C10

C10.0002 PRINCIPLES OF MANAGEMENT ACCOUNTING

K.R.BALACHANDRAN FALL 2008

CIRCLE SECTION: 3 5

SHOW DETAILED STEPS FOR NUMERICAL QUESTIONS.Quiz 3Multiple ChoiceIdentify the choice that best completes the statement or answers the question.____1.The overhead rates of the functional-based approach to product costing use

a.unit-based cost drivers

b.job-order costing

c.nonunit-based cost drivers

d.process costing

____2.During this past year, Bouncy Company experienced no change in inventory. Sales were 40,000 units at a selling price of $3 per unit. Variable manufacturing costs were $1.25 per unit, and total manufacturing costs were $55,000. Under absorption costing, net income was calculated at $53,000. What was net income under variable costing?

a.$53,000

b.$65,000

c.$55,000

d.$2,000

Figure 11-5

Sales$540,000

Variable costs$378,000

Fixed costs$120,000

Expected production and sales in units40,000 units

____3.Refer to Figure 11-5. The break-even point in sales dollars is

a.$171,429

b.$498,000

c.$112,500

d.$400,000

Figure 10-4

Belanna Industries began operations on January 1. The company sells a single product for $7 per unit. During the year, 50,000 units were produced and 45,000 units were sold. There was no work-in-process inventory at December 31.

Budgeted and actual costs for the year were as follows:

Fixed Costs Variable Costs

Direct materials-0-$1.40 per unit produced

Direct labor-0-$1.70 per unit produced

Manufacturing overhead$80,000$0.60 per unit produced

Selling and administrative

expenses$35,000$0.50 per unit sold

____4.Refer to Figure 10-4. Belanna's cost of ending finished goods inventory under variable costing would be

a.$26,500

b.$21,000

c.$18,500

d.$23,500

____5.The following information pertains to Raymond Company:

Selling price per unit$1,000

Variable cost per unit$700

Fixed costs$900,000

If the firm wants to earn $400,000 in before-tax profit, contribution margin must equal

a.$1,300,000

b.$900,000

c.$1,340,000

d.$1,440,000

____6.Focus Picture Company sold 5,600 units and produced 6,000 units this past year. Unit variable costs were $15 (including variable selling costs of $3), and total fixed manufacturing costs totaled $16,500. Which costing system (variable or absorption) will show a higher net income and by how much?

a.absorption costing, $1,100

b.absorption costing $17,600

c.variable costing, $1,100

d.cannot be determined from the information given

Figure 10-6

Hammer Corporation uses an actual cost system and produces a single product. Information about the product for the past year is as follows:

Product X

Production (units)200,000

Sales (units)160,000

Selling price$18.00

Machine hours82,000

Manufacturing costs:

Direct materials$200,000

Direct labor 560,000

Variable overhead100,000

Fixed overhead492,000

Nonmanufacturing costs:

Variable selling$120,000

Fixed selling60,000

There were no beginning inventories of Product X. (Round amounts to two decimal places.)____7.Refer to Figure 10-6. Hammer's variable cost of goods sold would be

a.$688,000

b.$680,000

c.$672,000

d.$704,000

____8.The contribution margin ratio is calculated as

a.total contribution margin divided by total variable costs

b.income divided by contribution margin

c.total contribution margin divided by total revenues

d.total variable costs divided by contribution margin

____9.The following information is provided:

Sales price per unit?

Variable cost per unit$175

Fixed costs$1,625,000

Break-even point in units5,000 units

The sales price is

a.$675

b.$500

c.$325

d.Cannot determine with information provided

____10.In the month just ended, Aldebraun Industries produced 40,000 units and sold 37,000 units. There were 2,000 units in finished goods inventory at the start of the month. Manufacturing costs are stable from month to month. The fixed overhead rate was $8 per unit. Aldebraun uses absorption costing. If Aldebraun used variable costing, the difference in net income would have been

a.$40,000

b.$8,000

c.$24,000

d.$16,000

____11.Contribution margin is calculated as

a.sales minus total variable costs

b.sales minus total variable manufacturing costs

c.sales minus cost of goods sold

d.sales minus total variable manufacturing costs and total fixed manufacturing costs

____12.The break-even point in sales dollars is calculated as

a.Fixed costs/Contribution margin ratio

b.Fixed costs/Sales

c.Fixed costs/Price

d.Fixed costs/Variable cost ratio

Figure 4-4The Hewark Packlett Computer company manufactures two models of computers. The laptop computer (model L510) is a top of the line, deluxe model. The tower computer (model B347) is the regular model.

The following activity data is provided:

Activity Usage MeasuresModel L510 Model B347Total

Units produced annually15,000 40,000 55,000

Prime costs$40,000 $100,000 $140,000

Machine hours40,000 60,000 100,000

Production runs14 6 20

Direct labor hours20,000 30,000 50,000

The company primarily has three major activities as follows in the production process:

ActivityActivity Cost

Setups$50,000

Inspections$30,000

Power$15,000

____13.Refer to Figure 4-4. Calculate the unit cost of model L510 (deluxe).

a.$5.20

b.$7.10

c.$6.20

d.$3.53

____14.Which of the following is the assignment process used with normal costing?

a.Actual direct materials cost is assigned to products, but direct labor and overhead costs are assigned using predetermined rates.

b.Actual direct labor cost is assigned to products, but direct material and overhead costs are assigned using predetermined rates.

c.Actual direct materials, actual direct labor and actual overhead cost is assigned to products.

d.Actual direct material and direct labor costs are assigned to products, but overhead costs are assigned using predetermined rates.

