The margin of safety would be negative if a company(‘s)
a. was presently operating at a volume that is below the break-even point.
b. present fixed costs were less than its contribution margin.
c. variable costs exceeded its fixed costs.
d. degree of operating leverage is greater than 100.
Which kind of costs could be eliminated by closing a sales office?
a. yes yes no
b. yes no yes
c. yes no no
d. no no yes
In a job-order costing system, the net cost of normal spoilage is equal to
a. estimated disposal value plus the cost of spoiled work.
b. the cost of spoiled work minus estimated spoilage cost.
c. the units of spoiled work times the predetermined overhead rate.
d. the cost of spoiled work minus the estimated disposal value.
In a job-order costing system, the dollar amount of the entry that debits Finished Goods
Inventory and credits Work in Process Inventory is the sum of the costs charged to all
jobs
a. started in process during the period.
b. in process during the period.
c. completed and sold during the period.
d. completed during the period.
A pay plan that gives an employee cash or stock equal to the difference between some
specified stock price and the quoted market price at some future time period is
a. stock appreciation rights.
b. an ESOP.
c. profit sharing.
d. merit pay.
Ultimate Vision Corporation
Ultimate Vision Corporation has two product lines: LCD televisions and projection
televisions. The company has budgeted the following production and overhead costs for
the upcoming year:
Refer to Ultimate Vision Corporation. If the company uses total direct labor hours to
allocate factory overhead, the machine maintenance cost allocated to projection TVs
would be:
a. $ 72,000
b. $108,000
c. $110,769
d. $124,615
Franklin Company
Franklin Company uses a job-order costing system. Assume that Job #309 is the only
one in process. The following information is available:
Refer to Franklin Company. What is the total cost of Job #309 assuming that overhead
is applied at the rate of 130% of direct labor cost (rounded to the nearest whole dollar)?
a. $194,800
b. $274,100
c. $306,750
d. $340,075
If economic activity slows down, total costs could easily decline in which of the
following categories?
a. variable costs and committed fixed costs
b. variable costs and discretionary fixed costs
c. variable costs only
d. committed fixed costs only
Surfside Corporation
Surfside Corporation manufactures and sells two products: A and B. The operating
results of the company are as follows:
In addition, the company incurred total fixed costs in the amount of $9,000.
Refer to Surfside Corporation. How many units would the company have needed to sell
to produce a profit of $12,000?
a. 8,750
b. 20,000
c. 10,000
d. 8,400
Compensation packages for executives of American firms
a. are beginning to emphasize the long-term commitment executives should have in the
firm.
b. are considered comparable to packages earned by European and Asian executives.
c. are shifting towards lower percentages of annual incentives.
d. are shifting away from long-term awards.
When standard costs are used in process costing,
a. variances can be measured during the production period.
b. total costs rather than current production and current costs are used.
c. process costing calculations are made simpler.
d. the weighted average method of calculating EUPs makes computing transferred-out
costs easier.
Michigan Company
Ann Arbor Division of the Michigan Company has the following statistics for its most
recent operations:
Refer to Michigan Company. Compute EVA assuming the cost of capital is 10% and the
tax rate is 40%.
a. $ 90,000
b. $ 150,000
c. $0
d. $ (60,000)
Which of the following components of production are allocable as joint costs when a
single manufacturing process produces several salable products?
a. direct material, direct labor, and overhead
b. direct material and direct labor only
c. direct labor and overhead only
d. overhead and direct material only
Bottlenecks are
a. machine constraints in the production line.
b. machine constraints that restrict the production cycle so idle time at other processes
occurs.
c. useful for identifying any production spot slowdown.
d. restrictions on raw material sources but not the quantity of output.
Manufacturing cycle efficiency is a measure of
a. bottlenecks.
b. effectiveness.
c. efficiency.
d. quality.
In a CVP graph, the slope of the total revenue line indicates the
a. rate at which profit changes as volume changes.
b. rate at which the contribution margin changes as volume changes.
c. ratio of increase of total fixed costs.
d. total costs per unit.
Which of the following is not true about an imposed budget?
a. It reduces the budgeting process time frame.
b. It uses the knowledge of top management as it relates to resource availability.
c. It enhances coordination.
d. It increases the feeling of teamwork.
Manufacturing cycle efficiency should be increased by employing which of the
following techniques?
a. yes yes yes
b. yes yes no
c. no no no
d. yes no yes
Dallas Co. has a production process in which the inspection point is at 65 percent of
conversion. The beginning inventory for July was 35 percent complete and ending
inventory was 80 percent complete. Normal spoilage costs would be assigned to which
of the following groups of units, using FIFO costing?
a. no yes yes
b. yes yes yes
c. no no yes
d. yes no no
Which of the following is not an ordering cost?
a. cost of receiving inventory
b. cost of preparing the order
c. cost of processing payment for inventory ordered
d. cost of storing the inventory
Trinity Corporation manufactures products on a job-order basis. The job cost sheet for
Job #902 shows the following for June:
At the end of June, what total cost appears on the job cost sheet for Job #902?
a. $ 6,935
b. $ 6,985
c. $ 8,335
d. $10,015
An investment project is expected to yield $12,000 in annual revenues, has $3,000 in
fixed costs per year, and requires an initial investment of $6,000. Given a cost of goods
sold of 50 percent of sales, what is the payback period in years?
a. 1.00
b. 1.50
c. 2.00
d. 4.00
Ellis Corporation
The following information was extracted from the first year absorption-based
accounting records of Ellis Corporation
Refer to Ellis Corporation. Based on variable costing, if Ellis had sold 12,001 units
instead of 12,000, its income before income taxes would have been
a. $9.50 higher.
b. $11.00 higher.
c. $8.50 higher.
d. $8.33 higher.
