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E16.4 E16.4

Date added: 06/23/2012
Date modified: 06/23/2012
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Journalize transactions for two processes.
(SO 4), AP
Schrager Manufacturing Company has two production departments: Cutting and Assembly. July 1 inventories are Raw Materials $4,200, Work in Process—Cutting $2,900, Work in Process—Assembly $10,600, and Finished Goods $31,000. During July, the following transactions occurred.

1.       Purchased $62,500 of raw materials on account.
2.       Incurred $60,000 of factory labor. (Credit Wages Payable.)
3.       Incurred $70,000 of manufacturing overhead; $40,000 was paid and the remainder is unpaid.
4.       Requisitioned materials for Cutting $15,700 and Assembly $8,900.
5.       Used factory labor for Cutting $33,000 and Assembly $27,000.
6.       Applied overhead at the rate of $18 per machine hour. Machine hours were Cutting 1,680 and Assembly 1,720.
7.       Transferred goods costing $67,600 from the Cutting Department to the Assembly Department.
8.       Transferred goods costing $134,900 from Assembly to Finished Goods.
9.       Sold goods costing $150,000 for $200,000 on account.


Instructions
Journalize the transactions. (Omit explanations.)

Horngren_accounting_Business_18 Horngren_accounting_Business_18

Date added: 04/21/2013
Date modified: 04/21/2013
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Accounting, 9e (Horngren)

Chapter 18 Activity-Based Costing and Other Cost Management Tools

Learning Objective 18-1

1) With increased competition, managers need more accurate estimates of product costs to set prices and to identify the most profitable products.

2) Activity-based costing focuses on a single predetermined overhead rate for cost analysis.

3) The main difference between activity-based costing and traditional costing systems is that activity-based

costing uses a separate allocation rate for each activity.

4) Companies that use activity-based costing do NOT need to trace direct materials and direct labor to products as is done in traditional costing systems.

5) Two main benefits of activity-based costing are more accurate product cost information and more detailed information on costs of activities and the drivers of these costs.

6) The first step in the activity-based costing system is to identify each activity and its total indirect cost.

7) Activity-based management refers to using activity-based cost information to make decisions that increase profits while satisfying customers' needs.

8) Activity-based costing systems combine many various elements of overhead into a single cost pool.

9) Sleep Tight Company manufactures pillows using an activity-based costing system. The following information is provided for the month of June:

Activity

Estimated Indirect Activity Costs

Allocation Base

Estimated Quantity of Allocation Base

Materials handling

$3,150

Number of parts

4,200 parts

Assembling

$13,860

Number of parts

4,200 parts

Packaging

$2,730

Number of pillows

1,050 pillows

Each pillow consists of 4 parts and the total direct materials cost per pillow is $3.50. There is no direct labor. If Sleep Tight sells pillows for $21.00, they will earn a gross profit of $1.30 per pillow.

)


10) Activity-based costing creates more precise matching of indirect costs with products.

11) An activity-based costing system would be of less value to a business making a single product than it would be for a company with multiple products.

12) A traditional costing system employs multiple allocation rates, but an activity-based costing system uses only one single allocation rate.

13) An activity-based costing system can be a significant competitive advantage for a business which does bidding for manufacturing work.

14) The following four steps are necessary in order to use an activity-based costing system:

1. Compute the allocation rate for each activity.

2. Identify activities and estimate their total costs.

3. Identify the cost driver for each activity and then estimate the quantity of each driver's allocation base.

4. Allocate the indirect costs to the cost object.

In what order are these steps performed?

A) 1,2,3,4

B) 3,1,2,4

C) 2,3,1,4

D) 2,1,3,4

15) JC Manufacturing produces products that use a variety of components. Which of the following cost drivers would be the MOST applicable for assigning material handling costs to the finished products?

A) Direct labor hours

B) Direct labor cost

C) Number of units produced

D) Number of components used

16) Which of the following is MOST likely to be the cost driver for the packaging and shipping activity?

A) Number of components

B) Number of orders

C) Hours of testing

D) Number of setups

17) Which of the following statements is CORRECT regarding activity-based costing systems?

A) They have separate indirect cost allocation rates for each activity.

B) They are not as accurate or precise as traditional costing systems.

C) They accumulate overhead costs by processing departments.

D) They are less complex and, therefore, less costly than traditional systems.

18) What is the last step in developing an activity-based costing system?

A) Estimate the total quantity of the cost driver.

B) Estimate the total indirect costs of each activity.

C) Identify the activities.

D) Allocate costs to the cost object.

19) Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts totaling $95 in direct materials and requires 2.5 hours of machine time to produce. Additional information follows:

Activity

Allocation Base

Cost Allocation Rate

Materials handling

Number of parts

$.08

Machining

Machine hours

$7.20

Assembling

Number of parts

$.35

Packaging

Number of finished units

$2.70

What is the cost of materials handling per ceiling fan?

A) $1.60

B) $7.20

C) $6.00

D) $5.00

20) Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts totaling $95 in direct materials, and requires 2.5 hours of machine time to produce. Additional information follows:

Activity

Allocation Base

Cost Allocation Rate

Materials handling

Number of parts

$.08

Machining

Machine hours

$7.20

Assembling

Number of parts

$.35

Packaging

Number of finished units

$2.70

What is the cost of machining per ceiling fan?

A) $18.00

B) $180.00

C) $30.00

D) $144.00

21) Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts totaling $95 in direct materials, and requires 2.5 hours of machine time to produce. Additional information follows:

Activity

Allocation Base

Cost Allocation Rate

Materials handling

Number of parts

$.08

Machining

Machine hours

$7.20

Assembling

Number of parts

$.35

Packaging

Number of finished units

$2.70

What is the cost of assembling per ceiling fan?

A) $87.50

B) $7.00

C) $7.50

D) $35.00


22) Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts totaling $95 in direct materials, and requires 2.5 hours of machine time to produce. There are no direct labor costs. Additional information follows:

Activity

Allocation Base

Cost Allocation Rate

Materials handling

Number of parts

$.08

Machining

Machine hours

$7.20

Assembling

Number of parts

$.35

Packaging

Number of finished units

$2.70

What is the total manufacturing cost per ceiling fan?

A) $125.75

B) $121.13

C) $115.32

D) $124.30

23) Kenney Company uses activity-based costing to account for its manufacturing process. Kenney Company produces tires and each tire has $.50 of direct materials, includes 20 parts and requires 2 hours of machine time. There is no direct labor. Additional information follows:

Activity

Allocation Base

Cost Allocation Rate

Materials handling

Number of parts

$.16

Machining

Machine hours

$14.40

Assembling

Number of parts

$.70

Packaging

Number of finished units

$5.40

What is the cost of materials handling per tire?

A) $5.60

B) $16.00

C) $1.60

D) $3.20

24) Kenney Company uses activity-based costing to account for its manufacturing process. Kenney Company produces tires, and each tire has $.50 of direct materials, includes 20 parts and requires 2 hours of machine time. There is no direct labor. Additional information follows:

Activity

Allocation Base

Cost Allocation Rate

Materials handling

Number of parts

$.16

Machining

Machine hours

$14.40

Assembling

Number of parts

$.70

Packaging

Number of finished units

$5.40

What is the cost of machining per tire?

A) $28.80

B) $26.40

C) $25.80

D) $29.50

25) Kenney Company uses activity-based costing to account for its manufacturing process. Kenney Company produces tires, and each tire has $.50 of direct materials, includes 20 parts and requires 2 hours of machine time. There is no direct labor. Additional information follows:

Activity

Allocation Base

Cost Allocation Rate

Materials handling

Number of parts

$.16

Machining

Machine hours

$14.40

Assembling

Number of parts

$.70

Packaging

Number of finished units

$5.40

What is the cost of assembling per tire?

A) $15.40

B) $7.00

C) $14.00

D) $28.00

26) Alpha Company manufactures breadboxes and uses an activity-based costing system. The following information is provided for the month of May:

Activity

Estimated Indirect Activity Costs

Allocation Base

Estimated Quantity of Allocation Base

Materials handling

$3,500

Number of parts

5,000 parts

Assembling

$12,000

Number of parts

5,000 parts

Packaging

$5,750

Number of bread boxes

1,250 bread boxes

Each breadbox consists of 4 parts, and the direct materials cost per breadbox is $7.00. What is the cost of materials handling and assembling per breadbox?

A) $4.60

B) $17.00

C) $14.40

D) $12.40

27) Alpha Company manufactures breadboxes and uses an activity-based costing system. The following information is provided for the month of May:

Activity

Estimated Indirect Activity Costs

Allocation Base

Estimated Quantity of Allocation Base

Materials handling

$3,500

Number of parts

5,000 parts

Assembling

$12,000

Number of parts

5,000 parts

Packaging

$5,750

Number of bread boxes

1,250 bread boxes

Each breadbox consists of 4 parts, and the direct materials cost per breadbox is $7.00. There is no direct labor. What is the total manufacturing cost per breadbox?

A) $17.40

B) $24.00

C) $12.40

D) $26.00


28) Sleep Tight Company manufactures pillows using an activity-based costing system. The following information is provided for the month of June:

Activity

Estimated Indirect Activity Costs

Allocation Base

Estimated Quantity of Allocation Base

Materials handling

$3,150

Number of parts

4,200 parts

Assembling

$13,860

Number of parts

4,200 parts

Packaging

$2,730

Number of pillows

1,050 pillows

Each pillow consists of 4 parts, and the total direct materials cost per pillow is $3.50.

What is the total cost of materials handling and assembling for each pillow?

A) $15.40

B) $16.20

C) $18.80

D) $13.20

29) Sleep Tight Company manufactures pillows using an activity-based costing system. The following information is provided for the month of June:

Activity

Estimated Indirect Activity Costs

Allocation Base

Estimated Quantity of Allocation Base

Materials handling

$3,150

Number of parts

4,200 parts

Assembling

$13,860

Number of parts

4,200 parts

Packaging

$2,730

Number of pillows

1,050 pillows

Each pillow consists of 4 parts, and the total direct materials cost per pillow is $3.50.

What is the total cost of packaging per pillow?

A) $3.50

B) $7.00

C) $9.38

D) $2.60

30) Sleep Tight Company manufactures pillows using an activity-based costing system. The following information is provided for the month of June:

Activity

Estimated Indirect Activity Costs

Allocation Base

Estimated Quantity of Allocation Base

Materials handling

$3,150

Number of parts

4,200 parts

Assembling

$13,860

Number of parts

4,200 parts

Packaging

$2,730

Number of pillows

1,050 pillows

Each pillow consists of 4 parts and the total direct materials cost per pillow is $3.50. There is no direct labor. What is the total manufacturing cost per pillow?

A) $16.20

B) $22.30

C) $18.50

D) $26.50

31) Pitt Jones Company had the following activities, allocated costs, and allocation bases:

Activities

Allocated Costs

Allocation Base

Account inquiry (hours)

$60,000

2,000 hours

Account billing (lines)

$30,000

20,000 lines

Account verification (accounts)

$15,000

20,000 accounts

Correspondence (letters)

$10,000

1,000 letters

The above activities are carried out at two of their regional offices.

Northeast Office

Midwest Office

Account inquiry (hours)

100 hours

200 hours

Account billing (lines)

10,000 lines

7,000 lines

Account verification (accounts)

1,000 accounts

600 accounts

Correspondence (letters)

50 letters

100 letters

What is the cost per unit for the account inquiry activity?

