ACCT Exam 4 Sample Study Questions + Answers
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Question 31: Activity-Based Costing (ABC)
●
A company produces three products, each requiring different levels of activity cost drivers:
○
Product X: Requires 10 setups and 20 machine hours.
○
Product Y: Requires 5 setups and 30 machine hours.
○
Product Z: Requires 8 setups and 25 machine hours.
○
Total overhead costs are $150,000, with setup costs totaling $50,000 and machine hour costs totaling $100,000. Calculate the activity rates for setups and machine hours.
Solution:
●
Setup activity rate = Setup costs / Total setups required = $50,000 / (10 + 5 + 8) = $50,000 / 23 ≈ $2,174.78 per setup
●
Machine hour activity rate = Machine hour costs / Total machine hours required = $100,000 / (20 + 30 + 25) = $100,000 / 75 = $1,333.33 per machine hour
Question 32: Cost-Volume-Profit (CVP) Analysis
●
A company sells a product for $80 per unit. Variable costs are $50 per unit, and fixed costs total $120,000. Calculate the breakeven point in units and dollars.
Solution:
●
Contribution margin per unit = Selling price per unit - Variable cost per unit = $80 - $50 = $30 per unit
●
Breakeven point in units = Fixed costs / Contribution margin per unit = $120,000 / $30 = 4,000 units
●
Breakeven point in dollars = Breakeven point in units × Selling price per unit = 4,000 units × $80 = $320,000
Question 33: Variance Analysis
●
A company budgeted to produce 10,000 units with total direct labor costs of $100,000. Actual production was 9,500 units with actual direct labor costs of $97,000. Calculate the direct labor rate variance and direct labor efficiency variance.
Solution:
●
Direct labor rate variance = (Actual rate - Standard rate) × Actual hours = ($97,000 / 9,500 units - $100,000 / 10,000 units) × 9,500 units = ($10.21 - $10.00) × 9,500 units = $1,995 favorable variance
●
Direct labor efficiency variance = (Actual hours - Standard hours) × Standard rate = (9,500 units - 10,000 units) × $10.00 per unit = (-500 units) × $10.00 per unit = $5,000 unfavorable variance
Question 34: Performance Measurement
●
Define Economic Value Added (EVA) and explain its significance in evaluating company performance.
Solution:
●
Economic Value Added (EVA) = Net Operating Profit After Tax (NOPAT) - (Capital × Cost of Capital)
○
NOPAT = Operating income - Taxes
○
Capital = Total assets - Current liabilities
○
Cost of Capital = Weighted Average Cost of Capital (WACC)
EVA measures a company's financial performance by calculating the return on invested capital above the company's cost of capital. It helps assess whether a company is creating value for its shareholders.
Question 35: Budgeting
●
Prepare a sales budget for XYZ Company for the second quarter of the year. XYZ expects the following:
○
April sales: $150,000
○
May sales: $180,000
○
June sales: $200,000
○
Sales are typically collected 40% in the month of sale, 30% in the following month, and 30% in the second following month.
Solution:
Sales Budget for XYZ Company (Second Quarter)
April May June Total
Sales $150,000 $180,000 $200,000 $530,000
Cash collections
April $60,000 $24,000 $0 $84,000
May $54,000 $60,000 $60,000 $174,000
June $60,000 $54,000 $60,000 $174,000
Total cash collections
$174,000 $138,000 $120,000 $432,000
Question 36: Transfer Pricing
●
A company has two divisions: Division M (selling division) and Division N (buying division). Division M can sell a product externally for $120 per unit. Division N can produce the same product internally at a variable cost of $80 per unit. Determine an appropriate transfer price based on cost-plus pricing.
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Related Questions
Characteristics of Production Process, Cost Measurement
Vince Melders, of EcoScape Company, designs and installs custom lawn and garden irrigation systems for homes and businesses throughout the state.
