SECTION B4 BLIND TEST Flashcards
MCQ-04642
Trijonis Company estimated its material handling costs at two activity levels, as follows:
Kilos Handled Cost
80,000 $160,000
60,000 $132,000
What is Trijonis’ estimated cost for handling 75,000 kilos?
A. $165,000
B. $153,000
C. $150,000
D. $157,500
USE HIGH LOW METHOD AND REGRESSION ANALYSIS TO DETERMINE ANSWER
First get cost per kilo using HIGH LOW:
160-132/80-60 = 28/20 = 1.4 OR $1.40 per kilo
Determine fixed portion with REGRESSION:
y = a + bx
pick either one at this point
132000 = a + (60,000 * 1.4)
OR 160000 = a + (80000*1.4)
either way, solve for a
132000 = a + 84000
a = 132000 - 84000 = $48,000 <— this represents the fixed portion of costs
add to the variable costs—> 75000 * $1.4 = $105,000
Variable costs of $105,000 + fixed cost of $48,000 = $153,000
THEREFORE THE ANSWER IS B —–> $153,000
WHAT IS THE FLEXIBLE BUDGET FORMULA FOR USE WITH THE “HIGH-LOW” METHOD?
Total cost = Fixed cost + (Variable cost per unit x Number of units)
MCQ-03789
Using regression analysis, Fairfield Co. graphed the following relationship of its cheapest
product line’s sales with its customers’ income levels:
{PICTURE OF A DOWNWARD SLOPING LINE (|)}
If there is a strong statistical relationship between the sales and customers’ income levels,
which of the following numbers best represents the correlation coefficient for this
relationship?
A. - 9.00
B. - 0.93
C. +0.93
D. +9.00
Choice “B” is correct.
The correlation coefficient measures the strength of the relationship between variables. It is a number between -1 and +1. If the relationship is strong, it will have a coefficient near +1 or -1 depending on the slope of the relationship. In this case, the descending relationship has a negative slope. The correlation coefficient will be close to -1, or -0.93 as given.
In this case the relationship between sales and income levels is downward sloping, indicating a negative relationship, not a positive one.
NOTE: IN GENERAL: The correlation coefficient is a number between +1 and -1
When inventory increases, which costing method produces the greater net income?
Absorption vs Variable.
WHY???
Absorption costing will ALWAYS produce a greater net income WHEN INVENTORY GOES UP.
Why: Treatment of fixed costs (absorption treats some as unexpired inventory)
example
Producto Industries had a beginning inventory of 1,000 units on January 1, 20X1, purchased 30,000 units during the year, and sold 28,000 during the year ended December 31, 20X1. In comparing the net income results related to the use of absorption versus variable (direct) costing for the year ended December 31, 20X1
ANSWER - B. Absorption costing will produce a greater net income than variable costing.
WHY: The only difference between variable and absorption costing is the treatment of fixed costs. Under variable costing approaches, all fixed costs are
treated as periodic expenses. Using absorption costing, certain fixed costs are treated as unexpired (inventory) and only recognized as cost of goods sold when relieved from inventory. When inventory increases, cost of goods sold decreases and net income increases. An increase in inventory by 2,000 units as displayed in the fact pattern (30,000 − 28,000) indicates that some fixed costs, treated as period expenses under variable costing, have been included in inventory under absorption costing thereby decreasing cost of goods sold and increasing net income.
MCQ-05808
Selected information concerning the operations of a company for the year ended December
31 is as follows:
Units produced 20,000
Units sold 18,000
Direct materials used $80,000
Direct labor incurred $40,000
Fixed factory overhead $50,000
Variable factory overhead $24,000
Fixed selling and administrative expenses $60,000
Variable selling and administrative expenses $9,000
Work-in-process inventories at the beginning and end of the year were zero. What was the
company’s finished goods inventory cost at December 31 under the variable (direct) costing
method?
Choice “C” is correct. The ending finished goods inventory computed using direct
costing is calculated by allocating the total costs capitalized in inventory under direct
costing (variable costs) to ending inventory as follows:
Amount Units Ending Inventory
Direct Material 80,000
+
Direct Labor 40,000
+
Variable Factory Overhead 24,000
= 144000 total production costs
Total Production 144,000 ÷ 20,000 total units = $7.20 production costs per units
Ending Inventory (20,000 - 18,000) = 2,000 ENDING INVENTORY AMT
$2000 * $7.20 = Ending Inventory dollar amt $14,400
_____________________accommodate changes in activity levels. They contain both fixed and variable components. The actual activity level is used to create a budget for that level.
Flexible Budgets
