Part 1 Cost Measurement Concepts

Question 1
A product currently sells for $50 per unit and has variable manufacturing costs of $15
per unit, and variable selling and administrative costs of $6 per unit. How will the total
contribution margin change when output is increased from 8,000 to 9,000 units?
A. Decrease of $15,000
B. Increase of $29,000
C. Decrease of $6,000
D. Increase of $50,000
Question 2
Based on the following information from AGF Corporation, calculate AGF's contribution
margin.

A. $860,000
B. $570,000
C. $830,000
D. $980,000
Question 3
The BVC Company has a joint process that produces three products at a total cost of
$400,000. Expected sales are $1,000,000 for Product 1, $800,000 for Product 2, and
$5,000 for Product 3. Which of the following is correct concerning how BVC can account
for this joint process?
A. BVC can allocate a total of $400,000 to Product 1 and Product 2 and also report
by-product revenue of $5,000.
B. BVC can allocate a total of $395,000 to Product 1 and Product 2 and report
$5,000 of by-product revenue.
 Part 1 Cost Measurement Concepts

C. BVC can allocate a total of $400,000 to Product 1, Product 2, and Product 3 and
report $5,000 of by-product revenue.
D. BVC can allocate a total of $400,000 to Product 1 and Product 2 and also report
by-product revenue of $0.
Question 4
For purposes of allocating joint costs to products Y and Z, the net realizable value (NRV)
method is used. An increase occurs in the costs beyond split-off for product Z while costs
beyond split-off for product Y remain constant. If the selling prices of finished products Y
and Z remain constant, the percentage of the total joint costs allocated to Product Y and
Product Z will:
A. increase for Product Y and Product Z.
B. decrease for Product Y and increase for Product Z.
C. decrease for Product Y and Product Z.
D. increase for Product Y and decrease for Product Z.
Question 5
The following cost information is for a sales volume of 6,300 units.

Calculate cost of goods sold using absorption (full) costing.

A. $169,200
B. $280,700
C. $200,700
D. $199,200
Question 6
Which of the following is a product cost under full costing?
A. CEO's salary.
B. Depreciation of office equipment.
 Part 1 Cost Measurement Concepts

C. Depreciation of manufacturing equipment.

D. Selling expenses.
Question 7
Salmon's Custom Draperies has accumulated the following costs in relation to the
production and sales of 7,200 units during its first year of operations:

Using variable costing, determine Salmon's total period costs for the year.
A. $140,000
B. $110,400
C. $190,400
D. $231,400
Question 8
Lamar, Inc. produces snow blowers. The total cost for the month of November is
$104,000. During November, Lamar manufactured 325 snow blowers. If the variable cost
for one snow blower is $184 and the selling price is $425 for one snow blower, what is
the fixed cost for November?
A. $44,200
B. $59,800
C. $104,000
D. $34,125
Question 9
Maury Industries has the following cost structure. Each unit sells for $50, and 7,000 units
were produced and sold.
 Part 1 Cost Measurement Concepts

Calculate the contribution margin.

A. $168,000
B. $113,000
C. $126,000
D. $182,000
Question 10
The UFZ Company processes a single material into three separate products: L, M, and N.
During October, the joint costs of processing were $215,000. Production and sales value
information for the month were as follows:

If UFZ allocates joint costs using the estimated net realizable value (NRV) method, how
much would be allocated to Products L, M, and N, respectively?
A. $26,573, $86,966, and $101,461
B. $27,000, $78,000, and $110,000
C. $26,875, $80,625, and $107,500
D. $26,807, $82,061, and $106,132
Question 11
Tasty Brands Company manufactures candy from a joint production process and has four
main products: Choco Bar, Nougat Bar, Peanut Bar, and Coconut Bar. Joint costs for one
batch are as follows:
 Part 1 Cost Measurement Concepts

At the split-off point, one joint process batch yields 30,000 Choco Bars, 25,000 Nougat
Bars, 20,000 Peanut Bars, and 15,000 Coconut Bars. If all products are sold at the split-
off point, prices are $0.75 per Choco Bar, $1.00 per Nougat Bar, $1.25 per Peanut Bar,
and $1.50 per Coconut Bar.
Tasty Brands has the option of further processing all products into king-sized bars with
the following added costs and premium prices:

What are the joint costs allocated to the Coconut Bars under the constant gross profit
method? Round intermediate calculations to two decimal points. (Note: This means the
allocations across all four bars won't add up perfectly to the joint cost.)
A. $15,331.50
B. $17,100.00
C. $12,000.00
D. $17,820.00
Question 12
A company has the following information:
 Part 1 Cost Measurement Concepts

Determine the cost per unit under full costing.

