5B Flashcards
(136 cards)
1
Q
___ costs Direct materials and direct labor together are called prime costs.
___costs: All factory costs other than direct materials are called conversion costs; they are required to convert materials into a finished product.
A
Prime costs:
Conversion
2
Q
Beginning raw materials inventory
+ ????
-????
= Raw materials used
A
Beginning raw materials inventory
+ Purchases
- Ending raw materials inventory
= Raw materials used
3
Q
Beginning WIP \+ ???? \+ ??? \+ ??? - ???
= Cost of goods manufactured
A
Beginning WIP \+ Raw materials used \+ Direct labor \+ Overhead applied - Ending WIP
= Cost of goods manufactured
4
Q
Beginning finished goods
+ ???
- ????
= Cost of goods sold
A
Beginning finished goods
+ Cost of goods manufactured (from b.)
- Ending finished goods
= Cost of goods sold
5
Q
On January 1 Maples had two jobs in process: #506 with assigned costs of $10,500 and #507 with assigned costs of $14,250. During January three new jobs, #508 through #510, were started and three jobs, #506, #507, and #508, were completed. Materials and labor costs added during January were as follows:
Job No.\_\_\_Material\_\_Labor ------- --------- ------ 506 \_\_\_ $ 0 \_\_\_ $2,000 507 \_\_\_ 0 \_\_\_1,500 508 \_\_\_4,000 \_\_\_ 3,600 509 \_\_\_3,800 \_\_\_2,000 510 \_\_\_2,600 \_\_\_3,100
Manufacturing overhead is assigned at the rate of 200% of labor.
What is the January cost of goods manufactured and transferred from work-in-process?
A
Total costs added during January for all five jobs included $10,400 of material and $12,200 of labor. Multiplying the $12,200 of labor costs incurred by 200% gives $24,400 of overhead applied during January. Combining the $10,400 of material, the $12,200 of labor, and the $24,400 of overhead gives total costs added to work-in-process of $47,000.
The two jobs in process at the end of January (#509 and #510) had $6,400 of material and $5,100 of labor. Multiplying the $5,100 labor cost by 200% gives $10,200 as overhead applied to the two jobs still in process. Total cost incurred during January on the two jobs still in process included material of $6,400, labor of $5,100, and overhead of $10,200, for total ending work-in-process cost of $21,700.
Beginning inventory of work-in-process $24,750 ($10,500 + $14,250) plus costs added during the month of $47,000 gives $71,750 cost of goods available to be completed. Subtracting ending inventory of work-in-process of $21,700 gives $50,050 as cost of goods manufactured and transferred out of work-in-process.
6
Q
Birk Co. uses a job order cost system. The following debits (credits) appeared in Birk’s work-in-process account for the month of April:
April_ Description Amount 1 Balance $ 4,000 30 Direct materials 24,000 30 Direct labor 16,000 30 Factory overhead 12,800 30 To finished goods (48,000)
Birk applies overhead to production at a predetermined rate of 80% of direct labor cost. Job No. 5, the only job still in process on April 30, has been charged with direct labor of $2,000.
What was the amount of direct materials charged to Job No. 5?
A
April 30 balance of work-in-process = BI + DM used + DL used + Factory OH applied- Transferred to finished goods
= $4,000 + $24,000 + $16,000 + $12,800 - $48,000
= $8,800
Cost of direct materials charged to Job No. 5 = WIP balance - Direct labor - Overhead = $8,800 - $2,000 - .80($2,000) = $8,800 - $2,000 - $1,600 = $5,200
7
Q
____costing is used for products whose individual units are indistinguishable from other units (e.g., sugar, corn flakes, textiles, paint). Such products are continuously produced through a series of uniform production steps called processes.
A
process
8
Q
Formula for beginning Wip?
Formula for cost of DM?
A
Beginning inventory - dm used + dl used + factory OH applied - transferred to finished goods.
DM: WIP Balance - DL - OH
9
Q
If a question asks what the amount of direct materials, labor, or overhead charged to a job – where do you start?
A
WIP!
10
Q
Jansen, Inc., pays bonuses to its managers based on operating income. The company uses absorption costing, and overhead is applied on the basis of direct labor hours. In order to increase bonuses, Jansen’s managers may do all of the following, except:
defer expenses such as maintenance to a future period.
increase production schedules independent of customer demands.
decrease production of those items requiring the most direct labor.
decrease production of those items requiring the least direct labor
A
decrease production of those items requiring the most direct labor.
11
Q
____costing is a method of costing in which fixed costs are treated as a product cost and assigned to the units produced.
A
Absorption
With absorption costing, a manager’s organization will show a higher operating income if some of the goods produced are inventoried since the inventoried goods will carry with them some of the fixed overhead costs that were incurred during the period.
Managers will show lower operating income if they decrease production of those items requiring the most direct labor.
The lower operating income results from the fact that a decrease in the production of items that require the most direct labor hours means that each of the items that is produced will have more fixed costs associated with it.
The increase in fixed costs per item will reduce operating income.
12
Q
Which of the following statements is correct regarding variable costing and absorption costing income statements for a company that has no beginning inventory and whose production exceeds sales for the current period?
Net income is higher if absorption costing is used.
The ending inventory amount is lower if absorption costing is used.
The cost of goods sold amount is lower if absorption costing is used.
The selling and administrative expense is higher if absorption costing is used.
A
Net income is higher if absorption costing is used.
The answer choice “net income is higher if absorption costing is used” is correct because when production exceeds sales, some fixed costs that are expensed under variable costing are part of ending inventory under absorption costing.
Since expenses are higher under variable costing and sales revenue is unchanged, the net income will be higher under absorption costing.
13
Q
A company’s standard costs for direct labor are as follows:
Direct Labor Standard Quantity Standard Price 1 hour per unit $15 per hour
Last month, the company produced and sold 100 units of its product, using 110 direct labor hours at a rate of $16 per hour. What amount is the company’s direct labor efficiency variance for last month?
A
d
14
Q
___costing is sometimes called direct or marginal costing
. ____costing is sometimes referred to as full product costing.
A
Variable
Absorption
15
Q
Variable Vs Absorption
\_\_\_costing is felt to be more useful for management decision making because it separates fixed costs that do not change with volume
Absorption costing is not required by both generally accepted accounting principles and the Internal Revenue Service (IRS). t/f
Over the long run, the difference between variable costing profit and absorption costing profit will be how much??
The difference is not in the amount of expense but in the ___of expense
Fixed overhead is a ___cost for absorption costing and a___cost for variable costing.
A
Variable
False - yes it is
zero
timing
product, period
16
Q
____, also called job order costing, is a tracking system used for customized products or services.
____(or sheets): Costs are accumulated by the job, or job lot, and are recorded on job cost records as work progresses.
____costing is used for products whose individual units are indistinguishable from other units (e.g., sugar, corn flakes, textiles, paint).
conversion costs includes both ___and ___costs.
A
Job costing
Job cost records
Process
overhead & labor
17
Q
The use of activity-based costing normally results in:
substantially greater unit costs for low-volume products than is reported by traditional product costing.
substantially lower unit costs for low-volume products than is reported by traditional product costing.
decreased set-up costs being charged to low-volume products.
equalizing set-up costs for all product lines.
A
substantially greater unit costs for low-volume products than is reported by traditional product costing.
In the past, conventional costing techniques assigned indirect manufacturing costs to a single (or few) cost pool(s) and allocated those costs based on a single (or few) allocation base(s).
The result was that both high and low volume products received the same unit “dosage” of indirect costs.
