American InterContinental University
ACCT420-Cost Accounting
Mid-Term Examination Review

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question.

 

Answer the following questions using the information below:

 

The Ranger Company uses the high–low method to estimate its cost function. The information for 2011 is provided below:

                                                                                     Machine–hours               Costs

        Highest observation of cost driver                     2,000                       $450,000

        Lowest observation of cost driver                      1,000                      $ 250,000

 

1.       What is the constant for the estimating cost equation?        

 

 

2.       Variable costs:   

 

 

Answer the following questions using the information below:

 

Roiann and Dennett Law Office employs 12 full–time attorneys and 10 paraprofessionals. Direct and indirect costs are applied on a professional labor–hour basis that includes both attorney and paraprofessional hours. Following is information for 20X3:

                                                                                                 Budget                  Actual

                Indirect costs                                                     $270,000               $300,000

                Annual salary of each attorney                   $100,000               $110,000

                Annual salary of each paraprofessional   $ 29,000                $ 30,000

                Total professional labor–hours                         50,000  dlh          60,000  dlh

 

3.       How much should the client be billed in an actual costing system if 200 professional labor–hours are used?  

 

 

Answer the following questions using the information below:

 

Nancy’s Niche sells a single product. 8,000 units were sold resulting in $80,000 of sales revenue, $20,000 of variable costs, and $10,000 of fixed costs.

 

4.       The contribution margin percentage is:    

 

 

5.       If variable costs decrease by $1 per unit, the new breakeven point is:             

 

6.       If a change is made in one parameter of CVP analysis, it is an example of:  

 

 

Answer the following questions using the information below:

 

Roosevelt Cabinetry, Inc., manufactures standard sized modular cabinet units for kitchens and other applications within the home. Its costing system utilizes two cost categories, direct materials and conversion costs. Each product must pass through the rough cut department and the finish department. Direct materials are added at the beginning of production. Conversion costs are allocated evenly throughout production.

 

Data for Finish Department for March 2012 are:

        Work in process, beginning inventory, 25% converted            1,000 units

        Units started during February                                                         1,400 units

        Work in process, ending inventory                                                   300 units

 

Costs for Finish department for March 2012 are:

                Work in process, beginning inventory:

                Direct materials                                                                                $300,000

                Conversion costs                                                                              $200,000

        Direct materials costs added during February                               $420,000

        Conversion costs added during February                                    $1,600,000

 

7.       What is the unit cost per equivalent unit of the beginning inventory in the Finishing Department?    

A. $1,100.00        B. $500.00            C. $800.00            D. $300.00

 

8.       If a company would like to increase its degree of operating leverage it should:          

 

 

9.       The focus of ABC systems is on:  

A. long–term decisions    B. short–term decisions

C. special–pricing decisions           D. make–or–buy decisions

 

10.    Which of the following is NOT a sign that a “smoothing out” costing system exists?               

 

 

11.    Standard costing is popular among companies that:          

A. manufacture textiles or ceramics

B. produce a product that uses few direct materials items, and has relatively few operational activities

C. produce masses of similar or identical products

D. All of these answers are correct.

 

12.    Using activity–cost rates rather than department indirect–cost rates to allocate costs results in different product costs when:   

 

 

 

Answer the following questions using the information below:

 

Mertens Company provides the following ABC costing information:

 

Activities                                          Total Costs                 Activity–cost drivers

 

 

The above activities are used by Departments A and B as follows:

                                                                  Department A            Department B

Account inquiry hours                          2,000  hours                4,000  hours

Account billing lines                         400,000  lines             200,000  lines

Account verification accounts          10,000  accounts          8,000  accounts

Correspondence letters                         1,000  letters               1,600  letters

 

13.    How much of the account inquiry cost will be assigned to Department A?

A. $80,000            B. $200,000

C. $40,000            D. None of these answers are correct.

 

Answer the following questions using the information below:

 

The Cuckoo Clock Shop manufactures clocks on a highly automated assembly line. Its costing system uses two cost categories, direct materials and conversion costs. Each product must pass through the Assembly Department and the Testing Department. Direct materials are added at the beginning of the production process. Conversion costs are allocated evenly throughout production. Cuckoo Clock Shop uses weighted–average costing.

