144.

In making the decision to buy the model 260 machine rather than the model 330 machine, the
differential cost was:
A) $18,000
B) $56,000
C) $38,000
D) $40,000
Level: Easy LO: 7 Ans: B

145. In making the decision to buy the model 260 machine rather than the model 330 machine, the sunk
cost was:
A) $418,000
B) $456,000
C) $474,000
D) $496,000
Level: Easy LO: 7 Ans: B

146. In making the decision to invest in the model 260 machine, the opportunity cost was:
A) $418,000
B) $456,000
C) $474,000
D) $496,000
Level: Easy LO: 7 Ans: D

Use the following information to answer 147-149

Management of Childers Corporation is considering whether to purchase a new model 380 machine
costing $278,000 or a new model 230 machine costing $207,000 to replace a machine that was purchased
3 years ago for $266,000. The old machine was used to make product R16K until it broke down last
week. Unfortunately, the old machine cannot be repaired.
Management has decided to buy the new model 230 machine. It has less capacity than the new model 380
machine, but its capacity is sufficient to continue making product R16K.
Management also considered, but rejected, the alternative of simply dropping product R16K. If that were
done, instead of investing $207,000 in the new machine, the money could be invested in a project that
would return a total of $305,000.

147. In making the decision to buy the model 230 machine rather than the model 380 machine, the sunk
cost was:
A) $305,000
B) $266,000
C) $278,000
D) $207,000
Level: Easy LO: 7 Ans: B

40 Brewer, Introduction to Managerial Accounting, 3/e

148. In making the decision to buy the model 230 machine rather than the model 380 machine, the
differential cost was:
A) $71,000
B) $59,000
C) $12,000
D) $39,000
Level: Easy LO: 7 Ans: A

149. In making the decision to invest in the model 230 machine, the opportunity cost was:
A) $278,000
B) $305,000
C) $207,000
D) $266,000
Level: Easy LO: 7 Ans: B

Essay

150. The Plastechnics Company began operations several years ago. The company purchased a building
and, since only half of the space was needed for operations, the remaining space was rented to another
firm for rental revenue of $20,000 per year. The success of Plastechnics Company’s product has resulted
in the company needing more space. The renter’s lease will expire next month and Plastechnics will not
renew the lease in order to use the space to expand operations and meet demand.
The company’s product requires materials that cost $25 per unit. The company employs a production
supervisor whose salary is $2,000 per month. Production line workers are paid $15 per hour to
manufacture and assemble the product. The company rents the equipment needed to produce the product
at a rental cost of $1,500 per month. Additional equipment will be needed as production is expanded and
the monthly rental charge for this equipment will be $900 per month. The building is depreciated on the
straight-line basis at $9,000 per year.
The company spends $40,000 per year to market the product. Shipping costs for each unit are $20 per
unit.
The company plans to liquidate several investments in order to expand production. These investments
currently earn a return of $8,000 per year.
Required:
Complete the answer sheet above by placing an "X" under each heading that identifies the cost involved.
The "Xs" can be placed under more than one heading for a single cost, e.g., a cost might be a sunk cost,
an overhead cost, and a product cost. An "X" can thus be placed under each of these headings opposite
the cost.

Brewer, Introduction to Managerial Accounting, 3/e 41

Level: Medium LO: 1,2,5,7
Ans:

42 Brewer, Introduction to Managerial Accounting, 3/e

151. The following data (in thousands of dollars) have been taken from the accounting records of Larder
Corporation for the just completed year.

Required:
(a.) Prepare a Schedule of Cost of Goods Manufactured in good form.
(b.) Compute the Cost of Goods Sold.
(c.) Using data from your answers above as needed, prepare an Income Statement in good form
Level: Medium LO: 1,3,4
Ans:

Brewer, Introduction to Managerial Accounting, 3/e 43

152. The following data (in thousands of dollars) have been taken from the accounting records of Larop
Corporation for the just completed year.

Required:
(a.) Prepare a Schedule of Cost of Goods Manufactured in good form.
(b.) Compute the Cost of Goods Sold.
(c.) Using data from your answers above as needed, prepare an Income Statement in good form
Level: Medium LO: 1,3,4

44 Brewer, Introduction to Managerial Accounting, 3/e

Ans:

153. Ruise Corporation, a manufacturing company, has provided the following data for the month of
August:

Raw materials purchased during August totaled $73,000 and the cost of goods manufactured totaled
$146,000.
Required:
(a.) What was the cost of raw materials used in production during August? Show your work.
(b.) What was the cost of goods sold for August? Show your work.
Level: Easy LO: 1,3

Brewer, Introduction to Managerial Accounting, 3/e 45

Ans:

154. During the month of February, Cumber Corporation, a manufacturing company, purchased raw
materials costing $79,000. The cost of goods manufactured for the month was $109,000. The beginning
balance in the raw materials account was $21,000 and the ending balance was $39,000. The beginning
balance in the finished goods account was $31,000 and the ending balance was $51,000.
Required:
(a.) What was the cost of raw materials used in production during February? Show your work.
(b.) What was the cost of goods sold for February? Show your work.
Level: Easy LO: 1,3
Ans:

46 Brewer, Introduction to Managerial Accounting, 3/e

155. A partial listing of costs incurred at Falkenberg Corporation during October appears below:

Required:
(a.) What is the total amount of product cost listed above? Show your work.
(b.) What is the total amount of period cost listed above? Show your work.
Level: Medium LO: 2
Ans:
(a.) Product costs consist of direct materials, direct labor, and manufacturing overhead:

(b.) Period costs consist of all costs other than product costs:

Brewer, Introduction to Managerial Accounting, 3/e 47

156. Sobota Corporation has provided the following partial listing of costs incurred during August:

Required:
(a.) What is the total amount of product cost listed above? Show your work.
(b.) What is the total amount of period cost listed above? Show your work.
Level: Medium LO: 2
Ans:
(a.) Product costs consist of direct materials, direct labor, and manufacturing overhead:

(b.) Period costs consist of all costs other than product costs:

48 Brewer, Introduction to Managerial Accounting, 3/e

157. Star Corporation has provided the following data for the month of July:

Required:
(a.) Prepare a Schedule of Cost of Goods Manufactured in good form for July.
(b.) Prepare an Income Statement in good form for July.
Level: Medium LO: 3,4
Ans:
(a.) Schedule of Cost of Goods Manufactured

Brewer, Introduction to Managerial Accounting, 3/e 49

(b.) Income Statement

158. In October, Holecek Corporation had sales of $238,000, selling expenses of $12,000, and
administrative expenses of $35,000. The cost of goods manufactured was $130,000. The beginning
balance in the finished goods inventory account was $40,000 and the ending balance was $47,000.
Required:
Prepare an Income Statement in good form for October.
Level: Easy LO: 3
Ans:

159. In November, Stiman Inc., a merchandising company, had sales of $221,000, selling expenses of
$14,000,and administrative expenses of $22,000. The cost of merchandise purchased during the month
was $186,000. The beginning balance in the merchandise inventory account was $42,000 and the ending
balance was $52,000.
Required:
Prepare an Income Statement in good form for November.
Level: Easy LO: 3

50 Brewer, Introduction to Managerial Accounting, 3/e

Ans:
Income Statement

160. Leibowitz Corporation has provided the following data for the month of August:

Required:
Prepare a Schedule of Cost of Goods Manufactured in good form for August.
Level: Medium LO: 4

Brewer, Introduction to Managerial Accounting, 3/e 51

Ans:
Schedule of Cost of Goods Manufactured

161. A number of costs and measures of activity are listed below.

Required:
For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the possible
measure of activity listed next to it.
Level: Easy LO: 5
Ans:
(1.) Cost of cement used to produce cinder blocks; Cinder blocks produced; Variable
(2.) Cost of leasing checkout equipment on a monthly basis at a hardware store; Dollar sales; Fixed
(3.) Cost of vaccine used at a clinic; Vaccines administered; Variable
(4.) Salary of the staff chaplain at a hospital; Number of patients; Fixed
(5.) Windshield wiper blades installed on autos at an auto assembly plant; Number of autos assembled;

52 Brewer, Introduction to Managerial Accounting, 3/e

Variable
(6.) Lease cost of equipment at a dentist’s office; Number of patients; Fixed
(7.) Interest expense on corporate debt; Dollar sales; Fixed
(8.) Cost of renting production equipment on a monthly basis at a snowboard manufacturer; Snowboards
produced; Fixed
(9.) Cost of advertising at a snowboard company; Snowboards sold; Fixed
(10.) Cook’s wages at a taco shop; Dollar sales; Fixed

162. A number of costs and measures of activity are listed below.

Required:
For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the possible
measure of activity listed next to it.
Level: Easy LO: 5
Ans:
(1.) Cost of renting production equipment on a monthly basis at a surfboard manufacturer; Surfboards
produced; Fixed
(2.) Cost of shipping bags of garden mulch to a retail garden store; Bags shipped; Variable
(3.) Building rent at a coffee shop; Dollar sales; Fixed
(4.) Cost of hard disk installed in a computer; Number of computers assembled; Variable
(5.) Cost of fresh vegetables used at a coffee shop; Dollar sales; Variable
(6.) Janitorial wages at a surfboard manufacturer; Surfboards produced; Fixed
(7.) Cost of advertising at a surfboard company; Surfboards sold; Fixed
(8.) Clinical supplies at a doctor’s office; Number of patients; Variable
(9.) Cost of leasing checkout equipment on a monthly basis at an electronics store; Dollar sales; Fixed
(10.) Cost of heating an electronics store; Dollar sales; Fixed

Brewer, Introduction to Managerial Accounting, 3/e 53

163. A number of costs are listed below.

Required:
For each item above, indicate whether the cost is direct or indirect with respect to the cost object listed
next to it.
Level: Easy LO: 6
Ans:
(1.) Cost of a measles vaccine administered at an outpatient clinic at a hospital; The outpatient clinic;
Direct
(2.) Cost of a replacement battery installed in a car at the auto repair shop of an automobile dealer; The
auto repair shop; Direct
(3.) Accounting professor’s salary; A particular class; Indirect
(4.) Cost of electronic navigation system installed in a yacht at a yacht manufacturer; A particular yacht;
Direct
(5.) Cost of wiring used in making a personal computer; A particular personal computer; Indirect
(6.) Supervisor’s wages in a computer manufacturing facility; A particular personal computer; Indirect
(7.) Cost of lubrication oil used at the auto repair shop of an automobile dealer; The auto repair shop;
Direct
(8.) Cost of heating a hotel run by a chain of hotels; A particular hotel guest; Indirect
(9.) Cost of heating a hotel run by a chain of hotels; The particular hotel; Direct
(10.) Cost of tongue depressors used in an outpatient clinic at a hospital; A particular patient; Indirect

54 Brewer, Introduction to Managerial Accounting, 3/e