Chapter 04 - Systems Design: Process Costing4-1

Chapter 04Systems Design: Process CostingMultiple Choice Questions1. (Appendix 4A) Which of the following statements referring to a production report is notcorrect?A. The quantity schedule deals with physical units, not whole units.B. The total "Costs to be accounted for" must equal the total cost of the units completed andtransferred out, plus the cost of the ending work-in-process inventory.C. The equivalent units in the ending work-in-process inventory will be different if theweighted-average method is used than it will be if the FIFO method is used.D. The total of the "Units to be accounted for" will equal the total of the "Units accounted for."Bloom's Level: UnderstandDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4Learning Objective: 6Learning Objective: 7Learning Objective: 8

2. Assume that there is no beginning work-in-process inventory, and the endingwork-in-process inventory is 50% complete with respect to conversion costs. What would bethe number of equivalent units of production with respect to conversion costs under theweighted-average method?A. The same as the units completed.B. The same as the units started during the period.C. Less than the units completed.D. Less than the units started during the period.Bloom's Level: UnderstandDifficulty: HardLearning Objective: 2

Chapter 04 - Systems Design: Process Costing4-23. (Appendix 4A) All production costs have been steadily rising in the Donner Company for

several periods, and the company maintains large work-in-process inventories. What is theDonner Company's cost per equivalent unit, as computed using the FIFO method?A. The same as that computed under the weighted-average method.B. Higher than that computed under the weighted-average method.C. Lower than that computed under the weighted-average method.D. It could be the lower than, the same as, or higher than that computed under theweighted-average method.Bloom's Level: UnderstandDifficulty: HardLearning Objective: 3Learning Objective: 7

4. (Appendix 4A) If a company uses two different unit cost figures to cost transfers from onedepartment to another under a process costing system, then which of the following statements isreasonable to assume?A. There was no beginning work-in-process inventory.B. Processing centres are arranged in a sequential pattern.C. The FIFO cost method is being used.D. The weighted-average cost method is being used.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 5Learning Objective: 8

5. For which of the following industries would it NOT be appropriate to use process costing?A. Custom furniture building.B. Oil refining.C. Grain milling.D. Newsprint production.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 1

Chapter 04 - Systems Design: Process Costing4-36. Which of the following statements best defines an operation costing system?A. It is identical to a process costing system except that actual manufacturing overhead costsare traced to units of product.B. It is the same as a process costing system except that direct materials costs are accounted forin the same way as in job-order costing system.C. It is the same as a job-order costing system except that direct materials costs are accountedfor in the same way as in a process costing system.D. It is identical to a job-order costing system except that actual manufacturing overhead costs

are traced to units of product.Bloom's Level: UnderstandDifficulty: HardLearning Objective: 1Learning Objective: 8

7. Lucas Company uses the weighted-average method in its process costing system. Thecompany adds materials at the beginning of the process in the Forming Department, which isthe first of two stages in its production process. Information concerning operations in theForming Department in October follows:What was the materials cost of work in process on October 31?A. $3,060.B. $5,520.C. $6,000.D. $6,120.EI = 6,000 + 50,000 - 44,000 = 12,000 units * $28,560/56,000 = $6120.Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4Learning Objective: 5

Chapter 04 - Systems Design: Process Costing4-48. David Company uses the weighted-average method in its process costing system. The firstprocessing department, the Welding Department, started the month with 20,000 units that were80% complete with respect to conversion costs. The conversion cost in this beginningwork-in-process inventory was $123,200. An additional 65,000 units were started intoproduction during the month. There were 19,000 units in the ending work-in-process inventoryof the Welding Department that were 10% complete with respect to conversion costs. A total of$389,250 in conversion costs were incurred in the department during the month.What would be the cost per equivalent unit for conversion costs for the month? (Round off tothree decimal places.)A. $7.547.B. $7.700.C. $4.634.D. $5.988.EU = 66,000 + 19,000 *.1 = 67,900. Cost/EU = (132,200 + 389,250)/67,900Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2Learning Objective: 3

Chapter 04 - Systems Design: Process Costing4-59. Larner Company uses the weighted-average method in its process costing system. Operatingdata for the first processing department for the month of June appear below:According to the company's records, the conversion cost in beginning work-in-processinventory was $68,064 at the beginning of June. Additional conversion costs of $585,324 wereincurred in the department during the month.What was the cost per equivalent unit for conversion costs for the month? (Round off to threedecimal places.)A. $5.575.B. $6.174.C. $6.892.D. $7.090.($68,064 + 585,324)/(91,000 + 19,000 * 20%)Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2Learning Objective: 3

Chapter 04 - Systems Design: Process Costing4-610. Glo Co., a manufacturer of combs, uses the weighted-average method in its process costingsystem. The company sold 125,000 units during the month of April. There is only oneprocessing department. The following additional information is provided:What were the equivalent units of production for conversion costs for April?A. 126,500.B. 125,500.C. 123,500.D. 117,500.Transferred out of WIP to FG = 125,000 + 30,000 - 37,500 = 117,500 (from FG information).EU = 117,500 * 100% + 8,000 *.75 = 123,500Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1Learning Objective: 2Learning Objective: 5

Chapter 04 - Systems Design: Process Costing4-711. The Morgan Company uses the weighted-average method in its process costing system. Fora particular department, the company had 54,000 equivalent units of production with respect to

conversion costs in March. There were 7,500 units in the department's beginningwork-in-process inventory, two-thirds complete with respect to conversion costs. DuringMarch, 52,500 units were started and 50,000 were completed and transferred out of thedepartment. What was the ending work-in-process inventory in the department?A. Consisted of 5,000 units.B. Consisted of 2,500 units.C. 65% complete with respect to conversion costs.D. 40% complete with respect to conversion costs.7,500 + 52,500 = 60,000 less 50,000 transferred out = EI of 10,000 units.EI equiv. units = 54,000 - 50,000 = 4,000 EU therefore 4/10 = 40% complete.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2

12. The following data were taken from the accounting records of the Hazel Corporation, whichuses the weighted-average method in its process costing system:What were the equivalent units of production for conversion costs?A. 102,000 units.B. 112,000 units.C. 111,000 units.D. 100,000 units.T. out = 30,000 + 90,000 - 20,000 = 100,000 * 100% + 20,000 *60% = 112,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 04 - Systems Design: Process Costing4-813. Baker Company uses the weighted-average method in its process costing system. TheAssembly Department started the month with 8,000 units in its beginning work-in-processinventory that were 90% complete with respect to conversion costs. An additional 95,000 unitswere transferred in from the prior department during the month to begin processing in theAssembly Department. There were 11,000 units in the ending work-in-process inventory of theAssembly Department that were 90% complete with respect to conversion costs.What were the equivalent units of production for conversion costs in the Assembly Departmentfor the month?A. 94,700 units.B. 101,900 units.C. 98,000 units.D. 92,000 units.92,000 + 11,000 *.9 = 101,900

Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

14. Jawson Company uses the weighted-average method in its process costing system.Operating data for the Painting Department for the month of April appear below:What were the equivalent units of production for conversion costs in the Painting Departmentfor April?A. 67,300 units.B. 68,820 units.C. 70,520 units.D. 63,900 units.(6,300 + 65,600 - 4,600) * 100% + 4,600 * 70%Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 04 - Systems Design: Process Costing4-915. Sarver Company uses the weighted-average method in its process costing system. TheFitting Department is the second department in its production process. The data belowsummarize the department's operations in March:The Fitting Department's production report indicates that the cost per equivalent unit forconversion cost for March was $8.24.How much conversion cost was assigned to the units transferred out of the Fitting Departmentduring March?A. $482,287.20.B. $502,640.00.C. $523,240.00.D. $561,144.00.(7,100 + 61,000 - 4,600) * $8.24Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 04 - Systems Design: Process Costing4-1016. The Nichols Company uses the weighted-average method in its process costing system. Thecompany recorded 29,500 equivalent units of production for conversion costs for November ina particular department. There were 6,000 units in the ending work-in-process inventory onNovember 30, 75% complete with respect to conversion costs. The November 1

work-in-process inventory consisted of 8,000 units, 50% complete with respect to conversioncosts. A total of 25,000 units were completed and transferred out of the department during themonth. What was the number of units started during November in the department?A. 24,500 units.B. 23,000 units.C. 27,000 units.D. 21,000 units.25,000 + 6,000 - 8,000 = 23,000 started.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

17. The Assembly Department started the month with 35,000 units in its beginningwork-in-process inventory. Additional units 472,000 were transferred in from the priordepartment during the month to begin processing in the Assembly Department. There were34,000 units in the ending work-in-process inventory of the Assembly Department. How manyunits were transferred to the next processing department during the month?A. 507,000 units.B. 473,000 units.C. 471,000 units.D. 541,000 units.35,000 + 472,000 - 34,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 1Learning Objective: 2

Chapter 04 - Systems Design: Process Costing4-1118. Huffer Company uses the weighted-average method in its process costing system. Thefollowing information pertains to Processing Department D for the month of May:All materials are added at the beginning of the process. Which of the following costs is closestto the cost per equivalent unit for materials?A. $0.43.B. $0.45.C. $0.55.D. $0.59.($11,000 + 36,000)/(85,000 + 25,000)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2Learning Objective: 3

Chapter 04 - Systems Design: Process Costing4-1219. Harker Company uses the weighted-average method in its process costing system. The firstprocessing department, the Welding Department, started the month with 16,000 units in itsbeginning work-in-process inventory that were 40% complete with respect to conversion costs.The conversion cost in this beginning work-in-process inventory was $29,440. An additional59,000 units were started into production during the month, and 61,000 units were completed inthe Welding Department and transferred to the next processing department. There were 14,000units in the ending work-in-process inventory of the Welding Department that were 10%complete with respect to conversion costs. A total of $246,400 in conversion costs wereincurred in the department during the month.What would be the cost per equivalent unit for conversion costs for the month? (Round off tothree decimal places.)A. $4.176.B. $4.600.C. $3.375.D. $4.421.EI = 16,000 + 59,000 - 61,000 = 14,000 units.Cost/EU = ($29,440 + 246,400)/(61,000 + 14,000 *.1) = $4.4205Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2Learning Objective: 3

Chapter 04 - Systems Design: Process Costing4-1320. Paxton Company uses the weighted-average method in its process costing system. TheMoulding Department is the second department in its production process. The data belowsummarize the department's operations in January:The accounting records indicate that the conversion cost that had been assigned to beginningwork-in-process inventory was $10,973, and a total of $268,107 in conversion costs wereincurred in the department during January.What was the cost per equivalent unit for conversion costs for January in the MouldingDepartment? (Round off to three decimal places.)

A. $5.348.B. $4.038.C. $5.080.D. $4.704.($10,973 + 268,107)/(50,300 + 9,400*.2)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2Learning Objective: 3

Chapter 04 - Systems Design: Process Costing4-1421. The Richmond Company uses the weighted-average method in its process costing system.The company has only a single processing department. The company's ending work-in-processinventory on August 31 consisted of 18,000 units. The units in the ending work-in-processinventory were 100% complete with respect to materials and 60% complete with respect tolabour and overhead. If the cost per equivalent unit for August was $2.75 for materials and$4.25 for labour and overhead, what was the total cost assigned to the ending work-in-processinventory?A. $126,000.B. $75,600.C. $80,100.D. $95,400.18,000*$2.75 + 18,000*.6*$4.25 = $95,400Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2Learning Objective: 4

22. (Appendix 4A) On November 1, Yankee Company had 20,000 units of work in process inDepartment No. 1 that were 100% complete with respect to material costs and 20% completewith respect to conversion costs. During November, 160,000 units were started in DepartmentNo. 1, and 170,000 units were completed and transferred to Department No. 2. The work inprocess on November 30 was 100% complete with respect to material costs and 40% completewith respect to conversion costs. By what amount would the equivalent units of production forconversion costs for the month of November differ if the FIFO method were used instead of theweighted-average method?A. 20,000 decrease.

B. 16,000 decrease.C. 8,000 decrease.D. 4,000 decrease.Transferred out 170,000 units, EI = 10,000 units.W. Avg.: EU = 170,000 + 10,000*.4 = 174,000 EUFIFO: 20,000 *.8 + 150,000 * 1 + 10,000 *.4 = 170,000 EU. Therefore 4,000 less using FIFO.Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 7

Chapter 04 - Systems Design: Process Costing4-1523. Fabian Company uses the weighted-average method in its process costing system. TheAssembly Department started the month with 9,000 units in its beginning work-in-processinventory that were 70% complete with respect to conversion costs. During the month, anadditional 90,000 units were transferred in from the prior department to begin processing in theAssembly Department. During the month, 87,000 units were completed in the AssemblyDepartment and transferred to the next processing department. There were 12,000 units in theending work-in-process inventory of the Assembly Department that were 20% complete withrespect to conversion costs.What were the equivalent units of production for conversion costs in the Assembly Departmentfor the month?A. 93,000 units.B. 83,100 units.C. 87,000 units.D. 89,400 units.87,000 + 12,000 *.20 = 894,300Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 04 - Systems Design: Process Costing4-1624. Narver Company uses the weighted-average method in its process costing system.Operating data for the Lubricating Department for the month of October appear below:What were the equivalent units of production for conversion costs in the LubricatingDepartment for October?

A. 43,100 units.B. 37,100 units.C. 44,780 units.D. 47,780 units.37,100 + 9,600 *.80Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 04 - Systems Design: Process Costing4-1725. Black Company uses the weighted-average method in its process costing system. Thecompany's ending work-in-process inventory consists of 5,000 units, 80% complete withrespect to materials and 50% complete with respect to labour and overhead. If the total dollarvalue of the inventory is $60,000 and the cost per equivalent unit for labour and overhead is$8.00, what is the cost per equivalent unit for materials?A. $5.00.B. $10.00.C. $8.00.D. $4.00.Value for Labour and Overhead in Inventory = 5,000 *.5 * $8 = $20,000Material cost in inventory = $60,000 - 20,000 = $40,000Material Cost/EU = $40,000/(5,000 *.8) = $10Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4

Chapter 04 - Systems Design: Process Costing4-1826. Department 2 is the second of three sequential processes. All materials are added at thebeginning of processing in Department 2. During October, Department 2 reported the followingdata:The company uses the weighted-average method in its process costing system. To the nearestcent, what is the cost per equivalent unit on the production report for conversion costs?A. $5.51.B. $6.45.C. $6.30.D. $7.38.(54,000 + 315,000)/(50,000 + 36,000*.2)Bloom's Level: ApplyDifficulty: Medium

Learning Objective: 2Learning Objective: 3

Chapter 04 - Systems Design: Process Costing4-1927. Overland, Inc., uses the weighted-average method in its process costing system. Thecompany's work-in-process inventory on April 30 consists of 25,000 units. The units in theending inventory are 100% complete with respect to materials and 75% complete with respectto conversion costs. If the cost per equivalent unit is $3.00 for materials and $5.50 forconversion costs, what is the total cost in the April 30 work-in-process inventory?A. $212,500.B. $178,125.C. $159,375.D. $109,375.25,000 * $3 + 25,000 *.75 * $5.50Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2Learning Objective: 4

28. Valley Manufacturing Company's beginning work-in-process inventory consisted of10,000 units, 100% complete with respect to materials cost and 40% complete with respect toconversion costs. The total cost in the beginning inventory was $30,000. During the month,50,000 units were transferred out. The equivalent unit cost was computed to be $2.00 formaterials and $3.70 for conversion costs under the weighted-average method. Given thisinformation, what was the total cost of the units completed and transferred out?A. $255,000.B. $270,000.C. $240,000.D. $285,000.50,000 * ($2 + $3.70)Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

Chapter 04 - Systems Design: Process Costing4-2029. Ogden Company uses the weighted-average method in its process costing system.Information for the month of January concerning Department A, the first stage of the company'sproduction process, follows:Materials are added at the beginning of the process. The ending work in process is 50%complete with respect to conversion costs. What cost would be recorded for the endingwork-in-process inventory?A. $6,800.B. $8,800.C. $3,400.D. $4,400.10,000 * $0.48 + 10,000 *.5 * $0.40Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 04 - Systems Design: Process Costing4-2130. Trapp Company uses the weighted-average method in its process costing system. Thebeginning work-in-process inventory in its Painting Department consisted of 3,000 units thatwere 70% complete with respect to materials and 60% complete with respect to conversioncosts. The cost of the beginning work-in-process inventory in the department was recorded as$10,000. During the period, 9,000 units were completed and transferred on to the nextdepartment. The costs per equivalent unit for the period were $2.00 for material and $3.00 forconversion costs. What was the cost of units transferred out during the month?A. $39,600.B. $45,000.C. $45,400.D. $35,400.9,000 * ($2 + $3)

Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

31. Strap Company uses the weighted-average method in its process costing system. Thecompany has only one processing department. The ending work-in-process inventory consistsof 10,000 units, 60% complete with respect to materials. The total dollar value of this inventoryis $38,000. The costs per equivalent unit are $5.00 for materials and $4.00 for conversion costsfor the period. With respect to conversion costs, what is the ending work-in-process inventory?A. 10% complete.B. 20% complete.C. 38% complete.D. 30% complete.EI cost of material; 10,000 *.6 * $5 = $30,000(38,000 - 30,000)/$4/EU = 2,000 EU for conversion costs therefore 2/10 = 20% complete.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 4

Chapter 04 - Systems Design: Process Costing4-2232. Rariton Company uses the weighted-average method in its process costing system. TheMoulding Department is the second department in its production process. The data belowsummarize the department's operations in January:The Moulding Department's production report indicates that the cost per equivalent unit forconversion cost for January was $5.37.How much conversion cost was assigned to the ending work-in-process inventory in theMoulding Department for January?A. $4,081.20.B. $10,203.00.C. $10,310.40.D. $6,121.80.

1,900 *.4 * $5.37Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2Learning Objective: 4

Chapter 04 - Systems Design: Process Costing4-2333. (Appendix 4A) Ebis Company uses the FIFO method in its process costing system. The firstprocessing department, the Welding Department, started the month with 13,000 units in itsbeginning work-in-process inventory; 10% of the units were complete with respect toconversion costs. The conversion cost in this beginning work-in-process inventory was $12,610.An additional 89,000 units were started into production during the month. There were 22,000units in the ending work-in-process inventory of the Welding Department; 30% of these unitswere complete with respect to conversion costs. A total of $806,085 in conversion costs wereincurred in the department during the month.What would be the cost per equivalent unit for conversion costs for the month on thedepartment's production report? (Round off to three decimal places.)A. $8.026.B. $9.700.C. $9.057.D. $9.450.Transferred out = 13,000 + 89,000 - 22,000 = 80,000 units of which 13,000 are from beginninginventory. $806,085/(13,000*.9 + 67,000*1 + 22,000*.3) = $9.45Bloom's Level: ApplyDifficulty: HardLearning Objective: 6Learning Objective: 7

Chapter 04 - Systems Design: Process Costing4-2434. (Appendix 4A) Marten Company uses the FIFO method in its process costing system.Operating data for the Casting Department for the month of September appear below:According to the company's records, the conversion cost in beginning work-in-processinventory was $83,600 at the beginning of September. Additional conversion costs of $427,682were incurred in the department during the month.What would be the cost per equivalent unit for conversion costs for September on the CastingDepartment's production report? (Round off to three decimal places.)A. $5.498.B. $5.779.C. $5.620.D. $5.500.$427,682/(19,000*.2 + 57,000*1 + 17,000*.9) = $5.62Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6Learning Objective: 7

Chapter 04 - Systems Design: Process Costing4-2535. (Appendix 4A) Herston Company uses the FIFO method in its process costing system. Thebeginning work-in-process inventory in a particular department consisted of 6,000 units,two-thirds complete with respect to conversion costs. During the month, 42,000 units were

started and 40,000 units were completed and transferred out of the department. The companyhad 40,000 equivalent units of production for conversion costs. Which of the followingrepresents the ending work-in-process inventory in the department?A. 8,000 units, 25% complete with respect to conversion costs.B. 0 units.C. 8,000 units, 50% complete with respect to conversion costs.D. 4,000 units, 100% complete with respect to conversion costs.Total EU was 40,000. From transferred out the EU = 6,000*1/3 + 34,000 = 36,000 EU therefore40,000 - 36,000 = 4,000 EU in EI. EI consists of 6,000 + 42,000 - 40,000 = 8,000 units 50%complete (4,000/8,000).Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 6

36. (Appendix 4A) Carson Company uses the FIFO method in its process costing system. TheAssembly Department started the month with 6,000 units in its beginning work-in-processinventory; 20% of the units were complete with respect to conversion costs. An additional74,000 units were transferred in from the prior department during the month to beginprocessing in the Assembly Department. Of the 8,000 units in the ending work-in-processinventory of the Assembly Department, 60% were complete with respect to conversion costs.What were the equivalent units of production for conversion costs in the Assembly Departmentfor the month?A. 72,000 units.B. 75,600 units.C. 76,000 units.D. 76,800 units.6,000 + 74,000 - 8,000 = 72,000 transferred out.EU = 6,000*.8 + 66,000*1 + 8,000*.6 = 75,600Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

Chapter 04 - Systems Design: Process Costing4-2637. (Appendix 4A) Karmen Company uses the FIFO method in its process costing system.Operating data for the Enamelling Department for the month of May appear below:What were the equivalent units of production for conversion costs in the EnamellingDepartment for May?A. 85,000 units.B. 85,960 units.C. 93,200 units.D. 80,800 units.Trans. Out = 2,400 + 87,000 - 8,600 = 80,800 units of which 2,400 come from BI.EU = 2,400*.6 + 78,400*1 + 8,600*.6 = 85,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

Chapter 04 - Systems Design: Process Costing4-2738. (Appendix 4A) Creer Company uses the FIFO method in its process costing system.Department A had 20,000 units in process at the beginning of January, and 40% were completewith respect to conversion costs. All materials are added at the beginning of the process inDepartment A. The January 1 work-in-process inventory in Department A contained $10,000 inmaterials cost and $11,600 in conversion cost. During January, materials costs were $0.50 per

equivalent unit, and conversion costs were $1.50 per equivalent unit. All of the units in thebeginning work-in-process inventory were completed and transferred out during the month.What was the total cost attached to these units when they were transferred to the nextdepartment?A. $39,600.B. $33,600.C. $45,600.D. $37,600.BI = $10,000 + 11,600 = $21,600Cost to complete these units = 20,000 *.6 * $1.50 = $18,000 for a total of $39,600Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6Learning Objective: 8

39. (Appendix 4A) Mukluk Company uses the FIFO method in its process costing system. Theconversion cost for the month of April is $5.00 per equivalent unit, and the materials cost is$2.90 per equivalent unit. At the beginning of the month, 1,000 units were in process, and 100%were complete with respect to materials and 30% were complete with respect to conversion,with a total cost at that point of $2,400. If these units are fully complete by the end of the month,what will be their total cost?A. $3,500.B. $3,900.C. $5,900.D. $8,000.$2,400 + 1,000*.7*$5 = $5,900Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6Learning Objective: 8

Chapter 04 - Systems Design: Process Costing4-2840. (Appendix 4A) Index Company uses the FIFO method in its process costing system. The

first processing department, the Forming Department, started the month with 17,000 units in itsbeginning work-in-process inventory; the units were 10% complete with respect to conversioncosts. The conversion cost in this beginning work-in-process inventory was $9,010. Anadditional 76,000 units were started into production during the month, and 83,000 units werecompleted and transferred to the next processing department. There were 10,000 units in theending work-in-process inventory of the Forming Department; 70% of the units were completewith respect to conversion costs. A total of $445,915 in conversion costs were incurred in thedepartment during the month.What would be the cost per equivalent unit for conversion costs for the month on the FormingDepartment's production report? (Round off to three decimal places.)A. $5.050.B. $5.300.C. $5.867.D. $5.150.$445,915/(17,000*.9 + 66,000*1 + 10,000*.7) = $5.05Bloom's Level: ApplyDifficulty: HardLearning Objective: 6Learning Objective: 7

Chapter 04 - Systems Design: Process Costing4-2941. (Appendix 4A) Qart Company uses the FIFO method in its process costing system.Operating data for the Cutting Department for the month of March appear below:According to the company's records, the conversion cost in beginning work-in-processinventory was $1,656 at the beginning of March. Additional conversion costs of $129,960 wereincurred in the department during the month.What would be the cost per equivalent unit for conversion costs for March on the CuttingDepartment's production report? (Round off to three decimal places.)

A. $1.710.B. $1.677.C. $1.756.D. $1.840.45,000*.8 + 70,000*1 + 4,000*.6 = 76,000 EU. Cost/EU = $129,960/76,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6Learning Objective: 7

Chapter 04 - Systems Design: Process Costing4-3042. (Appendix 4A) Roger Company uses the FIFO method in its process costing system. Thefollowing data are taken from the accounting records of a particular department for June:What is the cost of the 75,000 units transferred out of the department during June?A. $151,250.B. $145,250.C. $131,500.D. $168,750.Transferred out 20,000 from BI *.4 = 8,000 EU, units started and completed 55,000.Cost of units transferred out then = $17,500 + 8,000*$0.50 + 55,000*$2.25 = $145,250Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 6Learning Objective: 8

Chapter 04 - Systems Design: Process Costing4-3143. (Appendix 4A) Winkle Company uses the FIFO method in its process costing system. At

the beginning of March, the work-in-process inventory in the Blending Processing Centerconsisted of 5,000 units, 90% complete with respect to conversion costs. At the end of themonth, the work-in-process inventory consisted of 2,000 units that were 60% complete withrespect to conversion costs. If 10,000 units were transferred to the next processing center duringthe month, what would be the equivalent units of production for conversion costs?A. 6,700 units.B. 11,700 units.C. 10,300 units.D. 13,000 units.5,000*.1 + 5,000*1 + 2,000*.6Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

44. (Appendix 4A) Winder Company uses the FIFO method in its process costing system.Department One is the first stage of the company's production process. The followinginformation pertains to conversion costs for April for Department One:What are the equivalent units of production for conversion costs?A. 320,000 units.B. 336,000 units.C. 352,000 units.D. 360,000 units.40,000*.6 + 300,000*1 + 20,000*.6Bloom's Level: ApplyDifficulty: EasyLearning Objective: 6

Chapter 04 - Systems Design: Process Costing4-3245. (Appendix 4A) Garson Company uses the FIFO method in its process costing system. TheGrinding Department started the month with 18,000 units in its beginning work-in-processinventory; 10% of the units were complete with respect to conversion costs. During the month,

an additional 98,000 units were transferred in from the preceding department to beginprocessing in the Grinding Department. During the month, 115,000 units were completed in theGrinding Department and transferred to the next processing department. Of the 1,000 units inthe ending work-in-process inventory of the Grinding Department, 20% were complete withrespect to conversion costs. What were the equivalent units of production for conversion costsin the Grinding Department for the month?A. 81,000 units.B. 115,200 units.C. 115,000 units.D. 113,400 units.18,000*.9 + 97,000*1 + 1,000*.2Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

Chapter 04 - Systems Design: Process Costing4-3346. (Appendix 4A) Oxyrom Company uses the FIFO method in its process costing system.Operating data for the Brazing Department for the month of November appear below:What were the equivalent units of production for conversion costs in the Brazing Departmentfor November?A. 49,040 units.B. 50,200 units.C. 43,200 units.D. 48,280 units.3,800*.8 + 39,400*1 + 7,300*.8Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

Chapter 04 - Systems Design: Process Costing4-3447. (Appendix 4A) Tarten Company uses the FIFO method in its process costing system.Operating data for the Curing Department for the month of March appear below:According to the company's records, the conversion cost in beginning work-in-processinventory was $7,470 at the beginning of March. The cost per equivalent unit for conversioncosts for March was $8.20.How much conversion cost would be assigned to the units completed and transferred out of thedepartment during March?A. $525,530.B. $592,040.C. $533,090.D. $533,000.$7,470 + 9,000*.9*$8.20 + 56,000*$8.20Bloom's Level: ApplyDifficulty: HardLearning Objective: 6Learning Objective: 8

Chapter 04 - Systems Design: Process Costing4-35A sporting goods manufacturer buys wood as a direct material for baseball bats. The FormingDepartment processes the baseball bats, and the bats are then transferred to the FinishingDepartment where a sealant is applied. There was no beginning work-in-process inventory inthe Forming Department in May. The Forming Department began manufacturing 10,000 Casey

Slugger baseball bats during May. Costs for the Forming Department for the month of Maywere as follows:A total of 8,000 bats were completed and transferred to the Finishing Department during May.The ending work-in-process inventory was 100% complete with respect to direct materials and25% complete with respect to conversion costs. The company uses the weighted-averagemethod of process costing.48. What was the cost of the units transferred to the Finishing Department during May?A. $50,000.B. $40,000.C. $53,000.D. $42,400.EU's Material = 8,000 + 2,000 = 10,000 Conv. Costs = 8,000 + 2,000*.25 = 8,500Cost/EU material = $33,000/10,000 = $3.30 Conv. Cost/EU = $17,000/8,500 = $2. Total $5.30Transferred out = 8,000 * $5.30Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4

Chapter 04 - Systems Design: Process Costing4-3649. What was the cost of the work-in-process inventory in the Finishing Department at the endof May?A. $7,600.B. $10,000.C. $2,500.D. $4,000.Cost/EU as in #73. EI = 2,000*$3.30 + 500*$2 = $7,600Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4

Adam Company uses the weighted-average method in its process costing system. The

following information for the Assembly Department was obtained from the accounting recordsfor September (all materials are added at the beginning of the process): Chapter 04 - Systems Design: Process Costing4-3750. The "Total cost to be accounted for" section of the production report for the month willshow an amount equal to which of the following?A. $604,500.B. $498,500.C. $429,000.D. $106,000.$30,000 + 63,000 + 16,000 + 320,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

51. What are the equivalent units of production for material for the month?A. 105,000 units.B. 145,000 units.C. 122,000 units.D. 165,000 units.Transferred out = 60,000 + 105,000 - 40,000 = 125,000. Since materials are all added atbeginning of process then all units 125,000 + 40,000 are 100% complete as to material.Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Madsen Company uses the weighted-average method in its process costing system. DuringOctober, the Mixing Department transferred out 40,000 units. The October 31 work-in-processinventory in the Mixing Department consisted of 4,000 equivalent units of material and 5,000equivalent units of labour and overhead. The cost per equivalent unit was $2.50 for materialsand $6.25 for labour and overhead.

Chapter 04 - Systems Design: Process Costing4-3852. What was the total cost of the October 31 work-in-process inventory?A. $41,250.

B. $35,000.C. $43,750.D. $78,750.4,000*$2.50 + 5,000*$6.25Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

53. The "Total cost to account for" section of the production report for October will show anamount equal to which of the following?A. $110,000.B. $391,250.C. $350,000.D. $428,750.40,000 *($2.50 + $6.25) + $41,250 (EI from 78)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4Learning Objective: 5

The activity in Nolan Company's Blending Department for the month of April is given below:All materials are added at the beginning of processing in the Blending Department.

Chapter 04 - Systems Design: Process Costing4-3954. (Appendix 4A) Using the FIFO method, what are the equivalent units of production formaterial for the month?A. 50,000 units.B. 58,000 units.C. 54,000 units.D. 60,000 units.T. out 48,000 units of which 8,000 are from BI. EU = 8,000*0 + 40,000*1 + 10,000*1Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

55. (Appendix 4A) Using the FIFO method, what are the equivalent units of production forlabour and overhead for the month?A. 47,000 units.B. 51,000 units.

C. 5,000 units.D. 54,000 units.8,000*.5 + 40,000*1 + 10,000*.7Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

56. Using the weighted-average method, what are the equivalent units of production formaterial for the month?A. 48,000 units.B. 50,000 units.C. 58,000 units.D. 52,000 units.48,000 + 10,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 04 - Systems Design: Process Costing4-4057. Using the weighted-average method, what are the equivalent units of production for labourand overhead for the month?A. 50,000 units.B. 51,000 units.C. 47,000 units.D. 55,000 units.48,000 + 10,000*.7Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Activities in the Challenger Company's Assembly Department for the month of March follow:58. Using the weighted-average method, what are the equivalent units of production formaterials for March?A. 65,000 units.B. 67,000 units.C. 68,050 units.D. 70,000 units.67,000*1 + 3,000*.35Bloom's Level: ApplyDifficulty: Easy

Learning Objective: 2

Chapter 04 - Systems Design: Process Costing4-4159. (Appendix 4A) Using the FIFO method, what are the equivalent units of production forconversion for March?A. 66,250 units.B. 67,000 units.C. 64,250 units.D. 67,750 units.5,000*.7 + 62,000*1 + 3,000*.25Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

The following data relate to the Blending Department of Tru-Colour Paint Company for arecent month:All materials are added prior to the beginning of work in the Blending Department.60. (Appendix 4A) Assuming that Tru-Colour Paint Company uses the FIFO method, what arethe equivalent units of production for materials?A. 42,600 units.B. 45,000 units.C. 53,000 units.D. 46,000 units.9,000*0 + 37,000*1 + 8,000*1Bloom's Level: ApplyDifficulty: HardLearning Objective: 6

Chapter 04 - Systems Design: Process Costing4-42

61. (Appendix 4A) Assuming that Tru-Colour Paint Company uses the FIFO method, what arethe equivalent units of production for conversion costs?A. 42,600 units.B. 44,400 units.C. 46,000 units.D. 54,000 units.9,000*.4 + 37,000 + 8,000*.25Bloom's Level: ApplyDifficulty: HardLearning Objective: 6

62. Assuming that Tru-Colour Paint Company uses the weighted-average method, what are theequivalent units of production for materials?A. 48,000 units.B. 46,000 units.C. 54,000 units.D. 45,000 units.46,000 + 8,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

63. Assuming that Tru-Colour Paint Company uses the weighted-average method, what are theequivalent units of production for conversion costs?A. 44,400 units.B. 42,600 units.C. 46,000 units.D. 48,000 units.46,000*1 + 8,000*.25Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 04 - Systems Design: Process Costing4-43The information below was obtained from the records of the first processing department ofChristine Corporation for the month of July. The company uses the weighted-average methodin its process costing system.All materials are added at the beginning of the manufacturing process.

64. What are the equivalent units of production for material for the month?A. 70,000 units.B. 90,000 units.C. 80,000 units.D. 82,500 units.80,000 + 10,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

65. What are the equivalent units of production for labour and overhead for the month?A. 70,000 units.B. 90,000 units.C. 80,000 units.D. 82,500 units.80,000*1 + 10,000*.25Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 04 - Systems Design: Process Costing4-44The information below was obtained from the records of the first processing department ofMoore Company for the month of May. The company uses the weighted-average method in itsprocess costing system.All materials are added at the beginning of the process.66. What are the equivalent units of production for materials for the month of May?A. 60,000 units.B. 74,000 units.C. 64,000 units.D. 69,800 units.60,000 + 14,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

67. What are the equivalent units of production for labour and overhead for the month of May?A. 60,000 units.B. 69,800 units.

C. 65,800 units.D. 73,800 units.60,000 + 14,000*.7Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 04 - Systems Design: Process Costing4-45Information about units processed and processing costs incurred during a recent month in theRefining Department of a manufacturing company follow:The beginning work-in-process inventory included $11,000 of conversion cost. During themonth, the Refining Department incurred an additional $290,000 in conversion costs.68. Assuming that the company uses the weighted-average cost method, what are theequivalent units of production for conversion costs for the Refining Department for the month?A. 119,100 units.B. 120,000 units.C. 114,000 units.D. 131,000 units.114,000 + 17,000*.3Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 04 - Systems Design: Process Costing4-4669. Assuming that the company uses the weighted-average cost method, what is the cost per

equivalent unit for conversion costs for the month in the refining Department, rounded to thenearest cent?A. $2.55.B. $2.53.C. $2.50.D. $2.44.($11,000 + 290,000)/30,000 = $2.527Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2Learning Objective: 3

70. (Appendix 4A) Assuming that the company uses the FIFO method, what are the equivalentunits of production for conversion costs for the refining Department for the month?A. 119,100 units.B. 111,950 units.C. 115,250 units.D. 114,000 units.11,000*.65 + 103,000*1 + 17,000*.3Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

Chapter 04 - Systems Design: Process Costing4-4771. (Appendix 4A) Assuming that the company uses the FIFO method, what is the cost perequivalent unit for conversion costs for the month in the refining Department, rounded to thenearest cent?A. $2.52.B. $2.54.C. $2.44.D. $2.59.$230,000/115,250 EUBloom's Level: ApplyDifficulty: HardLearning Objective: 6Learning Objective: 7

Kimbeth Manufacturing makes Dust Density Sensors (DDS), a safety device for the mining

industry. The company uses a process costing system and has only a single processingdepartment. The following information pertains to operations for the month of May:The beginning work-in-process inventory was 60% complete with respect to materials and 20%complete with respect to conversion costs. The ending work-in-process inventory was 90%complete with respect to materials and 40% complete with respect to conversion costs. Thecosts were as follows:

Chapter 04 - Systems Design: Process Costing4-4872. (Appendix 4A) Using the FIFO method, what are the equivalent units of production formaterials for May?A. 82,400 units.B. 104,000 units.C. 107,200 units.D. 108,000 units.16,000*.4 + 76,000 + 24,000*.9Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

73. (Appendix 4A) Using the FIFO method, what are the equivalent units of production forconversion costs for May?A. 85,600 units.B. 88,800 units.C. 95,200 units.D. 98,400 units.16,000*.8 + 76,000 + 24,000*.4Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

74. (Appendix 4A) Using the FIFO method, the cost per equivalent unit of materials for May isclosest to which of the following?A. $4.12.B. $4.50.

C. $4.60.D. $4.80.$468,000/104,000 EU from 97Bloom's Level: ApplyDifficulty: HardLearning Objective: 6Learning Objective: 7

Chapter 04 - Systems Design: Process Costing4-4975. (Appendix 4A) Using the FIFO method, the cost per equivalent unit of conversion cost forMay is closest to which of the following?A. $5.65.B. $5.83.C. $6.00.D. $6.20.$574,000/98,400 EU from 98Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6Learning Objective: 7

76. (Appendix 4A) Using the FIFO method, the total cost of units in the ending work-in-processinventory is closest to which of the following?A. $153,200.B. $154,800.C. $155,300.D. $157,000.24,000*.9*$4.50/EUfrom 99 + 24,000*.4*$5.8333/EU from 100Bloom's Level: ApplyDifficulty: HardLearning Objective: 6Learning Objective: 7Learning Objective: 8

Chapter 04 - Systems Design: Process Costing

4-5077. Using the weighted-average method, the cost per equivalent unit of materials for May isclosest to which of the following?A. $4.12.B. $4.50.C. $4.60.D. $5.03.($54,560 + 468,000)/(92,000 + 24,000*.9)Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3

78. Using the weighted-average method, the cost per equivalent unit of conversion cost for Mayis closest to which of the following?A. $5.65.B. $5.83.C. $6.00.D. $6.41.($35,560 + 574,000)/(92,000 + 24,000*.4)Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3

Chapter 04 - Systems Design: Process Costing4-5179. Using the weighted-average method, the total cost of the units in ending work-in-processinventory is closest to which of the following?A. $156,960.B. $86,400.C. $153,960.D. $154,800.(24,000*.9*$4.60/Eu from 102) + 24,000*.4*$6/EU from 103)Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4

Reid Company uses a process costing system in which units go through several departments. In

the Cutting Department for June, units in the beginning work-in-process inventory were 80%complete with respect to conversion costs. Units in the ending work-in-processinventory were25% complete with respect to conversion costs. Other data for the department for June are asfollows:

Chapter 04 - Systems Design: Process Costing4-5280. (Appendix 4A) Assuming that the company uses the FIFO cost method, what is the cost perequivalent unit for conversion costs for June, rounded to the nearest cent?A. $1.80.B. $1.40.C. $1.64.D. $1.35.EU = 15,000*.2 + 115,000 + 30,000*.25 = 125,000. Cost/EU = $175,700/125,500Bloom's Level: ApplyDifficulty: HardLearning Objective: 6Learning Objective: 7

81. Assuming that the company uses the weighted-average method, what is the cost perequivalent unit for conversion costs for June, rounded to the nearest cent?A. $1.64.B. $1.56.C. $1.74.D. $1.48.($50,220 + 175,700)/(130,000 + 30,000*.25)Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3

Cherrington Company uses a process costing system. For May, the month just completed, thebeginning work-in-process inventory consisted of 50,000 units that were 60% complete withrespect to conversion costs. The ending inventory for the month was 20% complete with respectto conversion costs. A summary of cost data for the month follows:

Chapter 04 - Systems Design: Process Costing4-5382. Assuming that Cherrington Company uses the weighted-average method, what is the costper equivalent unit for conversion costs for May, rounded to the nearest cent?A. $4.19.B. $4.00.C. $3.64.D. $3.83.($30,000 + 690,000)/(190,000 + 40,000*.2) Note: EI = 50,000 + 180,000 -190,000Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3

83. (Appendix 4A) Assuming that Cherrington Company uses the FIFO method, what is thecost per equivalent unit for conversion costs for May, rounded to the nearest cent?A. $4.31.B. $3.49.C. $4.29.D. $4.11.$690,000/(50,000*.4 + 140,000 + 40,000*.2)Bloom's Level: ApplyDifficulty: HardLearning Objective: 6Learning Objective: 7

The following information was obtained from the records of the first processing department ofKeith Manufacturing Company for the month of February. The company uses the FIFO methodin its process costing system.All materials are added at the beginning of the manufacturing process.

Chapter 04 - Systems Design: Process Costing4-5484. (Appendix 4A) What are the equivalent units of production for material for the month?A. 50,000 units.B. 60,000 units.C. 54,500 units.D. 75,000 units.15,000*0 + 40,000*1 + 20,000*1Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

85. (Appendix 4A) What are the equivalent units of production for labour and overhead for themonth?A. 54,500 units.B. 59,000 units.C. 95,000 units.D. 60,000 units.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

Chapter 04 - Systems Design: Process Costing4-5586. Eve Company uses the weighted-average method in its process costing system. Thefollowing information for the Assembly Department was obtained from the accounting recordsfor September (all materials are added at the beginning of the process):What unit cost (rounded to the nearest cent) was used in calculating the total cost of labour andoverhead included in the Work-in-process inventory on September 1?

A. 0.27B. 0.31C. 1.78D. 2.73EI from Aug 31 = 60,000 *.15 = 9,000 EU. $16,000/9,000 = $1.7777Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 3

Chapter 04 - Systems Design: Process Costing4-56Selah Manufacturing makes a quality-improvement device for the aeronautical industry. Thecompany uses a process costing system and has only a single processing department. Thefollowing information pertains to operations for the month of May:The beginning work-in-process inventory was 60% complete with respect to materials and 20%complete with respect to conversion costs. The ending work-in-process inventory was 90%complete with respect to materials and 40% complete with respect to conversion costs. Thecosts were as follows:87. What was the unit cost for materials included in the beginning work-in-process inventory,rounded to the nearest cent?A. $3.41.B. $4.60.C. $5.68.D. $8.53.$54,560/(16,000*.6)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4

Chapter 04 - Systems Design: Process Costing4-5788. What was the unit cost for conversion included in the beginning work-in-process inventory,rounded to the nearest cent?A. $2.22.B. $2.78.C. $6.00.D. $11.11.$35,560/(16,000*.2)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4

89. (Appendix 4A) Suppose there was no separate breakdown of the total cost of the beginningwork-in-process inventory of $90,120 into materials ($54,560) and conversion ($35,560).Which method of accounting would not have been possible to use?A. Process costing, using weighted-average.B. Process costing, using FIFO.C. Process costing using either weighted-average or FIFO.D. Operations costing.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3

90. What total amount was debited to the Work-in-process inventory during the month ofMay?A. $522,560.B. $609,600.C. $1,042,040.D. $1,132,160.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 1

Chapter 04 - Systems Design: Process Costing4-5891. Suppose the company used the weighted-average method. What amount would have beencredited to the Work-in-process inventory for the units completed and transferred out during themonth of May?A. $423,200B. $552,000C. $1,975,200D. $1,132,160.Cost/EU Material = $522,560/(92,000 + 24,000*.9) = $4.60Cost/EU conv. Cost = $609,600/(92,000 + 24,000*.4) = $6.00Units completed and transferred out = 92,000 * ($4.60 + $6)Bloom's Level: ApplyDifficulty: HardLearning Objective: 1Learning Objective: 2Learning Objective: 3Learning Objective: 4

92. (Appendix 4B) Which of the following statements about reciprocal service departmentcosts is correct?A. They are allocated to producing departments under the direct method but not allocated toproducing departments at all under the step-down method.B. They are allocated to producing departments under the step-down method but not allocatedto producing departments at all under the direct method.C. They are not allocated to producing departments under either the direct or the step-downmethods.D. They are allocated to producing departments under both the direct and step-down methods.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 10Learning Objective: 11Learning Objective: 9

Chapter 04 - Systems Design: Process Costing4-5993. (Appendix 4B) Which of the following statements about the step-down method ofallocating service department is correct?A. It is a less accurate method of allocation than the direct method.B. It cannot be used when a company has more than two service departments.C. It is a simpler allocation than the direct method.D. It ignores some interdepartmental services.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 10

94. (Appendix 4B) Grant Company has several service departments that provide services toeach other as well as to operating departments within the company. Which method would beleast accurate in allocating the company's service department costs?A. The sequential method.B. The direct method.C. The step-down method.D. The reciprocal method.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 10Learning Objective: 11Learning Objective: 9

95. (Appendix 4B) What allocation method recognizes that service departments often provideeach other with interdepartmental services, and it is therefore considered to be the mostaccurate method for allocating service department costs to operating departments?A. The direct method.B. The step-down method.C. The reciprocal method.D. The allocation by cost behaviour method.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 10Learning Objective: 11Learning Objective: 9

Chapter 04 - Systems Design: Process Costing4-6096. (Appendix 4B) Parker Company has two service departments—cafeteria andengineering—and two operating departments. The number of employees in each department isgiven below:The costs of the Cafeteria are allocated to other departments on the basis of the number ofemployees in the departments. If these costs are budgeted at $69,375, what would be theamount of cost allocated to Engineering under the direct method?A. $0.B. $3,700.C. $3,750.D. $17,344.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 9

Chapter 04 - Systems Design: Process Costing4-6197. (Appendix 4B) Boa Corp. uses the direct method to allocate service department overheadcosts to operating departments. Information for the month of June follows:What would be the amount of maintenance department costs allocated to Operating DepartmentA for June?A. $8,000.B. $8,800.C. $10,000.D. $20,000.$20,000 * 40%/80%Bloom's Level: Apply

Difficulty: MediumLearning Objective: 9

Chapter 04 - Systems Design: Process Costing4-62Westmore Company has two Service Departments and two Operating Departments. Budgetedcosts and other data relating to these departments are presented below:The costs of Building & Grounds are allocated first on the basis of square metres of spaceoccupied. Personnel costs are allocated on the basis of number of employees. The departmentalcosts for the Operating Departments are overhead costs. Predetermined overhead rates in theOperating Departments are calculated on the basis of direct labour hours.98. (Appendix 4B) Assume that the company uses the direct method of allocating ServiceDepartment costs to Operating Departments. How much Building & Grounds cost would beallocated to Operating Department A?A. $20,903.B. $21,600.C. $24,000.D. $29,700.$54,000 * 12,000/27,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 9

Chapter 04 - Systems Design: Process Costing4-6399. (Appendix 4B) Assume that the company uses the step-down method of allocating Service

Department costs to Operating Departments, and Building and Grounds costs are allocated first.How much Personnel Department cost would be allocated to Operating Department A?A. $0.B. $90,000.C. $92,430.D. $205,400.(200,000 + 54,000*3/30) * 45/100Bloom's Level: ApplyDifficulty: MediumLearning Objective: 10

100. (Appendix 4B) Assume that the company uses the step-down method of allocating ServiceDepartment costs to Operating Departments, and Building and Grounds costs are allocated first.How much Personnel Department cost would be allocated to Operating Department B?A. $0.B. $107,368.C. $107,590.D. $112,970.(200,000 + 54,000*3/30) * 55/100Bloom's Level: ApplyDifficulty: MediumLearning Objective: 10

Chapter 04 - Systems Design: Process Costing4-64101. (Appendix 4B) Assume again that the company uses the step-down method. What wouldbe the total amount of cost allocated from the two Service Departments to the OperatingDepartments for the year?A. $254,000.B. $850,000.C. $1,450,000.D. $1,704,000.54,000 + 200,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 10

Russet Company has two Service Departments and two Producing Departments. Budgetedcosts and budgeted activity in the various departments for the most recent year are presentedbelow:Service Department costs are allocated to Producing Departments with the costs of CustodialServices allocated first on the basis of square metres of space occupied. The costs of theCafeteria are allocated on the basis of number of employees. Predetermined overhead rates inthe Cutting and Assembly departments are based on machine hours. Round all calculations tothe nearest dollar.

