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Exam 2: Basic Cost Management Concepts

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Question 31

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The accounting records of Georgia Company revealed the following costs: direct materials used, $250,000; direct labor, $425,000; manufacturing overhead, $375,000; and selling and administrative expenses, $220,000. Georgia's product costs total:

A) $1,050,000.
B) $830,000.
C) $895,000.
D) $1,270,000.
E) None of the other answers are correct.

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Question 32

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Which of the following would not be considered a direct cost with respect to the service department of a new car dealership?

A) Wages of repair technicians.
B) Property taxes paid by the dealership.
C) Repair parts consumed.
D) Salary of the department manager.
E) Depreciation on new equipment used to analyze engine problems.

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Question 33

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Madi and Sohn Corporation has a single facility that it uses for manufacturing, sales, and administrative activities. Should the company's building depreciation charge be expensed in its entirety or is a different accounting procedure appropriate? Explain.

Total costs are $180,000 when 10,000 units are produced; of this amount, variable costs are $64,000. What are the total costs when 13,000 units are produced?

In discussing the operation of her automobile, a doctor once observed that gasoline is a fixed cost because the cost per gallon is relatively stable. Insurance, on the other hand, is a variable cost because the cost per mile varies inversely with the number of miles driven. Comment on the doctor's observation.

Inventoriable costs are expensed when incurred.

Mideast Motors manufactures automobiles. Which of the following would not be classified as direct materials by the company?

If the total cost of alternative A is $50,000 and the total cost of alternative B is $34,000, then $16,000 is termed the:

Which of the four items listed below is not a type of production process?

Wee Care is a nursery school for pre-kindergarten children. The school has determined that the following biweekly revenues and costs occur at different levels of enrollment: $\begin{array}{rrr}\text { Number of }\\\text { Students Enrolled }&\text { Total Revenue } &\text { Total Costs }\\10 & \$ 3,000 & \$ 2,100 \\15 & 4,500 & 2,700 \\16 & 4,800 & 2,800 \\20 & 6,000 & 3,200 \\21 & 6,300 & 3,255\end{array}$ The average cost per student when 16 students enroll in the school is:

Parrish's Manufacturing had the following data for the period just ended: $\begin{array} { l r } \text { Work in process, Jan. 1 } & \$ 21,000 \\\text { Work in process, Dec. } 31 & 40,000 \\\text { Finished goods, Jan. 1 } & 70,000 \\\text { Finished goods, Dec. } 31 & 61,000 \\\text { Direct materials used } & 126,000 \\\text { Direct labor } & 260,000 \\\text { Factory depreciation } & 80,000 \\\text { Sales } & 945,000 \\\text { Advertising expense } & 52,000 \\\text { Factory utilities } & 27,000 \\\text { Indirect materials } & 19,000 \\\text { Indirect labor } & 35,000\end{array}$ Required: A. Calculate Parrish's cost of goods manufactured. B. Calculate Parrish's cost of goods sold.

Costs that are expensed when incurred are called:

The fixed costs per unit are $10 when a company produces 10,000 units of product. What are the fixed costs per unit when 8,000 units are produced?

Which of the following costs is not a component of manufacturing overhead?

Depreciation of factory equipment would be classified as:

Which of the following is a period cost?

The accounting records of Dolphin Company revealed the following information: $\begin{array}{lr}\text { Total manufacturing costs } & \$ 530,000 \\\text { Work-in-process inventory, Jan. 1 } & 56,000 \\\text { Work-in-process inventory, Dec. } 31 & 78,000 \\\text { Finished-goods inventory, Jan. 1 } & 146,000 \\\text { Finished-goods inventory, Dec. 31 } & 123,000\end{array}$ Dolphin's cost of goods sold is:

Which of the following is an example of a fixed cost?

Describe the economic characteristics of sunk costs and opportunity costs, and explain the impact that these costs may have on decisions.

Xi Manufacturing, which began operations on January 1 of the current year, produces an industrial scraper that sells for $325 per unit. Information related to the current year's activities follows. $\begin{array} { l r } \text { Number of scrapers produced } & 20,000 \\\text { Number of scrapers sold } & 17,000 \\\text { Variable costs per unit: } & \\\quad \text { Direct materials } & \$ 25 \\\quad \text { Direct labor } & 35 \\\quad \text { Manufacturing overhead } & 60 \\\text { Annual fixed costs: } & \\\quad \text { Manufacturing overhead } & \$ 400,000 \\\quad \text { Selling and administrative } & 140,000\end{array}$ Xi carries its finished-goods inventory at the average unit cost of production. There was no work in process at year-end. Required: A. Compute the company's average unit cost of production. B. Determine the cost of the December 31 finished-goods inventory. C. Compute the company's cost of goods sold. D. If next year's production increases to 23,000 units and general cost behavior patterns do not change, what is the likely effect on: 1. The direct-labor cost of $35 per unit? Why? 2. The fixed manufacturing overhead cost of $400,000? Why?