Chapters 1-6 Principles of Accounting II
1. Maintenance costs at a Tierce Corporation factory are listed below:
Machine – Hours
Maintenance Cost
January
4,198
$ 60,787
February
4,161
$ 60,545
March
4,114
$ 59,859
April
4,156
$ 55,785
May
4,177
$ 60,
650
June
4,135
$ 59,670
July
4,190
$ 60,726
August
4,169
$ 60,546
September
4,068
$ 59,352
Management believes that maintenance cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the variable and fixed components of this cost, these estimates would be closest to:
$6.54 per machine-hour; $33,332 per month
$
13.
42 per machine-hour; $55,785 per month
$
11.
04 per machine-hour; $14,441 per month
$11
.04 per machine-hour; $15,876 per month
2.
Sperberg Corporation’s operating leverage is 4.8. If the company’s sales increase by
13.75%
, its net operating income should increase by about:
13.75%
4.80%
57.05%
66.00%
3.
The following partially completed T-accounts summarize transactions for Fabatz Company during the year:
Raw
Materials
—
—
Beg Bal
1,650
8,800
8,800
Work in Process
— — Beg Bal
2,800
2
2,100
7,650
8,
200
4,800
Finished Goods
— — Beg Bal
6,400
2
3,300
22,100
Manufacturing Overhead
— —
1,150
4,800
2,500
1,700
Wages and Salaries Payable
— —
13,700
Beg Bal
1,250
13,700
Cost of Goods Sold
— — 23,300
The manufacturing overhead was:
$550 underapplied
$1,700 overapplied
$550 overapplied
$1,700 underapplied
4.
Candice Corporation has decided to introduce a new product. The product can be manufactured using either a capital-intensive or labor-intensive method. The manufacturing method will not affect the quality or sales of the product. The estimated manufacturing costs of the two methods are as follows:
Capital-
Labor-
Intensive
Intensive
Variable
manufacturing cost per unit
$
14.
00
$
17.
60
Fixed
manufacturing cost per year
$
2,5
24,000
$
1,382,400
—
The company’s market research department has recommended an introductory selling price of $30 per unit for the new product. The annual fixed selling and administrative expenses of the new product are $500,000. The variable selling and administrative expenses are $2 per unit regardless of how the new product is manufactured.
Required:
a.
Calculate the break-even point in units if Candice Corporation uses the (Do not round intermediate calculations.):
Break-even point in units
Capital-intensive manufacturing method
Labor-intensive manufacturing method
— b.
Determine the unit sales volume at which the net operating income is the same for the two manufacturing methods. (Do not round intermediate calculations. Round your answer to the nearest whole number.)
Sales volume
c.
Assuming sales of 3
10,000
units, what is the degree of operating leverage if the company uses the: (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Degree of operating leverage
Capital-intensive manufacturing method Labor-intensive manufacturing method — d.
What is your recommendation to management concerning which manufacturing method should be used, if the sales volume is in excess of the one calculated under Requirement (b)?
Labor-intensive manufacturing method Capital-intensive manufacturing method 5.
Ermoin Inc. uses the FIFO 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
1,300
Percent complete with respect to materials
80%
Percent complete with respect to conversion
20%
Costs in the beginning inventory:
Materials cost
$
3,040
Conversion
cost
$
5,165
Units started into production during the month
16,800
Units completed and transferred out
16,800
Costs added to production during the month:
Materials cost $
113,960
Conversion cost $
507,900
Work in process, ending:
Units in process 1,300 Percent complete with respect to materials
40%
Percent complete with respect to conversion 30% — Required:
Using the FIFO method:
a.
Determine the equivalent units of production for materials and conversion costs.
MaterialsConversion
Equivalent units of production
— b.
Determine the cost per equivalent unit for materials and conversion costs. (Round your answers to 2 decimal places.)
MaterialsConversion
Cost per equivalent unit
$$ — c.
Determine the cost of ending work in process inventory. (Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount.)
