Managerial Accounting Midterm

1.
Question :
(TCO A) Wages paid to an assembly line worker in a factory are a

Student Answer:

Prime Cost YES…..Conversion Cost NO.

Prime Cost YES…..Conversion Cost YES.

Prime Cost NO….Conversion Cost NO.

Prime Cost NO…..Conversion Cost YES.

Instructor Explanation:
Chapter 2

Points Received:
6 of 6

Comments:

2.
Question :
(TCO A) A cost incurred in the past that is not relevant to any current decision is classified as a(n)

Student Answer:

period cost.

incremental cost.

opportunity cost.

None of the above

Instructor Explanation:
Chapter 2

Points Received:
6 of 6

Comments:

3.
Question :
(TCO A) Property taxes on a company’s factory building would be classified as a(n)

Student Answer:

sunk cost.

opportunity cost.

period cost.

variable cost.

manufacturing cost.

Instructor Explanation:
Chapter 2

Points Received:
6 of 6

Comments:

4.
Question :
(TCO A) Within the relevant range, variable costs can be expected to

Student Answer:

vary in total in direct proportion to changes in the activity level.

remain constant in total as the activity level changes.

increase on a per-unit basis as the activity level increases.

increase on a per-unit basis as the activity level decreases.

None of the above

Instructor Explanation:
Chapter 5

Points Received:
6 of 6

Comments:

5.
Question :
(TCO F) Which of the following statements is true?
I. Overhead application may be made slowly as a job is worked on. II. Overhead application may be made in a single application at the time of completion of the job. III. Overhead application should be made to any job not completed at year end in order to properly value the work in process inventory.

Student Answer:

Only statement I is true.

Only statement II is true.

Both statements I and II are true.

Statements I, II, and III are all true.

Instructor Explanation:
Chapter 3

Points Received:
6 of 6

Comments:

6.
Question :
(TCO F) Under a job-order costing system, the product being manufactured

Student Answer:

is homogeneous.

passes from one manufacturing department to the next before being completed.

can be custom manufactured.

has a unit cost that is easy to calculate by dividing total production costs by the units produced.
Instructor Explanation:
Chapter 3

Points Received:
6 of 6

Comments:

7.
Question :
(TCO F) The FIFO method only provides a major advantage over the
weighted-average method in that

Student Answer:

the calculation of equivalent units is less complex under the FIFO method.

the FIFO method treats units in the beginning inventory as if they were started and completed during the current period.

the FIFO method provides measurements of work done during the current period.

the weighted-average method ignores units in the beginning and ending work-in-process inventories.
Instructor Explanation:
Chapter 4

Points Received:
0 of 6

Comments:

8.
Question :
(TCO B) The contribution margin equals

Student Answer:

sales – expenses.

sales – cost of goods sold.

sales – variable costs.

sales – fixed costs.

Instructor Explanation:
Chapter 6

Points Received:
6 of 6

Comments:

9.
Question :
(TCO B) To obtain the break-even point in terms of dollar sales, total fixed expenses are divided by which of the following?

Student Answer:

Variable expense per unit

Variable expense per unit/Selling price per unit

Fixed expense per unit

(Selling price per unit – Variable expense per unit) /Selling price per unit.
Instructor Explanation:
Chapter 6

Points Received:
6 of 6

Comments:

10.
Question :
(TCO E) In an income statement prepared using the variable costing method, fixed manufacturing overhead would

Student Answer:

not be used.

be used in the computation of the contribution margin.

be used in the computation of net operating income but not in the computation of the contribution margin.

be treated the same as variable manufacturing overhead.

Instructor Explanation:
Chapter 7

Points Received:
6 of 6

Comments:

1.
Question :
(TCO A) The following data (in thousands of dollars) have been taken from the accounting records of Larop Corporation for the just-completed year:
Sales……………………………………………………………………… $910

Purchases of raw materials………………………………………… $225

Direct labor…………………………………………………………….. $245

Manufacturing overhead……………………………………………. $265

Administrative expenses……………………………………………. $150

Selling expenses………………………………………………………. $140

Raw materials inventory, beginning………………………………. $15

Raw materials inventory, ending………………………………….. $45

Work-in-process inventory, beginning…………………………… $20

Work-in-process inventory, ending………………………………. $55

Finished goods inventory, beginning…………………………….. $100

Finished goods inventory, ending………………………………… $135
Required: Prepare a Schedule of Cost of Goods Manufactured in the text box below.

