ACT202 Chapter Notes - Chapter 10: Accounts Payable, Management Accounting

18. To calculate budgeted direct labor costs, multiply thenumber of units to be produced by the number of projected directlabor hours. Next, multiply that total by the average direct costper hour.

True

False

22. A flexible budget summarizes revenues and costs for variouslevels of sales volume within a relevant range.

True

False

29. A cost variance measures the difference in quantities ofactual inputs used and the standard quantity of inputs allowed forthe actual number of units produced.

True

False

32. Unfavorable variances are subtracted from each other toarrive at a favorable variance.

True

False

34. A direct labor cost variance is unfavorable if the employerpays workers more per hour than budgeted.

True

False

36. In a standard cost system, the manufacturing overheadallocated to production equals the standard overhead allocationrate multiplied by the standard quantity of the allocation baseallowed for expected output.

True

False

37. The direct materials cost and efficiency variances make upthe total direct materials variance.

True

False

41. Which of the following statements is true of absorptioncosting?

A) It considers variable selling and administrative costs asproduct costs.

B) It considers fixed selling and administrative costs asproduct costs.

C) It considers fixed manufacturing overhead cost as productcosts.

D) It considers variable manufacturing overhead cost as periodcosts.

42) Which of the following is true of the traditional format ofthe income statement?

A) It is prepared under the variable costing method.

B) It shows contribution margin as a line item.

C) It is not allowed under GAAP.

D) It is prepared under the absorption method.

43) Unit product cost calculations using absorption costing donot include ________.

A) fixed manufacturing overhead

B) variable manufacturing overhead

C) variable selling and administrative costs

D) direct materials

85. Provide responses to the following questions regarding thediscount rate.

Question? Your response

What does the discount rate represent?

What are other names for the discount rate?

Is the following statement true? Discuss the reason for yourresponse. "The higher the risk, the lower the discount rate."

Question 6:

Mitchel Corporation manufactures a single product. Last year,variable costing net operating income was $55,000. The fixedmanufacturing overhead costs released from inventory underabsorption costing amounted to $24,000.

Required:

What is the absorption costing net operating income from lastyear?

Materials Conversion

Question 7:

Calder Corporation manufactures and sells one product. Thefollowing information pertains to the company's first year ofoperations:

Variable costs per unit:

Direct Materials���������.. $92

Fixed costs per year:

Direct Labor����������� $720,000

Fixed manufacturing overhead��� $3,264,000

Fixed selling and administrative��.. $1,935,000

The company does not have any variable manufacturing overheadcosts or variable selling and administrative costs. During itsfirst year of operations, the company produced 48,000 units andsold 45,000 units. The company�s only product sells for $258 perunit.

Required:

What is the net operating income?

Question 8:

Mouret Corporation uses the following activity rates from itsactivity-based costing to assign overhead costs to products.

Activity Cost Pools ActivityRate

Setting upbatches $92.68 per batch

Processing customer orders $95.08 per customerorder

Assembling products $3.41per assembly hour

Last year, Product N79A required 28 batches, 6 customer orders,and 712 assembly hours.

Required:

How much total overhead cost would be assigned to Product N79Ausing the company's activity-based costing system?

Question 9:

The manufacturing overhead budget of Paparella Corporation isbased on budgeted direct labor-hours. The November direct laborbudget indicates that 6,000 direct labor-hours will be required inthat month. The variable overhead rate is $2.00 per directlabor-hour. The company's budgeted fixed manufacturing overhead is$79,200 per month, which includes depreciation of $21,000. Allother fixed manufacturing overhead costs represent current cashflows.

Required:

A. Determine the cash disbursements for manufacturing overheadfor November.

B. Determine the predetermined overhead rate for November.

Question 10:

Sund Corporation bases its budgets on the activity measure�customers served.� During April, the company plans to serve 38,000customers. The company has provided the following data concerningthe formulas it uses in its budgeting:

Fixed element per month Variableelement per month

Revenue�����........� $2.10

Wages and salaries��$25,000 $0.50

Supplies�������$0 $0.30

Insurance������..$6,200 $0.00

Miscellaneousexpense�$2,500 $0.40

Required:

Prepare the company�s planning budget for April. What is the netoperating income?

