A flexible-budget variance pertaining to revenues is often called a sales-volume
variance.
Simple regression analysis estimates the relationship between the dependent variable
and one independent variable.
A budget is a qualitative expression of a plan.
In lean accounting environments, it is critical that work-in-process and finished goods
accounting be accurate for accurate financial accounting and pricing decisions.
The last step in a process-costing system is to compute cost per equivalent unit.
A materials-requisition record is an example of a source document.
If the production planners set the budgeted machine hours standards too tight, one could
anticipate there would be a favorable variable overhead efficiency variance.
External failure costs are costs incurred on defective products after they have been
shipped to customers.
The Salaries Payable Control account has underlying subsidiary ledgers.
When analyzing the change in operating income, the strategy component of growth will
increase when more units are sold.
An unfavorable price variance for materials-handling labor indicates that the actual cost
per materials-handling labor-hour is less than the budgeted cost per materials-handling
labor-hour.
If a company increases fixed costs, then the breakeven point will be lower.
Cost-based budgeting is a budgeting method that focuses on the budgeted cost of the
activities necessary to produce and sell products and services.
The single-rate method transforms the direct costs per hour into indirect costs to users
of that facility.
Absorption costing enables managers to increase operating income by increasing the
unit level of sales, as well as by producing more units.
The cash budget is a schedule of expected cash receipts ,disbursements, and financing.
Overhead costs allocated each month are expected to equal actual overhead costs
incurred each month.
Managers use assigned cost information to make decisions and implement them.
The revenues budget is prepared after all other operating budgets are prepared as it is at
that point that the amount of projected expenses are known and so a target revenue can
be calculated to cover those expenses and provide a target profit.
Outsourcing is purchasing from outside vendors parts and other goods instead of
producing your own and contracting for services instead of providing them yourself.
Cost effect of productivity for fixed costs is calculated by multiplying the difference in
units of capacity (current year capacity units minus the previous year capacity units) by
price per unit of capacity of the previous year.
One reason for using longer time periods to calculate indirect-cost rates is seasonal cost
fluctuations.
Companies with a greater proportion of direct costs have a greater risk of loss than
companies with a greater proportion of indirect costs.
The manufacturing labor budget depends on wage rates, production methods, and hiring
plans.
In the profit-volume graph the point at which the profit-volume line and x-axis intersect
is the breakeven point.
Business function costs are the sum of all variable and fixed costs in all business
functions of the value chain.
Proration is the spreading of underallocated or overallocated overhead among ending
work in process, finished goods, and costs of goods sold.
To achieve consistency in reporting, a company must use the same capacity-level
concept for internal reporting and control as it uses for external reporting and tax
reporting.
Accrual accounting rate of return is calculated by dividing an increase in expected
average annual after-tax operating income by the net initial or average investment.
Financial accounting provides an organization’s past-oriented information such as the
previous years’ financial statements.
Activity-based budgeting, with its focus on cost drivers and the cost of activities,
provides better decision-making information than budgeting based solely on
output-based cost drivers (units produced, units sold, or revenues).
Dartmouth Corporation manufactures two models of motorized go-carts, a standard and
a deluxe model. The following activity and cost information has been compiled:
Assume a traditional costing system applies the $39,240 of overhead costs based on direct
labor hours. What is the total amount of overhead cost assigned to the standard model?
(Do not round interim calculations. Round the final answer to the nearest whole dollar.)
A) $13,190
B) $26,050
C) $25,343
D) $13,898
Data collection problems arise when ________.
A) data are recorded electronically rather than manually
B) accrual-basis costs are used rather than cash-basis costs
C) fixed and variable costs are not separately identified and both are allocated to
products on a per unit basis
D) purely inflationary price effects are removed
Book value is defined as the ________.
A) sum of the original cost of an asset and the accumulated depreciation
B) difference between the market value of an asset and the accumulated depreciation
C) difference between the original cost of an asset and the accumulated depreciation
D) sum of the market value of an asset and the accumulated depreciation
A budget serves as much as a control tool as a planning tool because ________.
A) it aids in the coordination and communication among various business functions
B) it helps to evaluate customer needs and feedback
C) it is a benchmark against which actual performance can be compared
D) it helps to make predictions about the future
When analyzing the change in operating income, the strategy component of
productivity will increase when ________.
A) capacity is reduced
B) quality is enhanced
C) selling prices are increased
D) more units are produced and sold
When actual cost-allocations rates are used, which of the following would be true?
