Accounting 30 Problems with Explanation

1.  A company is building a widget. During the current year, a widget requires direct materials with a cost of $300. The company must also spend $200 for direct labor. Finally, factory overhead related to the production of a widget is $100. What is the prime cost associated with a widget?

A. 100
B. 400
C. 300
D. 500

2. A company is building a widget. During the current year, a widget requires direct materials with a cost of $500. The company must also spend $600 for direct labor. Finally, factory overhead related to the production of a widget is $100. What is the conversion cost associated with a widget?

A. 600
B. 900
C. 700
D. 800

3. Nash accounting services pays $2,500 a month for a tax preparation software license.  In addition, variable charges incurred average $50 for every tax return the firm prepares.  Determine the cost per unit if the firm expects to prepare 150 tax returns.  Round to nearest Cent.

A. $70.50
B. $66.67
C. $55.00
D. $52.50

4. For 2013, Lorenzo Auto has a monthly overhead cost formula of $44,000 + $8 per direct labor hour.  The firm’s 2013 annual capacity is 70,000 direct labor hours to be incurred evenly each month.  What is the total overhead to be applied per unit of product in 2013?

A. $560,000
B. $885,000
C. $1,088,000
D. $1,000,500

5. The W Hotel has gathered the following information on its utility cost for the past 6 months.
                            Machine Hours                                        Utility Cost
             1300                                                        $940
             1700                                                        $1075
             1250                                                        $900
             1800                                                        $1132
             1900                                                        $1160
             1500                                                        $990

Using the high-low method and considering there are NO outliers, determine the cost formula for utility cost.

A. y = $400 + .40X
B. y = $400 + .60X
C. y = $600 + .40X
D. y = $600 + .60X

6. Using the formula from Question #11, what would be the total cost if the hotel used 1200 Machine hours for the month of March?

A. $1000
B. $880
C. $420
D. $950

7. Cuisinart manufactures tea pots.  In 2013, fixed overhead was applied to products at a rate of $5 per unit.  Variable cost per unit remained constant throughout the year.  In July 2013, income under variable costing was $152,000.  July’s beginning and ending inventories were 10,000 and 6,500 units respectively.  Calculate income under absorption costing.

A. $152,000
B. $112,500
C. $134,500
D. $212,000

8. Marisa’s Furniture manufactures wooden chairs for outdoor use.  In May 2013, the company manufactured 15,000 and sold 12,500 chairs.  There were no beginning inventories for May and no work in process at the end of May.  The cost per unit for the 15,000 chairs produced was as follows:
         
                           Direct material                                   $ 8.00
                           Direct Labor                                           5.00
                           Variable Overhead                                2.00      
                           Fixed Overhead                                     4.00
                                      Total                                           19.00
              What is the value of ending finished goods inventory using absorption costing?
A. $37,500
B. $35,000
C. $25,000
D. $47,500

9. Assuming the same information as Question #14, what is the value of ending finished goods inventory using variable costing?

A. $37,500
B. $35,000
C. $25,000
D. $47,500

10. Vitamin water makes flavored water and performs the following tasks in the beverage manufacturing process:
                                                                                                                                        Hours
               Receive and transfer ingredients to storage                                                 7.0
               Store ingredients                                                                                            260.0
               Transfer ingredients from storage to production                                        5.5
               Mix and cook ingredients                                                                                 8.5
               Bottle Water                                                                                                       2.0
               Transfer bottles to warehouse                                                                        3.0              
Calculate the total cycle time of this manufacturing process?
A. 292.5 hours
B. 286 hours
C. 272 hours
D. 286.5 hours
11. Sheera Company is a design shop that produces jobs to customer specifications.  During March, Job #351 was worked on and the following information was available.
               Direct Material Used                                                                     $2,150
               Direct Labor Hours worked                                                                 10
  Machine Time used                                                                               8
  Direct Labor Rate per Hour                                                                 $4
  Overhead application rate per hour of machine time                 $15

 What was the total cost of Job #351 for March?
A. $2,015
B. $2,310
C. $2,300
D. $1,992

12. Havana Company uses a weighted average process costing system and started 32,000 units this month.  Winters had 12,000 units that that were 25% complete as to conversion costs in beginning WIP inventory and 5,000 units that were 30% complete as to conversion costs in ending WIP inventory.  What are the equivalent units for conversion costs?

A. 43,250
B. 45,100
C. 42,900
D. 40,500

13. Marx Company applies Overhead to jobs at a rate of 30% of direct labor cost.  Direct Material of $1,150 and direct labor of $1,500 were expended on job #12 during September.  On August 31st, the balance of job #12 was $2,500.  The balance on September 30th is?

