Koszyk Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, P85G and C43S, about which it has provided the following data: P85G C43S Direct materials per unit $36.50 $63.10 Direct labor per unit $20.80 $31.20 Direct labor-hours per unit 0.80 1.20 Annual production 35,000 10,000 The company’s estimated total manufacturing overhead for the year is $2,264,000 and the company’s estimated total direct labor-hours for the year is 40,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Estimated Overhead Cost Supporting direct labor (DLHs) $1,160,000 Setting up machines (setups) 288,000 Parts administration (part types) 816,000 Total $2,264,000 Expected Activity P85G C43S Total DLHs 28,000 12,000 40,000 Setups 1,480 920 2,400 Part types 1,880 840 2,720
1. The manufacturing overhead that would be applied to a unit of product P85G under the company's traditional costing system is closest to:
A) $89.67 B) $45.28 C) $44.39 D) $23.20 E) None of the above
2. The manufacturing overhead that would be applied to a unit of product C43S under the activity-based costing system is closest to:
A) $71.04 B) $138.96 C) $67.92 D) $11.04 E) None of the above
Use the following to answer questions 3-6: Addison Company has two products: A and B. Annual production and sales are 800 units of Product A and 700 units of Product B. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.2 direct labor hours per unit and Product B requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $71,286. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools—Activity 1, Activity 2, and General Factory--with estimated overhead costs and expected activity as follows: Expected Activity Activity Cost Pool Estimated Overhead Costs Product A Product B Total Activity 1 $20,272 300 500 800 Activity 2 29,380 800 500 1,300 General Factory 21,634 160 420 580 Total $71,286 (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor hours.)
3. The predetermined overhead rate under the traditional costing system is closest to: A) $25.34 B) $22.60 C) $37.30 D) $122.91 E) None of the above
4. The overhead cost per unit of Product B under the traditional costing system is closest to:
A) $22.38 B) $13.56 C) $73.74 D) $15.20 E) None of the above
5. The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to:
A) $22.60 B) $54.84 C) $58.76 D) $36.73 E) None of the above
6. The overhead cost per unit of Product B under the activity-based costing system is closest to:
A) $73.74 B) $56.62 C) $22.38 D) $47.52 E) None of the above
7. Dobles Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Total Cost Total Activity Assembly $228,060 18,000 machine-hours Processing orders $34,068 1,200 orders Inspection $125,560 1,720 inspection-hours The company makes 420 units of product D28K a year, requiring a total of 460 machine-hours, 80 orders, and 10 inspection-hours per year. The product's direct materials cost is $48.96 per unit and its direct labor cost is $25.36 per unit. According to the activity-based costing system, the average cost of product D28K is closest to:
A) $95.34 per unit B) $93.60 per unit C) $74.32 per unit D) $89.93 per unit E) None of the above
8. Sioux Company is estimating the following sales for the first six months of next year: January $250,000 February $220,000 March $240,000 April $300,000 May $360,000 Sales at Sioux are normally collected as 60% in the month of sale, 35% in the month following the sale, and the remaining 5% being uncollectible. Based on this information, how much cash should Sioux expect to collect during the month of April?
A) $250,800 B) $274,000 C) $290,700 D) $306,000 E) None of the above
March sales ($240,000 × 35%).... / 84,000
Total...... / $264,000
9. Betz Company's sales budget shows the following projections for next year: Sales in units First Quarter 60,000 Second Quarter 80,000 Third Quarter 45,000 Fourth Quarter 55,000 Inventory at the beginning of the year was 18,000 units. The finished goods inventory at the end of each quarter is to equal 30% of the next quarter's budgeted unit sales. How many units should be produced during the first quarter?