Cost of ending work in process inventory
$ d.
Determine the cost of units transferred out of the department during the month. (Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount.)
Cost of units transferred out
$ 6.
Erkkila Inc. reports that at an activity level of 8,100 machine-hours in a month, its total variable inspection cost is
$231,579
and its total fixed inspection cost is
$19
6,
830
.
What would be the total variable inspection cost at an activity level of 8,300 machine-hours in a month?
Assume that this level of activity is within the relevant range. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.)
$231,579
$201,690
$428,409
$237,297
7.
Mannarelli Corporation uses the FIFO method in its process costing system. Operating data for the Casting Department for the month of September appear below:
Units
Percent Complete with Respect to Conversion
Beginning work in process inventory
30,000
20%
Transferred in from the prior department during September
121,000
Ending work in process inventory
40,000
90%
According to the company’s records, the conversion cost in beginning work in process inventory was $17,260 at the beginning of September. Additional conversion costs of $542,568 were incurred in the department during the month.
The cost per equivalent unit for conversion costs for September is closest to (Round off to three decimal places.):
$4.484
$3.707
$3.654
$3.848
8.
Budget data for the Bidwell Company are as follows:
Sales (
130,000 units
)
$1,300,000
Expenses:
FixedVariable
Raw materials
$ 390,000
Direct labor
260,000
Overhead
$ 130,000
195,000
Selling and administrative
14
3,000
65,000
Total expenses
$ 273,000
$ 910,000
1,183,000
Net operating income
$ 11
7,000
The number of units Bidwell would have to sell to earn a net operating income of $195,000 is:
130,000 units
9
1,000 units
15
6,000
units
195,000 units
9.
Wilson Company has a process costing system. The Assembly Department had the following costs for May:
Materials
Labor & Overhead
Work in process inventory, May 1
$
64,000
$ 51,000
Costs added during May
$ 23
8,000
$ 119,000
Assume that Wilson uses the weighted-average method and that for May the company computed 17,000 equivalent units for labor and overhead. The cost per equivalent unit for labor and overhead for the month would have been:
$
10.
00
$
21.
00
$7.00
$3.00
10.
DeAnne Company produces a single product. The company’s variable costing income statement for August appears below:
DeAnne Company Income statement For the month ended August 31
Sales ($19 per unit)
$798,000
Variable expenses:
Variable cost of goods sold
3
78,000
Variable selling expense
84,000
Total variable expenses
462,000
Contribution margin
336,000
Fixed expenses:
Fixed manufacturing
1
11,000
Fixed selling and administrative
37,000
Total fixed expenses
148,000
Net operating income
$188,000
The company produced 37,000 units in August and the beginning inventory consisted of 10,000 units. Variable production costs per unit and total fixed costs have remained constant over the past several months. The value of the company’s inventory on August 31 under the absorption costing method is (Do not round your intermediate calculations.):
$45
,000
$60,000
$74,405
$70,000
11.
Carr Company produces a single product. During the past year, Carr manufactured 43,000 units and sold 29,000 units. Production costs for the year were as follows:
Fixed manufacturing overhead
$
430
,000
Variable manufacturing overhead
$ 548,250
Direct labor
$ 361,200
Direct materials
$ 46
4,400
Sales totaled $2,233,000, variable selling expenses totaled $438,600, and fixed selling and administrative expenses totaled $188,000. There were no units in beginning inventory. Assume that direct labor is a variable cost. Under absorption costing, the ending inventory for the year would be valued at (Do not round your intermediate calculations.):
$678,059
$788,509
$587,300
$753,997
12.
Hickory Company manufactures two products—15,000 units of
Product Y
and 7,000 units of
Product Z
. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Y and Z: (The total estimated overhead cost may not agree with the sum of allocated overhead costs to each product.)
