Institute of Business Administration Name: Muhammad Salman

Subject: Accounting for Decision Making Enrollment No. 18448

Total Marks: 20 Quiz No. 2
All MCQs to be attempted

1. The following information is taken from the records of CL Company for last year:

Direct materials ..................................................... $5,000

Manufacturing overhead ........................................ $6,000
Total manufacturing costs ..................................... $17,000
Beginning work in process inventory .................... $1,000
Cost of goods manufactured .................................. $15,000

What are the correct amounts for direct labor and ending work in process inventory?

Direct Labor Ending Work in Process

A. $12,000 $2,000
B. $11,000 $2,000
C. $6,000 $1,000
D. $6,000 $3,000

2. A job order cost system uses a predetermined overhead rate based on estimated activity and estimated
manufacturing overhead cost. At the end of the year, underapplied overhead might be explained by
which of the following situations?

Actual activity Actual manufacturing overhead costs

A. Greater than estimated Greater than estimated
B. Greater than estimated Less than estimated
C. Less than estimated Greater than estimated
D. Less than estimated Less than estimated

3. There is no difference in the unit costs computed under the weighted-average and FIFO methods of
process costing if there are no beginning work in process inventories.

A) True B) False

4. As the level of activity increases, how will a mixed cost in total and per unit behave?

In Total Per Unit

A) Increase Decrease
B) Increase Increase
C) Increase No effect
D) Decrease Increase
E) Decrease No effect

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5. Shipping costs at Columbia Mining Company are a mixture of variable and fixed components. The
company shipped 8,000 tons of coal for $400,000 in shipping costs in February and 10,000 tons for
$499,000 in March Assuming that this activity is within the relevant range, expected shipping costs for
11,000 tons would be:

A) $544,500 B) $548,500
C) $422,222 D) $554,000

6. Managerial accounting is a branch of financial accounting and serves essentially the same purposes as
financial accounting.

A) True B) False

7. The nursing station on the fourth floor of Central Hospital is responsible for the care of patients who
have undergone orthopedic surgery. The costs of drugs administered by the nursing station to patients
would be classified as:

A. direct costs of the patients. B. indirect costs of the patients.

C. overhead costs of the nursing station. D. period costs of the hospital.

8. Aable Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is $45,000
and if direct materials are $53,000, the manufacturing overhead is:

A. $11,250 B. $13,250
C. $180,000 D. $24,500

9. A manufacturing company prepays its insurance coverage for a three-year period. The premium for the
three years is $3,000 and is paid at the beginning of the first year. Three-fourths of the premium applies
to factory operations and one-fourth applies to selling and administrative activities. What amounts
should be considered product and period costs respectively for the first year of coverage?

Product Period
A. $1,000 $0
B. $250 $750
C. $2,250 $750
D. $750 $250

10. Braaten Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the
year, the estimated direct labor-hours were 14,100 hours. At the end of the year, actual direct labor-
hours for the year were 13,500 hours, the actual manufacturing overhead for the year was $291,100, and
manufacturing overhead for the year was underapplied by $7,600. The estimated manufacturing
overhead at the beginning of the year used in the predetermined overhead rate must have been:

A) $286,100 B) $296,100
C) $298,816 D) $283,500
11. Indirect labor is a part of:

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 A) Prime cost.
B) Conversion cost.
C) Period cost.
D) Nonmanufacturing cost.

12. Product costs appear on the balance sheet:

A) only if goods are partially completed at the end of the period.
B) only if goods are unsold at the end of a period.
C) only if goods are partially completed or are unsold at the end of a period.
D) only in merchandising firms.

13. The costs of staffing and operating the accounting department at Central Hospital would be considered
by the Department of Surgery to be:
A) direct costs.
B) indirect costs.
C) incremental costs.
D) opportunity costs.

14. Last month a manufacturing company had the following operating results:
Beginning finished goods inventory ............ $74,000
Ending finished goods inventory ................. $50,000
Sales ............................................................. $438,000
Gross margin ................................................ $63,000

What was the cost of goods manufactured for the month?