A. $53.90
B. $62.88
C. $27.90
D. $66.88
Question 13
Last year, Welk Company had 16,000 units in its beginning inventory. During the year, the
company's variable production costs were $6 per unit and its fixed manufacturing
overhead costs were $4 per unit. The company's net income for the year was $24,000
higher under absorption costing than it was under variable costing. Given these facts,
what was the number of units in the ending inventory?
A. 16,000 units
B. 20,000 units
C. 22,000 units
D. 6,000 units
Question 14
Product #71B sells for $75 per unit. Direct materials are $12, direct labor is $10, and
variable manufacturing overhead is 80% of direct labor costs per unit. Variable selling
and administrative expenses average $5 per unit sold. If fixed manufacturing overhead is
$40,000 when fixed selling and administrative expenses total $50,000, determine
contribution margin when 7,500 units are produced and sold.
A. $210,000
B. $297,500
 Part 1 Cost Measurement Concepts

C. $300,000
D. $337,500
Question 15
A company has the following cost information:

Calculate total period costs using variable costing.

A. $80,000
B. $145,000
C. $175,000
D. $105,000
Question 16
When is operating income equal under full and variable costing?
A. When units produced equal units sold.
B. When units produced exceed units sold.
C. When units sold exceed units produced.
D. When all inventory from the previous period is sold.
Question 17
The UFZ Company processes a single material into three separate products: L, M, and N.
During October, the joint costs of processing were $215,000. Production and sales value
information for the month were as follows:
 Part 1 Cost Measurement Concepts

If UFZ allocates joint costs using the constant gross margin method, how much would be
allocated to Products L, M, and N, respectively?
A. $27,000, $78,000, and $110,000
B. $21,500, $64,500, and $129,000
C. $26,875, $80,625, and $107,500
D. $26,807, $82,061, and $106,132
Question 18
The following cost information is for a sales volume of 6,300 units:

Calculate cost of goods sold using variable costing.

A. $199,200
B. $169,200
C. $280,700
D. $200,700
Question 19
Variable costing enables more efficient:
A. External reporting.
B. Physical inventory counts.
C. Financial statement analysis.
D. Cost-volume-profit (CVP) analysis.
Question 20
Which of the following most accurately describes the typical flow of costs in a
manufacturing organization?
A. As materials, labor, and overhead costs are used, they flow into the cost of goods
sold account on the income statement.
 Part 1 Cost Measurement Concepts

B. As materials, labor, and overhead costs are used, they flow into the finished
goods inventory account. When the product is sold, the costs flow out of the
finished goods inventory account into the cost of goods sold account on the
income statement.
C. As materials, labor, and overhead costs are used, they flow into the work-in-
process inventory account. When the product is sold, the costs flow out of the
work-in-process inventory account into the cost of goods sold account on the
income statement.
D. As materials, labor, and overhead costs are used, they flow into the work-in-
process inventory account. When the product is completed, the costs flow out of
the work-in-process inventory account into the finished goods inventory account.
When the product is sold, the costs flow out of the finished goods inventory
account in to the cost of goods sold account on the income statement.
Question 21
Oak Products produced and sold 5,000 units during its most recent fiscal year. Direct
materials were $9 per unit, direct labor $4 per unit, and variable overhead 110% of
direct labor costs. Fixed overhead was $50,000, fixed selling and administrative expenses
totaled $50,000, and variable selling and administrative expenses were a combined $8
per unit. Calculate inventoriable costs under variable costing.
A. $137,000
B. $227,000
C. $87,000
D. $127,000
Question 22
A company produces two products that incur $50,000 of joint costs. At the split-off
point, 5,000 units of Product 1 and 15,000 units of Product 2 can be sold for $5 and $3
per unit, respectively. These products are processed further. Product 1 incurs $25,000 of
separable costs and is then sold for $12 per unit, and Product 2's separable costs total
$30,000 with a final selling price of $6 per unit. If the company uses the constant gross
profit method to allocate joint costs, the dollar amount of joint costs allocated to
Product 1 would be
A. $17,000.
B. $17,857
C. $18,421
D. $20,000
 Part 1 Cost Measurement Concepts

