMA adapted.

A 1. Under job order cost accumulation, the factory overhead control account controls:
A. factory overhead analysis sheets
B. all general ledger subsidiary accounts
C. job order cost sheets
D. cost reports by processes
E. materials inventories

B 2. Supplies needed for use in the factory are issued on the basis of:
A. job cost sheets
B. materials requisitions
C. time tickets
D. factory overhead analysis sheets
E. clock cards

B 3. Finished Goods is debited and Work in Process is credited for a:

A. transfer of completed goods out of the factory
B. transfer of completed production to the finished goods storeroom
C. purchase of goods on account
D. transfer of materials to the factory
E. return of unused materials from the factory

A 4. In job order costing, when materials are returned to the storekeeper that were previously issued to
the factory for cleaning supplies, the journal entry should be made to:
A. Materials
Factory Overhead
B. Materials h m
Work in Process
C. Purchases Returns
Work in Process
D. Work in Process
Materials
E. Factory Overhead
Work in Process

46
 É
Job Order Costing 49

D 11. Howell Corporation has a job order cost system. The following debits (credits) appeared in Work
in Process for the month of July:

July 1, balance ................................................................................................................... $ 12,000

July 31, direct materials ................................................................................................... 40,000
July 31, direct labor .......................................................................................................... 30,000
July 31, factory overhead ................................................................................................. 27,000
July 31, to finished goods.................................................................................................. (100,000)

Howell applies overhead to production at a predetermined rate of 90% based on the direct labor
cost. Job 1040, the only job still in process at the end of July, has been charged with factory
overhead of $2,250. What was the amount of direct materials charged to Job 1040?
A. $6,750
B. $2,250
C. $2,500
D. $4,250
E. $9,000

SUPPORTING CALCULATION:

Job 1040 = $12,000 + $40,000 + $30,000 + $27,000 - $100,000 = $9,000

t
$2,250
Direct materials = $9,000   $2,250 = $4,250
.9

E 12. Valentino Corporation makes aluminum fasteners. Among Valentino's 19-- manufacturing costs
were:

Wages and salaries:

Machine operators .................................................................................................... $80,000
Factory supervisors................................................................................................... 30,000
Machine mechanics ................................................................................................... 20,000

Direct labor amounted to:

A. $50,000
B. $100,000
C. $110,000
D. $130,000
E. none of the above
50 Chapter 5

B 13. Rudolpho Corporation makes aluminum fasteners. Among Rudolpho's 19-- manufacturing costs
were:

Materials and supplies:

Aluminum ........................................................................................................................ $400,000
Machine parts ................................................................................................................. 18,000
Lubricants for machines ................................................................................................ 5,000

Direct materials amounted to:

A. $23,000
B. $400,000
C. $405,000
D. $418,000
E. $423,000

C 14. Selected cost data (in thousands) concerning the past fiscal year's operations of the Moscow
Manufacturing Company are presented below.

Inventories
Beginning Ending
Materials.............................................................................................. $75 $ 85
Work in process .................................................................................. 80 30
Finished goods..................................................................................... 90 110

Materials used, $326

Total manufacturing costs charged to production during the year (including direct materials,
direct labor, and factory overhead applied at the rate of 60% of direct labor cost), $686
Cost of goods available for sale, $826
Selling and general expenses, $25

The cost of direct materials purchased during the year amounted to:
A. $360
B. $316
C. $336
D. $411
E. none of the above

SUPPORTING CALCULATION: $326 + $85 - $75 = $336

29. Today, traditional accounting methods are
a. still appropriate for financial reporting.
b. still appropriate for providing useful cost information to internal managers.
c. still appropriate for both internal and external financial reporting.
d. outdated for all purposes.
ANS: A DIF: Easy OBJ: 5-6

30. Product costing systems in use over the last 40 years

a. concentrated on using multiple cost pools and cost drivers.
b. were often technologically incapable of handling activity-based costing information.
c. have generally been responsive to changes in the manufacturing environment.
d. have been appropriate for managerial decision purposes as long as they met the
requirements of generally accepted accounting principles.
ANS: B DIF: Moderate OBJ: 5-5

31. Traditional overhead allocations result in which of the following situations?

a. Overhead costs are assigned as period costs to manufacturing operations.
b. High-volume products are assigned too much overhead, and low-volume products are
assigned too little overhead.
c. Low-volume products are assigned too much, and high-volume products are assigned too
little overhead.
d. The resulting allocations cannot be used for financial reports.
ANS: B DIF: Easy OBJ: 5-5

32. Traditionally, overhead has been assigned based on direct labor hours or machine hours. What effect
does this have on the cost of a high-volume item?
a. over-costs the product
b. under-costs the product
c. has no effect the product cost
É by product volume
d. cost per unit is unaffected
ANS: A DIF: Easy OBJ: 5-5