Activity Cost Pool
Activity Measure
Estimated Overhead Cost
Expected Activity
Machining
Machine-hours
$
213,400
11,000
MHs
Machine setups
Number of setups
$
61,600
140
setups
Production design
Number of products
$78,0002
products
General factory
Direct labor-hours
$
244,000
10,000
DLHs
— Activity MeasureProduct YProduct Z Machining6,400
4,600
Number of setups6080 Number of products11 Direct labor-hours
7,400
2,600
— Required:
What is the activity rate for the Machining activity cost pool? (Round your answer to 2 decimal places.)
Machining activity cost pool
$ per MH
13.
Tsuchiya Corporation manufactures a variety of products. Last year, the company’s variable costing net operating income was
$78,500
. Fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to
$48,000
. What was the absorption costing net operating income last year?
$48,000
$126,500
$30,500
$78,500 14.
Smith Company sells a single product at a selling price of $30 per unit. Variable expenses are $12 per unit and fixed expenses are $62,100. Smith’s break-even point is:
10,350 units
3,450 units
2,070 units
5,175 units
15.
On April 1, Stelter Corporation had $38,000 of raw materials on hand. During the month, the company purchased an additional
$64,000
of raw materials. During April, $
74,000
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 $7,400. Prepare journal entries to record these events. Use those journal entries to answer the following question:
The credits to the Work in Process account as a consequence of the raw materials transactions in April total:
65,700
74,000 0 64,000
16.
Temblador Corporation purchased a machine 7 years ago for
$342,500
when it launched product E26T. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 330 machine costing
$346,500
or by a new model
230
machine costing
$308,500
. Management has decided to buy the model 230 machine. It has less capacity than the model 330 machine, but its capacity is sufficient to continue making product E26T. Management also considered, but rejected, the alternative of dropping product E26T and not replacing the old machine. If that were done, the $308,500 invested in the new machine could instead have been invested in a project that would have returned a total of $308,500.
In making the decision to invest in the model 230 machine, the opportunity cost was:
$342,500
$409,500
$346,500 $308,500 17.
The following production and average cost data for two levels of monthly production volume have been supplied by a company that produces a single product:
Production volume
1,000 units
2,000 units
Direct materials
$ 67.70 per unit
$ 67.70 per unit Direct labor
$ 67.00 per unit
$ 67.00 per unit
Manufacturing overhead
$ 93.60 per unit
$ 66.90 per unit
The best estimate of the total monthly fixed manufacturing cost is (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.):
$13
3,800
$53,400
$93,600
$224,300
18.
A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
Units in beginning inventory
0
Units produced
8,000
Units sold
7,800
Units in ending inventory
200
Variable costs per unit:
Direct materials
$47
Direct labor$45 Variable manufacturing overhead$13
Variable selling and administrative
$10
Fixed costs:
Fixed manufacturing overhead
$276,000
Fixed selling and administrative
$88,000
What is the absorption costing unit product cost for the month? (Round your intermediate calculations to whole dollar value.)
$105
$140
$115
$150
19.
The following data were taken from the accounting records of Abacus Company which uses the FIFO method in its process costing system:
Beginning work in process inventory:
31,000 units (materials 100% complete, labor and overhead 55% complete)
Started in process during the period:
102,000 units
Ending work in process inventory:
41,000 units (materials 100% complete, labor and overhead 65% complete)
The equivalent units are:
Material, 102,000 units; labor and overhead, 101,600 units
Material, 117,450 units; labor and overhead, 113,750 units
Material, 73,150 units; labor and overhead, 7
4,700
units
Material, 133,000 units; labor and overhead, 118,650 units
20.
The following partially completed T-accounts summarize transactions for Fabatz Company during the year:
Raw Materials
— — Beg Bal3,000
8,400
10,400
Work in Process — — Beg Bal4,400
23,700
7,400
10,900
6,900
Finished Goods — — Beg Bal8,000
24,900
23,700 Manufacturing Overhead — — 2,100 6,900
4,100
3,300 Wages and Salaries Payable — —
16,300
Beg Bal2,600
12,800
Cost of Goods Sold — — 24,900
The manufacturing overhead applied was:
6,900 4,100 3,300
16,100
21.