A) user divisions pay for costs that exceed budgeted amounts
B) managers of the supplier division are motivated to improve efficiency
C) user divisions are unaware of the allocated amounts until the end of the budget
period
D) managers know with certainty the rates to be used in that budget period
Bradford, Inc., expects to sell 6,000 ceramic vases for $21 each. Direct materials costs
are $3, direct manufacturing labor is $10, and manufacturing overhead is $3 per vase.
The following inventory levels apply to 2019:
How many ceramic vases should be produced in 2019?
A) 5,800 vases
B) 6,200 vases
C) 11,000 vases
D) 6,000 vases
Samantha’s Office Supplies manufactures desk organizers in its Processing Department.
Direct materials are included at the inception of the production cycle and must be
bundled in single kits for each unit. Conversion costs are incurred evenly throughout
the production cycle. Inspection takes place as units are placed into production. After
inspection, some units are spoiled due to undetectable material defects. Spoiled units
generally constitute 3% of the good units. Data provided for February 2017 are as
follows:
What costs would be associated with normal and abnormal spoilage, respectively, using
the FIFO method of process costing? (Round any cost per unit calculations to the nearest
cent.)
A) $20,882; $37,638
B) $13,004; $37,638
C) $14,200; $13,004
D) $25,025; $7879
Mid City Products Inc. (MCP), developed standard costs for direct material and direct
labor. In 2017, MCP estimated the following standard costs for one of their most
popular products.
During September, MCP produced and sold 1,000 units using 1,300 pounds of direct
materials at an average cost per pound of $5.00 and 480 direct labor hours at an average
wage of $13.15 per hour.
September’s direct material flexible-budget variance is ________.
A) $400 unfavorable
B) $120 favorable
C) $1,100 unfavorable
D) $520 favorable
The top management at Groundsource Company, a manufacturer of lawn and garden
equipment, is attempting to recover from a fire that destroyed some of their accounting
records. The main computer system was also severely damaged. The following
information was salvaged:
What is the Tractor Division’s return on sales?
A) 0.02
B) 12.50
C) 0.22
D) 0.20
Colonial North Manufacturing, Inc. is considering eliminating one of its product lines.
The fixed costs currently allocated to the product line will be allocated to other product
lines upon discontinuance. What financial effects occur if the product line is
discontinued?
A) net income will decrease by the amount of the contribution margin of the product
line being discontinued
B) the company’s total fixed costs will increase by the amount of the contribution
margin of the product line being discontinued
C) the company’s total fixed costs will decrease by the amount of the product line’s
fixed costs
D) net income will decrease by the amount of the product line’s fixed costs
Genent Industries, Inc. (GII), developed standard costs for direct material and direct
labor. In 2017, GII estimated the following standard costs for one of their major
products, the 30-gallon heavy-duty plastic container.
During July, GII produced and sold 4,000 containers using 1,750 pounds of direct
materials at an average cost per pound of $48 and 2,090 direct manufacturing labor hours
at an average wage of $11.30 per hour.
The direct manufacturing labor efficiency variance during July is ________.
A) $990.00 unfavorable
B) $627.00 favorable
C) $1,617.00 favorable
D) $1,017.00 unfavorable
A plot of cost driver data and cost data may show all but the following:
A) a strong relationship
B) cause-and-effect relationship
C) a positive relationship
D) linear relationship
“Levers of control,” in addition to a diagnostic control system, are needed in an
organization because ________.
A) diagnostic controls have been found to lead to poor financial performance
B) diagnostic controls have no place in a balanced scorecard system
C) pressure to perform on diagnostic controls may lead to unethical behavior
D) they are mandated by the Financial Accounting Standards Board
Planet Design Services, Inc., is considering replacing a machine. The following data are
available:
Replacement
Old Machine Machine
Original cost $630,000 $510,000
Useful life in years 12 6
Current age in years 6 0
Book value $350,000 —
Disposal value now $122,000 —
Disposal value in 6 years 0 0
Annual cash operating costs $102,000 $59,000
Which of the data provided in the table is a sunk cost?
A) the annual cash operating costs of the old machine
B) the annual cash operating costs of the replacement machine
C) the disposal value of the old machine
D) the original cost of the old machine
Which of the following statements is true of productivity?
A) Partial productivity compares the quantity of output produced with the cost of all
inputs used.
B) Productivity will increase when the partial productivity is high.
C) Prices of inputs are incorporated in the partial productivity ratio.
D) Partial productivity compares the quantity of output produced with the quantity of
all inputs used.
