Answered: What is the conversion cost per unit?…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Grover Company has the following data for the production and sale of 2,000 units.


Sales price per unit	$	800	per unit
Fixed costs:
Marketing and administrative	$	400,000	per period
Manufacturing overhead	$	200,000	per period
Variable costs:
Marketing and administrative	$	50	per unit
Manufacturing overhead	$	80	per unit
Direct labor	$	100	per unit
Direct Materials	$	200	per unit

What is the conversion cost per unit?

		$280
		$180
		$100
		$380

A cost that would be included in product costs under both absorption costing and variable costing is:

		supervisory salaries.
		variable selling expenses.
		factory rent.
		variable manufacturing costs.

Younes Inc. manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as P06. Data concerning this product are given below:

	Per Unit
Selling price	$	220
Direct materials	$	38
Direct labor	$	1
Variable manufacturing overhead	$	8
Fixed manufacturing overhead	$	16
Variable selling expense	$	4
Fixed selling and administrative expense	$	16

The above per unit data are based on annual production of 4,000 units of the component. Assume that direct labor is a variable cost.

The company has received a special, one-time-only order for 400 units of component P06. There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. Assuming that Younes has excess capacity and can fill the order without cutting back on the production of any product, what is the minimum price per unit below which the company should not accept the special order?

		$63 per unit
		$47 per unit
		$220 per unit
		$83 per unit

osts that can be eliminated in whole or in part if a particular business segment is discontinued are called:

		irrelevant costs.
		avoidable costs.
		sunk costs.
		opportunity costs.

A reason why absorption costing income statements are sometimes difficult to interpret is that:

		they ignore inventory levels in determining cost of goods sold.
		they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories.
		they include all fixed manufacturing overhead on the income statement each year as a period cost.
		they omit variable expenses entirely in computing net operating income.

Chang Corporation has two divisions, T and W. The company's overall contribution margin ratio is 40%, with sales in the two divisions totaling $900,000. If variable expenses are $200,000 in Division T and if Division W's contribution margin ratio is 20%, the sales in Division W must be:

		$340,000
		$425,000
		$200,000
		$700,000

Manufacturing overhead:

		includes all fixed costs.
		can be either a variable cost or a fixed cost.
		includes the costs of shipping finished goods to customers.
		includes all factory labor costs.

Neelon Corporation has two divisions: Southern Division and Northern Division. The following data are for the most recent operating period:

	Total Company	Southern Division		Northern Division
Sales	$	418,000	$	193,000	$	225,000
Variable expenses	$	130,880	$	79,130	$	51,750
Traceable fixed expenses	$	186,000	$	77,000	$	109,000
Common fixed expense	$	79,420	$	36,670	$	42,750

The common fixed expenses have been allocated to the divisions on the basis of sales.

What is the company's overall net operating income if it operates at the break-even points for its two divisions?

		$(79,420)
		$0
		$21,700
		$(265,420)

Key Corporation is considering the addition of a new product. The expected cost and revenue data for the new product are as follows:


Annual sales		2,500	units
Selling price per unit	$	304
Variable costs per unit:
Production	$	125
Selling	$	49
Avoidable fixed costs per year:
Production	$	50,000
Selling	$	75,000
Allocated common fixed corporate costs per year	$	55,000

If the new product is added, the combined contribution margin of the other, existing products is expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by the decision of whether to add the new product.

At what selling price would the new product be just breaking even?

		$232 per unit
		$282 per unit
		$250 per unit
		$246 per unit

One disadvantage of a self-imposed budget is that budget estimates prepared by front-line managers are often less accurate and reliable than estimates prepared by top managers.

True

False

In companies that do not have "no lay-off" policies, the total direct labor cost for a budget period is computed by multiplying the total direct labor hours needed to make the budgeted output of completed units by the direct labor wage rate.

True

False

Which of the following is true of a company that uses absorption costing?

		Variable selling expenses are included in product costs.
		Net operating income fluctuates directly with changes in sales volume.
		Fixed production and fixed selling costs are considered to be product costs.
		Unit product costs can change as a result of changes in the number of units manufactured.

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What is the conversion cost per unit? $280 $180 $100 $380