Question

1.

The starting point for the Direct Labor Budget is:

Multiple Choice

• the materials to be purchased from the direct materials budget.

• the units to be sold from the sales budget.

• the ending inventory from the budgeted balance sheet.

• the units to be produced from the production budget.

2.

Leaf Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $117,000, variable manufacturing overhead of $2.00 per machine-hour, and 30,000 machine-hours. The company has provided the following data concerning Job P978 which was recently completed:

Number of units in the job		20
Total machine-hours		80
Direct materials	$	500
Direct labor cost	$	2,640

The predetermined overhead rate is closest to:

Multiple Choice

• $3.90 per machine-hour

• $5.90 per machine-hour

• $4.90 per machine-hour

• $2.00 per machine-hour

3. A $2.00 increase in a product's variable expense per unit will:

Multiple Choice

• increase the contribution margin.

• decrease the units sold needed to earn a target profit.

• have no effect on the contribution margin ratio.

• increases the units sold needed to breakeven.

4. Which of the following statements is correct concerning the Cash Budget?

Multiple Choice

• The Cash Budget never includes cash disbursements from selling and administrative expenses, it only includes disbursements from product costs.

• The Cash Budget must be prepared before any other budgets.

• The Cash Budget does not contain any depreciation expenses.

5. The Jabba Corporation manufactures the "Snack Buster" which consists of a wooden snack chip bowl with an attached porcelain dip bowl. Which of the following would be relevant in Jabba's decision to make the dip bowls or buy them from an outside supplier?

	Fixed overhead cost that can be eliminated if the bowls are purchased from the outside supplier	The variable manufacturing overhead cost of the Snack Buster
A)	Yes	Yes
B)	Yes	No
C)	No	Yes
D)	No	No

Multiple Choice

• Choice A

• Choice B

• Choice D

• Choice C

• The ending cash balance is calculated by adding cash collected to the beginning cash balance for the period.

Answer 1

1. Starting point of direct labour budget is the units to be produced from the production budget.

Activities related to the material to be purchases is being done by procurement department. Further, there is no requirment of direct labour for completion of this process.

Units to be sold from sales budget is the responsibility of sales department. Requirement of direct labour is not needed.

Ending inventory from the budgeted balance sheet is taken into consideration while projecting units to be produced.

Direct labour is used to produce goods in production department.

2. As stated, predetermined overhead rate is based on machine hours.

Total fixed manufacturing overhead = $ 117,000

Machines Hours = 30,000

Fixed overhead rate = 117,000/ 30,000 = $ 3.9 per machine hour

Variable manufacturing overhead rate = $ 2 per machine hour

Total overhead rate = 3.9 + 2 = $ 5.9 per machine hour

3. An $ 2 increase in product variable expense per unit will increases the units sold needed to breakeven.

Increase in variable expense implies increase in total expenses which lead to decrease in contribution margin, thus decline in contribution margin ratio.

Increase in cost leads to increases the units sold to needed to earn a target profit.

Increase in cost leads to more number of units to be sold to reach breakeven.

4. Cash budget comprises of all the cash related expenses whether pertaining to production, administration or selling department. Thus, cash budget is being prepared after all other budgets. Cash budget does not includes non cash expenses.

Correct statement: Cash budget does not contain any depreciation expenses.

5. Choice A: Both statements are correct.

While taking the decision either to buy a product or manufacture it, fixed cost that could be eliminated and variable expenses both taken into consideration.