1) All other things being equal, the longer the time horizon the more likely a cost will
be fixed.
2) The full cost plus a markup transfer-pricing method can sometimes lead to goal
incongruence.
3) The cost used in cost-based transfer prices can be actual cost or budgeted cost.
4) Accountants define a cost as a resource to be sacrificed to achieve a specific
objective.
5) Companies can more reliably estimate master-budget capacity utilization than normal
capacity utilization.
6) Before the splitoff point, decisions relating to the sale or further processing of each
identifiable product cannot be made independently of decisions about the other
products.
7) An example of a financial measure of customer satisfaction would be the percentage
of products that fail soon after delivery.
8) An excessive focus on diagnostic control systems and critical performance variables
can cause an organization to ignore emerging threats and opportunities.
9) A variance within an acceptable range is considered to be an “in-control occurrence”
and calls for no investigation or action by managers.
10) Grounds-maintenance costs incurred during the summer months will distort
indirect-cost rates that are computed monthly.
11) Depreciation results in income tax cash savings which are not relevant in capital
budgeting decisions.
12) In a graphical display of a cost function, the steepness of a line represents the total
amount of fixed costs.
13) Management will most likely behave the same way if a department is structured as
a cost center or if the same department is structured as a profit center.
14) Cash budgets help avoid unnecessary idle cash and unexpected cash deficiencies.
15) Both theoretical capacity and practical capacity measure capacity levels in terms of
demand for the output of the plant.
16) Sport-in Corporation manufactured 10,000 golf bags during April. The following
fixed overhead data pertain to March:
What is the amount of fixed overhead allocated to production?
A) $252,000
B) $257,000
C) $256,250
D) $244,000
17) When a job is complete ________.
A) actual indirect manufacturing labor is excluded from the total cost of the job
B) Finished Goods Control is debited
C) the cost of the job is transferred to Manufacturing Overhead Control
D) it is reduced from Manufacturing Overhead Control account
18) Midend’s Camera Shop has prepared the following flexible budget for September
and is in the process of interpreting the variances. F denotes a favorable variance and U
denotes an unfavorable variance.
The actual amount spent for Material B was ________.
A) $31,700
B) $30,500
C) $33,500
D) $32,300
19) The optimal safety stock level is the quantity of safety stock that minimizes the sum
of the annual relevant ________.
A) stockout costs and carrying costs
B) ordering costs and carrying costs
C) ordering costs and stockout costs
D) ordering costs and purchasing costs
20) Which of the following is the correct mathematical expression to calculate annual
relevant ordering costs?
A) Demand in units for a specified period / (Relevant ordering cost per purchase order
Size of each order)
B) Size of each order Relevant ordering cost per purchase order / Demand in units for a
specified period
C) (Demand in units for a specified period / Size of each order) Relevant ordering cost
per purchase order
D) (Demand in units for a specified period – Size of each order) Relevant ordering cost
per purchase order
21) Baseballic Corporation manufactures baseball uniforms and uses budgeted
machine-hours to allocate variable manufacturing overhead. The following information
relates to the company’s manufacturing overhead data:
What is the amount of the budgeted variable manufacturing overhead cost per unit?
A) $9.50 per unit
B) $18.58 per unit
C) $19.00 per unit
D) $19.56 per unit
22) Colise Services is a repair-service company specializing in small household jobs.
Each client pays a fixed monthly service fee based on the number of rooms in the
house. Records are kept on the time and material costs used for each repair. The
following profitability data apply to five customers:
Required:
a.Compute the operating income for each of the five customers.
b.What options should Colise Services consider in light of the customer-profitability
results?
c.What problems might Colise Services encounter in accurately estimating the
operating costs of each customer?
23) Plish Company manufactures only one type of washing machine and has two
divisions, the Compressor Division, and the Fabrication Division. The Compressor
Division manufactures compressors for the Fabrication Division, which completes the
washing machine and sells it to retailers. The Compressor Division ‘sells” compressors
to the Fabrication Division. The market price for the Fabrication Division to purchase a
compressor is $40.00. (Ignore changes in inventory.) The fixed costs for the
Compressor Division are assumed to be the same over the range of 5,000-10,000 units.
The fixed costs for the Fabrication Division are assumed to be $7.50 per unit at 10,000
units.
Compressor’s costs per compressor are:
Fabrication’s costs per completed air conditioner are:
Assume the transfer price for a compressor is 150% of total costs of the Compressor
Division and 1,000 of the compressors are produced and transferred to the Fabrication
Division. The Compressor Division’s operating income is ________.
A) $15,875
B) $16,375
C) $17,375
D) $18,250
24) Service-sector companies ________.
A) provide intangible products
B) purchase and then sell tangible products without changing their basic form
C) purchase and then sell tangible products by changing their basic form
D) purchase materials and components and convert them into finished goods
25) Strategy is formulated ________.
A) by identifying the most important customers
B) by forecasting the composition of adequate fixed assets
C) based on the qualified opinion of external auditors
D) by eliminating sunk costs
26) Lubriderm Corporation has the following budgeted unit sales for the next six-month
period:
There were 30,000 units of finished goods in inventory at the beginning of June. Plans
are to have an inventory of finished products that equal 20% of the unit sales for the
next month.
Five pounds of materials are required for each unit produced. Each pound of material
costs $8. Inventory levels for materials are equal to 30% of the needs for the next
month. Materials inventory on June 1 was 15,000 pounds.
Required:
a.Prepare production budgets in units for July, August, and September.
b.Prepare a purchases budget in pounds for July, August, and September, and give total
purchases in both pounds and dollars for each month.
27) Which of the following is an example of process reengineering measure?
A) charging higher prices to increase tax benefit
B) decreasing quantity of output produced to increase total factor productivity
C) increasing costs of all inputs used to increase total factor productivity
D) employing more skilled workers to improve quality
28) Legal Advisory Inc., employs 12 full-time attorneys and 10 paraprofessionals.
Direct and indirect costs are applied on a professional labor-hour basis that includes
both attorney and paraprofessional hours. Following is information for 2014:
When using a normal costing system, year-end accounting records will show that
indirect costs are ________.
A) perfectly allocated
B) underallocated
C) within budget
D) overallocated
29) Return on investment can be increased by ________.
A) increasing current assets
B) decreasing total assets
C) decreasing revenues
D) increasing the debt portion of the capital
30) Distinguish between controllable and uncontrollable aspects of revenue and costs.
Can a manager totally control all revenue and costs? Why or why not?
31) 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.
32) What does Section 482 of the U.S. Internal Revenue Code govern?
33) Why does the manufacturing overhead control account (debit) need to equal the
manufacturing overhead allocated account (credit)?
34) Under the benefits-received criterion, the physical-measure method is much less
desirable than the sales value at splitoff method. Why?