Student Answer:

Larop Corporation Schedule of Cost of Goods Manufactured Direct Materials: Raw materials inventory, beginning…………….$15 +Purchase of raw materials………………………225 —– Total of raw materials available…………………240 -Raw materials inventory, ending………………(45) —— Raw materials used in production…………………………$195 Direct labor……………………………………………………….245 Manufacturing overhead………………………………………265 —– Total manufacturing cost……………………………………..705 +Work in process inventory, beginning…………………….20 —– 725 -Work in process inventory, ending………………………..(55) —– Cost of goods manufactured……………………………….$670 ====

Instructor Explanation:
Schedule of cost of goods manufactured

Direct materials:

Raw materials inventory, beginning……………………………. $ 15
Add: Purchases of raw materials………………………………. 225
Raw materials available for use………………………………… 240
Deduct: Raw materials inventory, ending……………………. 45
Raw materials used in production………………………………… 195
Direct labor…………………………………………………………….. 245
Manufacturing overhead…………………………………………….
265
Total manufacturing cost……………………………………………. 705
Add: Work-in-process inventory, beginning…………………… 20

725
Deduct: Work-in-process inventory, ending…………………… 55
Cost of goods manufactured………………………………………. $670

Points Received:
15 of 15

Comments:

2.
Question :
(TCO F) The Illinois Company manufactures a product that goes through three processing departments. Information relating to activity in the first department during June is given below. Percentage Completed Units Materials Conversion Work in process, June 1 150,000 75% 55% Work in process, Jun 30 145,000 85% 75% The department started 475,000 units into production during the month and transferred 480,000 completed units to the next department. Required: Compute the equivalent units of production for the first department for June, assuming that the company uses the weighted-average method of accounting for units and costs.

Student Answer:

Equivalent Units of Production Materials Conversion Units transferred out to the next department………………….480,000 480,000 Add Equivalent units in ending inventory: Materials 145,000 x 85%…………………………………………..123,250 Conversion 145,000 x 75%……………………………………….. 108,750 ———- ———- Equivalent units of production 603,250 588,750 ====== ======

Instructor Explanation:
Equivalent Units Materials Conversion Units transferred to the next department 480,000 480,000 Ending work in process:

Materials 145,000 x 85% 123,250 Conversion 145,000 x 75% 108,750 Equivalent units of production 603,250 588,750

Points Received:
20 of 20

Comments:

3.
Question :
(TCO B) A tile manufacturer has supplied the following data: Boxes of tile produced and sold 625,000 Sales revenue $2,975,000 Variable manufacturing expense $1,720,000 Fixed manufacturing expense $790,000 Variable selling and admin expense $152,000 Fixed selling and admin expense $133,000 Net operating
income $180,000 Required:

a. Calculate the company’s unit contribution margin.
b. Calculate the company’s unit contribution ratio.
c. If the company increases its unit sales volume by 5% without increasing its fixed expenses, what would the company’s net operating income be?

Student Answer:

a. Unit Contribution Margin = $1.76 Selling price per unit – variable expenses per unit= $4.76 – $3 =$1.76 Selling price per unit = $2,975,000 / 625,000 = $4.76 per unit Variable expenses per unit = ($1,720,000+$152,000)/625,000 = $3.00 b. Unit Contribution Ratio= .37 or 37% Unit contribution margin / selling price per unit = $1.76 / $4.76 = .37 or 37% c. Net operating income = $235,080 Operating leverage = contribution margin / net operating income = (1.76 x 625,000= 1,100,000) / 180,000= 6.11 x 5% = .306 Projected income from operations = 180,000 x 1.306 = $235,080 ======= Sales (625,000 x105%=656,250) x 4.76…………….3,123,750 Variable expenses 656,250 x 3……………………………1,968,750 ———– Contribution margin………………………………………….1,155,000 Fixed expenses 790,000+133,000………………………..923,000 ———– Net operating income 232,000