18
Q
____addresses several of the concerns about traditional overhead costing systems.
___are the separately identifiable tasks required to produce a product or provide a service
One of the major differences between activity-based costing (ABC) and traditional costing systems is that greater effort is made to identify cost allocation bases that are ___
A
Activity-based costing (ABC)
Activities
Cost drivers
19
Q
hierarchy of activity levels
__level - per unit of output
__level - once for each group, of units.
__level - support specific customers
__level - support specific product types or services
__level - activities are not traceable to specific product, but support the facility/plant
__level - not traceable to specific products or services or to specific facilitie, but support the organization
A
unit batch customer product plant/facility organization
20
Q
Steps in activity-based costing
Identify casual \_\_\_ Determine \_\_\_ Establish \_\_ pools Determinae \_\_\_ ratio Apply \_\_
A
relationship driver cost cost costs
21
Q
Benefits of ABC Costing
Provides an __of complex product costs
Allows management to focus on the nature of __
Highlights the ___of costs and activities
Provides more appropriate method to charge __ costs to products
A
understanding
activities
interrelationship
overhead
22
Q
Which of the following standard cost variances used in a standard cost system would be least controllable by a production supervisor?
Overhead efficiency
Material usage
Overhead volume
Labor efficiency
A
Overhead volume
Note these three factors related to overhead volume:
The overhead volume variance is related to fixed overhead only. There is no volume variance for variable overhead.
The fixed overhead rate is a function of estimated volume.
Overhead volume variance occurs when actual production volume differs from estimated volume.
The production supervisor has little, if any, control over the overhead volume variance.
23
Q
Note these three factors related to overhead volume:
The overhead volume variance is related to __overhead only. There is no volume variance for variable overhead.
The fixed overhead rate is a function of estimated ___.
Overhead volume variance occurs when actual production volume differs from estimated volume.
A
fixed
volume
true
24
Q
When volume is measured in units, ___ volume is the number of units produced.
A
earned
25
The over- or underapplied overhead can be analyzed in a variety of ways.
The most common are called two-way, three-way, or four-way analysis.
A ___analysis separates over- or underapplied overhead into two variances—controllable and uncontrollable or volume.
A ___separates over- or underapplied overhead into three variances: (1) spending, (2) efficiency, and (3) volume
A ___analysis of variance separates over- or underapplied overhead into four variances: (1) fixed spending, (2) variable spending, (3) efficiency, and (4) volume
True
two-way
three-way analysis
four-way
26
Sales 20x2: 5k
Sell price per unit: 6
Cost per unit: 2
Process cost: 0
Inventory of Moy was recorded at net realizable value when produced in 20X1. No units of Moy were produced in 20X2. What amount should be recognized as profit on Moy's 20X2 sales?
If byproduct Moy was recorded at net realizable value, the following entry would have been made in 20X1:
DR: Byproduct Inventory 5,000($6-$2) 20,000
CR:Work-In-Process 20,000
When the 5,000 units of Moy were sold in 20X2, the sale would be recorded using the following summary journal entry:
DR: Cash 30k
CR: Byrpdocut inventory: 20k
CR: Cash (5k x 2) ______10k
As can be seen, no profit is recognized when byproduct inventory is recorded at net realizable value.
27
___are a product of a process having a relatively small total resale value in relation to the sales value(s) of the main or joint products.
Byproducts
28
4 Allocation methods used to allocate joint costs:
Relative ___ at split-off
Physical ___
Net ___ Value
Constant ___ NRV
Sales Value
output
Net Realizable Value
Constant Gross Margin NRV
29
___ no market value exists for one or more joint products at the split-off point.
__: joint costs are allocated so that the gross margin percentage for each main product is identical
Net realizable value (NRV):
Constant gross margin NRV
30
401367
Graph
d
31
The difference between the actual cost and the standard cost for the direct materials purchased is a ____
If the actual price exceeds the standard price, it is an __variance.
Any difference between the standard quantity needed and the amount requisitioned is a ___variance.
price variance.
unfavorable
usage
32
The difference between standard hours at standard wage rates and actual hours at standard wage rates is referred to as which of the following types of variances?
Indirect labor spending
Labor usage
Direct labor spending
Labor rate
Labor usage
The difference between what was actually paid to the workers and the flexible budget amount results in the total labor variance, which then can be separated into a rate variance and an efficiency (usage) variance.
33
IN HOURS
Avg historical performance past 3 yrs: 1.85
Production level to satisfy demand over seasonal time span: 1.6
Engineer Estimate from attainable performance: 1.5
Engineer estimate based on ideal performance: 1.25
To measure controllable production inefficiencies, what is the best basis for Flint to use in establishing standard hours allowed?
1.50
A standard that is to be used for measuring controllable production inefficiencies should be based on engineering estimates of attainable performance
Flint should use 1.50 standard hours per unit in developing its standards
34
Direct labor Standard: .40DLH at 12.00/DLH = 4.80
Planned Production: 15k LBS
Actual Production: 15.5k LBS
Actual DL Cost (6,250 DLH): $75,250
The company's direct labor efficiency variance for the current month would be:
$600 unfavorable derives from the difference between the direct labor hours allowed for the output achieved (15,500 × .4 = 6,200)
The actual hours worked (6,250) times the standard direct labor rate ($12.00). Calculation: ((6,200 - 6,250) × $12).
35
Which of the following is not a benefit of implementation of ABC (activity-based costing)?
Allows management to focus on the nature of activities performed
Allows management to examine value-added activities so they may be evaluated and implemented
Provides a more appropriate means of charging overhead costs to products
Provides an understanding of complex product costs and product profitability
Allows management to examine value-added activities so they may be evaluated and implemented
The benefit of implementing an activity-based costing (ABC) procedure is that it allows management to examine non-value-added (not value-added) activities so that they can be controlled or eliminated.
36
Information concerning a batch produced at a $60,000 joint cost before split-off follows
Separable Costs__SalesValue
AJAC: 8k__80k
BJAC: 22k__40k
TOTAL: 30k__120k
What is the joint cost assigned to Ajac if costs are assigned using the relative net realizable value?
$48,000
Joint Cost = $60,000
NRV = Net Realizable Value
Joint cost assigned to Ajac = (NRV Ajac / Total NRV) x Joint Cost
= ($72,000 / $90,000) x $60,000
= .80 x $60,000
= $48,000
37
In its first year of operations, Magna Manufacturers had the following costs when it produced 100,000 and sold 80,000 units of its only product:
Manufcature costs (fixed): 180k
Manufacture Cost(Variable): 160k
Sell & Admin (Fixed): 90k
Sell & Adnin Variable: 40k
How much lower would Magna's net income be if it used variable costing instead of full absorption costing?
$36,000
Income difference = Change in inventory x Fixed cost per unit
= (100,000 - 80,000) x $1.80
= 20,000 x $1.80
= $36,000
38
If a burden rate is not employed, and the volume of production is increased over the planned level, the cost per unit for manufacturing overhead would be expected to:
increase for fixed costs and increase for variable costs.
decrease for fixed costs and increase for variable costs.
decrease for fixed costs and remain unchanged for variable costs.
remain unchanged for fixed costs and increase for variable costs.
decrease for fixed costs and remain unchanged for variable costs.
If a burden rate is not employed, and the volume of production is increased over the planned level, the cost per unit for manufacturing overhead would be expected to decrease for fixed costs and remain unchanged for variable costs.
39
For purposes of allocating joint costs to joint products, the sales price at point of sale, reduced by cost to complete after split-off, is assumed to be equal to the:
joint costs.
total costs.
net sales value at split-off.
sales price less a normal profit margin at point of sale.
net sales value at split-off.
40
For the current-period production levels, Woodwork Co. budgeted 11,000 board feet of production and purchased 15,000 board feet. The material cost was budgeted at $7 per foot. The actual cost for the period was $8.50 per foot. What was Woodwork's material price variance for the period?
$19,500 unfavorable
$6,000 unfavorable
$16,500 unfavorable
$22,500 unfavorable
$22,500 unfavorable
Spending
variance = (Actual price - Standard price) x Actual quantity
= ($8.50 - $7.00) x 15,000 ft.
= $22,500 U
The variance is unfavorable (U) since the price per foot was more than expected.
