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Exam 1: Managerial Accounting and Cost Concepts

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Question 1

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Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $525,000 or a new model 220 machine costing $423,000 to replace a machine that was purchased 8 years ago for $488,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired.Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L.Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $423,000 in the new machine, the money could be invested in a project that would return a total of $450,000.In making the decision to invest in the model 220 machine, the opportunity cost was:

A) $488,000
B) $423,000
C) $525,000
D) $450,000

E) A) and B)
F) A) and C)

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Question 2

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Fanelli Corporation, a merchandising company, reported the following results for July: Cost of goods sold is a variable cost in this company. Required:a. Prepare a traditional format income statement for July.b. Prepare a contribution format income statement for July.

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Question 3

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Depreciation on equipment a company uses in its selling and administrative activities would be classified as a period cost.

Boersma Sales, Incorporated a merchandising company, reported sales of 7,100 units in September at a selling price of $682 per unit. Cost of goods sold, which is a variable cost, was $317 per unit. Variable selling expenses were $44 per unit and variable administrative expenses were $22 per unit. The total fixed selling expenses were $157,200 and the total administrative expenses were $338,000.The contribution margin for September was:

All of the following are examples of product costs except:

Given the cost formula, Y = $16,000 + $3.40X, total cost for an activity level of 4,000 units would be:

Conversion cost equals product cost less direct materials cost.

Abburi Company's manufacturing overhead is 60% of its total conversion costs. If direct labor is $52,000 and if direct materials are $28,000, the manufacturing overhead is:

A contribution format income statement separates costs into fixed and variable categories, first deducting variable expenses from sales to obtain the contribution margin.

Glew Corporation has provided the following information: If 3,000 units are produced, the total amount of indirect manufacturing cost incurred is closest to:

Schwiesow Corporation has provided the following information: If 4,000 units are sold, the variable cost per unit sold is closest to:

Kesterson Corporation has provided the following information: If 6,000 units are produced, the total amount of direct manufacturing cost incurred is closest to:

During the month of May, direct labor cost totaled $10,000 and direct labor cost was 40% of prime cost. If total manufacturing costs during May were $86,000, the manufacturing overhead was:

An income statement for Sam's Bookstore for the first quarter of the year is presented below: On average, a book sells for $50. Variable selling expenses are $4 per book with the remaining selling expenses being fixed. The variable administrative expenses are 5% of sales with the remainder being fixed. The contribution margin for Sam's Bookstore for the first quarter is:

Myklebust Corporation's relevant range of activity is 4,000 units to 8,000 units. When it produces and sells 6,000 units, its average costs per unit are as follows: Required:a.For financial reporting purposes, what is the total amount of product costs incurred to make 6,000 units?b. For financial reporting purposes, what is the total amount of period costs incurred to sell 6,000 units?c. If the selling price is $20.20 per unit, what is the contribution margin per unit sold?d. If 7,000 units are produced, what is the total amount of direct manufacturing cost incurred?e. If 7,000 units are produced, what is the total amount of indirect manufacturing cost incurred?f. What incremental manufacturing cost will the company incur if it increases production from 6,000 to 6,001 units?

Wages paid to production supervisors would be classified as manufacturing overhead.

Balerio Corporation's relevant range of activity is 6,000 units to 11,000 units. When it produces and sells 8,000 units, its average costs per unit are as follows: Required:a. For financial reporting purposes, what is the total amount of product costs incurred to make 8,000 units? (Do not round intermediate calculations.)b. If 10,000 units are sold, what is the variable cost per unit sold? (Round "Per unit" answer to 2 decimal places.)c. If 10,000 units are sold, what is the total amount of variable costs related to the units sold? (Do not round intermediate calculations. Round "Per unit" answer to 2 decimal places.)d. If the selling price is $18.60 per unit, what is the contribution margin per unit sold? (Round "Per unit" answer to 2 decimal places.)e. What incremental manufacturing cost will the company incur if it increases production from 8,000 to 8,001 units? (Round "Per unit" answer to 2 decimal places.)

Kesterson Corporation has provided the following information: The incremental manufacturing cost that the company will incur if it increases production from 5,000 to 5,001 units is closest to:

Pedregon Corporation has provided the following information: If 4,500 units are produced, the total amount of manufacturing overhead cost is closest to:

Gabel Incorporated is a merchandising company. Last month the company's merchandise purchases totaled $63,000. The company's beginning merchandise inventory was $13,000 and its ending merchandise inventory was $15,000. What was the company's cost of goods sold for the month?