MOUNTAIN VIEW COLLEGE

College Heights Mt. Nebo

8709 Valencia City, Bukidnon, Philippines
School of Business & Accountancy

COMPREHENSIVE EXAMINATION
COST ACCOUNTING

INSTRUCTIONS: Select the best answer for each of the following questions. Mark only one answer
for each item . Show solutions in good form if applicable.

1. Mount Company incurred a total cost of $8,600 to produce 400 units of pulp. Each unit of pulp required five
(5) direct labor hours to complete. What is the total fixed cost if the variable cost was $1.50 per direct
labor hour?
A) $1,700
B) $3,000
C) $5,600
D) $8,000
E) some other answer _______________.

2. Given the following information, compute the total number of units for the period.

Direct labor hours 12,000

Direct labor cost $2.70 per hour
Direct materials cost $75 per unit
Total manufacturing cost $132,600
Fixed overhead cost $36,000
Variable overhead cost 50% of total labor cost

A) 360
B) 432
C) 640
D) 840
E) some other answer _______________

3.The Shapely Company uses the high-low method to determine its cost equation. The following information
was gathered for 2008:

Machine Hours Direct Labor Costs

Busiest month (June) 14,000 $200,000
Slowest month (December) 6,000 $120,000

What are the direct labor costs per machine hour?

A) $20.00
B) $16.00
C) $14.29
D) $10.00
E) some other answer _______________.

4. The Shapely Company uses the high-low method to determine its cost equation. The following
information was gathered for 2008:

Machine Hours Direct Labor Costs

Busiest month (June) 14,000 $200,000
Slowest month (December) 6,000 $120,000

If Shapely expects to use 10,000 machine hours next month, what are the estimated direct labor costs?
A) $160,000
B) $180,000
C) $175,000
D) $150,000
E) some other answer _______________.

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5. Hagler's Toupees has the following machine hours and production costs for the last six months of last year:

Month Machine Production

Hours Cost
July 15,000 12,075
August 13,500 10,800
September 11,500 9,580
October 15,500 12,080
November 14,800 11,692
December 12,100 9,922

If Hagler expects to incur 14,000 machine hours in January, what will be the estimated total production
cost using the high-low method?
A) $ 8,750.00
B) $11,142.50
C) $22,400.00
D) $31,220.00
E) Some other answer ____________.

6. The controller of Joy Co has requested a quick estimate of the manufacturing supplies needed for the Morton
Plant for the month of July when production is expected to be 470,000 units to meet the ending
inventory requirements and sales of 475,000 units. Joy Co's budget analyst has the following actual
data for the last three months.

Month Production Manufacturing

In Units Supplies
March 450,000 $723,060
April 540,000 853,560
May 480,000 766,560

Using the high-low method to develop a cost estimating equation, the estimate of needed manufacturing
supplies for July would be (CMA adapted)
A) $681,500.
B) $688,750.
C) $749,180.
D) $752,060.
E) $759,310.

7. The Chambers Manufacturing Company recorded overhead costs of $14,182 at an activity level of 4,200
machine hours and $8,748 at 2,300 machine hours. The records also indicated that overhead of $9,730
was incurred at 2,600 machine hours. What is the variable cost per machine hour using the high-low
method to estimate the cost equation?
A) $2,78
B) $2.86
C) $3.10
D) $3.38
E) some other answer _________________.

8. The Wiscow Manufacturing Company recorded overhead costs of $14,182 at an activity level of 4,200
machine hours and $8,748 at 2,300 machine hours. The records also indicated that overhead of $9,730
was incurred at 2,600 machine hours. What is the total estimated cost for 2,600 machine hours using the
high-low method to estimate the cost equation?
A) $9,730
B) $9,606
C) $9,106
D) $8,788
E) some other answer _______________

9. The journal entry to record the completion of a job in a job order cost system is

A) Work-in-Process Inventory xxx

Materials Inventory xxx
B) Materials Inventory xxx
Purchases xxx
C) Cost of Goods Sold xxx
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 Finished Goods Inventory xxx
D) Finished goods inventory xxx
Work-in-Process inventory xxx
E) Purchases xxx
Cost of Goods Sold xxx

10. The journal entry to record requisitions of material for new jobs started during the period is

A) Work-in-Process Inventory xxx

Materials Inventory xxx
B) Materials Inventory xxx
Purchases xxx
C) Cost of Goods Sold xxx
Finished Goods Inventory xxx
D) Finished goods inventory xxx
Work-in-Process inventory xxx
E) Purchases xxx
Cost of Goods Sold xxx

11. Which of the following documents is used as the basis for posting to the direct materials section of the job
cost sheet?
A) Purchase requisition.
B) Materials requisition.
C) Receiving report.
D) Purchase order.
E) Time card.

12. Which of the following documents is used as the basis for posting to the direct labor section of the job cost
sheet?
A) Purchase requisition.
B) Materials requisition.
C) Receiving report.
D) Purchase order.
E) Time card.

