Problem 1: Coley Company estimates that its production workers will work 125,000 direct labor hours during the upcoming period. If the predetermined overhead rate is $4 per direct labor hour, what is the total amount of overhead costs?
a. $4 per unit.
b. $400,000.
c. $500,000.
d. None of the above.
Problem 2: Since volume-based allocation rates assign more cost to high-volume products, low-volume products are often over-costed.
Problem 3: The following information is provided by the Atlantic Company:
Actual direct material cost $24,000
Standard direct material cost $20,000
Direct material quantity variance $1,000 unfavorable
What is the direct material price variance?
a. $4,000 favorable.
b. $5,000 favorable.
c. $3,000 unfavorable.
d. Not enough information is provided.
Problem 4: Coffee Cafe operates a chain of coffee shops. The company pays rent of $24,000 per year for each shop. Supplies (napkins, bags and condiments) are purchased as needed. The managers of each shop are paid a salary of $3,000 per month and all other employees are paid on an hourly basis. Relative to the number of customers, the cost of rent is which kind of cost?
a. Fixed cost.
b. Variable cost.
c. Mixed cost.
d. Relevant cost.
Problem 5: Stephanie must decide between two alternatives for the weekend: babysitting or yard work. If she baby sits, she will receive $40 and will incur $15 in food and snack costs. If she does yard work, she will receive $40 and will incur $3 in lawn mower gas and oil costs and $5 in snack costs. The amount to be received is relevant for deciding which alternative to select.
Problem 6: Emmy Company had beginning raw materials inventory of $7,000. During the period, the company purchased $47,000 of raw materials on account. If the ending balance in raw materials was $6,000, the amount of raw materials transferred to work in process inventory is:
a. $42,000.
b. $45,000.
c. $50,000.
d. $48,000.
Problem 7: Actual overhead costs are charged to the manufacturing overhead account as production takes place.
Problem 8: Alan's Lawn Care incurs significant gasoline costs. This cost would be classified as a variable cost if the total cost:
a. Varies inversely with the number of hours the lawn equipment is operated.
b. Varies directly with the number of hours the lawn equipment is operated.
c. Is not affected by the number of hours the lawn equipment is operated.
d. Both A and B.
Problem 9: HipBags Company makes two types of women's handbags. Making a standard handbag requires 2 hours of labor while making a deluxe handbag requires 5 hours of labor. During the most recent accounting period the company made 2,000 standard handbags and 500 deluxe handbags. Indirect manufacturing costs amounted to $52,000. Based on this information:
a. $8 of overhead cost should be allocated to each handbag regardless of the type of handbag made.
b. $2.08 of overhead cost should be allocated to each handbag regardless of the type of handbag made.
c. $16 of overhead cost should be assigned to each standard handbag and $40 of overhead cost should be assigned to each deluxe bag.
d. None of the above.
Problem 10: Baltazar Company reported revenue of $1,000 on its income statement. During the same period its accounts receivable balance decreased by $400. How much cash was collected during the period?
a. $600.
b. $1,000.
c. $1,400.
d. None of the above.
Problem 11: Nubian Company employs material handling employees who move materials between production divisions at a labor cost of $160,000 a year. It is estimated that these employees move 75,000 pounds of material per year. If 6,000 pounds are moved in March, how much of the labor cost should be assigned to products made in March?
a. $12,000.
b. $12,800.
c. $26,666.
d. $75,000.
Problem 12: A vertical analysis uses percentages to compare each of the parts of an individual statement to the whole. For example, on an income statement each item would be shown as a percentage of sales.