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Homework answers / question archive / #15 … TRUE-FALSE STATEMENTS 1) Direct materials costs and indirect materials costs are considered “manufacturing overhead”

#15 … TRUE-FALSE STATEMENTS 1) Direct materials costs and indirect materials costs are considered “manufacturing overhead”

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#15 … TRUE-FALSE STATEMENTS

1) Direct materials costs and indirect materials costs are considered “manufacturing overhead”.

 

  1. All manufacturing costs that cannot be classified as direct materials or direct labor are classified as manufacturing overhead.

 

  1. The total cost of a finished product generally contains equal amounts of materials, labor, and overhead costs.

 

 

  1. Period costs include selling and administrative expenses.

 

  1. Period costs are not inventoriable costs.

 

  1. Product costs are also called inventoriable costs.

 

  1. Direct materials become a cost of the finished goods manufactured when they are acquired, not when they are used.

 

  1. The sum of the direct materials costs, direct labor costs, and beginning work in process is the total manufacturing costs for the year.

 

  1. In calculating gross profit for a mfg company, the cost of goods manufactured is deducted from net sales.

 

  1. The supply chain is all the activities associated with providing a product or service.

 

 

 

  1. The work of factory employees that can be physically and directly associated with converting raw materials into finished goods is
    1. manufacturing overhead.
    2. indirect materials.
    3. indirect labor.
    4. direct labor.

 

  1. Which one of the following would not be classified as manufacturing overhead?
    1. Indirect labor
    2. Direct materials
    3. Insurance on factory building
    4. Indirect materials

 

  1. Which one of the following is not a direct material?
    1. A tire used for a lawn mower
    2. Plastic used in the covered case for a home PC
    3. Steel used in the manufacturing of steel-radial tires
    4. Lubricant for a ball-bearing joint for a large crane

 

  1. Which one of the following is not a cost element in manufacturing a product?
    1. Manufacturing overhead
    2. Direct materials
    3. Office salaries
    4. Direct labor

 

  1. A manufacturing process requires small amounts of glue. The glue used is classified as a(n)
    1. period cost.
    2. indirect material.
    3. direct material.
    4. miscellaneous expense.

 

 

  1. Which of the following is not a manufacturing cost category?
    1. Cost of goods sold
    2. Direct materials
    3. Direct labor
    4. Manufacturing overhead

 

  1. For the work of factory employees to be considered as direct labor, the work must be conveniently and
    1. materially associated with raw materials conversion.
    2. periodically associated with raw materials conversion.
    3. physically associated with raw materials conversion.
    4. promptly associated with raw materials conversion.

 

  1. Which of the following is not classified as direct labor?
    1. Bottlers of beer in a brewery
    2. Copy machine operators at a copy shop
    3. Wages of supervisors
    4. Bakers in a bakery

 

  1. Which of the following are period costs?
    1. Raw materials
    2. Direct materials and direct labor
    3. Direct labor and manufacturing overhead
    4. Selling expenses

 

  1. Product costs consist of
    1. direct materials and direct labor only.
    2. direct materials, direct labor, and manufacturing overhead.
    3. selling and administrative expenses.
    4. period costs.

 

  1. For inventoriable costs to become expenses under the matching principle,
    1. the product must be finished and in stock.
    2. the product must be expensed based on its percentage-of-completion.
    3. the product to which they attach must be sold.
    4. all accounts payable must be settled.

 

  1. What is “balanced” in the balanced scorecard approach?
    1. The number of products produced
    2. The emphasis on financial and non-financial performance measurements
    3. The amount of costs allocated to products
    4. The number of defects found on each product

 

  1. Many companies now focus on reducing defects in finished products with the goal of zero defects. This is called
    1. Activity-based costing.
    2. Balanced scorecard.
    3. Value chain.
    4. Total quality management.