Question 23
Which cost is responsible for the difference in total unit costs between full and variable
costing income statements?
A. Direct materials.
B. Depreciation.
C. Direct labor.
D. Variable manufacturing overhead.
Question 24
A company’s budget indicated it should produce 11,000 units of finished goods using
22,000 hours of direct labor at a cost of $20 per hour. Actual results showed that 10,000
units of finished goods were manufactured, utilizing 21,000 labor hours at $19.75 per
hour. If the company used a standard cost system, the dollar amount of budgeted direct
labor cost allocated to the actual units manufactured would total:
A. $440,000.
B. $420,000.
C. $414,750.
D. $400,000.
Question 25
Which best describes costs that vary in total directly and proportionately with changes in
the activity level?
A. Fixed costs.
B. Mixed costs.
C. Semi-variable costs.
D. Variable costs.
Question 26
The following cost and revenue information has been accumulated by Saylor Company
for the most recent fiscal year:

Determine gross margin if operating income is 20% of sales.

A. $800,000
 Part 1 Cost Measurement Concepts

B. $2,750,000
C. $700,000
D. $1,250,000

Question 27
Within the relevant range, fixed cost per unit will
A. increase as the activity level increases.
B. decrease as the activity level decreases.
C. remain the same as the activity level decreases.
D. decrease as the activity level increases.
Question 28
A company has the following cost information:

Calculate total product costs using variable costing.

A. $215,000
B. $240,000
C. $320,000
D. $175,000
Question 29
Which of the following statements is correct concerning the split-off point?
A. The split-off point is when joint products become separately identifiable.
B. Costs incurred after the split-off point are called joint costs.
C. Costs incurred prior to the split-off point are called separable costs.
D. The split-off point is the beginning of a joint process.
 Part 1 Cost Measurement Concepts

Question 30
Apex Industries accumulates the following data concerning a mixed cost, using units
produced as the activity level.

Using the high-low method, the fixed cost would be:

A. $800.
B. $1,650.
C. $1,200.
D. $500.
Question 31
n which one of the following situations will ending inventory on the balance sheet
computed under absorption costing be exactly equal to ending inventory computed
under variable costing?
A. When the number of units produced equals the number of units sold
B. When there is no fixed factory overhead cost
C. When the denominator variance is zero
D. When there is no variable overhead cost
Question 32
Neutronics makes four different models of gas identifiers. Next year, the company
anticipates total overhead costs of $2.5 million. It also anticipates a combined 75,000
direct labor hours, 100,000 machine hours, 1,250,000 square feet occupied, and
$5,000,000 of revenue across all its production lines. If Neutronics uses direct labor
hours to allocate its overhead costs, the company's predetermined overhead rate should
be:
A. $2.00 per square foot.
B. $0.50 per dollar of revenue.
 Part 1 Cost Measurement Concepts

C. $25.00 per machine hour.

D. $33.33 per direct labor hour.
Question 33
The MIR Company processes a single material into three separate products: A, B, and C.
During July, the joint costs of processing were $1,677,560. Production and sales value
information for the month were as follows:

If MIR allocates joint costs using the physical measure method, how much would be
allocated to Products A, B, and C, respectively?
A. $167,756, $503,268, and $1,006,536
B. $279,599, $559,181, and $838,780
C. $559,187, $559,187, and $559,187
D. $372,791, $559,187, and $745,582
Question 34
A company incurred $200,000 of manufacturing cost during the month, with a beginning
finished goods inventory of $20,000 and an ending finished goods inventory of $15,000.
Assuming no work-in-process inventories, the company's cost of goods sold was
A. $220,000.
B. $205,000.
C. $200,000
D. $105,000
Question 35
The UFZ Company processes a single material into three separate products: L, M, and N.
During October, the joint costs of processing were $215,000. Production and sales value
information for the month were as follows:
 Part 1 Cost Measurement Concepts

If UFZ allocates joint costs using the physical measure method, how much would be
allocated to Products L, M, and N, respectively?
A. $26,875, $80,625, and $107,500
B. $21,500, $64,500, and $129,000
C. $71,667, $71,667, and $71,667
D. $80,625, $80,625, and $53,750
Question 36
Full costing would include which of the following costs in finished goods inventory?
A. Depreciation of manufacturing equipment
B. Depreciation of office equipment
C. Depreciation of machinery used in the sales department
D. Variable selling expenses
Question 37
Which form of income statement subtracts cost of goods sold from sales revenue to
arrive at gross margin?
A. Absorption (GAAP) costing.
B. Variable costing.
C. Indirect.
D. Contribution margin.
Question 38
Jacques has been asked to calculate the cost of goods manufactured for Sully Enterprises
for fiscal year 20x7. He has accumulated the following values.
 Part 1 Cost Measurement Concepts