A) 24,000 B) 48,000 C) 66,000 D) 72,000 E) None of the above
Use the following to answer questions 10-11: Pacchiana Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, R21V and D00B, about which it has provided the following data: R21V D00B Direct materials per unit $19.60 $61.70 Direct labor per unit $3.90 $19.50 Direct labor-hours per unit 0.30 1.50 Annual production 45,000 15,000 The company’s estimated total manufacturing overhead for the year is $1,262,880 and the company’s estimated total direct labor-hours for the year is 36,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Estimated Overhead Cost Assembling products (DLHs) $ 108,000 Preparing batches (batches) 362,880 Product support (product variations) 792,000 Total $1,262,880 Expected Activity R21V D00B Total DLHs 13,500 22,500 36,000 Batches 1,440 1,152 2,592 Product variations 1,404 576 1,980
10. The unit product cost of product R21V under the company's traditional costing system is closest to:
) $34.02 B) $24.40 C) $41.36 D) $23.50 E) None of the above
11. The unit product cost of product D00B under the activity-based costing system is closest to:
A) $111.81 B) $133.82 C) $81.20 D) $30.61 E) None of the above
Use the following to answer questions 12-14: Porter Corporation makes and sells a single product called a Yute. The company is in the process of preparing its Selling and Administrative Expense Budget for the last quarter of the year. The following budget data are available: Variable Cost Per Yute Sold Monthly Fixed Cost Sales commissions $5.90 Shipping $5.30 Advertising $8.90 $32,000 Executive salaries $178,000 Depreciation on office equipment $7,000 Other $0.60 $20,000 All of these expenses (except depreciation) are paid in cash in the month they are incurred.
12. If the company has budgeted to sell 14,000 Yutes in November, then the total budgeted selling and administrative expenses for November would be:
A) $526,800 B) $289,800 C) $237,000 D) $519,800 E) None of the above
13. If the company has budgeted to sell 12,000 Yutes in December, then the budgeted total cash disbursements for selling and administrative expenses for December would be:
A) $237,000 B) $485,400 C) $248,400 D) $478,400 E) None of the above
14. If the budgeted cash disbursements for selling and administrative expenses for October total $518,520, then how many Yutes does the company plan to sell in October?
A) 13,300 units B) 14,100 units C) 13,800 units D) 13,600 units E) None of the above
15. Zanny Electronics Company uses a standard cost system to collect costs related to the production of its water ski radios. The direct labor standard for each radio is 0.9 hours. The standard direct labor cost per hour is $7.20. During the month of August, Zanny's water ski radio production used 6,600 direct labor-hours at a total direct labor cost of $48,708. This resulted in production of 6,900 water ski radios for August. What is Zanny's labor rate variance for the month of August?
A) $972 favorable B) $1,188 unfavorable C) $2,160 favorable D) $2,808 unfavorable E) None of the above
16. Information on Westcott Company's direct labor costs for a recent month follows: Standard direct labor rate $3.75 Actual direct labor rate $3.50 Total standard direct labor-hours 10,000 Direct labor efficiency variance $4,200 Unfavorable What were the actual hours worked during the month, rounded to the nearest hour?
A) 10,714 B) 11,120 C) 11,200 D) 11,914 E) None of the above
17. Sullivan Corporation's direct labor costs for the month of March were as follows: Total standard direct labor-hours 42,000 Total actual direct labor-hours 40,000 Direct labor rate variance $8,400 Favorable Standard direct labor rate per hour $6.30 What was Sullivan's total direct labor payroll for the month of March?
A) $243,600 B) $244,000 C) $260,000 D) $260,400 E) None of the above
18. In a period, the labor efficiency variance was $54,000 favorable. The standard direct labor wage rate is $12.00 per hour and 30 direct labor-hours are allowed for each unit of output. Given that 43,500 direct labor-hours were worked, how many units of output were actually produced?
A) 150 B) 1,300 C) 1,450 D) 1,600 E) None of the above
19. Warp Manufacturing Corporation uses a standard cost system to collect costs related to the production of its ski lift chairs. Warp uses machine hours as an overhead base. The variable overhead standards for each chair are 1.2 machine hours at a standard cost of $18 per hour. During the month of September, Warp incurred 34,000 machine hours in the production of 32,000 ski lift chairs. The total variable overhead cost was $649,400. What is Warp's variable overhead spending variance for the month of September?
