MEASUREMENT CONCEPTS

Clary Company currently sells its only product for $54 per unit. Variable
manufacturing cost per unit is $24 while fixed manufacturing overhead
totals $50,000. Variable selling and administrative expenses are $4 per
unit sold. Fixed selling and administrative expenses total $23,000. What
is the effect on gross margin when production increases from 5,000 to
5,500 units if all units produced are sold each year?
A. $13,000 increase.
B. $27,000 increase.
C. $12,000 increase.
D. $15,000 increase.
Which one of the following refers to a cost that remains the same as
the volume of activity decreases within the relevant range?

A.Variable cost per unit.

B.Total variable cost.
C.Unit fixed cost.
D.Average cost per unit.
When managers produce more units than can be sold, full costing can:
A. Increase unit costs.
B. Deflate income.
C. Inflate income.
D. Decrease taxes.
Which best describes what happens to the variable cost per unit if
activity is within the relevant range?
A. It differs at each activity level.
B. It stays the same at each activity level.
C. It increases as production increases.
D. It decreases as production increases.
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.
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
Lar Company has found that its total electricity cost has both a fixed component
and a variable component within the relevant range. The variable component
seems to vary directly with the number of units produced. Which one of the
following statements concerning Lar's electricity cost is incorrect?
A. The variable electricity cost per unit of production will remain constant as
production volume increases.
B. The total electricity cost per unit of production will increase as production
volume increases.
C. The total electricity cost will increase as production volume increases.
D. The fixed electricity cost per unit of production will decline as production
volume increases.
A plant meters electricity usage at the department level. The
department has several product operations, including tennis ball
manufacture. Electricity is considered which of the following for a can
of tennis balls?
A. A variable direct cost.
B. A fixed indirect cost.
C. A fixed direct cost.
D. A variable indirect cost.
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 net income when 7,500 units are produced and sold.
A. $297,500
B. $300,000
C. $337,500
D. $210,000
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
Royalty Manufacturing has accumulated the following cost information related to the production and sale of
6,000 units of product #35BR:
Direct labor hours 4,500
Average labor rate $9 per hour
Direct materials $25,000
Unit selling price $28.50
Variable manufacturing overhead 110% of direct materials
Variable selling and administrative expenses $3 per unit
Fixed selling and administrative expenses $32,000
Fixed manufacturing overhead $27,000
Calculate Royalty's gross profit using variable costing related to product #35BR.
A. $51,000
B. $78,000
C. $1,000
D. $60,000
The Chowning Company manufactures ear buds that sell for $20 a pair.
The variable cost of each set of ear buds is $6.35. The company incurs
monthly fixed costs of $10,000. If Chowning makes 1,200 sets of ear
buds in February, what is the total cost?
A. $6,380
B. $17,620
C. $7,620
D. $10,000
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.