41
Total standard hrs for unit produced: 5k
Total actual DL cost: $111,625
Actual /hour Labor rate 23.5
Standard/hr labor rate 24
What amount is the total direct labor price variance?
$2,500 unfavorable
$2,375 favorable
$2,500 favorable
$2,375 unfavorable
The actual hours worked is the actual labor cost of $111,625 divided by the actual rate per hour of $23.50, or 4,750 hours.
The labor price (rate) variance is the difference between the actual labor cost ($111,625) and the budgeted cost of actual hours worked ($24 × 4,750 hours, or $114,000). This difference is $2,375.
42
Actual variable overhead/hr: 8
Standard variable overhead/hr: 7.50
Actual hrs: 4,500
Standard hrs: 5k
What was the variable overhead spending variance for Product A?
$2,250 favorable
$4,000 unfavorable
$2,250 unfavorable
$4,000 favorable
VOHSV = ($8.00 - $7.50) x 4,500 hours
= $0.50 x 4,500 hours
= $2,250 U
Remember that for overhead variances, the “quantity” refers to the cost driver usage. So, for our example:
The variance is unfavorable (U) since more was spent than expected for the given activity level.
43
A company reported a significant material efficiency variance for the month of January. All of the following are possible explanations for this variance, except:
cutbacks in preventive maintenance.
an inadequately trained and supervised labor force.
producing more units than planned for in the master budget.
processing a large number of rush orders.
producing more units than planned for in the master budget.
44
The standard direct labor cost to produce one pound of output for a company is presented below. Related data regarding the planned and actual production activities for the current month for the company are also given below.
(Note: DLH = Direct Labor Hours)
DL Standard: .40 DLH @ $12/DLH = $4.80
Planned Production: 15k LBS
Actual Production: 15.5k LBS
Actual DL Cost(6,250) = $75,250
The company's direct labor rate variance for the current month would be:
$10 unfavorable.
$250 unfavorable.
$240 unfavorable.
$248 unfavorable.
$250 unfavorable.
$250 unfavorable derives from the actual direct labor hours (6,250) times the difference between the standard direct labor rate ($12.00)
The actual direct labor rate ($75,250 ÷ 6,250 = $12.04). Therefore, 6,250 × ($12.00 - $12.04) = $250.
45
Augusta, Inc., expects manufacturing and sales of 70,000 units of product Maggie, its only product, to occur evenly over a 10-week period. Augusta pays for materials in the week following use. The balance of accounts payable for materials at the beginning of the 10-week period is $40,000. There are no beginning inventories. The following information pertains to product Maggie for the 10-week period:
```
Sales Price: 11/unit
Material: 3/unit
Manufacutre - Fixed: $210k
Manufacture - Var: $2/unit
S&A - Fixed: $45k
S&A - Var: $1/unit
```
Using variable costing, what is Augusta’s budgeted income for the period?
$350,000
$305,000
$140,000
$95,000
$95,000
Variable cost per unit is $3 for material, $2 for other manufacturing costs, and $1 for selling and administrative, for a total of $6. Since the sales price is $11, the unit contribution margin ($11 − $6) is $5 per unit.
Total contribution margin for the period will be $5 × 70,000 units, or $350,000.
Manufacturing fixed costs are $210,000, while selling and administrative fixed costs are $45,000, for a total of $255,000 for fixed costs.
Subtracting fixed costs of $255,000 from the contribution margin of $350,000 leaves a budget net income of $95,000 for the period.
46
A company has gathered the following information from a recent production run:
Standard varoverhead rate $10
Actual var overhead rate 8
Standard process hrs 20
Actual process hrs 25
What is the company's variable overhead spending variance?
$50 favorable
$40 unfavorable
$40 favorable
$50 unfavorable
$50 favorable
The variable overhead spending variance is the difference between the actual amount paid ($8) and standard overhead ($10) for the 25 actual hours.
The difference of $2 multiplied by 25 actual hours gives $50. The variance is favorable because the actual cost ($8) was less than the standard cost ($10).
47
```
Sales $1,000,000
Net purchases of raw materials 600,000
Cost of goods manufactured 800,000
Marketing and administrative expenses 250,000
Indirect manufacturing costs 500,000
```
WIP: Beg: 500k
WIP: End: 400k
FG Beg: 100k
FG: 500k
Based on the following data, what is the gross profit for the company?
$400,000
$200,000
$600,000
$900,000
Cost of goods sold is beginning finished goods plus cost of goods manufactured, less ending finished goods:
$100,000 + $800,000 - $500,000 = $400,000
Gross profit is sales less cost of goods sold:
$1,000,000 - $400,000 = $600,000
48
Dowell Co. manufactures a wooden item. Which of the following is included with the inventoriable cost under absorption costing and excluded from the inventoriable cost under variable costing?
Cost of electricity used to operate production machinery
Cost of scrap pieces of lumber
Wages of assembly-line personnel
Straight-line depreciation on factory equipment
Straight-line depreciation on factory equipment
49
Estimated annual overhead $ 900,000
Estimated annual direct labor cost 1,800,000
Actual direct labor cost for March 160,000
Actual overhead for March 90,000
Base Manufacturing Co.'s applied overhead for March is:
$80,000.
$75,000.
$320,000.
$90,000.
$80,000.
The overhead rate is calculated as follows:
Estimated annual overhead ÷ Estimated annual direct labor = Overhead Rate
$900,000 ÷ $1,800,000 = 0.50
Therefore, overhead is applied at 50% of actual direct labor cost:
$160,000 × 0.50 = $80,000 applied overhead
50
Which of the following indicates that market-based transfer prices would be preferable to cost-based transfer prices?
The market is perfectly competitive for the intermediate product, and the selling division has no unused capacity.
The market is perfectly competitive for the intermediate product, and the selling division has ample unused capacity.
The market is imperfectly competitive for the intermediate product, and the selling division has ample unused capacity.
The market is imperfectly competitive for the intermediate product, and the selling division has no unused capacity.
The market is perfectly competitive for the intermediate product, and the selling division has no unused capacity.
Market-based transfer prices are preferable to cost-based transfer prices when the market is perfectly competitive for the intermediate product, and the selling division has no unused capacity.
51
Which of the following is not a characteristic of a trigger point in back-flushed costing under the just-in-time method?
Pay point for purchases and materials
Point-of-sale transaction
Completion of manufacturing
A system in operation with zero or very low inventories and fast throughput
A system in operation with zero or very low inventories and fast throughput
52
These are characteristics of what?
Pay point for purchases and materials
Point-of-sale transaction
Completion of manufacturing
Trigger point in back-flushed costing
53
The accountant for Champion Brake, Inc., applies overhead based on machine hours. The budgeted overhead and machine hours for the year are $260,000 and 16,000, respectively. The actual overhead and machine hours incurred were $275,000 and 20,000. The cost of goods sold (COGS) and inventory data compiled for the year is as follows:
Direct materials $ 50,000
COGS 450,000
Work-in-process (WIP) (units) 100,000
Finished goods (units) 150,000
What is the amount of over/underapplied overhead for the year?
$15,000
$50,000
$67,000
$65,000
The overhead application rate is $16.25 per machine hour (budgeted overhead of $260,000 divided by budgeted machine hours of 16,000).
Multiplying that rate by actual hours of 20,000 gives $325,000 for overhead applied.
Subtracting that from the $275,000 actual overhead gives a variance of $50,000. The overhead is overapplied since more overhead was applied to work-in-process than the actual overhead.
54
LM Enterprises produces two products in a common production process, each of which is processed further after the split-off point. Joint costs incurred for the current month are $36,000. The following information for the current month was also gathered:
L
Produced_Sold_Sep Cost_Sell price
10k__9.5k__20k__$8
M
Produced_Sold_Sep Cost_Sell price
5k__4k__40k__20
What amount would be the joint cost allocated to Product M, assuming that LM Enterprises uses the estimated net realizable value method to allocate costs?
