Data and Decision Making Flashcards
Which element of visualization determines how to look for information?
A. Presentation.
B. Legend.
C. Axes.
D. Title.
A. Presentation.
Presentation determines what and how to look for information.
Assuming no beginning work-in-process (BWIP) inventory, and that the ending work-in-process (EWIP) inventory is 50% complete as to conversion costs, the number of equivalent units as to conversion costs would be
A. Less than the units completed.
B. The same as the units placed in process.
C. Less than the units placed in process.
D. The same as the units completed.
C. Less than the units placed in process.
Given no BWIP, it is immaterial whether the FIFO or weighted-average method is used. Thus, conversion cost EUP equal the units that were started and completed this period plus the EUP in EWIP. Because the units in EWIP are 50% complete as to conversion costs, they will not be fully counted for purposes of determining EUP.
In order to increase the profit margin for a certain product, a company is planning to purchase a custom-made machine for $5,000,000. It is anticipated that the introduction of the new machine will reduce the product’s variable costs of labor and maintenance by $5.50 per unit and $.95 per unit, respectively. The product manager estimates that 500,000 units of the product will be manufactured and sold each year with a product life cycle of 2 years, at which time the machine will be discarded with no salvage value. What is the company’s total cost savings over the product’s life cycle?
A. $3,225,000
B. $1,450,000
C. $725,000
D. $6,450,000
B. $1,450,000
A total of 1,000,000 units are expected to be sold over the life of the asset (500,000 per year × 2 years). The machine reduces the cost of each unit by $6.45 ($5.50 + $0.95). A total cost reduction of $6,450,000 results. After accounting for the initial investment, the total cost savings are $1,450,000 ($6,450,000 – $5,000,000).
The following information is available on Tackler Co.’s two product lines:
Assuming Tackler discontinues the tables line and does not replace it, the company’s operating income will
A. Increase by $4,800.
B. Increase by $6,000.
C. Decrease by $10,800.
D. Decrease by $6,000.
D. Decrease by $6,000.
This disinvestment decision eliminates $12,000 of avoidable fixed cost and the $18,000 contribution to overhead. The net effect on pretax income is therefore a $6,000 decrease ($12,000 – $18,000).
The following information is available on Crain Co.’s two product lines:
Assuming the tables line is discontinued and the factory space previously used to make tables is rented for $24,000 per year, operating income will increase by what amount?
A. $18,000
B. $13,200
C. $24,000
D. $28,800
A. $18,000
When making a decision, the only relevant revenues and costs are those that will change depending on which choice is made. If the tables line is discontinued, the relevant amounts can be calculated as follows:
A company produces and sells two products. The first product accounts for 75% of sales, and the second product accounts for the remaining 25% of sales. The first product has a selling price of $10 per unit, variable costs of $6 per unit, and allocated fixed costs of $100,000. The second product has a selling price of $25 per unit, variable costs of $13 per unit, and allocated fixed costs of $212,000. At the breakeven point, what number of units of the first product will have been sold?
A. 25,000
B. 14,625
C. 52,000
D. 39,000
D. 39,000
To find the breakeven point when a company makes multiple products, total fixed costs are divided by the weighted-average unit contribution margin (UCM). Products 1 and 2 account for 75% and 25% of total unit sales, respectively. Thus, the weighted-average UCM for a composite unit (3 units for Product 1 + 1 unit for Product 2) is calculated as follows:
Listed below are a company’s monthly unit costs to manufacture and market a particular product.
The company must decide to continue making the product or buy it from an outside supplier. The supplier has offered to make the product at the same level of quality that the company can make it. Fixed marketing costs would be unaffected, but variable marketing costs would be reduced by 30% if the company were to accept the proposal. What is the maximum amount per unit that the company can pay the supplier without decreasing operating income?
A. $8.50
B. $7.75
C. $5.25
D. $6.75
D. $6.75
The key to this question is, what costs will the company avoid if it buys from the outside supplier? It will no longer incur the $2.00 of direct materials, nor the $2.40 of direct labor, nor the $1.60 of variable overhead, nor $0.75 ($2.50 × 30%) of the variable marketing costs (regardless of whether the company makes or buys, it will still incur 70% of the variable marketing costs). The firm will therefore avoid costs of $6.75 ($2.00 + $2.40 + $1.60 + $0.75). Thus, it will at least break even by paying no more than $6.75.
In a process cost system, the application of manufacturing overhead usually is recorded as an increase in
A. Manufacturing overhead control.
B. Work-in-process inventory control.
C. Finished goods inventory control.
D. Cost of goods sold.
B. Work-in-process inventory control.
The principal distinction between process costing and job costing is that the latter uses subsidiary WIP and finished goods ledgers to account for separate jobs. However, the same general ledger accounts are used in both systems, and cost flow among accounts also is the same. Both systems increase (debit) work-in-process (a general ledger account) to record applied overhead and other production costs.
Which of the following qualitative factors favors the buy choice in an insourcing vs. outsourcing decision?
A. Idle capacity is available.
B. All of the answers are correct.
C. Quality control is critical.
D. Maintaining a long-run relationship with suppliers is desirable.
D. Maintaining a long-run relationship with suppliers is desirable.
The maintenance of long-run relationships with suppliers may become paramount in a make-or-buy decision. Abandoning long-run supplier relationships may cause difficulty in obtaining needed parts when terminated suppliers find it advantageous not to supply parts in the future.
Fact Pattern:
Albany Mining Corporation uses a process costing system for its ore extraction operations. The following information pertains to work-in-process inventories and operations for the month of May:
Using the weighted-average method, Albany Mining’s total cost of work-in-process inventory at May 31 is
A. $155,424
B. $154,800
C. $153,264
D. $156,960
D. $156,960
The weighted-average method averages the work performed in the prior period with the work done in the current period.
Purchased direct materials are added in the second department of a three-department process. This addition does not increase the number of units produced in the second department and will
A. Increase total unit cost.
B. Not change the dollar amount transferred to the next department.
C. Increase the factory overhead portion of the ending work-in-process inventory.
D. Decrease total ending work-in-process inventory.
A. Increase total unit cost.
Adding materials to a production process without changing the number of units produced increases the unit cost. The numerator (total cost) increases while the denominator (total units) remains the same.
Which costing method is most likely to distort costs?
A. Process costing to a split-off point and job-order costing afterwards.
B. Job-order costing.
C. Process costing.
D. None of the answers are correct.
C. Process costing.
Process cost accounting assigns costs to inventoriable goods or services. It applies to relatively homogeneous products that are mass produced on a continuous basis (e.g., petroleum products, thread, and computer monitors). Instead of using subsidiary ledgers to track specific jobs, process costing typically uses only a work-in-process account for each department through which the production of output passes. Thus, all costs incurred in each department are equally allocated on each product. If the products are not exactly the same, the costs allocated are most likely to be distorted under process costing.
A company that produces a single product using a continuous process had no work in process on April 1. During the month of April, 10,000 units were started and 9,000 completed units were transferred. The ending work-in-process inventory was complete as to materials and 50% complete as to conversion. The cost of direct materials was $114,000, and the cost of direct labor amounted to $38,000. Manufacturing overhead is assigned at the rate of 50% of direct materials. For the purpose of determining the cost of goods manufactured in April, what is the cost per equivalent whole unit?
A. $15.40
B. $23.22
C. $20.90
D. $21.40
D. $21.40
The ending work-in-process inventory is 100% complete with respect to direct materials costs. Therefore, the direct materials cost per equivalent unit for the period is $11.40 ($114,000 ÷ 10,000). However, when it comes to conversion costs (direct labor and manufacturing overhead), the ending work-in-process inventory is only 50% complete. Including this incomplete ending inventory, which contains 1,000 units (10,000 started – 9,000 completed and transferred), the equivalent units of production for conversion costs total 9,500 units [9,000 completed and transferred out + (1,000 × 50%)]. As a result, the conversion costs per equivalent unit for the period total $10 {[$38,000 direct labor + ($114,000 × 50% application MOH rate)] ÷ 9,500 equivalent units}. Therefore, the total cost per equivalent unit is $21.40 ($11.40 + $10).
A company’s target gross margin is 40% of the selling price of a product that costs $89 per unit. The product’s selling price should be
A. $222.50
B. $124.60
C. $148.33
D. $142.40
C. $148.33
The gross margin is calculated as [1 – (Unit cost ÷ Unit selling price)]. The question gives a company’s target gross margin as 40%. Rearranging the gross margin equation, the unit selling price equals [Unit cost ÷ (1 – Gross margin)]. Thus, the product’s selling price is $148.33 [$89 ÷ (1 – .40)].
The following were among Gage Co.’s costs during the month just ended:
Gage’s actual manufacturing overhead was
A. $55,000
B. $120,000
C. $40,000
D. $45,000
C. $40,000
Factory (manufacturing) overhead consists of all costs other than direct materials and direct labor that are associated with the manufacturing process. Because the excess of actual manufacturing costs over standard costs is $20,000, and the standard costs are $100,000, the actual manufacturing costs are $120,000. However, because $80,000 of these costs are prime costs, the remainder is overhead. Thus, actual manufacturing overhead is therefore $40,000 ($120,000 – $80,000).
DJ Co. has a job-order cost system. The following debits (credits) appeared in the work-in-process account for the month of March:
DJ Co. applies overhead at a predetermined rate of 90% of direct labor cost. Job No. 101, the only job still in process at the end of March, has been charged with manufacturing overhead of $2,250. What was the amount of direct materials charged to Job No. 101?