Each job is different, requiring different materials and labor for installing the systems. EcoScape estimated the following for the year:
Number of direct labor hours
6,720
Direct labor cost
$67,200
Overhead cost
$50,400
During the year, the following actual amounts were experienced:
Number of direct labor hours
6,045
Direct labor incurred
$66,495
Overhead incurred
$50,500
Required:
1. Should EcoScape use process costing or job-order costing?
2. If EcoScape uses a normal costing system and overhead is applied on the basis of direct labor hours,
What is the overhead rate? Round your answer to the nearest cent.
per direct labor hour
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Problem 3. Abraham Company uses activity-based costing. The company has two
products: A and B. The annual production and sales of Product A is 200 units and of
Product B is 1,000 units. There are three activity cost pools, with total costs and activity
as follows:
000 à
000 Activity Cost Pool
Activity 1
Activity 2
Activity 3
Total Cost
$10,485
$35,264
$26,395
Product A
300
1,600
60
Total Activity
Product B
200
300
400
Total
500
1,900
460
a) What is the total overhead cost allocated to Product B under activity-based
costing?
b) What is the overhead cost per unit of Product B under activity-based costing?
arrow_forward
Identify cost graphsThe following cost graphs illustrate various types of cost behavior
For each of the following costs, identify the cost graph that best illustrates its costbehavior as the number of units produced increases:A. Total direct materials costB. Electricity costs of $1,000 per month plus $0.10 per kilowatt-hourC. Per-unit cost of straight-line depreciation on factory equipmentD. Salary of quality control supervisor, $20,000 per monthE. Per-unit direct labor cost
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Pat Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 8,000 units and of Product B is 2,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows:
Expected Activity
Activity Cost Pool
Estimated Cost
Product A
Product B
Total
Activity 1……………
$12,000
750
250
1,000
Activity 2……………
$16,000
400
100
500
Activity 3……………
$36,000
2,000
1,000
3,000
The cost per unit of Product B under activity-based costing is closest to:
A. $10.67.
B. $6.40.
C. $6.00.
D. $9.10.
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26) R Company uses activity-based costing for its product Roma and Emma. The total estimated annual overhead cost for set up was RO 200,000 and the expected activity was 2500 set ups for the period. If product Emma requires 1800 set ups, the amount of overheads allocated to product Emma for set up cost would be:
a.
RO 152,000
b.
RO 160,000
c.
RO 164,000
d.
RO 144,000
arrow_forward
Evaluating Selected Cost Driver Assume that a manufacturer of specialized machine parts developed the following total cost estimating equation for
manufacturing costs. Y = $14,400 + $1,250 (actual units) a. What is total estimated manufacturing costs if 180 units are produced? $Answer 0
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Question No.5
Ivory Corporation manufactures two products (A and B). The overhead costs have been divided into four cost pools that use the following activity drivers:
Product
Number of Orders
Number of Set-ups
Number of Labor Transactions
Labor Hours
A
B
Cost per pool
20
5
Rs.15,000
35
70
Rs.8,400
1,000
1,500
Rs.120,000
75
125
Rs.40,000
Required:
Compute the allocation rates for each of the activity drivers listed.
Allocate the overhead cost to Product A and B using activity-based-costing.
Compute the overhead rate using machine hours under the functional based costing system.
Allocate the overhead cost to Product A and B using the functional-based costing system overhead rate calculated in part C.
arrow_forward
Standard Product CostsDeerfield Company manufactures product M in its factory. Production of M requires 2 pounds of material P, costing $12 per pound and 0.5 hour of direct labor costing, $18 per hour. The variable overhead rate is $16 per direct labor hour, and the fixed overhead rate is $20 per direct labor hour. What is the standard product cost for product M?
Direct material
Answer
Direct labor
Answer
Variable overhead
Answer
Fixed overhead
Answer
Standard product cost per unit
Answer
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Question No.6
Hunter Company manufactures two products (XX and YY). The overhead costs have been divided into four cost pools that use the following activity drivers.