Chapter 04 - Systems Design: Process Costing4-65102. (Appendix 4B) Under the direct method of allocation, what would be the amount ofCustodial Services cost allocated to the Cutting Department?A. $0.B. $96,000.C. $100,800.D. $112,000.252,000 * 8,000/18,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 9

103. (Appendix 4B) Under the direct method of allocation, what would be the predeterminedoverhead rate for the year in the Assembly Department?A. $3.17.B. $3.67.C. $18.17.D. $18.67.($900,000 + 252,000*10/18 + 140,000*200/350)/60,000 hrs.Bloom's Level: ApplyDifficulty: HardLearning Objective: 9

104. (Appendix 4B) Under the step-down method of allocation, what would be the amount of

Custodial Services cost allocated to the Assembly Department?A. $0.B. $120,000.C. $126,000.D. $140,000.252,000 * 10,000/20,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 10

Chapter 04 - Systems Design: Process Costing4-66105. (Appendix 4B) Under the step-down method of allocation, what would be the amount ofcost allocated from the Cafeteria to the Cutting Department?A. $0.B. $60,000.C. $61,500.D. $70,800.(140,000 + 252,000*2/20) * 150/350Bloom's Level: ApplyDifficulty: HardLearning Objective: 10

106. (Appendix 4B) Under the step-down method of allocation, what would be the amount ofcost allocated from the Cafeteria to Custodial Services?A. $0.B. $7,000.C. $7,568.D. $8,260.Custodial is done before cafeteria. There is no allocation to custodial.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 10

The James Company has four departments with data as follows: Chapter 04 - Systems Design: Process Costing4-67107. (Appendix 4B) Suppose Maintenance Department costs are allocated on the basis oflabour hours. What would be the amount of cost allocated to Milling from Maintenance underthe direct method?A. $5,250.

B. $5,600.C. $5,700.D. $6,720.$10,000 * 5,250/(5,250 + 4,750)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 9

108. (Appendix 4B) Suppose Cafeteria Department costs are allocated on the basis of numberof employees and that the step-down method is used with costs of the Cafeteria Departmentallocated first. What would be the amount of cost allocated from the Cafeteria Department toMaintenance Department?A. $0.B. $625.C. $698.D. $750.$12,000 * 10/(10 + 84 + 66)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 10

Anderson Company has two Service Departments and two Producing Departments. The costsof the Personnel Department are allocated to other departments on the basis of the number ofemployees in the departments. Departments and number of employees are as follows:

Chapter 04 - Systems Design: Process Costing4-68109. (Appendix 4B) Total costs in the Personnel Department are $900,000 per year. Under thestep-down method, the costs of the Personnel Department are allocated before the costs of theEngineering Department are allocated. What would be the amount of this cost allocated to theEngineering Department under the step-down method, rounded to the nearest dollar?A. $0.B. $81,000.

C. $83,505.D. $92,046.$900,000 * 90/(90 + 590 + 290)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 10

110. (Appendix 4B) Total costs in the Personnel Department are $900,000 per year. Under thestep-down method, the costs of the Personnel Department are allocated before the costs of theEngineering Department are allocated. What would be the amount of Personnel Departmentcost that would be allocated to Producing Department 2 under the step method?A. $0.B. $261,000.C. $269,072.D. $296,591.900,000 * 290/(90 + 590 + 290)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 10

Chapter 04 - Systems Design: Process Costing4-69The Mohawk-Hudson Company is an electric utility which has two Service Departments:Accounting and Maintenance. It has two Operating Departments: Generation and Transmission.Maintenance Department costs are allocated on the basis of maintenance hours of service.Accounting Department costs are allocated to Operating Departments on the basis ofaccounting hours of service provided. Budgeted costs and other data for the coming year are asfollows:The step-down method is used to allocate Service Department costs, with the AccountingDepartment being allocated first.111. (Appendix 4B) What would be the amount of Accounting Department costs allocated tothe Maintenance Department?

A. $0.B. $18,000.C. $19,048.D. $20,000.$100,000 * 2,000/(2,000 + 4,500 3,500)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 10

Chapter 04 - Systems Design: Process Costing4-70112. (Appendix 4B) What would be the amount of Accounting Department costs allocated tothe Generation Department?A. $38,000.B. $45,000.C. $42,857.D. $57,143.100,000 * 4,500/(2,000 + 4,500 + 2,500)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 10

113. (Appendix 4B) What would be the amount of Maintenance Department cost allocated tothe Accounting Department?A. $0.B. $69,315.C. $75,000.D. $88,000.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 10

114. (Appendix 4B) What would be the amount of Maintenance Department cost allocated tothe Generation Department?A. $123,750.B. $132,000.C. $140,000.D. $150,685.(200,000 + 20,000) * 7,200/(7,200 + 4800)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 10

Chapter 04 - Systems Design: Process Costing4-71X Company has two Service Departments—S1 and S2—and two ProductionDepartments—P1 and P2. Direct costs for each department and the proportion of service costsused by the various departments for the month of September are as follows:X Company's management accountant has formulated the following two equations as the firststep in using the reciprocal method to allocate the costs of the two Service Departments:S1 = $80,000 + 0.50 x S2S2 = $100,000 + 0.20 x S1Round all calculations to the nearest dollar in answering the related questions.115. (Appendix 4B) What is the value of S1 in the two equations?A. $80,000.B. $128,889.C. $130,000.D. $144,444.S1 = 80,000 +.50 *(100,000 + 20*S1)S1 -.10*S1 = 130,000S1 = 130,000/.90 Text does not give examples of this type of calculation.Bloom's Level: EvaluateDifficulty: HardLearning Objective: 11

Chapter 04 - Systems Design: Process Costing4-72116. (Appendix 4B) What is the value of S2 in the two equations?A. $100,000.B. $128,889.C. $140,000.D. $144,444.

Substitute the value of S1 from #142 into second equation.S2 = 100,000 +.20 * 144,444.444)Text does not give examples of this type of calculation.Bloom's Level: EvaluateDifficulty: HardLearning Objective: 11

True / False Questions117. The following journal entry would be made in a process costing system when units thathave been completed with respect to the work done in Processing Department Z are transferredfrom Processing Department Z to Processing Department Y:TRUEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 1

Chapter 04 - Systems Design: Process Costing4-73118. The following journal entry would be made in a process costing system when units thathave been completed with respect to the work done in the final processing department aretransferred to the finished goods warehouse:TRUEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 1

119. (Appendix 4A) The "Quantity Schedule and Equivalent Units" section of the productionreport is the same for the weighted-average method and the FIFO method of process costing.FALSEBloom's Level: UnderstandDifficulty: HardLearning Objective: 2Learning Objective: 6

120. In process costing, the same equivalent units figure is used for both materials andconversion costs.FALSEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 2

121. (Appendix 4A) The cost per equivalent unit for conversion costs will always be the sameunder both the FIFO and the weighted-average methods if there is no ending work-in-processinventory.FALSEBloom's Level: UnderstandDifficulty: HardLearning Objective: 3Learning Objective: 7

Chapter 04 - Systems Design: Process Costing4-74122. (Appendix 4A) The cost per equivalent unit for conversion costs will always be the sameunder both the FIFO and the weighted-average methods if there is no beginningwork-in-process inventory.TRUEBloom's Level: UnderstandDifficulty: HardLearning Objective: 3Learning Objective: 7

123. When assigning costs to partially completed units in the ending work-in-process inventory,it is NOT necessary to consider the percentage of completion of the units under theweighted-average method.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

124. When computing the cost per equivalent unit, it is NOT necessary to consider thepercentage of completion of the units in beginning inventory under the weighted-averagemethod.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 3

125. (Appendix 4A) Under the FIFO process costing method, the equivalent units of productionin the production report relate to work done only during the current period.TRUE

Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 6

Chapter 04 - Systems Design: Process Costing4-75126. (Appendix 4A) The cost per equivalent unit under the FIFO method of process costing isequal to the cost of beginning work-in-process inventory plus the costs added during the period,all divided by the equivalent units of production for the period.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

127. The weighted-average method of process costing can only be used if materials are added atthe beginning of the production process.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2Learning Objective: 6

128. A manufacturer of blank DVDs would ordinarily use process costing rather than job-ordercosting.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

129. In order to use process costing, the output of a processing department must behomogeneous.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 1

Chapter 04 - Systems Design: Process Costing4-76130. In process costing, costs are accumulated in processing departments, rather than by job.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 1

131. If all units go through all processing departments, then the processing departments arearranged in a parallel, rather than sequential, fashion.FALSEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 1

132. (Appendix 4B) In both the direct and step-down methods of allocating service departmentcosts, any amount of the allocation base that is attributable to the service department whose costis being allocated is ignored.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 10Learning Objective: 9

133. (Appendix 4B) The direct method has the disadvantage that it may leave some servicedepartment costs unallocated.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 9

Chapter 04 - Systems Design: Process Costing4-77

134. (Appendix 4B) Under the direct method of allocating service department costs, reciprocalservices provided among service departments are ignored.TRUEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 9

135. (Appendix 4B) If personnel department expenses are allocated on the basis of the numberof employees in various departments, then the number of employees in the personneldepartment itself must be included in the allocation base when the step-down method is used.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 10

136. (Appendix 4B) The step-down method requires establishing an order of allocation beforeservice department costs can be allocated to operating departments.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 10

137. (Appendix 4B) The step-down method of allocating service department costs takes intoaccount some, but not all, of the reciprocal services that service departments provide to eachother.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 10

Chapter 04 - Systems Design: Process Costing4-78138. (Appendix 4B) The step-down method usually begins with the service department thatprovides the least amount of service to the other service departments.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 10

139. (Appendix 4B) The step method usually provides results that are a reasonableapproximation of the results that the reciprocal method provide.TRUEBloom's Level: UnderstandDifficulty: HardLearning Objective: 10Learning Objective: 11

140. (Appendix 4B) The reciprocal method of allocating service department costs is muchsimpler than the direct method and as a consequence is much more widely used.FALSEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 11Learning Objective: 9

141. (Appendix 4B) Cost allocation is still an issue even if a service department generates somerevenues from operating departments.TRUEBloom's Level: UnderstandDifficulty: HardLearning Objective: 10Learning Objective: 11Learning Objective: 9

Chapter 04 - Systems Design: Process Costing4-79Essay Questions142. Able Inc. uses the weighted-average method in its process costing system. The followingdata concern the operations of the company's first processing department for a recent month:Required:Prepare a production report for the department using the weighted-average method.

Chapter 04 - Systems Design: Process Costing4-80Weighted Average method:Quantity schedule and equivalent units

Chapter 04 - Systems Design: Process Costing4-81Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4Learning Objective: 5

Chapter 04 - Systems Design: Process Costing4-82143. Barker Inc. uses the weighted-average method in its process costing system. The followingdata concern the operations of the company's first processing department for a recent month:Required:Using the weighted-average method:a) Determine the equivalent units of production for materials and conversion costs.b) Determine the cost per equivalent unit for materials and conversion costs.c) Determine the cost of units transferred out of the department during the month.

d) Determine the cost of ending work-in-process inventory in the department.

Chapter 04 - Systems Design: Process Costing4-83a) through d) The answers to all of the questions can be found by filling out a production reportas follows.

Chapter 04 - Systems Design: Process Costing4-84Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4Learning Objective: 5

Chapter 04 - Systems Design: Process Costing4-85144. Harmon Company uses the weighted-average method in its process costing system. TheCuring Department of Harmon Company reported the following information for the month ofNovember:All materials are added at the beginning of the process.Required:

Compute the following items for the company's monthly production report using theweighted-average method:a) The equivalent units (EUs) of production for materials.b) The cost per equivalent unit for conversion.c) The total cost assigned to units transferred out of the Curing Department during November.d) The cost assigned to work-in-process inventory as of November 30. Chapter 04 - Systems Design: Process Costing4-86a)b) ($48,600 + $194,400)/32,400 EUs = $7.50 per EUc) Materials cost per equivalent unit:($34,500 + $146,000)/38,000 EUs = $4.75 per EUCosts transferred out:30,000 units * ($7.50 + $4.75) = $367,500Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4Learning Objective: 5

Chapter 04 - Systems Design: Process Costing4-87145. Carver Inc. uses the weighted-average method in its process costing system. The followingdata concern the operations of the company's first processing department for a recent month:Required:Using the weighted-average method, determine the equivalent units of production for materialsand conversion costs by compiling the "Quantity Schedule and Equivalent Units" portion of theproduction report.

Chapter 04 - Systems Design: Process Costing4-88Quantity schedule and equivalent unitsBloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 04 - Systems Design: Process Costing4-89146. (Appendix 4A) The Smith Company manufactures a product that goes through twodepartments prior to completion. The following information is available on work in one of thesedepartments, the Forming Department, during March:Cost in the beginning work-in-process inventory and cost added during the month were asfollows:The Forming Department is the first department in the production process; after forming hasbeen completed, the units are transferred to the Finishing Department.Required:a) Assuming the company uses the weighted-average method, calculate the equivalent units andunit cost for materials and conversion costs, rounded to the nearest tenth of a cent.b) (Appendix 4A) Assuming the company uses the FIFO method, calculate the equivalent unitsand unit cost for materials and conversion costs, rounded to the nearest tenth of a cent. Chapter 04 - Systems Design: Process Costing4-90a) Equivalent units:Unit costs:

Materials: ($42,190 + $440,810)/520,000 = $0.929Conversion: ($38,000 + $394,000)/500,000 = $0.864b) Equivalent units:Unit costs:Materials: $440,810/470,000 = $0.938Conversion: $394,000/470,000 = $0.838Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 6

Chapter 04 - Systems Design: Process Costing4-91147. (Appendix 4A) Dita Company uses a process costing system. The following informationrelates to one month's activity in the company's Curing Department:The conversion cost of the beginning inventory was $6,500. During the month, $112,000 inadditional conversion cost was incurred.Required:a) (Appendix 4A) Assume that the company uses the FIFO method. Compute the following:1. The equivalent units of production for conversion for the month.2. The cost per equivalent unit for conversion for the month.3. The total cost transferred out during the month.4. The cost assigned to the ending work-in-process inventory.b) Assume that the company uses the weighted-average cost method. Compute the following:1. The equivalent units of production for conversion for the month.2. The cost per equivalent unit for conversion for the month.3. The total cost transferred out during the month.4. The cost assigned to the ending work-in-process inventory. Chapter 04 - Systems Design: Process Costing4-92a)2. $112,000 28,000 EUs = $4 per EU4. $4 per EU x 5,000 x 80% = $16,000 Chapter 04 - Systems Design: Process Costing4-93b)2. $118,500 30,000 EUs = $3.95 per EU

3. 26,000 units x $3.95 per EU = $102,7004. $3.95 per EU x 5,000 x 80% = $15,800Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6Learning Objective: 7Learning Objective: 8

Chapter 04 - Systems Design: Process Costing4-94148. Production and cost data for the month of February for Process A of the Packermanufacturing Company follow:The company uses the weighted-average method in its process costing system.Required:a) Calculate the equivalent units and unit costs for February for materials and for conversioncosts.b) Determine the cost transferred to finished goods.c) Determine the amount of cost that should be assigned to the ending work-in-process andfinished goods inventories.

Chapter 04 - Systems Design: Process Costing4-95a)b)c)Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4

Chapter 04 - Systems Design: Process Costing4-96149. Miller Company manufactures a product for which materials are added at the beginning ofthe manufacturing process. A review of the company's inventory and cost records for the mostrecently completed year revealed the following information:The company uses the weighted-average method in its process costing system. The endinginventory is 50% complete with respect to conversion costs.Required:a) Compute the equivalent units of production and the cost per equivalent units for materialsand for conversion costs.b) Determine the cost transferred to finished goods.c) Determine the amount of cost that should be assigned to the ending work-in-processinventory.

Chapter 04 - Systems Design: Process Costing4-97a)b)c)

Chapter 04 - Systems Design: Process Costing4-98Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4

150. The Hardy Company manufactures a product that goes through two departments prior tocompletion. The following information is available on work in one of these departments, theMoulding Department, during the month of July:The Moulding Department is the first department in the production process; after moulding hasbeen completed, the units are transferred to the Finishing Department.Required:Assuming the company uses the weighted-average method, calculate the equivalent units formaterials and conversion costs, rounded to the nearest tenth of a cent.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 04 - Systems Design: Process Costing4-99151. (Appendix 4A) Sharp Company has a process costing system. The following data relate tothe company's Mixing Department for a recent month:All materials are added at the beginning of the mixing process.Required:a) (Appendix 4A) Compute the equivalent units of production for materials using the FIFOmethod.

b) (Appendix 4A) Compute the equivalent units of production for conversion using the FIFOmethod.c) Compute the equivalent units of production for materials using the weighted-average method.d) Compute the equivalent units of production for conversion using the weighted-averagemethod.

Chapter 04 - Systems Design: Process Costing4-100Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

Chapter 04 - Systems Design: Process Costing4-101152. (Appendix 4A) Darver Inc. uses the FIFO method in its process costing system. Thefollowing data concern the operations of the company's first processing department for a recentmonth:Required:Prepare a production report for the department using the FIFO method. Chapter 04 - Systems Design: Process Costing4-102Quantity Schedule and Equivalent Units

Chapter 04 - Systems Design: Process Costing4-103Bloom's Level: ApplyDifficulty: HardLearning Objective: 6Learning Objective: 7Learning Objective: 8

Chapter 04 - Systems Design: Process Costing4-104153. (Appendix 4A) Easy Inc. uses the FIFO method in its process costing system. Thefollowing data concern the operations of the company's first processing department for a recentmonth:Required:Using the FIFO method:a) Determine the equivalent units of production for materials and conversion costs.b) Determine the cost per equivalent unit for materials and conversion costs.c) Determine the cost of units transferred out of the department during the month.d) Determine the cost of ending work-in-process inventory in the department.

Chapter 04 - Systems Design: Process Costing4-105a) through d) can be answered by completing a production report as follows:

Chapter 04 - Systems Design: Process Costing4-106Bloom's Level: ApplyDifficulty: HardLearning Objective: 6Learning Objective: 7Learning Objective: 8

Chapter 04 - Systems Design: Process Costing4-107154. (Appendix 4A) Farwest Inc. uses the FIFO method in its process costing system. Thefollowing data concern the operations of the company's first processing department for a recentmonth:Required:Using the FIFO method, determine the equivalent units of production for materials andconversion costs by compiling the "Quantity Schedule and Equivalent Units" portion of theproduction report.

Chapter 04 - Systems Design: Process Costing4-108Quantity Schedule and Equivalent UnitsBloom's Level: ApplyDifficulty: Medium

Learning Objective: 6

Chapter 04 - Systems Design: Process Costing4-109155. (Appendix 4A) Production and cost data for the month of February for Process A of thePacker Manufacturing Company were as follows:The company uses the FIFO cost method in its process costing system.Required:a) Calculate the equivalent units and unit costs for February for materials and conversion costs.b) Determine the cost transferred to finished goods.c) Determine the amount of cost that should be assigned to the ending work-in-process andfinished goods inventories.

Chapter 04 - Systems Design: Process Costing4-110a)b)c)

Chapter 04 - Systems Design: Process Costing4-111Bloom's Level: ApplyDifficulty: HardLearning Objective: 6

Learning Objective: 7Learning Objective: 8

156. Job-costing systems tend to produce more accurate product cost information compared toprocess costing systems. On the other hand they also tend to be more costly systems thanprocessing costing systems.Required:Comment on the two observations.There is more tracing of costs (such as direct materials and direct labour) to individual jobs injob-order costing systems than in processing costing systems. In process costing systems, costsare not traced to products/jobs; instead they are traced to activities or processes or departmentsbefore their allocation to outputs. In essence, all costs are indirect in process costing systemsand have to be allocated. Usually, the allocation bases (including overhead allocations injob-order costing systems) are not entirely accurate. They are, in many cases, selectedarbitrarily without establishing a cause-and-effect relationship.Of course, more tracing generally costs more money even in this age of technology. This is thereason why job-order costing systems tend to be more expensive than process costing systems.Hybrid systems that are part-job and part-process are become popular because they offer thebenefits of both systems, that is, greater accuracy and cost-efficiency.Bloom's Level: EvaluateDifficulty: HardLearning Objective: 1

Chapter 04 - Systems Design: Process Costing4-112157. (Appendix 4B) Central Medical Clinic has two Service Departments—Building Servicesand Energy—and three Operating Departments—Pediatrics, Geriatrics, and Surgery. Centralallocates the cost of Building Services on the basis of square metres and Energy on the basis of

patient days. Budgeted operating data for the year just completed follow:Required:a) Prepare a schedule to allocate Service Department costs to Operating Departments by thedirect method, rounding all dollar amounts to the nearest whole dollar.b) Prepare a schedule to allocate Service Department costs to Operating Departments by thestep-down method, allocating Building Services first, and rounding all amounts to the nearestwhole dollar.

Chapter 04 - Systems Design: Process Costing4-113a) Direct method:

Chapter 04 - Systems Design: Process Costing4-114b) Step-down method:Bloom's Level: ApplyDifficulty: HardLearning Objective: 10Learning Objective: 9

Chapter 04 - Systems Design: Process Costing4-115158. (Appendix 4B) Delta Manufacturing Company has two Service Departments—Custodial

Services and Maintenance—and three Production Departments—Cutting, Milling, andAssembly. Delta allocates the cost of Custodial Services on the basis of square metres andMaintenance on the basis of labour hours. Budgeted operating data for the year just completedfollow:Required:a) Prepare a schedule to allocate Service Department costs to the Production Departments bythe direct method, rounding all dollar amounts to the nearest whole dollar.b) Prepare a schedule to allocate Service Department costs to the Production Departments bythe step-down method, allocating Custodial Services first, and rounding all amounts to thenearest whole dollar.

Chapter 04 - Systems Design: Process Costing4-116a) Direct method:b) Step-down method:

Chapter 04 - Systems Design: Process Costing4-117Bloom's Level: ApplyDifficulty: HardLearning Objective: 10Learning Objective: 9

Chapter 04 - Systems Design: Process Costing4-118159. (Appendix 4B) Flinders Company has two Service Departments—Factory Administrationand Maintenance—and two Operating Departments. Selected information relating to thesedepartments is given below:The company allocates Service Department costs by the step-down method. FactoryAdministration costs are allocated first on the basis of number of employees, and thenMaintenance costs are allocated on the basis of total labour hours.Required:Prepare a schedule showing the allocation of Service Department costs to other departments.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 10

Chapter 04 - Systems Design: Process Costing4-119160. (Appendix 4B) Hancock Company has two Service Departments—FactoryAdministration and Maintenance—and two Producing Departments. Selected informationrelating to these departments follow:The company allocates Service Department costs using the step-down method. Costs of FactoryAdministration are allocated on the basis of the number of employees. Costs of Maintenanceare allocated on the basis of labour hours. Allocation begins with the Factory AdministrationDepartment.

Required:Prepare a schedule showing the allocation of Service Department costs to the otherdepartments.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 10

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-1

Chapter 05Activity-Based Costing: A Tool to Aid Decision MakingMultiple Choice Questions1. Costs incurred at which of the following activity levels should NOT be allocated to productsfor decision-making purposes?A. Unit-level activities.B. Batch-level activities.C. Product-level activities.D. Organization-sustaining activities.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

2. Testing a prototype of a new product is an example of an activity at which of the followinglevels?A. Unit-level activity.B. Batch-level activity.C. Product-level activity.D. Organization-sustaining activity.Bloom's Level: RememberDifficulty: EasyLearning Objective: 1

3. Setting up equipment is an example of an activity at which of the following levels?A. Unit-level activity.B. Batch-level activity.C. Product-level activity.D. Organization-sustaining activity.Bloom's Level: RememberDifficulty: MediumLearning Objective: 1

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-24. Which of the following activity levels is an example of the clerical activity associated withprocessing purchase orders to produce an order for a standard product?A. Unit-level activity.B. Batch-level activity.C. Product-level activity.D. Organization-sustaining activity.Bloom's Level: UnderstandDifficulty: HardLearning Objective: 1

5. Worker recreational facilities are examples of costs that would ordinarily be considered to beincurred at which of the following activity levels?A. Unit-level activity.B. Batch-level activity.C. Product-level activity.D. Organization-sustaining activity.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

6. Arranging for a shipment of a number of different products to a customer is an example of anactivity at which of the following levels?A. Unit-level activity.B. Batch-level activity.C. Customer-level activity.D. Organization-sustaining activity.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making

5-37. Human resource management is an example of an activity at which of the following levels?A. Unit-level activity.B. Product-level activity.C. Batch-level activity.D. Organization-sustaining activity.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

8. Which of the following would be classified as a product-level activity?A. Machine setup for a batch of a standard product.B. Cafeteria facilities available to and used by all employees.C. Human resource management.D. Advertising a product.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

9. Why may departmental overhead rates NOT correctly assign overhead costs?A. Because of the use of direct labour hours in allocating overhead costs to products rather thanmachine time or quantity of materials.B. Because of the high correlation between direct labour hours and the incurrence of overheadcosts.C. Because of the over-reliance on volume as a basis for allocating overhead costs whereproducts differ regarding the number of units produced, lot size, or complexity of production.D. Because of the difficulties associated with identifying cost pools for the first stage of theallocation process.Bloom's Level: UnderstandDifficulty: HardLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-410. Which of the following statements about overhead allocation based on volume alone iscorrect?A. It is a key aspect of the activity-based costing model.

B. It will systematically overcost high-volume products and undercost low-volume products.C. It will systematically overcost low-volume products and undercost high-volume products.D. It must be used for external financial reporting.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 3Learning Objective: 5

11. What is a duration driver?A. A simple count of the number of times an activity occurs.B. An activity measure that is used for the life of the company.C. A measure of the amount of time required to perform an activity.D. An activity measure that is used for the life of an activity-based costing system.Bloom's Level: RememberDifficulty: EasyLearning Objective: 1

12. What is a transaction driver?A. An event that causes a transaction to begin.B. A measure of the amount of time required to perform an activity.C. An event that causes a transaction to end.D. A simple count of the number of times an activity occurs.Bloom's Level: RememberDifficulty: EasyLearning Objective: 1

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-513. Which of the following is NOT a limitation of activity-based costing?A. Maintaining an activity-based costing system is more costly than maintaining a traditionaldirect labour-based costing system.B. Changing from a traditional direct labour-based costing system to an activity-based costingsystem changes product margins and other key performance indicators used by managers. Suchchanges are often resisted by managers.C. In practice, most managers insist on fully allocating all costs to products, customers, andother costing objects in an activity-based costing system. This results in overstated costs.

D. More accurate product costs may result in increasing the selling prices of some products.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 5

14. (Appendix 5B) Why would an activity-based costing system that is designed for internaldecision making NOT conform to generally accepted accounting principles?A. Some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining costs)will not be assigned to products.B. Some non-manufacturing costs are assigned to products.C. First-stage allocations may be based on subjective interview data.D. All of the above.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

15. (Appendix 5A) Which of the following statements concerning ease of adjustment codes isNOT correct?A. "Green" costs adjust automatically to changes in activity.B. "Yellow" costs could be adjusted to changes in activity, but such adjustments requiremanagement action; the adjustment is not automatic.C. "Red" costs cannot be adjusted to changes in activity.D. The costs of idle capacity and organization-sustaining costs are not assigned codes.Bloom's Level: UnderstandDifficulty: HardLearning Objective: 6

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-616. (Appendix 5A) Which of the following best describes a cost object, such as a product orcustomer, that has a negative green margin?A. Its yellow margin will be positive.B. Its yellow margin may be either positive or negative.C. Its yellow margin will be negative.D. Its yellow margin will be zero.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 6

17. (Appendix 5A) Which of the following best describes a cost object, such as a product orcustomer, that has a negative red margin?A. Its yellow margin will be positive.B. Its yellow margin may be positive, negative, or zero.C. Its yellow margin will be negative.D. Its yellow margin will be zero.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 6

18. (Appendix 5A) Which of the following best describes a cost object, such as a product orcustomer, that has a positive green margin?A. Its yellow margin will be positive.B. Its yellow margin may be either positive, negative, or zero.C. Its yellow margin will be negative.D. Its yellow margin will be zero.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 6

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-719. (Appendix 5A) Which of the following best describes a cost object, such as a product orcustomer, that has a positive red margin?A. Its green margin will be positive.B. Its green margin may be positive, negative, or zero.C. Its green margin will be negative.D. Its green margin will be zero.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 6

20. Paul Company has two products: A and B. The company uses activity-based costing. Theestimated total cost and expected activity for each of the company's three activity cost pools areas follows:The activity rate under the activity-based costing system for Activity 3 is closest to which of thefollowing?A. $19.47.

B. $28.87.C. $58.40.D. $70.45.$14,600/750Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-821. Selena Company has two products: A and B. The company uses activity-based costing. Theestimated total cost and expected activity for each of the company's three activity cost pools areas follows:The activity rate under the activity-based costing system for Activity 3 is closest to which of thefollowing?A. $18.53.B. $21.67.C. $46.33.D. $65.00.$26,000/1,200Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-922. Matt Company uses activity-based costing. The company has two products: A and B. Theannual production and sales of Product A is 8,000 units and of Product B is 6,000 units. There

are three activity cost pools, with estimated total cost and expected activity as follows:The cost per unit of Product A under activity-based costing is closest to which of thefollowing?A. $2.40.B. $3.90.C. $6.60.D. $10.59.(20,000/500*100 + 37,000/1,000*800 + 91,200/3,000*800)/8,000Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-1023. Bridget Company uses activity-based costing. The company has two products: A and B.The annual production and sales of Product A is 2,000 units and of Product B is 3,000 units.There are three activity cost pools, with estimated total cost and expected activity as follows:The cost per unit of Product A under activity-based costing is closest to which of thefollowing?A. $6.00.B. $8.63.C. $9.60.D. $13.80.(9,000/750*400 + 12,000/500*100 + 48,000/1,600*400)/2,000Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-11Dideda Company uses an activity-based costing system with three activity cost pools. Thecompany has provided the following data concerning its costs and its activity-based costingsystem:The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts. You have been asked to complete the first-stage allocation of costs to the activity costpools.24. How much cost, in total, would be allocated in the first-stage allocation to the Order Sizeactivity cost pool?A. $150,000.B. $234,000.C. $255,000.D. $360,000.360,000*.25 + 240,000*.6Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-1225. How much cost, in total, would be allocated in the first-stage allocation to the CustomerSupport activity cost pool?A. $120,000.B. $255,000.C. $282,000.

D. $390,000.360,000*.65 + 240,000*.2Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

26. How much cost, in total, should NOT be allocated to orders and products in the secondstage of the allocation process if the activity-based costing system is used for internal decisionmaking?A. $0.B. $60,000.C. $84,000.D. $120,000.360,000*.1 + 240,000*.2Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-13Diehl Company uses an activity-based costing system with three activity cost pools. Thecompany has provided the following data concerning its costs and its activity-based costingsystem:The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts. You have been asked to complete the first-stage allocation of costs to the activity costpools.27. How much cost, in total, would be allocated in the first-stage allocation to the Order Sizeactivity cost pool?A. $29,000.B. $84,000.C. $188,000.D. $348,000.480,000*.05 + 100,000*.6Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-1428. How much cost, in total, would be allocated in the first-stage allocation to the CustomerSupport activity cost pool?A. $116,000.B. $304,500.C. $428,000.D. $493,000.480,000*.85 + 100,000*.2Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

29. How much cost, in total, should not be allocated to orders and products in the second stageof the allocation process if the activity-based costing system is used for internal decisionmaking?A. $0.B. $58,000.C. $68,000.D. $116,000.480,000*.1 + 100,000*.2Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-15Dierich Company uses an activity-based costing system with three activity cost pools. Thecompany has provided the following data concerning its costs and its activity-based costing

system:The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts. You have been asked to complete the first-stage allocation of costs to the activity costpools.30. How much cost, in total, would be allocated in the first-stage allocation to the Order Sizeactivity cost pool?A. $123,000.B. $222,000.C. $307,500.D. $492,000.600,000*.15 + 220,000*.6Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-1631. How much cost, in total, would be allocated in the first-stage allocation to the CustomerSupport activity cost pool?A. $164,000.B. $389,500.C. $494,000.D. $615,000.600,000*.75 + 220,000*.2Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

32. How much cost, in total, should not be allocated to orders and products in the second stageof the allocation process if the activity-based costing system is used for internal decisionmaking?A. $0.B. $82,000.C. $104,000.D. $164,000.600,000*.1 + 220,000*.2Bloom's Level: Apply

Difficulty: MediumLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-17Davis Company uses an activity-based costing system in which there are three activity costpools. The company has provided the following data concerning its costs and its activity-basedcosting system:The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts. You have been asked to complete the first-stage allocation of the costs to the activity costpools.33. How much cost, in total, would be allocated in the first-stage allocation to the Order Sizeactivity cost pool?A. $210,000.B. $240,000.C. $255,000.D. $300,000.400,000*.35 + 200,000*.5Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-1834. How much cost, in total, would be allocated in the first-stage allocation to the CustomerSupport activity cost pool?A. $180,000.B. $255,000.

C. $280,000.D. $330,000.400,000*.55 + 200,000*.3Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

35. How much cost, in total should not be allocated to orders and products in the second stageof the allocation process if the activity-based costing system is used for internal decisionmaking?A. $0.B. $60,000.C. $80,000.D. $120,000.400,000*.1 = 200,000*.2Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-19Escau Company is a wholesale distributor that uses activity-based costing for all of itsoverhead costs. The company has provided the following data concerning its annual overheadcosts and its activity-based costing system:The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts. The activity measures for the activity cost pools for the year are as follows:36. What would be the total overhead cost per order according to the activity-based costingsystem, rounded to the nearest whole cent? In other words, what would be the overall activityrate for the Filling Orders activity cost pool?A. $48.00.B. $49.67.C. $52.00.D. $56.00.(300,000*.3 + 100,000*.35)/3,000Bloom's Level: ApplyDifficulty: Medium

Learning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-2037. What would be the total overhead cost per customer according to the activity-based costingsystem, rounded to the nearest whole dollar? In other words, what would be the overall activityrate for the Customer Support activity cost pool?A. $10,800.B. $12,600.C. $13,650.D. $14,400.(380,000*.6 + 100,000*.45)/20Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

38. To the nearest whole dollar, how much wages and salaries cost would be allocated to acustomer who placed eight orders in a year?A. $7,392.B. $9,548.C. $11,704.D. $14,784.Cost assigned = $380,000*.3 = 114,000 and 380,000*.6 = $228,000$114,000/3,000*8 + $228,000/20*1 = 11,704Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 6

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-21

Escalona Company is a wholesale distributor that uses activity-based costing for all of itsoverhead costs. The company has provided the following data concerning its annual overheadcosts and its activity-based costing system:The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts. The amount of activity for the year is as follows:39. What would be the total overhead cost per order according to the activity-based costingsystem, rounded to the nearest whole cent? In other words, what would be the overall activityrate for the Filling Orders activity cost pool?A. $273.00.B. $292.50.C. $302.00.D. $312.00(580,000*.4 + 200,000*.35)/1,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-2240. What would be the total overhead cost per customer according to the activity-based costingsystem, rounded to the nearest whole dollar? In other words, what would be the overall activityrate for the Customer Support activity cost pool?A. $11,700.B. $12,350.C. $12,667.D. $13,000.(580,000*.5 + 200,000*.45)/30Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

41. To the nearest whole dollar, how much wages and salaries cost would be allocated to acustomer who placed four orders in a year?A. $7,124.

B. $8,859.C. $10,595.D. $14,248.(580,000*.4)/1,000 * 4 + 580,000*.5/30 * 1Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 6

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-23Escoto Company is a wholesale distributor that uses activity-based costing for all of itsoverhead costs. The company has provided the following data concerning its annual overheadcosts and its activity-based costing system:The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts. The amount of activity for the year is as follows:42. What would be the total overhead cost per order according to the activity-based costingsystem, rounded to the nearest whole cent? In other words, what would be the overall activityrate for the Filling Orders activity cost pool?A. $18.50.B. $23.50.C. $27.75.D. $37.00.(540,000*.1 + 200,000*.2)/4,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making

5-2443. What would be the total overhead cost per customer according to the activity-based costingsystem, rounded to the nearest whole dollar? In other words, what would be the overall activityrate for the Customer Support activity cost pool?A. $11,100.B. $12,950.C. $13,800.D. $14,800.(540,000*.8 + 200,000*.6)/40Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

44. To the nearest whole dollar, how much wages and salaries cost would be allocated to acustomer who placed eight orders in a year?A. $7,474.B. $9,191.C. $10,908.D. $14,948.54,000/4*8 + 432,000/40*1. Note the numerator in each fraction represents the cost assigned toeach pool for wages and salaries.Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 6

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-25Acton Company has two products: A and B. The annual production and sales of Product A is800 units and of Product B is 500 units. The company has traditionally used direct labour hoursas the basis for applying all manufacturing overhead to products. Product A requires 0.3 directlabour hours per unit, and Product B requires 0.2 direct labour hours per unit. The totalestimated overhead for next period is $92,023.

The company is considering switching to an activity-based costing system for the purpose ofcomputing unit product costs for external reports. The new activity-based costing system wouldhave three overhead activity cost pools—Activity 1, Activity 2, and General Factory—withestimated overhead costs and expected activity as follows:(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labourhours.)45. The predetermined overhead rate under the traditional costing system is closest to which ofthe following?A. $13.17.B. $21.60.C. $37.46.D. $270.66.$92,023/(800*.3hrs + 500*.2hrs)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-2646. The overhead cost per unit of Product B under the traditional costing system is closest towhich of the following?A. $2.63.B. $4.32.C. $7.49.D. $54.13.$270.66 (from #65) *.2 hrs.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

47. The predetermined overhead rate (i.e., activity rate) for Activity 1 under the activity-basedcosting system is closest to which of the following?A. $13.17.B. $24.15.C. $28.97.

D. $83.66.$14,487/1,100Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

48. The overhead cost per unit of Product A under the activity-based costing system is closest towhich of the following?A. $11.24.B. $70.79.C. $81.20.D. $86.97.(14,487/1,100*500 + 64,800/3,000*2,500 + 12,736/340*240)/800 unitsBloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-27Addy Company has two products: A and B. The annual production and sales of Product A is1,700 units and of Product B is 1,100 units. The company has traditionally used direct labourhours as the basis for applying all manufacturing overhead to products. Product A requires 0.3direct labour hours per unit, and Product B requires 0.6 direct labour hours per unit. The totalestimated overhead for next period is $98,785.The company is considering switching to an activity-based costing system for the purpose ofcomputing unit product costs for external reports. The new activity-based costing systemwould have three factory overhead activity cost pools—Activity 1, Activity 2, and GeneralFactory—with estimated overhead costs and expected activity as follows:(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labourhours.)49. (Appendix 5B) The predetermined overhead rate under the traditional costing system isclosest to which of the following?A. $9.15.B. $19.08.C. $43.48.D. $84.43.$98,785/(1,700*.3hrs + 1,100*.6)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-2850. (Appendix 5B) The overhead cost per unit of Product B under the traditional costing systemis closest to which of the following?A. $5.49.B. $11.45.C. $26.09.D. $50.66.$84.43 (#68) *.6 hrs.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 7

51. (Appendix 5B) The predetermined overhead rate (i.e., activity rate) for Activity 2 under theactivity-based costing system is closest to which of the following?A. $9.15.B. $10.23.C. $51.99.D. $86.93.$17,385/1,900Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

52. (Appendix 5B) The overhead cost per unit of Product B under the activity-based costingsystem is closest to which of the following?A. $26.09.B. $35.28.C. $38.16.D. $50.66.(30,528/1,600*600 + 17,385/1,900*200 + 50,872/1170*660)/1,100 unitsBloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-29Abel Company uses activity-based costing. The company has two products: A and B. Theannual production and sales of Product A is 200 units and of Product B is 400 units. There arethree activity cost pools, with estimated costs and expected activity as follows:53. The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-basedcosting system is closest to which of the following?A. $10.25.B. $16.77.C. $24.91.D. $26.36.$18,450/1,800Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

54. The cost per unit of Product B is closest to which of the following?A. $17.69.B. $41.58.C. $74.73.D. $81.53.(16,660/700*100 + 18,450/1,800*700 + 9,731/220*160)/400Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-30Accola Company uses activity-based costing. The company has two products: A and B. The

annual production and sales of Product A is 1,100 units and of Product B is 700 units. There arethree activity cost pools, with estimated costs and expected activity as follows:55. The activity rate for Activity 3 is closest to which of the following?A. $26.67.B. $56.74.C. $116.18.D. $119.72.$48,976/860Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

56. The cost per unit of Product A is closest to which of the following?A. $22.70.B. $47.89.C. $57.20.D. $59.23.(18,270/1,100*600 + 35,981/1,900*1,600 + 48,796/860*440)/100Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-31Arthur Company has two products: S and D. The company uses activity-based costing and hasprepared the following analysis, showing the estimated total cost and expected activity for eachof its three activity cost pools:The annual production and sales of Product S is 4,547 units. The annual production and sales ofProduct D is 7,913.57. The activity rate under the activity-based costing system for Activity 3 is closest to which ofthe following?A. $29.32.B. $30.00.C. $33.33.D. $41.53.$90,000/3,000Bloom's Level: Apply

Difficulty: EasyLearning Objective: 2

58. The cost per unit of Product S under activity-based costing is closest to which of thefollowing?A. $1.83.B. $1.98.C. $5.00.D. $10.00.(20,000/500*100 + 14,600/750*500 + 90,000/3,000*300)/4,547Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-32Monson Company has two products: G and P. The company uses activity-based costing andhas prepared the following analysis, showing the estimated total cost and expected activity foreach of its three activity cost pools:The annual production and sales of Product G is 10,640 units. The annual production and salesof Product P is 26,600.59. The activity rate under the activity-based costing system for Activity 2 is closest to which ofthe following?A. $16.00.B. $21.97.C. $26.67.D. $89.33.24,000/1,500Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

60. The cost per unit of Product P under activity-based costing is closest to which of thefollowing?A. $4.00.B. $6.88.C. $10.00.

D. $30.16.(30,000/600*400 + 24,000/1,500*900 + 80,000/4,000*3,600)/26,600Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-33Forse Florist specializes in large floral bouquets for hotels and other commercial spaces. Thecompany has provided the following data concerning its annual overhead costs and itsactivity-based costing system:The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts. The amount of activity for the year is as follows:61. What would be the total overhead cost per bouquet according to the activity-based costingsystem, rounded to the nearest whole cent? In other words, what would be the overall activityrate for the Making Bouquets activity cost pool?A. $0.90.B. $1.05.C. $1.10.D. $1.20.(80,000*.6 + 40,000*.5)/60,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-3462. What would be the total overhead cost per delivery according to the activity-based costing

system, rounded to the nearest whole cent? In other words, what would be the overall activityrate for the Deliveries activity cost pool?A. $6.00B. $6.60C. $6.80D. $7.20(80,000*.3 + 40,000*.25)/5,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Foster Florist specializes in large floral bouquets for hotels and other commercial spaces. Thecompany has provided the following data concerning its annual overhead costs and itsactivity-based costing system:The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts. The amount of activity for the year is as follows:

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-3563. What would be the total overhead cost per bouquet according to the activity-based costingsystem, rounded to the nearest whole cent? In other words, what would be the overall activityrate for the Making Bouquets activity cost pool?A. $1.35.B. $1.73.C. $1.79.D. $2.10.(70,000*.7 + 50,000*.45)/40,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

64. What would be the total overhead cost per delivery according to the activity-based costingsystem, rounded to the nearest whole cent? In other words, what would be the overall activityrate for the Deliveries activity cost pool?A. $24.00.

B. $26.50.C. $27.00.D. $30.00.(70,000*.2 + 50,000*.25)/1,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-36Foss Florist specializes in large floral bouquets for hotels and other commercial spaces. Thecompany has provided the following data concerning its annual overhead costs and itsactivity-based costing system:The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts. The amount of activity for the year is as follows:65. What would be the total overhead cost per bouquet according to the activity-based costingsystem, rounded to the nearest whole cent? In other words, what would be the overall activityrate for the Making Bouquets activity cost pool?A. $2.48.B. $2.75.C. $2.83.D. $3.03.(70,000*.5 + 40,000*.45)/20,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-37

66. What would be the total overhead cost per delivery according to the activity-based costingsystem, rounded to the nearest whole cent? In other words, what would be the overall activityrate for the Deliveries activity cost pool?A. $3.93.B. $4.71.C. $4.93.D. $5.50.(70,000*.35 + 40,000*.25)/7,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Grogam Catering uses activity-based costing for its overhead costs. The company has providedthe following data concerning the activity rates in its activity-based costing system:The number of meals served is the measure of activity for the Preparing Meals activity cost pool.The number of functions catered is used as the activity measure for the Arranging Functionsactivity cost pool.Management would like to know whether the company made any money on a recent function atwhich 100 meals were served. The company catered the function for a fixed price of $21.00 permeal. The cost of the raw ingredients for the meals was $8.25 per meal. This cost is in additionto the costs of wages, supplies, and other expenses detailed above.For the purposes of preparing action analyses, management has assigned ease of adjustmentcodes to the costs as follows: wages are classified as a Yellow cost, supplies and rawingredients as a Green cost, and other expenses as a Red cost.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-3867. According to the activity-based costing system, what was the total cost (including the costs

of raw ingredients) of the function mentioned above, rounded to the nearest whole dollar?A. $910.B. $1,060.C. $1,560.D. $1,760.Total Cost is sum of above.Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 3Learning Objective: 6

68. (Appendix 5A) In an action analysis report prepared for the function mentioned above, whatwould be the "red margin" in the report, rounded to the nearest whole dollar?A. $390.B. $440.C. $540.D. $690.$21/meal * 100 - Total Cost from #86Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3Learning Objective: 6

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-3969. (Appendix 5A) In an action analysis report prepared for the function mentioned above, whatwould be the "yellow margin" in the report, rounded to the nearest whole dollar?A. $635.B. $710.C. $760.D. $815.$540 (#87) + $95 (red cost from #86)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3Learning Objective: 6

Groce Catering uses activity-based costing for its overhead costs. The company has providedthe following data concerning the activity rates in its activity-based costing system:

The number of meals served is the measure of activity for the Preparing Meals activity cost pool.The number of functions catered is used as the activity measure for the Arranging Functionsactivity cost pool.Management would like to know whether the company made any money on a recent function atwhich 150 meals were served. The company catered the function for a fixed price of $14.00 permeal. The cost of the raw ingredients for the meals was $8.75 per meal. This cost is in additionto the costs of wages, supplies, and other expenses detailed above.For the purposes of preparing action analyses, management has assigned ease of adjustmentcodes to the costs as follows: wages are classified as a Yellow cost, supplies and rawingredients as a Green cost, and other expenses as a Red cost.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-4070. According to the activity-based costing system, what was the total cost (including the costsof raw ingredients) of the function mentioned above, rounded to the nearest whole dollar?A. $1,370.B. $1,520.C. $2,020.D. $2,220.Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 3Learning Objective: 6

71. (Appendix 5A) In an action analysis report prepared for the function mentioned above, whatwould be the "red margin" in the report, rounded to the nearest whole dollar?A. ($70).B. ($20).C. $80.D. $230.150*$14 - total cost from #89Bloom's Level: Analyze

Difficulty: HardLearning Objective: 3Learning Objective: 6

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-4172. (Appendix 5A) In an action analysis report prepared for the function mentioned above, whatwould be the "yellow margin" in the report, rounded to the nearest whole dollar?A. $240.B. $315.C. $365.D. $420.$80 (#90) + $160 (red cost from #89)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3Learning Objective: 6

Grodt Catering uses activity-based costing for its overhead costs. The company has providedthe following data concerning the activity rates in its activity-based costing system:The number of meals served is the measure of activity for the Preparing Meals activity cost pool.The number of functions catered is used as the activity measure for the Arranging Functionsactivity cost pool.Management would like to know whether the company made any money on a recent function atwhich 60 meals were served. The company catered the function for a fixed price of $19.00 permeal. The cost of the raw ingredients for the meals was $8.60 per meal. This cost is in additionto the costs of wages, supplies, and other expenses detailed above.For the purposes of preparing action analyses, management has assigned ease of adjustmentcodes to the costs as follows: wages are classified as a Yellow cost, supplies and rawingredients as a Green cost, and other expenses as a Red cost.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-4273. According to the activity-based costing system, what was the total cost (including the costsof raw ingredients) of the function mentioned above, rounded to the nearest whole dollar?A. $505.B. $655.C. $1,155.D. $1,355.Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 3Learning Objective: 6

74. (Appendix 5A) In an action analysis report prepared for the function mentioned above, whatwould be the "red margin" in the report, rounded to the nearest whole dollar?A. ($165).B. ($115).C. ($15).D. $135.60 * $19 - 1,155(#92)Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 3Learning Objective: 6

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-4375. (Appendix 5A) In an action analysis report prepared for the function mentioned above, whatwould be the "yellow margin" in the report, rounded to the nearest whole dollar?A. $123.B. $198.

