Mid course exam

Question 1

Which of the following is true (managerial vs. financial accounting):

• Must be prepared using GAAP
• Provides more detailed info than Financial
• for internal users, e.g. stockholders & managers
• pertains to business as a whole

Answer 1

-Provides more detailed than financial

Question 2

On average, studies have shown that the smallest component of total manufacturing cost is

Answer 2

direct labour. Direct materials are the largest component.

Question 3

What are product costs?

Answer 3

A necessary and integral part of producing the finished product.

Question 4

How do manufacturers compute COGS?

Answer 4

Manufacturers add beginning finished goods inventory to cost of goods manufactured and subtract ending finished goods inventory to compute the cost of goods sold (“Income Statement”).

Question 5

Which of the following would you find on the income statement of a manufacturing company, but not on the income statement of a merchandising company?

Answer 5

Cost of goods manufactured

Question 6

True/False: The cost of the beginning work in process plus the total manufacturing costs for the current period is the cost of goods manufactured.

Answer 6

False. The cost of goods manufactured is the cost of the beginning work in process plus the total manufacturing costs for the current period less ending work in process (“Cost of Goods Manufactured Schedule”).

Question 7

A cost of goods manufactured schedule shows beginning and ending inventories for

Answer 7

raw materials and work in process only.

Question 8

Companies compute cost of goods manufactured by subtracting ending work in process inventory from

Answer 8

total cost of work in process.

Question 9

Model Magic Manufacturing reported the following year-end balances: Beginning work in process inventory, $35,000; beginning raw materials inventory, $18,000; ending work in process inventory, $38,000; ending raw materials inventory, $15,000; raw materials purchased, $510,000; direct labor, $180,000; and manufacturing overhead, $75,000. What is the amount of total work in process for Model Magic for the current year?

Answer 9

First, direct materials used = beginning raw materials inventory ($18,000) + raw materials purchased ($510,000) – ending raw materials inventory ($15,000) = $513,000. Then, total cost of work in process = beginning work in process inventory ($35,000) + direct materials used ($513,000) + direct labor ($180,000) + manufacturing overhead ($75,000) = $803,000

Question 10

T/F: Companies generally list manufacturing inventories in the order of completion—raw materials, work in process, and finished goods.

Answer 10

False. Companies usually list manufacturing inventories in the order of their liquidity—the order in which they are expected to be realized in cash (“Balance Sheet”).

Question 11

What is finished goods to a manufacturer vs. merchandiser?

Answer 11

Finished goods is to a manufacturer what merchandise inventory is to a merchandiser.

Question 12

What do job-order cost systems and process cost systems have in common?

Answer 12

They both use perpetual inventory systems.

Question 13

A process cost system would be used for all of the following except: cereal manufacture, refining petroleum, producing automobiles, printing wedding invites.

Answer 13

Printing wedding invites. A process cost system would not be used for the printing of wedding invitations because of the unique nature of each different set of invitations.

Question 14

In accumulating raw materials costs, the cost of raw materials purchased in a perpetual system is debited to

Answer 14

raw materials inventory.

Question 15

When incurred, factory labor costs are debited to

Answer 15

factory labor.

Question 16

Calculate cost of direct materials used in production. (tell me formula)

Answer 16

Beg. RMs + RMs purchased - Ending RMs - Indirect RMs used

Question 17

In recording the issuance of raw materials in a job order cost system, it would be incorrect to

Answer 17

debit Finished Goods Inventory.

Question 18

The entry when direct factory labor is assigned to jobs is a debit to

Answer 18

work in process inventory and a credit to factory labor.

Question 19

Assigning manufacturing costs to work in process results in credits to all of the following except: Mfg OH, RM OH, FG Inventory, Factory Labour

Answer 19

FG Inventory

Question 20

When the company assigns factory labor costs to jobs, the direct labor cost is debited to

Answer 20

work in process inventory.

Question 21

Work in Process Inventory is debited for all of the following except: mfg OH incurred, mfg OH applied, dir mats used, factory labour used

Answer 21

manufacturing overhead incurred.

Question 22

In Crawford Company, the predetermined overhead rate is 80% of direct labor cost. During the month, $210,000 of factory labor costs are incurred, of which $180,000 is direct labor and $30,000 is indirect labor. Actual overhead incurred was $200,000. The amount of overhead debited to Work in Process Inventory should be

Answer 22

$144,000 (180*.8)

Question 23

In Mynex Company, Job No. 26 is completed at a cost of $4,500 and later sold for $7,000 cash. A correct entry is

Answer 23

debit Finished Goods Inventory $4,500 and credit Work in Process Inventory $4,500.

