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Question(s) / Instruction(s):

1. Use the following information to answer this question: Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows:

Production Cost Data

 

 Direct materials                                             $153,000

  Direct labor                                                 $110,500

 Variable manufacturing overhead                $204,000

 Fixed manufacturing overhead                      $255,000

 

 Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost.

 The contribution margin per unit was

 

A. $32.50.

B. $25.70.

C. $27.30.

D. $17.50.

 

 

 2. Murdoch Corporation has provided the following data concerning its only product:

Murdoch Product Data

 

 Selling price                          $230 per unit

 Current sales                          39,100 units

 Break-even sales                     29,716 units

 

 

 What is the margin of safety in dollars?                                                                

A. $5,995,333

B. $6,834,680

C. $2,158,320

D. $8,993,000

 

                                                                                                         

 

 

                                                                                 

 3. Use the following information to answer this question: Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows:

Production Cost Data

 

 Direct materials                                             $153,000

 Direct labor                                                   $110,500

 Variable manufacturing overhead                $204,000

 Fixed manufacturing overhead                     $255,000

 

 Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost.

 

 Under variable costing, the companys net operating income for the year would be _______ than under absorption costing.

                                                                      

A. $108,000 higher

B. $60,000 higher

C. $108,000 lower

D. $60,000 lower

                                                          

 

                                                                                                         

 4. Rank the following methods of assigning overhead costs from least accurate to most accurate.

                                                                                                         

A. Plantwide rate, departmental rates, activity-based costing

B. Departmental rates, plantwide rate, activity-based costing

C. Plantwide rate, activity-based costing, departmental rates

D. Activity-based costing, departmental rates, plantwide rate

                                                                      

                                                                                                         

 5. Use the following information to answer this question: Lifsey Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system:

Activity Cost Pools                            Activity Rate

 

 Size-related                                       $0.94 per guest

 Complexity-related                           $31.62 per tier

 Order-related                                    $55.70 per order

 

The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake.

The measure of complexity is the number of tiers in the cake.

The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.)

The activity rates include the costs of raw ingredients, such as flour, sugar, eggs, and shortening. The activity rates dont include the costs of purchased decorations, such as miniature statues and wedding bells, which are accounted for separately.

 Data concerning two recent orders are listed here:

 

 

                                                           Pyburn Wedding      Smith Wedding

 

 Number of reception guests                          72                               189

 Number of tiers on the cake                         4                                 5

 Cost of purchased decorations for cake     $29.92                          $68.75

 

 

 Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, which amount would the company have to charge for the Pyburn wedding cake to just break even?

                                                                                                         

A. $55.79

B. $338.64

C. $279.87

D. $29.92

                                                                                                                                                                                                                               

 6. Use the following information to answer this question: Lifsey Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system:

Activity Cost Pools                            Activity Rate

 

 Size-related                                       $0.94 per guest

 Complexity-related                           $31.62 per tier

 Order-related                                    $55.70 per order

 

The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake.

The measure of complexity is the number of tiers in the cake.

The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.)

The activity rates include the costs of raw ingredients, such as flour, sugar, eggs, and shortening. The activity rates dont include the costs of purchased decorations, such as miniature statues and wedding bells, which are accounted for separately.

 Data concerning two recent orders are listed here:

 

 

                                                           Pyburn Wedding      Smith Wedding

 

 Number of reception guests                          72                               189

 Number of tiers on the cake                         4                                 5

 Cost of purchased decorations for cake       $29.92                        $68.75

 

 

 Suppose the company decides that the present activity-based costing system is too complex and that all costs (except for the costs of purchased decorations) should be allocated on the basis of the number of guests. In that event, what would you expect to happen to the costs of cakes

 

A. The cost of cakes for receptions with fewer than the average number of guests would go down.

B. The costs of all cakes would go down.

C. The cost of cakes for receptions with more than the average number of guests would go down.

D. The costs of all cakes would go up.

 

                                                                                                         

 7. Slosh Cleaning Corporation services both residential and commercial customers. Slosh expects the following operating results next year for each type of customer:

 

                                                Operating Results

                                                Residential     Commercial

 Sales                                      $60,000           $140,000

 Contribution margin ratio     50%               30%

 

 

 Slosh expects to have $18,000 in fixed expenses next year. What would Sloshs total dollar sales have to be next year to generate a profit of $90,000?

                                                                                                         

A. $216,000

B. $270,000

C. $300,000

D. $250,000

                                              

                                                                                             

 8. A disadvantage of the high-low method of cost analysis is that

                                                                                                         

 A. it uses two extreme data points, which may not be representative of normal conditions.

B. it relies totally on the judgment of the person performing the cost analysis.

C. its too time-consuming to apply.

D. it cant be used when there are a very large number of observations.

                                                                      

                                                                                                         

 9. Use the following information to answer this question: Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the past five months of operations.

                                              

Machine Hours         Electrical Cost

 August                                              1,000              $1,620

 September                                         900                 $1,510

 October                                             1,500              $1,870

 November                                         2,000              $1,950

 December                                          1,300              $1,730

 

 

 Using the high-low method of analysis, the estimated fixed cost per month for electricity is closest to which of the following?

                                                                                                         

A. $1,150.00

B. $1,290.00

C. $870.00

D. $1,306.50

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