C. $248.D. $303.-15 (#93) + 138 (#92)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3Learning Objective: 6

76. Which of the following types of costs present the greatest difficulty in efforts to trace themto products and services?A. Unit-level costsB. Batch-level costsC. Product/service-level costsD. Organization-sustaining costsBloom's Level: UnderstandDifficulty: HardLearning Objective: 1

77. Which of the following is a distinctive feature of an ABC system in comparison to adepartmental overhead application system?A. It is a two-stage allocation system.B. It uses transactional drivers.C. It must include at least one non unit-level driver.D. It uses duration drivers.Bloom's Level: UnderstandDifficulty: HardLearning Objective: 1Learning Objective: 5

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-4478. Which of the following is the fundamental and primary driver of costs in the ABC model?A. Cost objects.B. Activities.C. Consumption of resources.D. Process improvements.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

79. Which of the following is NOT a technique directly or indirectly useful in processimprovements?A. The lean thinking model.

B. Process costing.C. Activity-based costing.D. Activity-based management.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 1Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-45Addison Company has two products: A and B. Annual production and sales are 800 units ofProduct A and 700 units of Product B. The company has traditionally used direct labour-hoursas the basis for applying all manufacturing overhead to products. Product A requires 0.2 directlabour hours per unit and Product B requires 0.6 direct labour hours per unit. The totalestimated overhead for next period is $71,286.The company is considering switching to an activity-based costing system for the purpose ofcomputing unit product costs for external reports. The new activity-based costing systemwould have three factory overhead activity cost pools—Activity 1, Activity 2, and GeneralFactory—with estimated overhead costs and expected activity as follows:(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labourhours.)80. (Appendix 5B) The predetermined overhead rate under the traditional costing system isclosest to:A. $25.34B. $22.60C. $37.30D. $122.91$71,286/(800*.2 + 700*.6)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-4681. (Appendix 5B) The overhead cost per unit of Product B under the traditional costing systemis closest to:A. $22.38B. $13.56C. $73.74D. $15.20$122.91(#99) *.6hrs.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 7

82. (Appendix 5B) The predetermined overhead rate (i.e., activity rate) for Activity 2 under theactivity-based costing system is closest to:A. $22.60B. $54.84C. $58.76D. $36.73$29,380/1,300Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2Learning Objective: 5

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-4783. (Appendix 5B) The overhead cost per unit of Product B under the activity-based costingsystem is closest to:A. $73.74B. $56.62

C. $22.38D. $47.52(20,272/800*500 + 29,380/1,300*500 + 21,634/580*420)/700Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-48Koszyk Manufacturing Corporation has a traditional costing system in which it appliesmanufacturing overhead to its products using a predetermined overhead rate based on directlabour-hours (DLHs). The company has two products, P85G and C43S, about which it hasprovided the following data:The company's estimated total manufacturing overhead for the year is $2,264,000 and thecompany's estimated total direct labour-hours for the year is 40,000.The company is considering using a variation of activity-based costing to determine its unitproduct costs for external reports. Data for this proposed activity-based costing system appearbelow:

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-4984. (Appendix 5B) The total cost of a unit of product P85G under the company's traditionalcosting system is closest to:A. $146.97B. $102.58

C. $101.69D. $80.50OH rate = $2,264,000/40,000 = $56.60/DLH. OH cost = 56.60*.8hrs = $45.28. Add to this DMof $36.50 and DL of $20.80Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3Learning Objective: 4Learning Objective: 5Learning Objective: 7

85. (Appendix 5B) The total cost of a unit of product C43S under the activity-based costingsystem is closest to:A. $165.34B. $233.26C. $162.22D. $105.34OH/unit = (1,160,000/40,000*12,000 + 288,000/2,400*920 + 816,000/2720*840)/10,000 =$71.04. Add DM + DL = $165.34Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 5Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-50Binegar Manufacturing Corporation has a traditional costing system in which it appliesmanufacturing overhead to its products using a predetermined overhead rate based on directlabour-hours (DLHs). The company has two products, R58G and R09O, about which it hasprovided the following data:The company's estimated total manufacturing overhead for the year is $1,617,600 and thecompany's estimated total direct labour-hours for the year is 24,000.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 appearbelow:

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-5186. (Appendix 5B) The manufacturing overhead that would be applied to a unit of productR58G under the company's traditional costing system is closest to:A. $6.74B. $16.10C. $22.84D. $2.90$1,617,600/24,000hrs*.10hrs/unitBloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 7

87. (Appendix 5B) The manufacturing overhead that would be applied to a unit of productR09O under the activity-based costing system is closest to:A. $113.46B. $255.00C. $141.54D. $17.28(696,000/24,000*21,000 + 252,000/1,680*1,152 + 669,600/2,232*1,176)/10,000Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-52

Kebort Manufacturing Corporation has a traditional costing system in which it appliesmanufacturing overhead to its products using a predetermined overhead rate based on directlabour-hours (DLHs). The company has two products, U86Y and M91F, about which it hasprovided the following data:The company's estimated total manufacturing overhead for the year is $2,541,760 and thecompany's estimated total direct labour-hours for the year is 47,000.The company is considering using a variation of activity-based costing to determine its unitproduct costs for external reports. Data for this proposed activity-based costing system appearbelow:

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-5388. (Appendix 5B) The unit product cost of product U86Y under the company's traditionalcosting system is closest to:A. $71.15B. $55.50C. $75.86D. $38.00$2,541,760/47,000*.7 + 19.80 + 18.20Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 3Learning Objective: 5Learning Objective: 7

89. (Appendix 5B) The unit product cost of product M91F under the activity-based costingsystem is closest to:A. $95.20B. $121.57C. $216.77D. $197.95(1,175,000/47,000*19,000 + 407,960/2,914*658 + 958,800/3,196*2162)/10,000 + $19.80 +$18.20.

Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 5Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-54True / False Questions90. When combining activities in an activity-based costing system, activities should be groupedtogether at the same level. For example, batch-level activities should not be combined withunit-level activities.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 1

91. Unit-level activities arise as a result of the total volume of production and are performedeach time a unit is produced.TRUEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 1

92. Unit-level production activities are performed each time a unit is made.TRUEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 1

93. Organization-sustaining activities are carried out regardless of how many units are made,how many batches are run, or how many different products are made.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 1

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-5594. Activity-based costing uses a number of activity cost pools, each of which is allocated toproducts on the basis of direct labour hours.FALSEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 1

95. The first-stage allocation in activity-based costing is the process by which overhead costsare assigned to products before they are assigned to customers.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

96. Activity rates in activity-based costing are computed by dividing costs from the first-stageallocations by the activity measure for each activity cost pool.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

97. In the second-stage allocation in activity-based costing, activity rates are used to apply coststo products, customers, and other cost objects.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 3

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-5698. In traditional costing systems, all manufacturing costs are assigned to products—even

manufacturing costs that are not caused by the products.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1Learning Objective: 5

99. When there are batch-level or product-level costs, in comparison to a traditional cost system,an activity-based costing system ordinarily will shift costs from high-volume to low-volumeproducts.TRUEBloom's Level: UnderstandDifficulty: HardLearning Objective: 5

100. An activity-based costing system is generally easier to set up and run than a traditional costsystem.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

101. Activity-based costing is a costing method that is designed to provide managers with costinformation for strategic and other decisions that potentially affect only variable costs.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-57102. In activity-based costing, as in traditional costing systems, non-manufacturing costs arenot assigned to products.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1Learning Objective: 5

103. In activity-based costing, a plant-wide overhead rate is used to apply overhead toproducts.FALSE

Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

104. Changing a cost accounting system is likely to meet with little resistance in anorganization since it is a technical matter of little interest to individuals outside of theaccounting department.FALSEBloom's Level: UnderstandDifficulty: HardLearning Objective: 1

105. Managing and sustaining product diversity requires many more overhead resources, suchas production schedulers and product design engineers, than managing and sustaining a singleproduct. The costs of these resources can be accurately allocated to products on the basis ofdirect labour hours.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-58106. Transaction drivers usually take more effort to record than duration drivers.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

107. In general, duration drivers are more accurate measures of the consumption of resourcesthan transaction drivers.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

108. (Appendix 5A) An action analysis report reconciles activity-based costing product costswith traditional product costs based on direct labour.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 6

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-59Essay Questions109. Ingersol Draperies makes custom draperies for homes and businesses. The company usesan activity-based costing system for its overhead costs. The company has provided thefollowing data concerning its annual overhead costs and its activity cost pools:Distribution of Resource Consumption:The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts. The amount of activity for the year is as follows:Required:

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-60a) Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in thetable below:b) Compute the activity rates (i.e., cost per unit of activity) for the Making Drapes and JobSupport activity cost pools by filling in the table below:c) (Appendix 5A) Prepare an action analysis report in good form of a job that involves making71 metres of drapes and has direct materials and direct labour cost of $2,510. The sales revenuefrom this job is $4,400. For purposes of this action analysis report, direct materials and directlabour should be classified as a Green cost, production overhead as a Red cost, and officeexpense as a Yellow cost.

a) First-stage allocation

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-61b) Activity rates (costs divided by activity)Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 6

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-62110. Hasty Hardwood Floors installs oak and other hardwood floors in homes and businesses.The company uses an activity-based costing system for its overhead costs. The company hasprovided the following data concerning its annual overhead costs and its activity-based costingsystem:Distribution of Resource Consumption:The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts. The amount of activity for the year is as follows:A "square" is a measure of area that is roughly equivalent to 1,000 square metres.Required:a) Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in thetable below:

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-63b) Compute the activity rates (i.e., cost per unit of activity) for the Installing Floors and JobSupport activity cost pools by filling in the table below:c) Compute the overhead cost, according to the activity-based costing system, of a job thatinvolves installing 3.4 squares.a) First-stage allocation

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-64Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2Learning Objective: 3

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-65111. Goel Company, a wholesale distributor, uses activity-based costing for its overhead costs.The company has provided the following data concerning its annual overhead costs and itsactivity-based costing system:Distribution of Resource Consumption:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts. The amount of activity for the year is as follows:Required:Compute the activity rates (i.e., cost per unit of activity) for the Filling Orders and ProductSupport activity cost pools by filling in the table below: Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-66First-stage allocationBloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-67112. Fife & Jones PLC, a consulting firm, uses an activity-based costing in which there arethree activity cost pools. The company has provided the following data concerning its costs andits activity-based costing system:Distribution of Resource Consumption:Required:a) How much cost, in total, would be allocated to the Working On Engagements activity costpool?b) How much cost, in total, would be allocated to the Business Development activity cost pool?c) How much cost, in total, would be allocated to the Other activity cost pool?

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-68All three parts can be answered using a first-stage allocation of costs.a) $379,000

b) $173,000c) $228,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-69113. Huish Awnings makes custom awnings for homes and businesses. The company uses anactivity-based costing system for its overhead costs. The company has provided the followingdata concerning its annual overhead costs and its activity cost pools:Overhead Costs:The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts. The amount of activity for the year is as follows:Required:

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-70a) Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in thetable below:b) Compute the activity rates (i.e., cost per unit of activity) for the Making Awnings and JobSupport activity cost pools by filling in the table below:c) (Appendix 5A) Prepare an action analysis report in good form of a job that involves making80 yards of awnings and has direct materials and direct labour cost of $3,000. The sales revenuefrom this job is $4,000. For purposes of this action analysis report, direct materials and direct

labour should be classified as a Green cost, production overhead as a Red cost, and officeexpense as a Yellow cost.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-71a) First-stage allocation

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-72Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 6

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-73114. Phoenix Company makes custom covers for air conditioning units for homes andbusinesses. The company uses an activity-based costing system for its overhead costs. Thecompany has provided the following data concerning its annual overhead costs and its activitycost pools:Distribution of Resource Consumption:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts. The amount of activity for the year is as follows:Required:a) Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in thetable below:b) Compute the activity rates (i.e., cost per unit of activity) for the Making Covers and JobSupport activity cost pools by filling in the table below:

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-74c) (Appendix 5A) Prepare an action analysis report in good form of a job that involves making50 yards of covers and has direct materials and direct labour cost of $1,500. The sales revenuefrom this job is $2,500. For purposes of this action analysis report, direct materials and directlabour should be classified as a Green cost, production overhead as a Red cost, and officeexpense as a Yellow cost.a) First-stage allocation

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-75Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 6

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-76115. Jackson Painting paints the interiors and exteriors of homes and commercial buildings.The company uses an activity-based costing system for its overhead costs. The company hasprovided the following data concerning its activity-based costing system.The "Other" activity cost pool consists of the costs of idle capacity and organization-sustainingcosts.The company has already finished the first stage of the allocation process in which costs wereallocated to the activity cost centres. The results are listed below:Required:a) Compute the activity rates (i.e., cost per unit of activity) for the Painting and Job Supportactivity cost pools by filling in the table below. Round off all calculations to the nearest wholecent.b) (Appendix 5A) Prepare an action analysis report in good form of a job that involves painting63 square metres and has direct materials and direct labour cost of $2,070. The sales revenuefrom this job is $2,500. For purposes of this action analysis report, direct materials and directlabour should be classified as a Green cost, painting overhead as a Red cost, and office expenseas a Yellow cost.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-77

a) Activity rates (costs divided by activity)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2Learning Objective: 3Learning Objective: 6

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-78116. Cabanos Company manufactures two products, Product C and Product D. The companyestimated it would incur $160,790 in manufacturing overhead costs during the current period.Overhead currently is applied to the products on the basis of direct labour hours. Dataconcerning the current period's operations appear below:Required:a) Compute the predetermined overhead rate under the current method, and determine the unitproduct cost of each product for the current year.b) The company is considering using an activity-based costing system to compute unit productcosts for external financial reports instead of its traditional system based on direct labour hours.The activity-based costing system would use three activity cost pools. Data relating to theseactivities for the current period are given below:Determine the unit product cost of each product for the current period using the activity-basedcosting approach.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-79

a) The expected total direct labour hours during the period are computed as follows:Using these hours as a base, the predetermined overhead using direct labour hours would be:Predetermined overhead rate = $160,790/13,880 DLHs = $11.58/DLHUsing this overhead rate, the unit product costs are:b) The overhead rates for each activity centre are as follows:The overhead cost charged to each product is:Overhead cost per unit:Product C: $63,080/3,400 units = $18.55 per unit.Product D: $97,710/4,800 units = $20.36 per unit.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-80Using activity-based costing, the unit product cost of each product would be:Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 5Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-81117. Lionel Corporation manufactures two products, Product B and Product H. Product H is offairly recent origin, having been developed as an attempt to enter a market closely related to thatof Product B. Product H is the more complex of the two products, requiring two hours of directlabour time per unit to manufacture, compared to one hour of direct labour time for Product B.Product H is produced on an automated production line.

Overhead is currently assigned to the products on the basis of direct labour hours. The companyestimated it would incur $450,000 in manufacturing overhead costs and produce 7,500 units ofProduct H and 30,000 units of Product B during the current year. Unit costs for materials anddirect labour are:Required:a) Compute the predetermined overhead rate under the current method of allocation, anddetermine the unit product cost of each product for the current year.b) The company's overhead costs can be attributed to four major activities. These activities andthe amount of overhead cost attributable to each for the current year are given below:Using the data above and an activity-based costing approach, determine the unit product cost ofeach product for the current year.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-82a) The company expects to work 45,000 direct labour hours during the current year, computedas follows:Using these hours as a base, the predetermined overhead using direct labour hours would be:Predetermined overhead rate = $450,000/45,000 DLHs = $10.00/DLHUsing this overhead rate, the unit product cost of each product would be:b) The overhead rates are computed as follows:The overhead cost attributable to each product is:

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making

5-83Overhead cost per unit:Product B: $189,236/30,000 units = $6.3079/unit.Product H: $260,764/7,500 units = $34.7685/unit.Using activity-based costing, the unit product cost of each product would be:Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 5Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-84118. Flyer Corporation manufactures two products, Product A and Product B. Product B is offairly recent origin, having been developed as an attempt to enter a marketclosely related to thatof Product A. Product B is the more complex of the two products, requiring three hours of directlabour time per unit to manufacture, compared to one and one-half hours of direct labour timefor Product A. Product B is produced on an automated production line.Overhead is currently assigned to the products on the basis of direct labour hours. The companyestimated it would incur $396,000 in manufacturing overhead costs and produce 5,500 units ofProduct B and 22,000 units of Product A during the current year. Unit costs for materials anddirect labour are:Required:a) Compute the predetermined overhead rate under the current method of allocation, anddetermine the unit product cost of each product for the current year.b) The company's overhead costs can be attributed to four major activities. These activities andthe amount of overhead cost attributable to each for the current year are given below:Using the data above and an activity-based costing approach, determine the unit product cost ofeach product for the current year.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-85a) The company expects to work 49,500 direct labour hours during the current year, computedas follows:Using these hours as a base, the predetermined overhead using direct labour hours would be:Predetermined overhead rate = $396,000/49,500 DLHs = $8.00/DLHUsing this overhead rate, the unit product cost of each product would be:b) The overhead rates are computed as follows:The overhead cost attributable to each product is:

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-86Overhead cost per unit:Product A: $159,400/22,000 units = $7.2455/unit.Product B: $236,600/5,500 units = $43.0182/unit.Using activity-based costing, the unit product cost of each product would be:Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 5Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making

5-87119. EMD Corporation manufactures two products, Product S and Product W. Product W is offairly recent origin, having been developed as an attempt to enter a market closely related to thatof Product S. Product W is the more complex of the two products, requiring one hour of directlabour time per unit to manufacture, compared to a half-hour of direct labour time for Product S.Product W is produced on an automated production line.Overhead is currently assigned to the products on the basis of direct labourhours. The companyestimated it would incur $500,000 in manufacturing overhead costs and produce 10,000 units ofProduct W and 60,000 units of Product S during the current year. Unit cost for materials anddirect labour are:Required:a) Compute the predetermined overhead rate under the current method of allocation, anddetermine the unit product cost of each product for the current year.b) The company's overhead costs can be attributed to four major activities. These activities andthe amount of overhead cost attributable to each for the current year are given below:Using the data above and an activity-based costing approach, determine the unit product cost ofeach product for the current year.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-88a) The company expects to work 40,000 direct labour hours during the current year, computedas follows:Using these hours as a base, the predetermined overhead using direct labour hours would be:Predetermined overhead rate = $500,000/40,000 DLHs = $12.50/DLHUsing this overhead rate, the unit product cost of each product would be:b) The overhead rates are computed as follows:The overhead cost attributable to each product is:

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-89Overhead cost per unit:Product S: $205,825/60,000 units = $3.4304/unit.Product W: $294,175/10,000 units = $29.4175/unit.Using activity-based costing, the unit product cost of each product would be:Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 5Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-90120. Daba Company manufactures two products, Product F and Product G. During the currentyear, the company expects to produce and sell 1,400 units of Product F and 1,800 units ofProduct G. The company uses activity-based costing to compute unit product costs for externalreports. Data relating to the company's three activity cost pools are given below for the currentyear:Required:Using the activity-based costing approach, determine the overhead cost per unit for eachproduct.The overhead rates for each activity centre are as follows:The overhead cost charged to each product is:Overhead cost per unit:Product F: $59,930/1,400 units = $42.81 per unit.Product G: $104,310/1,800 units = $57.95 per unit.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-91Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2Learning Objective: 3

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-92121. Eaker Company uses activity-based costing to compute product costs for external reports.The company has three activity cost pools and applies overhead using predetermined overheadrates for each activity cost pool. Estimated costs and activities for the current year are presentedbelow for the three activity centres:Actual costs and activities for the current year were as follows:Required:a) How much total overhead was applied to products during the year?b) By how much was overhead overapplied or underapplied? (Be sure to clearly label youranswer as to whether the overhead was overapplied or underapplied for each activity centre aswell as for the total.)

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making

5-93a) The overhead rates for each activity centre are as follows:The amount of overhead applied to production is determined as follows:b) The amount of underapplied (overapplied) for each centre and all activity centres is asfollows:Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2Learning Objective: 3Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-94122. Kya, Inc. manufactures two models of high-pressure steam valves, the XR7 model and theZD5 model. Budgeted manufacturing overhead cost and operating data regarding productionand sales of 2,000 units of the XR7 model and 8,000 units of the ZD5 model for 2005 follow:Required:a) Identify and briefly explain each of the three cost drivers as either unit-level or batch-level orproduct-level or organization-sustaining level.b) Calculate the budgeted manufacturing overhead cost for each unit of the two models, usingonly one unit-level cost driver.c) Calculate the budgeted manufacturing overhead cost for each unit of the two models, usingthe activity-based-costing (ABC) method.d) Assume Kya, Inc. will use only the unit-level driver. Compared to the ABC method, by howmuch (in terms of total allocated/applied manufacturing overhead cost), if any, will the totaloutput of each model be either under-costed or over-costed?e) Is the result obtained in part (d) above consistent with your expectations? Explain. Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-95a) Number of setup is a batch-level activity in the sense that machine has to be setup for each

batch independent of the number units in a batch. Number of parts is a product-level activitybecause the vendor negotiation costs increase with the number of different vendors to besourced. Direct labour is a traditional unit-level activity that is performed on each unit of output.b) Predetermined rate = $1,400,000/40,000 DLHs= $35/DLHc) Rates:setups ($800,000/250) = $3,200 per machine setupVendor negotiations ($200,000/1,000) = $200 per partAssembly ($400,000/40,000) = $10 per DLHd)e) The result in part (d) above is consistent with expectations. In comparison with ABC, use ofonly unit-level cost drivers such as direct labour hours generally tends to over-cost the highvolume product (in this case, ZD5 Model) while it under-costs the low-volume product (in thiscase XR7 Model). This is the result obtained in part (d) above.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-96Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 5Learning Objective: 7

123. Activity-based-costing (ABC) charges products for the cost of capacity used, NOT for idlecapacity.Required:a) The use of which activity level, budgeted (same as expected) or maximum capacity, isconsistent with ABC? Explain.b) How might the use of ABC based on maximum capacity activity level enhance a firm'sability to compete on price? Explain.a) Use of maximum capacity activity level is consistent with the ABC method. It will ensure a

reasonably stable (if not constant) activity rate regardless of the expected level of activity. Since,by definition, expected level of activity cannot exceed the maximum capacity, the resultingactivity rate is also likely to be lower. A lower activity rate when applied to a less-than-capacityexpected or actual activity level will ensure that cost of idle capacity is not charged to products.b) Since the cost of idle capacity will not be charged to products, products are unlikely to beovercosted. The fact that ABC generally achieves more accurate product costs (because it usesmultiple unit-level and non unit-level cost drivers) also avoids undercosting or overcosting.Accurate product cost information is a good starting point for competitive pricing. This isespecially important in diverse multiple product firms where product emphasis decisions areroutinely made.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1Learning Objective: 4Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-97124. (Appendix 5B) Werger Manufacturing Corporation has a traditional costing system inwhich it applies manufacturing overhead to its products using a predetermined overhead ratebased on direct labour-hours (DLHs). The company has two products, W82R and L48S, aboutwhich it has provided the following data:The company's estimated total manufacturing overhead for the year is $1,521,960 and thecompany's estimated total direct labour-hours for the year is 22,000.The company is considering using a variation of activity-based costing to determine its unitproduct costs for external reports. Data for this proposed activity-based costing system appear

below:Required:a. Determine the unit product cost of each of the company's two products under the traditionalcosting system.b. Determine the unit product cost of each of the company's two products under activity-basedcosting system.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-98a. Traditional Unit Product CostsPredetermined overhead rate = $1,521,960 22,000 DLHs = $69.18 per DLHb. ABC Unit Product CostsOverhead cost for W82ROverhead cost for L48S

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-99Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2Learning Objective: 3Learning Objective: 5Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making

5-100125. (Appendix 5B) Torri Manufacturing Corporation has a traditional costing system in whichit applies manufacturing overhead to its products using a predetermined overhead rate based ondirect labour-hours (DLHs). The company has two products, B40W and C63J, about which ithas provided the following data:The company's estimated total manufacturing overhead for the year is $2,656,000 and thecompany's estimated total direct labour-hours for the year is 64,000.The company is considering using a variation of activity-based costing to determine its unitproduct costs for external reports. Data for this proposed activity-based costing system appearbelow:Required:a. Determine the unit product cost of each of the company's two products under the traditionalcosting system.b. Determine the unit product cost of each of the company's two products under activity-basedcosting system.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-101a. Traditional Unit Product CostsPredetermined overhead rate = $2,656,000 64,000 DLHs = $41.50 per DLHb. ABC Unit Product CostsOverhead cost for B40WOverhead cost for C63J

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-102Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2Learning Objective: 3Learning Objective: 5Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-103126. (Appendix 5B) Welk Manufacturing Corporation has a traditional costing system in whichit applies manufacturing overhead to its products using a predetermined overhead rate based ondirect labour-hours (DLHs). The company has two products, H16Z and P25P, about which ithas provided the following data:The company's estimated total manufacturing overhead for the year is $1,464,480 and thecompany's estimated total direct labour-hours for the year is 24,000.The company is considering using a variation of activity-based costing to determine its unitproduct costs for external reports. Data for this proposed activity-based costing system appearbelow:Required:a. Determine the manufacturing overhead cost per unit of each of the company's two productsunder the traditional costing system.b. Determine the manufacturing overhead cost per unit of each of the company's two productsunder activity-based costing system.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making

5-104a. Traditional Manufacturing Overhead CostsPredetermined overhead rate = $1,464,480 24,000 DLHs = $61.02 per DLHb. ABC Manufacturing Overhead CostsOverhead cost for H16ZOverhead cost for P25P

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-105Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2Learning Objective: 3Learning Objective: 5Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-106127. (Appendix 5B) Bullie Manufacturing Corporation has a traditional costing system inwhich it applies manufacturing overhead to its products using a predetermined overhead ratebased on direct labour-hours (DLHs). The company has two products, D31X and U75X, aboutwhich it has provided the following data:The company's estimated total manufacturing overhead for the year is $1,147,650 and thecompany's estimated total direct labour-hours for the year is 35,000.The company is considering using a variation of activity-based costing to determine its unitproduct costs for external reports. Data for this proposed activity-based costing system appearbelow:Required:

a. Determine the manufacturing overhead cost per unit of each of the company's two productsunder the traditional costing system.b. Determine the manufacturing overhead cost per unit of each of the company's two productsunder activity-based costing system.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-107a. Traditional Manufacturing Overhead CostsPredetermined overhead rate = $1,147,650 35,000 DLHs = $32.79 per DLHb. ABC Manufacturing Overhead CostsOverhead cost for D31XOverhead cost for U75X

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-108Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2Learning Objective: 3Learning Objective: 5Learning Objective: 7

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-109

128. Mike Kyekyeku is a sole proprietorship that provides consulting and tax preparationservices to its clients. Mike charges a fee of $100 per hour for each service and can devote amaximum of 4,000 hours annually to his clients. He reported the following revenues andexpenses for 2008:Being an accountant, Mike kept good records of the following data for 2008:(i).(ii).Required:a. Should Mike emphasize one service more than the other if Mike were to allocate all theoverhead costs using direct-labours as the only overhead cost driver (1,300 for Tax and 2,700for Consulting)? Support your decision with the relevant calculations and/or analysis.b. Identify each of the three cost drivers as either unit-level, batch-level, product-level,customer-level, or organization-sustaining.c. How might Mike's product/service emphasis decision in Part a above be altered if he were toallocate all the overhead costs using activity-based costing and the three cost drivers, that is,number of clients, number of transactions with clients, and computer hours? Show all yoursupporting calculations and/or analysis, including any necessary explanation.

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-110a.Decision: NoAnalysis and/or calculations:Preliminary analysis:The overhead allocation rate = $51 per DLH, i.e. $204,000/(1,300 + 2,700)The two services generate the same profit for each hour of Mike's scarce time. Note: Since the$100 billing rate per DLH is the same, the decision can be based only on allocated cost per DLH

($51) which is the same for both services* Alternatively, allocate in proportion to Tax and Consulting at 32.5% and 67.5%, respectively.** Same as the $100 billing rate less the $51 allocation rate.b.Number of clients: Customer-levelNumber of transactions with clients: Unit-levelComputer hours: Unit-level

Chapter 05 - Activity-Based Costing: A Tool to Aid Decision Making5-111c. Preliminary analysis (ABC)Decision:Consulting should receive greater emphasis since every hour of Mike's scarce time generates aprofit of $64.89 compared to $16.00 for Tax. (Note: The decision can be based only on the totalallocated cost per DLH (that is, $109,200/1,300 = $84.00 for Tax; $94,800/2,700 = $35.11 forConsulting) since the billing rate per DLH of $100 is the same for both services. Alternatively,base decision on total allocated cost for each service together with an explanation thatconsulting has less allocated cost and also fewer number of direct labour hours.* same as using activity rate of $700 per client (i.e., $84,000/120)** same as using activity rate of $144 per transactions (i.e., $72,000/500)*** same as using activity rate of $30 per computer hour (i.e., $48,000/1,600)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4Learning Objective: 5Learning Objective: 7

Chapter 09 - Budgeting9-1

Chapter 09BudgetingMultiple Choice Questions1. What is the budget or schedule that provides necessary input data for the direct labourbudget?A. Raw materials purchases budget.B. Production budget.C. Schedule of cash collections.D. Cash budget.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 2

2. The cash budget must be prepared before you can complete which of the following?A. Production budget.B. Budgeted balance sheet.C. Raw materials purchases budget.D. Schedule of cash disbursements.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 2

3. Which of the following is NOT a benefit of budgeting?A. It uncovers potential bottlenecks before they occur.B. It coordinates the activities of the entire organization by integrating the plans and objectivesof the various parts.C. It ensures that accounting records comply with generally accepted accounting principles.D. It provides benchmarks for evaluating subsequent performance.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 1

Chapter 09 - Budgeting9-24. Which of the following best describes the direct materials purchase budget?A. It is the beginning point in the budget process.B. It must provide for the desired ending inventory as well as for production.C. It is accompanied by a schedule of cash collections.D. It is completed after the cash budget.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 2

5. The master budget process usually begins with which of the following?A. Production budget.B. Operating budget.C. Sales budget.D. Cash budget.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 2

6. Which of the following variances in a comprehensive performance report using the flexiblebudget concept is the most appropriate for measuring efficiency of operations?A. Sales volume variance.B. Contribution margin variance.C. Flexible budget variance.D. Total static budget variance.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

Chapter 09 - Budgeting9-37. There are various budgets within the master budget. One of these budgets is the productionbudget. Which of the following best describes the production budget?

A. It details the required direct labour hours.B. It details the required raw materials purchases.C. It is calculated based on the sales budget and the desired ending inventory.D. It summarizes the costs of producing units for the budget period.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 2

8. Which of the following best describes a typical participative budget?A. It is NOT subject to review by higher levels of management since to do so would contradictthe participative aspect of the budgeting processing.B. It is NOT subject to review by higher levels of management except in specific cases wherethe input of higher management is required.C. It is subject to review by higher levels of management in order to prevent the budgets frombecoming too loose.D. It is NOT critical to the success of a budgeting program.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 1

9. What is a continuous (or perpetual) budget?A. It is prepared for a range of activity so that the budget can be adjusted for changes in activity.B. It is a plan that is updated monthly or quarterly, dropping one period and adding another.C. It is a strategic plan that does not change.D. It is used in companies that experience no change in sales.Bloom's Level: RememberDifficulty: MediumLearning Objective: 1

Chapter 09 - Budgeting9-410. Which of the following best describes a method of budgeting in which the cost of eachprogram must be justified every year?A. Operational budgeting.B. Zero-based budgeting.C. Continuous budgeting.D. Responsibility accounting.Bloom's Level: RememberDifficulty: Easy

Learning Objective: 1

11. Fairmont Inc. uses an accounting system that charges costs to the manager who has beendelegated the authority to make decisions concerning the costs. For example, if the salesmanager accepts a rush order that will result in higher than normal manufacturing costs, theseadditional costs are charged to the sales manager because the authority to accept or decline therush order was given to the sales manager. What best describes this type of an accountingsystem?A. Responsibility accounting.B. Contribution accounting.C. Absorption accounting.D. Operational budgeting.Bloom's Level: RememberDifficulty: EasyLearning Objective: 1

Chapter 09 - Budgeting9-512. Parlee Company's sales are 30% in cash and 70% on credit. Sixty percent of the credit salesare collected in the month of sale, 25% in the month following sale, and 12% in the secondmonth following sale. The remainder is uncollectible. The following are budgeted sales data:What would be the budgeted total cash receipts in April?A. $27,230.B. $36,230.C. $38,900.D. $47,900.30,000*.3 + 30,000*.7*.6 + 70,000*.7*.12 + 50,000*.7*.25Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2

13. Budgeted sales in Allen Company over the next four months are given below:Twenty-five percent of the company's sales are for cash, and 75% are on account. Collectionsfor sales on account follow a stable pattern as follows: 50% of a month's sales are collected in

the month of sale, 30% are collected in the month following sale, and 15% are collected in thesecond month following sale. The remainder is uncollectible. Given these data, what should becash collections for December?A. $133,500.B. $120,000.C. $138,000.D. $153,000.Dec. cash sales 120,000 *.25 + Dec. credit sales 120,000 *.75 *.50 + Nov. credit sales 180,000*.75 *.30 + Oct. 160,000 *.75 *.15.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2

Chapter 09 - Budgeting9-614. The PDQ Company makes collections on credit sales according to the following schedule:25% in month of sale70% in month following sale4% in second month following sale1% uncollectibleThe following sales have been budgeted:What would be the cash collections in June?A. $110,000.B. $111,500.C. $113,400.D. $115,500.100,000*.04 + 120,000*.70 + 110,000*.25Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-715. Orion Corporation is preparing a cash budget for the six months beginning January 1.Shown below are the company's expected collection pattern and the budgeted sales for theperiod:Expected collection pattern:65% collected in the month of sale20% collected in the month after sale10% collected in the second month after sale4% collected in the third month after sale1% uncollectibleWhat would be the estimated total cash collections during April from sales and accountsreceivables?A. $155,900.B. $167,000.C. $171,666.D. $173,400.160,000*.04 + 185,000*.10 + 190,000*.20 + 170,000*.65Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-816. Pardee Company plans to sell 12,000 units during the month of August. If the company has2,500 units on hand at the start of the month, and plans to have 2,000 units on hand at the end ofthe month, how many units must be produced during the month?

A. 11,500 units.B. 12,000 units.C. 12,500 units.D. 14,000 units.12,000 + 2,000 - 2,500.Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

17. Modesto Company produces and sells Product AlphaB. To guard against stockouts, thecompany requires that 20% of the next month's sales be on hand at the end of each month.Budgeted sales of Product AlphaB over the next four months are:What would be the budgeted production for August?A. 50,000 units.B. 58,000 units.C. 62,000 units.D. 70,000 units.60,000 + 50,000*.20 - 60,000*.20Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-918. Friden Company has budgeted sales and production over the next quarter as follows:On April 1, the company has 20,000 units of product on hand. A minimum of 20% of the nextmonth's sales needs (in units) must be on hand at the end of each month. July sales are expectedto be 140,000 units. What would be the budgeted sales for June (in units)?A. 128,000 units.B. 160,000 units.C. 184,000 units.D. 188,000 units.May EI = 128,000 + 120,000*.20 - 128,000 = $32,000 = June BI. June sales = 156,000 + 32,000- 140,000*.20.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2

19. Walsh Company expects sales of Product W to be 60,000 units in April, 75,000 units inMay, and 70,000 units in June. The company desires that the inventory on hand at the end ofeach month be equal to 40% of the next month's expected unit sales. Due to excessiveproduction during March, there were 25,000 units of Product W in the ending inventory onMarch 31. Given this information, what should be Walsh Company's production of Product Wfor the month of April?A. 60,000 units.B. 65,000 units.C. 66,000 units.D. 75,000 units.60,000 + 75,000*.40 - 25,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-1020. Superior Industries' sales budget shows quarterly sales for the next year as follows:Company policy is to have a finished goods inventory at the end of each quarter equal to 20% ofthe next quarter's sales. What should be the budgeted production for the second quarter?A. 7,200 units.B. 8,000 units.C. 8,400 units.D. 8,800 units.8,000 + 12,000*.20 - 8,000*.20Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

21. The Tobler Company has budgeted production for next year as follows:Four kilograms of raw materials are required for each unit produced. At the start of the year,raw materials on hand total 4,000 kilograms. The raw materials inventory at the end of each

quarter should equal 10% of the next quarter's production needs. What would be the budgetedpurchases of raw materials in the third quarter?A. 50,400 kilograms.B. 56,800 kilograms.C. 62,400 kilograms.D. 63,200 kilograms.16,000*4 + 14,000*4*.10 - 16,000*4*.10Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2

Chapter 09 - Budgeting9-1122. Marple Company's budgeted production in units and budgeted raw materials purchases overthe next three months are given below:Two kilograms of raw materials are required to produce one unit of product. The companywants raw materials on hand at the end of each month equal to 30% of the following month'sproduction needs. The company is expected to have 36,000 kilograms of raw materials on handon January 1. What should be the budgeted production for February?A. 75,000 units.B. 82,500 units.C. 105,000 units.D. 150,000 units.Desired EI = 129,000 + 36,000 - 60,000*2 = 45,000 kg. Production in Feb. = 45,000/.30/2Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2

Chapter 09 - Budgeting9-1223. The Waverly Company has budgeted sales for next year as follows:The ending inventory of finished goods for each quarter should equal 25% of the next quarter'sbudgeted sales in units. The finished goods inventory at the start of the year is 3,000 units. Whatshould be the scheduled production for the third quarter?A. 13,500 units.B. 17,500 units.C. 18,500 units.D. 22,000 units.18,000 + 16,000*.25 - 18,000*.25Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2

24. The Willsey Merchandise Company has budgeted $40,000 in sales for the month ofDecember. The company's cost of goods sold is 30% of sales. If the company has budgeted topurchase $18,000 in merchandise during December, what is the budgeted change in inventorylevels over the month of December?A. $6,000 increase.B. $10,000 decrease.C. $15,000 increase.D. $22,000 decrease.Change in inventory = Bud. Purchase - CGS = 18,000 - 40,000*.30Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-1325. ABC Company has a cash balance of $9,000 on April 1. The company must maintain aminimum cash balance of $6,000. During April, expected cash receipts are $45,000. Expectedcash disbursements during the month total $52,000. What amount will the company need toborrow during April?A. $2,000.

B. $4,000.C. $6,000.D. $8,000.Unadjusted cash = 9,000 + 45,000 - 52,000 = 2000. Borrowing = 6,000 - 2,000.Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

26. Avril Company makes collections on sales according to the following schedule:30% in the month of sale60% in the month following sale8% in the second month following saleThe following sales are expected:What should be the budgeted cash collections in March?A. $105,000.B. $110,000.C. $110,800.D. $113,000.100,000*.08 + 120,000*.60 + 110,000*.30Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 09 - Budgeting9-1427. The Stacy Company makes and sells a single product: Product R. Budgeted sales for Aprilare $300,000. Gross margin is budgeted at 30% of sales dollars. If the net income for April isbudgeted at $40,000, what are the budgeted selling and administrative expenses?A. $50,000.B. $78,000.C. $102,000.D. $133,333.300,000*.30 - 40,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

KAB Inc., a small retail store, had the following results for May. The budgets for June and Julyare also given.

Sales are collected 80% in the month of the sale and the balance in the month following the sale.(There are no bad debts.) The goods that are sold are purchased in the month prior to sale.Suppliers of the goods are paid in the month following the purchase. The operating expensesare paid in the month of the sale.

Chapter 09 - Budgeting9-1528. What should be the amount of cash collected during the month of June?A. $32,000.B. $40,000.C. $40,400.D. $41,000.42,000*.20 + 40,000*.80Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

29. What should be the cash disbursements during the month of June for goods purchased forresale and for operating expenses?A. $40,000.B. $41,000.C. $42,500.D. $43,500.Purchases in May are paid for in June. May purchases = June budgeted CGS. Cashdisbursements = 20,000 + 20,000Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting

9-16Justin's Plant Store, a retailer, started operations on January 1. On that date, the only assetswere $16,000 in cash and $3,500 in merchandise inventory. For purposes of budget preparation,assume that the company's cost of goods sold is 60% of sales. Expected sales for the first fourmonths appear below:The company desires that the merchandise inventory on hand at the end of each month be equalto 50% of the next month's merchandise sales (stated at cost). All purchases of merchandiseinventory must be paid in the month of purchase. Sixty percent of all sales should be for cash;the balance will be on credit. Seventy-five percent of the credit sales should be collected in themonth following the month of sale, with the balance collected in the following month. Variableoperating expenses should be 10% of sales, and fixed expenses (all depreciation) should be$3,000 per month. Cash payments for the variable operating expenses are made during themonth the expenses are incurred.30. In a budgeted income statement for the month of February, what would be the net income?A. $0.B. $1,800.C. $4,200.D. $9,000.24,000 * (1 - .60) - 24,000*.10 - 3,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-1731. In a budgeted balance sheet, what would be the merchandise inventory on February 28?A. $3,200.B. $4,800.C. $7,500.

D. $9,600.16,000*.60*.50Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2

32. What would be the accounts receivable balance that would appear in the March 31 budgetedbalance sheet?A. $8,800.B. $12,400.C. $15,000.D. $16,000.24,000*.40*.25 + 16,000*.40Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2

33. In a budget of cash receipts for March, what would be the total cash receipts?A. $8,200.B. $16,000.C. $17,800.D. $20,200.16,000*.60 + 24,000*.40*.75 + 10,000*.40*.25Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-1834. In a budget of cash disbursements for March, what would be the total cash disbursements?A. $11,200.B. $13,900.C. $16,900.D. $22,300.CGS + EI - BI + Op. Expenses = 16,000*.60 + 25,000*.60*.50 - 4,800(#53) + 16,000*.10Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2

Information on the actual sales and inventory purchases of the Law Company for the firstquarter follow:

Collections from Law Company's customers are normally 60% in the month of sale, 30% in themonth following sale, and 8% in the second month following sale. The balance is uncollectible.Law Company takes full advantage of the 3% discount allowed on purchases paid for by theend of the following month.The company expects sales in April of $150,000 and inventory purchases of $100,000.Operating expenses for the month of April are expected to be $38,000, of which $15,000 issalaries and $8,000 is depreciation. The remaining operating expenses are variable with respectto the amount of sales in dollars. Those operating expenses requiring a cash outlay are paid forduring the month incurred. Law Company's cash balance on March 1 was $43,000, and on April1 was $35,000.

Chapter 09 - Budgeting9-1935. What would be the expected cash collections from customers during April?A. $117,600.B. $137,000.C. $139,000.D. $150,000.150,000*.60 + 130,000*.30 + 100,000*.08Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

36. What would be the expected cash disbursements during April for inventory purchases?A. $87,300.B. $90,000.C. $97,000.D. $100,000.90,000 * (1 - .03)Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

37. What would be the expected cash disbursements during April for operating expenses?A. $15,000.B. $23,000.C. $30,000.D. $38,000.38,000 - 8,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 09 - Budgeting9-2038. What would be the expected cash balance on April 30?A. $19,700.B. $28,700.C. $54,700.D. $62,700.35,000 + 137,000(#57) - 87,300(#58) - 30,000(#59)Bloom's Level: ApplyDifficulty: HardLearning Objective: 2

The LaPann Company has obtained the following sales forecast data:The regular pattern of collection of credit sales is 20% in the month of sale, 70% in the monthfollowing the month of sale, and the remainder in the second month following the month of sale.There are no bad debts.39. What is the budgeted accounts receivable balance on September 30?A. $126,000.B. $148,000.C. $166,000.D. $190,000.180,000*.80 + 220,000*.10Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-2140. What are the budgeted cash receipts for October?A. $188,000.B. $226,000.C. $248,000.D. $278,000.60,000 + 200,000*.20 + 180,000*.70 + 220,000*.10Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

The LaGrange Company had the following budgeted sales for the first half of the current year:The company is in the process of preparing a cash budget and must determine the expected cashcollections by month. To this end, the following information has been assembled:Collections on sales:60% in month of sale30% in month following sale10% in second month following saleThe accounts receivable balance on January 1 of the current year was $70,000,of which$50,000 represents uncollected December sales and $20,000 represents uncollected Novembersales.

Chapter 09 - Budgeting9-2241. What would be the total cash collected by LaGrange Company during January?A. $261,500.B. $331,500.

C. $344,000.D. $274,000.70,000 + 20,000 + 50,000/.40*.30 + 340,000*.60Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2

42. What is the budgeted accounts receivable balance on June 1 of the current year?A. $56,000.B. $64,000.C. $76,000.D. $132,000.120,000*.10 + 160,000*.40Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Pardise Company plans the following beginning and ending inventory levels (in units) for July:Two units of raw material are needed to produce each unit of finished product.

Chapter 09 - Budgeting9-2343. If Pardise Company plans to sell 480,000 units during July, what would be the number ofunits it would have to manufacture during July?A. 440,000 units.B. 450,000 units.C. 480,000 units.D. 510,000 units.480,000 + 50,000 - 80,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

44. If 500,000 finished units were to be manufactured during July, what would be the units ofraw material needed to be purchased?A. 900,000 units.B. 1,000,000 units.C. 1,010,000 units.D. 1,020,000 units.500,000*2 + 50,000 - 40,000Bloom's Level: ApplyDifficulty: Medium

Learning Objective: 2

Barley Enterprises has budgeted unit sales for the next four months as follows:The ending inventory for each month should be equal to 15% of the next month's sales in units.The inventory on September 30 was below this level and contained only 600 units.

Chapter 09 - Budgeting9-2445. What are the total units to be produced in October?A. 4,530 units.B. 5,070 units.C. 5,670 units.D. 5,890 units.4,800 + 5,800*.15 - 600Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

46. What is the desired ending inventory for December?A. 690 units.B. 780 units.C. 870 units.D. 960 units.5,200*.15Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Roberts Enterprises has budgeted sales in units for the next five months as follows:Past experience has shown that the ending inventory for each month must be equal to 10% ofthe next month's sales in units. The inventory on May 31 contained 410 units. The companyneeds to prepare a production budget for the second quarter of the year.

Chapter 09 - Budgeting9-2547. What is the opening inventory in units for September?A. 370 units.B. 530 units.C. 670 units.D. 6,700 units.6,700*.10Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

48. What is the total number of units to be produced in July?A. 6,920 units.B. 7,100 units.C. 7,280 units.D. 7,630 units.7,100 + 5,300*.10 - 7,100*.10Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

49. What is the desired ending inventory for August?A. 370 units.B. 530 units.C. 670 units.D. 710 units.6,700*.10Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 09 - Budgeting9-26Noel Enterprises has budgeted sales in units for the next five months as follows:

Past experience has shown that the ending inventory for each month must be equal to 10% ofthe next month's sales in units. The inventory on December 31 contained 400 units. Thecompany needs to prepare a production budget for the second quarter of the year.50. What is the opening inventory in units for April?A. 380 units.B. 460 units.C. 720 units.D. 4,600 units.4,600 *.10Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

51. What is the total number of units to be produced in February?A. 5,220 units.B. 5,400 units.C. 5,580 units.D. 6,120 units.5,400 + 7,200*.10 + 5,400*.10Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-2752. What is the desired ending inventory for March?A. 380 units.B. 460 units.C. 540 units.D. 720 units.4,600 *.10Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

The LFM Company makes and sells a single product: Product T. Each unit of Product Trequires 1.3 hours of labour at a labour rate of $9.10 per hour. LFM Company needs to preparea Direct Labour Budget for the second quarter of next year.53. What would be the budgeted direct labour cost per unit of Product T?

A. $7.00.B. $9.10.C. $10.40.D. $11.83.1.3 hrs * $9.10/hr.Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 09 - Budgeting9-2854. The company has budgeted to produce 25,000 units of Product T in June. The finishedgoods inventories on June 1 and June 30 were budgeted at 500 and 700 units, respectively.What would be the budgeted direct labour costs incurred in June?A. $227,500.B. $293,384.C. $295,750.D. $304,031.25,000 * 1.3 * 9.10Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

The International Company makes and sells only one product, Product SW. The company is inthe process of preparing its Selling and Administrative Expense Budget for the last half of theyear. The following budget data are available:All expenses other than depreciation are paid in cash in the month they are incurred.

Chapter 09 - Budgeting9-29

55. If the company has budgeted to sell 25,000 units of Product SW in July, what will be thetotal budgeted selling and administrative expenses for July?A. $56,250.B. $78,000.C. $123,250.D. $134,250.Total VC = $2.25. Total FC = $78,000. 25,000 * 2.25 + 78,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

56. If the company has budgeted to sell 20,000 units of Product SW in October, what will be thetotal budgeted variable selling and administrative expenses for October?A. $40,000.B. $45,000.C. $56,250.D. $78,000.20,000 * 2.25Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

57. If the budgeted cash disbursements for selling and administrative expenses for Novembertotal $123,250, then how much was the total selling and administrative budget for November?A. $123,250.B. $134,250.C. $168,250.D. $187,250.123,250 + 11,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 09 - Budgeting9-3058. If the company has budgeted to sell 24,000 units of Product SW in September, what wouldbe the total budgeted fixed selling and administrative expenses for September?A. $48,000.B. $54,000.

