Units in Beginning Inventory 0 Units Produced

ACCT310 Exam 2 Spring 2007

Name: __________________________ Date: _____________

1. Mason Enterprises has prepared the following budget for the month of July:

Selling Variable Unitprice per unit cost per unit sales

Product A .............. $10.00 $4.00 15,000Product B............... $15.00 $8.00 20,000Product C............... $18.00 $9.00 5,000

Assuming that total fixed expenses will be $150,000 and the sales mix remains constant, thebreak-even point would be closest to:a) $276,008b) $235,292c) $294,545d) $141,278

Use the following to answer questions 2-3:

The following data were provided by Rider, Inc, which produces a single product:

Units in beginning inventory..................... 0Units produced .......................................... 5,000Units sold .................................................. 4,500

Variable costs per unit:Production .............................................. $10Selling and administrative...................... $4

Fixed costs, in total:Production .............................................. $15,000Selling and administrative...................... $10,000

2. Under absorption costing, the unit product cost is:a) $19b) $13c) $10d) $14

3. For the year in question, one would expect the net operating income under absorption costing tobe:a) higher than the net operating income under variable costing.b) lower than the net operating income under variable costing.c) the same as the net operating income under variable costing.d) none of these.

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4. Which of the following is true of a company that uses absorption costing?a) Net operating income fluctuates directly with changes in sales volume.b) Fixed production and fixed selling costs are considered to be product costs.c) Unit product costs can change as a result of changes in the number of units manufactured.d) Variable selling expenses are included in product costs.

Use the following to answer question 5:

Eskenazy Company is a wholesale distributor that uses activity-based costing for all of its overhead costs.The company has provided the following data concerning its annual overhead costs and its activity basedcosting system:

Overhead costs:Wages and salaries ............ $580,000Other expenses .................. 120,000Total .................................. $700,000

Distribution of resource consumption:Activity Cost Pools

FillingOrders

CustomerSupport Other Total

Wages and salaries .............. 15% 75% 10% 100%Other expenses .................... 55% 25% 20% 100%

The “Other” activity cost pool consists of the costs of idle capacity andorganization-sustaining costs.The amount of activity for the year is as follows:

Activity Cost Pool ActivityFilling orders ..................... 2,000 ordersCustomer support .............. 20 customers

5. To the nearest whole dollar, how much wages and salaries cost would be allocated to acustomer who made 7 orders in a year?a) $22,055b) $17,682c) $13,309d) $26,618

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The controller of Kleyman Company estimates the amount of materials handling overhead cost thatshould be allocated to the company's two products using the data that are given below:

Wall Mirrors Specialty WindowsTotal expected units produced .............. 4,000 3,000Total expected material moves.............. 500 400Expected direct labor-hours per unit ..... 7 6

The total materials handling cost for the year is expected to be $28,400.40.

6. If the materials handling cost is allocated on the basis of material moves, how much of the totalmaterials handling cost should be allocated to the specialty windows? (Round off your answerto the nearest whole dollar.)a) $12,622b) $13,108c) $12,224d) $14,200


Grip Catering uses activity-based costing for its overhead costs. The company has provided the followingdata concerning the activity rates in its activity-based costing system:

Preparing ArrangingActivity Cost Pools Meals FunctionsWages .................... $0.65 $145.00Supplies ................. $0.40 $170.00Other expenses ...... $0.20 $80.00

The number of meals served is the measure of activity for the Preparing Meals activity cost pool. Thenumber of functions catered is used as the activity measure for the Arranging Functions activity costpool.

Management would like to know whether the company made any money on a recent function at which 50meals were served. The company catered the function for a fixed price of $22.00 per meal. The cost ofthe raw ingredients for the meals was $12.60 per meal. This cost is in addition to the costs of wages,supplies, and other expenses detailed above.

For the purposes of preparing action analyses, management has assigned ease of adjustment codes to thecosts as follows: wages are classified as a Yellow cost; supplies and raw ingredients as a Green cost; andother expenses as a Red cost.