Question 24

At the end of an accounting period, a company using a job costing system calculates the cost of goods manufactured

Answer 24

the Work in Process Inventory account

Question 25

At the end of the year a company has a $1,200 debit balance in Manufacturing Overhead. If this amount is considered immaterial, the company will

Answer 25

make an adjusting entry by debiting Cost of Goods Sold for $1,200 and crediting Manufacturing Overhead for $1,200.

Question 26

For which of the following activities will direct labor hours and direct labor cost be an appropriate cost driver? Engineering changes, machine setups, painting, oil well drilling

Answer 26

Painting

Question 27

Which of the following statements is false concerning the use of ABC in service industries? - In most service industries, a large portion of overhead costs are company-wide costs. - When using ABC for service industries, special methods must be used to identify cost pools and cost drivers due to the unique nature of the services offered. - The notion regarding eliminating as many non-value-added activities as possible applies equally to manufacturers and service providers. - All of the statements are true concerning the use of ABC in service industries.

Answer 27

FALSE: When using ABC for service industries, special methods must be used to identify cost pools and cost drivers due to the unique nature of the services offered.

Question 28

Fixed costs are costs that remain the same in total...

Answer 28

regardless of changes in the activity level (“Fixed Cost”).

Question 29

Which of the following is likely to contain a linear relationship between costs and activities?

Answer 29

Relevant range.

Question 30

Mixed costs change ...

Answer 30

Mixed costs change in total but not proportionately with changes in the activity level (“Mixed Costs”).

Question 31

Delivery costs at Hernandez, Inc. appear below for specific months of operations: Month Amount Units Produced March $20,000 16,000 April $18,000 12,000 Which type of cost are delivery costs at Hernandez?

Answer 31

Fixed costs have the same total costs at all activity levels, so this rules out fixed costs. Variable costs have the same cost per unit no matter how many units. The cost per unit at each activity level is: ``` $20,000/16,000 = $1.25 $18,000/12,000 = $1.50 ``` Since the cost per unit differs at the two activity levels, it cannot be variable, so it must be mixed.

Question 32

Winston Company’s high and low level of activity last year was 60,000 units produced in April and 20,000 units produced in December. Machine maintenance costs were $52,000 in April and $20,000 in December. Using the high-low method, estimated total maintenance cost for a month in which 40,000 units will be produced is

Answer 32

Variable cost per unit ($.80) = change in total costs ($52,000 - $20,000) / high minus low activity level (60,000 – 20,000). Fixed cost element = total cost at high level ($52,000) – variable cost at high level ($48,000 =$.80 x 60,000 units) = $4,000. Maintenance costs are therefore $4,000 fixed cost per month + $.80 variable cost per unit, and at 40,000 units, the maintenance costs = $4,000 fixed cost per month + ($.80 x 40,000 units) = $36,000 (“High-Low Method”).

Question 33

Companies provide more detail about both specific variable and fixed cost items in ...

Answer 33

a detailed CVP income statement (“CVP Income Statement Revisited”).

Question 34

Cost-volume-profit analysis includes all of the following assumptions except: - costs can be classified accurately as either variable or fixed. - all units produced are sold. - changes in activity are the only factors that affect costs. - the behavior of costs is curvilinear throughout the relevant range.

Answer 34

the behavior of costs is curvilinear throughout the relevant range.

Question 35

Contribution margin ratio is computed by

Answer 35

dividing contribution margin per unit by unit selling price

Question 36

Unit Contribution Margin:

Answer 36

Unit selling price - unit variable costs

Question 37

Contribution margin ratio:

Answer 37

Unit contr margin/Unit selling price

Question 38

Breakeven point:

Answer 38

fixed costs/unit contribution margin(units) | fixed costs/contr margin ratio(dollars)

Question 39

Target net income:

Answer 39

(Fixed costs + target net income)/unit contribn margin

Question 40

Margin of safety:

Answer 40

Actual/Expected sales - breakeven sales (dollars) | Margin of safety (dollars)/Actual sales (ratio)

Question 41

Weighted average unit contribution margin:

Answer 41

(product 1 contr margin x sales mix %) + (product 2 contr margin x sales mix %)

Question 42

Weighted average contribution margin ratio:

Answer 42

(product 1 contr margin ratio x sales mix %) + (product 2 contr margin ratio x sales mix %)

Question 43

Contribution margin per unit of limited resource:

Answer 43

unit contribution margin/# of units of limited resource required for each product

Question 44

Operating Leverage:

Answer 44

contribution margin/net income