Under both full and variable costing, all variable manufacturing costs
and all selling and administrative costs are expensed in full. The only
difference is the fixed manufacturing costs. When units produced equal
units sold, total fixed manufacturing costs are expensed in full under
either method, so operating income will be equal.
Which of the following is often changed on a day-to-day basis?
A. Plant-wide overhead rate.
B. Departmental overhead rate.
C. Fixed overhead costs.
D. Variable overhead costs.
Variable costing enables more efficient:
• External reporting.
• Physical inventory counts.
• Financial statement analysis.
• Cost-volume-profit (CVP) analysis.
Yard Beautiful Enterprises produces lawn mowers. The total cost for the
month of June is $201,780. During June, Yard Beautiful manufactured
580 lawn mowers. If the variable cost for one lawn mower is $206 and
the selling price is $475, what is the fixed cost for June?
A. $201,780
B. $73,720
C. $82,300
D. $119,480
The marketing manager of Ames Company has learned the following
about a new product that is being introduced by Ames:
Sales of this product are planned at $100,000 for the first year.
Sales commission expense is budgeted at 8% of sales plus the
marketing manager's incentive budgeted at an additional 0.5%.
The preparation of a product brochure will require 20 hours of
marketing salaried staff time at an average rate of $100 per hour, and
10 hours, at $150 per hour, for an outside illustrator's effort.
The variable marketing cost for this new product will be:
A. $8,500.
B. $8,000.
C. $10,500.
D. $10,000.
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.
An increase in unit sales would increase revenues and variable
manufacturing costs proportionately but would have no effect on fixed
manufacturing overhead; therefore, an increase in unit sales would
cause an increase in gross margin percentage but would have no effect
on the contribution margin percentage.
A company has the following cost information:
Units produced and sold 10,000
Direct materials $75,000
Direct labor hours per unit 1.0
Direct labor rate $10 per hour
Variable manufacturing overhead 40% of direct labor
Fixed manufacturing overhead $25,000
Variable selling and administrative expenses $6 per unit
Fixed selling and administrative expenses $20,000
Calculate total period costs using full costing.
A. $105,000
B. $145,000
C. $80,000
D. $175,000
Which of the following is a fixed cost?
A. Raw materials.
B. Manufacturing labor wages.
C. Rent.
D. Office supplies.
The following cost and revenue information has been accumulated by
Saylor Company for the most recent fiscal year:
Operating income $250,000
Total selling and administrative expense $8 per unit
Cost of goods sold $550,000
Determine gross margin if operating income is 20% of sales.

A.$800,000
B.$2,750,000
C.$700,000
D.$1,250,000
A company has the following cost structure:
Direct labor per unit $6
Direct materials per unit $2
Fixed manufacturing overhead $15,000
Variable manufacturing overhead per unit $3
Variable selling and administrative expense per unit $2
Fixed selling and administrative expense $25,000
How many units must be sold at $25 each to yield a contribution
margin of $75,000?
A. 6,250 units.
B. 5,357 units.
C. 4,412 units.
D. 3,000 units.
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:
Direct materials $145,000
Direct labor $12 per unit
Variable manufacturing overhead 70% of direct labor
Variable selling and administrative costs $7 per unit sold
Fixed manufacturing overhead $80,000
Fixed selling and administrative expenses $60,000
Using variable costing, determine Salmon's total period costs for the year.
A. $140,000
B. $110,400
C. $190,400
D. $231,400
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.

