ACCT 302: A Trivia Test On Cost Accounting!

1. A unit cost is computed by dividing total cost by the number of units.

True

False

The explanation for the given correct answer is that a unit cost is indeed computed by dividing the total cost by the number of units. This calculation allows for determining the cost per unit of a product or service, which is useful for various purposes such as pricing, budgeting, and financial analysis. By dividing the total cost by the number of units, one can determine how much each unit contributes to the overall cost. Therefore, the statement is true.

Explanation

The explanation for the given correct answer is that a unit cost is indeed computed by dividing the total cost by the number of units. This calculation allows for determining the cost per unit of a product or service, which is useful for various purposes such as pricing, budgeting, and financial analysis. By dividing the total cost by the number of units, one can determine how much each unit contributes to the overall cost. Therefore, the statement is true.

2. Although unit costs are regularly used in financial reports and for making product mix and pricing decisions, managers should think in terms of total costs rather than unit costs for making decisions.

True

False

Managers should think in terms of total costs rather than unit costs for making decisions because total costs provide a more comprehensive view of the overall expenses associated with a decision. Unit costs only consider the cost per unit of a product or service, but they do not take into account the total quantity or volume. By focusing on total costs, managers can better understand the impact of their decisions on the overall financial performance of the organization. This allows for more informed and effective decision-making.

Explanation

Managers should think in terms of total costs rather than unit costs for making decisions because total costs provide a more comprehensive view of the overall expenses associated with a decision. Unit costs only consider the cost per unit of a product or service, but they do not take into account the total quantity or volume. By focusing on total costs, managers can better understand the impact of their decisions on the overall financial performance of the organization. This allows for more informed and effective decision-making.

3. Genosis Metals provided the following information for last month: Sales $20,000 Variable costs 8,000 Fixed costs 4,000 Operating income $8,000 If sales reduce to half the amount in the next month, what is the projected operating income?

$0

$4,000

$2,000

$6,000

Projected operating income = ($20,000 × 0.5) − ($8,000 × 0.5) − $4,000 = $2,000

Explanation

Projected operating income = ($20,000 × 0.5) − ($8,000 × 0.5) − $4,000 = $2,000

4. A unit cost is also called an average cost.

True

False

The statement is true because a unit cost is calculated by dividing the total cost by the number of units produced. It represents the average cost per unit. Therefore, a unit cost is also known as an average cost.

Explanation

The statement is true because a unit cost is calculated by dividing the total cost by the number of units produced. It represents the average cost per unit. Therefore, a unit cost is also known as an average cost.

5. When 20,000 units are produced, fixed costs are $16 per unit. Therefore, when 16,000 units are produced, fixed costs will ________.

Increase to $20 per unit

Remain at $16 per unit

Decrease to $10 per unit

Total $160,000

Fixed costs are $320,000 ($16 × 20,000 units). Dividing $320,000 by 16,000 units= $20.

Explanation

Fixed costs are $320,000 ($16 × 20,000 units). Dividing $320,000 by 16,000 units= $20.

6. Eigen Manufacturing Corp. provided the following information for last month: Sales $40,000 Variable costs 14,000 Fixed costs 10,000 Operating income $16,000 If sales reduce to half of the amount in the next month, what is the projected operating income?

$15,000

$6,000

$16,000

$3,000

Projected operating income= ($40,000 / 2) − ($14,000 / 2) − $10,000= $3,000

Explanation

Projected operating income= ($40,000 / 2) − ($14,000 / 2) − $10,000= $3,000

7. Ridez Manufacturing currently produces 1,000 bicycles per month. The following per unit data apply for sales to regular customers: Direct materials $50 Direct manufacturing labor 8 Variable manufacturing overhead 12 Fixed manufacturing overhead 15 Total manufacturing costs $85 The plant has a capacity for 3,000 bicycles and is considering expanding production to 2,000 bicycles. What is the per-unit cost of producing 2,000 bicycles?

$78.50 per unit

$170 per unit

$72.50 per unit

$77.50 per unit

Cost of producing 2,000 bicycles= [($50 + $8 + $12) × 2,000 units] + ($15 × 1,000 units)= $155,000 / 2,000 units= $77.50

Explanation

Cost of producing 2,000 bicycles= [($50 + $8 + $12) × 2,000 units] + ($15 × 1,000 units)= $155,000 / 2,000 units= $77.50

8. Grip Manufacturing currently produces 1,000 tires per month. The following per unit data for 1,000 tires apply for sales to regular customers: Direct materials $30 Direct manufacturing labor 5 Variable manufacturing overhead 8 Fixed manufacturing overhead 12 Total manufacturing costs $55 The plant has a capacity for 3,000 tires and is considering expanding production to 2,000 tires. What is the total cost of producing 2,000 tires?

$110,000

$98,000

$68,000

$88,000

Total cost of producing 2,000 tires= [($30 + $5 + $8) × 2,000 units] + ($12 × 1,000 units)= $98,000

Explanation

Total cost of producing 2,000 tires= [($30 + $5 + $8) × 2,000 units] + ($12 × 1,000 units)= $98,000

9. When making decisions for product mix or and pricing, the focus should be on total costs and not unit costs.

True

False

When making decisions for product mix or pricing, it is important to consider total costs rather than just unit costs. This is because unit costs only take into account the cost of producing one unit of a product, while total costs consider all the costs associated with producing and selling the entire product mix. By focusing on total costs, businesses can have a better understanding of the overall profitability and sustainability of their product offerings, and make more informed decisions about pricing and product mix.

Explanation

When making decisions for product mix or pricing, it is important to consider total costs rather than just unit costs. This is because unit costs only take into account the cost of producing one unit of a product, while total costs consider all the costs associated with producing and selling the entire product mix. By focusing on total costs, businesses can have a better understanding of the overall profitability and sustainability of their product offerings, and make more informed decisions about pricing and product mix.