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Exam 2: Cost Concepts and Behavior

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Question 31

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The costs of direct materials are classified as: $\begin{array} { ccc} & \text { Conversion cost } & \text { Manufacturing cost } & \text { Prime cost } \\\end{array}$ A. $\begin{array} { ccc} &&& \text { Yes } &&&&&& \text { Yes } &&&&&&& \text { Yes } \\\end{array}$ B. $\begin{array} { ccc} &&& \text { No } &&&&&&& \text { No } &&&&&&& \text { No } \\\end{array}$ C. $\begin{array} { ccc} &&& \text { Yes } &&&&&& \text { Yes } &&&&&&& \text { No } \\\end{array}$ D. $\begin{array} { ccc} &&& \text { No } &&&&&& \text { Yes } &&&&&&& \text { Yes } \\\end{array}$

A) Choice A
B) Choice B
C) Choice C
D) Choice D

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Question 32

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An opportunity cost is

A) a cost that is charged against revenue in an accounting period.
B) the foregone benefit from the best alternative course of action.
C) the excess of operating revenues over operating costs.
D) the cost assigned to the products sold during the period.

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Question 33

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In October, Youngstown Corporation had sales of $273,000, selling expenses of $26,000, and administrative expenses of $47,000. The cost of goods manufactured was $183,000. The beginning balance in the finished goods inventory account was $45,000 and the ending balance was $34,000. Required: Prepare an Income Statement in good form for October.

The student health center employs one doctor, three nurses, and several other employees. How would you classify (1) the nurses' salary and (2) film and other materials used in radiology to take X-rays? Assume the activity is the number of students visiting the health center. $\begin{array} {cc } & \text { Nurse's Salaries } & \text { Film and Other Materials Used in Radology } \\\end{array}$ A. $\begin{array} {cc } & \text { Fixed cost } &&&&&&&&\text { Fixed cost } \\\end{array}$ B. $\begin{array} {cc } & \text { Fixed cost } &&&&&&&& \text { Variable cost } \\\end{array}$ C. $\begin{array} {cc } & \text { Variable cost } &&&&&&& \text { Fixed cost } \\\end{array}$ D. $\begin{array} {cc } & \text { Variable cost } &&&&&&& \text { Variable cost } \\\end{array}$

Which of the following is not a name for indirect resources?

Foxburg Company has the following information: $\begin{array} { l c c c } & \text { Work-in-Process } & \text { Finished Goods } & { \text { Materials } } \\\text { Begirnirg inventory } & \$ 300 & \$ 400 & \$ 500 \\\text { Endirg inventory } & \$ 4700 & \$ 900 & \$ 1,500 \\\text { Purchases of materials } & \$ 7,700 & & \\\text { Cost of Goods Sold } & \$ 15,600 & &\\\text { Manufacturing overhead}&\$ 4,300 \end{array}$ - What was the direct labor for the period?

Barton's Taco Tico has four taco makers and ten other employees who take orders from customers and perform other tasks. The four taco makers and the other employees are paid an hourly wage. How would you classify (1) the wages paid to the taco makers and other employees and (2) materials (e.g., cheeses, salsa, tomatoes, lettuce, taco shells, etc.) used to make the tacos? Assume the activity is the number of tacos made. $\begin{array} {cc } & \text { Empluyees' Wages } & \text { Materials to Make the Tacos } \\\end{array}$ A. $\begin{array} {cc } & \text { Fixed cost } &&&&&&& \text { Fixed cost } \\\end{array}$ B. $\begin{array} {cc } & \text { Fixed cost } &&&&&&& \text { Variable cost } \\\end{array}$ C. $\begin{array} {cc } & \text { Variable cost } &&&&&&& \text { Fixed cost } \\\end{array}$ D. $\begin{array} {cc } & \text { Variable cost } &&&&&&& \text { Variable cost } \\\end{array}$

Transportation costs incurred by a manufacturing company to ship its product to its customers would be classified as which of the following?

