The cost of goods manufactured line on the income statement of a - DOC

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Test No. 1. Accounting 2122, Summer 2006.

Name: ____________________________ Class Time: 9:45 or 11:30 (Circle one)

Row in Class _____________________ Multiple Choice- 25 questions count 4 points each for a total of 100 Points. Blacken the area in the circle containing the appropriate letter for each entry. Use a soft-lead pencil. Enter last name first in the area for “NAME.” Enter student ID number in the area for “IDENTIFICATION NUMBER.” Answer each question by marking the letter representing the best answer. Chapter 1. Managerial Accounting and Business Organizations 1. The accountant for Local Corporation printed the following report for the month of January for a division (Amounts in $1,000s) Budgeted Actual Amount Amount Revenues $25,000 $21,000 Expenses 20,000 22,000 Net Income $5,000 ($1,000) In reviewing this report, management should give attention a. Primarily to revenues b. Primarily to expenses c. To both revenues and expenses 2. The Alpha Beta Gamma Fraternity held a Christmas party. The fraternity expected attendance of 200 persons and prepared the following budget: Hotel room rental $600 Food 500 Entertainment 800 Decorations 300 Totals $2,200 After all bills for the party were paid, the total came to $2,175. Details are $600 for hotel room rental; $475 for food; $900 for entertainment; and $200 for decorations. One hundred and ninety persons attended the party. Under the principle of management by exception, which costs should receive attention a. food b. entertainment c. decorations d. all of these costs 3. Arranging insurance coverage is a role for the: a. Controller b. Treasurer c. Equally for both of these executives 4. The Raleigh Company had inventories at the beginning and end of the year as follows ($000 omitted): 1/1 12/31 Raw materials $65 $55 Work-in-process 96 90 Finished goods 50 55 During the year the following costs were incurred ($000 omitted): Raw materials purchased $400 Direct-labor payroll 220 Factory overhead 330 Raleigh's cost of goods manufactured was ($000 omitted): a. $921 b. $961 c. $966 d. $981

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Chapter 2. Cost Behavior and Cost-Volume-Profit Relationships 5. Relay Corp. manufactures batons. Relay can manufacture 300,000 batons a year at a variable cost of $750,000 and a fixed cost of $450,000. Based on Relay's predictions, 240,000 batons will be sold at the regular price of $5.00 each. In addition, a special order was placed for 60,000 batons to be sold at a 20% discount off the regular price. By what amount would income before income taxes be increased or decreased as a result of the special order? a. $60,000 decrease b. $30,000 increase c. $90,000 increase d. $180,000increase 6. When fixed cost is $10,000, variable cost is $6 per unit, and selling price is $10 per unit, the break-even point is a. 1,000 units. b. 2,500 units c. 5,000 units. d. 10,000 units. 7. The following information pertains to Nova Co.'s cost-volume-profit relationships: Break-even point in units sold 500 Variable costs per unit $ 500 Total fixed costs $150,000 How much will be contributed to profit before income taxes by the 501st unit sold? a. $650 b. $300 c. $150 d. $0 8. Sticky Glue sells for $2.00 per tube and has related variable expenses of $1.50 per tube. Fixed expenses of producing Sticky Glue are $100,000 per month. Sticky Glue is in the 40% income tax bracket. How many tubes of Sticky Glue must be sold each month for the Sticky Glue Company to have a monthly income (after income taxes) of $60,000? a. 400,000 b. 300,000 c. 200,000 d. 135,000 e. 450,000 9. Dancer, Inc. sells product A for $5 per unit. Fixed costs are $210,000 and variable costs are 60% of the selling price. What would be the amount of sales if Dancer is to realize a profit of 10% of sales? a. $700,000 b. $525,000 c. $472,500 d. $420,000 10. Zarlin Co. is considering an expansion program based on the following data: Expected sales $1,000,000 Variable costs 700,000 Fixed expenses 120,000 What is the amount of break-even sales? a. $400,000 b. $420,000 c. $390,000 d. $300,000

11. The following information pertains to Sisk Co.: Sales (25,000 units) $500,000 Direct materials and direct labor 150,000 Factory overhead: Variable 20,000 Fixed 35,000 Selling and administrative expenses: Variable 5,000 Fixed 30,000 Your computation should include materials costs, labor costs, overhead and selling and administration expenses. Sisk's break-even point in number of units is a. 4,924 b. 5,000 c. 6,250 d. 9,286

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Use the following data for the next three questions: Unit selling price Variable costs per unit Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative expense Total fixed costs per year Estimated sales volume for the year (All production is sold i.e. no ending inventories.)

