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Silver 1. Company produces a single product. Last year, the company's variable production costs totaled $7,500 and its fixed manufacturing overhead costs totaled $4,500. The company produced 3,000 units during the year and sold 2,400 units. There were no units in the beginning inventory. Which of the following statements is true? A. Under variable costing, the units in the ending inventory will be costed at $4 each. B. The net operating income under absorption costing for the year will be $900 lower than the net operating income under variable costing. C. The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing. D. Under absorption costing, the units in ending inventory will be costed at $2.50 each.Answer the following questions using the information below: 2. Lee Company produces a single product. At the end of last year, the company had 30,000 units in its ending inventory. Lee's variable production costs are $10 per unit and its fixed manufacturing overhead costs are $5 per unit every year. The company's net operating income for the year was $12,000 higher under variable costing than under absorption costing. Given these facts, the number of units of product in inventory at the beginning of the year must have been: A. 28,800 units B. 27,600 units C. 32,400 units D. 42,000 units Unit fixed manufacturing overhead = Difference in net income Change in inventory = $12,000 Change in inventory = $5 Change in inventory = 2,400 units Beginning inventory = 2,400 + 30,000 = 32,400 units 3. Ben Company produces a single product. Last year, the company's net operating income under absorption costing was $4,400 lower than under variable costing. The company sold 8,000 units during the year, and its variable costs were $8 per unit, of which $3 was variable selling expense. Fixed manufacturing overhead was $1 per unit in beginning inventory under absorption costing. How many units did the company produce during the year? A. 12,400 units B. 3,600 units C. 7,120 units D. 7,450 units Unit fixed manufacturing overhead = (Difference in income/Change in inventory) = $4,400 Change in inventory = $1 Change in inventory = 4,400 units Units produced during the year = 8,000 units sold - 4,400 units change in inventory = 3,600 units Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows: Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost. 4. The contribution margin per unit was: A. $17.50 B. $32.50 C. $27.30 D. $25.70 5. Under absorption costing, the carrying value on the balance sheet of the ending inventory for the year would be: A. $190,800 B. $170,000 C. $230,800 D. $0 Unit fixed manufacturing overhead = $255,000 17,000 = $15 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = ($153,000 17,000) + ($110,500 17,000) + ($204,000 17,000) + $15 = $42.50 Carrying value = Unit product cost Ending inventory in units = $42.50 (17,000 13,000) = $42.50 4,000 = $170,000 6. Under variable costing, the company's net operating income for the year would be: A. $60,000 higher than under absorption costing B. $108,000 higher than under absorption costing C. $108,000 lower than under absorption costing D. $60,000 lower than under absorption costing Unit fixed manufacturing overhead Change in inventory in units = ($255,000 17,000) (17,000 - 13,000) = $15 4,000 = $60,000 Since the units produced are greater than the units sold (inventory increased), net income under absorption costing will be higher than net income under variable costing. Crystal Company produces a single product. The company's variable costing income statement for the month of May appears below: The company produced 80,000 units in May and the beginning inventory consisted of 25,000 units. Variable production costs per unit and total fixed costs have remained constant over the past several months. 7. The dollar value of the company's inventory on May 31 under the absorption costing method would be: A. $120,000 B. $90,000 C. $75,000 D. $60,000 Units sold = $900,000 $10 = 90,000 Ending inventory = Beginning inventory + Units produced - Units sold = 25,000 + 80,000 - 90,000 = 15,000 Unit fixed manufacturing overhead = $240,000 80,000 = $3 Unit product cost = ($450,000 90,000) + $3 = $5 + $3 = $8 Value of ending inventory = Unit product cost Units in ending inventory = $8 15,000 = $120,000 8.. Under absorption costing, for the month ended May 31, the company would report a: A. $30,000 loss B. $0 profit C. $30,000 profit D. $60,000 profit Unit fixed manufacturing cost = $240,000 80,000 = $3 Unit product cost = ($450,000 90,000) + $3 = $5 + $3 = $8 Units sold = $900,000 $10 = 90,000 Gallager Company, which has only one product, has