 

  1. Which one of the following is not considered as material costs?
    1. Partially completed motor engines for a motorcycle plant
    2. Bolts used in manufacturing the compressor of an engine
    3. Rivets for the wings of a new commercial jet aircraft
    4. Lumber used to build tables

 

  1. Samson Company reported total manufacturing costs of $300,000, manufacturing overhead totaling $52,000, and direct materials totaling $64,000.  How much is direct labor cost?
    1. Cannot be determined from the information provided.
    2. $416,000
    3. $416,000
    4. $184,000

 

 

  1. The major reporting standard for presenting managerial accounting information is
    1. relevance.
    2. generally accepted accounting principles.
    3. the cost principle.
    4. the current tax law.

 

  1. As inventoriable costs expire, they become
    1. selling expenses.
    2. gross profit.
    3. cost of goods sold.
    4. sales revenue.

 

  1. Kushman Combines, Inc. has $20,000 of ending finished goods inventory as of December 31, 2013. If beginning finished goods inventory was $10,000 and cost of goods sold was $50,000, how much would Kushman report for cost of goods manufactured?
    1. $70,000
    2. $10,000
    3. $60,000
    4. $40,000

 

  1. What term describes all business processes associated with providing a product or service?
    1. The manufacturing chain
    2. The product chain
    3. The supply chain
    4. The value chain

 

  1. The sum of the direct materials costs, direct labor costs, and manufacturing overhead incurred is the
    1. cost of goods manufactured.
    2. total manufacturing overhead.
    3. total manufacturing costs.
    4. total cost of work in process.

 

 

 

 

#16 … TRUE-FALSE STATEMENTS

  1. When raw materials are received, there is no effort at this point to associate the cost of materials with specific jobs.

 

  1. When raw materials are purchased, the Work in Process Inventory account is debited.

 

  1. Direct materials requisitioned from the storeroom should be charged to the Work In Process Inventory account and the job cost sheets for the individual jobs on which the materials were used. TRUE

 

  1. Actual manufacturing overhead costs are assigned to each job by tracing each overhead cost to a specific job.

 

  1. The formula for the predetermined overhead rate is estimated annual overhead costs divided by an expected annual operating activity.

 

  1. Finished Goods Inventory is charged for the cost of jobs completed during a period.

 

  1. Overapplied overhead means that actual manufacturing overhead costs were greater than the manufacturing overhead costs applied to jobs.

 

  1. A job order cost accounting system is appropriate for similar products that are continuously mass produced. 
  2. Accumulating and assigning manufacturing costs are two important activities in a job order cost system. 

 

  1. Overapplied overhead means that actual manufacturing overhead costs were greater than the manufacturing overhead costs applied to jobs. 

 

 

 

 

  1. In a job order cost accounting system, the Raw Materials Inventory account is
    1. an expense.
    2. a control account.
    3. not used.
    4. a period cost.

 

  1. When a job is completed and all costs have been accumulated on a job cost sheet, the journal entry that should be made is
    1. Finished Goods Inventory

Direct Materials

Direct Labor

Manufacturing Overhead

    1. Work In Process Inventory

Direct Materials

Direct Labor

Manufacturing Overhead

    1. Raw Materials Inventory

Work In Process Inventory

    1. Finished Goods Inventory

Work In Process Inventory

 

  1. Cost of raw materials is debited to Raw Materials Inventory when the
    1. materials are ordered.
    2. materials are received.
    3. materials are put into production.
    4. bill for the materials is paid.

 

  1. Which of the following is not a control account?
    1. Manufacturing Overhead
    2. Factory Labor
    3. Accounts Receivable
    4. Raw Materials Inventory

 

  1. The entry to record the acquisition of raw materials on account is
    1. (debit) Work in Process Inventory … (credit) Accounts Payable
    2. (debit) Manufacturing Overhead …   (credits) Raw Materials Inventory AND Accounts Payable
    3. (debit) Accounts Payable …………   (credit) Raw Materials Inventory
    4. (debit) Raw Materials Inventory …    (credit) Accounts Payable

 

  1. The following information is available for completed Job No. 402: Direct materials, $80,000; direct labor, $120,000; manufacturing overhead applied, $60,000; units produced, 5,000 units; units sold, 4,000 units. The cost of the finished goods on hand from this job is
    1. $40,000.
    2. $260,000.
    3. $52,000.
    4. $208,000.

