K.R.

BALACHANDRAN
CIRCLE SECTION: 3 5

C10.0002 PRINCIPLES OF MANAGEMENT ACCOUNTING

FALL 2008

SHOW DETAILED STEPS FOR NUMERICAL QUESTIONS.

Quiz 3
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____

____

1. The overhead rates of the functional-based approach to product costing use

a. unit-based cost drivers
b. job-order costing
c. nonunit-based cost drivers
d. process costing
2. During this past year, Bouncy Company experienced no change in inventory. Sales were 40,000 units at a
selling price of $3 per unit. Variable manufacturing costs were $1.25 per unit, and total manufacturing costs
were $55,000. Under absorption costing, net income was calculated at $53,000. What was net income under
variable costing?
a. $53,000
b. $65,000
c. $55,000
d. $2,000
Figure 11-5
Sales
Variable costs
Fixed costs
Expected production and sales in units

____

$540,000
$378,000
$120,000
40,000 units

3. Refer to Figure 11-5. The break-even point in sales dollars is

a. $171,429
b. $498,000
c. $112,500
d. $400,000
Figure 10-4
Belanna Industries began operations on January 1. The company sells a single product for $7 per unit. During
the year, 50,000 units were produced and 45,000 units were sold. There was no work-in-process inventory at
December 31.
Budgeted and actual costs for the year were as follows:
Direct materials

Fixed Costs
-0-

Variable Costs
$1.40 per unit produced

Direct labor
Manufacturing overhead
Selling and administrative
expenses
____

____

-0$80,000

$1.70 per unit produced

$0.60 per unit produced

$35,000

$0.50 per unit sold

4. Refer to Figure 10-4. Belanna's cost of ending finished goods inventory under variable costing would be
a. $26,500
b. $21,000
c. $18,500
d. $23,500
5. The following information pertains to Raymond Company:
Selling price per unit
Variable cost per unit
Fixed costs

____

$1,000
$700
$900,000

If the firm wants to earn $400,000 in before-tax profit, contribution margin must equal
a. $1,300,000
b. $900,000
c. $1,340,000
d. $1,440,000
6. Focus Picture Company sold 5,600 units and produced 6,000 units this past year. Unit variable costs were $15
(including variable selling costs of $3), and total fixed manufacturing costs totaled $16,500. Which costing
system (variable or absorption) will show a higher net income and by how much?
a. absorption costing, $1,100
b. absorption costing $17,600
c. variable costing, $1,100
d. cannot be determined from the information given
Figure 10-6
Hammer Corporation uses an actual cost system and produces a single product. Information about the product
for the past year is as follows:
Production (units)
Sales (units)
Selling price
Machine hours

Product X
200,000
160,000
$18.00
82,000

Manufacturing costs:
Direct materials
Direct labor
Variable overhead
Fixed overhead

$200,000
560,000
100,000
492,000

Nonmanufacturing costs:
Variable selling
Fixed selling

$120,000
60,000

There were no beginning inventories of Product X. (Round amounts to two decimal places.)
____

____

____

7. Refer to Figure 10-6. Hammer's variable cost of goods sold would be

a. $688,000
b. $680,000
c. $672,000
d. $704,000
8. The contribution margin ratio is calculated as
a. total contribution margin divided by total variable costs
b. income divided by contribution margin
c. total contribution margin divided by total revenues
d. total variable costs divided by contribution margin
9. The following information is provided:
Sales price per unit
Variable cost per unit
Fixed costs
Break-even point in units

?
$175
$1,625,000
5,000 units

The sales price is

a. $675
b. $500
c. $325
d. Cannot determine with information provided
____ 10. In the month just ended, Aldebraun Industries produced 40,000 units and sold 37,000 units. There were 2,000
units in finished goods inventory at the start of the month. Manufacturing costs are stable from month to
month. The fixed overhead rate was $8 per unit. Aldebraun uses absorption costing. If Aldebraun used
variable costing, the difference in net income would have been
a. $40,000
b. $8,000
c. $24,000
d. $16,000
____ 11. Contribution margin is calculated as
a. sales minus total variable costs
b. sales minus total variable manufacturing costs
c. sales minus cost of goods sold
d. sales minus total variable manufacturing costs and total fixed manufacturing costs
____ 12. The break-even point in sales dollars is calculated as
a. Fixed costs/Contribution margin ratio
b. Fixed costs/Sales
c. Fixed costs/Price
d. Fixed costs/Variable cost ratio
Figure 4-4
The Hewark Packlett Computer company manufactures two models of computers. The laptop computer
(model L510) is a top of the line, deluxe model. The tower computer (model B347) is the regular model.
The following activity data is provided:

Activity Usage Measures

Units produced annually
Prime costs
Machine hours
Production runs
Direct labor hours

Model L510
15,000
$40,000
40,000
14
20,000

Model B347
40,000
$100,000
60,000
6
30,000

Total
55,000
$140,000
100,000
20
50,000

The company primarily has three major activities as follows in the production process:
Activity
Setups
Inspections
Power

