ACTG 2P12 Lecture 3: Managerial ACTG Chapter 8
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1) All of the following are examples of product costs except:
depreciation on the company's administrative offices.
salary of the plant manager.
insurance on the factory equipment.
rental costs of the factory facility.
2) Period costs:
are treated as expenses in the period they are incurred
are directly traceable to products
include direct labor
are also referred to as manufacturing overhead costs
.
3) Axle and Wheel Manufacturing currently produces 1,000 axles per month. The following per unit data apply for sales to regular customers:
Direct materials $30
Direct manufacturing labor 5
Variable manufacturing overhead 10
Fixed manufacturing overhead 40
Total manufacturing costs $85
The plant has capacity for 2,000 axles and is considering expanding production to 1,500 axles. What is the total cost of producing 1,500 axles?
a. $85,000
b. $170,000
c. $107,500
d. $102,500
4) In the preparation of the schedule of Cost of Goods Manufactured, the accountant incorrectly included as part of manufacturing overhead the rental expense on the firm's retail facilities. This inclusion would:
overstate period expenses on the income statement.
overstate the cost of goods sold on the income statement.
understate the cost of goods manufactured.
have no effect on the cost of goods manufactured.
5) In CVP analysis, focusing on target net income rather than operating income:
a. will increase the breakeven point
b. will decrease the breakeven point
c. will not change the breakeven point
d. does not allow calculation of breakeven point
6) A variable cost is constant if expressed on a per unit basis but the total dollar amount changes as the number of units increases or decreases.
a. True
b. False
7) As activity increases within the relevant range, fixed costs remain constant on a per unit basis.
a. True
b. False
8) Which of the following statements is correct with regard to a CVP graph?
A CVP graph shows the maximum possible profit.
A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line.
A CVP graph assumes that total expense varies in direct proportion to unit sales.
A CVP graph shows the operating leverage as the gap between total sales revenue and total expense at the actual level of sales.
9) How would the following costs be classified (product or period) under variable costing at a retail clothing store?
Cost of purchasing clothing | Sales commissions | |
a. | Product | Product |
b. | Product | Period |
c. | Period | Product |
d. | Period | Period |
10) The principal difference between variable costing and absorption costing centers on:
whether variable manufacturing costs should be included as product costs.
whether fixed manufacturing costs should be included as product costs.
whether fixed manufacturing costs and fixed selling and administrative costs should be included as product costs.
none of these.
11) Joe has a hot dog cart that he parks on the NY sidewalk and sells hotdogs during the day. The variable cost of a hot dog is $.90. The selling price of the hot dog is $2.00. The fixed cost is $3,000 per month which covers the loan for the cart and the salary Joe needs to make to live. How many hotdogs must Joe sell in one month in order to break even?
3,300 hot dogs
3,000 hot dogs
2,727.27 hot dogs
2,728 hot dogs
12) Shun Corporation manufactures and sells a hand held calculator. The following information relates to Shun's operations for last year:
Unit product cost under variable costing.......................... | $5.20 per unit | |
Fixed manufacturing overhead cost for the year.............. | $260,000 | |
Fixed selling and administrative cost for the year............ | $180,000 | |
Units (calculators) produced and sold.............................. | 400,000 |
What is Shun's unit product cost under absorption costing for last year?
$4.10
$4.55
$5.85
$6.30.
Use the following information to answer questions 13 to 15:
Barnett Company uses the weighted-average method in its process costing system. The company adds materials at the beginning of the process in Department M. Conversion costs were 75% complete with respect to the 4,000 units in work in process at May 1 and 50% complete with respect to the 6,000 units in work in process at May 31. During May, 14,000 units were started, 12,000 units were completed and transferred to the next department.
13) Calculate the number of equivalent units for materials.
10,000 units
12,000 units
14,000 units
15,000 units
18,000 units
14) Calculate the number of equivalent units for conversion?
10,000 units
12,000 units
14,000 units
15,000 units
18,000 units
15) An analysis of the costs relating to work in process at May 1 and to production activity for May follows:
Materials | Conversion | ||
Work in process 5/1....................... | $13,800 | $3,740 | |
Costs added during May................ | $42,000 | $26,260 |
The total cost per equivalent unit for May was:
$5.02
$5.10
$5.12
$5.25
The Brown Bag company makes a two varieties of bags for itscustomers. The first is an organically created, Non-GMO, totallybiodegradable bag used at a large number of Whole Foods stores andvarious other high end groceries. The company sells these bags for$10.00 per hundred (1 unit). The second bag is a reusable bag thatsells for $5.00 each. The company currently uses a plant-wideallocation for factory overhead based upon machine hours, however,the company feels like there is something amiss since they believethe biodegradable bag should be its greatest profit center but theresults of the plant-wide allocation seem to be allocating in amanner not consistent with the true allocation. The company hashired your firm to give a budget, by product type, under both theplant-wide and activity based costing method and are seeking you toexplain the results and give any recommendations. They are seekinga budgeted income statement under both methods for bothproducts.
The direct materials for the Biodegradable bags is $1.50 perhundred/per unit (please note for the purposes of presentation andinternal books, the company considers 100 of these bags to be 1unit). The cost for materials for the reusable bag is $0.50 perunit. In addition, the direct labor for the biodegradable is $1.50per unit, whereas for the reusable it is a $1.00 per unit.
The company expects to sell 50,000 units of the biodegradableunits (5,000,000 individual bags) and 50,000 of the reusablebags.
The following information has been given regarding production,factory overhead.
Activity | Budgeted Overhead | Estimated Volume |
Material Handing/Processing | $240,000 | 60,000 Machine Hours |
Production Set-ups | $64,000 | 20 Set-ups |
Packing and Shipping | $44,000 | 100,000 shipments |
Activity | Bio-Degradable Bags (1 unit = 100 bags) | Reusable Bags | Overall Totals for the Company |
Material Handing/Processing | 50,000 Machine Hours | 10,000 machine Hours | 60,000 Machine Hours |
Production Set-ups | 5 Set-ups | 15 Set-ups | 20 Set-ups |
Packing and Shipping | 50,000 Shipments | 50,000 Shipments | 100,000 Shipments |
In addition, the company pays $0.25 sales commission per unitfor the biodegradable bags and $0.50 for the reusable bags. Last, the company has other general and administrativeexpenses, i.e. fixed expenses, in the amount of $40,000.
Please prepare the required income statements, analysis andexplanation. For the biodegradable bags, please give in units notper bag, for the reusable use per unit which equals one bag.
After you finished your budget, the company came and reportedthe following, they want you to do a comparison and determine thevariances and give any other items you view as important. An actualcontribution margin might be helpful.
The company sold 52,000 units of the bio-bags, and 55,000 unitsof the reusable bags at the expected sales price.
The overall labor costs for the bio-bag per unit was $1.55 andfor the reusable it was $0.90. For the direct materials, there wasa bio-material shortage, so the cost per unit of the bio-bag was$2.00, whereas plastic fibers went down and the cost was $0.45 perunit.
For the variable overhead above, the material handing wasactually $275,000, production and packing and shipping were thesame as budgeted.
Please prepare a variance report based upon the actual versusbudgeted on a flexible budget methodology.