provided the following data concerning its most recent month of operations: 9. The total contribution margin for the month under the variable costing approach is: A. $303,600 B. $132,000 C. $356,400 D. $72,400 10. The total gross margin for the month under the absorption costing approach is: A. $303,600 B. $132,000 C. $19,800 D. $148,600 Unit fixed manufacturing overhead = $231,200 6,800 = $34 Unit product cost = $22 + $23 + $4 + $34 = $83 11. What is the total period cost for the month under the variable costing approach? A. $290,600 B. $112,200 C. $231,200 D. $343,400 Period cost = Variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost = $8 6,600 + $231,200 + $59,400 = $52,800 + $231,200 + $59,400 = $343,400 12. What is the total period cost for the month under the absorption costing approach? A. $59,400 B. $112,200 C. $343,400 D. $231,200 Period cost = Variable selling and administrative cost + Fixed selling and administrative cost = $8 6,600 + $59,400 = $112,200 13. Bakken Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total variable manufacturing cost per unit is: A. $16.50 B. $90.40 C. $45.50 D. $106.90 Direct materials and direct labor are entirely variable since cost per unit does not change with changes in volume. Thus none of these costs are fixed and only manufacturing overhead is used to calculate the monthly fixed manufacturing cost. First, calculate the variable manufacturing cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($542,500 - $526,000) (5,000 - 4,000) = $16.50 Variable manufacturing cost = $45.50 + $44.90 + $16.50 = $106.90 Buffo Company fabricates metal folding chairs. Data concerning the company's revenue and cost structure follow: 14. If Buffo plans to produce and sell 3,000 units next month, the expected contribution margin would be: A. $30,750 B. $74,250 C. $26,750 D. 96,500 15. If Buffo plans to produce and sell 4,000 units next month, the expected gross margin would be: A. $41,000 B. $37,000 C. $68,000 D. $57,500 16. If Buffo expects to produce and sell 2,000 units next month, the total expected manufacturing cost would be: A. $34,000 B. $39,000 C. $45,500 D. $38,000 Total expected manufacturing cost = $4,000 + ($17 2,000 units) = $38,000 17. If expects Buffo to produce and sell 5,000 units next month, the expected net operating income would be: A. $51,250 B. $42,750 C. $71,000 D. $62,500 Answer the following questions using the information below: Rambo Company has three products, A, B, and C. The following information is available: Sales Variable costs Contribution margin Fixed costs: Avoidable Unavoidable Operating income Product A $60,000 36,000 24,000 Product B $90,000 48,000 42,000 Product C $24,000 15,000 9,000 6,000 7,000 $ 11,000 15,000 9,000 $18,000 4,000 5,400 $ (400) 18) Rambo Company is thinking of dropping Product C because it is reporting a loss. Assuming Rambo drops Product C and does NOT replace it, operating income will: A) increase by $400 B) increase by $4,000 C) decrease by $5,000 D) decrease by $9,400 Register to View AnswerExplanation: C) Dropping Product C would mean Rambo gives up $9,000 in contribution margin while only saving $4,000 in avoidable fixed costs. Without Product C, operating income would be $5,000 less than currently reported. 19) Assuming Product C is discontinued and the space formerly used to produce Product C is rented for $12,000 per year, operating income will: A) increase by $4,600 B) increase by $7,000 C) increase by $12,000 D) increase by $12,400 Register to View AnswerExplanation: B) $12,000 - $5,000 = $7,000 Answer the following questions using the information below: Victoria, Inc., is considering replacing a machine. The following data are available: Old Machine Original cost $90,000 Useful life in years 10 Current age in years 5 Book value $50,000 Disposal value now $16,000 Disposal value in 5 years 0 Annual cash operating costs $14,000 Replacement Machine $70,000 5 0 0 $8,000 20) For the decision to keep the old machine, the relevant costs of keeping the old machine total: A) $120,000 B) $70,000 C) $94,000 D) $144,000 Register to View AnswerExplanation: B) $14,000 5 = $70,000 21) The difference between keeping the old machine and replacing the old machine is: A) $74,000 in favor of keeping the old machine B) $24,000 in favor of keeping the old machine C) $74,000 in favor of replacing the old machine D) $24,000 in favor of replacing the old machine Register to View AnswerExplanation: B) New [$70,000 + (5 $8,000)] - Old [$16,000 + (5 $14,000)] = $24,000 22. Corado Corporation has in stock 77,000 kilograms of material N that it bought five years ago for $7.15 per kilogram. This raw material was purchased to use in a product line that has been discontinued. Material N can be sold as is for scrap for $4.50 per kilogram. An alternative would be to use material N in one of the company's current products, M01Y, which currently requires 2 kilograms of a raw material that is available for $7.15 per kilogram. Material N can be modified at a cost of $0.94 per kilogram so that it can be used as a substitute for this material in the production of product M01Y. However, after modification, 4 kilograms of material N is required for every unit of product M01Y that is produced. Corado Corporation has now received a request from a company that could use material N in its production process. Assuming that Corado Corporation could use all of its stock of material N to make product M01Y or the company could sell all of its stock of the material at the current scrap price of $4.50 per kilogram, what is the minimum acceptable selling price of material N to the company that could use material N in its own production process? A. $1.86 B. $2.64 C. $4.52 D. $4.50 23. Mcneilly Inc. is considering using stocks of an old raw material in a special project. The special project would require all 220 kilograms of the raw material that are in stock and that originally cost the company $1,804 in total. If the company were to buy new supplies of this raw material on the open market, it would cost $8.55 per kilogram. However, the company has no other use for this raw material and would sell it at the discounted price of $7.75 per kilogram if it were not used in the special project. The sale of the raw material would involve delivery to the purchaser at a total cost of $97.00 for all 220 kilograms. What is the relevant cost of the 220 kilograms of the raw material when deciding whether to proceed with the special project? A. $1,705 B. $1,881 C. $1,804 D. $1,608 Relevant cost of raw material: 24. Govoni Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 9,500 units of component AIG. Each unit of AIG requires 6 units of material M51 and 4 units of material M93. Data concerning these two materials follow: Material M51 is in use in many of the company's products and is routinely replenished. Material M93 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up. What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product AIG? A. $505,667 B. $502,550 C. $458,850 D. $464,550 Relevant cost of 9,500 units of AIG: 25. Curly Inc. is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 16,000 of the components each year. The unit product cost of the component according to the company's cost accounting system is given as follows: Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 30% is avoidable if the component were bought from the outside supplier. In addition, making the component uses 1 minutes on the machine that is the company's current constraint. If the component were bought, this machine time would be freed up for use on another product that requires 2 minutes on the constraining machine and that has a contribution margin of $8.10 per unit. When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component? A. $20.60 B. $17.52 C. $24.65 D. $21.57 Relevant cost per unit: The Clemson Company reported the following results last year for the manufacture and sale of one of its products known as a Tam. Clemson Company is trying to determine whether or not to discontinue the manufacture and sale of Tams. The operating results reported above for last year are expected to continue in the foreseeable future if the product is not dropped. The fixed manufacturing overhead represents the costs of production facilities and equipment that the Tam product shares with other products produced by Clemson. If the Tax product were dropped, there would be no change in the fixed manufacturing costs of the company. 26. Assume that discontinuing the manufacture and sale of Tams will have no effect on the sale of other product lines. If the company discontinues the Tam product line, the change in annual operating income (or loss) should be: A. $55,000 decrease B. $65,000 decrease C. $90,000 decrease D. $70,000 increase 27. Assume that discontinuing the Tam product would result in a $120,000 increase in the contribution margin of other product lines. How many Tams would have to be sold next year for the company to be as well off as if it just dropped the line and enjoyed the increase in contribution margin from other products? A. 5,000 units B. 6,000 units C. 6,500 units D. 7,000 units Contribution margin per Tam: $390,000 6,500 = $60 Sales of Tams to be as well off as if it dropped Tams: $30,000 $60 = 500 + 6,500 = 7,000 units ... View Full Document

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