A. $2,500
B. $2,250
C. $4,250
D. $4,725
C. $4,250
The amount DJ charged to direct materials can be calculated as follows:
*The direct labor cost is multiplied by 90% in determining the total overhead applied to all jobs to calculate the direct labor cost associated with the project; the overhead is divided by 90%.
Fact Pattern: Leland Manufacturing uses 10 units of Part Number KJ37 each month in the production of radar equipment. The unit cost to manufacture 1 unit of KJ37 is presented below.
Materials handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Leland’s annual manufacturing overhead budget is one-third variable and two-thirds fixed. Scott Supply, one of Leland’s reliable vendors, has offered to supply Part Number KJ37 at a unit price of $15,000.
If Leland purchases the KJ37 units from Scott, the capacity Leland used to manufacture these parts would be idle. Should Leland decide to purchase the parts from Scott, the unit cost of KJ37 would
A. Change by some amount other than those given.
B. Decrease by $3,200.
C. Decrease by $6,200.
D. Increase by $4,800.
D. Increase by $4,800.
In addition to the $15,000 purchase price, $8,000 per unit of unavoidable (fixed) manufacturing overhead is incurred (2/3 of $12,000). The materials handling charge of 20% of the purchase price of components adds another $3,000 per unit ($15,000 × .2). Thus, the unit cost of purchase is $26,000 ($15,000 + $8,000 + $3,000), which is $4,800 more than the current cost of manufacture.
The New Wave Co. is considering a new method for allocating overhead to its two products, regular and premium coffee beans. Currently New Wave is using the traditional method to allocate overhead, in which the cost driver is direct labor costs. However, it is interested in using two different drivers: machine hours (MH) for separating and roasting beans, and pounds of coffee for packing and shipping. Machine hours for the current month are 700 hours, direct labor cost per pound of coffee is $1.25, and direct materials cost per pound of coffee is $1.50. There are 1,000 pounds of coffee packed and shipped for the current month. The following data are also available:
What is the total cost per pound for the premium coffee using the new activity-based costing method?
A. $5.75
B. $5.00
C. $9.75
D. $7.75
C. $9.75
Under ABC, indirect costs are assigned to cost pools and then allocated to end products. The total cost for separating and roasting the beans is $3,500. This amount is allocated to products based on machine hours. Production of premium coffee uses 550 of 700 total machine hours, so the separating and roasting cost allocated to it is $2,750 [$3,500 × (550 MH ÷ 700 MH)]. Packing and shipping costs are allocated based on pounds of coffee. Because the amounts in pounds of regular and premium coffee are the same, each is allocated $750 ($1,500 × 50%) of packing and shipping costs. Thus, the total overhead cost for the premium coffee is $3,500 ($2,750 + $750). The overhead cost per pound is $7 ($3,500 ÷ 500 pounds). Given a direct cost per pound of $2.75 ($1.25 direct labor + $1.50 direct materials), the total cost per pound is $9.75 ($7 + $2.75).
Fact Pattern:
Zeta Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information given in the next column:
Under a costing system that allocates overhead on the basis of direct labor hours, Zeta’s materials handling costs allocated to one unit of wall mirrors would be
A. $5,000
B. $500
C. $1,000
D. $2,000
C. $1,000
If direct labor hours are used as the allocation base, the $50,000 of costs is allocated over 400 hours of direct labor. Multiplying the 25 units of each product times 200 hours results in 5,000 labor hours for each product, or a total of 10,000 hours. Dividing $50,000 by 10,000 hours results in a cost of $5 per direct labor hour. Multiplying 200 hours times $5 results in an allocation of $1,000 of overhead per unit of product.
The following information pertains to Clove Co. for the month just ended:
Clove’s margin of safety is
A. $500,000
B. $400,000
C. $800,000
D. $300,000
D. $300,000
The margin of safety measures the amount by which sales may decline before losses occur. It is the excess of budgeted or actual sales over the breakeven sales. Given that the budgeted sales are $1,000,000 and the breakeven sales are $700,000, the margin of safety is $300,000 ($1,000,000 – $700,000).
Lucas Co. has a job-order cost system. For the month of April, the following debits (credits) appeared in the general ledger account, work-in-process:
Lucas applies overhead to production at a predetermined rate of 90% based on direct labor cost. Job No. 100, the only job still in process at the end of April, has been charged with factory overhead of $4,500. The amount of direct materials charged to Job No. 100 was
A. $4,500
B. $5,000
C. $8,500
D. $18,000
C. $8,500
The ending balance in the WIP account is $18,000 ($24,000 + $80,000 + $60,000 + $54,000 – $200,000). This amount equals the $218,000 sum of all debits to the account minus the $200,000 credit. The $18,000 balance consists of materials, labor, and overhead for Job No. 100. Overhead is given as $4,500 (90% of direct labor cost). Direct labor is thus $5,000 ($4,500 ÷ .90), and the amount of direct materials is $8,500 ($18,000 – $5,000 DL – $4,500 OH).