 

  1. A company expected its annual overhead costs to be $1,800,000 and direct labor costs to be $1,000,000. Actual overhead was $1,740,000, and actual labor costs totaled $1,100,000. How much is the company’s predetermined overhead rate to the nearest cent?
    1. $1.74
    2. $1.57
    3. $1.80
    4. $1.64

 

  1. Manufacturing overhead is applied to each job
    1. at the time when the overhead cost is incurred.
    2. by means of a predetermined overhead rate.
    3. at the end of the year when actual costs are known.
    4. only if the overhead costs can be directly traced to that job.

 

  1. The predetermined overhead rate is based on the relationship between
    1. estimated annual costs and actual activity.
    2. estimated annual costs and expected annual activity.
    3. actual monthly costs and actual annual activity.
    4. estimated monthly costs and actual monthly activity.

 

  1. Overhead application is recorded with a
    1. credit to Work in Process Inventory.
    2. credit to Manufacturing Overhead.         
    3. debit to Manufacturing Overhead.
    4. credit to job cost sheets.

 

  1. In a job order cost system, a credit to Manufacturing Overhead will be accompanied by a debit to
    1. Cost of Goods Manufactured.
    2. Finished Goods Inventory.
    3. Work in Process Inventory.
    4. Raw Materials Inventory.

 

  1. Jinnah Company applies overhead on the basis of 200% of direct labor cost. Job No. 501 is charged with $180,000 of direct materials costs and $240,000 of manufacturing overhead. The total manufacturing costs for Job No. 501 is
    1. $420,000.
    2. $660,000.
    3. $540,000.
    4. $600,000.

 

  1. Companies assign manufacturing overhead to work in process on an estimated basis through the use of a(n)
    1. actual overhead rate.
    2. estimated overhead rate.
    3. assigned overhead rate.
    4. predetermined overhead rate.

 

  1. Debits to Work in Process Inventory are accompanied by a credit to all but which one of the following accounts?
    1. Raw Materials Inventory
    2. Factory Labor
    3. Manufacturing Overhead
    4. Cost of Goods Sold

 

  1. A company assigned overhead to work in process. At year end, what does the amount of overapplied overhead mean?
    1. The overhead assigned to work in process is greater than the estimated overhead costs.
    2. The overhead assigned to work in process is less than the estimated overhead costs.
    3. The overhead assigned to work in process is less than the actual overhead.
    4. The overhead assigned to work in process is greater than the overhead incurred.

 

  1. The principal accounting record used in assigning costs to jobs is
    1. a job cost sheet.
    2. the cost of goods manufactured schedule.
    3. the Manufacturing Overhead control account.
    4. the stores ledger cards.

 

  1. The following information is available for completed Job No. 402: Direct materials, $120,000; direct labor, $180,000; manufacturing overhead applied, $90,000; units produced, 5,000 units; units sold, 4,000 units. The cost of the finished goods on hand from this job is
    1. $60,000.
    2. $390,000.
    3. $78,000.
    4. $312,000.

 

  1. A company expected its annual overhead costs to be $1,500,000 and direct labor costs to be $1,000,000. Actual overhead was $1,450,000, and actual labor costs totaled $1,100,000. How much is the company’s predetermined overhead rate to the nearest cent?
    1. $1.45
    2. $1.31
    3. $1.50
    4. $1.37

 

  1. Kinney Company applies overhead on the basis of 150% of direct labor cost. Job No. 176 is charged with $150,000 of direct materials costs and $180,000 of manufacturing overhead.  The total manufacturing costs for Job No. 176 is
    1. $330,000.
    2. $600,000.
    3. $450,000.
    4. $405,000.

