ACT 5060 Midterm Exam 2015

Direct materials $ 5

Direct labor $15

Variable manufacturing overhead $10

Ithaca Tools has offered to sell Cornell Milling 10,000 units of W1 for $40 per unit. If Cornell Milling accepts the offer, $50,000 of fixed manufacturing overhead will be eliminated.

Applying differential analysis to the situation, Cornell Milling should:

Buy W1; the savings is $100,000

Buy W1; the savings is $50,000

Make W1; the savings is $100,000

Make W1; the savings is $50,000

2. HS Barker Company has sales of 1,500 units at $60 per unit. Variable expenses are 35% of the selling price. If total fixed expenses are $40,000, the degree of operating leverage is:

1.50

3.16

3.50

5.00

3. Which of the following can be considered to be unethical behavior?

Assigning direct labor costs to Contract A and Contract B using different rates for different employees

Assigning different direct material costs to Contract A and Contract B based on usage

Assigning overhead costs to Contract A based on labor hours and Contract B based on machine hours

Assigning costs of Contract A to Contract B to avoid an unfavorable performance report on Contract A

4. A cost that is constant within a relevant range but differs outside the relevant range of activity is best classified as what type of cost?

Variable cost

Fixed cost

Mixed cost

Step cost

5. To compete on the basis of service, the seller must carefully manage:

The degree to which products or services meet customer's needs

Timely delivery and customer support

Communications between buyer and seller

Operating and maintenance costs

6. Costs are classified according to behavior on which of the following?

Contribution Income Statement

Functional Income Statement

Cost of Goods Sold

Cost of Goods Manufactured

7. Which of the following is not a period cost?

The president’s salary

Sales commissions

Depreciation on the mainframe computer in the Information Systems Department

Subsidy of the plant cafeteria

8. Which one of the following tools of analyses is not commonly used in cost estimation?

High-low estimation

Linear programming

Least-squares regression

Scatter diagrams

9. Which of the following would best describe a goal for your new business?

To provide high quality lawn services and make a profit.

To add five new customers per month.

Identify new lawn services that will attract new customers and increase revenues.

Become the largest provider of lawn services in the city.

10. Which of the following is the most reasonable cost driver for direct material costs?

The quantity of direct materials used

Purchasing department activity

Direct labor hours

Square footage of the warehouse used to store raw materials

11. Eva Company sells one product at a price of $25 per unit. Variable expenses are 40 percent of sales, and fixed expenses are $25,000. The sales dollars level required to break even are:

$ 2,500

$10,000

$33,333

$41,667

12. According to Michael Porter, which of the following is an example of cost leadership as a business strategy?

A regional beer brewer that caters to local tastes.

A glass manufacturer utilizing research and development to identify new applications for glass and ceramics.

An online bookseller utilizing efficient scale facilities and overhead cost control.

A manufacturer focused on designing and building corporate jet aircraft.

13. The external acquisition of services or components is called:

Avoidable costing

Conversion

Outsourcing

Networking

14. Which of the following performance factors is least relevant for a "world-class" company to compete globally?

Price/Cost

Location

Service

Quality

15. To compete on the basis of price, the seller must carefully manage:

The degree to which products or services meet customer's needs.

Timely delivery and customer support.

Communications between buyer and seller.

Operating and maintenance costs.

16. Product or service differentiation involves:

Any changes made to a product or service

The use of new technologies in manufacturing

Shifting sales to growing markets

Creating something that is perceived as unique and worth a premium price

17. Operating leverage is best described as:

A measure of the extent to which an organization’s costs are financed by equity

A measure of the extent to which an organization’s contribution margin is affected by sales mix of products

A measure of the extent to which an organization’s operations are financed by debt

A measure of the extent to which an organization’s operations are fixed

18. The following costs related to Summertime Company for a relevant range of up to 20,000 units annually:

Variable Costs:

Direct materials $5.00

Direct labor 1.50

Manufacturing Overhead 2.50

Selling and administrative 3.00

Fixed Costs:

Manufacturing overhead $20,000

Selling and Administrative 10,000

The selling price per unit of product is $15.00.

At a sales volume of 15,000 units, what is the total profit for Summertime Company?

