The following information pertains to the Ruby Corp:
What is cost of goods sold?
A) $1,210,000
B) $1,165,000
C) $1,157,000
D) $1,239,000
The variable overhead flexible-budget variance can be further explained by calculating
the:
A) price variance and the efficiency variance
B) static-budget variance and sales-volume variance
C) spending variance and the efficiency variance
D) sales-volume variance and the spending variance
Which of the following statements is true of absorption costing?
A) Absorption costing allocates fixed manufacturing overhead to actual units produced
during the period.
B) Absorption costing carries over nonmanufacturing costs to the future periods.
C) Absorption costing shows the same level of profit as variable costing irrespective of
the level of inventories.
D) Absorption costing allocates total manufacturing cost using the budgeted level of
production for a particular year.
A firm’s inefficiencies, such as the wastage of direct materials, are incorporated in past
data. Hence the data represents the ideal performance of a firm.
For make-or-buy decisions, relevant costs include ________.
A) incremental costs plus sunk costs
B) incremental costs plus opportunity costs
C) differential costs plus fixed costs
D) incremental costs plus differential costs
Atlanta Radio Supply sells only two products, Product X and Product Y.
Atlanta Radio Supply sells three units of Product X for each two units it sells of Product Y.
Atlanta Radio Supply has a tax rate of 25%.
Required:
a. What is the breakeven point in units for each product, assuming the sales mix is 3 units
of Product X for each two units of Product Y?
b. How many units of each product would be sold if Atlanta Radio Supply desired an
after-tax net income of $210,000, using its tax rate of 25%?
The purchase-order lead time is the ________.
A) time between placing an order and its delivery
B) time between receiving a customer order and producing the products
C) time between receiving a customer order and delivering the items
D) time required to correct errors in the defective products
If the contribution margin ratio is 0.60, targeted operating income is $95,000, and
targeted sales volume in dollars is $530,000, then the degree of operating leverage is
________.
A) 0.30 times
B) 0.67 times
C) 3.35 times
D) 2.23 times
Blistre Company operates on a contribution margin of 30% and currently has fixed
costs of $550,000. Next year, sales are projected to be $3,100,000. An advertising
campaign is being evaluated that costs an additional $120,000. How much would sales
have to increase to justify the additional expenditure?
A) $280,000
B) $930,000
C) $400,000
D) $550,000
Which of the following statements best describes conversion costs?
A) Conversion costs are all manufacturing and nonmanufacturing costs.
B) Conversion costs are all manufacturing costs other than direct materials costs.
C) Conversion costs are all nonmanufacturing costs including marketing costs.
D) Conversion costs are all nonmanufacturing costs other than fixed selling and
distribution costs.
Which of the following is true of transfer pricing?
A) It creates costs for the selling subunit.
B) It creates revenues for the buying subunit.
C) It helps top managers evaluate the performance of individual subunits.
D) It makes managers’ information-processing and decision-making tasks difficult.
Craylon Manufacturing produces a single product that sells for $130. Variable costs per
unit equal $30. The company expects total fixed costs to be $60,000 for the next month
at the projected sales level of 1,200 units. In an attempt to improve performance,
management is considering a number of alternative actions. Each situation is to be
evaluated separately. Suppose that management believes that a $12,000 increase in the
monthly advertising expense will result in a considerable increase in sales. Sales must
increase by ________ to justify this additional expenditure.
A) 93 units
B) 120 units
C) 400 units
D) 924 units
The following information pertains to the January operating budget for Casey
Corporation.
∙ Budgeted sales for January $200,000 and February $107,000.
∙ Collections for sales are 40% in the month of sale and 60% the next month.
∙ Gross margin is 25% of sales.
∙ Administrative costs are $11,000 each month.
∙ Beginning accounts receivable is $26,000.
∙ Beginning inventory is $15,000.
∙ Beginning accounts payable is $68,000. (All from inventory purchases.)
∙ Purchases are paid in full the following month.
∙ Desired ending inventory is 25% of next month’s cost of goods sold (COGS).
For January, budgeted cost of goods sold is ________.
A) $200,000
B) $150,000
C) $135,000
D) $72,600
A common classification of costs is by business function. Which of the following
classifications is not by business function?
A) cost object
B) research and development
C) distribution
D) production
Care Inc., has two divisions that operate independently of one another. The financial
data for the year 2015 reported the following results:
North South
Sales $6,000,000 $5,000,000
Operating income 1,900,000 1,600,000
Taxable income 1,600,000 750,000
Investment 16,000,000 10,000,000
The company’s desired rate of return is 10%. Income is defined as operating income.
What are the respective return-on-investment ratios for the North and South Divisions?
A) 16.00% and 11.88%
B) 10.00% and 7.50%
C) 11.88% and 16.00%
D) 7.50% and 10.00%
Which of the following statements is true of direct costs?
A) A direct cost of one cost object is a true sense of the budgeted costs.
B) All variable costs are direct costs.
C) A direct cost of one cost object can be an indirect cost of another cost object.
