1) An efficient management accounting system traces direct costs and allocates indirect
costs to products.
2) Absorption costing enables managers to increase operating income by increasing the
unit level of sales, as well as by producing more units.
3) Engineered costs contain a higher level of uncertainty than discretionary costs.
4) Companies can decide on an appropriate strategy based strictly on internally
available information.
5) In job costing, only direct costs are used to determine the cost of a job.
6) Variances between actual and budgeted amounts inform management about
performance relative to the budget.
7) In the banking industry, depositing a customer’s check into the wrong bank account is
an example of quality of design failure.
8) The weighted-average method merges unit costs from different accounting periods,
obscuring period-to-period comparisons.
9) Activity-based management refers to the use of information derived from ABC
analysis to analyze and improve operations.
10) The net present value method accurately assumes that project cash flows can only
be reinvested at the company’s required rate of return.
11) Companies often use multiple cost-allocation bases to allocate indirect costs
because different indirect costs have different cost drivers.
12) The proponents of using net book value as an investment base maintain that it is
less confusing because it is consistent with the amount of total assets shown in the
conventional balance sheet.
13) Underestimating the degree of completion of ending work in process leads to
increase in operating income.
14) Which of the following differentiates confidentiality and credibility under the
Standards of Ethical
Conduct?
A) Credibility deals with refraining from activities that would prejudice carrying duties
ethically, while confidentiality deals with communicating information fairly and
objectively.
B) Confidentiality deals with refraining from the usage of critical information for
unethical or illegal advantage, while credibility ensures disclosing the relevant
information that would help the intended user’s understanding.
C) Credibility deals with refraining from the usage of critical information for unethical
or illegal advantage, while confidentiality ensures disclosing the relevant information
that would help the user’s understanding.
D) Credibility ensures appropriate level of professional expertise by continually
developing knowledge and skills, while confidentiality encourages mitigation of actual
conflicts of interest.
15) For merchandising companies, inventoriable costs include ________.
A) sales costs
B) incoming freight costs
C) distribution costs
D) outgoing freight costs
16) The transfer-pricing method that reduces the goal-congruence problems associated
with a pure cost-plus-based transfer-pricing method is the ________.
A) dual pricing
B) market pricing
C) single pricing
D) distress pricing
17) A manager of a revenue center is responsible ________.
A) for only the profits of his center
B) for investments, revenues, and costs
C) for only the revenues of his center
D) for both, the revenues and costs of his center
18) The following information pertains to Hepburn Company:
Cash is collected from customers in the following manner:
Month of sale30%
Month following the sale70%
40% of purchases are paid for in cash in the month of purchase, and the balance is paid
the following month.
Labor costs are 20% of sales. Other operating costs are $30,000 per month (including
$8,000 of depreciation). Both of these are paid in the month incurred.
The cash balance on March 1 is $8,000. A minimum cash balance of $6,000 is required
at the end of the month. Money can be borrowed in multiples of $1,000.
How much cash will be paid to suppliers in March?
A) $46,400
B) $56,000
C) $88,000
D) $92,000
19) ________ includes providing financial information for reports to managers and
shareholders, and overseeing the overall operations of the accounting system.
A) Risk management
B) Treasury management
C) Controllership
D) Strategic planning
20) Foodiez Inn is a fast-food restaurant that sells burgers and hot dogs in a 1980s
environment. The fixed operating costs of the company are $10,000 per month. The
controlling shareholder, interested in product profitability and pricing, wants all costs
allocated to either the burgers or the hot dogs. The following information is provided
for the operations of the company:
Required:
a.What amount of fixed operating costs is assigned to the burgers and hot dogs when
actual sales are used as the allocation base for January? For February?
b.Hot dog sales for January and February remained constant. Did the amount of fixed
operating costs allocated to hot dogs also remain constant for January and February?
Explain why or why not. Comment on any other observations.
21) Which of the following is a financial budget?
A) budgeted balance sheet
B) cash receivables budget
C) production budget
D) cost of goods sold budget
22) The range over which two divisions will negotiate a transfer price is ________.
A) between the supplying division’s variable cost and the market price of the product
B) between the supplying division’s variable cost and its full cost of the product
C) it could be anywhere above the supplying division’s full cost of the product
D) between the supplying division’s full cost and 180% above its full cost
23) James Corporation gathered the following information:
Required:
a.Compute total fixed costs assuming a breakeven volume in dollars of $2,000,000.
b.Compute sales volume in dollars to produce an after-tax net income of $150,000.
24) Bovous Stores, Inc., sells several products. Information of average revenue and
costs is as follows:
The revenues that the company must earn annually to make a profit of $144,000 are
________.
A) $378,000
B) $425,000
C) $400,000
D) $450,000
25) Cast Iron Stove Company wants to buy a molding machine that can be integrated
into its computerized manufacturing process. It has received three bids for the machine
and related manufacturer’s specifications. The bids range from $3,500,000 to
$3,550,000. The estimated annual savings of the machines range from $260,000 to
$270,000. The payback periods are almost identical and the net present values are all
within $8,000 of each other. The president just doesn’t know what to do about which
vendor to choose since all of the selection criteria are so close together.
Required:
What suggestions do you have for the president?
26) Explain why there is no efficiency variance for fixed manufacturing overhead costs.
27) Explain why some companies choose not to allocate joint costs to products.
28) Freddie’s Company has mostly fixed costs and Valerie’s Company has mostly
variable costs. Which company has the greatest risk of a net loss? Explain why.
29) The Allianz Company produces a specialty wood furniture product, and has the
following information available concerning its inventory items:
Relevant ordering costs per purchase order$450
Relevant carrying costs per year for each package:
Required annual return on investment15%
Required other costs per year$4
Annual demand is 30,000 packages per year. The purchase price per package is $48.
The only product of a company has an annual demand of 14,000 units. The cost of
placing an order is $70 and the cost of carrying one unit in inventory for one year is
$20.
Required:
Determine the economic order quantity.
30) Describe the concept of kaizen budgeting.
31) Briefly explain the meaning of the variable overhead efficiency variance and the
variable overhead spending variance.
32) Oregon Lumber processes timber into four products. During January, the joint costs
of processing were $280,000. There was no inventory at the beginning of the month.
Production and sales value information for the month is as follows:
Required:
Determine the value of ending inventory if the sales value at splitoff method is used for
product costing. Round to 3 decimal places when necessary.
