1 ACCT* 2230 Practice Midterm Short Answer Questions 1. (4 marks) During the month of May, Bennett Manufacturing Company purchases $43,000 of raw materials. The manufacturing overhead totals $27,000 and the total manufacturing costs are $106,000. Assuming a beginning inventory of raw materials of $8,000 and an ending inventory of raw materials of $6,000, what must be the total cost for direct labour? 2. (2 marks) Last month, a manufacturing company had the following operating results: What was the cost of goods manufactured for the month? Beg. Finished Goods Inventory $74,000 End. Finished Goods Inventory $73,000 Sales $464,000 Gross Margin $52, (2 marks) Geneva Steel Corporation produces large sheets of heavy gauge steel. The company showed the following amounts relating to its production for the year just completed: Direct Materials Used in Production $110,000 Direct Labour Costs for the Year $55,000 Work in Process, Beginning $22,000 Finished Goods, Beginning $45,000 Cost of Goods Available for Sale $288,000 Cost of Goods Sold $238,000 Work in Process, Ending $16,000 What was the balance of the finished goods inventory at the end of the year?
2 4. (3 marks) Beaver Company used a predetermined overhead rate (POHR) last year of $2 per direct labour hour which is based on an estimate of 25,000 direct labour hours to be worked during the year. Actual costs and activity during the year were: Actual Manufacturing Overhead Cost Incurred $47,000 Actual Direct Labour Hours Worked $24,000 What was the under- or over-applied overhead last year? Be specific regarding over or under. 5. (5 marks) Sai Company uses a job order cost system and applies manufacturing overhead costs to jobs using a predetermined overhead rate based on a direct labour-hours (DLH). The following data were extracted from the company s accounting records for Year ESTIMATED ACTUAL Manufacturing Overhead Costs $50,000 $54,000 Direct Labour-Hours 20,000 hours 24,000 hours JOB #461 was completed during the year and the following costs had been incurred on that job: Direct Materials $4,000 Direct Labour $1,500 (at $5.00 per Direct Labour hour) Suppose JOB #461 contained 100 units. What is unit cost for JOB #461? HINT: First, find total manufacturing cost, and then unit cost.
3 6. (10 marks show your calculations) Monson Company has two products: G and P. The company uses activity-based costing (ABC) and has prepared the following analysis which is showing the estimated total overhead cost and expected activity for each of its three activity cost pools: ACTIVITY ESTIMATED EXPECTED ACTIVITY COST POOL COST PRODUCT G PRODUCT P TOTAL Activity 1 $30, Activity 2 $24, ,500 Activity 3 $80, ,600 4,000 The annual production and sales of Product G is 10,640 units. The annual product and sales of Product P is 26,600 units. a.) (2 marks) What is the activity rate under the activity-based costing system for Activity 2? b.) (4 marks) What is the overhead cost per unit of Product G under activity-based costing? c.) (4 marks) What is the overhead cost per unit of Product P under activity-based costing?
4 7. (5 marks Show your calculations) Reddy Company has the following cost formulas for overhead: COST COST FORMULA Indirect Materials $2,000 plus $0.40 per machine hour Maintenance $1,500 plus $0.60 per machine hour Machine Setup $0.3 per machine hour Utilities $200 plus $0.10 per machine hour Amortization $800 Based on these cost formulas, what is the expected total overhead cost at 600 machine hours? 8. (8 marks show your calculations) Average maintenance costs are $1.50 per machine hour at an activity level of 8,000 machine hours and $1.20 per machine hour at an activity level of 13,000 machine hours. Assuming that this activity is within the relevant range, what would be the total expected maintenance cost for a budget activity level of 10,000 machine hours? HINT: Using high-low method, calculate unit variable cost and total fixed cost to answer this question.
5 9. (10 marks Show your calculations) The following Alsatia Corporation s contribution format income statement for last month: Sales $1,400,000 Less: Variable Expenses $900,000 Contribution Margin $500,000 Less: Fixed Expenses $300,000 Operating Income $200,000 The company has no beginning or ending inventory and produced and sold 10,000 units during the month. a.) (1 mark) What is the company s contribution margin ratio? b.) (2 marks) what is the company s break-even in units? c.) (2 marks) If sales increase by 100 units, by how much should operating income increase? d.) (2 marks) How may units would the company have to sell to attain target operating income of $225,000? e.) (2 marks) What is the company s margin of safety in dollars? f.) (1 mark) What is the company s degree of operating leverage (DOL)?