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7. Suppose an action analysis report is prepared for the function mentioned above. What would bethe "red margin" in the action analysis report? (Round to the nearest whole dollar.)a) $13b) $(138)c) $(88)d) $163


Pricher Corporation's income statement for last year appears below:

Sales .......................................................... $2,000,000Cost of goods sold:

Direct materials ...................................... $500,000Direct labor (variable)............................ 150,000Variable manufacturing overhead .......... 50,000Fixed manufacturing overhead............... 600,000 1,300,000

Gross margin ............................................. 700,000Selling and administrative expenses:

Variable .................................................. 100,000Fixed ...................................................... 300,000 400,000

Net operating income ................................ $ 300,000

8. The degree of operating leverage last year was:a) 0.33b) 2.33c) 4.00d) 3.33

9. Belsky Corporation has provided the following data from its activity-based costing system:

Activity Cost Pool Total Cost Total ActivityAssembly..................... $313,490 29,000 machine-hoursProcessing orders ........ $49,476 1,400 ordersInspection .................... $73,882 1,060 inspection-hours

The company makes 490 units of product Q19S a year, requiring a total of 1,080 machine-hours, 60 orders, and 20 inspection-hours per year. The product's direct materials cost is $46.42per unit and its direct labor cost is $20.22 per unit.According to the activity-based costing system, the average cost of product Q19S is closest to:a) $97.64 per unitb) $66.64 per unitc) $93.31 per unitd) $94.79 per unit

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10. The following data pertain to last year's operations at Tredder Corporation, a company thatproduces a single product:

Units produced 20,000Units sold 19,000

Selling price per unit $100.00

Variable costs per unit:Direct materials $12.00Direct labor $25.00Variable manufacturing overhead $3.00Variable selling and administrative $2.00

Fixed costs per year:Fixed manufacturing overhead $500,000Fixed selling and administrative $600,000

What was the variable costing net operating income last year?a) $12,000b) $57,000c) $2,000d) $27,000


Abbe Company uses activity-based costing. The company has two products: A and B. The annualproduction and sales of Product A is 800 units and of Product B is 600 units. There are three activity costpools, with estimated costs and expected activity as follows:

Expected ActivityActivity Cost Pool Estimated Cost Product A Product B Total

Activity 1............... $17,460 600 600 1,200Activity 2............... $19,987 1,700 600 2,300Activity 3............... $29,884 400 120 520

11. The activity rate for Activity 2 is closest to:a) $11.76b) $8.69c) $29.27d) $33.31

12. Designing a new product is an example of a:a) Unit-level activity.b) Batch-level activity.c) Product-level activity.d) Organization-sustaining activity.

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Units in beginning inventory


13. Cindy, Inc. sells a product for $10 per unit. The variable expenses are $6 per unit, and the fixedexpenses total $35,000 per period. By how much will net operating income change if sales areexpected to increase by $40,000?a) $16,000 increaseb) $5,000 increasec) $24,000 increased) $11,000 decrease

14. The type of costing that provides the best information for breakeven analysis is:a) job-order costing.b) variable costing.c) process costing.d) absorption costing.

15. The break-even point in unit sales is found by dividing total fixed expenses by:a) the contribution margin ratio.b) the variable expenses per unit.c) the sales price per unit.d) the contribution margin per unit.

