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# Midterm Buad 250b - PART I MULTIPLE CHOICE QUESTIONS 15...

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PART I: MULTIPLE CHOICE QUESTIONS [ 15 questions; 8 points each ] 1. C 2. A 3. B 4. A Since incurred MOH is 80,000 and MOH is underapplied for 2,000, we know that applied MOH is 78,000. POHR x Actual cost basis = applied MOH Thus, POHR = 78,000/10,000 =7.8 5. A 6. E 7. C 8. B Break-even sales = current sales – margin of safety = 120,000 – 24000 = 96,000 CM ratio = (120,000 – 80,000)/120,000 = 0.3333 Thus, the fixed expense = Break-even sales x CM Ratio = 32,000 9. D Under absorption costing, part of fixed overhead, that is 210,000 x (15000 – 12000)/15000 = 42,000 is deferred into inventory, But under variable costing, 100% of fixed overhead, that is 210,000 directly expensed. 10. D 11. C Under ABC costing system, cost for job 100 = 15 x 8 + 3 x 20 = 180 Under traditional costing system, cost for job 100 = (520000/50000) x 15 = 156 Thus, compared to ABC costing, job 100 is undercosted under traditional costing system by \$24. 12. A Under absorption costing, the product cost = 10, Under variable costing, the product cost = 8 – 2 = 6 Thus, the per unit product cost difference is \$4. We know that under absorption costing the net income was \$2,000 lower than under variable costing. In other words, there is \$2,000 fixed MOH deferred into inventory under absorption costing. Thus, the difference between production and sales = 2,000/4 = 500 units. Since the company sold 8,000 units, it produced 7,500 units. 13. A 14. D Operating leverage = Contribution margin / net income. 10 = [300,000 x /(1—70%)/net income] Thus, net income when sales equals to 300,000 is 9000. Thus, the fixed expense = 300,000 – 300 ,000 x 70% -- 9,000 = 81,000 When sales become 360,000, the contribution margin is 360,000 x 30% = 108,000 The net income = 108,000 – 81,000 = 27,000 Thus, operating leverage = 108,000 / 27,000 = 4 15. D Page 1 of 11

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1 An example of a fixed cost that would be considered a direct cost is: a. a cost accountant’s salary when the cost object is a unit of product. b. the rental cost of a warehouse to store finished goods when the cost object is a unit of product. c. a production supervisor’s salary when the cost objective is the Production Department. d. Board of Directors’ fees when the cost object is the Marketing Department. e. None of the above 2 The primary limitation of the high-low method of cost estimation is: a. its use of just two data points to create a predictor line. b. that the mathematical calculations are tedious. c. low points tend to be non-representative of low activity. d. high points tend to be non-representative of high activity. e. the need to graph the data prior to its use. f. all of the above 3 If the fixed costs for a product decrease and the variable costs (as a percentage of sales dollars) decrease, what will be the effect on the contribution-margin ratio and the breakeven point, respectively? Contribution Breakeven Margin Ratio Point a. Decreases Increases b. Increases Decreases c. Decreases Decreases d. Increases Increases 4. Darrow Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the company worked 10,000 direct labor-hours and incurred \$80,000 of actual manufacturing overhead cost. If overhead was underapplied by \$2,000, the predetermined overhead rate for the company for the year must have been: A) \$7.80 B) \$8.00 C) \$8.20 D) \$8.40 5 Which one of the following is an example of an opportunity cost?
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