$20,000
$12,000
$15,000
$18,000
Net realizable value equals eventual sales price less separable costs. For Product L, this is $80,000 (10,000 units produced × $8 selling price per unit) less $20,000, or $60,000. For Product M, it is $100,000 (5,000 units × $20) less $40,000, or $60,000.
Net realizable value of the two products together is $120,000, so Product M is allocated 60/120 or 50% of joint costs. Multiplying joint costs of $36,000 by 50% gives $18,000.
55
An accounting system that collects financial and operating data on the basis of the underlying nature and extent of the cost drivers is:
activity-based costing.
cycle-time costing.
target costing.
direct costing.
activity-based costing.
56
THESE ARE EXAMPLES OF WHAT
identifies activities and cost of performing those activities.
identifies appropriate cost drivers for all activities.
develops activity costs per unit of cost driver.
assigns costs to products/services based on consumption of activity costs.
ABC Costing
57
```
Selling price per unit $80
VARAIBLE COSTS
Direct materials 21
Direct labor 10
Variable manufacturing overhead 3
Variable selling and administrative 6
```
Fixed costs:
Manufacturing overhead $76,000
Selling and administrative 58,000
Units:
Beginning inventory 0
Month's production 5,000
Number sold 4,500
Ending inventory 500
Based upon the above information, what is the total contribution margin for the month under the variable costing approach?
The contribution margin is sales revenue minus variable costs (fixed costs are not considered).
The total variable cost per unit is $40 ($21 + $10 + $3 + $6). The total number of units sold is 4,500.
The total variable cost for the month is $180,000 (4,500 × $40).
The selling price per unit is $80. The total number of units sold is 4,500.
The total sales revenue is $360,000 (4,500 × $80).
The contribution margin is the total sales revenue minus the total variable cost.
Contribution margin = $360,000 - $180,000 = $180,000
58
In its April production, Hern Corp., which does not use a standard cost system, incurred total production costs of $900,000, of which Hern attributed $60,000 to normal spoilage and $30,000 to abnormal spoilage. Hern should account for this spoilage as:
period cost of $90,000.
inventoriable cost of $60,000 and period cost of $30,000.
period cost of $60,000 and inventoriable cost of $30,000.
inventoriable cost of $90,000.
inventoriable cost of $60,000 and period cost of $30,000.
The usual treatment of spoilage costs calls for assignment of:
normal spoilage to good product as an inventoriable cost.
abnormal spoilage to the period as a loss.
Based on this, Hern Corp. would treat the $60,000 of normal spoilage as product (i.e., inventoriable) cost and the $30,000 of abnormal spoilage as period cost.
59
___consists of units that are lost, broken, or otherwise defective and cannot be sold with regular good units.
The usual treatment of spoilage costs calls for assignment of:
normal spoilage to good product as an __cost.
abnormal spoilage to the period as a __
: Normally, no cost is assigned to __
Costs of ___defective units are generally charged to factory overhead and are spread among all units produced through the overhead application process.
Spoilage
inventoriable
Loss
scrap.
reworking
60
A company would most benefit from using an activity-based costing (ABC) system as opposed to a traditional costing system under which of the following conditions?
When indirect costs are a high percentage of total costs
When different products use the different activities of the department in the same proportions
When each department within the company has a single activity
When batch-level and product-sustaining costs are immaterial
When indirect costs are a high percentage of total costs
A company would most benefit from using an activity-based costing (ABC) system as opposed to a traditional costing system when indirect costs are a high percentage of total costs.
61
A manufacturing company has several product lines. Traditionally, it has allocated manufacturing overhead costs between product lines based on total machine hours for each product line. Under a new activity-based costing system, which of the following overhead costs would be most likely to have a new cost driver assigned to it?
Employee benefits expense
Repair and maintenance expense
Depreciation expense
Electricity expense
Employee benefits expense
The allocation base is an activity measure used to allocate costs. The allocation base should have a cause-and-effect relationship to the variability of that cost.
Similarly, it seems appropriate to use machine hours to allocate depreciation on machinery.
However, it is likely some machines will use many more employee hours than other machines, so machine hours seem inappropriate as the cost driver for employee benefit expense.
It is likely the cost driver for employee benefit expense will be changed to direct labor hours or direct labor dollars
62
Which of the following is not an allocation method used for joint products or byproducts?
Constant gross margin
Net realizable value (NRV)
Net present value (NPV)
Physical output
Net present value (NPV)
63
401365 vgraph
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```
Actual overhead incurred:
Variable $90,000
Fixed $62,000
Budgeted fixed overhead $65,000
Variable overhead rate (per direct labor hour (DLH)) $8
```
Standard hours allowed for actual production
12,000
Actual labor hours used 11,000
What amount is the variable overhead efficiency variance?
$6,000 favorable
$8,000 unfavorable
$2,000 unfavorable
$8,000 favorable
$8,000 favorable
Variable overhead efficiency variance (VOHEV) = (Actual quantity × Standard price) - (Standard quantity × Standard price)
Remember that for overhead variances, the “quantity” refers to the cost driver usage. So, for the problem:
VOHEV = (11,000 DLH x $8 per hour) - (12,000 DLH x $8 per hour)
= $88,000 - $96,000
= $8,000 F
The variance is favorable (F) since less cost driver activity than expected was used for the units produced.
65
Limitations of an activity-based costing system include which of the following?
Control of overhead costs is enhanced.
Activity-based costing systems are less reliable.
The expense of obtaining cost data is relatively high.
It eliminates arbitrary assignment of overhead costs.
The expense of obtaining cost data is relatively high.
66
Which of the following statements is true regarding the relationship between absorption costing net income and variable costing income?
I. When production exceeds sales, variable costing income exceeds absorption costing net income.
II. When sales exceed production, absorption costing income exceeds variable costing net income.
Neither I nor II
The difference between absorption and variable costing is the treatment of fixed overhead costs:
Absorption costing: Fixed overhead costs are product costs and are, therefore, inventoriable.
Variable costing: Fixed overhead costs are period costs and are, therefore, expensed in the period in which they are incurred.
67
Department 1 revenue $1,000,000
Department 2 revenue 1,500,000
Corporate overhead costs 250,000
Department overhead costs 175,000
What amount is the company's total overhead cost for Department 2?
425,000
$255,000
$105,000
$170,000
$255,000
Total revenues equal $2,500,000. Department 2 revenue represents 60% ($1,500,000 ÷ $2,500,000) of the total.
Therefore, Department 2's allocated overhead cost is $255,000: 60% of the total overhead cost of $425,000 ($250,000 + $175,000).
68
Maintenance__Power
```
Costs incurred $99,000 $54,000
Services percentages provided to:
Maintenance --0___10%
Power 20%___0
School of Education 30%__20%
School of Technology 50%__70%
__________________------- -------
_________________100%__100%
```
What is the amount of May support department costs allocated to the School of Education?
$40,500
$49,125
$42,120
$46,100
$46,100
The School of Education would receive 30% of $99,000, or $29,700, from maintenance. Power would receive 20% of $99,000, or $19,800.
After that allocation, the Power Department would have $73,800 ($54,000 + $19,800) to allocate to Education and Technology.
Education would receive 2/9 of $73,800, or $16,400 from the Power Department.
Therefore, total support department cost allocated to the School of Education is $46,100 ($29,700 from Maintenance and $16,400 from Power).
69
Which of the following is not a support department cost?
Human resources
Building maintenance
Production
Purchasing
Production
70
List of departments
HR
Purchasing
Building maintenance
power plant
Yep
71
Kode Co. manufactures a major product that gives rise to a byproduct called May. May's only separable cost is a $1 selling cost when a unit is sold for $4. Kode accounts for May's sales by deducting the $3 net amount from the cost of goods sold of the major product. There are no inventories. If Kode were to change its method of accounting for May from a byproduct to a joint product, what would be the effect on Kode's overall gross margin?
