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Spring 2008 - Exam 1 - Answer Key

Spring 2008 - Exam 1 - Answer Key - fpri/‘xj 100g 1 Which...

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Unformatted text preview: fpri/‘xj 100g 1. Which statement is true? a. All variable costs are direct costs. b. All direct costs are variable costs. c. All indirect costs are fixed costs. d. Both (b) and (c) are true. None of the above is true 2. When 10,000 units are produced, fixed costs are $14 per unit. Therefore, when 20,000 units are produced fixed costs will: a increase to $28 per unit MO 00 0 b. remain at $14 per unit A» .2 © decrease to $7 per unit "1,0,0“: T 7 d. total $280,000 3. Stephanie’s Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,000, variable costs $400, and fixed costs $90,000. How many dresses must the Bridal Shoppe sell in order to yield after-tax net income of $18,000, assuming the tax rate is 40%? a 200 dresses ‘6 (IOOOX T 900)‘ ‘ Cid/000) 1 [3,000 -. 170 dresses 0. 150 dresses BéOX ~51”;000 7: [8,000 d. 145 dresses e. None ofthe above 360 7C '1 7 1/000 X c 200 4. Assume there is an increase in advertising expenditures and all other CVP parameters remain constant. This change will @ reduce operating income. V1 reduce contribution margin. \ increase variable costs. ‘8. increase selling price. \e\ none of the above 5. In multiproduct situations, when sales mix shifts toward the product with the highest contribution margin then \ total revenues will decrease. breakeven quantity will increase. \o.~ total contribution margin will decrease. @ operating income will increase. To determine contribution margin use a. b. C. @ only variable manufacturing costs. only fixed manufacturing costs. both variable and fixed manufacturing costs. both variable manufacturing costs and variable nonmanufacturing costs. Job costing 3;; C can only be used in manufacturing. records the flow of costs for each customer. allocates an equal amount of cost to each unit made during a time period. is commonly used when each unit of output is identical. all of the above. An example of a numerator reason for calculating annual indirect-cost rates includes b. c. @ e. fewer production workdays in a month. year—end bonuses paid to managers. higher snow-removal costs during the winter. both (b) and (c). all of the above are correct. Which of the following statements about normal costing is TRUE? 3,, E: @ Direct costs and indirect costs are traced using an actual rate. Direct costs and indirect costs are traced using budgeted rates. Direct costs are traced using a budgeted rate, and indirect costs are allocated using an actual rate. ' Direct costs are traced using an actual rate, and indirect costs are allocated using a budgeted rate. 10. Sunni Company manufactures pipes and applies manufacturing overhead costs to production at a budgeted indirect-cost rate of $15 per direct labor-hour. The following data are obtained from the accounting records for June 2007: Direct materials $280,000 Direct labor (7,000 hours @ $1 l/hour) $ 77,000 Indirect labor $ 20,000 Plant facility rent $ 60,000 Depreciation on plant machinery and equipment 3 30,000 Sales commissions $ 40,000 Administrative expenses 13 50,000 The amount of manufacturing overhead allocated to all jobs during June 2007 totals $77,000 $100,000. A " $110,000. in $000) [03’000 $200,000. a. b. c. d. None of the above 1 I. In a job-costing system, why is it necessary to apply indirect costs to production through the use of a manufacturing overhead cost allocation rate? a. Actual manufacturing overhead costs are not known until the end of year. b. In order to price and invoice jobs in a timely manner, annual manufacturing overhead costs need to be estimated and allocated to specific jobs during the accounting period. 0. Manufacturing overhead costs are usually not incurred evenly throughout the year. All of the above. 