Activity Cost
$50,000
$30,000
$15,000

____ 13. Refer to Figure 4-4. Calculate the unit cost of model L510 (deluxe).
a. $5.20
b. $7.10
c. $6.20
d. $3.53
____ 14. Which of the following is the assignment process used with normal costing?
a. Actual direct materials cost is assigned to products, but direct labor and overhead costs are
assigned using predetermined rates.
b. Actual direct labor cost is assigned to products, but direct material and overhead costs are
assigned using predetermined rates.
c. Actual direct materials, actual direct labor and actual overhead cost is assigned to
products.
d. Actual direct material and direct labor costs are assigned to products, but overhead costs
are assigned using predetermined rates.
Figure 4-5
Ray Manufacturing has four categories of overhead. The four categories and the expected overhead costs for
each category for next year are as follows:
Maintenance
Materials handling
Setups
Inspection

$510,000
250,000
60,000
210,000

Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours.
For next year, 100,000 direct labor hours are budgeted.
The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this
job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 10
percent.
Estimates for the proposed job are as follows:
Direct materials
Direct labor (8,000 hours)

$30,000
$24,000

Number of materials moves

Number of inspections
Number of setups
Number of machine hours

100
120
24
4,000

The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers.
Expected activity for the four activity-based cost drivers that would be used are as follows:
Machine hours
Material moves
Setups
Quality inspections

60,000
20,000
3,000
12,000

____ 15. Refer to Figure 4-5. If Ray Manufacturing used activity-based cost drivers to assign overhead, the total
amount of overhead allocated to the proposed job would be
a. $44,913
b. $37,830
c. $41,830
d. $39,850
____ 16. Which of the following is a result of the use of unit-based cost drivers to assign costs?
a. all products are overcosted
b. high-volume products are overcosted
c. all products are undercosted
d. low-volume products are overcosted
____ 17. If variable costs per unit decrease, sales volume at the break-even point will
a. remain the same; however, contribution margin per unit will decrease
b. increase
c. decrease
d. remain the same
____ 18. Which of the following statements is true concerning an activity-based costing system?
a. An activity-based costing system can trace cost accurately to cost objects other than
products.
b. An activity-based costing system differs from a functional-based cost system in the nature
and number of the cost drivers used.
c. An activity-based costing system uses both unit-based and nonunit-based cost drivers that
reflect a cause-and-effect relationship.
d. An activity-based costing system does all of the above.
____ 19. Variable costing income will usually exceed absorption costing income when
a. production and sales are equal
b. production exceeds sales
c. sales exceed production
d. none of the above are correct
____ 20. Break-even is the point where
a. revenue equals total variable costs
b. revenue equals total manufacturing costs
c. revenue equals cost of goods sold
d. revenue equals total variable costs plus total fixed costs

Quiz 3
Answer Section
MULTIPLE CHOICE
1. ANS: A
PTS: 1
2. ANS: A
SUPPORTING CALCULATIONS:
Net income under absorption and variable costing is the same when there is no change in inventory.
PTS: 1
3. ANS: D
SUPPORTING CALCULATIONS:
($540,000 - $378,000)/$540,000 = 30%
Break-even point = $120,000/30% = $400,000
PTS: 1
4. ANS: C
SUPPORTING CALCULATIONS:
Direct materials
Direct labor
Variable overhead
Cost per unit

$1.40
1.70
0.60
$3.70

(50,000 - 45,000) $3.70 = $18,500

PTS: 1
5. ANS: A
SUPPORTING CALCULATIONS:
$900,000 + $400,000 = $1,300,000
PTS: 1
6. ANS: A
SUPPORTING CALCULATIONS:
Production exceeds sales. Therefore, absorption costing has higher income than variable costing.
Fixed overhead rate: $16,500/6,000 = $2.75
Difference in net income: (6,000 - 5,600) $2.75 = $1,100
PTS: 2
7. ANS: A

SUPPORTING CALCULATIONS:
Direct materials ($200,000/200,000)
Direct labor ($560,000/200,000)
Variable overhead ($100,000/200,000)
Cost per unit

$1.00
2.80
0.50
$4.30

160,000 $4.30 = $688,000

PTS: 1
8. ANS: C
9. ANS: B
SUPPORTING CALCULATIONS:
$1,625,000/ = 5,000
= $325 CM
$325 + $175 = $500 Sales price
PTS: 2
10. ANS: C
SUPPORTING CALCULATIONS:
Beginning Inventory 2,000
Ending Inventory 5,000
Change 3,000 $8 = $24,000
PTS: 2
11. ANS: A

PTS: 1

12. ANS: A
PTS: 1
13. ANS: C
SUPPORTING CALCULATIONS:
L510
Setups
Inspections
Power
Prime costs

.7($50,000) = $35,000
.4($30,000) = $12,000
.4($15,000) = $ 6,000
$40,000

Total

$93,000/15,000 units = $6.20

PTS: 2
14. ANS: D
PTS: 1
15. ANS: B
SUPPORTING CALCULATIONS:
Maintenance: $510,000/60,000 = $8.50
Materials handling: $250,000/20,000 = $12.50

Setups: $60,000/3,000 = $20

Inspection: $210,000/12,000 = $17.50
Maintenance ($8.50 4,000)
Materials handling ($12.50 100)
Setups ($20 24)
Inspection ($17.50 120)
Total overhead
PTS: 2
16. ANS: B
17. ANS: C

PTS: 1
PTS: 1

18. ANS: D

PTS: 1

19. ANS: C
20. ANS: D

PTS: 1
PTS: 1

$34,000
1,250
480
2,100
$37,830

TOTAL 25 points. 5 of the questions have 2 points each. You can give partial credit if the approach is correct and answer
is wrong.