The following income statements are provided for Li Company's last two years of operation:

The following income statements are provided for Li Company's last two years of operation:
 

Assuming that cost behavior did not change over the two-year period, what is the company's annual fixed general, selling, and administrative cost?
 Multiple Choice
$3,100 Correct
$3,600
$1,050
$1,550

Answer
 $3,100 Correct
Explanation
Variable cost per unit = Change in costs ÷ Change in activity
Variable cost per unit = (7,420 − 6,940) ÷ (3,600 units − 3,200 units) = $1.20 per unit
Total cost = Variable cost + Fixed cost
Fixed cost = Total cost − Variable cost
Fixed cost = $7,420 − (3,600 units × $1.20 per unit) = $3,100 

The cost of direct materials purchased on account is expensed at the time the:

Multiple Choice

manufacturing process is complete.


cash is paid to settle the associated accounts payable.


materials are purchased.


goods made in the manufacturing process are sold. Correct


Answer
Goods made in the manufacturing process are sold. Correct

 Explanation
The cost of materials is first recorded in the Raw Materials Inventory account. The cost of materials placed in production is then transferred from the Raw Materials Inventory account to the Work in Process Inventory account. The total cost of the goods completed during the period is transferred from the Work in Process Inventory account to the Finished Goods Inventory account. The cost of the goods that are sold during the accounting period is transferred from the Finished Goods Inventory account to the Cost of Goods Sold account. As such, the cost of direct materials is expensed at the time the manufactured goods are sold.

Consider the following cost-volume-profit graph:
 
The line designated by the letter (A) represents which of the following?

Multiple Choice
Total revenue Correct
Total cost
Total fixed cost
None of these is correct.

Answer
 Total revenue Correct