13. Which of the following accounts is used to accumulate the actual manufacturing overhead costs incurred
during a period?
A) Applied Manufacturing Overhead
B) Work-in-Process Inventory
C) Manufacturing Overhead Control
D) Cost of Goods Sold
E) Finished Goods Inventory

14. The journal entry to record the actual manufacturing overhead costs for indirect material is
A) Manufacturing Overhead Control xxx
Materials Inventory xxx
B) Materials Inventory xxx
Applied Manufacturing Overhead xxx
C) Manufacturing Overhead Control xxx
Finished Goods Inventory xxx
D) Work-in-Process Inventory xxx
Applied Manufacturing Overhead xxx
E) Materials Inventory xxx
Accounts Payable xxx

15. What are the transfers-out from the Finished Goods Inventory called?
A) Cost of Goods Manufactured
B) Cost of Goods Available
C) Cost of Goods Completed
D) Cost of Goods Sold

16. Manufacturing overhead applied on the basis of direct labor hours was $120,000, while actual
manufacturing overhead incurred was $124,000 for the month of April. Which of the following is always true
given the statement above?
A) Overhead was overapplied by $4,000.

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 B) Overhead was underapplied by $4,000.
C) Actual direct labor hours exceeded budgeted direct labor hours.
D) Actual direct labor hours were less than budgeted direct labor hours.

17. The predetermined overhead rate for manufacturing overhead for 2008 is $4.00 per direct labor hour.
Employees are expected to earn $5.00 per hour and the company is planning on paying its employees
$100,000 during the year. However, only 75% of the employees are classified as "direct labor." What
was the estimated manufacturing overhead for 2008?
A) $60,000
B) $75,000
C) $80,000
D) $93,750
E) some other answer _______________.

18. Before prorating the manufacturing overhead costs at the end of 2008, the Cost of Goods Sold and Finished
Goods Inventory had applied overhead costs of $57,500 and $20,000 in them, respectively. There was
no Work-in-Process at the beginning or end of 2008. During the year, manufacturing overhead costs of
$74,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $77,500 at
the end of 2008. If the under or overapplied overhead is prorated between Cost of Goods Sold and the
inventory accounts, how much will be allocated to the Finished Goods Inventory?
A) $ 903
B) $1,217
C) $1,283
D) $2,597
E) some other answer _______________

19. Before prorating the manufacturing overhead costs at the end of 2008, the Cost of Goods Sold and Finished
Goods Inventory had applied overhead costs of $57,500 and $20,000 in them, respectively. There was
no work in process at the beginning or end of 2008. During the year, manufacturing overhead costs of
$74,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $77,500 at
the end of 2008. If the under- or overapplied overhead is prorated between Cost of Goods Sold and the
inventory accounts, how much will be the Cost of Goods Sold after the proration?
A) $58,403
B) $56,597
C) $60,197
D) $54,903
E) some other answer _______________

20. The Work-in-Process Inventory account of a manufacturing firm has a balance of $2,400 at the end of an
accounting period. The job cost sheets of two uncompleted jobs show charges of $400 and $200 for
materials used, and charges of $300 and $500 for direct labor used. From this information, it appears
that the company is using a predetermined rate, as a percentage of direct labor costs, of
A) 41.7%.
B) 80.0%.
C) 125.0%.
D) 240.0%.
E) Some other answer __________.

21. The general journal entry to record the issuance of the materials represented by the following materials
requisitions for the month includes:

Requisition No. Description Amount

372 Job No. 179 $5,250
373 Job No. 184 $3,700
374 Job No. 180 $4,525
375 General factory use $ 725
376 Job No. 182 $2,470

A) a debit to Materials Inventory, $15,945.

B) a debit to Materials Inventory, $16,670.
C) a debit to Work in Process Inventory, $15,945.
D) a credit to Work in Process Inventory, $15,945
E) a credit to Factory Overhead, $725.

22. ABC Company has a beginning Work-in-Process Inventory of 25,000 units (40% complete).
During the period, 110,000 units were started and the ending Work-in-Process Inventory consisted of
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20,000 units (80%). What are the equivalent units for conversion costs using weighted-average
process costing?
A) 110,000
B) 115,000
C) 121,000
D) 131,000
E) some other answer _______________.

23. The Wisco Company has a process cost system. All materials are placed in process when the process is first
begun. At the beginning of September, there were no units of product in process. During September
50,000 units were started; 5,000 of these were still in process at the end of September and were 3/5
finished. The equivalent units of material in September were
A) 40,000
B) 45,000
C) 48,000
D) 50,000
E) Some other answer _______________.

24. The Wisco Company has a process cost system. All materials are placed in process when the process is first
begun. At the beginning of September, there were no units of product in process. During September
50,000 units were started; 5,000 of these were still in process at the end of September and were 3/5
finished. The equivalent units for the conversion costs in September were
A) 40,000
B) 45,000
C) 48,000
D) 50,000
E) Some other answer _______________.

