Quiz I – Accounting for Managers (B-KUL-D0N83A) Student name: ………………………………………………

QUIZ I
Answer Sheet
For the quiz from Cost Concepts and Job order, Process and Activity Based costing, Cash Flow Statement and the
Financial Analysis

Disclaimer:
This quiz test your basic understanding of some concepts. If you do well in the quiz, this is a good news as
there will be questions in the exam containing a series of multiple choice questions (similar to this quiz).
However, in the final exam, there will also be other type of questions (such as open ended questions
containing exercises and/ or theory and/or cases), as well as other types of multiple choice questions.

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Quiz I – Accounting for Managers (B-KUL-D0N83A) Student name: ………………………………………………

Multiple Choice Questions (48 Points):

This section consists of 48 multiple choice questions.
In order to improve the reliability of the scores, the negative marking will be applied because it yields scores that
are not inflated by guesswork.
This section should take about 120 minutes.
Please provide your answers in the following answer sheet (not anywhere else!).

Answer Sheet
(mark the correct answer by placing an “X” in its box)

Q a b c d Q a b c d
1 * 32 *
2 * 33 *
3 * 34 *
4 * 35 *
5 * 36 *
6 * 37 *
7 * 38 *
8 * 39 *
9 * 40 *
10 * 41 *
11 * 42 *
12 * 43 *
13 * 44 *
14 * 45 *
15 * 46 *
16 * 47 *
17 * 48 *
18 *
19 *
20 *
21 *
22 *
23 *
24 *
25 *
26 *
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Quiz I – Accounting for Managers (B-KUL-D0N83A) Student name: ………………………………………………

Contents
Financial Statement Analysis .......................................................................................................................... 4
Statement of Cash Flow .................................................................................................................................. 8
Cost Concepts and Job Order Costing .......................................................................................................... 11
Process Costing ............................................................................................................................................. 16
Activity Based Costing ................................................................................................................................. 20
Formula Sheet ............................................................................................................................................... 24

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 Quiz I – Accounting for Managers (B-KUL-D0N83A) Student name: ………………………………………………

Financial Statement Analysis

1. Assume the following cost of goods sold data for a company:

2020 $1,704,000
2019 1,400,000
2018 1,200,000
If 2018 is the base year, what is the percentage increase in cost of goods sold from 2018 to
2020?
a. 70.4%
b. 42%
c. 85.7%
d. 117%

Answer: b
Solution: ($1,704,000  $1,200,000) ÷ $1,200,000  42%
((Cost of Goods Sold in 2020 – Cost of Goods Sold in 2018) / Cost of Goods Sold in 2018 = Percentage increase in cost
of goods sold from 2018 to 2020)

2. Saira, Inc. has the following income statement (in millions):

SAIRA, INC.
Income Statement
For the Year Ended December 31, 2020
Net Sales $300
Cost of Goods Sold 180
Gross Profit 120
Operating Expenses 45
Net Income $75

Using vertical analysis, what percentage is assigned to Cost of Goods Sold?

a. 40%
b. 60%
c. 100%
d. None of these answer choices are correct.

Answer: b
Solution: $180 ÷ $300  60%
(Cost of Goods Sold / Net Sales = Percentage assigned to Cost of Goods Sold using vertical analysis)

3. Net sales are $8,000,000, beginning total assets are $2,500,000, and the asset turnover is 4.0 times.
What is the ending total asset balance?
a. $2,000,000
b. $1,500,000
c. $2,800,000
d. $2,500,000
Answer: b
Solution: 4  ($8,000,000 ÷ ($2,500,000  X) ÷ 2); X  $1,500,000
(Asset Turnover = (Net Sales / (Beginning Total Assets + Ending Total Assets (X) / 2)

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 Quiz I – Accounting for Managers (B-KUL-D0N83A) Student name: ………………………………………………

4. Blitzen Corporation had net income of $200,000 and paid dividends to common stockholders of
$50,000 in 2020. The weighted average number of shares outstanding in 2020 was 40,000 shares.
Blitzen Corporation's common stock is selling for $35 per share on the New York Stock Exchange.
Blitzen Corporation's price-earnings ratio is
a. 5.6 times.
b. 7 times.
c. 5 times.
d. 9.3 times.