In CVP analysis, linear functions are assumed for
a. contribution margin per unit.
b. fixed cost per unit.
c. total costs per unit.
d. all of the above.
Refer to Commodore Company. Using the four-variance approach, what is the volume
variance?
a. $ 750 F
b. $ 750 U
c. $1,000 F
d. $1,000 U
The O’Brien Company sells two products, A and B, with contribution margin ratios of
40 and 30 percent and selling prices of $5 and $2.50 a unit. Fixed costs amount to
$72,000 a month. Monthly sales average 30,000 units of product A and 40,000 units of
product B.
Required:
a. Assuming that three units of product A are sold for every four units of product B,
calculate the dollar sales volume necessary to break even.
b. As part of its cost accounting routine, O’Brien Company assigns $36,000 in fixed
costs to each product each month. Calculate the break-even dollar sales volume for each
product.
c. O’Brien Company is considering spending an additional $9,700 a month on
advertising, giving more emphasis to product A and less emphasis to product B. If its
analysis is correct, sales of product A will increase to 40,000 units a month, but sales of
product B will fall to 32,000 units a month. Recalculate the break-even sales volume, in
dollars, at this new product mix. Should the proposal to spend the additional $9,700 a
month be accepted?
Wyatt Corporation
Wyatt Corporation has the following standard costs associated with the manufacture
and sale of one of its products:
Refer to Wyatt Corporation. Under variable costing, the standard production cost per
unit for the current year was
a. $11.30.
b. $7.30.
c. $7.55.
d. $11.55.
A company has two divisions, A and B; each are operated as a profit center. A charges B
$35 per unit for each unit transferred to B. Other data follow:
A is planning to raise its transfer price to $50 per unit. Division B can purchase units at
$40 each from outsiders, but doing so would idle A’s facilities now committed to
producing units for B. Division A cannotincrease its sales to outsiders. From the
perspective of the company as a whole, from whom should Division B acquire the
units, assuming B’s market is unaffected?
a. outside vendors
b. Division A, but only at the variable cost per unit
c. Division A, but only until fixed costs are covered, then should purchase from outside
vendors
d. Division A, in spite of the increased transfer price
The journal entry to record the incurrence and payment of overhead costs for factory
insurance requires a debit to
a. Cash and a credit to Manufacturing Overhead.
b. Manufacturing Overhead and a credit to Accounts Payable.
c. Manufacturing Overhead and a credit to Cash.
d. Work in Process Inventory and a credit to Cash.
Stillwater Corporation
The following information is available for Stillwater Corporation for the current year:
All materials are added at the start of production.
Refer to Stillwater Corporation. Using FIFO, what are equivalent units for conversion
costs?
a. 72,225
b. 67,225
c. 69,725
d. 78,100
Which of the following are tax deductible under U.S. tax law?
a. interest payments to bondholders
b. preferred stock dividends
c. common stock dividends
d. all of the above
The definition of a sunk cost is
a. a cost that cannot be recovered regardless of what happens.
b. a cost that relates to money poured into the ground.
c. considered the original cost of an item.
d. also known as an opportunity cost.
Product profit margins are typically judged on a
a. yes yes
b. yes no
c. no yes
d. no no
In a perpetual inventory system, the sale of items for cash consists of two entries. One
entry is a debit to Cash and a credit to Sales. The other entry is a debit to
a. Work in Process Inventory and a credit to Finished Goods Inventory.
b. Finished Goods Inventory and a credit to Cost of Goods Sold.
c. Cost of Goods Sold and a credit to Finished Goods Inventory.
d. Finished Goods Inventory and a credit to Work in Process Inventory.
In a complex production environment, it is more difficult to compute a single EUP rate
for conversion costs.
Standards can be used in a job-order costing system if the products manufactured are
varied in nature.
Ideal standards generally yield unfavorable variances.
Costs that preclude product defects resulting from flaws in processing are referred to as
______________________________.
In a just-in-time (JIT) environment, the optimal situation is to have only one vendor for
any given item.
Owens Athletics, Inc. has developed a new design to produce hurdles that are used in
track and field competition. The company’s hurdle design is innovative in that the
hurdle yields when hit by a runner and its height is extraordinarily easy to adjust.
Management estimates expected annual capacity to be 90,000 units; overhead is applied
using expected annual capacity. The company’s cost accountant predicts the following
current year activities and related costs:
Other than any possible under- or overapplied fixed overhead, management expects no
variances from the previous manufacturing costs. Under- or overapplied fixed overhead
is to be written off to Cost of Goods Sold.
Required:
The following miscellaneous data has been collected for Sawyers Manufacturing
Company for the most recent year-end:
Required:Prepare statements of cost of goods manufactured and cost of goods sold
showing how allunknown amounts were determined.
Process costing is most appropriate when manufacturing large batches of homogenous
products.
A single process in which one product cannot be manufactured without producing
others is referred to as a ___________________.
Performance measures need not be correlated with the mission of a subunit.
Financial accounting is most concerned with addressing the needs of the firm as a
whole.
Conversion costs include all manufacturing costs other than direct materials.
Total quality management (TQM) requires the commitment of all individuals within an
organization.
Why is the profitability index a better basis than net present value to compare projects
that require different levels of investment?
Discuss the three elements of a cost management system.