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Question : Student Answer:

(TCO A) Wages paid to an assembly line worker in a factory are a Prime Cost YES.....Conversion Cost NO. Prime Cost YES.....Conversion Cost YES. Prime Cost NO....Conversion Cost NO.

Instructor Explanation: Points Received: Comments: 2. Question : Student Answer:

Prime Cost NO.....Conversion Cost YES. Chapter 2

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(TCO A) A cost incurred in the past that is not relevant to any current decision is classified as a(n) period cost. incremental cost. opportunity cost.

Instructor Explanation: Points Received: Comments: 3. Question : Student Answer:

None of the above Chapter 2

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(TCO A) Property taxes on a company's factory building would be classified as a(n) sunk cost. opportunity cost. period cost. variable cost.

Instructor Explanation: Points Received: Comments: 4. Question : Student Answer:

manufacturing cost. Chapter 2

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(TCO A) Within the relevant range, variable costs can be expected to vary in total in direct proportion to changes in the activity level. remain constant in total as the activity level changes. increase on a per-unit basis as the activity level increases.

increase on a per-unit basis as the activity level decreases.

Instructor Explanation: Points Received: Comments: 5. Question :

None of the above Chapter 5

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(TCO F) Which of the following statements is true? I. Overhead application may be made slowly as a job is worked on. II. Overhead application may be made in a single application at the time of completion of the job. III. Overhead application should be made to any job not completed at year end in order to properly value the work in process inventory.

Student Answer:

Only statement I is true. Only statement II is true. Both statements I and II are true.

Instructor Explanation: Points Received: Comments: 6. Question : Student Answer:

Statements I, II, and III are all true. Chapter 3

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(TCO F) Under a job-order costing system, the product being manufactured is homogeneous. passes from one manufacturing department to the next before being completed. can be custom manufactured. has a unit cost that is easy to calculate by dividing total production costs by the units produced. Chapter 3

Instructor Explanation: Points Received: Comments: 7. Question : Student Answer:

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(TCO F) The FIFO method only provides a major advantage over the weightedaverage method in that the calculation of equivalent units is less complex under the FIFO method.

the FIFO method treats units in the beginning inventory as if they were started and completed during the current period. the FIFO method provides measurements of work done during the current period. the weighted-average method ignores units in the beginning and ending work-in-process inventories. Chapter 4

Instructor Explanation: Points Received: Comments: 8. Question : Student Answer:

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(TCO B) The contribution margin equals sales - expenses. sales - cost of goods sold. sales - variable costs.

Instructor Explanation: Points Received: Comments: 9. Question : Student Answer:

sales - fixed costs. Chapter 6

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(TCO B) To obtain the break-even point in terms of dollar sales, total fixed expenses are divided by which of the following? Variable expense per unit Variable expense per unit/Selling price per unit Fixed expense per unit

Instructor Explanation: Points Received: Comments: 10. Question : Student Answer:

(Selling price per unit - Variable expense per unit) /Selling price per unit. Chapter 6

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(TCO E) In an income statement prepared using the variable costing method, fixed manufacturing overhead would not be used. be used in the computation of the contribution margin. be used in the computation of net operating income but not in the computation of the contribution margin.

Instructor Explanation: Points Received: Comments: 1. Question :

be treated the same as variable manufacturing overhead. Chapter 7

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(TCO A) The following data (in thousands of dollars) have been taken from the accounting records of Larop Corporation for the just-completed year: Sales................................................................................. Purchases of raw materials................................................ Direct labor....................................................................... Manufacturing overhead.................................................... Administrative expenses.................................................... Selling expenses................................................................ Raw materials inventory, beginning..................................... Raw materials inventory, ending......................................... Work-in-process inventory, beginning................................. Work-in-process inventory, ending..................................... Finished goods inventory, beginning................................... Finished goods inventory, ending....................................... $910 $225 $245 $265 $150 $140 $15 $45 $20 $55 $100 $135

Required: Prepare a Schedule of Cost of Goods Manufactured in the text box below.

Student Answer:

Larop Corporation Schedule of Cost of Goods Manufactured Direct Materials: Raw materials inventory, beginning................$15 +Purchase of raw materials...........................225 ----- Total of raw materials available.....................240 -Raw materials inventory, ending..................(45) ------ Raw materials used in production..............................$195 Direct labor................................................................245 Manufacturing overhead.............................................265 ----- Total manufacturing cost............................................705 +Work in process inventory, beginning.........................20 ----- 725 -Work in process inventory, ending.............................(55) ----- Cost of goods manufactured.....................................$670 ====
Schedule of cost of goods manufactured Direct materials: Raw materials inventory, beginning.................................. Add: Purchases of raw materials..................................... Raw materials available for use....................................... Deduct: Raw materials inventory, ending......................... Raw materials used in production....................................... Direct labor....................................................................... Manufacturing overhead.................................................... Total manufacturing cost....................................................

Instructor Explanation:

$ 15 225 240 45 195 245 265 705

Add: Work-in-process inventory, beginning........................ Deduct: Work-in-process inventory, ending........................ Cost of goods manufactured..............................................

20 725 55 $670

Points Received: Comments: 2. Question :

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(TCO F) The Illinois Company manufactures a product that goes through three processing departments. Information relating to activity in the first department during June is given below. Percentage Completed Materials Conversion 75% 55% 85% 75%

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

Units 150,000 145,000

The department started 475,000 units into production during the month and transferred 480,000 completed units to the next department. Required: Compute the equivalent units of production for the first department for June, assuming that the company uses the weighted-average method of accounting for units and costs.

Student Answer:

Equivalent Units of Production Materials Conversion Units transferred out to the next department......................480,000 480,000 Add Equivalent units in ending inventory: Materials 145,000 x 85%..................................................123,250 Conversion 145,000 x 75%............................................... 108,750 ---------- --------- Equivalent units of production 603,250 588,750 ====== ======
Equivalent Units Materials Conversion Units transferred to the next department 480,000 Ending work in process: Materials 145,000 x 85% 123,250 Conversion 145,000 x 75% Equivalent units of production 603,250 480,000

Instructor Explanation:

108,750 588,750

Points Received: Comments: 3. Question :

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(TCO B) A tile manufacturer has supplied the following data: Boxes of tile produced and sold Sales revenue 625,000 $2,975,000

Variable manufacturing expense Fixed manufacturing expense Variable selling and admin expense Fixed selling and admin expense Net operating income Required: a. Calculate the company's unit contribution margin. b. Calculate the company's unit contribution ratio.

$1,720,000 $790,000 $152,000 $133,000 $180,000

c. If the company increases its unit sales volume by 5% without increasing its fixed expenses, what would the company's net operating income be?

Student Answer:

a. Unit Contribution Margin = $1.76 Selling price per unit variable expenses per unit= $4.76 - $3 =$1.76 Selling price per unit = $2,975,000 / 625,000 = $4.76 per unit Variable expenses per unit = ($1,720,000+$152,000)/625,000 = $3.00 b. Unit Contribution Ratio= .37 or 37% Unit contribution margin / selling price per unit = $1.76 / $4.76 = .37 or 37% c. Net operating income = $235,080 Operating leverage = contribution margin / net operating income = (1.76 x 625,000= 1,100,000) / 180,000= 6.11 x 5% = .306 Projected income from operations = 180,000 x 1.306 = $235,080 ======= Sales (625,000 x105%=656,250) x 4.76................3,123,750 Variable expenses 656,250 x 3.................................1,968,750 ---------- Contribution margin.................................................1,155,000 Fixed expenses 790,000+133,000.............................923,000 ---------- Net operating income 232,000
a. Add the variable expenses = $1,720,000 + 152,000 = $1,872,000. Then, take Sales - VC = $2,975,000 1,872,000 = $1,103,000 / 625,000 boxes = $1.76 contribution margin per box. b. For the contribution margin percentage = $1,103,000 CM calculated in Part A / $2,975,000 sales = 37.08%. c. Calculate the degree of operating leverage = contribution margin / net operating income = $1,103,000 / $180,000 = 6.13. Then, a 5% increase in sales x 6.13 DOL = 30.65% increase in net operating income = $235,170 approx, rounded.

Instructor Explanation:

Points Received: Comments: 4. Question :

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(TCO E) Maffei Company, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price Units in beginning inventory Units produced Units sold Units in ending Inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and admin Fixed costs: Fixed manufacturing overhead Fixed selling and admin Required:

175 0 9,500 8,000 1,500

$ $ $ $

55 38 2 10

$ 300,000 $ 125,000

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

Student Answer:

a. Unit Cost under Variable Costing = $95 Direct materials = $55 Direct labor = $38 Variable manufacturing overhead = $2 ------ Variable costing unit cost =$95 b. Unit Cost under Absorption Costing = Direct material = $55 Direct labor = $38 Variable manufacturing overhead = $2 Fixed manufacturing overhead (300,000/9,500) = $31.58 ===== Absorption costing unit product cost = $126.58 c. Variable Costing Income Statement Sales (175 x 8,000).............................................$1,400,000 Beginning inventory............0 +Manufacturing cost (9,500 x 95).....902,500 -Ending inventory1,500 x 95..............142,500 ---------- Variable cost of goods sold................760,000 Variable selling and admin 10x8,000.. 80,000..........840,000 --------------------------- Contribution margin.................................................560,000 Less: Fixed expenses: Fixed manufacturing overhead....300,000 Fixed selling and admin...............125,000 425,000 --------------------------------- Net operating income.............................................$135,000 ======= d. Absorption Costing Income Statement Sales..................................................................$1,400,000 Less Cost of goods sold (8,000 x $126.58).........(1,012,640) ------------- Gross margin..........................................................387,360 Selling and administrative expenses: Variable selling and admin..............80,000 Fixed selling and admin.................125,000 205,000 --------------------------------

Net operating income $182,360 ======= Instructor Explanation:


a: Variable costing: Direct materials Direct labor Variable manufacturing overhead b: Absorption costing: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead c: Variable costing income statement: Sales Less variable expenses: Product costs (8,000 x $95) Variable selling and admin Contribution margin Less fixed expenses: Fixed manufacturing overhead Fixed selling and admin d: Absorption costing income statement: Sales Less cost of goods sold (8,000 x $126.58) Gross margin Selling and administrative expenses: Variable selling and admin Fixed selling and admin

$ $ $ $ 95

55 38 2

$ 55 $ $ $ $

38 2 31.58 (300,000 / 9,500) 126.58

$ $ $ 760,000 80,000

1,400,000

$ $

840,000 560,000

$ $

300,000 125,000

$ 425,000 $135,000

$ $ $ $ $ 80,000 125,000

1,400,000 1,012,640 387,360

$ $

205,000 182,360

Points Received: Comments:

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