 

  1. If annual overhead costs are expected to be $750,000 and direct labor costs are expected to be $1,000,000, then if the activity base is direct labor costs:
    1. $1.33 is the predetermined overhead rate.
    2. for every dollar of manufacturing overhead, 75 cents of direct labor will be assigned.
    3. for every dollar of direct labor, 75 cents of manufacturing overhead will be assigned.
    4. a predetermined overhead rate cannot be determined.

 

 

 

 

#17 … TRUE-FALSE STATEMENTS

  1. A company that produces motion pictures would likely use a process cost system.

 

  1. In a process cost system, costs are tracked through a series of connected manufacturing processes or departments, rather than by individual jobs.

 

  1. Separate work in process accounts are maintained for each production department or manufacturing process in a process cost system.

 

  1. Equivalent units of production measure the work done during a period, expressed in fully completed units.

 

  1. Equivalent units of production is the sum of units completed and transferred out plus equivalent units of beginning work in process.

 

  1. When equivalent units of production are different for materials and conversion costs, unit costs are computed for materials, conversion, and total manufacturing. 

 

  1. In continuous process manufacturing, generally once the production begins, it continues until the finished product emerges.

 

  1. When there is no beginning work in process and materials are entered at the beginning of the process, equivalent units of materials are the same as the units started into production.

 

  1. The physical units in a department are another name for the equivalent units of production.

 

  1. The total manufacturing cost per unit is used in costing the units completed and transferred during the period.

 

  1. Production cost reports provide a basis for evaluating the productivity of a department.

 

 

 

 

 

 

  1. In a process cost system,
    1. a Work in Process account is maintained for each product.
    2. a materials requisition must identify the job on which the materials will be used.
    3. a Work in Process account is maintained for each process.
    4. one Work in Process account is maintained for all the processes, similar to a job order cost system.

 

  1. Which of the following manufacturing cost elements occurs in a process cost system?
    1. Direct materials.
    2. Direct labor.
    3. Manufacturing overhead.
    4. All of these.

 

  1. A primary driver of overhead costs in continuous manufacturing operations is:
    1. direct labor dollars.
    2. direct labor hours.
    3. machine hours.
    4. machine maintenance dollars.

 

  1. A process with no beginning work in process, completed and transferred out 95,000 units during a period and had 50,000 units in the ending work in process inventory that were 30% complete. The equivalent units of production for the period were:
    1. 95,000 equivalent units.
    2. 145,000 equivalent units.
    3. 110,000 equivalent units.
    4. 47,500 equivalent units.

 

  1. It is necessary to calculate equivalent units of production in a department because
    1. a physical count of units is impossible.
    2. some units worked on in the department are not fully complete.
    3. the physical units in the department are always 100% complete.
    4. at times a department may use a job order cost system and then switch to a process cost system.

 

  1. If beginning work in process is 4,000 units, ending work in process is 2,000 units, and the units accounted for equals 12,000 units, what must units started into production be?
    1. 16,000.
    2. 14,000.
    3. 8,000.
    4. 10,000.

 

  1. Conversion cost per unit equals $7.00. Total materials costs are $60,000. Equivalent units are 20,000. How much is the total manufacturing cost per unit?
    1. $10.00.
    2. $7.00.
    3. $4.00.
    4. $3.00.

 

  1. Honrad Company's Assembly Department has materials cost at $4 per unit and conversion cost at $8 per unit. There are 20,000 units in ending work in process, all of which are 70% complete as to conversion costs. How much are total costs to be assigned to inventory?
    1. $112,000.
    2. $192,000.
    3. $168,800.
    4. $240,000.

 

  1. 15,000 units in a process that are 70% complete are referred to as:
    1. 15,000 equivalent units of production.
    2. 4,500 equivalent units of production.
    3. 10,500 equivalent units of production.
    4. 4,500 equivalent units of production.

