COST ACCOUNTING & COST CONCEPTS

Preliminary Examination Part 1

Accounting Demands Passion

Instructions: Write the letter that best corresponds to your answer. Do not write on the test
questions and return it after use. Thank you and GODBLESS!
Use the following to answer questions 1-3:
Atlanta, Inc., which uses the high-low method to analyze cost behavior, has determined that
machine hours best explain the company's utilities cost. The company's relevant range of activity
varies from a low of 600 machine hours to a high of 1,100 machine hours, with the following data
being available for the first six months of the year:
Month

Utilities

January
February
March
April
May
June

$8,700
8,360
8,950
9,360
9,625
9,150

Machine
Hours
800
720
810
920
950
900

1. The variable utilities cost per machine hour is:

A. $0.18.
D. $5.50.
B. $4.50.
E. an amount other than those listed
C. $5.00.
above.
2. The fixed utilities cost per month is:
A. $3,764.
D. $5,100.
B. $4,400.
E. an amount other than those listed
C. $4,760.
above.
3. Using the high-low method, the utilities cost associated with 980 machine hours would be:
A. $9,510.
D. $9,790.
B. $9,660.
E. an amount other than those listed
C. $9,700.
above.
4. A manufacturing plant produces two product lines: football equipment and hockey equipment.
An indirect cost for the hockey equipment line is the
a.
material used to make the hockey sticks.
b.
labor to bind the shaft to the blade of the hockey stick.
c.
shift supervisor for the hockey line.
d.
plant supervisor.
5. Costs which are not economically feasible to trace but are related to a cost object are known as
a. fixed costs.
c. indirect costs.
b. direct costs.
d. variable costs.
e. THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 6 THROUGH 7.
f. The Hassan Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a
$20,000,000 bond issuance, the Electric Mixer Division utilized $14,000,000 and the
Electric Lamp Division utilized $6,000,000 for expansion. Interest costs on the bond
totaled $1,500,000 for the year.
6. What amount of interest costs should be allocated to the Electric Mixer Division?
a. $450,000
c. $4,200,000
b. $1,050,000
d. $14,000,000
7. What amount of interest costs should be allocated to the Electric Lamp Division?
a. $450,000
c. $4,200,000
b. $1,050,000
d. $6,000,000
e. THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 8 AND 9.
f. Gabes Auto produces and sells an auto part for $30.00 per unit. In 20x1, 100,000 parts
were produced and 75,000 units were sold. Other information for the year includes:
g.
Direct materials
$12.00 per unit
h.
Direct manufacturing labor
$ 2.25 per unit
i.
Variable manufacturing costs
$ 0.75 per unit
j.
Sales commissions
$ 3.00 per part
k.
Fixed manufacturing costs
$375,000 per year
l.
Administrative expenses, all fixed $135,000 per year
m.

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Cost Accounting & Cost Concepts Cost Accounting & Cost Concepts Cost Accounting
8. What is the inventoriable cost per unit using variable costing?
a. $14.25
c. $18.00
b. $15.00
d. $21.75
9. What is the inventoriable cost per unit using absorption costing?
a. $15.00
c. $18.75
b. $18.00
d. $21.75
10. When cost relationships are linear, total variable prime costs will vary in proportion to changes
in
a.
b.
direct labor hours.
a.
c.
d.
total material cost.
b.
e.
f.
total overhead cost.
c.
g.
h.
production volume.
d.
11. An example of a fixed cost is
a.
b.
total indirect material cost.
a.
c.
d.
total hourly wages.
b.
e.
f.
cost of electricity.
c.
g.
h.
straight-line depreciation.
d.
12. A cost that remains constant in total but varies on a per-unit basis with changes in activity is
called a(n)
a.
b.
expired cost.
a.
c.
d.
fixed cost.
b.
e.
f.
variable cost.
c.
g.
h.
mixed cost.
d.
13. When the number of units manufactured increases, the most significant change in unit cost will
be reflected as a(n)
a.
b.
increase in the fixed element.
a.
c.
d.
decrease in the variable element.
b.
e.
f.
increase in the mixed element.
c.
g.
h.
decrease in the fixed element.
d.
14. The three primary inventory accounts in a manufacturing company are
a.
b.
Merchandise Inventory, Supplies Inventory, and Finished Goods
a.
Inventory.
c.
d.
Merchandise Inventory, Work in Process Inventory, and Finished
b.
Goods Inventory.
e.
f.
Supplies Inventory, Work in Process Inventory, and Finished Goods

