221 ACC Cost Accounting Exam 2 Name:_______________________________________________________________ Instructions for Part 1: Indicate the response you believe is the most correct for the multiple choice (MC) questions by circling the appropriate letter to indicate your answer. No partial credit can be earned on multiple choice questions. Therefore, choose your answers carefully. Only choose one response for MC questions, indicating two selections will invalidate your answer. Instructions for Part 2: You will be given a problem question. When attempting a problem, please be sure your handwriting is legible. No points will be earned of illegible work. Enter your answers to problem immediately following the problem and in the worksheet provided. 1. When the weighted-average method of process costing is used, a department's equivalent units are computed by: A) subtracting the equivalent units in beginning inventory from the equivalent units in ending inventory. B) subtracting the equivalent units in beginning inventory from the equivalent units for work performed during the period. C) adding the units transferred out to the equivalent units in ending inventory. D) subtracting the equivalent units in beginning inventory from the sum of the units transferred out and the equivalent units in ending inventory.
2.
Which of the following journal entries would be used to record direct labor costs in a company having two processing departments (Department A and Department B)? A) B) C) Work in Process Salaries and Wages Payable Salaries and Wages Expense Salaries and Wages Payable Work in Process-Department A Work in Process-Department B Salaries and Wages Payable Salaries and Wages Payable Work in Process XXX XXX XXX XXX XXX XXX XXX XXX XXX
D)
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3.
Darvin Company uses the weighted-average method in its process costing system. The first processing department, the Welding Department, started the month with 20,000 units in its beginning work in process inventory that were 10% complete with respect to conversion costs. The conversion cost in this beginning work in process inventory was $7,000. An additional 63,000 units were started into production during the month. There were 10,000 units in the ending work in process inventory of the Welding Department that were 10% complete with respect to conversion costs. A total of $237,600 in conversion costs were incurred in the department during the month. What would be the cost per equivalent unit for conversion costs for the month? (Round off to three decimal places.) A) $3.255 B) $3.771 C) $3.500 D) $3.305
4.
. Bricker Company uses the weighted-average method in its process costing system. The Assembly Department started the month with 5,000 units in its beginning work in process inventory that were 60% complete with respect to conversion costs. An additional 81,000 units were transferred in from the prior department during the month to begin processing in the Assembly Department. There were 18,000 units in the ending work in process inventory of the Assembly Department that were 80% complete with respect to conversion costs. What were the equivalent units for conversion costs in the Assembly Department for the month? A) 79,400 B) 82,400 C) 94,000 D) 68,000
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5.
Sadanand Corporation uses the weighted-average method in its process costing system. The Fitting Department is the second department in its production process. The data below summarize the department's operations in March. Percentage complete 40%
Beginning work in process inventory..................... Transferred in from the prior department during March ................................................................ 46,000 Ending work in process inventory ......................... 4,600
Units 1,100
30%
The Fitting Department's production report indicates that the cost per equivalent unit for conversion cost for March was $9.24. How much conversion cost was assigned to the units transferred out of the Fitting Department during March? A) $388,634.40 B) $425,040.00 C) $435,204.00 D) $392,700.00 6. The Assembly Department started the month with 78,000 units in its beginning work in process inventory. An additional 254,000 units were transferred in from the prior department during the month to begin processing in the Assembly Department. There were 21,000 units in the ending work in process inventory of the Assembly Department. How many units were transferred to the next processing department during the month? A) 332,000 B) 311,000 C) 197,000 D) 353,000 7. Brooks Company uses the weighted-average method in its process costing system. The beginning work in process inventory in a particular department consisted of 12,000 units, 100% complete with respect to materials cost and 40% complete with respect to conversion costs. The total cost in the beginning work in process inventory was $25,000. During the month, 50,000 units were completed and transferred out of the department. The costs per equivalent unit were computed to be $1.50 for materials and $3.20 for conversion costs. The total cost of the units completed and transferred out of the department was: A) $235,000. B) $226,640. C) $210,000. D) $201,640.
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8.
As the level of activity increases, how will a mixed cost in total and per unit behave? In Total Increase Increase Increase Decrease Decrease Per Unit Decrease Increase No effect Increase No effect
A) B) C) D) E) 9.
When the activity level is expected to decline within the relevant range, what effects would be anticipated with respect to each of the following? Fixed costs per unit Increase Increase No change No change Variable costs per unit Increase No change No change Increase
A) B) C) D)
10.
Discretionary fixed costs: A) cannot be changed since they are fixed. B) have a long-term planning horizon, generally encompassing many years. C) are made up of facilities, equipment, and basic organization. D) responses b and c are both correct. E) none of these.
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11.