Question 11:

Shawl Corporation's variable overhead is applied on the basis ofdirect labor-hours. The standard cost card for product F02Especifies 5.5 direct labor-hours per unit of

F02E. The standard variable overhead rate is $6.80 per directlabor-hour. During the most recent month, 1,560 units of productF02E were made and 8,700 direct labor hours were worked.

The actual variable overhead incurred was $52,635.

Required:

A. What was the variable overhead rate variance for themonth?

B. What was the variable overhead efficiency variance for themonth?

Question 12:

Kingdon Corporation's manufacturing overhead includes $7.10 permachine-hour for variable manufacturing overhead and $207,000 perperiod for fixed manufacturing overhead.

Required:

What is the predetermined overhead rate for the denominatorlevel of activity of 4,600 machine-hours?

Question 13:

Pinkney Corporation has provided the following data concerningits direct labor costs for November:

Standard wage rate $12.20per DLH

Standard hours 5.3DLHs per unit

Actual wage rate $11.20per DLH

Actual hours 39,720DLHs

Actual output 7,900units

Required:

Show the journal entry to record the incurrence of direct laborcosts

Question 14:

Iba Industries is a division of a major corporation. Thefollowing data are for the latest year of operations:

Sales . . . . . . . . . . . . . . . . . . . . . . . . . .$5,820,000

Net operating income . . . . . . . . . . . . . . $436,500

Average operating assets . . . . . . . . . . . $2,000,000

The company�s minimum

Required rate of return . . . . . . . . . . . . . 18%

Required:

What is the division�s residual income?

1. T or F: Standardsare set for units; budgets are expressed in total dollars.

2. T or F: The standard cost per unit iscomputed by multiplying the standard quantity or hours by the

standard price or rate.

3. T or F: When actual revenue is above budgetor actual cost is below budget, a favorable variance

occurs.

4. T or F: Anunfavorable cost variance occurs when actual cost is higher thanbudget cost.

5. T or F With a flexible budget a manager can determine whatcosts should have been attained at a

given level of activity.

6. T or F : In a standard costing system wherethe denominator activity for the predetermined

overhead rate is labor-hours, overhead costs are applied to work inprocess on the basis of

actual hours worked.

7. T or F: A volumevariance and an efficiency variance are computed for fixed overheadcosts.

8. T or F: The budgetvariance represents the difference between the actual fixedoverhead cost

incurred during a period and the budgeted fixedoverhead cost.

9. T or F: Under theabsorption costing method, a company can increase profits byincreasing

production rather than by increasing sales.

10. T or F: Profitsmove in the same direction as sales when variable costing is usedif selling prices,

thesales mix, and the cost structure remain the same.

11. T or F: Thesalary of the CEO of Wal-Mart is a traceable fixed cost of thevarious WM stores.

12. T or F: Indirectcost is not traced directly to specific cost objects (products,jobs, or customers).

13. T or F: A costthat has already been incurred and therefore cannot be changed byany alternatives

issunk cost.

14. T or F:Generally, a product line should be dropped when the fixed coststhat can be avoided by dropping the product line are less than thecontribution margin that will be lost.

15. When the amount assigned to aresponsibility center is significantly influenced by the actions ofsomeone within the responsibility center, the item of cost is a_____________________.

16. In a _____________ cost system,every unit of product moving along the production line bears thesame amount of overhead cost, regardless of how much time itactually takes to process a particular unit.

17. In _______________ costing, nofixed overhead costs are charged to individual units of product, sono overhead rate for the fixed component of overhead costs need beused in the cost accounting system.

18. A cost that is incurred to supporta number of costing objects but cannot be traced to themindividually is a ___________________.

19. _______________is often regardedas the best approach to the transfer pricing problem, particularlyif transfer price negotiations routinely become bogged down.

20. A _______________ is simply thedifference between a predetermined norm or standard and the____________ results. Management wants to know not only what theamounts of the differences were but also, and more important, whythese occurred to take corrective action.

21. A _______________ center is anybusiness segment whose manger has control over both cost andrevenue. However, it generally does not have control overinvestment funds.

* Words banks for theabove Q15 through Q21: Absorbed, Actual, Budgeted, Common cost,Controllable cost, Cost, Full, Market price, Negotiated transferprice, Profit, Standards, Transfer price, Variable, &Variance.