Commerce 458 Midterm Examination of Feb. 4, 2013 50 marks; Time available 50 minutes
QUESTION 1 Multiple Choice Answer the multiple choice questions selecting the BEST answer only. Where more than one answer is possible, it is noted, and you may select more than one answer if it is appropriate. 1. Consider a single hard copy of this study guide as a cost object. What would be the best three labels to classify the relation between this cost object and the following two costs of producing the cost object respectively: (1) the paper and (2) the one-time fee paid to the authors (i.e. not royalties)? (1 mark) a. Direct cost; (2) Variable cost b. Variable cost; (2) Unavoidable cost c. Fixed cost; (2) Variable cost d. Direct cost; (2) Fixed cost e. Avoidable cost; (2) Variable cost 2. Given that a cost has been identified as a variable cost, which of the following additional descriptions of that cost is incompatible with that identification? (1 mark) a. The cost, in total, does not change with changes in the volume of the cost driver. b. The cost can be traced directly to the cost object. c. The cost, in total, does change with changes in the volume of the cost driver. d. The cost cannot be traced directly to the cost object. e. The cost is not a prime cost. 3. The total direct labour cost of producing 100 units of Product X is $50. The direct material cost of producing 100 units is perfectly variable and the cost driver is the number of units produced. The cost of the direct material traced to each unit is $1.25. Indirect costs are completely fixed at $75 for the production of 100 units. What are the total conversion costs for 100 units of Product X? (2 marks) a. $275 b. $250 c. $200 d. $175 e. $125 1
4. Pepper Company uses a single plant wide rate to allocate manufacturing overhead to jobs. The rate is computed by dividing expected manufacturing overhead by the expected denominator activity level. Expected manufacturing cost was $6,000,000 and the expected denominator activity level was 15,000. The actual manufacturing overhead was $5,600,000 and the actual denominator activity level was 14,000. Which of the following is the manufacturing overhead result for this period? (2 marks) a. $200,000 over-applied b. $0 c. $400,000 under-applied d. None of the above 5. Which of the following statements is/are true about the high low method of estimating cost behaviour? (may be > 1 answer) (2 marks) a. Uses all the historical data available b. Can be affected by extreme points c. Requires a good knowledge of the production process d. Requires a good knowledge of product specifications 6. Which one of the following is not one of the ABC cost hierarchy? (1 mark) a. Customer sustaining b. Facility sustaining c. Fixed costs d. Batch level costs
7. Which of the following would not be a cost that would be allocated using ABC? (1 mark) a. The cost of wood used in a factory making furniture. b. Costs associated with handling customer complaints c. The costs of heating a batch of steel d. Product advertising 8. Which of the following would not be an appropriate cost driver for assigning batch related costs to a product? (1 mark) a. The number of hours spent moving a batch around the factory floor b. Number of hours spent setting up for the product c. Number of set ups done for the product d. The number of direct labour hours needed to make the product
QUESTION 2 Cost Concepts (14 Marks) Danny Company manufactures plumbing supplies. The following data has been gleaned from the accounting records for the past year. Since we have actual manufacturing costs, normal costing is NOT used: 1. Beginning raw materials inventory 2. Beginning work-in-process inventory 3. Materials purchased 4. President’s salary 5. Head office salaries 6. Wages paid to direct labour 7. Wages paid to factory supervisors 8. Wages paid to indirect labour 9. Advertising and marketing expenses 10. Electricity used in plant 11. Overhead...
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