Questions and Answers relating to Managerial Accounting

QUESTION 1

1. The standard amount of materials required to make one unit of Product Q is 4 pounds. Suarez’s static budget showed a planned production of 4,000 units. During the period the company actually produced 4,100 units of product. The actual amount of materials used averaged 4.1 pounds per unit. The standard price of material is $1 per pound. Based on this information, the materials usage variance was:

A.

$400 unfavorable

B.

$410 unfavorable

C.

$400 favorable

D.

$410 favorable

E.

None of the above

QUESTION 2

1. Shed Industries produces two products. The products’ identified costs are as follows:

Product A

Product B

Direct Materials

$20,000

$15,000

Direct Labor

12,000

24,000

The company’s overhead costs of $54,000 are allocated based on labor cost. Assume 4,000 units of Product A and 5,000 units of Product B are produced. What is the total amount of product cost assigned to Product B?

A.

$32,000

B.

$36,000

C.

$39,000

D.

$75,000

E.

$93,000

F.

None of the above.

QUESTION 3

Use the following data to answer the question:

Product 1

Product 2

Product 3

Direct Material Cost

$25,000

$30,000

$35,000

Direct Labor Cost

$30,000

$40,000

$50,000

Direct Labor Hours

1,200 hours

1,800 hours

2,000 hours

Factory overhead is estimated to be $30,000 and is allocated to products based on direct labor dollars.

Total factory overhead allocated to Product 2 is:

A.

$4,800

B.

$7,500

C.

$10,000

D.

$10,800

E.

None of the above

QUESTION 4

Use the following data to answer the question:

Product 1

Product 2

Product 3

Direct Material Cost

$25,000

$30,000

$35,000

Direct Labor Cost

$30,000

$40,000

$50,000

Direct Labor Hours

1,200 hours

1,800 hours

2,000 hours

Factory overhead is estimated to be $30,000 and is allocated to products based on direct labor dollars.

The total cost of Product 1 is:

A.

$7,500

B.

$55,500

C.

$56,200

D.

$62,500

E.

None of the above

QUESTION 5

Lincoln Company manufactures and sells small electric heaters for homes and offices. The company's income statement for the FY2014 is given below:

Total

Per unit

Sales (30,000 units)

$1,800,000

$60

Less variable expenses

1,440,000

48

Contribution margin

360,000

$12

Less fixed expenses

264,000

Net income

$ 96,000

Lincoln Company's break-even point in units is:

A.

22,000

B.

25,000

C.

30,000

D.

32,000

E.

None of the above

QUESTION 6

Flavorland Brands packages single-sized servings of sugar and sugar substitute for fast food restaurants. The activities required to package sugar are fewer and less complex than for sugar substitute. Current production of sugar packets and sugar substitute packets are 9,000,000 units each. The direct costs of producing the two products (per packet) are as follows:

Pure Sugar

Sugar Substitute

Direct Materials

$0.01

$0.02

Direct Labor

$0.02

$0.04

Overhead is currently assigned to the two products on the basis of machine hours. The following information is provided regarding overhead costs:

Activity

Traceable Costs

Cost Driver

Pure Sugar

Sugar Substitute

Setup

$ 75,000

No. setups

50

100

Packing

125,000

No. machine hrs.

10,000

15,000

Inspection

25,000

No. batches

200

300

$225,000

Using the current method of overhead cost allocation based on machine hours, how much total overhead cost will be assigned to the Sugar Substitute product?

A.

$75,000

B.

$90,000

C.

$125,000

D.

$135,000

E.

None of the above

QUESTION 7

Flavorland Brands packages single-sized servings of sugar and sugar substitute for fast food restaurants. The activities required to package sugar are fewer and less complex than for sugar substitute. Current production of sugar packets and sugar substitute packets are 9,000,000 units each. The direct costs of producing the two products (per packet) are as follows:

Pure Sugar

Sugar Substitute

Direct Materials

$0.01

$0.02

Direct Labor

$0.02

$0.04

Overhead is currently assigned to the two products on the basis of machine hours. The following information is provided regarding overhead costs:

Activity

Traceable Costs

Cost Driver

Pure Sugar

Sugar Substitute

Setup

$ 75,000

No. setups

50

100

Packing

125,000

No. machine hrs.

10,000

15,000

Inspection

25,000

No. batches

200

300

$225,000

What is the total product cost per packet for Pure Sugar under the ABC system?

A.

$.01 per packet

B.

$.04 per packet

C.

$.05 per packet

D.

$.08 per packet

E.

$.13 per packet

F.