25. Department B had a beginning inventory of 400 units, 1/4 completed; an ending inventory of 300 units, 2/3
completed, and received 900 units during the period from Department A. What was the equivalent unit
production of Department B, assuming weighted-average process costing?
A) 800 units.
B) 900 units.
C) 1,100 units.
D) 1,200 units.
E) 1,400 units.

26. Sussex Corporation's production cycle starts in the Mixing Department. The following information is
available for April:

Units
Work-in-process, April 30 (60% complete) 25,000
Total units in process during April 280,000
Work-in-process, April 1 (25% complete) 40,000

Materials are added at the beginning of the process in the Mixing Department. What are the equivalent
units of production for the month of April, assuming Sussex uses the weighted average method?
Materials Conversion Costs
A) 240,000 260,000
B) 255,000 235,000
C) 280,000 270,000
D) 315,000 285,000
E) 320,000 295,000

27. Department A had no Work-in-Process at the beginning of the period, 1,000 units were completed during
the period, 200 units were 50% completed at the end of the period, and the following manufacturing
costs were debited to the departmental Work-in-Process account during the period

Direct materials (1,200 at $10) $12,000

Direct labor 5,500
Factory overhead 4,400

Assuming that all direct materials are placed in process at the beginning of production and Department
A uses weighted-average process costing, what is the total cost of the departmental Work-in-Process
Inventory at the end of the period?

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 A) $3,650
B) $2,900
C) $2,000
D) $1,825
E) Some other answer _______________.

28. Read, Inc. instituted a new process in October 2008. During October, 10,000 units were started in
Department A. Of the units started, 8,000 were transferred to Department B, and 2,000 remained in
Work-in-Process at October 31, 2008. The Work-in-Process at October 31, 2008, was 100% complete as
to material costs and 50% complete as to conversion costs. Material costs of $27,000 and conversion
costs of $36,000 were charged to Department A in October. What were the total costs transferred to
Department B assuming Department A uses weighted-average process costing?
A) $46,900
B) $53,600
C) $56,000
D) $57,120
E) Some other answer _______________.

29. The Viva Company had 20,000 units in process on December 31, 2008 which was 80% complete as to
materials but only 40% complete as to conversion costs. The company's records show 40,000 units
were transferred to the Finished Goods Inventory during January 2009. On January 31, 2009, 15,000
units were on hand which were 30% complete as to conversion costs and 60% complete as to materials.
What are the equivalent units of production for the conversion costs in January, assuming Viva uses
first-in, first-out (FIFO)?
A) 34,000
B) 35,000
C) 36,500
D) 41,500
E) some other answer _______________.

30. RST Company incurred $126,000 in material costs during July. Additionally, the 12,000 units in the Work-
in-Process Inventory on July 01 had materials assigned to them of $32,000, even though they were only
5% complete as to materials. No additional units were started during July, and there were no
incomplete units on hand on July 31. What is the material cost per unit for July, assuming RST uses
weighted-average process costing?
A) $10.50
B) $11.59
C) $13.17
D) $15.49
E) some other answer _______________.

31. Beattie Company completed and transferred out 2,300 units in May 2008. There were 200 units in
the Work-in-Process Inventory on May 31, 2008, 30% complete as to conversion costs and 100%
complete as to materials. The month's charges for conversion costs and material costs were $9,440
and $6,250, respectively. There was no beginning inventory on May 01, 2008. What is the cost of
the work transferred-out during May?
A) $ 8,510
B) $14,950
C) $15,690
D) $16,250
E) some other answer _______________.

32. Sussex Corporation's production cycle starts in the Mixing Department. The following information
is available for April:

Units
Work-in-process, April 30 (60% complete) 25,000
Total units in process during April 280,000
Work-in-process, April 1 (25% complete) 40,000

Materials are added at the beginning of the process in the Mixing Department. What are the equivalent
units of production for the month of April, assuming Sussex uses first-in, first-out (FIFO), process
costing.

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 Materials Conversion Costs
A) 240,000 235,000
B) 240,000 260,000
C) 280,000 270,000
D) 315,000 285,000
E) 320,000 295,000

Use the following to answer questions 33-38:

The WISCO Company uses a weighted-average process costing system. The following data are available:

Beginning inventory -0-

Units started in production 20,000
Units finished during period 16,000
Units in process at end of the period
(complete as to materials; 1/4 complete as to labor and overhead) 4,000
Cost of materials used $35,200
Labor and overhead costs $37,400

33. Equivalent units of production for material are

A) 16,000.
B) 17,000.
C) 19,000.
D) 20,000.
E) Some other answer ______.

34. Equivalent units of production for labor and overhead are

A) 16,000.
B) 17,000.
C) 19,000.
D) 20,000.
E) Some other answer _________.

35. Unit cost of material is

A) $2.20.
B) $2.07.
C) $1.85.
D) $1.76.
E) Some other answer _________.

