Accounting 285 Exam I Spring 2005

Accounting 285 – Exam I – Spring 2005

Name (please print) Section

Exam Instructions:

1. Use a number 2 pencil to complete the answer sheet. You may use a calculator, but no communication devices are permitted (cell phones, computers, PDAs.)

2. Be sure that the pre-printed number on your answer sheet corresponds to the pre- printed number on your exam. Then, write your name on both the exam and the answer sheet. On the answer sheet, you need to fill in your name and your full (nine digit) student identification number. Do not write your student number on your exam.

3. When multiple questions use the same common information, answer each question independently of the other questions using the information that is given prior to the first question.

4. Under Special Codes:

Column K mark your section number: 1 if you are TR 12:40 2 if you are TR 9:30

5. You will have 2 hours (120 minutes) to complete the exam. The exam ends at 10:00 PM.

6. There are 28 questions on the exam. Make sure you have 28 questions and that you answer them all.

7. Select the best answer to each question and mark it on your answer sheet. You receive zero points for an incorrect answer, so if you don’t know the answer to a question, you should at least guess. We advise that you also circle the answer on your exam booklet for future reference or in case you have problems with your answer sheet.

8. When you finish the exam, please bring it to the front of the room with your answer sheet and your photo ID, along with the rest of your personal belongings. Plan to leave the room without returning to your seat. 1. A cost is $19.00 per unit at a volume of 10,000 units and $19.00 per unit at a volume of 12,000 units. The cost is: a. fixed b. variable c. mixed d. not relevant

2. A retail business had budgeted June sales at $200,000 and cost of sales (same as cost of goods sold) at $140,000. Actual sales for June were $230,000 and actual cost of sales was $158,000. Assume that cost of sales includes only the cost of the merchandise purchased for resale. Which of the following statements is most correct regarding cost of sales for June? a. Cost of sales was $18,000 higher than it should have been indicating a problem with cost control or sales mix. b. Cost of sales was higher than originally budgeted but lower than would have been expected given the actual sales level achieved. c. Cost of sales was higher than originally budgeted and higher than would be expected given the sales level achieved. d. Cost of sales increased by a greater percentage than sales, indicating that it was higher than it should have been given the sales increase.

3. Which of the following is not a product cost? a. The cost of storing finished goods inventory b. The cost of security at the factory c. Direct material cost d. The cost of the lubricants used on production machinery

4. Which of the following businesses would most clearly use job order costing? a. tomato cannery b. custom home builder c. automobile plant. d. paint factory

5. Which of the following is not one of the questions you should ask when evaluating an ethical issue? a. What are the alternatives available? b. Which alternative will do the most good or the least harm? c. Do I know other people that have taken this course of action without negative consequences? d. Will I be comfortable telling my friends and family about this decision? 6. A company applies overhead based on direct labor hours using a normal costing system. The company estimates that the overhead for the year will be $180,000 and that 20,000 labor hours will be worked. Actual overhead for the year was $170,000 and actual labor hours for the year were 19,000. What overhead application rate per direct labor hour should be used to apply overhead to products during the year? a. $9.00 b. $9.47 c. $8.95 d. $8.50

7. Which of the following is most clearly an indirect cost of producing a Chevy Camaro? a. The cost of the engine b. The wages of the laborer installing the engine c. The depreciation of the factory building where the assembly line used to produce the car, and several other assembly lines, are located. d. The wages of the inspector who performs the final inspection on the car.

8. The cost of utilities in a shoe factory was $50,000 in May when 120,000 pairs of shoes were produced and $56,000 in October when 150,000 pairs of shoes were produced. Based solely on the costs provided, what type of cost is the utility cost? a. fixed b. variable c. mixed d. opportunity

9. A company using normal costing applies overhead at the rate of $15 per direct labor hour. During the year, 28,000 labor hours are worked and actual overhead is $430,000. 30,000 labor hours had been expected at the beginning of the year. Overhead will be: a. underapplied by $10,000 at year end b. overapplied by $10,000 at year end. c. underapplied by $20,000 at year end d. overapplied by $20,000 at year end Use the following information for the next four questions:

Lima Company makes candy and had the following results for 2004:

Selling price $20.00 per case Variable costs: Production $8.00 per case Selling $1.00 per case Fixed costs: Production $1,000,000 Selling and administrative $300,000

During the year, 200,000 cases were produced, and 170,000 cases were sold. There was no beginning inventory.

10. What is the cost of one case of inventory under full costing? a. $20.00 b. $15.50 c. $9.00 d. $13.00

11. What is the cost of one case of inventory using variable costing? a. $20.00 b. $8.00 c. $9.00 d. $13.00

12. What is income under variable costing? a. $570,000 b. $3,400,000 c. $720,000 d. $540,000

13. How much higher or lower is full costing income than variable costing income? a. they are the same b. variable costing income is $195,000 higher than full costing income c. full costing income is $195,000 higher than variable costing income d. full costing income is $150,000 higher than variable costing income 14. A company has 5,000 units in beginning work in process inventory, which are 90% complete with respect to material and 40% complete with respect to conversion cost. During the month, 80,000 units are started. There are 7,000 units in ending work in process inventory, which are 60% complete with respect to material and 30% complete with respect to conversion cost. How many units were completed during the month? a. 82,400 b. 87,000 c. 78,000 d. 80,100

15. A company has 50,000 units in beginning work in process inventory, which are 100% complete with respect to material and 30% complete with respect to conversion cost. During the month, 900,000 units are started. There are 70,000 units in ending work in process inventory, which are 60% complete with respect to material and 30% complete with respect to conversion cost. The company completed 880,000 units during the month. The company uses weighted average process costing. How many equivalent units should be used to calculate the weighted average cost per unit for conversion costs? a. 886,000 b. 21,000 c. 900,000 d. 901,000

Use the following information for the next 2 questions: Sem Company, which has a single stage process, uses weighted average process costing. During March, Sem completed 90,000 units. The ending work in process was 8,000 units that were 100% complete with respect to material and 60% complete with respect to conversion cost. The cost per unit was $3.00 and $2.60 for material and conversion cost, respectively.

16. What is the amount that should be transferred to finished goods (what is the cost of the completed units)? a. $90,000 b. $504,000 c. $410,400 d. $36,480

17. What is the dollar value of ending work in process inventory? a. $8,000 b. $44,800 c. $410,400 d. $36,480 18. Which of the following cost components causes variable costing income to differ from full costing income when inventory levels are changing? a. variable production cost b. variable selling cost c. fixed production cost d. fixed selling and administrative cost

19. A mixed cost is $180,000 at an activity level of 20,000 direct labor hours and $200,000 at an activity level of 30,000 direct labor hours. Using the high-low method to separate the mixed cost, what is the fixed cost component? a. $180,000 b. $200,000 c. $140,000 d. $160,000

Use the following information for the next two questions A company sells three models of its exercise bike with information for each below: City Touring Motocross Beach Selling Price $250 $400 $300 Variable cost per unit $100 $120 $110

20. The company sells the City Touring, Motocross and Beach bikes in a 3:2:5 sales mix. What is the weighted average contribution margin per unit (to the nearest dollar)? a. $267 b. $305 c. $196 d. $211

21. Assume that a labor shortage exists and that there are only 10,000 labor hours available to make the bikes each month. Additional information follows:

City Touring Motocross Beach Hours to make one unit 5 7 9.5 Monthly demand 1000 400 400

How many of each bike should be made each month to maximize profits? a. 1,000 City Touring; 400 Motocross; 400 Beach b. 680 City Touring; 400 Motocross; 400 Beach c. 1,000 City Touring; 171 Motocross; 400 Beach d. 1,000 City Touring; 400 Motocross; 231 Beach Use the following information for the next five questions

Stan’s Snow Cone Stands makes and sells snow cones each summer. The variable cost is $0.25 per cone and the selling price is $2.50. Stan has fixed cost of $18,000 per summer.

22. How many snow cones must Stan sell to break even for the summer? a. 2,000 b. 4,000 c. 6,000 d. 8,000

23. How much profit will Stan make if he sells 10,000 snow cones during the summer? a. $5,000 b. $4,500 c. $3,000 d. $22,500

24. What dollar sales level must Stan achieve to earn profit of $30,000? a. $21,333 b. $53,333 c. $30,000 d. $20,000

25. Stan could change one of his employee’s to a fixed salary instead of hourly pay. This would reduce variable costs to $0.15 per snow cone and would increase his fixed costs by $3,000 each summer. Above what volume level would it be a good idea for Stan to make this change? a. 8,000 snow cones a summer b. 8,935 snow cones a summer c. 30,000 snow cones a summer d. 20,000 snow cones a summer

26. Stan is currently selling 14,000 snow cones during the summer. He would like to make a profit equal to 40% of sales. By what amount would Stan need to reduce his fixed costs to make a profit equal to 40% of sales? a. fixed costs would need to be reduced by $500. b. fixed costs would need to be reduced by $400. c. fixed costs would need to be reduced by $300. d. fixed costs would need to be reduced by $3,000. 27. Major Manufacturing Company, a job order coster, has just switched from applying overhead on the basis of direct labor hours to applying overhead on the basis of machine hours. Applied overhead, on average, is about half the cost of all jobs completed. Production supervisors receive bonuses based on the keeping the cost of the jobs they produce as low as possible (the lower the job cost the higher the bonus). What would you most likely expect to happen as a result of the change in the overhead application basis? a. Managers would start using more labor hours and fewer machine hours b. Managers would start using more machine hours and fewer labor hours c. Managers would not change the mix of labor and machine hours. d. Managers choice of inputs would not be influenced by the overhead allocation basis.

28. Minor Manufacturing uses job order costing and applies overhead as a percentage of direct labor cost at a rate of 145%. Job OX used $5,000 worth of direct material, and $9,000 worth of direct labor. Direct labor working on the job worked 300 hours. What is the total cost of the job? a. $14,000 b. $20,300 c. $27,050 d. $34,300