This assignment is very urgent! Be as Accurate as possible providing explanations to each answer.

Chapter 1

1.Managerial Accounting and Financial Accounting differ in the following way:

A. Financial Accounting emphasizes forecasts of future performance.

B. Financial Accounting summarizes information for the company as a whole.

C. Financial Accounting is private information for company managers

D. Financial Accounting emphasizes timeliness over precision.

Discussion:Managerial accounting emphasizes providing information about segments and products within a company, rather than the company as a whole.Financial accounting creates financial statements that must present all components under common control.

2. Common users of managerial accounting reports include the following:

A. Operations manager and loan officer

B. Chief financial officer and public shareholder

C. Public shareholder and loan officer

D. Chief financial officer and operations manager

Discussion:Managerial accounting is used by company insiders.Loan officers work for a bank.Shareholders are the external owners of a business.

3. The management function of controlling is carried out through the use of

A. A performance report that compares budgeted to actual results.

B. A reconciliation of the beginning and ending retained earnings balances.

C. A schedule of cash collections and cash payments

D. A forecast of next period's production.

Discussion:The control function is evaluating the results of company actions.Only A involves both measuring results and comparison to determine whether the results are favorable or unfavorable.

4. Management accounting is used by

A. Human resource employees who need to plan hiring

B. Marketing employees who make decisions on profit achievable through an advertising campaign

C. Accounting employees who make budget recommendations.

D. All of the above.

5. The CMA certification requires

A. A rigorous professional exam only

B. Experience in Financial management only.

C. A rigorous professional exam and experience in financial management only.

D. An accounting degree and a rigorous professional exam and experience in financial management.

Discussion:Individuals with any college major can become Certified Management Accountants.

6.Guidelines for ethical behavior for management accountants require

A. Management accountants maintain professional competence.

B. Management accountants disclose confidential information to competitors.

C. Management accountants eliminate all potential limitations before communicating recommendations.

D. Management accountants ignore conflicts of interest.

Discussion:Competence is one ethical value in the Institute of Management Accountants ethical standards.Management accountants maintain confidentiality unless disclosure is required by law.Full disclosure of limitations is required, but no one can eliminate all limitations on recommendations.Management accountants disclose conflicts of interest.

7.Institute of Management Accountants supports ethical practices by

A. Staffing an ethics hotline for its members

B. Representing its members in legal cases

C. Investigating corporate ethical lapses

D. Requiring members to report unethical conduct to their supervisors.

Discussion:The Institute of Management Accountants has an ethical hotline to provide an objective consultation to members.

Chapter 2

1. The wages of factory maintenance personnel would usually be considered to be a

A. Direct labor cost

B. Manufacturing overhead cost

C. Administrative cost

D. Selling cost

Discussion:Maintenance is an indirect labor cost, which is a part of manufacturing overhead.

2. Conversion costs include

A. Manufacturing overhead costs

B. Direct material costs

C. Sales commission costs

D. Advertising costs

Discussion:Conversion costs include the product costs of direct labor and manufacturing overhead.

3. Which of the following costs is an example of a period rather than a product cost?

A. Depreciation on production equipment

B. Salaries of salespersons

C. Wages of production machine operators

D. Insurance on production equipment

Discussion:A, C, and D are product costs; salaries within selling & administrative costs are period costs.

4. Last month 10,000 units of a product were manufactured, and the total cost per unit was $60. At this level of production the variable cost is $30 per unit and the fixed cost is $30 per unit.If 10,500 units are manufactured the next month, and the costs remain within the same relevant range,

A. Total variable cost will remain unchanged.

B. Fixed costs will increase in total

C. Variable cost per unit will increase

D. Total cost per unit will decrease

Discussion:Numerically the unchanging fixed cost is $30 * 10,000 = $300,000.The cost for 10,500 units = 10,500 units * $30 variable cost + fixed cost of $300,000 = $315,000 + $300,000 = $615,000.The total cost per unit is $615,000 / 10,500 units = $58.57.Alternatively, when production increases, fixed costs PER UNIT decrease because the same fixed cost is spread over more units, so total cost per unit will decrease.

5. The following costs were incurred in September:

Direct materials $39,000

Direct labor 23,000

Manufacturing overhead 17,000

Selling expenses 14,000

Administrative expenses 27,000

Prime costs during the month totaled

A. $79,000

B. $120,000

C. $62,000

D. $40,000

Discussion:Prime costs ae direct labor and direct material costs.

6.ABC Corporation sells its product for $195.70 per unit.In 2015 the company had total sales in units of 6,000.The total costs were the following:

Variable cost of sales $457,800

Fixed cost of sales 100,000

Variable selling & administrative costs 108,500

Fixed selling & administrative costs 512,400

What is the best estimate of the total contribution margin?

A. $4,600

B. $507,800

C. $607,900

D. $616,400

Discussion:Total Contribution Margin = Total Sales - Total Variable Costs;Total Sales = 195.70 * 6000 = 1174200.Total Variable Costs = 457,800 + 108,500 = 566,300.Contribution Margin = 1171200-566300 = 607,900

7.Supply costs at ABC Corporation's chain of gyms are listed below:

Management believes that supply cost is a mixed cost that depends on client-visits. Using the high-low method to estimate the variable and fixed components of this cost, those estimates would be closest to:

A. $2.44 per client-visit; $28,623 per month

B. $1.33 per client-visit; $12,768 per month

C. $0.79 per client-visit; $19,321 per month

D. $0.75 per client-visit; $19,826 per month

Discussion:

Client Visit Supply Cost

High:June 12,088 visits $28,892

Low:August 11,193 visits $28,221

Difference 895 visits $671

Variable cost per client visit = 671/895 = $.75per client visit

Fixed Cost for supplies per month = 28,892-12,088 *.75 = 19826

8. Buckeye Company has provided the following data for maintenance cost:

2014 2015

Machine hours 12,500 15,000

Maintenance cost $27,000 $31,000

The best estimate of the cost formula for maintenance would be:

A. $21,625 per year plus $0.625 per machine hour

B. $7,000 per year plus $0.625 per machine hour

C. $7,000 per year plus $1.60 per machine hour

D. $27,000 per year plus $1.60 per machine hour

Discussion:Difference in Machine hours = 2,500; Difference in Maintenance:$4,000; Maintenance cost per machine hour = $4,000 / 2,500 = 1.60 per machine hour;Fixed Cost of maintenance = 27000 - 1.60*12,500=7,000

Use the following information for questions 9 and 10.