36. Unit cost of labor and overhead is

A) $2.34.
B) $2.20.
C) $1.97.
D) $1.87.
E) Some other answer __________.

37. Total cost of the 16,000 units finished is

A) $63,360.
B) $67,320.
C) $72,640.
D) $65,120.
E) Some other answer __________.

38. Total cost of the 4,000 units of the ending inventory

A) $15,840.
B) $14,520.
C) $ 9,240.
D) $ 8,910.
E) Some other answer ________.

39. The development of just-in-time (JIT) methods of production focused on

A) increasing sales revenue.
B) reducing inventories.
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 C) increasing customer service.
D) reducing operating expenses.
E) increasing product quality.

40. The primary reason for adopting total quality management (TQM) is to achieve (CIA adapted)
A) reduced delivery time.
B) reduced delivery charges.
C) greater customer satisfaction.
D) greater employee participation.
E) better managerial decisions.

41. According to the Institute of Management Accountants (IMA), the final step in resolving an ethical
dilemma is to
A) resign from the organization.
B) call the IMA's ethics hotline.
C) report the circumstances to a local newspaper.
D) consult with an objective, independent advisor.
E) discuss the situation with an immediate supervisor.

42. Which of the following statements is (are) false?

(1). In general, the term expense is used for managerial purposes, while the term cost refers to
external financial reports.
(2). An opportunity cost is the benefit forgone by selecting one alternative over another.

A) Only (1) is false.

B) Only (2) is false.
C) Both (1) and (2) are false.
D) Neither (1) or (2) are false.

43. Which of the following best distinguishes an opportunity cost from an outlay cost?
A) Opportunity costs are recorded, whereas outlay costs are not.
B) Outlay costs are speculative in nature, whereas opportunity costs are easily traceable to
products.
C) Opportunity costs have very little utility in practical applications, whereas outlay costs are
always relevant.
D) Opportunity costs are sacrifices from foregone alternative uses of resources, whereas
outlay costs are cash outflows.

44. A company which manufactures custom-made machinery routinely incurs sizable telephone costs
in the process of taking sales orders from customers. Which of the following is a proper
classification of this cost?
A) Product cost
B) Period cost
C) Conversion cost
D) Prime cost

45. For a manufacturing company, which of the following is an example of a period rather than a
product cost?
A) Wages of salespersons.
B) Salaries of machine operators.
C) Insurance on factory equipment.
D) Depreciation of factory equipment.

46. Which of the following costs is both a prime cost and a conversion cost?
A) direct materials
B) direct labor
C) manufacturing overhead
D) administrative costs
E) marketing costs

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47. Marketing costs include all of the following except:
A) Advertising.
B) Shipping costs.
C) Sales commissions.
D) Legal and accounting fees.
E) Office space for sales department.

48. The terms direct cost and indirect cost are commonly used in accounting. A particular cost might
be considered a direct cost of a manufacturing department but an indirect cost of the product
produced in the manufacturing department. Classifying a cost as either direct or indirect
depends upon
A) whether an expenditure is unavoidable because it cannot be changed regardless of any
action taken.
B) whether the cost is expensed in the period in which it is incurred.
C) the behavior of the cost in response to volume changes.
D) the cost object to which the cost is being related.

49. The Cost of Goods Manufactured Statement summarizes the periodic production operations for a
company. On the face of that schedule are intermediate calculations supporting the cost of
goods manufactured figure. The beginning Work-in-Process inventory plus the total of the
manufacturing costs equals
A) total finished goods during the period.
B) cost of goods sold for the period.
C) total work-in-process during the period.
D) cost of goods manufactured for the period.

50. A manufacturing company incurs direct labor costs as it transforms direct material into marketable
products. The cost of the direct labor will be treated as a period cost on the income statement
when the resulting:
A) payroll costs are paid.
B) payroll costs are incurred.
C) products are completed.
D) products are sold.

51. Inventoriable costs:

A) include only the prime costs of manufacturing a product.
B) include only the conversion costs of providing a service.
C) exclude fixed manufacturing costs.
D) are regarded as assets until the units are sold.
E) are regarded as expenses when the costs are incurred.

52. A product cost is deducted from revenue when

A) the finished goods are sold.
B) the expenditure is incurred.
C) the production process takes place.
D) the production process is completed.
E) the finished goods are transferred to the Finished Goods Inventory.

53. The Cost of Goods Manufactured Schedule summarizes the periodic production operations for a
company. On the face of that schedule are intermediate calculations supporting the cost of
goods manufactured amount. The beginning Finished Goods Inventory plus the cost of goods
manufactured equals
A) total finished goods during the period.
B) cost of goods sold for the period.
C) total work-in-process during the period.
D) cost of goods manufactured for the period.
E) cost of goods available for sale for the period.

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54. Direct labor would be part of the cost of the ending inventory for which of these accounts?
A) Work-in-Process.
B) Finished Goods.
C) Direct Materials and Work-in-Process.
D) Work-in-Process and Finished Goods.
E) Direct Materials, Work-in-Process, and Finished Goods.

