Acc334F2010-MT#2A-solution

Acc334F2010-MT#2A-solution - ACCOUNTING 3334 - Fall 2010...

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ACCOUNTING 3334 - Fall 2010 MID-TERM EXAM # 2A Dr. Jeff Power Suggested Solution NOTES: ANSWER ALL QUESTIONS IN THE SPACE PROVIDED (Back of page if necessary) DO NOT SEPARATE THE PAGES OF THE EXAM. YOU HAVE 75 MINUTES TO COMPLETE THE EXAM SHOW ALL OF YOUR CALCULATIONS FOR POSSIBLE PART MARKS PART I: Multiple Choice (Circle the most correct response) {2 points each} The following data apply to questions 1 and 2. Iota Inc. planned and actually manufactured 200,000 units of its single product in 2006, its first year of operations. Variable manufacturing costs were $30 per unit of product. Planned and actual fixed manufacturing costs were $600,000, and marketing and administrative costs totaled $400,000 in 2006. Alvin sold 120,000 units of product in 2006 at a selling price of $40 per unit. 1. Iota’s 2006 operating income using variable costing is a. $440,000. b. $200,000 . c. $600,000. d. $800,000. 2. Iota’s 2006 operating income using absorption costing is a. $440,000. b. $200,000. c. $800,000. d. $840,000. 3. The proponents of throughput costing a. argue that only direct materials and direct labour are “truly variable” and all indirect manufacturing costs be written off in the period in which they are incurred. b. treat all costs except those related to variable direct materials as costs of the period in which they are incurred. c. maintain that variable costing undervalues inventories. d. maintain that it provides more incentive to produce for inventory than do either variable or absorption costing. 4. A company may experience the downward demand spiral when a. the use of theoretical capacity as a denominator-level has contributed to budgets that project sales to be higher than actually attainable. b. the production-volume variance is unfavorable each time period during a year. c. engaged in a cyclical business and after experiencing an upturn. d. spreading capacity costs over a small number of units and setting selling prices even higher to recover those costs. 5. Of the following methods, the one that would not be appropriate for analyzing how a specific cost behaves is a. the scattergraph method. b. linear programming. c. the industrial engineering approach. d. statistical regression analysis.
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6. Theta Company derived the following cost relationship from a regression analysis of its monthly manufacturing overhead cost. y = $80,000 + $12X where: y = monthly manufacturing overhead cost X = machine hours The standard error of estimate of the regression is $6,000. The standard time required to manufacture one six-unit case of Tory’s single product is four machine hours. Theta applies manufacturing overhead to production on the basis of machine hours, and its normal annual production is 50,000 cases. Theta’s estimated variable manufacturing overhead cost for a month in which scheduled
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Acc334F2010-MT#2A-solution - ACCOUNTING 3334 - Fall 2010...

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