Figure 4-5

Ray Manufacturing has four categories of overhead. The four categories and the expected overhead costs for each category for next year are as follows:

Maintenance$510,000

Materials handling250,000

Setups60,000

Inspection210,000

Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. For next year, 100,000 direct labor hours are budgeted.

The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 10 percent.

Estimates for the proposed job are as follows:

Direct materials$30,000

Direct labor (8,000 hours)$24,000

Number of materials moves100

Number of inspections120

Number of setups24

Number of machine hours4,000

The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers. Expected activity for the four activity-based cost drivers that would be used are as follows:

Machine hours60,000

Material moves20,000

Setups3,000

Quality inspections12,000

____15.Refer to Figure 4-5. If Ray Manufacturing used activity-based cost drivers to assign overhead, the total amount of overhead allocated to the proposed job would be

a.$44,913

b.$37,830

c.$41,830

d.$39,850

____16.Which of the following is a result of the use of unit-based cost drivers to assign costs?

a.all products are overcosted

b.high-volume products are overcosted

c.all products are undercosted

d.low-volume products are overcosted

____17.If variable costs per unit decrease, sales volume at the break-even point will

a.remain the same; however, contribution margin per unit will decrease

b.increase

c.decrease

d.remain the same

____18.Which of the following statements is true concerning an activity-based costing system?

a.An activity-based costing system can trace cost accurately to cost objects other than products.

b.An activity-based costing system differs from a functional-based cost system in the nature and number of the cost drivers used.

c.An activity-based costing system uses both unit-based and nonunit-based cost drivers that reflect a cause-and-effect relationship.

d.An activity-based costing system does all of the above.

____19.Variable costing income will usually exceed absorption costing income when

a.production and sales are equal

b.production exceeds sales

c.sales exceed production

d.none of the above are correct

____20.Break-even is the point where

a.revenue equals total variable costs

b.revenue equals total manufacturing costs

c.revenue equals cost of goods sold

d.revenue equals total variable costs plus total fixed costs

Quiz 3

Answer SectionMULTIPLE CHOICE

1.ANS:APTS:1

2.ANS:A

SUPPORTING CALCULATIONS:

Net income under absorption and variable costing is the same when there is no change in inventory.PTS:1

3.ANS:D

SUPPORTING CALCULATIONS:

($540,000 - $378,000)/$540,000 = 30%

Break-even point = $120,000/30% = $400,000PTS:1

4.ANS:C

SUPPORTING CALCULATIONS:

Direct materials$1.40

Direct labor1.70

Variable overhead0.60

Cost per unit$3.70

(50,000 - 45,000) $3.70 = $18,500PTS:1

5.ANS:A

SUPPORTING CALCULATIONS:

$900,000 + $400,000 = $1,300,000PTS:1

6.ANS:A

SUPPORTING CALCULATIONS:

Production exceeds sales. Therefore, absorption costing has higher income than variable costing.

Fixed overhead rate: $16,500/6,000 = $2.75

Difference in net income: (6,000 - 5,600) $2.75 = $1,100PTS:2

7.ANS:A

SUPPORTING CALCULATIONS:

Direct materials ($200,000/200,000)$1.00

Direct labor ($560,000/200,000)2.80

Variable overhead ($100,000/200,000)0.50

Cost per unit$4.30

160,000 $4.30 = $688,000PTS:1

8.ANS:C

9.ANS:B

SUPPORTING CALCULATIONS:

$1,625,000/ = 5,000

= $325 CM

$325 + $175 = $500 Sales pricePTS:2

10.ANS:C

SUPPORTING CALCULATIONS:

Beginning Inventory 2,000

Ending Inventory 5,000

Change 3,000 $8 = $24,000PTS:2

11.ANS:APTS:1

12.ANS:APTS:1

13.ANS:C

SUPPORTING CALCULATIONS:

L510

Setups.7($50,000) = $35,000

Inspections.4($30,000) = $12,000

Power.4($15,000) = $ 6,000

Prime costs$40,000

Total$93,000/15,000 units = $6.20

PTS:2

14.ANS:DPTS:1

15.ANS:B

SUPPORTING CALCULATIONS:

Maintenance: $510,000/60,000 = $8.50

Materials handling: $250,000/20,000 = $12.50

Setups: $60,000/3,000 = $20

Inspection: $210,000/12,000 = $17.50

Maintenance ($8.50 4,000)$34,000

Materials handling ($12.50 100)1,250

Setups ($20 24)480

Inspection ($17.50 120)2,100

Total overhead$37,830

PTS:2

16.ANS:BPTS:1

17.ANS:CPTS:1

18.ANS:DPTS:1

19.ANS:CPTS:1

20.ANS:DPTS:1TOTAL 25 points. 5 of the questions have 2 points each. You can give partial credit if the approach is correct and answer is wrong.

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