Question 1                                                                                                                                          1.5 out of 1.5 points


Daffy Duct, Inc., has the capacity to produce 12,000 cases of duct tape per year but only produces and sells 10,000 cases at $50 per case. The direct materials equals $190,000, direct labor equals $100,000, and overhead equals $100,000. Sixty percent of the manufacturing overhead is variable. The forty percent of fixed overhead is allocated equally to all products.


Dewey, Cheatum & Howe has offered to purchase 1,000 cases but at a reduced price of $40 per case.  What is the additional profit (loss) of accepting this offer?




Question 2                                                                                                                          1.125 out of 1.5 points


The Sweet Dairy Air, Inc., makes and sells ice cream cones. Management is trying to decide whether to have its hourly employees produce the ice cream cones or purchase the cones from an outside vendor. For each of the following items, indicate if it is relevant or irrelevant to this decision.


Question 3                                                                                                                          1.5 out of 1.5 points




BBQ Tanning Beds, Inc., produces and sells tanning beds.


Selling Price        $200


Direct Materials and Direct Labor              $120


Allocated Fixed Manufacturing Costs      $300,000


What will the company’s breakeven point in units equal if BBQ Tanning Beds were to replace some of its hourly employees with a machine? The labor costs will reduce the cost per bed by $20 but the depreciation on the machine will add $100,000 to the manufacturing costs.


Question 4                                                                                                                          1.5 out of 1.5 points




Quiche & Tell, Inc., is a catering business. Direct labor costs are $15 per hour and overhead is allocated to jobs at a rate of $10 per direct labor hour. Catering for theEggsetera, Inc. party cost $1,000 for direct materials and took 20 direct labor hours. Calculate the total cost of the Eggsetera’s party.


Question 5                                                                                                                          1.5 out of 1.5 points       


Big Seats has the capacity to produce 100,000 sofas per year but only produces 80,000 sofas per year. The sale price is $1,000 each. Direct materials equals $300 per sofa, direct labor equals $200 per sofa, and allocated overhead equals $100,000 per year. Buy & Large offers to buy an additional 1,000 sofas but is only willing to pay $800 per sofa. What is the additional profit (loss) of accepting the offer?






Question 6                                                                                                                          1.5 out of 1.5 points


Lawn and Order Company manufactures industrial sprinklers and uses an activity-based costing system to allocate overhead to its products. Each sprinkler consists of 6 separate parts totaling $3 in direct materials, $2 in direct labor and requires 1 hour of machine time to produce. Additional information follows:


Overhead Cost Pools


Cost Drivers        Allocation Overhead Rate


Materials handling           Number of parts              $0.40 per part


Machining           Machine hours  $1.50 per machine hour


Assembling         Number of parts              $0.50 per part




Number of finished units             $0.30 per finished unit


Determine the amount of overhead allocated to each sprinkler.


Question 7                                                                                                                                          1.5 out of 1.5 points


Match the cost classification needed for each of the following managerial decisions (using each only once).




Question 8                                                                                                                                          1.5 out of 1.5 points


Microhard produces tablets, laptops and televisions. Microhard typically sells 1,000 tablets a year. The tablet information is as follows:


Selling price per unit       $70


Direct material cost per unit        $30


Direct labor cost per unit              $10


Total unavoidable allocated overhead    $48,000


How much would Net Income decrease if Microhard were to eliminate the tablets?










Question 9                                                                                                                                          1.5 out of 1.5 points




For a manufacturing company, which of the following is an example of a period cost rather than a product cost?


Question 10                                                                                                                       1.5 out of 1.5 points




Daily Kneads, Inc., is considering outsourcing one of its many products rather than making it internally. The supplier will charge $20,000 for 20,000 pounds of the product. The costs per pound to make this product include:


Cost per Pound


Direct Labor        $0.50


Direct Materials                $0.50


Allocated Unavoidable Corporate Overhead       $0.50


Calculate the relevant incremental cost per pound of making the product. Do not include a dollar sign ($) in your answer.


Question 11                                                                                                                                       1.5 out of 1.5 points


Which of the following should NOT be used to evaluate the production manager’s performance?


Question 12                                                                                                                                       1.5 out of 1.5 points


Optimeyes, Inc., makes glasses and contact lenses in the same factory. The glasses’ costs consist of the following:


Glasses Glass     $400,000


Factory Rent      20,000


Allocated Glue  400


Factory Supervisor Salary             5,000


Wages Charged to Glasses           60,000


Metal and Miniature Screws traced to each pair of glasses            80,000


Calculate the Indirect Costs for Glasses.






Question 13                                                                                                                                       1.5 out of 1.5 points




Buy & Large, Inc.’s, Purchasing Department’s estimated annual costs are $400,000 and the number of purchase orders written is 800,000. The Shoe Department has requested 200,000 purchases during the year for a total of $4,000,000 in purchases.  How much of the Purchasing Department’s cost should be allocated to the Shoe Department?


Question 14                                                                                                                                       1.5 out of 1.5 points




Quiche & Tell, Inc., is considering outsourcing one of its many products rather than making it internally. The supplier will charge $15,000 for 3,000 quiches. The costs per quiche to make include:


Cost per Quiche


Allocated Corporate Overhead  $1


Direct Labor        $2


Direct Materials                $1


Manager’s Salary              $3


If Quiche & Tell outsources, what is the savings (or loss) per quiche?




Question 15                                                                                                                                       1.5 out of 1.5 points


Which of the following is relevant to Limited’s decision to accept a special order at a lower price?




Question 16                                                                                                                                       1.5 out of 1.5 points


A product should be eliminated if its _____.




Question 17                                                                                                                                       1.5 out of 1.5 points


Cyclogy Bikes, Inc., manufactures bikes. Identify each of its costs as a Direct Cost or an Indirect Cost .








Question 18                                                                                                                                       1.5 out of 1.5 points




French Confection, Inc., allocates overhead using direct labor hours as the allocation activity.  The following information was estimated at the beginning of the year:


Estimated Manufacturing Overhead       $400,000


Estimated Machine Hours            4,000


Estimated Direct Labor Hours     5,000


During the year, the bakery department used 800 machine hours and 2,000 direct labor hours.  How much manufacturing overhead was allocated to the bakery department during the year?


Question 19                                                                                                                                       1.5 out of 1.5 points




Put the following steps in an Activity-Based-Costing system in the proper order.


Question 20                                                                                                                                       0 out of 1.5 points          


Seed Food, Inc. expects to sell 20,000 bags of flaxseed to at a price of $20 per bag. Direct materials equal $10 per bag, direct labor equals $5 per bag and allocated overhead is fixed and will equal $60,000 per month. Seed Food is considering buying a bagging machine to reduce the time spent filling the bags manually. The depreciation of the machine will increase overhead by $10,000 per year, but the direct labor cost per case is expected to decrease by $2. What would be the change in operating income if it bought the machine?



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