 

Data for the Assembly Department for June 2013 are:

        Work in process, beginning inventory                                             250 units

                Direct materials (100% complete)

                Conversion costs (50% complete)

 

   

 

Costs for June 2013:

        Work in process, beginning inventory:

                Direct materials                                                                                  $90,000

                Conversion costs                                                                              $135,000

        Direct materials costs added during June                                        $500,000

        Conversion costs added during June                                                $500,000

 

14.    What amount of conversion costs are assigned to the ending Work–in–Process account for June?

A. $70,555.50      B. $63,225.25       C. $50,978.32      D. $90,074

 

Answer the following questions using the information below:

 

The Rest–a–Lot chair company manufacturers a standard recliner. During February, the firm’s Assembly Department started production of 75,000 chairs. During the month, the firm completed 80,000 chairs, and transferred them to the Finishing Department. The firm ended the month with 10,000 chairs in ending inventory. There were 15,000 chairs in beginning inventory. All direct materials costs are added at the beginning of the production cycle and conversion costs are added uniformly throughout the production process. The FIFO method of process costing is used by Rest–a–Lot. Beginning work in process was 30% complete as to conversion costs, while ending work in process was 80% complete as to conversion costs.

 

Beginning inventory:

        Direct materials                          $24,000

        Conversion costs                        $35,000

 

Manufacturing costs added during the accounting period:

        Direct materials                        $168,000

        Conversion costs                      $278,000

 

15.    What were the equivalent units for conversion costs during February?         

A. 79,500              B. 75,000               C. 83,500              D. 85,000

 

Answer the following questions using the information below:

 

The Morgan Models company manufactures replica plastic airplane and motorized vehicle models. During October, the firm’s Assembly Department started production of 60,000 models. During the month, the firm completed 66,000 models, and transferred them to the Finishing Department. The firm ended the month with 22,000 models in ending inventory. There were 28,000 models in beginning inventory. All direct materials costs are added at the beginning of the production cycle and conversion costs are added uniformly throughout the production process. The FIFO method of process costing is used by Morgan. Beginning work in process was 25% complete as to conversion costs, while ending work in process was 50% complete as to conversion costs.

 

Beginning inventory:

        Direct materials costs               $39,200

        Conversion costs                        $30,800

 

Manufacturing costs added during the accounting period:

        Direct materials costs               $90,000

        Conversion costs                      $280,000

 

16.    What is the cost of the goods transferred out during October?

A. $375,000         B. $340,000          C. $363,000          D. $330,000

 

 

17.    Luke employs 25 professional cleaners. Budgeted costs total $1,800,000 of which $1,050,000 is direct costs. Budgeted indirect costs are $750,000 and actual indirect costs were $793,800. Budgeted professional labor–hours are 1,000,000 and actual hours were 1,008,000. What is the budgeted direct cost–allocation rate?

 

A. $1.80 per hour               B. $1.7857 per hour

C. $1.05 per hour               D. $0.75 per hour

 

18.    Annual cost rates are preferred over actual cost rates for all of the following reasons EXCEPT:

A. budgeted costs allow managers to have cost information on a timely basis

B. budgeted–cost rates can be used to allocate direct or indirect costs

C. budgeted costs may be subject to short–run fluctuations

D. budgeted indirect–cost rates are known prior to the inception of a new job

 

Answer the following questions using the information below:

 

Gibson Manufacturing is a small textile manufacturer using machine–hours as the single indirect–cost rate to allocate manufacturing overhead costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for the Winfield High School band jacket job.

 

                                                                              Company         Winfield High School Job

        Direct materials                                          $40,000                           $1,000

        Direct labor                                                  $10,000                               $200

        Manufacturing overhead costs              $30,000

        Machine–hours                                           100,000  mh                         900mh

 

19.    What is the bid price for the Winfield High School job if the company uses a 40% markup of total manufacturing costs?                

 

A. $2,310              B. $2,058               C. $588 D. $1,680

 

20.    What is the appropriate journal entry if $100,000 of materials were purchased on account for the month of August?

 

A. Materials Control                                          100,000

        Accounts Payable Control                                                      100,000

B. Manufacturing Allocated                           100,000

        Accounts Receivable Control                                                 100,000

C. Manufacturing Overhead Control           100,000

        Accounts Receivable Control                                                 100,000

D. Work–in–Process Control                            100,000

        Accounts Payable Control                                                       100,000

 

Answer the following questions using the information below:

 

Apple Valley Corporation uses a job cost system and has two production departments, A and B. Budgeted manufacturing costs for the year are:

                                                                                        Department A    Department B

                Direct materials                                                $700,000               $100,000

                Direct manufacturing labor                          $200,000               $800,000

                Manufacturing overhead                              $600,000               $400,000

 

The actual material and labor costs charged to Job #432 were as follows:

                                                                                                   Total

                Direct materials:                                                 $25,000

                Direct labor:

                        Department A                                               $ 8,000

                        Department B                                              $12,000

                                                                                                 $20,000

 

Apple Valley applies manufacturing overhead costs to jobs on the basis of direct manufacturing labor cost using departmental rates determined at the beginning of the year.