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Cost Accounting & Cost Concepts Cost Accounting & Cost Concepts Cost Accounting
c.
Inventory.
g.
h.
Raw Material Inventory, Work in Process Inventory, and Finished
d.
Goods Inventory.
15. The indirect costs of converting raw material into finished goods are called
a.
b.
period costs.
a.
c.
d.
prime costs.
b.
e.
f.
overhead costs.
c.
g.
h.
conversion costs.
d.
16. Conversion cost does not include
a.
b.
direct labor.
a.
c.
d.
direct material.
b.
e.
f.
factory depreciation.
c.
g.
h.
supervisors' salaries.
d.
17. The formula for cost of goods sold for a manufacturer is
a.
b.
beginning Finished Goods Inventory plus Cost of Goods
a.
Manufactured minus ending Finished Goods Inventory.
c.
d.
beginning Work in Process Inventory plus Cost of Goods
b.
Manufactured minus ending Work in Process Inventory.
e.
f.
direct material plus direct labor plus applied overhead.
c.
g.
h.
direct material plus direct labor plus overhead incurred plus
d.
beginning Work in Process Inventory.
18. Given the following notation, what is the break-even sales level in units?
a.
SP = selling price per unit, FC = total fixed cost, VC = variable cost per unit
b.
c.
SP/(FC/VC)
a.
d.
e.
FC/(VC/SP)
b.
f.
g.
VC/(SP - FC)
c.
h.
i.
FC/(SP - VC)
d.
19. Break-even analysis assumes over the relevant range that
a.
b.
total variable costs are linear.
a.
c.
d.
fixed costs per unit are constant.
b.
e.
f.
total variable costs are nonlinear.
c.
g.
h.
total revenue is nonlinear.
d.

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Cost Accounting & Cost Concepts Cost Accounting & Cost Concepts Cost Accounting
20. Harris Manufacturing incurs annual fixed costs of $250,000 in producing and selling a single
product. Estimated unit sales are 125,000. An after-tax income of $75,000 is desired by
management. The company projects its income tax rate at 40 percent. What is the maximum
amount that Harris can expend for variable costs per unit and still meet its profit objective if
the sales price per unit is estimated at $6?
a.
b.
$3.37
a.
c.
d.
$3.59
b.
e.
f.
$3.00
c.
g.
h.
$3.70
d.
i.
Brittany Company
j.
Below is an income statement for Brittany Company:
k.
Sales
l.
$300
,000
m. Variable costs
n.
(150,
000)
o.
Contribution margin
p.
$150
,000
q.
Fixed costs
r.
(100,
000)
s.
Profit before taxes
t.
$
50,0
00
21. Refer to Brittany Company. What was the company's margin of safety?
a.
b.
$50,000
a.
c.
d.
$100,000
b.
e.
f.
$150,000
c.
g.
h.
$25,000
d.
22. Refer to Brittany Company. If the unit sales price for Brittanys sole product was $10, how
many units would it have needed to sell to produce a profit of $40,000?
a.
b.
27,500
a.
c.
d.
29,000
b.
e.
f.
28,000
c.
g.
h.
can't be determined from the information given
d.
23. GMH Company had $200,000 overhead cost at 25,000 machine hours and $240,000 overhead
cost at 60,000 hours. Variable overhead per machine hour is
a.
$4.00.
c.
$0.83.
b.
$1.00.
d.
some other number.
24. Elmwood Company had $300,000 overhead cost at 40,000 machine hours, and $360,000
overhead cost at 60,000 hours. Total fixed overhead is