With a contribution ratio of 0.40, the unit contribution margin is $50

(0.40 × $125). The quantity needed for the target income = (Fixed cost
+ Target income) ÷ Unit contribution margin
Quantity needed = ($25,000 + $75,000) ÷ $50
Quantity needed = 2,000 units
When comparing absorption costing with variable costing, the
difference in operating income can be explained by the difference
between the:
A. ending inventory in units and the beginning inventory in units,
multiplied by the budgeted fixed manufacturing cost per unit.
B. units sold and the units produced, multiplied by the budgeted
variable manufacturing cost per unit.
C. units sold and the units produced, multiplied by the unit sales price.
D. ending inventory in units and the beginning inventory in units,
multiplied by the unit sales price.
A company has the following cost information:
Units produced and sold 20,000
Variable cost of goods sold $12 per unit
Total variable selling expense $16,000
Fixed selling and administrative expense $22,700
Total variable administrative expense $44,000
Fixed manufacturing expense $60,000
Determine what amount of sales revenue would result in a
contribution margin of $125,000.
A. $365,000
B. $381,000
C. $300,000
D. $425,000
The method of inventory costing in which direct manufacturing costs
and manufacturing overhead costs, both variable and fixed, are
considered as inventoriable costs is best described as:
A. absorption costing.
B. variable costing.
C. direct costing.
D. conversion costing.
Which one of the following best describes direct labor?
A. a product cost.
B. a period cost.
C. both a product cost and a prime cost.
D. a prime cost.
All of the following statements accurately describe fixed and variable
cost behavior except:
A. Variable costs remain constant when viewed on a per unit basis
within the relevant range.
B. Fixed costs remain constant when viewed on a per unit basis within
the relevant range.
C. The shorter the time period, the higher the percentage of total
costs that can be viewed as fixed.
D. The longer the time horizon, the more costs can be variable.
Xylon Company uses direct (variable) costing for internal reporting and
absorption costing for the external financial statements. A review of
the firm's internal and external disclosures will likely find:
A. a difference in the treatment of fixed selling and administrative
costs.
B. a contribution margin rather than gross margin in the reports
released to shareholders.
C. internal income figures that vary closely with sales and external
income figures that are influenced by both units sold and
productive output.
D. a higher inventoriable unit cost reported to management than to
the shareholders.
Whitehall Corporation produces chemicals used in the cleaning industry. During the
previous month Whitehall incurred $300,000 of joint costs in producing 60,000
units of AM-12 and 40,000 units of BM-36. Whitehall uses the units-of-production
method to allocate joint costs. Currently, AM-12 is sold at split-off for $3.50 per unit.
Flank Corporation has approached Whitehall to purchase all of the production of
AM-12 after further processing. The further processing will cost Whitehall $90,000.
Assume that Whitehall Corporation agreed to sell AM-12 to Flank Corporation after
further processing for $5.50 per unit. During the first month of production,
Whitehall sold 50,000 units with 10,000 units remaining in inventory at the end of
the month. With respect to AM-12, which one of the following statements is
correct?
A.The gross profit last month was $200,000 and the inventory value is $45,000.
B.The gross profit last month was $50,000 and the inventory value is $45,000.
C.The gross profit last month was $200,000 and the inventory value is $30,000.
D.The gross profit last month was $50,000 and the inventory value is $15,000.
Cont..
The gross profit for AM-12 is derived by taking its sales revenue less its cost of
goods sold.
Sales is calculated by taking the selling price per unit and multiplying it by the
number of units sold, as follows:
Sales revenue = $5.50(50,000 units) = $275,000
Cost of goods sold is calculated by taking the unit cost and multiplying it by the
number of units sold. The unit cost is made up of $3.00 per unit of joint costs
($300,000 in total joint costs, divided by 100,000 units produced) and $1.50 per
unit in separable costs.
Cost of goods sold = $4.50(50,000 units sold) = $225,000
Gross profit = sales revenue − cost of goods sold = $275,000 − $225,000 = $50,000
Inventory value = (cost per unit)(number of units remaining in inventory)
Inventory value = $4.50(10,000 units) = $45,000
Which of the following is a product cost under full costing?
A. CEO's salary.
B. Depreciation of office equipment.
C. Depreciation of manufacturing equipment.
D. Selling expenses.
A company has the following cost information:
Units produced and sold 10,000
Direct materials $75,000
Direct labor hours per unit 1.0
Direct labor rate $10 per hour
Variable manufacturing overhead 40% of direct labor
Fixed manufacturing overhead $25,000
Variable selling and administrative expenses $6 per unit
Fixed selling and administrative expenses $20,000
Calculate total product costs using full costing.
A. $215,000
B. $240,000
C. $320,000
D. $175,000
Which form of income statement is used for external reporting?
A. Single-step.
B. Variable costing.
C. Contribution margin.
D. Full costing.
Assuming that a management accountant wants to maximize reported
net income, which of the following costing methods would show the
greatest net income when the company increases its ending inventory?
A. Normal costing.
B. Standard costing.
C. Variable costing.
D. Absorption costing.
Fitzpatrick Corporation uses a joint manufacturing process in the production of two
products, Gummo and Xylo. Each batch in the joint manufacturing process yields
5,000 pounds of an intermediate material, Valdene, at a cost of $20,000.
Each batch of Gummo uses 60% of the Valdene and incurs $10,000 of separate
costs. The resulting 3,000 pounds of Gummo sells for $10 per pound.
The remaining Valdene is used in the production of Xylo which incurs $12,000 of
separable costs per batch. Each batch of Xylo yields 2,000 pounds and sells for $12
per pound.
Fitzpatrick uses the net realizable value method to allocate the joint material costs.
The company is debating whether or not to process Xylo further into a new
product, Zinten, which would incur an additional $4,000 in costs and sell for $15
per pound. If Zinten is produced, income would increase by:
A. $2,000.
B. $5,760.
C. $26,000.
D. $14,000. Cont..
The increase in income from producing Zinten is calculated by taking
the $30,000 market value of Zinten (2,000 pounds at $15 per pound)
and subtracting both the $24,000 market value of Xylo (2,000 pounds
at $12 per pound) and the $4,000 in additional processing costs.

