O’Hare Company, is a manufacturing firm that uses a job-order cost system to
determine the costs of its products. During 2014, O’Hare recognized cost of goods sold
of $4,850 for job #132. The recognition of this event will include a decrease to:
A. Cost of goods sold.
B. Production supplies.
C. Work in process inventory.
D. Finished goods inventory.
Consider the following cost-volume-profit graph:
The line designated by the letter (B) represents which of the following?
A. Variable cost
B. Break-even
C. Total revenue
D. Total cost
Needham Company uses a job order cost system. During the month of September, the
company worked on three jobs. The job order cost sheets for the three jobs contained
the following information at the end of September:
The company applies overhead at 120% of direct labor cost.
The total cost of Job A at the end of September was:
A. $6,280.
B. $10,280.
C. $16,280.
D. $11,720.
Orlando Company paid $620 cash to purchase raw materials. How would this
transaction affect Orlando’s financial statements?
A.
B.
C.
D.
Franklin Manufacturing manufactures two models of windows, bay windows and
casement windows. Franklin uses an activity based costing system. The following
information about the activities used to product the company’s products has been
provided.
The amount of batch-level cost that should be allocated to the bay windows equals:
A. $30,000.
B. $45,000.
C. $75,000.
D. $7,500.
Sunk costs:
A. are not considered when evaluating new proposals.
B. differ among the alternatives.
C. impact the future.
D. are relevant.
The split off point:
A. is the point at which production of joint products begins.
B. is the point at which joint products become unidentifiable.
C. refers to the point where title to goods sold passes from the seller to the buyer.
D. is the point at which joint products separated from each other.
Omega Company reported the following information for the company’s two products:
Assume that 75,000 machine hours are available; product X takes 4 machine hours to
produce, and product Y takes 2 machine hours to produce. The company can sell all it
can make of either product. Which of the following statements is true?
A. Product Y should be produced because more of it can be produced.
B. Product Y should be produced because it will produce greater total profit.
C. Product X should be produced because it provides a greater contribution margin.
D. Both products provide the same total profit.
The activity director for City Recreation is planning an activity. She is considering
alternative ways to set up the activity’s cost structure. Select the incorrect statement
from the following.
A. If the director expects a low turnout, she should use a fixed cost structure.
B. If the director expects a large turnout, she should attempt to convert variable costs
into fixed costs.
C. If the director shifts the cost structure from fixed to variable, the level of risk
decreases.
D. If the director shifts the cost structure from fixed to variable, the potential for profits
will be reduced.
As of December 31, 2013, Gant Corporation had a current ratio of 1.29, quick ratio of
1.05, and working capital of $18,000. The company uses a perpetual inventory system
and sells merchandise for more than it cost. On January 1, 2014, Gant purchased
merchandise on account for $4,000. Which of the following statements is true?
A. Gant’s current ratio will decrease.
B. Gant’s quick ratio will increase.
C. Gant’s working capital will increase.
D. Gant’s quick ratio will increase and its current ratio will decrease.
The magnitude of operating leverage for Perkins Corporation is 4.5 when sales are
$100,000. If sales increase to $110,000, profits would be expected to increase by what
percent?
A. 4.5%
B. 14.5%
C. 45%
D. 10%
Which of the following equations can be used to compute the total materials variance?
(A = Actual; S = Standard; Q = Quantity; P = Price)
A. (AQ × AP) – (SQ × SP)
B. (SQ × SP) – (SQ × SP)
C. (AQ × AP) – (AQ × SP)
D. (AQ × SP) – (SQ × SP)
The following income statement was drawn from the annual report of Gibbons
Company:
The amount of cash flow from operating activities is:
A. $37,200.
B. $26,000.
C. $36,000.
D. $24,800.
Cool Runnings operates a chain of frozen yogurt shops. The company pays $5,000 of
rent expense per month for each shop. The managers of each shop are paid a salary of
$3,000 per month and all other employees are paid on an hourly basis. Relative to the
number of shops, the cost of rent is which kind of cost?
A. Variable cost
B. Fixed cost
C. Mixed cost
D. Opportunity cost
Which manager is generally held responsible for the sales volume variance?
A. Purchasing agent
B. Marketing manager
C. Plant manager
D. Production manager
Select the response that indicates the correct sequence of product cost flows from
production to sale.
A. Raw materials, finished goods, and cost of goods sold
B. Cost of goods sold, finished goods, work in process, raw materials
C. Work in process, finished goods, and cost of goods sold
D. Raw materials, work in process, finished goods, and cost of goods sold
Select the incorrect statement regarding the information disclosed in financial
statements.
A. The costs of providing all possible information about a firm would be prohibitively
high for the business.
B. Some information disclosed in financial statements may be irrelevant to some users.
C. Financial statements should be detailed enough to answer any financial-related
question an investor might have.
D. When too much information is presented users may suffer from information
overload.
Rock Creek Bottling Company pays its production manager a salary of $6,000 per
month. Salespersons are paid strictly on commission, at $1.50 for each case of product
sold.
For Rock Creek Bottling Company, the production manager’s salary is an example of:
A. a variable cost.
B. a mixed cost.
C. a fixed cost.
D. None of these
In the graph below, which depicts the relationship between units produced and total
cost, the dotted line depicts which type of total cost?
A. Variable cost
B. Fixed cost
C. Mixed cost
D. None of these
Southern Food Service operates six restaurants in the Atlanta area. The company pays
rent of $20,000 per year for each shop. The managers of each shop are paid a salary of
$4,200 per month and all other employees are paid on an hourly basis. Relative to the
number of hours worked, total compensation cost for a particular shop is which kind of
cost?
A. Mixed cost
B. Fixed cost
C. Variable cost
D. None of these
Distinguish between static and flexible budgets. Give an example of how flexible
budgets can be used.
For an equipment replacement decision, what costs are relevant, and what costs are not
relevant?
How is the direct method of preparing the statement of cash flows different from the
indirect method?
Select the term from the list provided that best matches each of the following
definitions or descriptions. Put the number of the term in the answer column.
Western Classics Publishing Company produces updated versions of literary classics
targeted for children. Its book binding machines are capable of producing 50 books per
hour. The unit-related cost of producing books is $2.50, and Western Classics sells its
books for $9.50 each. Reading Ready Publishing has asked the company to produce
10,000 copies of a book for $7.50. Western Classics estimates that unit-level costs for
the new book will be $3.00, and due to the size of the book, its binding machines will
only be able to produce 20 books per hour. Western Classics has a total of 5,000
machine hours of capacity. In addition, to complete the special order, Western Classics
will have to purchase an additional special-purpose machine that will cost
$8,000.Required:
Assume that existing demand for Western Classics’ children’s classics is 230,000 units
and that the special order has to be either taken in full or rejected. Prepare an analysis
that indicates whether or not the special order should be accepted.
What are constraints? Provide an example.
What is a value chain? And what relationship is there between the value chain and
activity-based management?
How does an increase in variable costs affect the break-even volume of sales?
Does the term “cost” mean the same thing as the term “expense?” Explain your answer.
Indicate whether each of the following statements is true or false.
In an activity-based costing system, the same amount of facility-level costs should be
assigned to all products.
Raw materials inventory holding costs are usually classified as unit-level costs.
Costs associated with obtaining and defending a patent generally would be classified as
product-level costs.
Activities that benefit the production process as a whole are product-level activities.
Manufacturing equipment depreciation is classified as a facility-level activity.