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Exam 1: Managerial Accounting and Cost Concepts

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Question 121

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Mary Tappin,an assistant Vice President at Galaxy Toys,was disturbed to find on her desk a memo from her boss,Gary Resnick,to the controller of the company.The memo appears below: GALAXY TOYS INTERNAL MEMO Sept 15 To: Harry Wilson,Controller Fm: Gary Resnick,Executive Vice President As you know,we won't start recording many sales until October when stores start accepting shipments from us for the Christmas season.Meanwhile,we are producing flat-out and are building up our finished goods inventories so that we will be ready to ship next month. Unfortunately,we are in a bind right now since it looks like the net income for the quarter ending on Sept 30 is going to be pretty awful.This may get us in trouble with the bank since they always review the quarterly financial reports and may call in our loan if they don't like what they see.Is there any possibility that we could change the classification of some of our period costs to product costs--such as the rent on the finished goods warehouse? Please let me know as soon as possible.The President is pushing for results. Mary didn't know what to do about the memo.It wasn't intended for her,but its contents were alarming. Required: a.Why has Gary Resnick suggested reclassifying some period costs as product costs? b.Why do you think Mary was alarmed about the memo?

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a.Gary Resnick has suggested reclassifyi...

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Question 122

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Schwiesow Corporation has provided the following information: -For financial reporting purposes,the total amount of period costs incurred to sell 5,000 units is closest to:

A) $12,500
B) $8,300
C) $7,000
D) $5,500

E) A) and C)
F) A) and B)

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Question 123

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Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched product M08Y. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 310 machine costing $545,000 or by a new model 240 machine costing $450,000. Management has decided to buy the model 240 machine. It has less capacity than the model 310 machine, but its capacity is sufficient to continue making product M08Y. Management also considered, but rejected, the alternative of dropping product M08Y and not replacing the old machine. If that were done, the $450,000 invested in the new machine could instead have been invested in a project that would have returned a total of $532,000. -In making the decision to invest in the model 240 machine,the opportunity cost was:

The potential benefit that is given up when one alternative is selected over another is called a sunk cost.

Glew Corporation has provided the following information: -For financial reporting purposes,the total amount of period costs incurred to sell 4,000 units is closest to:

Which of the following statements is true when referring to fixed costs?

Rotonga Manufacturing Company leases a vehicle to deliver its finished products to customers.Which of the following terms correctly describes the monthly lease payments made on the delivery vehicle?

The term that refers to costs incurred in the past that are not relevant to a decision is:

Batterson Corporation leases its corporate headquarters building. This lease cost is fixed with respect to the company's sales volume. In a recent month in which the sales volume was 28,000 units, the lease cost was $697,200. -To the nearest whole dollar,what should be the total lease cost at a sales volume of 29,200 units in a month? (Assume that this sales volume is within the relevant range.)

For liability insurance,Dizzy pays a set monthly fee plus a small additional amount for every patron entering the park.The cost of liability insurance would best be described as a:

Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched product M08Y. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 310 machine costing $545,000 or by a new model 240 machine costing $450,000. Management has decided to buy the model 240 machine. It has less capacity than the model 310 machine, but its capacity is sufficient to continue making product M08Y. Management also considered, but rejected, the alternative of dropping product M08Y and not replacing the old machine. If that were done, the $450,000 invested in the new machine could instead have been invested in a project that would have returned a total of $532,000. -In making the decision to invest in the model 220 machine,the opportunity cost was:

Waldhauser Corporation's relevant range of activity is 3,000 units to 7,000 units.When it produces and sells 5,000 units,its average costs per unit are as follows: If 6,000 units are sold,the total variable cost is closest to:

The cost of napkins put on each person's tray at a fast food restaurant is a variable cost with respect to how many persons are served.

Glew Corporation has provided the following information: -For financial reporting purposes,the total amount of product costs incurred to make 4,000 units is closest to:

A number of costs and measures of activity are listed below. Required: For each item above,indicate whether the cost is MAINLY fixed or variable with respect to the possible measure of activity listed next to it.

What would be the total variable inspection cost at an activity level of 2,400 machine-hours in a month? Assume that this level of activity is within the relevant range.

As the level of activity increases,how will a mixed cost in total and per unit behave?

Tirri Corporation has provided the following information: If the selling price is $26.20 per unit,the contribution margin per unit sold is closest to:

The following costs were incurred in May: Conversion costs during the month totaled:

Paolucci Corporation's relevant range of activity is 4,000 units to 8,000 units.When it produces and sells 6,000 units,its average costs per unit are as follows: If 5,000 units are sold,the variable cost per unit sold is closest to: