Chapter 1 final exam

Absorption costing measures operating profit as:

rev: 08_13_2019_QC_CS-174994
Multiple Choice

Sales less all costs including operating expenses.

Sales less absorption cost of goods sold.

Correct

Sales less unit level costs spent on goods sold.


Sales less variable cost of goods sold.
At a break-even point of 500 units, variable costs were $800 and fixed costs were $460. What
will the 501st unit sold contribute to operating profits before income taxes?
Multiple Choice

$0.92
Correct

$2.52

$3.44

$1.60

The total contribution margin is the unit contribution margin multiplied by the number of units
minus the fixed component of the total costs (TC).
Group startsTrue or False
 True , unselectedbutton,Incorrect unavailable

False selected button,Correctunavailable

Group ends
Explanation
Correct! The total contribution margin is the unit contribution margin multiplied by the number
of units.

Which of the following statements regarding costs and expenses is not correct?

Multiple Choice

 An expense is a cost charged against revenue in an accounting period.

 All of these are correct statements.

 Accounting systems typically capture and record both outlay costs and opportunity
costs. Correct

 If the cost is recorded as an asset, it becomes an expense when the asset has been
consumed.

We incur a cost whenever we give up (sacrifice) resources, regardless of whether we
account for it as an asset or an expense.
Explanation
Accounting systems typically record outlay costs but not opportunity costs.

If the average selling price is $0.60 per unit, the average variable cost is $0.36 per unit, and the
total fixed costs are $1,500, then sales of 15,000 units will result in operating profits of $3,600.
Group startsTrue or False

True , unselectedbutton,Incorrect unavailable

False selected button,Correctunavailable

Group ends
Explanation
Correct! ($0.60 − 0.36) × 15,000 − 1,500 = $2,100.
Which of the following is an example of a nonvalue-added activity?

Multiple Choice

 All of these are examples of value-added activities.

 Research and development (R&D)

 Distribution

 Purchasing

 Reworking defective units

Lamar has the following data:

 
       
Selling price $ 40 
Variable manufacturing cost $ 22 
Fixed manufacturing cost $204,000 per month
Variable selling & administrative costs $ 6 
Fixed selling & administrative costs $174,000 per month

How many units must Lamar produce and sell in order to achieve a profit of $84,000 per month?
Multiple Choice

31,000 units.


 38,500 units.
Correct

17,333 units.

28,500 units.
Explanation
($204,000 + $174,000 + $84,000)/($40 − $22 − $6) = 38,500 units.

For each of the following costs incurred in a manufacturing operation, indicate whether they are
included in prime costs (P), conversion costs (C), or both (B).
 

Bargain Company's contribution margin ratio is 20%. If the degree of operating leverage is 12 at
the $165,000 sales level, operating profit at the $165,000 sales level must equal:
Multiple Choice

$2,376.

$2,640.
 

$1,650.

$2,750.
Correct
Explanation
Operating profit percentage = Contribution margin ratio ÷ Operating leverage
= 20% ÷ 12
= 1.67%
= 1.67% × $165,000
= $2,750 operating profit

Which is of the following statements regarding cost accounting information

is not correct?
Multiple Choice

 Cost accounting information is commonly used in developing financial accounting

information.

 Cost accounting information is designed for managers.

 The primary purpose of cost accounting information is to provide information to

management

 All of these are correct statements.

 Cost accounting information is governed by generally accepted accounting principles

(GAAP) in the United States and international financial reporting standards (IFRS) in
many other countries.Correct
The following information is available for Barnes Company for the fiscal year ended December
31:
 
      
Beginning finished goods inventory in units   0 
Units produced   7,400 
 Units sold   5,300 
Sales $ 689,000 
Materials cost $ 148,000 
Variable conversion cost used $ 74,000 
Fixed manufacturing cost $ 592,000 
Indirect operating costs (fixed) $ 106,000 

 
The variable costing ending inventory is:
Multiple Choice

$63,000
Correct

$79,000

$75,000

$47,000
Explanation
($148,000 + $74,000)/7,400 = $30 per unit; $30 per unit × 2,100 units = $63,000

Assume that you are a cost accountant who is a member of the Institute of
Management Accountants (IMA). If you are faced with an ethical conflict, what
should you do?

Multiple Choice
  Resign from the company.

 Go directly to the audit committee with the information.

 None of these.

 All of these.

 Follow the established policies that deal with them and, if the policies do not resolve
the conflict, you should consider discussing the matter with superiors.
Obtuse Company's fixed costs total $153,000, its variable cost ratio is 60% and its variable costs
are $4.50 per unit. Based on this information, the break-even point in units is:
Multiple Choice

51,000.
Correct

34,000.

102,000.

38,250.
Explanation
$4.50 (VC per unit)/60% = $7.50 selling price. $153,000/($7.50 – $4.50) = 51,000 units.

Compute the Cost of Goods Sold for 2019 using the following information:
  
      
 Direct Materials, Jan. 1, 2019 $ 47,500 
Work-in-Process, Dec. 31, 2019   72,000 
Direct Labor   56,000 
Finished Goods, Dec. 31, 2019   120,000 
Finished Goods, Jan. 1, 2019   150,500 
Manufacturing Overhead   77,000 
Direct Materials, Dec. 31, 2019   58,000 
Work-in Process, Jan. 1, 2019   102,000 
Purchases of Direct Material   90,000 

Multiple Choice

$273,000
Correct

$223,000

$242,500

$275,000
Explanation
$47,500 + $90,000 − $58,000 = $79,500 (Direct materials used in production)
$102,000 + $79,500 + $56,000 + $77,000 − $72,000 = $242,500 (COGM)
$150,500 + $242,500 − $120,000 = $273,000 (COGS)

A decrease in the margin of safety would be caused by a(n):

Multiple Choice


 increase in the total fixed costs.
Correct

decrease in the break-even point.

decrease in the variable cost per unit.


increase in total revenue (sales).
Abbott Company incurred the following costs during the year: utilities (60% factory),
$5,000; insurance (75% factory), $4,000; direct materials, $20,000; indirect materials,
$3,000; direct labor, $30,000; and indirect labor, $5,000. What is the amount of
conversion costs incurred during the year?

Multiple Choice

 $94,000

 $77,000
 $44,000Correct

 $36,000
 None of these.
Explanation
Conversion costs = Direct labor + Manufacturing overhead (must be calculated).

Manufacturing overhead = Factory utilities of $3,000 (or $5,000 × 60%) + Factory insurance of
$3,000 (or $4,000 × 75%) + Indirect materials of $3,000 + Indirect labor of $5,000 = $14,000.

Conversion costs incurred = Direct labor of $30,000 + Manufacturing overhead of $14,000 =

$44,000.