Chaffee Corporation staffs a helpline to answer questions from customers. The costs of operating the helpline are variable with respect to the number of calls in a month. At a volume of 33,000 calls in a month, the costs of operating the helpline total $742,500.

9.To the nearest whole dollar, what should be the total cost of operating the helpline costs at a volume of 34,800 calls in a month? (Assume that this call volume is within the relevant range.)

A. $742,500

B. $783,000

C. $704,095

D. $762,750

Discussion:From the initial data, the cost per call is $742,500/33,000 = $22.48; Therefore the cost at 34,800 calls would be $22.48*34,800=78472

10. To the nearest whole cent, what should be the average cost of operating the helpline per call at a volume of 36,100 calls in a month? (Assume that this call volume is within the relevant range.)

A. $21.54

B. $20.57

C. $21.34

D. $22.50

Discussion:See above.

Chapter 3

1. In computing its predetermined overhead rate, Marple Company inadvertently left its indirect labor costs out of the computation. This oversight will cause:

A. Manufacturing Overhead to be overapplied.

B. The Cost of Goods Manufactured to be understated.

C. The debits to the Manufacturing Overhead account to be understated.

D. The ending balance in Work in Process to be overstated.

Discussion:If indirect labor is omitted from the predetermined overhead rate, then the predetermined overhead rate is too low. (C) is correct because Cost of Goods Manufactured is increased by the amount of overhead applied.So if overhead applied is too low, then Cost of Goods Manufactured would be too low.(A) would be true if the predetermined overhead rate were too high.(D) could be true if predetermined overhead rate were too high.(C) refers to the increases in Manufacturing Overhead when overhead is incurred.It decreases as it is applied to jobs based on the predetermined overhead rate, so it is the credits to Manufacturing Overhead that could be effected by this error.

2.In a job-order costing system, the use of direct materials that have been previously purchased is recorded as a debit to:

A. Raw Materials inventory.

B. Finished Goods inventory.

C. Work in Process inventory.

D. Manufacturing Overhead.

Discussion:A debit increases an asset account.When direct materials are used Raw Materials inventory decreases and Work in Process increases.

3. In a job-order costing system, indirect materials that have been previously purchased and that are used in production are recorded as a debit to:

A. Work in Process inventory.

B. Manufacturing Overhead.

C. Finished Goods inventory.

D. Raw Materials inventory.

Discussion:Indirect materials increase manufacturing overhead and decrease Raw Materials Inventory.

4.Overapplied manufacturing overhead occurs when:

A. applied overhead exceeds actual overhead.

B. applied overhead exceeds estimated overhead.

C. actual overhead exceeds estimated overhead.

D. budgeted overhead exceeds actual overhead

Discussion:While estimated overhead or budgeted overhead is used to calculate the predetermined manufacturing overhead rate,overhead is then applied based on the actual direct labor hours (or machine hours etc.).So if the overhead applied is more than the actual overhead incurred, then overhead is overapplied.

5. Wert Corporation uses a predetermined overhead rate based on direct labor cost to apply manufacturing overhead to jobs. Last year, the company's estimated manufacturing overhead was $1,200,000 and its estimated level of activity was 50,000 direct labor-hours. The company's direct labor wage rate is $12 per hour. Actual manufacturing overhead amounted to $1,240,000, with actual direct labor cost of $650,000. For the year, manufacturing overhead was:

A. overapplied by $60,000

B. underapplied by $60,000

C. overapplied by $40,000

D. underapplied by $44,000

Discussion:The predetermined manufacturing overhead rate is $1,200,000 in overhead over direct labor cost of 50,000 direct labor hours * $12 per hour:1,200,000 / (12*50,000)=1200000/600,000=2.

So the manufacturing overhead applied would have been 650,000*2=$1,300,000.However the actual overhead is $1,240,000. $1,300,000- $1,240,000=$60,000 overapplied

6. Hayne Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. Data for the most recently completed year appear below:

The predetermined overhead rate for the recently completed year was closest to:

A. $7.89

B. $30.95

C. $24.52

D. $32.41

Discussion:predetermined overhead rate = estimated total overhead / estimated machine hours = $465,880 / 19,000 = 24.52

7. The following data have been recorded for recently completed Job 674 on its job cost sheet. Direct materials cost was $2,039. A total of 32 direct labor-hours and 175 machine-hours were worked on the job. The direct labor wage rate is $14 per labor-hour. The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $15 per machine-hour. The total cost for the job on its job cost sheet would be:

A. $2,967

B. $2,487

C. $2,068

D. $5,112

Discussion:Total Job Cost = 2,039 + 32*14+15*175=2039+448+2625=5,112

8. Hults Corporation has provided data concerning the company's Manufacturing Overhead account for the month of November. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was $75,000 and the total of the credits to the account was $57,000. Which of the following statements is true?

A. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month was $75,000.

B. Actual manufacturing overhead incurred during the month was $57,000.

C. Manufacturing overhead applied to Work in Process for the month was $75,000.

D. Manufacturing overhead for the month was underapplied by $18,000.

Discussion:The $75,000 is the actual amount of manufacturing incurred; $57,000 is the amount of overhead applied. The difference between these two is the amount of overhead that is UNDERapplied, since actual overhead is less than overhead applied by $75,000-$57,000=$18,000

9. Wedd Corporation had $35,000 of raw materials on hand on May 1. During the month, the company purchased an additional $68,000 of raw materials. During May, $92,000 of raw materials were requisitioned from the storeroom for use in production. These raw materials included both direct and indirect materials. The indirect materials totaled $5,000. The debits to the Work in Process account as a consequence of the raw materials transactions in May total:

A. $92,000

B. $0

C. $68,000

D. $87,000

Discussion:The decrease to Raw Materials Inventory is $92,000.This is made up of both direct materials and indirect materials.Since indirect materials are $5,000, then direct materials, which would be a debit to Work in Process, is 92,000-5,000=87,000.