A. $4,550
B. $5,600
C. $5,450
D. $6,050

14. The following information is for Patterson Company’s July production:
Standards:
Material                        3 feet per unit @ 4.00 per foot
Labor                             2.5 hours per unit @ $7.60 per hour

Actual:
Production                   2,500 units produced during this month 
Material                        8,100 feet used;  9,000 feet purchased at $4.50 per foot
Labor                             6,000 direct labor hours @ $7.70 per hour

What is the Material Quantity Variance?  (round to the nearest dollar)
A. $2,400 Favorable
B. $2,150 Favorable
C. $2,400 Unfavorable
D. $2,150 Unfavorable

15. Using the information from Question #14, what is the labor rate variance? (round to the nearest dollar)

A. $600 Unfavorable
B. $850 Favorable
C. $850 Unfavorable
D. $600 Favorable

16. Chronologically, the first part of the master budget prepared would be the:

A. Sales budget
B. Production budget
C. Cash budget
D. Pro forma financial statements

17. Soho Company is preparing its Manufacturing Overhead budget for the second quarter of the year.  Budgeted variable factory overhead is $2 per unit produced; budgeted fixed factory overhead is $54,000 per month, with $18,000 of this amount being factory depreciation.
If the budgeted production for May is 4,500 units, then the total budgeted factory overhead per unit is:
A. $14
B. $18
C. $12
D. $15

18. Using the information from #19, if the budgeted cash disbursements for factory overhead for June are $70,000, then the budgeted production for June must be:

A. 13,040 units
B. 16,200 units
C. 17,000 units
D. 16,500 units

19. Which is the best cost accumulation procedure to use by companies that make relatively small quantities of distinct products or perform unique services that conform to the specifications designated by the purchaser?

A. Actual
B. Standard
C. Job order
D. Process

20. Solarte Company uses a job order costing system and the following information is available from its records.  The company currently has 3 jobs in process #7, #11, and #13.
               Raw Material                                                                   $120,000
               DL per hour                                                                            $8.50
               Overhead applied based on DL cost                                   125%

Direct material was requisitioned as follows for each job respectively: 25%, 30%, and 30%; the balance of the requisitions was considered indirect.  Direct labor hours per job are 2,200, 3,100, and 3,700, respectively.  Indirect labor is $55,000.  Other actual Overhead costs totaled $50,000.

How much overhead was applied to Work in Process?

A. $95,625
B. $99,235
C. $100,885
D. $90,665

21. McKenzie Enterprises has the following revenue and cost functions:
                            
                                  Revenue = $60 per unit
                                  Cost = $80,000 + $35 per unit

What is the break-even point in units?

A. 3,000
B. 4,100
C. 4,000
D. 3,200

22. Using the information from Question #21, what is the break-even point in units?

A. 200,000
B. 195,000
C. 192,000
D. 205,000
 
23. Jacoby Sports Wear has designed a new athletic suit.  The company plans to produce and sell 25,000 units of the new product in the coming year.  Annual fixed costs are $700,000, and variable costs are 50% of selling price.  If the company wants a pre-tax profit of $200,000, at what minimum price must it sell its product?
                   
A. 2,800,000
B. 1,800,000
C. 1,500,000  
D. 2,500,000

24.  A cost incurred in the past and not relevant to any future courses of action is known as:

A. Relevant cost
B. Sunk cost
C. Opportunity cost
D. Incremental cost

25. A potential benefit that is foregone because one course of action is chosen over another is known as:

A. Relevant cost
B. Sunk cost
C. Opportunity cost
D. Incremental cost

26. Assume that you are about to graduate from your university and are deciding whether to apply for graduate school or enter the job market.  To help make the decision, you gathered the following information:

                                    Costs incurred for the bachelor’s degree                                  $163,000
                                    Out of pocket costs for a master’s degree                                  $104,000
                                    Estimated starting salary with B.A.                                               $56,500  
                                    Estimated starting salary with M.A.                                              $66,800
              Estimated time to complete master’s degree                             2 years    
              Estimated time from the present to retirement                        40 years
              Room & Board                                                                                  $24,000
              Books and education materials to obtain master’s                      $5,500     
              What is the opportunity cost associated with earning the master’s degree?
A. 113,000
B. 125,000
C. 188,000
D. 326,000

27. Using the information from Question #26, what is the out of pocket cost to obtain the master’s degree?

A. 128,000
B. 109,500
C. 133,500
D. 192,500

28. An incidental output of a joint process is also known as:

A. Scrap
B. Waste
C. Split-off
D. Garbage

29. The total cost incurred for the material, labor and overhead during a joint process is called:

A. Separate costs
B. Incremental costs
C. Unknown costs
D. Joint costs

30. Almond breeze produces milk and sour cream from a joint process.  During June, the company produced 240,000 quarts of milk and 190,000 pints of sour cream (there are 2 pints in a quart).  Sales value at split-off point was $377,400 for the milk and $177,600 for the sour cream.  The milk was assigned $125,800 of the joint cost.  Using the sales value at split-off approach, determine the total joint cost for June.

A. $180,000
B. $185,000
C. $195,000
D. $205,000