The corporate controller's salary would be considered

Accounting

Midterm Exam

Be sure to show your work clearly for partial credit.

The point breakdown is as follows:

Multiple choice (30 @ 2 points) 60.0 points

Problem 1 15.0 points

Problem 2 10.0 points

Problem 3 15.0 points

Total 100.0 points

Name:_____________________________

I have complied with the University’s honor code, which requires that I do my own work and not give or receive assistance on this examination. Revealing information to (or soliciting from) students is a violation of the honor code.

Signed: _____________________________

MULTIPLE CHOICE

Select the best answer to each question by circling your answer.

1. Midwest Motors manufactures automobiles. Which of the following would not be considered direct materials by the company?

A) Sheet metal used in automobile’s body.

B) Tires.

C) Interior leather.

D) CD Player.

E) Wheel lubricant.

2.

Which of the following is a product cost?

A)

Glass in an automobile

B)

Advertising

C)

The salary of the vice president

D)

Insurance for factory building.

3.

The corporate controller's salary would be considered a(n):

A)

manufacturing cost.

B)

product cost.

C)

administrative cost.

D)

selling expense.

4.

Manufacturing overhead:

A)

can be either a variable cost or a fixed cost.

B)

includes the costs of advertising.

C)

includes all factory labor costs.

D)

includes all fixed costs.

5.

Which one of the following costs should NOT be considered an indirect cost of serving a particular customer at a Dairy Queen fast food outlet?

A)

the cost of the hamburger patty in the burger they ordered.

B)

the wages of the employee who takes the customer's order.

C)

the cost of heating and lighting the kitchen.

D)

the salary of the outlet's manager.

6.

Which of the following statements represents a similarity between financial and managerial accounting?

A)

Both are useful in providing information for external users.

B)

Both are governed by GAAP.

C)

Both draw upon an organization’s accounting system.

D)

Both rely heavily on published financial statements.

7. The accounting records of Hill Corporation revealed the following selected costs: Sales commissions, $40,000; plant supervision, $94,000; and administrative expenses, $185,000. Hill's period costs total:

A) $40,000.

B) $94,000.

C) $185,000.

D) $225,000.

E) $319,000.

8.

An employee accidentally overstated the year's advertising expense by $50,000. Which of the following correctly depicts the effect of this error?

A)

Cost of goods manufactured will be overstated by $50,000.

B)

Cost of goods sold will be overstated by $50,000.

C)

Both cost of goods manufactured and cost of goods sold will be overstated by $50,000.

D)

None of the above.

9.

If there is a change in the level of the number of units produced:

A)

fixed costs per unit will be the same and variable costs per unit will change.

B)

fixed and variable costs per unit will change.

C)

fixed and variable costs per unit will remain the same.

D)

fixed costs per unit will change and variable costs per unit will be the same.

10.

Which of the following will decrease a company’s breakeven point?

A)

Decreasing the contribution margin per unit.

B)

Increasing the variable cost per unit.

C)

Increasing the total fixed costs.

D)

Increasing the selling price per unit.

11.

When 10,000 units are produced, variable costs are $18 per unit. Therefore, when 30,000 units are produced variable costs will:

A)

will total $540,000.

B)

decrease to $12 per unit.

C)

decrease to $6 per unit.

D)

increase to $54 per unit

Use the following graph for the following question (question 12):

image1.wmf

Cost-Volume-Profit Graph

$100,000

80,000

60,000

40,000

20,000

0 1,000 2,000 3,000 4,000 5,000 Units

F

H

C

G

A

B

E

D

12. In the graph (above) the line C represents:

fixed cost line

variable cost line

total revenue line

total cost line

profit line

At a break-even point of 400 units sold, variable expenses were $4,000 and fixed expenses were $2,000. What will the 401st unit sold contribute to profit?