6 1. Which of the following best describes the function of managerial accounting within an organization? A. It has its primary emphasis on the future. B. It is required by regulatory bodies such as the Ontario Securities Commission. C. It focuses on the organization as a whole, rather than on the organization s segments. D. It places more emphasis on precision of data than financial accounting does. 2. To what does the term differential cost refer? A. A difference in cost that results from selecting one alternative instead of another. B. The benefit forgone by selecting one alternative instead of another. C. A cost that does not entail any dollar outlay, but which is relevant to the decision-making process. D. A cost that continues to be incurred even through there is no activity. 3. Which of the following statements regarding variable cost is true? A. Variable cost increases on a per unit basis as the number of units produced increases. B. Variable cost remains constant on a per unit basis as the number of units produced increases. C. Variable cost remains the same in total as production increases. D. Variable cost decreases on a per unit basis as the number of units produced increases. 4. A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $2,700 and is paid at the beginning of the first year. 80% of the premium applies to manufacturing operations and 20% applies to selling and administrative activities. What amounts should be considered product costs and period costs respectively for the first year of coverage? PRODUCT COSTS PERIOD COSTS A $2,700 $0 B $2,160 $540 C $1,440 $360 D $720 $ You are given the following data for January. Which of the following is the cost of goods manufactured? A. $89,000 B. $78,000 C. $79,000 D. $80,000 Direct Materials $38,000 Direct Labour $24,000 Manufacturing Overhead $17,000 Beg. Work in Process Inventory $10,000 End. Work in Process inventory $11, Williams Company s direct labour cost is 25% of its conversion cost. If the manufacturing overhead cost for the last period is $45,000 and the direct materials cost is $25,000, what is the direct labour cost? A. $15,000 B. $60,000 C. $33,333 D. $20,000
7 7. The following data pertain to activity and utilities costs for two recent years: YEAR 1 YEAR 2 Activity Level in Units 10,000 6,000 Utilities Cost $12,000 $9,000 Using the high-low method, what is the cost formula for utilities? A. $1.20 per unit B. $1.50 per unit C. $3,000 plus $3.00 per unit D. $4,500 plus $0.75 per unit 8. Anaconda Mining Company shipped 9,000 tons of copper concentrate for $450,000 in March and 11,000 tons for $549,000 in April. Use the high-low method to estimate the shipping costs for 12,000 tons to be shipped in May. A. $548,780 B. $549,020 C. $549,000 D. $598, The following data pertain to activity and cost for two months: OCTOBER NOVEMBER Activity Level in Units 5,000 10,000 Variable Costs $10,000? Fixed Costs $30,000? Mixed Costs $20,000? TOTAL COSTS $60,000 $75,000 Assuming that these activity levels are within the relevant range, what were the mixed costs for November? A. $20,000 B. $25,000 C. $35,000 D. $40, What will result from an increase in the activity level within the relevant range? A. An increase in fixed cost per unit B. A proportionate increase in total fixed costs C. An unchanged fixed cost per unit D. A decrease in fixed cost per unit 11. Indirect costs, such as manufacturing overhead, are always fixed costs. A. True B. False 12. The following data pertain to last month s operations. What is the break-even point in dollars? A. $300,000 B. $240,000 C. $200,000 D. $160,000 Selling Price $30 per unit Variable Production Cost $15 per unit Fixed Production Cost $80,000 Variable Selling & Administrative Expenses $3 per unit Fixed Selling & Administrative Expenses $40,000
8 13. Last year, Black Company reported sales of $640,000, a contribution margin of $160,000 and an operating loss of $40,000. Based on this information, what was the break-even point? A. $640,000 B. $480,000 C. $800,000 D. $960, Carver Company produces a product that sells for $30. Variable manufacturing costs are $15 per unit. Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and administrative costs are $4 per unit. A selling commission of 10% of the selling price is paid to each unit sold. What is the contribution margin per unit? A. $3 B. $15 C. $8 D. $ If company A has a higher degree of operating leverage than company B, then which of the following statements is true? A. Company A has higher variable expenses B. Company A s profits are more sensitive to percentage changes in sales C. Company A is more profitable D. Company A is less risky 16. A product sells for $20 per unit and has a contribution margin ratio of 40%. Fixed expenses total $240,000 annually. How many units of the product must be sold to yield an operating income of $60,000? A. 37,500 units B. 40,000 units C. 65,000 units D. 30,000 units 17. Once the break-even point has been reached, increases in contribution margin will be reflected dollar for dollar in increased operating income. A. True B. False 18. Goodman Company has sales of 3,000 units at $80 per unit. Variable costs are 35% of the sales price. If total fixed costs are $66,000, what is the degree of operating leverage rounded to 2 decimal places? A 0.79 B 0.93 C 2.67 D Sweet Company applies overhead to jobs on the basis of 125% of direct labour cost. If JOB 107 shows $10,000 of manufacturing overhead applied, how much was the direct labour cost on the job? A. $8,000 B. $12,500 C. $11,250 D. $10,000
