ACC 100 Study Guide - Midterm Guide: Electricity Meter, Income Statement

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lavendermole636

25 Mar 2016

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Costs incurred to earn revenues are called expenses. The relaionship between revenues and expenses means that only when revenues and the associated expenses are matched properly on the income statement can net income be a meaningful measure of proitability. Matching principle: the revenues for the period are associated with the costs of generaing those revenues. Costs and expenses: companies incur a variety of costs: a new oice building is constructed; merchandise is purchased; employees perform services; the electric meter read. In each of these situaions the company incurs a cost, regardless of when it pays: merchandise can be sold to earn revenues. Once the merchandise is sold and revenues are earned, there is no longer any future beneit to that merchandise and its costs become expenses. Expenses can be matched directly with revenues. Other expenses are incurred to support the earning of revenues indirectly. Therefore, the commission can be matched directly with the sale.

Related Questions

	#1	Which of the following correctly describes fixed and variable cost behavior as total volume increases?
	A.	Unit fixed costs stay the same and unit variable costs increase.
	B.	Total fixed costs stay the same and total variable costs increase.
	C.	Unit fixed costs decrease and total variable costs decrease.
	D.	Unit fixed costs decrease and unit variable costs decrease.

	#2	The incremental profit generated by the sale of one additional unit is equal to the
	A.	contribution margin per unit.
	B.	selling price.
	C.	margin of safety.
	D.	incremental cost.

	#3	Clipper Office Furniture uses cost-plus pricing with a 40% mark-up on total cost at capacity. The company is currently selling 40,000 units at $19.60 per unit. Each unit has a variable cost of $9. In addition, the company incurs $200,000 in fixed costs annually. If demand falls to 32,000 units and the company wants to continue to earn a 40% return, what price should the company charge?
	A.	$15.25
	B.	$21.35
	C.	$19.60
	D.	$27.44

	#4	ABC company has $6.50 per unit in variable costs and $2.20 per unit in fixed costs at a volume of 40,000 units. If the company uses cost-plus 20% for pricing, which of the following should the company use to determine the price?
	A.	The company should use a unit cost of $8.70 per unit only at a volume of 40,000 units.
	B.	The company should use a unit cost of $8.70 at any volume level.
	C.	The company should use a unit price of $10.44 at any volume level.
	D.	The company should ignore fixed costs for cost-plus pricing.

	#5	Which of the following is a grouping of overhead costs whose total is allocated using one allocation base?
	A.	Cost objective
	B.	Cost pool
	C.	Direct cost
	D.	Cost driver

	#6	Which one of the following is the preferred alternative when deciding between two options?
	A.	Incremental profit is greater than under the other alternatives.
	B.	Revenues are greater than under the other alternatives.
	C.	Expenses are less than under the other alternatives.
	D.	No opportunity or sunk costs exist.

#7	The required rate of return used to calculate an investmentâs net present value is related to the firmâs
A.	contribution margin.
B.	cost of capital.
C.	total assets.
D.	Price/Earnings ratio.

#8	A company is trying to decide whether to keep or drop the organic foods department in its grocery store. If organic foods are dropped, the manager will be laid off. What is the manager's salary in relation to the decision to keep or drop the department?
A.	A variable cost and therefore relevant
B.	Avoidable and therefore incremental
C.	Sunk and therefore not relevant
D.	A fixed cost and therefore not relevant

#9	The following information relates to Ajax Widgets during the year. There was no beginning inventory.
	Units produced	11,000
	Units sold	10,000
	Units in ending inventory	1,000
	Fixed manufacturing overhead	$220,000
	How much fixed manufacturing overhead will be expensed during the year (included in Cost of Goods Sold) using full costing?
A.	$220,000
B.	$200,000
C.	$20,000
D.	$10,000

#10	If the required rate of return is greater than the internal rate of return of a potential investment, the company should judge the investment as acceptable.
A.	This is a True statement
B.	This is a False statement
C.	Not enough information provided.