A) $0.75

B) $30.00

C) $10.00

D) $1.50

32) Pitt Jones Company had the following activities, allocated costs, and allocation bases:

Activities

Allocated Costs

Allocation Base

Account inquiry (hours)

$60,000

2,000 hours

Account billing (lines)

$30,000

20,000 lines

Account verification (accounts)

$15,000

20,000 accounts

Correspondence (letters)

$10,000

1,000 letters

The above activities are carried out at two of their regional offices.

Northeast Office

Midwest Office

Account inquiry (hours)

100 hours

200 hours

Account billing (lines)

10,000 lines

7,000 lines

Account verification (accounts)

1,000 accounts

600 accounts

Correspondence (letters)

50 letters

100 letters

What is the cost per unit for the account billing activity?

A) $1.50

B) $30.00

C) $1.60

D) $1.43

33) Pitt Jones Company had the following activities, allocated costs, and allocation bases:

Activities

Allocated Costs

Allocation Base

Account inquiry (hours)

$60,000

2,000 hours

Account billing (lines)

$30,000

20,000 lines

Account verification (accounts)

$15,000

20,000 accounts

Correspondence (letters)

$10,000

1,000 letters

The above activities are carried out at two of their regional offices.

Northeast Office

Midwest Office

Account inquiry (hours)

100 hours

200 hours

Account billing (lines)

10,000 lines

7,000 lines

Account verification (accounts)

1,000 accounts

600 accounts

Correspondence (letters)

50 letters

100 letters

What is the cost per unit for the account verification activity?

A) $30.00

B) $0.50

C) $2.25

D) $0.75

34) Pitt Jones Company had the following activities, allocated costs, and allocation bases:

Activities

Allocated Costs

Allocation Base

Account inquiry (hours)

$60,000

2,000 hours

Account billing (lines)

$30,000

20,000 lines

Account verification (accounts)

$15,000

20,000 accounts

Correspondence (letters)

$10,000

1,000 letters

The above activities are carried out at two of their regional offices.

Northeast Office

Midwest Office

Account inquiry (hours)

100 hours

200 hours

Account billing (lines)

10,000 lines

7,000 lines

Account verification (accounts)

1,000 accounts

600 accounts

Correspondence (letters)

50 letters

100 letters

What is the cost per unit for the correspondence activity?

A) $10.00

B) $30.50

C) $25.00

D) $0.75

35) Pitt Jones Company had the following activities, allocated costs, and allocation bases:

Activities

Allocated Costs

Allocation Base

Account inquiry (hours)

$60,000

2,000 hours

Account billing (lines)

$30,000

20,000 lines

Account verification (accounts)

$15,000

20,000 accounts

Correspondence (letters)

$10,000

1,000 letters

The above activities are carried out at two of their regional offices.

Northeast Office

Midwest Office

Account inquiry (hours)

100 hours

200 hours

Account billing (lines)

10,000 lines

7,000 lines

Account verification (accounts)

1,000 accounts

600 accounts

Correspondence (letters)

50 letters

100 letters

How much of the account inquiry cost will be assigned to the Midwest Office?

A) $2,000

B) $6,500

C) $3,000

D) $6,000

36) Pitt Jones Company had the following activities, allocated costs, and allocation bases:

Activities

Allocated Costs

Allocation Base

Account inquiry (hours)

$60,000

2,000 hours

Account billing (lines)

$30,000

20,000 lines

Account verification (accounts)

$15,000

20,000 accounts

Correspondence (letters)

$10,000

1,000 letters

The above activities are carried out at two of their regional offices.

Northeast Office

Midwest Office

Account inquiry (hours)

100 hours

200 hours

Account billing (lines)

10,000 lines

7,000 lines

Account verification (accounts)

1,000 accounts

600 accounts

Correspondence (letters)

50 letters

100 letters

How much of the correspondence cost will be assigned to the Northeast Office?

A) $500

B) $1,200

C) $2,500

D) $800

37) Pitt Jones Company had the following activities, allocated costs, and allocation bases:

Activities

Allocated Costs

Allocation Base

Account inquiry (hours)

$60,000

2,000 hours

Account billing (lines)

$30,000

20,000 lines

Account verification (accounts)

$15,000

20,000 accounts

Correspondence (letters)

$10,000

1,000 letters

The above activities are carried out at two of their regional offices:

Northeast Office

Midwest Office

Account inquiry (hours)

100 hours

200 hours

Account billing (lines)

10,000 lines

7,000 lines

Account verification (accounts)

1,000 accounts

600 accounts

Correspondence (letters)

50 letters

100 letters

How much of the account verification costs will be assigned to the Northeast Office?

A) $800

B) $2,500

C) $750

D) $1,500

38) Which of the following statements is FALSE?

A) Many traditional costing systems can distort product costs and profitability.

B) Activity-based costing systems tend to be more costly than traditional costing systems.

C) Many traditional costing systems tend to combine various costs into a single cost pool.

D) Activity-based costing systems tend to use fewer cost pools than does a traditional costing system.

39) Quality Stereo Company has provided the following information regarding its activity-based costing system:

Purchasing department costs are allocated based on purchase orders and the cost allocation rate is $75 per purchase order.

Assembly department costs are allocated based on the number of parts used and the cost allocation rate is $1.00 per part.

Packaging department costs are allocated based on the number of units produced and the allocation rate is $2.00 per unit produced.

Each stereo produced has 50 parts, and the direct materials cost per unit is $70. There are no direct labor costs. Quality Stereo has an order for 1,000 stereos which will require 50 purchase orders in all. What is the total cost of the 1,000 stereos?

A) $125,750

B) $55,750

C) $123,750

D) $122,000

40) Orlando Avionics makes three types of radios for small aircraft-model A, model B, and model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows:

Model A $28

Model B $32

Model C $40

Orlando has three activities-assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2012 were estimated as follows:

Total cost

Total units

Assembly

$780,000

120,000

Machine hours

Materials management

$120,000

80,000

Parts

Testing

$22,500

5,000

Units

What is the allocation rate for the Assembly activity? (Please round to the nearest cent.)

A) $7.69 per machine hour

B) $0.60 per machine hour

C) $0.15 per machine hour

D) $6.50 per machine hour


41) Orlando Avionics makes three types of radios for small aircraft-model A, model B, and model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows:

Model A $28

Model B $32

Model C $40

Orlando has three activities-assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2012 were estimated as follows:

Total cost

Total units

Assembly

$780,000

120,000

Machine hours

Materials management

$120,000

80,000

Parts

Testing

$22,500

5,000

Units

What is the allocation rate for the materials management activity? (Please round to the nearest cent.)

A) $0.67 per part

B) $1.50 per part

C) $0.15 per part

D) $6.00 per part

42) Orlando Avionics makes three types of radios for small aircraft-model A, model B, and model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows:

Model A $28

Model B $32

Model C $40

Orlando has three activities-assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2012 were estimated as follows:

Total cost

Total units

Assembly

$780,000

120,000

Machine hours

Materials management

$120,000

80,000

Parts

Testing

$22,500

5,000

Units

What is the allocation rate for the testing activity? (Please round to the nearest cent.)

A) $0.67 per unit

B) $4.50 per unit

C) $0.22 per part

D) $1.50 per part

43) Orlando Avionics makes three types of radios for small aircraft-model A, model B, and model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows:

Model A $28

Model B $32

Model C $40

Orlando has three activities-assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2012 were estimated as follows:

Total cost

Total units

Assembly

$780,000

120,000

Machine hours

Materials management

$120,000

80,000

Parts

Testing

$22,500

5,000

Units

The Model A radio requires 12 parts to construct, and also requires 16 machine hours of processing. What is the manufacturing cost to make one unit of Model A?

A) $150.00

B) $132.00

C) $126.50

D) $154.50

44) Orlando Avionics makes three types of radios for small aircraft-model A, model B, and model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows:

Model A $28

Model B $32

Model C $40

Orlando has three activities-assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2012 were estimated as follows:

Total cost

Total units

Assembly

$780,000

120,000

Machine hours

Materials management

$120,000

80,000

Parts

Testing

$22,500

5,000

Units

The Model B radio requires 15 parts to construct, and also requires 18 machine hours of processing. What is the manufacturing cost to make one unit of Model B?

A) $150.00

B) $176.00

C) $126.50

D) $144.00

45) Orlando Avionics makes three types of radios for small aircraft-model A, model B, and model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows:

Model A $28

Model B $32

Model C $40

Orlando has three activities-assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2012 were estimated as follows:

Total cost

Total units

Assembly

$780,000

120,000

Machine hours

Materials management

$120,000

80,000

Parts

Testing

$22,500

5,000

Units

The Model C radio requires 19 parts to construct, and also requires 20.5 machine hours of processing. What is the manufacturing cost to make one unit of Model C?

A) $206.25

B) $176.00

C) $126.50

D) $166.25

46) Formosa Steel Products makes steel building materials for export, and uses an activity-based costing system to account for the indirect manufacturing costs of its various products. Indirect costs for the whole factory are broken down into three activities-casting, materials handling, and milling. The cost driver for casting is machine hours; the cost driver for material handling is kilograms, and the cost driver for milling is direct labor hours. Activity costs and volumes for the year were estimated as follows:

Activity

Cost

Volume

Casting

$2,000,000

800,000.00

Machine hours

Material Handling

$400,000

500,000.00

Kilograms

Milling

$1,120,000

140,000.00

Direct labor hours

One product is steel reinforcement rods, sold by the metric ton. Engineering reports show that one metric ton of steel reinforcement rods requires $100 of direct materials cost plus $50 of direct labor cost. Producing one metric ton of steel rods also requires 24 machine hours for casting, weighs 1,000 kilograms, and requires 15 direct labor hours.

What is the activity rate for the casting activity?

A) $0.40 per machine hour

B) $4.40 per machine hour

C) $2.50 per machine hour

D) $1.25 per machine hour

47) Formosa Steel Products makes steel building materials for export, and uses an activity-based costing system to account for the indirect manufacturing costs of its various products. Indirect costs for the whole factory are broken down into three activities-casting, materials handling, and milling. The cost driver for casting is machine hours; the cost driver for material handling is kilograms, and the cost driver for milling is direct labor hours. Activity costs and volumes for the year were estimated as follows:

Activity

Cost

Volume

Casting

$2,000,000

800,000.00

Machine hours

Material Handling

$400,000

500,000.00

Kilograms

Milling

$1,120,000

140,000.00

Direct labor hours

One product is steel reinforcement rods, sold by the metric ton. Engineering reports show that one metric ton of steel reinforcement rods requires $100 of direct materials cost plus $50 of direct labor cost. Producing one metric ton of steel rods also requires 24 machine hours for casting, weighs 1,000 kilograms, and requires 15 direct labor hours.

What is the activity rate for the material handling activity?

A) $1.25 per kg

B) $4.40 per kg

C) $2.50 per kg

D) $0.80 per kg

48) Formosa Steel Products makes steel building materials for export, and uses an activity-based costing system to account for the indirect manufacturing costs of its various products. Indirect costs for the whole factory are broken down into three activities-casting, materials handling, and milling. The cost driver for casting is machine hours; the cost driver for material handling is kilograms, and the cost driver for milling is direct labor hours. Activity costs and volumes for the year were estimated as follows:

Activity

Cost

Volume

Casting

$2,000,000

800,000.00

Machine hours

Material Handling

$400,000

500,000.00

Kilograms

Milling

$1,120,000

140,000.00

Direct labor hours

One product is steel reinforcement rods, sold by the metric ton. Engineering reports show that one metric ton of steel reinforcement rods requires $100 of direct materials cost plus $50 of direct labor cost. Producing one metric ton of steel rods also requires 24 machine hours for casting, weighs 1,000 kilograms, and requires 15 direct labor hours.

A) $8.00 per direct labor hr

B) $4.40 per direct labor hr

C) $0.13 per direct labor hr

D) $0.80 per direct labor hr

49) Formosa Steel Products makes steel building materials for export, and uses an activity-based costing system to account for the indirect manufacturing costs of its various products. Indirect costs for the whole factory are broken down into three activities-casting, materials handling, and milling. The cost driver for casting is machine hours; the cost driver for material handling is kilograms, and the cost driver for milling is direct labor hours. Activity costs and volumes for the year were estimated as follows:

Activity

Cost

Volume

Casting

$2,000,000

800,000.00

Machine hours

Material Handling

$400,000

500,000.00

Kilograms

Milling

$1,120,000

140,000.00

Direct labor hours

One product is steel reinforcement rods, sold by the metric ton. Engineering reports show that one metric ton of steel reinforcement rods requires $100 of direct materials cost plus $50 of direct labor cost. Producing one metric ton of steel rods also requires 24 machine hours for casting, weighs 1,000 kilograms, and requires 15 direct labor hours.

What is the full manufacturing cost for one metric ton of steel reinforcement rods? (Please round to the nearest whole dollar.)

A) $1,130

B) $980

C) $1,030

D) $975

50) An activity-based costing system improves the allocation of which of the following manufacturing costs?

A) Indirect manufacturing costs

B) Direct labor

C) Direct materials

D) Sales commissions

51) Which of the following would NOT be considered an activity for the purposes of an activity-based costing system?

A) Materials handling

B) Machine processing

C) Direct materials cost

D) Packaging

52) Which of the following would most likely be treated as an activity in an activity-based costing system?

A) Direct labor cost

B) Machine processing

C) Direct materials cost

D) Sales revenues

53) Ace Plastics produces many different kinds of products all in one manufacturing facility. They have identified four activities for their costing system:

Materials management — allocated by number of purchase orders

Chemical processing — allocated on metric tons

Molding — allocated on direct labor hours

Packaging — allocated by number of units produced

The activity rates are as follows:

Materials management

$12.00

Per purchase order

Chemical processing

$7.50

Per metric ton

Molding

$24.00

Per direct labor hour

Packaging

$0.10

Per unit

Ace received an order for 3,000 plastic toys. The engineering design shows that the order will require $540 of direct material cost in total, $90 of direct labor cost, will require 4 purchase orders, will use 2 metric tons of chemical base, will need 8 direct labor hours, and will produce 3.000 units of product. What will the full production cost of the order be?

A) $630

B) $645

C) $1,095

D) $1,185

54) Ace Plastics produces many different kinds of products all in one manufacturing facility. They have identified four activities for their costing system:

Materials management — allocated by number of purchase orders

Chemical processing — allocated on metric tons

Molding — allocated on direct labor hours

Packaging — allocated by number of units produced

The activity rates are as follows:

terials management

$12.00

Per purchase order

Chemical processing

$7.50

Per metric ton

Molding

$24.00

Per direct labor hour

Packaging

$0.10

Per unit

Ace received an order for 3,000 plastic toys. The engineering design shows that the order will require $540 of direct material cost in total, $90 of direct labor cost, will require 4 purchase orders, will use 2 metric tons of chemical base, will need 8 direct labor hours, and will produce 3.000 units of product. How much is the manufacturing cost for one unit of product? (Please round to the nearest tenth of a cent.)

A) $0.630

B) $0.365

C) $0.395

D) $0.185

55) AAA Metal Bearings produces two sizes of metal bearings (sold by the crate)-standard and heavy. The standard bearings require $200 of direct materials per unit (per crate) and the heavy bearings require $245 of direct materials per unit. The operation is mechanized and there is no direct labor. Previously AAA used a single plant-wide allocation rate for manufacturing overhead, which was $1.55 per machine hour. Based on the single rate, gross profit data were as follows:

Per unit

Standard

Heavy

Direct materials cost

$200.00

$245.00

Direct labor cost

$0.00

$0.00

Manuf overhead cost

$124.00

$93.00

Total manuf cost

$324.00

$338.00

Price per unit

$350.00

$370.00

Gross profit per unit

$26.00

$32.00

Although the data showed that the heavy bearings were more profitable than the standard bearings, the plant manager knew that the heavy bearings required much more processing in the metal fabrication phase than the standard bearings, and that this factor was not adequately reflected in the single allocation rate. He suspected that it was distorting the profit data. He suggested adopting an activity-based costing approach.

Working together, the engineers and accountants identified the following three manufacturing activities, and broke down the annual overhead costs as shown:

Activities:

Estimated Cost

Metal fabrication

$420,000

Machine processing

$152,000

Packaging

$17,000

$589,000

Engineers believed that metal fabrication costs should be allocated by weight, and estimated that the plant processed 12,000 kilos of metal per year. Machine processing costs were correlated to machine hours, and the engineers estimated a total of 380,000 machine hours for the year. Packaging costs were the same for both types of products, and so they could be allocated simply by the number of units produced. The production plan provided for 4,000 units of standard and 1,000 units of heavy bearings to be produced during the year. Additional data on a per unit basis are as follows:

Standard

Heavy

Kilos per unit

2.00

4.00

Machine hours per unit

80.00

60.00

Using the data above, please calculate activity rates. Then, following the ABC methodology, calculate the production cost and gross profit for one unit of standard bearings, using the format below:

Standard Bearings

Per Unit

Activity rate

Amount per unit

Direct materials

Metal fabrication

Machine processing

Packaging

Total mfg cost

Price

Gross profit

56) AAA Metal Bearings produces two sizes of metal bearings (sold by the crate)-standard and heavy. The standard bearings require $200 of direct materials per unit (per crate) and the heavy bearings require $245 of direct materials per unit. The operation is mechanized and there is no direct labor. Previously AAA used a single plantwide allocation rate for manufacturing overhead, which was $1.55 per machine hour. Based on the single rate, gross profit data were as follows:

Per unit

Standard

Heavy

Direct materials cost

$200.00

$245.00

Direct labor cost

$0.00

$0.00

Manuf overhead cost

$124.00

$93.00

Total manuf cost

$324.00

$338.00

Price per unit

$350.00

$370.00

Gross profit per unit

$26.00

$32.00

Although the data showed that the heavy bearings were more profitable than the standard bearings, the plant manager knew that the heavy bearings required much more processing in the metal fabrication phase than the standard bearings, and that this factor was not adequately reflected in the single allocation rate. He suspected that it was distorting the profit data. He suggested adopting an activity based costing approach.

Working together, the engineers and accountants identified the following three manufacturing activities, and broke down the annual overhead costs as shown:

Activities:

Estimated Cost

Metal fabrication

$420,000

Machine processing

$152,000

Packaging

$17,000

$589,000

Engineers believed that metal fabrication costs should be allocated by weight, and estimated that the plant processed 12,000 kilos of metal per year. Machine processing costs were correlated to machine hours, and the engineers estimated a total of 380,000 machine hours for the year. Packaging costs were the same for both types of products, and so they could be allocated simply by the number of units produced. The production plan provided for 4,000 units of standard and 1,000 units of heavy bearings to be produced during the year. Additional data on a per unit basis are as follows:

Standard

Heavy

Kilos per unit

2.00

4.00

Machine hours per unit

80.00

60.00


Using the data above, please calculate activity rates. Then, following the ABC methodology, calculate the production cost and gross profit for one unit of heavy bearings, using the format below:

Standard Bearings

Per Unit

Activity rate

Amount per unit

Direct materials

Metal fabrication

Machine processing

Packaging

Total mfg cost

Price

Gross profit (loss)

57) AAA Metal Bearings produces two sizes of metal bearings (sold by the crate)-standard and heavy. The standard bearings require $200 of direct materials per unit (per crate) and the heavy bearings require $245 of direct materials per unit. The operation is mechanized and there is no direct labor. Previously AAA used a single plantwide allocation rate for manufacturing overhead, which was $1.55 per machine hour. Based on the single rate, gross profit data were as follows:

Per unit

Standard

Heavy

Direct materials cost

$200.00

$245.00

Direct labor cost

$0.00

$0.00

Manuf overhead cost

$124.00

$93.00

Total manuf cost

$324.00

$338.00

Price per unit

$350.00

$370.00

Gross profit per unit

$26.00

$32.00

Although the data showed that the heavy bearings were more profitable than the standard bearings, the plant manager knew that the heavy bearings required much more processing in the metal fabrication phase than the standard bearings, and that this factor was not adequately reflected in the single allocation rate. He suspected that it was distorting the profit data. He suggested adopting an activity-based costing approach.

Working together, the engineers and accountants identified the following three manufacturing activities, and broke down the annual overhead costs as shown:

Activities:

Estimated Cost

Metal fab

$420,000

Machine processing

$152,000

Packaging

$17,000

$589,000

Engineers believed that metal fabrication costs should be allocated by weight, and estimated that the plant processed 12,000 kilos of metal per year. Machine processing costs were correlated to machine hours, and the engineers estimated a total of 380,000 machine hours for the year. Packaging costs were the same for both types of products, and so they could be allocated simply by the number of units produced. The production plan provided for 4,000 units of standard and 1,000 units of heavy bearings to be produced during the year. Additional data on a per unit basis are as follows:

Standard

Heavy

Kilos per unit

2.00

4.00

Machine hours per unit

80.00

60.00

Using the data above, please calculate activity rates. Then, following the ABC methodology, calculate the production cost and gross profit for both product types, using the format below:

Per Unit

Standard

Heavy

Direct materials

Metal fabrication

Machine processing

Packaging

Total mfg cost

Price

Gross profit

.

Learning Objective 18-2

1) Activity-based costing systems and traditional costing systems will produce the same results for product cost and profitability, although they use different methods of calculation.

2) Target cost is the price that customers are willing to pay and target price is the desired cost to produce the product.

3) Traditional costing systems can distort unit manufacturing costs and product profitability when many products are produced and the various products have significantly different production processes.

4) Target costing starts with the price that customers are willing to pay and then subtracts the company's desired profit to determine the desired full-product cost.

5) Activity-based management can be used to make business decisions about cost cutting.

6) Value engineering requires the collaboration of marketing, engineering and accounting personnel to achieve the optimum results.

7) Full-product cost includes both manufacturing and non-manufacturing costs.

8) Full-product cost includes all manufacturing costs plus selling expenses, but does not include administrative expenses.

9) Business managers can use activity-based costing data to assist them in pricing and product mix decisions, and in cost management.

10) Target pricing is based on the cost to produce a product, plus a profit mark-up.

11) Morley Manufacturing is considering the manufacture of a new product. Morley was hoping to sell the

product for $168 per unit and estimated the total cost per unit to be $120. Morley conducted market research and found out that the market is only willing to pay $154 for the new product. Using the target costing approach, what does the total per unit cost of the new product have to be if Morley wants to achieve the same amount of profit as originally planned?