16. The following information relates to the break-even point at Pezzo Corporation:

Sales dollars ..................... $120,000Total fixed expenses......... $30,000

If Pezzo wants to generate net operating income of $12,000, what will its sales dollars have tobe?a) $132,000b) $136,000c) $168,000d) $176,000

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Abbey Company, which has only one product, has provided the following data concerning its most recentmonth of operations:

Selling price ....................................................... $129

Units in beginning inventory.............................. 0Units produced ................................................... 6,300Units sold ........................................................... 6,100Units in ending inventory................................... 200

Variable costs per unit:Direct materials ............................................... $32Direct labor ..................................................... $50Variable manufacturing overhead ................... $5Variable selling and administrative ................ $11

Fixed costs:Fixed manufacturing overhead........................ $88,200Fixed selling and administrative ..................... $97,600

17. What is the total period cost for the month under the variable costing approach?a) $252,900b) $164,700c) $88,200d) $185,800

18. Darth Company sells three products. Sales and contribution margin ratios for the three productsfollow:

ProductX Y Z

Sales in dollars .............................. $20,000 $40,000 $100,000contribution margin ratio .............. 45% 40% 15%

Given these data, the contribution margin ratio for the company as a whole would be:a) 25%b) 75%c) 33.3%d) it is impossible to determine from the given data

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Holger Incorporated, which produces and sells a single product, has provided the following data:

Sales .................................. 2,000 unitsSelling price ...................... $60 per unitVariable expense ............... $40 per unitFixed expense.................... $20,000

Consider each of the following questions independently.

19. If the sales volume decreases by 25% and the variable expense per unit increases by 15%, netoperating income is expected to:a) decrease by $19,000b) decrease by $1,000c) increase by $1,750d) decrease by $15,000

20. Sun Company's tentative budget for next year is as follows:

Sales .......................................................... $600,000Variable expenses ..................................... 360,000Fixed expenses:

Manufacturing........................................ 90,000Selling and administrative...................... 110,000Net operating income............................. $40,000

Mr. Johnston, the marketing manager, has proposed an aggressive advertising campaign costingan additional $50,000 that he predicts will result in a 30% unit sales increase. Assuming thatJohnston's proposal is incorporated into the budget, what should be the increase in the budgetednet operating income for next year?a) $12,000b) $22,000c) $72,000d) $130,000

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Dimaio Company uses an activity-based costing system with three activity cost pools. The company hasprovided the following data concerning its costs and its activity based costing system:

Costs:Manufacturing overhead ....................................... $580,000Selling and administrative expenses ..................... 240,000Total ...................................................................... $820,000


Order CustomerSize Support Other Total

Manufacturing overhead ..................... 50% 40% 10% 100%Selling and administrative expenses ... 5% 75% 20% 100%

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.

You have been asked to complete the first-stage allocation of costs to the activity cost pools.

21. How much cost, in total, would be allocated in the first-stage allocation to the CustomerSupport activity cost pool?a) $328,000b) $412,000c) $471,500d) $615,000

22. Gyro Gear Company produces a single product, a special gear used in automatic transmissions.Each gear sells for $28, and the company sells 500,000 gears each year. Unit cost data arepresented below:

Direct labor $5.00Manufacturing overhead $2.00 $7.00Selling & administrative $4.00 $3.00

The unit product cost of gears under variable costing is:a) $13b) $20c) $17d) $27

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Direct material $6.00Variable Fixed



Feasal Company, which has only one product, has provided the following data concerning its most recentmonth of operations:

Selling price ....................................................... $108




23. What is the net operating income for the month under absorption costing?a) $2,700b) $7,500c) $4,800d) ($10,700)

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24. A manufacturing company that produces a single product has provided the following dataconcerning its most recent month of operations:

Units in beginning inventory 0Units produced 1,700Units sold 1,400Units in ending inventory 300

Variable costs per unit:Direct materials $39Direct labor $32Variable manufacturing overhead $6Variable selling and administrative $5

Fixed costs:Fixed manufacturing overhead $6,800Fixed selling and administrative $8,400

What is the net operating income for the month under absorption costing?a) $14,200b) ($8,900)c) $1,200d) $15,400


Feheln Company, which has only one product, has provided the following data concerning its most recentmonth of operations:

Selling price ....................................................... $114




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Selling price


25. What is the unit product cost for the month under variable costing?a) $94b) $86c) $96d) $104

26. What is the net operating income for the month under variable costing?a) $1,000b) $14,400c) $13,400d) $4,800


Jameson Company, which has only one product, has provided the following data concerning its mostrecent month of operations:

Selling price ....................................................... $80




The company produces the same number of units every month, although the sales in units vary frommonth to month. The company's variable costs per unit and total fixed costs have been constant frommonth to month.

27. What is the net operating income for the month under variable costing?a) $14,800b) $2,800c) $0d) $5,600

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A manufacturer of premium wire strippers has supplied the following data:

Units produced and sold.................................................. 560,000Sales revenue................................................................... $4,704,000Variable manufacturing expense ..................................... 2,436,000Fixed manufacturing expense ......................................... 1,200,000Variable selling and administrative expense ................... 616,000Fixed selling and administrative expense ....................... 272,000Net operating income ...................................................... $180,000

28. The company's unit contribution margin is closest to:a) $2.95b) $5.45c) $7.30d) $4.05

29. Grandolfo Corporation uses an activity-based costing system with three activity cost pools. Thecompany has provided the following data concerning its costs and its activity based costingsystem:

Costs:Wages and salaries ............ $300,000Depreciation ...................... 200,000Utilities.............................. 140,000Total .................................. $640,000


Assembly Setting Up Other TotalWages and salaries .............. 45% 35% 20% 100%Depreciation ........................ 20% 40% 40% 100%Utilities................................ 15% 55% 30% 100%

How much cost, in total, would be allocated in the first-stage allocation to the Other activitycost pool?a) $192,000b) $182,000c) $128,000d) $192,000

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Roberts Company bases its budget on the following data:

Sales .................................. 3,600 unitsSelling price ...................... $50 per unitVariable expense ............... $15 per unitFixed expenses .................. $40,530

30. If the company wants its margin of safety to equal $40,000, it will need to sell about:a) 1,158 unitsb) 1,958 unitsc) 2,300 unitsd) 800 units

31. Hochberg Corporation uses an activity-based costing system with the following three activitycost pools:

Activity Cost Pool Total ActivityFabrication ........................... 30,000 machine-hoursOrder processing .................. 300 ordersOther..................................... Not applicable

The Other activity cost pool is used to accumulate costs of idle capacityand organization-sustaining costs.The company has provided the following data concerning its costs:

Wages and salaries .................. $340,000Depreciation ............................ 160,000Occupancy............................... 220,000Total ........................................ $720,000

The distribution of resource consumption across activity cost pools is givenbelow:

Activity Cost Pools

FabricationOrder

Processing Other TotalWages and salaries .................. 30% 60% 10% 100%Depreciation ............................ 15% 50% 35% 100%Occupancy............................... 15% 55% 30% 100%

The activity rate for the Fabrication activity cost pool is closest to:a) $5.30 per machine-hourb) $3.60 per machine-hourc) $7.20 per machine-hourd) $4.80 per machine-hour

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32. If a cost object such as a product or customer has a negative red margin, then:a) its green margin will be positive.b) its green margin may be positive, negative, or zero.c) its green margin will be negative.d) its green margin will be zero.





The total contribution margin for the month under the variable costing approach is:a) $282,200b) $74,700c) $332,000d) $12,500


Clarkson Industries produces an electronic calculator that sells for $75 per unit. Variable expenses are$45 per unit and fixed expenses are $150,000.

34. The contribution margin ratio is:a) 20%b) 66.6%c) 60%d) 40%

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Selling price



Grisim Catering uses activity-based costing for its overhead costs. The company has provided thefollowing data concerning the activity rates in its activity-based costing system:

Preparing ArrangingActivity Cost Pools Meals FunctionsWages .................... $0.75 $175.00Supplies ................. $0.50 $280.00Other expenses ...... $0.35 $130.00

The number of meals served is the measure of activity for the Preparing Meals activity cost pool. Thenumber of functions catered is used as the activity measure for the Arranging Functions activity costpool.

Management would like to know whether the company made any money on a recent function at which130 meals were served. The company catered the function for a fixed price of $11.00 per meal. The costof the raw ingredients for the meals was $6.90 per meal. This cost is in addition to the costs of wages,supplies, and other expenses detailed above.

For the purposes of preparing action analyses, management has assigned ease of adjustment codes to thecosts as follows: wages are classified as a Yellow cost; supplies and raw ingredients as a Green cost; andother expenses as a Red cost.

35. Suppose an action analysis report is prepared for the function mentioned above. What would bethe "red margin" in the action analysis report? (Round to the nearest whole dollar.)a) $(110)b) $(360)c) $(410)d) $(260)

36. Suppose an action analysis report is prepared for the function mentioned above. What would bethe "yellow margin" in the action analysis report? (Round to the nearest whole dollar.)a) $(10)b) $40c) $95d) $(85)

37. According to the activity-based costing system, what was the total cost (including the costs ofraw ingredients) of the function mentioned above? (Round to the nearest whole dollar.)a) $1,040b) $1,890c) $1,690d) $1,190

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38. Mason Company's selling price was $20.00 per unit. Fixed expenses totaled $54,000, variableexpenses were $14.00 per unit, and the company reported a profit of $9,000 for the year. Thebreak-even point for Mason Company is:a) 10,500 unitsb) 4,500 unitsc) 8,500 unitsd) 9,000 units


Abrams Company uses activity-based costing. The company has two products: A and B. The annualproduction and sales of Product A is 300 units and of Product B is 1,000 units. There are three activitycost pools, with estimated costs and expected activity as follows:

Expected Activity

Activity Cost PoolEstimated

Cost Product A Product B TotalActivity 1............... $7,356 200 200 400Activity 2............... $30,555 1,400 700 2,100Activity 3............... $16,169 90 300 390

39. The activity rate for Activity 3 is closest to:a) $53.906b) $138.67c) $41.46d) $18.71

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Fornia Florist specializes in large floral bouquets for hotels and other commercial spaces. The companyhas provided the following data concerning its annual overhead costs and its activity based costingsystem:

Overhead costs:Wages and salaries ............ $ 70,000Other expenses .................. 60,000Total .................................. $130,000


MakingBouquets Delivery Other Total

Wages and salaries .............. 70% 20% 10% 100%Other expenses .................... 45% 25% 30% 100%

The “Other” activity cost pool consists of the costs of idle capacity andorganization-sustaining costs.The amount of activity for the year is as follows:

Activity Cost Pool ActivityMaking bouquets................. 40,000 bouquetsDelivery............................... 4,000 deliveries

40. What would be the total overhead cost per delivery according to the activity based costingsystem? In other words, what would be the overall activity rate for the deliveries activity costpool? (Round to the nearest whole cent.)a) $7.25b) $7.31c) $8.13d) $6.50


Johnston Company manufactures a single product. The company has supplied the following data:

Selling price .............................................. $30Variable costs per unit:

Production .............................................. $8Selling and administrative...................... $5

Fixed costs in total:Production .............................................. $80,000Selling and administrative...................... $60,000

Last year there was no beginning inventory. During the year, 20,000 units were produced and 17,000units were sold.

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41. Under absorption costing, the unit product cost would be:a) $20b) $12c) $13d) $8

42. Barnes Corporation expected to sell 150,000 games during the month of November. Thefollowing budgeted data are based on that level of sales:

Revenue (150,000 games)..................................... $2,400,000Variable expenses ................................................. 1,425,000Fixed manufacturing overhead expenses .............. 250,000Fixed selling & administrative expenses .............. 500,000Net operating income ............................................ 225,000

Barnes' actual sales during November were 180,000 games. What should the actual netoperating income during November have been?a) $450,000b) $270,000c) $420,000d) $510,000

43. Moruzzi Corporation is a single-product company that expects the following operating resultsfor next year:

Sales .......................................................... $320,000Contribution margin per unit..................... $0.20Contribution margin ratio.......................... 25%Degree of operating leverage .................... 8

How many units would Moruzzi have to sell next year to break-even?a) 50,000b) 200,000c) 280,000d) 350,000

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44. Hettich Corporation uses an activity-based costing system with the following three activity costpools:

Activity Cost Pool Total ActivityFabrication ........................... 20,000 machine-hoursOrder processing .................. 200 ordersOther..................................... Not applicable

The Other activity cost pool is used to accumulate costs of idle capacity andorganization-sustaining costs.The company has provided the following data concerning its costs:

Wages and salaries .................. $480,000Depreciation ............................ 120,000Occupancy............................... 200,000Total ........................................ $800,000

The distribution of resource consumption across activity cost pools is givenbelow:

Activity Cost Pools

FabricationOrder

Processing Other TotalWages and salaries .................. 55% 20% 25% 100%Depreciation ............................ 10% 45% 45% 100%Occupancy............................... 25% 40% 35% 100%

The activity rate for the Order Processing activity cost pool is closest to:a) $1,400 per orderb) $1,600 per orderc) $1,150 per orderd) $800 per order

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Clifton Company, which has only one product, has provided the following data concerning its mostrecent month of operations:

Selling price .............................................. $63

Units in beginning inventory..................... 0Units produced .......................................... 1,500Units sold .................................................. 1,100Units in ending inventory.......................... 400

Variable costs per unit:Direct materials ...................................... $14Direct labor ............................................ $15Variable manufacturing overhead .......... $1Variable selling and administrative ....... $7

Fixed costs:Fixed manufacturing overhead............... $16,500Fixed selling and administrative ............ $5,500

45. The total gross margin for the month under the absorption costing approach is:a) $28,600b) $24,200c) $40,600d) $11,000

46. Olympia Company produces a single product. Last year, the company had a net operatingincome of $92,000 using absorption costing and a net operating income of $98,600 usingvariable costing. If the fixed manufacturing overhead cost was $3.00 per unit for the last twoyears, and if production was 18,000 units, then sales in units last year were:a) 24,600b) 20,200c) 15,800d) 15,000


The following data were supplied by Reader Corporation:

Sales .................................. $600,000Variable expenses ............. $420,000Fixed expenses .................. $141,000

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47. The contribution margin is:a) $420,000b) $54,000c) $474,000d) $180,000





The total contribution margin for the month under the variable costing approach is:a) $48,800b) $244,400c) $218,400d) $78,000

49. Birney Company has prepared the following budget data:

Sales ............................................................. 150,000 unitsSelling price ................................................. $25 per unitVariable expenses ........................................ $15 per unitFixed manufacturing expenses ..................... $800,000Fixed selling and admin. expenses............... $700,000

An advertising agency claims that an aggressive advertising campaign would enable thecompany to increase its unit sales by 20%. What is the maximum amount that the company canpay for advertising and obtain a net operating income of $200,000?a) $100,000b) $200,000c) $300,000d) $550,000

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Selling price



A company that makes organic fertilizer has supplied the following data:

Bags produced and sold .............................................. 240,000Sales revenue............................................................... $1,896,000Variable manufacturing expense ................................. $804,000Fixed manufacturing expense ..................................... $520,000Variable selling and administrative expense ............... $180,000Fixed selling and administrative expense ................... $270,000Net operating income .................................................. $122,000

50. The company's unit contribution margin is closest to:a) $4.10b) $3.80c) $4.55d) $7.15

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Answer Key

1. c2. b3. a4. c5. a6. a7. a8. c9. a

10. c11. b12. c13. a14. b15. d16. c17. a18. a19. a20. b21. b22. a23. b24. d25. b26. c27. b28. a29. b30. b31. a32. b33. a34. d35. d36. d37. c38. d39. c40. a41. b42. c43. d44. c45. b46. b47. d48. c49. a

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50. b

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Units in Beginning Inventory 0 Units Produced

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