None of the above

QUESTION 8

1. Aspen Core Realtors, Inc., specializes in home sales. Revenue is earned from selling fees. Commissions for salespersons, listing agents, and listing companies are the main costs for the company. Business has improved steadily over the last ten years. As usual, Bonnie Boris, the managing partner of Aspen Core Realtors, Inc., received a report summarizing the performance for the most recent year.

Aspen Core Realtors, Inc.
Performance Report for the Year Ended December 31, 2015

Master Budget*

Flexible Budget**

Actual***

Master – Actual Variance

Total Selling Fees

$2,052,000

$2,280,000

$2,243,200

191,200F

Less Variable Costs

Sales Commissions

1,102,950

1,225,500

1,205,183

102,233U

Automobile

36,000

40,000

39,560

3,560U

Advertising

93,600

104,000

103,450

9,850U

Home Repairs

77,400

86,000

89,240

11,840U

Variable Overhead

656,100

729,000

716,970

60,870U

Less Fixed Costs

General Overhead

60,000

60,000

62,300

2,300U

Total Costs

2,026,050

2,244,500

2,216,703

190,653U

Net Income

25,950

35,500

26,497

547F

*Budgeted data based on 180 home sales.
**Flexible Budget based on 200 home sales.
***Actual selling fees and operating costs of 200 home sales.

What is the most significant single cause of all of the total unfavorable variable cost variances shown in the Master-Actual Variance column?

A.

Aspen Core Realtors spent more than expected.

B.

Aspen Core Realtors spent less than expected.

C.

The number of home sales increased.

D.

Selling fees (prices) increased.

E.

None of the above

QUESTION 9

Malden Outdoor Products Inc. produces several products, including handmade large fiberglass planters for outdoor displays. The firm, which began operations at the beginning of this year, uses a standard cost system. The standard costs for one large planter are:

Direct material (3 lbs. @ $8.00)

$ 24.00

Direct labor (2 hrs. @ $15.00)

30.00

Variable overhead

24.00

Fixed overhead

6.00

Standard cost per unit

$84.00

The $6.00 fixed overhead rate is based on total budgeted fixed overhead costs of $18,000 and estimated sales of 3,000 units. There were no changes in any inventory account during the period. The company produced and sold 3,100 units at the following costs:

Direct materials (9,000 lbs.)

$ 81,270

Direct labor (6,000 hrs.)

78,000

Variable overhead

76,000

Fixed overhead

16,500

Total production costs incurred

$251,770

Copy and paste the below chart into the answer space. Prepare a flexible budget to evaluate the current year performance and enter it into the column labeled Flexible Budget. Compute the flexible budget variances and enter them into the Flex Budget Variances column.

Flexible Budget

Actuals

Flex Budget Variances

Direct Materials

$ 81,270

Direct
Labor

78,000

Variable Overhead

76,000

Fixed Overhead

16,500

Total

$251,770

QUESTION 10

Malden Outdoor Products Inc. produces several products, including handmade large fiberglass planters for outdoor displays. The firm, which began operations at the beginning of this year, uses a standard cost system. The standard costs for one large planter are:

Direct material (3 lbs. @ $8.00)

$ 24.00

Direct labor (2 hrs. @ $15.00)

30.00

Variable overhead

24.00

Fixed overhead

6.00

Standard cost per unit

$84.00

The $6.00 fixed overhead rate is based on total budgeted fixed overhead costs of $18,000 and estimated sales of 3,000 units. There were no changes in any inventory account during the period. The company produced and sold 3,100 units at the following costs:

Direct materials (9,000 lbs.)

$ 81,270

Direct labor (6,000 hrs.)

78,000

Variable overhead

76,000

Fixed overhead

16,500

Total production costs incurred

$251,770

The direct materials price variance is:

A.

$9,579 U

B.

$9,270 U

C.

$9,579 F

D.

$9,270 F

E.

None of the above

QUESTION 11

Malden Outdoor Products Inc. produces several products, including handmade large fiberglass planters for outdoor displays. The firm, which began operations at the beginning of this year, uses a standard cost system. The standard costs for one large planter are:

Direct material (3 lbs. @ $8.00)

$ 24.00

Direct labor (2 hrs. @ $15.00)

30.00

Variable overhead

24.00

Fixed overhead

6.00

Standard cost per unit

$84.00

The $6.00 fixed overhead rate is based on total budgeted fixed overhead costs of $18,000 and estimated sales of 3,000 units. There were no changes in any inventory account during the period. The company produced and sold 3,100 units at the following costs:

Direct materials (9,000 lbs.)

$ 81,270

Direct labor (6,000 hrs.)

