Question 1 

Job order cost accounting systems can be used only for companies that manufacture a product.

True 

False

 

Question 2 

Variable costs are costs that remain constant in total dollar amount as the level of activity changes.

True 

 False 

 

Question 3 

A manufacturing business reports just two types of inventory on its balance sheet: work in process inventory and finished goods inventory.

True 

False 

 

Question 4 

Variable costs as a percentage of sales are equal to 100% minus the contribution margin ratio.

True 

False 

 

Question 5 

A process whereby the effect of fluctuations in level of activity is built into the budgeting system is referred to as flexible budgeting.

True 

False 

 

Question 6 

After the sales budget is prepared, the capital expenditures budget is normally prepared next.

 True 

 False 

 

Question 7 

A budget procedure that provides for the maintenance at all times of a twelve-month projection into the future is called master budgeting.

 True 

 False 

 

Question 8 

A production supervisor’s salary that does not vary with the number of units produced is an example of a fixed cost.

True 

False 

 

Question 9 

Factory overhead is applied to production using a predetermined overhead rate.

True 

False 

 

Question 10 

When budget goals are set too tight, the budget becomes less effective as a tool for planning and controlling operations.

 True 

 False 

 

Question 11 

The first budget to be prepared is usually the cash budget.

True 

False 

 

Question 12 

The current year’s advertising costs are normally considered manufacturing costs.

 True 

 False

 

Question 13 

If direct materials cost per unit increases, the break-even point will increase.

 True

        False 

 

Question 14 

If factory overhead applied exceeds the actual costs, the factory overhead account will have a credit balance.

 True 

False 

 

Question 15 

The dollars available from each unit of sales to cover fixed cost and profit is the unit variable cost.

 True 

 False 

 

Question 16 

Which of the following would most likely be a product cost?

 

Salary of VP of sales. 

Advertising for a particular product. 

Drill bits for a drill press used in the plant assembly area. 

Salary of the company receptionist.

 

Question 17 

Variable costs as a percentage of sales for Lemon Inc. are 80%, current sales are $600,000, and fixed costs are $130,000. How much will operating income change if sales increase by $40,000?

 

$8,000 increase    

$8,000 decrease 

$30,000 decrease 

$30,000 increase

 

Question 18 

Which of the following conditions would cause the break-even point to increase?

 

Total fixed costs decrease 

Unit selling price increases 

Unit variable cost decreases 

Unit variable cost increases

 

Question 19 

What ratio indicates the percentage of each sales dollar that is available to cover fixed costs and to provide a profit?

 

Margin of safety ratio 

Contribution margin ratio 

Costs and expenses ratio 

Profit ratio

 

Question 20 

Which of the following budgets provides the starting point for the preparation of the direct labor cost budget?

 

Direct materials purchases budget 

Cash budget 

Production budget 

Sales budget

 

Question 21 

Generally, period costs are classified as either

 

Selling expenses or production expenses. 

Administrative expense or production expenses. 

Selling expenses or administrative expenses. 

General expenses or selling expenses.

 

Question 22  

Tanya Inc.’s static budget for 10,000 units of production includes $60,000 for direct materials, $44,000 for direct labor, fixed utilities costs of $5,000, and supervisor salaries of $15,000. A flexible budget for 12,000 units of production would show:

 

the same cost structure in total 

direct materials of $72,000, direct labor of $52,800, utilities of $5,000, and supervisor salaries of $15,000 

total variable costs of $148,800 

direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $15,000

 

Question 23 

 The budgeting process does not involve which of the following activities:

 

specific goals are established 

Periodic comparison of actual results to goals 

Execution of plans to achieve goals 

Increase of sales by increasing marketing efforts.

 

Question 24 

In a job order cost accounting system, the entry to record the flow of direct materials into production is:

 

debit Work in Process, credit Materials

debit Materials, credit Work in Process 

debit Factory Overhead, credit Materials 

debit Work in Process, credit Supplies

 

Question 25 

Which of the following represents the factory overhead applied to a product?

 

Predetermined factory overhead rate times estimated activity. 

Actual factory overhead rate times estimated activity. 

Predetermined factory overhead rate times actual activity. 

Actual factory overhead rate times actual activity.

 

Question 26 

For purposes of analysis, mixed costs are generally:

 

classified as fixed costs 

classified as variable costs 

classified as period costs 

separated into their variable and fixed cost components

 

Question 27 

Which of the following budgets is not directly associated with the production budget?

 

Direct materials purchases budget 

Factory overhead cost budget 

Capital Expenditures budget 

Direct labor cost budget

 

Question 28 

Which of the following describes the behavior of the variable cost per unit?

 

Varies in increasing proportion with changes in the activity level 

Varies in decreasing proportion with changes in the activity level 

Remains constant with changes in the activity level 

Varies in direct proportion with the activity level

 

Question 29 

Which types of inventories does a manufacturing business report on the balance sheet?

 

Finished goods inventory and work in process inventory

Direct materials inventory and work in process inventory 

Direct materials inventory, work in process inventory, and finished goods inventory 

Direct materials inventory and finished goods inventory

 

Question 30 

Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes?

 

Direct labor 

Salary of a factory supervisor 

Indirect materials 

Direct materials

 

Question 31 

The Cavity Company estimates that the factory overhead for the following year will be $1,000,000.

 

a.  The company uses direct labor hours as its activity base and estimates that 50,000 of direct labor hours will be used next year. Calculate the overhead application rate.

b.  If the actual direct labor hours used next year are 55,000. How much factory overhead will be applied?

c.  If the actual factory overhead costs were $1,175,000, was factory overhead under- or over-applied and by how much?

d.  Prepare the journal entry to dispose of the balance in the factory overhead account

 

Question 32 

Answer the following questions:

 

a.  When direct materials are requisitioned for use in the factory, which account is debited? 

b.  When indirect materials are requisitioned for use in the factory, which account is debited? 

c.  When a job is completed, which account is debited? 

d.  When a job is completed, which account is credited? 

e.  Prepare the entry to record the sale of a job on account for $120,000. The cost of the job was $80,000.

 

 

Question 33 

Study the data below concerning costs and number of products manufactured and state whether the data illustrates a fixed, variable, or mixed cost.

 

A. 

Total cost# of units

$500        1

$1,0002

$1,5003

$2,0004

 

 B. 

Total cost# of units

$5,0001

$2,5002

$1,6673

$1,2504

 

C. 

Total cost# of units

$3,5001

$4,0002

$4,5003

$5,0004

 

Question 34

Crystal Company manufactures two models of hole punches, 2-hole punch and 3-hole punch. Based on the following production data for the month, prepare a production budget for the month.

 

                                        2-hole punch3-hole punch

Estimated beginning inventory2,800 units4,200 units

Desired ending inventory      6,900 units       5,250 units

Expected sales volume       46,000 units42,600 units

 

Question 35 

Prepare a flexible budget for Cedar Jeans Company using production levels of 16,000 and 18,000 units produced based on the following information:

 

 Variable costs: 

 Direct labor — $6.00 per unit

 Direct materials — $8.00 per unit

 Variable manufacturing costs — $2.50 per unit

 

 Fixed costs:

 Supervisor’s salary — $80,000

 Rent — $12,000

 Depreciation of equipment — $24,000