 

21.    For Department B, the manufacturing overhead allocation rate is:

A. 200%                B. 50%   C. 100%                D. 300%

 

Answer the following questions using the information below:

 

Presented below are the production data for the first six months of the year for the mixed costs incurred by Gallup Company.

                                Month                          Cost             Units

                                January                    $4,890              4,100

                                February                    4,024              3,200

                                March                         6,480              5,300

                                April                           8,840              7,500

                                May                             5,800              4,800

                                June                             7,336              6,600

 

Gallup Company uses the high–low method to analyze mixed costs.

 

22.    How would the cost function be stated?   

A. y = $440 + $1.12X         B. y = $7,850 + $0.132X

C. y = $3,562.30 + $0.144X              D. y = $107.20 + $1.12

 

23.    The cost function y = 150 + 10X:   46

A. has an intercept of 150               B. has a slope coefficient of 150

C. represents a fixed cost                D. is a nonlinear

 

24.    The cause and– effect relationship might arise as a result of which of the following:

A. knowledge of operations.

B. a contractual arrangement.

C. a physical relationship between the level of activity and costs.

D. All of the above.

 

25.    The ideal database contains:        

A. reliably measured observations

B. numerous cost driver observations

C. cost driver observations spanning a wide range

D. All of these answers are correct.

 

26.    For a manufacturing–sector company, the cost of factory depreciation is classified as a:

A. period cost     B. direct manufacturing labor cost

C. direct material cost      D. manufacturing overhead cost

 

Answer the following questions using the information below:

 

For last year, Lewisburn Manufacturing reported the following:

 

Revenue	$420,000
Beginning inventory of direct materials, January 1	22,000
Purchases of direct materials	146,000
Ending inventory of direct materials, December 31	16,000
Direct manufacturing labor	18,000
Indirect manufacturing costs	40,000
Beginning inventory of finished goods, January 1	35,000
Cost of goods manufactured	104,000
Ending inventory of finished goods, December 31	36,000
Operating costs	140,000

 

27.    How much of the above would be considered period costs for Lewisburn Manufacturing?   

A. $390,000         B. $104,000          C. $246,000          D. $140,000

 

28.    Cost accounting provides all of the following EXCEPT:      

A. nonfinancial information regarding the cost of operational efficiencies

B. pricing information from marketing studies

C. financial information regarding the cost of acquiring resources

D. information for management accounting and financial accounting

 

29.    Responsibilities of a CFO include all of the following EXCEPT:       

A. preparing federal, state, and international tax returns

B. providing financial reports to shareholders

C. managing short–term and long–term financing

D. investing in new equipment

 

30.    For manufacturing firms, inventoriable costs include:        

A. plant supervisor salaries

B. costs of dealing with customers after the sale

C. distribution costs

D. research and development costs

 

31.    Which of the following does NOT affect the direct/indirect classification of a cost?  

A. the materiality of the cost in question

B. the level of budgeted profit for the next year

C. available technology to gather information about the cost

D. the design of the operation

 

32.    Product costs used for external reporting generally include:             

A. design costs plus manufacturing costs                B. all costs incurred along the value chain

C. manufacturing costs only         D. All of these answers are correct.

 

33.    Which of the following is NOT one of the questions management accountants might attempt to help answer in the formulation of strategy?

 

A. Does the strategy comply with GAAP (Generally Accepted Accounting Principles)?

B. Will adequate cash be available to implement the strategy?

C. What substitute products exist in the marketplace?

D. Who are our most important customers?

 

TRUE/FALSE.  Mark ‘A’ on the Scantronif the statement is true and ‘B’ if the statement is false.

34.    Financial accounting is broader in scope than management accounting.    

 

35.    Customers are demanding increased levels of performance in all aspects of the value chain and the supply chain.

 

36.    The degree of operating leverage at a specific level of sales helps the managers calculate the effect that potential changes in sales will have on operating income.   

 

37.    To perform cost–volume–profit analysis, a company must be able to separate costs into fixed and variable components.                

38.    ABC systems always provide decision–making benefits that exceed implementation costs.

               

39.    Estimating the degree of completion for the calculation of equivalent units is usually easier for conversion costs than it is for direct materials.

 

40.    The weighted–average process costing method does NOT distinguish between units started in the previous period but completed during the current period and units started and completed during the current period.      

 

41.    If indirect–cost rates were based on actual short–term usage, periods of lower demand would result in lower costs per unit.      

42.    In some variations of normal costing, organizations use budgeted rates to assign direct costs as well as indirect costs to jobs.      

43.    A flat or slightly sloped regression line indicates a strong relationship.
               

44.     Inventoriable costs are reported as an expense when incurred and expensed on the income statement when the product is sold. 

 

45.    Assigning direct costs poses more problems than assigning indirect costs.