1. Rank the following methods of assigning overhead costs from least accurate to most accurate.
A. Activity-based costing, departmental rates, plantwide rate
B. Plantwide rate, departmental rates, activity-based costing
C. Departmental rates, plantwide rate, activity-based costing
D. Plantwide rate, activity-based costing, departmental rates
2. Use the following information to answer this question.
Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000
units. Production costs for the year were as follows:
Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed
selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct
labor is a variable cost.
Under absorption costing, the carrying value on the balance sheet of the ending inventory for the year
would be
Production Cost Data
Direct materials $153,000
Direct labor $110,500
Variable manufacturing overhead $204,000
Fixed manufacturing overhead $255,000
A. $230,800.
B. $190,800.
C. $0.
D. $170,000.
3. Use the following information to answer this question.
Lifsey Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of the
company has provided the following data concerning the activity rates in its activity-based costing system:
Activity Cost Pools Activity Ratel The measure of activity for the size-related activity cost pool is the number of planned guests at the
wedding reception. The greater the number of guests, the larger the cake.
l The measure of complexity is the number of tiers in the cake.
l The activity measure for the order-related cost pool is the number of orders. (Each wedding involves
one order.)
l The activity rates include the costs of raw ingredients, such as flour, sugar, eggs, and shortening. The
activity rates don’t include the costs of purchased decorations, such as miniature statues and wedding
bells, which are accounted for separately.
Data concerning two recent orders are listed here:
Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down,
which amount would the company have to charge for the Pyburn wedding cake to just break even?
Size-related $0.94 per guest
Complexity-related $31.62 per tier
Order-related $55.70 per order
Pyburn
Wedding
Smith
Wedding
Number of reception guests 72 189
Number of tiers on the cake 4 5
Cost of purchased decorations for cake $29.92 $68.75
A. $338.64
B. $55.79
C. $29.92
D. $279.87
4. A cost driver is
A. a fixed cost that can’t be avoided.
B. an indirect cost that’s essential to the business.
C. the largest single category of cost in a company.
D. a factor that causes variations in a cost.
5. A company increased the selling price for its product from $5 to $6 per unit when total fixed expenses
increased from $100,000 to $200,000 and variable expense per unit remained unchanged. How would
these changes affect the break-even point?
A. The break-even point in units would increase.
B. The break-even point in units would decrease.
C. The break-even point in units would remain unchanged.
D. The effect can’t be determined from the information given.
6. Daniele Corporation uses an activity-based costing system with the following three activity cost pools:The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs.
The company has provided the following data concerning its costs:
The distribution of resource consumption across activity cost pools is given below:
The activity rate for the Fabrication activity cost pool is closest to _______ per machine hour.
Activity Cost Pool Total Activity
Fabrication 50,000 machine-hours
Order processing 500 orders
Other not applicable
Cost Data
Wages and salaries $280,000
Depreciation $200,000
Occupancy $140,000
Total $620,000
Activity Cost Pools
Fabrication
Order
Processing
Other Total
Wages and
salaries
60% 30% 10% 100%
Depreciation 20% 35% 45% 100%
Occupancy 10% 50% 40% 100%
A. $4.44
B. $1.24
C. $7.44
D. $3.72
7. Bear Publishing sells a nature guide. The following information was reported for a typical month (sales
volume is constant each month):
Total Per Unit
Sales $17,600 $16.00
Variable expenses $9,680 $8.80
Contribution margin $7,920 $7.20
Fixed expenses $3,600
Net operating income $4,320Bear is expecting a 20-cent increase in variable expenses. No other changes are expected or planned. How
much contribution margin should Bear expect after the increase?
A. $4,100
B. $7,700
C. Can’t be determined
D. $9,900
8. An increase in the activity level within the relevant range results in a/an
A. unchanged fixed cost per unit.
B. proportionate increase in total fixed costs.
C. decrease in fixed cost per unit.
D. increase in fixed cost per unit.
9. Purchase-order processing is an example of a/an _______ activity.
A. product-level
B. organization-sustaining
C. unit-level
D. batch-level
10. Use the following information to answer this question.
Callaham Corporation is a wholesaler that sells a single product. Management has provided the following
cost data for two levels of monthly sales volume. The company sells the product for $115.80 per unit.
