ACC 561 WEEK 4 ASSIGNMENT STUDY GUIDE AND PRACTICE QUIZ
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STUDY GUIDE QUESTIONS 1-3
Question 1 Duggan Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected to total $327,340 for the year, and machine usage is estimated at 125,900 hours. For the year, $342,657 of overhead costs are incurred and 130,200 hours are used. (a) Compute the manufacturing overhead rate for the year (b) What is the amount of under- or overapplied overhead at December 31? (c) Prepare the adjusting entry to assign the under- or overapplied overhead for the year to cost of goods sold. Question 2 The ledger of Custer Company has the following work in process account. Work in Process—Painting
5/1 Balance 4,680 5/31 Transferred out ? 5/31 Materials 6,070 5/31 Labor 4,700 5/31 Overhead 1,450 5/31 Balance ? Production records show that there were 470 units in the beginning inventory, 30% complete, 1,490 units started, and 1,460 units transferred out. The beginning work in process had materials cost of $3,010 and conversion costs of $1,670. The units in ending inventory were 40% complete. Materials are entered at the beginning of the painting process. (a) How many units are in process at May 31? (b) What is the unit materials cost for May? (c) What is the unit conversion cost for May? (d) What is the total cost of units transferred out in May? (e) What is the cost of the May 31 inventory? Question 3 Wilkins Inc. has two types of handbags: standard and custom. The controller has decided to use a plantwide overhead rate based on direct labor costs. The president has heard of activity-based costing and wants to see how the results would differ if this system were used. Two activity cost pools were developed: machining and machine setup. Presented below is information related to the company’s operations. Standard Custom Direct labor costs $41,800 $118,000 Machine hours 1,300 1,470 Setup hours 110 420 Total estimated overhead costs are $296,200. Overhead cost allocated to the machining activity cost pool is $197,800, and $98,400 is allocated to the machine setup activity cost pool. (a) Compute the overhead rate using the traditional (plantwide) approach. (b) Compute the overhead rates using the activity-based costing approach. (c) Determine the difference in allocation between the two approaches.
STUDY GUIDE PRACTICE QUIZ Question 1 A variable cost is a cost that • • • •
occurs at various times during the year. varies per unit at every level of activity. varies in total in proportion to changes in the level of activity. may or may not be incurred, depending on management’s discretion.
Question 2 An increase in the level of activity will have the following effects on unit costs for variable and fixed costs: Unit Variable Cost / Unit Fixed Cost • • •
Remains constant Decreases Increases Decreases Decreases Remains constant
•
Remains constant Remains constant
Question 3 A fixed cost is a cost which • • • •
remains constant in total with changes in the level of activity. varies in total with changes in the level of activity. remains constant per unit with changes in the level of activity. varies inversely in total with changes in the level of activity.
Question 4 Hollis Industries produces flash drives for computers, which it sells for $20 each. Each flash drive costs $14 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is the contribution margin ratio? • • • •
80% 70% 20% 30%
Question 5 Contribution margin • • • •
excludes variable selling costs from its calculation. is always the same as gross profit margin. is calculated by subtracting total manufacturing costs per unit from sales revenue per unit. equals sales revenue minus variable costs.
Question 6 The equation which reflects a CVP income statement is • • • •
Sales – Variable costs – Fixed costs = Net income. Sales – Variable costs + Fixed costs = Net income. Sales = Cost of goods sold + Operating expenses + Net income. Sales + Fixed costs = Variable costs + Net income.
Question 7 A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $150,000. The number of units the company must sell to break even is • • • •
300,000 units. 50,000 units. 75,000 units. 30,000 units.
Question 8 Only direct materials, direct labor, and variable manufacturing overhead costs are considered product costs when using • • • •
absorption costing. variable costing. product costing. full costing.
Question 9 Under absorption costing and variable costing, how are fixed manufacturing costs treated? Absorption Variable • • • •
Period Cost Product Cost Product Cost Period Cost Product Cost Product Cost Period Cost Period Cost
Question 10 Management may be tempted to overproduce when using • • • •
absorption costing, in order to increase net income. absorption costing, in order to decrease net income. variable costing, in order to decrease net income. variable costing, in order to increase net income.