# CostsandDecisionMaking 1. An increase in the activity level within the relevant range results ina/an

CostsandDecisionMaking

1. An increase in the activity

level within the relevant range results ina/an

A. decrease in fixed cost perunit.

B. unchanged fixed cost perunit.

C.

proportionate increase in

total fixedcosts.

D.

increase in fixed cost

perunit.

2.

Use the following information to answer

thisquestion.

LifseyWeddingFantasyCompanymakesveryelaborateweddingcakestoorder.Theownerofthecompany

has provided the following data concerning the activity rates in its

activity-based costing system:

ActivityCostPools

ActivityRate

Size-related

$0.94 perguest

Complexity-related

$31.62 pertier

Order-related

$55.79 perorder

â€¢

Themeasureofactivityforthesize-relatedactivitycostpoolisthenumberofplannedguestsatthewedding reception. The greater the

number of guests, the larger thecake.

â€¢ The

measure of complexity is the number of tiers in thecake.

â€¢ Theactivitymeasurefortheorder-relatedcostpoolisthenumberoforders.(Eachweddinginvolvesoneorder.)

â€¢ Theactivityratesincludethecostsofrawingredients,suchasflour,sugar,eggs,andshortening.Theactivityratesdon’tincludethecostsofpurchaseddecorations,suchasminiaturestatuesandweddingbells,

which are accounted forseparately.

Dataconcerningtworecentordersarelistedhere:

PyburnWedding

SmithWedding

Numberofreceptionguests

72

189

Numberoftiersonthecake

4

5

Cost of purchased

decorations forcake

$29.92

$68.75

Supposethecompanydecidesthatthepresentactivity-basedcostingsystemistoocomplexandthatall

costs(exceptforthecostsofpurchaseddecorations)shouldbeallocatedonthebasisofthenumberofguests.Inthatevent,whatwouldyouexpecttohappentothecostsofcakes?

A. The cost of cakes for receptions

with more than the average number of guests would go down.

B.

The cost of cakes for receptions with fewer than the average number of guests

would go down.

C. The costs of all cakes would

goup.

D. The costs of all cakes would

godown.

3.

Use the following information to answer

thisquestion.

LifseyWeddingFantasyCompanymakesveryelaborateweddingcakestoorder.Theownerofthecompany

has provided the following data concerning the activity rates in its

activity-based costing system:

ActivityCostPools

ActivityRate

Size-related

$0.94perguest

Complexity-related

$31.62 pertier

Order-related

$55.70 perorder

â€¢

Themeasureofactivityforthesize-relatedactivitycostpoolisthenumberofplannedguestsatthewedding reception. The greater the

number of guests, the larger thecake.

â€¢ The

measure of complexity is the number of tiers in thecake.

â€¢ Theactivitymeasurefortheorder-relatedcostpoolisthenumberoforders.(Eachweddinginvolvesoneorder.)

â€¢

Theactivityratesincludethecostsofrawingredients,suchasflour,sugar,eggs,andshortening.Theactivityratesdon’tincludethecostsofpurchaseddecorations,suchasminiaturestatuesandweddingbells,

which are accounted forseparately.

Dataconcerningtworecentordersarelistedhere:

Pyburn Wedding

SmithWedding

Numberofreceptionguests

72

189

Numberoftiersonthecake

4

5

Costofpurchaseddecorationsforcake

$29.92

$68.75

Assumingthatthecompanycharges$556.96fortheSmithweddingcake,whatwouldbetheoverallmarginontheorder?

A.$96.66

B.$152.45

C.$165.41D.$460.30

4.

Daniele Corporation uses an activity-based

costing system with the following three activity costpools:

ActivityCostPool

TotalActivity

Fabrication

50,000machine-hours

Orderprocessing

500orders

Other

notapplicable

TheOtheractivitycostpoolisusedtoaccumulatecostsofidlecapacityandorganization-sustainingcosts.The

company has provided the following data concerning its costs:

CostData

Wages andsalaries

$280,000

Depreciation

$200,000

Occupancy

$140,000

Total

$620,000

Thedistributionofresourceconsumptionacrossactivitycostpoolsisgivenbelow:

Activity

CostPools

Fabrication

OrderProcessing

Other

Total

Wagesandsalaries

60%

30%

10%

100%

Depreciation

20%

35%

45%

100%

Occupancy

10%

50%

40%

100%

TheactivityratefortheFabricationactivitycostpoolisclosestto per machinehour.

A.$7.44B.$1.24C.$4.44D.$3.72

5.

GreenCompany’svariableexpensesare75%ofsales.Atasaleslevelof$400,000,thecompany’sdegree

of operating leverage is 8. At this sales level, fixed expensesare

A.$87,500. B.$100,000.C$75,000. D.$50,000.

6.

Murdoch

Corporationhas providedthe

following data concerningits onlyproduct:

Sellingprice

$230perunit

MurdochProductData

Currentsales

39,100units

Break-evensales

29,716units

What is the

margin of safety indollars?

A.$5,995,333B.$8,993,000C.$2,158,320D.$6,834,680

7.

Atabreak-evenpointof400unitssold,variableexpenseswere$4,000,andfixedexpenseswere

$2,000.Whatwillthe401stunitsoldcontributetoprofit?

A.$15

B.$0

C.$10

D.$5

8. Bear Publishing sells a

nature guide. The following information was reported for a typical month(salesvolume

is constant eachmonth):

Total

PerUnit

Sales

$17,600

$16.00

Variableexpenses

$9,680

$8.80

Contributionmargin

$7,920

$7.20

Fixedexpenses

$3,600

Netoperatingincome

$4,320

Bear

I sexpecting a20-centincreaseinvariableexpenses.Nootherchangesareexpectedorplanned.Howmuch contribution margin should Bear

expect after the increase?

A. Can’t bedetermined

B.$4,100C.$7,700D.$9,900

9.

Use the following information to answer

thisquestion.

ProductionCostData

Directmaterials

$153,000

Directlabor

$110,500

Variablemanufacturingoverhead

$204,000

HarrisCompanyproducesasingleproduct.Lastyear,Harrismanufactured17,000unitsandsold13,000units.Productioncostsfortheyearwereasfollows:

Fixed manufacturingoverhead $255,000

Saleswere$780,000fortheyear,variablesellingandadministrativeexpenseswere$88,400,andfixedselling

and administrative expenses were $170,000. There was no beginning inventory.

Assume thatdirectlabor is a

variablecost.

Undervariablecosting,thecompany’snetoperatingincomefortheyearwouldbe thanunderabsorptioncosting.

A.$108,000lower

B.

$60,000higher

C. $60,000lower

D.

$108,000higher

10. Use the following information

to answer thisquestion.

HarrisCompanyproducesasingleproduct.Lastyear,Harrismanufactured17,000unitsandsold13,000units.Productioncostsfortheyearwereasfollows:

Production CostData

Directmaterials

$153,000

Directlabor

$110,500

Variable

manufacturingoverhead

$204,000

Fixed manufacturingoverhead

$255,000

Saleswere$780,000fortheyear,variablesellingandadministrativeexpenseswere$88,400,andfixedselling

and administrative expenses were $170,000. There was no beginning inventory.

Assume thatdirectlabor is a

variablecost.

Underabsorptioncosting,thecarryingvalueonthebalancesheetoftheendinginventoryfortheyearwouldbe

A.$190,800.

B.$0.

C.$170,000.

D.$230,800.

11. Acompanyincreasedthesellingpriceforitsproductfrom$5to$6perunitwhentotalfixedexpensesincreasedfrom$100,000to$200,000andvariableexpenseperunitremainedunchanged.Howwouldthese

changes affect the break-evenpoint?

A.

The break-even point in units

wouldincrease.

B.

The break-even point in units

would remain unchanged.

C. The break-even point in units

woulddecrease.

D.

The effect can’t be determined from the information given.

12. Use the following information

to answer thisquestion.

Callaham Corporation is a wholesaler that sells a single product.

Management has provided

thefollowingcostdatafortwolevelsofmonthlysalesvolume.Thecompanysellstheproductfor$115.80perunit.