A) $375,000
B) $414,000
C) $399,000
D) $351,000

15. On the Schedule of Cost of Goods Manufactured, the final Cost of Goods Manufactured figure
represents:
A) the amount of cost charged to Work in Process during the period.
B) the amount of cost transferred from Finished Goods to Cost of Goods Sold during the period.
C) the amount of cost placed into production during the period.
D) the amount of cost of goods completed during the current year whether they were started before
or during the current year.

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16. At the beginning of the year, manufacturing overhead for the year was estimated to be $477,590. At the
end of the year, actual direct labor-hours for the year were 29,000 hours, the actual manufacturing
overhead for the year was $472,590, and manufacturing overhead for the year was overapplied by $110.
If the predetermined overhead rate is based on direct labor-hours, then the estimated direct labor-hours
at the beginning of the year used in the predetermined overhead rate must have been:

A) 29,300 direct labor-hours

B) 28,987 direct labor-hours
C) 28,993 direct labor-hours
D) 29,000 direct labor-hours

17. Dagger Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the
year, the total estimated manufacturing overhead was $423,870. At the end of the year, actual direct
labor-hours for the year were 19,400 hours, manufacturing overhead for the year was underapplied by
$5,650, and the actual manufacturing overhead was $418,870. The predetermined overhead rate for the
year must have been closest to:

A) $21.59
B) $20.76
C) $21.30
D) $21.85

18. A process costing system was used for a department that began operations in January. Approximately
the same number of physical units, at the same degree of completion were in work in process at the end
of both January and February. Monthly conversion costs are allocated between ending work in process
and units completed. Compared to the FIFO method, would the weighted-average method use the same
or a greater number of equivalent units to calculate the monthly allocations?
Equivalent units for weighted average compared to FIFO
January February
A) Same Same
B) Greater number Greater number
C) Greater number Same
D) Same Greater number

19. Williams Company uses the FIFO method in its process costing system. The beginning work in process
inventory in a particular department consisted of 10,000 units, 100% complete with respect to materials
and 60% with respect to conversion costs. The total cost in the beginning work in process inventory was
$48,200. During the month, 25,000 units were transferred out of the department. The costs per
equivalent unit were computed to be $3.10 for materials and $4.50 for conversion costs. The total cost of
the units completed and transferred out of the department was:
A) $190,000 B) $189,200
C) $180,200 D) $132,000

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20. The following data have been collected for four different cost items.

Cost Item Cost at 100 units Cost at 140 units

W $8,000 $10,560
X $5,000 $5,000
Y $6,500 $9,100
Z $6,700 $8,580

Which of the following classifications of these cost items by cost behavior is correct?

Cost W Cost X Cost Y Cost Z

A) variable fixed mixed variable
B) mixed fixed variable mixed
C) variable fixed variable variable
D) mixed fixed mixed mixed

21. Bakan Corporation has provided the following production and average cost data for two levels of
monthly production volume. The company produces a single product.

Production volume 3,000 units 4,000 units

Direct materials $86.30 per unit $86.30 per unit
Direct labor $26.40 per unit $26.40 per unit
Manufacturing overhead $75.90 per unit $60.40 per unit

The best estimate of the total variable manufacturing cost per unit is:
A) $126.60 C) $13.90
B) $86.30 D) $112.70

22. At a sales level of $365,000, Lewis Company's gross margin is $20,000 less than its contribution margin,
its net operating income is $70,000, and its selling and administrative expenses total $130,000 At this
sales level, its contribution margin would be:

A) $295,000
B) $180,000
C) $220,000
D) $200,000

23. Assuming that the unit contribution margin is positive, a 10% decrease in selling price will increase the
break-even point in terms of unit sales more than will a 10% increase in the variable expense.

A) True B) False

24. Operating leverage will decrease as the company's margin of safety increases.

A) True B) False

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25. The contribution margin ratio always increases when the:

A) break-even point increases.

B) break-even point decreases.
C) variable expenses as a percentage of net sales decrease.
D) variable expenses as a percentage of net sales increase.

26. When viewed over the long term, accumulated net operating income will be the same for variable and
absorption costing if there are no ending inventories at the end of the term.

A) True B) False

27. A $2.00 increase in a product's variable expense per unit accompanied by a $2.00 increase in its selling
price per unit will:

A) decrease the degree of operating leverage.

