Final Practice with Solutions

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Final Practice Key

1. Bridget Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 2,000 units and of Product B is 3,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows:

The overhead cost per unit of Product A under activity-based costing is closest to:
A. $6.00
B. $9.60
C. $8.63
D. $13.80

2. Austin Wool Products purchases raw wool and processes it into yarn. The spindles of yarn can then be sold directly to stores or they can be used by Austin Wool Products to make afghans. Each afghan requires one spindle of yarn. Current cost and revenue data for the spindles of yarn and for the afghans are as follows:

Each
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7. The management of Freshwater Corporation is considering dropping product C11B. Data from the company's accounting system appear below:

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $211,000 of the fixed manufacturing expenses and $122,000 of the fixed selling and administrative expenses are avoidable if product C11B is discontinued.
According to the company's accounting system, what is the net operating income earned by product C11B?
A. $74,000
B. $(521,000)
C. $(74,000)
D. $521,000

8. Amadon Corporation manufactures and sells a single product. The company uses units as the measure of activity in its flexible budgets. During July, the company budgeted for 7,900 units, but its actual level of activity was 7,920 units. The company has provided the following data concerning the formulas to be used in its budgeting: The direct labor in the planning budget for July would be closest to:
A. $41,868
B. $41,080
C. $41,184
D. $41,974
Cost = Fixed cost per unit + Variable cost per unit  q
= $0 + $5.20  7,900 = $41,080

9. (Ignore income taxes in this problem.) The Crawford Company is pondering an investment in a machine that costs $350,000, that will have a useful life of eight years, and that will have a salvage value of $25,000. If this machine is purchased, a similar, old machine will be sold at a
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