Sales volume(units)

4,000

5,000

Costofsales

$338,000

$422,500

Selling

and administrativecosts

$89,600

$106,000

Thebestestimateofthetotalcontributionmarginwhen4,300unitsaresoldis

A.$64,070.

B.$43,430.

C.$134,590.D.$38,270.

13.

Viren Corporation has provided the following

data from its activity-based costingsystem:

ActivityCostPool

TotalCost

TotalActivity

Assembly

$387,000

25,000machine-hours

Processingorders

$68,510

1,700orders

Inspection

$129,117

1,930

inspection-hours

Thecompanymakes240unitsofproductT91Hayear,requiringatotalof550machinehours,90orders,and40inspectionhoursperyear.Theproduct’sdirectmaterialscostis$16.98perunit,anditsdirectlaborcostis$12.09perunit.Accordingtotheactivity-basedcostingsystem,theaveragecostofproductT91Hisclosestto perunit.

A.$79.66B.$90.81C.$75.70D.$29.07

14.

Rankthe following methodsof assigning overhead costs fromleastaccurate to mostaccurate.

A.

Plantwide rate,

activity-based costing, departmentalrates

B.

Departmental rates, plantwide

rate, activity-basedcosting

C.

Plantwide rate, departmental rates, activity-basedcosting

D.

Activity-based costing,

departmental rates, plantwiderate

15.

Purchase-orderprocessingisanexampleofa/an activity.

A. product-level

B.

unit-level

C.

organization-sustaining

D.

batch-level

16.

Use the following information to answer

thisquestion.

GargymalCompanywouldliketoestimatethevariableandfixedcomponentsofitselectricalcostsandhascompiledthefollowingdataforthepastfivemonthsofoperations.

MachineHours

ElectricalCost

August

1,000

$1,620

September

900

$1,510

October

1,500

$1,870

November

2,000

$1,950

December

1,300

$1,730

Using the high-low method of analysis, the estimated variable cost per

machine hour for electricityisclosest to which of thefollowing?

A.$2.50B.$0.98C.$1.68D.$0.40

17.

IndianaCorporationproducesasingleproductthatitsellsfor$9perunit.Duringthefirstyearofoperations,100,000unitswereproduced,and90,000unitsweresold.Manufacturingcostsandsellingandadministrative

expensesfor the year wereasfollows:

FixedCosts

VariableCosts

Rawmaterials

$1.75perunitproduced

Directlabor

$1.25perunitproduced

Factory

overhead

$100,000

$0.50perunitproduced

Sellingandadministrative

$70,000

$0.60perunitsold

WhatwasIndianaCorporation’snetoperatingincomefortheyearusingvariablecosting?

A.$181,000B.$281,000C.$371,000D.$271,000

18. SloshCleaningCorporationservicesbothresidentialandcommercialcustomers.Sloshexpectsthefollowing operating results

next year for each type ofcustomer:

OperatingResults

Residential

Commercial

Sales

$60,000

$140,000

Contribution marginratio

50%

30%

Sloshexpectstohave$18,000infixedexpensesnextyear.WhatwouldSlosh’stotaldollarsaleshavetobenextyeartogenerateaprofitof$90,000?A.$300,000B.$250,000C.$270,000D.$216,00019. MardistCorporationhassalesof$100,000,variableexpensesof$75,000,fixedexpensesof$30,000,andanetlossof$5,000.HowmuchwouldMardisthavetoselltoachieveaprofitof10%ofsales?A.$225,500B.$187,500C.$180,000D.$200,00020.

Use the following information to answer

thisquestion.Callaham Corporation is a wholesaler that sells a single product.

Management has provided

thefollowingcostdatafortwolevelsofmonthlysalesvolume.Thecompanysellstheproductfor$115.80perunit.

Sales volume(units)

4,000

5,000

Costofsales

$338,000

$422,500

Selling and

administrativecosts

$89,600

$106,000

The bestestimate of the total variable cost

per unit isA.$106.90.B.$105.70.C.$100.90.D.$84.50.