The Yellville Company provided you with the following information for the fiscal year ended December 31. $\begin{array}{lr}\text { Work-in-process inventory, } 12 / 31 & \$ 115,800 \\\text { Finished goods inventory, } 1 / 1 & 614,800 \\\text { Direct labor costs incurred } & 2,008,600 \\\text { Manufacturing overhead costs } & 5,368,800 \\\text { Direct materials inventory, } 1 / 1 & 501,600\\\text { Finished goods inventory, } 12 / 31 & 1,022,000 \\\text { Direct materials purchased } & 3,500,400 \\\text { Work-in-process inventory, } 1 / 1 & 202,000 \\\text { Direct materials inventory, } 12 / 31 & 338,800\end{array}$ Required: (a) Compute the total manufacturing costs incurred during the year. (b) Compute the total work-in-process during the year. (c) Compute the cost of goods manufactured during the year. (d) Compute the cost of goods sold during the year. (e) Compute the total prime costs for the year. (f) Compute the total conversion costs for the year.

The following information is available for Barnes Company for the fiscal year ended December 31: $\begin{array}{llr} \text { Beginning finished goods inventory in units } &0\\ \text {Units produced } &4,800\\ \text { Units sold } &4,000\\ \text { Sales } &\$400,000\\ \text { Materials cost } &\$96,000\\ \text { Variable conversion cost used } &\$48,000\\ \text { Fixed manufacturing cost} &\$72,000\\ \text { Indirect operating costs (fixed) } &\$80,000\\\end{array}$ - The absorption costing operating income is:

Foxburg Company has the following information: $\begin{array} { l c c c r } & \text { Work-in-Process } & \text { Finished } & \text { Goods } & { \text { Materials } } \\\text { Begirnirg irventory } & \$ 300 & \$ 400 & \$ 500 \\\text { Ending irventory } & \$ 700 & \$ 900 & \$ 1,500 \\\text { Purchases of materials (net) } & \$ 7,700 & & & \\\text { Cost of Goods Sold } & \$ 15,600 & & & \\\text { Marufacturing overhead } & \$ 4,300 & &\end{array}$ - What was the cost of goods available for sale for the period?

The following information was collected from the accounting records of the Part SX9 for 3,000 units: $\begin{array} { l r c } & \text { Per Unit } & \text { Per Period } \\\text { Sales price } & \$ 3 5 0& \\\text { Direct Materials } & 80 & \\\text { Direct Labor } & 40 & \\\text { Overhead } & 60 & \$ 90,000 \\\text { Marketing } & 20 & \\\text { Administrative } & & 60,000\end{array}$ What is Part SX9's total cost per unit?

The cost accountant for the Friendly Manufacturing Company has provided you with the following information for the month of July: $\begin{array} { l c c } & & \text { Total Fixed } \\&\text { Variable costs Per unit } & \text { Costs } \\\text { Direct labor } & 27.50 \\\text { Direct materials } &84.75 & \\\text { Manufacturing overhead } & 14.25 & \$ 120,000 \\\text { Marketing costs } &5.30 & 50,000\\\text { Administrative costs } &2.90 & 75,000 \\\text { Selling price } & 210.00\end{array}$ Required: Assuming the company produced and sold 5,000 units, and there were no units in inventory on July 1, prepare the following income statements for the month of July: (a) Contribution margin income statement. (b) Gross margin income statement.

Zach Hartman has developed a new electronic device that he has decided to produce and market. The production facility will be in a nearby industrial park which Zach will rent for $4,000 per month. Utilities will cost $500 per month. He will use his personal computer, which he purchased for $2,000 last year, to monitor the production process. The computer will become obsolete before it wears out from use. The computer will be depreciated at the rate of $1,000 per year. He will rent production equipment at a monthly cost of $8,000. Zach estimates the materials cost per finished unit of product to be $50, and the labor cost to be $10. He will hire hourly paid workers and spend his time promoting the product. To do this, he will quit his job which pays $4,500 per month. Advertising will cost $2,000 per month. Zach will not draw a salary from the new company until it gets well established. Required: Complete the chart below by placing an "X" under each heading that helps to identify the cost involved. There can be "Xs" placed under more than one heading for a single cost; e.g., a cost might be an overhead cost and a product cost. There would be an "X" placed under each of these headings opposite the cost.

Mountainburg Industries has developed two new products but has only enough plant capacity to introduce one product during the current year. The following data will assist management in deciding which product should be selected. $\begin{array}{lrrrr}&\text { Product L } &\text { Product W}\\\text { Direct materials } & \$ 44 & \$ 36 \\\text { Machining labor (\$12hour) } &18 & 15 \\\text { Assembly labor (\$10/hour) } & 30 & 10 \\\text { Variable overhead (\$8/hour) } & 36 & 18 \\\text { Fixed overhead (4/hour) } & 18 & 9\\ \text { Total Manufacturing Cost } &\$ 146 &\$ 88 \\ \text { Estimated selling } \mathrm{p} & \$170 &\$100 \\\text { Actual research and development costs } & \$ 240,000 & \$ 175,000 \\ \text { Estimated advertising costs } & \$ 500,000 & \$ 350,000 \\\end{array}$ Mountainburg's fixed overhead includes rent and utilities, equipment depreciation, and supervisory salaries. Selling and administrative expenses are not allocated to individual products. - For Mountainburg's Product L, the costs for direct materials, machining labor, and assembly labor represent

Grover Company has the following data for the production and sale of 2,000 units. $\begin{array}{llr}\text { Sales price per unit } & \text {\$ 800per unit } \\\text { Fixed costs: } & & \\\text { Marketing and administrative } &\$ 400,000 \text { per period } \\\text { Manufacturing overhead } & \$ 200,000 \text { per period }\\\text { Variable costs: }\\\text { Marketing and administrative } & \$ 50 \text { per unit } \\\text { Manufacturing overhead } & \$ 80 \text { per unit } \\\text { Direct labor } & \$ 100 \text { per unit } \\\text { Direct materials } & \$ \text { 200per unit }\end{array}$ - What is the full cost per unit of making and selling the product?

The cost accountant for the Corner Manufacturing Company has provided you with the following information for the month of July: $\begin{array} { l c c } & \text { Variable costs Per unit } & \text { Total Fixed } \\\text { Direct labor } & \$ 27.50 & \\\text { Direct materials } & 84.75 & \\\text { Manfacturing overhead } & 14.25 & \$ 120,000 \\\text { Marketing costs } & 5.30 & 50,000 \\\text { Administrative costs } & 2.90 & 75,000\end{array}$ Required: Compute the following per unit items, assuming the company produced and sold 5,000 units at a price of $210.00 per unit. (a) Total variable cost. (b) Variable inventoriable cost. (c) Full absorption cost. (d) Full cost. (e) Contribution margin. (f) Gross margin. (g) Profit margin.

The Work-in-Process Inventory of the Model Fabricating Corp. was $3,000 higher on December 31, 2019 than it was on January 1, 2019. This implies that in 2019:

Vegas Company has the following unit costs: $\begin{array}{llr} \text { Variable manufacturing overhead } &\$25\\ \text { Direct materials } &20\\ \text { Direct labor} &19\\ \text { Fixed manufacturing overhead} &12\\\text { Fixed marketing and administrative }&7\end{array}$ - Vegas produced and sold 10,000 units. If the product sells for $100, what is the gross margin?

The following information is available for Barnes Company for the fiscal year ended December 31: $\begin{array}{llr} \text { Beginning finished goods inventory in units } &0\\ \text {Units produced } &4,800\\ \text { Units sold } &4,000\\ \text { Sales } &\$400,000\\ \text { Materials cost } &\$96,000\\ \text { Variable conversion cost used } &\$48,000\\ \text { Fixed manufacturing cost} &\$72,000\\ \text { Indirect operating costs (fixed) } &\$80,000\\\end{array}$ - Cost of goods sold using variable costing is: