Question

1. Determine the following information using absorption costing and variable costing:
Absorption costing
a. Manufacturing cost _______________
b. Per-unit cost _______________
c. Cost of ending inventory _______________

Variable costing
a. Manufacturing cost _______________
b. Per-unit cost _______________
c. Cost of ending inventory _______________

Basic facts:
Direct materials $1,000
Direct labor $2,000
Variable overhead $1,500
Fixed overhead $1,000
Units produced 100
Units sold 80

No beginning inventory

2. What is the prime cost per unit and conversion cost per unit:
a. Prime cost _______________
b. Conversion cost _______________

Basic facts:
Direct material $1,000
Direct labor $500
Overhead $200
Units produced 50

3. Determine the breakeven point for both total sales and units:
a. Sales _______________
b. Units _______________

Basic facts:

Fixed overhead $20,000
Contribution margin 20%
Price per unit $10

4. Calculate the contribution margin to demonstrate the impact of changes in higher leverage and lower leverage product changes:

a. Higher leverage contribution margin
- Lower sales volume _______________
- Higher sales volume _______________

b. Lower leverage contribution margin
- Lower sales volume _______________
- Higher sales volume _______________

Basic facts:
Higher leverage
- Sales $200 and $400
- Variable expense 25%
- Fixed expenses $40

Lower leverage
- Sales $200 and $400
- Variable expense 50%
- Fixed expenses $40

5. Determine the change in contribution margin as a result of a change in sales mix for the following:
a. Base case _______________
b. Favorable mix change ______________
c. Unfavorable mix change _______________

Basic facts:
- Sales price per unit in all three cases $10
- Contribution margin: Product A 20%, Product B 30%, Product C 40% and Product D 50%
- Sales units for base case 25 units for all four products
- Sales units for favorable mix change: Product A 10 units, Product B 20 units, Product C 30 units and Product D 40 units
- Sales units for unfavorable mix change: Product A 40 units, Product B 30 units, Product C 20 units and Product D 10 units

6. Determine cost of goods sold: _______________

Basic facts:
Beginning finished goods inventory $3,000
Ending finished goods inventory $6,000
Direct material $15,000
Direct labor $10,000
Overhead $5,000

7. What is the contribution margin % and gross margin %:
Contribution margin % _____________
Gross margin % ______________

Basis facts:
Sales $80
Direct material $28
Direct labor $12
Overhead $10 indirect and $10 direct
SG&A expense $12 indirect $4 direct

8. Determine the cost and cash impact of keeping or replacing Machine X:
Keep
Cost _____________
Cash ______________

Replace
Cost ____________
Cash _____________

Basic facts:
- Original purchase price for Machine X = $20,000
- Machine X has a 10 year life and straight line depreciation, or $2,000 depreciation per year
- Book value after year 6: $20,000-$12,000=$8,000
- Loss on disposal of machine X $3,000
- Replacement machine: $16,000 acquisition cost
Annual cash operating cost: Machine X $40,000 and Replacement Machine $24,000

9. What is the purchase price variance and material usage variance:
Purchase price variance ______________
Material usage variance ______________

Basic facts:
- 100 pounds
- Standard price $2.00 per pound
- Actual price $1.75 per pound
- Cost $2.00 per pound
- Standard usage 500 pounds
- Actual usage 575 pounds

10. What is the labor rate variance and labor efficiency variance:
Labor rate variance ______________
Labor efficiency variance ______________

Basic facts:
- Standard hours 175
- Actual hours 200
- Standard labor rate $20 per hour
- Actual labor rate $15 per hour

11. What is the spending variance: _______________

Basic facts:
Budgeted expenditures $30,000
Actual expenditures $35,000

12. What is the under applied overhead absorption variance: _______________

Basic data:
Standard units 500
Actual units 400
Standard overhead per unit $10

13. Calculate days DSO, DIOH and DPO on hand based on the following information:
DSO _______________
DIOH _______________
DPO _______________

Basic facts – annual (first year of operation):
- Sales $365,000
- Accounts receivable at year end $60,000
- Cost of sales $182,500
- Inventory at year end $25,000
- Accounts payable at year end $22,500

14. What is the cash conversion cycle based on the data in question 13: _______________

15. If you add 5 days to the DSO, DIOH, and DPO based on the data in question 13 and the standard CCC is as calculated in question 13 what is the CCC $ variance: ______________

16. Name three key success factors related to management control systems and responsibility:
_______________
_______________

_______________

17. Goal congruence is achieved when _____________, working in their own perceived best interest, make decisions that help meet the overall goals of the organization.