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Cost Accounting & Cost Concepts Cost Accounting & Cost Concepts Cost Accounting
a.
$ 36,000
c.
$ 60,000.
b.
$ 40,000
d.
$180,000.
25. The three major components of manufacturing cost are
26.
a. materials, work in process, and finished goods.
27.
b. materials, labor, and manufacturing overhead.
28.
c. materials, labor, and finished goods.
29.
d. materials, labor, and production costs.
30. The break-even point in dollars equals total fixed costs divided by
a.
selling price per unit.
b.
variable cost as a percentage of selling price.
c.
contribution margin per unit.
d.
contribution margin percentage.
31. Machine A has fixed costs of $450,000 and a variable cost of $20. Machine B has fixed costs of
$600,000 and a variable cost of $14. What is the indifference point, in units?
32.
a. 22,500
33.
b. 25,000
34.
c. 42,858
35.
d. An amount that cannot be determined without more information.
36. Which of the following is a product cost?
37.
A. Glass in an automobile.
38.
B. Advertising.
39.
C. The salary of the vice president-finance.
40.
D. Rent on a factory.
41.
E. Both "A" and "D."
42. Which of the following would not be classified as a product cost?
43.
A. Direct materials.
44.
B. Direct labor.
45.
C. Indirect materials.
46.
D. Insurance on the manufacturing plant.
47.
E. Sales commissions.
48. In a manufacturing company, the cost of goods completed during the period would include
which of the following elements?
49.
A. Raw materials used.
50.
B. Beginning finished goods inventory.
51.
C. Marketing costs.
52.
D. Depreciation of delivery trucks.
53.
E. More than one of the above.
54. The accounting records of Bronco Company revealed the following information:
55. Raw materials used
56. $
60,000
57. Direct labor
58. 125,000
59. Manufacturing overhead
60. 360,000
61. Work-in-process inventory, 1/1
62. 50,000
63. Finished-goods inventory, 1/1
64. 189,000
65. Work-in-process inventory, 12/31
66. 76,000
67. Finished-goods inventory, 12/31
68. 140,000
69.
Bronco's cost of goods manufactured is:
70.
A. $519,000.
73.
D. $571,000.
71.
B. $522,000.
74.
E. some other amount.
72.
C. $568,000.
75. For the year just ended, Cole Corporation's manufacturing costs (raw materials used, direct

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Cost Accounting & Cost Concepts Cost Accounting & Cost Concepts Cost Accounting
labor, and manufacturing overhead) totaled $1,500,000. Beginning and ending work-inprocess inventories were $60,000 and $90,000, respectively. Cole's balance sheet also
revealed respective beginning and ending finished-goods inventories of $250,000 and
$180,000. On the basis of this information, how much would the company report as cost of
goods manufactured (CGM) and cost of goods sold (CGS)?
76.
A. CGM, $1,430,000; CGS, $1,460,000.
77.
B. CGM, $1,470,000; CGS, $1,540,000.
78.
C. CGM, $1,530,000; CGS, $1,460,000.
79.
D. CGM, $1,570,000; CGS, $1,540,000.
80.
E. Some other amounts.
81. Leggio Industries reported the following data for the year just ended: sales revenue,
$950,000; cost of goods sold, $420,000; cost of goods manufactured, $330,000; and selling
and administrative expenses, $170,000. Leggio's gross margin would be:
82.
A. $30,000.
85.
D. $530,000.
83.
B. $200,000.
86.
E. $620,000.
84.
C. $360,000.
87. Fixed costs are those costs that:
88.
A. vary directly with changes in activity.
89.
B. vary inversely with changes in activity.
90.
C. remain constant on a per-unit basis.
91.
D. increase on a per-unit basis as activity increases.
92.
E. remain constant as activity changes.
93. Indirect costs:
94.
A. can be traced to a cost object.
95.
B. cannot be traced to a particular cost object.
96.
C. are not important.
97.
D. are always variable costs.
98.
E. may be indirect with respect to Disney World but direct with respect to one its
major components, Epcot Center.
99. A review of Parry Corporation's accounting records found that at a volume of 90,000 units, the
variable and fixed cost per unit amounted to $8 and $4, respectively. On the basis of this
information, what amount of total cost would Parry anticipate at a volume of 85,000 units?
100.
A. $1,020,000.
103.
D. $1,080,000.
101.
B. $1,040,000.
104.
E. Some other amount not listed
102.
C. $1,060,000.
above.
105.
106.The following data relate to the Hodges Company for May and August of the current year:
107.
108. May
109.
110. Aug
ust
111. Maintenance
112.
10, 113.
114. 12,000
hours
000
115. Maintenance
116. $26 117.
118. $300,0
cost
0,000
00
119.
120.
May and August were the lowest and highest activity levels, and Hodges uses the
high-low method to analyze cost behavior. Which of the following statements is true?
121.
A. The variable maintenance cost is $25 per hour.
122.
B. The variable maintenance cost is $25.50 per hour.
123.
C. The variable maintenance cost is $26 per hour.
124.
D. The fixed maintenance cost is $60,000 per month.
125.
E. More than one of the above statements is true.