#11	The basic concept involved in time value of money calculations is that
A.	it is better to receive a dollar in the future than to receive a dollar today
B.	incremental revenues must exceed incremental costs.
C.	it is better to receive a dollar today than to receive a dollar in the future.
D.	it can only be applied to positive cash flows

#12	Hanson Sports has three product lines: footballs, basketballs, and bats. Common costs are allocated based on relative sales. A product line income statement for the year ended December 31, 2016 follows:
		Footballs	Basketballs	Bats	Total
	Sales	$600,000	$800,000	$400,000	$1,800,000
	Cost of goods sold	260,000	400,000	230,000	890,000
	Gross margin	340,000	400,000	170,000	910,000
	Less other variable costs	85,000	120,000	80,000	285,000
	Contribution margin	255,000	280,000	90,000	625,000
	Less direct salaries	50,000	60,000	45,000	155,000
	Less common fixed costs	85,000	100,000	55,000	240,000
	Net income	$120,000	$120,000	-$10,000	$230,000

	Since the profit for bats is a net loss, the company is considering dropping this product line. What is the incremental $ effect on total net income of dropping the Bats line?


#13	Right Air Supply sells a specialized air filter that has a variable cost of $10 each.
	Fixed costs are estimated to be $700,000 across all levels of sales shown below.
	Units Sold	Unit Price	CM per unit x Qty	Fixed Costs	Profit
	90,000	$33		700,000
	100,000	$31		700,000
	110,000	$30		700,000
	120,000	$28		700,000
	Which price should Right Air Supply charge to maximize profits?


#14	Randolph Corporation sells a single product at a price of $275 per unit. Variable cost per unit is $135 and fixed costs total $356,860. If sales are expected to be $825,000, what is the companyâs margin of safety?


#15	Roger Excavating Company experienced the following costs in 2016:
	Direct materials	$1.75 per unit
	Direct labor	$2.00 per unit
	Variable manufacturing overhead	$2.50 per unit
	Variable selling	$0.75 per unit
	Fixed manufacturing overhead	$50,000
	Fixed selling	$15,000
	Fixed administrative	$5,000
	During 2016, the company manufactured 100,000 units and sold 80,000 units. If the average selling price per unit was $22.65, what is the amount of the companyâs contribution margin per unit?

sapphireeagle929

Bushman Case

The Bushman Company is a publicly traded corporation that produces different types of digital control systems. My name is Alan Smith and I have worked for this company for the last ten years in the controllerâs office. I was both an accounting and finance major in university. The company currently produces 300 products and does not anticipate any new products coming out over the next three years. I have previously mentioned to my superiors that it is not appropriate for our firm to use a traditional accounting system (where overhead costs are allocated across products at a rate of 400% of direct labor costs) when different products require different amounts of indirect overhead resources. For example, under the traditional system all costs associated with testing of products for quality assurance purposes are part of overhead costs and therefore allocated across products based on direct labor costs. Yet, some of our products require as much as 5 hours of testing whereas some products require less than 1 minute of testing with no connection to direct labor costs. Given that traditional costing systems result in significant cost distortions when determining products costs and given that the firm now has revenues of over $700,000,000 a year, Bushman has decided to adopt activity based costing over the next year or two.

Bushmanâs management has hired Deloitte Consulting to help us implement activity based costing. I will be acting as the liaison between our firm and Deloitte. As part of the initial implementation phase, I have asked Deloitte to derive the costs and product margins associated with two of our products, delta and vega, so that these costs and product margins could be compared with the costs and product margins under our current traditional accounting system. I picked these products since Bushman management believe they have very different demands on indirect overhead resources. Further, delta is sold in large quantities whereas vega is sold in small quantities and traditional accounting systems can cause large cost distortions in different directions for products sold in large and small quantities.

Current information from our existing system on a per unit basis is shown in Exhibit 1.

Exhibit 1

	delta	vega
Direct material	$10	$10
Direct labor hours	1	1
Direct labor wage rate per hour	$20	$20
Sales price per unit	$160	$170

My staff has identified for Deloitte five activity cost pools. Information on those cost pools and the related activity measures are provided in Exhibit 2.