Job 731 was recently completed. The following data have been recorded on its job cost sheet:
Direct materials$
3,291
Direct labor-hours 78
labor-hours
Direct labor wage rate
$13
per labor-hour
Machine-hours
138
machine-hours
The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $14 per machine-hour. The total cost that would be recorded on the job cost sheet for Job 731 would be:
$4,305
$6,237
$3,318
$5,397
22.
The activity in Nolan Company’s Blending Department for the month of April is given below:
Number of units
Labor and overhead percent complete
Work in process inventory, April 1
24,00040%
Started into process during the month
82,000
Work in process inventory, April 30
26,000
50%
All materials are added at the beginning of processing in the Blending Department.
The equivalent units for material for the month, using the FIFO method, are:
91,600 units
106,000 units
82,000 units
108,000 units
23.
During April, Division D of Carney Company had a segment margin ratio of 15%, a variable expense ratio of 60% of sales, and traceable fixed expenses of $33,000. Division D’s sales were closest to:
$49
,500
$220,000
$73,333
$132,000
24.
During the month of September, direct labor cost totaled $12,000 and direct labor cost was 40% of prime cost. If total manufacturing costs during September were $76,000, the manufacturing overhead was:
$30,000
$64,000
$46,000
$18,000
25.
Gangwer Corporation produces a single product and has the following cost structure:
Number of units produced each year
7,200
Variable costs per unit: Direct materials$49 Direct labor$19 Variable manufacturing overhead$11
Variable selling and administrative expense
$7
Fixed costs per year:
Fixed manufacturing overhead
$266,400
Fixed selling and administrative expense
$187,200
The absorption costing unit product cost is (Do not round your intermediate calculations.):
$37.0
$86.0
$123.0
$116.0
26.
The Donaldson Company uses a job-order costing system. The following data were recorded for July:
July 1
Added During July
Work in Process —
Job Number
Inventory
Direct Materials
Direct Labor
475
$1,150$430$230
476
$650$
630
$830
477
$830$650$1,150
478
$630$
850
$1,650
Overhead is applied to jobs at the rate of 90% of direct materials cost. Jobs 475, 477, and 478 were completed during July and transferred to finished goods. Jobs 475 and 478 have been delivered to the customer. Donaldson’s Work in Process inventory balance on July 31 was:
$2,677
$2,110
$5,829
$3,054
27.
Compton Company uses a predetermined overhead rate in applying overhead to production orders on a labor cost basis in Department A and on a machine-hours basis in Department B. At the beginning of the most recently completed year, the company made the following estimates:
Dept.A
Dept.B
Direct labor cost
$
63,000
$40,000 Manufacturing overhead $
80,010
$
68,450
Direct labor-hours
8,700
9,700
Machine-hours 4,700
18,500
What predetermined overhead rate would be used in Department A and Department B, respectively?
79% and $4.12
79% and $7.06
79% and $3.70
127% and $3.70
28.
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 $54,900. 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):
1,220 units
1,743 units
4,067 units
3,050 units
29.
Gambarini Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $199.00 per unit.
Sales volume (units)
6,0007,000
Cost of goods sold
$ 522,600
$ 609,700
Selling and administrative costs
$ 636,600
$ 660,400
The best estimate of the total monthly fixed cost is (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.):
$ 493,800
$ 1,159,200
$ 1,214,650
$ 1,270,100
30.
During February, Degan Inc. transferred $55,000 from Work in Process to Finished Goods and recorded a Cost of Goods Sold of $60,000 (assume there was enough beginning balance in the Finished goods inventory account). The journal entries to record these transactions would include a:
credit to Cost of Goods Sold of $60,000
credit to Finished Goods of $55,000
debit to Finished Goods of $60,000
credit to Work in Process of $55,000