Introduction to Management Accounting - mid term exam

Direct costs:

• are incurred to benefit a particular accounting period.

• are incurred due to a specific decision.

• can be easily traced to a particular cost object.

• are the variable costs of producing a product.

Which of the following would most likely NOT be included as manufacturing overhead in a furniture factory?

• The cost of the glue in a chair.

• The amount paid to the individual who stains a chair.

• The workman's compensation insurance of the supervisor who oversees production.

• The factory utilities of the department in which production takes place.

Manufacturing overhead includes:

• all direct material, direct labor and administrative costs.

• all manufacturing costs except direct labor.

• all manufacturing costs except direct labor and direct materials.

• all selling and administrative costs.

Materials used in a factory that are not an integral part of the final product, such as cleaning supplies, should be classified as:

• direct materials.

• a period cost.

• administrative expense.

• manufacturing overhead.

The salary paid to the president of a company would be classified on the income statement as a(n):

• administrative expense.

• direct labor cost.

• manufacturing overhead cost.

• selling expense.

Boersma Sales, Inc., 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 gross margin for September was:

• $2,122,900

• $2,591,500

• $1,627,700

• $4,347,000

Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $360,000 or a new model 220 machine costing $340,000 to replace a machine that was purchased 7 years ago for $348,000. 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 $340,000 in the new machine, the money could be invested in a project that would return a total of $411,000.

In making the decision to invest in the model 220 machine, the opportunity cost was:

• $348,000

• $340,000

• $360,000

• $411,000

Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched product M08Y. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 310 machine costing $545,000 or by a new model 240 machine costing $450,000. Management has decided to buy the model 240 machine. It has less capacity than the model 310 machine, but its capacity is sufficient to continue making product M08Y. Management also considered, but rejected, the alternative of dropping product M08Y and not replacing the old machine. If that were done, the $450,000 invested in the new machine could instead have been invested in a project that would have returned a total of $532,000.

In making the decision to buy the model 240 machine rather than the model 310 machine, the sunk cost was:

• $545,000

• $450,000

• $527,000

• $532,000

Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched product M08Y. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 310 machine costing $545,000 or by a new model 240 machine costing $450,000. Management has decided to buy the model 240 machine. It has less capacity than the model 310 machine, but its capacity is sufficient to continue making product M08Y. Management also considered, but rejected, the alternative of dropping product M08Y and not replacing the old machine. If that were done, the $450,000 invested in the new machine could instead have been invested in a project that would have returned a total of $532,000.

In making the decision to buy the model 240 machine rather than the model 310 machine, the differential cost was:

• $95,000

• $5,000

• $77,000

• $18,000

At a sales volume of 40,000 units, Lonnie Company's total fixed costs are $40,000 and total variable costs are $60,000. The relevant range is 30,000 to 50,000 units.

If Lonnie were to sell 42,000 units, the total expected cost would be:

• $105,000

• $100,000

• $103,000

• $102,000