A) $110

B) $106

C) $109

D) $100

12) Madrid Manufacturing is considering the manufacture of a new product. Madrid was hoping to sell the product for $504 per unit and estimated the total cost per unit to be $360. Madrid conducted market research and found out that the market is only willing to pay $462 for the new product. Using the target costing approach, how much will Madrid have to reduce the production cost in order to achieve the same amount of gross profit as originally planned?

A) $47

B) $31

C) $30

D) $42

13) Equival Company wishes to sell truck axles to car manufacturers. The current market price of the axles is $400, and Equival knows it must accept the market price. The company wishes to make a profit equal to 20% of the price. Using target costing, Equival will have to design the production process to meet this requirement. What is the desired target cost per axle?

A) $320

B) $480

C) $420

D) $380

14) Percival Company wishes to sell wooden beams to home builders. The current market price of the beams is $950, and Percival knows it must accept the market price. The company wishes to make a profit equal to 16% of the price. Using target costing, the company will have to design the production process to meet this requirement. What is the desired target cost per beam?

A) $798

B) $1,062

C) $152

D) $800

15) Equival Company wishes to sell truck axles to car manufacturers. The current market price of the axles is $400, and Equival knows it must accept the market price. Currently, it costs the company $330 to produce each axle. The company wishes to make a profit equal to 20% of the price. Which of the following strategies should Equival adopt to achieve its objective?

A) Raise the price to $410.

B) Reduce its production costs by $10 per unit.

C) Increase the production costs by $20 per unit.

D) Use advertising to increase the volume of sales.

16) Percival Company wishes to sell wooden beams to home builders. The current market price of the beams is $950, and Percival knows it must accept the market price. Currently, the beams cost Percival $809 to produce. The company wishes to make a profit equal to 16% of the price. Which of the following strategies would help Percival accomplish their objective?

A) Increase the production cost by $22 per unit.

B) Increase the volume of sales.

C) Increase the sales price to $961.

D) Reduce production costs by $11 per unit.

17) Lisbon Manufacturing is considering the manufacture of a new product. Lisbon was hoping to sell the product for $588 per unit and estimated the total cost per unit to be $420. Lisbon conducted market research and found out that the market is only willing to pay $539 for the new product. Using the target costing approach, what does the total per unit cost of the new product have to be if Lisbon wants to achieve a 40% markup on total cost?

A) $215.60

B) $385.00

C) $257.60

D) $420.00

18) What is value engineering?

A) Reevaluating market strategies to create a more valuable product

B) Estimating the value added of the engineering processes

C) Reevaluating production activities to reduce costs

D) Estimating the value of the end product

19) Ganges Company makes bulk burlap by the ton. Currently, their manufacturing cost is $215 per unit, and their non-manufacturing cost is $40 per unit. The going market price of the product is $300. Ganges uses

the target price and target cost methodology. If they desire to make a profit of 20% on the price, what must they do?

A) Increase the advertising costs by $15 per unit.

B) Reduce the price they charge by $15 per unit.

C) Reduce the full-product cost by $60 per unit.

D) Reduce the full-product cost by $15 per unit.

20) Which of the following describes full-product cost?

A) All production costs plus all non-manufacturing costs

B) All production costs

C) Direct materials plus direct labor cost

D) Manufacturing overhead plus non-manufacturing cost

21) Bakersfield Manufacturing produces agricultural tools including a hand tiller. Their current full-product cost for a hand tiller is $20. Bakersfield wishes to make a 15% profit on the selling price. Bakersfield uses a target pricing strategy. The current competitive market price for this product is $22. What does Bakersfield have to do to achieve their profit objective?

A) Reduce full-product cost by $1.30.

B) Reduce full-product cost by $3.00.

C) Reduce full-product cost by $2.70.

D) Reduce full-product cost by $11.25.

22) Bakersfield Manufacturing produces agricultural tools including a hand tiller. Their current full-product cost for a hand tiller is $20. Bakersfield wishes to make a 15% profit on the selling price. Bakersfield uses a target pricing strategy. The current competitive market price for this product is $22.00. What would be the most appropriate response to this situation?

A) Employ cost plus pricing.

B) Carry out value engineering study.

C) Expand production facilities.

D) Strengthen internal controls.

23) Arnold Company produces handheld calculators, and their manufacturing cost is currently $5.80 per unit. The company also has non-manufacturing costs of $1.20 per unit. Arnold employs target pricing strategy, and the current market price is $8.00 per unit. If Arnold wishes to price their product at a 25% markup over full-product cost, what must they do?

A) Price the product at $8.75 per unit.

B) Reduce full-product cost by $0.20.

C) Reduce full-product cost by $0.60.

D) Reduce the non-manufacturing cost by 25%.

24) Torreya Company produces gaskets for the automotive industry. Current production cost is $4.50 per carton of 100. There is a highly competitive market for the product, and Torreya currently uses a target pricing approach. Currently, equivalent products are selling for $5.90 per carton. Torreya wishes to earn a minimum of a 30% markup over cost. What would be their most appropriate response?

A) To raise the price to $5.95 per carton

B) To change over to cost plus pricing

C) To mark the price down to $5.80 per carton

D) To stop producing this product because they cannot earn the required amount of profit

25) Appalachee Company produces gaskets for the automotive industry. Current production cost is $3.50 per gross. There is a highly competitive market for the product, and Appalachee currently uses a target pricing approach. Currently, equivalent products are selling for $4.75 per gross. Apalachee wishes to earn a minimum of a 40% markup over cost. What would be their most appropriate response? (Please round all amounts to the nearest cent.)

A) Reduce production cost by $0.11 per gross.

B) Reduce production cost by $0.05 per gross.

C) Increase price to $4.90 per gross.

D) Increase price to $4.85.

26) Leon Production produces steel rivets for the shipbuilding business. Leon uses the target pricing approach. The company's objective is to achieve gross profit equal to 25% of selling price. Other data are shown below:

Current production cost $112 per carton

Current market price $130 per carton

What must the company do to achieve their profit goal? (Please round all amounts to the nearest cent.)

A) Reduce production cost from $112 to $110.00.

B) Reduce production cost from $112 to $97.50.

C) Reduce production cost from $112 to $101.25.

D) Reduce production cost from $112 to $99.00.

27) Martin Manufacturers produces 3 models of industrial hammers. Martin uses the target pricing approach. The company's objective is to achieve gross profit equal to 40% of selling price. Other data are shown below:

Current production cost $42.50 per unit

Current market price $60.00 per unit

What must the company do to achieve their profit goal? (Please round all amounts to the nearest cent.)

A) Reduce production cost by $6.50 per unit.

B) Increase price by $0.50 per unit.

C) Reduce production cost by $4.20 per unit.

D) Increase price by $6.50.

28) Nemesis Company manufactures water skis. Nemesis pursues a target pricing strategy. Please review the data below:

Current market price $180 per pair

Current manufacturing cost $110 per pair

Current non-manufacturing cost $25 per pair

Desired profit 30% of price

Which of the following represents the full-product cost?

A) $143

B) $180

C) $110

D) $135

29) Nemesis Company manufactures water skis. Nemesis pursues a target pricing strategy. Please review the data below:

Current market price $180 per pair

Current manufacturing cost $110 per pair

Current non-manufacturing cost $25 per pair

Desired profit 30% of price

Which of the following represents the target price?

A) $143

B) $180

C) $110

D) $135

30) Nemesis Company manufactures water skis. Nemesis pursues a target pricing strategy. Please review the data below:

Current market price $180 per pair

Current manufacturing cost $110 per pair

Current non-manufacturing cost $25 per pair

Desired profit 30% of price

Which of the following represents the target cost?

A) $126

B) $180

C) $110

D) $135

31) Nemesis Company manufactures water skis. Nemesis pursues a target pricing strategy. Please review the data below:

Current market price $180 per pair

Current manufacturing cost $110 per pair

Current non-manufacturing cost $25 per pair

Desired profit 30% of price

Which of the following would be the desired cost reduction? (Please round all amounts to nearest cent.)

A) $12.50

B) $16.00

C) $11.00

D) $9.00

32) A-1 Sports Vehicles Manufacturing produces a specialty racing bicycle. There is stiff foreign competition, and the company is forced to pursue target pricing. The competitive market price of the bicycle is $2,000. Currently the manufacturing cost for this product at A-1 is $1,550 and the associated non-manufacturing costs are $270. A-1's owners insist on achieving a profit of 12% of sales price. What amount is the target price? (Please round all amounts to the nearest whole dollar.)

A) $1,820

B) $1,550

C) $2,000

D) $1,760

33) A-1 Sports Vehicles Manufacturing produces a specialty racing bicycle. There is stiff foreign competition, and the company is forced to pursue target pricing. The competitive market price of the bicycle is $2,000. Currently the manufacturing cost for this product at A-1 is $1,550 and the associated non-manufacturing costs are $270. A-1's owners insist on achieving a profit of 12% of sales price. What amount is the target cost? (Please round all amounts to the nearest whole dollar.)

A) $1,820

B) $1,550

C) $2,000

D) $1,760

34) A-1 Sports Vehicles Manufacturing produces a specialty racing bicycle. There is stiff foreign competition, and the company is forced to pursue target pricing. The competitive market price of the bicycle is $2,000. Currently the manufacturing cost for this product at A-1 is $1,550 and the associated non-manufacturing costs are $270. A-1's owners insist on achieving a profit of 12% of sales price. What amount is the full-product cost? (Please round all amounts to the nearest whole dollar.)

A) $1,820

B) $1,550

C) $2,000

D) $1,760

35) A-1 Sports Vehicles Manufacturing produces a specialty racing bicycle. There is stiff foreign competition, and the company is forced to pursue target pricing. The competitive market price of the bicycle is $2,000. Currently the manufacturing cost for this product at A-1 is $1,550 and the associated non-manufacturing costs are $270. A-1's owners insist on achieving a profit of 12% of sales price. How much is the desired cost reduction? (Please round all amounts to the nearest whole dollar.)

A) $60

B) $50

C) $40

D) $0

36) Clark Manufacturing makes blank CDs; it is a very competitive market and the company follows a target pricing strategy. Currently the market price for a unit of product (one unit equals a package of 100 CDs) is $18.00. Clark's production costs are shown below:

Direct materials $5.00 per unit

Direct labor $2.90 per unit

Indirect production costs $6.42 per unit

Non-manufacturing costs $3.20 per unit

Clark uses activity-based costing for its indirect production costs and provides the following information about this particular product:

The company’s objective is to earn 5% profit on the sales price of the product. Based on the above data, what is the company’s target cost per unit?

A) $18.40

B) $14.32

C) $17.10

D) $17.52

37) Clark Manufacturing makes blank CDs; it is a very competitive market and the company follows a target pricing strategy. Currently the market price for a unit of product (one unit equals a package of 100 CDs) is $18.00. Clark's production costs are shown below:

Direct materials $5.00 per unit

Direct labor $2.90 per unit

Indirect production costs $6.42 per unit

Non-manufacturing costs $3.20 per unit

Clark uses activity-based costing for its indirect production costs and provides the following information about this particular product:

The company's objective is to earn 5% profit on the sales price of the product. Based on the above data, how much cost reduction does the company need to achieve its objective?

