Midterm - Practice Questions – Chapters 1, 2 & 8 SOLUTIONS
Midterm I - Practice Questions SOLUTIONS
Chapters 1, 2 & 8
Multiple Choice Questions
1. Within the relevant range:
A) variable cost per unit decreases as production decreases.
B) fixed cost per unit increases as production decreases.
C) fixed cost per unit decreases as production decreases.
D) variable cost per unit increases as production decreases.
Explanation:
“B” is correct because the fixed costs are always the same. As the more units are developed, these fixed costs can be
spread over the units. If there are more units to spread the fixed costs, the fixed costs per unit will be lower. If you
produce less units, the fixed costs per unit will be higher
Ex. If fixed costs are always $100 if they produce 10 units, the fixed cost per unit will be
$100/10 units = $10 per unit
If they then begin to produce 9 units instead of 10 units, fixed cost per unit will be
$100/9 units =$11.11 per unit
2. Abbott Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is
$38,000 and if direct materials are $23,000, the manufacturing overhead is:
A) $9,500.
B) $152,000.
C) $5,750.
D) $15,250.
Explanation:
Conversion costs = MOH + DL
If MOH = 20% than DL = 80% of CC
CC = DL/80%
=$38,000/80%
CC = $47,500
MOH = 20% of CC
MOH = 47,500*20% = $9,500
3. During the month of July, McElroy Company's direct labor cost totaled $36,000 and direct labor cost
was 60% of prime cost. If total manufacturing costs during July were $85,000, the manufacturing
overhead was:
A) $24,000.
B) $25,000.
C) $49,000.
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,Midterm - Practice Questions – Chapters 1, 2 & 8 SOLUTIONS
D) $60,000.
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, Midterm - Practice Questions – Chapters 1, 2 & 8 SOLUTIONS
Explanation:
Prime Cost = DL + DM
Prime cost = DL/60%
Prime Cost = $36,000/60% = $60,000
Total Manufacturing Costs = Prime Cost + MOH
$85,000 = $60,000 + MOH
MOH = $85,000 - $60,000 = $25,000
4. At an activity level of 6,900 units in a month, Zelinski Corporation's total variable maintenance cost is
$408,756 and its total fixed maintenance cost is $230,253. What would be the total maintenance cost of both
fixed and variable, at an activity level of 7,100 units in a month?
A. $648,270
B. $639,009
C. $650,857
D. $657,531
Explanation:
Variable Cost per unit = $408,756/6900 = $59.24 per unit
Variable cost @ 7100 units = 7100 units* $59.24 per unit = $420,604 VMOH
Total MOH = VMOH + FMOH
MOH = $420,604+$230,253 = $650,857
NOTE: FMOH will not change based on activity level so you use the same FMOH at 7,100 as you would at 6,900
5. Last month a manufacturing company had the following operating results:
Beginning finished goods inventory.................... $84,000
Ending finished goods inventory......................... $71,000
Sales .................................................................. $505,000
Gross margin ....................................................... $63,000
What was the cost of goods manufactured for the month?
A) $429,000
B) $492,000
C) $442,000
D) $455,000
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, Midterm - Practice Questions – Chapters 1, 2 & 8 SOLUTIONS
Explanation:
COGM = Ending FG + COGS – Beginning FG
COGS = Sales – Gross Margin = $505,000 - $63,000 = $442,000
COGM = Ending FG + COGS – Beginning FG
= $71,000 + $442,000 - $84,000 = $429,000
6. During the month of May, Cassidy Manufacturers incurred $30,000, $40,000 and $20,000 of direct
material, direct labor and manufacturing overhead costs respectively. If the cost of goods
manufactured was $95,000 and the ending work in process inventory was $15,000, the beginning
inventory of work in process must have been:
A) $ 10,000.
B) $ 20,000.
C) $110,000.
D) $ 5,000.
Explanation:
COGM = BWIP + DM + DL + MOH – EWIP
$95,0000 = BWIP + $30,000 + $40,000 + $20,000 - $15,000
$95,000 = BWIP + $75,000
BWIP = $95,000 - $75,000 = $20,000
Use the following to answer questions 7-8:
The Argyle Company has provided the following data for the month of November:
Inventories November 1 November 30
Raw materials ...................... $15,000 $?
Work in process ................... 12,000 10,000
Finished goods .................... ? 7,000
Additional Data:
Sales revenue ......................................... $100,000
Direct labor costs ................................... 8,000
Manufacturing overhead costs .............. 10,000
Selling expenses .................................... 12,000
Administrative expenses ....................... 13,000
Cost of goods manufactured .................. 30,000
Raw materials purchases ....................... 9,000
7. The ending raw materials inventory was:
A) $11,000.
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Midterm I - Practice Questions SOLUTIONS
Chapters 1, 2 & 8
Multiple Choice Questions
1. Within the relevant range:
A) variable cost per unit decreases as production decreases.
B) fixed cost per unit increases as production decreases.
C) fixed cost per unit decreases as production decreases.
D) variable cost per unit increases as production decreases.
Explanation:
“B” is correct because the fixed costs are always the same. As the more units are developed, these fixed costs can be
spread over the units. If there are more units to spread the fixed costs, the fixed costs per unit will be lower. If you
produce less units, the fixed costs per unit will be higher
Ex. If fixed costs are always $100 if they produce 10 units, the fixed cost per unit will be
$100/10 units = $10 per unit
If they then begin to produce 9 units instead of 10 units, fixed cost per unit will be
$100/9 units =$11.11 per unit
2. Abbott Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is
$38,000 and if direct materials are $23,000, the manufacturing overhead is:
A) $9,500.
B) $152,000.
C) $5,750.
D) $15,250.
Explanation:
Conversion costs = MOH + DL
If MOH = 20% than DL = 80% of CC
CC = DL/80%
=$38,000/80%
CC = $47,500
MOH = 20% of CC
MOH = 47,500*20% = $9,500
3. During the month of July, McElroy Company's direct labor cost totaled $36,000 and direct labor cost
was 60% of prime cost. If total manufacturing costs during July were $85,000, the manufacturing
overhead was:
A) $24,000.
B) $25,000.
C) $49,000.
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,Midterm - Practice Questions – Chapters 1, 2 & 8 SOLUTIONS
D) $60,000.
2
, Midterm - Practice Questions – Chapters 1, 2 & 8 SOLUTIONS
Explanation:
Prime Cost = DL + DM
Prime cost = DL/60%
Prime Cost = $36,000/60% = $60,000
Total Manufacturing Costs = Prime Cost + MOH
$85,000 = $60,000 + MOH
MOH = $85,000 - $60,000 = $25,000
4. At an activity level of 6,900 units in a month, Zelinski Corporation's total variable maintenance cost is
$408,756 and its total fixed maintenance cost is $230,253. What would be the total maintenance cost of both
fixed and variable, at an activity level of 7,100 units in a month?
A. $648,270
B. $639,009
C. $650,857
D. $657,531
Explanation:
Variable Cost per unit = $408,756/6900 = $59.24 per unit
Variable cost @ 7100 units = 7100 units* $59.24 per unit = $420,604 VMOH
Total MOH = VMOH + FMOH
MOH = $420,604+$230,253 = $650,857
NOTE: FMOH will not change based on activity level so you use the same FMOH at 7,100 as you would at 6,900
5. Last month a manufacturing company had the following operating results:
Beginning finished goods inventory.................... $84,000
Ending finished goods inventory......................... $71,000
Sales .................................................................. $505,000
Gross margin ....................................................... $63,000
What was the cost of goods manufactured for the month?
A) $429,000
B) $492,000
C) $442,000
D) $455,000
3
, Midterm - Practice Questions – Chapters 1, 2 & 8 SOLUTIONS
Explanation:
COGM = Ending FG + COGS – Beginning FG
COGS = Sales – Gross Margin = $505,000 - $63,000 = $442,000
COGM = Ending FG + COGS – Beginning FG
= $71,000 + $442,000 - $84,000 = $429,000
6. During the month of May, Cassidy Manufacturers incurred $30,000, $40,000 and $20,000 of direct
material, direct labor and manufacturing overhead costs respectively. If the cost of goods
manufactured was $95,000 and the ending work in process inventory was $15,000, the beginning
inventory of work in process must have been:
A) $ 10,000.
B) $ 20,000.
C) $110,000.
D) $ 5,000.
Explanation:
COGM = BWIP + DM + DL + MOH – EWIP
$95,0000 = BWIP + $30,000 + $40,000 + $20,000 - $15,000
$95,000 = BWIP + $75,000
BWIP = $95,000 - $75,000 = $20,000
Use the following to answer questions 7-8:
The Argyle Company has provided the following data for the month of November:
Inventories November 1 November 30
Raw materials ...................... $15,000 $?
Work in process ................... 12,000 10,000
Finished goods .................... ? 7,000
Additional Data:
Sales revenue ......................................... $100,000
Direct labor costs ................................... 8,000
Manufacturing overhead costs .............. 10,000
Selling expenses .................................... 12,000
Administrative expenses ....................... 13,000
Cost of goods manufactured .................. 30,000
Raw materials purchases ....................... 9,000
7. The ending raw materials inventory was:
A) $11,000.
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