10.Lietz Corporation has provided the following data concerning manufacturing overhead for January:

The company's Cost of Goods Sold was $369,000 prior to closing out its Manufacturing Overhead account. The company closes out its Manufacturing Overhead account to Cost of Goods Sold. Which of the following statements is true?

A. Manufacturing overhead was underapplied by $23,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $392,000

B. Manufacturing overhead was underapplied by $23,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $346,000

C. Manufacturing overhead was overapplied by $23,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $346,000

D. Manufacturing overhead was overapplied by $23,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $392,000

Discussion:If Manufacturing overhead is underapplied, then Cost of Goods Sold is too low and will increase;If Manufacturing overhead is overapplied, then Cost of Goods Sold is too high and will decrease.This is a case in which manufacturing overhead is overapplied.

Chapter 5

1. The break-even point in unit sales is found by dividing total fixed expenses by:

A. the contribution margin ratio.

B. the variable expenses per unit.

C. the sales price per unit.

D. the contribution margin per unit.

Discussion:breakeven point in units = fixed expenses/ contribution margin per unit.If one is computing breakeven point in dollars of sales = fixed expenses / contribution margin RATIO.

2. The break-even point in unit sales increases when variable expenses:

A. increase and the selling price remains unchanged.

B. decrease and the selling price remains unchanged.

C. decrease and the selling price increases.

D. remain unchanged and the selling price increases.

Discussion:Since breakeven in sales = fixed expenses / contribution margin ratio breakeven in sales increases when the contribution margin gets smaller.Contribution margin gets smaller when variable expenses increase and the selling price is the same or smaller.Selections B, C, and D increase the contribution margin ratio.

3. The amount by which a company's sales can decline before losses are incurred is called the:

A. contribution margin.

B. degree of operating leverage.

C. margin of safety.

D. contribution margin ratio.

Discussion:Definition.

4.The degree of operating leverage can be calculated as:

A. contribution margin divided by sales.

B. gross margin divided by net operating income.

C. net operating income divided by sales.

D. contribution margin divided by net operating income.

Discussion:Definition

5. Mancuso Corporation has provided its contribution format income statement for January. The company produces and sells a single product.

If the company sells 3,100 units, its total contribution margin should be closest to:

A. $27,045

B. $181,000

C. $162,400

D. $173,600

Discussion:Contribution Margin per unit = 162,400/2900 = 56.So if there are 3100 units sold, then contribution margin = 3100 * 56=173,600

6. Rothe Company manufactures and sells a single product that it sells for $90 per unit and has a contribution margin ratio of 35%. The company's fixed expenses are $46,800. If Rothe desires a monthly target net operating income equal to 15% of sales, the amount of sales in units will have to be (rounded):

A. 1,486 units

B. 3,467 units

C. 1,040 units

D. 2,600 units

Discussion:The equations set up from this problem are the following:

Net Operating income = contribution margin - fixed expenses

Net Operating Income = 35%*90*sales in units - 46800.

Net Operating Income = 15% * 90* sales in units

So setting these equal and solving

35%*90*sales in units -46800=15%*90*sales in units

31.5 sales in units - 46800=13.5*sales in units

18 sales in units = 46800

Sales in units = 2600

7.Darth Company sells three products. Sales and contribution margin ratios for the three products follow:

Given these data, the contribution margin ratio for the company as a whole would be:

A. 25%

B. 75%

C. 33.3%

D. it is impossible to determine from the data given.

Discussion:Contribution margin for company as a whole = Total Contribution Margin / Total Sales

Total Contribution Margin = .45 * 20000 + .4 * 40000 + .15 * 100000 = 9000+16000+15000=40000

Total Sales = 20000+40000+100000=160000

Overall contribution margin ratio = 40000/160000=25%

8. Pool Company's variable expenses are 36% of sales. Pool is contemplating an advertising campaign that will cost $20,000. If sales increase by $80,000, the company's net operating income should increase by:

A. $28,800

B. $64,000

C. $8,800

D. $31,200

Discussion:Incremental income= incremental contribution margin-incremental fixed expenses

Incremental contribution margin = (1-.36) * 80000=.64*80000=51200

Incremental fixed cost = 20,000

Incremental income = 51200-20000=31200

9. Olis Corporation sells a product for $130 per unit. The product's current sales are 28,900 units and its break-even sales are 25,721 units. What is the margin of safety in dollars?

A. $413,270

B. $3,343,730

C. $2,504,667

D. $3,757,000

Discussion:Margin of Safety (in dollars) = sales above breakeven = (28,900-25,721)*$130=$413,270

10. Balbuena Corporation produces and sells two products. Data concerning those products for the most recent month appear below:

The fixed expenses of the entire company were $15,630. If the sales mix were to shift toward Product K87W with total sales dollars remaining constant, the overall break-even point for the entire company:

A. would not change.

B. would increase.

C. would decrease.

D. could increase or decrease

Discussion:Which product is more profitable?Product K87W has a contribution margin ratio of (17000-7650)/17000= 55%;Product I57P has a contribution margin ration of (19000-9270)/19000=49%.So if the company has a sales mix shift toward K87W it is toward the higher profit margin product and the company will have a lower breakeven point.

Chapter 6

1. Routsong Company had the following sales and production data for the past four years:

Selling price per unit, variable cost per unit, and total fixed cost are the same in each year. Which of the following statements is not correct?

A. Under variable costing, net operating income for Year 1 and Year 2 would be the same.

B. Because of the changes in production levels, under variable costing the unit product cost will change each year.

C. The total net operating income for all four years combined would be the same under variable and absorption costing.

D. Under absorption costing, net operating income in Year 4 would be less than the net operating income in Year 2.

Discussion:(A) is true because there will be the same contribution margin due to the same amount of sales and variable costing includes the fixed costs incurred during the year, which is assumed to be the same in this question.(B) is false because variable costs per unit don't change with the amount of production.(C) is true because over the four year period the number of units sold is equal to the number of units produced, so there is no deferred manufacturing overhead costs in ending inventory to differentiate variable and absorption costing income values.(D) is true because even though there are fewer sales in year 2 than in year 4, in year 2 there is much more production and 1/3 of the fixed manufacturing overhead would be deferred.This deferred overhead would be recognized in part in Year 3 and in part in Year 4, making Year 4 income lower.