A) $0.90

B) $0.34

C) $0.42

D) $0.62

38) Clark Manufacturing makes blank CDs; it is a very competitive market and the company follows a target pricing strategy. Currently the market price for a unit of product (one unit equals a package of 100 CDs) is $18.00. Clark's production costs are shown below:

Direct materials $5.00 per unit

Direct labor $2.90 per unit

Indirect production costs $6.42 per unit

Non-manufacturing costs $3.20 per unit

Clark uses activity-based costing for its indirect production costs and provides the following information about this particular product:

The company's objective is to earn 5% profit on the sales price of the product. Clark carried out a value engineering study and decided that they could make the processing activity more efficient and save costs. In order to achieve their profit objective for this product, they need to reduce the indirect cost per unit from $6.42 down to what amount?

A) $6.10

B) $6.00

C) $5.80

D) $5.62

39) Clark Manufacturing makes blank CDs; it is a very competitive market and the company follows a target pricing strategy. Currently the market price for a unit of product (one unit equals a package of 100 CDs) is $18.00. Clark's production costs are shown below:

Direct materials $5.00 per unit

Direct labor $2.90 per unit

Indirect production costs $6.42 per unit

Non-manufacturing costs $3.20 per unit

Clark uses activity-based costing for its indirect production costs and provides the following information about this particular product:

The company's objective is to earn 5% profit on the sales price of the product. Clark carried out a value engineering study and decided that they could make the processing activity more efficient and save costs. If they reduce the total processing activity cost down to $210,000, what will their profit percentage be? (Please round to the nearest tenth of a percent.)

A) 4.8%

B) 4.9%

C) 5.9%

D) 5.2%

40) Clark Manufacturing makes blank CDs; it is a very competitive market and the company follows a target pricing strategy. Currently the market price for a unit of product (one unit equals a package of 100 CDs) is $18.00. Clark's production costs are shown below:

Direct materials $5.00 per unit

Direct labor $2.90 per unit

Indirect production costs $6.42 per unit

Non-manufacturing costs $3.20 per unit

Clark uses activity-based costing for its indirect production costs and provides the following information about this particular product:

The company's objective is to earn 5% profit on the sales price of the product. Clark carried out a value engineering study and decided that they could make the processing activity more efficient and save costs. If they reduce the total processing activity cost by $20,000, what will their profit percentage be? (Please round to the nearest tenth of a percent.)

A) 4.3%

B) 4.9%

C) 5.9%

D) 5.2%

41) Clark Manufacturing makes blank CDs; it is a very competitive market and the company follows a target pricing strategy. Currently the market price for a unit of product (one unit equals a package of 100 CDs) is $18.00. Clark's production costs are shown below:

Direct materials $5.00 per unit

Direct labor $2.90 per unit

Indirect production costs $6.42 per unit

Non-manufacturing costs $3.20 per unit

Clark uses activity-based costing for its indirect production costs and provides the following information about this particular product:

The company's objective is to earn 5% profit on the sales price of the product. Clark carried out a value engineering study and decided that they could make the processing activity more efficient and save costs. They have determined that if they can reduce the activity rate for the processing activity down low enough, they can hit their profit objective. What activity rate would be needed to achieve the 5% objective they seek? (Please round to nearest cent.)

A) $3.53

B) $3.18

C) $3.21

D) $4.09

Learning Objective 18-3

1) Just-in-time methodology depends on maintaining higher inventory levels to ensure that the manufacturing process isn't interrupted by supply shortages.

2) Just-in-time production systems are organized into independent work cells that have all the resources needed to complete the manufacturing process.

3) The traditional manufacturing process focuses on small batches of production, whereas the just-in-time methodology focuses on large batches of products being produced in a sequence of departments or activities.

4) Just-in-time systems are based on a "demand-pull system" where customer demand triggers the production process.

5) Just-in-time production gains economic advantage by purchasing inventory in large batches in order to get volume discounts and achieve lower manufacturing costs.

6) For just-in-time systems, it is essential that manufacturers develop relationships with suppliers that are very reliable, and that can guarantee quick deliveries of materials in small quantities.

7) Just-in-time production systems have a great deal of flexibility, and can easily tolerate small interruptions of supplies, and occasional defective materials.

8) Just-in-time systems allow manufacturers to save money on storing, insuring, and financing inventories, by maintaining lower levels of inventory.

9) Which of the following pertains to a just-in-time production system?

A) It will have more inventory accounts to track production costs.

B) It will produce goods in smaller batches than a traditional production system.

C) It will require higher inventory levels.

D) It will require longer setup times than a traditional production system.

10) Which of the following pertains to a just-in-time production system?

A) An individual does fewer tasks than under a traditional system.

B) Materials and Work in process are combined into a single account.

C) Units are produced in larger batches than under a traditional system.

D) Direct labor costs are recorded in their own separate account.

11) Which of the following is CORRECT about a just-in-time production system?

A) Customer orders drive the production process.

B) Goods are produced ahead of time to protect against running out of inventory.

C) Materials are purchased in large quantities.

D) Inventory levels are maintained at high levels.

12) Which of the following pertains to a just-in-time production system?

A) Direct materials and work in process are combined into a conversion inventory account.

B) Direct materials and work in process are combined into a raw and in process inventory account.

C) Work in process and conversion costs are combined into a raw and in process inventory account.

D) Direct materials and conversion costs are combined into a raw and in process inventory account.

13) All of the following accounts would be used in a backflush costing system EXCEPT:

A) work in process inventory.

B) finished goods inventory.

C) raw and in process inventory.

D) conversion costs.

14) In a just-in-time costing system, the entry to record direct material purchases on account would include which of the following?

A) Debit to raw and in process inventory

B) Credit to cash

C) Debit to materials inventory

D) Credit to raw and in process inventory

15) In a just-in-time costing system, the entry to record the standard cost of finished goods completed would include which of the following?

A) Debit to finished goods inventory

B) Debit to conversion costs

C) Debit to cost of goods sold

D) Credit to sales

16) In a just-in-time costing system, the entry to record the sale of a manufactured product would include which of the following?

A) Debit to cost of goods sold

B) Debit to finished goods inventory

C) Credit to raw and in process inventory

D) Credit to conversion costs

17) In a just-in-time costing system, any remaining balance in the conversion costs account at the end of an accounting period is usually cleared to which account?

A) Raw and in process inventory

B) Cost of goods sold

C) Work in process inventory

D) Finished goods inventory

18) Which of the following is NOT a characteristic of just-in-time production?

A) "Demand-pull" system to initiate production

B) Small, self-contained work cells

C) Ultra-reliable suppliers

D) Surplus stocks maintained to protect against supply interruption

19) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson purchased $4,000 of raw materials on account. Which of the following journal entries correctly records this transaction?

A) Debit accounts payable for $4,000, credit Raw and in-process inventory for $4,000.

B) Debit $4,000 to Materials inventory, credit $4,000 to Accounts payable.

C) Debit $4,000 to Work in process inventory, credit $4,000 to Accounts payable.

D) Debit $4,000 to Raw and in-process inventory, credit $4,000 to Accounts payable.

20) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson paid direct labor costs of $5,000 in cash. Which of the following journal entries correctly records this transaction?

A) Debit $5,000 to Cash, credit $5,000 to Conversion costs.

B) Debit $5,000 to Conversion costs, credit $5,000 to Cash.

C) Debit $5,000 to Manufacturing overhead, credit $5,000 to Cash.

D) Debit $5,000 to Raw and in-process inventory, credit $5,000 to Cash.

21) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson paid $6,000 for factory repair and maintenance costs in cash. Which of the following journal entries correctly records this transaction?

A) Debit $6,000 to Cash, credit $6,000 to Manufacturing overhead.

B) Debit $6,000 to Raw and in-process inventory, credit $6,000 to Cash.

C) Debit $6,000 to Conversion costs, credit $6,000 to Cash.

D) Debit $6,000 to Manufacturing overhead, credit $6,000 to Cash.

22) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson completed 400 units of product and moved the products to finished goods. Each unit included $8.00 of direct materials cost and $2.00 of conversion costs. Which of the following journal entries correctly records this transaction?

A) Debit $4,000 to Finished goods, credit $4,000 to Raw and in-process inventory.

B) Debit $4,000 to Finished goods, credit $3,200 to Raw and in-process, credit $800 to Conversion costs.

C) Debit $3,200 to Conversion costs, debit $800 to Materials inventory, credit $4,000 to Finished goods.

D) Debit $4,000 to Cost of goods sold, credit $3,200 to Materials inventory, credit $800 to Conversion costs.

23) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson sold 200 units of product for $12.00 per unit. Each unit included $8.00 of direct materials cost and $2.00 of conversion costs. Johnson recorded the revenues of $2,400 in one entry, and then recorded the cost of goods sold in a second entry. Which of the following correctly records the cost of goods sold?

A) Debit $2,000 to Cost of goods sold, credit $2,000 to Finished goods inventory.

B) Debit $2,000 to Finished goods, credit $1,600 to Raw and in-process, credit $400 to Conversion costs.

C) Debit $1,600 to Conversion costs, debit $400 to Materials inventory, credit $2,000 to Cost of goods sold.

D) Debit $2,000 to Cost of goods sold, credit $2,000 to Raw and in-process inventory.

24) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just-in-time production and accounting methodology. At the beginning of January, selected account balances are shown in the T-accounts below.

During January, the following 5 transactions take place:

1. Purchase $40,000 of materials on account.

2. Pay out $25,000 of direct labor costs.

3. Incur $9,000 of manufacturing overhead costs.

4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing overhead costs.

5. Sell 10 of the 12 completed units at a price of $2,200.

Use the T-accounts shown above to record the transactions, and then answer the following question:

After transaction number 3, what was the balance in the Raw and in-process inventory account?

A) $40,000

B) $76,000

C) $67,000

D) $42,000

25) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just-in-time production and accounting methodology. At the beginning of January, selected account balances are shown in the T-accounts below.

During January, the following 5 transactions take place:

1. Purchase $40,000 of materials on account.

2. Pay out $25,000 of direct labor costs.

3. Incur $9,000 of manufacturing overhead costs.

4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing overhead costs.

5. Sell 10 of the 12 completed units at a price of $2,200.

Use the T-accounts shown above to record the transactions, and then answer the following question:

After transaction number 3, what was the balance in the Conversion costs account?

A) $29,000

B) $74,000

C) $34,000

D) $25,000

26) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just-in-time production and accounting methodology. At the beginning of January, selected account balances are shown in the T-accounts below.

During January, the following 5 transactions take place:

1. Purchase $40,000 of materials on account.

2. Pay out $25,000 of direct labor costs.

3. Incur $9,000 of manufacturing overhead costs.

4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing overhead costs.

5. Sell 10 of the 12 completed units at a price of $2,200.

Use the T-accounts shown above to record the transactions, and then answer the following question:

After transaction number 4, what was the balance in the Raw and in-process inventory account?

A) $24,000

B) $22,000

C) $15,000

D) $25,000

27) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just-in-time production and accounting methodology. At the beginning of January, selected account balances are shown in the T-accounts below.

During January, the following 5 transactions take place:

1. Purchase $40,000 of materials on account.

2. Pay out $25,000 of direct labor costs.

3. Incur $9,000 of manufacturing overhead costs.

4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing overhead costs.

5. Sell 10 of the 12 completed units at a price of $2,200.

Use the T-accounts shown above to record the transactions, and then answer the following question:

After transaction number 4, what was the balance in the Conversion costs account?

A) $28,600

B) $50,600

C) $21,400

D) $3,600

28) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just-in-time production and accounting methodology. At the beginning of January, selected account balances are shown in the T-accounts below.

During January, the following 5 transactions take place:

1. Purchase $40,000 of materials on account.

2. Pay out $25,000 of direct labor costs.

3. Incur $9,000 of manufacturing overhead costs.

4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing overhead costs.