C. $67,000.D. $78,000.Total FC = $78,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

The Culver Company is preparing its Manufacturing Overhead Budget for the third quarter ofthe year. Budgeted variable factory overhead is $3.00 per unit produced; budgeted fixed factoryoverhead is $75,000 per month, with $16,000 of this amount being factory depreciation.59. If the budgeted production for July is 6,000 units, what is the total budgeted factoryoverhead for July?A. $18,000.B. $75,000.C. $93,000.D. $109,000.6,000*3 + 75,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 09 - Budgeting9-3160. If the budgeted production for August is 5,000 units, what is the total budgeted factoryoverhead per unit?A. $15.B. $18.C. $20.D. $22.3 + 75,000/5,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

61. If all cash expenses are paid for in the month incurred what is the budgeted cashdisbursements for manufacturing overhead if 5,500 units are produced?A. $16,500.B. $75,500.

C. $91,500.D. $99,000.5,500*3 + 75,000 - 16,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

The Bandeiras Company, a merchandising firm, has budgeted its activity for Decemberaccording to the following information:I. Sales at $550,000, all for cash.II. Merchandise inventory on November 30 was $300,000.III. Budgeted depreciation for December is $35,000.IV. The cash balance at December 1 was $25,000.V. Selling and administrative expenses are budgeted at $60,000 for December and are paid incash.VI. The planned merchandise inventory on December 31 is $270,000.VII. The invoice cost for merchandise purchases represents 75% of the sales price. Allpurchases are paid for in cash.

Chapter 09 - Budgeting9-3262. What are the budgeted cash receipts for December?A. $137,500.B. $412,500.C. $550,000.D. $585,000.all sales $550,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

63. What are the budgeted cash disbursements for December?A. $382,500.B. $442,500.C. $472,500.D. $477,500.550,000*.75 + 270,000 - 300,000 + 60,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

64. What is the budgeted net income for December?

A. $42,500.B. $77,500.C. $107,500.D. $137,500.550,000*(1 - .75) - 35,000 - 60,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-33A cash budget by quarters for the Carney Company is given below (note that some data aremissing). Missing data amounts have been keyed with either question marks or lowercaseletters (a, b, c, etc.); these lowercase letters will be referred to in the questions that follow. (Itmay be necessary to calculate a value for items where a question mark appears.) The companyrequires a minimum cash balance of at least $10,000 to start a quarter. All data are in thousandsof dollars.

Chapter 09 - Budgeting9-3465. What are the collections from customers during the first quarter (item a), in thousands ofdollars?A. $50.B. $57.C. $60.D. $73.66 + 7 - 16Bloom's Level: Analyze

Difficulty: MediumLearning Objective: 2

66. What is the borrowing required during the first quarter to meet the minimum cash balance(item b), in thousands of dollars?A. $0.B. $3.C. $7.D. $10.10 - 7Bloom's Level: AnalyzeDifficulty: EasyLearning Objective: 2

67. What is the cash disbursed for purchases during the second quarter (item c), in thousands ofdollars?A. $9.B. $13.C. $21.D. $55.10(e) + 70 - 17 - 6 - 14 - 22Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2

Chapter 09 - Budgeting9-3568. What is the repayment (including interest) of financing during the second quarter (item d),in thousands of dollars?A. $0.B. $4.C. $7.D. $17.17 - 13Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2

69. What is the cash balance at the beginning of the second quarter (item e), in thousands ofdollars?A. $0.B. $7.

C. $10.D. $14.the same as ending first quarter.Bloom's Level: AnalyzeDifficulty: EasyLearning Objective: 2

70. What are the total disbursements during the third quarter (item f), in thousands of dollars?A. $59.B. $78.C. $82.D. $84.80 + 2Bloom's Level: AnalyzeDifficulty: EasyLearning Objective: 2

Chapter 09 - Budgeting9-3671. Which of the following is a major weakness of flexible budgets?A. They are geared only to a single level of activity.B. They give subordinates too much flexibility.C. They force the manager to compare actual costs at one level of activity to budgeted costs at adifferent level of activity.D. Their construction requires the use of one activity base common to all the different costitems.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 3

Pollitt Potato Packers has a flexible budget for manufacturing overhead that is based on directlabour hours. The following overhead costs appear on the flexible budget at the 200,000-hourlevel of activity:72. At an activity level of 180,000 direct labour hours, what amount would the flexible budgetestimate for indirect labour cost?A. $108,000.B. $144,000.C. $162,000.

D. $180,000.180,000 * (180,000/200,000)Bloom's Level: ApplyDifficulty: EasyLearning Objective: 3

Chapter 09 - Budgeting9-3773. What amount would the flexible budget estimate for total variable overhead cost per directlabour hour?A. $0.60.B. $0.90.C. $1.50.D. $1.80.(120,000 + 180,000)/200,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 3

74. At an activity level of 180,000 direct labour hours, what amount would the flexible budgetestimate for total budgeted fixed costs?A. $100,000.B. $144,000.C. $150,000.D. $160,000.100,000 + 40,000 + 20,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 3

75. At an activity level of 160,000 direct labour hours, what amount would the flexible budgetestimate for the utilities?A. $80,000.B. $100,000.C. $120,000.D. $160,000.Utilities is fixed.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 3

Chapter 09 - Budgeting9-38Capelli Hospital bases its budgets on patient-visits. The hospital's static budget for Augustappears below:76. What should be the total variable overhead cost at an activity level of 9,300 patient-visitsper month?A. $114,390.B. $149,730.C. $102,090.D. $133,630.9,300 * (5 + 7.30)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

77. What should be the total fixed overhead cost at an activity level of 9,600 patient-visits permonth?A. $133,630.B. $154,560.C. $235,720.D. $272,640.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 3

Chapter 09 - Budgeting9-3978. What should be the total overhead cost at an activity level of 9,400 patient-visits permonth?A. $235,720

B. $249,250C. $266,960D. $250,6409,400 * (5 + 7.30) + 133,630Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

Mandalay Hotel bases its budgets on guest-days. The hotel's static budget for August appearsbelow:

Chapter 09 - Budgeting9-4079. What is the expected total variable overhead cost at an activity level of 5,000 guest-days permonth?A. $127,000B. $109,220C. $95,000D. $81,7005,000 * (9.60 + 9.40)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

80. What is the expected total fixed overhead cost at an activity level of 5,500 guest-days permonth?A. $139,700B. $190,920C. $244,200D. $109,220Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 3

81. The total overhead cost at an activity level of 5,200 guest-days per month should be:A. $208,020B. $230,880C. $209,940D. $190,9205,200 * (9.60 + 9.40) + 109,220Bloom's Level: ApplyDifficulty: Medium

Learning Objective: 3

Chapter 09 - Budgeting9-41Isadore Hospital bases its budgets on patient-visits. The hospital's static budget for Julyappears below:82. What is the variance for supplies costs in the flexible budget performance report for themonth?A. $2,370 UB. $2,370 FC. $2,830 FD. $2,830 U7,800*4.60 - 38,250Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3Learning Objective: 4

Chapter 09 - Budgeting9-4283. What is the variance for laundry costs in the flexible budget performance report for themonth?A. $5,080 FB. $5,080 UC. $5,800 UD. $5,800 F7,800*7.20 - 61,240Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3Learning Objective: 4

84. What is the variance for occupancy costs in the flexible budget performance report for themonth?A. $2,110 UB. $2,990 UC. $2,990 FD. $2,110 F67,760 - 65,650Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3Learning Objective: 4

Chapter 09 - Budgeting9-4385. The following costs appear in Malgorzata Company's flexible budget at an activity level of15,000 machine-hours:What would be the flexible budget amounts at an activity level of 12,000 machine hours ifindirect material is a variable cost and factory rent a fixed cost?A. Option AB. Option BC. Option CD. Option DIndirect materials = 12,000 * 7,800/15,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

Chapter 09 - Budgeting9-4486. Mongelli Family Inn is a bed and breakfast establishment in a converted 100-year-old

mansion. The Inn's guests appreciate its gourmet breakfasts and individually decorated rooms.The Inn's overhead budget for the most recent month appears below:The Inn's variable overhead costs are driven by the number of guests.Assuming that the activity levels of 90 guests and 99 guests are within the same relevant rangeand rounding to the nearest dollar, what would be the total budgeted overhead cost for a monthif the activity level is 99 guests?A. $7,794.B. $61,541.C. $8,513.D. $7,739.(234 + 315)/90 = $6.10. Total = 99*6.10 + 220 + 4,290 + 2,680Bloom's Level: ApplyDifficulty: HardLearning Objective: 3

Chapter 09 - Budgeting9-45The following is a summarized master budget that Winnipeg Company prepared for January:87. What was the flexible budget operating income (loss) for Winnipeg Company for January?A. $83,750.B. $54,000.C. $63,000.D. $59,500.Bud. Selling price = 450,000/9,000 = $50/unit. Flex Bud Operating Income = 8,500*50 -8,500*(270,000/9,000 + 18,000/9,000) - 99,000. Required for further questions.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3

Chapter 09 - Budgeting9-4688. What total sales volume variance did Winnipeg Company report for January?A. $3,500 U.B. $9,000 U.C. $25,000 U.D. $27,500 U.54,000(#109) - 63,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3Learning Objective: 4

89. What was the total flexible budget variance for January?A. $20,750 F.B. $9,000 U.C. $29,750 F.D. $12,750 U.Actual Operating Income = 8,500*(55 - 32 - 1.50) - 99,000 = $83,750. Variance = 83,750 -54,000(#109)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3Learning Objective: 4

90. What were the total flexible budget expenses for January?A. $383,750.B. $371,000.C. $387,000.D. $365,500.8,500 * (30 + 2) + 99,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3

Chapter 09 - Budgeting

9-4791. What was the total static budget variance for January?A. $20,750 F.B. $9,000 U.C. $29,750 F.D. $12,750 U.83,750(see #111) - 63,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3Learning Objective: 4

Alaska Company expressed the total expenses (Y) component of its master budget forFebruary with the cost formula Y = $100,000 + $40*X, where X represents the expectednumber of units of its only product to be manufactured and sold. The budgeted average sellingprice per unit was $65 for budgeted sales volume 5,000 units. Reported actual results forFebruary were as follows:92. What was the master budget operating income for February?A. $23,000.B. $25,000.C. $35,000.D. $33,000.5,000 * (65 - 40) - 100,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

Chapter 09 - Budgeting9-4893. What was the flexible operating income for February?A. $23,000.B. $25,000.C. $35,000.D. $33,000.5,400 * (65 - 40) - 100,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

94. What was the total static budget variance for February?A. $7,400 U.

B. $2,600 F.C. $10,000 F.D. $1,000 U.27,600 - 25,000(#114)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3Learning Objective: 4

95. What was the sales volume variance for February?A. $10,000 F.B. $26,000 F.C. $7,400 U.D. $2,600 F.35,000(#115) - 25,000(#114)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3Learning Objective: 4

Chapter 09 - Budgeting9-4996. What was the flexible budget variance for February?A. $10,000 F.B. $26,000 F.C. $7,400 U.D. $2,600 F.27,600 - 35,000(#115)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3Learning Objective: 4

Windsor Limited makes and sells a single product. The company employs a flexible budgetingsystem that covers a relevant range from 20,000 units to 25,000 units and a just in timeinventory system. Budget data for April, based on 22,000 units, are as follows:97. What is the company's master budget operating income (loss) for April?A. $388,000.B. $463,000.C. $550,000.D. $625,000.22,000 * (60 - 30 - 3 - 2) - 132,000 - 30,000Bloom's Level: ApplyDifficulty: Medium

Learning Objective: 3

Chapter 09 - Budgeting9-5098. Suppose the company produces and sells 25,000 units instead of the original 22,000 units atan average selling price of $55. What is the company's flexible budget operating income (loss)for April, given the actual sales volume of 25,000 units?A. $388,000.B. $463,000.C. $550,000.D. $625,000.25,000 * (60 - 30 - 3 - 2) - 132,000 - 30,000Bloom's Level: ApplyDifficulty: HardLearning Objective: 3

99. Suppose the company produces and sells 25,000 units instead of the original 22,000 units atan average selling price of $55. What will be the company's sales volume variance for April?A. $3,000 F.B. $75,000 F.C. $75,000 U.D. $180,000 F.463,000(#120) - 388,000(#119)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3Learning Objective: 4

True / False Questions100. The usual starting point in budgeting is to make a forecast of cash receipts and cashdisbursements.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-51101. Budgets are used for planning rather than for control of operations.FALSEBloom's Level: RememberDifficulty: MediumLearning Objective: 1

102. A continuous or perpetual budget is one that covers a 12-month period, but is constantlyadding a new month onto the end of the 12-month period as the current month is completed.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 1

103. Control involves developing objectives and preparing the various budgets to achieve thoseobjectives.FALSEBloom's Level: RememberDifficulty: EasyLearning Objective: 1

104. One of the distinct advantages of a budget is that it can help to uncover potentialbottlenecks before they occur.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 1

105. The participative budget can be a very effective control device in an organization.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 1

Chapter 09 - Budgeting9-52106. Sales forecasts are drawn up after the cash budget has been completed because it is only atthat time that the funds available for marketing are known.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

107. A production budget is to a manufacturing firm as a merchandise purchases budget is to amerchandising firm.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

108. The direct materials to be purchased for a period can be obtained by subtracting the desiredending inventory of direct materials from the total direct materials needed for the period.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

109. In companies that have "no lay-off" policies, the total direct labour cost for a budget periodis computed by taking the total direct labour hours needed to make the budgeted output ofcompleted units and multiplying them by the direct labour wage rate.FALSEBloom's Level: UnderstandDifficulty: HardLearning Objective: 2

Chapter 09 - Budgeting9-53110. In the merchandise purchases budget, the required purchases (in units) for a period can bedetermined by subtracting the beginning merchandise inventory (in units) from the budgetedsales (in units).FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

111. The beginning cash balance is not included on the cash budget since the cash budget dealsexclusively with cash flows rather than with balance sheet amounts.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

112. When using the participative budget approach, it is generally best for top management toaccept all budget estimates without question in order to minimize adverse behaviouralresponses from employees.FALSEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 1

113. The effect of responsibility accounting is to personalize the accounting system.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 1

Chapter 09 - Budgeting9-54114. Zero-based budgeting requires managers to justify all costs of programs as if theseprograms were being proposed for the first time.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 1

115. A flexible budget is "flexible" in the sense that a budget can be prepared for any level ofactivity, but once a budget is set the budget figures are not changed if actual activity later provesto be different than budgeted activity.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 3

116. In a performance report, actual costs should be compared to budgeted costs at the originalbudgeted activity level.

FALSEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 4

117. When choosing an activity measure for a flexible budget, it is best to choose an activitythat is measured in dollars.FALSEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 3

Chapter 09 - Budgeting9-55118. A static budget is geared toward a single level of activity.TRUEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 1Learning Objective: 2

119. The static budget is a good tool for assessing whether variable costs are under control ornot.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1Learning Objective: 2

120. A comprehensive flexible budget prepared for performance evaluation should incorporateboth fixed and variable costs, but not revenues.FALSEBloom's Level: UnderstandDifficulty: HardLearning Objective: 3

121. The two components of the static budget variance are the flexible budget variance and thesales volume variance.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2Learning Objective: 3

Chapter 09 - Budgeting9-56Essay Questions122. Clay Company has projected sales and production in units for the second quarter of thecoming year as follows:Cash-related production costs are budgeted at $5 per unit produced. Of theseproduction costs,40% are paid in the month in which they are incurred and the balance in the following month.Selling and administrative expenses will amount to $100,000 per month. The accounts payablebalance on March 31 totals $190,000, which will be paid in April.All units are sold on account for $14 each. Cash collections from sales are budgeted at 60% inthe month of sale, 30% in the month following the month of sale, and the remaining 10% in thesecond month following the month of sale. Accounts receivable on April 1 totalled $500,000($90,000 from February's sales and the remainder from March).Required:a) Prepare a schedule for each month showing budgeted cash disbursements for Clay Company.b) Prepare a schedule for each month showing budgeted cash receipts for Clay Company.

Chapter 09 - Budgeting9-57Payments relating to the prior month (March) in April represent the balance of accounts payableat March 31.Bloom's Level: Apply

Difficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-58123. Tilson Company has projected sales and production in units for the second quarter of thecoming year as follows:Cash-related production costs are budgeted at $7 per unit produced. Of these production costs,40% are paid in the month in which they are incurred and the balance in the following month.Selling and administrative expenses will amount to $110,000 per month. The accounts payablebalance on March 31 totals $193,000, which will be paid in April.All units are sold on account for $16 each. Cash collections from sales are budgeted at 60% inthe month of sale, 30% in the month following the month of sale, and the remaining 10% in thesecond month following the month of sale. Accounts receivable on April 1 totalled $520,000($100,000 from February's sales and the remainder from March).Required:a) Prepare a schedule for each month showing budgeted cash disbursements for TilsonCompany.b) Prepare a schedule for each month showing budgeted cash receipts for Tilson Company.

Chapter 09 - Budgeting9-59Payments relating to the prior month (March) in April represent the balance of accounts payable

at March 31.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-60124. On March 31, Streuling Enterprises, a merchandising firm, had an inventory of 38,000units, and it had accounts receivable totalling $85,000. Sales, in units, have been budgeted asfollows for the next four months:Streuling's board of directors has established a policy to commence in April that the inventoryat the end of each month should contain 40% of the units required for the following month'sbudgeted sales.The selling price is $2 per unit. One-third of sales are paid for by customers in the month of thesale; the balance is collected in the following month.Required:a) Prepare a merchandise purchases budget showing how many units should be purchased foreach of the months April, May, and June.b) Prepare a schedule of expected cash collections for each of the months April, May, and June.

Chapter 09 - Budgeting9-61Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-62125. TabComp Inc. is a retail distributor for MZB-33 computer hardware and related software.TabComp prepares annual sales forecasts, of which the first six months of the coming year arepresented below:Cash sales account for 25% of TabComp's total sales, 30% of the total sales are paid by bankcredit card, and the remaining 45% are on open account (TabComp's own charge accounts).The cash and bank credit card sale payments are received in the month of the sale. Bank creditcard sales are subject to a 4% discount, which is deducted immediately. The cash receipts forsales on open account are 70% in the month following the sale and 28% in the second monthfollowing the sale; the remaining are uncollectible.TabComp's month-end inventory requirements for computer hardware units are 30% of thenext month's sales. The units must be ordered two months in advance due to long lead timesquoted by the manufacturer.Required:a) Calculate the cash that TabComp can expect to collect during April. Show all of yourcalculations.b) Determine the number of computer hardware units that should be ordered in January. Showall of your calculations.

Chapter 09 - Budgeting9-63a) The cash that TabComp can expect to collect during April is calculated below:b) The number of units that TabComp should order in January is calculated as follows:Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2

Chapter 09 - Budgeting9-64126. The Doley Company has planned the following sales for the next three months:Sales are made 20% for cash and 80% on account. From experience, the company has learnedthat a month's sales on account are collected according to the following pattern:The company requires a minimum cash balance of $5,000 to start a month. The beginning cashbalance in March is budgeted to be $6,000.Required:a) Compute the budgeted cash receipts for March.b) The following additional information has been provided for March:Prepare a cash budget in good form for the month of March, using this information and thebudgeted cash receipts you computed for part a) above. The company can borrow in any dollaramount and will not pay interest until April.

Chapter 09 - Budgeting9-65Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-66127. Montero Corporation, a merchandising company, has provided the following budget data:Collections from customers are normally 70% in the month of sale, 20% in the month followingthe sale, and 9% in the second month following the sale. The balance is expected to beuncollectible. Montero pays for purchases in the month following the purchase. Cashdisbursements for expenses other than merchandise purchases are expected to be $14,400 forMay. Montero's cash balance on May 1 was $22,000.Required:

Chapter 09 - Budgeting9-67a) Compute the expected cash collections during May.b) Compute the expected cash balance on May 31.Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2

Chapter 09 - Budgeting9-68

128. A sales budget is given below for one of the products manufactured by the Key Co.:The inventory of finished goods at the end of each month should equal 20% of the next month'ssales. However, on December 31, the finished goods inventory totalled only 4,000 units.Each unit of product requires three specialized electrical switches. Since the production of thesespecialized switches by Key's suppliers is sometimes irregular, the company has a policy ofmaintaining an ending inventory at the end of each month equal to 30% of the next month'sproduction needs. This requirement had been met on January 1 of the current year.Required:Prepare a budget showing the quantity of switches to be purchased each month for January,February, and March, and in total for the quarter. Chapter 09 - Budgeting9-69Beginning inventory, January 1: 72,600 x 0.3 = 21,780.Ending inventory, March 31: (39,000 x 3) x 0.3 = 35,100.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2

Chapter 09 - Budgeting9-70129. A sales budget is given below for one of the products manufactured by the OMI Co.:The inventory of finished goods at the end of each month must equal 20% of the next month'ssales. However, on December 31, the finished goods inventory totalled only 4,000 units.Each unit of product requires three kilograms of specialized material. Since the production ofthis specialized material by OMI's suppliers is sometimes irregular, the companyhas a policy ofmaintaining an ending inventory at the end of each month equal to 30% of the next month's

production needs. This requirement had been met on January 1 of the current year.Required:Prepare a budget showing the quantity of material to be purchased each month for January,February, and March, and in total for the quarter. Chapter 09 - Budgeting9-71Production Schedule required for purchase schedule:Beginning inventory, January 1: 87,000 x 0.3 = 26,100.Ending inventory, March 31: (43,000 x 3) x 0.3 = 38,700.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2

Chapter 09 - Budgeting9-72130. Budgeting aids planning and controlling the level of both fixed costs and variable costs.Required:Explain the differences, if any, between the planning and controlling of fixed costs and variablecosts.The major difference between the two types of costs occurs in the control phase. Since totalvariable costs are expected to change in direct proportion to changes in the level of activity, thebudgeted amounts can be revised to reflect changing levels of activity, assuming the cost perunit level of activity remains constant. In theory, once the level of fixed costs has beendetermined in the budgeting process, it cannot be changed in the short run in responses tochanges in levels of activity. This is because the budgeted costs reflect cost of supplyingcapacity. Thus, the most appropriate time to control the level of fixed costs is when they arebeing planned, that is, during the budgeting process. In essence planning and controlling thelevel of fixed costs occur at the same time. However, control of truly variable costs can be

effective after completing the budgeting process, that is, after-the-fact.Bloom's Level: EvaluateDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4

Chapter 09 - Budgeting9-73131. The following overhead data are for a department in a large company.Required:

Chapter 09 - Budgeting9-74Prepare a report that would be useful in assessing how well costs were controlled in thisdepartment.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3Learning Objective: 4

Chapter 09 - Budgeting9-75132. The following overhead data are for a department in a large company.Required:Prepare a report that would be useful in assessing how well costs were controlled in this

department.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3Learning Objective: 4

Chapter 09 - Budgeting9-76133. Fougere Realtors, Inc., specializes in home re-sales. It earns revenue from selling fees.Fougere Realtors' major costs are commissions for salespersons, listing agents, and listingcompanies. Its business has improved steadily over the last ten years. As usual, Chris Fougere,the managing partner of Fougere Realtors, Inc., received a report summarizing the performancefor the most recent year.Required:a) Explain the major weakness of the performance report.b) Explain clearly why all the variances for the variable expenses are unfavourable (U).c) As a first step in helping Chris Fougere to evaluate cost/expense control in the organization,complete the following for the year ended December 31, 2007, assuming the only cost driver isthe number of home re-sales. (Note: Indicate any variance as either favourable (F) orunfavourable (U).)

Chapter 09 - Budgeting9-77

Chapter 09 - Budgeting9-78a) The major weakness of the performance report is the fact that it compares costs at twodifferent activity levels (home re-sales), that is, actual home re-sales of 202 versus budgetedhome re-sales of 180. The major flaw is with respect to the variable expenses.b) All the variable expense variances are unfavourable because the correct comparison of actualvariable expenses should be against budgeted variable expenses for the higher level of homere-sales, not against budgeted variable expenses for the lower level of home re-sales. In essence,the original budgeted variable expenses are understated. One would expect the actual variableexpenses to be higher, given the higher level of actual home re-sales. By definition, variableexpenses are expected to change in direct proportion to changes in activity levels (number ofhome re-sales).c) Preliminary calculations per home re-sale:Sales commissions ($1,102,950/180): $6,127.50Automobile ($36,000/180): $200Advertising ($171,000/180): $950General overhead ($656,100/180): $3,645Bloom's Level: EvaluateDifficulty: HardLearning Objective: 3Learning Objective: 4

Chapter 09 - Budgeting9-79

134. Toyworld manufactures and sells a line of toys. The toys are primarily distributed throughdepartment stores. As president of Toyworld, you wanted to analyze Toyworld's profitability.Your capable assistant provided you with the following data:Required:a) Your assistant has requested you to complete the "Flexible Budget" and "Static/MasterBudget" columns of the analysis, reproduced below (She had to attend to an out-of-townemergency):

Chapter 09 - Budgeting9-80b) Calculate the following variances: flexible budget variance, sales volume variance, and totalstatic budget variance.

Chapter 09 - Budgeting9-81a)b) Calculation of VariancesThis is the difference between actual operating loss of $1,550 and flexible budget operatingincome of $5,500.This is the same as the difference between the flexible budget operating income of $5,500 andthe static budget operating loss of $2,500. It can also be calculated as the increase in unit sales

Chapter 09 - Budgeting9-82volume (1,000 units) times the budgeted unit contribution margin of $8 ($72,000/9,000).This is the difference between the higher static budget operating loss of $2,500 and the loweractual operating loss of $1,550. This is also the sum of the favourable sales volume variance of$8,000 and the unfavourable flexible budget variance of $7,050.Bloom's Level: EvaluateDifficulty: HardLearning Objective: 3Learning Objective: 4

135. In a not-for-profit entity a budget can be prepared either on an expenditure basis or on aprogram basis. Discuss.An expenditure based budget simply lists the total expected costs of items such as rent,insurance, salaries and depreciation without detailing how these various expenses relate toparticular programs. Rather than simply budget total expected costs a program basis details outthe revenues and expenses related to each program that is expected to run. This facilitatesperformance evaluation and allows the entity to compare budgeted expenses with actualrelating to each program and allows managers to make decisions with respect to similarprograms in the future. Budgeting by program also facilitates the stewardship objective byproviding information in a format permitting determination of whether funds designated bydonors for specific purposes are being spent as intended.Bloom's Level: UnderstandDifficulty: HardLearning Objective: 5

Chapter 10 - Standard Costs and Overhead Analysis10-1

Chapter 10Standard Costs and Overhead AnalysisMultiple Choice Questions1. Which of the following refers to standards that allow for no machine breakdowns or otherwork interruptions and that require peak efficiency at all times?A. Normal standards.B. Practical standards.C. Ideal standards.D. Budgeted standards.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 1

2. To measure controllable production inefficiencies, which of the following is the best basisfor a company to use in establishing the standard hours allowed for the output of one unit ofproduct?A. Average historical performance for the last several years.B. Engineering estimates based on ideal performance.C. Engineering estimates based on attainable performance.D. The hours per unit that would be required for the present workforce to satisfy expecteddemand over the long run.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

Chapter 10 - Standard Costs and Overhead Analysis10-2

3. Which of the following statements concerning practical standards is NOT correct?A. Practical standards can be used for product costing and cash budgeting.B. Practical standards can be attained by the average worker.C. When practical standards are used; there is no reason to adjust standards if an old machine isreplaced by a newer, faster machine.D. Under practical standards, large variances are less likely than under ideal standards.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

4. If a company follows a practice of isolating variances at the earliest point in time, what wouldbe the appropriate time to isolate and recognize a direct material price variance?A. When material is issued.B. When material is purchased.C. When material is used in production.D. When production is completed.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 2

5. What does an unfavourable labour efficiency variance indicate?A. The actual labour rate was higher than the standard labour rate.B. The labour rate variance must also be unfavourable.C. Actual labour hours worked exceeded standard labour hours for the production levelachieved.D. Overtime labour was used during the period.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 3

Chapter 10 - Standard Costs and Overhead Analysis10-36. What does a favourable labour rate variance indicate?A. Actual hours exceed standard hours.B. Standard hours exceed actual hours.C. The actual rate exceeds the standard rate.D. The standard rate exceeds the actual rate.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 3

7. (Appendix 10B) What does a credit balance in a direct labour efficiency variance accountindicate?A. The average wage rate paid to direct labour employees was less than the standard rate.B. The standard hours allowed for the units produced were greater than actual direct labourhours used.C. The actual total direct labour costs incurred were less than standard direct labour costsallowed for the units produced.D. The number of units produced was less than the number of units budgeted for the period.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3Learning Objective: 9

8. If the actual labour hours worked exceed the standard labour hours allowed, what type ofvariance will occur?A. Favourable labour efficiency variance.B. Favourable labour rate variance.C. Unfavourable labour efficiency variance.D. Unfavourable labour rate variance.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 3

Chapter 10 - Standard Costs and Overhead Analysis10-49. Which of the following is the most probable reason a company would experience anunfavourable labour rate variance and a favourable labour efficiency variance?A. The mix of workers assigned to the particular job was heavily weighted towards the use ofhigher paid, experienced individuals.B. The mix of workers assigned to the particular job was heavily weighted towards the use ofnew, relatively low-paid, unskilled workers.C. Because of the production schedule, workers from other production areas were assigned toassist this particular process.

D. Defective materials caused more labour to be used in order to produce a standard unit.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 3

10. Which department is usually held responsible for an unfavourable materials quantityvariance?A. Marketing.B. Purchasing.C. Engineering.D. Production.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 2

11. A favourable materials price variance coupled with an unfavourable materials quantityvariance would MOST likely result from which of the following?A. Problems with processing machines.B. Purchase of low quality materials.C. Problems with labour efficiency.D. Changes in the product mix.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

Chapter 10 - Standard Costs and Overhead Analysis10-512. Tower Company planned to produce 3,000 units of its single product, Titactium, duringNovember. The standards for one unit of Titactium specify six kilograms of materials at $0.30per kilogram. Actual production in November was 3,100 units of Titactium. There was afavourable materials price variance of $380 and an unfavourable materials quantity variance of$120. Based on these variances, what could one assume?A. That more materials were purchased than were used.B. That more materials were used than were purchased.C. That the actual cost per kilogram for materials was less than the standard cost per kilogram.D. That the actual usage of materials was less than the standard allowed.Bloom's Level: Understand

Difficulty: MediumLearning Objective: 2

13. A labour efficiency variance resulting from the use of poor quality materials should becharged to which/whom?A. The production manager.B. The purchasing agent.C. Manufacturing overhead.D. The engineering department.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 2Learning Objective: 3

14. (Appendix 10B) Drake Company purchased materials on account. The entry to record thepurchase of materials having a standard cost of $1.50 per kilogram from a supplier at $1.60 perkilogram would include which of the following?A. A credit to Raw Materials Inventory.B. A debit to Work in Process.C. A credit to Materials Price Variance.D. A debit to Materials Price Variance.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 2Learning Objective: 9

Chapter 10 - Standard Costs and Overhead Analysis10-615. (Appendix 10B) Which of the following entries would correctly record the charging ofdirect labour costs to Work in Process given an unfavourable labour efficiency variance and afavourable labour rate variance?A. A debit to Work in Process, and credits to Labour Efficiency Variance, Labour RateVariance, and Wages Payable.B. A debit to Work in Process and an equal credit to Wages Payable.C. Debits to Work in Process and Labour Efficiency Variance, and credits to Labour RateVariance and Wages Payable.D. Debits to Work in Process and Labour Rate Variance, and credits to Labour Efficiency

Variance and Wages Payable.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 3Learning Objective: 9

16. Under a standard cost system, who is usually held responsible for the materials pricevariances?A. The production manager.B. The sales manager.C. The purchasing manager.D. The engineering manager.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 2

17. What do the terms "standard quantity allowed" or "standard hours allowed" mean?A. The actual output in units multiplied by the standard output allowed.B. The actual input in units multiplied by the standard output allowed.C. The actual output in units multiplied by the standard input allowed.D. The standard output in units multiplied by the standard input allowed.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 1Learning Objective: 5

Chapter 10 - Standard Costs and Overhead Analysis10-718. Dahl Company, a clothing manufacturer, uses a standard costing system. Each unit of afinished product contains 2 metres of cloth. However, there is unavoidable waste of 20%,calculated on input quantities, when the cloth is cut for assembly. The cost of the cloth is $3 permetre. What is the standard direct material cost for cloth per unit of finished product?A. $4.80.B. $6.00.C. $7.00.D. $7.50.2m/(1 - .20) * $3Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1

19. Cox Company's direct material costs for the month of January were as follows:What was the favourable direct materials quantity variance for January?A. $3,360.B. $3,375.C. $3,400.D. $3,800.Std. Price = (18,000*3.60 - 3,600)/18,000 = $3.40/kg.(16,000 - 15,000)*$3.40Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2

Chapter 10 - Standard Costs and Overhead Analysis10-820. The Porter Company has a standard cost system. In July, the company purchased and used22,500 kilograms of direct material at an actual cost of $53,000, the materials quantity variancewas $1,875 unfavourable, and the standard quantity of materials allowed for July productionwas 21,750 kilograms. What was the materials price variance for July?A. $2,725 favourable.B. $2,725 unfavourable.C. $3,250 favourable.D. $3,250 unfavourable.Std. Price = 1,875/(22,500 - 21,750) = $2.50/kg. variance = 22,500*2.50 - 53,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2

21. Information on Fleming Company's direct material costs follows:What was the company's direct material price variance?A. $1,000 favourable.B. $1,000 unfavourable.C. $2,000 favourable.D. $2,000 unfavourable.20,000*2.10 - 40,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 10 - Standard Costs and Overhead Analysis10-922. Last month, 75,000 kilograms of direct materials were purchased, and 71,000 kilogramswere used. If the actual purchase price per kilogram was $0.50 more than the standard purchaseprice per kilogram, what was the materials price variance?A. $2,000 favourable.B. $35,500 unfavourable.C. $37,500 favourable.D. $37,500 unfavourable.75,000* $0.50Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

23. During March, Younger Company's direct material costs for product T were as follows:What was Younger's material quantity variance for March?A. $1,250 unfavourable.B. $1,250 favourable.C. $1,300 unfavourable.D. $1,300 favourable.(2,100 - 2,300)*6.25Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 10 - Standard Costs and Overhead Analysis10-1024. The following materials standards have been established for a particular product:The following data pertain to operations concerning the product for the last month:

What was the materials quantity variance for the month?A. $6,664 favourable.B. $6,732 favourable.C. $13,720 unfavourable.D. $13,860 unfavourable.(3,200*1.7 - 5,100)*19.80Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2

Chapter 10 - Standard Costs and Overhead Analysis10-1125. The following materials standards have been established for a particular product:The following data pertain to operations concerning the product for the last month:What was the materials price variance for the month?A. $2,250 favourable.B. $7,540 unfavourable.C. $7,660 unfavourable.D. $24,317 unfavourable.7,500*19.15 - 141,375Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 10 - Standard Costs and Overhead Analysis10-1226. Information on Kennedy Company's direct material costs follows:What was the actual purchase price per unit, rounded to the nearest cent?A. $3.06.B. $3.11.C. $3.45.D. $3.75.

(1,600*3.60 - 240)/1,600Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2

27. The Fletcher Company uses standard costing. The following data are available for October:What was the standard quantity of material allowed for October production?A. 23,000 kilograms.B. 24,000 kilograms.C. 24,500 kilograms.D. 25,000 kilograms.(23,500*2 + 1,000)/2Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2

Chapter 10 - Standard Costs and Overhead Analysis10-1328. Yola Company manufactures a product with standards for direct labour of 4 directlabour-hours per unit at a cost of $12.00 per direct labour-hour. During June, 1,000 units wereproduced using 4,100 hours at $12.20 per hour. What was the direct labour efficiencyvariance?A. $1,200 favourable.B. $1,200 unfavourable.C. $2,020 favourable.D. $2,020 unfavourable.(1,000*4 - 4,100)*12Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

29. The following labour standards have been established for a particular product:The following data pertain to operations concerning the product for the last month:What was the labour efficiency variance for the month?A. $16,029 favourable.B. $16,577 favourable.C. $19,017 favourable.D. $19,017 unfavourable.

(900*8.3 - 6,100)*12.10Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

Chapter 10 - Standard Costs and Overhead Analysis10-1430. The following labour standards have been established for a particular product:The following data pertain to operations concerning the product for the last month:What was the labour rate variance for the month?A. $1,295 favourable.B. $1,295 unfavourable.C. $2,950 favourable.D. $2950 unfavourable.3,700*14.05 - 50,690Bloom's Level: ApplyDifficulty: EasyLearning Objective: 3

Chapter 10 - Standard Costs and Overhead Analysis10-1531. Lab Corp. uses a standard cost system. Direct labour information for Product CER for themonth of October follows:What were the actual hours worked?A. 1,400 hours.B. 1,402 hours.C. 1,598 hours.D. 1,600 hours.(1,500*6 + 600)/6Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 3

32. The standards for direct labour for a product are 2.5 hours at $8 per hour. Last month, 9,000units of the product were made, and the labour efficiency variance was $8,000 favourable.What was the actual number of hours worked during the past period?A. 20,500 hours.B. 21,500 hours.C. 22,500 hours.D. 23,500 hours.(9,000*2.5*8 - 8,000)/8Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3

Chapter 10 - Standard Costs and Overhead Analysis10-1633. In a certain standard costing system, the following results occurred last period: labour ratevariance, $1,000 unfavourable; labour efficiency variance, $2,800 favourable; and the actuallabour rate was $0.20 more per hour than the standard labour rate. What number of actual directlabour hours was used last period?A. 4,800 hours.B. 5,000 hours.C. 5,400 hours.D. 9,000 hours.$1,000/.20Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 3

34. The Reedy Company uses a standard costing system. The following data are available forNovember:What was the actual direct labour rate for November?A. $8.80.B. $8.90.C. $9.00D. $9.20.(5,800*9 - 1,160)/5,800Bloom's Level: AnalyzeDifficulty: Medium

Learning Objective: 3

Chapter 10 - Standard Costs and Overhead Analysis10-1735. For the month of April, Thorp Co.'s records disclosed the following data relating to directlabour:For the month of April, actual direct labour hours amounted to 2,000. In April, what wasThorp's standard direct labour rate per hour?A. $4.50.B. $4.75.C. $5.00.D. $5.50.(10,000 + 1,000)/2,000Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 3

36. Borden Enterprises uses standard costing. For the month of April, the company reported thefollowing data:What was the labour rate variance for April?A. $2,850 favourable.B. $2,850 unfavourable.C. $3,760 favourable.D. $3,760 unfavourable.(8,000*10 - 4,800)/10 *(10 - 9.50)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3

Chapter 10 - Standard Costs and Overhead Analysis10-1837. The following standards for variable manufacturing overhead have been established for a

company that makes only one product:The following data pertain to operations for the last month:What was the variable overhead efficiency variance for the month?A. $0.B. $16,817 unfavourable.C. $580 unfavourable.D. $17,397 unfavourable.(200*7.8 - 2,900)*12.55Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 10 - Standard Costs and Overhead Analysis10-1938. The following standards for variable manufacturing overhead have been established for acompany that makes only one product:The following data pertain to operations for the last month:What was the variable overhead spending variance for the month?A. $130 favourable.B. $130 unfavourable.C. $4,338 unfavourable.D. $4,450 unfavourable.2,600*12 - 31,330Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

Bryan Company employs a standard cost system in which direct materials inventory is carriedat standard cost. Bryan has established the following standards for the prime costs of one unit ofproduct:During March, Bryan purchased 165,000 kilograms of direct materials at a total cost of$585,750. The total factory wages for March were $400,000, 90 percent of which were fordirect labour. Bryan manufactured 25,000 units of product during March, using 151,000kilograms of direct materials and 32,000 direct labour hours.

Chapter 10 - Standard Costs and Overhead Analysis10-2039. What was the price variance for the direct materials acquired by the company duringMarch?A. $7,550 favourable.B. $7,550 unfavourable.C. $8,250 favourable.D. $8,250 unfavourable.165,000*3.50 - 585,750Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

40. What was the direct materials quantity variance for March?A. $3,500 favourable.B. $3,500 unfavourable.C. $52,500 favourable.D. $52,500 unfavourable.(25,000*6 - 165,000)*3.50Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

41. What was the direct labour rate variance for March?A. $8,000 favourable.B. $8,000 unfavourable.C. $48,000 favourable.D. $48,000 unfavourable.32,000*11 - 400,000*.90Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

Chapter 10 - Standard Costs and Overhead Analysis10-21

42. What was the direct labour efficiency variance for March?A. $5,500 favourable.B. $5,500 unfavourable.C. $5,625 favourable.D. $5,625 unfavourable.(25,000*1.3 - 32,000)*11Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

The Litton Company has established standards as follows:Actual production figures for the past year are given below. The company records the materialsprice variance when materials are purchased.The company applies variable manufacturing overhead to products on the basis of direct labourhours.

Chapter 10 - Standard Costs and Overhead Analysis10-2243. What was the materials price variance?A. $400 favourable.B. $400 unfavourable.C. $600 favourable.D. $600 unfavourable.3,000*4 - 11,400Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

44. What was the materials quantity variance?A. $760 favourable.B. $760 unfavourable.C. $800 unfavourable.D. $4,000 unfavourable.(600*3 - 2,000)*4Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

45. What was the labour rate variance?A. $480 favourable.B. $480 unfavourable.C. $440 favourable.D. $440 unfavourable.

1,100*8 - 9,240Bloom's Level: ApplyDifficulty: EasyLearning Objective: 3

Chapter 10 - Standard Costs and Overhead Analysis10-2346. What was the labour efficiency variance?A. $800 favourable.B. $800 unfavourable.C. $840 favourable.D. $840 unfavourable.(600*2 - 1,100)*8Bloom's Level: ApplyDifficulty: EasyLearning Objective: 3

47. What was the variable overhead spending variance?A. $220 favourable.B. $220 unfavourable.C. $240 favourable.D. $240 unfavourable.1,100*5 - 5,720Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

48. What was the variable overhead efficiency variance?A. $500 favourable.B. $500 unfavourable.C. $520 favourable.D. $520 unfavourable.(600*2 - 1,100)*5Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

Chapter 10 - Standard Costs and Overhead Analysis

10-24The Albright Company uses standard costing and has established the following standards forits single product:During November, the company made 4,000 units and incurred the following costs:The company applies variable manufacturing overhead to products on the basis of direct labourhours.49. What was the materials price variance for November?A. $810 favourable.B. $810 unfavourable.C. $2,310 favourable.D. $2,310 unfavourable.8,100*(3 - 3.10)Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 10 - Standard Costs and Overhead Analysis10-2550. What was the materials quantity variance for November?A. $300 unfavourable.B. $1,200 favourable.C. $1,200 unfavourable.D. $1,500 favourable.(4,000*2 - 7,100)*3Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

51. What was the labour rate variance for November?A. $550 unfavourable.B. $1,050 unfavourable.C. $2,150 favourable.D. $2,150 unfavourable.2,200*(8 - 8.25)Bloom's Level: ApplyDifficulty: EasyLearning Objective: 3

52. What was the labour efficiency variance for November?A. $550 unfavourable.B. $1,050 unfavourable.C. $1,600 favourable.

D. $1,600 unfavourable.(4,000*.5 - 2,200)*8Bloom's Level: ApplyDifficulty: EasyLearning Objective: 3

Chapter 10 - Standard Costs and Overhead Analysis10-2653. What was the total variable overhead variance for November?A. $175 unfavourable.B. $225 favourable.C. $225 unfavourable.D. $400 unfavourable.4,000*.5*2 - 4,175Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company has developedstandard costs for one bag of Fastgro as follows:The company had no beginning inventories of any kind on January 1. Variable manufacturingoverhead is applied to production on the basis of direct labour hours. The results of thecompany's operations during January are as follows: Chapter 10 - Standard Costs and Overhead Analysis10-2754. What was the materials price variance for January?A. $1,300 unfavourable.B. $1,640 favourable.C. $1,640 unfavourable.D. $1,700 favourable.85,000*8/20 - 32,300Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2

55. What was the materials quantity variance for January?A. $300 favourable.B. $300 unfavourable.C. $750 favourable.D. $800 unfavourable.(4,000*20 - (85,000 - 3,000))*8/20Bloom's Level: Analyze

Difficulty: MediumLearning Objective: 2

56. What was the labour rate variance for January?A. $475 favourable.B. $475 unfavourable.C. $585 favourable.D. $585 unfavourable.DL rate = 1.10/.1 = $11/hr. 390*11 - 4,875 = 585 Unf.Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 3

Chapter 10 - Standard Costs and Overhead Analysis10-2857. What was the labour efficiency variance for January?A. $110 favourable.B. $130 unfavourable.C. $350 unfavourable.D. $475 favourable.(4,000*.1 - 390)*11Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 3

58. What was the total variance for variable overhead for January?A. $40 favourable.B. $85 favourable.C. $100 unfavourable.D. $125 favourable.4,000*.4 - 1,475Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 10 - Standard Costs and Overhead Analysis10-29

(Appendix 10B) The Dexon Company makes and sells a single product, called a Mip, andemploys a standard costing system. The following standards have been established for one unitof Mip:There were no inventories of any kind on August 1. During August, the following eventsoccurred:Purchased 15,000 board metres at the total cost of $24,000.Used 12,000 board metres to produce 2,100 Mips.Used 1,700 hours of direct labour time at a total cost of $20,060.59. (Appendix 10B) To record the purchase of direct materials, the general ledger wouldinclude what entry to the Materials Price Variance account?A. $1,500 credit.B. $1,500 debit.C. $6,000 credit.D. $6,000 debit.Price/m = 9/6 = $1.50. 15,000*1.50 - 24,000 = 1,500 debitBloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2Learning Objective: 9

Chapter 10 - Standard Costs and Overhead Analysis10-3060. (Appendix 10B) To record the use of direct materials in production, the general ledgerwould include what entry to the Materials Quantity Variance account?A. $900 debit.B. $900 credit.C. $3,600 debit.D. $3,600 credit.(2,100*6 - 12,000)*1.50Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 2Learning Objective: 9

61. (Appendix 10B) To record the incurrence of direct labour cost and its use in production, thegeneral ledger would include what entry to the Labour Rate Variance account?A. $240 credit.

B. $240 debit.C. $340 debit.D. $340 credit.Rate = 9.60/.8 = $12/hr.; 1,700*12 - 20,060.Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 3Learning Objective: 9

62. (Appendix 10B) To record the incurrence of direct labour costs and its use in production,the general ledger would include what entry to the Labour Efficiency Variance account?A. $240 debit.B. $480 credit.C. $1,200 debit.D. $1,200 credit.(2,100*.8 - 1,700)*12Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 3Learning Objective: 9

Chapter 10 - Standard Costs and Overhead Analysis10-31The Alpha Company produces toys for national distribution. Standards for a particular toy are:Materials: 12 grams per unit at 56per gram.Labour: 2 hours per unit at $2.75 per hour.During the month of December, the company produced 1,000 units. Information for the monthfollows:Materials: 14,000 grams were purchased and used at a total cost of $7,140.Labour: 2,500 hours worked at a total cost of $8,000.63. What was the materials price variance?A. $420 favourable.B. $420 unfavourable.C. $700 favourable.D. $700 unfavourable.14,000*.56 - 7,140Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

64. What was the materials quantity variance?

A. $1,120 favourable.B. $1,120 unfavourable.C. $1,820 favourable.D. $1,820 unfavourable.(1,000*12 - 14,000)*.56Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 10 - Standard Costs and Overhead Analysis10-3265. What was the labour rate variance?A. $1,125 favourable.B. $1,125 unfavourable.C. $2,500 favourable.D. $2,500 unfavourable.2,500*2.75 - 8,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 3

66. What was the labour efficiency variance?A. $1,375 favourable.B. $1,375 unfavourable.C. $1,600 favourable.D. $1,600 unfavourable.(1,000*2 - 2,500)*2.75Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

The following materials standards have been established for a particular product:The following data pertain to operations concerning the product for the last month:

Chapter 10 - Standard Costs and Overhead Analysis10-33

67. What was the materials price variance for the month?A. $430 favourable.B. $430 unfavourable.C. $480 favourable.D. $480 unfavourable.4,800*13.20 - 62,880Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

68. What was the materials quantity variance for the month?A. $6,550 unfavourable.B. $6,600 unfavourable.C. $15,982 unfavourable.D. $16,104 unfavourable.(700*4.4 - 4,300)*13.20Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

The following materials standards have been established for a particular product:The following data pertain to operations concerning the product for the last month: Chapter 10 - Standard Costs and Overhead Analysis10-3469. What was the materials price variance for the month?A. $3,640 favourable.B. $3,640 unfavourable.C. $4,060 favourable.D. $4,060 unfavourable.5,800*18 - 108,460Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

70. What was the materials quantity variance for the month?A. $1,260 unfavourable.B. $1,309 unfavourable.C. $10,880 unfavourable.D. $11,220 unfavourable.(2,700*1.9 - 5,200)*18Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

The following materials standards have been established for a particular product:The following data pertain to operations concerning the product for the last month: Chapter 10 - Standard Costs and Overhead Analysis10-3571. What was the materials price variance for the month?A. $2,550 favourable.B. $2,550 unfavourable.C. $2,700 favourable.D. $2,700 unfavourable.