$50 12 5 4 5 $240,000 12,000 units

12. The break-even volume in units is: a. 6,000 b. 7,500 c. 10,000 d. 12,000 e. none of the above. 13. If the estimated sales volume is achieved, the net income to be realized will be a. $48,000 b. $240,000 c. $150,000 d. $120,000 e. none of these. 14. The volume in terms of sales dollars needed to yield a net income of $120,000 is: a. $750,000 b. $625,000 c. $500,000 d. $480,000. e. none of these. 15. On January 1, 2004, Lake Co. increased its direct labor wage rates. All other budgeted costs and revenues were unchanged. How did this increase affect Lake's budgeted break-even point and budgeted margin of safety? Budgeted Budgeted break-even point margin of safety a. Increase Decrease b. Decrease Decrease c. Decrease Increase d. Increase Increase 16. A club will budget its costs for a dance.  The admission price will be set based on the plan for 100 persons to attend.  Band cost is fixed and expected to be $500.  They plan a flexible menu that will result in food cost which is variable at $10 per person.  They set the ticket price for admission equal to expected cost.  One hundred and eighteen people actually attend.  The predictions of fixed and variable costs shown above were accurate. What is the overall profit for the dance? a. $0 b. $40 c. $50 d. $90

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Chapter 3. Measurement of Cost Behavior 17. The Charlotte Medical Center has the following costs for December for its facilities maintenance department. These are the costs for 4,000 patient days. Fixed costs are identified in the last column. Monthly Cost- 4,000 patient days Supervisor's salary and benefits Hourly wages and benefits Equipment depreciation and rental Equipment repairs Cleaning supplies Total facilities maintenance costs December Amount $ 4,000.00 Fixed $ 14,000.00 $ 6,000.00 Fixed $ 5,000.00 $ 9,000.00 $ 38,000.00

With flu season coming, Charlotte expects to have 5,000 patient days in January. What will be the total cost for facilities maintenance in January? a. $40,000 b. $45,000 c. $47,500 d. $50,000

18. Your CEO has asked for information about the cost behavior of manufacturing support costs. She wants to know how much support cost is fixed and how much is variable. The following data are the only records available: Month May June July August September Machine Hours 1,000 1,300 1,100 1,250 2,000 Support Costs $10,000 12,000 10,800 11,700 15,500

What is the amount of fixed cost for this company each month, using the High-Low method? a. $0 b. $4,000 c. $4,200 d. $4,500

--------------------------The accountant has prepared a flexible budget for the company at the 80% and 100% of capacity levels. Please use this data for answering the next two questions. Production level – Percentage of capacity 80% 100% 70% Production level – Units of output 1,600 Units 2,000 Units 1,400 Units Direct labor hours 800 1,000 Direct labor costs $9,600 $12,000 Foreman's salary $3,000 $3,000 Indirect labor $2,800 $3,000 19. How much of the indirect labor cost is a fixed cost? a. $0 b. $1,200 c. $1,500 d. $2,000 e. $2,500 20. How much is the budgeted indirect labor for production at 70% of capacity. a. $2,400 b. $2,550 c. $2,700 d. $2,850 e. Some other amount 21. Company B had total factory overhead of $80,000 and total direct labor of $60,000. Using the factory overhead rate, how much factory overhead would be allocated to goods in process at the end of the period, which are estimated to contain $12,000 of direct labor? a. $45,000 b. $16,000 c. $11,250 d. $9,000

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-----------------------Chapter 4. Cost Management Systems & Activity Based Costing The following information for the Charlotte Corporation should be used for the next three questions. The top section of the table covers all production of the company. The bottom section covers 3 jobs.

Overhead item Direct Materials Direct Labor Cost Activities - Overhead Engineering Machine setup Material handling Inspection
Total Overhead Information for 3 Jobs

Cost Driver

Budgeted Cost $300,000 $80,000 Budget Cost $50,000 $20,000 $80,000 $130,000 $280,000 Job No. 2 $12,000 $7,000

Bud. Level

Cost 1,000 200 8,000 6,500 Job No. 3 $8,000 $4,000 200

Engineering hours Number of Setups No. of material moves Number of inspections
Job No. 1 $5,000 $2,000

Direct Materials Direct Labor
Overhead - Details below

Units Completed
Overhead Computations

100 Activity Cost
10 1 30 20 100 10 20


50 Activity
50 2 10 10

100 10 20


10 3 50 30

Engineering hours No. of setups No. of material moves No. of inspections

22. If the company applies overhead items above based on direct labor cost for a job, the overhead cost assigned to Job 1 would be: a. $2,800 b. $5,600 c. $5,800 d. $7,000 e. Some other amount 23. If the company uses activity-based costing, how much overhead cost should be assigned to Job 1? a. $1,300 b. $1,400 c. $1,500 d. $5,600 24. If the company uses activity-based costing, compute the cost of each unit in Job 2. a. $340 b. $350 c. 440 d. $520

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----------------Charlotte Company uses a job order cost system. The following transactions were completed in January, 2005, which was its first month of operations: (a) Purchased and received direct materials and supplies costing $18,000. (b) Materials and supplies were requisitioned as follows: Job no. 1 $1,800 Job no. 2 4,000 Job no. 3 1,000 $6,800 Indirect Materials (Supplies) $1,000 (c) Factory payroll was distributed as follows: DIRECT LABOR: Job no. 1 (200 hours) $2,000 Job no. 2 (300 hours) 3,000 Job no. 3 (400 hours) 4,000 $9,000 INDIRECT LABOR $2,000 (d) Indirect manufacturing costs are applied on the basis of direct labor hours. The budget for 2005 included 6,000 direct labor hours and a total overhead budget of $36,000. Overhead is applied based on direct labor hours worked. (e) Other manufacturing overhead costs were incurred, but not mentioned in this problem. Materials Work-in-Process Finished Goods Cost of Sales

Various Accts

Overhead Control

Overhead Applied


Job No. 1

Job No. 2

Job No. 3

25. Job No. 2 was completed in January. The other jobs are still in process at the end of January. What is the balance in Work in Process at the end of January? a. $4,800 b. $4,600 c. $10,800 d. $12,400 e. $13,600