33. Relative to traditional product costing, activity-based costing differs in the way costs are
a. processed.
b. allocated.
c. benchmarked.
d. incurred.
ANS: B DIF: Easy OBJ: 5-5

34. Under activity-based costing, benchmarks for product cost should contain an allowance for
a. idle time.
b. idle time and scrap materials.
c. spoilage.
d. None of the responses are correct.
ANS: D DIF: Moderate OBJ: 5-4

162
 ANS: B DIF: Easy OBJ: 5-1

42. The costs of non-quality work do not include

a. the cost of handling complaints.
b. the cost of scrap.
c. warranty costs.
d. original design costs.
ANS: D DIF: Easy OBJ: 5-6

43. In the "new era" of manufacturing, good performance indicators are

a. production-based.
b. sales-based.
c. cost-based.
d. consumer-based.
ANS: D DIF: Easy OBJ: 5-6

44. Traditional standard costs are inappropriate measures for performance evaluation in the "new era" of
manufacturing because they
a. build in allowances for non-value-adding activities.
b. are based on historical information.
c. don't reflect current costs.
d. are ideal goals.
ANS: A DIF: Moderate OBJ: 5-6

45. The amount of time between the development and the production of a product is
a. the product life cycle.
b. lead time.
c. production time.
d. value-added time.
ANS: B DIF: Easy OBJ: 5-1

46. For one product that a firm produces, the manufacturing cycle efficiency is 20 percent. If the total
production time is 12 hours, what is the total manufacturing time?
a. 15.0 hours
b. 60.0 hours
c. 12.0 hours
d. 2.4 hours
ANS: B DIF: Easy OBJ: 5-2

47. Activity analysis allows managers to

a. classify activities so that processes can be eliminated.
b. devise ways to minimize or eliminate non-value-added activities.
c. evaluate process performance to gain competitive advantages.
d. all of the above.
ANS: B DIF: Easy OBJ: 5-3

164
71. Refer to Smithson Company If total overhead is assigned to A and B on the basis of units produced,
Product B will have an overhead cost per unit of
a. $84.00.
b. $88.64.
c. $110.64.
d. None of the responses are correct.
ANS: B
See #70 for Total Overhead Computations

th
Total OH Proportion Allocated Units OH per
OH Produced Unit
$ 780,000 0.909090909 $ 709,090.91 8000 $ 88.64
(8000/8800)

DIF: Moderate OBJ: 5-3

72. Refer to Smithson Company If total overhead is assigned to A and B on the basis of direct labor hours,
Product A will have an overhead cost per unit of
a. $51.32.
b. $205.28.
c. $461.88.
d. None of the responses are correct.
ANS: B

Product DL Hrs/Unit Units Produced Total DL

Hours
A 4 800 3200
B 1.5 8000 12000
15200
ar
Total OH Proportion Allocated Units OH per
OH Produced Unit
$ 780,000 0.210526316 $ 164,210.53 800 $ 205.28
(3,200/15,200)

DIF: Moderate OBJ: 5-3

170
 Phelps Company

Phelps Company produces 50,000 units of Product Q and 6,000 units of Product Z during a period. In
that period, four set-ups were required for color changes. All units of Product Q are black, which is the
color in the process at the beginning of the period. A set-up was made for 1,000 blue units of Product
Z; a set-up was made for 4,500 red units of Product Z; a set-up was made for 500 green units of
Product Z. A set-up was then made to return the process to its standard black coloration and the units
of Product Q were run. Each set-up costs $500.

76. Refer to Phelps Company. If set-up cost is assigned on a volume basis for the department, what is the
approximate per-unit set-up cost for Product Z?
a. $.010.
b. $.036.
c. $.040.
d. None of the responses are correct.
ANS: B

t
Total setup cost: $500 x 4 = $2,000

$2,000/56,000 = $0.0357

DIF: Moderate OBJ: 5-3

77. Refer to Phelps Company. If set-up cost is assigned on a volume basis for the department, what is the
approximate per-unit set-up cost for the red units of Product Z?
a. $.036.
b. $.111.
c. $.250.
d. None of the responses are correct.
ANS: A
Total setup cost: $500 x 4 = $2,000

$2,000/56,000 = $0.0357

DIF: Moderate OBJ: 5-3

78. Refer to Phelps Company. Assume that Phelps Company has decided to allocate overhead costs using
levels of cost drivers. What would be the approximate per-unit set-up cost for the blue units of Product
Z?
a. $.04.
b. $.25.
c. $.50.
d. None of the responses are correct.
ANS: C
Setup cost for blue units = $500.00

Number of blue units produced = 1,000

$500/1,000 = $.50
Er
DIF: Moderate OBJ: 5-3

172