The best estimate of the total monthly fixed cost is
Sales volume (units)
4,000 5,000
Cost of sales $338,000 $422,500
Selling and administrative costs $89,600 $106,000
A. $528,500.
B. $24,000.
C. $427,600.
D. $478,050.
11. Use the following information to answer this question.
Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000
units. Production costs for the year were as follows:
Production Cost Data
Direct materials $153,000Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed
selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct
labor is a variable cost.
The contribution margin per unit was
Direct labor $110,500
Variable manufacturing overhead $204,000
Fixed manufacturing overhead $255,000
A. $25.70.
B. $17.50.
C. $32.50.
D. $27.30.
12. Use the following information to answer this question.
Callaham Corporation is a wholesaler that sells a single product. Management has provided the following
cost data for two levels of monthly sales volume. The company sells the product for $115.80 per unit.
The best estimate of the total variable cost per unit is
Sales volume (units)
4,000 5,000
Cost of sales $338,000 $422,500
Selling and administrative costs $89,600 $106,000
A. $106.90.
B. $100.90.
C. $105.70.
D. $84.50.
13. Mardist Corporation has sales of $100,000, variable expenses of $75,000, fixed expenses of $30,000,
and a net loss of $5,000. How much would Mardist have to sell to achieve a profit of 10% of sales?
A. $187,500
B. $225,500
C. $180,000
D. $200,000
14. Which of the following is true regarding the contribution margin ratio of a single-product company?
A. The contribution margin ratio multiplied by the variable expense per unit equals the contribution margin per unit.
B. The contribution margin ratio increases as the number of units sold increases.
C. If sales increase, the dollar increase in net operating income can be computed by multiplying the contribution margin ratio by
the dollar increase in sales.
D. As fixed expenses decrease, the contribution margin ratio increases.15. Green Company’s variable expenses are 75% of sales. At a sales level of $400,000, the company’s
degree of operating leverage is 8. At this sales level, fixed expenses are
A. $100,000.
B. $75,000.
C. $87,500.
D. $50,000.
16. Use the following information to answer this question.
Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000
units. Production costs for the year were as follows:
Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed
selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct
labor is a variable cost.
Under variable costing, the company’s net operating income for the year would be _______ than under
absorption costing.
Production Cost Data
Direct materials $153,000
Direct labor $110,500
Variable manufacturing overhead $204,000
Fixed manufacturing overhead $255,000
A. $108,000 higher
B. $108,000 lower
C. $60,000 lower
D. $60,000 higher
17. Last year, Gransky Corporation’s variable costing net operating income was $52,100, and its ending
inventory increased by 400 units. Fixed manufacturing overhead cost was $7 per unit. What was the
absorption costing net operating income last year?
A. $54,900
B. $49,300
C. $2,800
D. $52,100
18. Indiana Corporation produces a single product that it sells for $9 per unit. During the first year of
operations, 100,000 units were produced, and 90,000 units were sold. Manufacturing costs and selling and
administrative expenses for the year were as follows:
Fixed Costs Variable CostsEnd of exam
What was Indiana Corporation’s net operating income for the year using variable costing?
Raw materials
$1.75 per unit
produced
Direct labor
$1.25 per unit
produced
Factory
overhead
$100,000
$0.50 per unit
produced
Selling and
administrative
$70,000
$0.60 per unit
sold
A. $271,000
B. $371,000
C. $181,000
D. $281,000
19. Use the following information to answer this question.
Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has
compiled the following data for the past five months of operations.
Using the high-low method of analysis, the estimated variable cost per machine hour for electricity is
closest to which of the following?
Machine
Hours
Electrical
Cost
August 1,000 $1,620
September 900 $1,510
October 1,500 $1,870
November 2,000 $1,950
December 1,300 $1,730
A. $0.40
B. $1.68
C. $2.50
D. $0.98
20. Which statement is true for a company that uses variable costing?
A. Product costs include variable administration costs.
B. Any underapplied overhead is included in the product cost.
C. Profit fluctuates with sales.
D. The unit product cost changes because of changes in the number of units manufactured.
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