Practice Midterm Exam
Page 1
1. Indirect labor is a part of
a prime cost.
B conversion cost.
C period cost.
D nonmanufacturing cost.
2. Prime cost and conversion cost share
what common element of total cost?
A Direct materials
B Direct labor
C Variable overhead
D Variable overhead
3. On the Schedule of Cost of Goods
Manufactured, the final Cost of Goods Manufactured figure represents
A the amount of cost charged to Work in
Process during the period.
B the amount of cost transferred from
Finished Goods to Cost of Goods Sold during the period.
C the amount of cost placed into
production during the period.
D the amount of cost of goods completed
during the current year whether they were started before or during the current
year.
4. Which of the following would most
likely be included as part of manufacturing overhead in the production of a
wooden table?
A The amount paid to the individual who
stains the table
B The commission paid to the salesperson
who sold the table
C The cost of the glue used in the table
D The cost of the wood used in the table
Page 2
1. Overapplied overhead means that
A) the applied overhead cost was less than
the actual overhead cost.
B) the applied overhead cost was greater
than the actual overhead cost.
C) the estimated overhead cost was less
than the actual overhead cost.
D) the estimated overhead cost was less
than the applied overhead cost.
2. Departmental overhead rates are
generally preferred to plant-wide overhead rates when
A) the activities of the various
departments in the plant are not homogeneous.
B) the activities of the various
departments in the plant are homogeneous.
C) most of the overhead costs are fixed.
D) all departments in the plant are
heavily automated.
3. Discretionary fixed costs
A) cannot be changed because they are
fixed.
B) have a long-term planning horizon,
generally encompassing many years.
C) are made up of facilities, equipment,
and basic organization.
D) B and C
E) None of the above
4. An example of a committed fixed
cost is
A) management training seminars.
B) a long-term equipment lease.
C) research and development.
D) advertising.
Page 3
The following data were taken from the
cost records of the Beca Company for last year.
Depreciation, factory
equipment
$30,000
Depreciation, office
equipment
7,000
Supplies,
factory
1,500
Maintenance, factory
equipment 20,000
Utilities,
factory
8,000
Sales
commissions
30,000
Indirect labor
54,500
Rent, factory building
70,000
Purchases of raw
materials
124,000
Direct labor
cost
80,000
Advertising expense
90,000
Inventories
Beginning
Ending
Raw
materials
$
9,000
$11,000
Work in
process
6,000
21,000
Finished
goods
69,000
24,000
Required: Prepare
a schedule of cost of goods manufactured in the text box below.
Page 4
Banerjee Inc. uses the weighted-average
method in its process costing system. The following data concern the operations
of the company's first processing department for a recent month.
Work in process, beginning
Units in
process
200
Stage of completion with respect to
materials
60%
Stage of completion with respect to
conversion
20%
Costs in the beginning inventory
Materials
$756
Conversion
$1,508
Units started into production during the
month
18,000
Units completed and transferred
out
17,700
Costs added to production during the month
Materials
$116,569
Conversion
$675,432
Work in process, ending
Units in
process
500
Stage of completion with respect to
materials
70%
Stage of completion with respect to
conversion
80%
Required
Using the weighted-average method, do the
following.
a. Determine the equivalent units of
production for materials and conversion costs.
b. Determine the cost per equivalent unit
for materials and conversion costs.
c. Determine the cost of units transferred
out of the department during the month.
d. Determine the cost of ending work in
process inventory in the department.
Page 5
Solo Company is a small merchandising
firm. During the next month, the company expects to sell 500 units. The company
has the following revenue and cost structure
Selling price per unit
$60
Cost per
unit
$15
Sales
commissions
10% of sales
Advertising
expense
$5,000 per month
Administrative
expense
$3,000 per
month plus 20% of sales
Required
Calculate the expected gross margin next
month.
Calculate the expected contribution margin
next month.
Calculate the expected total
administrative expense next month.
Calculate the expected net operating
income next month.
Page 6
1. The contribution margin ratio is equal
to
A) Total manufacturing expenses / Sales.
B) (Sales – Variable expenses) / Sales.
C) 1 – (Gross Margin / Sales).
D) 1 – (Contribution Margin / Sales).
2. To obtain the dollar sales volume
necessary to attain a given target profit, which of the following formulas
should be used?
A) (Fixed expenses + Target net profit) /
Total contribution margin
B) (Fixed expenses + Target net profit) /
Contribution margin ratio
C) Fixed expenses / Contribution margin
per unit
D) Target net profit / Contribution margin
ratio
3. The following information relates to
the break-even point at Pezzo Corporation.
Sales dollars
$12,000
Total fixed expenses
$30,000
If Pezzo wants to generate net operating
income of $12,000, what will its sales dollars have to be?
A)
$132,000
B)
$136,000
C)
$168,000
D)
$176,000
4. The Dog Hut hot dog stand expects the
following operating results for next year
Sales….
$280,000
Net operating in come
$21,000
Contribution margin
ratio 70%
What is Dog Hut's break-even point next
year in sales dollars?
A) $120,000
B) $181,300
C) $196,000
D) $250,000
Page 7
Use the following to answer Questions 1-3.
Roberts Company bases its budget on the
following data.
Sales
3,600 units
Selling price
$50 per unit
Variable
expense
$15 per unit
Fixed
expenses
$40,530
1. If the company wants to increase
its total contribution margin by 40%, assuming variable and fixed expenses
remain the same, it will need to increase its sales by about
A) $48,840.
B) $72,000.
C) $50,400.
D) $34,188.
2. If the company wants its margin of
safety to equal $40,000, it will need to sell about
A) 1,158 units.
B) 1,958 units.
C) 2,300 units.
D) 800 units.
3. If the company's fixed expenses
decrease by 20%, the break-even point will change from its previous level by
about a
A) 232-unit increase.
B) 510-unit decrease.
C) 232-unit decrease.
D) 510-unit increase.
Page 8
1. Baker Company has a product that sells
for $20 per unit. The variable expenses are $12 per unit, and fixed expenses
total $30,000 per year.
Required
a. What is the total contribution margin
at the break-even point?
b. What is the contribution margin ratio
for the product?
c. If total sales increase by $20,000 and
fixed expenses remain unchanged, by how much would net operating income be
expected to increase?
d. The marketing manager wants to increase
advertising by $6,000 per year. How many additional units would have to be sold
to increase overall net operating income by $2,000?
2. Pacher Company, which has only one
product, has provided the following data concerning its most recent month of
operations.
The company produces the same number of
units every month, although the sales in units vary from month to month. The
company's variable costs per unit and total fixed costs have been constant from
month to month.
Required
a. What is the unit product cost for the
month under variable costing?
b. Prepare an income statement for the
month using the contribution format and the variable costing method.
c. Without preparing an income statement,
determine the absorption costing net operating income for the month. (Use the
reconciliation method)
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