A) $0

B) $5

C) $10

D) $15

14. North Company sells a single product. The product has a selling price of $30 per unit and variable expenses of 70% of sales. If the company's fixed expenses total $60,000 per year, then it will have a break-even of: A) $60,000 B) $85,714 C) $42,000 D) $200,000

15. Which of the following formulas is used to calculate the contribution margin ratio? A) (Sales - Fixed expenses) ( Sales B) (Sales - Cost of goods sold) ( Sales C) (Sales - Variable expenses) ( Sales D) (Sales - Total expenses) ( Sales

16. Fenestre Corporation's contribution margin ratio is 25%. The company's break-even is 80,000 units and the selling price of its only product is $4.00 a unit. What are the company's fixed expenses? A) $80,000 B) $320,000 C) $20,000 D) $120,000

17.

Which of the following is an equation of a total cost function for a product with variable and fixed costs?

A)

Y = a + bx

B)

Y = a

C)

Y = bx

D)

Y = abx

18. Management accounting is:

A) Fun.

B) Fun.

C) Fun.

D) Fun.

19. Consider a decision facing a company of either accepting or rejecting a special offer for one of its products. A cost that is not relevant is: A) direct materials. B) variable overhead. C) fixed overhead that will be avoided if the special offer is accepted. D) common fixed overhead that will continue if the special offer is not accepted.

20.

In generating cost information for determining whether or not to delete a product line, the most important distinction to identify is:

A)

direct versus indirect costs

B)

fixed versus variable costs

C)

manufacturing versus non-manufacturing costs

D)

avoidable versus unavoidable costs

21. When there is a production constraint, a company should emphasize the products with: A) the highest unit contribution margins. B) the highest contribution margin ratios. C) the highest contribution margin per unit of the constrained resource. D) the highest contribution margins and contribution margin ratios.

22. Which of the following are valid reasons for eliminating a product line? I. The product line's contribution margin is negative. II. The product line's traceable fixed costs plus its allocated common corporate costs are less than its contribution margin.

A) Only I B) Only II C) Both I and II D) Neither I nor II

23. Vanikoro Corporation currently has two divisions which had the following operating results for last year:

image2.wmf

Since the Rubber Division sustained a loss, the president of Vanikoro is considering the elimination of this division. All of the fixed costs for the division could be eliminated if the division was dropped – except of the allocated corporate fixed costs. If the Rubber Division was dropped at the beginning of last year, how much higher or lower would Vanikoro's total net operating income have been for the year?

A) $10,000 higher B) $40,000 lower C) $50,000 higher D) $100,000 lower

24. Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below: image3.wmf Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $38 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A has ample capacity to produce the units for Division B without any increase in fixed costs and without cutting into sales to outside customers. If Division A sells to Division B rather than to outside customers, the variable cost be unit would be $1 lower. What should be the lowest acceptable transfer price from the perspective of Division A? A) $40 B) $38 C) $30 D) $29

25. Division X makes a part with the following characteristics: image4.wmf Division Y of the same company would like to purchase 10,000 units each period from Division X. Division Y now purchases the part from an outside supplier at a price of $17 each.

Suppose Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into sales to outside customers. If Division X refuses to accept the $17 price internally and Division Y continues to buy from the outside supplier, the company as a whole will be: A) worse off by $70,000 each period. B) better off by $10,000 each period. C) worse off by $60,000 each period. D) worse off by $20,000 each period.

26. Media, Inc., an advertising agency, applies overhead to jobs based on direct professional labor hours. Overhead was estimated to be $150,000, direct professional labor hours were estimated to be 15,000, and direct professional labor cost was projected to be $225,000. During the year, Media incurred actual overhead costs of $146,000, actual direct professional labor hours of 14,500, and actual direct labor cost of $222,000. By year-end, the firm’s overhead was:

A) $1,000 underapplied

B) $1,000 overapplied

C) $4,000 underapplied

D) $4,000 overapplied

E) $5,000 underapplied

27. Which of the following is the proper sequence in an activity-based costing system?

A) Identification of cost drivers, identification of cost pools, calculation of cost application rates, assignment of cost to products.