A) $37,400 unfavorable B) $41,800 favorable C) $79,200 favorable D) $84,040 favorable E) None of the above
Use the following to answer questions 20-23: The Johnson Company makes a single product called a Pef. The company uses a standard cost system and has established the following standards for one Pef: Standard Quantity or Hours Standard Cost per Pef Direct materials 4 gallons $10 Direct labor 0.5 hours $5 Variable manufacturing overhead 0.5 hours $2 There was no direct materials inventory on June 1. Variable manufacturing overhead is assigned on the basis of direct labor hours. The following events occurred in June: • Purchased 5,000 gallons of direct materials at a cost of $13,000 • Used 4,700 gallons of direct materials to produce 1,200 Pefs • Used 670 hours of direct labor at a cost of $6,365 • Incurred $2,510 in variable manufacturing overhead cost
20. The journal entry to record the material quantity variance for June would include:
A) Material quantity variance $500, debit B) Material quantity variance $250, credit C) Material quantity variance $250, debit D) Material quantity variance $185, credit E) None of the above
21. The journal entry to record the labor efficiency variance for June would include:
A) Labor efficiency variance $700, credit B) Labor efficiency variance $700, debit C) Labor efficiency variance $430, debit D) Labor efficiency variance $980, credit E) None of the above
22. The amount debited to Work in Process to record the use of direct materials in production in June is:
A) $13,000 B) $11,750 C) $12,000 D) $13,520 E) None of the above
23. The amount credited to Direct Materials Inventory to record the use of direct materials in June is:
A) $12,500 B) $11,750 C) $12,000 D) $10,750 E) None of the above
Use the following to answer questions 24-27: Schaper Corporation has provided the following data concerning its most important raw material, compound D30X: Standard cost, per liter $48.80 Standard quantity, liters per unit of output 6.0 Cost of material purchased in December, per liter $49.70 Material purchased in December, liters 3,100 Material used in production in December, liters 2,380 Actual output in December, units 400 The raw material was purchased on account.
24. The debits to the Raw Materials account for December would total:
A) $117,120 B) $154,070 C) $116,144 D) $151,280 E) None of the above
25. The credits to the Raw Materials account for December would total:
A) $116,144 B) $151,280 C) $117,120 D) $154,070 E) None of the above
26. The Materials Price Variance for December would be recorded as a:
A) Credit of $2,142 B) Credit of $2,790 C) Debit of $2,142 D) Debit of $2,800 E) None of the above
Materials price variance = Material purchased in December, liters × (Actual price − Standard price) = 3,100 × ($49.70 − $48.80) = $2790 (Debit)
27. The Materials Quantity Variance for December would be recorded as a:
A) Credit of $976 B) Credit of $35,136 C) Debit of $35,136 D) Debit of $976 E) None of the above
Use the following to answer questions 28-29: The Bowden Company makes a single product. Only one kind of direct material is used to make this product. The company uses a standard cost system. The company's cost records for June show the following data: Number of units produced 10,000 Material price variance $8,400 Favorable Material quantity variance $8,000 Unfavorable Actual direct material used 21,000 Pounds Direct materials standard price $8 per pound
28. The standard cost of direct material for one unit of output is: A) $2 B) $16 C) $8 D) $10 E) None of the above
29. If the amount of direct material bought in June equals the amount of direct material used in June, then the actual cost of direct material per pound is:
A) $8.12 B) $8.00 C) $7.60 D) $7.42 E) None of the above
Use the following to answer questions 30-32: Azzurra Company manufactures computer chips used in aircraft and automobiles. Manufacturing overhead at Azzurra is applied to production on the basis of standard machine-hours.
30. Which overhead variance(s) at Azzurra would be affected in a favorable manner if more computer chips are produced during the year than originally budgeted?
A) variable overhead spending variance B) variable overhead efficiency variance C) fixed overhead budget variance D) fixed overhead volume variance E) none of the above would be affected favorably
31. Which overhead variance(s) at Azzurra would be affected in an unfavorable manner if some indirect materials were “inadvertently” taken home by a few of the indirect laborers?
A) variable overhead spending variance B) variable overhead efficiency variance C) fixed overhead budget variance D) fixed overhead volume variance E) none of the above would be affected unfavorably
32. Which overhead variance(s) at Azzurra would be affected in an unfavorable manner if fire and theft insurance rates increase by 25% unexpectedly during the period?