The management of Casablanca Manufacturing Corporation believes that machine-hours is an appropriate measure of activity for overhead cost Shown below are machine-hours and total overhead costs for the past six months: MachineHours 150,000 140,000 160,000 130,000 170,000 200,000 Overhead Cost $339,000 $328,000 $350,000 $319,500 $362,500 $400,000
Jan Feb Mar Apr May Jun
Assume that the relevant range includes all of the activity levels mentioned in this problem. If Casablanca expects to incur 185,000 machine hours next month, what will the estimated total overhead cost be using the high-low method? A) $212,750 B) $359,750 C) $382,750 D) $381,700 Use the following data to answer questions 12 through 15. Solo Company is a small merchandising firm. During the next month, the company expects to sell 500 units. The company has the following revenue and cost structure: Selling price per unit..................... Cost per unit ................................. Sales commission ......................... Advertising expense ..................... Administrative expense................. $60 $15 10% of sales $5,000 per month $3,000 per month plus 20% of sales
12. The expected gross margin next month is: A) $ 5,500 B) $22,500 C) $13,500 D) $ 7,500
13. The expected contribution next margin month is: A) $13,500 B) $ 5,500 C) $ 7,300 D) $22,500
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14. The expected total administrative expense next month is: A) $3,000 B) $4,000 C) $9,000 D) $6,000 15. The expected net operating income is: A) $22,500 B) $ 5,500 C) $ 7,500 D) $13,500 16. Which of the following is correct? The break-even point occurs on the CVP graph where: A) total profit equals total expenses. B) total profit equals total fixed expenses. C) total contribution margin equals total fixed expenses. D) total variable expenses equal total contribution margin. 17. East Company manufactures and sells a single product with a positive contribution margin. If the selling price and the variable expense per unit both increase 5% and fixed expenses do not change, what is the effect on the contribution margin per unit and the contribution margin ratio? Contribution Contribution margin per unit margin ratio No change No change Increase Increase Increase No change Increase Decrease
A) B) C) D)
18. In the middle of the year, the price of Lake Corporation's major raw material increased by 8%. How would this increase affect the company's break-even point and margin of safety? Break-even point Margin of safety Increase Increase Increase Decrease Decrease Decrease Decrease Increase
A) B) C) D)
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19. Which of the following would not affect the break-even point? A) number of units sold B) variable expense per unit C) total fixed expenses D) selling price per unit 20. The following information relates to Snowbird Corporation: Sales at the break-even point ........ Total fixed expenses ..................... Net operating income ................... What is Snowbird's margin of safety? A) $62,500 B) $187,500 C) $100,000 D) $212,500 21. The "Dog Hut" hot dog stand expects the following operating results for next year: Sales ............................................ Net operating income ................... Contribution margin ratio ............. $280,000 $21,000 70% $312,500 $250,000 $150,000
What is Dog Hut's break-even point next year in sales dollars? A) $120,000 B) $181,300 C) $196,000 D) $250,000 22. Darth Company sells three products. Sales and contribution margin ratios for the three products follow: Product X Y Z Sales in dollars .............................. $20,000 $40,000 $100,000 contribution margin ratio............... 45% 40% 15% Given these data, the contribution margin ratio for the company as a whole would be: A) 25% B) 75% C) 33.3% D) it is impossible to determine from the given data
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23. In an income statement prepared using the variable costing method, fixed manufacturing overhead would: A) not be used. B) be used in the computation of the contribution margin. C) be used in the computation of net operating income but not in the computation of the contribution margin. D) be treated the same as variable manufacturing overhead. 24. When production exceeds sales, the net operating income reported under absorption costing generally will be: A) less than net operating income reported under variable costing. B) greater than net operating income reported under variable costing. C) equal to net operating income reported under variable costing. D) higher or lower because no generalization can be made.
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Use the following to answer questions 25-28: Jameson Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price ...................................................... $80 Units in beginning inventory ............................. 600 Units produced .................................................. 8,400 Units sold .......................................................... 8,600 Units in ending inventory .................................. 400 Variable costs per unit: Direct materials .............................................. $24 Direct labor .................................................... $33 Variable manufacturing overhead ................... $3 Variable selling and administrative ................. $5 Fixed costs: Fixed manufacturing overhead ....................... $117,600 Fixed selling and administrative ..................... $8,600 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. 25. What is the unit product cost for the month under variable costing? A) $79 B) $60 C) $74 D) $65
26. What is the unit product cost for the month under absorption costing? A) $74 B) $60 C) $79 D) $65 27. What is the net operating income for the month under variable costing? A) $14,800 B) $2,800 C) $0 D) $5,600
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28. What is the net operating income for the month under absorption costing? A) $5,600 B) $2,800 C) $14,800 D) $0 29. Advocates of variable costing argue that: A) fixed production costs should be added to inventory because such costs have future service potential and therefore are inventoriable as an asset. B) fixed production costs should be capitalized as an asset and amortized over future periods when benefits from such costs are expected to be received. C) fixed production costs should be charged to the period in which they are incurred unless sales do not equal production in which case any difference should be capitalized as an asset and amortized over future periods. D) fixed production costs should be charged to the period in which they are incurred.
30. Given the following CVP graph:
C
D
E
B F B A
The area represented by D is A) B) C) D) E) Break-even area Loss area Profit area Total revenue area None of the above
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Problem 1 (10 points) Delphi Company has developed a new product that will be marketed for the first time during the next fiscal year. Although the Marketing Department estimates that 35,000 units could be sold at $36 per unit, Delphi's management has allocated only enough manufacturing capacity to produce a maximum of 25,000 units of the new product annually. The fixed expenses associated with the new product are budgeted at $450,000 for the year. The variable expenses of the new product are $16 per unit. Required: a. How many units of the new product must Delphi sell during the next fiscal year in order to break even on the product? b. What is the profit Delphi would earn on the new product if all of the manufacturing capacity allocated by management is used and the product is sold for $36 per unit? c. What is the degree of operating leverage for the new product if 25,000 units are sold for $36 per unit? d. The Marketing Department would like more manufacturing capacity to be devoted to the new product. What would be the percentage increase in net operating income for the new product if its unit sales could be expanded by 10% without any increase in fixed expenses and without any change in the unit selling price and unit variable expense? e. Delphi's management has stipulated that the new product must earn a profit of at least $125,000 in the next fiscal year. What unit selling price would achieve this target profit if all of the manufacturing capacity allocated by management is used and all of the output can be sold at that selling price?
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Problem 1 Answer Sheet
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