Questions -
Q1. You are analyzing Becker Corporation and Newton Corporation and have concluded that Becker has a higher operating leverage factor than Newton. Which one of the following choices correctly depicts (1) the relative use of fixed costs (as opposed to variable costs) for the two companies and (2) the percentage change in income caused by a change in sales?
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Relative Use of Fixed Costs as Opposed to Variable Costs
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Percentage Change in Income Caused by a Change in Sales
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A. Greater for Becker
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Greater for Becker
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B. Greater for Becker
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Lower for Becker
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C. Greater for Becker
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Equal for both
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D. Lower for Becker
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Greater for Becker
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E. Lower for Becker
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Lower for Becker
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A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E
Q2. A staff assistant at Washington Corporation recently determined that the first four units completed in a new manufacturing process took 800 hours to complete, or an average of 200 hours per unit. The assistant also found that when the cumulative output produced doubles, the average labor time declines by 20%. On the basis of this information, how many total hours would Washington use if it produces 16 units?
A) 128.
B) 160.
C) 1,280.
D) 2,048.
E) An amount other than those listed above.
Q3. Bolman, Inc., has only variable costs and fixed costs. A review of the company's records disclosed that when 200,000 units were produced, fixed manufacturing costs amounted to $800,000 and the cost per unit manufactured totaled $11. On the basis of this information, how much cost would the firm anticipate at an activity level of 202,000 units?
A) $1,608,000.
B) $2,200,000.
C) $2,214,000.
D) $2,222,000.
E) Some other amount not listed above.
Q4. Which of the following choices denotes the typical cost behavior of advertising and sales commissions?
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Advertising
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Sales Commissions
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A. Variable
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Variable
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B. Variable
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Fixed
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C. Fixed
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Variable
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D. Fixed
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Fixed
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E. Semivariable
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Variable
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A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E
Q5. Kelly and Logan, an accounting firm, provides consulting and tax planning services. A recent analysis found that 65% of the firm's billable hours to clients resulted from tax planning and for many years, the firm's total administrative cost (currently $250,000) has been allocated to services on this basis.
The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows:
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Staff support
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$180,000
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In-house computing charges
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50,000
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Miscellaneous office costs
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20,000
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Total
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$250,000
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A recent analysis of staff support found a strong correlation with the number of clients served (consulting, 20; tax planning, 60). In contrast, in-house computing and miscellaneous office cost varied directly with the number of computer hours logged and number of client transactions, respectively. Consulting consumed 30% of the firm's computer hours and had 20% of the total client transactions.
Assuming the use of activity-based costing, the proper percentage to use in allocating staff support costs to tax planning services is:
A) 20%.
B) 60%.
C) 65%.
D) 75%.
E) 80%.
Q6. Riverside Florists uses an activity-based costing system to compute the cost of making floral bouquets and delivering the bouquets to its commercial customers. Company personnel who earn $180,000 typically perform both tasks; other firm-wide overhead is expected to total $70,000. These costs are allocated as follows:
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Bouquet Production
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Delivery
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Other
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Wages and salaries
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60%
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30%
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10%
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Other overhead
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50%
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35%
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15%
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Riverside anticipates making 20,000 bouquets and 4,000 deliveries in the upcoming year.
The cost of wages and salaries and other overhead that would be charged to each bouquet made is:
A) $7.15.
B) $8.75.
C) $12.50.
D) $13.75.
E) some other amount.
Q7. Agora Company uses a process-cost system for its single product. Material A is added at the beginning of the process; in contrast, material B is added when the units are 75% complete. The firm's ending work-in-process inventory consists of 6,000 units that are 80% complete. Which of the following correctly expresses the equivalent units of production with respect to materials A and B in the ending work-in-process inventory?
A) A, 4,800; B, 0.
B) A, 4,800; B, 4,800.
C) A, 6,000; B, 0.
D) A, 6,000; B, 4,800.
E) A, 6,000; B, 6,000.
Q8. Consider the following statements about absorption- and variable-costing net income:
I. Yearly income reported under absorption costing will differ from income reported under variable costing if production and sales volumes differ.
II. In the long-run, total income reported under absorption costing will often be close to that reported under variable costing.
III. Differences in income under absorption and variable costing can often be reconciled by multiplying the change in inventory (in units) by the variable manufacturing overhead cost per unit.
Which of the above statements is (are) true?
A) I only.
B) II only.
C) III only.
D) I and II.
E) II and III
Q9. Monex reported $65,000 of net income for the year by using absorption costing. The company had no beginning inventory, planned and actual production of 20,000 units, and sales of 18,000 units. Standard variable manufacturing costs were $20 per unit, and total budgeted fixed manufacturing overhead was $100,000. If there were no variances, net income under variable costing would be:
A) $15,000.
B) $55,000.
C) $65,000.
D) $75,000.
E) $115,000
Q10. Northwest manufactures a product requiring 0.5 ounces of platinum per unit. The cost of platinum is approximately $360 per ounce; the company maintains an ending platinum inventory equal to 10% of the following month's production usage. The following data were taken from the most recent quarterly production budget:
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July
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August
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September
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Planned production in units
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1,000
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1,100
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980
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If it takes two direct labor hours to produce each unit and Northwest's cost per labor hour is $15, direct labor cost for August would be budgeted at:
A) $16,500.
B) $31,200.
C) $33,000.
D) $34,800.
E) Some other amount.
Q11. The term "relevant range" explains its importance in understanding cost behavior.
Q12. Many firms are moving toward flexible manufacturing systems and adopting the just-in-time (JIT) philosophy.
Required:
A. How is cost behavior altered in the typical flexible manufacturing environment as compared to a traditional manufacturing system? What is the impact on the break-even point? Explain.
B. One of the assumptions underlying cost-volume profit analysis is that sales volume and production volume are equal. Stated another way, inventories are assumed to remain constant. Is this assumption likely to be violated under an ongoing JIT philosophy? Explain.
Q13. Standard costs are said to be useful in performance evaluation. Assume that the standard direct materials cost per unit of finished product is $6 (three pounds at $2 per pound).
Required:
A. Explain how such a standard can be used to evaluate performance.
B. Why is the degree of controllability important when utilizing standard costs to evaluate performance?
Q14. Which of the following situations would cause variable-costing net income to be lower than absorption-costing net income?
A) Units sold equaled 39,000 and units produced equaled 42,000.
B) Units sold and units produced were both 42,000.
C) Units sold equaled 55,000 and units produced equaled 49,000.
D) Sales prices decreased by $7 per unit during the accounting period.
E) Selling expenses increased by 10% during the accounting period.