2. Fixed manufacturing overhead is included in product costs under:

A. Both Absorption costing and Variable costing

B Only Absorption costing

C. Only Variable costing

D. Neither Absorption costing nor variable costing

Discussion:Only Absorption costing includes fixed manufacturing overhead as a product cost., meaning that it is part of the value of inventory. In variable costing, fixed manufacturing costs are deducted as a period cost in the period in which it is incurred.

3. Net operating income reported under absorption costing will exceed net operating income reported under variable costing for a given period if:

A. production equals sales for that period.

B. production exceeds sales for that period.

C. sales exceed production for that period.

D. the variable manufacturing overhead exceeds the fixed manufacturing overhead.

Discussion:When production is higher than sales, there is an increase in inventory and some of the fixed manufacturing is in the value of that inventory.Thus a variable costing income will have more expenses than absorption costing will have.

4. In an income statement segmented by product line, a fixed expense that cannot be allocated among product lines on a cause-and-effect basis should be:

A. classified as a traceable fixed expense and not allocated.

B. allocated to the product lines on the basis of sales dollars.

C. allocated to the product lines on the basis of segment margin.

D. classified as a common fixed expense and not allocated.

Discussion:Fixed Expenses are classified as either traceable to a segment or common to the company as a whole.Traceable fixed expenses are deducted from segment revenues and variable expenses to calculatesegment margin.Common fixed expenses are not allocated, but deducted from company income as a whole.

5. All other things equal, if a division's traceable fixed expenses decrease:

A. the division's segment margin will increase.

B. the overall company net operating income will decrease.

C. the division's contribution margin will increase.

D. the division's sales volume will increase.

Discussion:Traceable fixed expenses are deducted from segment Revenues less Variable expenses.When fixed expenses are smaller, then there is more leftover in segment margin.It does not affect sales.It is deducted after contribution margin is calculated.It affects only the segment, and there are other factors that may affect the overall company.

6. Olds Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories. The absorption costing unit product cost was:

A. $97

B. $130

C. $99

D. $207

Discussion:The absorption cost includes both the variable product costs of $99 from the direct materials, direct labor, and variable manufacturing overhead as well as the allocation of fixed manufacturing overhead of 31000/1000 = $31 per unit for a total of $130.

7. Cockriel Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories. The variable costing unit product cost was:

A. $42

B. $43

C. $37

D. $48

Discussion:Variable costing of the product includes only the Direct materials, direct labor and variable manufacturing overhead costs of $14 + $22 + $1 = $37.Selling and administrative expenses are not product costs.Fixed costs are not considered product costs in Variable Costing.

8. Craft Company produces a single product. Last year, the company had a net operating income of $80,000 using absorption costing and $74,500 using variable costing. The fixed manufacturing overhead cost was $5 per unit. There were no beginning inventories. If 21,500 units were produced last year, then sales last year were:

A. 16,000 units

B. 20,400 units

C. 22,600 units

D. 27,000 units

Discussion:The difference in the income between absorption and variable costing = $80,000-$74,500 = $5,500.This $5,500 is the deferred fixed manufacturing overhead that is deducted in variable costing, but not in fixed costing.If fixed manufacturing overhead is $5 per unit, then the $5,500 represents $5,500/$5 = 1,100 units in ending inventory.If 21,500 were produced and 1,100 are in ending inventory and there was no beginning inventory, then sales are 21,500+0-1100=20,400 units.

9. Moore Company produces a single product. During last year, Moore's variable production costs totaled $10,000 and its fixed manufacturing overhead costs totaled $6,800. The company produced 5,000 units during the year and sold 4,600 units. There were no units in the beginning inventory. Which of the following statements is true?

A. The net operating income under absorption costing for the year will be $800 higher than net operating income under variable costing.

B. The net operating income under absorption costing for the year will be $544 higher than net operating income under variable costing.

C. The net operating income under absorption costing for the year will be $544 lower than net operating income under variable costing.

D. The net operating income under absorption costing for the year will be $800 lower than net operating income under variable costing.

Discussion:The difference in income is the amount of deferred fixed manufacturing overhead.The ending inventory of 5,000-4,600=400 units were allocated fixed overhead of 6800/5000 = 1.36 for a total of 400 * 1.36=544.This amount is still part of ending inventory and is not deducted in an absorption costing income statement.So net operating income under absorption is lower under variable costing than under absorption costing when production is greater than sales.

10. Sugiki Corporation has two divisions: the Alpha Division and the Delta Division. The Alpha Division has sales of $820,000, variable expenses of $369,000, and traceable fixed expenses of $347,300. The Delta Division has sales of $460,000, variable expenses of $294,400, and traceable fixed expenses of $134,100. The total amount of common fixed expenses not traceable to the individual divisions is $97,300. What is the company's net operating income?

A. $135,200

B. $37,900

C. $616,600

D. $519,300

Discussion:Net Operating income is calculated as the sum of all of the segment margins less common fixed expenses.The segment margin for Alpha = 820000-369000-347300=103700.The segment margin for Delta = 460000-294400-134100=31,500.Net Operating income = 103700 + 31,500-97,300=37,900.

Chapter 7

1. Which of the following activities would be classified as a batch-level activity?

A. Setting up equipment.

B. Designing a new product.

C. Training employees.

D. Milling a part required for the final product.

Discussion:A batch level activity occurs for each time the company produces an order or a group of a particular kind of product, such as equipment set up.

2. Which of the following is not a limitation of activity-based costing?

A. Maintaining an activity-based costing system is more costly than maintaining a traditional direct labor-based costing system.

B. Changing from a traditional direct labor-based costing system to an activity-based costing system changes product margins and other key performance indicators used by managers. Such changes are often resisted by managers.

C. In practice, most managers insist on fully allocating all costs to products, customers, and other costing objects in an activity-based costing system. This results in overstated costs

D. More accurate product costs may result in increasing the selling prices of some products.

Discussion:(D) is an advantage and not a limitation of activity-based costing.If the company has been underpricing a product and thus losing money on each sale of the product, activity-based costing may identify that product so that it can become profitable for the company.