5. Sell 10 of the 12 completed units at a price of $2,200.

Use the T-accounts shown above to record the transactions, and then answer the following question:

After transaction number 4, what was the balance in the Finished goods inventory account?

A) $28,600

B) $18,600

C) $23,400

D) $26,900

29) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just-in-time production and accounting methodology. At the beginning of January, selected account balances are shown in the T-accounts below.

During January, the following 5 transactions take place:

1. Purchase $40,000 of materials on account.

2. Pay out $25,000 of direct labor costs.

3. Incur $9,000 of manufacturing overhead costs.

4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing overhead costs.

5. Sell 10 of the 12 completed units at a price of $2,200.

Use the T-accounts shown above to record the transactions, and then answer the following question:

After transaction number 5, what was the balance in the Conversion costs account?

A) $28,600

B) $19,600

C) $24,900

D) $16,400

30) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just-in-time production and accounting methodology. At the beginning of January, selected account balances are shown in the T-accounts below.

During January, the following 5 transactions take place:

1. Purchase $40,000 of materials on account.

2. Pay out $25,000 of direct labor costs.

3. Incur $9,000 of manufacturing overhead costs.

4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing overhead costs.

5. Sell 10 of the 12 completed units at a price of $2,200.

Use the T-accounts shown above to record the transactions, and then answer the following question:

After transaction number 5, what was the balance in the Finished goods inventory account?

A) $3,900

B) $7,400

C) $13,900

D) $6,900

31) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just-in-time production and accounting methodology. At the beginning of January, selected account balances are shown in the T-accounts below.

During January, the following 5 transactions take place:

1. Purchase $40,000 of materials on account.

2. Pay out $25,000 of direct labor costs.

3. Incur $9,000 of manufacturing overhead costs.

4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing overhead costs.

5. Sell 10 of the 12 completed units at a price of $2,200.

Use the T-accounts shown above to record the transactions, and then answer the following question:

After transaction number 5, what was the balance in the Raw and in-process inventory account?

A) $25,400

B) $36,600

C) $22,000

D) $24,000

32) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just-in-time production and accounting methodology. At the beginning of January, selected account balances are shown in the T-accounts below.

During January, the following 5 transactions take place:

1. Purchase $40,000 of materials on account.

2. Pay out $25,000 of direct labor costs.

3. Incur $9,000 of manufacturing overhead costs.

4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing overhead costs.

5. Sell 10 of the 12 completed units at a price of $2,200.

Use the T-accounts shown above to record the transactions, and then answer the following question:

How much was the cost of goods sold?

A) $23,400

B) $19,500

C) $22,000

D) $25,600

33) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson purchased $4,000 of raw materials on account. Please provide the journal entry.

.

34) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson paid direct labor costs of $5,000 in cash. Please provide the journal entry.

.

35) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson paid $6,000 for factory repair and maintenance costs in cash. Please provide the journal entry.

.

36) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson completed 400 units of product and moved the products to finished goods. Each unit included $8.00 of direct materials cost and $2.00 of conversion costs. Please provide the journal entry.

.

37) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson sold 200 units of product for $12.00 per unit. Each unit included $8.00 of direct materials cost and $2.00 of conversion costs. Johnson recorded the revenues of $2,400 in one entry, and then recorded the cost of goods sold in a second entry. Please provide the journal entry to record the cost of goods sold.

Learning Objective 18-4

1) Inspection of incoming materials and production loss caused by downtime are examples of prevention costs.

2) Internal failure costs occur when poor-quality goods or services are not detected until after delivery to customers.

3) Costs spent to avoid poor quality goods are considered internal failure costs.

4) Internal failure costs occur when the company detects and corrects poor-quality goods or services before delivery to customers.

5) Costs spent to detect poor-quality goods are considered appraisal costs.

6) Costs incurred when the company corrects for poor-quality goods before they are delivered to the customer are considered internal failure costs.

7) Costs incurred after the company sells poor-quality goods to the customer are considered external failure costs.

8) Alonzo Company has been experiencing lost sales and high returns recently, so they decided to undertake a comprehensive quality program. Here are factors being considered:

Estimated lost profits due to poor quality products $200,000

Excessive warranty repair costs $60,000

Costs of correcting for defective goods on the assembly line $10,000

If the cost of implementing the quality program is under $270,000, the company should go forward with it.

9) Nirvana Products Company has just gone through a rigorous evaluation due to sliding profits in the past year. The engineers strongly recommend implementing an aggressive preventative maintenance program, but the accountants say it will cost $50,000. The lawyers insist on a zero-defect product inspection as the units are being packaged, but the accountants say it will cost $40,000. The vice president for production said he just thought it was too expensive of a gamble to take, but the factory manager pointed out that if they did not look ahead at the consequences, they could easily lose $100,000 of sales to their competitors because of shoddy goods, and a costly production shutdown that would cost them another $100,000 if the machinery gives out unexpectedly.

In this situation, the company should not invest in the quality programs being recommended because they are not justified on a cost/benefit basis.

10) Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti immediately conducted a thorough study of the new company's work processes, and produced a report including the data shown below:

A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to implement.

Shoddy business practices are resulting in excessive warranty costs$15,000 more than normal due mainly to material failure.

Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.

Inefficient workplace design is costing $5,000 in unnecessary rework costs.

Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.

Based on an analysis of costs and benefits, a quality improvement plan would not be recommended.

11) Which of the following is NOT an internal failure cost?

A) Production losses caused by downtime

B) Warranty costs

C) Rework costs

D) Rejected product units

12) Which of the following categories includes costs incurred in detecting poor quality goods or services?

A) External failure costs

B) Prevention costs

C) Appraisal costs

D) Internal failure costs

13) Which of the following categories includes costs incurred when poor quality goods or services are detected before delivery to customers?

A) Appraisal costs

B) Internal failure costs

C) Prevention costs

D) External failure costs

14) The cost of inspection at various stages of production is an example of what type of cost?

A) Appraisal cost

B) External failure cost

C) Prevention cost

D) Internal failure cost

15) The cost of reengineering the production process to reduce defect rate is an example of which of the following?

A) Internal failure cost

B) Appraisal cost

C) External failure cost

D) Prevention cost

16) What do you call the costs incurred to avoid production of poor quality goods or services?

A) External failure costs

B) Internal failure costs

C) Appraisal costs

D) Prevention costs

17) The cost of warranty work comes under which of the following cost categories?

A) Appraisal cost

B) Internal failure cost

C) External failure cost

D) Prevention cost

18) The cost to improve equipment and processes comes under which of the following cost categories?

A) Prevention cost

B) External failure cost

C) Appraisal cost

D) Internal failure cost

19) The cost of product liability claims comes under which category of costs?

A) Appraisal cost

B) Prevention cost

C) Internal failure cost

D) External failure cost

20) The lost profits from losing customers would come under which of the following categories?

A) Prevention cost

B) Appraisal cost

C) External failure cost

D) Internal failure cost

21) The cost of training personnel is an example of an:

A) appraisal cost.

B) prevention cost.

C) internal failure cost.

D) external failure cost.

22) Losses caused by downtime in the production process are considered a(n):

A) external failure cost.

B) prevention cost.

C) appraisal cost.

D) internal failure cost.

23) Perkins Company has been experiencing lost sales and high returns recently, so they decided to undertake a comprehensive quality program. Here are factors being considered:

Finished products need to be inspected before shipping Estimated cost: $45,000

Production equipment needs upgrading Estimated cost: $400,000

Perkins knows that if it undertakes this program, it will be able to reduce warranty repair costs by $25,000. They also know they will be able to avoid lost profits by retaining customers, but they cannot quantify that benefit with any degree of precision. Should Perkins go ahead with the quality program?

A) Yes, they should, regardless of any other considerations.

B) No, they should not.

C) They should, only if the benefit of avoiding lost profits is estimated to be over $420,000.

D) They should, only if the benefit of avoiding lost profits is estimated to be over $445,000.

24) Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti immediately conducted a thorough study of the new company's work processes, and produced a report including the data shown below:

A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to implement.

Shoddy business practices are resulting in excessive warranty costs$15,000 more than normal due mainly to material failure.

Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.

Inefficient workplace design is costing $5,000 in unnecessary rework costs.

Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.

Based on the above, what is the amount of prevention costs, if any, included here?

A) $18,000

B) $12,000

C) $15,000

D) Zero

25) Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti immediately conducted a thorough study of the new company's work processes, and produced a report including the data shown below:

A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to implement.

Shoddy business practices are resulting in excessive warranty costs$15,000 more than normal due mainly to material failure.

Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.

Inefficient workplace design is costing $5,000 in unnecessary rework costs.

Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.

Based on the above, what is the amount of appraisal costs, if any, included here?

A) $18,000

B) $12,000

C) $15,000

D) Zero

26) Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti immediately conducted a thorough study of the new company's work processes, and produced a report including the data shown below:

A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to implement.

Shoddy business practices are resulting in excessive warranty costs$15,000 more than normal due mainly to material failure.

Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.

Inefficient workplace design is costing $5,000 in unnecessary rework costs.

Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.

Based on the above, what is the amount of internal failure costs, if any, included here?

A) $5,000

B) $12,000

C) $15,000

D) Zero

27) Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti immediately conducted a thorough study of the new company's work processes, and produced a report including the data shown below:

A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to implement.

Shoddy business practices are resulting in excessive warranty costs$15,000 more than normal due mainly to material failure.

Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.

Inefficient workplace design is costing $5,000 in unnecessary rework costs.

Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.

Based on the above, what is the amount of external failure costs, if any, included here?

A) $5,000

B) $12,000

C) $95,000

D) Zero

Horngren_accounting_Business_16 Horngren_accounting_Business_16

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Accounting, 9e (Horngren)

Chapter 16 Introduction to Management Accounting

Learning Objective 16-1

1) Managerial accounting's focus is to provide information for internal planning and control.

2) Management accounting often requires forward-looking data because of the futuristic nature of many business decisions.

3) Management accounting is influenced significantly by rules of GAAP and guidelines of the Securities Exchange Commission.

4) Budget preparation is a part of the planning process.

5) Financial reporting is typically much more detailed than managerial accounting.

6) Which of the following is NOT an objective of management accounting?

A) To provide information to business managers to assist them in planning for their business

B) To provide information to business managers to assist them in controlling their business

C) To provide information to shareholders to assist them with their investment decisions

D) To assist business managers with respect to providing a return to the owners of the business

7) Which of the following statements is INCORRECT?

A) The primary users of management accounting are the company's managers.

B) Management accounting information is used to help managers plan and control their operations.

C) Management accounting information does not require an external audit.

D) Management accounting information is required to comply with generally accepted accounting principles.

8) Which of the following statements is INCORRECT?

A) Managerial accounting is used to determine the cost of products and services.

B) Managerial accounting is used to plan and control business operations.

C) Managerial accounting is used to report the company's financial position and results of operations to creditors and investors.

D) Managerial accounting is used to prepare budgets.

9) Which of the following statements about financial accounting is CORRECT?

A) Financial accounting is oriented towards helping investors make decisions.

B) Financial accounting is forward-looking.

C) Financial accounting is focused on detailed reports on parts of the company.

D) Financial accounting is focused on planning and controlling operations.

10) Which of the following statements about managerial accounting is CORRECT?

A) Managerial accounting reports are audited annually by Certified Public Accountants.

