# Acct420-cost accounting mid-term examination review

American InterContinental University
ACCT420-Cost Accounting
Mid-Term Examination Review

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question.

Answer the following questions using the information below:

The Ranger Company uses the highlow method to estimate its cost function. The information for 2011 is provided below:

Machinehours               Costs

Highest observation of cost driver                     2,000                       \$450,000

Lowest observation of cost driver                      1,000                      \$ 250,000

1.       What is the constant for the estimating cost equation?

2.       Variable costs:

Answer the following questions using the information below:

Roiann and Dennett Law Office employs 12 fulltime attorneys and 10 paraprofessionals. Direct and indirect costs are applied on a professional laborhour basis that includes both attorney and paraprofessional hours. Following is information for 20X3:

Budget                  Actual

Indirect costs                                                     \$270,000               \$300,000

Annual salary of each attorney                   \$100,000               \$110,000

Annual salary of each paraprofessional   \$ 29,000                \$ 30,000

Total professional laborhours                         50,000  dlh          60,000  dlh

3.       How much should the client be billed in an actual costing system if 200 professional laborhours are used?

Answer the following questions using the information below:

Nancy’s Niche sells a single product. 8,000 units were sold resulting in \$80,000 of sales revenue, \$20,000 of variable costs, and \$10,000 of fixed costs.

4.       The contribution margin percentage is:

5.       If variable costs decrease by \$1 per unit, the new breakeven point is:

6.       If a change is made in one parameter of CVP analysis, it is an example of:

Answer the following questions using the information below:

Roosevelt Cabinetry, Inc., manufactures standard sized modular cabinet units for kitchens and other applications within the home. Its costing system utilizes two cost categories, direct materials and conversion costs. Each product must pass through the rough cut department and the finish department. Direct materials are added at the beginning of production. Conversion costs are allocated evenly throughout production.

Data for Finish Department for March 2012 are:

Work in process, beginning inventory, 25% converted            1,000 units

Units started during February                                                         1,400 units

Work in process, ending inventory                                                   300 units

Costs for Finish department for March 2012 are:

Work in process, beginning inventory:

Direct materials                                                                                \$300,000

Conversion costs                                                                              \$200,000

Direct materials costs added during February                               \$420,000

Conversion costs added during February                                    \$1,600,000

7.       What is the unit cost per equivalent unit of the beginning inventory in the Finishing Department?

A. \$1,100.00        B. \$500.00            C. \$800.00            D. \$300.00

8.       If a company would like to increase its degree of operating leverage it should:

9.       The focus of ABC systems is on:

A. longterm decisions    B. shortterm decisions

C. specialpricing decisions           D. makeorbuy decisions

10.    Which of the following is NOT a sign that a “smoothing out” costing system exists?

11.    Standard costing is popular among companies that:

A. manufacture textiles or ceramics

B. produce a product that uses few direct materials items, and has relatively few operational activities

C. produce masses of similar or identical products

D. All of these answers are correct.

12.    Using activitycost rates rather than department indirectcost rates to allocate costs results in different product costs when:

Answer the following questions using the information below:

Mertens Company provides the following ABC costing information:

Activities                                          Total Costs                 Activitycost drivers

The above activities are used by Departments A and B as follows:

Department A            Department B

Account inquiry hours                          2,000  hours                4,000  hours

Account billing lines                         400,000  lines             200,000  lines

Account verification accounts          10,000  accounts          8,000  accounts

Correspondence letters                         1,000  letters               1,600  letters

13.    How much of the account inquiry cost will be assigned to Department A?

A. \$80,000            B. \$200,000

C. \$40,000            D. None of these answers are correct.

Answer the following questions using the information below:

The Cuckoo Clock Shop manufactures clocks on a highly automated assembly line. Its costing system uses two cost categories, direct materials and conversion costs. Each product must pass through the Assembly Department and the Testing Department. Direct materials are added at the beginning of the production process. Conversion costs are allocated evenly throughout production. Cuckoo Clock Shop uses weightedaverage costing.