55. Which of the following is not a product cost under full-absorption costing?
A) Direct materials used in the current period
B) Rent for the warehouse used to store direct materials
C) Salaries paid to the top management in the company
D) Vacation pay accrued for the production workers

56. The term "gross margin" for a manufacturing firm refers to the excess of sales over:
A) cost of goods sold, excluding fixed indirect manufacturing costs.
B) all variable costs, including variable marketing and administrative costs.
C) cost of goods sold, including fixed indirect manufacturing costs.
D) variable costs, excluding variable marketing and administrative costs.
E) total manufacturing costs, including fixed indirect manufacturing costs.

57. How would miscellaneous supplies used in assembling a product be classified for a manufacturing
company?
A) Fixed, period cost.
B) Fixed, product cost.
C) Variable, period cost.
D) Variable, product cost.

58. How would a 5% sales commission paid to sales personnel be classified in a manufacturing
company?
A) Fixed, period cost.
B) Fixed, product cost.
C) Variable, period cost.
D) Variable, product cost.

59. Pete's Pizza Place wishes to determine which of its costs will vary with the number of pizzas made.
The Pizza Place has four pizza makers and ten other employees who take orders from
customers and perform other tasks. The four pizza makers and the other employees are paid an
hourly wage. How would one classify (1) the wages paid to the pizza makers and other
employees and (2) materials (e.g., cheeses, sauce, etc.) used to make the pizza?

Employees’ Materials
Wages to make the pizza
A) Fixed cost Fixed cost
B) Fixed cost Variable cost
C) Variable cost Fixed cost
D) Variable cost Variable cost
E) Mixed cost Mixed cost

60. Which of the following statements is (are) true?

(1) The term full cost refers to the cost of manufacturing and selling a unit of product and
includes both fixed and variable costs.
(2). The fixed cost per unit is considered constant despite changes in volume of activity within
the relevant range.

A) Only (1) is true.

B) Only (2) is true.
C) Both (1) and (2) are true.
D) Neither (1) or (2) are true.

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61. Given the following information for a retail company, what is the total cost of goods purchased for
the period?

Purchase discounts $ 3,500

Transportation-in 6,700
Ending inventory 35,000
Merchandise cost 304,000
Purchase returns 8,400
Beginning inventory 27,000
Sales discounts 10,300

A) $298,800
B) $290,800
C) $282,100
D) $304,000
E) Some other answer ________________.

62. A company had beginning inventories as follows: Direct Materials, $300; Work-in-Process, $500;
Finished Goods, $700. It had ending inventories as follows: Direct Materials, $400; Work-in-
Process, $600; Finished Goods, $800. Purchases (net including freight) were $1,400, Direct
Labor $1,500, and Manufacturing Overhead $1,600. What is the Cost of Goods Sold for the
period?
A) $4,100.
B) $4,200.
C) $4,300.
D) $4,400.
E) Some other answer ________________.

63. Calculate the conversion costs from the following information:

Fixed manufacturing overhead $2,000

Variable manufacturing overhead 1,000
Direct materials 2,500
Direct labor 1,500

A) $3,000
B) $4,000
C) $4,500
D) $5,000
E) $7,000

64. During 2028, a manufacturing company had the following operating results:

Beginning work-in-process inventory $ 45,000

Beginning finished goods inventory $190,000
Direct materials used in production $308,000
Direct labor $475,000
Manufacturing overhead incurred $250,000
Ending work-in-process inventory $ 67,000
Ending finished goods inventory $ 89,000

What is the cost of goods manufactured for 2028?

A) $1,011,000
B) $1,134,000
C) $1,033,000
D) $1,112,000
E) Some other answer _______________.

65. During April 2028, the CJG Manufacturing Company had the following operating results:

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 Sales revenue $1,500,000
Gross margin $ 600,000
Ending work-in-process inventory $ 50,000
Beginning work-in-process inventory $ 80,000
Ending finished goods inventory $ 100,000
Beginning finished goods inventory $ 125,000
Marketing costs $ 250,000
Administrative costs $ 150,000

What is the cost of goods manufactured for April 2028?

A) $900,000
B) $875,000
C) $925,000
D) $905,000
E) Some other answer _______________.

66. The following information was collected from the accounting records of the CJG Corporation for
3,000 units:
Per Unit Per Period

Sales price $350

Direct Materials 80
Direct Labor 40
Overhead 60 $90,000
Marketing 20
Administrative 60,000

What is CJG's total cost per unit?

A) $180.
B) $200.
C) $210.
D) $250.
E) Some other answer __________.

67. Theoretically, cash discounts permitted on direct materials purchased should be (CPA adapted)
A) Added to other income, whether or not they are taken.
B) Added to other income, but only if taken.
C) Deducted from inventory, whether or not they are taken.
D) Deducted from inventory, but only if taken.