Increase in income = $30,000 − $24,000 − $4,000 = $2,000

The following cost information is for a sales volume of 6,300 units:
Direct materials per unit $8
Total direct labor $54,000
Fixed manufacturing overhead $30,000
Variable manufacturing overhead 120% of direct labor
Fixed selling and administrative costs $50,000
Variable selling and administrative costs $5 per unit
Calculate cost of goods sold using variable costing.
A. $199,200
B. $169,200
C. $280,700
D. $200,700
Whitehall Corporation produces chemicals used in the cleaning industry. During the
previous month Whitehall incurred $300,000 of joint costs in producing 60,000
units of AM-12 and 40,000 units of BM-36. Whitehall uses the units-of-production
method to allocate joint costs. Currently, AM-12 is sold at split-off for $3.50 per
unit. Flank Corporation has approached Whitehall to purchase all of the production
of AM-12 after further processing. The further processing will cost Whitehall
$90,000.
Concerning AM-12, which one of the following alternatives is most advantageous?
A. Whitehall should process further and sell to Flank if the total selling price per
unit after further processing is greater than $5.00.
B. Whitehall should process further and sell to Flank if the total selling price per
unit after further processing is greater than $3.00, which covers the joint costs.
C. Whitehall should continue to sell at split-off unless Flank offers at least $4.50
per unit after further processing, which covers Whitehall's total costs.
D. Whitehall should process further and sell to Flank if the total selling price per
unit after further processing is greater than $1.50, which covers the
incremental costs.
A company makes two joint products from recycled plastic: artificial
joists for construction and plastic designer chairs. The total joint costs
are $140,000, and the process produces 3,000 joists and 2,000 chairs.
Joists sell for $20 and chairs for $50. The average cost per unit is
determined to be $28, resulting in a gross margin of −$24,000 for joists
and $44,000 for chairs. Which of the following joint cost allocation
methods was used for these calculations?
A.Physical measure method.
B.Net realizable value method.
C.Sales value at split-off method.
D.Gross profit method.
Jones, Inc. processes cedar logs, producing lumber of various sizes as
well as a by-product of cedar mulch, sold to gardening centers. At the
end of the period, Jones' accountant is attempting to allocate the joint
costs of $900,000, after which time each product may or may not
require further processing. Data collected:
Image in which various values are listed under the column heads
“Quantity” and “Market value at split-off.”
If Jones allocates joint product costs using the sales value at split-off,
how much of the joint costs is allocated to the mulch?

A.$60,000.
B.$34,650.
C.$180,000.
D.$16,560.
The primary purpose for allocating common costs to joint products is to
determine:

A.the variance between budgeted and actual common costs.

B.the inventory cost of joint products for financial reporting.
C.the selling price of a by-product.
D.whether or not one of the joint products should be discontinued.
The distinction between joint products and by-products is largely
dependent on:
A. salvage value.
B. historical costs.
C. prime costs.
D. market value.
Tempo Company produces three products from a joint process. The
three products are sold after further processing as there is no market
for any of the products at the split-off point. Joint costs per batch are
$315,000. Other product information is shown here:
Image in which various values are listed for product A, product B, and
product C.
If Tempo uses the net realizable value(NRV) method of allocating joint
costs, how much of the joint costs will be allocated to each unit of
Product C?
A. $3.15.
B. $2.65.
C. $2.10.
D. $3.78.