EXAM 061682RR COSTS AND DECISION MAKING

1. 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.
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
Using the high-low method of analysis, the estimated fixed cost per month for electricity is closest to which of the following?
A. $870.00
B. $1,290.00
C. $1,150.00
D. $1,306.50
2. A disadvantage of the high-low method of cost analysis is that
A. it relies totally on the judgment of the person performing the cost analysis.
B. it uses two extreme data points, which may not be representative of normal conditions.
C. it’s too time-consuming to apply.
D. it can’t be used when there are a very large number of observations.
3. 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 $153,000
Direct labor $110,500
Variable manufacturing overhead $204,000
Fixed manufacturing overhead
$255,000
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
A. $230,800.
B $0.
C. $190,800.
D. $170,000.
4. Murdoch Corporation has provided the following data concerning its only product:
Murdoch Product Data
Selling price $230 per unit
Current sales 39,100 units
Break-even sales 29,716 units
What is the margin of safety in dollars?
A. $6,834,680
B. $8,993,000
C. $2,158,320
D. $5,995,333
5. Purchase-order processing is an example of a/an _______ activity.
A. product-level
B. unit-level
C. organization-sustaining
D. batch-level
6. 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 $153,000
Direct labor $110,500
Variable manufacturing overhead $204,000
Fixed manufacturing overhead
$255,000
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.
A. $108,000 lower
B. $60,000 lower
C. $60,000 higher
D. $108,000 higher
7. 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.
8. 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.
Machine Hours
Electrical Cost
August 1,000 $1,620
September900 $1,510
October 1,500 $1,870
November 2,000 $1,950
December 1,300 $1,730
Using the high-low method of analysis, the estimated variable cost per machine hour for electricity is closest to which of the following?
A. $0.40
B. $0.98
C. $2.50
D. $1.68
9. Viren Corporation has provided the following data from its activity-based costing system:
Activity Cost Pool Total Cost Total Activity
Assembly $387,000 25,000 machine-hours
Processing orders $68,510 1,700 orders
Inspection $129,117 1,930 inspection-hours
The company makes 240 units of product T91H a year, requiring a total of 550 machine hours, 90 orders, and 40 inspection hours per year. The product’s direct materials cost is $16.98 per unit, and its direct labor cost is $12.09 per unit. According to the activity-based costing system, the average cost of product T91H is closest to _______ per unit.
A. $90.81
B. $29.07
C. $79.66
D. $75.70
10. 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 Rate
Size-related $0.94 per guest
Complexity-related $31.62 per tier
Order-related $55.70 per order
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.
the measure of complexity is the number of tiers in the cake.
The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.)
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:
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
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?
A. $29.92
B. $338.64
C. $55.79
D. $279.87
11. Which statement is true for a company that uses variable costing?
A. Any underapplied overhead is included in the product cost.
B. The unit product cost changes because of changes in the number of units manufactured.
C. Profit fluctuates with sales.
D. Product costs include variable administration costs.
12. A cost driver is
A. a factor that causes variations in a cost.
B. a fixed cost that can’t be avoided.
C. the largest single category of cost in a company.
D. an indirect cost that’s essential to the business.
13. 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. $50,000.
B. $87,500.
C. $75,000.
D. $100,000.
14. An increase in the activity level within the relevant range results in a/an
A. decrease in fixed cost per unit.
B. proportionate increase in total fixed costs.
C. increase in fixed cost per unit.
D. unchanged fixed cost per unit.
15. 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. $2,800
B. $49,300
C. $54,900
D. $52,100
16. Slosh Cleaning Corporation services both residential and commercial customers. Slosh expects the following operating results next year for each type of customer:
Operating Results
Residential
Commercial
Sales $60,000 $140,000
Contribution margin ratio 50% 30%
Slosh expects to have $18,000 in fixed expenses next year. What would Slosh’s total dollar sales have to be next year to generate a profit of $90,000?
A. $270,000
B. $250,000
C. $300,000
D. $216,000
17. 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.
Sales volume (units)
4,000 5,000
Cost of sales $338,000 $422,500
Selling and administrative costs $89,600 $106,000
The best estimate of the total variable cost per unit is
A. $105.70.
B. $106.90.
C. $84.50.
D. $100.90.
18. 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
19. 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 Rate
Size-related $0.94 per guest
Complexity-related $31.62 per tier
Order-related $55.70 per order
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.
The measure of complexity is the number of tiers in the cake.
The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.)
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:
Pyburn Wedding Smith Wedding
Number of reception guests 72 189
Number of tiers on the cake 4 5Cost of purchased decorations for cake $29.92 $68.75
Assuming that the company charges $556.96 for the Smith wedding cake, what would be the overall margin on the order?
A. $165.41
B. $460.30
C. $96.66
D. $152.45
20. 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 Rate
Size-related $0.94 per guest
Complexity-related $31.62 per tier
Order-related $55.70 per order
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.
The measure of complexity is the number of tiers in the cake.
The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.)
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:
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
Suppose the company decides that the present activity-based costing system is too complex and that all costs (except for the costs of purchased decorations) should be allocated on the basis of the number of guests. In that event, what would you expect to happen to the costs of cakes?
A. The costs of all cakes would go up.
B. The costs of all cakes would go down.
C. The cost of cakes for receptions with fewer than the average number of guests would go down.
D. The cost of cakes for receptions with more than the average number of guests would go down.
21. 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.
Sales volume (units)
4,000
5,000
Cost of sales $338,000 $422,500
Selling and administrative costs $89,600 $106,000
The best estimate of the total contribution margin when 4,300 units are sold is
A. $43,430.
B. $64,070.
C. $38,270.
D. $134,590.
22. 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 $153,000
Direct labor $110,500
Variable manufacturing overhead $204,000
Fixed manufacturing overhead $255,000
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.
The contribution margin per unit was
A. $32.50.
B. $25.70.
C. $17.50.
D. $27.30.
23. 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 $153,000
Direct labor $110,500
Variable manufacturing overhead $204,000
Fixed manufacturing overhead $255,000
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
A. $190,800.
B. $0.
C. $170,000.
D. $230,800.
24. 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 Costs
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 unitsold
What was Indiana Corporation’s net operating income for the year using variable costing?
A. $271,000
B. $281,000
C. $181,000
D. $371,000
25. 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 $4,320
Bear 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. Can’t be determined
B. $4,100
C. $9,900
D. $7,700
26. At a break-even point of 400 units sold, variable expenses were $4,000, and fixed expenses were $2,000. What will the 401st unit sold contribute to profit?
A. $15
B. $10
C. $5
D. $0
27. 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. $180,000
B. $187,500
C. $200,000
D. $225,500
28. Daniele Corporation uses an activity-based costing system with the following three activity cost pools:
Activity Cost Pool Total Activity
Fabrication 50,000 machine-hours
Order processing 500 orders
Other not applicable
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:
Cost Data
Wages and salaries $280,000
Depreciation $200,000
Occupancy $140,000
Total $620,000
The distribution of resource consumption across activity cost pools is given below:
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%
The activity rate for the Fabrication activity cost pool is closest to _______ per machine hour.
A. $4.44

B. $3.72

C. $1.24

D. $7.44

29. 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.
Sales volume (units)
4,000 5,000
Cost of sales $338,000 $422,500
Selling and administrative costs $89,600 $106,000
The best estimate of the total monthly fixed cost is

A. $528,500.

B. $478,050.

C. $24,000.

D. $427,600.

30. Which of the following is true regarding the contribution margin ratio of a single-product company?
A. 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.
B. The contribution margin ratio increases as the number of units sold increases.

C. The contribution margin ratio multiplied by the variable expense per unit equals the contribution margin per unit.
D. As fixed expenses decrease, the contribution margin ratio increases.