68. The difference between variable costs and fixed costs is (CMA adapted)
A) Unit variable costs fluctuate and unit fixed costs remain constant.
B) Unit variable costs are fixed over the relevant range and unit fixed costs are variable.
C) Total variable costs are constant over the relevant range, while fixed costs change in the
long-term.
D) Total variable costs are variable over the relevant range but fixed in the long-term, while
fixed costs never change.
E) Unit variable costs change in varying increments, while unit fixed costs change in equal
increments.

69. Which one of the following costs is classified as a period cost? (CIA adapted)
A) The wages of the workers on the shipping docks who load completed products onto
outgoing trucks.
B) The wages of a worker paid for idle time resulting from a machine breakdown in the
molding department.
C) The payments for employee (fringe) benefits paid on behalf of the workers in the
manufacturing plant.
D) The wages paid to workers for reworking defective products that failed the quality
inspection upon completion.

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70. Sarasota Company, (a merchandising Co.) has the following data pertaining to the year ended
December 31, 2028: (CPA adapted)
Purchases $450,000
Beginning inventory 170,000
Ending inventory 210,000
Freight-in 50,000
Freight-out 75,000

What is the cost of goods sold for the year?

A) $385,000
B) $460,000
C) $485,000
D) $536,000
E) some other answer _______________

71. Cost-volume-profit (CVP) analysis is a simple but powerful tool to assist management make operating
decisions. Which of the following does not represent a potential use of CVP analysis?
A) Ability to compute the break-even point.
B) Ability to determine optimal sales volumes.
C) Aids in evaluating tax planning alternatives.
D) Aids in determining optimal pricing policies.

72. If the fixed costs for a product decrease and the variable costs (as a percentage of sales dollars) decrease,
what will be the effect on the contribution margin ratio and the breakeven point respectively?
Contribution Breakeven
Margin Ratio Point
A) decreased increased
B) increased decreased
C) decreased decreased
D) increased increased

73. Expense A is a fixed cost expense, B is a variable cost. During the current year the volume of output has
decreased. In terms of cost per unit of output, we would expect that
A) expense A has remained unchanged.
B) expense B has decreased.
C) expense A has decreased.
D) expense B has remained unchanged.

74. A company's break-even point will not be increased by:

A) an increase in total fixed costs.
B) a decrease in the selling price per unit.
C) an increase in the variable cost per unit.
D) a decrease in the contribution margin ratio.
E) an increase in the number of units produced and sold.

75. Operating leverage refers to the extent to which an organization's cost structure is made up of:
A) differential costs.
B) opportunity costs.
C) fixed costs.
D) relevant costs.
E) product costs.

76. After-tax operating profits are equal to the before-tax operating profits when which of the following occurs:
A) income taxes are added.
B) income taxes are subtracted.
C) multiplied by (1 – tax rate).
D) divided by (1 – tax rate).

77. Barnes Corporation manufactures skateboards and is in the process of preparing next year's budget.
The pro forma income statement for the current year is presented below.

Sales $1,500,000
Cost of sales:
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 Direct materials $250,000
Direct labor 150,000
Variable overhead 75,000
Fixed overhead 100,000 575,000
Gross profit
Selling and G & A
Variable 200,000
Fixed 250,000 450,000
Operating income $ 475,000

The breakeven point (rounded to the nearest dollar) for Barnes Corporation for the current year is
A) $146,341.
B) $636,364.
C) $729,730.
D) $181,818.
E) $658,537.

78. You have been provided with the following information:

Per Unit Total

Sales $15 $45,000
Less variable expenses 9 27,000
Contribution margin 6 18,000
Less fixed expenses 12,000
Operating profit $ 6,000

If sales decrease by 500 units, how much will fixed expenses have to be reduced by to maintain the
current operating profit of $6,000?
A) $9,000.
B) $7,500.
C) $6,000.
D) $3,000.
E) Some other answer ___________.

79. The following costs have been estimated based on sales of 30,000 units:

Total Annual Costs Percent That Is Variable

Direct materials $300,000 100%
Direct labor 250,000 100
Manufacturing overhead 250,000 50
Selling and administrative 150,000 25

What selling price will yield a contribution margin of 40%?

A) $59.38
B) $43.75
C) $39.58
D) $33.25
E) Some other answer _____________________.

80. JJ Motors Inc. employs 45 sales personnel to market their line of luxury automobiles. The average car sells
for $23,000, and a 6 percent commission is paid to the salesperson. JJ Motors is considering a change to
the commission arrangement where the company would pay each salesperson a salary of $2,000 per
month plus a commission of 2 percent of the sales made by that salesperson. The amount of total
monthly car sales at which JJ Motors would be indifferent as to which plan to select is
A) $2,250,000.
B) $3,000.000.
C) $1,500,000.
D) $1,250,000.
E) $4,500,000.

