ACC E272 Lecture Notes - Lecture 10: Opportunity Cost, Historical Cost, Weighted Arithmetic Mean
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2. Firms with tangiblelong-term assets and less predictable cash flows, such as automanufacturers and steel companies, whose sales vary with changes ineconomic conditions, tend to use
a. | a more nearly equal mix of long-term debt and shareholdersâequity financing. |
b. | a greater amount of long-term debt [80%] than shareholdersâequity financing [20%]. |
c. | a smaller amount of long-term debt [20%] than shareholdersâequity financing [80%]. |
d. | a greater amount of long-term debt [80%] than assets [20%]. |
e. | a greater amount of shareholdersâ equity [80%] than assets[20%]. |
3. During Year 3,Carrington Company made the following expenditures relating toplant machinery and equipment:
· | Continuing, frequent, and low cost repairs | $46,000 |
· | Special long-term protection devices were attached to tenmachines | 11,000 |
· | A broken gear on a machine was replaced | 5,000 |
How much should be charged to repairs and maintenance in Year3?
a. | $46,000 |
b. | $51,000 |
c. | $57,000 |
d. | $41,000 |
e. | none of the above |
4. Which of the followingis/are not capitalized as an intangible asset?
a. | costs of an internally developed patent |
b. | legal costs to defend a patent successfully |
c. | goodwill acquired when a company purchases another company |
d. | costs to purchase a patent |
e. | none of the above |
5. Repairs and maintenancedo not include
a. | the costs of restoring an asset's service potential afterbreakdowns. |
b. | expenditures that increase the asset's life. |
c. | routine costs such as for cleaning and adjusting. |
d. | major tune-ups including labor and parts. |
e. | All of the above are not considered to be repairs ormaintenance. |
12. Sigma Company suffers a loss to itsbuilding in a fire and spends $100,000 on repairs and improvements.It judges that $80,000 of the expenditure replaces long-livedassets lost in the fire, and $20,000 represents improvements to thebuilding. Which of the following is the single journal entry thatSigma Company will make?
a. | Building . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 100,000 Cash . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .. 100,000 |
b. | Loss from Fire . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 100,000 Cash . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. 100,000 |
c. | Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 100,000 Building . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .. 20,000 Loss from Fire . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .. 80,000 |
d. | Building . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 20,000 Loss from Fire . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 80,000 Cash . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. 100,000 |
e. | Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 100,000 Loss from Fire . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .. 100,000 |
16. Firms treat expenditures as assetswhen they:
a. | have acquired rights to the future use of a resource as a resultof a past transaction or event. |
b. | can reliably measure the cost of the expected benefits at thetime of initial recognition. |
c. | can exercise the entityâs right to, or control of, thebenefit. |
d. | can obtain the future service potential and control othersâaccess to it. |
e. | all of the above |
Clarion Realty
Clarion Realty has decided to construct its own office building.The construction will be partially financed through a constructionloan and any remainder will be financed from internally generatedfunds. The internal accountants have collected the followinginformation concerning the construction.
Average Balance | Construction | Other | |
Year | Construction Account | Debt @ 6% | Debt @ 10% |
1 | $2,000,000 | $1,000,000 | $500,000 |
2 | $4,000,000 | $1,000,000 | $250,000 |
3 | $3,000,000 | $800,000 | $200,000 |
22. The amount, if any, of capitalizedinterest cost for Year 1 is
a. | $0 |
b. | $50,000 |
c. | $60,000 |
d. | $110,000 |
e. | $170,000 |
23. The amount, if any, of capitalizedinterest cost for Year 2 is
a. | $0 |
b. | $50,000 |
c. | $60,000 |
d. | $180,000 |
e. | $230,000 |
33. When a firm constructs its ownbuildings or equipment:
a. | it recognizes the labor, material, and overhead costs incurredas an asset. |
b. | U.S. GAAP and IFRS require firms to include, or capitalize,interest costs during construction in the cost of aself-constructed asset. |
c. | it recognizes the labor, material, and overhead costs incurredas a period expense. |
d. | U.S. GAAP and IFRS require firms to expense interest costsincurred during construction of a self-constructed asset. |
e. | both choices a and b are correct. |
1) All of the following are examples of product costs except:
depreciation on the company's administrative offices.
salary of the plant manager.
insurance on the factory equipment.
rental costs of the factory facility.
2) Period costs:
are treated as expenses in the period they are incurred
are directly traceable to products
include direct labor
are also referred to as manufacturing overhead costs
.
3) Axle and Wheel Manufacturing currently produces 1,000 axles per month. The following per unit data apply for sales to regular customers:
Direct materials $30
Direct manufacturing labor 5
Variable manufacturing overhead 10
Fixed manufacturing overhead 40
Total manufacturing costs $85
The plant has capacity for 2,000 axles and is considering expanding production to 1,500 axles. What is the total cost of producing 1,500 axles?
a. $85,000
b. $170,000
c. $107,500
d. $102,500
4) In the preparation of the schedule of Cost of Goods Manufactured, the accountant incorrectly included as part of manufacturing overhead the rental expense on the firm's retail facilities. This inclusion would:
overstate period expenses on the income statement.
overstate the cost of goods sold on the income statement.
understate the cost of goods manufactured.
have no effect on the cost of goods manufactured.
5) In CVP analysis, focusing on target net income rather than operating income:
a. will increase the breakeven point
b. will decrease the breakeven point
c. will not change the breakeven point
d. does not allow calculation of breakeven point
6) A variable cost is constant if expressed on a per unit basis but the total dollar amount changes as the number of units increases or decreases.
a. True
b. False
7) As activity increases within the relevant range, fixed costs remain constant on a per unit basis.
a. True
b. False
8) Which of the following statements is correct with regard to a CVP graph?
A CVP graph shows the maximum possible profit.
A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line.
A CVP graph assumes that total expense varies in direct proportion to unit sales.
A CVP graph shows the operating leverage as the gap between total sales revenue and total expense at the actual level of sales.
9) How would the following costs be classified (product or period) under variable costing at a retail clothing store?
| Cost of purchasing clothing | Sales commissions | |
| a. | Product | Product |
| b. | Product | Period |
| c. | Period | Product |
| d. | Period | Period |
10) The principal difference between variable costing and absorption costing centers on:
whether variable manufacturing costs should be included as product costs.
whether fixed manufacturing costs should be included as product costs.
whether fixed manufacturing costs and fixed selling and administrative costs should be included as product costs.
none of these.
11) Joe has a hot dog cart that he parks on the NY sidewalk and sells hotdogs during the day. The variable cost of a hot dog is $.90. The selling price of the hot dog is $2.00. The fixed cost is $3,000 per month which covers the loan for the cart and the salary Joe needs to make to live. How many hotdogs must Joe sell in one month in order to break even?
3,300 hot dogs
3,000 hot dogs
2,727.27 hot dogs
2,728 hot dogs
12) Shun Corporation manufactures and sells a hand held calculator. The following information relates to Shun's operations for last year:
| Unit product cost under variable costing.......................... | $5.20 per unit | |
| Fixed manufacturing overhead cost for the year.............. | $260,000 | |
| Fixed selling and administrative cost for the year............ | $180,000 | |
| Units (calculators) produced and sold.............................. | 400,000 |
What is Shun's unit product cost under absorption costing for last year?
$4.10
$4.55
$5.85
$6.30.
Use the following information to answer questions 13 to 15:
Barnett Company uses the weighted-average method in its process costing system. The company adds materials at the beginning of the process in Department M. Conversion costs were 75% complete with respect to the 4,000 units in work in process at May 1 and 50% complete with respect to the 6,000 units in work in process at May 31. During May, 14,000 units were started, 12,000 units were completed and transferred to the next department.
13) Calculate the number of equivalent units for materials.
10,000 units
12,000 units
14,000 units
15,000 units
18,000 units
14) Calculate the number of equivalent units for conversion?
10,000 units
12,000 units
14,000 units
15,000 units
18,000 units
15) An analysis of the costs relating to work in process at May 1 and to production activity for May follows:
| Materials | Conversion | ||
| Work in process 5/1....................... | $13,800 | $3,740 | |
| Costs added during May................ | $42,000 | $26,260 |
The total cost per equivalent unit for May was:
$5.02
$5.10
$5.12
$5.25
