1) Which criterion for allocation of overhead (indirect) costs most likely promotes acceptance of the allocation? A. Direct cause-and-effect relationship B. Benefit-received relationship. C. Ability-to-bear relationship. D. Arbitrary allocation. 2) Brownstone Corp. production cost structure consists of both fixed and variable cost components. Using the high-low method their cost equation is: y = $150,000 + $112(x) where x is equal to the number of machine hours. Using regression analysis the cost equation is: y = $122,000 + $148(x) where x is the number of machine hours. Brownstone is considering adding more machines and permanently lay off a significant number of direct-laborers (full-time employees). If Brownstone makes this change, the most likely outcome will be to A) increase the variable cost amount of $148 using regression analysis B) reduce the fixed cost amount of $150,000 using the high-low method C) reduce the cost of jobs that require a significant amount of machine hour time D) increase the total fixed cost amounts under both the high-low and regression methods 3) The general term used to identify both the tracing and the allocation of accumulated costs to a cost object is: A) cost accumulation B) cost assignment C) cost tracing D) conversion costing 4) Kelly Company sells its only product for $9 per unit, variable production costs are $3 per unit, and selling and administrative costs are $1.50 per unit. Fixed production costs for 10,000 units are $5,000; fixed selling and administrative costs for 10,000 units are $7,000. The contribution margin is: A) $6 per unit B) $4.50 per unit C) $5.50 per unit D) $4 per unit 5) Fixed costs remain constant at $400,000 per month. During high-output months variable costs are $320,000, and during low-output months variable costs are $80,000. What are the respective high and low indirect-cost rates if budgeted professional labor-hours are 16,000 for high-output months and 4,000 for low-output months? A) $45.00 per hour; $45.00 per hour B) $45.00 per hour; $120.00 per hour C) $25.00 per hour; $20.00 per hour D) $56.20 per hour; $120.00 per hour 6) Activity-based costing is most likely to yield benefits for companies with all of the following characteristics except: A) numerous products that consume different amounts of resources B) a highly competitive environment, where cost control is critical C) accessible accounting and information systems expertise to maintain the system D) operations that remain fairly consistent 7) Grandma's Basket Company is currently using the weighted-average method to account for their production under a process costing system. Their material and overhead costs have been fluctuating and they are considering changing to the FIFO method for process costing. All direct materials are added at the beginning of the process. If direct material costs are increasing, the FIFO method will report A) a lesser equivalent unit cost for direct materials under weighted average than FIFO. B) a greater equivalent unit cost for direct materials under weighted average than FIFO. C) the same equivalent unit cost using weighted average or FIFO. D) cannot be determined with the information given. 8) Playhouse Square is considering closing one of their theaters, the State Theater. Total variable costs per month average $50,000, and total annual fixed costs total $1,800,000. Of the $1,800,000, $600,000 are allocated costs and will continue if the theater is closed. The remaining fixed costs will be reduced by 80% of the remaining amount of fixed costs if the State Theater is closed. Of the $50,000 monthly variable costs, $40,000 per month will no longer be incurred if the State Theater is closed. Average annual attendance is 15,000, with approximately $100 being spent by each attendee for parking, tickets, and concessions. Annual parking receipts total $100,000 and will be the same as the parking facility will be rented out for $100,000 per year of the State Theater is closed. When considering the decision to close or keep the State Theater open, the net relevant amount to consider is A) $40,000 net savings if closed B) $60,000 net savings if closed C) $60,000 net loss if closed D) none of the above answers, A, B, or C 9) Browns Manufacturing Inc. decided to prorate their under-or over-applied overhead. Actual total overhead costs amounted to $80,000; applied overhead amounted to $81,000. The proration will likely result in A) a greater amount of costs of goods sold than what would be reported if they close all of the under- or over-applied overhead to cost of goods sold B) a lesser amount of costs of goods sold than what would be reported if they close all of the under- or over-applied overhead to cost of goods sold C) the same amount of work-in-process (W-I-P) would be reported if the prorate or close all of the under- or over-applied overhead to cost of goods sold D) cannot be determined with the information given 10) Which of the following statements refers to management accounting information? A) There are no regulations governing the reports. B) The reports are generally delayed and historical. C) The audience tends to be stockholders, creditors, and tax authorities. D) It primarily measures and records business transactions. Problem II 10 Points T. Drieser Inc. is a manufacturing firm that uses job-order costing. The company applies overhead to jobs using a predetermined overhead rate based on direct labor-hours. At the beginning of the year they estimated that it would work 24,000 direct labor-hours and incur $312,000 in overhead costs. They use direct-labor hours to allocate overhead. Required: Prepare journal entries in good form for the following transactions that occurred during the year. If no entry is required write the word none. Omit explanations. Disregard any under- or over-applied overhead. 