$ 30,000

$ 15,000

$225,000

$300,000

19. Betsy’s Brew is a successful brewery engaged in the development and production of specialty micro brews. It uses manufacturing cost hierarchy to allocate costs to various activities. During the past year, it has incurred $1,450,000 of product development costs, $950,000 of materials handling costs, $2,500,000 of production line labor costs, $900,000 for production setup costs, $500,000 in power costs for cooling beer and running equipment and $1,750,000 for manufacturing facility management.

Using the manufacturing cost hierarchy, what is the total cost that would be classified as batch-level activity costs?

$ 900,000

$ 700,000

$1,200,000

$1,250,000

20. The following data was input into a spreadsheet program to determine the Intercept, Slope and R2 (RSQ) for Patient Days and Maintenance Costs for a local hospital:

Month Patent Days (X) Maintenance Costs (Y)

January 6,600 $8,900

February 8,100 $9,500

March 6,000 $8,400

April 7,500 $9,200

May 8,300 $10,100

June 9,000 $10,800

July 5,200 $8,800

Intercept $5,468

Slope $0.541

RSQ 0.79

The estimated variable maintenance cost for the hospital is:

$3,088

$3,431

$0.759

$0.541

21. The determination of the mathematical relationship between activity level and cost is known as:

Cost control

Cost estimation

Cost prediction

Regression analysis

22. For which of the following manufactured products would process costing be more appropriate?

Bridge construction

Crude oil refining

Custom-made jewelry

High rise buildings

23. Partially completed goods that are in the process of being converted into a finish product are defined as:

Work-in-process inventories

Conversion inventories

Raw materials inventories

Operational inventories

24. The following data was input into a spreadsheet program to determine the Intercept, Slope and R2 (RSQ) for Patient Days and Maintenance Costs for a local hospital:

Month Patent Days (X) Maintenance Costs (Y)

January 6,600 $8,900

February 8,100 $9,500

March 6,000 $8,400

April 7,500 $9,200

May 8,300 $10,100

June 9,000 $10,800

July 5,200 $8,800

Intercept $5,468

Slope $0.541

RSQ 0.79

The estimated total maintenance cost for August based on an estimated 7,000 patient days is:

$9,255

$7,186

$7,985

$7,529

25. The purpose of the statement of cost of goods manufactured is to:

Calculate the cost of goods transferred to finished goods inventory during the period.

Calculate cost of goods sold.

Calculate net income.

Both A and B

26. Costs are classified according to behavior on a:

Abrams-Ingram cost grid

Contribution income statement

Functional income statement

Statement of financial position

27. Which of the following would best describe a strategy for your new business?

To provide high quality lawn services and make a profit

To add five new customers per month

Identify new lawn services that will attract new customers and increase revenues

Become the largest provider of lawn services in the city

28. For which of the following manufactured products would job costing be more appropriate than process costing?

Paint

Designer dresses sold to celebrities

Chemicals

Liquid soap

29. The point in the production process where joint products become separately identifiable is called:

The conversion point

The point of sale

The split-off point

The throughput point

30. Which of the following descriptions best describes the process of controlling?

Comparing the budget with actual results

Preparing a budget for an organization that meets sales goals for the upcoming year

Delegating authority to employees to address customer complaints

Assigning managers to different regional centers to facilitate distribution of goods to customers

31. The Titanic hit an iceberg and sank. In deciding whether or not to salvage the ship, its book value is a(n):

Relevant cost

Sunk cost

Opportunity cost

Discretionary cost

32. Which of the following would best describe planning for your new business?

Assigning workers to perform lawn services for various clients

Preparing a cash budget to estimate your monthly revenues and expenditures

Comparing the actual cash balance with the budgeted cash budget each month

Preparing monthly billing statements for clients

33. In order to be useful to managers, management accounting reports:

Should be prepared according to the stated Institute of Management Accounting guidelines

Should be prepared according to Generally Accepted Accounting Principals

Should be prepared to meet the specific needs of decision makers

Should not be prepared prior to the end of a fiscal reporting period

34. Managerial accounting is primarily focused on:

Providing information for internal and external users

Providing general purpose financial statements *

Providing special-purpose information and reports

Following generally accepted accounting principles

35. What is the purpose for using predetermined overhead rates?

Delays in product costing can be avoided

Variation in cost assignment due to seasonality can be prevented

Variation in cost assignment due to short-term variations in volume can be prevented