78,000

Variable overhead

76,000

Fixed overhead

16,500

Total production costs incurred

$251,770

The direct materials quantity variance is:

A.

$2,709 F

B.

$2,709 U

C.

$2,400 F

D.

$ 2,400 U

E.

None of the above

QUESTION 12

Malden Outdoor Products Inc. produces several products, including handmade large fiberglass planters for outdoor displays. The firm, which began operations at the beginning of this year, uses a standard cost system. The standard costs for one large planter are:

Direct material (3 lbs. @ $8.00)

$ 24.00

Direct labor (2 hrs. @ $15.00)

30.00

Variable overhead

24.00

Fixed overhead

6.00

Standard cost per unit

$84.00

The $6.00 fixed overhead rate is based on total budgeted fixed overhead costs of $18,000 and estimated sales of 3,000 units. There were no changes in any inventory account during the period. The company produced and sold 3,100 units at the following costs:

Direct materials (9,000 lbs.)

$ 81,270

Direct labor (6,000 hrs.)

78,000

Variable overhead

76,000

Fixed overhead

16,500

Total production costs incurred

$251,770

The direct labor rate variance is:

A.

$12,000 F

B.

$12,000 U

C.

$12,400 F

D.

$12,400 U

E.

None of the above

QUESTION 13

Malden Outdoor Products Inc. produces several products, including handmade large fiberglass planters for outdoor displays. The firm, which began operations at the beginning of this year, uses a standard cost system. The standard costs for one large planter are:

Direct material (3 lbs. @ $8.00)

$ 24.00

Direct labor (2 hrs. @ $15.00)

30.00

Variable overhead

24.00

Fixed overhead

6.00

Standard cost per unit

$84.00

The $6.00 fixed overhead rate is based on total budgeted fixed overhead costs of $18,000 and estimated sales of 3,000 units. There were no changes in any inventory account during the period. The company produced and sold 3,100 units at the following costs:

Direct materials (9,000 lbs.)

$ 81,270

Direct labor (6,000 hrs.)

78,000

Variable overhead

76,000

Fixed overhead

16,500

Total production costs incurred

$251,770

The direct labor efficiency variance is:

A.

$3,000 U

B.

$3,000 F

C.

$2,600 U

D.

$2,600 F

E.

None of the above

QUESTION 14

Malden Outdoor Products Inc. produces several products, including handmade large fiberglass planters for outdoor displays. The firm, which began operations at the beginning of this year, uses a standard cost system. The standard costs for one large planter are:

Direct material (3 lbs. @ $8.00)

$ 24.00

Direct labor (2 hrs. @ $15.00)

30.00

Variable overhead

24.00

Fixed overhead

6.00

Standard cost per unit

$84.00

The $6.00 fixed overhead rate is based on total budgeted fixed overhead costs of $18,000 and estimated sales of 3,000 units. There were no changes in any inventory account during the period. The company produced and sold 3,100 units at the following costs:

Direct materials (9,000 lbs.)

$ 81,270

Direct labor (6,000 hrs.)

78,000

Variable overhead

76,000

Fixed overhead

16,500

Total production costs incurred

$251,770

What do the Flexible Budget Variances in Question 9, and the direct cost variances in Question 10 through Question 13 above tell the manager about Malden Outdoor Products’ operations this year? Be specific.

QUESTION 15

Columbus Company provides the following standard cost data:

Direct Material (3 gallons @ $5 per gallon) $15
Direct Labor (2 hours @ $12 per hour) $24

During the period, Columbus Company produced and sold 24,000 units. Following are the amounts of material and labor used to produce the 24,000 units, and their respective actual costs:

Direct Material: 71,500 gallons at $5.05 per gallon
Direct Labor: 49,000 hours at $12.00 per hour

The Direct Material price variance was:

F

U

0 – no variance

QUESTION 16

1. Columbus Company provides the following standard cost data:

Direct Material (3 gallons @ $5 per gallon) $15
Direct Labor (2 hours @ $12 per hour) $24

During the period, Columbus Company produced and sold 24,000 units. Following are the amounts of material and labor used to produce the 24,000 units, and their respective actual costs:

Direct Material: 71,500 gallons at $5.05 per gallon
Direct Labor: 49,000 hours at $12.00 per hour

The Direct Material usage variance was:

F

U

0 – no variance

QUESTION 17

Columbus Company provides the following standard cost data:

Direct Material (3 gallons @ $5 per gallon) $15
Direct Labor (2 hours @ $12 per hour) $24

During the period, Columbus Company produced and sold 24,000 units. Following are the amounts of material and labor used to produce the 24,000 units, and their respective actual costs:

Direct Material: 71,500 gallons at $5.05 per gallon
Direct Labor: 49,000 hours at $12.00 per hour

The Direct Labor rate variance was:

F

U

0 – no variance

QUESTION 18

1. Columbus Company provides the following standard cost data:

Direct Material (3 gallons @ $5 per gallon) $15
Direct Labor (2 hours @ $12 per hour) $24

During the period, Columbus Company produced and sold 24,000 units. Following are the amounts of material and labor used to produce the 24,000 units, and their respective actual costs:

Direct Material: 71,500 gallons at $5.05 per gallon
Direct Labor: 49,000 hours at $12.00 per hour

The Direct Labor efficiency variance was:

F

U

0 – no variance

QUESTION 19

1. Since its inception, Monterey Corporation has produced a single product, Product A24. The company added the technological capability to begin producing a second product, Product D36. Because of the success of Product D36, manufacturing has been shifting toward its production. Sales of Product D36 are now 50 percent of the total annual sales of 20,000 units, and the company is optimistic about the new product's future sales growth. Management is thrilled with the new product's initial success but concerned about the company's declining profits since the product's introduction. Suspecting a problem with the company's costing system, management hires you to investigate.

In reviewing the company's records, product specifications, and manufacturing processes, you discover the following information.

• • The company is in an extremely competitive industry in which markups are low and accurate estimates of cost are critical to success.
  • The company presently allocates overhead costs to its products based on direct labor hours.
  • Product D36 has complex parts that require more labor, machine time, setups, and inspections than Product A24.
  • Total Overhead Costs are $2,016,000.
  • Budgeted costs per unit for direct materials and labor are as follows:

Direct Cost per Unit

Product A24

Product D36

Direct materials

$48

$48

Direct labor

$30/hour X 2 hours production time

$30/hour X 2.8 hours production time

After carefully studying the company's overhead, you identify four different categories of overhead costs. Using your knowledge of this company and similar companies in the same industry, you estimate the total costs for each of these categories and identify the most appropriate cost driver for measuring each product's overhead consumption. Detailed information for each overhead cost category follows.

Overhead
Category

Estimated Cost

Cost Driver

Use of Cost Driver

Machining

$1,080,000

Number of machine hours

A24: 20,000 hours;
D36: 80,000 hours

Set-ups

456,000

Number of machine setups

A24: 1,500 setups;
D36: 3,500 setups

Inspections

360,000

Number of inspections

A24: 200 inspections;
D36: 400 inspections

Other Factory Overhead

$120,000

Equal percentage for each product

A24: 50%;
D36: 50%

Total Overhead

$2,016,000

Determine the total cost per unit for A24 when overhead is assigned using the company’s current overhead allocation method based on direct labor hours. (round to nearest whole number)

A.

$84

B.

$108

C.

$159

D.

$192

E.

None of the above

QUESTION 20

1. Since its inception, Monterey Corporation has produced a single product, Product A24. The company added the technological capability to begin producing a second product, Product D36. Because of the success of Product D36, manufacturing has been shifting toward its production. Sales of Product D36 are now 50 percent of the total annual sales of 20,000 units, and the company is optimistic about the new product's future sales growth. Management is thrilled with the new product's initial success but concerned about the company's declining profits since the product's introduction. Suspecting a problem with the company's costing system, management hires you to investigate.

In reviewing the company's records, product specifications, and manufacturing processes, you discover the following information.

• • The company is in an extremely competitive industry in which markups are low and accurate estimates of cost are critical to success.
  • The company presently allocates overhead costs to its products based on direct labor hours.
  • Product D36 has complex parts that require more labor, machine time, setups, and inspections than Product A24.
  • Total Overhead Costs are $2,016,000.
  • Budgeted costs per unit for direct materials and labor are as follows:

Direct Cost per Unit

Product A24

Product D36

Direct materials

$48

$48

Direct labor

$30/hour X 2 hours production time

$30/hour X 2.8 hours production time

After carefully studying the company's overhead, you identify four different categories of overhead costs. Using your knowledge of this company and similar companies in the same industry, you estimate the total costs for each of these categories and identify the most appropriate cost driver for measuring each product's overhead consumption. Detailed information for each overhead cost category follows.

