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41. The budgeted amount of raw materials to be purchased is determined by _____.
a. adding the desired ending inventory of raw materials to the raw materials needed
to meet the production schedule
b. subtracting the beginning inventory of raw materials from the raw materials
needed to meet the production schedule
c. adding the desired ending inventory of raw materials to the raw materials needed
to meet the production schedule and subtracting the beginning inventory of raw
materials
d. adding the beginning inventory of raw materials to the raw materials needed to
meet the production schedule and subtracting the desired ending inventory of
raw materials
Total requirement = ending inventory + raw material needed for production. From
this we subtract what we have in the beginning inventory to get the required
purchase.
The formula is
Purchases = Ending Inventory + Material needed for Production – Beginning
Inventory
42. Johansen Company uses a predetermined overhead rate based on direct labor
hours to apply manufacturing overhead to jobs. The company has provided the
following estimated costs for the next year:
Direct materials ...................................... $ 6,000
Direct labor ............................................ 20,000
Rent on factory building ........................ 15,000
Sales salaries .......................................... 25,000
Depreciation on factory equipment........ 8,000
Indirect labor .......................................... 12,000
Production supervisor’s salary ............... 15,000
Johansen estimates that 20,000 direct labor hours will be worked during the year.
The predetermined overhead rate per hour will be _____.
a. $2.50
b. $3.50
c. $3.75
d. $5.05
Total manufacturing overhead is
Rent on factory building ........................ 15,000
Depreciation on factory equipment........ 8,000
Indirect labor .......................................... 12,000
Production supervisor’s salary ............... 15,000
Total
50,000
Predetermined overhead rate = Estimated Overhead /Estimated direct labor hours
= 50,000/20,000 = $2.5/DLH
43. Under the FIFO method, unit costs would _____.
a. result from costs in the beginning inventory being added in with current period
costs (this is done in weighted average method)
b. contain some element of cost from the prior period
c. not contain some elements of cost from the prior period
d. not include costs incurred to complete beginning inventory
In FIFO method only the costs incurred in the current period are used to calculate the
unit costs.
44. A company paid off a $10,000 long-term note by issuing common stock to the
creditor. This transaction would be reflected on the company's statement of cash
flows as:
a. an addition of $10,000 and a deduction of $10,000 under investing activities
b. an addition of $10,000 and a deduction of $10,000 under financing activities
c. a direct exchange transaction in a separate schedule accompanying the
statement of cash flows
d. an addition of $10,000 under financing activities
This is a non cash transaction (there is an exchange and no cash changes hand) and
would not appear in the body of the statement of cash flows. It is shown separately in a
schedule of non cash transactions.
45. Afrissa Clothing Corporation uses a process costing system to collect costs related
to the production of its sequin dresses. Two direct materials are needed for these
dresses: cloth and sequins. Cloth is added at the beginning of the production
process. The cloth is cut out and sewn into dresses. The sequins are then sewn on
the dresses. Which of the following statements is correct with respect to the
calculation of equivalent units of production for cloth and sequins?
a. cloth and sequins should be grouped together as one material
b. cloth and sequins should be handled as two separate materials and two
separate equivalent unit calculations
c. cloth should be considered the only material and sequins should be considered
part of conversion cost
d. both cloth and sequins should be considered part of conversion cost
Conversion cost is direct labor and overhead and so cloth and sequins cannot be a part
of conversion cost.
Since cloth and sequins are added at different points in time, the degree of completion
will be different for these two and so we need to keep a separate record these two.
46. Manor Company plans to discontinue a department that has a contribution margin of
$24,000 and $48,000 in fixed costs. Of the fixed costs, $21,000 cannot be
eliminated. The effect of this discontinuance on Manor's net operating income would
be a(an) _____.
a. decrease of $3,000
b. increase of $3,000
c. decrease of $24,000
d. increase of $24,000
The avoidable costs is 48,000-21,000=27,000. The contribution margin lost is $24,000.
The net effect is an increase of $3,000 (inflow reduces by 3,000 and outflow by 27,000).
This is correct
47. A static budget _____.
a. should be compared to actual costs to assess how well costs were controlled
b. should be compared to a flexible budget to assess how well costs were
controlled
c. is valid for only one level of activity
d. represents the best way to set spending targets for managers
A static budget is made only for one level of activity. A flexible budget should be
compared to actual costs since the flexible budget adjusts the costs for the actual level
of activity.
48. In activity-based costing, the total activity in an activity cost pool can be computed
by
_____.
a. dividing the total overhead cost in the activity cost pool by the activity cost
pool's activity rate
b. multiplying the total overhead cost in the activity cost pool by the activity cost
pool's activity rate
c. dividing the activity cost pool's activity rate by the direct labor-hours required to
make a product
d. multiplying the activity cost pool's activity rate by the direct labor-hours required
to make a product
This is correct
Activity rate = Total Cost/Total Activity
Total activity = total cost/activity rate
49. Expense A is a fixed cost; expense B is a variable cost. During the current year the
activity level has increased, but is still within the relevant range. In terms of cost per
unit of activity, we would expect that _____.
a. expense A has remained unchanged
b. expense B has decreased
c. expense A has decreased
d. expense B has increased
We are to look at cost per unit of activity. Since Expense A is a fixed cost, it would
decrease on a per unit of activity when the total activity increases.
50.
Shocker Company's sales budget shows quarterly sales for the next year as follows:
Unit sales
Quarter 1 ..... 10,000 units
Quarter 2 ..... 8,000 units
Quarter 3 ..... 12,000 units
Quarter 4 ..... 14,000 units
Company policy is to have a finished goods inventory at the end of each quarter
equal to 20% of the next quarter's sales. Budgeted production for the second quarter
of the next year would be _____.
a. 7,200 units
b. 8,000 units
c. 8,800 units
d. 8,400 units
This is correct
The ending inventory for Qtr 1 = 8,000X20%=1,600 (this is the beginning for Qtr 2). The
ending for Qtr 2 = 12,000X20%=2,400.
Production = Ending Inventory + Sales – Beginning Inventory
= 2,400 + 8,000-1,600 = 8,800 units