B) Identification of cost pools, identification of cost drivers, calculation of cost application rates, assignment of cost to products.

C) Assignment of cost to products, identification of cost pools, identification of cost drivers, calculation of cost application rates,.

D) Calculation of cost application rates, identification of cost drivers, identification of cost pools, assignment of cost to products.

28. Which of the following statements is true?

A) A traditional volume-based system based on direct labor generally undercosts high volume product lines.

B) In a traditional volume-based costing system based on direct labor, low volume products generally subsidize high volume products.

C) An activity-based costing system generally undercosts low-volume, complex product lines.

D) A traditional volume-based costing system based on direct labor generally undercosts low-volume, complex product lines.

29. Hamilton Company applies overhead based on direct labor hours. At the beginning of 2005, the company estimated that manufacturing overhead would be $700,000, and direct labor hours would be 10,000. Actual overhead by the conclusion of 2005 amounted to $800,000 and actual direct labor hours were 14,000. On the basis of this information, Horton's 2005 predetermined overhead rate is:

A) $50.00

B) $70.00

C) $80.00

D) $57.14

Sunshine Company currently uses traditional costing procedures, applying $400,000 of overhead to products X and Y on the basis of direct labor hours. The firm is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow. "

Product

Pool No. 1

(Driver: DLH)

Pool No. 2

(Driver: SU)

Pool No. 3

(Driver: PC)

X

400

25

1,300

Y

600

75

700

Pool Cost

$160,000

$140,000

$100,000

The overhead cost allocated to product Y by using traditional costing procedures would be:

A) $ 36,000.

B) $160,000.

C) $240,000.

D) $266,000.

E) $300,000

The overhead cost allocated to product Y by using traditional costing procedures would be:

$ 36,000.

$160,000.

$240,000

$266,000.

$300,000"

You MUST show your work to receive credit for your answers and to receive partial credit. Please try to be as neat and organized as possible.

Problem 1

The Koski Company has established standards as follows: image5.wmf Actual production figures for the past year were as follows: image6.wmf

Direct material purchased (1,600 pounds) $6,560

image7.wmf

Required:

A. What is the materials price variance (amount and favorable or unfavorable)?

B. What is materials quantity variance (amount and favorable or unfavorable)?

C. What is the labor rate variance (amount and favorable or unfavorable)?

D. What is the labor efficiency variance (amount and favorable or unfavorable)?

Problem 2

The constraint at Bulman Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below: image8.wmf Assume that sufficient time is available on the constrained machine to satisfy demand for all but the least profitable product.

Required

What is the contribution margin per constrained resource for each product?

In what order should the company produce the three products in case of a machine breakdown that limits the available processing time on the machine?

Problem 3

Ryland, Inc., manufactures two products, Regular and Deluxe. Ryland uses a traditional costing system and applies overhead on the basis of direct labor hours (cost driver). Anticipated overhead and direct labor time for the upcoming accounting period are $1,600,000 and 25,000 hours, respectively. Information about the company's products follows.

REGULAR

DELUXE

Estimated total production volume

3,000 units

4,000 units

Direct materials cost (per unit)

$28

$42

Direct labor cost (per unit)

$45 (3 hrs @ $15/hr)

$60 (4 hrs @ $15/hr)

Recently, the controller of Ryland, Inc. began to wonder whether the company was accurately costing its products, so she decided to try-out activity based costing (ABC).

The controller identified three major activities: order processing, machine processing, and product inspection. These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively. Ryland’s budgeted total overhead of $1,600,000 is subdivided as follows: order processing, $250,000; machine processing, $1,200,000; and product inspection, $150,000.

Data relevant to these activities follow.

Orders

Processed

Machine Hours Worked

InspectionHours

Regular

320

16,000

4,000

Deluxe

180

24,000

6,000

Total

500

40,000

10,000

Required:

What is the unit cost of REGULAR under both the current costing system and ABC costing system?

Is the DELUXE product line under or over costed by the traditional costing system? Explain.