 

  1. Which of these best reflects a distinguishing factor between a job order cost system and a process cost system?
    1. The detail at which costs are calculated.
    2. The time period each covers.
    3. The number of work in process accounts.
    4. The manufacturing cost elements included.

 

  1. In a process cost system, product costs are summarized:
    1. on job cost sheets.
    2. on production cost reports.
    3. after each unit is produced.
    4. when the products are sold.

 

  1. 20,000 units in a process that are 70% complete are referred to as:
    1. 20,000 equivalent units of production.
    2. 6,000 equivalent units of production.
    3. 14,000 equivalent units of production.
    4. 34,000 equivalent units of production.

 

  1. Charley Company’s Assembly Department has materials cost at $2 per unit and conversion cost at $4 per unit. There are 20,000 units in ending work in process, all of which are 70% complete as to conversion costs and 100% complete as to materials. How much are total costs to be assigned to inventory?
    1. $56,000.
    2. $96,000.
    3. $84,000.
    4. $120,000.

 

  1. Conversion cost per unit equals $7.00. Total materials costs are $80,000. Equivalent units are 20,000. How much is the total manufacturing cost per unit?
    1. $11.00.
    2. $7.00.
    3. $4.00.
    4. $3.00.

 

  1. Conversion cost per unit equals $6. Total materials cost equal $90,000. Equivalent units for materials are 10,000. How much is the total manufacturing cost per unit?
    1. $15.
    2. $6.
    3. $12.
    4. $9.

 

 

 

# 18 … TRUE-FALSE STATEMENTS

  1. Current trends in manufacturing include more direct labor and less overhead.

 

  1. Activity-based costing allocates overhead to multiple cost pools and assigns the cost pools to products using cost drivers.

 

  1. A cost driver does not generally have a direct cause-effect relationship with the resources consumed.

 

  1. ABC eliminates all arbitrary cost allocations. 

 

 

  1. Any activity that increases the cost of producing a product is a value-added activity.

 

  1. Non-value-added activities increase the cost of a product but not its perceived value.

 

  1. The general approach to identifying activities, activity cost pools, and cost drivers is used by a service company in the same manner as a manufacturing company.

 

  1. Traditionally, overhead is allocated based on direct labor cost or direct labor hours. 

 

  1. A high degree of correlation between the cost driver and the actual consumption of the activity cost pool is essential for accuracy. 

 

  1. Low-volume products often require more special handling than high-volume products. 

 

 

 

 

  1. Which best describes the flow of overhead costs in an activity-based costing system?
    1. Overhead costs ? direct labor cost or hours ? products
    2. Overhead costs ? products
    3. Overhead costs ? activity cost pools ? cost drivers ? products
    4. Overhead costs ? machine hours ? products

 

  1. The costs that are easiest to trace directly to products are
    1. direct materials and direct labor.
    2. direct labor and overhead.
    3. direct materials and overhead.
    4. none of the above; all three costs are equally easy to trace to the product.

 

  1. A well-designed activity-based costing system starts with
    1. identifying the activity-cost pools.
    2. computing the activity-based overhead rate.
    3. assigning overhead costs to products.
    4. analyzing the activities performed to manufacture a product.

 

  1. An activity-based overhead rate is computed as follows:
    1. actual overhead divided by actual use of cost drivers.
    2. estimated overhead divided by actual use of cost drivers.
    3. actual overhead divided by estimated use of cost drivers.
    4. estimated overhead divided by estimated use of cost drivers.

 

  1. Use of activity-based costing will result in the development of
    1. one overhead rate based on direct labor hours.
    2. one plantwide activity-based overhead rate.
    3. multiple activity-based overhead rates.
    4. no overhead rates; overhead rates are not used in activity-based costing.

 

  1. To use activity-based costing, it is necessary to know the
    1. cost driver for each activity cost pool.
    2. expected use of cost drivers per activity.
    3. expected use of cost drivers per product.
    4. all of the above.