9,000*17.10 - 156,600Bloom's Level: ApplyDifficulty: EasyLearning Objective: 2

72. What was the materials quantity variance for the month?A. $5,814 unfavourable.B. $5,916 unfavourable.C. $8,550 unfavourable.D. $8,700 unfavourable.(1,200*6.8 - 8,500)*17.10Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

The following labour standards have been established for a particular product:The following data pertain to operations concerning the product for the last month: Chapter 10 - Standard Costs and Overhead Analysis10-3673. What was the labour rate variance for the month?A. $240 favourable.B. $240 unfavourable.C. $1,920 favourable.D. $1,920 unfavourable.9,600*15.25 - 144,480Bloom's Level: ApplyDifficulty: EasyLearning Objective: 3

74. What was the labour efficiency variance for the month?A. $7,230 favourable.B. $7,230 unfavourable.C. $9,030 unfavourable.D. $9,150 unfavourable.(1,200*7.5 - 9,600)*15.25Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

The Clark Company makes a single product and uses standard costing. Some data concerningthis product for the month of May follow: Chapter 10 - Standard Costs and Overhead Analysis10-3775. What was the variable overhead spending variance for May?A. $1,710 favourable.B. $1,710 unfavourable.C. $2,290 favourable.D. $2,290 unfavourable.14,000*4 - 58,290Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

76. What was the actual direct labour rate for May in dollars per hour?A. $11.50.

B. $11.75.C. $12.00.D. $12.50.(14,000*12 - 7,000)/14,000Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 3

77. What was the total standard cost for direct labour for May?A. $120,000.B. $161,000.C. $168,000.D. $180,000.14,000*12 + 12,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3

Chapter 10 - Standard Costs and Overhead Analysis10-3878. What was the total standard cost for variable overhead for May?A. $40,000.B. $50,000.C. $56,000.D. $60,000.14,000*4 + 4,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4

79. What are the standard hours allowed to make one unit of finished product?A. 1.0 hours.B. 1.2 hours.C. 1.5 hours.D. 2.0 hours.60,000(#103)/4/10,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3Learning Objective: 4

The following standards for variable manufacturing overhead have been established for acompany that makes only one product:The following data pertain to operations for the last month:

Chapter 10 - Standard Costs and Overhead Analysis10-3980. What was the variable overhead spending variance for the month?A. $1,715 favourable.B. $1,715 unfavourable.C. $2,870 favourable.D. $2,870 unfavourable.4,900*11.55 - 58,310Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

81. What was the variable overhead efficiency variance for the month?A. $1,155 unfavourable.B. $1,190 favourable.C. $1,190 unfavourable.D. $1,680 favourable.(3,000*1.6 - 4,900)*11.55Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

The Upton Company employs a standard costing system in which variable overhead isassigned to production on the basis of direct labour hours. Data for the month of Februaryinclude the following:

Chapter 10 - Standard Costs and Overhead Analysis10-4082. What is the standard variable overhead rate per direct labour hour?A. $6.91.B. $6.95.C. $7.00.D. $7.12.

(48,700 + 300)/7,000hrs.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4

83. What was the variable overhead spending variance?A. $740 favourable.B. $740 unfavourable.C. $820 favourable.D. $820 unfavourable.6,840*7(#107) - 48,700Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4

84. What was the variable overhead efficiency variance?A. $430 unfavourable.B. $740 favourable.C. $950 unfavourable.D. $1,120 favourable.(7,000 - 6,840)*7(#107)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4

Chapter 10 - Standard Costs and Overhead Analysis10-41(Appendix 10A) Saskatoon Company uses two raw materials, A and B, in the manufacture ofits only product: Zizbo. The materials are very close substitutes. The standard proportions forthe manufacture of a unit of Zizbo are 2 units of A and 3 units of B. The unit standard prices ofA and B are $10 and $8, respectively. During the month of August, the company used 450 unitsof A and 750 units of B to produce 230 units of Zizbo.85. What were the direct materials quantity variances for raw materials A and B, respectively?A. $100 favourable and $480 unfavourable.B. $200 unfavourable and $240 unfavourable.C. $300 favourable and $240 unfavourable.D. $480 unfavourable and $100 favourable.A: (230*2 - 450)*10 and B: (230*3 - 750)*8Bloom's Level: AnalyzeDifficulty: Medium

Learning Objective: 2

86. (Appendix 10A) For raw material A, what were the mix and yield variances, respectively?A. $60 favourable and $440 unfavourable.B. $200 unfavourable and $300 favourable.C. $300 favourable and $200 unfavourable.D. $300 unfavourable and $200 favourable.Mix = (450 - (2/5*(450 + 750))*10. Yield = (2/5*1,200 - 230*2)*10Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 8

Chapter 10 - Standard Costs and Overhead Analysis10-4287. (Appendix 10A) For raw material B, what were the mix and yield variances, respectively?A. $60 favourable and $440 favourable.B. $240 favourable and $200 favourable.C. $240 unfavourable and $240 favourable.D. $240 unfavourable and $240 unfavourable.Mix = (750 - (3/5*(450 + 750))*8. Yield = (3/5*1,200 - 230*3)*8Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 8

88. Which one of the following variances is MOST controllable by a production supervisor?A. Materials price variance.B. Materials usage variance.C. Fixed overhead volume variance.D. Variable overhead spending variance.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 2Learning Objective: 3Learning Objective: 4Learning Objective: 5

Chapter 10 - Standard Costs and Overhead Analysis10-4389. Which of the following variances would be useful in calling attention to possible problemsin the control of spending on overhead items?A. Option AB. Option BC. Option CD. Option DBloom's Level: UnderstandDifficulty: EasyLearning Objective: 4Learning Objective: 5Learning Objective: 6Learning Objective: 7

Chapter 10 - Standard Costs and Overhead Analysis10-4490. Which of the following variances would be useful in calling attention to possible problemsin the control of spending on overhead items?A. Option AB. Option BC. Option CD. Option DBloom's Level: UnderstandDifficulty: EasyLearning Objective: 4Learning Objective: 5Learning Objective: 6

91. Which of the following is directly associated with a higher denominator level of activity?A. Higher unit product cost.B. Lower unit product cost.C. Frequent occurrence of a volume variance.

D. More profitable operations.Bloom's Level: UnderstandDifficulty: HardLearning Objective: 5

92. A decrease in denominator level of activity will lead to which of the following?A. A decrease in the fixed portion of the predetermined overhead rate.B. An increase in the fixed portion of the predetermined overhead rate.C. A decrease in the variable portion of the predetermined overhead rate.D. An increase in the variable portion of the predetermined overhead rate.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 5

Chapter 10 - Standard Costs and Overhead Analysis10-4593. The economic impact of the inability to reach a target denominator level of activity wouldbest be measured by which of the following?A. The amount of the volume variance.B. The contribution margin lost by failing to meet the target denominator level of activity.C. The amount of the fixed overhead budget variance.D. The amount of the variable overhead efficiency variance.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4Learning Objective: 7

94. Which of the following statements is NOT correct?A. If the denominator level of activity and the standard hours allowed for the output of theperiod are the same, then there is no volume variance.B. If the denominator level of activity is greater than the standard hours allowed for the outputof the period, then the volume variance is unfavourable.C. If the denominator level of activity is greater than the standard hours allowed for the outputof the period, then the volume variance is favourable.D. The volume variance is the most appropriate measure of the utilization of plant facilities.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 5Learning Objective: 6

95. The fixed overhead volume variance is due to which of the following?

A. Inefficient or efficient use of whatever the denominator activity is.B. Inefficient or efficient use of overhead resources.C. A difference between the denominator activity and the standard hours allowed for the actualoutput of the period.D. A shift in the amount of hours required to produce the actual output.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-4696. Which of the following variances is caused by a difference between the denominatoractivity in the predetermined overhead rate and the standard hours allowed for the actualproduction of the period?A. Variable overhead spending variance.B. Variable overhead efficiency variance.C. Fixed overhead budget variance.D. Fixed overhead volume variance.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 5Learning Objective: 6

97. Overhead cost is applied to units based on direct labour hours. For April, total overhead costwas budgeted at $80,000 based on a denominator activity level of 20,000 direct labour hours forthe month. The standard cost card indicates that each unit of finished product requires 2 directlabour hours. The following data are available for April's activity:What was the amount of total overhead cost applied to production for the month of April?A. $76,000.B. $78,000.C. $79,500.D. $80,000.9,500*2* 80,000/20,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Learning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-4798. Hart Company's labour standards call for 500 direct labour hours to produce 250 units ofproduct. During October, the company worked 625 direct labour hours and produced 300 units.What were the standard hours allowed for October?A. 250 hours.B. 500 hours.C. 600 hours.D. 625 hours.300*500/250Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 3

99. At Jacobson Company, indirect labour is a variable cost that varies with direct labour hours.Last month's performance report showed that total actual indirect labour cost was $5,780 for themonth and that the associated spending variance was $245 favourable. If 24,100 direct labourhours were actually worked last month, what must be the flexible budget cost formula forindirect labour (per direct labour hour)?A. $0.20.B. $0.25.C. $0.30.D. $0.35.(5,780 + 245)/24,100Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 4Learning Objective: 7

Chapter 10 - Standard Costs and Overhead Analysis10-48100. At Overland Company, maintenance cost is exclusively a variable cost that varies directlywith machine hours. The performance report for July showed that total actual maintenancecosts were $9,800 and that the associated spending variance was $200 unfavourable. If 8,000machine hours were actually worked during July, what was the budgeted maintenance cost permachine hour?A. $1.200.B. $1.225.C. $1.250.D. $1.275.(9,800 - 200)/8,000Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 4Learning Objective: 7

101. Tyro Company has a standard cost system that applies manufacturing overhead to units ofproduct on the basis of direct labour hours (DLHs). The following information is available:Based on these data, what was the variable overhead spending variance?A. $750 unfavourable.B. $950 favourable.C. $1,500 unfavourable.D. $1,700 favourable.3,500*2.50 - (15,000 - 7,200)Bloom's Level: ApplyDifficulty: HardLearning Objective: 4Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-49102. Web Company uses a standard cost system that applies manufacturing overhead to units ofproduct on the basis of machine hours. During February, the company used a denominatoractivity of 80,000 machine hours in computing its predetermined overhead rate. However, only75,000 standard machine hours were allowed for the month's actual production. If the fixedoverhead volume variance for February was $6,400 unfavourable, what was the total budgetedfixed overhead cost for the month?A. $96,000.B. $98,600.C. $100,000.D. $102,400.6,400/(80,000 - 75,000) *80,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 5Learning Objective: 6

103. The Adlake Company makes and sells a single product and uses a standard cost system.During October, the company budgeted $300,000 in manufacturing overhead cost at adenominator activity of 20,000 machine hours. At standard, each unit of finished productrequires 5 machine hours. The following cost and activity were recorded during October:What was the amount of overhead cost that the company applied to work in process forOctober?A. $279,300.B. $285,000.C. $291,330.D. $294,000.3,800 * 5 * 300,000/20,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-50104. The predetermined overhead rate (variable and fixed) is $7.50 per machine hour, and thedenominator activity level is 135,000 machine hours. If the variable portion of thepredetermined overhead rate is $3.00 per machine hour, what is the budgeted fixed factoryoverhead for the year?A. $30,000.B. $607,500.C. $405,000.D. $1,012,500.135,000 *(7.50 - 3)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

105. Mauve Company uses a standard cost system that applies manufacturing overhead to unitsof product on the basis of direct labour hours (DLHs). The following data pertain to last month:What was the fixed overhead budget variance?A. $300 favourable.B. $300 unfavourable.C. $400 unfavourable.D. $500 favourable.10,000 - 10,400Bloom's Level: ApplyDifficulty: EasyLearning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-51

106. Jaune Company uses a standard cost system that applies manufacturing overhead to unitsof product on the basis of direct labour hours (DLHs). The following data pertain to last month'soperations:What was the fixed overhead budget variance?A. $500 favourable.B. $500 unfavourable.C. $1,700 unfavourable.D. $2,200 unfavourable.5,000 - 5,500Bloom's Level: ApplyDifficulty: EasyLearning Objective: 6

107. Henley Company uses a standard cost system that applies manufacturing overhead to unitsof product on the basis of direct labour hours. For the month of January, the fixedmanufacturing overhead volume variance was $2,220 favourable. The company uses a fixedmanufacturing overhead rate of $1.85 per direct labour hour. What were the standard directlabour hours allowed for the month's output in January?A. They exceeded the denominator hours by 1,000.B. They fell short of the denominator hours by 1,000.C. They exceeded the denominator hours by 1,200.D. They fell short of the denominator hours by 1,200.2,200/1.85Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-52108. Patridge Company uses a standard cost system in which it applies manufacturing overheadto units of product on the basis of direct labour hours. The information below is taken from thecompany's flexible budget for manufacturing overhead:During the year, the company operated at exactly 80% of capacity, but it applied manufacturing

overhead to products based on the 90% level. What was the company's fixed overhead volumevariance for the year?A. $6,000 favourable.B. $6,000 unfavourable.C. $12,000 favourable.D. $12,000 unfavourable.24,000 * 108,000/27,000 - 108,000Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-53109. Union Company uses a standard cost accounting system. The following overhead costsand production data are available for August:What was the total amount of overhead applied to work in process in August?A. $195,000.B. $197,000.C. $197,500.D. $199,500.39,000*(1 + 4)Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4Learning Objective: 5Learning Objective: 6

The Murray Company makes and sells a single product. The company recorded the followingactivity and cost data for May:The fixed portion of the predetermined overhead rate is $0.95 per direct labour hour.

Chapter 10 - Standard Costs and Overhead Analysis10-54110. What was the amount of fixed overhead contained in the company's overhead flexiblebudget for May?A. $64,125.B. $67,500.C. $68,400.D. $70,275.45,000*1.5*.95 + 4,275Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 6

111. What was the amount of fixed manufacturing overhead cost applied to work in processduring May?A. $42,750.B. $61,725.C. $62,700.D. $64,125.45,000*1.5*.95Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

112. What was the fixed overhead budget variance for May?A. $2,400 favourable.B. $2,400 unfavourable.C. $6,000 favourable.D. $6,000 unfavourable.68,400(#135) - 66,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-55A manufacturing company has a standard costing system based on machine hours (MHs) as themeasure of activity. Data from the company's flexible budget for manufacturing overhead aregiven below:The following data pertain to operations for the most recent period:

113. What was the total predetermined overhead rate, rounded to the nearest cent?A. $17.91.B. $18.00.C. $18.50.D. $18.59.(35,075 + 77,775)/6,100Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

Chapter 10 - Standard Costs and Overhead Analysis10-56114. How much overhead was applied to products during the period, rounded to the nearestdollar?A. $110,889.B. $112,850.C. $113,415.D. $116,550.5,994*18.50(#138)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 6

115. What was the variable overhead spending variance for the period, rounded to the nearestdollar?A. $315 favourable.B. $315 unfavourable.C. $2,075 favourable.D. $2,075 unfavourable.6,300 * 35,075/6,100 - 36,540Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4Learning Objective: 5

116. What was the variable overhead efficiency variance for the period, rounded to the nearestdollar?A. $0.B. $2,075 unfavourable.C. $2.075 favourable.

D. $1,760 unfavourable.(5,994 - 6,300)*35,075/6,100Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 10 - Standard Costs and Overhead Analysis10-57117. What was the fixed overhead budget variance for the period, rounded to the nearestdollar?A. $452 favourable.B. $452 unfavourable.C. $900 unfavourable.D. $900 favourable.77,775 - 76,875Bloom's Level: ApplyDifficulty: EasyLearning Objective: 6

118. What was the fixed overhead volume variance for the period, rounded to the nearestdollar?A. $1,352 unfavourable.B. $1,359 unfavourable.C. $2,550 favourable.D. $3,902 unfavourable.5,994 *77,775/6,100 - 77,775 = 1351.50Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 6

The Dillon Company makes and sells a single product and uses a flexible budget for overheadto plan and control overhead costs. Overhead costs are applied on the basis of direct labourhours. The standard cost card shows that 5 direct labour hours are required per unit. The DillonCompany had the following budgeted and actual data for March: Chapter 10 - Standard Costs and Overhead Analysis10-58119. What was the variable overhead spending variance for March?A. $4,900 unfavourable.B. $11,060 unfavourable.

C. $14,700 unfavourable.D. $17,300 unfavourable.161,800 * 123,200/154,000 - 140,500Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4Learning Objective: 5

120. What was the variable overhead efficiency variance for March?A. $6,160 favourable.B. $6,160 unfavourable.C. $6,240 favourable.D. $6,240 unfavourable.(33,900*5 - 161,800)*123,200/154,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4Learning Objective: 5

121. What was the fixed overhead budget variance for March?A. $900 favourable.B. $3,000 unfavourable.C. $3,900 favourable.D. $7,750 favourable.77,000 - 80,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-59122. What was the fixed overhead volume variance for March?A. $1,550 favourable.B. $3,900 unfavourable.C. $7,750 favourable.D. $7,750 unfavourable.33,900 * 5 * 77,000/154,000 - 77,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 6

The Ferris Company applies manufacturing overhead costs to products on the basis of directlabour hours. The standard cost card shows that 3 direct labour hours are required per unit of

product. For August, the company budgeted to work 90,000 direct labour hours and to incur thefollowing total manufacturing overhead costs:During August, the company completed 28,000 units of product, worked 86,000 direct labourhours, and incurred the following total manufacturing overhead costs:The denominator activity used for the predetermined overhead rate was 90,000 direct labourhours.

Chapter 10 - Standard Costs and Overhead Analysis10-60123. For August, what was the variable overhead spending variance?A. $4,300 favourable.B. $4,300 unfavourable.C. $6,500 favourable.D. $6,500 unfavourable.86,000*99,000/90,000 - 98,900Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4Learning Objective: 5

124. For August, what was the variable overhead efficiency variance?A. $0.B. $1,800 favourable.C. $2,200 favourable.D. $2,200 unfavourable.(28,000*3 - 86,000)*99,000/90,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4Learning Objective: 5

125. For August, what was the fixed overhead budget variance?A. $4,420 favourable.B. $4,420 unfavourable.C. $3,500 favourable.D. $3,500 unfavourable.118,800 - 115,300Bloom's Level: ApplyDifficulty: EasyLearning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-61126. For August, what was the fixed overhead volume variance?A. $4,300 unfavourable.B. $4,980 favourable.C. $4,980 unfavourable.D. $7,920 unfavourable.28,000 * 3 * 118,800/90,000 - 118,800Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 6

King Company estimated that it would operate its manufacturing facilities at 800,000 directlabour hours for the year, which served as the denominator activity in the predeterminedoverhead rate. The total budgeted manufacturing overhead for the year was $2,000,000, ofwhich $1,600,000 was variable and $400,000 was fixed. The standard variable overhead ratewas $2 per direct labour hour. The standard direct labour time was 3 direct labour hours per unit.The actual results for the year are presented below:127. What was the variable overhead spending variance for the year?A. $2,000 favourable.B. $10,000 unfavourable.C. $82,000 unfavourable.D. $110,000 unfavourable.764,000*2 - 1,610,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 10 - Standard Costs and Overhead Analysis

10-62128. What was the variable overhead efficiency variance for the year?A. $28,000 favourable.B. $28,000 unfavourable.C. $192,000 favourable.D. $192,000 unfavourable.(250,000*3 - 764,000)*2Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

129. What was the fixed overhead budget variance for the year?A. $8,000 favourable.B. $10,000 unfavourable.C. $17,000 unfavourable.D. $74,000 favourable.400,000 - 392,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 5Learning Objective: 6

130. What was the fixed overhead volume variance for the year?A. $7,000 unfavourable.B. $18,000 favourable.C. $25,000 unfavourable.D. $41,667 unfavourable.250,000 * 3 * 400,000/800,000 - 400,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-63A manufacturing company that has only one product has established the following standardsfor its variable manufacturing overhead. The company uses machine hours as its measure ofactivity.The following data pertain to operations for the last month:131. What was the variable overhead spending variance for the month?A. $595 favourable.B. $595 unfavourable.C. $1,739 favourable.

D. $1,739 unfavourable.1,700*14.30 - 24,905Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

132. What was the variable overhead efficiency variance for the month?A. $567 favourable.B. $1,144 unfavourable.C. $1,172 favourable.D. $1,172 unfavourable.(200*8.1 - 1,700)*14.30Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 10 - Standard Costs and Overhead Analysis10-64A manufacturing company that has only one product has established the following standardsfor its variable manufacturing overhead. The company uses direct labour hours (DLHs) as itsmeasure of activity.The following data pertain to operations for the last month:133. What was the variable overhead spending variance for the month?A. $255 favourable.B. $255 unfavourable.C. $10,821 favourable.D. $10,821 unfavourable.5,100*14.20 - 72,165Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

134. What was the variable overhead efficiency variance for the month?A. $216 unfavourable.B. $11,037 favourable.C. $11,037 unfavourable.D. $11,076 unfavourable.(600*7.2 - 5,100)*14.20Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 10 - Standard Costs and Overhead Analysis10-65135. For March, what was the variable overhead spending variance?A. $6,000 favourable.B. $10,000 unfavourable.C. $12,000 unfavourable.D. $22,000 favourable.80,000*3 - 250,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

136. For March, what was the fixed overhead volume variance?A. $80,000 favourable.B. $80,000 unfavourable.C. $96,000 favourable.D. $96,000 unfavourable.(38,000*2*4) - (100,000*4)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-66A furniture manufacturer has a standard costing system based on machine hours (MHs) as themeasure of activity. Data from the company's flexible budget for manufacturing overhead aregiven below:The following data pertain to operations for the most recent period:137. What was the total predetermined overhead rate, rounded to the nearest cent?A. $21.16.B. $21.26.

C. $21.80.D. $21.90.(31,845 + 40,425)/3,300Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

Chapter 10 - Standard Costs and Overhead Analysis10-67138. How much overhead was applied to products during the period, rounded to the nearestdollar?A. $67,408.B. $71,955.C. $72,270.D. $74,460.3,078*2,190(#162)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4Learning Objective: 5Learning Objective: 6

139. What was the fixed overhead budget variance for the period, rounded to the nearestdollar?A. $1,270 favourable.B. $1,450 favourable.C. $2,675 unfavourable.D. $3,691 favourable.40,425 - 38,975Bloom's Level: ApplyDifficulty: EasyLearning Objective: 6

140. What was the fixed overhead volume variance for the period, rounded to the nearestdollar?A. $1,225 favourable.B. $2,720 unfavourable.C. $2,811 unfavourable.D. $3,945 unfavourable.3,078 * 40,425/3,300 - 40,425Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-68A manufacturer of playground equipment has a standard costing system based on machinehours (MHs) as the measure of activity. Data from the company's flexible budget formanufacturing overhead are given below:The following data pertain to operations for the most recent period:141. What was the predetermined fixed overhead rate, rounded to the nearest cent?A. $11.94.B. $12.24.C. $13.55.D. $13.87.40,650/3,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 5

142. How much fixed overhead was applied to products during the period, rounded to thenearest dollar?A. $40,650.B. $41,600.C. $42,981.D. $46,070.3,172*13.55(#166) = 42,980.60Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-69

143. What was the fixed overhead budget variance for the period, rounded to the nearestdollar?A. $950 unfavourable.B. $1,381 unfavourable.C. $2,790 favourable.D. $4,470 unfavourable.40,650 - 41,600Bloom's Level: ApplyDifficulty: EasyLearning Objective: 5Learning Objective: 6

144. What was the fixed overhead volume variance for the period, rounded to the nearestdollar?A. $2,256 favourable.B. $2,331 favourable.C. $3,089 unfavourable.D. $5,420 favourable.42,980.60(#167) - 40,650 = 2,330.60Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 6

The Claus Company makes and sells a single product and uses standard costing. DuringJanuary, the company actually used 8,700 direct labour hours (DLHs) and produced 3,000 unitsof product. The standard cost card for one unit of product includes the following:Variable Factory Overhead: 3.0 DLHs @ $4.00 per DLH.Fixed Factory Overhead: 3.0 DLHs. @ $3.50 per DLH.For January, the company incurred $22,000 of actual fixed overhead costs and recorded an$875 favourable volume variance.

Chapter 10 - Standard Costs and Overhead Analysis10-70145. What was the budgeted fixed factory overhead cost for January?A. $30,625.B. $31,500.C. $32,375.D. $33,250.

3,000 * 3 * 3.50 - 875Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 5Learning Objective: 6

146. What was the denominator level of activity in direct labour hours (DLHs) used by Claus insetting the predetermined overhead rate for January?A. 8,750 DLHs.B. 9,250 DLHs.C. 9,500 DLHs.D. 10,500 DLHs.30,625(#170)/3.50Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-71A manufacturer of industrial equipment has a standard costing system based on machine hours(MHs) as the measure of activity. Data from the company's flexible budget for manufacturingoverhead are given below:The following data pertain to operations for the most recent period:147. What was the total predetermined overhead rate, rounded to the nearest cent?A. $23.59.B. $23.91.C. $23.98.D. $24.30.(33,345 + 61,425)/3,900Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

Chapter 10 - Standard Costs and Overhead Analysis10-72148. How much overhead was applied to products during the period, rounded to the nearestdollar?A. $93,240.B. $94,483.C. $94,770.D. $96,034.3,952*24.30(#172) = 96,033.60Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 6

A manufacturer of industrial equipment has a standard costing system based on direct labourhours (DLHs) as the measure of activity. Data from the company's flexible budget formanufacturing overhead are given below:The following data pertain to operations for the most recent period: Chapter 10 - Standard Costs and Overhead Analysis10-73149. What was the total predetermined overhead rate, rounded to the nearest cent?A. $19.30.B. $19.65.C. $19.80.D. $20.15.(56,400 + 100,800)/8,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

150. How much overhead was applied to products during the period, rounded to the nearestdollar?A. $151,993.B. $153,270.C. $154,410.D. $157,200.7,735*19.65(#174) = 151,992.75Bloom's Level: ApplyDifficulty: Medium

Learning Objective: 5Learning Objective: 6

Dori Castings is a job order shop that uses a standard cost system to account for its productioncosts. Manufacturing overhead costs are applied to production on the basis of direct labourhours.

Chapter 10 - Standard Costs and Overhead Analysis10-74151. Dori's choice of a production volume as a denominator for calculating its predeterminedoverhead rate will have NO effect on which of the following?A. The fixed portion of this rate, which is used for applying costs to production.B. The variable portion of this rate, which is used for applying costs to production.C. The fixed overhead budget variance.D. The fixed overhead volume variance.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 5Learning Objective: 6

152. A volume variance will exist for Dori in a month under which of the followingconditions?A. When the production volume differs from sales volume.B. When the actual direct labour hours differ from standard hours allowed.C. When there is a budget variance in fixed overhead costs.D. When the fixed overhead applied to units of product on the basis of standard hours alloweddiffers from the budgeted fixed overhead.Bloom's Level: UnderstandDifficulty: HardLearning Objective: 5Learning Objective: 6

153. What amount of fixed overhead would Dori apply to finished production?A. The actual direct labour hours multiplied by the standard fixed overhead rate per directlabour hour.B. The standard hours allowed for the actual units of finished output multiplied by the standardfixed overhead rate per direct labour hour.C. The standard units of output for the actual direct labour hours worked multiplied by thestandard fixed overhead rate per unit of output.

D. The actual fixed overhead cost per direct labour hour multiplied by the standard hoursallowed.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-75Jessep Corporation has a standard cost system in which manufacturing overhead is applied tounits of product on the basis of direct labour hours. The company has provided the followingdata concerning its fixed manufacturing overhead costs in March:154. What was the fixed overhead budget variance?A. $1,000 unfavourable.B. $2,000 favourable.C. $2,000 unfavourable.D. $3,000 unfavourable.45,000 - 48,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 6

155. What was the fixed overhead volume variance?A. $3,000 favourable.B. $3,000 unfavourable.C. $9,000 unfavourable.D. $6,000 unfavourable.12,000 * 45,000/15,000 - 45,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-76

An outdoor barbecue grill manufacturer has a standard costing system based on direct labourhours (DLHs) as the measure of activity. Data from the company's flexible budget formanufacturing overhead are given below:The following data pertain to operations for the most recent period:156. What was the fixed overhead budget variance for the period, rounded to the nearestdollar?A. $166 unfavourable.B. $422 favourable.C. $585 favourable.D. $1,400 unfavourable.26,895 - 28,295Bloom's Level: ApplyDifficulty: EasyLearning Objective: 6

157. What was the fixed overhead volume variance for the period, rounded to the nearestdollar?A. $163 favourable.B. $815 favourable.C. $978 favourable.D. $993 favourable.3,420 * 26,895/3,300 - 26,895Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-77An outdoor barbecue grill manufacturer has a standard costing system based on machine hours(MHs) as the measure of activity. Data from the company's flexible budget for manufacturingoverhead are given below:The following data pertain to operations for the most recent period:158. What was the fixed overhead budget variance for the period, rounded to the nearestdollar?A. $1,450 favourable.

B. $2,503 favourable.C. $3,009 unfavourable.D. $5,810 unfavourable.50,140 - 48,690Bloom's Level: ApplyDifficulty: EasyLearning Objective: 6

159. What was the fixed overhead volume variance for the period, rounded to the nearestdollar?A. $1,468 favourable.B. $1,559 favourable.C. $2,801 unfavourable.D. $4,360 favourable.4,743 * 50,140/4,600 - 50,140 = 1,558.70Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-78The Tate Company uses a standard costing system in which manufacturing overhead is appliedto units of product on the basis of direct labour hours (DLHs). The company recorded thefollowing costs and activity for September:160. What was the amount of fixed manufacturing overhead cost applied to work in processduring September?A. $54,150.B. $57,000.C. $59,850.D. $61,400.22,800*2.5*.95Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-79161. What was the amount of fixed overhead cost contained in the company's flexible budgetfor manufacturing overhead for September?A. $57,000.B. $58,550.C. $60,000.D. $61,400.54,150(#185) + 2,850Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 6

162. Under which product costing system for a manufacturing company would there be nofixed manufacturing overhead volume variance?A. Standard absorption costing.B. Standard variable costing.C. Job order costing.D. Process costing.Bloom's Level: UnderstandDifficulty: HardLearning Objective: 1Learning Objective: 4Learning Objective: 5Learning Objective: 6

163. Which of the following is NOT true for variable manufacturing overhead costs in astandard costing system?A. No volume variance is ever reported.B. The flexible variable overhead allowance for the standard hours allowed for the output is thesame as the applied total variable overhead.C. The slope of the budgeted variable overhead line is the same as the slope of the appliedvariable overhead line.D. Any underapplied or overapplied overhead is equal to the variable overhead spendingvariance.Bloom's Level: EvaluateDifficulty: HardLearning Objective: 1Learning Objective: 4

Learning Objective: 5

Chapter 10 - Standard Costs and Overhead Analysis10-80164. Which of the following is NOT true for fixed manufacturing overhead costs in a standardcosting system?A. No efficiency variance is ever reported.B. Any volume variance is the result of applying fixed manufacturing overhead to products, notthe result of poor cost control.C. Any underapplied or overapplied fixed manufacturing overhead is the same as the volumevariance.D. The budget variance can arise under either a variable product costing system or anabsorption product costing system.Bloom's Level: EvaluateDifficulty: HardLearning Objective: 1Learning Objective: 5Learning Objective: 6

True / False Questions165. Standard costs should generally be based on the actual costs of prior periods.FALSEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 1

166. The standard direct labour rate should NOT include fringe benefits.FALSEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 1

Chapter 10 - Standard Costs and Overhead Analysis

10-81167. From a standpoint of cost control, the most effective time to recognize material pricevariances is when the materials are placed into production.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

168. The material quantity variance is computed based on the quantity of all materialspurchased during the period.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

169. Purchase of poor quality materials will generally result in a favourable materials pricevariance and an unfavourable labour rate variance.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2Learning Objective: 3

170. At the end of the variance analysis cycle, management should be able to identify possiblecauses for both favourable and unfavourable variances.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2Learning Objective: 3Learning Objective: 4

Chapter 10 - Standard Costs and Overhead Analysis10-82171. (Appendix 10B) A favourable labour efficiency variance would result in a credit balancein the labour efficiency variance account.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 9

172. Management by exception means that a manager's attention is directed toward those partsof the organization where things are NOT proceeding according to plans.TRUE

Bloom's Level: RememberDifficulty: EasyLearning Objective: 1

173. The production manager is usually held responsible for the labour efficiency variance.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 3

174. All cost variances should be considered exceptions that require the attention ofmanagement.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1Learning Objective: 2Learning Objective: 3Learning Objective: 4Learning Objective: 5

Chapter 10 - Standard Costs and Overhead Analysis10-83175. (Appendix 10A) A mix variance for direct materials can be derived as the differencebetween the quantity variance and the yield variance.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 8

176. Standard costs can be used in conjunction with job-order costing but NOT with processcosting.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

177. The overhead spending variance contains price but not quantity elements.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

178. The variable overhead efficiency variance reflects how efficiently variable overheadresources were used.FALSEBloom's Level: Understand

Difficulty: MediumLearning Objective: 4

Chapter 10 - Standard Costs and Overhead Analysis10-84179. A reason for keeping a constant denominator activity level is to maintainstability in theamount of overhead cost that is applied to each unit of product manufactured over the period.TRUEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 5

180. The fixed portion of the predetermined overhead rate is used for product costing purposesand has no significance in terms of cost control.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 5Learning Objective: 6

181. In a standard costing system, under- or overapplied fixed overhead is equal to the sum ofthe fixed overhead budget variance and the fixed overhead volume variance.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 6

182. If the standard hours allowed for the actual output of the period is greater than thedenominator level of activity (in hours), then the overhead budget variance will beunfavourable.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-85183. The fixed overhead budget variance is NOT controllable by managers because fixed costsare NOT controllable.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 6

184. One cause of an unfavourable overhead volume variance would be increases in cost forfixed overhead items.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 6

185. If the denominator activity (in hours) used to compute the predetermined overhead rate isequal to the actual activity (in hours) for the period, then there is no volume variance.FALSEBloom's Level: UnderstandDifficulty: HardLearning Objective: 5Learning Objective: 6

186. Because managers want stable unit cost figures, the accountant creates an artificialstability so far as fixed costs are concerned by applying fixed costs to products as if the fixedcosts were really variable.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 5

Chapter 10 - Standard Costs and Overhead Analysis

10-86187. Waste or excessive usage of overhead items will show up as part of the variable overheadefficiency variance.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

188. Capacity analysis is most affected by the presence of variable costs, NOT fixed costs.FALSEBloom's Level: UnderstandDifficulty: HardLearning Objective: 1Learning Objective: 7

189. (Appendix 10A) Direct labour efficiency variance can be analyzed further into mix andyield variances if more than one class of direct labour that are good substitutes is used inoperations.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 10

Chapter 10 - Standard Costs and Overhead Analysis10-87Essay Questions190. (Appendix 10B) Albert Manufacturing Company manufactures a single product. Thestandard cost of one unit of this product is:During the month of October, 6,000 units were produced. Selected cost data relating to themonth's production follow:There was no beginning inventory of raw materials. The variable overhead rate is based ondirect labour-hours.Required:a) (Appendix 10B) For direct materials, compute the price and quantity variances for the month,and prepare journal entries to record activity for the month.b) (Appendix 10B) For direct labour, compute the rate and efficiency variances for the month,

and prepare a journal entry to record labour activity for the month.c) For variable overhead, compute the spending variance for the month, and prove theefficiency variance given above.

Chapter 10 - Standard Costs and Overhead Analysis10-88a) Materials Price Variance:Journal entries:b) The actual hours worked during the period can be computed through the variable overheadefficiency variance, as follows:SR(AH - SH) = Variable Overhead Efficiency Variance$4.50(AH - (6,000 units @ 1 hr. per unit) = $2,250 unfavourable$4.50AH - $27,000 = $2,250 unfavourable$4.50AH = $29,250AH = 6,500 hours

Chapter 10 - Standard Costs and Overhead Analysis10-89c) Variable Overhead Spending Variance:Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4Learning Objective: 9

Chapter 10 - Standard Costs and Overhead Analysis10-90191. (Appendix 10B) Vernon Mills, Inc. is a large producer of men's and women's clothing. Thecompany uses standard costs for all of its products. The standard costs and actual costs per unitof product for a recent period are given below for one of the company's product lines:During this period, the company produced 4,800 units of this product. A comparison ofstandard and actual costs for the period on a total cost basis is given below:There was no inventory of materials on hand at the beginning of the period. During the period,21,120 metres of materials were purchased, all of which were used in production.Required:a) (Appendix 10B) For direct materials, compute the price and quantity variances for the periodand prepare journal entries to record all activity relating to direct materials for the period.b) (Appendix 10B) For direct labour, compute the rate and efficiency variances and prepare ajournal entry to record the incurrence of direct labour cost for the period.c) For variable overhead, compute the spending and efficiency variances.

Chapter 10 - Standard Costs and Overhead Analysis10-91a) Materials Price Variance:(b) Labour Rate Variance:

Chapter 10 - Standard Costs and Overhead Analysis10-92(c) Variable Overhead Spending Variance:Standard Hours of Input, at the Standard Rate:Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4Learning Objective: 9

Chapter 10 - Standard Costs and Overhead Analysis10-93192. Lido Company's standard and actual costs per unit for the most recent period, duringwhich 400 units were actually produced, are given below:There were no inventory of materials at the beginning or end of the period.Required:From the above information, compute the following variances. Show whether the variance isfavourable (F) or unfavourable (U):a) Materials price varianceb) Materials quantity variancec) Direct labour rate varianced) Direct labour efficiency variancee) Variable overhead spending variancef) Variable overhead efficiency variance

Chapter 10 - Standard Costs and Overhead Analysis10-94a) Materials price variance = AQ(AP - SP)= (2.1 x 400)($1.60 - $1.50)= $84 Ub) Materials quantity variance = SP(AQ - SQ)= $1.50((2.1 x 400) - (2.0 x 400))= $60 Uc) Direct labour rate variance = AH(AR - SR)= (1.4 x 400)($6.50 - $6.00)= $280 Ud) Direct labour efficiency variance = SR(AH - SH)= $6.00((1.4 x 400) - (1.5 x 400))= $240 Fe) Variable overhead spending variance = AH(AR - SR)= (1.4 x 400)($3.10 - $3.40)= $168 Ff) Variable overhead efficiency variance = SR(AH - SH)= $3.40((1.4 x 400) - (1.5 x 400))= $136 FBloom's Level: ApplyDifficulty: MediumLearning Objective: 2Learning Objective: 3Learning Objective: 4

Chapter 10 - Standard Costs and Overhead Analysis10-95193. (Appendix 10B) The Lahn Company produces and sells a single product. Standards havebeen established for the product as follows:Actual cost and usage figures for the past month follow:Required:

Prepare journal entries to record:a) The purchase of raw materials.b) The usage of raw materials in production.c) The incurrence of direct labour cost. Chapter 10 - Standard Costs and Overhead Analysis10-96* $3.50 per kg. x 4,500 kgs. = $15,750** AQ(AP - SP) = 4,500(($14,400/4,500 kgs.) - $3.50) = $1,350 favourable* $3.50 per kg. x 5 kgs per unit x 750 units = $13,125** SP(AQ - SQ) = $3.50(4,000 - (5 x 750)) = $875 unfavourable*** $3.50 x 4,000 = $14,000* $5.50 per hr. x 3 hrs per unit x 750 units = $12,375** AH(AR - SR) = 2,000(($11,200/2,000) - $5.50) = $200 unfavourable*** SR(AH - SH) = $5.50(2,000 - (3 x 750)) = $1,375 favourableBloom's Level: ApplyDifficulty: MediumLearning Objective: 2Learning Objective: 3Learning Objective: 9

Chapter 10 - Standard Costs and Overhead Analysis10-97194. The following materials standards have been established for a particular product:The following data pertain to operations concerning the product for the last month:Required:a) What was the materials price variance for the month?b) What was the materials quantity variance for the month?Materials price variance = (AQ x AP) - (AQ x SP)= $76,450 - (5,500 x $14.70)= $4,400 favourableSQ = Standard quantity per unit x Actual output= 9.2 x 540= 4,968Materials quantity variance = SP(AQ - SQ)= $14.70 (5,100 - 4,968)= $1,940.40 unfavourableBloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 10 - Standard Costs and Overhead Analysis10-98195. The following materials standards have been established for a particular product:The following data pertain to operations concerning the product for the last month:Required:a) What is the materials price variance for the month?b) What is the materials quantity variance for the month?Materials price variance = (AQ x AP) - (AQ x SP)= $116,435 - (7,300 x $16.90)= $6,935 favourableSQ = Standard quantity per unit x Actual output= 9.4 x 740= 6,956Materials quantity variance = SP(AQ - SQ)= $16.90(7,100 - 6,956)= $2,433.60 unfavourableBloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 10 - Standard Costs and Overhead Analysis10-99196. The following materials standards have been established for a particular product:The following data pertain to operations concerning the product for the last month:Required:a) What was the materials price variance for the month?b) What was the materials quantity variance for the month?Materials price variance = (AQ x AP) - (AQ x SP)

= $68,515 - (7,100 x $10.20)= $3,905 favourableSQ = Standard quantity per unit x Actual output= 3.6 x 1,780= 6,408Materials quantity variance = SP(AQ - SQ)= $10.20(6,600 - 6,408)= $1,958.40 unfavourableBloom's Level: ApplyDifficulty: EasyLearning Objective: 2

Chapter 10 - Standard Costs and Overhead Analysis10-100197. Dodge Company produces a single product. The company has set the following standardsfor materials and labour:During the past month, the company purchased 7,000 kilograms of direct materials at a cost of$26,250. All of this material was used in the production of 1,300 units of product. Direct labourcost totalled $55,125 for the month. The following variances have been computed:Required:a) For direct materials, compute the standard price per kilogram, the standard quantity allowedfor materials in total for the month's production, and the standard quantity per unit of product.b) For direct labour, compute the actual direct labour cost per hour for the month and the labourrate variance.

Chapter 10 - Standard Costs and Overhead Analysis

10-101a) The actual cost of material per kilogram for the month was:$26,500/7,000 kilograms = $3.75 per kilogramAQ (AP - SP) = Materials price variance7,000 kilograms ($3.75 - SP) = $1,750 favourable$26,250 - 7,000 SP = $1,750 favourable7,000 SP = $28,000SP = $4.00SP (AQ - SQ) = Materials quantity variance$4.00(7,000 kgs. - SQ) = $2,000 unfavourable$28,000 - $4.00 SQ = $2,000 unfavourable$4.00 SQ = $26,000SQ = 6,500 kgs.6,500 kgs./1,300 units = 5 kgs. per unit.b) SR (AH - SH) = Labour efficiency variance$15 (AH - ((1,300 units x 3 hours)) = $6,000 favourable$15 AH - $58,500 = $6,000 favourable$15 AH = $52,500AH = 3,500 hoursTherefore, $55,125 total actual labour cost/3,500 hours = $15.75 per hour.AH (AR - SR) = Labour rate variance3,500 hours ($15.75 - $15.00) = $2,625 unfavourableBloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 3

Chapter 10 - Standard Costs and Overhead Analysis10-102198. The supervisor of the cost department has just conferred with you concerning the varianceanalysis of direct labour for the month just ended. As she talked, you wrote feverishly, but youweren't able to record all the information she gave you before she dashed off mutteringsomething about "another brush fire to put out." Your efforts are shown below:Required:a) To redeem yourself, complete the form above, adding numbers and labels. (The usualnotations, AH, SH, AR, SR, etc., may be used where appropriate.)

b) If you know that 18 minutes of labour is standard per unit of production, how many unitswere produced?

Chapter 10 - Standard Costs and Overhead Analysis10-103a)Computations--in this order:Rate variance = Total variance - Efficiency variance= $810U - $2,250U= $810 - $2,250= -$1,440= $1,440FAH x AR = 4,800 x $7.20 = $34,560AH x SR = AH x AR - Rate variance= $34,560 - $1,440F= $34,560 - (-$1,440)= $36,000SR = (AH x SR)/AH= $36,000/4,800= $7.50SH x SR = AH x SR - Efficiency variance= $36,000 - $2,250U= $36,000 - $2,250= $33,750SH = (SH x SR)/SR= $33,750/$7.50= 4,500b)

Chapter 10 - Standard Costs and Overhead Analysis10-104Bloom's Level: Analyze

Difficulty: HardLearning Objective: 3

199. The following labour standards have been established for a particular product:The following data pertain to operations concerning the product for the last month:Required:a) What was the labour rate variance for the month?b) What was the labour efficiency variance for the month?Labour rate variance = (AH x AR) - (AH x SR)= $80,385 - (6,900 x $11.50)= $1,035 unfavourableSH = Standard hours per unit x Actual output= 2.8 x 2,300= 6,440Labour efficiency variance = SR (AH - SH)= $11.50(6,900 - 6,440)= $5,290 unfavourableBloom's Level: ApplyDifficulty: EasyLearning Objective: 3

Chapter 10 - Standard Costs and Overhead Analysis10-105200. The following standards for variable manufacturing overhead have been established for acompany that makes only one product:The following data pertain to operations for the last month:Required:a) What was the variable overhead spending variance for the month?b) What was the variable overhead efficiency variance for the month?Variable overhead spending variance = (AH x AR) - (AH x SR)= $97,600 - (6,100 x $15.80)= $1,220 unfavourableSH = Standard hours per unit x Actual output= 6.9 x 800= 5,520Variable overhead efficiency variance = SR (AH - SH)= $15.80(6,100 - 5,520)= $9,164 unfavourableBloom's Level: ApplyDifficulty: Medium

Learning Objective: 4

Chapter 10 - Standard Costs and Overhead Analysis10-106201. Standards can be either theoretical ("impossible dream") or practical (attainable all thetime or only part of the time). Theoretically either can be used as the framework for thebudgeting process.Required:a) What is the major distinction, if any, between a standard amount and a budgeted amount?b) Which standard, theoretical or practical, provides the better benchmark for evaluatingsubsequent performance in a budgeting system? Explain.a) One major distinction between a standard amount and a budgeted amount is the unit ofmeasurement. A standard is a unit concept. It is often quoted on per unit basis, for example,standard quantity of input for a unit of output, standard cost per unit of input or standard cost perunit of output. A budgeted amount is a total concept. For example, when businesses talk ofbudgeted labour costs, they often mean the total budgeted labour costs, not budgeted labourcost per unit of product.b) Practical standards should normally provide better benchmarks for evaluating subsequentperformance because they are attainable through reasonable (although highly efficient) effortsby the average worker. Such standards generally will elicit positive motivation from workers.Theoretical standards, on the other hand, tend to discourage even the most diligent workers andas such may have no motivational value.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1

Chapter 10 - Standard Costs and Overhead Analysis10-107202. Direct labour hour is often assumed as the sole cost driver in analyzing the total variableoverhead cost variance into spending and efficiency variances.Required:a) Will direct labour cost ever be a better cost driver of variable overhead costs than directlabour hour? Explainb) How is the standard variable overhead rate different from the standard labour rate in varianceanalysis? Explain.a) Direct labour cost can be a better cost driver than direct labour hour. For example, in amanufacturing situation where there are significant variations in wage rates within or acrossdepartments, direct labour cost can better capture these variations as they are reflected invariable overhead costs. Some variable overhead costs such as employee benefits andentitlements are usually dependent not only on number of hours but also wage rates.b) Variable overhead costs include not only indirect labour costs but also other costs such asindirect material and variable portions of utilities. As such the standard variable overhead ratemeasures things other than indirect labour. The resulting spending and efficiency variancesmay therefore have no relationship to either the cost or quantity of indirect labour if theiramounts are insignificant relative to other components of variable overhead costs. On the otherhand, the standard direct labour rate, by definition, relates only to direct labour and anyresulting variances have unique interpretations regarding direct labour quantity and rate.Bloom's Level: EvaluateDifficulty: HardLearning Objective: 1Learning Objective: 3

Learning Objective: 4

Chapter 10 - Standard Costs and Overhead Analysis10-108203. (Appendix 10B) The following is the standard cost card for X Company's only product:The company manufactured and sold 18,000 units of product during the year. A total of 70,200metres of material was purchased during the year at cost of $4.20 per metre. All of this materialwas used to manufacture the 18,000 units. The company records showed no beginning orending inventories for the year.The company worked 29,250 direct labour hours during the year at a cost of $9.75 per hour.Overhead cost is applied to products on the basis of direct labour hours. The denominatoractivity level (direct labour hours) was 22,500 hours. Budgeted fixed overhead costs as shownon the flexible budget were $157,500, while actual fixed overhead costs were $156,000. Actualvariable overhead costs were $90,000.Required:a) Compute the direct materials price and quantity variances for the year.b) Compute the direct labour rate and efficiency variances for the year.c) Compute the variable overhead spending and efficiency variances for the year.d) Compute the fixed overhead budget and volume variances for the year.e) (Appendix 10B) Prepare a journal entry to record the variable overhead costs incurred andapplied, including the results of the variance analysis.f) (Appendix 10B) Prepare a journal entry to record the fixed overhead costs incurred andapplied, including the results of the variance analysis. Chapter 10 - Standard Costs and Overhead Analysis10-109a) Direct materials price and quantity variances:AQ (AP - SP) = Direct materials price variance70,200 metres ($4.20 - $4.00) = $14,040 unfavourableSP (AQ - SQ) = Direct materials quantity variance$4.00 (70,200 metres - 72,000 metres*) = $7,200 favourable

*18,000 units x 4 metres per unit = 72,000 metresb) Direct labour rate and efficiency variances:AH (AR - SR) = Direct labour rate variance29,250 hours ($9.75 - $10.00) = $7,312.50 favourableSR (AH - SH) - Direct labour efficiency variance$10.00 (29,250 - 27,000*)= $22,500 unfavourable*18,000 units x 1.5 hours per unit = 27,000 hoursc) Variable overhead spending and efficiency variances:d) Fixed overhead budget and volume variances:e) Journal entries for variable overhead:

Chapter 10 - Standard Costs and Overhead Analysis10-110Bloom's Level: ApplyDifficulty: HardLearning Objective: 2Learning Objective: 3Learning Objective: 4Learning Objective: 5Learning Objective: 6Learning Objective: 9

Chapter 10 - Standard Costs and Overhead Analysis10-111204. Flick Company uses a standard cost system. Manufacturing overhead is applied to units ofproduct on the basis of direct labour hours. The company's total budgeted variable and fixedmanufacturing overhead costs at the denominator level of activity are $20,000 for variableoverhead and $30,000 for fixed overhead. The predetermined overhead rate, including bothfixed and variable components, is $2.50 per direct labour hour. The standards call for two direct

labour hours per unit of output produced. Last year, the company produced 11,500 units ofproduct and worked 22,000 direct labour hours. Actual costs were $22,500 for variableoverhead and $31,000 for fixed overhead.Required:a) What is the denominator level of activity?b) What were the standard hours allowed for the output last year?c) What was the variable overhead spending variance?d) What was the variable overhead efficiency variance?e) What was the fixed overhead budget variance?f) What was the fixed overhead volume variance? Chapter 10 - Standard Costs and Overhead Analysis10-112a) Total overhead at the denominator level of activity $50,000Denominator level of activity = $50,000/$2.50= 20,000 DLHsc) Computation of variable overhead spending variance:Spending variance = (AH x AR) - (AH x SR)= ($22,500) - (22,000 DLHs x $1.00*)= $500 unfavourable* $20,000/20,000 DLHs = $1.00d) Computation of variable overhead efficiency variance:Spending variance = (AH x SR) - (SH x SR)= (22,000 DLHs x $1.00) - (23,000 DLHs* x $1.00)= $1,000 favourable* 2 DLHs per unit x 11,500 units = 23,000 DLHse) Computation of the fixed overhead budget variance:Budget variance = Actual fixed overhead - Flexible budget fixed overhead= $31,000 - $30,000= $1,000 unfavourablef) Computation of the fixed overhead volume variance:Volume variance = Fixed portion of predetermined overhead rate x(Denominator hours - Standard hours allowed)= $1.50* (20,000 DLH - 23,000 DLH)= $4,500 favourable*$30,000/20,000 DLH = $1.50Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4Learning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-113205. You have just been hired as the controller of the Eastern Division of Global Manufacturing.Performance records for last year are incomplete, with only the following data available:Required:Prepare a complete analysis of manufacturing overhead for the past year. Indicate actual,standard, and denominator activity levels; variable overhead spending and efficiency variances;and fixed overhead budget and volume variances. Chapter 10 - Standard Costs and Overhead Analysis10-114Budgeted fixed overhead rate = Fixed overhead/Denominator quantity= $84,800/53,000 direct labour hours= $1.60 per direct labour hourActual fixed overhead = Budgeted fixed overhead + Budget variance= $84,800 + $7,200= $92,000Actual variable overhead = Total actual overhead - Actual fixed overhead= $262,500 - $92,000= $170,500Actual variable overhead rate = Actual variable overhead/Actual hours= $170,500/55,000= $3.10Spending variance = AH (AR - SR)= 55,000 ($3.10 - $3.00)= $5,500 unfavourableOverhead efficiency variance = (SH x SR) - (AH x SR)= (55,000 x $3.00) - $15,000= $150,000Standard hours allowed = (SH X SR)/SR= $150,000/$3.00= 50,000 hoursActual units produced = Standard hours allowed/Hours per unit= 50,000 hours/2 hours per unit= 25,000 unitsVolume variance = Budgeted fixed - (SH x SR)

= $84,800 - (50,000 x $1.60)= $84,800 - $80,000= $4,800 unfavourable

Chapter 10 - Standard Costs and Overhead Analysis10-115Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4Learning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-116206. Sucher Company uses a standard cost system in which manufacturing overhead costs areapplied to units of product on the basis of machine hours. The company's condensed flexiblebudget for manufacturing overhead is given below:The denominator level of activity is 30,000 machine hours. Standards call for 2.5 machinehours per unit of output. Actual activity and manufacturing overhead costs for the year aregiven below:Required:a) What are the standard hours allowed for the output?b) What was the variable overhead spending variance?c) What was the variable overhead efficiency variance?d) What was the fixed overhead budget variance?e) What was the fixed overhead volume variance?f) (Appendix 10B) Prepare a journal entry to record the variable overhead costs incurred andapplied, including the results of the variance analysis.

g) (Appendix 10B) Prepare a journal entry to record the fixed overhead costs incurred andapplied, including the results of the variance analysis.

Chapter 10 - Standard Costs and Overhead Analysis10-117a) 12,800 units x 2.5 machine hours per unit = 32,000 machine hoursb) Computation of variable overhead spending variance:Spending variance = (AH x AR) - (AH x SR)= ($96,000) - (31,600 MHs x $3)= $1,200 unfavourablec) Computation of variable overhead efficiency variance:Efficiency variance = (AH x SR) - (SH x SR)= (31,600 MHs x $3) - (32,000 MHs x $3)= $1,200 favourabled) Computation of the fixed overhead budget variance:Budget variance = Actual fixed overhead - Flexible budget fixed overhead= $297,000 - $300,000= $3,000 favourablee) Computation of the fixed overhead volume variance:Volume variance = Fixed portion of predetermined overhead rate x(Denominator hours - Standard hours allowed)= $10* (30,000 MH - 32,000 MH)= $20,000 favourable*$300,000/30,000 MH = $10f) Journal entries for variable overhead: Chapter 10 - Standard Costs and Overhead Analysis10-118Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4Learning Objective: 5Learning Objective: 6Learning Objective: 9

Chapter 10 - Standard Costs and Overhead Analysis10-119207. (Appendix 10B) Nova Corporation produces a single product and uses a standard costsystem to help control costs. Overhead is applied to production on the basis of machine hours.According to the company's flexible budget, the following overhead costs should be incurred atan activity level of 18,000 machine hours (the denominator activity level chosen for the currentyear):During the current year, the following operating results were recorded:At the end of the year, the company's Manufacturing Overhead account showed total debits foractual overhead costs of $145,100 and total credits for overhead actually applied of $136,000.The difference ($9,100) represents underapplied overhead, the cause of which managementwould like to know.Required:a) Compute the predetermined overhead rate that would have been used during the year,showing separately the variable and fixed components of the rate.b) Show how the $136,000 of "Applied Costs" was computed.c) Analyze the $9,100 underapplied overhead figure in terms of the variable overhead spendingand efficiency variances and the fixed overhead budget and volume variances.d) (Appendix 10B) Prepare a journal entry to record the variable overhead costs incurred andapplied, including the results of the variance analysis.e) (Appendix 10B) Prepare a journal entry to record the fixed overhead costs incurred andapplied, including the results of the variance analysis. Chapter 10 - Standard Costs and Overhead Analysis10-120a) The predetermined overhead rate, with variable and fixed elements identified:b) Applied overhead for the period:c) Variable overhead variances:Proof of variances:

Chapter 10 - Standard Costs and Overhead Analysis10-121d) Journal entries for variable overhead:Bloom's Level: ApplyDifficulty: HardLearning Objective: 4Learning Objective: 5Learning Objective: 6Learning Objective: 9

Chapter 10 - Standard Costs and Overhead Analysis10-122208. Warner Manufacturing has established the following master flexible budget for the currentyear:Manufacturing overhead is applied on the basis of machine hours. At standard, each unit ofproduct requires one machine hour to complete.Required:a) The denominator activity level is 120,000 units. What are the predetermined variable andfixed manufacturing overhead rates?b) Actual data for the year were as follows:Compute the variable overhead spending and efficiency variances and the fixed overheadbudget and volume variances for the year.

Chapter 10 - Standard Costs and Overhead Analysis10-123a) Predetermined variable overhead rate = $180,000/120,000 machine hours= $1.50 per machine hourPredetermined fixed overhead rate = $300,000/120,000 machine hours= $2.50 per machine hourb) Variable overhead variances:Spending variance = AH (AR - SR)= 110,000 ($1.45 - $1.50)= $5,500 favourableAR = $159,500/110,000 actual hours= $1.45 per hourEfficiency variance = SR (AH - SH)= $1.50 (110,000 - 105,000)= $7,500 unfavourableSR = 105,000 units x 1 hour per unit = 105,000 hoursFixed overhead variances:Budget variance = Actual fixed overhead - Budgeted fixed overhead= $305,000 - $300,000= $5,000 unfavourableVolume variance = Fixed rate (Denominator hours - Standard hours)= $2.50 (120,000 - 105,000)= $37,500 unfavourableStandard hours = 105,000 units x 1 hour per unit = 105,000 hoursBloom's Level: AnalyzeDifficulty: HardLearning Objective: 4Learning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-124209. Wattis Manufacturing has established the following master flexible budget:

Manufacturing overhead is applied on the basis of machine hours. At standard, each unit ofproduct requires one machine hour to complete.Required:a) The denominator activity level is 150,000 units. What are the predetermined variable andfixed manufacturing overhead rates?b) Actual data for the year were as follows:Compute the variable overhead spending and efficiency variances and the fixed overheadbudget and volume variances for the year.

Chapter 10 - Standard Costs and Overhead Analysis10-125a) Predetermined variable overhead rate = $270,000/150,000 machine hours= $1.80 per machine hourPredetermined fixed overhead rate = $337,500/150,000 machine hours= $2.25 per machine hourb) Variable overhead variances:Spending variance = AH (AR - SR)= 126,000 ($1.68 - $1.80)= $15,120 favourableAR = $211,680/126,000 actual machine hours= $1.68Efficiency variance = SR (AH - SH)= $1.80 (126,000 - 120,000)= $10,800 unfavourableSR = 120,000 units x 1 hour per unit = 120,000 hours.Fixed overhead variances:Budget variance = Actual fixed overhead - Budgeted fixed overhead= $343,000 - $337,500= $5,500 unfavourableVolume variance = Fixed rate (Denominator hours - Standard hours)= $2.25 (150,000 - 120,000)= $67,500 unfavourableStandard hours = 120,000 units x 1 hour per unit = 120,000 hoursBloom's Level: ApplyDifficulty: HardLearning Objective: 4Learning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-126210. Tracton Corporation uses a standard costing system in which manufacturing overheadcosts are applied to products on the basis of machine time.Required:a) Several numbers and labels have been omitted from the analysis of fixed overhead below.Supply the missing numbers and labels.b) Suppose that 6 minutes of machine time is standard per unit of production. How many unitswere actually produced in the situation above?c) Again suppose that 6 minutes of machine time is standard per unit of production. How manyunits of production were assumed when the predetermined application rate for fixed overheadwas established?

Chapter 10 - Standard Costs and Overhead Analysis10-127a)Computations-in this order:(Note: When used in the below algebraic formulas, favourable variances are negative andunfavourable variances are positive.)Volume variance = Total variance - Budget variance= $388 favourable - $1,880 unfavourable= -$388 - $1,880= -$2,268= $2,268 favourableFixed overhead applied = 302,100 MH x $1.08

= $326,268Flexible budget fixed overhead = Fixed overhead applied + Volume variance= $326,268 + $2,268 favourable= $326,268 + $2,268= $324,000Actual fixed overhead = Fixed overhead applied + Total variance= $326,268 + $388 favourable= $326,268 - $388= $325,880

Chapter 10 - Standard Costs and Overhead Analysis10-128Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 5Learning Objective: 6

Chapter 10 - Standard Costs and Overhead Analysis10-129211. (Appendix 10A) Pictou Company uses two raw materials, X and Y, in the manufacture ofits only product: Gizmo. Both materials are very close substitutes. The standard proportions forthe manufacture of a unit of Gizmo are 6 units of X and 4 units of Y. The unit standard prices ofX and Y are $16 and $20, respectively. During the month of August, the company used 3,000units of X and 1,800 units of Y to produce 460 units of Gizmo.Required:a) Calculate the following variances for raw materials X and Y:(i) Quantity variances.(ii) Mix variances.(iii) Yield variances

b) Suppose you are made aware that the assistant production manager recommended thedeparture from the standard mix. Should the assistant manager be commended? Explain Chapter 10 - Standard Costs and Overhead Analysis10-130Variance calculationsFramework (AQ: Actual Quantity; AM: Actual mix; SQ: Standard Quantity; SM: StandardMix)Supporting calculations:AQ at SM: X: 4,800 x 60%; Y: 4,800 x 40%SQ at SM: X: 460 x 6; 460 x 4(i) Quantity variancesMix variants

Chapter 10 - Standard Costs and Overhead Analysis10-131Yield variantsThe net effect of departing from the standard mix of 60%: 40% to actual mix of 62.5%: 37.5%was a favourable net mix variance of $480. Unfortunately, this was strictly the result of shiftingthe mix in favour of the cheaper raw material X over which the assistant production managerhad very little influence, if any. The net yield variance was significantly unfavourable. Theassistant production manager had relatively more influence on this variance and consequentlyshe should not be commended.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 2Learning Objective: 8

Chapter 11 - Reporting for Control11-1

Chapter 11Reporting for ControlMultiple Choice Questions1. Which of the following is the numerator in the calculation of the turnover component ofROI?A. Invested capital.B. Total assets.C. Operating income.D. Sales.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 4

2. What would be a good example of a common cost that normally could NOT be assigned toproducts on a segmented income statement except on an arbitrary basis?A. Product advertising outlays.B. Salary of a corporation president.C. Direct materials.D. The product manager's salary.Bloom's Level: RememberDifficulty: EasyLearning Objective: 1

Chapter 11 - Reporting for Control11-23. All other things being equal, which of the following is a consequence of an increase in adivision's traceable fixed expenses?A. The division's contribution margin ratio will decrease.B. The division's segment margin ratio will remain the same.

C. The division's segment margin will decrease.D. The overall company operating income will remain the same.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

4. Lyons Company consists of two divisions: A and B. Lyons Company reported a contributionmargin of $50,000 for Division A, and had a contribution margin ratio of 30% in Division B,when sales in Division B were $200,000. Operating income for the company was $25,000 andtraceable fixed expenses were $40,000. What were Lyons Company's common fixedexpenses?A. $40,000.B. $45,000.C. $70,000.D. $85,000.50,000 + 200,000*.30 - 40,000 - 25,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1

Chapter 11 - Reporting for Control11-35. More Company has two divisions: L and M. During July, the contribution margin in DivisionL was $60,000. The contribution margin ratio in Division M was 40%, and its sales were$250,000. Division M's segment margin was $60,000. The common fixed expenses were$50,000, and the company operating income was $20,000. What was the segment margin forDivision L?A. $0.B. $10,000.C. $50,000.D. $60,000.Total SM = 20,000 + 50,000 = 70,000. L's SM = 70,000 - 60,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1

6. During April, Division D of Carney Company had a segment margin ratio of 15%, a variableexpense ratio of 60% of sales, and traceable fixed expenses of $15,000. Division D's sales wereclosest to which of the following?A. $22,500.B. $33,333.C. $60,000.D. $100,000.using equation S -.6S - 15,000 = .15S. Sales = 15,000/(1 -.6 -.15)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1

Chapter 11 - Reporting for Control11-47. Divisions A and B of Denner Company reported the following results for October:If common fixed expenses were $31,000, what were the total fixed expenses?A. $31,000.B. $52,000.C. $62,000.D. $93,000.31,000 + (90,000*(1 -.70) - 2,000) + (150,000*(1 -.60) - 23,000)Bloom's Level: ApplyDifficulty: HardLearning Objective: 1

8. Johnson Company operates two plants: Plant A and Plant B. Johnson Company reported forthe year just ended a contribution margin of $50,000 for Plant A. Plant B had sales of $200,000and a contribution margin ratio of 30%. Net operating income for the company was $20,000and traceable fixed costs for the two plants totalled $50,000. What were Johnson Company'scommon fixed costs for last year?A. $40,000.B. $50,000.C. $70,000.D. $90,000.50,000 + 200,000*.30 - 50,000 - 20,000Bloom's Level: Analyze

Difficulty: HardLearning Objective: 1

Chapter 11 - Reporting for Control11-5Ieso Company has two stores: J and K. During November, Ieso Company reported operatingincome of $30,000 and sales of $450,000. The contribution margin in Store J was $100,000, or40% of sales. The segment margin in Store K was $30,000, or 15% of sales. Traceable fixedexpenses were $60,000 in Store J, and $40,000 in Store K.9. What were the total sales in Store J?A. $100,000.B. $150,000.C. $250,000.D. $400,000.100,000/.40Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1

10. What were the total variable expenses in Store K?A. $70,000.B. $110,000.C. $130,000.D. $200,000.CM for K = 30,000 + 40,000 = $70,000. Sales K = 450,000 - 250,000(#44) = 200,000. VC for K= 200,000 - 70,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1

Chapter 11 - Reporting for Control11-6

11. What were Ieso Company's total fixed expenses for the year?A. $40,000.B. $100,000.C. $140,000.D. $170,000.Total SM = 30,000 + 40,000 = 70,000 so Common = 70,000 - 30,000 = 40,000. Total FC =40,000 + 60,000 + 40,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1

12. What was the segment margin ratio in Store J?A. 16%.B. 24%.C. 40%.D. 60%.(100,000 - 60,000)/250,000(#44)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1

Canon Company has two sales areas: North and South. During last year, the contributionmargin in the North was $50,000, or 20% of sales. The segment margin in the South was$15,000, or 8% of sales. Traceable fixed costs were $15,000 in the North and $10,000 in theSouth. During last year, the company reported total operating income of $26,000. Chapter 11 - Reporting for Control11-713. What were the total fixed costs (traceable and common) for Canon Company for the year?A. $24,000.B. $25,000.C. $49,000.D. $50,000.Total SM = 50,000 - 15,000 + 15,000 = 500,000. Total FC = (50,000 - 26,000) + 15,000 +10,000.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1

14. What were the variable costs for the South area for the year?A. $65,000.B. $162,500.C. $185,000.D. $230,000.South sales = 15,000/.08 = 187,500. CM = 15,000 + 10,000. VC = 187,500 -25,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1

Chapter 11 - Reporting for Control11-815. Which of the following statements provide(s) an argument in favour ofincluding only aplant's net book value rather than gross book value as part of operating assets in the ROIcomputation?I. Net book value is consistent with how plant and equipment items are reported on a balancesheet.II. Net book value is consistent with the computation of operating income, which includesamortization as an operating expense.III. Net book value allows ROI to decrease over time as assets get older.A. I only.B. III only.C. I and II only.D. I and III only.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 5

16. In computing the margin in a ROI analysis, which of the following is used?A. Sales in the denominator.B. Operating income in the denominator.C. Average operating assets in the denominator.D. Residual income in the denominator.Bloom's Level: RememberDifficulty: EasyLearning Objective: 5

17. Which of the following is NOT an operating asset?A. Cash.B. Inventory.C. Plant equipment.D. Common shares.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 4

Chapter 11 - Reporting for Control11-918. Assuming that sales and operating income remain the same, which of the followingstatements about a company's return on investment is correct?A. It will increase if operating assets increase.B. It will decrease if operating assets decrease.C. It will decrease if turnover decreases.D. It will decrease if turnover increases.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

19. All other things equal, which of the following events would generally cause an increase in acompany's return on investment (ROI)?A. An increase in average operating assets.B. A decrease in sales.C. A decrease in operating expenses.D. An increase in operating expenses.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

20. How is a company's return on investment calculated?A. Dividing the margin by the turnover.B. Multiplying the margin by the turnover.C. Dividing the turnover by the average operating assets.D. Multiplying the turnover by the average operating assets.Bloom's Level: RememberDifficulty: EasyLearning Objective: 4

Chapter 11 - Reporting for Control11-10

21. All other things equal, a company's return on investment is affected by a change in which ofthe following?A. Option AB. Option BC. Option CD. Option DBloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

22. Which of the following is a correct definition of operating income?A. Sales minus variable expenses.B. Sales minus variable expenses and traceable fixed expenses.C. Contribution margin minus traceable and common fixed expenses.D. Income before interest and taxes (EBIT).Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 11 - Reporting for Control11-1123. Delmar Corporation is considering the use of residual income as a measure of theperformance of its divisions. What major disadvantage of this method should the companyconsider before deciding to institute it?A. This method does not make allowance for difference in the size of compared divisions.B. Opportunities may be undertaken that will decrease the overall return on investment.C. The minimum required rate of return may eliminate desirable opportunities fromconsideration.D. Residual income does not measure how effectively the division manager controls costs.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 5

24. Suppose a manager's performance is to be evaluated by residual income. Which of thefollowing will NOT result in an increase in the residual income figure for this manager,

assuming other factors remain constant?A. An increase in sales.B. An increase in the minimum required rate of return.C. A decrease in expenses.D. A decrease in operating assets.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 5

25. The performance of the manager of Division A is evaluated by residual income. Which ofthe following would improve the manager's performance?A. Increase in average operating assets.B. Decrease in average operating assets.C. Increase in minimum required return.D. Decrease in operating income.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 5

Chapter 11 - Reporting for Control11-1226. The cost of which one of the following business functions making up the value chain isincluded in product costs for financial reporting purposes under generally accepted accountingprinciples?A. Product design.B. Research and development.C. Customer service.D. Manufacturing.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 6

27. The costs of which of the following business functions making up the value chain are NOTpart of the downstream costs?A. Manufacturing.B. Distribution.C. Marketing.D. Customer Service.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 6

28. Which costing system focuses on all costs along the value chain?A. Activity-based costing.B. Process costing.C. Life cycle costing.D. Absorption costing.Bloom's Level: UnderstandDifficulty: HardLearning Objective: 6

Chapter 11 - Reporting for Control11-1329. Which of the following represents value-added time in the manufacturing cycle?A. Inspection time.B. Queue time.C. Move time.D. Process time.Bloom's Level: RememberDifficulty: EasyLearning Objective: 6

30. Throughput time consists of which of the following?A. Process time.B. Inspection time and move time.C. Process time, inspection time, and move time.D. Process time, inspection time, move time, and queue time.Bloom's Level: RememberDifficulty: MediumLearning Objective: 6

31. How is manufacturing cycle efficiency (MCE) computed?A. By dividing throughput time by delivery cycle time.B. By dividing process time by delivery cycle time.C. By dividing value-added time by throughput time.D. By dividing value-added time by delivery-cycle time.Bloom's Level: RememberDifficulty: EasyLearning Objective: 6

Chapter 11 - Reporting for Control11-1432. When the selling division in an internal transfer has unsatisfied demand from outsidecustomers for the product that is being transferred, what is the lowest acceptable transfer priceas far as the selling division is concerned?A. Variable cost of producing a unit of product.B. The full absorption cost of producing a unit of product.C. The market price charged to outside customers, less any costs saved by transferringinternally.D. The amount that the purchasing division would have to pay an outside seller to acquire asimilar product for its use.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 3

33. Which of the following best describes a segment of a business responsible for both revenuesand expenses?A. A cost centre.B. An investment centre.C. A profit centre.D. A residual income centre.Bloom's Level: RememberDifficulty: EasyLearning Objective: 2

34. Effective decentralization is essential for which of the following management accountingpractices in organizations?A. Break-even analysis.B. Product costing.C. Segment reporting.D. Activity-based costing.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

Chapter 11 - Reporting for Control11-1535. Consider the following three statements:I. A profit centre has control over both cost and revenue.II. An investment centre has control over invested funds, but not over costs and revenue.III. A cost centre has no control over sales.Which statement(s) is/are correct?A. I only.B. II only.C. I and III only.D. I and II only.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

36. An increase in appraisal costs will usually result in an increase in which of the following?A. Prevention costs.B. Internal failure costs.C. External failure costs.D. Opportunity costs.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

37. Which of the following statements about quality costs is correct?A. They relate only to the manufacturing process.B. They should be focused on appraisal activities.C. They are minimized by having a team of well-trained quality control inspectors.D. They cut across departmental lines and often are not accumulated and reported tomanagement.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-1638. Which of the following would be classified as a prevention cost on a quality cost report?A. Lost sales arising from a reputation for poor quality.B. Final product testing and inspection.C. Net cost of spoilage.D. Quality data gathering, analysis, and reporting.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

39. Which of the following would be classified as a prevention cost on a quality cost report?A. Re-entering data because of keying errors.B. Rework labour and overhead.C. Net cost of scrap.D. Technical support provided to suppliers.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

40. Which of the following would be classified as a prevention cost on a quality cost report?A. Cost of field servicing and handling complaints.B. Warranty repairs and replacements.C. Systems development.D. Rework labour and overhead.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

41. Which of the following would be classified as an appraisal cost on a quality cost report?A. Supervision of testing and inspection activities.B. Systems development.C. Quality engineering.D. Quality training.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-1742. Which of the following would be classified as an appraisal cost on a quality cost report?A. Returns and allowances arising from quality problems.B. Downtime caused by quality problems.C. Test and inspection of in-process goods.D. Cost of field servicing and handling complaints.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

43. Which of the following would be classified as an appraisal cost on a quality cost report?A. Quality circles.B. Downtime caused by quality problems.C. Supplies used in testing and inspection.D. Quality engineering.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

44. Which of the following would be classified as an internal failure cost on a quality costreport?A. Supplies used in testing and inspection.B. Final product testing and inspection.C. Net cost of scrap.D. Amortization of test equipment.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-18

45. Which of the following would be classified as an internal failure cost on a quality costreport?A. Re-entering data because of keying errors.B. Final product testing and inspection.C. Supplies used in testing and inspection.D. Amortization of test equipment.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

46. Which of the following would be classified as an internal failure cost on a quality costreport?A. Rework labour and overhead.B. Technical support provided to suppliers.C. Quality improvement projects.D. Systems development.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

47. Which of the following would be classified as an external failure cost on a quality costreport?A. Quality training.B. Systems development.C. Repairs and replacements beyond the warranty period.D. Quality engineering.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-1948. Which of the following would be classified as an external failure cost on a quality costreport?A. Product recalls.B. Quality engineering.C. Quality training.D. Systems development.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

49. Which of the following would be classified as an external failure cost on a quality costreport?A. Amortization of test equipment.B. Test and inspection of in-process goods.C. Test and inspection of incoming materials.D. Warranty repairs and replacements.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

Eacker Company's quality cost report is to be based on the following data: Chapter 11 - Reporting for Control11-2050. What will be the total prevention cost appearing on the quality cost report?A. $103,000.B. $145,000.C. $151,000.D. $155,000.72,000 + 83,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

51. What will be the total appraisal cost appearing on the quality cost report?A. $128,000.B. $165,000.C. $185,000.D. $196,000.68,000 + 97,000 + 31,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

52. What will be the total internal failure cost appearing on the quality cost report?A. $134,000.B. $143,000.C. $150,000.D. $158,000.70,000 + 88,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-21

53. What will be the total external failure cost appearing on the quality cost report?A. $119,000.B. $143,000.C. $277,000.D. $628,000.73,000 + 46,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Eade Company's quality cost report is to be based on the following data:54. What will be the total prevention cost appearing on the quality cost report?A. $43,000.B. $45,000.C. $47,000.D. $51,000.32,000 + 11,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-2255. What will be the total appraisal cost appearing on the quality cost report?A. $70,000.B. $97,000.C. $110,000.D. $119,000.13,000 + 57,000 + 40,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

56. What will be the total internal failure cost appearing on the quality cost report?A. $54,000.B. $75,000.C. $80,000.D. $121,000.62,000 + 18,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

57. What will be the total external failure cost appearing on the quality cost report?A. $54,000.B. $95,000.C. $175,000.D. $328,000.59,000 + 36,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-23Eagan Company's quality cost report is to be based on the following data:58. What will be the total prevention cost appearing on the quality cost report?A. $102,000.B. $112,000.C. $130,000.D. $167,000.75,000 + 92,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

59. What will be the total appraisal cost appearing on the quality cost report?A. $75,000.B. $92,000.C. $102,000.D. $112,000.37,000 + 65,000 + 10,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-24

60. What will be the total internal failure cost appearing on the quality cost report?A. $64,000.B. $113,000.C. $121,000.D. $124,000.86,000 + 27,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

61. What will be the total external failure cost appearing on the quality cost report?A. $124,000.B. $132,000.C. $245,000.D. $524,000.94,000 + 38,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Faast Company's quality cost report is to be based on the following data: Chapter 11 - Reporting for Control11-2562. What will be the total prevention cost appearing on the quality cost report?A. $69,000.B. $139,000.C. $148,000.D. $178,000.86,000 + 53,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

63. What will be the total appraisal cost appearing on the quality cost report?A. $102,000.B. $108,000.C. $121,000.D. $247,000.92,000 + 16,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

64. What will be the total internal failure cost appearing on the quality cost report?A. $99,000.B. $102,000.C. $158,000.D. $211,000.96,000 + 86,000 + 29,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-2665. What will be the total external failure cost appearing on the quality cost report?A. $75,000.B. $109,000.C. $286,000.D. $533,000.13,000 + 62,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Fabri Company's quality cost report is to be based on the following data:66. What will be the total prevention cost appearing on the quality cost report?A. $64,000.B. $73,000.C. $78,000.D. $93,000.17,000 + 61,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-2767. What will be the total appraisal cost appearing on the quality cost report?A. $79,000.B. $127,000.C. $140,000.D. $157,000.47,000 + 32,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

68. What will be the total internal failure cost appearing on the quality cost report?A. $85,000.B. $127,000.C. $146,000.D. $217,000.93,000 + 29,000 + 95,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

69. What will be the total external failure cost appearing on the quality cost report?A. $80,000.B. $107,000.C. $324,000.D. $481,000.56,000 + 51,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-28Faust Company's quality cost report is to be based on the following data:70. What will be the total prevention cost appearing on the quality cost report?A. $41,000.B. $103,000.C. $107,000.D. $140,000.68,000 + 35,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

71. What will be the total appraisal cost appearing on the quality cost report?A. $74,000.B. $78,000.C. $81,000.D. $181,000.72,000 + 6,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-2972. What will be the total internal failure cost appearing on the quality cost report?A. $71,000.B. $74,000.C. $132,000.D. $163,000.76,000 + 68,000 + 19,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

73. What will be the total external failure cost appearing on the quality cost report?A. $59,000.B. $79,000.C. $22,000.D. $403,000.3,000 + 56,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Thais Company's quality cost report is to be based on the following data: Chapter 11 - Reporting for Control11-3074. What will be the total prevention cost appearing on the quality cost report?A. $84,000.B. $92,000.C. $98,000.D. $113,000.27,000 + 71,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

75. What will be the total appraisal cost appearing on the quality cost report?A. $99,000.B. $155,000.C. $170,000.D. $197,000.57,000 + 42,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

76. What will be the total internal failure cost appearing on the quality cost report?A. $104,000.B. $147,000.C. $166,000.D. $247,000.103,000 + 39,000 + 105,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-3177. What will be the total external failure cost appearing on the quality cost report?A. $100,000.B. $126,000.C. $373,000.D. $570,000.65,000 + 61,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

78. (Appendix 11A) Which of the following is(are) NOT used in calculating sales mixvariances for two products that are close substitutes?A. The budgeted sales mix percentages.B. The actual sales mix percentages.C. The actual total units of the two products sold.D. The market volume in units.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 8

79. (Appendix 11A) The sales quantity variance is calculated by holding constant which of thefollowing?A. The budgeted sales mix percentages.B. The actual sales mix percentages.C. The budgeted contribution margin per unit.D. Both the budgeted sales mix percentages and the budgeted contribution margin per unit.Bloom's Level: UnderstandDifficulty: Medium

Learning Objective: 8

Chapter 11 - Reporting for Control11-3280. (Appendix 11A) What is the sum of the sales mix variance and the sales quantity variance?A. The flexible budget variance.B. The sales volume variance.C. The master budget variance.D. The market share variance.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 8

81. (Appendix 11B) Which one of the following is NOT an example of an order-fillingmarketing activity?A. Warehousing of customers' orders.B. Advertising.C. Order entry.D. Collection of accounts receivable.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 9

82. (Appendix 11B) Which of the following is NOT an example of an order-getting marketingactivity?A. Advertising.B. Sales travel.C. Training of sales staff.D. Delivery of customers' orders.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 9

Chapter 11 - Reporting for Control11-33

83. Division B had an ROI last year of 15%. The division's minimum required rate of return is10%. If the division's average operating assets last year were $450,000, what was the division'sresidual income for last year?A. $22,500.B. $37,500.C. $45,000.D. $67,500.450,000*.15 - 450,000*.10Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4Learning Objective: 5

84. Reed Company reported total sales of $150,000 last year and a return on investment (ROI)of 12%. If the company's turnover was 3, what was the company's operating income for theyear?A. $2,000.B. $6,000.C. $18,000.D. It is impossible to determine from the data given.(150,000*.12)/3Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4

Chapter 11 - Reporting for Control11-3485. Sales and average operating assets for Company P and Company Q are given below:What is the margin that each company (Company P and Company Q, respectively) will have toearn in order to generate a return on investment of 20%?A. 2.5% and 5%.B. 8% and 4%.C. 12% and 16%.D. 50% and 100%.P = .20/(20,000/8,000) = 8%. Q = .20/(50,000/10,000) = 4%Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4

86. Last year, a company had shareholders' equity of $160,000, operating income of $16,000,and sales of $100,000. The turnover was 0.5. What was the return on investment (ROI)?A. 7%.B. 8%.C. 9%.D. 10%.Op. Assets = 100,000/.5 = 200,000. ROI = 16,000/200,000Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 4

Chapter 11 - Reporting for Control11-3587. A company had the following results last year: sales, $700,000; return on investment, 28%;and margin, 8%. What were the average operating assets last year?A. $200,000.B. $540,000.C. $2,450,000.D. $2,500,000..08 * 700,000/x = .28 so operating assets = 700,000/3.5 = 200,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4

88. Cable Company had the following results for the year just ended:What were Cable Company's average operating assets during the year?A. $10,000.B. $12,500.C. $50,000.D. $200,000.2,500/.20Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 4

Chapter 11 - Reporting for Control11-3689. For the past year, Largo Company recorded sales of $750,000 and average operating assetsof $375,000. What margin did Largo Company need to earn to achieve an ROI of 15%?A. 2.00%B. 7.50%C. 9.99%D. 15.00%Margin = .15/(750,000/375,000)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4

90. The Northern Division of the Smith Company had average total operating assets of$150,000 last year. Its minimum required rate of return was 12%. The division reportedoperating income of $20,000. What was the residual income for the Northern Division lastyear?A. $2,000.B. $5,000.C. $18,000.D. $20,000.20,000 - 150,000*.12Bloom's Level: ApplyDifficulty: EasyLearning Objective: 5

Chapter 11 - Reporting for Control11-37

91. Division X makes a part that it sells to customers outside of the company. Data concerningthis part appear below:Division Y of the same company would like to use the part manufactured by Division X in oneof its products. Division Y currently purchases a similar part made by an outside company for$70 per unit and would substitute the part made by Division X. Division Y requires 5,000 unitsof the part each period. Division X can already sell all of the units it can produce on the outsidemarket. What should be the lowest acceptable transfer price from the perspective of DivisionX?A. $16.B. $50.C. $66.D. $75.50 + ((75 - 50)*5,000)/5,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

Chapter 11 - Reporting for Control11-3892. Division X makes a part that it sells to customers outside of the company. Data concerningthis part appear below:Division Y of the same company would like to use the part manufactured by Division X in oneof its products. Division Y currently purchases a similar part made by an outside company for$49 per unit and would substitute the part made by Division X. Division Y requires 5,000 unitsof the part each period. Division X has ample excess capacity to handle all ofDivision Y'sneeds without any increase in fixed costs and without cutting into outside sales. According tothe transfer pricing formula, what is the lower limit on the transfer price?A. $30.

B. $46.C. $49.D. $50.Transfer price = 30 + 0Bloom's Level: ApplyDifficulty: EasyLearning Objective: 3

Chapter 11 - Reporting for Control11-3993. Division A makes a part that it sells to customers outside of the company. Data concerningthis part appear below:Division B of the same company would like to use the part manufactured by Division A in oneof 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 unitsof the part each period. Division A has ample capacity to produce the units for Division Bwithout any increase in fixed costs and without cutting into sales to outside customers. IfDivision A sells to Division B rather than to outside customers, the variable cost per unit wouldbe $1 lower. What should be the lowest acceptable transfer price from the perspective ofDivision A?A. $29.B. $30.C. $38.D. $40.30 - 1Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

Chapter 11 - Reporting for Control11-4094. Division X of Charter Corporation makes and sells a single product that is used bymanufacturers of forklift trucks. Presently, it sells 12,000 units per year to outside customers at$24 per unit. The annual capacity is 20,000 units, and the variable cost to makeeach unit is $16.Division Y of Charter Corporation would like to buy 10,000 units a year from Division X to usein its products. There would be no cost savings from transferring the units within the companyrather than selling them on the outside market. What should be the lowest acceptable transferprice from the perspective of Division X?A. $16.00.B. $17.60.C. $21.40.D. $24.00.16 + {(24 - 16)*(10,000 - 8,000)}/10,000Bloom's Level: ApplyDifficulty: HardLearning Objective: 3

95. Division P of Turbo Corporation has the capacity for making 75,000 wheel sets per year andregularly sells 60,000 each year on the outside market. The regular sales price is $100 per wheelset, and the variable production cost per unit is $65. Division Q of Turbo Corporation currentlybuys 30,000 wheel sets (of the kind made by Division P) yearly from an outside supplier at aprice of $90 per wheel set. Division Q would like to buy the 30,000 wheel sets it needs annuallyfrom Division P at $87 per wheel set. What would be the change in annual operating income forthe company as a whole, compared to what it is currently?A. $135,000.B. $225,000.C. $600,000.

D. $750,000.Min. T.P. = 65 + {(100 - 65) * (30,000 - 15,000)}/30,000 = 82.50. Change in Op. Income = (90- 82.50 0* 30,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3

Chapter 11 - Reporting for Control11-4196. Division A of Harkin Company has the capacity for making 3,000 motors per month andregularly sells 1,950 motors each month to outside customers at a contribution margin of $62per motor. The variable cost is $40 per motor. Division B of Harkin Company would like toobtain 1,400 motors each month from Division A. What should be the lowest acceptabletransfer price from the perspective of Division A?A. $15.50.B. $40.00.C. $55.50.D. $62.00.TP = VC + opportunity cost = 40 + [{1,400 - (3,000 - 1,950)}*62]/1,400Bloom's Level: ApplyDifficulty: HardLearning Objective: 3

The following information is available on Company A:97. What is Company A's residual income?A. $9,000.B. $21,000.C. $24,000.D. $45,000.36,000 - 180,000*.15Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

Chapter 11 - Reporting for Control11-4298. What is Company A's return on investment (ROI)?A. 4%.B. 15%.C. 20%.D. 36%.36,000/180,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

99. The following data are available for the South Division of Redride Products, Inc. and thesingle product it makes:How many units must South sell each year to have an ROI of 16%?A. 52,000 units.B. 65,000 units.C. 240,000 units.D. 1,300,000 units.(280,000 + 1,500,000*.16)/(20 - 12) = 65,000 units. Note: Students will need to have anunderstanding of CVP analysis from chapter 7.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4

Chapter 11 - Reporting for Control11-43The Axle Division of LaBate Company makes and sells only one product. Annual data on theAxle Division's single product follow:100. If Axle sells 15,000 units per year, what would be the residual income?A. $10,000.

B. $30,000.C. $50,000.D. $100,000.[15,000*(50 - 30) - 200,000] - 750,000 * .12Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 5

101. If Axle sells 16,000 units per year, what would be the return on investment?A. 12%.B. 15%.C. 16%.D. 18%.(16,000 * (50 - 30) - 200,000)/750,000Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 5

Chapter 11 - Reporting for Control11-44102. Suppose the manager of Axle desires a return on investment of 22%. Inorder to achievethis goal, Axle must sell how many units per year?A. 14,500 units.B. 16,750 units.C. 18,250 units.D. 19,500 units.(200,000 + 750,000*.22)/(50 - 30)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4

103. Suppose the manager of Axle desires an annual residual income of $45,000. In order toachieve this, Axle should sell how many units per year?A. 14,500 units.B. 16,750 units.C. 18,250 units.D. 19,500 units.Op. Income = 45,000 + 750,000*.12 = $135,000.#units = (200,000 + 135,000)/(50 - 30)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 5

Estes Company has assembled the following data for its divisions for the past year:

Chapter 11 - Reporting for Control11-45104. What were Division A's sales?A. $125,000.B. $200,000.C. $400,000.D. $625,000.500,000*1.25Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 4

105. What was Division A's residual income?A. $20,000.B. $30,000.C. $35,000.D. $45,000.100,000 - 500,000*.14Bloom's Level: ApplyDifficulty: EasyLearning Objective: 5

106. What were Division B's average operating assets rounded to the nearest dollars?A. $81,200.B. $130,128.C. $1,333,333.D. $2,080,000.ROI = 3.9% * 4 = 15.6%. Avg. Op. Assets = 20,300/.156 = $130,128.20Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 4

Chapter 11 - Reporting for Control

11-46The Holmes Division recorded operating data as follows for the past year:107. For the past year, what was the return on investment?A. 15.75%.B. 20.50%.C. 25.00%D. 31.25%.25,000/100,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

108. For the past year, what was the margin?A. 12.50%.B. 13.00%.C. 14.75%.D. 15.00%.25,000/200,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

Chapter 11 - Reporting for Control11-47109. For the past year, what was the turnover?A. 2.B. 4.C. 10.D. 25.200,000/100,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

110. For the past year, what was the minimum required rate of return?A. 11%.B. 12%.C. 13%.D. 14%.(25,000 - 13,000)/100,000Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 5

The Baily Division recorded operating data as follows for the past two years:Baily Division's turnover was exactly the same in both Year 1 and Year 2.

Chapter 11 - Reporting for Control11-48111. What were the sales in Year 1?A. $400,000.B. $750,000.C. $900,000.D. $1,200,000.Turnover = .225/.15 = 1.5. Sales = 1.5 * 600,000Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 4

112. What was the operating income in Year 1?A. $90,000.B. $135,000.C. $140,000.D. $150,000.900,000(#146) * .15Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 4

113. What was the margin in Year 2?A. 12.00%.B. 18.75%.C. 22.50%.D. 27.00%..18/1.5(turnover from #146)Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 4

Chapter 11 - Reporting for Control11-49114. What were the average operating assets in Year 2?A. $720,000.

B. $750,000.C. $800,000.D. $900,000.1,200,000/1.5(#146)Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 4

The following selected data pertain to the belt division of Allen Corp. for last year:115. What was the return on investment?A. 15%.B. 16%.C. 20%.D. 40%.80,000/200,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

Chapter 11 - Reporting for Control11-50116. What was the residual income?A. $40,000.B. $80,000.C. $100,000.D. $420,000.80,000 - 200,000*.20Bloom's Level: ApplyDifficulty: EasyLearning Objective: 5

The following selected data pertain to Beck Co.'s Beam Division for last year:117. What was the residual income?A. $10,000.B. $40,000.C. $50,000.D. $80,000.(400,000 - 100,000 - 250,000) - 200,000*.20Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

Chapter 11 - Reporting for Control11-51118. What was the return on investment?A. 12.5%.B. 20.0%.C. 25.0%.D. 40.0%.(400,000 - 100,000 - 250,000)/200,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

The Northern Division of the Gordon Company reported the following data for last year:119. What was the return on investment last year for the Northern Division?A. 18.000%.B. 28.125%.C. 40.000%.D. 62.500%.(900,000 - 700,000)/500,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 11 - Reporting for Control11-52120. What was the residual income for the Northern Division last year?A. $48,000.B. $90,000.C. $125,000.D. $135,000.900,000 - 700,000 - 500,000*.15Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

Harstin Corporation has provided the following data:121. What was the margin for the past year?A. 8.0%.B. 11.2%.C. 14.4%.D. 19.2%.50,000/625,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

Chapter 11 - Reporting for Control11-53122. What was the return on investment for the past year?A. 8%.B. 20%.C. 28%.D. 36%.50,000/250,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

123. What was the turnover for the past year?A. 1.40.B. 2.50.C. 2.98.D. 6.94.625,000/250,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

124. What was the minimum required rate of return for the past year?A. 8%.B. 12%.C. 36%.D. 40%.(50,000 - 20,000)/250,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

Chapter 11 - Reporting for Control11-54The Millard Division's operating data for the past two years are provided below:Millard Division's margin in Year 2 was 150% of the margin in Year 1.125. What was the operating income for Year 1?A. $240,000.B. $256,000.C. $384,000.D. $768,000.Yr. 2 margin = .36/3 = 12%. Yr. 1 margin = .12/1.5 = 8%. Op. Income = 3,200,000*.08Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4

126. What was the turnover for Year 1?A. 1.2.B. 1.5.C. 3.0.D. 4.0..12(#160)/.08(#160)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4

Chapter 11 - Reporting for Control11-55127. What were the sales for Year 2?A. $1,200,000.B. $3,000,000.C. $3,200,000.D. $3,333,333.360,000/.12(#160)Bloom's Level: AnalyzeDifficulty: Hard

Learning Objective: 4

128. What were the average operating assets for Year 2?A. $1,000,000.B. $1,080,000.C. $1,200,000.D. $1,388,889.3,000,000(#161)/3Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4

Ricric Corporation has provided the following data for one of its products: Chapter 11 - Reporting for Control11-56129. What is the throughput time for this operation?A. 3 days.B. 7.7 days.C. 8 days.D. 17 days.3 + 4 + .7 + .3Bloom's Level: ApplyDifficulty: EasyLearning Objective: 6

130. What is the delivery cycle time for this operation?A. 7.7 days.B. 8 days.C. 9.3 days.D. 17 days.8(#164) + 9Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

131. The manufacturing cycle efficiency for this operation is closest to which of the following?A. 0.18.B. 0.33.C. 0.375.D. 0.45.3/8(#164)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 6

Chapter 11 - Reporting for Control11-57

Division A makes a part with the following characteristics:Division B, another division of the same company, would like to purchase 5,000 units of thepart each period from Division A. Division B is now purchasing these parts from an outsidesupplier at a price of $24 each.132. Suppose that Division A has ample idle capacity to handle all of Division B's needswithout any increase in fixed costs and without cutting into sales to outside customers. IfDivision B continues to purchase parts from an outside supplier rather than from Division A,what will be the effect on the operating income of the company as a whole?A. Lower by $30,000 each period.B. Lower by $10,000 each period.C. Higher by $15,000 each period.D. Lower by $35,000 each period.(24 - 18)*5,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

Chapter 11 - Reporting for Control11-58133. Suppose that Division A is operating at capacity and can sell all of its output to outsidecustomers at its usual selling price. If Division A sells the parts to Division B at $24 per unit(Division B's outside price), what will be the effect on the operating income of company as awhole?A. Higher by $5,000 each period.B. Lower by $15,000 each period.C. Lower by $5,000 each period.D. There will be no change in the status of the company as a whole.Lowest TP = 18 + [(25 - 18)*5,000]/5,000 = 25. Effect = (24 - 25)*5,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

Division A produces a part with the following characteristics:

Division B, another division in the company, would like to buy this part from Division A.Division B is presently purchasing the part from an outside source at $28 per unit. If Division Asells to Division B, $1 in variable costs can be avoided.134. Suppose Division A is currently operating at capacity and can sell all of the units itproduces on the outside market for its usual selling price. From the point of view of Division A,any sales to Division B should be priced no lower than which of the following?A. $20.B. $27.C. $28.D. $29.(18 - 1) + (30 - 18)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

Chapter 11 - Reporting for Control11-59135. Suppose that Division A has ample idle capacity to handle all of Division B's needswithout any increase in fixed costs and without cutting into its sales to outside customers. Fromthe point of view of Division A, any sales to Division B should be priced no lower than which ofthe following?A. $17.B. $18.C. $29.D. $30.18 - 1Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

The Vega Division of Ace Company makes wheels that can either be sold to outside customersor transferred to the Walsh Division of Ace Company. Last month, the Walsh Division bought

all 4,000 of its wheels from the Vega Division for $42 each. The following data are availablefrom last month's operations for the Vega Division:If the Vega Division sells wheels to the Walsh Division, Vega can avoid $2 per wheel in salescommissions. An outside supplier has offered to supply wheels to the Walsh Division for $41each.

Chapter 11 - Reporting for Control11-60136. Suppose that the Vega Division has ample idle capacity so that transfers to the WalshDivision would not cut into its sales to outside customers. What should be the lowest acceptabletransfer price from the perspective of the Vega Division?A. $28.B. $30.C. $42.D. $45.30 - 2Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

137. What is the maximum price per wheel that Walsh should be willing to pay Vega?A. $28.B. $41.C. $42.D. $45.outside suppliers price of 41Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

138. Suppose that Vega can sell 9,000 wheels each month to outside consumers, so transfers tothe Walsh Division cut into outside sales. What should be the lowest acceptable transfer pricefrom the perspective of the Vega Division?A. $28.00.B. $31.75.

C. $41.00.D. $42.00.{(30 - 2) + [4,000 - (12,000 - 9,000)]*(45 - 30)}/4,000Bloom's Level: ApplyDifficulty: HardLearning Objective: 3

Chapter 11 - Reporting for Control11-61The Post Division of the M.T. Woodhead Company produces basic posts that can be sold tooutside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year, theLamp Division bought all of its 25,000 posts from the Post Division at $1.50 each. Thefollowing data are available for last year's activities of the Post Division:The total fixed costs would be the same for all the alternatives considered below.139. Suppose there is ample capacity so that transfers of the posts to the Lamp Division do notcut into sales to outside customers. What is the lowest transfer price that would not reduce theoperating income of the Post Division?A. $0.90.B. $1.35.C. $1.41.D. $1.75.0.90 + 0Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

140. Suppose the transfer of posts to the Lamp Division will cut into sales to outside customersby 15,000 units. What is the lowest transfer price that would not reduce the operating income ofthe Post Division?A. $0.90.B. $1.35.C. $1.41.D. $1.75.0.90 + [15,000 *(1.75 -.90)]/25,000Bloom's Level: ApplyDifficulty: Hard

Learning Objective: 3

Chapter 11 - Reporting for Control11-62141. Suppose the transfer of posts to the Lamp Division will cut into sales to outside customersby 15,000 units. Further suppose that an outside supplier is willing to provide the LampDivision with basic posts at $1.45 each. If the Lamp Division chooses to buy all of its postsfrom the outside supplier instead of the Post Division, what will be the change in operatingincome for the company as a whole?A. $1,000 decrease.B. $1,250 decrease.C. $10,250 increase.D. $13,750 decrease.(1.41 - 1.45) * 25,000Bloom's Level: ApplyDifficulty: HardLearning Objective: 3

(Appendix 11A) Kyekyeku Company retails two models of a product: Model X and Model Y.It considers both products to be close substitutes. The following data relate to the company'soperations for last year: Chapter 11 - Reporting for Control11-63142. (Appendix 11A) What were the sales volume variances for Model X and Model Y,respectively, for last year?A. $200 favourable and $3,496 favourable.B. $240 favourable and $3,680 favourable.C. $1,250 favourable and $1,900 favourable.D. $1,500 favourable and $2,000 favourable.(1,008 - 1,000)*30 and (1092 - 1,000)*40Bloom's Level: ApplyDifficulty: MediumLearning Objective: 8

143. (Appendix 11A) What were the sales mix variances for Model X and Model Y,respectively, for last year?

A. $1,050 unfavourable and $1,596 unfavourable.B. $1,260 favourable and $1,680 unfavourable.C. $1,260 unfavourable and $1,680 favourable.D. $1,500 favourable and $2,000 favourable.(1,008 - 2,100*1/2)*30 and (1,092 - 2,100*1/2)*40Bloom's Level: ApplyDifficulty: HardLearning Objective: 8

144. (Appendix 11A) What were the sales quantity variances for Model X and Model Y,respectively, for last year?A. $200 favourable and $3,496 favourable.B. $240 favourable and $3,680 favourable.C. $1,250 favourable and $1,900 favourable.D. $1,500 favourable and $2,000 favourable.(2,100*1/2 - 1,000)*30 and (2,100*1/2 - 1,000)*40Bloom's Level: ApplyDifficulty: HardLearning Objective: 8

Chapter 11 - Reporting for Control11-64145. (Appendix 11A) What was the market share variance for last year?A. $16,537.50 unfavourable.B. $18,375.00 favourable.C. $18,375.00 unfavourable.D. $21,875.00 favourable.avg. CM = (1,000*30 + 1,000*40)/2,000 = 35. Variance = (2,100 -52,500*2/40)*35Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 8

146. (Appendix 11A) What was the market volume variance for last year?A. $18,375.00 favourable.B. $19,687.50 favourable.C. $21,875.00 favourable.D. $21,875.00 unfavourable.(52,500 - 40,000) * 2/40 * 35Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 8

147. Which of the following is the main assumption that is made about managers in general in

support of decentralization?A. Managers at the local/divisional level will act in the best interest of the organization.B. Top managers at corporate headquarters will act in the best interest of the organization.C. Top managers at corporate headquarters have access to better information for operationaldecisions..D. Managers at the local/divisional level have access to better information for operationaldecisions.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 2Learning Objective: 6

Chapter 11 - Reporting for Control11-65148. Reardon Retail Company consists of two stores: A and B. During March, Store A had salesof $80,000, a contribution margin ratio of 30%, and a segment margin of $11,000. Thecompany as a whole had sales of $200,000, a contribution margin ratio of 36%, and segmentmargins for the two stores totalling $31,000. If net income for the company was $15,000 for themonth, what were the traceable fixed expenses in Store B?A. $16,000.B. $20,000.C. $28,000.D. $31,000.CM for B = 200,000*.36 - 80,000*.30 = 48,000. Segment margin B = 31,000 -11,000 = 20,000.Traceable FC for B = 48,000 - 20,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1

149. Leis Retail Company has two stores: M and N. During March, Store N had sales of$180,000, a segment margin of 30%, and traceable fixed expenses of $26,000. The company as

a whole had a contribution margin ratio of 25% and $120,000 in total contribution margin.Based on this information, what were the total variable expenses in Store M for the month?A. $140,000.B. $260,000.C. $300,000.D. $360,000.Total VC = 120,000/.25 * .75 = 360,000. VC of N = 180,000 - (180,000*.3 + 26,000) = 100,000.VC of M = 360,000 - 100,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1

Chapter 11 - Reporting for Control11-66True / False Questions150. In responsibility accounting, each segment in an organization should be charged with thecosts for which it is responsible and over which it has control plus its share of commonorganizational costs.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

151. Some managers believe that residual income is superior to return on investment as a meansof measuring performance, as it encourages the manager to make investment decisions that aremore consistent with the interests of the company as a whole.TRUEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 4Learning Objective: 5

152. The return on investment can ordinarily be improved by either increasing sales, reducingexpenses, or reducing operating assets.TRUEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 4

153. Since the sales figure is neutral in the return on investment (ROI) formula, ROI = Margin xTurnover, a change in total sales will NOT affect ROI.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

Chapter 11 - Reporting for Control11-67154. Allocations of corporate headquarters expenses to divisions used in return on investmentcalculations should be limited to the cost of those actual services provided by centralheadquarters, which the divisions otherwise would have to provide for themselves.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

155. The use of return on investment as a performance measure may lead managers to makedecisions that are NOT in the best interests of the company as a whole.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

156. Residual income is the operating income that an investment centre earns above theminimum required return on the investment in operating assets.TRUEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 5

157. There is a growing trend toward greater centralization for effective control as morebusinesses go global.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 11 - Reporting for Control11-68158. An increase in appraisal costs will usually result in an increase in internal failure costs.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

159. To minimize its total quality costs, a company should usually try to redistribute its qualitycosts more toward prevention and appraisal.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

160. Prevention costs and appraisal costs are incurred in an effort to keep poor quality ofconformance from occurring.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

161. Quality of conformance is the degree to which an actual product meets its designspecifications and is free of defects or other problems that may affect appearance orperformance.TRUEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 7

Chapter 11 - Reporting for Control11-69

162. Appraisal costs are incurred to identify defective products before they are shipped tocustomers.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 7

163. Internal failure costs result when a defective product is used within the company.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

164. External failure costs result when a defective product is shipped to a customer.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 7

165. Ordinarily, managers are NOT aware of the magnitude of their quality costs since thesecosts cut across departmental lines and are not normally tracked and accumulated by the costsystem.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-70166. Granting subordinates autonomy and profit responsibility almost invariably also grantsthem the right to make mistakes.TRUEBloom's Level: UnderstandDifficulty: HardLearning Objective: 2Learning Objective: 3

167. (Appendix 11A) A favourable sales volume variance for a single-product firm necessarilyimplies a favourable market share variance.FALSEBloom's Level: UnderstandDifficulty: HardLearning Objective: 8

168. (Appendix 11A) A favourable sales volume variance for a substitute product in amultiple-product firm does NOT necessarily imply a favourable sales mix variance for thatsubstitute product.TRUEBloom's Level: UnderstandDifficulty: HardLearning Objective: 8

169. (Appendix 11A) If two products are poor substitutes, the calculation of a separate marketvolume variance and a separate market share variance for each product is NOT useful.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 8

Chapter 11 - Reporting for Control11-71170. (Appendix 11A) If two products are close substitutes, the sales volume variance for eachproduct can be split into a sales quantity variance and a sales mix variance.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 8

171. (Appendix 11A) If two products are good substitutes, the sales quantity variance for eachproduct can be analyzed further into a market volume variance and a market share variance.FALSEBloom's Level: UnderstandDifficulty: HardLearning Objective: 8

172. (Appendix 11B) Order-filling marketing costs tend to respond directly to changes inactivity while order-getting marketing costs tend to be discretionary and fixed in the short-run.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 9

173. (Appendix 11B) Order-getting marketing costs cannot be easily controlled through the useof standard costs and flexible budgets.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 9

Chapter 11 - Reporting for Control11-72174. The emphasis in the balanced scorecard is on improvement rather than meeting a presetstandard.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 6

175. A balanced scorecard should contain every performance measure that can be expected toinfluence a company's profits.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 6

176. Process time is the only value-added component of throughput time.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 6

177. Many firms tend to adopt a focus or a niche strategy instead of either a cost leadership or adifferentiation strategy.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 6

Chapter 11 - Reporting for Control11-73178. When an intermediate market price for a transferred item exists, it represents a lower limiton the charge that should be made on transfers between divisions.FALSEBloom's Level: UnderstandDifficulty: HardLearning Objective: 3

179. When a division is operating at full capacity, the transfer price to other divisions shouldinclude opportunity costs.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 3

180. Assuming that a segment has both variable expenses and traceable fixed expenses, anincrease in sales should increase operating income by an amount equal to the sales multipliedby the segment margin ratio.FALSEBloom's Level: UnderstandDifficulty: HardLearning Objective: 1

181. The salary paid to a store manager is a traceable fixed expense of the store.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

Chapter 11 - Reporting for Control11-74182. Segmented statements for internal use should be prepared in the contribution format.TRUEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 1

183. Fixed costs that are traceable to a segment may become common if the segment is dividedinto smaller units.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

184. Only those costs that would disappear over time if a segment were eliminated should beconsidered traceable costs of the segment.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 1

Chapter 11 - Reporting for Control11-75Essay Questions185. Hatch Company has two divisions: O and E. During the year just ended, Division O had asegment margin of $9,000 and variable costs equal to 70% of sales. Traceable fixed costs forDivision E were $19,000. Hatch Company as a whole had a contribution margin of 40%, asegment margin of $25,000, Common costs of $10,000 and sales of $200,000. Given this data,prepare segmented income statements showing the Total as well as amounts for Division 0 andE.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1

Chapter 11 - Reporting for Control11-76186. The Winter Products Division of American Sports Corporation produces and markets twoproducts for use in the snow: Sleds and Saucers. The following data were gathered on activitieslast month:Required:

a. Prepare a segmented income statement in the contribution format for last month, showingboth "Amount" and "Percent" columns for the division as a whole and for each product.b. Why might it be very difficult to calculate separate break-even sales for each product?c. Refer to the original data and, if necessary, the results of the segmented income statementprepared in part (a) above. Calculate the total break-even sales (in both units AND dollars) forlast month, assuming that none of the fixed production costs and fixed selling expenses istraceable. Allocate the total break-even sales between the two products.d. Again, refer to the original data and, if necessary, the results of the segmented incomestatement prepared in part (a) above. Calculate the total break-even sales (in both units ANDdollars) for last month, assuming that the "allocated" amounts of the division's administrativeexpenses are fixed and actually traceable. Allocate the total break-even sales between the twoproducts.e. How reasonable are the total break-even sales numbers calculated in parts (c) and (d) giventhe actual results for last month?

Chapter 11 - Reporting for Control11-77a.b. All fixed expenses have to be traceable to the two products in order to calculate separatebreak-even sales for each product. However, the total administrative expenses of the divisionare not traceable to the two products. This is the main difficulty. The expenses are rathercommon as indicated in the segmented income statement.c.d. This is the standard case where break-even sales can be calculated separately for each

product because there are no common or joint costs.

Chapter 11 - Reporting for Control11-78e. The total break-even sales numbers are reasonable in both cases because they are less thereported total actual sales volume. In other words, the company reported positive profits whenactual sales exceeded the break-even sales.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1

Chapter 11 - Reporting for Control11-79187. The IT Corporation produces and markets two types of electronic calculators: Model 11and Model 12. The following data were gathered on activities last month:Required:a. Prepare a segmented income statement in the contribution format for last month, showingboth "Amount" and "Percent" columns for the company as a whole and for each model.b. Why might it be very difficult to calculate separate break-even sales for each model?c. Refer to the original data and, if necessary, the results of the segmented income statementprepared in part (a) above. Calculate the total break-even sales (in both units AND dollars) forlast month, assuming that none of the fixed production costs and fixed selling expenses istraceable. Allocate the total break-even sales between the two models.

d. Again, refer to the original data and, if necessary, the results of the segmented incomestatement prepared in part (a) above. Calculate the total break-even sales (in both units ANDdollars) for last month, assuming that the "allocated" amounts of the company's administrativeexpenses are actually traceable. Allocate the total break-even sales between the two models.e. How reasonable are the total break-even sales numbers calculated in parts (c) and (d) giventhe actual results for last month?

Chapter 11 - Reporting for Control11-80a.b. All fixed expenses have to be traceable to the two products in order to calculate separatebreak-even sales for each product. However, the total administrative expenses of the divisionare not traceable to the two products. This is the main difficulty. The expenses are rathercommon as indicated in the segmented income statement.c.d. This is the standard case where break-even sales can be calculated separately for eachproduct because there are no common or joint costs.

Chapter 11 - Reporting for Control11-81e. The total break-even sales numbers are reasonable in both cases because they are less the

reported total actual sales volume. In other words, the company reported positive profits whenactual sales exceeded the break-even sales.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1

Chapter 11 - Reporting for Control11-82188. Financial data for Beaker Company for last year appear below:The company paid dividends of $2,100 last year. The "Investment in Cedar Company" on thestatement of financial position represents an investment in the stock of another company.Required:

Chapter 11 - Reporting for Control11-83a) Compute the company's margin, turnover, and return on investment for last year.b) The Board of Directors of Beaker Company have set a minimum required return of 20%.What was the company's residual income last year?a) Operating assets do not include investments in other companies or in undeveloped land.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4Learning Objective: 5

Chapter 11 - Reporting for Control11-84189. Financial data for Bingham Company for last year appear below:The "Investment in Carr Company" on the statement of financial position represents aninvestment in the stock of another company.

Chapter 11 - Reporting for Control11-85Required:a) Compute the company's margin, turnover, and return on investment for last year.b) The Board of Directors of Beaker Company have set a minimum required return of 15%.What was the company's residual income last year?a) Operating assets do not include investments in other companies or in undeveloped land.

Chapter 11 - Reporting for Control11-86Bloom's Level: ApplyDifficulty: HardLearning Objective: 4Learning Objective: 5

190. The following data have been extracted from the year-end reports of two companies:

Company X and Company Y:Required:Fill in the missing data on the above table.Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 4

Chapter 11 - Reporting for Control11-87191. The following data have been extracted from the year-end reports of two companies:Company X and Company Y:Required:Fill in the missing data on the above table.Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 4

Chapter 11 - Reporting for Control11-88192. Galant Company's quality cost report is to be based on the following data:Required:Prepare a quality cost report in good form with separate sections for prevention costs, appraisalcosts, internal failure costs, and external failure costs.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-89193. Galben Company's quality cost report is to be based on the following data:Required:Prepare a quality cost report in good form with separate sections for prevention costs, appraisalcosts, internal failure costs, and external failure costs.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-90194. Galati Company's quality cost report is to be based on the following data:Required:Prepare a quality cost report in good form with separate sections for prevention costs, appraisalcosts, internal failure costs, and external failure costs.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-91195. Harvie Company's quality cost report is to be based on the following data:Required:

Prepare a quality cost report in good form with separate sections for prevention costs, appraisalcosts, internal failure costs, and external failure costs.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-92196. Harwood Company's quality cost report is to be based on the following data:Required:Prepare a quality cost report in good form with separate sections for prevention costs, appraisalcosts, internal failure costs, and external failure costs.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-93197. Harui Company's quality cost report is to be based on the following data:Required:a) Prepare a quality cost report in good form with separate sections for prevention costs,appraisal costs, internal failure costs, and external failure costs.b) If Harui's efforts to ensure quality conformance are working, how would you expect theQuality Cost Report next year to compare with this one? Chapter 11 - Reporting for Control11-94a.b. In the next year Harui should see a decline in both internal and external failure costs due tothe efforts of this year especially due to the implementation of preention and appraisal efforts.

The total quality costs will decrease each year providing the dollars spent toward preventionand appraisal continue to work.Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-95198. Godunov Company's quality cost report is to be based on the following data:Required:Prepare a quality cost report in good form with separate sections for prevention costs, appraisalcosts, internal failure costs, and external failure costs.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-96199. Falstaff Company's quality cost report is to be based on the following data:Required:Prepare a quality cost report in good form with separate sections for prevention costs, appraisalcosts, internal failure costs, and external failure costs.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-97200. Rigoletto Company's quality cost report is to be based on the following data:Required:Prepare a quality cost report in good form with separate sections for prevention costs, appraisalcosts, internal failure costs, and external failure costs.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 7

Chapter 11 - Reporting for Control11-98201. (Appendix 11A) Iraj Company retails two grades of Persian carpets: Grade X and Grade Y.The carpets are sold by rolls. The following is a summary of the company's activities for lastyear:Required:a) Assume the two grades of carpet are close substitutes. Calculate the sales volume variancefor each grade of carpet and analyze each into a sales mix variance and a sales quantity variance.b) Analyze the sum of the sales quantity variance into its two components: market volumevariance and market share variance.c) Comment on the appropriateness of the assumption of close substitution between the twogrades of carpet. Comment also on the effect, if any, on the analysis in part a) above if thisassumption is considered inappropriate. Chapter 11 - Reporting for Control11-99

For the following, F = favourable and U = unfavourable.a) Sales volume variances:Analysis of the sales volume variance into a sales mix variance and a sales quantity variance isas follows:Sales mix variances:Sales quantity variances:* 0.90 and 0.10 are the actual mix proportions and 0.80 and 0.20 are the budgeted mixproportions of Grade X and Grade Y, respectively.

Chapter 11 - Reporting for Control11-100Note that the sum of the sales mix variance and sales quantity variance for each grade of carpetequals the sales volume variance for the grade. That is:b) Analysis of the total sales quantity variance into a market volume and a market sharevariance:* $1,040 is the weighted-average budgeted contribution margin per roll:(0.80 x $800) + (0.20 x $2,000) = $640 + $400= $1,040c) The assumption of close substitution between the two grades of carpet may be difficult tojustify. For example, Grade Y appears to belong to a class of its own with a very highcontribution margin. This grade may be serving and competing in a different market.If the assumption of close substitution is considered inappropriate, then each grade of carpet isassumed to compete in a separate and different market or industry. The sales volume variancefor each grade can still be calculated, but any further analysis into market volume and marketshare variances will be for each grade of carpet, instead of lumping both together as done in partb) above.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 8

Chapter 11 - Reporting for Control11-101202. Larinore Corporation has a Castings Division that does casting work of various types. Thecompany's Machine Products Division has asked the Castings Division to provide it with20,000 special castings each year on a continuing basis. The special castings would require $10per unit in variable production costs. The Machine Products Division has a bid from an outsidesupplier of $29 per unit for the castings.In order to have time and space to produce the new castings, the Castings Division would haveto cut back production of another casting: the RB4, which it presently is producing. The RB4sells for $30 per unit, and requires $12 per unit in variable production costs. Boxing andshipping costs of the RB4 are $4 per unit. Boxing and shipping costs for the new special castingwould be only $1 per unit. The company is now producing and selling 100,000 units of the RB4each year. Production and sales of this casting would drop by 20% if the new casting isproduced.Required:a) What is the range of transfer prices within which both the divisions' profits would increase asa result of agreeing to the transfer of 20,000 castings per year from the Castings Division to theMachine Products Division?b) Is it in the best interests of Larinore Corporation for this transfer to take place? Explain. Chapter 11 - Reporting for Control11-102a) From the perspective of the Castings Division, profits would increase as a result of thetransfer providing that:Transfer price > Variable cost + Opportunity cost

The opportunity cost is the contribution margin on the lost sales, divided by the number of unitstransferred:Opportunity cost = [($30 - $12 - $4) x 20,000]/20,000 = $14Therefore,Transfer price > ($10 + $1) + $14 = $25From the viewpoint of the purchasing division, the transfer price must be less than the cost ofbuying the units from the outside supplier.Transfer price < $29Combining the two requirements, we get the following range of transfer prices:$25 < Transfer price < $29b. Yes, the transfer should take place. From the viewpoint of the entire company, the cost oftransferring the units within the company is $25, but the cost of purchasing them from theoutside supplier is $29. Therefore, the company's profits increase by $4 for each of the castingsthat are used within the company rather than sold on the outside market.Bloom's Level: EvaluateDifficulty: HardLearning Objective: 3

Chapter 11 - Reporting for Control11-103203. Geneva Corporation has a Castings Division that does casting work of various types. Thecompany's Machine Products Division has asked the Castings Division to provide it with10,000 special castings each year on a continuing basis. The special castings would require $20per unit in variable production costs. The Machine Products Division has a bid from an outsidesupplier of $30 per unit for the castings.In order to have time and space to produce the new casting, the Castings Division would have tocut back production of another casting: the NW2, which it presently is producing. The NW2sells for $40 per unit, and requires $25 per unit in variable production costs. Boxing and

shipping costs of the NW2 are $4 per unit. Boxing and shipping costs for the new specialcasting would be only $2 per unit. The company is now producing and selling 100,000 units ofthe NW2 each year. Production and sales of this casting would drop by 10% if the new castingwere produced.Required:a) What is the range of transfer prices, if any, within which both the divisions' profits wouldincrease as a result of agreeing to the transfer of 10,000 castings per year from the CastingsDivision to the Machine Products Division?b) Is it in the best interests of Geneva Corporation for this transfer to take place? Explain. Chapter 11 - Reporting for Control11-104a) From the perspective of the Castings Division, profits would increase as a result of thetransfer providing that:Transfer price > Variable cost + Opportunity costThe opportunity cost is the contribution margin on the lost sales, divided by the number of unitstransferred:Opportunity cost = [($40 - $25 - $4) x 10,000]/10,000 = $11Therefore,Transfer price > ($20 + $2) + $11 = $33From the viewpoint of the purchasing division, the transfer price must be less than the cost ofbuying the units from the outside supplier.Transfer price < $30Combining the two requirements, we find that no feasible range of transfer prices exists undercurrent conditions.b) No, the transfer should not take place. From the viewpoint of the entire company, the cost oftransferring the units within the company is $33, but the cost of purchasing them from theoutside supplier is $30. Therefore, the company's profits decrease by $3 for each casting that isproduced within the company rather than purchased in the outside market.Bloom's Level: EvaluateDifficulty: HardLearning Objective: 3

Chapter 11 - Reporting for Control11-105204. (Appendix 11A) Yukon Company expressed the total expenses (Y) component of itsmaster budget for March with the cost formula Y = $100,000 + $40*X, where X represents theexpected number of units of its only product to be manufactured and sold. The budgetedaverage selling price per unit was $65 for budgeted sales volume 5,000 units based on anestimated industry volume of 50,000 units. Reported actual results for February were asfollows:*Actual industry sales volume was 60,000 units.Required:a) Calculate the flexible budget variance and analyze it into sales price variance andcost/expense variance(s).b) Calculate the sales volume variance and analyze it into market-size (industry volume)variance and market-share variance.c) On the basis of your analysis in parts (a) and (b), would you recommend a bonus be paid tothe sales manager? Why or why not? Chapter 11 - Reporting for Control11-106a) Flexible budget variancePer unit amounts for calculations:b)Numbers for calculationsc) No bonus would be recommended. The sales manager had the most influence on twovariances: sales price and market-share. Both were, however, unfavourable. In a growingmarket, the sales manager reduced prices probably to increase market share. This did not workbecause the company lost market share.

Chapter 11 - Reporting for Control11-107Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 8

Chapter 11 - Reporting for Control11-108205. (Appendices 11A and 11B) The following is a summarized master budget that Moose JawCompany prepared for February:*Based on estimated industry volume (market-size) of 180,000 unitsActual results for January were as follows:Required:a) (Appendix 11A) Calculate the flexible budget variance and analyze it into sales pricevariance and cost/expense variance(s).b) (Appendix 11A) Calculate the sales volume variance and analyze it into market-size(industry volume) variance and market-share variance.c) (Appendix 11A) Assume that the marketing manager has direct influence in setting sellingprices. On the basis of your analysis in part (b), would you conclude recommend a bonus bepaid to the sales manager? Why or why not?d) How successful was the marketing manager in controlling the cost of the marketing activity?Explain.

Chapter 11 - Reporting for Control11-109a) Flexible budget varianceb)

Chapter 11 - Reporting for Control11-110c) Notwithstanding reduced sales of 600 units, a bonus should be paid to the marketing managerfor increasing the company's market share from budgeted 5% to 6%. This performance isimpressive when the manager was also able to increase selling prices in a declining market.d) The marketing manager was equally successful in controlling marketing expenses, inparticular, the variable portion which had a favourable spending variance. The manager was ontarget regarding the fixed marketing expense.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 8Learning Objective: 9

Chapter 12 - Relevant Costs for Decision Making12-1

Chapter 12

Relevant Costs for Decision MakingMultiple Choice Questions1. Which of the following costs are always relevant in decision making?A. Variable costs.B. Avoidable costs.C. Sunk costs.D. Fixed costs.Bloom's Level: RememberDifficulty: EasyLearning Objective: 1

2. Consider a decision facing a firm of either accepting or rejecting a special offer for one of itsproducts. Which of the following costs is NOT relevant?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.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-23. What should a firm faced with a production constraint do to maximize total contributionmargin?A. Promote those products having the highest unit contribution margins.B. Promote those products having the highest contribution margin ratios.C. Promote those products having the highest contribution margin per unit of constrainedresource.D. Promote those products having the highest contribution margins and contribution marginratios.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 3

4. Which of the following best describes a plant operating at capacity?A. Every machine and person in the plant is working at the maximum possible rate.B. Only some specific machines or processes are operating at the maximum rate possible.

C. Fixed costs will need to change to accommodate increased demand.D. Managers should produce those products with the highest contribution margin in order todeal with the constrained resource.Bloom's Level: UnderstandDifficulty: HardLearning Objective: 2Learning Objective: 3

5. Which of the following is NOT an effective way of dealing with a production constraint (i.e.,bottleneck)?A. Reduce the number of defective units produced at the bottleneck.B. Pay overtime to workers assigned to the bottleneck.C. Pay overtime to workers assigned to workstations located after the bottleneck in theproduction process.D. Subcontract work that would otherwise require use of the bottleneck.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 3

Chapter 12 - Relevant Costs for Decision Making12-36. What is the opportunity cost of making a component part in a factory with no excesscapacity?A. Variable manufacturing cost of the component.B. Fixed manufacturing cost of the component.C. Cost of the production given up in order to manufacture the component.D. Net benefit foregone from the best alternative use of the capacity required.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

7. What is a joint product?A. Any product that consists of several parts.B. Any product produced by a firm with more than one product line.C. Any product involved in a make or buy decision.D. One of several products produced from a common input.Bloom's Level: RememberDifficulty: MediumLearning Objective: 2

8. Consider the following statements:I. A vertically integrated firm is more dependent on its suppliers than a firm that is NOT

vertically integrated.II. Many firms feel they can control quality better by making their own parts.III. A vertically integrated firm realizes profits from the parts it is "making" instead of "buying"as well as profits from its regular operations.Which of the above statements represent advantages to a firm that is vertically integrated?A. I only.B. III only.C. I and II only.D. II and III only.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-49. The Lantern Corporation has 1,000 obsolete lanterns that are carried in inventory at amanufacturing cost of $20,000. If the lanterns are re-machined for $5,000, they could be soldfor $9,000. Alternatively, the lanterns could be sold for scrap for $1,000. Which alternative ismore desirable, and what are the total relevant costs for that alternative?A. Re-machine and $5,000.B. Re-machine and $25,000.C. Scrap and $20,000.D. Scrap and $19,000.9,000 - 5,000 - 1,000 = 4,000 advantage to re-machine. Total relevant cost to re-machine are$5,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

10. Relay Corporation manufactures batons. Relay can manufacture 300,000 batons a year at avariable cost of $750,000 and a fixed cost of $450,000. Based on Relay's predictions for nextyear, 240,000 batons will be sold at the regular price of $5.00 each. In addition, a special order

was placed for 60,000 batons to be sold at a 40% discount off the regular price. Total fixed costswould be unaffected by this order. By what amount would the company's operating income beincreased or decreased as a result of the special order?A. $30,000 increase.B. $36,000 increase.C. $60,000 decrease.D. $180,000 increase.[5 * (1 -.40) - 750,000/300,000]*60,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-511. The manufacturing capacity of Jordan Company's facilities is 30,000 units a year. Asummary of operating results for last year follows:A foreign distributor has offered to buy 15,000 units at $90 per unit next year. Jordan expects itsregular sales next year to be 18,000 units. If Jordan accepts this offer and rejects some businessfrom regular customers so as not to exceed capacity, what would be the total operating incomenext year? (Assume that the total fixed costs would be the same no matter how many units areproduced and sold.)A. $390,000.B. $705,000.C. $840,000.D. $855,000.15,000*(100 - 55) + 15,000*(90 - 55) - 495,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-612. Wagner Company sells Product A for $21 per unit. Wagner's unit product cost based on thefull capacity of 200,000 units is as follows:A special order offering to buy 20,000 units has been received from a foreign distributor. Theonly selling costs that would be incurred on this order would be $3 per unit for shipping.Wagner has sufficient idle capacity to manufacture the additional units. Two-thirds of themanufacturing overhead is fixed and would not be affected by this order. Assume that directlabour is an avoidable cost in this decision. In negotiating a price for the special order, whatshould be the minimum acceptable selling price per unit?A. $14.B. $15.C. $16.D. $18.4 + 5 + 6*(1 - 2/3) + 3Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-713. A study has been conducted to determine if one of the departments in Parry Companyshould be discontinued. The contribution margin in the department is $50,000 per year. Fixed

expenses charged to the department are $65,000 per year. It is estimated that $40,000 of thesefixed expenses could be eliminated if the department is discontinued. These data indicate that ifthe department were discontinued, the company's overall operating income per year wouldchange by how much?A. An increase of $10,000.B. A decrease of $10,000.C. An increase of $25,000.D. A decrease of $25,000.- 50,000 + 40,000 = - 10,000Bloom's Level: ApplyDifficulty: EasyLearning Objective: 1Learning Objective: 2

14. A study has been conducted to determine if Product A should be dropped. Total sales of theproduct are $200,000 per year; total variable expenses are $140,000 per year. Total fixedexpenses charged to the product are $90,000 per year. The company estimates that $40,000 ofthese fixed expenses will continue even if the product is dropped. These data indicate that ifProduct A is dropped, the company's overall operating income per year would change by howmuch?A. A decrease of $10,000.B. An increase of $20,000.C. A decrease of $20,000.D. An increase of $30,000.Lost CM = 200,000 - 140,000 = (60,000). Add avoidable costs (90,000 - 40,000). DecreasedOperating Income of 10,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-8

15. Lusk Company produces and sells 15,000 units of Product A each month. The selling priceof Product A is $20 per unit, and variable expenses are $14 per unit. A study has beenconducted concerning whether Product A should be discontinued. The study shows that$70,000 of the $100,000 in fixed expenses charged to Product A would continue even if theproduct were discontinued. These data indicate that if Product A were discontinued, thecompany's overall monthly operating income would change by how much?A. An increase of $10,000.B. An increase of $20,000.C. A decrease of $20,000.D. A decrease of $60,000.(- 15,000*(20 - 14) + (100,000 - 70,000)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

16. Manor Company plans to discontinue a department that has a contribution margin of$24,000 and $48,000 in fixed costs. Of the fixed costs, $21,000 cannot be avoided. What wouldbe the effect of discontinuing the department on Manor's overall operating income?A. An increase of $3,000.B. A decrease of $3,000.C. An increase of $24,000.D. A decrease of $24,000.- 24,000 + (48,000 - 21,000)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-917. Gata Co. plans to discontinue a department that has a $48,000 contribution margin and$96,000 of fixed costs. Of these fixed costs, $42,000 cannot be avoided. What would be the

effect of discontinuing the department on Gata's overall operating income?A. An increase of $6,000.B. A decrease of $6,000.C. An increase of $48,000.D. A decrease of $48,000.- 48,000 + (96,000 - 42,000)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

18. The Cook Company has two divisions: Eastern and Western. The divisions have thefollowing revenues and expenses:The management of Cook is considering the elimination of the Eastern Division. If the EasternDivision were eliminated, the direct fixed costs associated with this division could be avoided.However, corporate costs would still be $305,000 in total. Given these data, what would be theoverall company's operating income (loss) if the Eastern Division were eliminated?A. ($155,000).B. ($75,000).C. ($60,000).D. $15,000.15,000 - 170,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-1019. Manor Company plans to discontinue a department that has a contribution margin of$25,000 and $50,000 in fixed costs. Of the fixed costs, $21,000 cannot be eliminated. Whatwould be the effect on the operating income of Manor Company of discontinuing thisdepartment?A. An increase of $4,000.B. A decrease of $4,000.

C. An increase of $25,000.D. A decrease of $25,000.- 25,000 + (50,000 - 21,000)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

20. Green Company produces 1,000 parts per year, which are used in the assembly of one of itsproducts. The unit product cost of these parts is:The part can be purchased from an outside supplier for $20 per unit. If the part is purchasedfrom the outside supplier, two-thirds of the fixed manufacturing costs can be eliminated. Whatwill be the annual impact on the company's operating income of buying the part from theoutside supplier?A. $1,000 increase.B. $1,000 decrease.C. $2,000 decrease.D. $5,000 increase.[(12 + 9*2/3) - 20]*1,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-1121. Pitkin Company produces a part used in the manufacture of one of its products. The unitproduct cost of the part is $33, computed as follows:An outside supplier has offered to provide the annual requirement of 10,000 of the parts foronly $27 each. The company estimates that 30% of the fixed manufacturing overhead costsabove will continue if the parts are purchased from the outside supplier. Assume that directlabour is an avoidable cost in this decision. Based on these data, what will be the per-unit dollaradvantage or disadvantage of purchasing the parts from the outside supplier?A. $1 advantage.

B. $1 disadvantage.C. $3 advantage.D. $4 disadvantage.Cost to make = 12 + 8 + 3 + 10*(1 -.30) = $30. Advantage to buy = 30 - 27Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-1222. Cardinal Company needs 20,000 units of a certain part to use in one of its products. Thefollowing information is available:Cost to Cardinal to make the part:Oriole Company has offered to sell this part to Cardinal Company for $36 each. If Cardinalwere to buy the part from Oriole instead of making it, Cardinal would not have any use for thereleased capacity. In addition, 60% of the fixed manufacturing overhead costs would continueregardless of what decision is made. Assume that direct labour is an avoidable cost in thisdecision. In deciding whether to make or buy the part, what would be the total relevant costs tomake the part?A. $560,000.B. $640,000.C. $720,000.D. $760,000.20,000*[(4 + 16 + 8 + 10*(1 -.60)]Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-1323. Golden, Inc. has been manufacturing 5,000 units of Part 10541, which is used in one of itsproducts. At this level of production, the unit product cost of Part 10541 is as follows:Brown Company has offered to sell Golden 5,000 units of Part 10541 for $19 a unit. Golden hasdetermined that two-thirds of the fixed manufacturing overhead will continue even if Part10541 is purchased from Brown. Assume that direct labour is an avoidable cost in this decision.To determine whether to accept Brown's offer, what are the relevant costs to Golden ofmanufacturing the parts internally?A. $70,000.B. $80,000.C. $90,000.D. $95,000.(2 + 8 + 4 + 6*1/3)*5,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-1424. The following standard costs pertain to a component part manufactured by AshbyCompany:The company can purchase the part from an outside supplier for $25 per unit. The

manufacturing overhead is 60% fixed, and this fixed portion would not be affected by thisdecision. Assume that direct labour is an avoidable cost in this decision. What would be therelevant amount of the standard cost per unit in a decision of whether to make the part internallyor buy it from the external supplier?A. $2.B. $15.C. $19.D. $27.2 + 5 + 20*(1 -.60)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-1525. The SP Company makes 40,000 motors to be used in the production of its sewing machines.The average cost per motor at this level of activity consists of:An outside supplier recently began producing a comparable motor that could be used in thesewing machine. The price offered to SP Company for this motor is $18. If SP Companydecides not to make the motors, there would be no other use for the production facilities, andtotal fixed factory overhead costs would not change. If SP Company decides to continuemaking the motor, how much higher or lower would net income be than if the motors arepurchased from the outside suppler? Assume that direct labour is a variable cost in thiscompany.A. $86,000 higher.B. $92,000 lower.C. $178,000 higher.D. $276,000 higher.[18 - (5.50 + 5.60 + 4.75)]*40,000Bloom's Level: Apply

Difficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-1626. Manico Company produces three products—X, Y, & Z—with the following characteristics:The company has only 2,000 machine hours available each month. If demand exceeds thecompany's capacity, in what sequence should orders be filled if the company wants to maximizeits total contribution margin?A. Orders for Z first, X second, and Y third.B. Orders for X first, Z second, and Y third.C. Orders for Y first, X second, and Z third.D. Orders for Z first and no orders for X or Y.CM/hr. for X, Y, Z consecutively = 8/5, 4/3, 9/6Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

Chapter 12 - Relevant Costs for Decision Making12-1727. Consider the following production and cost data for two products, L and C:The company can only perform 65,000 machine setups each period due to limited skilled labour,and there is unlimited demand for each product. What is the largest possible total contributionmargin that can be realized each period?A. $845,000.B. $910,000.C. $975,000.D. $1,820,000.

CM/setup for L, C = 130/10, 120/8. 65,000/8 = 8,125 units of C at $120Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

28. Products A, B, and C are produced from a single raw material input. The raw material costsare $90,000, from which 5,000 units of A, 10,000 units of B, and 15,000 units of C can beproduced each period. Product A can be sold at the split-off point for $2 per unit, or it can beprocessed further at a cost of $12,500 and then sold for $5 per unit. What is the correct course ofaction regarding Product A?A. It should be sold at the split-off point, since further processing would result in a loss of $0.50per unit.B. It should be processed further, since this will increase profits by $2,500 each period.C. It should be sold at the split-off point, since further processing will result in a loss of $2,500each period.D. It should be processed further, since this will increase profits by $12,500 each period.Incremental Revenue = (5 - 2)*5,000 = 15,000. Incremental cost = 12,500. 15,000 - 12,500 =2,500Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-1829. The Wyeth Company produces three products—A, B, and C—from a singleraw materialinput. Product A can be sold at the split-off point for $40,000, or it can be processed further at atotal cost of $15,000 and then sold for $58,000. Joint product costs total $60,000 annually.What is the correct course of action regarding Product A?A. It should be discontinued since revenues after further processing are less than total joint

product costs.B. It should be sold at the split-off point.C. It should be processed further and then sold.D. It should be processed further only if its share of the total joint product costs is less than theincremental revenues from further processing.58,000 - 40,000 - 15,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-1930. WP Company produces products X, Y, and Z from a single raw material input in a jointproduction process. Budgeted data for the next month is as follows:The cost of the joint raw material input is $149,000. Which of the products should be processedbeyond the split-off point?A. Option AB. Option BC. Option CD. Option DX, Y, Z = 29 - 19 - 7 = 3, 29 - 21 - 7.50 = 0.50, 30 - 24 - 7 = - 1Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-20The following are the Wyeth Company's unit costs of making and selling an item at a volumeof 10,000 units per month, which represents the company's capacity:

Present sales amount to 9,000 units per month. An order has been received from a customer in aforeign market for 1,000 units. The order would not affect current sales. Fixed costs, bothmanufacturing and selling and administrative, are constant within the relevant range between8,000 and 10,000 units per month. The variable selling and administrative costs would have tobe incurred for this special order as well as all other sales. Assume direct labour is a variablecost.31. How much will the company's operating income be increased or (decreased) if it prices the1,000 units in the special order at $6 each?A. ($500).B. $400.C. $1,000.D. $2,500.(6 - 1 - 2 -.50 - 1.50)*1,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-2132. Assume the company has 50 units left over from last year that have small defects and whichwill have to be sold at a reduced price as scrap. This would have no effect on the company'sother sales. What cost is relevant as a guide for setting a minimum price on these defectiveunits?A. $1.50.B. $3.50.C. $5.00.D. $6.50.Only selling and administrative expenses are relevant.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

The Tolar Company has 400 obsolete desk calculators that are carried in inventory at a totalcost of $26,800. If these calculators are upgraded at a total cost of $10,000, they can be sold fora total of $30,000. As an alternative, the calculators can be sold in their present condition for$11,200.33. What is the sunk cost in this situation?A. $0.B. $10,000.C. $11,200.D. $26,800.The original cost of inventory is sunk.Bloom's Level: ApplyDifficulty: EasyLearning Objective: 1

Chapter 12 - Relevant Costs for Decision Making12-2234. What is the net advantage or disadvantage to the company from upgrading the calculators?A. $8,000 disadvantage.B. $8,800 advantage.C. $18,000 disadvantage.D. $20,000 advantage.30,000 - 10,000 - 11,200Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

35. Assume that Tolar decides to upgrade the calculators. At what selling price per unit wouldthe company be as well off as if it just sold the calculators in their present condition?A. $8.B. $30.C. $53.D. $67.(10,000 + 11,200)/400Bloom's Level: ApplyDifficulty: HardLearning Objective: 1Learning Objective: 2

The Immanuel Company has just obtained a request for a special order of 6,000 jigs to beshipped at the end of the month at a selling price of $7 each. The company has a productioncapacity of 90,000 jigs per month with total fixed production costs of $144,000. At present, thecompany is selling 80,000 jigs per month through regular channels at a selling price of $11 each.For these regular sales, the cost for one jig is:If the special order is accepted, Immanuel will not incur any selling expense; however, it willincur shipping costs of $0.30 per unit.

Chapter 12 - Relevant Costs for Decision Making12-2336. If Immanuel accepts this special order, what will be the increase in the monthly operatingincome?A. $1,800.B. $3,600.C. $12,600.D. $14,400.[7 - (4.6 - + .30)]*6,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

37. At what selling price per unit should Immanuel be indifferent between accepting orrejecting the special offer?A. $4.90.B. $6.40.C. $7.40.D. $7.70.4.60 + .30Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-2438. Suppose that total regular sales of jigs are 85,000 units per month, and all other conditionsremain the same. If Immanuel accepts the special order, what will be the change in monthlyoperating income?A. $3,600 decrease.B. $5,400 decrease.C. $7,200 increase.D. $14,000 increase.12,600(#57) - 1,000*(11 - 4.60 - 1)Bloom's Level: ApplyDifficulty: HardLearning Objective: 1Learning Objective: 2

The Varone Company makes a single product called a Hom. The company has the capacity toproduce 40,000 Homs per year. Per-unit costs to produce and sell one Hom at that activity levelfollow:The regular selling price for one Hom is $60. A special order has been received at Varone fromthe Fairview Company to purchase 8,000 Homs next year at 15% off the regular selling price. Ifthis special order is accepted, the variable selling expense will be reduced by 25%. However,Varone would have to purchase a specialized machine to engrave the Fairview name on eachHom in the special order. This machine would cost $12,000, and Varone would have no use forit after the special order was filled. The total fixed costs, both manufacturing and selling, areconstant within the relevant range of 30,000 to 40,000 Homs per year. Assume direct labour is avariable cost.

Chapter 12 - Relevant Costs for Decision Making12-2539. If Varone can expect to sell 32,000 Homs next year through regular channels and the specialorder is accepted at 15% off the regular selling price, what would be the effect on operatingincome next year due to accepting this order?A. $24,000 decrease.B. $52,000 increase.C. $68,000 increase.D. $80,000 increase.[60*(1 - .15) - 20 - 10 - 5- 8*(1 - .25)]*8,000 - 12,000Bloom's Level: ApplyDifficulty: HardLearning Objective: 1Learning Objective: 2

40. If Varone can expect to sell 32,000 Homs next year through regular channels, at whatspecial order price from Fairview should Varone be economically indifferent between eitheraccepting or not accepting this special order?A. $39.60.B. $42.50.C. $48.20.D. $51.00.20 + 10 + 5 + 8*(1 - .25) + 12,000/8,000Bloom's Level: ApplyDifficulty: HardLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-26

41. If Varone has an opportunity to sell 37,960 Homs next year through regularchannels andthe special order is accepted for 15% off the regular selling price, what would be the effect onoperating income next year due to accepting this order?A. $33,320 increase.B. $33,320 decrease.C. $35,480 increase.D. $35,480 decrease.68,000(#60) - [37,960 - (40,000 - 8,000)] * (60 - 20 - 10 - 5 - 8)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1Learning Objective: 2

Eley Company produces a single product. The cost of producing and selling a single unit of thisproduct at the company's normal activity level of 40,000 units per month is as follows:The normal selling price of the product is $86.10 per unit.An order has been received from an overseas customer for 2,000 units to be delivered thismonth at a special discounted price. This order would have no effect on the company's normalsales and would not change the total amount of the company's fixed costs. The variable sellingand administrative expense would be $1.20 less per unit on this order than on normal sales.Direct labour is a variable cost in this company.

Chapter 12 - Relevant Costs for Decision Making12-2742. Suppose there is ample idle capacity to produce the units required by the overseas customer,and the special discounted price on the special order is $76.40 per unit. By how much wouldthis special order increase (decrease) the company's operating income for the month?A. ($5,000).B. $13,400.C. ($17,000).D. $48,000.

[76.40 - 42.60 - 8.10 - 1.10 - (1.80 - 1.20)] * 2,000Bloom's Level: ApplyDifficulty: HardLearning Objective: 1Learning Objective: 2

43. Suppose the company is already operating at capacity when the special order is receivedfrom the overseas customer. What would be the opportunity cost of each unit delivered to theoverseas customer?A. $7.20.B. $8.40.C. $9.70.D. $32.50.86.10 - (42.60 + 8.10 + 1.10 + 1.80)Bloom's Level: ApplyDifficulty: HardLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-2844. Suppose there is not enough idle capacity to produce all of the units for the overseascustomer, and accepting the special order would require cutting back on production of 700 unitsfor regular customers. The minimum acceptable price per unit for the special order is closest towhich of the following?A. $63.78.B. $69.10.C. $78.90.D. $86.10.[42.60 + 8.10 + (1.80 - 1.20)] + [(32.50*700)/2,000]Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1Learning Objective: 2

The Clemson Company reported the following results last year for the manufacture and sale ofone of its products, known as a Tam:Clemson Company is trying to determine whether to discontinue the manufacture and sale of

Tams. The operating results reported above for last year are expected to continue in theforeseeable future if the product is not dropped. The fixed manufacturing overhead representsthe costs of production facilities and equipment that the Tam product shares with other productsproduced by Clemson. If the Tam product were discontinued, there would be no change in thefixed manufacturing costs of the company.