Exhibit 2

Activity cost pool	Total costs	Activity measure	Activity level
Equipment setups	$20,000,000	number of setups	50,000
Purchase orders	$15,000,000	number of purchase orders	300,000
Machining	$90,000,000	number of machine hours	2,000,000
Testing	$13,300,000	number of testing hours	700,000
Packaging	$24,000,000	number of containers	2,000,000

Although fixed costs are lumped in with variable costs across the five different cost pools, I am aware that machining related costs consists almost exclusively of depreciation costs. Hence, with respect to all questions asked in this case, machining costs will be treated as entirely fixed with respect to machine hours. Each machine is used in the production of multiple product lines. The resale value of machines is only affected by the passage of time and not by how much they are used in a given year.

In all questions asked in this case, the firm will assume that costs associated with equipment setups, purchase orders, testing, and packaging are variable with respect to their respective activity measures. Currently, we believe our assumptions on cost behavior patterns are quite reasonable.

All products are produced in batches, where the size of a batch differs across products. For example, if we produce 80 units of a product in batch sizes of 40, then the product will be produced in two batches. An equipment setup must be performed before producing each batch of a product. Hence, in the example above, two equipment setups would be performed. Units of product are packaged in containers and sent to distributors.

Production volumes are set equal to sales volumes since the company only produces products that they have orders for. Consequently, the firm never has a beginning or ending work in process inventory, and it does not have a beginning or ending finished goods inventory.

Further information on our two products is provided in Exhibit 3

Exhibit 3

	delta	vega
annual sales and production in units	800,000	12,000
number of units per batch	200	150
number of purchase orders	400	100
number of machine hours per unit	0.2	3
total number of testing hours	7,000	21,000
total number of containers	5,000	2,000

REQUIRED:

1. (20 Points) Prepare an income statement for delta and an income statement for vega using the traditional accounting system where overhead is applied at a rate of 400% of direct labor costs. (For simplicity, there are no SG&A expenses for the firm.) The income statements should be prepared on a total basis and then show the average net operating income per unit using the following template for guidance:

delta vega

Sales $$$ $$$

Direct materials $$$ $$$

Direct labor $$$ $$$

Manufacturing overhead $$$ $$$

Total Costs $$$ $$$

Net operating income $$$ $$$

Average net operating income

per unit $$$ $$$

2. (20 Points) Calculate the five activity rates under activity based costing.

3. (35 Points) Prepare an income statement for delta and an income statement for vega using activity based costing. (For simplicity, there are no SG&A expenses for the firm.) The income statements should be prepared on a total basis and then show the average net operating income per unit using the following template for guidance:

delta vega

Sales $$$ $$$

Direct materials $$$ $$$

Direct labor $$$ $$$

Equipment Setups $$$ $$$

Purchase orders $$$ $$$

Machining $$$ $$$

Testing $$$ $$$

Packaging $$$ $$$

Total Costs $$$ $$$

Net operating income $$$ $$$

Average net operating income

per unit $$$ $$$

4. (10 Points) Assume next year that the activity rates remain the same as you calculated in question (2). Assume that the demand for delta is expected to increase significantly. Consequently, the firm expects to produce more batches of delta next year than this year and the firm plans to produce in batch sizes of 500 rather than 200. Calculate what the equipment setup cost per unit of delta will be next year if it can be calculated. If it cannot be calculated, then explain in words why the equipment setup cost per unit of delta cannot be determined in the absence of more information. Excluding your quantitative analysis if any, your explanation should not be more than 1/3 page double spaced with a 12 font size. Your grade will be lowered for poor writing (e.g., grammar).