B) Managerial accounting reports help investors make decisions.

C) Managerial accounting reports provide detailed information on parts of a company.

D) Managerial accounting reports must follow Generally Accepted Accounting principles (GAAP).

11) Management is accountable to its suppliers and vendors in which of the following ways?

A) Providing products to customers that are safe and free of defects

B) Repaying loans in a timely manner

C) Providing a return on the owner's shareholders' investment

D) Making timely payments and complying with contract terms

12) Management is accountable to its employees in which of the following ways?

A) Providing products that are safe and free of defects

B) Providing a safe workplace

C) Providing a return on the owner's shareholders' investment

D) Ensuring the business is environmentally responsible for impacts on the community

13) Management is accountable to various government bodies in which of the following ways?

A) Making timely payments to creditors

B) Making timely payments to vendors

C) Providing a return on the owner's shareholders' investment

D) Obeying laws and regulations, and paying taxes

14) Management is accountable to communities in which of the following ways?

A) Making timely payments to creditors

B) Ensuring the company's environmental impact is not harmful to its area of operations

C) Providing a return on the owner's shareholders' investment

D) Obeying laws and paying taxes

15) Managerial accounting includes the planning function. Which of the following items would be part of the planning function of a business's managerial accounting?

A) Comparing actual performance to previously budgeted amounts

B) Creating detailed budgets

C) Implementing operational plans

D) Evaluating results of operations

16) Managerial accounting includes the controlling function. Which of the following items would be part of the controlling function of a business's managerial accounting?

A) Comparing actual performance to previously budgeted amounts

B) Creating detailed budgets

C) Devising marketing and production plans

D) Setting product prices

17) Managerial accounting is focused on which of the following objectives?

A) Providing information that managers need to make operational decisions

B) Providing historical data to investors and creditors

C) Providing summarized results of operations

D) Providing information to comply with laws and regulations of government bodies


18) Financial accounting is focused on which of the following objectives?

A) Providing information that managers need to make operational decisions

B) Providing summarized information on operational results to investors and creditors

C) Providing budgets for future periods

D) Providing highly detailed information on product lines, regions, divisions, etc.

19) Which of the following most accurately describes the term cost/benefit analysis?

A) Considering whether employees should be entitled to certain fringe benefits

B) Calculating the cost of holding fundraising benefits for charity

C) Considering whether the cost of products exceeds the market selling price

D) Considering whether the cost of calculating certain types of information provides a commensurate economic benefit

Learning Objective 16-2

1) During the past century, many developed economies have shifted their focus from a service economy to a manufacturing economy.

2) Increased global competition has resulted in many companies moving their operations to other countries to be closer to new markets.

3) Which of the following is a philosophy of providing customers with superior products and services?

A) Just-in-time (JIT) inventory management

B) Enterprise resource planning (ERP)

C) Supply chain management

D) Total quality management

4) Which of the following describes a system in which suppliers deliver materials at the time they are needed and finished units are completed when customer orders need to be filled?

A) Supply chain management

B) Just-in-time (JIT)

C) Enterprise resource planning

D) Total quality management

5) What is total quality management?

A) A philosophy of supplying customers with superior products and services

B) An exchange of information with suppliers and customers to create efficient and effective processes

C) A software system that integrates a company's functions, departments and data into a single system

D) A system which speeds the transformation of raw materials into finished products.

6) What is the name given to software systems that can integrate all of a company's worldwide functions, departments and data into a single system?

A) Total quality management

B) Enterprise resource planning

C) E-Commerce

D) Just-in-time inventory management


7) Which of the following BEST describes just-in-time inventory management?

A) Production system that stores surplus goods at each stage of manufacture

B) Inventory purchasing process that gains purchase discounts by buying in large quantities

C) Production system that focuses on delivering materials and goods in exactly the right quantity when needed

D) Inventory system which stockpiles raw materials to protect against supply interruptions

8) Which of the following is NOT an advantage of just-in-time inventory management?

A) Surplus inventory is maintained to prevent production shut-down in case of supply interruption

B) Lower inventory levels reduce storage cost

C) Inventory kept for shorter periods of time reduces the amount of goods that become obsolete

D) Reduce the amount of insurance needed for lower levels of inventory

9) Which of the following is a management approach designed to set higher and higher goals in order to make continuous improvement?

A) Supply chain management

B) Just-in-time (JIT)

C) Enterprise resource planning

D) Total quality management

10) Which of the following BEST describes the value chain?

A) A management information system which tracks the costs of products through the manufacturing process

B) The minimizing of inventory levels to reduce storage, insurance and finance costs

C) All activities that contribute to the continuous improvement of business operations

D) The whole sequence of activities that add value to the goods and services sold to end-users

Learning Objective 16-3

1) The IMA standards of ethical practice provide that accountants should continually develop their knowledge and skills.

2) Maintaining confidentiality of company information is a key element of ethical professional practice.

3) The accountant for Spiral Supplies deliberately post-dated a check to pay for business expenses in order to record a higher net income for the company. As long as the amount was not material, this would not be considered unethical behavior.

4) The sales manager for Baker Products told the shipping department to ship an order to a customer on the last day of December instead of the previously scheduled shipping date of January 2. This would allow the company to book the sales revenue in the year just ended and boost year-end profit. Although done deliberately to boost income, the action did not misrepresent any facts of the situation, and so it would not be considered unethical.

5) Baker products shipped an order to a customer on the second day of January. Later that day, the sales manager told the accountant to record the sale as if it had taken place on the last day of December. This would allow the company to book the sales revenue in the year just ended and boost year-end profit. Because the transaction was a legitimate sale, the alteration of the date of sale alone would not be considered unethical.

6) Charleston Company was nearing year-end and the CEO wanted to report a high level of inventory on the balance sheet. An order of raw materials was planned for early the next year, but the CEO asked the purchasing manager to accelerate the shipment so that it would arrive before the end of the year. Because this action was taken deliberately to affect the financial results of the company, it would be considered unethical.

7) Charleston Company was nearing year-end and the CEO wanted to report a high level of inventory on the balance sheet. An order of raw materials was scheduled for delivery on January 2 of the next year, but the CEO asked the accounting manager to record the shipment as being received on the last day of December. The shipment was actually received on January 2nd, and although the dollar impact of the transaction was not affected in any way, the misrepresentation of facts in the situation would make the behavior unethical.

8) Which of the following is NOT one of the key standards of ethical practice published by the IMA?

A) Competence

B) Environmental sensitivity

C) Integrity

D) Confidentiality

9) Which of the following events would NOT be considered unethical under IMA standards?

A) An inventory shipment was received on January 2, but was booked 3 days earlier in order to boost the year-end inventory balance.

B) An accountant coded an expense to a fixed asset account so that the expense budget would not be overrun at year-end.

C) A scheduled maintenance service originally planned for late December was delayed until the following year to reduce expenses recorded in the year just ended.

D) A company shipped products to a customer on January 2, but recorded the transaction on the last day of December to boost revenues in the year just ended.

10) Which of the following events would NOT be considered unethical under IMA standards?

A) An accountant told his friends about the bids his company had received from contractors for construction contracts.

B) An accountant provided a list of his company's foreign transactions to an investigative reporter who was working on a story for the paper.

C) An accountant provided a list of his company's qualified suppliers to a small businessman that wanted to set up a similar business on his own.

D) An accountant provided a copy of his company's published financial statements to a relative who owned a business that was directly competing with the accountant's company.

11) Which of the following events would NOT be considered unethical under IMA standards?

A) A bank hired a bookkeeper to review foreclosure documents who had no training or experience in the area.

B) An accountant was supposed to take continuing education courses but fell behind and was not current on important new developments in his industry.

C) An accountant who had no background in internal control or finance was promoted to the position of controller.

D) An accountant who had just successfully completed an in-house training course in management accounting made a large error in the year-end expense reports.

12) Your company is doing well and you tell your sister that the company will report earnings that are significantly higher than the financial analysts' estimated. Which IMA guideline has been violated?

A) Objectivity

B) Competence

C) Confidentiality

D) Integrity

13) You did not understand what the term accrual meant and failed to accrue the interest due at the end of the year on the company's bonds. Which IMA guideline has been violated?

A) Integrity

B) Confidentiality

C) Competence

D) Objectivity

Learning Objective 16-4

1) Product costs, such as direct materials, are expensed during the period that they were incurred.

2) A service company's income statement does NOT include cost of goods sold.

3) Manufacturing businesses have inventory accounts, but service and merchandising businesses do not.

4) Both merchandising and manufacturing businesses produce their own products, but service businesses do not.

5) Which of the following is a characteristic of a service company?

A) It transforms raw materials into finished goods.

B) It makes a product.

C) It does not have tangible products intended for sale.

D) It has a single category of inventory.

6) Which of the following could be found on the income statement of a service company?

A) Rent expense

B) Cost of goods manufactured

C) Cost of goods sold

D) Manufacturing overhead

7) Which of the following is TRUE for a service company?

A) Expenses are all period costs.

B) Expenses are all product costs.

C) Income statement includes gross profit.

D) Balance sheet includes finished goods inventory.


8) Bainbridge Services reported the following information for the year 2012:

Service revenue $20,000

Operating expenses $15,750

Net income $4,250

Number of service calls for the year 21,000

How much was the unit cost per service call?

A) $0.95

B) $2.20

C) $0.75

D) $0.20

Explanation: C) Calculations: $15,750/21,000 = $0.75

Learning Objective 16-5

1) Merchandising businesses resell goods which they purchase from a producer.

2) Which of the following applies to goods that are purchased from a producer and sold by a merchandising company?

A) Materials inventory

B) Work in process inventory

C) Merchandise inventory

D) Finished goods inventory

3) Which of the following applies to goods that are produced by a manufacturing company and ready to sell?

A) Materials inventory

B) Work in process inventory

C) Merchandise inventory

D) Finished goods inventory

4) Which of the following applies to goods that are partially completed?

A) Materials inventory

B) Work in process inventory

C) Merchandise inventory

D) Finished goods inventory

5) Which of the following applies to the raw materials used by a manufacturing company?

A) Materials inventory

B) Work in process inventory

C) Merchandise inventory

D) Finished goods inventory

6) Which of the following is an inventory account for a merchandise company?

A) Work in process inventory

B) Manufacturing overhead inventory

C) Merchandise inventory

D) Finished goods inventory


7) The following information pertains to Bright Toy Company's operating activities for 2012. The company sells light box toys and sold 10,000 units in 2012.

Purchases

$126,000

Selling and Administrative Expenses

90,000

Merchandise inventory, 1/1/2012

14,000

Merchandise inventory, 12/31/2012

10,000

Sales Revenue

250,000

What is the cost of goods available for sale for 2012?

A) $140,000

B) $126,000

C) $104,000

D) $130,000

8) The following information pertains to Bright Toy Company's operating activities for 2012. The company sells light box toys and sold 10,000 units in 2012.

Purchases

$126,000

Selling and Administrative Expenses

90,000

Merchandise inventory, 1/1/2012

14,000

Merchandise inventory, 12/31/2012

10,000

Sales Revenue

250,000

What is the cost of goods sold for 2012?

A) $104,000

B) $124,000

C) $130,000

D) $140,000

9) The following information pertains to Bright Toy Company's operating activities for 2012. The company sells light box toys and sold 10,000 units in 2012.

Purchases

$126,000

Selling and Administrative Expenses

90,000

Merchandise inventory, 1/1/2012

14,000

Merchandise inventory, 12/31/2012

10,000

Sales Revenue

250,000

What is the gross profit for 2012?

