Midterm Exam Submit only the test answers and calculations. Do not submit the test text. Multiple Choices (15 @ 2 points each = 30 points) 1. The value chain is the: (a) sequence of business functions in which value is deducted from products and services of an organization (b) sequence of business functions in which value is proportionately added to the products and services of an organization (c) process by which products and services are critiqued for their value (d) sequence of business functions in which utility (usefulness) is added to the products or services of an organization. 2. Which of the following items is typically an example of an indirect cost of the cost objectwhich is a piece of expensive custom furniture produced and shipped? (a) courier charges for shipment delivery (b) manufacturing plant electricity (several different products are produced in this plant) (c) direct manufacturing labor (d) wood used for furniture manufacturing. 3. Anything for which a separate measurement of costs is desired is a: (a) cost item (b) cost object (c) fixed cost item (d) variable cost object 4. If there is a change in the level of a cost driver: (a) fixed and variable cost per unit will change (b) fixed and variable cost per unit will be the same (c) fixed cost per unit will be the same and variable costs per unit will change (d) variable costs per unit will be the same and fixed costs per unit will change 5. Which of the following will increase a companys breakeven point? (a) increasing variable cost per unit (b) increasing contribution margin per unit (c) reducing its total fixed cost (d) increasing the selling price of the unit 6. Which of the following account is NOT classified as an asset on the balance sheet? (a) materials control (b) manufacturing overhead control (c) work-in- process control (d) finished goods control 7. All of the following items are debited to the work-in-process account EXCEPT: (a) allocated manufacturing overhead (b) completed goods being transferred out of the plant (c) direct labor consumed (d) direct materials consumed 8. Variable costs: (a) are always indirect costs (b) increase in total when the actual level of activity increases (c) include most personnel costs and depreciation on machinery (d) can always been traced directly to the cost object 9. Contribution margin equals: (a) revenues minus period costs (b) revenues minus product costs (c) revenues minus variable costs (d) revenues minus fixed costs 10. Operating income calculations use: (a) net income (b) income tax expense (c) Cost of goods sold and operating costs (d) Nonoperating revenues and nonoperating expenses 11. The income statement of a manufacturing company reports: (a) period costs only (b) inventoriable costs only (c) both period and inventoriable costs (d) period and inventoriable costs but at different times; the reporting varies 12. Process costing incorporates the concept of equivalent units which are: (a) identical to the number of physical units being produced (b) the cost objects (c) the collection of inputs needed to produce one fully complete unit of product or output (d) output measured in terms of the finished goods 13. The weighted average process costing method calculates the equivalent units by: (a) considering only the work done during the current period (b) the units started during the current period minus the units in ending inventory (c) the units started during the current period plus the units in ending inventory (d) the equivalent units completed during the period plus the equivalent units in ending inventory 14. A reason why pure FIFO is rarely encountered in process costing is that: (a) FIFO is usually applied within a department to compute the cost of units transferred out (b) the units transferred into a department during a given time period are usually carried at an average unit cost (c) tracking costs on a pure FIFO basis is very difficult (d) All of these answers are correct 15. On occasion, the FIFO and the weighted-average methods of process costing will result in the same dollar amounts of costs being transferred to the next department. Which of the following scenarios would have that result? (a) when the beginning and ending inventories are equal in terms of unit numbers (b) when the beginning and ending inventories are equal in terms of the percentage of completion for both direct materials and conversion costs (c) when there is no ending inventory (d) when there is no beginning inventory Exercises (20 points total) Exercise 1: CVP (10 points) Bridal Shop sells wedding dresses. Each dresss cost may be separated as follows: selling price of $1,000 and variable costs of $400. Fixed costs are $90,000. Answer the following questions: A. What is Bridal Shops operating income when 200 dresses are sold? (a) $30,000 (b) $80,000 (c) $200,000 (d) $100,000. B. How many dresses are sold if the operating income is zero? (a) 225 dresses (b) 150 dresses (c) 100 dresses (d) 90 dresses C. How many dresses must Bridal Shop sell in order to yield after-tax net income of $18,000, assuming the tax rate is 40%? (a) 200 dresses (b) 170 dresses (c) 150 dresses (d) 145 dresses Exercise 2: Cost classifications (10 points) Whippany Manufacturing wants to estimate costs for each product they produce at its Troy plant. The Troy plant produces three products at this plant, and runs two flexible assembly lines. Each assembly line can produce all three products. Required: (a) Classify each of the costs as either direct or indirect for each product. (b) Classify each of the following costs as either fixed or variable with respect to the number of units produced of each product. Direct Indirect Fixed Variable (a) Assembly line labor wages (b) Plant managers salary (c) Depreciation on the assembly line equipment (d) Component parts for the products (e) Wages of security personnel for the factory Problems - (50 points total) Problem #1 - Statement of Cost of Goods Manufactured (15 points) Given for the Butler Company for the month of April 2007: Beginning Inventories none Ending Inventories: Direct materials $14,000 Work in process $29,000 Finished Goods $42,000 Direct materials purchased $80,000 Direct labor used $68,000 Manufacturing overhead incurred $44,000 Selling/Administrative expenses $32,000 Sales $173,000 Required: Prepare in good form a statement of cost of goods manufactured and an income statement. Please label each line. Problem #2 - Journal Entries for Job Order Costing (15 points) The Kearney Company uses a job order cost system. The following information relates to September 2007. The companys accounting year does not end until December 31. a. materials purchased, $150,000. b. direct materials issued to production, $96,000. c. direct labor incurred, $78,000. d. salaries paid to workers, $75,000 (assume no withholdings or taxes). e. manufacturing overhead is applied to production on the basis of $4.00 per direct labor hour. There were 13,000 direct labor hours incurred during September. f. total manufacturing overhead for the month was $54,000. g. production orders costing $200,000 were completed during the month of September. h. production orders costing $190,000 were shipped and invoices during the month, at a profit of 20 percent based on cost. The beginning inventory of work in process was $20,000. a. Prepare the journal entries required to record the above information. b. What is the ending balance (September 30) in the work in process account? Problem #3 - Five Step Procedure for Process Costing (20 points): The following information pertains to one department under a process costing system: Work in process, 12/1/07 1,000 units, 40% complete, consisting of $8,703 of materials and $5,036 of conversion costs. Production completed for December 8,200 units. Work in process, 12/31/07 800 units, 20% complete. All materials were introduced at the start of the process while conversion costs are incurred uniformly throughout the process. Materials added during December were $72,000; conversion costs were $83,580. There is no spoilage in this process. Required: Using FIFO, show a schedule of equivalent units, unit costs, and a summary of costs. Read the problem carefullyeverything you need to solve it is shown