B) decrease the contribution margin.
C) have no effect on the break-even volume.
D) have no effect on the contribution margin ratio.

28. The following information relates to the break-even point at Pezzo Corporation:

Sales dollars ...................... $120,000

Total fixed expenses ........... $30,000

If Pezzo wants to generate net operating income of $12,000, what will its sales dollars have to be?

A) $132,000
B) $136,000
C) $168,000
D) $176,000

29. The following information relates to Snowbird Corporation:

Sales at the break-even point………… $312,500

Total fixed expenses ........................ $250,000
Net operating income ..................... $150,000

What is Snowbird's margin of safety?

A) $62,500 C) $100,000
B) $187,500 D) $212,500

30. Under variable costing, it is possible to defer a portion of the fixed manufacturing overhead costs of the
current period to future periods through the inventory account.

A) True B) False

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31. The following information relates to Zinc Corporation for last year:

Sales ........................................................... $500,000

Net operating income ................................ $25,000
Degree of operating leverage .................... 5

Sales at Zinc are expected to be $600,000 next year. Assuming no change in cost structure, this means
that net operating income for next year should be:

A) $30,000
B) $45,000
C) $50,000
D) $125,000

32. Tice Company is a medium-sized manufacturer of lamps. During the year a new line called “Horolin” was
made available to Tice's customers. The break-even point for sales of Horolin is $200,000 with a
contribution margin of 40%. Assuming that the profit for the Horolin line during the year amounted to
$100,000, total sales during the year would have amounted to:

A) $300,000 C) $450,000
B) $420,000 D) $475,000

33. Birney Company has prepared the following budget data:

Sales .............................................................. 150,000 units

Selling price .................................................. $25 per unit
Variable expenses ......................................... $15 per unit
Fixed manufacturing expenses ..................... $800,000
Fixed selling and admin. expenses ............... $700,000

An advertising agency claims that an aggressive advertising campaign would enable the company to
increase its unit sales by 20%. What is the maximum amount that the company can pay for advertising
and obtain a net operating income of $200,000?

A) $100,000 C) $300,000
B) $200,000 D) $550,000

34. Last year, variable expenses were 60% of total sales and fixed expenses were 10% of total sales. If the
company increases its selling prices by 10%, but if fixed expenses, variable costs per unit, and unit sales
remain unchanged, the effect of the increase in selling price on the company's total contribution margin
would be:

A) a decrease of 2%
B) an increase of 5%
C) an increase of 10%
D) an increase of 25%

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35. In an income statement prepared as an internal report using variable costing, variable selling and
administrative expenses would:

A) not be used.
B) be used in the computation of the contribution margin.
C) be used in the computation of net operating income but not in the computation of the
contribution margin.
D) be treated the same as fixed selling and administrative expenses.

36. When sales exceed production, the net operating income reported under variable costing generally will
be:

A) less than net operating income reported under absorption costing.

B) greater than net operating income reported under absorption costing.
C) equal to net operating income reported under absorption costing.
D) higher or lower because no generalization can be made.

37. Which of the following budgets are prepared before the production budget?

Direct Materials Budget Sales Budget

A) Yes Yes
B) Yes No
C) No Yes
D) No No

38. Thirty percent of Sharp Company's sales are for cash and 70% are on account. Sixty percent of the
account sales are collected in the month of sale, 25% in the month following sale, and 12% in the second
month following sale. The remainder is uncollectible. The following are budgeted sales data for the
company:

January February March April

Total sales $50,000 $60,000 $40,000 $30,000

Total cash receipts in April are expected to be:

A) $24,640 B) $35,200
C) $31,560 D) $33,640

39. Poor quality materials could have an unfavorable effect on which of the following variances?

Labor Efficiency Materials Quantity

Variance Variance
A) Yes Yes
B) Yes No
C) No Yes
D) No No

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40. When a multi-product factory operates at full capacity, decisions must be made about what products to
emphasize. In making such decisions, products should be ranked based on:

A) selling price per unit

B) contribution margin per unit
C) contribution margin per unit of the constraining resource
D) unit sales volume

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