9 20. Carlo Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs. The company estimated manufacturing overhead at $255,000 for the year and direct labour hours at 100,000 hours. Actual manufacturing overhead costs incurred during the year totaled $270,000; actual direct labour hours were 105,000. What was the over-applied or under-applied overhead for the year? A. $2,250 over-applied B. $2,250 under-applied C. $15,000 over-applied D. $15,000 under-applied 21. The Watts Company uses predetermined overhead rates to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labour cost in Department A and on machine hours in Department B. At the beginning of the year, the company made the following estimates: DEPARTMENT A DEPARTMENT B Direct Labour Cost $30,000 $40,000 Manufacturing Overhead $60,000 $50,000 Direct Labour Hours 6,000 8,000 Machine Hours 2,000 10,000 What predetermined overhead rates would be used in Departments A and B, respectively? A. 50% and $8.00 B. 50% and $5.00 C. 110% and $15.00 D. 200% and $ What is a transaction driver? A. An event that causes a transaction to begin B. A measure of the amount of time required to perform an activity C. An even that causes a transaction to end D. A simple count of the number of times an activity occurs 23. Which of the following is a distinctive feature of an ABC system in comparison to a departmental overhead application system? A. It is two-stage allocation system B. It uses transactional drivers C. It must include at least one non-unit-level driver D. It uses duration drivers 24. Which of the following is NOT a limitation of activity-based costing? A. Maintaining an activity-based costing system is more costly than maintaining a traditional direct labour-based costing system. B. Changing form a traditional direct labour-based costing system to an activity-based costing system changes product margins and other key performance indicators used by managers. Such changes are often resisted by managers. C. In practice, most managers insist on fully allocating all costs to products, customers, and other costing objects in an activitybased costing system. This results in overstated costs. D. More accurate product costs may result in increasing the selling prices of some products. 25. Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct labour hours. A. True B. False
10 26. Selena Company has two products: A and B. The company uses activity-based costing. The estimated total cost and expected activity for each of the company s three activity cost pools are as follows: ACTIVITY COST POOL ESTIMATED COST EXPECTED ACTIVITY PRODUCT A PRODUCT B TOTAL Activity 1 $17, ,100 Activity 2 $12, Activity 3 $26, ,200 The activity rate under the activity-based costing system for Activity 3 is closed to which of the following? A. $18.53 B. $21.67 C. $46.33 D. $ Matt Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 8,000 units and of Product B is 6,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows: ACTIVITY COST POOL ESTIMATED COST EXPECTED ACTIVITY PRODUCT A PRODUCT B TOTAL Activity 1 $20, Activity 2 $37, ,000 Activity 3 $91, ,000 3,800 The cost per unit of Product A under activity-based costing is closest to which of the following? A. $2.40 B. $3.90 C. $6.60 D. $ Both financial and managerial accounting rely on the same underlying financial data but there are major differences. Managerial accounting: A. Emphasizes financial consequences of past activities B. Emphasizes precision C. Emphasizes relevance D. Mush follow GAAP 29. Micro Computer Company has set up a toll-free telephone lone for customer inquiries regarding computer hardware produced by the company. How would the cost of this toll-free line be classified? A. Product cost B. Manufacturing overhead C. Direct labour D. Period cost 30. What is the outcome if the cost of goods sold is greater than the cost of goods manufactured? A. Work-in-Process inventory has decreased during the period B. Finished goods inventory has increased during the period C. Total manufacturing costs much be greater than cost of goods manufactured D. Finished goods inventory has decreased during the period
11 31. How would the wages of factory maintenance personnel usually be classified? A. Direct labour and manufacturing overhead B. Indirect labour and manufacturing overhead C. Direct labour and period cost D. Indirect labour and period cost 32. Robert Smith earns $16 per hour assembling product. For each hour over 40 he works in a week, he is paid time-and-ahalf. During a given week, he worked 45 hours and had no idle time. How much of his weekly wages would be charged to the manufacturing overhead account? A. $80 B. $5 C. $40 D. $120