ADM 2341 Lecture Notes - Lecture 21: Accounting, Variable Cost
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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
Division Alpha can purchase a required part from an outside supplier at $35. Division Beta will supply the part at a transfer price of $38.50. Division Alpha's manager should
a. | tell his immediate supervisor that Division Beta is being unreasonable. | |
b. | negotiate an appropriate transfer price with the manager of Division Beta. | |
c. | pay the $38.50 price to Division Beta. | |
d. | buy from the outside supplier. |
The state of Illinois has passed a law requiring that every automobile be inspected at least once a year for pollution control. Anfang Enterprises is considering entering into this type of business. After extensive studies, Joseph Anfang has developed the following set of projected annual data on which to make his decision:
Direct service labor | $363,000.00 |
Variable service overhead costs | 270,000.00 |
Fixed service overhead costs | 280,000.00 |
Marketing expenses | 120,000.00 |
General and administrative expenses | 170,000.00 |
Minimum profit | 90,000.00 |
Cost of assets employed | 500,000.00 |
Anfang believes that his company will inspect 100,000 automobiles per year. The company earns an average of 18.75 percent return on its assets.
The price to be charged for inspecting each automobile using the time and materials pricing method would be calculated as follows:
a. | ($913,000.00 ÷ 100,000) + {($913,000.00 ÷ 100,000) ´ [($90,000 + $290,000) ÷ $913,000.00]} | |
b. | ($1,203,000.00 ÷ 100,000) + [($1,203,000.00 ÷ 100,000) ´ ($90,000 ÷ $1,203,000.00)] | |
c. | ($1,203,000.00 ÷ 100,000) + [($500,000 ÷ 100,000) ´ 0.1875] | |
d. | None of these |
An example of a pricing objective is to
a. | maintain a minimum rate of return. | |
b. | increase market share irrespective of the cost of a product. | |
c. | ignore long-term pricing strategies in favor of short-term profits. | |
d. | maintain a price that is always under that of the competition. |
Development of a transfer price involves
a. | direct upper management intervention if different transfer prices are determined by the selling division and the buying division. | |
b. | including only costs allocated from corporate levels when determining semi-finished product line costs. | |
c. | heavy reliance on industry averages. | |
d. | applying a target profit rate to the unit cost for the semi-finished product. |
Which of the following is not one of the three commonly used methods for determining transfer prices?
a. | Negotiated | |
b. | Cost-plus | |
c. | Market-based | |
d. | Dictated |
The primary difference between a cost-based transfer price and a market-based transfer price is
a. | the influence of an external source for the raw material or part. | |
b. | that the cost-based price will always be more advantageous to the company's overall profit. | |
c. | that the market-based price is usually lower. | |
d. | the appropriate profit factor. |
A pricing method based on product cost is
a. | cost of goods sold pricing. | |
b. | gross margin pricing. | |
c. | inventory pricing. | |
d. | net income pricing. |
The state of Illinois has passed a law requiring that every automobile be inspected at least once a year for pollution control. Anfang Enterprises is considering entering into this type of business. After extensive studies, Joseph Anfang has developed the following set of projected annual data on which to make his decision:
Direct service labor | $363,000.00 |
Variable service overhead costs | 270,000.00 |
Fixed service overhead costs | 280,000.00 |
Marketing expenses | 120,000.00 |
General and administrative expenses | 170,000.00 |
Minimum profit | 90,000.00 |
Cost of assets employed | 500,000.00 |
Anfang believes that his company will inspect 100,000 automobiles per year. The company earns an average of 18.75 percent return on its assets.
The price to be charged for inspecting each automobile using the gross margin pricing method would be calculated as follows:
a. | ($1,203,000.00 ÷ 100,000) + [($1,203,000.00 ÷ 100,000) ´ ($90,000 ÷ $1,203,000.00)] | |
b. | ($1,203,000.00 ÷ 100,000) + [($500,000 ÷ 100,000) ´ 0.1875] | |
c. | ($913,000.00 ÷ 100,000) + {($913,000.00 ÷ 100,000) ´ [($90,000 + $290,000) ÷ $913,000.00]} | |
d. | None of these |
The state of Illinois has passed a law requiring that every automobile be inspected at least once a year for pollution control. Anfang Enterprises is considering entering into this type of business. After extensive studies, Joseph Anfang has developed the following set of projected annual data on which to make his decision:
Direct service labor | $363,000.00 |
Variable service overhead costs | 270,000.00 |
Fixed service overhead costs | 280,000.00 |
Marketing expenses | 120,000.00 |
General and administrative expenses | 170,000.00 |
Minimum profit | 90,000.00 |
Cost of assets employed | 500,000.00 |
Anfang believes that his company will inspect 100,000 automobiles per year. The company earns an average of 18.75 percent return on its assets.
The price to be charged for inspecting each automobile using the return on assets pricing method would be calculated as follows:
a. | ($913,000.00 ÷ 100,000) + {($913,000.00 ÷ 100,000) ´ [($90,000 + $290,000) ÷ $913,000.00]} | |
b. | ($1,203,000.00 ÷ 100,000) + [($1,203,000.00 ÷ 100,000) ´ ($90,000 ÷ $1,203,000.00)] | |
c. | ($1,203,000.00 ÷ 100,000) + [($500,000 ÷ 100,000) ´ 0.1875] | |
d. | None of these |
A common problem associated with transfer pricing occurs when
a. | managers do not agree with the transfer prices of the inputs provided to them or of the outputs of their own division. | |
b. | the gross margin pricing method is used to compute the price. | |
c. | a division sells its excess output to an external customer. | |
d. | a division purchases inputs for processing from an outside source at a price higher than the internal transfer price. |
Transfer pricing
a. | incorporates procedures that allow for ease in determining the amount of profit associated with each division of a decentralized company. | |
b. | is a concept readily accepted by managers of divisions, because it relies on concepts used in cost-based pricing methods. | |
c. | involves determining the cost and profit if the output of one division is transferred to another division of the same company. | |
d. | is not used by many companies because it is difficult to eliminate intercompany profits. |