A) variable overhead spending variance B) variable overhead efficiency variance C) fixed overhead budget variance D) fixed overhead volume variance E) both C and D above
33. A manufacturing company that has only one product has established the following standards for its variable manufacturing overhead. The company uses machine-hours as its measure of activity. Standard hours per unit of output 2.7 machine-hours Standard variable overhead rate $19.40 per machine-hour The following data pertain to operations for the last month: Actual hours 4,500 machine-hours Actual total variable overhead cost $88,425 Actual output 1,500 units What is the variable overhead spending variance for the month?
A) $9,855 U B) $1,125 F C) $1,125 U D) $9,855 F E) None of the above
34. Diehl Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of standard direct labor-hours. The company's total applied factory overhead was $315,000 last year when the company used 32,000 direct labor-hours as the denominator activity. If the variable factory overhead rate was $8 per direct labor-hour, and if 30,000 standard labor-hours were allowed for the output of the year, then the total budgeted fixed factory overhead for the year must have been: A) $60,000 B) $80,000 C) $90,000 D) $100,000 E) None of the above
35. At the beginning of last year, Monze Corporation budgeted $600,000 of fixed manufacturing overhead and chose a denominator level of activity of 100,000 direct labor-hours. At the end of the year, Monze's fixed overhead budget variance was $8,000 unfavorable. Its fixed overhead volume variance was $21,000 favorable. Actual direct labor-hours for the year were 96,000. What was Monze's actual fixed overhead for last year? A) $563,000 B) $579,000 C) $608,000 D) $592,000 E) None of the above
36. Kinsi Corporation manufactures five different products. All five of these products must pass through a stamping machine in its fabrication department. This machine is Kinsi's constrained resource. Kinsi would make the most profit if it produces the product that:
A) uses the lowest number of stamping machine hours. B) generates the highest contribution margin per unit. C) generates the highest contribution margin ratio. D) generates the highest contribution margin per stamping machine hour. E) None of the above
37. Milford Corporation has in stock 16,100 kilograms of material R that it bought five years ago for $5.75 per kilogram. This raw material was purchased to use in a product line that has been discontinued. Material R can be sold as is for scrap for $3.91 per kilogram. An alternative would be to use material R in one of the company's current products, S88Y, which currently requires 2 kilograms of a raw material that is available for $7.60 per kilogram. Material R can be modified at a cost of $0.77 per kilogram so that it can be used as a substitute for this material in the production of product S88Y. However, after modification, 4 kilograms of material R is required for every unit of product S88Y that is produced. Milford Corporation has now received a request from a company that could use material R in its production process. Assuming that Milford Corporation could use all of its stock of material R to make product S88Y or the company could sell all of its stock of the material at the current scrap price of $3.91 per kilogram, what is the minimum acceptable selling price of material R to the company that could use material R in its own production process?
A) $0.88 B) $3.03 C) $4.57 D) $3.91 E) None of the above
38. Schickel Inc. regularly uses material B39U and currently has in stock 460 liters of the material for which it paid $3,128 several weeks ago. If this were to be sold as is on the open market as surplus material, it would fetch $5.95 per liter. New stocks of the material can be purchased on the open market for $6.45 per liter, but it must be purchased in lots of 1,000 liters. You have been asked to determine the relevant cost of 760 liters of the material to be used in a job for a customer. The relevant cost of the 760 liters of material B39U is:
A) $4,902 B) $4,672 C) $4,522 D) $6,450 E) None of the above
Use the following to answer questions 39-40: Penagos Corporation is presently making part Z43 that is used in one of its products. A total of 5,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per Unit Direct materials $1.10 Direct labor $3.10 Variable overhead $6.90 Supervisor’s salary $5.80 Depreciation of special equipment $5.20 Allocated general overhead $5.60 An outside supplier has offered to produce and sell the part to the company for $20.80 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided.
39. If management decides to buy part Z43 from the outside supplier rather than to continue making the part, what would be the annual impact on the company's overall net operating income?
A) Net operating income would decline by $34,500 per year. B) Net operating income would decline by $30,500 per year. C) Net operating income would decline by $16,000 per year. D) Net operating income would decline by $38,500 per year. E) None of the above