Use of predetermined overhead rates serves all the above purposes

36. Number of parts per unit is most appropriate as a cost driver for which of the following types of activity costs?

Machining

Purchasing

Assembly

Payroll

37. Brahtz Company uses an activity-based costing system. It has the following manufacturing activity areas, related cost drivers and cost allocation rates:

Activity Cost Driver Cost Allocation Rate

Machine setup Number of setups $25.00

Materials handling Number of parts 0.25

Machining Machine hours 13.00

Assembly Direct labor hours 22.00

Inspection Number of finished units 7.00

During the month, 100 units were produced, with no defects, requiring three setups. Each unit consisted of 17 parts, 3 direct labor hours and 2.5 machine hours. Direct materials cost $50 per finished unit.

What is the total manufacturing cost for the period?

$ 8,675

$11,625

$13,675

$16,050

38. Which of the following would best describe controlling for your new business?

Assigning workers to perform lawn services for various clients

Preparing a cash budget to estimate your monthly revenues and expenditures

Comparing the actual cash balance with the budgeted cash budget each month

Preparing monthly billing statements for clients

39. Madison Company sells its product for $6 a unit. Next year, fixed expenses are expected to be $200,000 and variable expenses are estimated at $4 per unit.

How many units must Madison sell to generate net operating income of $50,000?

50,000 units

60,000 units

125,000 units

120,000 units

40. Total contribution margin is calculated by subtracting:

Cost of goods sold from total revenues

Fixed costs from total revenues

Total manufacturing costs from total revenues

Total variable costs from total revenues

41. Under variable costing, which of the following costs are assigned to inventory?

Fixed manufacturing costs

Variable non-manufacturing costs

Variable manufacturing costs

None of the above

42. Process service costing measures the average cost of:

All services performed by the company in a given period

Identical or similar services performed by the company in a given period

Activities for activity based costing overhead rates

Services received from the company’s vendors

43. A single product produced by a continuous manufacturing process is an example of:

Process management

Job Costing

Process manufacturing

Process reengineering

44. The Apollo Delivery Service has the following information about its truck fleet miles and operating costs:

Year Miles Operating Costs

2011 250,000 $160,000

2012 300,000 $175,000

2013 350,000 $210,000

What is the best estimate of fixed costs for fleet operating expenses in 2014 using the high-low method?

$100,000

$ 35,000

$175,000

$ 50,000

45. Using cost-volume-profit analysis, we can conclude that a 20 percent reduction in variable costs will:

Not affect the break-even sales volume if there is an offsetting 20 percent increase in fixed costs

Reduce the break-even sales volume by 20 percent

Reduce total costs by 20 percent

Reduce the slope of the total costs line by 20 percent

46. Step costs:

Are constant within certain ranges of activity but differ outside those ranges of activity

Are variable within narrowly defined ranges of activity, but constant over wider ranges of activity

Increase with each additional unit produced

Have no relation to number of units produced

47. Which of the following is not included in work-in-process inventory?

Direct materials costs

Applied manufacturing overhead

Direct manufacturing labor costs

Sales commissions

48. When finished goods are sold, there is an increase in which of the following accounts?

Cost of Goods Sold

Cost of Goods Manufactured

Finished Goods Inventory

Work-in-Process

49. Which of the following mathematical expressions best describes a mixed cost?

Y = bX

Y = a

Y = a + bX

Y = ai

50. Nickolas Rentals offers machine rental services for concrete cutting. Consider the following costs of the company over the relevant range of 5,000 to 8,000 hours of operating time for its concrete cutting equipment.

Hours of Operating Time

5,000 6,000 7,000 8,000

Total Costs:

Variable Costs $ 40,000 ? ? ?

Fixed Costs 168,000 ? ? ?

Total Costs $208000 ? ? ?

Cost per hour:

Variable cost ? ? ? ?

Fixed cost ? ? ? ?

Total cost per hour ? ? ? ?

What are the estimated total costs at a volume of 6,000 hours?

$25.00

$28.00

$32.00

$37.60