5. (15 Points) Question 5 is independent of question 4. Next year, because of an expected increase in product demand, machine hours are expected to increase from 2,000,000 to 2,500,000. The company will not need any new machinery since the current machinery is highly underutilized. Also, the number of purchase orders will increase from 300,000 to 360,000. Assume that these new levels of operations are within the firmâs relevant range. Calculate what the activity rate for the cost pool of machining would be next year if it can be calculated. Also, calculate what the activity rate for the cost pool of purchase order would be next year if it can be calculated. If one or both rates cannot be calculated, then explain in words why the calculations cannot be determined in the absence of more information. Excluding any quantitative analysis, your explanation should not be more than 1/3 page double spaced with 12 font. Your grade will be lowered for poor writing (e.g., grammar).

peachhare129

1.A company had net cash flows fromoperations of $140,000, total cash flows of $600,000, and averagetotal assets of $2,400,000. The cash flow on total assets ratioequals(rounded): <?xml:namespace prefix = o ns ="urn:schemas-microsoft-com:office:office" />

A. 9.3%.

B. 17.1%.

C. 25.0%.

D. 4.3%.

E. 5.8%.

2. Use the following information and theindirect method to calculate the net cash provided or used byoperating activities:

Net income $12,800

Depreciation expense 11,600

Payment on mortgage payable 14,400

Gain on sale of land 7,900

Increase in merchandise inventory 2,100

Increase in accounts payable 6,500

Proceeds from sale of land 8,500

A. $35,300.

B. $12,400.

C. $20,900.

D. $7,900.

E. $40,900.

3. The statement of cash flows reports:

A. Assets,liabilities and equity

B. Revenues,gains, expenses and losses

C. Cashinflows and outflows for an accounting period

D. Equity,net income and dividends

E. Changes inequity

4. The statement of cash flows is:

A. Anothername for the statement of financial position

B. Afinancial statement that presents information about changes inequity during a period

C. Afinancial statement that reports the cash inflows and outflows foran accounting period and that classifies those cash flows asoperating activities, investing activities or financingactivities

D. Afinancial statement that lists the types and amounts of assets,liabilities and equity of a business on a specific date

E. A financialstatement that lists the types and amounts of the revenues andexpenses of a business for an accounting period

A company had a profit margin of 15%. Ifnet income equaled $44,000 and average total assets equaled$335,000, how much were net sales? (Rounded to the nearest wholedollar.)

A. $293,333

B. $6,600

C. $223

D. $50,250

E. $291,000

6. A company has sales of $2,418,422, agross profit ratio of 25%, a days' sales in inventory ratio of13.8, and total current assets of $535,600. What is the endinginventory for the year?

A. $69,006

B. $328,640

C. $68,577

D. $133,900

E. $38,812

7. Net income divided by average totalassets is equal to the:

A. Profitmargin

B. Totalasset turnover

C. Return ontotal assets

D. Days'income in assets

E. Currentratio

8. The three most common tools of financialanalysis are:

A. Financialreporting, ratio analysis, vertical analysis

B. Ratioanalysis, horizontal analysis, financial reporting

C. Horizontal analysis, vertical analysis, ratio analysis

D. Trendanalysis, financial reporting, ratio analysis

E. Verticalanalysis, political analysis, horizontal analysis

9. Financial statements with data for twoor more successive accounting periods placed in columns side byside, sometimes with changes shown in dollar amounts and percents,are referred to as:

A. Period-to-period statements

B. Controlling statements

C. Successive statements

D. Comparative statements

E. Serialstatements

10. A company produces work boots. Thecompany received and produced an order for 4,600 pairs of boots.The following information is available regarding this order.

Process time 5.6 days

Inspection time. 6.5 days

Move time 6.3 days

Wait time 9.6 days

What is this company's manufacturing cycleefficiency?

