ACCT420 Cost Accounting

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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?

A. $50,000

B. $0

C. $450,000

D. $250,000

2. Variable costs:

A. are always indirect costs

B. increase in total when the actual level of activity increases

C. can always be traced directly to the cost object

D. include most personnel costs and depreciation on machinery

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?

A. $7,480

B. $6,960

C. $6,400

D. $5,000

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:

A. 37.5% B. 75.0% C. 12.5% D. 25.0%

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

A. 492 units. B. $11,765 in total sales dollars.

C. 1,539 units. D. None of these answers are correct.

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

A. incremental budgeting B. operating leverage

C. sensitivity analysis D. multiple cost drivers

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:

A. increase its inventories relative to its receivables

B. increase its fixed costs relative to its variable costs

C. increase its variable costs relative to its fixed costs

D. increase its receivables relative to its inventories

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?

A. New product variations have been added, but the cost system has not been upgraded.

B. Operations managers don’t use the data originated by the cost system.

C. The company loses bids they believe were priced competitively.

D. Products that a company is well suited to make and sell show large profits.

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:

A. there are several homogeneous cost pools

B. different activities have the same cost-allocation base

C. a single activity accounts for a sizable portion of department costs

D. different products use different resources in the same proportion

Answer the following questions using the information below:

Mertens Company provides the following ABC costing information:

Activities Total Costs Activity-cost drivers

Account inquiry hours $200,000 10,000 hours

Account billing lines $140,000 4,000,000 lines

Account verification accounts $75,000 40,000 accounts

Correspondence letters $ 25,000 4,000 letters

Total costs $440,000

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)

Units started during June 800 units

Work in process, ending inventory: 150 units

Direct materials (100% complete)

Conversion costs (75% 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 900 mh

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.

ACCT420 Cost Accounting

ACCT420 Cost Accounting

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ACCT420 Cost Accounting