Data for the Assembly Department for June 2013 are:

Work in process, beginning inventory                                             250 units

Direct materials (100% complete)

Conversion costs (50% complete)

Costs for June 2013:

Work in process, beginning inventory:

Direct materials                                                                                  \$90,000

Conversion costs                                                                              \$135,000

Direct materials costs added during June                                        \$500,000

Conversion costs added during June                                                \$500,000

14.    What amount of conversion costs are assigned to the ending WorkinProcess account for June?

A. \$70,555.50      B. \$63,225.25       C. \$50,978.32      D. \$90,074

Answer the following questions using the information below:

The RestaLot chair company manufacturers a standard recliner. During February, the firm’s Assembly Department started production of 75,000 chairs. During the month, the firm completed 80,000 chairs, and transferred them to the Finishing Department. The firm ended the month with 10,000 chairs in ending inventory. There were 15,000 chairs in beginning inventory. All direct materials costs are added at the beginning of the production cycle and conversion costs are added uniformly throughout the production process. The FIFO method of process costing is used by RestaLot. Beginning work in process was 30% complete as to conversion costs, while ending work in process was 80% complete as to conversion costs.

Beginning inventory:

Direct materials                          \$24,000

Conversion costs                        \$35,000

Manufacturing costs added during the accounting period:

Direct materials                        \$168,000

Conversion costs                      \$278,000

15.    What were the equivalent units for conversion costs during February?

A. 79,500              B. 75,000               C. 83,500              D. 85,000

Answer the following questions using the information below:

The Morgan Models company manufactures replica plastic airplane and motorized vehicle models. During October, the firm’s Assembly Department started production of 60,000 models. During the month, the firm completed 66,000 models, and transferred them to the Finishing Department. The firm ended the month with 22,000 models in ending inventory. There were 28,000 models in beginning inventory. All direct materials costs are added at the beginning of the production cycle and conversion costs are added uniformly throughout the production process. The FIFO method of process costing is used by Morgan. Beginning work in process was 25% complete as to conversion costs, while ending work in process was 50% complete as to conversion costs.

Beginning inventory:

Direct materials costs               \$39,200

Conversion costs                        \$30,800

Manufacturing costs added during the accounting period:

Direct materials costs               \$90,000

Conversion costs                      \$280,000

16.    What is the cost of the goods transferred out during October?

A. \$375,000         B. \$340,000          C. \$363,000          D. \$330,000

17.    Luke employs 25 professional cleaners. Budgeted costs total \$1,800,000 of which \$1,050,000 is direct costs. Budgeted indirect costs are \$750,000 and actual indirect costs were \$793,800. Budgeted professional laborhours are 1,000,000 and actual hours were 1,008,000. What is the budgeted direct costallocation rate?

A. \$1.80 per hour               B. \$1.7857 per hour

C. \$1.05 per hour               D. \$0.75 per hour

18.    Annual cost rates are preferred over actual cost rates for all of the following reasons EXCEPT:

A. budgeted costs allow managers to have cost information on a timely basis

B. budgetedcost rates can be used to allocate direct or indirect costs

C. budgeted costs may be subject to shortrun fluctuations

D. budgeted indirectcost rates are known prior to the inception of a new job

Answer the following questions using the information below:

Gibson Manufacturing is a small textile manufacturer using machinehours as the single indirectcost rate to allocate manufacturing overhead costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for the Winfield High School band jacket job.

Company         Winfield High School Job

Direct materials                                          \$40,000                           \$1,000

Direct labor                                                  \$10,000                               \$200

Machinehours                                           100,000  mh                         900mh

19.    What is the bid price for the Winfield High School job if the company uses a 40% markup of total manufacturing costs?

A. \$2,310              B. \$2,058               C. \$588 D. \$1,680

20.    What is the appropriate journal entry if \$100,000 of materials were purchased on account for the month of August?

A. Materials Control                                          100,000

Accounts Payable Control                                                      100,000

B. Manufacturing Allocated                           100,000

Accounts Receivable Control                                                 100,000

Accounts Receivable Control                                                 100,000

D. WorkinProcess Control                            100,000

Accounts Payable Control                                                       100,000

Answer the following questions using the information below:

Apple Valley Corporation uses a job cost system and has two production departments, A and B. Budgeted manufacturing costs for the year are:

Department A    Department B

Direct materials                                                \$700,000               \$100,000

Direct manufacturing labor                          \$200,000               \$800,000

The actual material and labor costs charged to Job #432 were as follows:

Total

Direct materials:                                                 \$25,000

Direct labor:

Department A                                               \$ 8,000

Department B                                              \$12,000

\$20,000

Apple Valley applies manufacturing overhead costs to jobs on the basis of direct manufacturing labor cost using departmental rates determined at the beginning of the year.

21.    For Department B, the manufacturing overhead allocation rate is:

A. 200%                B. 50%   C. 100%                D. 300%

Answer the following questions using the information below:

Presented below are the production data for the first six months of the year for the mixed costs incurred by Gallup Company.

Month                          Cost             Units

January                    \$4,890              4,100

February                    4,024              3,200

March                         6,480              5,300

April                           8,840              7,500

May                             5,800              4,800

June                             7,336              6,600

Gallup Company uses the highlow method to analyze mixed costs.

22.    How would the cost function be stated?

A. y = \$440 + \$1.12X         B. y = \$7,850 + \$0.132X

C. y = \$3,562.30 + \$0.144X              D. y = \$107.20 + \$1.12

23.    The cost function y = 150 + 10X:   46

A. has an intercept of 150               B. has a slope coefficient of 150

C. represents a fixed cost                D. is a nonlinear

24.    The cause and effect relationship might arise as a result of which of the following:

A. knowledge of operations.

B. a contractual arrangement.

C. a physical relationship between the level of activity and costs.

D. All of the above.

25.    The ideal database contains:

A. reliably measured observations

B. numerous cost driver observations

C. cost driver observations spanning a wide range

D. All of these answers are correct.

26.    For a manufacturingsector company, the cost of factory depreciation is classified as a:

A. period cost     B. direct manufacturing labor cost

C. direct material cost      D. manufacturing overhead cost

Answer the following questions using the information below:

For last year, Lewisburn Manufacturing reported the following:

 Revenue \$420,000 Beginning inventory of direct materials, January 1 22,000 Purchases of direct materials 146,000 Ending inventory of direct materials, December 31 16,000 Direct manufacturing labor 18,000 Indirect manufacturing costs 40,000 Beginning inventory of finished goods, January 1 35,000 Cost of goods manufactured 104,000 Ending inventory of finished goods, December 31 36,000 Operating costs 140,000

27.    How much of the above would be considered period costs for Lewisburn Manufacturing?

A. \$390,000         B. \$104,000          C. \$246,000          D. \$140,000

28.    Cost accounting provides all of the following EXCEPT:

A. nonfinancial information regarding the cost of operational efficiencies

B. pricing information from marketing studies

C. financial information regarding the cost of acquiring resources

D. information for management accounting and financial accounting

29.    Responsibilities of a CFO include all of the following EXCEPT:

A. preparing federal, state, and international tax returns

B. providing financial reports to shareholders

C. managing shortterm and longterm financing

D. investing in new equipment

30.    For manufacturing firms, inventoriable costs include:

A. plant supervisor salaries

B. costs of dealing with customers after the sale

C. distribution costs

D. research and development costs

31.    Which of the following does NOT affect the direct/indirect classification of a cost?

A. the materiality of the cost in question

B. the level of budgeted profit for the next year

C. available technology to gather information about the cost

D. the design of the operation

32.    Product costs used for external reporting generally include:

A. design costs plus manufacturing costs                B. all costs incurred along the value chain

C. manufacturing costs only         D. All of these answers are correct.

33.    Which of the following is NOT one of the questions management accountants might attempt to help answer in the formulation of strategy?

A. Does the strategy comply with GAAP (Generally Accepted Accounting Principles)?

B. Will adequate cash be available to implement the strategy?

C. What substitute products exist in the marketplace?

D. Who are our most important customers?

TRUE/FALSE.  Mark ‘A’ on the Scantronif the statement is true and ‘B’ if the statement is false.

34.    Financial accounting is broader in scope than management accounting.

35.    Customers are demanding increased levels of performance in all aspects of the value chain and the supply chain.

36.    The degree of operating leverage at a specific level of sales helps the managers calculate the effect that potential changes in sales will have on operating income.

37.    To perform costvolumeprofit analysis, a company must be able to separate costs into fixed and variable components.

38.    ABC systems always provide decisionmaking benefits that exceed implementation costs.

39.    Estimating the degree of completion for the calculation of equivalent units is usually easier for conversion costs than it is for direct materials.

40.    The weightedaverage process costing method does NOT distinguish between units started in the previous period but completed during the current period and units started and completed during the current period.

41.    If indirectcost rates were based on actual shortterm usage, periods of lower demand would result in lower costs per unit.

42.    In some variations of normal costing, organizations use budgeted rates to assign direct costs as well as indirect costs to jobs.

43.    A flat or slightly sloped regression line indicates a strong relationship.

44.     Inventoriable costs are reported as an expense when incurred and expensed on the income statement when the product is sold.

45.    Assigning direct costs poses more problems than assigning indirect costs.

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