D) All fixed costs are direct costs.
Jake’s Copy Center hires a new employee. Jake knows he has to be patient with the
employee until the employee gains enough experience to meet production standards.
Jake is unsure of the learning curve in his operation, but he knows the first job by a new
employee averages 50 minutes and the second job averages 40 minutes. Assume all jobs
to be equal in size.
Required:
a. What is the learning-curve percentage, assuming the cumulative average-time
method?
b. What is the time for a new employee to do 32 jobs with this learning curve using the
cumulative average-time method? You may use an index of −0.1520.
The cost-plus pricing approach is generally in the form ________.
A) Cost base + Markup component = Prospective selling price
B) Prospective selling price – Cost base = Markup component
C) Cost base + Gross margin = Prospective selling price
D) Variable cost + Fixed cost + Contribution margin = Prospective selling price
If indirect-cost rates are calculated monthly, distortions might occur because of
________.
A) rental costs paid monthly
B) property tax payments made in July and December
C) routine monthly preventive-maintenance costs that benefit future months
D) salary hikes at the beginning of the financial year
A relevant revenue is revenue that is a(n) ________.
A) past revenue and differs among alternative courses of action
B) future revenue and differs among alternative courses of action
C) in-hand revenue
D) earned revenue
An operating income analysis of Fast Processing Company revealed the following:
Fast’s operating income gain is consistent with the ________.
A) product differentiation strategy
B) product leadership strategy
C) cost differentiation strategy
D) cost leadership strategy
Karen Hefner, a florist, operates retail stores in several shopping malls. The average
selling price of an arrangement is $30 and the average cost of each sale is $18. A new
mall is opening where Karen wants to locate a store, but the location manager is not
sure about the rent method to accept. The mall operator offers the following three
options for its retail store rentals:
1. paying a fixed rent of $15,000 a month, or
2. paying a base rent of $9,000 plus 10% of revenue received, or
3. paying a base rent of $4,800 plus 20% of revenue received up to a maximum rent of
$25,000.
Required:
a. For each option, compute the breakeven sales and the monthly rent paid at
break-even.
b. Beginning at zero sales, show the sales levels at which each option is preferable up to
5,000 units.
Which one of the following is a variable cost for an insurance company?
A) rent of the building
B) CEO’s salary
C) electricity expenses
D) property taxes
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 are the normal and abnormal spoilage units, respectively, for February when using
FIFO?
A) 3531 units; 3132 units
B) 5103 units; 4014 units
C) 5424 units; 8676 units
D) 5424 units; 14,100 units
Which of the following involves the process of making decisions for significant
financial investments in projects to develop new products, expand production capacity,
or remodel current production facilities?
A) capital budgeting
B) working capital management
C) master budgeting
D) capitalization
Goodard Inc. planned to use $155 of material per unit but actually used $147 of
material per unit, and planned to make 1,110 units but actually made 1,000 units.
The sales-volume variance for materials is ________.
A) $8,000 favorable
B) $16,170 unfavorable
C) $17,050 unfavorable
D) $8,000 unfavorable
Which of the following classifications would costs incurred to handle each unit sold fit
into?
A) customer output unit-level cost
B) customer batch-level cost
C) customer-sustaining cost
D) corporate-sustaining cost
In each of the following industries, identify possible joint (or severable) products at the
split-off point.
a. Coal
b. Petroleum
c. Dairy
d. Lamb
e. Lumber
f. Cocoa Beans
g. Christmas Trees
h. Salt
i. Cowhide
Alfred, owner of Hi-Tech Fiberglass Fabricators, Inc., is interested in using the
reciprocal allocation method. The following data from operations were collected for
analysis:
What is the complete reciprocated cost of the Data Processing Department? (Do not round
any intermediary calculations.)
A) $220,000
B) $120,690
C) $149,210
D) $171,269
The inspection point is the ________.
A) stage of the production cycle where products are checked to determine whether they
are acceptable or unacceptable units
B) point at which costs are allocated between normal and abnormal spoilage
C) point at which the calculation of equivalent units is made
D) stage of allocating total costs transferred out to good units completed and transferred
Advanced Enterprises reports year-end information from 2018 as follows:
Advanced is developing the 2019 budget. In 2019 the company would like to increase
selling prices by 12.5%, and as a result expects a decrease in sales volume of 9%. All other
operating expenses are expected to remain constant. Assume that cost of goods sold is a
variable cost and that operating expenses are a fixed cost.
What is budgeted cost of goods sold for 2019?
A) $723,375
B) $585,130
C) $700,870
D) $643,000
If the net present value for a project is positive, which of the following is true?
A) the project should be accepted because its expected rate of return is greater than the
cost of capital
B) its internal rate of return is more than its cost of capital
C) its expected rate of return is below the required rate of return
D) its internal rate of return is less than its cost of capital
An example of a sunk cost in a capital budgeting decision for new equipment is
________.
A) the initial investment in working capital
B) the original price of an old equipment
C) the necessary transportation costs on a new equipment
D) the initial investment in a new equipment