A) $120,000

B) $130,000

C) $140,000

D) $136,000

10) The following information pertains to Bright Toy Company's operating activities for 2012. The company sells light box toys and sold 10,000 units in 2012.

Purchases

$126,000

Selling and Administrative Expenses

90,000

Merchandise inventory, 1/1/2012

14,000

Merchandise inventory, 12/31/2012

10,000

Sales Revenue

250,000

What is the operating income for 2012?

A) $250,000

B) $140,000

C) $30,000

D) $90,000

11) The following information pertains to Bright Toy Company's operating activities for 2012. The company sells light box toys and sold 10,000 units in 2012.

Purchases

$126,000

Selling and Administrative Expenses

90,000

Merchandise inventory, 1/1/2012

14,000

Merchandise inventory, 12/31/2012

10,000

Sales Revenue

250,000

What is the profit margin percentage?

A) 12%

B) 56%

C) 100%

D) 36%

12) The following information pertains to Bright Toy Company's operating activities for 2012. The company sells light box toys and sold 10,000 units in 2012.

Purchases

$126,000

Selling and Administrative Expenses

90,000

Merchandise inventory, 1/1/2012

14,000

Merchandise inventory, 12/31/2012

10,000

Sales Revenue

250,000

What is the gross profit percentage?

A) 48%

B) 56%

C) 36%

D) 100%

13) The following information pertains to Bright Toy Company's operating activities for 2012. The company sells light box toys and sold 10,000 units in 2012.

Purchases

$126,000

Selling and Administrative Expenses

90,000

Merchandise inventory, 1/1/2012

14,000

Merchandise inventory, 12/31/2012

10,000

Sales Revenue

250,000

What is the cost per unit sold?

A) $13.00

B) $12.40

C) $14.00

D) $10.40

14) Barrington Products is a merchandiser that sells a single type of specialized industrial chemical. Barrington reported the following information for the year 2012:

Sales revenue $280,000

Cost of goods sold $126,000

Operating expenses $135,000

Net income $19,000

Number of units sold 90,000

How much was the unit cost per unit of product sold?

(Please round to nearest cent.)

A) $1.40

B) $1.71

C) $3.11

D) $0.21

15) Which of the following formulas represents cost of goods sold for a merchandising business?

A) Beginning inventory - ending inventory = cost of goods sold

B) Purchases and freight in - ending inventory = cost of goods sold

C) Ending inventory + purchases and freight in - beginning inventory = cost of goods sold

D) Beginning inventory + purchases and freight in - ending inventory = cost of goods sold

16) Excellent Company sells accounting textbooks. The following information summarizes Excellent's operating activities for 2012:

Merchandise inventory, January 1, 2012

$10,000

Merchandise inventory, December 31, 2012

$7,000

Purchases

$95,000

Selling and Administrative Expenses

$65,000

Sales Revenue

$180,000

Required: Prepare an income statement for the year ended December 31, 2012. Please use the format provided below:

Sales revenue

Cost of goods sold

Beginning inventory

Purchases

Cost of goods available for sale

Ending inventory

Cost of goods sold

Gross profit

Selling and administrative expenses

Net income/(loss)


.

17) Excellent Company sells accounting textbooks. The following information summarizes Excellent's operating activities for 2012:

Merchandise inventory, January 1, 2012

$10,000

Merchandise inventory, December 31, 2012

$7,000

Purchases

$95,000

Selling and Administrative Expenses

$65,000

Sales Revenue

$180,000

Required: Prepare an income statement for the year ended December 31, 2012. Please use the format provided below, and include a vertical analysis showing percentages rounded to the nearest tenth of a percent.

Sales revenue

Cost of goods sold

Beginning inventory

Purchases

Cost of goods available for sale

Ending inventory

Cost of goods sold

Gross profit

Selling and administrative expenses

Net income/(loss)

.

18) Excellent Company sells accounting textbooks. The following information summarizes Excellent's operating activities for 2012:

Merchandise inventory, January 1, 2012

$10,000

Merchandise inventory, December 31, 2012

$7,000

Purchases

$95,000

Selling and Administrative Expenses

$65,000

Sales Revenue

$180,000

Required: Prepare an income statement for the year ended December 31, 2012. Please use the format provided below, and include a vertical analysis showing percentages rounded to the nearest tenth of a percent.

19) Best Company sells office supplies. The following information summarizes Best's operating activities for 2012:

Utilities for store

$6,000

Rent for store

$8,000

Sales commissions

$4,500

Purchases of merchandise

$54,000

Inventory on January 1, 2012

$30,000

Inventory on December 31, 2012

$20,500

Sales revenue

$108,000

Required: Prepare an income statement for Best Company, a merchandiser, for the year ended December 31, 2012.using the format below:

Sales revenue

Cost of goods sold

Beginning inventory

Purchases

Cost of goods available for sale

Ending inventory

Cost of goods sold

Gross profit

Selling expenses

Sales commissions

General expenses

Rent expense

Utilities expense

Total operating expenses

Net income/(loss)

20) Best Company sells office supplies. The following information summarizes Best's operating activities for 2012:

Utilities for store

$6,000

Rent for store

$8,000

Sales commissions

$4,500

Purchases of merchandise

$54,000

Inventory on January 1, 2012

$30,000

Inventory on December 31, 2012

$20,500

Sales revenue

$108,000

Required: Prepare an income statement for Best Company, a merchandiser, for the year ended December 31, 2012.using the format below. Please include a vertical analysis rounded to the nearest tenth of a percent.

Sales revenue

Cost of goods sold

Beginning inventory

Purchases

Cost of goods available for sale

Ending inventory

Cost of goods sold

Gross profit

Selling expenses

Sales commissions

General expenses

Rent expense

Utilities expense

Total operating expenses

Net income/(loss)

Learning Objective 16-6

1) GAAP requires companies to treat product costs such as factory overhead as an asset until the product is sold.

2) Cost of goods manufactured includes direct materials, direct labor, and manufacturing overhead.

3) Manufacturing overhead includes all manufacturing costs, such as direct labor and direct materials.

4) Manufacturing overhead includes indirect costs, such as insurance and depreciation on the factory building.

5) A manufacturer's inventory consists of merchandise inventory, work in process inventory, and finished goods inventory.

6) Selling and administrative expenses are subtracted from cost of goods sold to obtain gross profit.

7) The costs of indirect materials cannot easily be traced to the manufactured product and is therefore a component of manufacturing overhead.

8) The total manufacturing costs to account for during the year minus the beginning work in process equals cost of goods manufactured.

9) The wages and benefits of the assembly line workers are product costs.

10) The wages and benefits of the assembly line workers are included in manufacturing overhead.

11) The wages and benefits of the factory manager are product costs.

12) The wages and benefits of the factory manager are included in manufacturing overhead.

13) The wages and benefits of the sales staff are product costs.

14) The wages and benefits of the factory janitors are included in manufacturing overhead.

15) Indirect materials costs like lubes and cleaning fluids are product costs.

16) Indirect materials costs like lubes and cleaning fluids are included in manufacturing overhead.

17) Factory rent, taxes and insurance are product costs.

18) Factory rent, taxes and insurance are included in manufacturing overhead.

19) Transportation costs to ship products to customers are product costs.

20) Sales commissions are included in manufacturing overhead.

21) Advertising and marketing costs are product costs.

22) Advertising and marketing costs are included in manufacturing overhead.

23) Accounting, legal and administrative costs are product costs.

24) Accounting, legal and administrative costs are included in manufacturing overhead.

25) Repair and maintenance costs for factory equipment are product costs.

26) Repair and maintenance costs for factory equipment are included in manufacturing overhead.

27) Repair and maintenance costs of vehicles used to deliver products to the customers are product costs.

28) Repair and maintenance costs of vehicles used to deliver products to the customers are included in manufacturing overhead.

29) Which of the following costs do NOT go directly into the work in process account?

A) Factory overhead

B) Indirect labor

C) Factory janitorial costs

D) The purchase of raw materials

30) Which of the following are period costs?

A) Current assets on the balance sheet

B) Costs incurred and expensed during the accounting period

C) Costs related to the manufacture of products

D) Current liabilities on the balance sheet

31) Which of the following is an example of a period cost?

A) Advertising expense

B) Depreciation on factory equipment

C) Indirect materials

D) Property taxes for the factory

32) Which of the following costs would appear on the income statements for both a merchandiser and a manufacturer?

A) Direct labor

B) Cost of goods manufactured

C) Direct materials

D) Operating expenses

33) Which of the following is NOT a part of manufacturing overhead?

A) Indirect materials

B) Indirect labor

C) Factory insurance

D) Depreciation on delivery vehicles

34) Which of the following is NOT a product cost?

A) Indirect labor

B) Depreciation of factory equipment

C) Indirect materials

D) Depreciation of corporate headquarters

 

35) Period costs do NOT include which of the following?

A) Sales commissions

B) Factory janitorial costs

C) Insurance on delivery vehicles

D) Advertising costs

36) Which of the following is an example of direct labor?

A) Wages of assembly line personnel

B) Salary of vice president of production

C) Wages of factory security guard

D) Salary of production manager

37) Manufacturing overhead includes which of the following?

A) Indirect labor and indirect materials

B) Salaries of salesmen

C) Direct materials and direct labor

D) Delivery costs to ship goods to customers

38) All of the following are examples of manufacturing overhead EXCEPT for:

A) utilities incurred in the factory.

B) insurance on factory equipment.

C) wages of assembly line workers.

D) indirect materials.

39) Which of the following describes the term cost object?

A) An object which costs money to purchase

B) Any type of cost which is incurred to produce a finished product

C) Anything which requires a detailed record of its component costs to be kept

D) Any cost which is treated as a period expense

40) Wright Company reports production costs for 2012 as follows:

Direct materials used

$375,000

Direct labor incurred

$250,000

Manufacturing overhead incurred

$400,000

Operating expenses

$145,000

How much are Wright Company's period costs?

A) $250,000

B) $575,000

C) $145,000

D) $375,000

41) Wright Company reports production costs for 2012 as follows:

Direct materials used

$375,000

Direct labor incurred

$250,000

Manufacturing overhead incurred

$400,000

Operating expenses

$145,000

How much are Wright Company's inventoriable product costs for 2009?

A) $925,000

B) $605,000

C) $975,000

D) $1,025,000

42) Which of the following describes the cost of goods manufactured?

A) The cost of the goods that were sold during the period

B) The total cost of all goods that were completed, or partially completed during the period

C) The cost of those goods which were completed during the period

D) The total costs in inventory at the end of the period

43) At the beginning of 2011, the Taylor Company's work in process inventory account had a balance of $30,000. During 2011, $68,000 of direct materials were used in production, and $66,000 of direct labor costs were incurred. Manufacturing overhead in 2011 amounted to $90,000. The cost of goods manufactured was $220,000 in 2011. What is the balance in work in process inventory on December 31, 2011?

A) $24,000

B) $66,000

C) $6,000

D) $34,000

44) Selected data for Young Company for 2012 is presented below:

Direct labor incurred

$30,000

Indirect labor incurred

21,000

Factory depreciation

5,000

Factory utilities

7,000

Indirect materials used

2,000

Direct materials used

12,000

Property taxes on factory building

3,000

Sales commissions

8,000

What is the manufacturing overhead?

A) $47,000

B) $50,000