3. Designing a new product is an example of (an):

A. Unit-level activity

B. Batch-level activity

C. Product-level activity

D. Organization-sustaining activity.

Discussion:Designing a new product is a product-level activity because it occurs once for each type of product.

4. Property taxes are an example of a cost that would be considered to be:

A. Unit-level.

B. Batch-level.

C. Product-level.

D. Organization-sustaining.

Discussion:Property taxes are typically assessed at the level of the organization and occurs on an ongoing basis as a period cost.This describes an organization-sustaining cost.

5. McKenrick Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

How much cost, in total, would be allocated in the first-stage allocation to the Setting Up activity cost pool?

A. $229,000

B. $155,000

C. $310,000

D. $248,000

Discussion:The way to use this information from an activity costing system is that the Setting Up Cost Pool would be 25% * 280,000 + 45% * 220,000 + 50% * 120,000 = 70,000+99,000+60,000=229,000

6. Spendlove Corporation has provided the following data from its activity-based costing system:

Assembly $19.56 per machine hour

Processing orders $26.12 per order

Inspection $68.80 per inspection hour

The company makes 430 units of product S78N a year, requiring a total of 1,120 machine-hours, 40 orders, and 30 inspection-hours per year. The product's direct materials cost is $49.81 per unit and its direct labor cost is $12.34 per unit.According to the activity-based costing system, the total costs for this product line is

A. $26,725

B. $75,951

C. $23,736

D. $50,460

Discussion:In activity based costing, the activities are measured for each product and costing uses those measures:

Cost Amount used for the product line Total

Assembly 19.56 per machine hour 1120 machine hours 21907.20

Processing orders 26.12 per order 40 orders 1044.8

Inspection 68.80 per inspection hour 30 inspection hours 783.6

Direct Materials 49.81 per unit 430 units 21418.3

Direct Labor 12.34 per unit 430 units 5306.2

Total costs $50,460.1

7. Gaucher Corporation has provided the following data from its activity-based costing accounting system:

The activity rate for the "designing products" activity cost pool is closest to:

A. $78 per product design hour

B. $582,016 per product design hour

C. $128 per product design hour

D. $89 per product design hour

Discussion:Finding the rate to use in activity based costing begins with information on measuring the amount of cost created by the amount of activity.Here $582,016 in cost occurs over 4,547 product design hours.So the cost per product design hour is $582016/4547 = $128

Chapter 8

A. Which of the following represents the normal sequence in which the indicated budgets are prepared?

A. Direct Materials, Cash, Sales

B. Production, Cash, Income Statement

C. Sales, Balance Sheet, Direct Labor

D. Production, Manufacturing Overhead, Sales

B. Self-imposed budgets typically are:

A. not subject to review by higher levels of management since to do so would contradict the participative aspect of the budgeting processing.

B. not subject to review by higher levels of management except in specific cases where the input of higher management is required.

C. subject to review by higher levels of management in order to prevent the budgets from becoming too loose.

D. not critical to the success of a budgeting program.

C. A continuous (or perpetual) budget:

A. is prepared for a range of activity so that the budget can be adjusted for changes in activity.

B. is a plan that is updated monthly or quarterly, dropping one period and adding another.

C. is a strategic plan that does not change.

D. is used in companies that experience no change in sales.

DISCUSSION:A continuous budget is adjusted on an ongoing basis based on the results in the most recent period.

D. Budgeted production in units are determined by:

A. adding budgeted sales in units to the desired ending inventory in units and deducting the beginning inventory in units from this total.

B. adding budgeted sales in units to the beginning inventory in units and deducting the desired ending inventory in units from this total.

C. adding budgeted sales in units to the desired ending inventory in units.

D. deducting the beginning inventory in units from budgeted sales in units.

DISCUSSION:Budgeted production must meet the forecasted sales in the period of production as well as preparing for the next period's expected sales.This sum is then adjusted for the amount of inventory expected to already be on hand.

E. Shown below is the sales forecast for Cooper Inc. for the first four months of the coming year.

On average, 50% of credit sales are paid for in the month of the sale, 30% in the month following sale, and the remainder are paid two months after the month of the sale. Assuming there are no bad debts, the expected cash inflow in March is:

A. $138,000

B. $122,000

C. $119,000

D. $108,000

Discussion:March cash sales + 50% of March credit sales + 30% of February credit sales + 20% * January credit sales= 18,000+50%*90,000+30% * 120,000+20%*100,000 = 18,000 + 45,000 + 36,000 + 20,000 = 119,000

F. Prestwich Company has budgeted production for next year as follows:

Two pounds of material A are required for each unit produced. The company has a policy of maintaining a stock of material A on hand at the end of each quarter equal to 25% of the next quarter's production needs for material A. A total of 30,000 pounds of material A are on hand to start the year. Budgeted purchases of material A for the second quarter would be:

A. 82,500 pounds

B. 165,000 pounds

C. 200,000 pounds

D. 205,000 pounds

Discussion:In quarter 2, the materials needed are for production of 80,000 units + for 25% of the third quarter 90,000 production = 80,000 * 2 pounds + .25 * 90,000 * 2 pounds = 160,000+45,000 =205,000 pounds.The amount on hand at the beginning of the second quarter is 25% of the second quarter sales = .25 * 80,000 * 2 = 40,000.So purchases are 205,000- 40,000 = 165,000.Note that the amount at the beginning of the year is a distractor and not used in the solution of this problem.

G. Hagos Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.84 direct labor-hours. The direct labor rate is $9.40 per direct labor-hour. The production budget calls for producing 2,100 units in June and 1,900 units in July. If the direct labor work force is fully adjusted to the total direct labor-hours needed each month, what would be the total combined direct labor cost for the two months?

