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# Cost accounting

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Chapter 4

Sabina and Associates has the following current year costs:

Variable costs \$4 per unit
Fixed costs \$20,000

Next year, the company plans to enter into an arrangement with a supplier that will result in a 15% decrease in variable costs. They also plan on reducing their rental space, which will decrease fixed costs by 10%.

Required:

A. What will be the new equation to predict total costs?

B. If next year's production is expected to be 10,000 units, what will be total estimated costs?

Problem 2:
You run a regression analysis and receive the following results:

Multiple R .39429
R Square .15547
Standard Error .44416

Analysis of Variance
DF Sum of Squares Mean Square
Regression 1 5.26588 5.26588
Residual 145 28.60536 .19728

F = 26.69262 Signif F = .0000

Variables in the Equation
Variable Coefficients Standard error t Stat P-value
X Variable 1 11.0300 .021000 5.166 .0000
Intercept 8833.0700 .090000 9.751 .0000

Required:

A. What is the fixed cost in this regression analysis?

B. What is the variable cost per unit?

C. Prepare the cost equation based upon these results.

D. Does this regression equation "fit" the data well? What information did you examine to answer this question?

Chapter 5

3. Triangle Catering assigns overhead to specific jobs based on direct labor hours. At the beginning of the current year, estimated overhead costs were \$500,000 and estimated direct labor hours were 40,000. By the end of the year, actual overhead costs were calculated to be \$525,000 and actual direct labor hours were 45,000.

Required:

A. Calculate the predetermined overhead rate.

B. How much overhead would be applied to a particular catering job that required 15 direct labor hours?

C. How much total overhead was applied during the year?

D. By how much was overhead over- or underapplied for the year? Be sure to indicate whether it was over- or underapplied.

Chapter 6

Classify each of the following costs as unit-level (U), batch-level (B), product-level (P), or facility-level (F).

factory supplies factory insurance
product development costs depreciation of factory equipment
depreciation of set-up equipment utilities costs for factory machinery
salaries of product engineers salary of plant manager
repairs of factory machinery factory rent

Ken's Carpets sells carpet for both residential and business use. To better estimate costs, the company recently adopted an activity-based costing system. Last year, the company incurred \$300,000 in overhead costs. Based on an intense study of their company, the following activities, allocation bases, and percentages of overhead costs were determined:

Activity Allocation Base Proportion of Overhead Cost
Purchasing Number of purchase orders 25%
Materials processing Number of square feet 50%
Sales Number of sales orders 25%

The number of activities for residential and business is as follows:

Number of purchase orders 700 500
Number of square feet 4,000,000 2,000,000
Number of sales orders 400 100

Required:

A. Calculate the total overhead that should be allocated to each of the three activities.

B. Calculate the overhead rates for each of the three activities.

C. If a particular residential job requires 4 purchase orders and 1 sales order for total of 1,500 square feet of carpet, how much overhead should be allocated to the job?

Chapter 7
1. Trenton Inc. manufactures a single product. The following information is available for 2009

Number of units produced and sold 25,000 units

Sales price per unit \$20 per unit
Variable manufacturing costs \$8 per unit
Variable selling and administrative costs \$2 per unit

Total fixed manufacturing costs \$10,000
Total fixed selling and administrative costs \$8,000

Required:

A. Prepare a traditional format income statement (ignore taxes).

B. Prepare a contribution margin format income statement (ignore taxes).

2. Vincent Products manufactures a particular item with the following information:

Sales price \$80 per unit
Variable costs \$30 per unit
Fixed Costs \$5 per unit
Units produced and sold 10,000

Required: Calculate the following based on the above information:

A. Contribution margin per unit

B. Contribution margin ratio

C. Break-even point in units

D. Break-even point in sales dollars

Chapter 8

1. Under variable costing, which of the following is not considered a product cost?
a. Direct materials
b. Direct labor

2. Under absorption costing, which of the following is not considered a product cost?
a. Direct labor

3. The primary difference between variable and absorption costing is the treatment of:
a. fixed selling and administrative costs.
b. variable selling and administrative costs.

4. Which of the following descriptions would not be found on an income statement prepared using variable costing?
a. Sales
b. Fixed costs
c. Cost of goods sold
d. Net income

5. Which of the following line descriptions would not be found on an income statement prepared using absorption costing?
a. Sales
b. Contribution margin
c. Cost of goods sold
d. Net income

Chapter 9
A local science museum normally sells tickets to its museum for \$6 each. The daily maximum capacity of the museum is 500 visitors. At the maximum capacity, fixed costs are \$3 per visitor and variable costs are \$.50 per visitor. A local school group has approached the museum wishing to purchase 25 special passes at a cost of \$2.00 each. Assuming the museum has excess capacity, if the special order were accepted, net income would:
a. increase by \$37.50.
b. decrease by \$87.50.
c. increase by \$50.00.
d. decrease by \$37.50.

A local vendor at the county fair sells snow cones for \$3 each. When 250 snow cones are sold, each snow cone is estimated to have \$.10 in variable costs and \$.15 in fixed costs. A local school group plans on attending the fair next week and wishes to purchase 50 snow cones for \$.25 each. The vendor can sell as many as 400 snow cones per day. If the special order were accepted, net income would:
a. not change.
b. decrease by \$137.50.
c. increase by \$12.50.
d. increase by \$7.50.

A local vendor at the county fair sells snow cones for \$3 each. When 250 snow cones are sold, each snow cone is estimated to have \$.10 in variable costs and \$.15 in fixed costs. A local school group plans on attending the fair next week and wishes to purchase 50 snowcones for \$.25 each. The vendor can sell as many as 400 snowcones per day.

What is the minimum price the vendor should charge for the snowcones?
a. \$3.00
b. \$ .25
c. \$ .10
d. \$2.75
Chapter 10

Fill in the blank: Fill in the blank with either the phrase greater than, less than, or equal to.

A. If a project's net present value is positive, the actual internal rate of return is ___________ than the discount rate.

B. If a project's net present value is zero, the actual internal rate of return is ___________ than the discount rate.

C. If a project's net present value is negative, the actual internal rate of return is ___________ than the discount rate.

Chapter 14
3.

Match the following critical success factors with the appropriate perspective of the balanced scorecard. Use the following key: F = Financial, C = Customer, IB = Internal business, and LG = Learning and growth.

a. the efficient and effective use of employees
b. increasing the quality of products and services
c. increasing the number of new products
d. improving quality throughout the production process
e. increasing information systems capabilities
f. increasing ROI
g. reducing delivery time
h. increasing customer satisfaction

Indicate whether each of the following ratios are better measures of liquidity (L), solvency (S), or profitability (P).

a. Price earnings (P/E) ratio
b. Debt-to-equity ratio
c. Return on assets
d. Current ratio
e. Accounts receivable turnover
f. Times interest earned ratio
g. Earnings per share
h. Return on common stockholder's equity

Chapter 17
For each of the following activities, indicate whether they would be classified as operating (O), investing (I), or financing (F) activities for purposes of the statement of cash flows:

a. Cash paid for interest on debt.
b. Cash paid to purchase property, plant, and equipment.
d. Cash received from a bank for a long-term note payable.
e. Cash received for the issuance of capital stock.
g. Cash paid for inventory purchases.
h. Cash paid to stockholders as a dividend.

For each of the following asset and liability balance changes from the beginning to the end of the year, indicate whether the change should be added to (+) or subtracted from (&#61485;) net income for purposes of preparing the operating activity section of the statement of cash flows using the indirect method.

a. Increase in accounts payable
b. Decrease in accounts receivable
c. Increase in inventory
d. Decrease in salaries payable
e. Increase in prepaid insurance