ACCT 505 WEEK 4 MIDTERM EXAM ANSWERS

ACCT 505 WEEK 4 MIDTERM EXAM ANSWERS 1. Question : (TCO A) Wages paid to an assembly line worker in a factory are a : Prime Cost YES.....Conversion Cost NO. Prime Cost YES.....Conversion Cost YES. Prime Cost NO....Conversion Cost NO. Prime Cost NO.....Conversion Cost YES. : Chapter 2 2. Question : (TCO A) A cost incurred in the past that is not relevant to any current decision is classified as a(n) : period cost. incremental cost. opportunity cost. None of the above : Chapter 2 3. Question : (TCO A) Depreciation of office buildings and office equipment is also known as : variable costs. conversion costs. product costs. period costs. : Chapter 2 4. Question : (TCO A) When the activity level is expected to increase within the relevant range, what effects would be anticipated with respect to each of the following? : Fixed costs per unit increase and variable costs per unit ACCT 505 WEEK 4 MIDTERM EXAM ANSWERS increase. Fixed costs per unit decrease and variable costs per unit do not change. Fixed costs per unit do not change and variable costs per unit do not change. Fixed costs per unit do not change and variable costs per unit increase. : Chapter 5 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. : 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. : Chapter 3 6. Question : (TCO F) A job-order cost system is employed in those situations where : many different products, jobs, or batches of production are being produced each period. manufacturing involves a single, homogeneous product that flows evenly through the production process on a continuous basis. the product moves from department to department before being completed.ACCT 505 WEEK 4 MIDTERM EXAM ANSWERS the unit cost of production is computed by dividing the total production costs by the number of units produced. : Chapter 4 7. Question : (TCO F) The FIFO method only provides a major advantage over the weighted-average method in that : 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. : Chapter 4 8. Question : (TCO B) The contribution margin ratio always decreases when the : break-even point increases. break-even point decreases. variable expenses as a percentage of net sales increase. variable expenses as a percentage of net sales decrease. : Chapter 6 9. Question : (TCO B) Which of the following would not affect the break-even point? : Number of units sold Variable expense per unit Total fixed expenses Selling price per unitACCT 505 WEEK 4 MIDTERM EXAM ANSWERS : Chapter 6 10. Question : (TCO E) In an income statement prepared using the variable costing method, variable selling and administrative expenses would : 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 differently from variable manufacturing expenses. not be used. : Chapter 7 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. : Direct materials: Raw materials inventory, beginning $15.00 Add: Purchases of raw materials $225.00 Raw materials available for use $240.00 Deduct: Raw materialsending $45.00 Raw materials used in production $195.00 Direct labor $245.00 Manufacturing overhead $265.00 Total manufacturing cost $705.00 Add: Work in process beginning $20.00 $725.00 Deduct: Work in process ending $55.00 Cost of goods manufactured $670.00 : 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, 45ACCT 505 WEEK 4 MIDTERM EXAM ANSWERS ending......................... 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 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. : Illinois Company Percent Complete Units Materials Conversion Work in process, June 1 150,000 75% 55% Units Started into Production June 475,000 Units completed & trans to next dept 480,000 Work in process, June 30 145,000 85% 75% Weighted Average Method; Materials Conversion Units Transferred to Next Department 480,000 480,000 Work in Process, June 30: 145,000 units × 85% 123,250 145,000 units × 75% 108,750 Equivalent Units of Production 603,250 588,750 : 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 603,250 588,750ACCT 505 WEEK 4 MIDTERM EXAM ANSWERS 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? : a) Sales revenue $ 2,975,000 Less:Variable manufacturing expense $ 1,720,000 Less: Variable selling and admin $ 152,000 Contribution margin $ 1,103,000 Unit contribution margin = 1,103,000 / = $ 1.77 Answer b) Unit contribution ratio = unit contribution / unit sales = $ 1.77 / $ 4.76 = 37.18% Answer c) New units would be 105% of = units Sales revenue $ Less:Variable manufacturing expense $ Less: Variable selling and admin $ Contribution margin $ Less : Fixed manufacturing expense $ Less : Fixed selling expense $ Net income $ : 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. 4. Question : (TCO E) Lehne Company, which has only one product, ACCT 505 WEEK 4 MIDTERM EXAM ANSWERS has provided the following data concerning its most recent month of operations: Selling price $ 125 Units in beginning inventory 600 Units oroduced 3000 Units sold 3500 Units in ending inventory 100 Variable costs per unit: Direct materials $ 15 Direct labor $ 50 Variable manufacturing overhead $ 8 Variable selling and admin $ 12 Fixed costs: Fixed manufacturing overhead $ 75,000 Fixed selling and admin $ 20,000 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. 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. : a) Variable costing: Direct materials $15 Direct labor $50 Variable manufacturing overhead $8 Unit product cost $73 b) Absorption costing: Direct materials $15 Direct labor $50 Variable manufacturing overhead $8 Fixed manufacturing overhead $25 Unit product cost $98 c) Variable costing income statement Sales $ Less Variable cost of goods sold: Beginning inventory $43,800 Add variable manufacturing costs $219,000 Goods available for sale $262,800 Less ending inventory $7,300 Variable cost of goods sold $255,500 Add: Variable selling and administrative $42,000 $297,500 Contribution margin $140,000 Less fixed expenses: Fixed manufacturing overhead $75.000 Fixed selling and administrative $20,000 $95,000 Net operating income $45,000 d) Absorption costing income statement Sales $437,500 Cost of goods sold: Beginning inventory $58,800 Add cost of goods manufactured $294,000 Goods available for sale $352,800 Less ending inventory $9,800 $343,000 Gross margin $94,500 Selling and administrative expenses: Variable selling and administrative $42,000 Fixed selling and administrative $20,000 $62,000 Net operating ACCT 505 WEEK 4 MIDTERM EXAM ANSWERS income $32,500 : a: Variable costing: Direct materials $ 15 Direct labor $ 50 Variable manufacturing overhead $ 8 $ 73 b: Absorption costing: Direct materials $ 15 Direct labor $ 50 Variable manufacturing overhead $ 8 Fixed manufacturing overhead $ 25 ($75,000 /3,000) $ 98 c: Variable costing income statement: Sales $ 437,500 Less variable expenses: Product costs (3,500 x $73) $ 255,500 Variable selling and admin $ 42,000 $ 297,500 Contribution margin $ 140,000 Less fixed expenses: Fixed manufacturing overhead $ 75,000 Fixed selling and admin $ 20,000 $ 95,000 $ 45,000 d: Absoprtion costing income statement: Sales $ 437,500 Less cost of goods sold (3,500 x $98) $ 343,000 Gross margin $ 94,500 Selling and administrative expenses: Variable selling and admin $ 42,000 Fixed selling and admin $ 20,000 $ 62,000 $ 32,50