1) the ideal criterion for choosing an allocation base for overhead is:
a.ease of calculation
b.a cause-and-effect relationship
c.ease of use
d.its preciseness
e.its applicability
2) consider the following for guardian manufacturing company:
what are the cost of goods manufactured and cost of goods sold?
a.option a
b.option b
c.option c
d.option d
3) beckner inc. is a job-order manufacturer. the company uses a predetermined
overhead rate based on direct labor hours to apply overhead to individual jobs. for the
current year, estimated direct labor hours are 133,000 and estimated factory overhead is
$784,700. the following information is for september. job x was completed during
september, while job y was started but not finished.
the total factory overhead applied during september is:
a.$79,300
b.$57,572
c.$73,750
d.$68,120
e.$51,710
4) national inc. manufactures two models of cmd that can be used as cell phones, mpx,
and digital camcorders.
national uses a volume-based costing system to apply factory overhead based on direct
labor dollars. the unit prime costs of each product were as follows:
national’s controller had been researching activity-based costing and decided to switch
to it. a special study determined national’s two products have the following budgeted
activities:
using the firm’s volume-based costing, applied factory overhead per unit for the high f
model is (rounded to the nearest cent):
a.$61.32
b.$65.43
c.$43.42
d.$45.99
e.$54.04
5) which of the following equations is correct for determining the required sales in units
to generate a targeted amount of pre-tax income under the equation method (where q=
sales in units, f = total fixed costs, b = pre-tax profit, v = variable cost per unit, and p =
selling price per unit)?
a.vq + f + b – pq = 0
b.vq – f + b – pq = 0
c.f – b – vq – pq = 0
d.pq + vq + f + b = 0
e.b = f (p – c)q
6) zero-base budgeting (zbb) differs from traditional budgeting in terms of its
requirement to:
a.justify budgeted operations and associated spending
b.consider the time-value of money in the budgeting process
c.start the budgeting process from the lowest level of the organization, the “zero base”
d.incorporate continuous-improvement standards in the set of financial and operating
budgets
e.maximize the existence of “budgetary slack”
7) premium beds is a retailer of luxury bed frames located in los angeles, california. due
to a recent industry-wide financial crisis, the cfo of premium beds fears a significant
drop in the firm’s upcoming income stream. the cfo asked you to use the company
financial information provided below.
if 4,000 bed frames were sold, premium bed’s operating income would be:
a.$1,240,000
b.$1,280,000
c.$1,200,000
d.$1,340,000
e.$1,120,000
8) maple mount fishery is a canning company in astoria. the company uses a normal
costing system in which factory overhead is applied on the basis of direct labor costs.
budgeted factory overhead for the year was $680,400, and management budgeted
$324,000 of direct labor costs. during the year, the company incurred the following
actual costs.
the january 1 balances of inventory accounts are shown below.
the december 31 balances of these inventory accounts were ten percent lower.
the normal cost of goods sold, before under or overapplied overhead is:
a.$1,332,600
b.$1,354,700
c.$1,336,700
d.$1,373,600
e.$1,339,300
9) when completed units are sold:
a.cost of goods sold account is credited
b.cost of goods manufactured account is credited
c.finished goods inventory account is credited
d.work-in-process inventory account is credited
e.finished goods inventory account is debited
10) using a volume-based overhead rate based on machine hours to assign
manufacturing overhead to a product line that uses relatively few machine hours is
likely to:
a.overapply overhead to the product line
b.underapply overhead to the product line
c.understate direct labor costs
d.overstate direct labor costs
e.either over- or under-apply overhead to the product line depending on many other
factors
11) zapvideo inc. produces two basic types of video games, clash and slash. pertinent
data follow:
there is insufficient labor capacity in the plant to meet the combined demand for both
clash and slash.
both products are produced through the same production departments.
the contribution margin perunit for clash is:
a.$53
b.$35
c.$47
d.$42
e.$23
12) pairing company has the following cost drivers identified as a through f for
determining product manufacturing overhead costs.
(a) number of pieces of equipment
(b) number of direct material purchase orders
(c) number of production runs
(d) square feet of warehouse space
(e) number of machine hours
(f) square feet of factory space
for each of the following activity cost pools, choose the letter of the most appropriate
cost driver for each cost pool.
13) consider the following for columbia street manufacturing:
what are the cost of goods manufactured and cost of goods sold?
a.option a
b.option b
c.option c
d.option d
14) the following data pertains to lam co.’s manufacturing operations:
additional information for the month of april:
overhead is applied at $12 per direct labor hour.
the three attributes of cost information include accuracy, timeliness, and
a.reliability
b.relevance
c.cost-benefit
d.understandability
15) which one of the following is not a way to deal with uncertainty in the
budget-preparation process?
a.linear programming
b.what-if analysis
c.monte carlo simulation (mcs)
d.scenario analysis
e.sensitivity analysis
16) regis company manufactures plugs used in its manufacturing cycle at a cost of $36
per unit, which includes $8 of fixed overhead. regis needs 30,000 of these plugs
annually, and orlan company has offered to sell these units to regis at $33 per unit. if
regis decides to purchase the plugs, $60,000 of the annual fixed overhead cost will be
eliminated, and the company may be able to rent the facility previously used for
manufacturing the plugs.
if the plugs are purchased and the facility rented, regis company wishes to realize
$100,000 in net savings annually. to achieve this goal, the minimum annual rent on the
facility must be:
a.$10,000
b.$40,000
c.$70,000
d.$190,000
e.$280,000
17) which of the following factors is not involved in studying cost/volume/profit (cvp)
relationships?
a.desired profit, expressed on an after-tax basis
b.variable cost per unit
c.total fixed costs
d.product (or service) mix
e.actual sales volume
18) armer company is accumulating data to use in preparing its annual profit plan for
the coming year. the cost behavior pattern of the maintenance costs must be determined.
the accounting staff has suggested the use of linear regression to derive an equation for
maintenance hours and costs. data regarding the maintenance hours and costs for the
last year and the results of the regression analysis follow:
the coefficient of determination for armer’s regression equation for the maintenance
activities is
a.34.469/49.515
b..99724
c.square root of .99724
d.(.99724)2
e.none of the above
19) grant’s western wear is a retailer of western hats located in atlanta, georgia.
although grant’s carries numerous styles of western hats, each hat has approximately the
same price and invoice purchase cost, as shown below. sales personnel receive large
commissions to encourage them to be more aggressive in their sales efforts. currently
the economy of atlanta is really humming, and sales growth at grant’s has been great.
however, the business is very competitive, and grant has relied on its knowledgeable
and courteous staff to attract and retain customers, who otherwise might go to other
western wear stores. also, because of the rapid growth in sales, grant is finding it more
difficult to manage certain aspects of the business, such as restocking of inventory and
hiring and training new salespeople.
if 24,000 hats were sold, grant’s operating income would be:
a.$100,800
b.$115,200
c.$93,600
d.$108,000
e.$122,400
20) school kids’ compact disc store expanded the size of its store in westfield, nj two
months ago. the owner, montgomery brown, has asked you to develop an analysis of the
cost structure in his store, as a basis for assessing the profitability of his business. he
provides you with account data for the most recent month, which he explains is
representative of what these costs are in most months of the year; there is not much
seasonality in his business. last month, may, 890 compact discs were sold. this month
montgomery expects to sell 1,100 cds.
note: assume that mr. brown purchases promptly on a day-to-day basis to replace
inventory, so that the level of inventory remains constant.
required:
(1) develop the cost equation for mr. brown’s store, using the account classification
method, assuming that the cost object is the individual compact disc.
(2) mr. brown plans to increase sales by 25% next month, july, by reducing the price of
his compact discs. assuming a 25% increase in sales, what is the lowest price mr. brown
can sell his discs for if he wants to meet all costs plus make $1 profit per disc?
(3) what would the profit per disc be if sales actually increased by only 15% and the
discs were sold at the price calculated in (2)?
21) green mountain college is a 5,000 student state-supported, four-year institution
located in the mid-south. physical facilities can accommodate another 1,000 students,
and the college administration is attempting to estimate the added yearly cost of
educating the additional students. the business manager of green mountain college has
asked you to evaluate two linear regressions given below, and recommend the better
one to her.
where: sc = student cost
ch = cost per credit hour
is = incremental cost per student
required:
(1) explain your choice of cost function (regression 1 or regression 2) for predicting
added student educational costs per year.
(2) what information value does the standard error of estimate (se) have in this
situation?
22) the budget committee for amacom company, with the help of the district sales
manager, projects sales of 80,000 units of its primary product next year. the budget
committee and key executives have decided that finished goods inventory should be
decreased from the 10,000 units expected at the end of the current year, to 7,000 units at
the end of next year. each unit of finished product requires three units of material
mps15 and six units of material nav23 . at the end of the current year, the inventory of
material mps15 is expected to be 10,000 units and material nav23 is expected to be
20,000 units. the budget committee believes that these material inventories can be
reduced by 80% during the coming year because of the newly installed supply chain
system.
required
1> calculate the number of units amacom expects to produce during the next year.
2> compute the number of units that should be purchased of each of the raw materials
in order to produce the budgeted units and comply with inventory policy.
23)
24) in the late 1990s, management at general motors decided to improve the
competitiveness of its products by stressing product quality, style, and innovation. the
objective was to improve the image of gm vehicles and thus improve sales and brand
loyalty. managers decided to push this strategy in both the manufacturing and marketing
divisions of the firm. one of the key moves to implement this strategy was to insist that
gm dealers stop price-cutting and push brand value and image instead. gm exerted some
control over dealers’ pricing/selling strategy in part by reducing the money it set aside
for dealers to use in local ads.
required: was general motors following a strategy of cost leadership or differentiation at
this time? comment on how effective you think the new strategy in dealer relations is
likely to be.