ACCT 1201 Chapter 5: Accounting for Merchandising Operations
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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
Solve the following QS and Exercises from your textbook in chapter 8.
QS 8-1
Internal control objectives
An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal control system.
____ | 1. | Separation of recordkeeping for assets from the custody over assets is intended to reduce theft and fraud. |
____ | 2. | The primary objective of internal control procedures is to safeguard the business against theft from government agencies. |
____ | 3. | The main objective of internal control procedures is best accomplished by designing an operational system with managerial policies that protect the assets from waste, fraud, and theft. |
____ | 4. | Separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to herself or himself. |
QS 8-2
Cash and equivalents
Choose from the following list of terms/phrases to best complete the following statements.
a. | Cash |
b. | Cash equivalents |
c. | Outstanding check |
d. | Liquidity |
e. | Bank reconciliation |
f. | Current assets |
____ | 1. | The category includes currency and coins along with amounts on deposit in bank accounts, checking accounts, and savings accounts. |
____ | 2. | The term __________ refers to a companyâs ability to pay for its near-term obligations |
____ | 3. | The __________ category includes short-term highly liquid investment assets that are readily convertible to a known cash amount and sufficiently close to their due dates so that their market value is not sensitive to interest rate changes. |
QS 8-3
Internal control for cash
A good system of internal control for cash provides adequate procedures for protecting both cash receipts and cash disbursements. Identify each of the following statements as either true or false regarding this protection.
____ | a. | A basic guideline for safeguarding cash is that all cash receipts be deposited weekly or monthly. |
____ | b. | A voucher system of control is a control system exclusively for cash receipts. |
____ | c. | A basic guideline for safeguarding cash is to separate the duties of those who have custody of cash from those who keep cash records. |
____ | d. | A petty cash system is not a control procedure for safeguarding cash. |
QS 8-4
Petty cash accounting
1. | The petty cash fund of the Brooks Agency is established at $150. At the end of the current period, the fund contained $28 and had the following receipts: film rentals, $24; refreshments for meetings, $46 (both expenditures to be classified as Entertainment Expense); postage, $30; and printing, $22. Prepare journal entries to record (a) establishment of the fund and (b) reimbursement of the fund at the end of the current period. |
2. | Identify the two events from the following that cause a Petty Cash account to be credited in a journal entry. |
____ | a. | Fund amount is being reduced | |
____ | b. | Fund amount is being increased | |
____ | c. | Fund is being eliminated | |
____ | d. | Fund is being established |
Exercise 8-13A
Documents in a voucher system
Match each document in a voucher system in column one with its description in column two.
Document
1. | Purchase requisition |
2. | Purchase order |
3. | Invoice |
4. | Receiving report |
5. | Invoice approval |
6. | Voucher |
Description
____ | A. | An itemized statement of goods prepared by the vendor listing the customerâs name, items sold, sales prices, and terms of sale. |
____ | B. | An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded. |
____ | B. | An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded. |
____ | C. | A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms. |
____ | D. | A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization. |
____ | E. | A document used by department managers to inform the purchasing department to place an order with a vendor. |
____ | F. | A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods. |
Exercise 8-14B
Record invoices at gross or net amounts
Piere Imports uses the perpetual system in accounting for merchandise inventory and had the following transactions during the month of October. Prepare entries to record these transactions assuming that Piere Imports records invoices (a) at gross amounts and (b) at net amounts.
Oct. | 2 | Purchased merchandise at a $3,000 price, invoice dated October 2, terms 2/10, n/30. |
10 | Received a $500 credit memorandum (at full invoice price) for the return of merchandise that it purchased on October 2. | |
17 | Purchased merchandise at a $5,400 price, invoice dated October 17, terms 2/10, n/30. | |
27 | Paid for the merchandise purchased on October 17, less the discount. | |
31Paid for the merchandise purchased on October 2. Payment was delayed because the invoice was mistakenly filed for payment today. This error caused the discount to be lost. Please provide all the answer thank you |