Overhead
Category

Estimated Cost

Cost Driver

Use of Cost Driver

Machining

$1,080,000

Number of machine hours

A24: 20,000 hours;
D36: 80,000 hours

Set-ups

456,000

Number of machine setups

A24: 1,500 setups;
D36: 3,500 setups

Inspections

360,000

Number of inspections

A24: 200 inspections;
D36: 400 inspections

Other Factory Overhead

$120,000

Equal percentage for each product

A24: 50%;
D36: 50%

Total Overhead

$2,016,000

Determine the total cost per unit for D36 when overhead is assigned using the company’s current overhead allocation method based on direct labor hours. (Round to nearest whole number)

A.

$135

B.

$118

C.

$250

D.

$400

E.

None of th above

QUESTION 21

1. Since its inception, Monterey Corporation has produced a single product, Product A24. The company added the technological capability to begin producing a second product, Product D36. Because of the success of Product D36, manufacturing has been shifting toward its production. Sales of Product D36 are now 50 percent of the total annual sales of 20,000 units, and the company is optimistic about the new product's future sales growth. Management is thrilled with the new product's initial success but concerned about the company's declining profits since the product's introduction. Suspecting a problem with the company's costing system, management hires you to investigate.

In reviewing the company's records, product specifications, and manufacturing processes, you discover the following information.

• • The company is in an extremely competitive industry in which markups are low and accurate estimates of cost are critical to success.
  • The company presently allocates overhead costs to its products based on direct labor hours.
  • Product D36 has complex parts that require more labor, machine time, setups, and inspections than Product A24.
  • Total Overhead Costs are $2,016,000.
  • Budgeted costs per unit for direct materials and labor are as follows:

Direct Cost per Unit

Product A24

Product D36

Direct materials

$48

$48

Direct labor

$30/hour X 2 hours production time

$30/hour X 2.8 hours production time

After carefully studying the company's overhead, you identify four different categories of overhead costs. Using your knowledge of this company and similar companies in the same industry, you estimate the total costs for each of these categories and identify the most appropriate cost driver for measuring each product's overhead consumption. Detailed information for each overhead cost category follows.

Overhead
Category

Estimated Cost

Cost Driver

Use of Cost Driver

Machining

$1,080,000

Number of machine hours

A24: 20,000 hours;
D36: 80,000 hours

Set-ups

456,000

Number of machine setups

A24: 1,500 setups;
D36: 3,500 setups

Inspections

360,000

Number of inspections

A24: 200 inspections;
D36: 400 inspections

Other Factory Overhead

$120,000

Equal percentage for each product

A24: 50%;
D36: 50%

Total Overhead

$2,016,000

Determine the total cost per unit for A24 when overhead is assigned using activity-based costing. (round to nearest whole number)

A.

$53

B.

$161

C.

$192

D.

$243

E.

None of the above

QUESTION 22

1. Since its inception, Monterey Corporation has produced a single product, Product A24. The company added the technological capability to begin producing a second product, Product D36. Because of the success of Product D36, manufacturing has been shifting toward its production. Sales of Product D36 are now 50 percent of the total annual sales of 20,000 units, and the company is optimistic about the new product's future sales growth. Management is thrilled with the new product's initial success but concerned about the company's declining profits since the product's introduction. Suspecting a problem with the company's costing system, management hires you to investigate.

In reviewing the company's records, product specifications, and manufacturing processes, you discover the following information.

• • The company is in an extremely competitive industry in which markups are low and accurate estimates of cost are critical to success.
  • The company presently allocates overhead costs to its products based on direct labor hours.
  • Product D36 has complex parts that require more labor, machine time, setups, and inspections than Product A24.
  • Total Overhead Costs are $2,016,000.
  • Budgeted costs per unit for direct materials and labor are as follows:

Direct Cost per Unit

Product A24

Product D36

Direct materials

$48

$48

Direct labor

$30/hour X 2 hours production time

$30/hour X 2.8 hours production time

After carefully studying the company's overhead, you identify four different categories of overhead costs. Using your knowledge of this company and similar companies in the same industry, you estimate the total costs for each of these categories and identify the most appropriate cost driver for measuring each product's overhead consumption. Detailed information for each overhead cost category follows.

Overhead
Category

Estimated Cost

Cost Driver

Use of Cost Driver

Machining

$1,080,000

Number of machine hours

A24: 20,000 hours;
D36: 80,000 hours

Set-ups

456,000

Number of machine setups

A24: 1,500 setups;
D36: 3,500 setups

Inspections

360,000

Number of inspections

A24: 200 inspections;
D36: 400 inspections

Other Factory Overhead

$120,000

Equal percentage for each product

A24: 50%;
D36: 50%

Total Overhead

$2,016,000

Determine the total cost per unit for D36 when overhead is assigned using activity-based costing. (round to nearest whole number)

A.

$148

B.

$250

C.

$280

D.

$292

E.

None of the above