Product
Number of Orders
Number of Set-ups
Number of Labor Transactions
Labor Hours
XX
YY
Cost per pool
60
20
Rs.16,000
20
80
Rs.13,000
50
70
Rs.2,400
2,000
500
Rs.20,000
Required:
Compute the allocation rates for each of the activity drivers listed.
Allocate the overhead costs to product XX and product YY using activity-based costing.
Compute the overhead rate using machine hours under the functional-based costing system.
Allocate the overhead cost to Product XX and YY using the functional-based costing system overhead rate calculated in part C.
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Abel Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 200 units and of Product B is 400 units. There are three activity cost pools, with estimated costs and expected activity as follows:
Expected Activity
Activity Cost Pool
Estimated Cost
Product A
Product B
Total
Activity 1...............
$16,660
600
100
700
Activity 2...............
$18,450
1,100
700
1,800
Activity 3...............
$9,731
60
160
220
The cost per unit of Product B is closest to:
Select one:
a. $74.73
b. $37.59
c. $81.53
d. $17.69
e. $41.58
arrow_forward
A company uses activity-based costing to calculate the unit cost of its products.
The figures for Period 3 are as follows:
Production set-up costs: £84,000.
Total production is 40,000 units of each of products A and B, and each run is 2,000
units of A or 5,000 units of B.
What is the set-up cost per unit of B?
A. £0.10
B. £0.08
C. £0.60
D. £0.29
arrow_forward
Identify cost graphsThe following cost graphs illustrate various types of cost behavior:
a. Total direct materials costb. Electricity costs of $1,000 per month plus 50.10 per kilowatt-hour
c. Per-unit cost of straight-line depreciation on factory equipmentd. Salary of quality control supervisor, 520,000 per monthe. Per-unit direct labor cost
arrow_forward
Kimball Company has developed the following cost formulas:
Material usage: Ym = $80X; r = 0.95
Labor usage (direct): Yl = $21X; r = 0.96
Overhead activity: Yo = $358,000 + $100X; r = 0.72
Selling activity: Ys = $46,000 + $14X; r = 0.93
where
X = Direct labor hours
The company has a policy of producing on demand and keeps very little, if any, finished goods inventory (thus, units produced equals units sold). Each unit uses one direct labor hour for production.
The president of Kimball Company has recently implemented a policy that any special orders will be accepted if they cover the costs that the orders cause. This policy was implemented because Kimball's industry is in a recession and the company is producing well below capacity (and expects to continue doing so for the coming year). The president is willing to accept orders that minimally cover their variable costs so that the company can keep its employees and avoid layoffs. Also, any orders above variable costs will increase…
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ABC Company uses activity-based costing to allocate MOH. The company has 2 products d and e. The annual
production of sales of Product d are 1,000 units and product e is 3000 units. There are three activity cost pool
of MOH with an estimated total cost of $69,000.
What is the MOH cost per unit for product d under activity-based costing?
Expected Activity (Allocation base)
Total
Activity
Cost pool (for MOH)
Activity 1
Activity 2
Activity 3
Estimated
Cost of MOH
Product d
Product e
$9000
500
500
1000
12000
200
200
500
48,000
500
1100
1600
arrow_forward
Identify cost graphs
The following cost graphs illustrate various types of cost behaviour:
a. Total direct material cost
b. Electricity costs of $1,000 per month plus 50.10 per Kilowatt-hour
c. Per unit cost of straight-line depreciation on factory equipment
d. Salary of quality control superbisor, 520,000 per month
e. Per-unit direct labor cost
arrow_forward
Assume a company's activity-based costing system Includes three activities. The following Information is avallable with respect to those activitles:
Estimated
Overhead
Activity Cost Pol
Travel
Cost
Expected Activity
$ 150,000
$ 110,000
$ 220,000
100.000 miles driven
Deliverles
2,200 customer deliverles
Customer service
10,000 phone calls
What is the activity rate for the Travel activity?
Multiple Choice
$1.50 per mile driven
$15.00 per mile driven
$0.15 per mile driven
$1.15 per mile driven
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Your Company has two products: A and B. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows:
Estimated
Expected Activity
Activity Cost Pool
Cost
Product A
Product B
Total
Machine related
$17,600
700
300
1,000
MH
Batch setup
$32,600
600
200
800
Setups
Other
$52,500
900
500
1,400
DLH
What is the activity rate under the activity-based costing system for Batch setups?
Group of answer choices
$54.33
$40.75
$40.75 per Setup
$16.30
$16.30 per Setup
$54.33 per Setup
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e. assign the indirect costs of each activity to products and services.
Clear my choice
COVID Co. produces two different products (A and X) using two different activities: Machining, which uses machine
hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is
$500,000, while the cost of Inspection is $30,000. Product A uses 30% of total machine hours and 70% of total batches.
What is the total activity cost assigned to product X?
Select one:
a. $359,000
O b. $125,000
OC. $22,500
d. $171,000
O e. None of the given ANSWER
Next page
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B. Find the cost of a product
Different costs are presented below Direct materials $ 5.00 per unit Indirect materials $ 2.00 per unit Direct labor $ 10.00 per hour Indirect labor $ 3.00 per hour Other variable indirect costs $ 6.00 per hour Other fixed indirect costs $ 10.00 per unit Commissions to sellers $ 4.00 per unit Variable administrative costs $ 6.00 per unit Fixed Administrative Costs $ 10.00 per unit
1. Determine the cost of making each unit. When it says hourly, it refers to hours of direct labor. It takes 15 minutes for the company to make each product. .
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Paul Company has two products: A and B. The company uses activity-based costing.
The estimated total cost and expected activity for each of the company's three
activity cost pools are as follows:
Activity Cost
Pool
Activity 1
Activity 2
Activity 3
Estimated
Cost
a. $28.87
O b. $19.47
C. $58.40
O d. $70.45
$22,000
16,240
14,600
Expected Activity
Product B
Product A
400
380
500
100
200
250
Total
500
580
750
The activity rate under the activity-based costing system for Activity 3 is closest to
which of the following?
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Standard Product Costs
Deerfield Company manufactures product M in its
factory. Production of M requires 2 pounds of material P,
costing $4 per pound and 0.5 hour of direct labor
costing, $10 per hour. The variable overhead rate is $8.
per direct labor hour, and the fixed overhead rate is $12
per direct labor hour. What is the standard product cost
for product M?
Direct material
Direct labor
Variable overhead
Fixed overhead
Standard product cost per unit $
$
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Required:
1. Using the five most expensive activities, calculate the overhead cost assigned to each prod-uct. Assume that the costs of the other activities are assigned in proportion to the cost of the five activities.2. Calculate the error relative to the fully specified ABC product cost and comment on the outcome.3. What if activities 1, 2, 5, and 8 each had a cost of $650,000 and the remaining activities hada cost of $50,000? Calculate the cost assigned to Wafer A by a fully specified ABC systemand then by an approximately relevant ABC approach. Comment on the implications forthe approximately relevant approach.
arrow_forward
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Related Questions
- Characteristics of Production Process, Cost Measurement Vince Melders, of EcoScape Company, designs and installs custom lawn and garden irrigation systems for homes and businesses throughout the state. Each job is different, requiring different materials and labor for installing the systems. EcoScape estimated the following for the year: Number of direct labor hours 6,720 Direct labor cost $67,200 Overhead cost $50,400 During the year, the following actual amounts were experienced: Number of direct labor hours 6,045 Direct labor incurred $66,495 Overhead incurred $50,500 Required: 1. Should EcoScape use process costing or job-order costing? 2. If EcoScape uses a normal costing system and overhead is applied on the basis of direct labor hours, What is the overhead rate? Round your answer to the nearest cent. per direct labor hourarrow_forwardProblem 3. Abraham Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 200 units and of Product B is 1,000 units. There are three activity cost pools, with total costs and activity as follows: 000 à 000 Activity Cost Pool Activity 1 Activity 2 Activity 3 Total Cost $10,485 $35,264 $26,395 Product A 300 1,600 60 Total Activity Product B 200 300 400 Total 500 1,900 460 a) What is the total overhead cost allocated to Product B under activity-based costing? b) What is the overhead cost per unit of Product B under activity-based costing?arrow_forwardIdentify cost graphsThe following cost graphs illustrate various types of cost behavior For each of the following costs, identify the cost graph that best illustrates its costbehavior as the number of units produced increases:A. Total direct materials costB. Electricity costs of $1,000 per month plus $0.10 per kilowatt-hourC. Per-unit cost of straight-line depreciation on factory equipmentD. Salary of quality control supervisor, $20,000 per monthE. Per-unit direct labor costarrow_forward
- Pat Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 8,000 units and of Product B is 2,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows: Expected Activity Activity Cost Pool Estimated Cost Product A Product B Total Activity 1…………… $12,000 750 250 1,000 Activity 2…………… $16,000 400 100 500 Activity 3…………… $36,000 2,000 1,000 3,000 The cost per unit of Product B under activity-based costing is closest to: A. $10.67. B. $6.40. C. $6.00. D. $9.10.arrow_forward26) R Company uses activity-based costing for its product Roma and Emma. The total estimated annual overhead cost for set up was RO 200,000 and the expected activity was 2500 set ups for the period. If product Emma requires 1800 set ups, the amount of overheads allocated to product Emma for set up cost would be: a. RO 152,000 b. RO 160,000 c. RO 164,000 d. RO 144,000arrow_forwardEvaluating Selected Cost Driver Assume that a manufacturer of specialized machine parts developed the following total cost estimating equation for manufacturing costs. Y = $14,400 + $1,250 (actual units) a. What is total estimated manufacturing costs if 180 units are produced? $Answer 0arrow_forward
- Question No.5 Ivory Corporation manufactures two products (A and B). The overhead costs have been divided into four cost pools that use the following activity drivers: Product Number of Orders Number of Set-ups Number of Labor Transactions Labor Hours A B Cost per pool 20 5 Rs.15,000 35 70 Rs.8,400 1,000 1,500 Rs.120,000 75 125 Rs.40,000 Required: Compute the allocation rates for each of the activity drivers listed. Allocate the overhead cost to Product A and B using activity-based-costing. Compute the overhead rate using machine hours under the functional based costing system. Allocate the overhead cost to Product A and B using the functional-based costing system overhead rate calculated in part C.arrow_forwardStandard Product CostsDeerfield Company manufactures product M in its factory. Production of M requires 2 pounds of material P, costing $12 per pound and 0.5 hour of direct labor costing, $18 per hour. The variable overhead rate is $16 per direct labor hour, and the fixed overhead rate is $20 per direct labor hour. What is the standard product cost for product M? Direct material Answer Direct labor Answer Variable overhead Answer Fixed overhead Answer Standard product cost per unit Answerarrow_forwardQuestion No.6 Hunter Company manufactures two products (XX and YY). The overhead costs have been divided into four cost pools that use the following activity drivers. Product Number of Orders Number of Set-ups Number of Labor Transactions Labor Hours XX YY Cost per pool 60 20 Rs.16,000 20 80 Rs.13,000 50 70 Rs.2,400 2,000 500 Rs.20,000 Required: Compute the allocation rates for each of the activity drivers listed. Allocate the overhead costs to product XX and product YY using activity-based costing. Compute the overhead rate using machine hours under the functional-based costing system. Allocate the overhead cost to Product XX and YY using the functional-based costing system overhead rate calculated in part C.arrow_forward
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