12. Under absorption costing, if a manager’s bonus is tied to operating income, then increasing inventory levels compared to last year would result in increasing the manager’s bonus. - decreasing the manager’s bonus. c. not affecting the manager’s bonus. d. being unable to determine the manager’s bonus using only the above information. 13. In throughput costing which costs are included as inventoriable costs? direct materials . direct labor variable manufacturing overhead 0 d. fixed manufacturing overhead e both (a) and (b) 14. usually provides the lowest estimate of denominator-level capacity. a. Practical capacity b. Theoretical capacity @ Master-budget capacity utilization d. Sequential capacity utilization 6. They all provide the same estimate 15. From the perspective of long-run product costing, a. it is best to use master-budget capacity utilization to highlight unused capacity. b. it is best to use normal capacity utilization for benchmarking purposes. (D it is best to use practical capacity for pricing decisions. d. it is best to use theoretical capacity for performance evaluation. e. all of the above 16. Which of the following minimize the risks of outsourcing? a. The use of short—term contracts that specify price b. The responsibility for on-time delivery is now the responsibility of the supplier @ Building close, long—term relationships with the supplier All of the above minimize the risks of outsourcing. l7. Opportunity costs a. result in a cash outlay. need to be considered when selecting among alternatives. . are recorded on the income statement. . are best allocated to WIP inventory using normal costing. c d e both (b) and (d) are correct. 18. Helmer’s Rockers manufactures two models, Standard and Premium. Weekly demand is estimated to be 100 units of the Standard Model and 70 units of the Premium Model. The following per unit data apply: Standard hm Contribution margin per unit $18 $20 Number of machine-hours required 3 4 4 per lruf 45 Per hour If there are only 496 machine-hours available per week, how many rockers of each __odel should Jim Helmer produce to maximize profits? g 100 units of Standard and 49 units of Premium H 0' 6 . 72 units of Standard and 70 units of Premium < 3 00 V L [00 x j ) c. 100 units of Standard and 70 units of Premium ,d./ 85 units of Standard and 60 units of Premium I a 6 e. None of the above 19. When deciding whether to discontinue a segment of a business, relevant costs include all EXCEPT a. fixed supervision costs that can be eliminated. b. variable marketing costs per unit of product sold. 0. cost of goods sold. future administrative costs that will continue. 20. Poor quality or having to discard the product after the bottleneck operation is extremely costly because has/have been wasted. a. materials b. labor @ time (1. variable overhead e. fixed overhead 21. Karen Hefner, a florist, operates retail stores in several shopping malls. The average selling price of an arrangement is $30 and the average cost of each sale is $18. A new mall is opening where Karen wants to locate a store, but the location manager is not sure about the rent method to accept. The mall operator offers the following three options for its retail store rentals: a. paying a fixed rent of $1 5,000 a month, b. paying a base rent of $9,000 plus 10% of revenue received, or c. paying a base rent of $4,800 plus 20% of revenue received up to a maximum rent of $25,000. Required: Beginning at zero sales, show the sales levels at which each option is preferable up to 5,000units. A v5 8 [5,000 :: (7/000 in! (30>!) moan 2 9/000 <1 376 03w“) 8 6,060: 3X 1000~5000 A K ’r 2000 A v; (_ {£000 “: LM’OUQ +s’2,[30x) (7)000 : {4,300 téx 0,.4700 C, it) o 2 6X ,20 WOO— 3000 A X 1 1701) 8% C 4000 +ll[30x): WOO play” ‘tooo {37¢ : V200 tray- 0~Woo “200 3 3y C IV00~ $000 8 3C 51700 0" Not) Kfl@ 1L100~ht>0 flCriD/g moo — 7,000 @fi/ 1000 - Sooo CAD/{K 22. Schulz Corporation applies overhead based upon machine-hours. Budgeted factory overhead was $266 400 and budgeted machine-hours were 18,500. Actual factory overhead w *' $287,920 -: d actual machine-hours were 19,050. Before disposition of under/overappheo over ead, the cost of goods sold was $560,000 and ending inventories were as follows: HASP (so is “/0 Direct materials 35 60,000 fi WIP 190,000 F (9 7m 75 /0 Finished goods 250,000 C063 5‘40 56% Total $500,000 I O o O 100 "/0 Required: a. Determine the normal-costing factory overhead rate per machine-hour. b. Prepare the closing journal entry to dispose of the over/underapplied overhead using the ending balance proration approach. (Hint - have the debit or credit go to Factory Overhead Allocated or Factory Overhead Control, it doesn’t matter. I’m concerned with the other side of the closing journal entry.) MYOU UHMflofilow): #174,310 01+ number Macao 0/4 Como] 4/32600 Hacker ”AUG/Corded 23. Greene Manufacturing incurred the following expenses during 2007: Fixed manufacturing costs $45,000 / Fixed nonmanufacturing costs $35,000 / Unit selling price $100 ~/ Unit variable cost $20 9/ Manufacturing overhead cost rate $20 ~/ Units produced 1,340 units J What will be the breakeven point in units if absorption costing is used? i09x~ 20x ~— $0,000 +£(I3L10-x‘) 203 : O S90x ~89Q,000 + wlgoo~l0x :0 60x 1,. $3,200 :0 (30x 2 {3/100 24. The following data are available for Ruggles Company for the year ended September 30, 2007. Sales: Expected and actual production: Manufacturing costs incurred: Variable: Fixed: Nonmanufacturing costs incurred: Variable: Fixed: Beginning inventories: Required: 24,000 units at $50 each / 30,000 units $144,800 $77,400 none a. Determine operating income using the variable—costing approach. b. Determine operating income using the absorption~costing approach. c. Explain why operating income is not the same under the two approaches. Vaf‘loéle Abfofplwn flew l,1001000 l, tag 000 Van ”‘0va ( 518,059) <5 1530007 Fired Wow/“C (37770607 (371,000) Add Emmi" IN 60001 '7'“) ’0 T1000 1 W, 900 lowml‘ ,, Wan ~M0’V‘ l/l‘p. (117)1007 (17/2, 100> [83300 160,100 C‘ TlVL Only Fovv “HVHL (5 Oliflperen‘t Ii] “Add EVoli/g rnWwior7_,I l/llAOloF Variable. COJ‘l1\/\3 [invem'lwy {J ca/meo’lq7L “7.503 (”\er Cléfotl’) lfiign COJ‘LIY‘} ill {if 42/?(90’ SHIV/:2 [Km/1n lF~ "W, di‘fflowm {i 57/ 7.. L10 W b] L/fl/‘l 25. Pat, a Pizzeria manager, replaced the convection oven just six months ago. Today, Turbo Ovens Manufacturing announced the availability of a new convection oven that cooks more quickly with lower operating expenses. Pat is considering the purchase of this faster, lower—operating cost convection oven to replace the existing one they recently purchased. Selected information about the two ovens is given below (ignore income taxes): _Ex_istin£ W Original cost $60,000 $50,000 Accumulated depreciation $ 5,000 N/A Current salvage value $40,000 N/A Remaining life 5 years 5 years Annual operating expenses $10,000 55 7,500 Disposal value in 5 years $ 0 $ 0 Required: a. Of the eight dollar amounts listed above, which are sunk costs? b. Of the eight dollar amounts listed above, What costs are relevant? c. Using quantitative factors only, should the Pizzeria keep the existing oven or purchase the new Turbo oven? How much does your decision save over the alternative? d. What qualitative factors should Pat, as manager of the Pizzeria, consider when ‘ making this decision? 61‘ “0/000 w Of/gmal Cori” 070 {QC/fl”? Oven SNOW) \ fl/0 070 9205+”) Oven 5' 4502000 MOHSMOI Carl; 0? NW Oz/Qm filo/000 “ Carrel/mt Salt/052' Lew/m2 a? etc/flip; Ovém 310,000 - dnmal operaim} QX‘fl-é’flfifizf 01D gaff/,4} 01/1011 47)YO0 ‘ f‘ H H h MW 0V8“ C. Kgée Emflmj m Cajl of NW Oven O (SO/0007 egltoje volt/v2, of old 0 (“W/000 O ' l7 PM S0/0007 L37 $007 PW is W ef LN ’ imam/7 (ragga (7" MU‘flY [30410th Omit/06F} 23> ...
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