A. $15,792.00

B. $15,002.40

C. $16,581.60

D. $31,584.00

Discussion:The Direct Labor cost for June and July is for 2100 + 1900 units = 4000 units.The labor for these units is .84 DLH per unit * 4000 = 3360 DLH.The amount employees are paid for 3360 hours is 3360 * 9.40 = 31,584

H. Lunderville Inc. bases its selling and administrative expense budget on budgeted unit sales. The sales budget shows 3,200 units are planned to be sold in December. The variable selling and administrative expense is $3.10 per unit. The budgeted fixed selling and administrative expense is $60,800 per month, which includes depreciation of $6,720 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the December selling and administrative expense budget should be:

A. $70,720

B. $54,080

C. $64,000

D. $9,920

Discussion:The cash disbursements for selling & administrative expenses are the variable selling & administrative expenses plus the cash-based fixed expenses.This is (3,200 *3.10)+ (60,800-6720)=9920+54080=64000

I. Mosbey Inc. is working on its cash budget for June. The budgeted beginning cash balance is $16,000. Budgeted cash receipts total $188,000 and budgeted cash disbursements total $187,000. The desired ending cash balance is $40,000. The excess (deficiency) of cash available over disbursements for June will be:

A. $15,000

B. $1,000

C. $17,000

D. $204,000

Discussion:The ending balance of cash is $16,000 beginning balance + $188,000 receipts - $187,000 in disbursements = $17,000

10. Shuck Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 8,100 direct labor-hours will be required in May. The variable overhead rate is $1.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $100,440 per month, which includes depreciation of $8,910. All other fixed manufacturing overhead costs represent current cash flows. The May cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

A. $102,870

B. $11,340

C. $91,530

D. $111,780

Discussion:On the overhead budget all overhead counts including the non-cash overhead of depreciation.Variable overhead of 8100 * 1.40 + 100,440=11,340+100,440=111,780

Chapter 9

1. The purpose of a flexible budget is to:

A. remove items from performance reports that are not controllable by managers.

B. permit managers to reduce the number of unfavorable variances that are reported.

C. update the static planning budget to reflect the actual level of activity of the period.

D. reduce the amount of conflict between departments when the master budget is prepared.

Discussion:Definition

2.Salyers Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion. The Inn's guests appreciate its gourmet breakfasts and individually decorated rooms. The Inn's overhead budget for the most recent month appears below

The Inn's variable overhead costs are driven by the number of guests.

What would be the total budgeted overhead cost for a month if the activity level is 53 guests?

A. $7,159.20

B. $6,680.60

C. $7,184.80

D. $26,154.40

Discussion:Variable overhead per unit* actual guests + Fixed overhead = Total overhead; (148.2+216.6)/57*53+(170+4310+2340) = 7159.2

3. Wadhams Snow Removal's cost formula for its vehicle operating cost is $1,900 per month plus $430 per snow-day. For the month of December, the company planned for activity of 16 snow-days, but the actual level of activity was 21 snow-days. The actual vehicle operating cost for the month was $11,470. The vehicle operating cost in the planning budget for December would be closest to:

A. $10,930

B. $11,470

C. $8,739

D. $8,780

Discussion:The planning budget uses the expected snow days of 16.So the amount planned would be 1900 + 430 * 16 = 1900 + 6880=8780.

4. Orscheln Snow Removal's cost formula for its vehicle operating cost is $2,800 per month plus $381 per snow-day. For the month of February, the company planned for activity of 17 snow-days, but the actual level of activity was 14 snow-days. The actual vehicle operating cost for the month was $7,920. The activity variance for vehicle operating cost in February would be closest to:

A. $1,357 F

B. $1,357 U

C. $1,143 F

D. $1,143 U

Discussion: Activity variance is the difference due solely to the change from 17 planned snow days to 14 actual snow days.The planning budget cost is 2800+381*17=9277.The flexible budget cost is 2800 + 381 * 14 = 8134.This is a favorable variance because costs are LESS.The amount is 9277-8134=1,143

5. Farver Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $44,420 per month plus $2,008 per flight plus $1 per passenger. The company expected its activity in May to be 80 flights and 281 passengers, but the actual activity was 81 flights and 277 passengers. The actual cost for plane operating costs in May was $199,650. The spending variance for plane operating costs in May would be closest to:

A. $5,691 F

B. $7,695 U

C. $7,695 F

D. $5,691 U

Discussion:The spending variance is the difference between the flexible budget and actual costs.The flexible budget cost is 44420+2008*81 flights + 1*277 passengers = 207345.The actual costs were 199650.The variance is favorable because actual costs were less than the flexible budget.The amount is 207345-199650=7695

6. Lantto Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $34,810 per month plus $2,850 per flight plus $12 per passenger. The company expected its activity in June to be 70 flights and 292 passengers, but the actual activity was 69 flights and 291 passengers. The actual cost for plane operating costs in June was $236,550. The plane operating costs in the flexible budget for June would be closest to:

A. $237,814

B. $234,952

C. $236,550

D. $234,417

Discussion:The flexible budget uses the parameters of the planning budget at the actual activity levels: 34810+2850*69+12*291=34810+196650+3492=234952

Use the following information for questions 7 to 10.

MacPhail Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During April, the company budgeted for 5,600 units, but its actual level of activity was 5,650 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for April:

Data used in budgeting:

Actual results for April:

7. The revenue variance for April would be closest to:

A. $1,645 F

B. $1,645 U

C. $3,840 U

D. $3,840 F

Discussion:Flexible Budget revenue = 43.90*5650 = 248035 vs. actual revenue of 244195.The difference is 3840 UNFAVORABLE because actual results are less than the flexible budget amount.

8. The spending variance for direct materials in April would be closest to:

A. $3,215 U

B. $2,260 U

C. $2,260 F

D. $3,215 F

Discussion:The flexible budget cost for direct materials is 19.10*5650 = 107915 and actual results are 110,175.The difference is 2260 Unfavorable because actual costs are more than flexible budget expected costs.

9. The spending variance for manufacturing overhead in April would be closest to:

A. $875 F

B. $970 U

C. $970 F

D. $875 U

Discussion:The spending variance for manufacturing overhead is based on the difference between the actual results of $47,565 and the flexible budget results of $48,535 (37800+1.9*5650).The difference is 970 and is favorable because actual costs are less.

10. The overall revenue and spending variance (i.e., the variance for net operating income in the revenue and spending variance column on the flexible budget performance report) for April would be closest to:

A. $4,880 U

B. $4,090 F

C. $4,090 U

D. $4,880 F

Discussion:The Flexible Budget NOI=(43.90-28.10)*5650-61700=27570;The actual NOI = 244195-36105-110175-47565-27660=22690; The difference between the flexible budget and the actual results is 4,880.This is unfavorable because the actual income is less than the flexible budget income.