18. What are the three types of responsibility centers:
_______________
_______________

_______________

19. How many organizations have implemented ISO 9001 and in how many countries:
Organizations ______________

Countries _______________

20. Delegation of freedom to make decisions is called: _____________

21. In a decentralized organization first-level managers generally have the best information concerning local conditions:
True _______________

False ______________

22. For decentralization to work, autonomy is not necessary:
True ________________
False ________________

23. The most common profitability measures include:
_____________
_____________

_____________

_____________

24. What is the formula for EVA: ____________________________

25. The price that one segment charges another segment of the same organization for a product or service is known as a: _________________

26. What is the formula for a transfer price: __________________________

27. What are two attributes of capital assets:
_______________
_______________

28. CIP is reduced in value when an asset is: ______________

29. When does a depreciation charge start for a fixed asset: ______________

30. What is the benefit of accelerated depreciation: _______________

31. What is the objective of discounted-cash-flow models: ______________

32. What is the net present value: _____________

Basic facts:
- Original investment $10,000
- Useful life 4 years
- Annual income generated from investment (cash inflow) $2,500
- Minimum desired rate of return 10%

- NPV factor by year: 1 .9091, 2 .8264, 3 .7513, and 4 .6830

33. IRR determines the discount rate at which the NPV equals: _______________
_______________

34. Sensitivity analysis shows the __________________________ that would occur if financial projections differ from those expected.

35. What are the three types of cash flows that should be considered when relevant cash flows are arrayed:
_______________
_______________
_______________

36. Cost of capital is the Company’s: _______________________________

37. What is the Company’s cost of capital: ______________

Basic facts:
- Expected equity return 12%
- Cost of debt 6%
- Company’s capital structure 60% equity and 40% debt

38. What is the payback period: _____________

Basic facts:
- $25,000 capital expenditure
- $10,000 annual cash saving or generation

39. What are the four types of typical cost objectives:
_______________
_______________
_______________
_______________

40. What are two popular methods for allocating service costs:
_______________
_______________

41. When are by-product cost identified: ________________

42. How is overhead (based on machine hours) applied to a particular product: ____________________________

43. What is the applied overhead: ____________

Basic facts:
- 100 direct labor hours
- Overhead rate per direct labor hour $5.00

44. _______________ costing includes fixed overhead in the cost of products.

45. _______________ costing excludes fixed overhead from the cost of products.

46. Which of the two costing methods in questions 43 and 44 is based on GAAP requirements: _______________

47. Process costing is used when large numbers of nearly: ____________________________

48. Job-order costing allocates costs to products that are identified by individual: _______________________________

49. Service industries typically use process costing:
True _______________
False _______________

50. Organizations using JIT production systems usually have large inventories:
True _______________
False _______________

Answer 1

Solution:

1)

Absorption Costing

Under Absorption Costing, manufacturing cost includes direct materials, direct labor, variable overhead and fixed overhead costs. It includes fixed manufacturing costs into production cost.

a) Manufacturing Cost = $3,700

	$$
Direct materials	$1,000
Direct Labor	$200
Variable Overhead	$1,500
Fixed Overhead	$1,000
Total Manufacturing Cost	$3,700.00

b)

Per Unit Cost = Total Manufacturing Cost / Units Produced

= $3,700 / 100 Units

= $3.70 per unit

c)

Cost of Ending Inventory = Ending Inventory Units x Per Unit Cost

Ending Inventory = Produced Units 100 – Sold Units 80 = 20 Units

Cost of Ending Inventory = Ending Inventory Units 20 x Per Unit Cost3.70

= $74

Variable Costing

Under Variable Costing, the manufacturing cost includes only variable production costs i.e. direct materials, direct labor and variable manufacturing overhead.

a) Manufacturing Cost = $3,700

	$$
Direct materials	$1,000
Direct Labor	$200
Variable Overhead	$1,500
Total Manufacturing Cost	$2,700.00

b)

Per Unit Cost = Total Manufacturing Cost / Units Produced

= $2,700 / 100 Units

= $2.70 per unit

c)

Cost of Ending Inventory = Ending Inventory Units x Per Unit Cost

Ending Inventory = Produced Units 100 – Sold Units 80 = 20 Units

Cost of Ending Inventory = Ending Inventory Units 20 x Per Unit Cost 2.70

= $54

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