What value should Jacques find for the cost of goods manufactured?
A. $8,777,538
B. $8,282,538
C. $7,651,249
D. $8,253,889
Question 39
Which amount of production and sales would produce a net income of $75,000 if the
selling price is $125 per unit, the contribution ratio is 0.40, and total fixed expenses are
$25,000?
A. 2,000 units.
B. 800 units.
C. 1,500 units.
D. 600 units.
Question 40
Rose Corporation produces a single product and uses a variable costing system. Last
year, the company had net operating income of $50,000. Beginning and ending
inventories were 13,000 units and 18,000 units, respectively. If the applied cost rate for
fixed manufacturing overhead was $2.00 per unit, what would have been the net
operating income if Rose Corporation used an absorption costing system? (Assume
normal costing.)
A. $40,000
 Part 1 Cost Measurement Concepts

B. $86,000
C. $24,000
D. $60,000
Question 41
Which of the following statements is correct concerning total contribution margin?
A. Total contribution margin represents the selling price from an individual unit left
over after paying the variable costs related to producing and selling that
individual unit.
B. Total contribution margin represents the total revenue left over after paying all
the variable costs incurred in a period.
C. Total contribution margin represents the selling price from an individual unit left
over after paying the costs related to producing that individual unit.
D. Total contribution margin represents the total revenue left over after paying all
the production costs of goods sold during a period.
Question 42
Tasty Brands Company manufactures candy from a joint production process and has four
main products: Choco Bar, Nougat Bar, Peanut Bar, and Coconut Bar. Joint costs for one
batch are as follows:

At the split-off point, one joint process batch yields 30,000 Choco Bars, 25,000 Nougat
Bars, 20,000 Peanut Bars, and 15,000 Coconut Bars. If all products are sold at the split-
off point, prices are $0.75 per Choco Bar, $1.00 per Nougat Bar, $1.25 per Peanut Bar,
and $1.50 per Coconut Bar.
Tasty Brands has the option of further processing all products into king-sized bars with
the following added costs and premium prices:
 Part 1 Cost Measurement Concepts

What are the joint costs allocated to the Nougat Bars under the sales value at split-off
method? Round intermediate calculations to two decimal points. (Note: This means the
allocations across all four bars won't add up perfectly to the joint cost.)
A. $20,170
B. $18,000
C. $20,000
D. $19,000
Question 43
Product #98B sells for $80 per unit. Direct materials are $18, direct labor is $8, and
variable manufacturing overhead is 60% of direct labor costs per unit. Variable selling
and administrative expenses average $5 per unit sold. If fixed manufacturing overhead is
$50,000 and fixed selling and administrative expenses total $55,000, determine gross
margin when 8,000 units are produced and sold.
A. $393,600
B. $248,600
C. $343,600
D. $353,600
Question 44
All of the following statements describe complications in determining fixed, variable, and
mixed costs except:
A. The distinction of cost behavior as variable or fixed is based on the cost object.
B. Fixed costs can shift in total as the organization moves between significant cost
structures.
C. Costs in organizations are always either variable or fixed.
D. In very short horizons most costs are fixed. In contrast, over very long horizons
most costs are variable.
 Part 1 Cost Measurement Concepts

Question 45
A company has the following information.

Determine the variable cost of goods sold per unit using a variable costing system.
A. $20.40
B. $17.00
C. $28.67
D. $23.00
Question 46
Alene Company currently sells its only product for $95 per unit. Variable manufacturing
cost per unit is $56 while fixed manufacturing overhead totals $50,000. Variable selling
and administrative expenses are $15 per unit sold and fixed selling and administrative
expenses total $28,000. What is the effect on contribution margin when production
increases from 5,700 to 6,200 units if all units produced are sold each year?
A. An increase of $12,000.
B. An increase of $19,500.
C. An increase of $47,500.
D. An increase of $28,000.
Question 47
Toledo Manufacturing has the following variable overhead costs:
 Part 1 Cost Measurement Concepts

If Toledo decides that they need to increase their indirect materials to $2.25 per hour,
how much will this increase their total variable costs?
A. $32,625
B. $980
C. $4,060
D. $1,015
Question 48
The Lewis Law Firm is a small legal practice that provides family law services. Lewis uses
a normal cost accounting system to track service costs to the income statement, and has
the following summary cost information for the month of September:

Using the information above, determine the amount of costs transferred to the cost of
services account (on the income statement) for September.
A. $170,000
B. $163,000
C. $164,000
D. $198,000
Question 49
A company has the following information:
 Part 1 Cost Measurement Concepts

Compute gross margin when 10,000 units are produced and sold.
A. $105,000
B. $330,000
C. $200,000
D. $275,000
Question 50
Which of the following statements about cost objects is accurate
A. All cost are assigned to cost objects based on a consumption relationship.
B. All cost are assigned to cost objects based on an allocation method.
C. Cost objects can also serve as revenue objects for the organization.
D. Cost objects are the same thing as expense objects.
Question 51
The Ramirez Company makes leather jackets that sell for $175 each. The total cost in
May of manufacturing 1,000 jackets is $114,860. The variable cost for each jacket is $57.
What are Ramirez's fixed costs for the month?
A. $57,000
B. $114,860
C. $60,140
D. $57,860
Question 52
Penn Company has accumulated the following costs in relation to the production and
sales of 5,800 units during its first year of operations:
 Part 1 Cost Measurement Concepts

Using variable costing, determine Penn's total product costs for the year.
A. $148,080
B. $108,080
C. $137,080
D. $75,600
Question 53
Nielson Corp. sells its product for $6,600 per unit. Variable costs per unit are:
manufacturing, $3,600; and selling and administrative, $75. Fixed costs are: $18,000
manufacturing overhead; and $24,000 selling and administrative. There was no
beginning inventory on January 1, 20X1. Production was 20 units per year from 20X1 to
20X3. Sales were 20 units in 20X1, 16 units in 20X2, and 24 units in 20X3.
Income under variable costing for 20X2 is
A. $4,800.
B. $8,400.
C. $9,600.
D. $13,200.
Question 54
Which form of income statement is prepared for internal users?
A. Variable costing.
B. Multi-step.
C. Absorption costing.
D. Full costing.
Question 55
The MIR Company processes a single material into three separate products: A, B, and C.
During July, the joint costs of processing were $1,677,560. Production and sales value
information for the month were as follows:
 Part 1 Cost Measurement Concepts

If MIR allocates joint costs using the constant gross margin method, how much would be
allocated to Products A, B, and C, respectively?
A. $190,400, $526,320, and $960,840
B. $145,520, $536,520, and $995,520
C. $167,756, $503,268, and $1,006,536
D. $194,717, $539,216, and $943,628
Question 56
Gage Company has accumulated the following costs in relation to the production and
sales of 6,400 units during its first year of operations:

Using variable costing, determine Gage's total product costs for the year.
A. $117,800
B. $112,000
C. $64,000
D. $92,800
Question 57
What would cause an increase in gross margin percentage but cause no change in
contribution margin percentage?
A. A decrease in fixed selling and administrative costs.
B. A decrease in direct material costs.
C. An increase in unit sales.
D. A decrease in direct labor costs.
 Part 1 Cost Measurement Concepts

Question 58
Great Doors, Inc. (GDI) has provided the following information:

Note that the price, production costs, and sales volume were the same for each year.
GDI had no selling and administrative expenses for either year. Calculate the operating
income for Year 2 under both absorption and variable costing.
A. Absorption costing operating income Year 2: $500,000; variable costing operating
income Year 2: $550,000
B. Absorption costing operating income Year 2: $550,000; variable costing operating
income Year 2: $500,000
C. Absorption costing operating income Year 2: $600,000; variable costing operating
income Year 2: $500,000
D. Absorption costing operating income Year 2: $550,000; variable costing operating
income Year 2: $600,000
Question 59
Oak Products produced and sold 5,000 units during its most recent fiscal year. Direct
materials were $9 per unit, direct labor costs were $4 per unit, and variable overhead
costs were 110% of direct labor costs. Fixed overhead was $50,000, fixed selling and
administrative expenses totaled $50,000, and variable selling and administrative
expenses were a combined $8 per unit. Calculate inventory costs based on using the
absorption (full) costing method.
A. $87,000
B. $137,000
C. $227,000
D. $127,000
 Part 1 Cost Measurement Concepts

Question 60
For Buffalo Co., at a sales level of 4,000 units, sales are $75,000, variable expenses total
$50,000, and fixed expenses are $21,000. What is the contribution margin per unit?
A. $5.25
B. $6.25
C. $12.50
D. $18.75