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Practice Midterm Exam


Page 1

1. Indirect labor is a part of

a  prime cost.

B conversion cost.

C period cost.

D nonmanufacturing cost.


2. Prime cost and conversion cost share what common element of total cost?

A Direct materials

B Direct labor

C Variable overhead

D Variable overhead


3. On the Schedule of Cost of Goods Manufactured, the final Cost of Goods Manufactured figure represents

A the amount of cost charged to Work in Process during the period.

B the amount of cost transferred from Finished Goods to Cost of Goods Sold during the period.

C the amount of cost placed into production during the period.

D the amount of cost of goods completed during the current year whether they were started before or during the current year.


4. Which of the following would most likely be included as part of manufacturing overhead in the production of a wooden table?

A The amount paid to the individual who stains the table

B The commission paid to the salesperson who sold the table

C The cost of the glue used in the table

D The cost of the wood used in the table


Page 2

1.  Overapplied overhead means that

A) the applied overhead cost was less than the actual overhead cost.

B) the applied overhead cost was greater than the actual overhead cost.

C) the estimated overhead cost was less than the actual overhead cost.

D) the estimated overhead cost was less than the applied overhead cost.


2. Departmental overhead rates are generally preferred to plant-wide overhead rates when

A) the activities of the various departments in the plant are not homogeneous.

B) the activities of the various departments in the plant are homogeneous.

C) most of the overhead costs are fixed.

D) all departments in the plant are heavily automated.


3.  Discretionary fixed costs

A) cannot be changed because they are fixed.

B) have a long-term planning horizon, generally encompassing many years.

C) are made up of facilities, equipment, and basic organization.

D) B and C

E) None of the above


4.  An example of a committed fixed cost is

A) management training seminars.

B) a long-term equipment lease.

C) research and development.

D) advertising.


Page 3

The following data were taken from the cost records of the Beca Companyfor last year.

Depreciation, factory equipment                     $30,000

 Depreciation, office equipment                      7,000

 Supplies, factory                                 1,500

 Maintenance, factory equipment         20,000

 Utilities, factory                                  8,000

 Sales commissions                              30,000

 Indirect labor                                      54,500

 Rent, factory building                         70,000

 Purchases of raw materials                 124,000

 Direct labor cost                                 80,000

 Advertising expense                           90,000


Inventories                    Beginning                   Ending

Raw materials               $ 9,000                                   $11,000

 Work in process           6,000                          21,000

 Finished goods                         69,000                                    24,000


  Required:Prepare a schedule of cost of goods manufactured in the text box below.

Page 4

Banerjee Inc. uses the weighted-average method in its process costing system. The following data concern the operations of the company's first processing department for a recent month.


Work in process, beginning

Units in process                                                                                   200

Stage of completion with respect to materials                          60%

Stage of completion with respect to conversion                                   20%

Costs in the beginning inventory

Materials                                                                                  $756

Conversion                                                                              $1,508

Units started into production during the month                                    18,000

Units completed and transferred out                                        17,700

Costs added to production during the month

Materials                                                                                  $116,569

Conversion                                                                              $675,432

Work in process, ending

Units in process                                                                                   500

Stage of completion with respect to materials                          70%

Stage of completion with respect to conversion                                   80%



Using the weighted-average method, do the following.


a. Determine the equivalent units of production for materials and conversion costs.

b. Determine the cost per equivalent unit for materials and conversion costs.

c. Determine the cost of units transferred out of the department during the month.

d. Determine the cost of ending work in process inventory in the department.


Page 5

Solo Company is a small merchandising firm. During the next month, the company expects to sell 500 units. The company has the following revenue and cost structure


Selling price per unit                                        $60

Cost per unit                                                    $15

Sales commissions                                           10% of sales

Advertising expense                                        $5,000 per month

Administrative expense                                               $3,000 per month plus 20% of sales



Calculate the expected gross margin next month.

Calculate the expected contribution margin next month.

Calculate the expected total administrative expense next month.

Calculate the expected net operating income next month.

Page 6

1. The contribution margin ratio is equal to

A) Total manufacturing expenses / Sales.

B) (Sales – Variable expenses) / Sales.

C) 1 – (Gross Margin / Sales).

D) 1 – (Contribution Margin / Sales).


2. To obtain the dollar sales volume necessary to attain a given target profit, which of the following formulas should be used?

A) (Fixed expenses + Target net profit) / Total contribution margin

B) (Fixed expenses + Target net profit) / Contribution margin ratio

C) Fixed expenses / Contribution margin per unit

D) Target net profit / Contribution margin ratio


3. The following information relates to the break-even point at Pezzo Corporation.

Sales dollars     $12,000

Total fixed expenses    $30,000


If Pezzo wants to generate net operating income of $12,000, what will its sales dollars have to be?

A)        $132,000

B)        $136,000

C)        $168,000

D)        $176,000


4. The Dog Hut hot dog stand expects the following operating results for next year

Sales….                                   $280,000

Net operating in come              $21,000

Contribution margin ratio         70%


What is Dog Hut's break-even point next year in sales dollars?

A) $120,000

B) $181,300

C) $196,000

D) $250,000


Page 7

Use the following to answer Questions 1-3.


Roberts Company bases its budget on the following data.

Sales                                        3,600 units

Selling price                             $50 per unit

Variable expense                     $15 per unit

Fixed expenses                                    $40,530


1.  If the company wants to increase its total contribution margin by 40%, assuming variable and fixed expenses remain the same, it will need to increase its sales by about

A) $48,840.

B) $72,000.

C) $50,400.

D) $34,188.


2. If the company wants its margin of safety to equal $40,000, it will need to sell about

A) 1,158 units.

B) 1,958 units.

C) 2,300 units.

D) 800 units.


3. If the company's fixed expenses decrease by 20%, the break-even point will change from its previous level by about a

A) 232-unit increase.

B) 510-unit decrease.

C) 232-unit decrease.

D) 510-unit increase.


Page 8

1. Baker Company has a product that sells for $20 per unit. The variable expenses are $12 per unit, and fixed expenses total $30,000 per year.



a. What is the total contribution margin at the break-even point?

b. What is the contribution margin ratio for the product?

c. If total sales increase by $20,000 and fixed expenses remain unchanged, by how much would net operating income be expected to increase?

d. The marketing manager wants to increase advertising by $6,000 per year. How many additional units would have to be sold to increase overall net operating income by $2,000?


2. Pacher Company, which has only one product, has provided the following data concerning its most recent month of operations.



The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.



a. What is the unit product cost for the month under variable costing?

b. Prepare an income statement for the month using the contribution format and the variable costing method.


c. Without preparing an income statement, determine the absorption costing net operating income for the month. (Use the reconciliation method) 

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