Instructor Explanation:
a. Add the variable expenses = $1,720,000 + 152,000 = $1,872,000. Then, take Sales – VC = $2,975,000 – 1,872,000 = $1,103,000 / 625,000 boxes = $1.76 contribution margin per box. b. For the contribution margin percentage = $1,103,000 CM calculated in Part A / $2,975,000 sales = 37.08%. c. Calculate the degree of operating leverage = contribution margin / net operating income = $1,103,000 / $180,000 = 6.13. Then, a 5% increase in sales x 6.13 DOL = 30.65% increase in net operating income = $235,170 approx, rounded.

Points Received:
25 of 25

Comments:

4.
Question :
(TCO E) Maffei Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price

$ 175

Units in beginning inventory

0
Units produced

9,500
Units sold

8,000
Units in ending Inventory

1,500

Variable costs per unit:

Direct materials

$ 55
Direct labor

$ 38
Variable manufacturing overhead

$ 2
Variable selling and admin

$ 10

Fixed costs:

Fixed manufacturing overhead

$ 300,000
Fixed selling and admin

$ 125,000
Required:
a. What is the unit product cost for the month under variable costing? b. What is the unit product cost for the month under absorption costing? c. Prepare an income statement for the month using the variable costing method. d. Prepare an income statement for the month using the absorption costing method.

Student Answer:

a. Unit Cost under Variable Costing = $95 Direct materials = $55 Direct labor = $38 Variable manufacturing overhead = $2 —— Variable costing unit cost =$95 b. Unit Cost under Absorption Costing = Direct material = $55 Direct labor = $38 Variable manufacturing overhead = $2 Fixed manufacturing
overhead (300,000/9,500) = $31.58 ===== Absorption costing unit product cost = $126.58 c. Variable Costing Income Statement Sales (175 x 8,000)………………………………………$1,400,000 Beginning inventory…………0 +Manufacturing cost (9,500 x 95)…..902,500 -Ending inventory1,500 x 95…………..142,500 ———- Variable cost of goods sold…………….760,000 Variable selling and admin 10×8,000.. 80,000……….840,000 ————————— Contribution margin………………………………………….560,000 Less: Fixed expenses: Fixed manufacturing overhead….300,000 Fixed selling and admin……………125,000 425,000 ——————————— Net operating income………………………………………$135,000 ======= d. Absorption Costing Income Statement Sales…………………………………………………………$1,400,000 Less Cost of goods sold (8,000 x $126.58)………(1,012,640) ————- Gross margin………………………………………………….387,360 Selling and administrative expenses: Variable selling and admin…………..80,000 Fixed selling and admin……………..125,000 205,000 ——————————– Net operating income $182,360 =======

Instructor Explanation:
a:

Variable costing:

Direct materials

$ 55

Direct labor

$ 38

Variable manufacturing overhead

$ 2

$ 95

b:

Absorption costing:

Direct materials

$ 55

Direct labor

$ 38

Variable manufacturing overhead

$ 2

Fixed manufacturing overhead

$ 31.58
(300,000 / 9,500)

$ 126.58

c:

Variable costing income statement:

Sales

$ 1,400,000
Less variable expenses:

Product costs (8,000 x $95)

$ 760,000

Variable selling and admin

$ 80,000
$ 840,000
Contribution margin

$ 560,000
Less fixed expenses:

Fixed manufacturing overhead

$ 300,000

Fixed selling and admin

$ 125,000
$ 425,000

$135,000
d:

Absorption costing income statement:

Sales

$ 1,400,000
Less cost of goods sold (8,000 x $126.58)

$ 1,012,640
Gross margin

$ 387,360
Selling and administrative expenses:

Variable selling and admin

$ 80,000

Fixed selling and admin

$ 125,000
$ 205,000

$ 182,360

Points Received:
30 of 30

Comments: