For multiple-choice questions, identify the best response. Answer each item by giving the letter of your choice. For example, if (4) is the best answer for (a), write a(4) as your answer. Select only one answer for each item. If more than one answer is given, it will not be marked. Incorrect answers will be marked as zero. No marks will be given to any explanation you offer.
Question 1 (63 marks)
Multiple choice (3 marks each)
a. Which of the following statements about managerial accounting is true?
1) Managerial accounting information is prepared for external users.
2) Managerial accounting information is a legal requirement.
3) The structure of managerial accounting practice is relatively flexible.
4) There are structured standards of acceptability for managerial accounting.
b. In the context of making a decision, which of the following statements regarding relevant costs is incorrect?
1) An opportunity cost is a relevant cost.
2) A traceable fixed cost is a relevant cost.
3) A variable cost is a relevant cost.
4) A sunk cost is a relevant cost.
c. When distinguishing between fixed costs and variable costs, which of the following statements is true?
1) As production rises, variable costs per unit will fall.
2) As production rises, total fixed costs will rise.
3) As production falls, fixed costs per unit will rise.
4) As production falls, variable costs per unit will fall.
d. Which of the following are included in manufacturing overhead?
1) All direct material, direct labour, and administrative costs
2) All manufacturing costs except direct labour
3) All manufacturing costs except direct labour and direct materials
4) All selling and administrative costs
e. What criterion is used in making the distinction between indirect and direct costs?
1) Whether a cost differs between alternatives
2) Whether a cost is variable or fixed
3) Whether a cost is a product or a period cost
4) Whether a cost can be easily traced to the cost object under consideration
f. Buford Company rents out a small unused portion of its factory to another company for €1,000 per month. The rental agreement will expire next month, and rather than renew the agreement, Buford Company is thinking about using the space itself to store materials. What term is used to describe the €1,000 per month?
1) Sunk cost
2) Period cost
3) Variable cost
4) Opportunity cost
g. A machine was purchased in 20X6 to make experimental boards. The machine is still being used in the manufacture of the new board. What term is used to describe the cost of this machine in 20X9?
1) Opportunity cost
2) Sunk cost
3) Differential cost
4) Period cost
h. Which of the following costs would be considered a period rather than a product cost in a manufacturing company?
1) Manufacturing equipment depreciation.
2) Direct material costs
3) Sales commissions.
4) Property taxes on corporate headquarters.
5) Electrical costs to light the production facility.
i. If your inventory balance at the beginning of the month was $1,000, you bought $100 during the month, and sold $300 during the month, what would be the balance at the end of the month?
j.Beginning raw materials inventory was $32,000. During the month, $276,000 of raw material was purchased. A count at the end of the month revealed that $28,000 of raw material was still present. What is the cost of direct material used?
k.Direct materials used in production totaled $280,000. Direct labor was $375,000 and factory overhead was $180,000. What were total manufacturing costs incurred for the month?
4) Cannot be determined
l.Beginning work in process was $125,000. Manufacturing costs incurred for the month were $835,000. There were $200,000 of partially finished goods remaining in work in process inventory at the end of the month. What was the cost of goods manufactured during the month?
4) Cannot be determined
m. Beginning work in process was $125,000. Manufacturing costs incurred for the month were $835,000. There were $200,000 of partially finished goods remaining in work in process inventory at the end of the month. What was the cost of goods manufactured during the month?
n. Which of the following costs would be variable with respect to the number of cones sold at a Baskins & Robbins shop? (There may be more than one correct answer.)
1) The wages of the store manager
2) The cost of napkins for customers.
3) The cost of lighting the store.
4) The cost of ice cream.
o. Suppose you are trying to decide whether to drive or take the train to Kuala Lumpur to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Kuala Lumpur?
1) Yes, the cost of the train ticket is relevant.
2) No, the cost of the train ticket is not relevant.
p. Suppose you are trying to decide whether to drive or take the train to Kuala Lumpur to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision?
1) Yes, the licensing cost is relevant.
2) No, the licensing cost is not relevant.
q. Suppose that your car could be sold now for $5,000. Is this a sunk cost?
1) Yes, it is a sunk cost.
2) No, it is not a sunk cost.
Questions (l) through (n) are based on the following information pertaining to Hailey’s manufacturing operations:
Inventories January 1, 20X6 December 31, 20X7
Direct materials € 30,000 € 20,000
Work in progress 30,000 25,000
Finished goods 28,000 35,000
Additional information for 20X6:
Direct materials purchased € 110,000
Direct manufacturing labour payroll 90,000
Direct manufacturing labour rate per hour 10
Factory overhead rate per direct manufacturing labour-hour 7
r. For 20X6, what was the cost of goods manufactured?
1) € 35,000
Answer Questions (p) and (q) using the following selected data for March, taken from Ryker Company’s financial statements:
Cost of goods available for sale € 61,000
Manufacturing overhead 25,000
Cost of goods manufactured 51,000
Finished goods inventory — ending 10,000
Direct materials used 20,000
Selling and administrative expenses 30,000
Direct labour 15,000
Work-in-progress inventory — beginning 8,000
s. What was the work-in-progress inventory at the end of March?
1) € 0
2) € 9,000
3) € 17,000
4) € 60,000
Answer Questions (s) and (t) using the following data from the Bonnie Company for the month of November 20X7:
Inventories 11/1/20X7 11/30/20X7
Raw materials € 19,000 € ?
Work in progress 12,000 14,000
Finished goods ? 9,000
Sales revenue € 106,000
Direct labour costs 10,000
Manufacturing overhead costs 11,000
Selling expenses 12,000
Administrative expenses 18,000
t. If the cost of raw materials purchased in November was €14,000 and the cost of goods manufactured was €40,000, what was the inventory of raw materials on November 30?
u. If the cost of goods manufactured for November was €40,000 and net income was €41,000, what was the finished goods inventory on November 1?
1) € 1,000
2) € 4,000
Question 4 (37 marks)
Calista’s Pasta is a pasta company in Cecilia, Italy. The owner, Andrew Calista, wants to identify the various costs incurred each year in order to plan and control the business costs. The company’s costs for the last year are as follows (€ 000’s):
Utilities for the plant €1,000
Salaries — direct labour 11,000
Pasta equipment maintenance 800
Depreciation — property, plant and equipment 1,000
Direct materials 9,500
Insurance for the plant 300
President’s salary 15,000
Rent — administrative offices 4,000
Administrative costs 9,000
Advertising and selling expenses 6,500
Boxes and bags used in pasta packaging 6,000
Idle time 600
Overtime premiums — direct labour 3,500
Fringe benefits — direct 2,000
Fringe benefits — indirect labour 1,400
Total costs € 72,000
a. (7 marks)
Divide the total expenses of €72,000,000 into two categories: product and period cost.
b. (30 marks in total)
The president, Andrew Calista, is planning to expand his business into Greece and Spain. This expansion will not require additional pasta facilities, but direct materials and labour will increase significantly. Both Greek and Spanish authorities will require specific documentation and inspections for the goods to get entry approval. This will be an additional cost to take into consideration.
(i) (10 marks)
Are these additional costs product or period costs?
(ii) (20 marks)
Explain to Andrew Calista whether all these additional costs are relevant to the decision to expand his business to Greece and Spain.