Chapter 10

1. If the labor efficiency variance is unfavorable, then

A. actual hours exceeded standard hours allowed for the actual output.

B. standard hours allowed for the actual output exceeded actual hours.

C. the standard rate exceeded the actual rate.

D. the actual rate exceeded the standard rate.

Discussion:Labor efficiency variance is the difference between the standard number of hours used in production and the actual number of hours used in production times the standard wage rate per hour.So (C) and (D) are wrong.Unfavorable means it reduces income and that happens when the actual hours are more.

2. Variable manufacturing overhead is applied to products on the basis of standard direct labor-hours. If the direct labor efficiency variance is unfavorable, the variable overhead efficiency variance will be:

A. favorable.

B. unfavorable.

C. either favorable or unfavorable.

D. zero.

Discussion:The variable overhead efficiency variance isthe difference between the standard number of direct labor hours and the actual number of direct labor hours times the standard variable overhead rate per hour.So the difference in direct labor hours is a factor in both the labor efficiency variance and the overhead efficiency variance

3. Last month 75,000 pounds of direct material were purchased and 71,000 pounds were used. If the actual purchase price per pound was $0.50 more than the standard purchase price per pound, then the materials price variance was:

A. $2,000 F

B. $37,500 F

C. $37,500 U

D. $35,500 U

Discussion:The material price variance = the difference in price between standard price per pound and actual price per pound times the amount purchased..50 * 75000 = 37500.This is unfavorable because actual purchase price is more.

4. The following materials standards have been established for a particular product:

The following data pertain to operations concerning the product for the last month:

What is the materials quantity variance for the month?

A. $19,460 F

B. $9,730 U

C. $10,115 U

D. $20,230 F

Discussion:The materials quantity variance is the difference between the standard quantity * standard price and the actual quantity times standard price.7.3 pounds per unit*$14.45 per pound*1000 units - 5900*$14.45 = 20230 FAVORABLE because the standard quantity (7300) is more than the actual quantity (5900)

5. The following labor standards have been established for a particular product:

The following data pertain to operations concerning the product for the last month:

What is the labor efficiency variance for the month?

A. $13,805 U

B. $13,530 U

C. $15,305 U

D. $15,305 F

Discussion:The labor efficiency variance is the standard quantity * standard price - actual quantity * standard price = 4.0 hours * 1,500 units *$12.30 per hour - 7100 hours * $12.30 per hour = 1325.It is unfavorable because actual quantity is 7100 and the standard quantity is 6000.

6. The following labor standards have been established for a particular product:

The following data pertain to operations concerning the product for the last month:

What is the labor rate variance for the month?

A. $1,325 U

B. $1,780 F

C. $430 F

D. $430 U

Discussion:Labor rate variance = Actual quantity * standard price - actual quantity * actual price = 5300 * 17.55 - 94340 = 1325.It is unfavorable because AQ*SP = $93,015, which is LESS than the actual cost of $94,340.

Use the following information for questions 7 to 10

Arrow Industries uses a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the prime costs of one unit of product.

During May, Arrow purchased 160,000 pounds of direct material at a total cost of $304,000. The total direct labor wages for May were $37,800. Arrow manufactured 19,000 units of product during May using 142,500 pounds of direct material and 5,000 direct labor-hours.

7. The direct materials price variance for May is:

A. $16,000 favorable

B. $16,000 unfavorable

C. $14,250 favorable

D. $14,250 unfavorable

Discussion:Direct materials price variance = Actual quantity * standard price - actual quantity * actual price = 1.80 * 160,000 - 304000 = 16,000.This is unfavorable because at the standard price the cost of materials would have been $288,000, which is less than the actual cost at $304,000.Note that the price variance uses the amount PURCHASED and not the amount USED.

8. The direct materials quantity variance for May is:

A. $14,400 unfavorable

B. $1,100 favorable

C. $17,100 unfavorable

D. $17,100 favorable

Discussion:The direct materials quantity variance is standard price * standard quantity - standard price * actual quantity = 1.80 * 8 * 19000 - 1.8 * 142,500 = 273600-256500 = 17,100.It is favorable because the cost at the standard quantity is more than at the actual quantity.Note that the quantity variance uses the amount USED and not the amount PURCHASED.

8. The direct labor rate variance for May is:

A. $2,200 favorable

B. $1,900 unfavorable

C. $2,000 unfavorable

D. $2,090 favorable

Discussion:Direct labor rate variance = standard price * actual quantity - actual price * actual quantity = 8 * 5000 - 37800 = 40,000 - 37,800=2200.This is favorable because the expected cost at the standard rate is more than the actual cost.

10. The direct labor efficiency variance for May is:

A. $2,200 favorable

B. $2,000 favorable

C. $2,000 unfavorable

D. $1,800 unfavorable

Discussion:The direct labor efficiency = standard price * standard quantity - standard price * actual quantity = 8 * .25 * 19,000 - 8 * 5000 = 38,000 - 40,000 = 2000.This is unfavorable because the expected cost at the standard quantity is less than the actual cost at the actual quantity.

Chapter 11

1. Turnover is computed by dividing average operating assets into:

A. invested capital.

B. total assets.

C. net operating income.

D. sales.

Discussion:Definition

2. Which of the following will not result in an increase in the residual income, assuming other factors remain constant?

A. An increase in sales.

B. An increase in the minimum required rate of return.

C. A decrease in expenses.

D. A decrease in operating assets.

Discussion:Residual income = Net operating income - (Average Operating Assets * Minimum Required Rate of Return.An increase in minimum required rate of return increases the amount deducted from net operating income to get residual income, so it makes residual income smaller.(A) and (C) increase net operating income.(D) makes the amount deducted smaller.

3.Which of the following is true?

I. A profit center has control over both cost and revenue.

II. An investment center has control over invested funds, but not over costs and revenue.

III. A cost center has no control over sales.

A. Only I

B. Only II

C. Only I and III

D. Only I and II

Discussion:Definitions

4. Average operating assets are $110,000 and net operating income is $23,100. The company invests $25,000 in new assets for a project that will increase net operating income by $4,750. What is the return on investment (ROI) of the new project?