Games R Us manufactures various games. For March, there were no beginning
inventories of direct materials and no beginning or ending work in process. Conversion
costs is the only indirect manufacturing cost category currently used. Journal entries are
recorded when materials are purchased and when conversion costs are allocated under
backflush costing.
Which of the journal entries properly records conversion costs?
A)
B)
C)
D)
The ________ is a component of financial budgets.
A) cost of goods sold budget
B) budgeted income statement
C) direct materials budget
D) budgeted statement of cash flows
The top management at Groundsource Company, a manufacturer of lawn and garden
equipment, is attempting to recover from a fire that destroyed some of their accounting
records. The main computer system was also severely damaged. The following
information was salvaged:
What is the Tractor Division’s investment turnover?
A) 5.0
B) 8.3
C) 1.7
D) 1.0
The marketing manager’s performance evaluation is most fair when based on a
denominator level using ________ as it is the principal short-run planning and control
tool.
A) practical capacity
B) theoretical capacity
C) master-budget capacity utilization
D) normal capacity utilization
Apple Valley Corporation uses a job cost system and has two production departments, A
and B. Budgeted manufacturing costs for the year are:
The actual material and labor costs charged to Job #432 were as follows:
$20,000
Apple Valley applies manufacturing overhead costs to jobs on the basis of direct
manufacturing labor cost using departmental rates determined at the beginning of the year.
For Department B, the manufacturing overhead allocation rate is ________.
A) 50.0%
B) 90.0 %
C) 200.0%
D) 250.0%
Ventaz Corp manufactures glasses. The manufacturing cycle efficiency is 75%. What is
its waiting time if the manufacturing lead time is 136 minutes per keyboard?
A) 40.80 minutes
B) 51.00 minutes
C) 54.40 minutes
D) 34.00 minutes.
Which of the following is a disadvantage of the weighted-average method compared to
the FIFO process-costing method?
A) FIFO is computationally simpler
B) FIFO provides better management information for planning and control purposes
C) when unit cost per input prices fluctuate markedly from month to month, its per unit
cost is less representative than FIFO
D) the information it provides about changes in unit prices from one period to the next
is less useful than the information provided by FIFO
Which of the following is a responsibility of the CFO?
A) budget funds for a plant upgrade
B) managing short-term and long-term financing
C) investing in new equipment
D) conducting internal audit
Davidson Corporation manufactured 52,400 units during September. The following
fixed overhead data relates to September:
What is the flexible-budget amount?
A) $108,900
B) $110,040
C) $109,200
D) $52,400
Which of the following is the correct mathematical expression to calculate a benchmark
total factor productivity?
A) Quantity of output produced in current year Costs of inputs at current year prices
that would have been used in previous year to produce current year output
B) Quantity of output produced in previous year Costs of inputs at current year prices
that would have been used in previous year to produce current year output
C) Quantity of output produced in current year Costs of inputs at previous year prices
that would have been used in previous year to produce current year output
D) Quantity of output produced in previous year Costs of inputs at previous year prices
that would have been used in previous year to produce current year output
Kitchens Sales Inc. is approached by Mr. Louis Cifer, a new customer, to fulfill a large
one-time-only special order for a product similar to one offered to regular customers.
The following per unit data apply for sales to regular customers:
Direct materials $546
Direct labor 360
Variable manufacturing support 64
Fixed manufacturing support 122
Total manufacturing costs 1,092
Markup (50%) 546
Targeted selling price $1,638
Kitchens Sales inc. has excess capacity. Mr. Cifer wants the cabinets in cherry rather
than oak, so direct material costs will increase by $65 per unit. The average marketing
cost of Kitchens Sales product is $175 per order. Which of the following costs is NOT
considered to calculate the minimum acceptable price of a one-time-only special order?
A) marketing costs
B) direct material costs
C) indirect material costs
D) special design costs
Which of the following statements best defines manufacturing cycle time in a JIT
production system?
A) the time from when raw materials are received until it becomes a finished good
B) the time from when an order is received until it becomes a finished good
C) the time from when raw materials are received until it is delivered to the customers
D) the time from when an order is received until it is delivered to the customers
Corporate administrative costs allocated to a division cost pool are most likely to be
________.
A) output unit-level costs
B) facility-sustaining costs
C) product-sustaining costs
D) batch-level costs
Which of the following is a learning-curve model?
A) the cumulative average-time learning model and the incremental unit-time learning
model
B) the simple regression model and the multiple regression model
C) the multicollinearity learning model and the goodness of fit learning model
D) the account analysis learning model and the conference learning method model
Ocean Grove Vending Company has invested $1,450,000 in a plant to make vending
machines. The target operating income desired from the plant is $362,500 annually. The
company plans annual sales of 1500 vending machines at a selling price of $1000 each.
What is the markup percentage as a percentage of cost for Ocean Grove Vending
Company?
A) 24.17%
B) 31.87%
C) 75.83%
D) 25.00%
Cornerstone Company has two divisions. The Bottle Division produces products that
have variable costs of $3 per unit. Its 20X5 sales were 140,000 to outsiders at $5 per
unit and 40,000 units to the Mixing Division at 140% of variable costs. Under a dual
transfer-pricing system, the Mixing Division pays only the variable cost per unit. The
fixed costs of the Bottle Division are $125,000 per year.
Mixing sells its finished products to outside customers for $11.50 per unit. Mixing has
variable costs of $2.50 per unit in addition to the costs from the Bottle Division. The
annual fixed costs of Mixing were $85,000. There were no beginning or ending
inventories during the year.
Required:
What are the operating incomes of the two divisions and the company as a whole for
the year? Explain why the company’s operating income is less than the sum of the two
divisions’ total income.
Describe and discuss the two methods of allocating revenues of a bundled package to
the individual products in that package. Describe any special problems associated with
the method.
Cowley County Hospital uses a job-costing system for all patients who have surgery. In
March, the pre-operating room (PRE-OP) and operating room (OR) had budgeted
allocation bases of 4,000 nursing hours and 2,000 nursing hours, respectively. The
budgeted nursing overhead charges for each department for the month were $168,000
and $132,000, respectively. The hospital floor for surgery patients had budgeted
overhead costs of $1,200,000 and 15,000 nursing hours for the month. For patient Fred
Adams, actual hours incurred were eight and four hours, respectively, in the PRE-OP
and OR rooms. He was in the hospital for 4 days (96 hours). Other costs related to
Adams were:
The hospital uses a budgeted overhead rate for applying overhead to patient stays.
Required:
What is the total cost of the stay of patient Fred Adams?
What is the primary reason a firm would adopt target costing?
Lexington Company produces baseball bats and cricket paddles. It has two departments
that process all products. During July, the beginning work in process in the cutting
department was half completed as to conversion, and complete as to direct materials.
The beginning inventory included $40,000 for materials and $60,000 for conversion
costs. Ending work-in-process inventory in the cutting department was 40% complete.
Direct materials are added at the beginning of the process.
Beginning work in process in the finishing department was 80% complete as to
conversion. Direct materials for finishing the units are added near the end of the
process. Beginning inventories included $24,000 for transferred-in costs and $28,000
for conversion costs. Ending inventory was 30% complete. Additional information
about the two departments follows:
Required:
Prepare a production cost worksheet, using FIFO for the finishing department.
Write-off variances to cost of goods sold approach – The variance is written off to cost
of goods sold.
How is budgeting for a multinational corporation different than budgeting for a
corporation that is strictly domestic?
The textbook discusses three levels of variances, Level 0, Level 1, Level 2, and Level 3.
Briefly explain the meaning of each of those levels and provide an example of a
variance at each of those levels.
Give at least three good reasons why a favorable price variance for direct materials
might be reported.
Define the terms main product, joint product, and byproduct. Give at least one example
of each type of product.
Dual pricing is not widely used. Explain its disadvantages.
Vega Corp’s corporate income has declined to unacceptable levels. To change the
direction of the company, the board of directors hired a new chief executive officer. She
is currently considering three alternative ways to reward division managers for
performance. They are:
1. Give each manager a competitive salary with no bonus for performance.
2. Give each manager a base salary with the largest portion being a bonus based on
performance, ROI being the yardstick.
3. Give each manager a base salary with a bonus based on comparative performance
with the other divisions.
Required:
Evaluate each of the ideas, giving strengths and weaknesses.
Corry Corporation manufactures filters for cars, vans, and trucks. A backflush costing
system is used and standard costs for a filter are as follows:
Filters are scheduled for production only after orders are received, and are shipped
immediately upon completion. This results in product costs being charged directly to cost
of goods sold. In December, 3,000 filters were produced and shipped. Materials were
purchased at a cost of $8,450 and actual conversion costs of $13,650 were recorded.
Required:
Prepare journal entries to record December’s costs for the production of the filters.
What are the undesirable effects of value engineering and target costing? How can these
be reduced?
List and briefly describe the six steps in estimating a cost function under quantitative
analysis.
Explain the three alternative approaches to dispose of the production-volume variance.