1. Raw materials amounting to $310,000 were used in production. $300,000 was classified as direct materials and $10,000 was classified as indirect materials. 2. Direct labor costs were $545,000, indirect labor costs amounted to $160,000, and selling and administrative salaries were $190,000. 3. The actual level of labor hours for the year was 26,000. Apply the overhead. 4. The bill for factory utilities amounted to $10,000. 5. Depreciation on the factory equipment amounted to $25,000. 6. Sales for the year amounted to $1,500,000, all on account. The cost of goods sold for the sales amounted to $800,000. A periodic inventory system is used. Problem III 10 Points Guilford Inc. manufactures quality clothing for children. The following data relate to the activities for the month of August, 2014: Manufacturing overhead costs incurred: Property taxes $ 1,600 Utilities, factory 2,600 Depreciation, factory 14,000 Insurance, factory. 2,500 Indirect labor 5,100 Other costs incurred: Purchase of raw materials $18,000 Direct labor cost.. 200 Selling and administrative costs.. 99,000 Inventories: Raw materials, beginning $5,000 Raw materials, ending. 4,400 Work in process, beginning. 3,500 Work in process, ending.. 4,500 The company uses a predetermined overhead rate to charge overhead cost to production. The overhead rate for the current month was based on estimated overhead costs of $24,000, and 6,000 machine hours. Actual machine hours are 5,000; sales were $300,000. Required: 1. Compute the predetermined overhead rate. 2. Compute the amount of applied overhead cost for the month of August. 3. Prepare the journal entry for the under-applied or over-applied overhead cost. The under- or over-applied overhead is closed to the cost of goods sold account. Problem IV 15 Points Liverlite Inc. produces a product which goes through three processes Process 1, Process 2, and Process 3. The following information pertains to the first process for the month of July (% is the percentage completed): Beginning Inventory: 1000 units; 50% complete to DM; 25% complete to Conversion. Beginning Inventory Costs: DM = $10,000; Conversion = $20,000. Units Started this Period: 20,000 Current Period Costs: DM = $400,000; Conversion = $1,600,000 Ending Inventory: 2000 units; 75% complete to DM; 50% complete to Conversion. Required: Prepare a complete production report in good form for the month of July using the FIFO technique. Worksheet Continued Problem V 10 Points The PSI Shirt Company sells ten different styles of relatively inexpensive mens shirts with identical purchase costs and selling prices. PSI is trying to determine the desirability of opening another store, which would have the following expense and revenue relationships: Variable data: Selling Price $40.00; Cost of Shirt $18.00; Sales Commissions $7.00 Annual fixed expenses: Rent $80,000; Salaries $150,000; Other fixed expenses $70,000 Required: 1. What is the annual breakeven point in dollar sales and units? 2. If 21,000 shirts are sold, what would be the stores net income (loss)? 3. Refer to the original data. If PSI decided to do away with sales commissions and increase salespersons salaries by $140,000 per year, what would be the point of indifference, in units, between the two alternatives? That is the point where the two alternatives (commissions versus fixed salaries) would yield identical results. Problem VI 15 Points McNabb Company makes 20,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows: Direct materials.................. $24.70 Direct labor...................... 16.30 Variable manufacturing overhead... 2.30 Fixed manufacturing overhead...... 13.40 Unit product cost.............. $56.70 An outside supplier has offered to sell the company all of these parts it needs at $51.80 a unit. If McNabb accepts this offer, the facilities now being used to make the part could be leased to another company. The incremental contribution margin from leasing the space would be $44,000 per year. If the part were purchased from the outside supplier, all of the variable costs of the part would be avoided. However, $5.10 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost ($5.10) would be applied to the company's remaining products. Ignore income taxes and the time value of money in this problem. Required: 1. How much of the unit product cost of $56.70 is relevant in the decision of whether to make or buy the part? continued 2. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it? 3. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 20,000 units required each year? Problem VII 10 Points T.O. Company's average cost per unit is $1.425 at the 16,000 unit level of activity, and $1.38 at the 20,000 unit level of activity. The relevant range for the costs at these activity levels is from 16,000 units to 20,000 units. Required: 1. What is the variable cost per unit? 2. What are the total fixed costs? 3. What is the total expected cost at the 18,000 unit level of activity? 4. Would you be comfortable using the answers you arrived at in parts 1 and 2 to estimate the total costs at the 15,000 unit level of activity? Why or why not? You do not have to make any computations