A. 28days

B. 7.0days

C. 23.21%

D. 20%

E. 22.5%

11. The following information is availablefor Talking Toys, Inc., for the current year:

Direct materials used $7,500

Goods in process, January 1 48,000

Goods in process, December 31 44,000

Total Factory overhead 6,200

Direct labor used 28,500

The total manufacturing costs incurredduring the year were:

A. $46,200.

B. $44,200.

C. $7,500.

D. $42,200.

E. $89,000.

12. Compute cost of goods manufactured forthis period given the following amounts.

Ending finished goods inventory $66,000

Cost of Goods Sold 54,000

Beginning finished goods inventory60,000

A. $72,000

B. $48,000

C. $60,000

D. $66,000

E. $180,000.

13. Which of the following is neverincluded in direct materials costs?

A. Invoicecosts of direct materials.

B. Outgoingdelivery charges.

C. Materialsstorage costs.

D. Materialshandling costs.

E. Insuranceon stored material.

14. Which of the following costs would notbe classified as factory overhead?

A. Propertytaxes on maintenance machinery.

B. Expiredinsurance on factory equipment.

C. Wages ofthe factory janitor.

D. Metaldoorknobs used on wood cabinets produced.

E. Small toolsused in production.

15.

The S&S Company's manufacturing costsfor August are: direct labor, $13,000; indirect labor, $8,100;direct materials, $14,400; taxes on raw materials and work inprocess, $800; heat, lights and power, $900; and insurance on plantand equipment, $400. S&S Company's factory overhead incurredfor August is:

A. $2,100.

B. $24,600.

C. $21,100.

D. $10,200.

E. $13,000

16. A company has an overhead applicationrate of 115% of direct labor costs. How much overhead would beallocated to a job if it required total labor costing $15,000?

A. $115,000

B. $2,250

C. $17,250

D. $230,000

E. $13,250

17. When factory payroll costs are recordedin a job cost accounting system:

A. FactoryPayroll is debited and Goods in Process is credited.

B. Goods inProcess Inventory and Factory Overhead are debited and FactoryPayroll is credited.

C. Cost ofGoods Manufactured is debited and Direct Labor is credited.

D. DirectLabor and Indirect Labor are debited and Factory Payroll iscredited.

E. Goods inProcess is debited and factory payroll is credited.

18. Job order costing systems normallyuse:

A. Periodicinventory systems.

B. Perpetualinventory systems.

C. Realinventory systems.

D. Generalinventory systems.

E. All of theabove.

19. A job order cost accounting systemwould best fit the needs of a company that makes:

A. Shoes andapparel.

B. Paint.

C. Cement.

D. Custommachinery.

E. Pencils anderasers.

20.

At the beginning of the recent period,there were 2,100 units of product in a department, 1/3 completed.These units were finished and an additional 9,000 units werestarted and completed during the period. 1,200 units were still inprocess at the end of the period, 1/4 completed. Using the FIFOvaluation method, the equivalent units produced by the departmentwere:

A. 16,500units.

B. 12,300units.

C. 11,100units.

D. 10,700units.

E. 10,900units.

21.

A department had 2,300 units which were 30%complete in beginning Goods in Process Inventory. During thecurrent period, 24,000 units were transferred out. Ending Goods inProcess Inventory was 2,500 units which were 30% complete. Usingthe FIFO method, what are the equivalent units produced if alldirect material and direct labor are added uniformly throughout theprocess?

A. 24,060

B. 23,970

C. 24,750

D. 26,360

E. 26,500

22. To compute an equivalent unit ofproduction, one must be able to reasonably estimate:

A. Thepercentage of completion.

B. Unitscompleted.

C. Unitsstarted and completed.

D. Directlabor cost.

E. Materialscost.

23. Which of the following five types ofproducts is least likely to be produced in a process manufacturingsystem?

A. Compactdisks.

B. Slacksfor casual wear.

C. Baseballhats.

D. Calculators.

E. Oilpaintings.

26. Ridley Company estimates that overheadcosts for the next year will be $6,870,000 for indirect labor and$450,000 for factory utilities. The company uses machine hours asits overhead allocation base. If 160,000 machine hours are plannedfor this next year, what is the company's plantwide overheadrate?

A. $.02186per machine hour.

B. $42.9375per machine hour.

C. $45.75per machine hour.

D. $2.8125per machine hour.

E. $.3555 permachine hour.

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ACC 100 Study Guide - Midterm Guide: Electricity Meter, Income Statement

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