81. Given the following information:

Sales $5,000
Fixed Expenses 2,000
Variable Expenses 1,750

What would expected net income be if the company experienced a 10 percent increase in fixed costs
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 and 10 percent increase in sales volume?
A) $1,750.
B) $1,550.
C) $1,250.
D) $1,375.
E) Some other answer _____________.

82. The Dooley Co. manufactures two products, baubles and trinkets. The following are projections
for the coming year:

BAUBLES TRINKETS
Units Amount Units Amount

Sales 10,000 $10,000 5,000 $10,000

Costs:
Fixed 2,000 4,600
Variable 6,000 4,000
Income before taxes 8,000 $ 2,000 8,000 $ 1,400

How many Baubles will be sold at the breakeven point, assuming that the facilities are jointly used and
the sales mix will remain constant?
A) 9,900
B) 8,800
C) 6,600
D) 5,000
E) 3,300

83. Breakeven analysis assumes that over the relevant range (CPA, adapted 5/93):
A) Total Fixed Costs are nonlinear.
B) Total Costs are unchanged.
C) Unit Variable Costs are unchanged.
D) Unit Revenues are nonlinear.

84. The relevance of a particular cost to a decision is determined by the: (CMA adapted, 12/96)
A) riskiness of the decision.
B) number of decision variables.
C) amount of the cost.
D) potential effect on the decision.
E) accuracy of the cost.

85. On January 1, 2006, Lake Co. increased its direct labor wage rates. All other budgeted costs and revenues
were unchanged. How did this increase affect Lake's budgeted break-even point and budgeted margin
of safety? (CPA adapted, 5/92)

Budgeted break-even point Budgeted margin of safety

A) Increase Increase
B) Increase Decrease
C) Decrease Decrease
D) Decrease Increase

86. The following information pertains to Syl Co.:

Sales $800,000
Variable Costs 160,000
Fixed Costs 40,000

What is Syl's breakeven point in sales dollars? (CPA adapted, 11/92)

A) $200,000
B) $160,000
C) $ 50,000
D) $ 40,000
E) some other answer _______________.

87. Kator Inc. manufactures industrial components. One of its products that is used as a subcomponent in auto
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 manufacturing is KB-96. The selling price and cost per unit data for 9,000 units of KB-96 is as follows.

Per Unit Data

Selling Price $150
Direct Materials 20
Direct Labor 15
Variable Manufacturing Overhead 12
Fixed Manufacturing Overhead 30
Variable Selling 3
Fixed Selling and Administrative 10
Total Costs 90
Operating Margin $ 60

During the next year, sales of KB-96 are expected to be 10,000 units. All costs will remain the same
except for fixed manufacturing overhead, which will increase 20%, and material, which will increase
10%. The selling price per unit for next year will be $160. Based on this data, Kator Inc.'s contribution
margin for next year will be: (CMA adapted, 12/95)
A) $ 882,000
B) $ 980,000
C) $ 972,000
D) $1,080,000
E) some other answer _______________.

88. Which of the following statements regarding differential costs is (are) false?

(A). The full cost fallacy occurs when a decision-maker fails to include fixed manufacturing overhead
in the product's cost.
(B). When deciding whether or not to accept a special order, a decision-maker should focus on
differential costs instead of full costs.

A) only A.
B) only B.
C) neither A nor B is false.
D) both A and B are true.

89. Which of the following costs are irrelevant for a special order that will allow an organization to utilize
some of its present idle capacity?
A) Direct materials
B) Indirect materials
C) Variable overhead
D) Unavoidable fixed overhead
E) Differential sales commission

90. Which of the following statements regarding special orders is (are) true?

(A) The primary decision for special orders is determining whether the differential revenue is greater
than the differential costs associated with the order.
(B) The differential analysis approach to pricing for special orders could lead to underpricing in the
long-run because fixed costs are not included in the analysis.

A) only A.
B) only B.
C) neither A nor B is false.
D) both A and B are true.

91. Which of the following costs are irrelevant to the make-or-buy decision?
A) Indirect materials and indirect labor if the item is manufactured internally
B) Direct materials and direct labor if the item is purchased
C) Variable overhead if the item is manufactured internally
D) Fixed overhead that can be avoided if the item is purchased
E) Fixed overhead that will continue if the item is purchased.

92. For the past five years, the RS Company has produced and sold electronic magnets to chemistry labs
throughout the United States. Recently, a strong competitor has entered the market and RS is
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 considering whether it should continue to produce and sell the electronic magnets. The following
information has been gathered to assist management in their decision:
A) The machinery used to produce the magnet was purchased five-years ago for $500,000.
B) Four of the employees who produce magnets would be transferred to the magnifying glass division.
C) The space now used to produce the magnets would be used to eliminate the need to rent warehouse
space.
D) Sales volume (units) is estimated to drop by 50% once the competitor becomes fully operational.

Which of the items listed above is (are) relevant to the decision to continue the production and sale of
the electronic magnets?
A) A and C.
B) B and C.
C) C and D.
D) A, B, and D.
E) B, C, and D.