Answer: b
Solution: $200,000 ÷ $40,000  $5 Eps; $35 ÷ $5  7 times
(Net Income / Weighted average number of shares = Earnings per share; Share price / Earnings per share = Price- earnings
ratio)

5. The following financial statement information is available for James Corporation:

2020 2019
Net sales $780,000 $697,000
Cost of goods sold 406,000 377,000
Net income 120,000 80,000
Tax expense 48,000 29,000
Interest expense 14,000 14,000

The profit margin for 2020 is

a. 15.4%.
b. 47.9%.
c. 32.1%.
d. 13.5%.
Answer: a
Solution: $120,000 ÷ $780,000  15.4%
(2020 Net Income / 2020 Net Sales = Profit margin for 2020)

6. A firm has a higher asset turnover ratio than the industry average, which implies
a. the firm has a higher P/E ratio than other firms in the industry.
b. the firm is more profitable than other firms in the industry.
c. the firm is utilizing assets more efficiently than other firms in the industry.
d. the firm has higher spending on new fixed assets than other firms in the industry.

Answer: c
The higher the asset turnover ratio the more efficiently the firm is using assets.

7. FOX Company has a ratio of (total debt/total assets) that is above the industry average, and a
ratio of (long term debt/equity) that is below the industry average. These ratios suggest that the
firm ________.

a. utilizes assets effectively

b. has too much equity in the capital structure
c. has relatively high current liabilities
d. has a relatively low dividend payout ratio

Answer: c
Total debt includes both current and long term debt; the above relationships could occur only if FOX
Company has a higher than average level of current liabilities.

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8. Which of the following ratios gives information on the amount of profits reinvested in the firm
over the years?
a. Sales/total assets
b. Debt/total assets
c. Debt/equity
d. Retained earnings/total assets

Answer: d
Only retained earnings reflect profits reinvested over the years.

9. Which of the following would best explain a situation where the ratio of (net income/total equity)
of a firm is higher than the industry average, while the ratio of (net income/total assets) is lower
than the industry average?

a. The firm's net profit margin is higher than the industry average.
b. The firm's asset turnover is higher than the industry average.
c. The firm's equity multiplier must be lower than the industry average.
d. The firm's debt ratio is higher than the industry average.

Answer: d
Assets are financed either by debt or equity. The situation described above could occur only if the firm is
financing more assets with debt than are industry competitors.

10. Zoron Corporation experienced the following year-over-year changes.

Net profit margin Increased 25%

Total asset turnover Increased 40%

Total assets Decreased 10%

Total equity Increased 40%

Using DuPont analysis, what is the year-over-year change in Zoron's return on equity?

a. Increased 95.0%.
b. Increased 63.0%.
c. Increased 12.5%.
d. Increased 10.0%.

Answer: c

The Dupont model is the expanded ratio analysis of Return on Equity (Net Income divided by Ave Total Equity). The
former shows the importance of dissecting the analysis of the company's profitability by including the profit margin on
sales, asset turnover ratio, and the equity multiplier in to the equation (Net Income/Net Sales and Net Sales/Ave Total
Assets and Ave Total Assets/ Ave Total Equity where both Net Sales and Ave Total Assets get knocked off and still
produce the original formula NI/Ave Equity).
The formula will look like this:
Net Profit X . Net Sales X . Ave Total Assets
Net Sales . Ave Total Assets Ave Total Equity
We can use hypothetical numbers for analyzing the inc/dec in values. We assume some easy values, like profit is 100,
sales is 1,000, assets 4,000 and, finally, equity 2,000.

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Net Profit % is 100/1,000 = 10%

Asset Turnover is 1,000/4,000 = 0.25
Equity multiplier is 4,000/2,000 = 2
Hence, the original ROE is 5% (100/2,000) or (10% X 0.25 X 2).
Now, here's where the twisting part comes:
1. Equity increased 40%. If the original equity is 2,000 and it went up by 40% this year, the new equity must be 2,800
(2,000 X 140%)
2. Asset decreased by 10%. This means the new asset balance must be 3,600 (4,000 X 90%) this year.
3. Asset Turnover increased 40%. If original asset turnover (NS/Ave Asset) is 0.25, the new AT must be 0.35 (0.25 X
140%). If our denominator is 3,600 then the revised numerator (Net Sales) has to be 1,260 to produce the revised Asset
Turnover of 0.35.
4. Net Profit Margin increased 25%. Original net profit % was 10%. If it increased by 25% the revised NP% must be
12.5%.
5. If the revised net sales (#3) is 1,260 and revised NP% (#4) is 12.5%, the new profit must be 157.50.
This year's ROE following Dupont model:
NP% . Asset Turnover Equity Multiplier
157.50/1,260 X 1,260/3,600 X 3,600/2,800 = 5.625%
Change in return on equity = (5.625% - 5%) / 5% = 12.5%

Fast solution (not recommended):

ROE= Net profit margin x Total Asset Turnover x Leverage (i,e, Total Asset / Total Equity) -- (A)

Assume current ROE =1

(i) For an 25% increase in net profit margin : New net profit margin = 1+25%=1.25
(ii) For an 40% increase in total asset turnover : New total asset turnover = 1+40%=1.40
(iii) For an 10% decrease in total asset : New total asset = 1-10%=0.90
(iv) For an 40% increase in total equity : New total equity = 1+40%=1.40
Sub (i) - (iv) into (A): New ROE = 1.25 x 1.4 x (0.9 / 1.4) = 1.125
The increase in ROE = 1.125 - 1 = 0.125 (i.e. increase of 12.5%)

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 Quiz I – Accounting for Managers (B-KUL-D0N83A) Student name: ………………………………………………

Statement of Cash Flow

11. Of the following questions, which one would not be answered by the statement of cash flows?
a. Where did the cash come from during the period?
b. What was the cash used for during the period?
c. Were all the cash expenditures of benefit to the company during the period?
d. What was the change in the cash balance during the period?

Answer: c

12. When using the indirect method to prepare the operating section of a statement of cash flows,
which of the following is added to net income to compute cash provided by/used by operating
activities?
a. Increase in accounts receivable.
b. Gain on sale of land.
c. Amortization of patent.
d. All of the above are added to net income to arrive at cash flow from operating activities.

Answer: c

13. The following data are available for Alamo Corporation.

Sale of land $225,000
Sale of equipment $130,000
Issuance of common stock 140,000
Purchase of equipment 70,000
Payment of cash dividends 120,000

Net cash provided by investing activities is:

a. $285,000.
b. $260,000.
c. $305,000.
d. $425,000.

Answer: a
Solution; $225,000  $130,000  $70,000  $285,000
(Sale of land + Sale of equipment – Purchase of equipment = Net cash provided by investing activities)

14. A company had net income of $210,000. Depreciation expense is $27,000. During the year,
Accounts Receivable and Inventory increased $17,000 and $42,000, respectively. Prepaid
Expenses and Accounts Payable decreased $5,000 and $6,000, respectively. There was also a loss
on the sale of equipment of $2,000. How much cash was provided by operating activities?
a. $175,000
b. $179,000
c. $241,000
d. $271,000

Answer: b
Solution; $210,000  $27,000  $17,000  $42,000  $5,000  $6,000  $2,000  $179,000
(Net Income + Depreciation expense – Increase in Accounts receivable – Increase in Inventory + Decease
in Prepaid expenses – Decrease in Accounts payable + Loss on the sale of equipment = Net cash
provided by operating activities)

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15. Net cash flow from operating activities for 2011 for Graham Corporation was $300,000. The
following items are reported on the financial statements for 2011:
Depreciation and amortization $ 20,000
Cash dividends paid on common stock 12,000
Increase in accounts receivable 24,000
Based only on the information above, Graham’s net income for 2011 was:
a. $256,000.
b. $264,000.
c. $296,000.
d. $304,000.

Answer: d
X + $20,000 – $24,000 = $300,000
X – $4,000 = $300,000; X = $304,000.

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 Quiz I – Accounting for Managers (B-KUL-D0N83A) Student name: ………………………………………………

16. The following choices are the cash flow patterns for four different companies in the same
industry. Assume that the numbers are all significant (i.e., they are all in the millions and none
are nearly zero). Which of the following cash flow patterns describes the company that is likely
having the most problems?

Operating Investing Financing

a. + – –
b. + – +
c. – + +
d. – – –

Answer: c
Approach and explanation: The most important column is the Operating Activities one. A company with
significant positive cash flow from operating activities is not likely to be the one having the most problems.
With that in mind, you can safely cross out choices a and b.

Before we look closer at the remaining choices of c and d, let’s see what general descriptions would fit for
choices a and b just in case the problem like this that you get on a test isn’t looking for the company with the
most problems.

Choice a is a company doing very well on operations. They are using the excess cash that operating activities
are generating to invest in the future and to pay off debt and/or pay dividends to shareholders or buy back
outstanding shares of stock.

Choice b is a company in a similar situation except that instead of paying off debt and paying dividends, they
are increasing their debt burden and/or issuing additional shares of company stock. They may be doing this
because the growth prospects are so good that they want to spend a lot of money on investments. They could
be buying up other companies or expanding their own facilities very rapidly.

Situations like choices a and b are the best situations to be in. As an investor, or a potential partner in a
strategic alliance like that described in the example in the chapter, these are the companies to look for if you
want to increase your odds of maximizing your long-term gains.

Choice d is actually a very uncommon situation for a company to be in. A company can’t have negative cash
flows from all three activities for a long period of time. But just because all three are negative doesn’t mean
the company is in dire straights. The company may be in its second year. During the first year, significant
amounts of cash came in under financing and during this year a bit of that has been paid back. Since the
company is still new, operating cash flow hasn’t yet turned positive but investments are still being made for
the future (hence, the negative under the Investing column), so the future could still be bright.

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 Quiz I – Accounting for Managers (B-KUL-D0N83A) Student name: ………………………………………………

Cost Concepts and Job Order Costing

17. In a job order costing system, the dollar amount of the entry that debits Finished Goods Inventory
and credits Work in Process Inventory is the sum of the costs charged to all jobs
a. started in process during the period.
b. in process during the period.
c. completed and sold during the period.
d. completed during the period.

Answer: d

18. Overapplied overhead would result if

a. the plant were operated at less than normal capacity.
b. overhead costs incurred were less than costs charged to production.
c. overhead costs incurred were unreasonably small in relation to units produced.
d. overhead costs incurred were greater than costs charged to production.

Answer: b

19. Worth Company reported the following year-end information: beginning work in process
inventory, $180,000; cost of goods manufactured, $866,000; beginning finished goods inventory,
$252,000; ending work in process inventory, $220,000; and ending finished goods inventory,
$264,000. Worth Company's cost of goods sold for the year is
a. $854,000.
b. $878,000.
c. $826,000.
d. $602,000.

Answer: a
Solution: $252,000 + $866,000 – $264,000 = $854,000
(Beginning finished goods inventory + Cost of goods manufactured – Ending finished goods inventory =
Cost of goods sold)

20. If the amount of "Cost of goods manufactured" during a period exceeds the amount of "Total
manufacturing costs" for the period, then
a. ending work in process inventory is greater than or equal to the amount of the beginning work
in process inventory.
b. ending work in process is greater than the amount of the beginning work in process inventory.
c. ending work in process is equal to the cost of goods manufactured.
d. ending work in process is less than the amount of the beginning work in process inventory.
Answer: d

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21. Greer Company developed the following data for the current year:
Beginning work in process inventory $ 136,000
Direct materials used 208,000
Actual overhead 176,000
Overhead applied 184,000
Cost of goods manufactured 900,000
Total manufacturing costs 856,000

How much is Greer Company's direct labor cost for the year?
a. $508,000
b. $600,000
c. $464,000
d. $328,000

Answer: c
Solution: $208,000 + X + $184,000 = $856,000; X = $464,000
(Direct materials + Direct labor + Manufacturing overhead applied = Total manufacturing cost of job)

22. Dolan Company's accounting records reflect the following inventories:

Dec. 31, 2020 Dec. 31, 2019
Raw materials inventory $310,000 $260,000
Work in process inventory 300,000 160,000
Finished goods inventory 190,000 150,000

During 2020, $800,000 of raw materials were purchased, direct labor costs amounted to
$670,000, and manufacturing overhead incurred was $640,000.
The total raw materials available for use during 2020 for Dolan Company is
a. $1,110,000.
b. $660,000.
c. $750,000.
d. $1,060,000.
Answer: d
Solution: $260,000 + $800,000 = $1,060,000
(Beginning raw materials inventory + Purchases = Raw materials available)

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23. Cajun Company uses a job order costing system. During April 20X6, the following costs appeared
in the Work in Process Inventory account:

Beginning balance $ 24,000

Direct material used 70,000
Direct labor incurred 60,000
Applied overhead 48,000
Cost of goods manufactured 185,000
Cajun Company applies overhead on the basis of direct labor cost. There was only one job left in Work
in Process at the end of April which contained $5,600 of overhead. What amount of direct material
was included in this job?
a. $4,400
b. $4,480
c. $6,920
d. $8,000

Answer: a

First calculated the Overhead rate:

Applied overhead = direct labor cost * overhead rate
Therefore,
Overhead rate = Applied overhead / direct labor cost
Overhead rate = 48000/60000
Overhead rate = 0.80

Next, we have,

Total Costs Incurred 202,000

Less: Cost of Goods Manufactured (185,000)
Costs remaining in WIP 17,000
Overhead 5,600
Direct Labor (5,600/.80) 7,000 (12,600)
Direct Materials 4,400

Jackson Company.

Jackson Company uses a job order costing system and the following information is available from its
records. The company has three jobs in process: #6, #9, and #13.

Raw material used $120,000

Direct labor per hour $8.50
Overhead applied based on direct labor cost 120%

Direct material was requisitioned as follows for each job respectively: 30 percent, 25 percent, and 25
percent; the balance of the requisitions was considered indirect. Direct labor hours per job are 2,500; 3,100;
and 4,200; respectively. Indirect labor is $33,000. Other actual overhead costs totalled $36,000.

24. Refer to Jackson Company. What is the prime cost of Job #6?
a. $42,250
b. $57,250
c. $73,250
d. $82,750

Answer: b

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Direct Materials (120,000 * 30%) $ 36,000

Direct Labor (2500 * $8.50) 21,250

Total Prime Costs $ 57,250

25. Refer to Jackson Company. What is the total amount of overhead applied to Job #9?

a. $18,250
b. $26,350
c. $30,000
d. $31,620

Answer: d

Direct Labor Hours Direct Labor Rate OH Application Rate Total

3100 $8.50 120% $31,620

26. Refer to Jackson Company. What is the total amount of actual overhead?
a. $36,000
b. $69,000
c. $93,000
d. $99,960

Answer: c

Indirect Materials ($120,000 * 20%) $ 24,000

Indirect Labor 33,000
Other Overhead Costs 36,000
Total Prime Costs $ 93,000

27. Refer to Jackson Company. How much overhead is applied to Work in Process?
a. $ 69,000
b. $ 99,960
c. $132,960
d. $144,000

Answer: b

Direct Labor Hours 6 2500

9 3100
13 4200 9,800
Direct Labor Rate $ 8.50
Overhead Application Rate 120%
Total Overhead Applied $ 99,960

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28. Refer to Jackson Company. If Job #13 is completed and transferred, what is the balance in Work
in Process Inventory at the end of the period if overhead is applied at the end of the period?

a. $ 96,700
b. $ 99,020
c. $139,540
d. $170,720

Answer: d

Step 1: Determine Total Cost of Job 13

DM: $120,000 * .25 $ 30,000
DL: 4,200 * 8.50 35,700
FOH: 35,700 * 120% 42,840 108,540

Step 2: Compute Total Cost of Job 6

DM: $120,000 * .30 $ 36,000
DL: 2,500 * 8.50 21,250
FOH: 21,250 * 120% 25,500 82,750
Step 2: Compute Total Cost of Job 9
DM: $120,000 * .25 $ 30,000
DL: 3,100 * 8.50 26,350
FOH: 26,350 * 120% 31,620
87,970
Total Costs of Jobs 6 and 9 170,720

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Process Costing

29. Bush Company had beginning Work in Process Inventory of 5,000 units that were 40 percent
complete as to conversion costs. X started and completed 42,000 units this period and had ending
Work in Process Inventory of 12,000 units. How many units were started this period?
a. 42,000
b. 47,000
c. 54,000
d. 59,000

Answer: c

Beginning Work in Process 5,000

Add: Units Started 54,000
Deduct: Units Transferred Out 47,000
Ending Work in Process 12,000

30. Kerry Company makes small metal containers. The company began December with 250
containers in process that were 30 percent complete as to material and 40 percent complete as to
conversion costs. During the month, 5,000 containers were started. At month end, 1,700
containers were still in process (45 percent complete as to material and 80 percent complete as to
conversion costs). Using the weighted average method, what are the equivalent units for
conversion costs?
a. 3,450
b. 4,560
c. 4,610
d. 4,910

Answer: d

Beginning Work in Process 250 40% 100

+ Completion of Units in Process 250 60% 150
+ Units Started and Completed 3,300 100% 3,300
+ Ending Work in Process 1,700 80% 1,360
Equivalent Units of Production 4,910

Alternatively, you can use the formula from the lecture notes:

Unites completed and transferred out = 3300 + 250 = 3550

Equivalent Unites of Ending work in Process = 1700*0.8 = 1360
Equivalent Unites of Production = 3550 + 1360 = 4910

31. Maisley Company decided to analyse certain costs for June of the current year. Units started into
production equalled 28,000 and ending work in process equalled 4,000. With no beginning work

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in process inventory, how much is the conversion cost per unit if ending work in process was 25%
complete and total conversion costs equalled $140,000?
a. $4.40.
b. $5.00.
c. $5.60.
d. $2.80.

Answer: c
Solution: 0 + 28,000 = 28,000; 4,000 + X = 28,000; X = 24,000; $140,000 ÷ (24,000 + (4,000 x 25%)) =
$5.60
[Beginning WIP units + Units started = Units accounted for; Ending WIP units + Units completed and
transferred = Units accounted for; (Total conversion cost ÷ Units completed and transferred +
(Ending WIP units x % complete)) = Unit cost, conversion]

Maxwell Company

Maxwell Company adds material at the start of production. The following production information is
available for June:

Beginning Work in Process Inventory

(45% complete as to conversion) 10,000 units
Started this period 120,000 units
Ending Work in Process Inventory
(80% complete as to conversion) 8,200 units

Beginning Work in Process Inventory Costs:

Material $24,500
Conversion 68,905

Current Period Costs:

Material $ 75,600
Conversion 130,053

32. Refer to Maxwell Company. How many units must be accounted for?

a. 118,200
b. 128,200
c. 130,000
d. 138,200

Answer: c

Beginning Work in Process 10,000

Units Started 120,000

Total Units 130,000

33. Refer to Maxwell Company. What is the total cost to account for?
a. $ 93,405
b. $205,653
c. $274,558
d. $299,058
Answer: d

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BWIP: Materials $ 24,500

BWIP: Conversion 68,905
Current Period: Materials 75,600
Current Period: Conversion 130,053
Total Costs $299,058

34. Refer to Maxwell Company. How many units were started and completed in the period?

a. 111,800
b. 120,000
c. 121,800
d. 130,000

Answer: a

Units started this period 120,000

Less: Ending Work in Process 8,200
Units started and completed this period 111,800

35. Refer to Maxwell Company. What are the equivalent units for material using the weighted
average method?
a. 120,000
b. 123,860
c. 128,360
d. 130,000

Answer: d

Equivalent Units
Beginning Inventory (10,000 * 100%) 10,000
Started and Completed (111,800) 111,800
Ending Inventory (8,200 * 25%) 8,200
130,000 equivalent units

36. Refer to Maxwell Company. What are the equivalent units for conversion using the weighted
average method?
a. 120,000
b. 123,440
c. 128,360
d. 130,000

Answer: c

Beginning Work in Process 10,000 45% 4,500

+ Completion of Units in Process 10,000 55% 5,500
+ Units Started and Completed 111,800 100% 111,800
+ Ending Work in Process 8,200 80% 6,560
Equivalent Units of Production 128,360

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37. Refer to Maxwell Company. What is the material cost per equivalent unit using the weighted
average method?
a. $.58
b. $.62
c. $.77
d. $.82

Answer: c

Material Costs:
Beginning $ 24,500
Current Period 75,600
100,100 ÷ 130,000 = $ 0.77
units per unit

38. Refer to Maxwell Company. What is the conversion cost per equivalent unit using the weighted
average method?
a. $1.01
b. $1.05
c. $1.55
d. $1.61

Answer: b

Conversion Costs:
Beginning $ 68,905
Current Period 130,053
198,958 ÷ 128,360 = $ 1.55
units per unit

39. Refer to Maxwell Company. What is the cost of units completed using the weighted average?
a. $237,510
b. $266,742
c. $278,400
d. $282,576

Answer: d

Units Completed Costs per Equivalent Unit Total

121,800 (1.55 + .77) = $2.32 $282,576

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 Quiz I – Accounting for Managers (B-KUL-D0N83A) Student name: ………………………………………………

Activity Based Costing

40. The term cost driver refers to
a. any activity that can be used to predict cost changes.
b. the attempt to control expenditures at a reasonable level.
c. the person who gathers and transfers cost data to the management accountant.
d. any activity that causes costs to be incurred.

Answer: d

41. If activity-based costing is implemented in an organization without any other changes being
implemented, total overhead costs will
a. be reduced because of the elimination of non-value-added activities.
b. be reduced because organizational costs will not be assigned to products or services.
c. be increased because of the need for additional people to gather information on cost drivers and
cost pools.
d. remain constant and simply be spread over products differently.

Answer: d

42. Noland Company manufactures two models of its banjo, the Basic and the Luxury. The Basic
model requires 10,000 direct labor hours and the Luxury requires 30,000 direct labor hours. The
company produces 3,400 units of the Basic model and 600 units of the Luxury model each year.
The company inspects one Basic for every 100 produced, and inspects one Luxury for every 10
produced. The company expects to incur $112,800 of total inspecting costs this year. How much
of the inspecting costs should be allocated to the Basic model using ABC costing?
a. $28,200
b. $40,800
c. $56,400
d. $95,880

Answer: b
Solution: $112,800 / (3,400 / 100) + (600 / 10) = $1,200; $1,200 x 34 = $40,800
(Total Inspecting costs / (Units Inspected: Basic + Units Inspected: Luxury) x Units Expected: Basic =
Inspecting cost allocated to the Basic Model using ABC)

43. A company incurs $4,050,000 of overhead each year in three departments: Ordering and
Receiving, Mixing, and Testing. The company prepares 2,000 purchase orders, works 50,000
mixing hours, and performs 1,500 tests per year in producing 200,000 drums of Goo and 600,000
drums of Slime. The following data are available:
Department Estimated use of Driver Cost
Ordering and Receiving 2,000 $1,200,000
Mixing 50,000 1,500,000
Testing 1,500 1,350,000

Production information for Slime is as follows:

Department Estimated use of Driver
Ordering and Receiving 1,600
Mixing 30,000
Testing 1,000

Compute the amount of overhead assigned to Slime.

a. $2,025,000
b. $2,467,851
c. $2,760,000
d. $3,037,500

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 Quiz I – Accounting for Managers (B-KUL-D0N83A) Student name: ………………………………………………

Answer: c
Solution: $1,200,000 / 2,000 = $600 x 1,600 = $960,000; $1,500,000 / 50,000 = $30 x 30,000 = $900,000;
$1,350,000 / 1,500 = $900 x 1,000 = $900,000; $960,000 + $900,000 + $900,000 = $2,760,000

Smithson Company

Smithson Company produces two products (A and B). Direct material and labor costs for Product A total
$35 (which reflects 4 direct labor hours); direct material and labor costs for Product B total $22 (which
reflects 1.5 direct labor hours). Three overhead functions are needed for each product. Product A uses 2
hours of Function 1 at $10 per hour, 1 hour of Function 2 at $7 per hour, and 6 hours of Function 3 at $18
per hour. Product B uses 1, 8, and 1 hours of Functions 1, 2, and 3, respectively. Smithson produces 800
units of A and 8,000 units of B each period.

44. Refer to Smithson Company If total overhead is assigned to A and B on the basis of units
produced, Product A will have an overhead cost per unit of
a. $ 88.64.
b. $123.64.
c. $135.00.
d. None of the responses are correct.

Answer: a
Total Overhead
Product A Function Hourly Hours Total
Rate
1 $ 10 2 $ 20
2 $ 7 1 $ 7
3 $ 18 6 $ 108
Totals 9 $ 135

Product B Function Hourly Hours Total

Rate
1 $ 10 1 $ 10
2 $ 7 8 $ 56
3 $ 18 1 $ 18
Totals 10 $ 84

OH/Unit Units Total

Produced
$ 135 800 $ 108,000
$ 84 8000 $ 672,000
$ 780,000
Total OH Proportion Allocated Units OH per
OH Produced Unit
$ 780,000 0.090909091 $ 70,909.09 800 $ 88.64
(800/8800)

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 Quiz I – Accounting for Managers (B-KUL-D0N83A) Student name: ………………………………………………

45. Refer to Smithson Company If total overhead is assigned to A and B on the basis of units
produced, Product B will have an overhead cost per unit of
a. $84.00.
b. $88.64.
c. $110.64.
d. None of the responses are correct.

Answer: b

See above for Total Overhead Computations

Total OH Proportion Allocated Units OH per
OH Produced Unit
$ 780,000 0.909090909 $ 709,090.91 8000 $ 88.64
(8000/8800)

46. Refer to Smithson Company If total overhead is assigned to A and B on the basis of direct labor
hours, Product A will have an overhead cost per unit of
a. $51.32.
b. $205.28.
c. $461.88.
d. None of the responses are correct.

Answer: b

Product DL Hrs/Unit Units Produced Total DL

Hours
A 4 800 3200
B 1.5 8000 12000
15200

Total OH Proportion Allocated Units OH per

OH Produced Unit
$ 780,000 0.210526316 $ 164,210.53 800 $ 205.28
(3,200/15,200)

47. Refer to Smithson Company If total overhead is assigned to A and B on the basis of direct labor
hours, Product B will have an overhead cost per unit of
a. $51.32.
b. $76.98.
c. $510.32.
d. None of the responses are correct.

Answer: b

See above for Direct Labor Computations

Total OH Proportion Allocated Units OH per

OH Produced Unit
$ 780,000 0.789473684 $ 615,789.47 8000 $ 76.98
(12,000/15,200)

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 Quiz I – Accounting for Managers (B-KUL-D0N83A) Student name: ………………………………………………

48. Refer to Smithson Company If total overhead is assigned to A and B on the basis of overhead
activity hours used, the total product cost per unit assigned to Product A will be

a. $86.32.
b. $95.00.
c. $115.50.
d. None of the responses are correct.

Answer: c

Total OH Proportion Allocated Units OH per DM and Total

OH Produced Unit DL/Unit
$ 780,000 0.082568807 $ 64,403.67 800 $ 80.50 $ 35.00 $ 115.50
(7,200/87,200)

Note: Make sure that you have provided your answers in the answer sheet on page 2 (not anywhere
else!).

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Quiz I – Accounting for Managers (B-KUL-D0N83A) Student name: ………………………………………………

Formula Sheet

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