Week 4 : ABC and Budgeting - Midterm

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1. (TCO A) The following data (in thousands of dollars) have been taken from the accounting records of Larklin Corporation for the just completed year. Sales $820 Purchases of raw materials $195 Direct labor $170 Manufacturing overhead $250 Administrative expenses $180 Selling expenses $140 Raw materials inventory, beginning $80 Raw materials inventory, ending $35 Work in process inventory, beginning $65 Work in process inventory, ending $30 Finished goods inventory, beginning $130 Finished goods inventory, ending $165
Required: Prepare a Schedule of Cost of Goods Manufactured statement in the text box below.

(Points : 15)

2. (TCO F) The Indiana Company manufactures a product that goes through three processing departments. Information relating to activity in the first department during June is given below:
Units 70,000 60,000 Percent completed Materials Conversion 65% 45% 75% 65%

Work in process, June 1 Work in process, Jun 30

The department started 290,000 units into production during the month and transferred 300,000 completed units to the next department. REQUIRED: Compute the equivalent units of production for the first department for June, assuming that the company uses the weighted-average method of accounting for units and costs.

(Points : 20)

3. (TCO B) A tile manufacturer has supplied the following data:

Boxes of tile produced and sold Sales revenue Variable manufacturing expense Fixed manufacturing expense Variable selling and admin expense Fixed selling and admin expense Net operating income Required: a. Calculate the company's unit contribution margin b. Calculate the company's unit contribution ratio c. If the company increases its unit sales volume by 5% without increasing its fixed expenses, what would the company's net operating income be? 625,000 $2,975,000 $1,720,000 $790,000 $152,000 $133,000 $180,000

(Points : 25)

4.
(TCO E) Lehne Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling Price $ 125 Units in beginning Inventory Units Produced Units sold 600 3000 3500

Units in ending Inventory Variable Costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and admin

100

$ $ $ $

15 50 8 12

Fixed Costs: Fixed manufacturing overhead $ 75,000 Fixed selling and admin $ 20,000 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. Required:

a. What is the unit product cost for the month under variable costing? b. What is the unit product cost for the month under absorption costing? c. Prepare an income statement for the month using the variable costing method. d. Prepare an income statement for the month using the absorption costing method.

(Points : 30)

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Week 4 : ABC and Budgeting - Midterm

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Midterm page 1

1. (TCO A) Direct material cost is a part of:(Points : 6)

Conversion Cost YES.... Prime Cost NO Conversion Cost NO.... Prime Cost YES Conversion Cost YES.... Prime Cost YES Conversion Cost NO.... Prime Cost NO

2. (TCO A) A cost incurred in the past that is not relevant to any current decision is classified as a(n): (Points : 6)
period cost. incremental cost. opportunity cost. none of the above.

3. (TCO A) The cost of lubricants used to grease a production machine in a manufacturing company is an example of a(n): (Points : 6)
period cost direct material cost indirect manufacturing cost direct labor cost

none of the above

4. (TCO A) When the activity level is expected to increase within the relevant range, what effects would be anticipated with respect to each of the following?
Fixed Cost Per Unit Variable Cost Per Unit

(Points : 6)
Increase Increase decrease No Change No Change Increase No Change Increase

5. (TCO F) Emco Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for last year, the company included in direct labor cost a portion of indirect labor. The effect of this misclassification will be to: (Points : 6)
understate the predetermined overhead rate overstate the predetermined overhead rate have no effect on the predetermined overhead rate cannot be determined from the information given

6. (TCO F) Which of the following statements about process costing system is incorrect?(Points : 6)
In a process costing system, each processing department has a work in process account In a process costing system, equivalent units are separately computed for materials and for conversion costs In a process costing system, overhead can be under- or overapplied just as in job-order costing In a process costing system, materials costs are traced to units of products

7. (TCO F) The weighted-average method of process costing differs from the FIFO method of process costing in that the weighted-average method: (Points : 6)
can be used under any cost flow assumption does not require the use of predetermined overhead rates keeps costs in the beginning inventory separate from current period costs does not consider the degree of completion of units in the beginning work in process inventory when computing equivalent units of production

8. (TCO B) The contribution margin ratio always increases when the:(Points : 6)

break-even point increases break-even point decreases variable expenses as a percentage of net sales decreases variable expenses as a percentage of net sales increases

9. (TCO B) The unit sales needed to attain the target profit is found by: (Points : 6)
dividing fixed costs by the contribution margin. adding variable expenses to fixed expenses and dividing the total by the contribution margin. adding target profit to the fixed expenses and then dividing the total by the unit contribution margin. adding target profit to the fixed expenses and then dividing the total by the contribution margin.

10. (TCO E) In an income statement prepared using the variable costing method, variable selling and administrative expenses would: (Points : 6)
be used in the computation of the contribution margin be used in the computation of net operating income but not in the computation of the contribution margin be treated differently from variable manufacturing expenses not be used

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