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Midterm2_solution - Midterm 2 Name 1 Budgeted manufacturing...

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Midterm 2. Name_______________________________________________________ 1. Budgeted manufacturing overhead costs include all types of factory expenses EXCEPT: A) depreciation of manufacturing machinery B) electric bill for the plant C) plant supervisor’s salary D) assembly workers’ wages D: assembly workers’ wages is direct labor, the rest of the items are manufacturing overhead since they don’t fit in DL or DM. 2. Research and development costs are an example of: A. unit-level costs B. batch-level costs C. product-sustaining costs D. facility-sustaining costs C: product-sustaining costs – we have to incur R&D costs for each product we’re offering, regardless of the number of units made and regardless of the number of production batches. 3. A favorable variance indicates that: C: anything that increases our operating income relative to the budget is good news, i.e., a favorable variance. Option A is wrong: higher-than-budgeted costs is bad news (unfavorable). Option B is also wrong: budgeted revenue > actual means that actual revenue is less than budgeted, which is bad news. 4. You sell ice cream. An unfavorable sales volume variance could result from: A: a snow storm will reduce your unit sales (i.e., unfavorable sales volume variance). Options B and C are wrong – they should increase your unit sales (i.e., favorable). Option D is also likely to increase your unit sales: long-term global warming will expand the total size of the ice cream market, which means that sales per firm will most likely increase even if additional firms enter the expanding market. 5. Alpha Company manufactures two models of motorized go-carts, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Number of Number of Product Setups Components Direct Labor Hours Standard 15 10 750 Deluxe 35 15 500 Overhead costs are broken down into two pools. Pool 1 is $30,000, allocated based on number of setups. Pool 2 is $50,000, allocated based on number of components. What is the total amount of overhead cost assigned to the standard model?
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C: first, compute the indirect-cost rates (aka allocation rates): setups: rate = $30,000 / (15+35) = $600 per setup components: rate = $50,000 / (10+15) = $2,000 per component next, overhead costs assigned to the Standard model = $600*15 setups + $2,000*10 components = $29,000.
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