Chapter 12 - Relevant Costs for Decision Making12-2945. Assume that discontinuing the manufacture and sale of Tams will have no effect on the saleof other product lines. If the company discontinues the Tam product line, what will be thechange in the annual operating income (loss)?A. $55,000 decrease.B. $65,000 decrease.C. $70,000 increase.D. $90,000 decrease.CM lost = 845,000 - 390,000 - 65,000 = (390,000)Fixed costs avoided = 275,000 + 25,000 = 300,000. Change in op. income = -390,000 +300,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

46. Assume that discontinuing the Tam product would result in a $120,000 increase in thecontribution margin of other product lines. How many Tams would have to be sold next year forthe company to be as well off as if it just dropped the line and enjoyed the increase incontribution margin from other products?A. 5,000 units.B. 6,000 units.C. 6,500 units.D. 7,000 units.

CM/unit = 390,000/6,500 = $60. Units required = (275,000 + 25,000 + 120,000)/60Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-3047. Condensed monthly operating income data for Cosmo Inc. for November is presentedbelow. Additional information regarding Cosmo's operations follows the statement:Three-quarters of each store's traceable fixed expenses are avoidable if the store were to beclosed.Cosmo allocates common fixed expenses to each store on the basis of sales dollars.Management estimates that closing the Town Store would result in a 10% decrease in MallStore sales, while closing the Mall Store would not affect Town Store sales.The operating results for November are representative of all months.A decision by Cosmo Inc. to close the Town Store would result in what monthly increase(decrease) in Cosmo's operating income?A. ($800).B. $4,000.C. ($6,000).D. ($10,800).-36,000 - 48,000*.10 + 40,000*3/4= - 10,800Bloom's Level: ApplyDifficulty: HardLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-31The Western Company is considering the addition of a new product to its current product lines.The expected cost and revenue data for the new product are as follows:If the new product is added to the existing product line, then sales of existing products willdecline. Therefore, the contribution margin of the other existing product lines is expected todrop $78,000 per year.48. If the new product is added next year, what will be the increase in operating incomeresulting from this decision?A. $183,000.B. $207,000.C. $261,000.D. $387,000.3,000*(309 - 130 - 50) - 78,000 - 51,000 - 75,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-3249. Which lowest selling price per unit could be charged for the new product that would stillmake it economically desirable to add the new product?A. $222.B. $240.C. $249.D. $291.S.P. > [(130 + 50)*3,000 + 51,000 + 75,000 + 78,000]/3,000Bloom's Level: EvaluateDifficulty: HardLearning Objective: 1Learning Objective: 2

Bingham Company manufactures and sells Product J. Results for last year for the manufactureand sale of Product J are as follows:Bingham Company anticipates no change in the operating result for Product J in the foreseeable

future if the product is produced. Bingham is re-examining all of its products and is trying todecide whether or not to discontinue the manufacture and sale of Product J. The company's totalfixed factory overhead cost would not be affected by this decision. Chapter 12 - Relevant Costs for Decision Making12-3350. Assume that discontinuing the manufacture and sale of Product J will not affect the sale ofother products. If the company discontinues Product J, what will be the change in annualoperating income due to this decision?A. $25,000 decrease.B. $145,000 increase.C. $170,000 decrease.D. $315,000 decrease.- (1,600,000 - 960,000 - 240,000) + 195,000 + 180,000Bloom's Level: ApplyDifficulty: HardLearning Objective: 1Learning Objective: 2

51. Assume that discontinuing Product J would result in a $30,000 increase in the contributionmargin of other product lines. If Bingham chooses to discontinue Product J, what will be thechange in operating income next year due to this action?A. $5,000 increase.B. $120,000 increase.C. $145,000 increase.D. $145,000 decrease.-25,000(#71) + 30,000Bloom's Level: ApplyDifficulty: HardLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-3452. Assume that discontinuing Product J would result in a $100,000 increase in the contributionmargin of other product lines. How many units of Product J would have to be sold next year for

the company to be as well off as if it just dropped Product J and enjoyed the increase incontribution margin from other products?A. 2,500 units.B. 11,875 units.C. 15,500 units.D. 16,125 units.(195,000 + 180,000 + 100,000)/(400,000(CM from #71)/10,000)Bloom's Level: ApplyDifficulty: HardLearning Objective: 1Learning Objective: 2

Hadley, Inc. makes a line of bathroom accessories. Because of a decline in sales, the companyhas 10,000 machine hours of idle capacity available each year. This idle capacity could be usedby the company to make, rather than buy, one of the components used in its production process.Hadley needs 5,000 units of this component each year. At present, the component is beingpurchased from an outside supplier at $7.50 per unit. Variable production cost for thecomponent would be $4.10 per unit, and additional supervisory costs would be $18,000 peryear. Already existing fixed costs, which would be allocated to this part, amount to $300,000per year.53. What would be the change in the company's overall annual operating income that wouldresult from making the component, rather than buying it?A. $1,000 decrease.B. $5,000 increase.C. $14,000 decrease.D. $17,000 increase.[7.50 - (4.10 + 18,000/5,000)]*5,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-35

54. What would the annual cost of additional supervision have to be in order forHadley to beeconomically indifferent to making or buying the component? (Assume all other conditionsstay the same.)A. $17,000.B. $18,000.C. $19,000.D. $20,000.(7.50 - 4.10)*5,000Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1Learning Objective: 2

The Rodgers Company makes 27,000 units of a certain component each year for use in one ofits products. The cost per unit for the component at this level of activity is as follows:Rodgers has received an offer from an outside supplier that is willing to provide 27,000 units ofthis component each year at a price of $25 per component. Assume that direct labour is avariable cost.

Chapter 12 - Relevant Costs for Decision Making12-3655. Assume that there is no other use for the capacity now being used to produce the component,and the total fixed manufacturing overhead of the company would not be affected by thisdecision. If Rodgers Company were to purchase the components rather than making theminternally, what would be the impact on the company's annual operating income?A. $81,000 decrease.B. $94,500 increase.C. $124,000 increase.D. $237,600 decrease.[(4.20 + 12 + 5.80) - 25] * 27,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

56. Assume that if the components were to be purchased from the outside supplier, $35,100 ofannual fixed manufacturing overhead would be avoided, and the facilities now being used tomake the component would be rented to another company for $64,800 per year. If Rodgerschooses to buy the component from the outside supplier under these circumstances, what wouldbe the impact on annual operating income due to accepting the offer?A. $18,900 increase.B. $18,900 decrease.C. $21,400 increase.D. $21,400 decrease.[22 + (35,100 + 64800)/27,000 - 25] * 27,000Bloom's Level: ApplyDifficulty: HardLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-37Aholt Company makes 40,000 units per year of a part that it uses in the products itmanufactures. The unit product cost of this part is computed as follows:An outside supplier has offered to sell the company all the parts that Aholt needs for $46.20 aunit. If the company accepts this offer, the facilities now being used to make the part could beused to make more units of a product that is in high demand. The additional contribution marginon this other product would be $264,000 per year.If the part were purchased from the outside supplier, all direct labour cost of the part would beavoided. However, $21.90 of the fixed manufacturing overhead cost being applied to the partwould continue, even if the part were purchased from the outside supplier. This fixedmanufacturing overhead cost would be applied to the company's remaining products.57. How much of the unit product cost of $59.90 is relevant in the decision of whether to make

or buy the part?A. $22.70.B. $35.20.C. $38.00.D. $59.90.11.30 + 22.70 + 1.20 + (24.70 - 21.90)Bloom's Level: ApplyDifficulty: EasyLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-3858. What is the net total dollar advantage (disadvantage) of purchasing the part rather thanmaking it?A. ($64,000).B. $264,000.C. ($328,000).D. ($548,000).[(38 + 264,000/40,000) - 46.20] * 40,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

59. What is the maximum amount the company should be willing to pay an outside supplier perunit for the part if the supplier commits to supplying all 40,000 units required each year?A. $6.60.B. $44.60.C. $59.90.D. $66.50.38 + 264,000/40,000Bloom's Level: ApplyDifficulty: HardLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-39Brown Company makes four products in a single facility. These products have the followingunit product costs:Additional data concerning these products are listed below.The grinding machines are potentially a constraint in the production facility. A total of 10,500minutes are available per month on these machines.Direct labour is a variable cost in this company.60. How many minutes of grinding machine time would be required to satisfy demand for allfour products?A. 10,500 minutes.B. 10,700 minutes.C. 10,800 minutes.D. 11,000 minutes.3,000*2 + 2,000*1.10 + 2,000*.70 + 4,000*.30Bloom's Level: ApplyDifficulty: EasyLearning Objective: 3

Chapter 12 - Relevant Costs for Decision Making12-4061. Which product makes the LEAST profitable use of the grinding machines?A. Product A.B. Product B.C. Product C.D. Product D.CM/min. for each: A = (78.70 - 15.60 - 17.60 - 4.40 - 2.60)/2 =$19.25. B = (71.10 - 19.50 - 21 -

5.60 - 3.10)/1.10 = $20.4545. C = (67.90 - 12.50 - 15.40 - 8.10 - 2.80)/.70 = $41.57. D= (62.60- 15.20 - 9.40 - 5.10 - 3.50)/.30 = $98.00Bloom's Level: ApplyDifficulty: HardLearning Objective: 3

62. Which product makes the MOST profitable use of the grinding machines?A. Product A.B. Product B.C. Product C.D. Product D.see CM/minute #82Bloom's Level: ApplyDifficulty: HardLearning Objective: 3

Chapter 12 - Relevant Costs for Decision Making12-4163. What maximum amount (rounded to the nearest whole cent) should the company be willingto pay for one additional minute of grinding machine time if the company has made the best useof the existing grinding machine capacity?A. $0.B. $10.60.C. $19.25.D. $21.90.Use of grinding machine time: Available is 10,500. Less D 4,000*.3 Less C 2,000*.7 less B2,000*1.1 leaves 5,700 hours for product A which only makes 2,850 units. Additional units tobe worked on would be A therefore pay up to $19.25/min (#82)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3

64. Given the current capacity what is the greatest total contribution margin Brown Companycan earn?A. $124,500B. $330,525C. $336,300D. $570,903

using (CM/unit from #82 numerator calculation: 4,000*29.40 + 2,000*29.10 + 2,000*22.50 +2,850(#84) * 38.50Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3

Chapter 12 - Relevant Costs for Decision Making12-42Crane Company makes four products in a single facility. Data concerning these productsappear below:The milling machines are potentially a constraint in the production facility. A total of 22,600minutes are available per month on these machines.65. How many minutes of milling machine time would be required to satisfy demand for allfour products?A. 9,000 minutes.B. 18,400 minutes.C. 22,600 minutes.D. 23,700 minutes.4,000*3.3 + 1,000*1.7 + 3,000*2.10 + 1,000*2.5Bloom's Level: ApplyDifficulty: EasyLearning Objective: 3

66. Which product makes the LEAST profitable use of the milling machines?A. Product A.B. Product B.C. Product C.D. Product D.CM/min. For each: A = (35.30 - 16.50 - 3.80)/3.30= 4.545. B = (30.20 - 15.80 -1.60)/1.70 =7.529. C = (20.80 - 7.90 - 1.90)/2.10 = 5.238. D = (26 - 8.50 - 3.30)/2.50 = 5.68Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

Chapter 12 - Relevant Costs for Decision Making12-4367. Which product makes the MOST profitable use of the milling machines?A. Product A.B. Product B.C. Product C.D. Product D.see #87 CM/min.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

68. What maximum amount (rounded to the nearest whole cent) should the company be willingto pay for one additional minute of milling machine time if the company has made the best useof the existing milling machine capacity?A. $0.B. $4.55.C. $11.00.D. $15.00.22,600 - 1,000*1.7 - 1,000*2.5 - 3,000*2.1 = 12,100 minutes remaining to spend on product A.Since there is still demand for this product therefore spend up to $4.545/minute.Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3

The Madison Company produces three products with the following costs and selling prices: Chapter 12 - Relevant Costs for Decision Making12-4469. If the number of direct labour hours is the production constraint, in which order should thecompany produce the three products?A. A, B, C.B. B, C, A.C. B, A, C.D. A, C, B.CM/DLH for A, B, C = 9/1 = $9, 10/1.5 = $6.67, 8/2 = $4Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

70. If the number of machine hours is the production constraint, in which order should Madisonproduce the three products?A. A, B, C.B. B, A, C.C. B, C, A.D. C, A, B.CM/mh A= 9/4.5 = $2, B = 10/2 = $5, C = 8/2.5 = $3.20Bloom's Level: ApplyDifficulty: MediumLearning Objective: 3

Chapter 12 - Relevant Costs for Decision Making12-45Austin Wool Products purchases raw wool and processes it into yarn. The spindles of yarn canthen be sold directly to stores, or they can be used by Austin Wool Products to make afghans.Each afghan requires one spindle of yarn. Current cost and revenue data for the spindles of yarnand for the afghans are as follows:Each month 4,000 spindles of yarn are produced that can either be sold outright or processedinto afghans.71. If Austin chooses to produce 4,000 afghans each month, what will be the change in themonthly net operating income as compared to selling 4,000 spindles of yarn?A. $16,000 increase.B. $16,000 decrease.C. $24,000 increase.D. $24,000 decrease.[(32 - 12) - (9 + 5)]*4,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-4672. If Austin produced and sold 4,000 afghans and zero spindles of yarn the total contributionmargin would be closed to:A. $24,000.B. $40,000.C. $60,000.D. $8,000.4,000*(32 - 8 - 9)Bloom's Level: ApplyDifficulty: HardLearning Objective: 1Learning Objective: 2

Dowchow Company makes two products from a common input. Joint processing costs up tothe split-off point total $38,400 a year. The company allocates these costs to the joint productson the basis of their total sales values at the split-off point. Each product may be sold at thesplit-off point or processed further. Data concerning these products appear below:73. What is the net monetary advantage (disadvantage) of processing Product X beyond thesplit-off point?A. $1,600.B. ($3,600).C. $22,400.D. $27,600.45,000 - 26,000 - 22,600Bloom's Level: ApplyDifficulty: EasyLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-4774. What is the net monetary advantage of processing Product Y beyond the split-off point?A. $3,500.B. $7,900.C. $25,500.D. $29,900.45,900 - 22,000 - 20,400Bloom's Level: ApplyDifficulty: EasyLearning Objective: 1Learning Objective: 2

75. What is the minimum amount the company should accept for Product X if it is to be sold atthe split-off point?A. $20,800.B. $22,400.C. $43,400.D. $45,000.26,000 - 3,600Bloom's Level: ApplyDifficulty: HardLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-4876. (Appendix 12A) Which of the following items are included in the cost base under theabsorption costing approach to cost-plus pricing?A. Option AB. Option BC. Option C

D. Option DBloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

77. (Appendix 12A) Holding all other things constant, if the unit sales increase, what willhappen to the markup under absorption costing?A. It will increase.B. It will decrease.C. It will remain the same.D. The effect cannot be determined.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-4978. (Appendix 12A) Under time and material pricing, the material loading charge includeswhich of the following items?A. Option AB. Option BC. Option CD. Option DBloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

79. (Appendix 12A) Under time and material pricing, what is(are) included in the timecomponent?A. Only the direct costs of the employee, including salary and fringe benefits.B. A profit element.C. A loading charge.D. A charge for ordering and handling inventory items.Bloom's Level: UnderstandDifficulty: EasyLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-5080. (Appendix 12A) Which of the following statements is NOT consistent with target costing?A. The target cost is the anticipated selling price less the desired profit.B. The technique is most useful in the manufacturing stage of a product.C. Effective target costing is an integral part of continuous improvement (Kaizen costing) as amanagement philosophy.D. In target costing, the anticipated selling price of a product determines the maximumallowable cost for the product.Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

81. (Appendix 12A) The following information is available on Bruder Inc.'s Product A:The company uses the absorption costing approach to cost-plus pricing. Based on these data,what are the total selling, general, and administrative expenses each year?A. $140,000.B. $200,000.C. $240,000.D. $300,000.0.60*(10,000*50) - 400,000*.15 - 240,000Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-5182. (Appendix 12A) Kircher, Inc. manufactures a product with the following costs:

The company uses the absorption costing approach to cost-plus pricing. The pricingcalculations are based on budgeted production and sales of 81,000 units per year. The companyhas invested $220,000 in this product and expects a return on investment of 15%. The targetselling price based on the absorption costing approach would be closest to which of thefollowing?A. $53.29.B. $71.90.C. $72.31.D. $93.67.Product Cost = 24.90 + 13.90 + 2.10 + 1,182,600/81,000 = 55.50. Markup = [(220,000*.15) +81,000*2 + 1,166,400]/(81,000*55.50) = 30.2836%. Selling price = 55.50*(1 +.302836)Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-5283. (Appendix 12A) Magner, Inc. uses the absorption costing approach to cost-plus pricing toset prices for its products. Based on budgeted sales of 34,000 units next year, the unit productcost of a particular product is $61.80. The company's selling, general, and administrativeexpenses for this product are budgeted to be $809,200 in total for the year. The company hasinvested $400,000 in this product and expects a return on investment of 9%. The target sellingprice for this product based on the absorption costing approach would be closest to which of thefollowing?A. $67.36.B. $85.60.C. $86.66.D. $120.03.

61.80 * [1 + (400,000*.09 + 809,200)/(34,000*61.80)]Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-5384. (Appendix 12A) The Sloan Company must invest $120,000 to produce and market 16,000units of Product X each year. Other cost information regarding Product X is as follows:If Sloan Company requires a 15% return on investment, what would be the markup percentageon absorption cost for Product X, rounded to the nearest percent?A. 16%.B. 22%.C. 29%.D. 41%.Product cost = 7 + 5 + 4 + 80,000/16,000 = 21. Markup = (120,000*.15 + 3*16,000 +72,000)/(16,000*21)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-5485. (Appendix 12A) The following information is available on Browning Inc.'s Product A:The company uses the absorption costing approach to cost-plus pricing. Based on these data,what are the total selling, general, and administrative expenses each year?A. $400,000.B. $480,000.

C. $640,000.D. $720,000.Markup = (90 - 60)/60 = 60%. SGA = [.60*(20,000*60)] - 500,000*.16Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-5586. (Appendix 12A) Cost data relating to the single product produced by the Jones Companyare given below:The Jones Company uses the absorption costing approach with a desired markup of 60%. If thecompany plans to produce and sell 20,000 units each year, what would be the target sellingprice per unit?A. $32.00.B. $36.00.C. $41.60.D. $43.20.(10 + 6 + 3 + 140,000/20,000) * (1 + .60)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-5687. (Appendix 12A) Marvel Company estimates that the following costs and activity would beassociated with the manufacture and sale of one unit of product Y:If the company uses the absorption costing approach to cost-plus pricing and desires a 15% rate

of return on investment (ROI), what would be the required markup on absorption cost forproduct Y?A. 12%.B. 15%.C. 26%.D. 38%.(400,000*.15 + 130,000)/(20,000*25)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-5788. (Appendix 12A) Joeston Corporation makes a product with the following costs:The company uses the absorption costing approach to cost-plus pricing. The pricingcalculations are based on budgeted production and sales of 14,000 units per year. The companyhas invested $540,000 in this product and expects a return on investment of 10%. The markupon absorption cost would be closest to which of the following?A. 10.0%.B. 27.1%.C. 34.2%.D. 124.2%.Product cost = 14.70 + 14.10 + 3.70 + 305,200/14,000 = 54.30. Markup = (540,000*.10 +3*14,000 + 163,800)/(14,000*54.30)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-5889. (Appendix 12A) Lacy Corporation uses the absorption costing approach to cost-pluspricing to set prices for its products. Based on budgeted sales of 86,000 units next year, the unitproduct cost of a particular product is $81.60. The company's selling, general, andadministrative expenses for this product are budgeted to be $1,247,000 in total for the year. Thecompany has invested $360,000 in this product and expects a return on investment of 12%. Themarkup on absorption cost for this product would be closest to which of the following?A. 12.0%.B. 17.8%.C. 18.4%.D. 29.8%.(360,000*.12 + 1,247,000)/(86,000*81.60)Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

90. (Appendix 12A) Straus Company, a manufacturer of electronic products, wants tointroduce a new calculator. To compete effectively, the calculator could not be priced at morethan $40. The company requires a 20% rate of return on investment on all new products. Inorder to produce and sell 30,000 calculators each year, the company would have to make aninvestment of $850,000. What would be the target cost per calculator?A. $16.50.B. $23.50.C. $28.33.D. $34.33.(30,000*40 - 850,000*.20)/30,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

Chapter 12 - Relevant Costs for Decision Making12-59

91. (Appendix 12A) Timax Company, a manufacturer of moderately priced time pieces, wouldlike to introduce a new electronic watch into the market. To compete effectively, the watchcould not be priced at more than $50. The company requires a return on investment of 25% onall new products. The plan is to produce and sell 20,000 watches each year. This would requirea $500,000 investment. What would be the target cost per watch?A. $25.00.B. $39.00.C. $43.75.D. $64.00.(20,000*50 - 500,000*.25)/20,000Bloom's Level: ApplyDifficulty: MediumLearning Objective: 5

92. (Appendix 12A) Watkins Company uses time and material pricing. The time rate is $25 perhour. The material loading charge is 30% for ordering, handling, and storing parts and 10% forthe desired profit on materials. Given these data, what would be the total charge for a job thatrequires 8 hours of labour time and $150 in parts?A. $260.B. $410.C. $430.D. $490.8*25 + 150 + 150*(.30 + .10)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-6093. (Appendix 12A) Dresser Company uses time and material pricing. The time rate is $30 perhour. The material loading charge is 15% for ordering, handling, and storing materials and 25%for the desired profit on these materials. Given these data, what would be the total charge for a

job that requires 3 hours of labour time and $80 in materials?A. $182.B. $190.C. $202.D. $214.3*30 + 80 + 80*(.15 + .25)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Dickson Company makes a product with the following costs:The company uses the absorption costing approach to cost-plus pricing. The pricingcalculations are based on budgeted production and sales of 60,000 units per year.The company has invested $320,000 in this product and expects a return on investment of 15%.Direct labour is a variable cost in this company. Chapter 12 - Relevant Costs for Decision Making12-6194. (Appendix 12A) The markup on absorption cost is closest to which of the following?A. 15.0%.B. 30.0%.C. 31.2%.D. 96.5%.Product cost = 18.20 + 22.30 + 2.90 + 1,296,000/60,000 = 65. Markup = (320,000*.15 +60,000*1.10 + 1,104,000)/(60,000*65)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

95. (Appendix 12A) The target selling price based on the absorption costing approach is closestto which of the following?A. $56.95.B. $84.50.C. $85.30.D. $110.89.65*(1 +.3123)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Eckert Company uses the absorption costing approach to cost-plus pricing to set prices for itsproducts. Based on budgeted sales of 18,000 units next year, the unit product cost of a particularproduct is $60.40. The company's selling, general, and administrative expenses for this productare budgeted to be $370,800 in total for the year. The company has invested $260,000 in this

product and expects a return on investment of 11%.

Chapter 12 - Relevant Costs for Decision Making12-6296. (Appendix 12A) The markup on absorption cost for this product would be closest to whichof the following?A. 11.0%.B. 34.1%.C. 36.7%.D. 45.1%.(260,000*.11 + 370,800)/(18,000*60.40)Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

97. (Appendix 12A) The target selling price based on the absorption costing approach for thisproduct would be closest to which of the following?A. $67.04.B. $81.00.C. $82.59.D. $110.76.60.40*(1 +.367365)Bloom's Level: ApplyDifficulty: EasyLearning Objective: 4

Raymond Company estimates that an investment of $800,000 would be necessary to produceand sell 40,000 units of Product S each year. Costs associated with the new product would be:The company requires a 20% return on the investment in all products. The company uses theabsorption costing approach to pricing.

Chapter 12 - Relevant Costs for Decision Making12-6398. (Appendix 12A) What is the markup percentage needed on Product S in order to achieve thecompany's required return on investment?A. 29%.B. 37%.C. 40%.D. 50%.product cost = 30 + 300,000/40,000 = 37.50. Markup = (800,000*.20 + 40,000*5 +240,000)/(40,000*37.50)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

99. (Appendix 12A) What is the target selling price based on the absorption costing approach?A. $48.38.B. $51.38.C. $52.50.D. $56.25.37.50*(1 +.40) from calculations in #119Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-64Mercer Company is planning the introduction of a new product. The following informationrelating to the product has been assembled:The company uses the absorption costing approach to pricing.100. (Appendix 12A) The markup percentage that would be needed on the new product isclosest to which of the following?A. 12.5%.B. 24.0%.C. 51.0%.D. 59.5%.Product cost = 12 + 360,000/60,000 = 18. Markup = (650,000*, 25 + 60,000*3 +300,000)/(60,000*18)Bloom's Level: Apply

Difficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-65101. (Appendix 12A) The target selling price for one unit of the new product is closest to whichof the following?A. $22.00.B. $26.50.C. $28.71.D. $32.67.18*(1 +.5949) from calculations in #121Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

True / False Questions102. One of the dangers of allocating common fixed costs to a product line is that suchallocations can make the line appear less profitable than it really is.TRUEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 2

103. Future costs that do NOT differ among the alternatives are NOT relevant in a decision.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

104. Variable costs are always relevant costs.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1

Chapter 12 - Relevant Costs for Decision Making

12-66105. An avoidable cost is a cost that can be eliminated (in whole or in part) by choosing onealternative over another.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 1

106. A sunk cost is a cost that has already been incurred and cannot be avoided regardless ofwhat action is chosen.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 1

107. The book value of old equipment is NOT a relevant cost in an equipment replacementdecision.TRUEBloom's Level: RememberDifficulty: EasyLearning Objective: 2

108. Only the variable costs identified with a product are relevant in a decision concerningwhether to eliminate the product or not.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-67109. If by dropping a product a firm can avoid more in fixed costs than it loses in contributionmargin, then the firm is better off economically if the product is dropped.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

110. The cost of resources that has no alternative use in a make or buy decision has anopportunity cost of zero.TRUEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 2

111. Managers should pay little attention to bottleneck operations because they have limitedcapacity for producing output.FALSEBloom's Level: UnderstandDifficulty: HardLearning Objective: 3

112. Opportunity costs are recorded in the accounts of an organization.FALSEBloom's Level: RememberDifficulty: EasyLearning Objective: 1

Chapter 12 - Relevant Costs for Decision Making12-68113. All other things equal, it is profitable to continue processing a joint product after thesplit-off point so long as the incremental revenue from further processing exceeds theincremental costs of further processing.TRUEBloom's Level: UnderstandDifficulty: EasyLearning Objective: 2

114. Joint production costs are relevant costs in decisions about what to do with a product fromthe split-off point onward in the production process.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 1Learning Objective: 2

115. Two or more different products that are manufactured in the same production period areknown as joint products.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 2

116. (Appendix 12A) The absorption costing approach to cost-plus pricing will result inattaining the company's required rate of return only if forecasted unit sales are realized, holdingall other things constant.TRUE

Bloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-69117. Using the profitability index, it is easy to decide which product is less profitable andshould be de-emphasized.TRUEBloom's Level: RememberDifficulty: MediumLearning Objective: 3

118. (Appendix 12A) The markup over cost under the absorption costing approach wouldincrease if the required rate of return increases, holding everything else constant.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

119. (Appendix 12A) The markup over cost under the absorption costing approach wouldincrease if the unit product cost increases, holding everything else constant.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

120. (Appendix 12A) The time and material approach pricing will result in attaining thecompany's desired profit only if forecasted billable activity is realized, holding all other thingsconstant.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-70121. (Appendix 12A) If a company sells a product for less than its budgeted unit product costunder absorption costing, then the company will lose money.FALSEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 4

122. (Appendix 12A) In target costing, the anticipated competitive market price of a productdetermines its maximum allowable product cost.TRUEBloom's Level: UnderstandDifficulty: MediumLearning Objective: 5

Chapter 12 - Relevant Costs for Decision Making12-71Essay Questions123. Foster Company makes 20,000 units per year of a part that it uses in the products itmanufactures. The unit product cost of this part is computed as follows:An outside supplier has offered to sell the company all the parts that Foster needs for $51.80 aunit. If the company accepts this offer, the facilities now being used to make the part could beused to make more units of a product that is in high demand. The additional contribution marginon this other product would be $44,000 per year.If the part were purchased from the outside supplier, all of the direct labour cost of the partwould be avoided. However, $5.10 of the fixed manufacturing overhead cost that is beingapplied to the part would continue, even if the part were purchased from the outside supplier.This fixed manufacturing overhead cost would be applied to the company's remaining products.Required:a) How much of the unit product cost of $56.70 is relevant in the decision of whether to make orbuy the part?

b) What is the net total dollar advantage (disadvantage) of purchasing the part rather thanmaking it?c) What is the maximum amount the company should be willing to pay an outside supplier perunit for the part if the supplier commits to supplying all 20,000 units required each year?

Chapter 12 - Relevant Costs for Decision Making12-72a) Relevant cost per unit:b) Net advantage (disadvantage):c) Maximum acceptable purchase price:Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-73124. The Hyatt Company is trying to decide whether it should purchase new equipment andcontinue to make its subassemblies internally or if production should be discontinued and thesubassembly purchased from an outside supplier.New equipment for producing the subassemblies can be purchased at a cost of $400,000. Theequipment would have a five-year useful life (the company uses straight-line depreciation) anda $50,000 salvage value.Alternatively, the subassemblies could be purchased from an outside supplier. The supplier hasoffered to provide the subassemblies for $9 each under a five-year contract.

Hyatt Company's present costs per unit of producing the subassemblies internally (with the oldequipment) are given below. The costs are based on a current activity level of 40,000subassemblies per year:The new equipment would be more efficient and would reduce direct labour costs and variableoverhead costs by 25%. Supervision cost ($30,000 per year) and direct materials cost per unitwould not be affected by the new equipment. The company has no other use for the space nowbeing used to produce the subassemblies. The company's total general company overheadwould not be affected by this decision. Assume direct labour is a variable cost.Required:Assume that 40,000 subassemblies are needed each year. Prepare an analysis of the twoalternatives and make a recommendation to the management of the company of the appropriatecourse of action.

Chapter 12 - Relevant Costs for Decision Making12-74The $2.00 per unit general overhead cost is not relevant to the decision. This cost will continueregardless of which alternative the company selects. The depreciation of $0.90 per unit is not arelevant cost because it represents a sunk cost (in addition to the fact that the old equipment isworn out and must be replaced). The cost of the new equipment is relevant because the newequipment will not be purchased if the company decides to accept the outside supplier's offer.The cost of supervision is relevant because this cost can be avoided by purchasing thesubassemblies.At the level of 40,000 subassemblies per year, the company should purchase the subassembliesfrom the outside supplier.Bloom's Level: Analyze

Difficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-75125. Benjamin Signal Company produces products R, J, and C from a joint production process.Each product may be sold at the split-off point or be processed further. Joint production costs of$92,000 per year are allocated to the products based on the relative number of units produced.Data for Benjamin's operations for the current year are as follows:Product R can be processed beyond the split-off point for an additional cost of $26,000 and canthen be sold for $105,000. Product J can be processed beyond the split-off point for anadditional cost of $38,000 and can then be sold for $117,000. Product C can be processedbeyond the split-off point for an additional cost of $12,000 and can then be sold for $57,000.Required:Which products should be processed beyond the split-off point?Products R and J should be processed beyond the split-off point. Product C should be sold atsplit-off. Joint production costs are not relevant to the decision to sell at split-off or to processfurther.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-76

126. Bowen Company produces products P, Q, and R from a joint production process. Eachproduct may be sold at the split-off point or be processed further. Joint production costs of$81,000 per year are allocated to the products based on the relative number of units produced.Data for Bowen's operations for the current year are as follows:Product P can be processed beyond the split-off point for an additional cost of $10,000 and canthen be sold for $50,000. Product Q can be processed beyond the split-off point for anadditional cost of $35,000 and can then be sold for $65,000. Product R can be processed beyondthe split-off point for an additional cost of $6,000 and can then be sold for $25,000.Required:Which products should be processed beyond the split-off point?Products P and R should be processed beyond the split-off point. Product Q should be sold atsplit-off. Joint production costs are not relevant to the decision to sell at split-off or to processfurther.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-77127. Madison Optometry is considering the purchase of a new lens grinder to replace a machinethat was purchased several years ago. Selected information on the two machines is given below:Ignore income taxes and the time value of money in this problem.Required:Compute the total advantage or disadvantage of using the new machine instead of the oldmachine over the next four years.The analysis of the alternatives appears below:Therefore, the net disadvantage to purchasing and using the new machine would be $55,000

because its total cost is $55,000 higher than the total cost of using the old machine.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-78128. Juett Company produces a single product. The cost of producing and selling a single unitof this product at the company's normal activity level of 70,000 units per month is as follows:The normal selling price of the product is $72.90 per unit.An order has been received from an overseas customer for 2,000 units to be delivered thismonth at a special discounted price. This order would have no effect on the company's normalsales and would not change the total amount of the company's fixed costs. The variable sellingand administrative expense would be $1.10 less per unit on this order than on normal sales.Direct labour is a variable cost in this company.Required:a) Suppose there is ample idle capacity to produce the units required by the overseas customer,and the special discounted price on the special order is $66.10 per unit. By how much wouldthis special order increase (decrease) the company's operating income for the month?b) Suppose the company is already operating at capacity when the special order is receivedfrom the overseas customer. What would be the opportunity cost of each unit delivered to theoverseas customer?c) Suppose there is not enough idle capacity to produce all of the units for the overseas customer,and accepting the special order would require cutting back on production of 1,300 units forregular customers. What would be the minimum acceptable price per unit for the special order?

Chapter 12 - Relevant Costs for Decision Making12-79a)b) The opportunity cost is just the contribution margin on normal sales:c) Minimum acceptable price:Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-80129. When Mr. Ding L. Berry, president and chief executive of Berry, Inc., first saw thesegmented income statement below, he flew into his usual rage: "When will we ever startshowing a real profit? I'm starting immediate steps to eliminate those two unprofitable lines!"*These traceable expenses could be eliminated if the product lines to which they are tracedwere discontinued.Required:Recommend which segments, if any, should be eliminated. Prepare a report in good form tosupport your answer.A segmented income report, without the allocation of common fixed expenses, will provide thebasis for deciding which segments to drop.The only segment that possibly should be eliminated is segment W, which shows a negativesegment margin of $2,000.

Chapter 12 - Relevant Costs for Decision Making12-81Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 1Learning Objective: 2

130. Northern Stores is a retailer in British Columbia. The most recent monthly incomestatement for Northern Stores is given below:Northern is considering closing Store I. If Store I is closed, one-fourth of its traceable fixedexpenses would continue to be incurred. Also, the closing of Store I would result in a 20%decrease in sales in Store II. Northern allocates common fixed expenses on the basis of salesdollars and none of these costs would be saved if a store were shut down.Required:Compute the overall increase or decrease in the operating income of Northern Stores if Store Iis closed.Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-82131. The Anaconda Mining Company currently is operating at less than 50% of practicalcapacity. The management of the company expects sales to drop below the present level of15,000 tonnes of ore per month very soon. The selling price per tonne of ore is $2, and thevariable cost per tonne is $1. Fixed costs per month total $15,000.

Management is concerned that a further drop in sales volume will generate a loss and,accordingly, is considering the temporary suspension of operations until demand in the metalsmarkets returns to normal levels and prices rebound. Management has implemented a costreduction program over the past year that has been successful in reducing costs. Nevertheless,suspension of operations appears to be the only viable alternative. Management estimates thatsuspension of operations would reduce fixed costs from $15,000 to $5,000 per month.Required:a) Why does management estimate that fixed costs will persist at $5,000 per month although themine is temporarily closed?b) At what sales volume should management suspend operations at the mine?a) Some fixed costs will continue to be incurred despite the temporary closing of the mine. Keyemployees cannot be discharged because these employees will seek employment elsewhere andreplacing them could prove to be quite costly. A skeleton staff would be needed to performsome administrative functions. Additionally, the maintenance of building and equipment wouldneed to continue to prevent damage that would be costly to repair. Taxes and insurance wouldcontinue to be paid during the shut-down period.b) Suspension of operations would be desirable when sales volume drops below 10,000 tonnesas shown below:Each tonne extracted contributes $1.00 per tonne towards fixed costs:Sales volume necessary to recover $10,000 of fixed costs:

Chapter 12 - Relevant Costs for Decision Making12-83Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-84132. Kramer Company makes 4,000 units per year of a part called an axial tap for use in one ofits products. Data concerning the unit production costs of the axial tap follow:An outside supplier has offered to sell Kramer Company all of the axial taps it requires. IfKramer Company decided to discontinue making the axial taps, 40% of the above fixedmanufacturing overhead costs could be avoided. Assume that direct labour is a variable cost.Required:a) Assume Kramer Company has no alternative use for the facilities presently devoted toproduction of the axial taps. If the outside supplier offers to sell the axial taps for $65 each,should Kramer Company accept the offer? Fully support your answer with appropriatecalculations.b) Assume that Kramer Company could use the facilities presently devoted to production of theaxial taps to expand production of another product that would yield an additional contributionmargin of $80,000 annually. What is the maximum price Kramer Company should be willing topay the outside supplier for axial taps?Chapter 12 - Relevant Costs for Decision Making12-85a) The analysis of the alternatives follows below:* 40% x $20The company should make the part rather than buy it from the outside supplier because it costs$4 less under that alternative.b) The maximum acceptable price is $81 because that is the cost to the company of making thepart itself when the opportunity cost is included:Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-86133. Glocker Company makes three products in a single facility. These products have thefollowing unit product costs:Additional data concerning these products are listed below.The mixing machines are potentially a constraint in the production facility. A total of 5,900minutes are available per month on these machines.Direct labour is a variable cost in this company.Required:a) How many minutes of mixing machine time would be required to satisfy demand for all fourproducts?b) How much of each product should be produced, rounded to the nearest whole unit, tomaximize operating incomec) Up to how much should the company be willing to pay, rounded to the nearest whole cent, forone additional minute of mixing machine time if the company has made the best use of theexisting mixing machine capacity?

Chapter 12 - Relevant Costs for Decision Making12-87a) Demand on the mixing machine:Total time required for all products: 6,500 minutesb) Optimal production plan:c) The company should be willing to pay up to the contribution margin per minute for themarginal job, which is $13.95.Bloom's Level: Analyze

Difficulty: HardLearning Objective: 3

Chapter 12 - Relevant Costs for Decision Making12-88134. Holt Company makes three products in a single facility. Data concerning these productsfollow:The mixing machines are potentially a constraint in the production facility. A total of 25,800minutes are available per month on these machines.Direct labour is a variable cost in this company.Required:a) How many minutes of mixing machine time would be required to satisfy demand for all fourproducts?b) How much of each product should be produced, rounded to the nearest whole unit, tomaximize operating income?c) Up to how much should the company be willing to pay, rounded to the nearest whole cent, forone additional minute of mixing machine time if the company has made the best use of theexisting mixing machine capacity?

Chapter 12 - Relevant Costs for Decision Making12-89a) Demand on the mixing machine:Total time required for all products: 26,700 minutesb) Optimal production plan:c) The company should be willing to pay up to the contribution margin per minute for themarginal job, which is $5.15.

Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3

Chapter 12 - Relevant Costs for Decision Making12-90135. Redner, Inc. produces three products. Data concerning the selling prices and unit costs ofthe three products appear below:Fixed costs are applied to the products on the basis of direct labour hours.Demand for the three products exceeds the company's productive capacity. The grindingmachine is the constraint, with only 2,400 minutes of grinding machine time available thisweek.Required:a) Given the grinding machine constraint, which product should be emphasized? Support youranswer with appropriate calculations.b) If there is still unfilled demand for the product that the company should emphasize in part a)above, up to how much should the company be willing to pay for an additional hour of grindingmachine time?a) The product to emphasize can be determined by computing the contribution margin per unitof the scarce resource, which in this case is grinding machine time.Product L should be emphasized because it has the greatest contribution margin per unit of thescarce resource.b) If additional grinding machine time is used to produce more of Product L, the time would beworth 60 x $5 = $300 per hour.

Chapter 12 - Relevant Costs for Decision Making12-91Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 3

Chapter 12 - Relevant Costs for Decision Making12-92136. Iaci Company makes two products from a common input. Joint processing costs up to thesplit-off point total $42,000 a year. The company allocates these costs to the joint products onthe basis of their total sales values at the split-off point. Each product may be sold at the split-offpoint or processed further. Data concerning these products appear below:Required:a) What is the net monetary advantage (disadvantage) of processing Product X beyond thesplit-off point?b) What is the net monetary advantage (disadvantage) of processing Product Y beyond thesplit-off point?c) What is the minimum amount the company should accept for Product X if it is to be sold atthe split-off point?d) What is the minimum amount the company should accept for Product Y if it is to be sold atthe split-off point?a) & b)c) & d)Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-93137. Harris Corp. manufactures three products from a common input in a joint processingoperation. Joint processing costs up to the split-off point total $200,000 per year. The companyallocates these costs to the joint products on the basis of their total sales value at the split-offpoint. Each product may be sold at the split-off point or processed further. The additionalprocessing costs and sales value after further processing for each product (on an annual basis)are:The "Further Processing Costs" consist of variable and avoidable fixed costs.Required:Which product or products should be sold at the split-off point, and which product or productsshould be processed further? Show computations.Product K should be sold after further processing beyond the split-off point. Products J and Lshould be sold at the split-off point without any further processing.Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-94138. (Appendix 12A) Qualls Company makes a product that has the following costs:The company uses the absorption costing approach to cost-plus pricing. The pricing

calculations are based on budgeted production and sales of 48,000 units per year.The company has invested $360,000 in this product and expects a return on investment of 15%.Required:a) Compute the markup on absorption cost.b) Compute the target selling price of the product using the absorption costing approach.a)b)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-95139. (Appendix 12A) Riley Company makes a product that has the following costs:The company uses the absorption costing approach to cost-plus pricing. The pricingcalculations are based on budgeted production and sales of 48,000 units per year.The company has invested $500,000 in this product and expects a return on investment of 15%.Required:a) Compute the markup on absorption cost.b) Compute the target selling price of the product using the absorption costing approach.a)b)Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-96140. (Appendix 12A) Trevor Company is contemplating the introduction of a new product. Thecompany has gathered the following information concerning the product:The company uses the absorption costing approach to cost-plus pricing.Required:a) Compute the markup on absorption cost.b) Compute the target selling price.c) If the price computed in part b) above is charged, and costs turn out as projected, can thecompany be assured that no loss will be sustained on the new product? Explain.c) No, sales volume may be less than the 12,000 units projected annually, resulting ininadequate contribution margin to cover fixed costs, and a consequent loss for the company onthe product.

Chapter 12 - Relevant Costs for Decision Making12-97Bloom's Level: AnalyzeDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-98141. (Appendix 12A) Ritchie Corporation manufactures a product that has the following costs:The company uses the absorption costing approach to cost-plus pricing. The pricingcalculations are based on budgeted production and sales of 37,000 units per year.The company has invested $160,000 in this product and expects a return on investment of 15%.Required:a) Compute the markup on absorption cost.b) Compute the target selling price of the product using the absorption costing approach.Fixed Overhead = 817,700/37,000 = 22.10Bloom's Level: ApplyDifficulty: HardLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-99142. (Appendix 12A) Green Hornet Company is contemplating the introduction of a newproduct. The company has gathered the following information concerning the product:The company uses the absorption costing approach to cost-plus pricing.Required:a) Compute the markup on absorption cost.b) Compute the target selling price.Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-100143. Gildersleeve Corporation manufactures a product that has the following costs:The company uses the absorption costing approach to cost-plus pricing. The pricingcalculations are based on budgeted production and sales of 30,000 units per year.The company has invested $600,000 in this product and expects a return on investment of 15%.Required:a) Compute the markup on absorption cost.b) Compute the target selling price of the product using the absorption costing approach.

Chapter 12 - Relevant Costs for Decision Making12-101Bloom's Level: ApplyDifficulty: MediumLearning Objective: 4

Chapter 12 - Relevant Costs for Decision Making12-102144. (Appendix 12A) Turnhilm, Inc. is considering adding a small electric mower to its productline. Management believes that in order to be competitive, the mower cannot be priced above$139. The company requires a minimum return of 25% on its investments. Launching the newproduct would require an investment of $8,000,000. Sales are expected to be 40,000 units of themower per year.Required:a) Compute the target cost of a mower.

b) Suppose the target cost calculated in part (b) above is not attainable using the company'scurrent manufacturing facilities. Specifically, the average cost of producing the 40,000 units is$100 per unit. Besides abandoning the idea, what specific options are available to Turnhilm?c) Suppose, using the company's current manufacturing facilities the average cost of producingthe 40,000 units is only $80. What other specific options are available to Turnhilm?

Chapter 12 - Relevant Costs for Decision Making

12-103a)b) One option is for the company to go ahead and introduce the product but at a higher pricethan the competition and still desire a minimum return of 25% on its investments. Most likely,the demand will be less than 40,000 units unless the higher cost includes more features than thecompetition. This option assumes cost reductions (using techniques such as activity-basedmanagement, theory of constraints, and TQM) are not possible. Another option is introducingthe product at the same price as the competition but lowering the required minimum return oninvestment. The required minimum return is about 19.50%, that is:This option is more plausible than the first unless the company's cost of capital is much higherthan the 25% required minimum return on investment.c) One attractive option is price reduction to gain market share or force the competition to lowertheir price. A price of $130 can accomplish this latter goal (that is, ($2,000,000 + ($80 x40,000))/40,000)). A possible outcome of this strategy is price war which can result insignificant losses for all including Turnhilm. Another option is to charge the same price as thecompetition and earn a higher return on investment for Turnhilm's shareholders. The resultingreturn is about 29.50% (that is, ($5,560,000 - ($80 x 40,000))/$8,000,000)).Bloom's Level: AnalyzeDifficulty: HardLearning Objective: 5

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145. Juanita earns $68,000 annually as a marketing specialist in Mexico City, Mexico. She hasapplied for admission to the M.B.A program at Dalhousie University. If accepted, she willresign and move to Halifax, Nova Scotia. Juanita has assembled the following data to make thedecision:Required:a) Calculate the following in the context of Juanita's decision:(i) Total sunk costs (if any)(ii) Total differential or incremental costs (if any)(iii) Total opportunity costs (if any)b) What is your best estimate of the total cost to Juanita of earning an M.B.A. degree if it willtake her 12 months to complete the program?c). Suppose you are Juanita. What specific additional information would you need in order tomake a rational decision to pursue and successfully complete the MBA program at Dalhousie?Explain.

Chapter 12 - Relevant Costs for Decision Making12-105a)(i) Total sunk costs are $600 (cost of two business suits purchased just prior to resigning)(ii) Total differential/incremental costs:Note: The auto expenses are not differential or incremental because they remain the same inMexico City and Halifax.(iii) Total opportunity costs are $68,000 (Juanita's annual salary forgone)b) Total cost to Juanita of earning an MBA degreec) Specific additional information required to make a rational decision includes:Expected benefits from having an MBA degree. Examples are increased salary,personalgrowth, enhanced reputation and network of classmatesReputation of the Dalhousie MBA program in comparison to other programs. This may beespecially relevant if benefits from network of classmates are important to Juanita.Feasibility of obtaining similar (or even superior) qualification using non-traditional means (forexample, internet-based MBA from reputable universities). This option may be more attractiveto Juanita because most of the incremental costs can be saved as well as the opportunity cost.Bloom's Level: EvaluateDifficulty: Hard

Learning Objective: 1Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making12-106146. (Appendix 12A) iBurst Technology is developing a high-speed modem to connectnotebook computers with iSun's satellite-based data network. The cross-functional team incharge of the project has assembled the following information:Required:a) Given the above information calculate the cost reduction target.b) If the cross-functional team believes the cost of the modem cannot be reduced by any morethan 18%, is this a feasible product for iBurst Technology? Why or why not?c) Whether the cost reduction target is feasible or not, what can the cross-functional team do tofurther reduce cost? Chapter 12 - Relevant Costs for Decision Making12-107a) Cost reduction target(Note: The currently feasible cost averages to $166.67 per unit ($50,000,000/300,000 units)which exceeds the average target unit cost of $120. The difference multiplied by 300,000 unitsequals the total cost reduction target of $14,000,000.)b) Attainable costDecision: The product is NOT feasible for any of the following reasons:The total attainable minimum cost of $41,000,000 exceeds the total target cost of $36,000,000.The minimum attainable average unit cost of $136.67 exceeds the average unit target cost of$120.The maximum attainable cost of reduction percentage of 18% is less than the required costreduction percentage of 28% ($14 million/$50 million.)The maximum attainable cost reduction of $9 million is less than the required cost reductiontarget of $14 million.The required return of 20% on sales exceeds the maximum attainable return on sales of 8.89%(i.e. (($150 - $136.67)/$150) or (($45 million - $41 million)/$45 million)))c) Possible actions to further reduce the costs of production includeEliminate or reduce non-value added activities.Outsource some of the activities in which the firm does not have competitive advantage and thatare also not the firm's sources of competitive advantage.Benchmark the firm's production costs or activities to the best in its industry.

May consider redesigning the product or re-configuring the value-added activities.May consider reducing the required return on sale