Mid-term 2 Examination Review Quiz and additional practice problems solution:

1) A radial tire manufacturer produces products in two departmentsDivision A and B. The company uses separate allocation rates for each department to allocate its overhead. Division A and B have estimated manufacturing overhead costs of $150,000 and $ 350,000, respectively. Division A uses machine hours as the allocation base, and Division B uses direct labor hours as the allocation base. The total estimated machine hours were 30,000 and direct labor hours were 20,000 for the year. Calculate the departmental overhead allocation rates.

A) Division A$5, Division B$17.5

B) Division A$17.5, Division B$6

C) Division A$6, Division B$18.2

D) Division A$4, Division B$14.6

2) Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan requires 20 separate parts. The direct material cost is $95 per unit and each ceiling fan requires 2.5 hours of machine time to manufacture. Additional information is as follows:

Activity	Allocation Base	Cost driver allocation Rate
Materials handling	Number of parts	$0.08 per part
Machining	Machine hours	$7.20 per hour
Assembling	Number of parts	$0.35 per part
Packaging	Number of finished units	$2.70 per unit

What is the materials handling overhead cost per ceiling fan?

A) $1.60

B) $7.20

C) $6.00

D) $5.00

3) Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts. The direct material cost is $95 per unit and each ceiling fan requires 2.5 hours of machine time to manufacture. Additional information is as follows:

Activity	Allocation Base	Cost Allocation Rate $
Materials handling	Number of parts	0.08 per part
Machining	Machine hours	7.20 per hour
Assembling	Number of parts	0.35 per part
Packaging	Number of finished units	2.70 per unit

What is the assembly overhead cost per ceiling fan produced?

A) $87.50

B) $7.00

C) $7.50

D) $35.00

4) Oscar Inc. allocates manufacturing overhead using a single machine hour allocation rate. Estimated overhead cost for the year is $5,000,000. And estimated machine hours are 25,000. During the year, the actual machine hours used was 30,000. Calculate the predetermined overhead allocation rate.

A) $166

B) $250

C) $200

D) $150

5) Alpha Company manufactures breadboxes and uses an activity-based costing system. The following information is provided for the month of May:

Activity	Estimated overheads	Allocation Base	Total activities levels in the factory
Materials handling	$3,500	Number of parts	5,000 parts
Assembling	$12,000	Number of parts	5,000 parts
Packaging	$5,750	Number of bread boxes	1,250 bread boxes

Each breadbox consists of 4 parts, and the direct material cost per breadbox is $7.00. There is no direct labor. What is the total cost per breadbox?

A) $17.40

B) $24.00

C) $12.40

D) $26.00

6) Quality Stereo Company has provided the following information regarding its activity-based overheads:

Purchasing costs are allocated based on purchase orders, and the allocation rate is $75 per purchase order.

Assembly costs are allocated based on the number of parts used, and allocation rate is $1.00 per part.

Packaging overhead costs are $2.00 per unit/stereo produced.

Each stereo requires 50 parts and the direct materials cost per unit is $70. There are no direct labor costs. The company has received an order for 1,000 stereos. If this order requires 50 purchase orders to produce, what is the total cost for producing the 1,000 stereos?

Total cost of 1,000 stereos	$
Direct materials
Direct labor
+ overheads
Purchasing costs
Assembly costs
Packaging costs
Total cost

A) $125,750

B) $55,750

C) $123,750

D) $122,000

7) Orlando Avionics makes three types of radios for small aircraftModel A, Model B, and Model C. Direct materials costs per unit for each model are as follows:

Model A $28

Model B $32

Model C $40

Orlando has three overhead activitiesassembly, materials management, and product testing. The cost drivers for each type of overhead activity cost are listed below, together with information about estimated costs and production volumes for 2015:

Overhead type	Total cost	Total activities for the factory	Cost Driver	Cost Driver rate?
Assembly	$780,000	120,000 machine hours	Machine hours	?
Materials management	$120,000	80,000 parts	Parts	?
Product testing	$22,500	5,000 units produced	Total units produced	?

Each unit of model A requires 12 parts and needs 16 machine hours to complete. What is the total manufacturing cost to make one unit of product A (i.e. direct material cost and three types of manufacturing overhead cost)?

A) $150.00

B) $132.00

C) $126.50

D) $154.50

Model A cost per unit = DM + assembly overhead + Materials management overhead + product testing overhead

8) A 15% increase in production volume will result in a ________.

A) 15% increase in the variable cost per unit

B) 15% increase in total mixed costs

C) 15% increase in total administration costs

D) 15% increase in total variable costs

9) Fixed costs per unit will ________.

A) increase as production decreases

B) decrease as production decreases

C) remain the same as production levels change

D) increase as production increases

10) A cellphone service provider charges $5.00 per month and $0.10 per minute per call. If a customer's current bill is $50.00, how many calling minutes did the customer use?

A) 500 minutes

B) 550 minutes

C) 450 minutes

D) 400 minutes

11) The highest value of total cost was $75,000 in June for Mantilla Beverages Inc. Its lowest value of total cost was $50,000 in December. The company makes a single product. The production volume in June and December were 13,000 and 8,000 units, respectively. What is the variable cost per unit?

A) $9.38 per unit

B) $6.25 per unit

C) $5.00 per unit

D) $5.77 per unit

12) The high-low method is used to ________.

A) determine the highest price that can be charged for a product

B) separate mixed costs into their variable and fixed components

C) identify the relevant and irrelevant costs of a business

D) determine the sales level at highest capacity

13) Venus Inc. has fixed costs of $300,000. Total costs, both fixed and variable, are $450,000 when 30,000 units are produced. Calculate the total costs if the volume increases to 60,000 units.

A) $750,000

B) $1,200,000

C) $600,000

D) $450,000

14) Which of the following costs changes in total in direct proportion to a change in volume?

A) fixed cost

B) variable cost

C) mixed cost

D) period cost

15) The relevant range of Orleans Trailers Inc. is between 100,000 units and 180,000 units per month. If the company produces beyond 180,000 units per month:

A) the fixed costs will remain the same, but the variable cost per unit may change

B) the fixed costs may change, but the variable cost per unit will remain the same

C) the fixed costs and the variable cost per unit will not change

D) both the fixed costs and the variable cost per unit may change

16) Porterhouse Company incurs both fixed and variable production costs. Assuming the production is within the relevant range, if volume goes up by 20%, then total variable costswould:

A) increase by 20%

B) remain the same

C) increase by an amount less than 20%

D) decrease by 20%

17) Porterhouse Company incurs both fixed and variable production costs. Assuming the production is within the relevant range, if volume goes up by 20%, then the total fixed costs would:

A) increase by 20%

B) remain the same

C) increase by an amount less than 20%

D) decrease by 20%

18) Which of the following statements is true of absorption costing?

A) It considers variable selling and administrative costs as product costs.

B) It considers fixed selling and administrative costs as product costs.

C) It considers fixed manufacturing overhead cost as product costs.

D) It considers variable manufacturing overhead cost as period costs.

19) Which of the following statements is true of variable costing?

A) It considers variable manufacturing overhead as period costs.

B) It considers fixed manufacturing overhead as product costs.

C) It considers variable selling and administrative costs as product costs.

D) It considers fixed selling and administrative costs as period costs.

20) Product cost per unit calculations for absorption costing do not include:

A) fixed manufacturing overhead

B) variable manufacturing overhead

C) variable selling and administrative costs

D) direct materials

21) Which of the following is considered a period cost under variable costing, but not under absorption costing?

A) fixed selling and administrative costs

B) variable manufacturing costs

C) fixed manufacturing overhead

D) variable selling and administrative costs

22) Which of the following is considered a period cost in absorption costing?

A) variable manufacturing overhead costs

B) fixed selling and administrative costs

C) fixed manufacturing overhead costs

D) semi-variable manufacturing overhead costs

23) Gross profit is calculated by deducting ________ from sales revenue.

A) total fixed costs

B) cost of goods sold

C) total variable costs

D) selling and administrative costs

24) Which of the following will appear as a line item in a contribution margin-based income statement?

A) contribution margin

B) total cost of goods sold

C) work-in-process inventory

D) gross profit

25) Contribution margin is calculated by deducting ________ from sales revenue.

A) total product costs

B) total selling and administrative costs

C) total fixed costs

D) total variable costs

26) Flexlux Inc. reports the following information:

Units produced	500	units
Units sold	500	units
Sale price	$110	per unit
Direct materials	$20	per unit
Direct labor	$15	per unit
Variable manufacturing overhead	$10	per unit
Fixed manufacturing overhead	$15,000	per year
Variable selling and administrative costs	$5	per unit
Fixed selling and administrative costs	$10,000	per year

What is the unit product cost using variable costing? (Hint: VC only includes variable manufacturing costs within product cost)

A) $50

B) $55

C) $45

D) $65

27) Aqua Inc. has provided the following information for the year 2013.

Units produced	8,000	units
Sale price	$400	per unit
Direct materials	$35	per unit
Direct labor	$25	per unit
Variable manufacturing overhead	$45	per unit
Fixed manufacturing overhead	$480,000	per year
Variable selling and administrative costs	$70	per unit
Fixed selling and administrative costs	$250,000	per year

What is the unit product cost using variable costing?

A) $135

B) $100

C) $105

D) $165

28) Aqua Inc. has provided the following information for the year 2013.

Units produced	8,000	units
Sale price	$400	per unit
Direct materials	$35	per unit
Direct labor	$25	per unit
Variable manufacturing overhead	$45	per unit
Fixed manufacturing overhead	$480,000	per year
Variable selling and administrative costs	$70	per unit
Fixed selling and administrative costs	$250,000	per year

What is the unit product cost using absorption costing?

A) $120

B) $165

C) $130

D) $105

29) Jupiter Inc. reports the following information for August:

Sale revenue	$800,000
Variable costs	200,000
Fixed costs	100,000

Calculate the total contribution margin for the month of August.