93. Which of the following statements about the theory of constraints is (are) true?

(A) The theory of constraints focuses on determining the optimal product mix when one or more
resources restrict the attainment of a goal or objective.
(B) The theory of constraints focuses on maximizing the rate of throughput contribution while
minimizing investment and other operating costs.

A) only A.
B) only B.
C) neither A nor B is true.
D) both A and B are true.

94. The theory of constraints focuses on maximizing throughput contribution margin while minimizing all of
the following except
A) fixed overhead costs.
B) production bottlenecks.
C) investment in buildings.
D) investment in inventories.

95. The AZ Company manufactures kitchen utensils. The company is currently producing well below its full
capacity. The BV Company has approached AZ with an offer to buy 20,000 utensils at $0.75 each. AZ
sells its utensils wholesale for $0.85 each; the average cost per unit is $0.83, of which $0.12 is fixed
costs. If AZ were to accept BV's offer, what would be the increase in AZ's operating profits?
A) $ 400
B) $ 800
C) $1,600
D) $2,000
E) AZ's operating profits will not increase as a result of accepting the special order.

96. The MNK Company has gathered the following information for a unit of its most popular product:

Direct materials $6
Direct labor 3
Overhead (40% variable) 5
Cost to manufacture 14
Desired markup (50%) 7
Target selling price 21

The above cost information is based on 4,000 units. A foreign distributor has offered to buy 1,000 units
at a price of $16 per unit. This special order would not disturb regular sales. Variable shipping and
other selling expenses would be $1 per unit for the special order. If the special order is accepted,
MNK's operating profits will increase by:
A) $1,000.
B) $1,600.
C) $2,000.
D) $4,000.
E) $5,000.

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97. The following information relates to the Tram Company for the upcoming year.

Amount Per Unit

Sales $4,000,000 $ 10.00
Cost of goods sold 3,200,000 8.00
Gross margin 800,000 2.00
Operating expenses 300,000 .75
Operating profits $ 500,000 $ 1.25

The cost of goods sold includes $1,200,000 of fixed manufacturing overhead; the operating expenses
include $100,000 of fixed marketing expenses. A special order offering to buy 50,000 units for $7.50
per unit has been made to Tram. Fortunately, there will be no additional operating expenses associated
with the order and Tram has sufficient capacity to handle the order. How much will operate profits be
increased if

Tram accepts the special order?

A) $ 25,000
B) $ 62,500
C) $100,000
D) $125,000
E) Operating profits will not increase as a result of accepting the special order.

98. The Regal Baking Company is considering the expansion of its business into door-to-door delivery service.
This would require an additional $12,500 in labor costs per month. Company-owned vehicles now used
to make morning deliveries to restaurants could be used in the afternoons to make the home deliveries.
However, it is estimated that an additional $5,000 would be required per month for gas, oil, and
maintenance. It is further estimated that the home delivery use of the trucks would be allocated 45% of
the existing $6,500 fixed vehicle costs. What is the differential delivery cost per month for expanding
into the home delivery market?
A) $12,500
B) $17,500
C) $19,750
D) $20,425
E) some other answer _______________.

99. The Blade Division of Axe Company produces hardened steel blades. One-third of Blade's output is sold to
the Forestry Products Division of Axe; the remainder is sold to outside customers. Blades' estimated
operating profit for the year is:

Forestry Outside
Division Customers
Sales $15,000 $40,000
Variable costs (10,000 ) (20,000 )
Fixed costs (3,000 ) (6,000 )
Operating profits. $2,000 $ 14,000

Unit sales 10,000 20,000

The Forestry Division has an opportunity to purchase 10,000 blades of the same quality from an outside
supplier on a continuing basis. The Blade Division cannot sell any additional products to outside
customers. Should the Axe Company allow its Forestry Division to purchase the blades from the
outside supplier at $1.25 per unit?
A) No; making the blades will save Axe $1,500.
B) Yes; buying the blades will save Axe $1,500.
C) No; making the blades will save Axe $2,500.
D) Yes; buying the blades will save Axe $2,500.

100. The Blade Division of Axe Company produces hardened steel blades. One-third of Blade's output is sold to
the Forestry Products Division of Axe; the remainder is sold to outside customers. Blades' estimated
operating profit for the year is:

Forestry Outside
Division Customers
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Sales $15,000 $40,000
Variable costs (10,000 ) (20,000 )
Fixed costs (3,000 ) (6,000 )
Operating profits. $2,000 $ 14,000

Unit sales 10,000 20,000

The Forestry Division has an opportunity to purchase 10,000 blades of the same quality from an outside
supplier on a continuing basis. If the Blade Division is now operating at full capacity and can sell all its
units to outside customers at the present selling price, what is the differential cost to Axe of requiring
that the blades be made internally for the Forestry Division?
A) $ 2,500
B) $ 5,000
C) $ 7,500
D) $10,000
E) some other answer _______________.

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