Job order cost accounting systems can be used only for companies that manufacture a product.
Variable costs are costs that remain constant in total dollar amount as the level of activity changes.
A manufacturing business reports just two types of inventory on its balance sheet: work in process inventory and finished goods inventory.
Variable costs as a percentage of sales are equal to 100% minus the contribution margin ratio.
A process whereby the effect of fluctuations in level of activity is built into the budgeting system is referred to as flexible budgeting.
After the sales budget is prepared, the capital expenditures budget is normally prepared next.
A budget procedure that provides for the maintenance at all times of a twelve-month projection into the future is called master budgeting.
A production supervisor’s salary that does not vary with the number of units produced is an example of a fixed cost.
Factory overhead is applied to production using a predetermined overhead rate.
When budget goals are set too tight, the budget becomes less effective as a tool for planning and controlling operations.
The first budget to be prepared is usually the cash budget.
The current year’s advertising costs are normally considered manufacturing costs.
If direct materials cost per unit increases, the break-even point will increase.
If factory overhead applied exceeds the actual costs, the factory overhead account will have a credit balance.
The dollars available from each unit of sales to cover fixed cost and profit is the unit variable cost.
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.
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?
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
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
Which of the following budgets provides the starting point for the preparation of the direct labor cost budget?
Direct materials purchases budget
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.
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
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.
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
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.
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
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
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
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
Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes?
Salary of a factory supervisor
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
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.
Study the data below concerning costs and number of products manufactured and state whether the data illustrates a fixed, variable, or mixed cost.
Total cost# of units
Total cost# of units
Total cost# of units
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
Prepare a flexible budget for Cedar Jeans Company using production levels of 16,000 and 18,000 units produced based on the following information:
Direct labor — $6.00 per unit
Direct materials — $8.00 per unit
Variable manufacturing costs — $2.50 per unit
Supervisor’s salary — $80,000
Rent — $12,000
Depreciation of equipment — $24,000
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