A) $450,000

B) $600,000

C) $700,000

D) $650,000

30) Jupiter Inc. reports the following information for August:

Sale revenue	$800,000
Variable costs	200,000
Fixed costs	75,000

Calculate the net income for August using variable costing.

A) $625,000

B) $450,000

C) $525,000

D) $420,000

31) Nimtrans Inc. reports the following information for August:

Sale revenue	$800,000
Variable cost of goods sold	200,000
Fixed cost of goods sold	100,000
Variable selling and administrative costs	150,000
Fixed selling and administrative costs	75,000

Calculate the gross profit for August using absorption costing?

A) $725,000

B) $650,000

C) $600,000

D) $500,000

32) Dentofax Inc. reports the following information for August:

Sale revenue	$800,000
Variable cost of goods sold	200,000
Fixed cost of goods sold	100,000
Variable selling and administrative costs	150,000
Fixed selling and administrative costs	75,000

Calculate the net income for August using absorption costing.

A) $275,000

B) $350,000

C) $425,000

D) $525,000

33) In its first year of business, Greenlam Inc. produced and sold 600 units. If Greenlam uses variable costing:

A) its operating profit for the period will be higher than absorption costing

B) its operating profit for the period will be lower than absorption costing

C) its value of ending inventory reported in the balance sheet will be higher than absorption costing

D) its operating profit will be the same under absorption costing

34) Greenlam Inc. started the year with 200 units in the Finished Goods Inventory account. It produced 600 units during the year and sold 800 units. If Greenlam uses variable costing:

A) its operating profit for the period will be higher than absorption costing.

B) its operating profit for the period will be lower than absorption costing.

C) its value of ending inventory reported in the balance sheet will be higher than absorption costing.

D) its operating profit will be the same under absorption costing.

35) Which of the following costing methods charges all the manufacturing costs to the products?

A) variable costing

B) direct costing

C) absorption costing

D) contribution costing

36) When all of the units produced are sold, the operating income will be the same under both the costing methods. (Assume no beginning inventories.) Which of the following gives the correct reason for the above statement?

A) all manufacturing costs incurred have been recorded as expenses

B) a portion of the fixed manufacturing overhead is still in the Finished Goods Inventory account

C) all selling and administrative expenses have been recorded as period costs

D) fixed manufacturing costs have not been considered while calculating the operating profits

37) Fasetech Inc. has collected the following data for November (there are no beginning inventories):

Units produced	500	units
Sale price	$110	per unit
Direct materials	$20	per unit
Direct labor	$15	per unit
Variable manufacturing overhead	$10	per unit
Fixed manufacturing overhead	$15,000	per year
Variable selling and administrative costs	$5	per unit
Fixed selling and administrative costs	$10,000	per year

What is the ending balance in finished goods inventory using variable costing if 450 units are sold? (Hint: remember that product cost only consists of variable manufacturing costsunder variable costing).

A) $2,000

B) $2,250

C) $3,750

D) $2,850

38) Fasetech Inc. has collected the following data for November (there are no beginning inventories):

Units produced	500	units
Sale price	$110	per unit
Direct materials	$20	per unit
Direct labor	$15	per unit
Variable manufacturing overhead	$10	per unit
Fixed manufacturing overhead	$15,000	per year
Variable selling and administrative costs	$5	per unit
Fixed selling and administrative costs	$10,000	per year

What is the ending balance in finished goods inventory using absorption costing if 450 units are sold?

A) $2,850

B) $2,250

C) $3,550

D) $3,750

39) In absorption costing, fixed manufacturing overhead is expensed ________.

A) when all the other non-manufacturing fixed costs are expensed

B) when the product is sold

C) at the end of the period in which it is paid

D) when the units are produced

40) The ________ method allows managers to manipulate operating profits by producing more units than are sold.

A) absorption costing

B) variable costing

C) direct costing

D) marginal costing

41) Carbon Inc. reports the following information for April:

	Alpha	Beta
Unit sold	3,000 units	750 units
Sale price per unit	$250	$600
Variable manufacturing cost per unit	175	480
Variable sales commission per unit:	8% of selling price	10% of selling price

What is the contribution margin per unit for Alpha?

A) $35 per unit

B) $75 per unit

C) $50 per unit

D) $55 per unit

42) Carbon Inc. reports the following information for April:

	Alpha	Beta
Unit sold	3,000 units	750 units
Sale price per unit	$250	$600
Variable manufacturing cost per unit	$175	$480
Sale commission per unit:
Alpha : 8% of sales price	$20 per unit
Beta: 10% of sales price		$60 per unit

What is the total contribution margin of Alpha?

A) $180,000

B) $170,000

C) $165,000

D) $150,000

43) Carbon Inc. reports the following information for April:

	Alpha	Beta
Unit sold	3,000 units	750 units
Sale price per unit	$250	$600
Variable manufacturing cost per unit	$175	$480
Sale commission per unit:
Alpha : 8% of sales price	$20 per unit
Beta: 10% of sales price		$60 per unit

What is the contribution margin ratio of Beta?

A) 20%

B) 10%

C) 25%

D) 15%