Gross margin increases by $3 for each unit of May sold
Gross margin increases by $1 for each unit of May sold
No effect
Gross margin increases by $4 for each unit of May sold
Gross margin increases by $1 for each unit of May sold
When May is treated as a byproduct, its $3 net realizable value (i.e., $4 - $1) is subtracted from the main product cost so only that $3 is included in the computation of gross profit for the main product.
However, when May is treated as a joint product the entire $4 selling price enters into the computation of gross margin. The $1 is not subtracted in computing gross margin. This $1 shows up in selling costs which appear after the computation of gross margin.
The effect of a change from byproduct to joint product status is a $1 increase in gross margin. It should be noted that bottom line net income does not change, however.
72
Actual__Budgeted
Number of frames manufactured 19,000__20,000
Variable overhead costs $4,100__$2 per DLH
Fixed overhead costs $22,000___$20,000; $1 per unit
Direct labor hours 2,100 hours__0.1 hour per frame
What is the production volume variance?
$2,000 favorable
$2,000 unfavorable
$1,000 favorable
$1,000 unfavorable
Production volume variance = $20,000 - 19,000 ($1)
= $20,000 - $19,000
= $1,000
The $1 per unit rate was based on fixed overhead budgeted cost of $20,000 and an expectation of producing 20,000 frames. Since actual production was only 19,000 frames, the calculated volume variance was unfavorable.
73
A standard cost system may be used in:
job order costing but not process costing.
neither process costing nor job order costing.
process costing but not job order costing.
either job order costing or process costing.
either job order costing or process costing.
74
401366 graph
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75
Lynn Manufacturing Co. prepares income statements using both standard absorption and standard variable costing methods. For Year 2, unit standard costs were unchanged from Year 1. In Year 2, the only beginning and ending inventories were finished goods of 5,000 units. How would Lynn’s ratios using absorption costing compare with those using variable costing?
Current ratio, greater; Return on stockholder's equity, smaller
Current ratio, same; Return on stockholder's equity, same
Current ratio, same; Return on stockholder's equity, smaller
Current ratio, greater; Return on stockholder's equity, same
Current ratio, greater; Return on stockholder's equity, smaller
76
Which of the following costs is deducted from revenues of a manufacturing company in order to determine gross margin, but not deducted from revenues to determine contribution margin?
Fixed manufacturing
Fixed selling and administrative
Variable manufacturing
Variable selling and administrative
Fixed manufacturing
Contribution margin is sales less variable costs (direct material, direct labor, variable manufacturing, and variable selling). Gross margin is sales less production costs (direct material, direct labor, variable manufacturing, and fixed manufacturing).
77
Direct materials $100,000
Direct labor 90,000
Factory overhead 4,000
What amount of costs should be traced to specific products in the production process?
$190,000
$100,000
$194,000
$90,000
$190,000
Direct materials and direct labor are direct costs of specific products, so the $190,000 cost should be traced to those products.
Factory overhead cannot be traced to specific jobs. It is instead allocated based on an estimated overhead application rate.
78
401364 graph
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79
A company produces widgets with budgeted standard direct materials of 2 pounds per widget at $5 per pound. Standard direct labor was budgeted at 0.5 hour per widget at $15 per hour. The actual usage in the current year was 25,000 pounds and 3,000 hours to produce 10,000 widgets. What was the direct labor usage variance?
$25,000 unfavorable
$25,000 favorable
$30,000 unfavorable
$30,000 favorable
$30,000 favorable
Standard cost (at $15 per hour) of the actual hours of 3,000 hours was $45,000.
Standard cost (at $15 per hour) of the standard hours (0.5 hours × 10,000 widgets) was $15 × 5,000 hours, or $75,000.
Since the actual cost was less than the budgeted cost ($45,000 – $75,000), the labor efficiency (usage) variance was $30,000 favorable.
80
In an activity-based costing system, cost reduction is accomplished by identifying and eliminating:
neither all cost drivers nor nonvalue-adding activities.
all cost drivers.
all cost drivers and nonvalue-adding activities.
nonvalue-adding activities.
nonvalue-adding activities.
81
Jonathan Mfg. adopted a job-costing system. For the current year, budgeted cost driver activity levels for direct labor hours and direct labor costs were 20,000 and $100,000, respectively. In addition, budgeted variable and fixed factory overhead were $50,000 and $25,000, respectively. Actual costs and hours for the year were as follows:
Direct labor hours 21,000
Direct labor costs $110,000
Machine hours 35,000
For a particular job, 1,500 direct-labor hours were used. Using direct-labor hours as the cost driver, what amount of overhead should be applied to this job?
$5,625
Direct labor hours used = 1,500
Estimated total direct labor hours = 20,000
Total budgeted overhead = Variable ($50,000) + Fixed ($25,000) = $75,000
__________1,500
Overhead = -------- x $75,000
___________20,000
Overhead = .075 x $75,000 = $5,625
82
Total production costs to split-off point $120,000
Gasoline sales 270,000
Byproduct sales 30,000
Gasoline inventory, end of year 15,000
Additional byproduct costs:
Marketing 10,000
Production 15,000
Mig accounts for the byproduct at the time of production. What are Mig's current-year cost of sales for gasoline and the byproduct?
```
otal production costs to split-off point $120,000
Less:
Byproduct sales $30,000
Marketing costs (10,000)
Additional production costs (15,000)
Cost recovery from byproduct 5,000
```
Production cost allocated to gasoline 115,000
Less gasoline inventory, end of year 15,000
Cost of sales of gasoline $100,000
83
Which of the following types of costs are prime costs?
Direct materials, direct labor, and overhead
Direct materials and direct labor
Direct labor and overhead
Direct materials and overhead
Direct materials and direct labor
84
In computing the current period's manufacturing cost per equivalent unit, the first-in, first-out (FIFO) method of process costing considers current period costs:
plus cost of beginning work-in-process inventory.
only current period costs
less cost of beginning work-in-process inventory.
plus cost of ending work-in-process inventory.
only current period costs
85
Black, Inc., employs a weighted average method in its process costing system. Black's work-in-process inventory on June 30 consists of 40,000 units. These units are 100% complete with respect to materials and 60% complete with respect to conversion costs. The equivalent unit costs are $5.00 for materials and $7.00 for conversion costs. What is the total cost of the June 30 work-in-process inventory?
$368,000
$200,000
$480,000
$288,000
Materials cost for 40,000 units = $5.00 per unit × 40,000 units = $200,000
Conversion cost per unit = $7 × $40,000 = $280,000
However, the problem specifies that the units are only 60% complete with respect to conversion costs.
$280,000 (total conversion costs) × 60% = $168,000 (applicable conversion costs)
Total work-in-process cost = Material cost + Conversion cost
$200,000 + $168,000 = $368,000
86
___costing: The inputs of direct materials and direct labor are valued at their actual cost, but overhead is applied on a budgeted or “normalized” basis.
Normal
87
```
Purchases of raw materials $ 6,000
Raw materials, beginning 500
Raw materials, ending 800
Work-in-process, beginning 0
Work-in-process, ending 0
Cost of goods sold (COGS) 12,000
Finished goods, beginning 1,200
Finished goods, ending 1,400
```
What is the total amount of conversion costs?
$6,500
Raw materials used = Purchases + Beginning raw material inventory - Ending raw material inventory
= $6,000 + $500 - $800
= $5,700
Current production costs = COGS + Ending finished goods inventory - Beginning finished goods inventory
= $12,000 + $1,400 - $1,200
= $12,200
Conversion cost = Direct labor + Overhead
= Production costs - Raw materials used
= $12,200 - $5,700
= $6,500
88
To meet its monthly budgeted production goals, Acme Mfg. Co. planned a need for 10,000 widgets at a price of $20 per widget. Acme's actual units were 11,200 at a price of $18.50 per widget. What amount reflected Acme's price variance?
$7,200 unfavorable
$16,800 favorable
$24,000 unfavorable
$15,000 favorable
$16,800 favorable
Material price variance = Quantity purchased × (Standard price - Actual price)
Material price variance = 11,200 × ($20 - $18.50)
Material price variance = $16,800
This number is favorable because the actual price is lower than the standard price.
89
Which of the following is a reciprocal method in cost allocation methods?
Service department costs are allocated to all departments in the entity.
Service department costs are allocated to fully incorporate interdepartmental support.
Service department costs are allocated directly to the production departments.
Service department costs are allocated to other service departments and to production departments in predetermined sequence.
Service department costs are allocated to fully incorporate interdepartmental support.
90
In a process cost system, the application of factory overhead usually would be recorded as an increase in:
factory overhead control.
cost of goods sold.
work-in-process inventory control.
finished goods inventory control.
work-in-process inventory control.
91
Companies in what type of industry may use a standard cost system for cost control?
Mass production industry
Neither mass production nor service industries
Both mass production and service industries
Service industry
Both mass production and service industries
92
A department adds material at the beginning of a process and identifies defective units when the process is 40% complete. At the beginning of the period, there was no work-in-process. At the end of the period, the number of work-in-process units equaled the number of units transferred to finished goods. If all units in ending work-in-process were 66-2/3% complete, then ending work-in-process should be allocated as follows:
50% of all normal defective unit costs
40% of all normal defective unit costs
None of the normal defective unit costs
50% of the material costs and 40% of the conversion costs of all normal defective unit costs
The cost of normal spoilage is spread evenly over the remaining good units.
At the end of the period, the number of work-in-process units equaled the number of units transferred to finished goods.
Therefore, the same defective unit cost is allocated to finished goods as to work-in-process, meaning that 50% of the cost is allocated to each.
93
A company uses a standard costing system. The production budget for year 1 was based on 200,000 units of output. Each unit requires two standard hours of manufacturing labor for completion. Total overhead was budgeted at $900,000 for the year, and the budgeted fixed overhead rate was $1.50 per direct manufacturing labor hour. Both variable and fixed overheads are allocated to the product based on direct manufacturing labor hours. The actual data for year 1 are as follows:
Actual production in units 198,000
Actual direct manufacturing labor hours 425,000
Actual variable overhead $352,000
Actual fixed overhead $575,000
What is the amount of unfavorable variable overhead efficiency variance?
$21,750
Total budgeted fixed overhead was 200,000 units × 2 hours per unit × $1.50 per hour, or $600,000. Since total budgeted overhead was $900,000, total budgeted variable overhead must be $300,000, or $0.75 per hour. (Remember, overhead is always calculated in terms of hours.)
The variable overhead efficiency variance is the difference between the budgeted overhead costs at the actual volume (198,000 units × 2 hours × $0.75) and the budgeted costs at the earned volume (425,000 hours × $0.75), or $297,000 − $318,750 = $(21,750).
94
Mighty, Inc., processes chickens for distribution to major grocery chains. The two major products resulting from the production process are white breast meat and legs. Joint costs of $600,000 are incurred during standard production runs each month, which produce a total of 100,000 pounds of white breast meat and 50,000 pounds of legs. Each pound of white breast meat sells for $2 and each pound of legs sells for $1. If there are no further processing costs incurred after the split-off point, what amount of the joint costs would be allocated to the white breast meat on a relative sales value basis?
$120,000
$400,000
$480,000
$200,000
$480,000
Sales value of breast meat = 100,000 pounds × $2 per pound = $200,000
Sales value of legs = 50,000 pounds × $1 per pound = $50,000
Total sales value = $200,000 + $50,000 = $250,000
Breast meat has 80% of the sales value ($200,000 ÷ $250,000).
80% × $600,000 (total joint costs) = $480,000 of joint costs allocated to breast meat
95
Joint __are two or more products whose total resale value is significant and which are produced simultaneously in the same processing operation.
___are a product of a process having a relatively small total resale value in relation to the sales value(s) of the main or joint products.
products
Byproducts
96
A static budget contains which of the following amounts?
Actual costs for budgeted output
Budgeted costs for actual output
Actual costs for actual output
Budgeted costs for budgeted output
Budgeted costs for budgeted output
97
A manufacturing company produces two main products and a byproduct out of a joint process. Main Product 1 could be sold at split-off. Main Product 2 requires additional processing before it can be sold. The company employs the estimated net realizable sales value method to allocate the joint product costs. The net realizable value of the byproduct is used to reduce the joint product costs.
Data regarding the two main products and the byproducts for the current month:
Joint production costs of $75,000 were incurred in the current month for the quantities produced.
Distribution costs of $0.05 per gallon are incurred on the sale of the byproduct.
Selling price of the byproduct is $0.55 per gallon.
Product volume for the byproduct is 10,000 gallons.
Net realizable sales value for Main Product 1 is $80,000.
Net realizable sales value for Main Product 2 is $320.000.
The joint product costs assigned to Main Product 1 for the current month would be:
Net realizable value (NRV) of byproduct = 10,000 gallons ($.55 - $.05) = $5,000
Net joint cost = $75,000 - $5,000 = $70,000
Net joint cost allocated to 1 = ($80,000 / ($80,000 + $320,000)) x $70,000
= .20 x $70,000 = $14,000
98
The standard direct material cost to produce a unit of Lem is 4 meters of material at $2.50 per meter. During May of the current year, 4,200 meters of material costing $10,080 were purchased and used to produce 1,000 units of Lem. What was the material price variance for May?
$80 unfavorable
$480 unfavorable
$420 favorable
$400 favorable
$420 favorable
For 1,000 units of LEM:
$10,080 ÷ 4,200 = $2.40
Price Variance = quantity purchased and used x difference between standard and actual cost
= 4,200 meters x ($2.50 - $2.40)
= 4,200 x $.10
= $ 420
Since actual price was less than standard price, this variance was favorable. The number of units produced (1,000) is a factor in calculating material quantity variance but not material price variance in this case.
99
In process 2, material G is added when a batch is 60% complete. Ending work-in-process units, which are 50% complete, would be included in the computation of equivalent units for:
conversion costs.
neither conversion costs nor material G.
material G.
both conversion costs and material G.
conversion costs.
Once a batch has been started and partially completed, conversion costs would be included in the computation of equivalent units
100
A decision must be made as to the disposition of the balance in the variance accounts. At year-end, a decision is made as to the materiality of the variances. If the balance is deemed material, then the variances are:
allocated to a variance expense account.
allocated to a contra inventory account.
allocated to the relevant inventory balances and to cost of goods sold based on the relative amounts of each account.
allocated to a contra cost of goods sold account.
allocated to the relevant inventory balances and to cost of goods sold based on the relative amounts of each account.
If material, the variances are allocated to the relevant inventory balances and to cost of goods sold based on the relative amounts of each account. If not material, they are closed directly to the cost of goods sold.
101
Which of the following is assigned to goods that were either purchased or manufactured for resale?
Relevant cost
Period cost
Product cost
Opportunity cost
Product cost
Product costs are “attached” or assigned to units produced in a manufacturing process. Product costs are direct materials, direct labor, and manufacturing overhead.
102
When a manager is concerned with monitoring total cost, total revenue, and net profit conditioned upon the level of productivity, an accountant would normally recommend:
standard costing.
flexible budgeting and standard costing.
flexible budgeting.
neither flexible budgeting nor standard costing.
flexible budgeting and standard costing.
A flexible budget is a budget prepared for several possible levels of production or adjusted for the level of production actually achieved. Since it is based on the level of productivity, it would be appropriate when monitoring financial results conditioned upon productivity.
Standard costing provides a target to which actual results can be compared. It would be appropriate when monitoring financial results conditioned upon productivity.
103
In a job cost system, manufacturing overhead is:
an indirect cost of jobs.
neither an indirect cost of jobs nor a necessary element in production.
a necessary element in production.
both an indirect cost of jobs and a necessary element in production.
both an indirect cost of jobs and a necessary element in production.
Manufacturing overhead is both a necessary element in production and treated as an indirect cost of production in job order cost systems.
This is also true of process costing systems.
104
Which of the following is an example of physical output in allocation of joint products or byproducts?
Where sales values are determined to the allocation percentage of joint cost to each product
When the result in the same cost per unit of physical output is measured for each joint product
Joint costs are allocated so that the joint margin percentage for each main product is identical
Where the sales value is used where no market value exists for one or more joint products at the split
When the result in the same cost per unit of physical output is measured for each joint product
105
A single-product company prepares income statements using both absorption and variable costing methods. Manufacturing overhead cost applied per unit produced in the current year was the same as in the previous year. The variable costing statement reported a profit whereas the absorption costing statement reported a loss. The difference in reported income could be explained by units produced being:
less than the activity level used for allocating overhead to the product.
in excess of units sold.
in excess of the activity level used for allocating overhead to the product.
less than units sold.
less than units sold.
In the situation described, absorption costing reported less income than variable costing because some of the previous year's fixed overhead was included in cost of goods sold as a result of producing less units than were sold in the current year.
106
Typical product-costing systems synchronize the recording of accounting-system entries with the physical sequence of purchases and production. The alternative of delaying journal entries until after the physical sequences have occurred (which is normally used in high-speed automated environments) is referred to as:
direct costing.
backflush costing.
process costing.
operation costing.
backflush costing.
107
Which of the following is not a cost allocation method used to assign support costs to user departments?
Reciprocal method
Step-down or sequential method
Direct method
Entity-wide method
Entity-wide method
There is no method called the entity-wide method.
Three major methods are used to assign support costs to user departments: The reciprocal method allocates service department costs and fully incorporates the interdepartmental support provided among service departments.
108
Three major methods are used to assign support costs to user departments:
__method: Service department costs are allocated directly to the production departments without any allocation to other service departments for which work might have been performed.
___method: , service department costs are allocated to other service departments
Reciprocal method: t fully incorporates the interdepartmental support provided among the service departments
Direct
Step Down
Reciprocal
109
Using the variable costing method, which of the following costs are assigned to inventory?
Variable factory overhead costs
Neither variable selling and administrative costs nor variable factory overhead costs
Variable selling and administrative costs
Both variable selling and administrative costs and variable factory overhead costs
Variable factory overhead costs
variable factory overhead costs are assigned to inventory while variable selling and administrative costs are not.
110
A CPA would recommend implementing an activity-based costing system under which of the following circumstances?
The client produced many different products that homogeneously consume resources.
The client is a single-product manufacturer.
The client produced products that heterogeneously consume resources.
Most of the client’s costs currently are classified as direct costs.
he client produced products that heterogeneously consume resources
The idea is that when various products consume significantly different levels of resources, Therefore, activity-based costing would be appropriate if the client’s products heterogeneously consume resources (each takes different levels of resources)
111
Beginning work-in-process, 70% complete 10,000 units
Units started into production during the year 150,000 units
Units completed during the year 140,000 units
\Ending work-in-process, 25% complete 20,000 units
What was the number of equivalent units produced using the first-in, first-out method?
138,000
Units completed during the period XX
Plus equivalent units in-process at end of period XX
Less equivalent units in-process at beginning of period XX
Total equivalent units for FIFO method XXX
Units completed during the year = 140,000 units
Equivalent units in-process at end of period = 25% of 20,000= 5,000 units
Equivalent units in-process at end of period = 70% of 10,000 = 7,000 units
140,000 + 5,000 - 7,000 = 138,000 equivalent units
112
Product X_ProductY
Quantity produced 10,000__20,000
Direct manufacturing labor hours 15,000___5,000
Setup hours 500__1,500
The total cost of setting up manufacturing processes and equipment is $400,000. The company uses a job-costing system with a single indirect cost rate. Under this system, allocated costs were $300,000 and $100,000 for X and Y, respectively. If an activity-based system is used, what would be the allocated costs for each product?
Product X, $100,000; Product Y, $300,000
Using activity-based costing, the setup cost of $400,000 would be allocated based on the activity driver that is most closely related to the cost.
The relevant activity for setup costs would be setup time required for each product rather than labor hours.
Total setup hours of 2,000 (500 for X and 1,500 for Y) would be allocated using the ratio 500/2,000 × $400,000, or $100,000 for Product X. Product Y would be allocated using the ratio 1500/2000 × $400,000, or $300,000 for Product Y.
113
Sales price $11 per unit
Materials $3 per unit
Manufacturing conversion costs—Fixed $210,000
Variable $2 per unit
Selling and administrative costs—Fixed $45,000
Variable $1 per unit
Using absorption costing, what is Augusta’s budgeted income for the period?
Dividing 70,000 units to be produced into $210,000 of manufacturing fixed costs gives $3 per unit produced. Production costs include materials of $3, other variable costs of $2, and fixed costs of $3, for a total of $8 per unit.
Selling 70,000 units at $11 each results in revenue of $770,000.
Cost of sales is 70,000 units at $8, or $560,000.
This leaves a gross profit of $210,000 ($770,000 − $560,000).
Selling and administrative costs include the variable costs of 70,000 units at $1 each, or $70,000, plus fixed costs of $45,000, for a total of $115,000.
Subtracting $115,000 of selling and administrative costs from gross profit of $210,000 leaves a net profit of $95,000.
114
A company produces widgets with budgeted standard direct materials of 2 pounds per widget at $5 per pound. Standard direct labor was budgeted at 0.5 hour per widget at $15 per hour. The actual usage in the current year was 25,000 pounds and 3,000 hours to produce 10,000 widgets. What was the direct material usage variance?
$25,000 favorable
$25,000 unfavorable
$30,000 unfavorable
$30,000 favorable
Standard price × (Standard quantity − Actual quantity)
$5 × [(2 × 10,000) – (25,000)] = $5 × 5,000 = $25,000 variance
Since more material was used than should have been (25,000 pounds versus 20,000 pounds), the variance is unfavorable.
115
In developing a predetermined factory overhead application rate for use in a process costing system, which of the following could be used in the numerator and denominator?
Numerator, actual factory overhead; Denominator, estimated machine hours
Numerator, estimated factory overhead; Denominator, actual machine hours
Numerator, estimated factory overhead; Denominator, estimated machine hours
Numerator, actual factory overhead; Denominator, actual machine hours
Numerator, estimated factory overhead; Denominator, estimated machine hours
An overhead application rate is calculated by dividing the overhead costs by the volume of the allocation base.
Estimated factory overhead would be used as the numerator, while estimated machine hours would be the denominator if machine hours are chosen as the allocation base.
Actual machine hours and actual factory overhead will not be known until the end of the period, and therefore they cannot be used in a predetermined application rate.
116
In an income statement prepared as an internal report using the variable costing method, fixed selling and administrative expenses would:
be used in the computation of operating income but not in the computation of the contribution margin.
not be used.
be used in the computation of the contribution margin.
be treated the same as variable selling and administrative expenses.
be used in the computation of operating income but not in the computation of the contribution margin.
117
Time required to make one unit 2 direct labor hours
Number of direct workers 50
# of productive hours per week, per worker 40
Weekly wages per worker $500
Workers' benefits treated as direct labor costs 20% of wages
What is the standard direct labor cost per unit of product Glu?
Hourly wage = $500 per week / 40 hours = $12.50/HR
Standard Direct Hours per Unit = 2 (given)
Direct Labor Cost per Unit = 2 hrs x $12.50/hr. = $25
Workers' benefits = 20% of wages = .2 x $25 = $5
Standard Direct Labor Cost per Unit = $25 + $5 = $30
118
Which of the following costing methods provides the added benefit of usefulness for external reporting purposes?
I. Variable
II. Absorption
II only
The difference between variable and absorption costing relates to the way fixed overhead costs are handled. Under variable costing, fixed manufacturing costs are period costs, and under absorption costing, fixed manufacturing costs are inventoriable.
Since GAAP and tax law only allow the use of absorption costing, variable costing does not provide any benefits for external reporting purposes.
119
Yola Co. manufactures one product with a standard direct labor cost of four hours at $12.00 per hour. During June, 1,000 units were produced using 4,100 hours at $12.20 per hour. The unfavorable direct labor efficiency variance was:
1200
The labor efficiency (usage) variance is the difference between standard cost of actual hours and the standard cost of the budgeted labor hours.
```
Standard cost (at $12 per hour) of the actual hours of 4,100 hours was $49,200.
Standard cost (at $12 per hour) of the standard hours (4 hours × 1,000 units) was $12 × 4,000 hours, or $48,000.
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Since the actual cost was more than the budgeted cost ($49,200 − $48,000), the labor efficiency (usage) variance was $1,200 unfavorable.
120
Direct materials issued to production $ 90,000
Indirect materials issued to production 8,000
Manufacturing overhead incurred 125,000
Manufacturing overhead applied 113,000
Direct labor costs 107,000
Pick had neither beginning nor ending work-in-process inventory. What was the cost of jobs completed in January?
$310,000
he work-in-process inventory at the beginning and end of the month were both zero, so the costs added to work-in-process during the month equal the cost of jobs completed during the month.
Those costs included only direct materials ($90,000), overhead applied ($113,000), and direct labor ($107,000), which total $310,000. The indirect materials ($8,000) are part of the overhead costs and should not be included a second time.
121
Based on standard direct labor hours, a fixed overhead volume variance measures:
the difference between fixed overhead actually applied based on production volume and the amount that was budgeted.
deviation from standard direct labor hour capacity.
fixed overhead efficiency.
fixed overhead utilization.
the difference between fixed overhead actually applied based on production volume and the amount that was budgeted.
122
401024
d
123
If a product required a great deal of electricity to produce, and crude oil prices increased, which of the following costs most likely increased?
Direct labor
Direct materials
Conversion costs
Prime costs
Conversion costs
124
When allocating service department costs to production departments, the method that does not consider different cost behavior patterns is the:
step allocation method.
dual-rate method.
reciprocal method.
single-rate method.
single-rate method.
The single-rate method of allocating service department costs allocates service department costs to producing departments and develops a combined (variable and fixed) overhead application rate.
125
Weighted-average and first-in, first-out (FIFO) equivalent units would be the same in a period when which of the following occurs?
No ending inventory exists.
Both a beginning and an ending inventory exist but are not necessarily equal.
No beginning inventory exists.
Beginning inventory units equal ending inventory units.
No beginning inventory exists.
126
Fab Co. manufactures textiles. Among Fab’s June manufacturing costs were the following salaries and wages:
Loom operators $120,000
Factory foremen 45,000
Machine mechanics 30,000
What was the amount of Fab’s June direct labor?
$120,000
the salaries of factory foremen are an overhead cost, not direct labor allocable for specific jobs. Similarly, the wages of machine mechanics are part of maintenance cost that cannot be allocated to specific jobs. Instead, it is part of overtime cost as well. That leaves only the $120,000 labor cost of those who directly operate production equipment, the loom operators, to be included in direct labor.
error_outline First Time Score
127
```
Units produced 20,000
Units sold 18,000
Direct materials used $80,000
Direct labor incurred $40,000
Fixed factory overhead $50,000
Variable factory overhead $24,000
Fixed selling and administrative expenses $60,000
Variable selling and administrative expenses $9,000
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Work-in-process inventories at the beginning and end of the year as well as the beginning finished goods inventory were zero. What was the company's finished goods inventory cost at December 31 under the variable (direct) costing method?
$14,400
```
Direct materials used $ 80,000
Direct labor incurred 40,000
Variable factory overhead 24,000
Total production costs $144,000
Units produced / 20,000
Cost per unit $ 7.20
```
Cost of endig finished goods inventory = Units in inventory x Cost per unit
= 2,000 x $7.20
= $14,400
128
Which of the following types of variances would a purchasing manager most likely influence?
Direct labor rate
Direct labor efficiency
Direct materials price
Direct materials quantity
Direct materials price
A purchasing manager contracts for purchases of raw materials, which affects the price per unit that is used in computing the direct materials price variance.
129
Standard price per pound $3.00
Standard material usage per trivet 2.00
During April, the company purchased 10,000 pounds of material for $33,000 and used 9,400 pounds to produce 4,500 trivets. Four thousand trivets were sold during April. What amount should be reported as the materials' quantity (usage) variance?
$1,200 unfavorable
The material efficiency (usage) variance of $1,200 is the difference between the budgeted cost of actual materials used of $28,200 ($3 × 9,400 pounds) and the budgeted cost of standard materials that should have been used for the units produced of $27,000 ($3 × 2 pounds per trivet × 4,500 trivets).
The variance is unfavorable because the company actually used more material (9,400 pounds) than the standard amount (9,000 pounds).
130
At the start of its fiscal year, a company anticipated producing 300,000 units throughout the year. The annual budgeted manufacturing overhead was $150,000 for variable costs and $600,000 for fixed costs. In April, when there was a beginning inventory for finished goods of 5,000 units, the company showed an income of $40,000 using absorption costing. That same month, ending inventory for finished goods was 7,000 units. What amount would the company recognize as income for April using variable costing?
$45,000
$44,000
$36,000
$35,000
$36,000
The difference is the change in inventory units (7,000 units – 5,000 units = 2,000 units) times the fixed overhead per unit ($600,000 ÷ 300,000 units = $2.00).
Variable costing income will be $4,000 (2,000 units × $2.00) less than the $40,000 absorption income, or $36,000.
131
Which of the following costs include all the product costs?
Manufacturing overhead and conversion costs
Direct material and conversion costs
Direct labor and prime costs
Direct labor and conversion costs
Direct material and conversion costs
Direct material and conversion costs include all product costs. Product costs consist of direct materials, direct labor, and manufacturing overhead; however, this is not an answer choice.
Conversion costs consist of direct labor and manufacturing overhead.
Therefore, the answer is direct materials and conversion costs.
132
job order cost system uses a predetermined factory overhead rate based on expected volume and expected fixed cost. At the end of the year, underapplied overhead might be explained by which of the following situations?
Actual volume, less than expected; Actual fixed costs, greater than expected
Actual volume, greater than expected; Actual fixed costs, less than expected
Actual volume, less than expected; Actual fixed costs, less than expected
Actual volume, greater than expected; Actual fixed costs, greater than expected
Actual volume, less than expected; Actual fixed costs, greater than expected
Underapplied overhead means the actual overhead cost was more than the overhead applied to work-in-process.
A lower production volume than planned could cause this, since the predetermined overhead application rate per unit would apply overhead for fewer units than planned, resulting in underapplied fixed overhead. This is actual production volume less than the expected production volume.
Underapplied overhead could also be caused by spending more for overhead than budgeted. This would be the situation where actual fixed costs are greater than the budgeted fixed costs.
133
___overhead means the actual overhead cost was more than the overhead applied to work-in-process.
Underapplied
134
A basic assumption of activity-based costing (ABC) is that:
only variable costs are included in activity-cost pools.
products or services require the performance of activities, and activities consume resources.
all manufacturing costs vary directly with units of production.
only costs that respond to unit-level drivers are product costs.
products or services require the performance of activities, and activities consume resources.
135
A basic assumption of activity-based costing (ABC) is that:
all manufacturing costs vary directly with units of production.
only costs that respond to unit-level drivers are product costs.
products or services require the performance of activities, and activities consume resources.
only variable costs are included in activity cost pools.
products or services require the performance of activities, and activities consume resources.
136
Activity-based costing
(1) identifies ___(i.e., things that are done),
(2) determines the __of those activities, and
(3) __costs to products/services based on their consumption of activities. In order for ABC to be used, therefore, those “products or services require the performance of activities, and activities consume resources.”
activities
cost
assigns
