, Becker CPA Review, PassMaster Questions
Lecture: Business 5
Cost Measurement and Cost Measurement Concepts
CPA-03465 Type1 M/C A-D Corr Ans: C PM#1 B 5-01
1. CPA-03465 D94 - 1.03 Page 7
Huron Industries has recently developed two new products, a cleaning unit for laser discs and a tape
duplicator for reproducing home movies taken with a video camera. However, Huron has only enough
plant capacity to introduce one of these products during the current year. The company controller has
gathered the following data to assist management in deciding which product should be selected for
production.
Huron's fixed overhead includes rent and utilities, equipment depreciation, and supervisory salaries.
Selling and administrative expenses are not allocated to products.
Tape Duplicator Cleaning Unit
Raw materials $ 44.00 $36.00
Machining @ $12/hr. 18.00 15.00
Assembly @ $10/hr. 30.00 10.00
Variable overhead @ $8/hr. 36.00 18.00
Fixed overhead @ $4/hr. 18.00 9.00
Total cost $146.00 $88.00
Suggested selling price $ 169.95 $ 99.98
Actual research and development costs $240,000 $175,000
Proposed advertising and promotion costs $500,000 $350,000
The total overhead cost of $27.00 for Huron's laser disc cleaning unit is a:
a. Carrying cost.
b. Sunk cost.
c. Mixed cost.
d. Committed cost.
CPA-03465 Explanation
Choice "c" is correct. The total overhead cost of $27.00 is a mixed cost because it includes both fixed
and variable components.
Choice "a" is incorrect. Carrying costs are the costs of carrying inventory.
Choice "b" is incorrect. Sunk costs are in the past and unavoidable.
Choice "d" is incorrect. Committed costs are in the future, but unavoidable.
CPA-03484 Type1 M/C A-D Corr Ans: B PM#3 B 5-01
2. CPA-03484 D96 - 1.30 Page 16
Lankip Company produces two main products and a byproduct out of a joint process. The ratio of output
quantities to input quantities of direct material used in the joint process remains consistent from month to
month. Lankip has employed the physical-volume method to allocate joint production costs to the two
main products. The net realizable value of the byproduct is used to reduce the joint production costs
before the joint costs are allocated to the main products. Data regarding Lankip's operations for the
current month are presented in the chart below. During the month, Lankip incurred joint production costs
of $2,520,000. The main products are not marketable at the split-off point and, thus, have to be
processed further.
, Becker CPA Review, PassMaster Questions
Lecture: Business 5
The amount of joint production cost that Lankip would allocate to the Second Main Product by using the
physical-volume method to allocate joint production costs would be:
a. $1,260,000
b. $1,500,000
c. $1,575,000
d. $1,650,000
CPA-03484 Explanation
Choice "b" is correct. $1,500,000 joint cost is allocated to the second main product by using the physical-
volume method.
Joint costs $2,520,000
Less net realizable value of byproduct (60,000 × $2) (120,000)
Net joint costs to be allocated $2,400,000
150,000 pounds of second main product
× $2,400,000 = $1,500,000
240,000 pounds of total (first + second) main products
Choices "a", "c", and "d" are incorrect based on the above explanation.
CPA-03498 Type1 M/C A-D Corr Ans: C PM#4 B 5-01
3. CPA-03498 ARE Nov 95 #48 Page 16
For purposes of allocating joint costs to joint products, the sales price at point of sale, reduced by cost to
complete after split-off, is assumed to be equal to the:
a. Joint costs.
b. Total costs.
c. Net sales value at split-off.
d. Sales price less a normal profit margin at point of sale.
CPA-03498 Explanation
Choice "c" is correct. Sales price less the cost to complete is defined as the net sales value at split-off. In
other words, this is the additional contribution to income generated by completing the product.
Choice "a" is incorrect. Sales price at point of sale reduced by cost to complete is the additional
contribution to income generated by completing the product. It is not equal to joint costs. (If it were, this
would be a zero profit situation.)
Choice "b" is incorrect. Sales price at point of sale reduced by cost to complete is the additional
contribution to income generated by completing the product. It is not equal to total costs.
Choice "d" is incorrect. Selling price less a normal profit margin is generally a cost figure. It is not equal
to sales price less the cost to complete, which is the additional contribution to income generated by
completing the product. (If it were, this would be a zero profit situation.)
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller akademica. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $10.49. You're not tied to anything after your purchase.