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Cost Accounting & Cost Concepts Cost Accounting & Cost Concepts Cost Accounting
126.The break-even point is that level of activity where:
127.
A. total revenue equals total cost.
128.
B. variable cost equals fixed cost.
129.
C. total contribution margin equals the sum of variable cost plus fixed cost.
130.
D. sales revenue equals total variable cost.
131.
E. profit is greater than zero.
132.The unit contribution margin is calculated as the difference between:
133.
A. selling price and fixed cost per unit.
134.
B. selling price and variable cost per unit.
135.
C. selling price and product cost per unit.
136.
D. fixed cost per unit and variable cost per unit.
137.
E. fixed cost per unit and product cost per unit.
138.Which of the following would take place if a company were able to reduce its variable cost per
unit?
139.140. Contr 142. Breakibution
even
141. Margi
143. Point
n
144. 145. Increase
146. Incr
A.
ease
147. 148. Increase
149. Dec
B.
rease
150. 151. Decrease 152. Incr
C.
ease
153. 154. Decrease 155. Dec
D.
rease
156. 157. Increase
158. No
E.
effect
159.Sanderson sells a single product for $50 that has a variable cost of $30. Fixed costs amount
to $5 per unit when anticipated sales targets are met. If the company sells one unit in excess
of its break-even volume, the bottom-line profit will be:
160.
A. $15.
161.
B. $20.
162.
C. $50.
163.
D. an amount that cannot be derived based on the information presented.
164.
E. an amount other than those in choices "A," "B," and "C" but one that can be derived
based on the information presented.
165.At a volume of 15,000 units, Boston reported sales revenues of $600,000, variable costs of
$225,000, and fixed costs of $120,000. The company's contribution margin per unit is:
166.
A. $17.
169.
D. $55.
167.
B. $25.
170.
E. an amount other than those
168.
C. $47.
above.
171.A recent income statement of Fox Corporation reported the following data:
172. Sales
173. $3,600,000
revenue
174. Variabl
175. 1,600,000
e costs
176. Fixed
177. 1,000,000
costs
178.
If these data are based on the sale of 10,000 units, the break-even point would be:
179.
A. 2,000 units.
180.
B. 2,778 units.

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Cost Accounting & Cost Concepts Cost Accounting & Cost Concepts Cost Accounting
181.
C. 3,600 units.
183.
E. an amount other than those
182.
D. 5,000 units.
above.
184.Green, Inc., sells a single product for $20. Variable costs are $8 per unit and fixed costs total
$120,000 at a volume level of 5,000 units. Assuming that fixed costs do not change, Green's
break-even sales would be:
185.
A. $160,000.
188.
D. $480,000.
186.
B. $200,000.
189.
E. an amount other than those
187.
C. $300,000.
above.
190.Which of the following expressions can be used to calculate the break-even point with the
contribution-margin ratio (CMR)?
191.
A. CMR fixed costs.
192.
B. CMR x fixed costs.
193.
C. Fixed costs CMR.
194.
D. (Fixed costs + variable costs) x CMR.
195.
E. (Sales revenue - variable costs) CMR.
196.The difference between budgeted sales revenue and break-even sales revenue is the:
197.
A. contribution margin.
200.
D. target net profit.
198.
B. contribution-margin ratio.
201.
E. operating leverage.
199.
C. safety margin.
202.A company, subject to a 40% tax rate, desires to earn $500,000 of after-tax income. How
much should the firm add to fixed costs when figuring the sales revenues necessary to
produce this income level?
203.
A. $200,000.
206.
D. $833,333.
204.
B. $300,000.
207.
E. $1,250,000.
205.
C. $500,000.
208.Property taxes are an example of a(n):
209.
A. committed fixed cost.
212.
D. discretionary variable cost.
210.
B. committed variable cost.
213.
E. engineered cost.
211.
C. discretionary fixed cost.
214. A staff assistant at Washington Corporation recently determined that the first four units
completed in a new manufacturing process took 800 hours to complete, or an average of 200
hours per unit. The assistant also found that when the cumulative output produced doubles,
the average labor time declines by 20%. On the basis of this information, how many total
hours would Washington use if it produces 16 units?
215. A.
128.
218. D.
2,048.
216. B.
160.
219. E.
An amount other than
217. C.
1,280.
those listed above.
220.Mohawk Products has determined that the number of machine hours worked (MH) drives the
amount of manufacturing overhead incurred (MOH). On the basis of this relationship, a staff
analyst has constructed the following regression equation:
221.
MOH = 240,000 + 8MH
222.
Which of the choices correctly depicts the nature of Mohawk's variables?
223.224. De 225.
226. Inde
pende
pendent
nt
227. 228. M
229.230. MO
A
OH
H
231. 232. M
B.
OH
235. 236. M

233.234. MH
237.238. MO

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Cost Accounting & Cost Concepts Cost Accounting & Cost Concepts Cost Accounting
C
H
H
239. 240. M
D
H

241.242. MH

243. 244. 8
E.

245.246. 240,
000

249.

247.
248.
END OF THE EXAMINATION!

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