 

  1. Companies that switch to ABC often find they have been
    1. overpricing some products.
    2. possibly losing market share to competitors.
    3. been sacrificing profitability by underpricing some products.
    4. all of the above.

 

  1. The primary benefit of ABC is it provides
    1. better management decisions.
    2. enhanced control over overhead costs.
    3. more cost pools.
    4. more accurate product costing.

 

  1. Which of the following is a value-added activity?
    1. Inventory control
    2. Inspections
    3. Packaging
    4. Repair of machines

 

  1. Which of the following is a non-value-added activity?
    1. Inventory control
    2. Machining
    3. Assembly
    4. Painting

 

  1. Value-added activities
    1. increase the perceived worth of a product or service to customers.
    2. involve those activities that are essential to a company's operations.
    3. include engineering design, machining, and assembly.
    4. all of the above.

 

  1. Port Accounting performs two types of services, Audit and Tax. Port’s overhead costs consist of computer support, $240,000; and legal support, $120,000. Information on the two services is:                                

                                             Audit               Tax          

Direct labor cost          $50,000          $100,000

CPU minutes                 40,000              10,000

Legal hours used               200                   800

Overhead applied to tax services using traditional costing is

    1. $120,000.
    2. $144,000.
    3. $216,000.
    4. $240,000.

 

  1. Port Accounting performs two types of services, Audit and Tax. Port’s overhead costs consist of computer   

    support, $240,000; and legal support, $120,000. Information on the two services is:                            

                                             Audit                Tax         

Direct labor cost        $50,000          $100,000

CPU minutes              40,000                10,000

Legal hours used        200                         800

Port Accounting performs tax services for Cathy Kane. Direct labor cost is $1,200; 600 CPU minutes were used; and 1 legal hour was used. What is the total cost of the Kane job using activity-based costing?

    1. $2,880
    2. $3,000
    3. $4,080
    4. $4,200

 

  1. Predetermined overhead rates in traditional costing are often based on
    1. direct labor cost for job order costing and machine hours for process costing.
    2. machine hours for job order costing and direct labor cost for process costing.
    3. multiple bases for job order costing and direct labor cost for process costing.
    4. multiple bases for both job order costing and process costing.

 

  1. Ordering materials, setting up machines, assembling products, and inspecting products are examples of
    1. cost drivers.
    2. overhead cost pools.
    3. direct labor costs.
    4. nonmanufacturing activities.

 

  1. A well-designed activity-based costing system starts with
    1. identifying the activity-cost pools.
    2. computing the activity-based overhead rate.
    3. assigning overhead costs to products.
    4. analyzing the activities performed to manufacture a product.

 

  1. To use activity-based costing, it is necessary to know the
    1. cost driver for each activity cost pool.
    2. expected use of cost drivers per activity.
    3. expected use of cost drivers per product.
    4. all of the above.

 

  1. Assigning overhead using ABC will usually
    1. decrease the cost per unit for low volume products as compared to a traditional overhead allocation.
    2. increase the cost per unit for low volume products as compared to a traditional overhead allocation.
    3. provide less accurate cost per unit for low volume products than will traditional costing.
    4. result in the same cost per unit for low volume products as does traditional costing.

 

  1. For its inspecting cost pool, Ellsworth, Inc. expected overhead cost of $400,000 and 4,000 inspections. The actual overhead cost for that cost pool was $480,000 for 5,000 inspections. The activity-based overhead rate used to assign the costs of the inspecting cost pool to products is
    1. $80 per inspection.
    2. $96 per inspection.
    3. $100 per inspection.
    4. $120 per inspection.

 

  1. One of Stine Company’s activity cost pools is machine setups, with estimated overhead of $360,000. Stine produces sparklers (400 setups) and lighters (600 setups). How much of the machine setup cost pool should be assigned to sparklers?
    1. $360,000
    2. $144,000
    3. $180,000
    4. $216,000

 

 

 

 

#19 … TRUE-FALSE STATEMENTS

  1. If volume increases, all costs will increase.

 

  1. The relevant range of activity is the activity level where the firm will earn income.

 

  1. The high-low method is used in classifying a mixed cost into its variable and fixed elements.

 

  1. Contribution margin is the amount of revenues remaining after deducting cost of goods sold.

 

  1. Both variable and fixed costs are included in calculating the contribution margin.

 

  1. The break-even point is where total sales equal total variable costs.

 

  1. If the unit contribution margin is $1 and unit sales are 10,000 units above the break-even volume, then net

   income will be $10,000.

 

  1. The contribution margin ratio of 40% means that 60 cents of each sales dollar is available to cover fixed costs

    and to produce a profit.

 

  1. The margin of safety ratio is equal to the margin of safety in dollars divided by the actual or (expected) sales.

                                                                                                                                      

  1. If the activity index decreases, total variable costs will decrease proportionately.

 

  1. A mixed cost has both selling and administrative cost elements.

 

  1. The difference between the costs at the high and low levels of activity represents the fixed cost element of a    

          mixed cost. 

 

  1. Unit contribution margin is the amount that each unit sold contributes towards the recovery of fixed costs and to

   income.

 

 

 

  1. A variable cost is a cost that
    1. varies per unit at every level of activity.
    2. occurs at various times during the year.
    3. varies in total in proportion to changes in the level of activity.
    4. may or may not be incurred, depending on management's discretion.

 

  1. A cost which remains constant per unit at various levels of activity is a
    1. variable cost.
    2. fixed cost.
    3. mixed cost.
    4. manufacturing cost.

 

  1. Cost behavior analysis is a study of how a firm's costs
    1. relate to competitors' costs.
    2. relate to general price level changes.
    3. respond to changes in the level of business activity.
    4. respond to changes in the gross national product.

 

  1. If the activity level increases 10%, total variable costs will
    1. remain the same.
    2. increase by more than 10%.
    3. decrease by less than 10%.
    4. increase 10%.

 

  1. At the high level of activity in November, 7,000 machine hours were run and power costs were $16,000. In April,

   a month of low activity, 2,000 machine hours were run and power costs amounted to $8,000. Using the high-low    

   method, the estimated fixed cost element of power costs is

    1. $16,000.
    2. $8,000.
    3. $4,800.
    4. $11,200.

 

  1. Hollis Industries produces flash drives for computers, which it sells for $20 each. Each flash drive costs $12 of

   variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of 

   $1,000 for the month. How much is the contribution margin ratio?

    1. 30%
    2. 40%
    3. 60%
    4. 70%

 

  1. Contribution margin
    1. is always the same as gross profit margin.
    2. excludes variable selling costs from its calculation.
    3. is calculated by subtracting total manufacturing costs per unit from sales revenue per unit.
    4. equals sales revenue minus variable costs.

 

  1. Sales are $500,000 and variable costs are $350,000. What is the contribution margin ratio?
    1. 43%
    2. 30%
    3. 70%
    4. Cannot be determined because amounts are not expressed per unit.

 

  1. A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of

   $180,000. The number of units the company must sell to break even is

    1. 90,000 units.
    2. 36,000 units.
    3. 360,000 units.
    4. 60,000 units.

 

  1. The break-even point is where
    1. total sales equal total variable costs.
    2. contribution margin equals total fixed costs.
    3. total variable costs equal total fixed costs.
    4. total sales equal total fixed costs.

 

  1. Cunningham, Inc. sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $90,000.

    What sales are needed by Cunningham to break even?

    1. $120,000.
    2. $225,000.
    3. $270,000.
    4. $360,000.

 

  1. Stephanie, Inc. sells its product for $40. Variable costs are $18 per unit. Fixed costs are $16,000. They are

    considering the purchase of an automated machine that will result in a $2 reduction in unit variable costs and

    an increase of $5,000 in fixed costs. Which of the following is true about the break-even point in units?

    1. It will remain unchanged.
    2. It will decrease.
    3. It will increase.
    4. It cannot be determined from the information provided.

 

  1. The amount by which actual or expected sales exceeds break-even sales is referred to as
    1. contribution margin.
    2. unanticipated profit.
    3. margin of safety.
    4. target net income.

 

  1. Contribution margin is
    1. the amount of revenue remaining after deducting fixed costs.
    2. available to cover fixed costs and contribute to income for the company.
    3. sales less fixed costs.
    4. unit selling price less unit fixed costs.

 

  1. A fixed cost is a cost which
    1. varies in total with changes in the level of activity.
    2. remains constant per unit with changes in the level of activity.
    3. varies inversely in total with changes in the level of activity.
    4. remains constant in total with changes in the level of activity.

 

  1. Firms operating at 100% capacity
    1. are common.
    2. are the exception rather than the rule.
    3. have no fixed costs.
    4. have no variable costs.

 

  1. In CVP analysis, the term "cost"
    1. includes only manufacturing costs.
    2. means cost of goods sold.
    3. includes manufacturing costs plus selling and administrative expenses.
    4. excludes all fixed manufacturing costs.

 

  1. At the break-even point of 2,000 units, variable costs are $165,000, and fixed costs are $96,000. How much is the selling price per unit?
    1. $130.50
    2. $34.50
    3. $48.00
    4. Not enough information

 

  1. A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $240,000. The number of units the company must sell to break even is
    1. 120,000 units.
    2. 48,000 units.
    3. 480,000 units.
    4. 80,000 units.

 

  1. Fixed costs are $900,000 and the variable costs are 75% of the unit selling price. What is the break-even point in dollars?
    1. $2,100,000
    2. $2,700,000
    3. $3,600,000
    4. $1,200,000

 

  1. The amount by which actual or expected sales exceeds break-even sales is referred to as
    1. contribution margin.
    2. unanticipated profit.
    3. margin of safety.
    4. target net income.

 

 

 

 

 

#20 … TRUE-FALSE STATEMENTS

  1. Net income can be increased or decreased by changing the sales mix.

 

  1. If a company has limited machine hours available for production, it is generally more profitable to produce and

sell the product with the highest contribution margin per machine hour.

 

  1. According to the theory of constraints, a company must identify its constraints and find ways to reduce or

eliminate them.

 

  1. Cost structure refers to the relative proportion of product versus period costs that a company incurs.

 

  1. Variable costing is the approach used for external reporting under generally accepted accounting principles.

 

  1. The difference between absorption costing and variable costing is the treatment of fixed manufacturing

 overhead. 

 

  1. Manufacturing cost per unit will be higher under variable costing than under absorption costing.

 

  1. When absorption costing is used for external reporting, variable costing can still be used for internal reporting

purposes.

 

  1. Sales mix is a measure of the percentage increase in sales from period to period. 

 

  1. If a company has limited machine hours available for production, it is generally more profitable to produce and sell the product with the highest contribution margin per machine hour. 

 

  1. Cost structure refers to the relative proportion of fixed versus variable costs that a company incurs. 

 

 

 

 

  1. If contribution margin is $140,000, sales is $300,000, and net income is $40,000, then variable and fixed expenses are

                        Variable    Fixed

    1. $160,000           $260,000
    2. $160,000           $100,000
    3. $100,000           $160,000
    4. $440,000           $260,000

 

  1. In a CVP income statement, a selling expense is generally
    1. completely a variable cost.
    2. completely a fixed cost.
    3. neither a variable cost nor a fixed cost.
    4. partly a variable cost and partly a fixed cost.

 

  1. A cost structure which relies more heavily on fixed costs makes the company
    1. more sensitive to changes in sales revenue.
    2. less sensitive to changes in sales revenue.
    3. either more or less sensitive to changes in sales revenue, depending on other factors.
    4. have a lower break-even point.

 

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