A. 21%

B. 19%

C. 18.5%

D. 20%

Discussion:Return on investment = net operating income / average operating assets=23100/110000= 21%

5.Average operating assets are $110,000, net operating income is $23,100, and sales are $300,000.What is the profit margin?

A.7.70%

B.21.00%

C.36.67%

D.92.30%

Discussion:Profit Margin = Net operating income / sales = 23100/300000=7.7%

7. A company's current net operating income is $16,800 and its average operating assets are $80,000. The company's required rate of return is 18%. A new project being considered would require an investment of $15,000 and would generate annual net operating income of $3,000. What is the residual income of the new project?

A. 20.8%

B. 20%

C. ($150)

D. $300

Discussion:Residual income = net operating income- (average operating assets * minimum required rate of return)=3,000-(15,000*.18)=3000-2,700=300

8. Galanis Corporation keeps careful track of the time required to fill orders. Data concerning a particular order appear below:

The throughput time was:

A. 38.8 hours

B. 33.4 hours

C. 14.1 hours

D. 5.4 hours

Discussion:Throughput time includes process time, inspection time, move time and queue time:1.4 +.4+3.6+8.7=14.1

9. Niemiec Corporation keeps careful track of the time required to fill orders. The times recorded for a particular order appear below:

The manufacturing cycle efficiency (MCE) was closest to:

A. 0.20

B. 0.06

C. 0.12

D. 0.96

Discussion:MCE = process time / throughput time = 1.5/((2.6+8.5+1.5+.2)=1.5/12.8=11.7%

9. Which are the groups of performance measures on a balanced scorecard?

A.financial measures, customer measures, internal business process measures, and external business process measures.

B. Unit, Batch, Product, and sustaining measures

C. Operating and non-operating measures

D.Product measures, Selling measures, and Administrative measures

Discussion:The balanced scorecard creates measures across the units of a company and not just financial measures.

10. Which of the following would be a measure in the category of Learning and Growth for a balanced scorecard?

A.The percentage of customers that report they would recommend our company to others

B.The percentage of employees that received certifications in their area of expertise

C.The percentage of production that passed quality controls

D. The sales growth over the previous year

Discussion:Learning and Growth pertains to measures about employees and their competencies.

Chapter 12

1. The opportunity cost of making a component part in a factory with no excess capacity is the:

A. variable manufacturing cost of the component.

B. fixed manufacturing cost of the component.

C. total manufacturing cost of the component.

D. net benefit foregone from the best alternative use of the capacity required.

Discussion:For example, if the factory outsources making the headlights for its vehicles, then it will have the floor space to set up another assembly line to meet demand.So the net operating income of the second assembly line would be an opportunity cost in the Make or Buy decision.

2. Freestone Company is considering renting Machine Y to replace Machine X. It is expected that Y will waste less direct materials than does X. If Y is rented, X will be sold on the open market. For this decision, which of the following factors is (are) relevant?

A. Cost of direct materials used only

B. Resale value of Machine X only

C. Both cost of direct materials and resale value of Machine X

D. Neither Cost of direct materials used nor resale value of Machine X

Discussion:Relevant costs differ between the two alternatives.

3. When there is a production constraint, a company should emphasize the products with:

A. the highest unit contribution margins.

B. the highest contribution margin ratios.

C. the highest contribution margin per unit of the constrained resource.

D. the highest contribution margins and contribution margin ratios.

Discussion:The highest contribution margin alone isn't enough.Since there is a constrained resource, the company must use that constrained resource most profitably and obtain the most profit per unit of the constrained resource.

4. Cung Inc. has some material that originally cost $68,400. The material has a scrap value of $30,100 as is, but if reworked at a cost of $1,400, it could be sold for $30,800. What would be the incremental effect on the company's overall profit of reworking and selling the material rather than selling it as is as scrap?

A. -$69,100

B. -$700

C. $29,400

D. -$39,000

Discussion:Sell or Process Further Decision.The company will LOSE $700 if it processes further.

The revenue at split off:$30,100.

The net revenue if processed further:$30,800-1400=$29,400

5. A study has been conducted to determine if Product A should be dropped. Sales of the product total $200,000 per year; variable expenses total $140,000 per year. Fixed expenses charged to the product total $90,000 per year. The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped. These data indicate that if Product A is dropped, the company's overall net operating income would:

A. decrease by $20,000 per year

B. increase by $20,000 per year

C. decrease by $10,000 per year

D. increase by $30,000 per year

Discussion:Drop or Add Decision.

The contribution to net operating income is Revenue - Avoidable Expenses= 200,000-140,000-(90000-40000)=10,000.Product A makes a $10,000 contribution to the company, so the company's income would decrease by $10,000 per year if the product were discontinued.

6. Peluso Company, a manufacturer of snowmobiles, is operating at 70% of plant capacity. Peluso's plant manager is considering making the headlights now being purchased from an outside supplier for $11 each. The Peluso plant has idle equipment that could be used to manufacture the headlights. The design engineer estimates that each headlight requires $4 of direct materials, $3 of direct labor, and $6.00 of manufacturing overhead. Forty percent of the manufacturing overhead is a fixed cost that would be unaffected by this decision. A decision by Peluso Company to manufacture the headlights should result in a net gain (loss) for each headlight of:

A. $(2.00)

B. $1.60

C. $0.40

D. $2.80

DISCUSSION:Make or Buy Decision.The company should select the "Make" because the cost is less for the firm.There is 40%*6=2.40 of manufacturing overhead that is irrelevant because it is present whether the company Makes or Buys.

Make Buy Difference

Cost to Supplier 11

Direct Material 4

Direct Labor 3

Manufacturing Overhead -- Avoidable 60%*6=3.60

TOTAL 10.60 11 .40

7. A customer has requested that Inga Corporation fill a special order for 2,000 units of product K81 for $25.00 a unit. While the product would be modified slightly for the special order, product K81's normal unit product cost is $19.90:

Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like modifications made to product K81 that would increase the variable costs by $1.20 per unit and that would require an